It’s hard to believe that a decade has passed since the September 11th attack on America and global democracy. Ten years later, I still find it deeply disturbing to watch the iconic images of what transpired – the planes flying into the towers, the smoke rising, the eventual collapse of the towers with the rolling volcanic like clouds of ash and debris. Like every American, I remember exactly what I was doing when I first heard of the attacks. For the rest of that day, I was glued to the television, watching with disbelief and horror as the events unfolded. I knew I would never view the world the same.
Fast forward a decade and, through the efforts and sacrifices of our brave American heroes in the military, Al-Qaeda is on the decline and Osama Bin Laden will never again kill innocent people. Still, the war on terror continues, and we continue to ask the question – after all these years, and all the lives lost, are we safer?
Yet this was also an assault on capitalism, as the brunt of the brutal attack was only steps away from Wall Street. And though capitalism survived over the past decade, 9/11 was not the only attack on American capitalism. Two subsequent attacks proved to have a greater impact on the US stock market, which were the sub-prime mortgage crisis and the recent dysfunctionality of American politicians. What made these attacks so insidious, is that they came from within rather than without, presenting a much greater challenge to remaining safe from future attacks.
Assault 1: 9/11
Before September 11, 2001, capitalism had already taken a blow from the dot com crisis. Stocks declined for another two years after 9/11, dropping by a bit over 26.2 percent by October 9, 2002. After that, however, stocks began an unprecedented surge over the next five years.
Assault 2: Greed
Five years to the day that stocks bottomed in 2002, US stocks hit what is still today a record high. US stocks rose 134 percent by October 9, 2007. Of course, hindsight’s 20/20 vision allowed us to recognize that this increase was based on the belief that real estate could never decline. Money was easy and houses became our ATMs. Regulators ignored warning signs.
The financial result of greed left unchecked by regulators proved to be much harsher on the markets than the 9/11 attack. Stocks fell 55.2 percent in exactly 17 months, bottoming out on March 9, 2009. By July 7, 2011, stocks roared back within 2.1 percentage points of that 2007 high.
Assault 3: Dysfunctional Politicians
Facing some large economic problems and a mounting deficit, Americans looked to their elected representatives to come together and problem solve. What we got instead was myopically partisan, nasty, and childishly stubborn politics that brought the US within days of a default. Political antics also brought, for the first time in history, a downgrade of US Treasuries by S&P, based in part on their stated lack of confidence in the ability of our politicians to work constructively. Starbucks CEO, Howard Schultz, called our current situation a crisis of confidence. This crisis presents challenges that cannot be overstated in their importance. Fear can be abated, but confidence and trust must be rebuilt.
Between July 7 and August 7, stocks fell 21 percent. That’s nearly as much as stocks fell on 9/11. While stocks recovered a bit, this crisis is far from over.
Lessons from the last decade
In the ten years since the events of September 11th, the US has made great strides in identifying and eradicating the terror threat to America, democracy, and capitalism, from those outside terrorist nations or organizations that would do us harm at home or abroad. Yet the threat that exists from within to capitalism may be far more difficult to eradicate.
Perhaps it was allowed to foster while Americans’ attention was consumed with the post-9/11 wars rather than what was going on in financial markets. Like any bandwidth, we could only take in so many signals at one time. The priority of driving back Al-Qaeda in Afghanistan and defeating the insurgency in Iraq eclipsed any other, and by the time we were ready to shift our focus, we no longer had the resources to remedy the consequences of our lack of attention to who was minding the store.
Sadly, corporate greed, poor regulation, and partisan politics have managed to deal a greater blow to main street American capitalism than Al-Qaeda ever did. And while we have spent 10 years working on securing ourselves from outside threats, we have made zero strides in securing ourselves from those that are within. We can protect a border by building a wall. Protecting ourselves against a tumor is something else altogether.
Greed is too much a part of the human condition to ever change, but where we have failed is in making significant changes to our regulator system that might keep that greed in check. The SEC preaches the F word (fiduciary) and D word (disclosure) but continues to deny the main street investor a fair shake. Some regulators openly allow deceit. And our politicians’ priorities lay more with making the other party look stupid, than with working together to solve the very serious problems that face our nation.
Ten years ago, Al-Qaeda made a grave miscalculation by attacking America. For a time, the nation and the world came together to strike back against those who support tyranny and terror. But today, to take a quote from the 1953 comic strip Pogo, “we have met the enemy and he is us.” Over the next decade, it is critical that we come together again, and this time defeat the enemy within.
Note: Data in chart from Whilshire Associates.
Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to $50 million. He is mocked on a semi-regular basis by some financial professionals for his hourly fee model and its obvious inability to make him rich. Roth is also the author of How A Second Grader Beats Wall Street. He teaches behavioral finance at the University of Denver and is an adjunct faculty member at Colorado College.