Closing the nation’s big stock exchanges for two days thanks to Sandy isn’t the end of the world — indeed, yesterday’s reopening of trading was largely uneventful, with the Dow Jones Industrial Average closing largely unchanged with normal volume.
But what if something worse had hit, a terror attack or some other disaster that meant a more prolonged delay of trading on a major US market?
The answer: It won’t be pretty. Capitalism doesn’t quite cease without the stock markets in operation, but it comes pretty damn close.
And it could happen, because Sandy just exposed the sad fact that, more than a decade after the market came to a grinding halt after 9/11, the people who run our financial system have few clues and almost no plan to keep that system open and ready for business in the event of an emergency.
Yes, they’ll tell you they’ve got all sorts of emergency procedures to keep things running; a Goldman Sachs spokesman talked my ear off yesterday explaining how prepared the bank is for a disaster like Sandy. Yet he couldn’t explain exactly what the plan is, or why it wasn’t implemented for Sandy.
Goldman, I reminded him, has offices all over the country and even in London, so couldn’t it have set up shop temporarily in a city out of harm’s way? I’m still waiting for his answer, and for answers from some other big banks — and from maybe the biggest culprits here, the leaders of the New York Stock Exchange.
On its surface, the Big Board made a compelling argument on how closing down was prudent, given the massive destruction that Sandy might (and did) wreak. Why endanger everyone from traders to back-office folks, just so a few shares of IBM could exchange hands? Fair enough. But these guys all promised, post-9/11, to be ready to go even if the Financial District had to close for weeks.
That’s necessary, because the market is more than the trading of a few stocks — it’s a primary way that the world values Corporate America. Shutting down essentially means no one really knows what the entire nation’s big companies — from Apple to IBM and many more — are really worth. And that can make it next to impossible for many of them to raise funds to pay everything from salaries to running plant and equipment.
Again, the markets were only closed for a couple days, but what if they had to close for a week or two? Big, politically connected outfits like GE could get a bank loan or some sort of federal guarantee to keep their doors open. (GE received such a guarantee after the 2008 financial crisis.) But countless smaller outfits would be hard-pressed to finance their operations; without an active stock market, those companies could start dropping like flies.
In fact, those post-9/11 plans should have left the markets able to operate even through Sandy — without putting anyone at risk. In the grim days after the attacks, the big banks and stock exchanges all agreed to set up emergency satellite offices outside the city — where traders could operate so the markets would run as close to normal as possible in case of disaster.
Indeed, the NYSE’s data center in Mahwah, NJ, maintained power through the worst of Sandy. And of course its all-electronic marketplace in Chicago was far from the storm’s path. Why couldn’t these keep working even as the storm closed the floor of its New York City headquarters, where brokers match buyers and sellers of stock?
In fact, NYSE Chief Executive Duncan Niederauer had initially decided to open for business Monday morning, using the electronic system known as Arca, which already completes much of the exchange’s business. But he changed his mind on Sunday night.
No one seems willing to give clear answers as to why the stock exchange and the entire financial system really shut down for two days. But I hear more than just the safety concerns.
For starters, Niederauer’s reversal came after a rambunctious meeting with banks and brokerages, where some stated that they didn’t think the NYSE’s technology was up to par. They feared that Arca, working in an emergency environment, might suffer a flash crash, or something along the lines of the flubbed Facebook IPO. (NYSE officials say it’s the banks’ fault, because they haven’t completed the necessary tests to work with Arca on this level.)
Whatever the reasons, both the exchange and the big banks had plenty of time to prepare for Sandy — more than a week’s notice of its likely path of disaster. It’s also pretty clear that, 11 years after 9/11, the nation’s financial titans have no clue about how to respond to a disaster that cripples their New York City operations. Maybe they just figure Uncle Sam will bail them out?
Charles Gasparino is a Fox Business Network senior correspondent.