A U. S. Senate committee Thursday held a hearing with key financial government officials to assess the effects of last week's terrorist attacks on the economy and to evaluate how to help.
The heads of both the U.S. Federal Reserve System and the U.S. Department of Treasury told members of the Senate's Committee on Banking, Housing, and Urban Affairs that further assessment of the situation will be required to distinguish which market conditions are results of the attacks and which truly represent the state of the economy. They also warned that whatever action the government takes should be well thought out and permanent.
"I would suggest that while there's a strong desire to work rapidly, it's more important to move right than quick," said Alan Greenspan, chairman of the Board of Governors of the Federal Reserve System. It will take some time to separate the state of the economy from the additional burdens it carries today, such as damaged technology infrastructures, curtailed travel, and delays caused by security checks, which are results of the Sept. 11 terrorist attacks. "Until we see what the economy looks like without (those burdens), we can't develop policy," he said.
Because the terrorist hijackings and subsequent crashes into the World Trade Center towers, the Pentagon, and the Pennsylvania countryside caused a complete shut down of air travel in the U.S. for two days and of market trading for four days, there is no doubt that the economy will be affected by the loss in business that resulted, said Paul O'Neill, secretary of the Treasury. But, he added, "We will recover. We must give ourselves 10 days or two weeks to assess what's going on."
One market that is obviously in need of immediate help is the airline industry, which according to O'Neill has lost US$5 billion in business due to the two-day ban on air travel and subsequent delays. Yet, what is less obvious is whether the government should help out related industries, such as hotel, restaurant, taxi and airport shuttle companies.
"For everybody we indemnify, all others are a bit poorer," said Senator Phil Gramm, a Republican from Texas, referring to the burden that bailing out financially troubled companies puts on taxpayers. "Where is the cut off-point?" Perhaps instead of lending the airlines $5 billion as the government plans to, it should focus on heightening airport security so that citizens feel more comfortable traveling, Gramm suggested. That would bring back business to the airlines as well as to the industries that depend on travel, he said.
Another concern, expressed by Senator Christopher Dodd, a Democrat from Connecticut, is that the government will loan money to airlines that were in trouble even before the terrorist attacks."Some airlines you might not give a nickel to, based on who's running them," he said.
Another example of an industry feeling the affects of the terrorist attacks is auto manufacturing. Car makers, centered mainly around Detroit, rely on just-in-time manufacturing systems to help reduce excess inventory. But with trucks carrying auto parts to makers delayed for hours while security checks are performed at the Canadian boarder, the concept of just-in-time is lost, said Senator Debbie Stabenow, a Democrat from Michigan.
While boarder authorities are working to reduce the delay caused by more thorough checks from hours to minutes, O'Neill said that the government will not skimp on security, hinting that such delays will become a part of life. "We won't reduce security, it's got to be the first priority," he said.
Reducing taxes that businesses pay, cutting the capital gains tax, and adjusting minimum wage are all things that O'Neill said are being considered by the government, yet no decision will be made without more deliberation, he stressed.
Another question asked by more than one senator was whether the U.S. has determined if terrorists used the attacks for their own financial gain. Both O'Neill and Harvey Pitt, chairman of the U.S. Securities and Exchange Commission who also testified at the hearing, said that multiple government agencies are investigating rumors that terrorists profited from the attack by selling short stocks in United Airlines and American Airlines, whose shares plunged after the public learned that their planes were used in last week's hijacking.