Asia Times: Bin Laden: Speculating from his cave?


	September 22, 2001	atimes.com

Editorials

Bin Laden: Speculating from his cave?

With their obvious foreknowledge of the attacks on the New York World Trade Center, did the controllers and masterminds of the September 11 terrorist acts massively enrich themselves by short selling of airline and insurance stocks on international bourses?

Asked this question in a US Senate Banking Committee hearing on Thursday, US Treasury Secretary Paul O'Neill punted. His department was working with the Securities and Exchange Commission on that, he said, but it was unclear whether there was unusual trading in airline stock options prior to the terrorist attacks, adding that, "While there's no doubt there was a major shift in the ratios between puts to calls, it's not clear to me yet, from the analysis that's being done, that there's a huge amount of money at risk."

The money-savvy Swiss are not as shy. Already last Friday (Sep 14) the Zurich daily Tagesanzeiger ran an article in which it quoted Kristian Leuthold, derivatives specialist at UBS in Zurich, saying that, "Someone speculating on falling share prices could, by way of [stock market] index options, in a few days have earned 30 times the amount he invested ... an investment of 100 million could easily have yielded 3 billion [Swiss francs]." Leuthold also noted that, "If the total deal had been broken up into small lots and distributed through different middlemen, banks and markets, it would be very difficult to detect anything ... For example, an offshore corporation places an order with a small Swiss private bank. That bank, in turn, executes the derivatives deal via a large bank such as UBS. For the market-maker, only UBS shows up as the counterparty."

Just how large the opportunities for the finance committee of Osama bin Laden or whoever directed the attacks on the US would have been is now becoming amply clear. Since September 11, major European and US stock markets have plunged, some by up to 25 percent. Airline and insurance stocks are down even more sharply on huge losses from lost air traffic and insurance claims. US airlines will receive emergency government funds in the US$5 billion range; but estimates are that over the past week they lost anywhere from $50 to $200 million a day and losses are continuing to mount. The world's largest reinsurance companies, Munich Re, Swiss Re, Hannover Re, AXA, and others now say that their obligations run into the billions of dollars each. In a notification to the Frankfurt stock market, Munich Re said that it expected to suffer the largest losses in the company's history, adding - on a "positive" note - that relative to premiums collected the losses were, however, smaller than those from the 1906 San Francisco earthquake.

For someone in the know, such airline and insurance losses were utterly predictable, as was the tanking of international markets. And O'Neill's diffidence notwithstanding, clearly someone (or more than one) was either in the know or made some horrendously risky short selling bets prior to September 11. On September 6-7, there were 4,744 puts and just 396 calls on the shares of United Airlines and American Airlines at the Chicago Board Options Exchange. On September 10, the numbers were 4,516 and 748, respectively. On September 7 and September 10, the combined puts on Dutch carrier KLM exceeded ordinary volume by 10 to one. On the Wednesday, Thursday and Friday before the attacks on the US, the stock of Munich Re, world number one reinsurer, fell 4 percent, 5 percent and 4 percent, respectively. Swiss Re was similarly affected.

While O'Neill, for whatever peculiar reasons, is hesitating and US SEC chairman Harvey Pitt would only say that "there is a multi-agency effort under way, under the leadership of the Federal Bureau of Investigation, but my agency is actively investigating reports of possible terrorist activity", other nations' financial watchdogs are more forthcoming. France's Commission des Operations de Bourse has opened a formal investigation, and says that it has been given the legal means to vigorously pursue all leads and prosecute possible perpetrators. Similar efforts are under way in Switzerland, Germany and Japan and the German securities regulators have said that already last Monday a global conference call of regulators had been held to compare notes.

Conceivably, the US treasury secretary feels that bin Laden or other international terrorists do not have the means or sophistication to engage in options trading. Or perhaps he is concerned that admitting such possibilities and the inability of investigators to detect such transactions would throw additional negative light on financial markets. We won't speculate on his motives; but we will quote US terrorism specialist Bruce Hoffman of Rand Corp.

"He [bin Laden] is absolutely sophisticated enough ... if his finances are managed with the same care he puts into setting up his operations ... He's shown himself to be far more sophisticated than other terrorist adversaries we've faced. He has considerably enhanced logistical capabilities, dwarfing other terrorist groups," Hoffman said.

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