Secret Weapon

The 9/11 plot also caused untold economic damage, with estimates ranging up to $500 billion.¹ In the immediate aftermath of the attacks, job losses reached 143,000 per month in New York City, where the terrorist onslaught may have cost the city as much as $60 billion in revenue.² Building losses reached $34 billion, and America’s airline industry took over five years to recover from the carnage. One study suggests that when you factor in the costs of new homeland security measures, additional defense spending for the wars in Afghanistan and Iraq, additional veterans’ benefits, and servicing the additional debt over the next decade, the total cost of 9/11 approaches $5 trillion.³

That, of course, was Osama bin Laden’s strategy. For years, he had announced his intent to target the economy of the United States. Bin Laden understood that attacking our physical infrastructure would deal a blow to America, but it was the resulting economic damage that could really bring the country to its knees. His astute insights should come as no surprise; contrary to his popular image as a cave-dwelling barbarian, bin Laden studied economics and business administration at Saudi Arabia’s King Adulaziz University. He was the wealthy and sophisticated scion of an opulent family that grosses about $5 billion annually. Osama was set to inherit a good deal of that wealth, but due to his radicalism, his family allegedly disowned him, and the Saudi government stripped him of his citizenship. Still, he managed to hold on to a decent fortune originally estimated at $300 million. These estimates were lowered in 2004 to about $50 million, which would still make Osama a rich fellow.

Many of bin Laden’s associates are similarly wealthy. This is not unexpected, although it contradicts the popular myth that poverty breeds terrorism. According to economist Alan Krueger, who did research on 129 shahids (martyrs), terrorists are less likely to be poor than their peers, and more likely to have at least a high school education. “Terrorists tend to be drawn from well-educated, middle-class or high-income families,” Krueger found.⁴

Consistent with his education and wealth, in the mid-1990s bin Laden reportedly began playing on foreign stock exchanges, a habit that appears to have continued right up to 9/11. An Italian newspaper reported that al Qaeda may have been “using a Milan stockbroker firm to operate on Europe’s money markets.”⁵ Notably, shortly before the 9/11 attacks there were reports of unusual activity on the Milan stock exchange.⁶

There are many other indications that bin Laden and his collaborators were active on the financial markets in the days leading up to 9/11. For example, the amount of U.S. currency in circulation increased dramatically between June and August 2001. According to economist William Bergman of the Federal Reserve Bank of Chicago, “The August increase alone was the third largest single monthly increase since 1947, trailing only December 1999 (with pre-Y2K concern as well as terrorism threats) and January 1991 (the onset of US military action in Iraq, and an important enforcement month in the BCCI money laundering scandal) . . . . The above-average growth in currency in July and August 2001 totaled over $5 billion.” Bergman drew a shocking conclusion from these facts: “[Anyone] mindful that their financial assets might be seized or otherwise at risk after the attacks converted their bank accounts to a more liquid asset before the attacks. Under money laundering and other laws, including those applied in a time of war or a declared national emergency, assets in the banking system can be frozen and seized.”⁷

Bergman’s work, unfortunately, has been hijacked by the repulsive 9/11 Truthers, who claim the attacks were part of some bizarre conspiracy by the U.S. government to murder its own citizens. As a result, many terrorism analysts and theorists reflexively discount indications that insider trading occurred in the lead-up to 9/11. It’s a shame that analyses like Bergman’s have been tainted by the Truthers, since these reports reveal strange and suspicious financial activity that raises very serious questions.

One of the few studies of Bergman’s findings was done by the Federal Reserve, which attributed the rising number of dollars in circulation to a financial crisis in Argentina.⁸ Similarly, the 9/11 Commission appointed by the U.S. Congress did investigate charges of insider trading and unusual option activity occurring before 9/11. According to the commission, “The investigation found absolutely no evidence that any trading occurred with foreknowledge of 9/11. The transparency of the U.S. securities markets almost ensures that any such trading would be detectable by investigators.”⁹ The commission’s faith in market transparency, however, was later questioned in peer-reviewed academic research conducted at the University of Illinois, University of Zurich, Hong Kong Baptist University, University of Wisconsin, National University of Singapore, and Charles Sturt University in Australia.¹⁰ Furthermore, as we shall see in later chapters, what transparency did exist in 2001 largely disappeared over the next few years, making it even easier for a person, group, or government to launch a covert financial attack on the United States.

