The notion that terrorism and 9/11 led to the Global Financial Crisis was conveyed at the Melbourne Writer’s Festival by author, journalist, economist and expert on terrorism financing Loretta Napoleoni. She divided the evolution of terrorism in the 20th century into three parts — state-sponsored terrorism, privatised terrorism and transnational terrorism — and claims that the economic behaviour of terrorists combined with the aggressive foreign, monetary and economic policy of the United States to bring the world’s economy to ruins. This post is a consolidation of the ideas she discussed at the Festival.
During the Cold War, the United States and the Soviet Union employed state-sponsored terrorism to further their ideological goals around each superpower’s sphere of influence, fighting wars by proxy in the third world and influencing regime changes in other countries wherever possible. The innate desire for the United States to affect the governance of states that are by no means under its jurisdiction continues to this day. The independent financing and operation of terrorist organisations, a concept pioneered by the PLO, replaced the state-sponsored model.
By the end of the 20th century, economic deregulation allowed for the globalisation of terrorist organisations such as al-Qaeda. With this terrorism model, attacks can be funded, coordinated and undertaken on a transnational basis, and coordination and cooperation between separate organisations becomes more propitious. The best example of this is the 9/11 attacks: the operation was funded in the Gulf, financially managed in Afghanistan and the attacks themselves took place in the United States.
The economic consequences of 9/11 were more expansive than are frequently acknowledged. This is the case at least in part to the Patriot Act 2001 (Imp), passed just weeks after the attacks, which extended government supervision of economic transactions. Terrorists’ actions are financed largely through the trade of drugs and arms. They previously used the United States as a venue for large-scale money laundering, which was economically beneficial for the US, but in response to the expanding powers of American regulators these activities were moved to Europe. Similarly, normal Muslims also repatriated their funds to the East or moved them to Europe in response to perceived discrimination that might have influenced how they conducted business in the light of the Patriot Act. As a result, Islamic banking was the only financial sector in the world that was not damaged by the Global Financial Crisis. More consequentially, however, the Euro began to rise in value and the US Dollar fell over the next six months. With a decrease in air travel, spending and investment in the United States, the country entered a small-scale domestic recession. To understand how this would eventually lead to the Global Financial Crisis we need to travel back eight years.
In 1993, as Secretary of Defense under the presidency of George H. W. Bush, Dick Cheney began to envision an expansion of American hegemony. This was furthered by the neoconservative think tank Project for the New American Century, which had the stated goal of “promot[ing] American global leadership”. 9/11 was the perfect justification for furthering his foreign policy goals, and so the invasions of Afghanistan and Iraq were immanent. To fund the wars, the United States sold government bonds on the international capital market. To allow these bonds to be competitive, interest rates had to be low; fortunately, Alan Greenspan lowered them at an alarming rate after 9/11 to counter the minor recession that ensued. As is expected when interest rates fall, however, Americans quickly bought a lot of property with large mortgages, the value of which began to fall after 2006 at which point interest rates had risen once more. At the same time, economic developments encouraged the debt owed on that property to be bought and sold as securities. The rest is history. The subprime mortgage crisis, together with multiple inchoate bubbles from the 1990’s that had their impact delayed by effective monetary policy, took hold and the Global Financial Crisis emerged.
The ramifications of the American response to 9/11 will remain with the international community for many years to come. There exists an anti-imperialist Islamic movement channeling the ideology of al-Qaeda, its unabated hatred of the West having been engendered by United States foreign policy in the Middle East since 9/11. This includes not only its invasions, but also its support for Israel despite the oppressive and illegal policies Israel enforces in the Occupied Territories. The most effective method by which to mitigate the ever-expanding influence of terrorist organisations would have been to inhibit their finances, but neither the Bush nor Obama administrations chose to do this. Instead, the world will live with the results of the heavy-handed approach taken by the United States for decades.