The Challenge of the New Age
Edited by David H. McIntyre and William I. Hancock
Chapter 11: Immediate Effects of Terrorism on Business
Dean Alexander . . . the only thing we have to fear is fear itself. (President Franklin D. Roosevelt, 1st Inaugural Address, 1933) INTRODUCTION In this chapter, the short-term effects of catastrophic terrorism are discussed in terms of economic and sector responses, including ramifications for financial markets and effects on business activity. Industry responses crafted thereafter include: shifts and flexibility within and among business sectors; development and expansion of homeland security companies; funding such firms; and mergers and acquisitions in that sector. INITIAL IMPACT OF CATASTROPHIC TERRORISM: ECONOMIC AND SECTOR CONSEQUENCES The initial economic impact of the 9/11 attacks was acute and negative, exemplified by substantial declines in stock markets and, thereby, the value of public companies (for example airlines, travel and insurance), and closure of stock and bond markets for several days due to damage near those locations. The Dow Jones Industrial Average (DJIA) and NASDAQ Composite Index declined by 7.13 percent and 6.83 percent, respectively, on the day the market reopened (17 September 2001). On that day, airline and travel stocks dropped significantly in value, falling between 30 and 60 percent. In the five days after trading resumed, the DJIA declined by 14.3 percent, the largest weekly fall since 1933. During the nearly two-week period after 9/11, the Bank for International Settlements reported global equities lost some $3 trillion – about 12 percent of their value. In the months subsequent to the 9/11 incidents, US economic growth waned and unemployment rose, while consumer spending and confidence dropped. Commodity prices, such as oil...
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