projet risque systemique

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Systemic Risk caused by the events of September

11, 2001

BIOLAN BOGDAN

MASTER 2,IMEA


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Summary

Pag.

Introduction.............5

1.Coverage................................................................................................................................6

1.1.The hedging air....................................... 6

1.2.Coverage for bodily injury..........................................................................................6

1.3. Coverage for property damage.................................................................................7

2.Systemic risk: the danger in the aftermath of September 11, 2001?..............................8

2.1.The complexity of the mechanisms for sharing.......................................................8

2.2.The cumulative risk of systemic risk........................................................................9

2.3. Insurance deal with attacks....................................................................................10

2.4.The real price of risk................................................................................................12

2.5.Adapt legislative, regulatory and tax to the nature of risk............................ 12

3.FINANCIAL FACTS......................................................................................................13

3.1.Losers......................................................................................................................14

3.2.Winners..................................................................................................................17

Conclusion...............................................................................................18

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INTRODUCTION

The cost of the attacks of September 11, 2001 is estimated at about $ 40 billion for insuredrisks only. This unprecedented disaster not only raises fundamental questions of politics, but

also questions about the capabilities and mechanisms for risk pooling. This dramatic event,which helps put the risk at the center of social debate, requires responses from the insuranceindustry and state.

September 11, 2001: an uncertain cost

On 11 September, the United States were victims of destructive unheard-like acts of war on

civilian targets and diverting resources to this end civilians. The question of the overall cost to

the insurance industry immediately arose, and even, it must be said, with some precipitation in

both the questions in the responses. Preliminary estimates provided by rating agencies or by

some professional reinsurance, left no doubt already: this event would be a catastrophe

without precedent in the history of insurance, well ahead of Hurricane Andrew and its 20

billion of dollars.

Two months later, the bill was still highly uncertain, 30 to 70 billion dollars, according to the

foundation of assumptions and methods. The reasons for this uncertainty, which will be

discussed, due in part to the fact that it is the financial heart of the United States who was hit.

They are also an ambiguity about the scope of the damage in space (consequential damages

are extremely important but impossible to quantify ) and time (some of the damage evolves

over days, like the financial losses, litigation ...). Finally, there is still an ambiguity betweenwhat is covered by insurance, which is covered by other devices and what is not covered at all

. We can understand that many listed companies have minus, at least initially, the impact of

the disaster.

Usually, analysts conducting the assessment by reference to amounts incurred during past

events. But in the particular case of the September 11 attacks, the history of disasters set as

estimation method, stumbles on the nature and extent of the damage. The insurance had never

actually considered the possibility of such a catastrophe. Previously considered unlikely, the

most dramatic scenario was based on the assumption of a random collision in the sky of twoaircraft (Boeing 747) on top of a big city like New York .

The margin of error is even higher than many uncertainties remain, related to the multiplicity

and the period of liquidation of the collateral involved, but also the actual interpretation of

liability and contract clauses that bind insured , insurers and reinsurers, or the emergence of

new risks not previously quantified. In all likelihood, the final cost of the September 11

attacks for the insurance industry will not be known for several years.

It is useful to revisit the factual. In the excitement and haste, actors, media policy, to financial

analysts are turning to insurers and reinsurers and request an estimate. Do not answer, let it

run the wildest rumors. Answer is to have the certainty of being wrong. Between these two


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evils, we prefer to communicate, explain the mechanisms of insurance, "according to an

expert," to express our assessments by understand that they necessarily evolve over time.

1.Coverage

1.1.The hedging air

The only certainty at this time, the commitment of insurers of airlines will not exceed $ 5

billion for the four crashes. Faced with the sheer scale of the damage, full warranties, capped

at an average $ 1.5 billion by air, will most likely be achieved, at least in terms of the two

planes struck the World Trade Center.

The third party liability for passengers and third parties not carried then represent almost all ofthe financial burden on aviation insurers. Benefits paid under the cover of the body of the

aircraft concerned, on the other hand, at most 3% of the total amount of compensation.

However, these insurers will be relieved of compensation and commercial aircrew, whose

support lies with the national system of protection of industrial accidents.

