Examining the Aftershocks
Former SEC Chairman Speaks on the Market Effects of Sept. 11

By Stephanie R. Myers

The changes from the aftermath of the Sept. 11 attacks were tangible—not only in the tragic toll taken on human life, but also in the devastation of the markets, a panel discussion of the events concluded.

Harvey Pitt, former chairman of the Securities and Exchange Commission, spoke on June 9 at the Securities and Exchange Commission Historical Society’s meeting “Crisis and Resolve: The SEC and the Securities Industry Remember September 11, 2001.”

Pitt, whose remarks were preceded by a panel discussion, talked about the consequences of Sept. 11 and his recollections of the day’s effects on U.S. markets.

“It’s still chilling to recall Sept. 11 events and their aftermath,” Pitt said from the Bear, Stearns & Co. building in Manhattan.

There was no precedent for how to deal with what happened and its ensuing effects on the markets, Pitt said, but “all of the various offices and divisions did a superb job of thinking of what was wrong and how to fix it.”

He said it was also a priority to give updates on the progress that was happening with the markets.

“In times of crisis, the public has a legitimate need to know what’s going on,” said Pitt, who now works as CEO of Kalorama Partners LLC, a global business consulting firm.

Pitt made an appearance within the week on “Good Morning America,” where he volunteered that “when the markets reopen, there will be value to be had.” Such a statement, serving as a form of damage control, he added, was essential for the financial sector.

On the day of the tragedy, Pitt said, the SEC made a decision to let nonessential staff go early, with him and a few others “camped out” at the SEC.

“It was a triple whammy—markets were taken down, friends and families were killed and hurt, and buildings crumbled, taking not only files but treasured possessions,” he said.

It took time to create a plan of what to do about the markets.

“Over the weekend, we negotiated that if the markets stumble, the Securities and Exchange could still be traded,” he said. “We were able to resolve all of the issues. By Sept. 17, all securities markets resumed trading. It was the longest gap in trading (historically).”

There was no way of knowing what would happen when the markets reopened, Pitt said, but ultimately there was no panicked selling.

In the private sector, the SEC had to move quickly, he said, adding that “the community reached out to us” and, because of that, the SEC was the first financial agency back into the financial district. Many other institutions and companies also received sorely needed relief from Wall Street, such as when the New York Stock Exchange opened a portion of its floor to accommodate American Express, whose downtown headquarters had to be evacuated for several months.

“The most competitive markets in the world demonstrated that they were the most compassionate,” Pitt said.

The experience of having to reconstruct, restructure and reassign those who requested it to a new location led to learning a number of lessons, Pitt said.

“The importance of people, the importance of risk assessment, and the value of listening and the need for city, state and federal agencies to work together” were valuable learning experiences, he added.

Prior to Pitt’s presentation, the panel, composed of Wayne Carlin, Edward Kwalwasser, Annette Nazareth and Thomas Russo, discussed their remembrances of the days surrounding Sept. 11, the toll that the aftermath of the attacks had on markets, and the steps they took to physically restore the markets’ and traders’ confidence.

Nazareth, the director of the Division of Market Regulation for the SEC, said that although there were concerns about liquidity in the markets immediately afterward, there were “actions taken and it was a coordinated effort” to get the markets back on track.

Kwalwasser, who was group executive vice president of regulation of the New York Stock Exchange on Sept. 11, said it was a challenge when it was discovered that several billions of dollars in vaults were destroyed in the attacks and that insurance was not going to cover it.

“The commission had them (insurance companies) not take a haircut (share of a value that can’t be used as collateral), and worked with the firms and figured out that securities were in the vaults,” Kwalwasser said.

Carlin, who was the Northwest regional administrator for the SEC on Sept. 11, said that the Commission also managed to continue with their enforcement cases after the attacks.

“When we reopened our office, we reconstructed almost all that was lost,” Carlin said. “We never lost the regional office of the SEC. We lost the location, but the people, who mattered, were still there.”