FROM THE OFFICE OF PUBLIC AFFAIRS

June 24, 2004
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Remarks of Wayne A. Abernathy Assistant Secretary of the Treasury for Financial Institutions Before MasterCard Global Risk Management Symposium San Diego, California

The War on Freedom

In his personal memoirs, finished just days before his death, Ulysses S. Grant wrote, "Monarchical Europe generally believed that our republic was a rope of sand that would part the moment the slightest strain was brought upon it.  Now it has shown itself capable of dealing with one of the greatest wars that was ever made, and our people have proven themselves to be the most formidable in war of any nationality."(Ulysses S. Grant, Personal Memoirs of U.S. Grant, p.585)

Today we are engaged in a new war, testing our Republic once again.  And we will need to be as formidable as ever to gain the victory.  The enemy is hidden.  He strikes from behind, from disguise, from ambush.  He knows no mercy, acknowledges no shame.  His target is neither our land nor our wealth.  His target is nothing less than our very way of life.  It is who we are and how we live that the terrorist seeks to destroy.

This enemy makes the same mistake as the monarchs seen by President Grant.  He looks at America and our freedoms and thinks to see weakness where there is strength.  He sees free people and free markets deciding economic questions and thinks that he sees disorder.  He hears free speech and imagines that he hears confusion.  He witnesses a government led by freely-elected leaders rather than self-appointed despots and imagines to himself directionless crowds.  In all, he misses the power of free people exercising their God given talents to choose and build their lives, their futures, their homes, pursuing their happiness.

Remember, and make no mistake:  it is not precisely America--or the United States of America--that the terrorists are fighting.  They target what America represents, what made America what it is.  They target freedom.  Were we to surrender our freedoms that might be one way to stop the terrorism.  They say that terrorists do not thrive in police states that they prey upon free and open societies.  But if we close our society and surrender our freedoms, then the terrorist wins, because it is our freedom--and what freedom does to people--what people do with freedom, free hearts, free minds--that the terrorist hates.    

The challenge set for us in this Administration by President Bush--and by the people of this nation--is to vanquish terrorism without surrendering our freedom, to draw upon the power of our freedom to fight and defeat terrorism.  The oft quoted and seldom read Alexis de Tocqueville saw a great genius in Americans to associate, to come together freely to achieve important goals.  That is the task before us today.

The Symbols and Sinews

Pitiless people have their sights set on the symbols and sinews of liberty and freedom.  Those symbols and sinews include the systems, the relationships, the arrangements, and the institutions that facilitate the ability of people to associate freely here in this nation and from here throughout the world.  The haters of freedom despise free markets, and they are targeting the financial institutions that support those free markets.

So I salute and congratulate you for your presence here today, for your interest in preserving, protecting, and promoting those symbols and sinews of liberty and freedom, to come together, to work together to promote our prosperity and protect our way of life.  Thank you for taking important time from your important daily business.  We are assembled here today, as others have in other financial centers around the country, and as others will yet assemble elsewhere, to say that we will not let the terrorists, we will not let the enemies of freedom, we will not let them destroy or disrupt our financial commerce, we will not let them interfere with our ability to save, to invest, to borrow, to insure against life's dangers.

With planning, preparation, and prudence, we can deny the terrorists the prize they seek.  They want to make you stop.  They want to make you close up shop.  They want to make you fear to innovate, to invest, to create new opportunities, new products, new jobs.  I firmly believe that if we are prepared, we need not fear.

The Importance of the Obvious

This morning I would like to share with you four principles that should guide our preparations.  They should also guide us in our response to calamity, whether manmade calamities or the calamities of nature.  I presented these principles to Congress last year, when I explained how well they had worked at the time of the Detroit to New York power black out of last summer.