1.2.Coverage for bodily injury

The estimation of the commitment of companies compensating the injury is far more

problematic. Thus, in a first attempt to assess the economic impact of the attacks in the city ,

mayor of New York an estimated $ 4 billion exposure of life insurers only for fatalities.


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attempt to estimate the overall cost of the loss. In addition to the damage observed on the

structures directly adjacent to the World Trade Center, the shock wave caused by the collapse

of both towers is likely to impact over time on the stability or appearance of the infrastructure

in a wider area around the the disaster site.

But the major uncertainty is the evaluation of operating losses companies housed in the

World Trade Center and destroyed or damaged buildings nearby. Most developers and

companies who settled in the Twin Towers had purchased an insurance policy. They will be

compensated accordingly for each loss of rent, the other to reduce the volume of business

directly attributable to the occurrence of the accident. Over the period of interruption of

business will be long for the companies affected, plus the cost for their insurance will be. For

now, analysts estimate that the burden of operating losses will be included in a range of 5 to

20 billion dollars . It appears already that the differentiation between "directly consecutive

operating losses" and "non-consecutive operating losses" will report to a very difficult year

for companies and financial services. On the same principle of operation, guarantees "keymen" necessarily weigh on the final cost.

2.Systemic risk: the danger in the aftermath of September 11, 2001?

The ambiguity on the scope of damage in space and time, as well as uncertainty regarding the

interpretation of contract terms, or the multiplicity of the safeguards involved, are all elements

that make any attempt encryption delicate. These factors also explain in part the proportions

in which insurance companies and reinsurance companies were led to revise their exposurefrom the initial estimates provided in the aftermath of September 11. It is useful to give some

examples of the magnitude of these reassessments. The obligations of insurers and Japan have

quadrupled in the space of three months, while those in the London market has doubled .

Evaluated on the basis of statements of insurers and reinsurers, the total cost of the September

11 attacks supported by the insurance and reinsurance did not exceed $ 23 billion at end-

October . Based on the situation of Japanese markets and London, this estimate is likely to be

revised upwards. However, the commitment of the U.S. government and the City of New

York, the social, financial and legal, can be an element of moderation.

2.1.The complexity of the mechanisms for sharing

The degree of uncertainty that still hangs over the real commitment of insurers affects the

reinsurers involved in coverage. In a networked economy, evaluations of these necessarily

depend on the reliability of assessments at the forefront, particularly with respect to

proportional reinsurance treaties , in contrast to non-proportional reinsurance . For them,

reinsurers have estimated their exposure by considering that the entire cover was consumed.

But what is the first type of treaty, the final exhibition remains suspended in the realcommitment of insurers.


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Learning from the experience of the September 11 attacks in the United States, the

reinsurance market probably will arbitrate between the different modes of subscription that

offers insurance. Already, the U.S. market, some reinsurers have warned their customers that

they would favor treaties stop loss coverage with a limit of clearly defined at the expense of

proportional reinsurance treaties .

But uncertainty about the share borne by the respective insurers and reinsurers is also related

to the complexity of the organization of the global market. The insurance world has developed

a reinsurance with a technique that allows vertical distribution of risk and, therefore, allows

an insurer to underwrite the whole at the forefront of a risk, even on discharge a reinsurer of

amounts that exceed its own capacity.

For its part, the reinsurer's treated group to get some compensation. He works on several

branches and several countries in order to dilute its portfolio in the best conditions . In somecases, it also covers from reinsurers, self-seeking other partners, and this through the world, to

meet with the least possible hazard full coverage originally requested by a insured.

In order not to jeopardize their financial stability, reinsurers establish so-lending programs, so

they dilute the risks globally by distributing up to large losses. Side of the coin, the successive

divisions of risk portfolios also result in a dilution of information on the composition of

treaties between insurers, reinsurers and reinsurers.

This loss of information, recurring in every link in the chain of lending, slowing the processof evaluating reinsurers on exposure to a disaster that involves multiple treaties, as is the case

of the 11 in September. As claims are brought to the attention of insurers, reinsurers are

refining their estimates and use their reinsurers as appropriate. So some time passes between

the occurrence of the accident and when the reinsurer discovered that he had in his wallet

treaty committed it.

