The events of September 11 exposed the vulnerability of one of the world's greatest: powers, presenting the United States with the challenges of recovering emotionally and physically. America suffered cataclysmic human loss while the bedrock of the U.S. financial system was shaken. The bravery, courage, quick thinking, and genuine concern for others exhibited by each by each person whose life this disaster touched helped prevent even greater tragedy.

It was incredible how the financial community showed extraordinary teamwork. The cutthroat competitive nature of Wall Street was nowhere to be seen. This tight-knit community consisting of banks, brokerage firms, money managers and clients stood united in the spirit of cooperation by not taking advantage of the markets during these dire times. The world has seen unprecedented patriotism and a family-like atmosphere in the global financial markets.

Behind the scenes, the Federal Reserve worked to keep the U.S. system of payment transfers functioning. On average, the Fed was adding approximately $6 billion in reserves daily prior to the terrorist, attacks to ensure smooth functioning of money markets; however, after September 11 the Fed loaned up to 14 times that amount in an effort to provide substantial liquidity for the markets. As, much: as $80 billion was pumped into the banking system, a record amount of money at the discount window – where banks borrow money from the central bank. As a result, banks loaned money to one another at interest rates well below the targeted fed funds rate. Even more: amazing, depression-era laws restricting banks from lending money to securities dealers were waived.

Remember that many Americans needed to be paid during the week of the terrorist attack, and companies had to meet substantial payrolls. Banks allowed overdrafts and worked in a timely manner to ensure everyone received their paycheck.

Just two days after the attack, on Thursday, September 13, the bond market resumed trading, while stock trading was unable to function until the following Monday, September 17. Bonds do not trade on a centralized exchange, whereas the New York Stock Exchange, located near "ground-zero", did not have electricity, water, and other essential necessities for business during the week.

A lot of people have heard of Cantor Fitzgerald, the firm located in the top floors of the World Trade Center, which tragically lost 700 of its 1,000 employees. The impact of losing that firm's operations was tremendous for the bond market. The firm trades more than 30 percent of all government bonds between securities dealers – they are the broker's broker. More heartbreaking, though, many traders and executives at broker/dealer firms

had close professional relationships with the many individuals still missing – not to mention friendships as well. The magnitude of knowledge lost is immeasurable. And several other key firms that were "brokers' brokers" were displaced, leaving government-bond prices difficult to ascertain.

People worked together to get the markets functioning. Hedge funds, which are perceived to take more aggressive, opportunistic bets on the market were asked by regulators to constrain their activities that might jeopardize the markets. By all accounts they did not take advantage of the situation but did what was necessary to bring confidence to the markets. When bond-price screens were down, securities-firm traders passed on better prices to money-management traders if it was possible. And in the difficult trading environment, firms worked with one another in novel ways to solve problems: we know of one money-management firm that sold bonds to a custody bank to help correct an error affecting one of the bank's clients.

The disruptions to the securities dealers and custodian banks – Bank of New York is a main depository for securities firms' collateral – made it difficult to settle trades the same day they were transacted. In response, the Bond Market Association, a self-regulatory organization, encouraged trades to settle five days out in order to give settlement banks time to process trades. Often transparent to investors, back office operations are very automated but rely on power, computers, and people to oversee the process.

While five-day settlement creates hardships for clients who need to access cash, cooperation reduced the strain on clearing systems and expedited the return toward normal market conditions. Clients were very understanding and flexible regarding their cash management needs during this time. Moreover, the swift opening of the fixed-income markets helped build liquidity and restore confidence in the infrastructure of the global financial system.

The wreckage of the attack caused the longest stock-market hiatus in 70 years, but the financial capital of the world was, in most part, back in business the following Monday after individuals and companies joined together as a united force. People had worked around the clock against a backdrop of anxiety, grief, anger, mourning of loss, and pride to repair the community.

This attack on U.S. soil stunned the intricacies of the financial markets but could not break them. The way the system and the people came together was remarkable. In order to buy, sell and process the billions of shares traded daily, thousands of people had to get to their jobs. And typically more than 300 brokerage firms communicate trades to their posts at the New York Stock Exchange (NYSE). On the first day of trading at the NYSE, extra technicians were available to fix potential glitches. Professional counselors were nearby to help people talk and discuss their emotions. More than 5,000 masks were secured to shield traders and staff from smoke and asbestos. Most proudly, though, American flags were held high as rescue workers rang the NYSE's opening bell.

It was the intent of those who initiated this terrible tragedy to paralyze the U.S. The strong determination of the entire securities industry to show solidarity sent the clearest message that terrorism will not close free markets. We have proven the ability of our financial system to survive the darkest, most challenging times in history.

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"A Spirit of Cooperation" was written and distributed by Payden & Rygel and contributed to the SCAFP Newsletter by Joyce Horn, SCAFP director, who is vice president and senior portfolio manager of the firm.