Unsung Hero Kept Economy from Crashing on 9/11

Sept. 4, 2002 -- He is one of the most important people you've never heard of. And on the day terrorists struck at the heart of American capitalism, hoping to bring it to its knees, it was his quiet competence that prevented an economic catastrophe.

Federal Reserve Vice Chairman Roger Ferguson — Alan Greenspan's top deputy — is wary of the spotlight. The 52-year-old Harvard-educated economist is content to play private confidante to his more public boss.

But on Sept. 11, Greenspan was out of the country.

Recalls Ferguson: "He said to me, effectively, 'You're the one on the spot there. Exercise leadership, make the decisions you think are right, I trust you completely.' And he left me to do the work."

Investors, Unnerved, Needed Leadership

U.S. stock and bond markets had shut down after the attacks. And nervous investors around the globe needed a sign that the world's largest economy hadn't been paralyzed.

At 11:45 a.m., just three hours after the attacks began, Ferguson delivered. "The Federal Reserve system is open and operating … [and] available to meet liquidity needs," his statement read.

The message was clear, says Ferguson: "Absolutely one of the implications of this statement was that the U.S. financial system could continue to function."

Still, the system was under extraordinary stress. Ferguson knew banks had to be ready for jittery consumers making a run on their accounts. Because, as he explains, "There could be nothing that could create greater uncertainty than to go from one ATM to another ATM to another ATM and not be able to get out a sufficient amount of currency."

The planes the Fed uses to deliver millions of checks around the country had been indefinitely grounded. "Having checks honored, having businesses be able to pay their bills on time, all that is basically the lifeblood of a capitalist society," he notes.

And the central banker also knew if international banks were to run out of U.S. dollars, "…International commerce, international trade, international finance would also have been at risk and potentially have slowed and ground to a halt."

Injecting Billions in Cash

To prevent financial gridlock, the understated banker made the boldest of moves — he flooded the system with cash.

On a normal day, the Federal Reserve lends U.S. banks about $100 million to keep the system running smoothly. On Sept. 12, those loans totaled $45 billion. On a normal day, the Fed exchanges no foreign currency into dollars. On Sept. 12 and 13, it exchanged $90 billion worth.

"It was extraordinary to the point of never having occurred before," Ferguson acknowledges.

In all the world, he adds, only the U.S. Federal Reserve has the resources and the authority to do what it took in those crucial hours to avoid financial disaster. But if history chooses to give him some credit, he accepts … modestly.

"When people call me an unsung hero, I recognize two things," muses Ferguson. "One is, one can either be the hero or the scapegoat. It's far better to be the hero. Secondly, central banking is basically, I believe, an activity that should be unsung. So I am more than happy to be thought of as an unsung hero."