2.2.The cumulative risk of systemic risk

But the lack of visibility on the content of treaties primarily amplifies the risk of accumulationof a geographical area. The probability is high that in some cases, both reinsurer intervenes at

several points in the chain of lending and more guarantees for the same area. On this point, it

is useful to recall the exceptional nature of the attacks of September 11: previously, the risk

models never included the possibility that a single event can activate as many guarantees as a

localized area that It was the financial heart of the United States. The probability of a

correlation between blankets as varied (air, liability, life, health ...) was considered small for a

single claim on an area of high concentration of value.

In this context, rightly or wrongly, the September 11 attacks have raised fears that the risk ofaccumulation is a reality for some players and it escalates into a known higher risk in


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financial markets, systemic risk. The final exposure of reinsurers is in fact also depends on the

quality of their lending policy. As in any organized system network, the systemic risk inherent

is great, and, in the case of the September 11 attacks, it would have resulted in the failure of a

major or a multitude of small players in the market reinsurance. This event would have meant

to trigger a crisis in the lending chain, affecting in turn the less creditworthy companies.

The fear that such a reaction occur was all the more in mind that, according to Standard &

Poor's, reinsurers should bear in fine 59% of the overall cost of the attacks . Already two

small companies announced to be in serious trouble as a result of consecutive losses to the

World Trade Center disaster, while others have revised upward their net liabilities in amounts

greater than their gross liabilities .

However, the nightmare scenario of a series of failures in the chain seems to be definitely

ruled out. Other indices significantly decrease the likelihood of such contagion occurs.

According to the same agency, among the twenty largest companies affected by the disaster,which ultimately will bear 80% of the cost of the attacks, none of exposure high enough to

endanger its solvency.

Consequences for the insurance market?

The global market for insurance and reinsurance will have the ability to compensate the

disaster. But, by its nature and magnitude, the event immediately raises two questions: that of

insurance against the attacks on the one hand, that of risk pricing and their mutation, on the

other.

2.3. Insurance deal with attacks

What happened on September 11 deviates greatly from the field of terrorism, but not fit the

classic definition of a state of war between nations (which is the responsibility of the state).

Many geopoliticians think it's not just an exceptional event which had catastrophic economic

consequences. War "classic" when warring States are identified, where weapons are military

in nature, as most of the target could be replaced by a war "latent" based on terrorism, without

apparent commitment to States, where the weapons would be "civil", as most of the targets.

The terrorists would then be difficult to qualify. Their national identity would not be the

dominant criterion. They would rather part of an ideological group, possibly international, but

could also belong to the nation against which they perpetrate acts of terrorism. The disaster in

New York raises the issue of qualification and definition of the event. In the present context,

the boundaries between foreign war, civil war, riots and popular movements, attacks and acts

of terrorism are questionable.

Moreover, the discrimination between attacks and acts of terrorism on the one hand, acts of

sabotage and malicious, on the other hand, seems difficult. The attacks can be claimed or not,charged or not a national or international terrorist group. When a company is the victim of


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such an act, the attack can be internal (CDI, CDD, the interim, intern ...) or external. It is

exactly the same for the acts of sabotage and malicious.

Beyond the political debate or legal, insurance-criteria, mainly economic, tell us about the

insurability of the attacks or not. First of all, it is necessary to recall some basic technical

assurance. The insurer must be able to model a random risk pool for a large number of insured

and a number of years. The result of this approach guarantees the contractual definition and

pricing.

Now we see that, if the statistics are available and models for the risk of damage to the ground

in case of aircraft accidents, it is not the case for air terrorism. Not only is there no experience,

but there is no hazard: the means and the targets are chosen. It also shows that exposure to

terrorism risk, including a "hyper" as the saying goes by the European Committee of the

insurance depends on political decisions and military governments. So there is not a model

because it is conceivable that the risk arising from positions to be taken by governments andterrorist groups. It is also a risk whose consequences in economic terms can be close to the

risk of war.

Assuming, however, that we try to ensure the risk, it faces the problem of the financial market

insurance and reinsurance. For example, the cost of the attack on the Twin Towers is for four

years of aviation insurance worldwide sales of insurance airlines. Remains the sharing time.

