THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION PRINTED HERE.

MONEY BOX

Presenter: Paul Lewis

TRANSMISSION 15th SEPT 2001 1200-1230 BBC RADIO 4

The Aftermath of Terrorist Attacks on the United States. Effects on:

Economies

Markets

Investment

Other news

LEWIS: Hello and welcome to a rather different programme. The awful human costs of the terrorist attacks on New York and Washington becomes clearer by the day. And the more news we get the more we know of the horrors of those thousands of individual human tragedies. It was an event so awful and so public that none of us who witnessed it live or later on television will be quite the same again. An event some have said that changed the world forever. But this was an attack not just on people. When the two passenger jets with their cargo of hostages and aviation fuel were flown into the twin towers of the World Trade Centre on Tuesday they struck at the heart of the financial world. Today Money Box examines the long term effects of that attack on the world's economy, on how we do business and where we invest. And as we mourn the five thousand dead we cannot ignore the financial consequences of this atrocity and we wonder how we can protect our families from the economic shock that was intended to touch us all. We'll be talking to economists, market experts and investment specialists but first with me is Peter Day Senior BBC Business Correspondent who's been broadcasting for more than twenty years and presents In Business on Radio Four. Peter you've done many of your interviews in that iconic building that's now a pile of rubble - What does it's loss mean?

DAY: It's difficult to talk about this. The last time I did an interview there was with an economist at the beginning of this year setting out the prospects for a continuing long boom and that is obviously over now and I think America must go into recession. Consumer spending which has been holding up the economy in America, just about, you can't imagine that continuing in the wake of this. Though I must admit some Americans do disagree with that and that is important of course to the rest of the world because I think the American consumer has been rather more than we think holding up many aspects of the rest of the world economy. So we are now faced with - well America is now in recession and the rest of the world I think will go into recession as a result of this.

LEWIS: And how will this affect the way we do business - the way we think about business and making money ?

DAY: That is probably the really big change the New York Times on Wednesday called this a rift in history. We're on the otherside of something perhaps the post war economic geo- political era is over and we're now into something else. We're now into a strange war footing which we are going to get many perhaps jolts and shocks to the system and I think that will affect investing and finance as well as living in the world and the only way to think about it is to rebuild the building blocks of economics and investing, block by block, day by day, week by week and they're going to be random shocks which may be very horrible from a world at least at partial war and we haven't lived in that kind of world before, so very, very difficult to work out what are the principals of investing in this new world, they'll only be established by experience after experience.

LEWIS: Peter Day thanks. And let's now turn to the economy the attack on New York came of course in a week when we were already discussing the problems facing the economy both in the US and in Japan and wondering not so much if but when those chill winds of recession would reach us. Carl Weinberg of High Frequency Economics is an economist who produces a daily news letter on the worlds economies. He was in his office in New York as usual on the day of the attack. Carl your office is some distance from the World Trade Centre but what was last Tuesday like for you?

WEINBERG: Well last Tuesday was just a terrible day all around none of the news was good, we're not directly in the vicinity of the shock but all the news we got from people was bad. The television images were the same ones that you saw, its just that when we looked at them being so close to New York and being a financial services company doing business with people in New York we knew that people who we knew were in there and affected by it, as ultimately turned out to be true. So It was personally a wrenching and horrible day.

LEWIS: Now the US economy was already weakening - it was not healthy. What will this terrorist attack do to it ? Do you agree with Peter Day that it will push it into recession?

WEINBERG: No. I think it's an overstatement to say that it would push the US economy into recession. The US economy was in a growth pause as we went into this episode. Consumer sentiment was already quite dented. There can be no doubt that as Mr Day suggests we'll see another dip in consumer sentiment as people realise what's happened here but I don't believe that we will see a permanent break in consumer sentiment, I think consumers will after a period a period maybe of a month or two or three, come back to their spending patterns from before. And that means we shall see some growth shifted from the third quarter to the fourth quarter so we might very well see a dip in GDP in the third quarter as we might after a hurricane or a flood or another kind of tragedy like that - but that won't be the biggest part of the change in the American economy. Where we will change I think is that we may see a shift in the US economy to a war footing and that would mean a shift of production from the production of butter to the production of guns and that will have a different impact for different companies and also I think the really damage to the economy comes on the supply side because we've been without our air transport system for a week and that will also make a bigger dent on the overall economy. So I think we'll see some shifting of growth from the third quarter to the fourth quarter that's not a recession that's just the shock - but I do believe that the really place to look for change in the American economy now is not from the depressed consumers but rather from the shift of our structure of economy to a more war like footing.