I recently shared these with members of my family.  I could tell that they were not impressed.  When asked why, they told me in effect that these points were rather obvious.  They had me there, but I offer in defense the words of Calvin Coolidge, who once said,

 They criticize me for harping on the obvious.  Perhaps some day I'll write On the Importance of the Obvious.  If all the folks in the United States would do the few simple things they know they ought to do, most of our big problems would take care of themselves.  (Calvin Coolidge, quoted by Cal Thomas in, "Silent Cal Speaks: Why Calvin Coolidge Is the Model for Conservative Leadership Today," The Heritage Lecture Series, No.576, p.3)

These are the four principles.  They are presented in order of importance, and I confess that they are obvious.  I would add, though, that in times of stress and challenge, the obvious does not always seem so obvious.  These points are even more important than they are obvious:

First, and most important, we must remember in all that we do to protect our financial infrastructure, that it is always about people.  It is the people that make our financial institutions work, people that designed the systems, people that make them successful, people that innovate to keep them fresh and dynamic, and it is people whom they are designed to serve, people who rely upon financial services for so many aspects of their daily lives.  Our first consideration in planning and action must be, how does it affect people.

Second, because it is about people, it is about confidence.  Our financial institutions operate on confidence, but they also promote confidence.  In fact, confidence is what our financial institutions must provide, confidence that financial transactions will be carried out, that checks will clear, that bills will be paid, that investments will be made, that insurance promises will be kept.  The confidence provided by financial institutions and their services play a big part in helping to cope with the trauma of disaster.  With good reason, earned by experience, the world places great confidence in American financial institutions.  In our planning and in our action, what are we doing to promote confidence? 

Third, essential to that confidence is open markets, financial institutions open for business, doing their business, allowing Americans everywhere to engage in their business, even during--especially during--times of stress.  It is important for financial institutions and markets to continue to operate as close to business-as-usual as possible.  During times of stress, investors need to price the effects of that stress on assets.  The longer they are prevented from pricing the impact, the more anxiety builds and the worse the consequences will be when markets eventually re-open.  What do we need to do, in planning and action, to keep our markets open? 

The fourth guiding principle is responsibility.  Each bank, every insurance company, every single financial institution has a responsibility to its customers.  Every regulator has a responsibility to the financial institutions that it supervises.  That responsibility applies both as we prepare for disruptions and as we weather them.  In the event of a disorder in the payments system, for example, we want the payments systems experts to fix it.  We do not want them to wait for guidance from Washington.  Just fix it.  The experts who are on the ground and in the field are the best to determine what steps should be taken to protect employees and customers.  We will help where we can and where we need to, but we leave the responsibility with the financial institutions and the regulators that are closest to the problems to find the solutions.  Initiative and ingenuity are the most powerful tools to deal with any disruption, and we must give full room for their exercise.  All of us must shoulder our responsibility.

People, confidence, open markets, and responsibility are the four keys, the fundamental principles that guide us.  They guide our preparations, and they guide our response.  They were tested by that unexpected drill last summer when the lights went out from Detroit to New York, and they worked well.  People did not lose money from their accounts, there was no panic, financial markets opened and operated, and there were no calls to Washington from financial leaders asking what to do.

Let me take a few moments to use that unplanned test of our preparedness to illustrate these four key points.

What Happened When the Lights Went Out

Last summer's power outage was a sober reminder that we must be vigilant and prepared at all times to wrestle with a crisis, whether intentional or accidental.  It reminded us that challenges will be unexpected and unpredictable.  And they are unpredictable.  It seems that the voices who predict disasters are loudest after the disaster has happened.

The experience of the blackout was a real life test of the preparedness of our financial infrastructure, not its preparedness to face a blackout, but its preparedness to face the unexpected.  And the financial infrastructure worked well--not perfectly, but very well--and there are lessons in what worked, and there are lessons on how to do even better.  At the core, the financial system worked well because the four key, obvious principles I outlined had guided our preparations, they guided our evaluation of the problem when it occurred, and they guided our response. 

Our first concern was for people.  We spoke to the regulators, the financial institutions in New York City, other federal agencies, and law enforcement and intelligence units.  And most importantly, we spoke with the financial services providers.  We quickly learned the status of the people, the employees, and whether needed financial services were being provided to customers.