But this is only possible if the risk can be modeled (that is, if we know that, reasonably, the

cost of a claim is assessed on the world in ten or twenty years) and if the taking the risk that

exposes the equity of insurance companies and reinsurance does not make them run the risk ofruin. None of these conditions is satisfied, so that the risk of "new terrorism of the twenty-first

century" is not insurable. The most that can be imagined that insurers and reinsurers providing

the ability to meet the current attacks, but the coverage of terrorism risk in war-like faces

States.

The risk of mega can not be defined in legal terms, but it may be a more pragmatic

economically based on the volume of financial capacity available on the world market. In

fact, the risk of war is not insurable, and we are here dealing with a risk of quasi-war.

Historically, war damages were compensated after the war, when the parliaments voting laws

of compensation. The specificities of hyper and needs continued economic hedge of our times

require that the hedging solutions combine the ability of markets and the State guarantee in

the event of a major disaster. All developed economies are developing a device for 2002.

France must solve the same problem here, however, more complex because of the law of 9

September 1986 attacks making the guarantee required in any contract for property damage.

The underwriting business is possible only if the collateral damage and attacks are - at least

partially - slender, and if one combines the market and the government guarantee to cover the

attacks.


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2.4.The real price of risk

The magnitude of the disaster of September 11 is suddenly came to remind the world market

for assurance that the risk had a price. The surge in financial markets in recent years had

obscured this reality, companies let go with the deterioration of underwriting results, whose

weakness was offset by the recurring financial products and the realization of unrealized

gains. The latest study published by Swiss Re Sigma highlights the difficulties in Eastern

Europe non-life insurance, including underwriting results were far outweighed by the good

performance of financial products.

The insurance players have to explain the fundamentals, particularly in France, where, if the

term "risk" is frequently used, often indiscriminately, the scientific culture of risk and

insurance is low. We need to promote risk analysis and prevention. Requires that companies

and shareholders understand that the cost of insurance has a counterpart which is the creation

of value over the long term. Insurance stabilizes a number of balance sheet items, in particularthe result, it helps to project into the future according to the strategy of the company, taking

calculated risks, having outsourced the risk random. Actuaries and financial analysts

understand that the fair value can not be calculated without knowing the net exposure to risk .

It should also be included in "extra-Balance sheet" since the record will not include leaving

the risk, which is comparable to an off-balance sheet .

No longer able to rest in the current stock market situation, on the transfer of financial

markets, some market global insurance have informed the press that massive price increases

were expected. Future risk "attacks" is the first affected by these revaluations. Low orunmeasured so far, it requires a very important new capability, which can only be based on

the pooling. As exposure has radically changed its nature and magnitude since September 11,

2001, the need for capacity is immediate and causes a massive rise in prices within a short

time.

2.5.Adapt legislative, regulatory and tax to the nature of risk

The tariff resets do not affect the future risk "attacks." Other forms of risk, risk-related

industry, climate, legal and technological innovations, may justify the creation of additionalcapacity. The warming of the atmosphere contains the risk of abuse with the proliferation and

intensification of extreme weather events (storms, floods, droughts ...). Civil liability is also

relevant in a changing legal framework. This class of insurance is even more marked by the

catastrophic risks that technological advances put insurers on land still not cleared

(electromagnetic waves, GMOs, new therapies ...).

Insurance cover can assume its role, the truth must be made on price, but if pricing more in

line with the technical risks is a solution to the problem, it is far from sufficient. The State

must also provide an insurance regulatory and legislative framework stable and consistentwhile allowing them to strengthen their prudential. Economic security, essential for the


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players, based on legal certainty. Contract law must be absolutely respected. The extension of

the equalization provisions - set up to deal with the extraordinary expenses - the risk attacks

and acts of terrorism is a first step in this direction. But it should also be extended to other

branches, including the longest, such as civil liability. This branch has indeed the

characteristics of a potential serial risk that would result in the appearance of random loss

ratios are extremely important contribution for some years.