LEWIS: Carl Thanks. With us in London is Richard Jeffery who's chief economist of Charterhouse Economics obviously been watching events closely here. Do you share that view Richard ?

JEFFERY: I think I do share that view but perhaps I'm a little bit more cautious. What we've had injected into the economic and political environment of course is acute uncertainty, and when people are faced by uncertainty what they tend to do is in fact nothing they tend to sit on their hands for a while so consumers won't borrow as much for consumer spending or for that matter want to take on long term loans for buying houses. Companies will not invest as much because they won't want to take on long- term commitments. And I think even in the investment industry as well which might be better placed perhaps to try and look through some of these events and show more resilience I think they'll be temptation for some investors to say well cash is a better option at the moment, now all that sort of thing is damaging to growth and at the very least I think this puts off the recovery in the US economy some three to six months but I think in the near term it also takes economic activity lower. Now I don't think it's possible to be at all precise about these effects. These are such enormous shocks that we don't have any historic precedence by which to analyse them but I think we can be sure that they'll be damaging to growth in the US.

LEWIS: Carl Weinberg is there one ray of hope that there will be a large amount of public money put into rebuilding and restructuring New York- will that help give some little boost to the US economy ?

WEINBERG: Well over a long period of time I think there will be again some kind of reconstruction investment. One can remember in the city of London when the Bishopsgate bomb went off in 1993 years later they were still working, jobs were still being created by the reconstruction of those five blocks square area of the City but consumer spending was not dented at that time. So yes there will be an addition but it won't necessarily be a lot at first. The forty billion dollars that was passed by Congress yesterday sounds like a lot of money when you say it but it's only a half percent of GDP and its introduction to the economy will be over a long period of time. We're not looking to change our point forecast for the US on the scale of the United States it's not very much and let me just - before you cut me off Paul say - mention this point about the scale of the United States. It's such a huge country that while most Americans don't live within five hundred miles of the World Trade Centre, don't know anyone who works there or who even has ever been there, this is not to diminish the human tragedy, but it's very much like the way an earthquake in Italy that might kill thousands would impact consumer sentiments in Frankfurt or in London. You know the world does go on and while this has a kind of different psychological change to a nation bringing it to a more war like footing I'm not so sure that the impact on consumer sentiments in Arizona or California will be quite as strong as it is in the New York area and certainly not quite as enduring.

LEWIS: And Carl in a word if the financial markets do open on Monday, where do you see them going?

WEINBERG: No way to know Paul. It's unprecedented circumstances I think people will be cautious and the market will be volatile but I wouldn't want to pick a direction.

LEWIS: Carl Weinberg thanks very much. And Richard Jeffery just before we move onto the markets you explained the effects on the US economy - how will that impact on the UK.

JEFFERY: Well I think one of the important things we've got to watch is exactly how markets do react. I think one of the possibilities is that we do see another set back in the equity markets and in share prices on both sides of the Atlantic, and it's not impossible you could see falls of say ten to fifteen percent and its through that mechanism of course that the impact of this event becomes more pervasive because then you can get so called wealth affects on consumer spending - in other words consumers who've seen their wealth fall because of this start to spend less and that's how the ripples travel out through the economic system and that's what I think is the most worrying long term aspect of this.

