- The Washington Times - Friday, September 21, 2001

The Sept. 11 terrorist attacks dealt a blow to the already-faltering economy, with new evidence of the fallout coming in each day.

From closed factories in Detroit to more than 100,000 layoffs by the airlines and related industries, aftershocks from the attacks are reverberating from Main Street to Wall Street. Stocks have lost almost $1.2 trillion of their value in the wake of the attacks, with the Dow Jones Industrial Average falling another 383 points yesterday.

"Much economic activity ground to a halt last week" after the attacks, dealing a blow to an economy already weakened by a yearlong collapse of manufacturing and business investment spending, said Federal Reserve Chairman Alan Greenspan in testimony before the Senate Banking Committee yesterday.

To limit the damage, the Fed chairman and other top officials urged Congress to take measured steps to foster a return to normalcy in American life, putting a high priority on getting the air travel system up and running again and ensuring the smooth functioning of the insurance and financial systems.

"The American economy was getting battered and battered, but as of September 10 it was still standing," Mr. Greenspan said, with Treasury Secretary Paul H. O'Neill and Securities and Exchange Commission Chairman Harvey Pitt by his side. But the falloff in economic activity after the attacks, which "struck at the roots of our free society," was palpable, he said.

Even as he spoke, the stock market was sinking as investors sorted through the attacks' implications for business and the economy. The Dow has dropped more than 1,200 points so far this week, and the blue-chip index appears headed for a record loss for the week.

Adding to the market's woes yesterday were estimates that insurance losses from the destruction of the World Trade Center may be as high as $73 billion. New York Mayor Rudolph W. Giuliani said the rebuilding of lower Manhattan will cost hundreds of billions of dollars.

Still unknown is the extent of the damage on the foundation of the American economy its 285 million consumers.

"The shock is most evident in consumer markets," said Mr. Greenspan, who noted that "many potential purchasers stayed riveted to their televisions and away from shopping malls. Both motor vehicle sales and sales at major chain stores appear to have fallen off noticeably. And the airline and travel industries have suffered severe cutbacks."

The airline industry, including jet manufacturer Boeing Co., has announced more than 100,000 job cuts this week. Delta Air Lines said yesterday it would announce cuts next week.

"The unprecedented shutdown of American air travel and tightened border restrictions have induced dramatic curtailments of production at some establishments with tight, just-in-time supply-chain practices," he said. "Automakers, for example, are reported to have pared production and even closed some plants in the past week, largely owing to supply shortages" caused by delays of shipments at the Canadian border.

"An enormous effort will be required on the part of many to cope with the human and physical destruction," he said, likening the attacks to a 100-year flood that has caused a devastating loss.

The country will rebuild after the tragedy as it always has, he said, correcting the short-term damage to the economy. But additional action will be needed to address longer-term anxieties and problems stemming from the attacks, and that is where Congress and the executive branch should focus their attention, he said.

Mr. Greenspan urged Congress to spend some time taking stock of the damage to the economy and the markets and crafting a tailored response that will be sure to solve the problems that have emerged. If Congress spends too much of the $157 billion surplus trying to stimulate the economy, for example, that could drive up mortgage rates and shut down activity in the housing market negating the stimulus, he said.

"While there is an obviously, very strongly desired sense to move rapidly, it's far more important to be right than quick," he said.

The finance officials urged lawmakers to quickly approve legislation to keep the airline industry afloat, stressing that the threatened industry has become the weakest link in the economy.

"There's a whole structure of this economy which rests on air travel, which is important that we bring back as quickly as possible," Mr. Greenspan said. Most major airlines have announced 20 percent cutbacks in service because fewer people are flying.

"We've got to get people back in the air," Mr. O'Neill said. "Closing down the nation's airways for a period of time has a severe impact not only on that industry but on industries that depend on air service to move parts and supplies."

Mr. O'Neill noted that a major credit-card company reported a 20 percent drop in charges last week, and Americans have been canceling meetings, conventions and hotel reservations since the attack, crippling travel-related businesses.

To put to rest the justified fears that Americans now have of flying, Mr. O'Neill proposed a federal takeover of the airport security system and federal guarantees on air insurance against terrorism. But he cautioned Congress against any attempts to nationalize the problems of the airline industry, saying it would be a mistake to prop up air carriers that were failing before the attacks.

"Federal taxpayers need to pay for the safety that will assure the public that when they get on an airplane, they're going to go where they paid to go, without risk of life and limb," the Treasury secretary said. "It seems to me it's a very straightforward proposition; we should have probably gotten to it earlier."

Mr. O'Neill also cautioned against a rush to enact legislation containing proposals long favored by each party, such as capital-gains-tax cuts sought by Republicans and payroll-tax cuts pushed by Democrats, unless they really have the potential to help the economy.

"Our process has an endless list of things that people would like to do that have been paraded through the weeks and months and years and they're kind of the favorite chestnuts," he said. "We should be really careful and deliberate."

House Republican leaders have been pushing for quick action on a stimulus package, but other legislators seemed to favor a go-slow approach.

"Everybody in the world is poorer" as a result of the attacks, said Sen. Phil Gramm, Texas Republican, noting the huge loss of wealth in the stock market and lost business opportunities in addition to the massive loss of life and property.

"The problem we face is we're incapable of indemnifying everybody. What is the cutoff point?" he said.

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