The prudential assurance that is not the only field of equalization provisions. It is also made

provisions for outstanding claims (PSAP), to be encouraged on the regulatory and tax plans. It

should be emphasized that careful training of this type of provision is an essential condition

for safe operation of insurance, it is a delicate operation, even for a given branch and a

statistical category defined, due to the variability in amounts of insurance claims for property

and liability. It is normal that surpluses can be identified and therefore taxed at a rate, but in

no way should be a deterrent.

From this perspective, the tax on liquidation, which applies to excess PSAP should enable

companies to provision claims under the conditions as they deem necessary, without

compromising the rights of policyholders, while ensuring a return the Treasury for the benefit

of cash granted. Clearly, in this sense, the rate in France (9%) is higher than the level that

should be his. To remain consistent with the spirit of the law, this rate should at most be

indexed to the cost of money.

3.FINANCIAL FACTS

Financial transactions in the days before the attack suggest that certain individuals usedforeknowledge of the attack to reap huge profits. The evidence of insider trading includes:

Huge surges in purchases of put options on stocks of the two airlines used in the attack-- United Airlines and American Airlines

Surges in purchases of put options on stocks ofreinsurance companies expected to payout billions to cover losses from the attack -- Munich Re and the AXA Group

Surges in purchases of put options on stocks offinancial services companieshurt bythe attack -- Merrill Lynch & Co., and Morgan Stanley and Bank of America

Huge surge in purchases of call options of stock of aweapons manufacturerexpectedto gain from the attack -- Raytheon

Huge surges in purchases of5-Year US Treasury Notes

In each case, the anomalous purchases translated into large profits as soon as the stock marketopened a week after the attack: put options were used on stocks that would be hurt by theattack, and call options were used on stocks that would benefit.

Put and call options are contracts that allow their holders to sell and buy assets, respectively,at specified prices by a certain date. Put options allow their holders to profit from declines in

stock values because they allow stocks to be bought at market price and sold for the higheroption price. The ratio of the volume of put option contracts to call option contracts is called
http://911research.wtc7.net/sept11/stockputs.html#financialhttp://911research.wtc7.net/sept11/stockputs.html#financialhttp://911research.wtc7.net/sept11/stockputs.html#financialhttp://911research.wtc7.net/sept11/stockputs.html#weaponshttp://911research.wtc7.net/sept11/stockputs.html#weaponshttp://911research.wtc7.net/sept11/stockputs.html#weaponshttp://911research.wtc7.net/sept11/stockputs.html#treasurynoteshttp://911research.wtc7.net/sept11/stockputs.html#treasurynoteshttp://911research.wtc7.net/sept11/stockputs.html#treasurynoteshttp://911research.wtc7.net/sept11/stockputs.html#treasurynoteshttp://911research.wtc7.net/sept11/stockputs.html#weaponshttp://911research.wtc7.net/sept11/stockputs.html#financial


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the put/call ratio. The ratio is usually less than one, with a value of around 0.8 considerednormal.

3.1.Losers

American Airlines and United Airlines, and several insurance companies and banks postedhuge loses in stock values when the markets opened on September 17. Put options -- financialinstruments which allow investors to profit from the decline in value of stocks -- werepurchased on the stocks of these companies in great volume in the week before the attack.

United Airlines and American Airlines

Two of the corporations most damaged by the attack were American Airlines (AMR), theoperator of Fligh 11 and Flight 77, and United Airlines (UAL), the operator of Flight 175 andFlight 93. According to CBS News, in the week before the attack, the put/call ratio forAmerican Airlines was four.The put/call ratio for United Airlines was 25 times above normal

on September 6.

The spikes in put options occurred on days that were uneventful for the airlines and theirstock prices.

On Sept. 6-7, when there was no significant news or stock price movement involving United,the Chicago exchange handled 4,744 put options for UAL stock, compared with just 396 calloptions -- essentially bets that the price will rise. On Sept. 10, an uneventful day forAmerican, the volume was 748 calls and 4,516 puts, based on a check of option tradingrecords.


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TheBloomberg News reported that put options on the airlines surged to the phenomenal high

of 285 times their average.