LEWIS: Well you mentioned the markets as indeed did Carl Wineberg and the New York Stock Exchange has been closed for four days, the longest we're told since the start of World War 1. It's Chief Executive though, Dick Grasso, said on Friday night he had absolute confidence it would reopen on Monday . Here of course the markets have been open with me is Gay Huey-Evans she's worked in Wall Street and in the City of London and she's now with the Financial Services Authority here where she's its Director of Markets and Exchanges. Gay just before we talk about the markets you did work in Wall Street a word on how this has affected you personally.

EVANS: Well I'm not alone obviously having worked for fifteen years in New York City across from the World Trade Centre it becomes your home away from home and it will never be quite the same. I also have a very, very good personal friend who's on the missing list who was on the ninety sixth floor who took the time to call her mother to say everything is ok, I'm evacuating- but we haven't heard from her since. So it is quite personal but we're all touched. I have to say we're all haunted by the many stories we're hearing about the mobile phones and people being on squawk boxes across the ocean and it's being evident all week clearly evident yesterday throughout all of Europe there was a three minute silence and also the St Paul's ceremony I think that was quite touching for many of us who didn't get into the Cathedral and were standing outside - standing shoulder to shoulder with all nationalities.

LEWIS: Indeed it has touched us all but the markets in London nevertheless were open - how have they operated - has it been normal business since Wednesday.

EVANS: I don't think that after any kind of such tragedy or disaster can anything be called normal. I think the first things we assessed on Tuesday after knowledge of this disaster was 'was our infrastructure hit'?. Our infrastructure meaning, could our payments clear, could our securities settle, will the market have enough participants to create the liquidity . On the infrastructure side we had yes to all those questions but the emotional toil on people was extremely evident and some of the markets did close a bit early. We had good volume after such kind of an attack oil prices went up immediately, equity prices went down, they came back rebounded a bit later as we know during the week until yesterday when we had two significant figures from the US which drove the equity markets back down again and a statement from the Taliban saying they would seek revenge and therefore oil prices going back up not quite to where they hit on Tuesday afternoon.

LEWIS: Now Dick Grasso as I said the chief executive of the New York Exchange said it will be open on Monday - what are the problems in achieving that - do you think they can be overcome ?

EVANS: Well the US Government, the regulators and obviously the City in terms of New York City are all determined to get the financial system up and running. The problems they've been dealing with are clearly infrastructure also. They have physical access to their buildings, as we know many of the buildings aren't standing and the ones that are are quite unstable. They have telephone connectivity problems some of their lines are down in Lower Manhattan and they've a major power station in Lower Manhattan - it's out of order. So this inability to basically deal with that kind of infrastructure has been difficult as we know and as he said they're stress testing with the firms this weekend to make sure the systems are under control.

LEWIS: Well let's hope the succeed in that and listening to all of this is Vincent Duggleby the creator of course of this programme more than twenty five years ago and the very voice of personal finance on the BBC for many years. Vincent you've seen many crisis in the markets this is something we've never seen before - what do you think will happen on Monday ?

DUGGLEBY: Indeed, the history does tell us a lot Paul and I've written three word down on a piece of paper here, its personal, political and pragmatic and obviously while we have this huge sympathy people in shock do not behave rationally and markets do not behave rationally. So I think we can expect some very severe shocks and I expect to see 25 percent movements in single shares. Nothing is going to be immune from this because as far as the political side, which is number two in my sheet, military retaliation, I just hate to think what dealers are going to do when word comes through that the US might do this or they might do that. What I've done is I went back twenty eight years actually because I wanted to remind myself of 1973 and 1974 when we faced the biggest bear mark we've ever seen and of course that was a time when the Yom Kippur War, the MiddleEast war, broke out in October 73. Hostage taking and hijacking were rife and if you look at the history there you will understand what markets can do, now I stress what they can do and not what they will do. I did pick up another date which I had completely forgotten September 15th 1974, this very day, a major firm went under and it was called Ferranti and I just suddenly thought oh my goodness Ferranti/Marconi. One of those awful coincidence you know Paul that suddenly you think of, oh my goodness - what a coincidence.

