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Wartime spirit kept markets stable amid London atrocities

At a recent family occasion, two cousins, one from the US and one from the UK, were discussing Al-Qaeda. The one from the US, who lives in a Californian town too obscure to be a likely target for terrorists but who flies frequently on business, said: “Everyone’s afraid.”

“But if you’re afraid,” his British cousin answered, “isn’t that giving the terrorists what they want?”

There was something of that contrast in the reactions of the financial community to the bombings of July 7. On Wall Street, by September 18, 2001, the Dow Jones had suffered its worst week since the depths of the Great Depression in 1933. Contrast that with the reactions of the financial communities to the atrocities in Madrid and London. In Madrid, shares fell by just under 4 per cent in the week after the attacks. The Ibex index of shares in leading Spanish companies recovered fully in a matter of weeks.

The effect on the stockmarket of the London bombings was even less pronounced. Shares fell by more than 3 per cent in the few hours after the news was digested but, by the afternoon, had regained most of their losses and, a day after the attacks, were back up to the three-year high which they had reached the day before the atrocities.

The reaction of stockmarkets is only one small gauge of the consequences of a terror attack. But there is a key difference between the reactions in the old world and the new. In the whole of US history, there had never been anything like it. But both Madrid and London had experienced bombings before. Second, and perhaps just as important, is the fact that, grim as it might sound, we have had time to get used to the idea of attacks.

What spoke of the attacks, if anything, was something I have never witnessed in 36 years as a Londoner – the sheer quiet of the place, with much of the centre cordoned off. There was something akin to wartime spirit – people volunteering to help others with directions to find their way home, sharing mobile phones to call and reassure relatives and the Salvation Army handing out bottles of water.

Now, it would be stretching a point to say the financial markets were reacting in a similar spirit. But, like the rest of London, traders refused to react with panic. Within hours, they were digesting analysis from the senior economists of the investment banks, making it clear that the direct economic impact would be small. Traders began to buy.

If one of the terror- ists’ aims was to use fear to destabilise the stockmarket and with it the economy, that aim was defeated.

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