Next, we turned to confidence.  We sought to ensure that critical financial institutions had backup generators that functioned and that staff had sufficient, reliable power to perform their jobs both effectively and safely.  We wanted to know how calmly things were going, where were the problems, the bottlenecks.  We communicated.  Using the various coordination organizations that have been developed in recent months, we quickly talked with one another, to reassure one another that the various pieces of our interconnected financial markets were in place and working, that we each could depend upon one another.  What we learned was reassuring. 

The press coverage quickly turned to asking whether the financial markets would open the next day.  The financial services providers were confident.  What about the confidence of the customers, of the public?  The press interest reminded us that the functionality of the financial markets serves as a proxy for the severity of a crisis.  Journalists asked whether the markets would open or whether they would close.  The unspoken assumption was that an open market indicates stability, calm, reassurance, while closed markets suggest the opposite, namely, that the country would not be "doing business as usual."

The tendency to view the financial markets as a bellwether points to the importance of the third basic principle, open markets, the need that markets operate as normally as possible both during and after a crisis.  I take great comfort in how well this lesson has been understood.  I heard no talk from any financial market participants on Thursday evening that they would not open for business on Friday.  In fact, they were eager to declare and reassure all who would hear that they would be open for business.  And to me, the great sign was not just that the markets ran smoothly on Friday.  It was how smoothly they ran on Monday.  There was no pent up demand that had built up over the weekend that sought a frantic relief on Monday morning.  Everyone who wanted to buy had been able to buy.  All who wanted to sell had been able to sell.  All transactions cleared.

The most effective way of achieving that goal was to rely on the individual players in the markets themselves to determine how they would operate and how they would interact with customers and with other institutions.  When the lights went out, the calls we received in Washington were from people telling us what they were doing, not from people asking for instructions. 

Thus, our fourth principle--responsibility--means that Washington does not orchestrate the financial market response and recovery.  I know that frustrates people who think that all wisdom emanates from the banks of the Potomac, that if government does not do it, then it doesn't happen.  We relied upon individual initiative, and we were not disappointed.  Rather, our confidence has been confirmed.  Our job involved assessing and informing, not directing. 

This is not to say that there were no problems.  There were, but they were resolved.  And now we are evaluating what we learned.  In addition to the reinforcement of the wisdom of our four basic principles, we learned the importance of practice and drill.  In the months since September 11, 2001, we have practiced many different disaster scenarios, and we have drilled for many eventualities.  I do not recall a drill that envisioned a blackout affecting 70 million people.  But because we had gone through the various exercises, we had learned to work together to face the unexpected.  The development and drilling of those skills have served us well.  We cannot let up in exercising them.

Time for Work

Preparation requires a lot of work.  A lot of work has already been done, here and elsewhere.  I am pleased by the great work that has been done by our stock markets and other financial markets to be ready to face disorders, large or small, and keep on operating.  We are better prepared today than we were a year ago, than we were six months ago.  There is more work for all of us to do.  Your presence and participation here today demonstrate your willingness to roll up your sleeves and do the work. 

I was taught that the most important part of prayer is what you do after you get up off of your knees.  If today's meetings are to have lasting effect, it will come from what you do when you leave these meetings.  Work with your colleagues, consult, share best ideas.  We are ready to lend a hand, to assist you in your efforts, all in keeping with the four obvious and absolutely essential principles I have outlined today. 

A few weeks ago, I addressed a meeting of financial services leaders in Richmond, Virginia.  I brought my youngest son with me that day.  He is the fifth of the latest generation of Virginians born to our family.  He reminds me, he and his generation remind us all, that it is the future, a future of freedom, free markets, free enterprise, free minds and free homes that we are preserving, that we are building.  There are people in the world who hate all of that, who would destroy it if they could, but we won't let them.  As Americans have done in the past, we today will stop them.  Thank you for letting me join with you in that effort.

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