If the traders could be rational enough to pick up and move to new temporary offices a few blocks over and carry on with their business the next day, the consequences of a NYSE bombing would not be so dire. The dramatic financial repercussions you mention would certainly happen, but only because people would panic.
If they really had no great alternative, and the chain of reasoning was that clear, then traders would have anticipated it and it wouldn't have caused any major problems.
Since it was widely unexpected and people did lose piles of money, I expect there were other likely alternatives and perhaps your analysis may be suffering from a bit of post-hoc rationalization.
No, it would not have been neat. It would have been incredibly messy. Their life insurance in particular, was mostly shielded by statute, but the remainder of their business would have been fair game -- that would have had wide-reaching implications, both in and out of the financial sector. The collapse of major investment banks that would have inevitably followed would result in many companies not being able to make payroll. That would have exacerbated the already existing problems with the real estate market collapsing, as meeting payment obligations would be more difficult for people, further depressing the values of mortgage-backed securities, as financial companies would have sought to mitigate their losses and cover their reserve and capitalization requirements by selling things at firesale prices.
It would have been a disaster of epic proportions. Would it have been worse than what happened? I don't know -- and neither do the economists who insisted on action. As it was, innumerable businesses not at the scale of AIG were left in the cold to collapse without billions of dollars of free money, and, more significantly in my view, institutions and well-capitalized individuals who correctly predicted the collapse of the market would have been well-positioned to use their assets to buy up undervalued assets (including home mortgages, which, if purchased at fire sale prices, would have made decisions about de-valuing the loans easy, because the effective yields would have been so much higher).
Futures is a zero-sum game, for every dollar lost there is another one won. In the worst case, they would have taken all the profits from the other traders and used them to offset this losing trader.
The exchange lost a lot of revenue. Trader's and investor's time was wasted, you can't just change the open time without screwing up a lot of systems. Risk management would've been an issue too, a lot of people crossing the spread to derisk and transferring wealth to market makers.
This is an interesting perspective, especially in the context of our current concerns over the balance between emergency commerce restrictions and potential.
Do you think that we would have been better off with letting the market itself make more decisions regarding what should stay open during the crisis?
The same outrage (or worse) would occur if they halted sells. Could you imagine if the price tanked and people couldn't exit their position? It is a lose-lose situation. And I think a lot of people would consider a full block to be worse.
You never know, it’s the law of unintended consequences. Maybe it would’ve caused people to walk away from stocks as an investment. Maybe people would’ve put all their money in real estate instead. Kind of staggering if you think about how much worse the whole housing crisis could be.
The losses would have to be written off somehow, maybe it could have been done more slowly, but I wouldn't think too much about the trigger for the crisis.
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