Over three days before terrorists flattened the World Trade Center and damaged the

Pentagon, there was more than 25 times the previous daily average trading in a Morgan

Stanley "put" option that makes money when shares fall below $45. Trading in similar AMR

and UAL put options, which make money when their stocks fall below $30 apiece, surged to

as much as 285 times the average trading up to that time.

When the market reopened after the attack, United Airlines stock fell 42 percent from $30.82

to $17.50 per share, and American Airlines stock fell 39 percent, from $29.70 to $18.00 per

share.

Reinsurance Companies

Several companies in the reinsurance business were expected to suffer huge losses from theattack: Munich Re of Germany and Swiss Re of Switzerland -- the world's two biggest

reinsurers, and the AXA Group of France. In September, 2001, the San Francisco Chronicle

estimated liabilities of $1.5 billion for Munich Re and $0.55 bilion for the AXA Group and

telegraph.co.ukestimated liabilities of 1.2 billion for Munich Re and 0.83 billion for Swiss

Re.

Trading in shares of Munich Re was almost double its normal level on September 6, and 7,

and trading in shares of Swiss Re was more than double its normal level on September 7.

Financial Services Companies


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Merrill Lynch and Morgan Stanley Morgan Stanley Dean Witter & Co. and Merrill Lynch &

Co. were both headquartered in lower Manhattan at the time of the attack. Morgan Stanley

occupied 22 floors of the North Tower and Merrill Lynch had headquarters near the Twin

Towers. Morgan Stanley, which saw an average of 27 put options on its stock bought per day

before September 6, saw 2,157 put options bought in the three trading days before the attack.

Merrill Lynch, which saw an average of 252 put options on its stock bought per day before

September 5, saw 12,215 put options bought in the four trading days before the attack.

Morgan Stanley's stock dropped 13% and Merrill Lynch's stock dropped 11.5% when the

market reopened.

Bank of America showed a fivefold increase in put option trading on the Thursday and Friday

before the attack.

A Bank of America option that would profit if the No. 3 U.S. bank's stock fell below $60 a

share had more than 5,900 contracts traded on the Thursday and Friday before the Sept. 11

assaults, almost five times the previous average trading, according to Bloomberg data. The

bank's shares fell 11.5 percent to $51 in the first week after trading resumed on Sept. 17.

3.2.Winners

While most companies would see their stock valuations decline in the wake of the attack,

those in the business of supplying the military would see dramatic increases, reflecting the

new business they were poised to receive.

Raytheon

Raytheon, maker of Patriot and Tomahawk missiles, saw its stock soar immediately after the

attack. Purchases of call options on Raytheon stock increased sixfold on the day before the

attack.

A Raytheon option that makes money if shares are more than $25 each had 232 options

contracts traded on the day before the attacks, almost six times the total number of trades that

had occurred before that day. A contract represents options on 100 shares. Raytheon shares

soared almost 37 percent to $34.04 during the first week of post-attack U.S. trading.

Raytheon has been fined millions of dollars inflating the costs of equipment it sells the US

military. Raytheon has a secretive subsidiary, E-Systems, whose clients have included the

CIA and NSA.

US Treasury Notes

Five-year US Treasury notes were purchased in abnormally high volumes before the attack,

and their buyers were rewarded with sharp increases in their value following the attack.

The Wall Street Journal reported on October 2 that the ongoing investigation by the SEC into

suspicious stock trades had been joined by a Secret Service probe into an unusually high

volume of five-year US Treasury note purchases prior to the attacks. The Treasury notetransactions included a single $5 billion trade. As the Journal explained: "Five-year Treasury


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notes are among the best investments in the event of a world crisis, especially one that hits the

US. The notes are prized for their safety and their backing by the US government, and usually

rally when investors flee riskier investments, such as stocks." The value of these notes, the

Journal pointed out, has risen sharply since the events of September 11.