LEWIS: Indeed and some quite frightening thoughts there Vincent well stay with us but Richard Wastcoat is also here, he is the UK Managing Director of Fidelity Investments. Fidelity based in America in Boston but the world's biggest manager of money. Millions of Americans invest in it and in the UK hundred of thousands have pensions ISA's and other investments. Richard Wastcoat what's your message to investors today with those kind of fears that Vincent Duggleby talked of.

WASTCOAT: I Think the message to investors is to do is to remain calm .........

LEWIS: That's very easy to say isn't it ?

WASTCOAT: It's very easy to say and it is much harder to do in practice and I think the challenge for individual investors is that it is going to be very difficult in these markets for them to second guess what's going on. We all cannot agree in what directions the markets are going to go but I think we all do agree that there's going to be a lot of volatility and therefore for the small investor probably the best thing to do in the short term is probably to stay put.

LEWIS: Stay put, which may or I suppose may not be good advice, what if you have to get money out, what if you have a need for money?

WASTCOAT: I think if you have a need for money in the short term then you have to consider very carefully whether you need to sell now and that means what's very important for investors is to look at their own personal circumstances, why they hold their investment, and for how long they're investing. If you're in for the long-run that's a different circumstance from if you say need your money in the next six months or one year.

LEWIS: But if you have to take money out you might just have to take that loss ?

WASTCOAT: That's correct.

LEWIS: Angela Knight is also listening to us. She's Chief Executive of the trade body that represents many stock brokers and investment advisors. Angela, how will Tuesday's events affect the advice your members give to clients?

KNIGHT: Well the advice is to stay there. If you can keep your money in, if you don't need it tomorrow or next week or next month then stay calm. But there's also a lot of taking proper advice that we're recommending to people who're ringing up the office, people who're asking us, because clearly when you have got this sort of disaster that's happened, when you have got the expected volatility, which I think everybody does agree is going to happen, then it's a time when paying for a bit of advice can save you a lot of money. It's not the sort of market where individuals are going to be comfortable on their own, it's a sort where the professionals have to be there to help them.

LEWIS: So stay in for the long term but also keep your eye on it because what's right today might not be right in six months, or indeed in one month...

KNIGHT: Well very much so. It's not the sort of thing that I think people use to do which is put their money in and just perhaps forget all about it, just leave it to somebody else. That's not really the way you can manage your investments. Being steady is important, so is keeping a watch on what's happening, keeping a watch on your money, what the companies are doing that you've got it invested in, take advice, keep steady but yes you know some of the responsibility is in your own hand's and so it is important to look at what is happening to your own money, to your own companies, keeping a watch is vital.

LEWIS: Well of course thousands of individual investors are trying to that and Graham Bates of Bates Investment Services in Leeds has hundreds of clients with fairly modest investments. Graham, what's it been like from your clients point of view this week...??

BATES: It has been a very interesting, of course a very difficult week. We've been trying to take a sensible and certainly a cautious approach for our clients. I think perhaps the most interesting thing is we have perhaps around twenty thousand clients across the UK, surprisingly our client services team has taken less than a hundred calls this week and around thirty per cent of those were people having practical problems and actually trying to buy as well as to sell because this week one of the practical problems has been in fact that many investment funds have suspended trading. So in fact action has not been possible in many cases.

LEWIS: So what is your advice and what will it be next week when that will end and you can presumably take action where ever you choose?

BATES: Ok. The advice today, and this will be the same advice when we open for business on Monday. First of all if you're an existing investor in the market place it's 'hold your nerve'. Don't try to second guess what's going to happen, historically we have often seen big rises in stock market values following sharp falls. I think there's no doubt we're going to see further volatility, we're going to see some further down-slide. It's very important if you're in that market 'hold your nerve'.

LEWIS: And of course one thing regardless of where you invest, at a time of uncertainty, is to pay off debt as much as you can ?

BATES: Well, certainly we would age people who are planning to invest at the moment, of course there are a lot of people who are sitting on the fence wondering if they should be going into the market, of course take a balanced approach, make sure you have an adequate cash reserve in place and try and wait to separate emotion from some of the investment fundamentals. I think short term profits are very unlikely but once matters settle down over the next few weeks I think it's very likely that, you know, for investors who are prepared to take the four, five year view, which is of course the only sensible approach with equities, it could be a good sort of opportunity with markets now at the same sort of levels as they were three years ago.