Notwithstanding the 9/11 Commission’s blinkered findings, the 9/11 attacks were surrounded by highly unusual circumstances on the financial markets aside from the currency increase noted by Bergman. For example, on August 2, 2001, the Federal Reserve Board of Governors sent a non-routine supervisory letter to all of its member banks. Without explaining why it was being sent, the letter instructed recipients to keep an eagle eye on Suspicious Activity Reports (SARs). Investigating SARs, the Reserve said, “provides useful information on suspicious activity being identified by the reporting institutions.” The Reserve encouraged banks to “continue to conduct a thorough and timely review of all material SARs filed by supervised financial institutions in their districts.” It continued, “This review is an integral component of the supervisory function. A periodic, comprehensive review of SARs will assist Reserve Banks in identifying suspicious or suspected criminal activity occurring at or through supervised financial institutions; provide the information necessary to assess the procedures and controls used by the reporting institutions to identify, monitor, and report violations and suspicious illicit activities; and assist in the assessment of the adequacy of anti-money laundering programs.”¹¹

And “suspicious illicit activities” were certainly evident on the markets. Shortly before the 9/11 attacks, Reuters later reported, there was a spike in airline options activity. German bankers told reinsurer Munich Re they were seeing a significant uptick in airline options activity, a way of betting against the airlines. “We have received reports that those associated with the terrorist activities of last week may have sought to exploit our securities markets to profit from those activities,” explained Stephen Cutler, the top enforcement officer at the SEC, on September 20, 2001. “We are vigorously pursuing all credible leads, but at this time, we have drawn no conclusions.” One market maker on the Chicago Board Options Exchange told Reuters there had been heightened activity on United Airlines—whose planes were used in two of the four airborne attacks on 9/11—for the September 30 and October 30 “puts”; in other words, somebody was shorting huge amounts of United Airlines stock, perhaps anticipating it would take a hit after 9/11. “They bought them before (the attacks) and the month before, September 6 and August 6, the October and September 30 puts,” he stated.¹²

Munich Re was the source of many of the borrowed stocks used for the short selling, a practice in which a trader typically borrows shares of some stock and later sells them at the current price, making a profit if the price falls. One banker reported that several major French banks had made inquiries about borrowing extensive numbers of shares of Munich Re. “These inquiries were very big in size and they only asked about one share, and for that reason it stood out,” he averred. One German banker outside Munich Re reported there were inquiries for millions of shares. “If somebody would be looking for that many,” he told Reuters, “it would be super-obvious. The share price would go through the floor . . . . Even at 500,000 we would be immediately looking into the company to see if there was something fundamental going on, a takeover or some news.” Remarkably, volatility in United Airlines shares increased dramatically—by 30 percent—between September 4 and September 7.¹³

All this certainly looks like terrific, high-level financial manipulation. Prior to September 11, September and October 30 United Airlines puts—meaning the puts’ owners could sell them at $30 per share—were very low. (The stock was already trading well above $30, so the right to sell at $30 wasn’t useful.) After the terrorist attacks, the puts climbed rapidly as stock prices dropped to $20 per share. The options were “worth at least five times their pre-attack price.”¹⁴ This begs an important question: Did bin Laden make a bundle of money from the attack?

On September 19, CBS reported that on September 10, the put trading for American Airlines—whose planes were used in the other two attacks on 9/11—exceeded the call trading. This meant that people were short selling—and doing it so much that sources had “never seen that kind of imbalance before.” Furthermore, CBS found that on September 6 the put and call trading for United was also “extremely imbalanced.” The network reported, “Now US investigators want to know whether Osama bin Laden was the ultimate inside trader; profiting from a tragedy he’s suspected of masterminding to finance his operations.” George Constantinides of the University of Chicago observed, “It’s hard to attribute it to chance. So something is definitely going on.” Columbia University law professor John Coffee and Professor James Cox of Duke University School of Law agreed.¹⁵

This is not conclusive, of course; there have been high put/call ratios in the past that had nothing to do with terrorism or insider trading. As Allen Poteshman of the University of Illinois writes, “It is clear both that there is a good deal of prima facie evidence that the terrorists or their associates traded in the option market ahead of the September 11 attacks, but at the same time that there are a number of reasons to suspect its probative value.” Nonetheless, after investigating the numbers in great detail, Poteshman declared, “I conclude that option market activity does provide evidence that is consistent with the terrorists or their associates having traded ahead of the September 11 attacks . . . . It does appear that significant abnormal option market positions were established that would profit from the decline of one of the airline stocks most directly affected by the attacks.”¹⁶

