Could There Be A Financial 911?Expert Describes How Terrorists Could Manipulate Financial Markets
The global financial markets recently survived a near collapse, though threats linger around the world from Greece to the United States, so we know the fragility of the markets. Terrorists bent on wreaking havoc in the Western world know how to read a newspaper just like everyone else, and they probably see the same vulnerability.
But could they actually stage a terrorist attack that could unsettle the global economy?
One financial expert thinks so.
"As the global economy marches forward, growing ever more complex and intertwined, we expose ourselves to ever greater risk of catastrophe - either unintended (like the 2008 financial crisis) or deliberate, triggered by some group that does not have a stake in our modern economy and society," said Rex Ghosh, a Harvard School of Economics PhD who has worked in the financial markets for more than 20 years, and whose current position concerns the stability of the international monetary system. "Financial innovation and globalization continues at a furious pace, bringing huge opportunities but also enormous risks. The 'real economy' - jobs, production, the productive wealth of the country - is ever more hostage to the greed and vagaries of financial markets. At the same time, around the world we see a frightening divide between the 'haves' (or those with a stake in the normal functioning of the modern global economy and society) and the 'have-nots' (those who do not have such a stake or who actively reject it). This rift creates a murky atmosphere that foments the potential for financial terrorism."
Ghosh - who authored the novel Nineteenth Street, N.W. (www.nineteenthstreetnw.com), a novel about a fictional act of financial terrorism - believes that the damage done by a financial crisis could dwarf the damage done by a physical attack.
"There is a basic tension between allowing unbridled financial innovation (letting markets reign free) and ensuring stability of the financial system," he added. "The financial sector is unlike any other - dominated by a handful of mega-institutions that are too big too fail and too large to save, the "free market" paradigm simply does not apply. Left to their own devices, these banks have the incentive to engage in mind-bogglingly complex derivatives transactions: they reap the profits, while the rest of us bear the risks. But the scary part of a financial crisis is that it can have cascading effects throughout the economy, costing not just trillions of dollars but also millions of jobs. The social and political consequences can be even scarier. Many scholars point to the hyperinflation and economic collapse during the interwar period in Germany as laying the seeds of xenophobia, racism, and ultimately the rise of Fascism and the start of WWII."
While those examples are from decades ago, the burning question is could that happen today?
"It turns out that we didn't need terrorists to suffer the worst crash since the Great Depression-greed, stupidity, and hubris of the financial markets were enough. But think of how much worse the crisis could have been had it been the result of enemy action," Ghosh said. "If we don't fix things this time, we may not be so lucky next time. We need to ensure that we don't let the return of profitability for the big banks impede our need for reform. If we aren't vigilant, we may wind up with another crisis on our hands, and it may not come from a free market hiccup. It might be a purposeful blow against our way of life -- one from which we might have a hard time recovering."
About Rex Ghosh
Born in India, Rex Ghosh has lived in Switzerland, the United Kingdom, Nigeria, Colombia, and the United States, and has traveled widely in Europe, Africa, Asia, and Latin America. Following his schooling in England, he received his A.B. in Economics from Harvard University, MSc. in Development Economics from Oxford University, and his M.A. and Ph.D. in Economics from Harvard University. He has taught at Princeton University and Georgetown University, and lectured at various universities throughout the world. He is the author of several books on international economics and numerous articles in professional journals.
Posted: September 7, 2010
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