CONCLUSION:

The SEC's Investigation

Shortly after the attack the SEC circulated a list of stocks to securities firms around the world

seeking information. A widely circulated article states that the stocks flagged by the SEC

included those of the following corporations:American Airlines, United Airlines, Continental

Airlines, Northwest Airlines, Southwest Airlines, US Airways airlines, Martin, Boeing,

Lockheed Martin Corp., AIG, American Express Corp, American International Group, AMR

Corporation, AXA SA, Bank of America Corp, Bank of New York Corp, Bank One Corp,Cigna Group, CNA Financial, Carnival Corp, Chubb Group, John Hancock Financial

Services, Hercules Inc., L-3 Communications Holdings, Inc., LTV Corporation, Marsh &

McLennan Cos. Inc., MetLife, Progressive Corp., General Motors, Raytheon, W.R. Grace,

Royal Caribbean Cruises, Ltd., Lone Star Technologies, American Express, the Citigroup

Inc., Royal & Sun Alliance, Lehman Brothers Holdings, Inc., Vornado Reality Trust, Morgan

Stanley, Dean Witter & Co., XL Capital Ltd., and Bear Stearns.

An October 19 article in the San Francisco Chronicle reported that the SEC, after a period of

silence, had undertaken the unprecedented action of deputizing hundreds of private officials in

its investigation:

The proposed system, which would go into effect immediately, effectively deputizes

hundreds, if not thousands, of key players in the private sector.

In a two-page statement issued to "all securities-related entities" nationwide, the SEC asked

companies to designate senior personnel who appreciate "the sensitive nature" of the case and

can be relied upon to "exercise appropriate discretion" as "point" people linking government

investigators and the industry.

Michael Ruppert, a former LAPD officer, explains the consequences of this action:

What happens when you deputize someone in a national security or criminal investigation is

that you make it illegal for them to disclose publicly what they know. Smart move. In effect,

they become government agents and are controlled by government regulations rather than

their own conscience. In fact, they can be thrown in jail without a hearing if they talk

publicly. I have seen this implied threat time and again with federal investigations,

intelligence agents, and even members of the United States Congress who are bound so tightly

by secrecy oaths and agreements that they are not even able to disclose criminal activities

inside the government for fear of incarceration.

Interpreting and Reinterpreting the Data


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An analysis of the press reports on the subject of apparent insider trading related to the attackshows a trend, with early reports highlighting the anomalies, and later reports excusing them.In his bookCrossing the Rubicon Michael C. Ruppert illustrates this point by first excerptinga number of reports published shortly after the attack:

A jump in UAL (United Airlines) put options 90 times (not 90 percent) above normalbetween September 6 and September 10, and 285 times higher than average on theThursday before the attack.-- CBS News, September 26

A jump in American Airlines put options 60 times (not 60 percent) above normal onthe day before the attacks.-- CBS News, September 26

No similar trading occurred on any other airlines-- Bloomberg Business Report, the Institute for Counterterrorism (ICT), Herzliyya,Israel [citing data from the CBOE]

Morgan Stanley saw, between September 7 and September 10, an increase of 27 times(not 27 percent) in the purchase of put options on its shares.

Merrill-Lynch saw a jump of more than 12 times the normal level of put options in thefour trading days before the attacks.

Ruppert then illustrates an apparent attempt to bury the story by explaining it away as nothingunusual. A September 30New York Times article claims that "benign explanations are turningup" in the SEC's investigation. The article blames the activity in put options, which it doesn'tquantify, on "market pessimism," but fails to explain why the price of the stocks in theairlines doesn't reflect the same market pessimism. The fact that $2.5 million of the putoptions remained unclaimed is not explained at all by market pessimism, and is evidence thatthe put option purchasers were part of a criminal conspiracy.

The arguments advanced by the SEC does not prove that speculation about the titlesAmerican Airlines and United Airlines are not insider trading. On the other hand, assumingthat purchase as an example chosen by the SEC are really harmless, these two examples dowe ensure that all purchases of put options are the suspects. And what about the evidencecollected by the company Convar, as well as unusual and unexplained movements thatinvolved the U.S. Treasury bills, currency in circulation in the United States and the marketsfor gold and oil? This is a question that still has to be answered.


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Bibliography:

LE 11 SEPTEMBRE TOURNE

UNE NOUVELLE PAGE DE L'HISTOIREDU RISQUE ET DE L'ASSURANCE

Jean-Marc LamreDlgu gnral de la Fdration franaise des socits d'assurances

projet risque systemique

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