The Investment Dealers Association of Canada told its members that the SEC identified a total of thirty-eight companies whose shares were traded at a far higher level than usual in the weeks prior to 9/11. The AP reported that the companies included General Motors, Raytheon, Continental, Delta, Northwest, Southwest, U.S. Airways, Boeing, and Lockheed Martin. The Wall Street Journal also revealed that the government was investigating the high-volume buying of five-year Treasury notes, which are typically picked up when people expect a recession, a war, or both. “The Journal,” reported the San Francisco Chronicle, “said agents of the U.S. Secret Service . . . have contacted a number of bond traders regarding the unusually large purchases, including one $5 billion transaction.” “We will do everything within our power to track those people down and bring them to justice,” railed SEC Chairman Harvey Pitt to Congress.¹⁷

Dr. Hugh McDermott, senior lecturer in law enforcement at the Charles Sturt University Australian Graduate School of Policing, explains how terrorists can easily exploit the markets to profit from their plots:

When terrorists have “inside information” about an imminent attack, they purchase financial derivatives before the attack and make millions from the subsequent market movements . . . . Global financial markets reacted swiftly to the news of the terrorist attacks on New York (2001), Madrid (2004) and London (2005), with a general flight to quality. Gold, bonds and defence stock strengthened and investors flocked to highly liquid, developed markets. In contrast, less mature markets suffer as do stocks such as reinsurance and aviation. American Airlines’ share price dropped 39 per cent after the 9/11 attacks and United Airlines dropped 42 per cent. Even a novice trader can see the windfall that could be achieved in shorting these stocks before a terrorist attack.¹⁸

Derivatives on Munich Re were trading at double their usual volume in the days before 9/11, according to the German Stock Market Commission, and the firm’s share price fell 22 percent after the attacks. On September 7, 2001, put options on British Airways were four times the usual; its stock dropped 42 percent after the attacks. On September 10, 285 times the normal volume of United Airlines put options were bought. The International Organisation of Securities Commissions said that all this amounted to “the most important crime of insider trading ever committed.” In light of these facts, McDermott dismisses as “implausible” the 9/11 Commission’s assertion that there was “no evidence that anyone with advance knowledge of the terrorist attacks profited through securities transactions.” As McDermott notes, “Short selling was up 11 percent on airlines due to the global downturn following the ‘dot com bust,’ but it was up around 40 percent on United and American Airlines. Surges in call options on gold and oil were also not explained.”¹⁹

Profiting from attacks is not merely a theory—many traders did it as the 9/11 assault occurred. David Yarrow, managing director of the British hedge fund Clareville Capital, made spectacular profits by shorting airline stocks after the first plane hit the World Trade Center.²⁰ Rogue trader Jérôme Kerviel, who was prosecuted in 2009 by the French government for nearly bankrupting financial services giant Société Générale, said that September 11, 2001 marked “the best trading day in the history of Société Générale . . . . It seems that profits were colossal that day.”²¹

If these traders could make money by reacting quickly to the 9/11 attacks, then bin Laden and his accomplices could certainly exploit their foreknowledge of the atrocity to similar ends. And they even had religious sanction to do so; chapter eight of the Koran instructs, “Enjoy, therefore, the good and lawful things which you have gained in war, and fear Allah.” Later in the same chapter, the Koran states, “The unbelievers shall expend their riches in debarring others from the path of Allah. Thus they dissipate their wealth: but they shall rue it, and in the end be overthrown. The unbelievers shall be driven into hell.”

September 11, of course, was not the first Islamist attempt to attack the U.S. economy, nor would it be the last. The World Trade Center had long been their ideal target. According to the 9/11 Commission Report, “Like [Ramzi] Yousef, KSM [al Qaeda terrorist Khalid Sheikh Mohammed] reasoned he could best influence U.S. policy by targeting the country’s economy. KSM and Yousef reportedly brainstormed together about what drove the U.S. economy. New York, which KSM considered the economic capital of the United States, therefore became the primary target.” Later, as we know, the approved target list came to include “the White House, the U.S. Capitol, the Pentagon, and the World Trade Center.” The 9/11 attack “was to be a serious attack intended to produce massive casualties and serious damage to the economy, but it was also very much designed to be a symbolic assault—one that would strike the symbols of U.S. economic, political, and military power.”²²

In 2000, al Qaeda terrorists in Yemen attacked the USS Cole. Although the ship was “capable of simultaneously tracking hundreds of incoming missiles or aircraft more than two hundred miles away,” according to Lawrence Wright in The Looming Tower, it was not prepared for a low-tech terrorist attack. When a fiberglass boat carrying two smiling and waving jihadists approached, the Cole did nothing. Then the boat exploded, blowing out the side of the ship and causing shock waves over two miles away. In typical fashion, bin Laden viewed the attack through the prism of the American economy. After the explosion he crowed, “The destroyer represented the capital of the West, and the small boat represented Mohammed.”²³

