The Wall Street meltdown in the Fall of 2008 had striking parallels to the destruction of the twin towers on September 11, 2001. In both cases there were unheeded warnings, a traumatic event, problematic initial response, and failure to punish the perpetrators. Will financial terrorism flourish, as has jihadi terrorism?
There are eight points of similarity between the terrorist attacks on September 11, 2001, and the precipitating event of the financial crisis, the bankruptcy of Lehman Brothers on September 15, 2008.
First, US authorities should have anticipated the jihadi attacks coming - terrorists had previously targeted the World Trade Center and there was ample intelligence indicating jihadis would try again. The bankruptcy of Lehman Brothers, and the devastating after effects, should also have been predicted - a comparable firm, Bear Sterns, imploded in March of 2008, and many experts warned what would happen when the housing bubble burst.
Second, in both cases the disasters were the responsibility of a small group of fanatics whose interests were antithetical with those of the US. The 2001 attacks were planned by leaders of Al Qaida, an Islamic jihadi group; Osama bin Laden, Ayman al-Zawahiri, and a few others, struck at the US in a vain attempt to drive us out of the Middle East and stop supporting Israel. Although the collapse of the housing bubble produced the 2008 financial crisis, the underlying cause was Wall Street greed: a small number of profiteers had changed the rules so that risky investments produced massive short-term profits and obscene executive bonuses. While these profiteers weren't intent on destroying the US, they had no concern for the greater well being of the country; they were blinded by avarice and paid no attention to the far-reaching consequences of their acts.
Third, the immediate response was panic. In the first few hours after the terrorist attacks not only were the American people traumatized, but also the Bush Administration; they didn't know what to do. When it became clear that Lehman Brothers was going to fail, Wall Street was traumatized - money markets were frozen - and the Treasury Department didn't know how to respond.
Fourth, most of the subsequent actions were ill advised. After 9/11, the Bush Administration advocated a "war" on terror, seized broad executive power, coerced Congress into passing the "patriot" act, detained thousands of innocent immigrants, and abused civil rights, in general. After the collapse of Lehman Brothers, the Bush Administration coerced Congress into passing the Toxic Assets Relief Program (TARP); Treasury and the Federal Reserve assumed broad powers and bailed out Wall Street.
Fifth, those responsible for the mitigating incident were not brought to justice. Nine years after 9/11 attacks, it's not clear that we've apprehended those responsible - although the alleged architect, Khalid Sheikh Mohammed, is in custody. Sixteen months after the financial crisis, no Wall Street executive has been charged with wrongdoing.
Sixth, mistakes were made which worsened the situation. When bin Laden and other Al Qaida leaders were trapped in the Tora Bora section of eastern Afghanistan, the Bush Administration decided to go after them with local mercenaries supplemented by US Special Forces. Al Qaida escaped into Pakistan, regrouped, and strengthened. The US switched focus to Iraq. Terrorists deduced the US did not have the intelligence and tenacity required to uproot Al Qaida in Central Asia.
In the winter of 2008 the US decided to bail out financial institutions deemed "to big to fail" but not to nationalize them; this meant that the management teams, and compensation practices, responsible for the meltdown remained in place. Wall Street resumed business as usual, going so far as to use TARP funds to employ lobbyists to argue against tighter regulations. Profiteers deduced that the US had decided to let banks operate as if they were government-backed casinos, Congress was incapable of changing the lax rules that produced the crisis.
Seventh, both events depleted US morale and resources. After 9/11, President Bush declared "war" on terror but, unlike previous wars, didn't issue a call for sacrifice. As the war dragged on, US debt mounted and public support waned.
The 2008 financial crisis produced a severe recession. In 2009, Wall Street returned to profitability, while Main Street continued to suffer. Confidence in Washington plummeted.
Eighth, in both cases, the Washington response was too little too late. Nine years after 9/11 there's still not a good understanding of what happened to permit the attacks. No one in Washington was held responsible. Al Qaida continues to operate throughout the world.
Sixteen months after the Lehman Brothers bankruptcy produced a financial crisis, there's not a good understanding of what happened and no one in Washington or New York has been held responsible. Wall Street has resumed its destructive practices.
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The common-sense corollary to "if it ain't broke, don't fix it" is "if it is broke, fix it." The 2008 financial crisis proved that Wall Street is broken and needs new regulations and stringent oversight. Unless the roots of the problem are uncovered, there's no guarantee that financial terrorists won't strike again.
Bob Burnett is a Berkeley writer. In a previous life he was one of the executive founders of Cisco Systems.