Moisés Naím: What the lessons of 9/11 could teach the world about the financial crisis
[Moisés Naím is editor in chief of Foreign Policy.]
The global financial meltdown is as surprising and unprecedented as the 9/11 attacks. Beyond that, the two calamities are very different; the financial crash will undoubtedly have broader consequences, hurting more people in more countries. Yet, 9/11 and its aftermath continue to offer a case study in some pitfalls to avoid when catastrophe hits.
Perhaps the most important lesson from 9/11 is that the U.S. reaction to the attacks had more profound consequences than the attacks themselves. Shocks such as 9/11 are bound to spark—indeed require—substantial governmental reactions, but the consequences of those reactions linger well beyond the initial event. This lesson will apply to the current crash: The laws, institutions, constraints, and incentives engendered by the bailout will mold our lives long after the effects of the subprime mortgage crisis have dissipated. The danger is that disproportionate or ill-conceived governmental responses may only exacerbate problems.
Consider the unintended fallout from the invasion of Iraq: an emboldened Iran, the Taliban’s resurgence, and the diminished ability of the United States to lead in times of global crisis. Moreover, as in Iraq, where the thorniest problems surfaced after a successful military takeover, post-bailout management will be critical. Iraq’s nightmare was amplified by mistakes made in the strategy, staffing, execution, and control of the post-invasion efforts. Similarly, the financial rescue could be fatally undermined by mistakes in the disbursement of funds or even in the staffing of the agencies in charge of implementing the bailout. One of the legacies of 9/11, for example, is the Department of Homeland Security, a bureaucratic behemoth that has become a textbook example of a failed reorganization doomed by vague congressional directives adopted in haste. A similar bureaucratic monster, driven by the same panicked impulses, may emerge as a result of this financial crisis.
Another lesson of 9/11 is that the United States will need all the help it can get from other countries to manage the crisis. Although both 9/11 and the crash of the subprime mortgage market took place on American soil, their international ramifications are enormous. And though American taxpayers will bear the burden of both the bailout and its fallout, the assistance of regulatory authorities from Britain to China will be indispensable. In fact, a lesson from 9/11 is that coordination at technical levels may be more important than the rhetorical statements of heads of state. After 9/11, while the U.S. Congress was replacing its cafeteria French fries with “freedom fries” and bashing France for its opposition to the war in Iraq, the intelligence agencies of the two countries were collaborating closely and effectively. The same was true of other intelligence services in countries whose leaders were making fiery speeches denouncing U.S. unilateralism. Technical collaboration of government bureaucrats—sustained over long periods and outside the media glare—will be as important to navigating this financial crisis successfully as presidential summits. The way that central bank managers in Beijing and Moscow coordinate actions with their counterparts in Washington and Frankfurt will be an important determinant of how we get out of this crisis.
One further parallel between 9/11 and the financial crisis is that public funds that had not been available for other important needs (healthcare, education, poverty) suddenly materialize. The gravity of the threat and the need to act quickly and decisively triggers a mind-set where it becomes acceptable—even desirable—to make decisions in which money is no object....
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The global financial meltdown is as surprising and unprecedented as the 9/11 attacks. Beyond that, the two calamities are very different; the financial crash will undoubtedly have broader consequences, hurting more people in more countries. Yet, 9/11 and its aftermath continue to offer a case study in some pitfalls to avoid when catastrophe hits.
Perhaps the most important lesson from 9/11 is that the U.S. reaction to the attacks had more profound consequences than the attacks themselves. Shocks such as 9/11 are bound to spark—indeed require—substantial governmental reactions, but the consequences of those reactions linger well beyond the initial event. This lesson will apply to the current crash: The laws, institutions, constraints, and incentives engendered by the bailout will mold our lives long after the effects of the subprime mortgage crisis have dissipated. The danger is that disproportionate or ill-conceived governmental responses may only exacerbate problems.
Consider the unintended fallout from the invasion of Iraq: an emboldened Iran, the Taliban’s resurgence, and the diminished ability of the United States to lead in times of global crisis. Moreover, as in Iraq, where the thorniest problems surfaced after a successful military takeover, post-bailout management will be critical. Iraq’s nightmare was amplified by mistakes made in the strategy, staffing, execution, and control of the post-invasion efforts. Similarly, the financial rescue could be fatally undermined by mistakes in the disbursement of funds or even in the staffing of the agencies in charge of implementing the bailout. One of the legacies of 9/11, for example, is the Department of Homeland Security, a bureaucratic behemoth that has become a textbook example of a failed reorganization doomed by vague congressional directives adopted in haste. A similar bureaucratic monster, driven by the same panicked impulses, may emerge as a result of this financial crisis.
Another lesson of 9/11 is that the United States will need all the help it can get from other countries to manage the crisis. Although both 9/11 and the crash of the subprime mortgage market took place on American soil, their international ramifications are enormous. And though American taxpayers will bear the burden of both the bailout and its fallout, the assistance of regulatory authorities from Britain to China will be indispensable. In fact, a lesson from 9/11 is that coordination at technical levels may be more important than the rhetorical statements of heads of state. After 9/11, while the U.S. Congress was replacing its cafeteria French fries with “freedom fries” and bashing France for its opposition to the war in Iraq, the intelligence agencies of the two countries were collaborating closely and effectively. The same was true of other intelligence services in countries whose leaders were making fiery speeches denouncing U.S. unilateralism. Technical collaboration of government bureaucrats—sustained over long periods and outside the media glare—will be as important to navigating this financial crisis successfully as presidential summits. The way that central bank managers in Beijing and Moscow coordinate actions with their counterparts in Washington and Frankfurt will be an important determinant of how we get out of this crisis.
One further parallel between 9/11 and the financial crisis is that public funds that had not been available for other important needs (healthcare, education, poverty) suddenly materialize. The gravity of the threat and the need to act quickly and decisively triggers a mind-set where it becomes acceptable—even desirable—to make decisions in which money is no object....