Of course, symbolism wasn’t enough for al Qaeda—its leaders were determined to attack the U.S. economy directly. Secretary of Defense Donald Rumsfeld worried, “The cost-benefit ratio is against us! Our cost is billions against the terrorists’ costs of millions.”²⁴ Said bin Laden, “Every dollar of al Qaeda defeated a million [U.S.] dollars.... We are continuing this policy in bleeding America to the point of bankruptcy. Allah willing, and nothing is too great for Allah.” Bin Laden boasted about his ability to create massive defense spending per terrorist: “All that we have to do is to send two mujahedeen to the furthest point east to raise a piece of cloth on which is written al Qaeda, in order to make generals race there to cause America to suffer human, economic and political losses without their achieving anything of note other than some benefits for their private corporations.” Bin Laden always focused specifically on the economy—all his thoughts seemed geared toward it.²⁵

Following a failed assassination attempt on Pakistani President Pervez Musharraf in 2004, Pakistani security agencies arrested numerous al Qaeda operatives. One of those was Abu Musab al-Baluchi, the nephew of notorious 9/11 planner Khalid Sheikh Mohammed and the cousin of Ramzi Yousef, the 1993 World Trade Center bomber. Baluchi’s capture in turn led to the apprehension of Muhammad Naeem Noor Khan, a Pakistani tasked with delivering communications to al Qaeda operatives. When the Pakistani agencies arrested Khan, they found a cache of computer disks and a laptop that contained pictures of financial institutions throughout the United States. In response, the United States raised its terror alert status, especially with regard to “financial sectors in New York, Washington and Newark.”²⁶

In one of bin Laden’s final tapes released prior to his death, he called on people everywhere to stop buying U.S. goods and U.S. dollars. Attempting to garner leftist support for his agenda, he also ripped America’s inaction on global warming. “George Bush junior, preceded by Congress, dismissed the [climate change] agreement to placate giant corporations,” bin Laden spat. “And they are themselves standing behind speculation, monopoly and soaring living costs.... Noam Chomsky was correct when he compared the US policies to those of the Mafia. They are the true terrorists and therefore we should refrain from dealing in the US dollar and should try to get rid of this currency as early as possible. I am certain that such actions will have grave repercussions and huge impact.”²⁷ If bin Laden had the means, is there any doubt he would have pursued this strategy—as would other enemies of the United States?

Here are the facts: first, with foreknowledge of the 9/11 attacks, al Qaeda terrorists could have turned a big profit by trading in advance of the operation. Second, according to press reports, as early as 1995, bin Laden and al Qaeda were active in financial markets. Third, Osama came from a wealthy family and was educated in economics and business. Fourth, in the run-up to 9/11, there were unusual and suspicious activities on the financial markets, including the short selling of stocks of airlines involved in 9/11. And fifth, as a result of this short selling shortly after the attacks, the international press and German regulators widely speculated that the perpetrators may have been behind these trades.

Osama bin Laden always focused on hitting the U.S. economy, and he got his wish on September 11. It would not be the last time. When bin Laden was killed, U.S. forces found plans to directly attack Europe’s economy—on September 6, 2011, Pakistani police arrested Younis al-Mauritani, an aide to bin Laden, who was planning to attack Europe’s economic infrastructure by using speedboats to bomb pipelines, tankers, and dams.²⁸

Regarding the topic of this book—the threat of financial terrorism since the market collapse of 2008—it doesn’t really matter if al Qaeda exploited the markets to cash in on 9/11; even if it didn’t, the financial fall-out of 9/11 made it obvious that terrorists could manipulate the markets. The Dow never opened on September 11, 2001, but when it did reopen on September 17, it suffered theretofore its worst single-day point decline in history, dropping 684 points.²⁹ Terrorists, like everyone else, surely noticed that anyone who shorted the market before the attacks stood to make a huge profit. And in fact, suspicious trading patterns surrounded the attacks, prompting various investigations of possible stock manipulations. Although the 9/11 Commission eventually rejected reports of stock manipulations—a conclusion some analysts have strongly disputed—at a minimum, analysts and the authorities generally agreed that the reports should be investigated. Oddly, when indications arose in late 2008 that someone had carried out a far more concentrated attack on the U.S. economy itself, almost no one investigated the reports—the puzzle pieces were all in plain sight, but no one fit them together.

Whether terrorists traded in advance of 9/11 or not, they were made aware afterward that such activity would have been profitable and that they could cash in on a future attack. As we will see, after 9/11 the American homeland did not suffer another large-scale terrorist attack until 2008. But when it came, it was much more sophisticated than 9/11 itself and caused far more damage to the American economy. It plunged the entire world into near depression—and bin Laden and his associates couldn’t have been happier.