LEWIS: Graham Bates thanks, and Vincent Duggleby, a final word. A lot of worry for people, you've looked at the history, what should people do on Monday?

DUGGLEBY: Establish your own personal risk profile, that's the key thing. I mean I personally think that anything other than a ratio of , say, sixty-forty shares to cash is above average risk so establish it for yourself. It may be fifty-fifty, but whatever you do make sure you have that in mind and stick with it. As far as the markets are concerned, I've always believed that this market was going to go down to somewhere between 4,100 and 4,600 and I actually haven't changed my view on that except I think it's slightly lower. So again establish in your mind a point at which you think the market is going to stabilise, I can't tell you what it's going to be but that's my own best guess. And finally, raise cash if you need it sooner rather than later and I suppose Paul the final word I would say is remember that when the bucks stops are the bucks available to pay?

LEWIS: Vincent Duggleby, thank you very much, keep half your money in cash.

LEWIS: Now of course with the concentration on the tragedy in the USA this week you may have missed some of the financial news in the UK this week. Chris A'Court has been keeping track of it. Chris,...

A'COURT: Yes, on Thursday the Stock Exchange announced that a string of technology related companies were being ejected from the FTSE 100 Index - that's the index of our top 100 companies which provides the benchmark to judge in normal times whether shares are generally doing well or badly. So out went the telecoms firm Marconi, also Energis and Telewest for example and into the index came some 'old economy' stocks which hold out the promise of more stable performance. They include Severn Trent, Northern Rock and the recently demutualised, Friends Provident. Jeremy Batstone, at Nat West Stockbrokers thinks its another welcome sign that the unbalancing effect of the technology shares boom are gone...

BATSTONE: I would hesitate to say that this is the kind of thing that's unlikely or never going to happen again, because we know we go through fads within market phases, however for the time being it does appear as if the volatility that we've seen may very well go onto the back burner.

A'COURT: That was Jeremy Batstone who, like everyone else, is now expecting the other factors we've heard about to make shares volatile in the coming months.

Also this week the penalty imposed on Equitable Life policy holders seeking to take their money out early has been put up again. From last Wednesday anyone applying to cash in before maturity will have ten per cent deducted from their policy's value. In July the penalty was set at seven and a half per cent, after policy values had been adjusted down by 16 per cent. Charles Bellringer, the Financial Director of Equitable Life told us that continuing falls on stock markets and Equitable's aim of not letting anyone have more than their fair share has led to the latest move...

BELLRINGER: I think people are confused often and they see this account as a sort of deposit account and that markets can continue to go down and no-one should bear the cost. It is an investment related product, although a more cautious product than what would have been the case if they had bought a unit-linked product and markets can only fall so far before we, and a I would think many other life offices if not all, will have to do the same.

A'COURT: That's Charles Bellringer of Equitable Life. And Money Box now understands that details of the Equitable Life policyholders compromise deal, which we've talked about so many times, will eventually be published towards the end of next week.

Thanks very much Chris, and that is all in this week's programme. A rather special programme in view of those event in the United States and it's perhaps worth point out that investment in Britain has been poor anyway this year before those events. The fall in the FTSE index of our one hundred biggest shares was over nineteen per cent even before Tuesday's tragedy and it's now just over twenty three per cent. As I say that's all in this week's programme. Mortgages will be the topic for Money Box Live on Monday with Vincent Duggleby - and of course if the US market does open as planned, which will be at 2.30 our time he will have the first news of it on that programme at 3pm on BBC Radio 4. There is more information with the BBC Action Line on 0800 044 044. Calls are free on 0800 044 044. And of course there's our website - www.bbc.co.uk/moneybox. Our email address is [email protected]. I'm back with the programme at the same time next week.

Today, the producer was Chris A'Court, and I'm Paul Lewis.