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Blue Model Blues
The New York Bubble

Don’t tell the Williamsburg hipsters (especially not before they’ve had their afternoon cortados), but New York City’s renewal may be coming to an end. The New York Post:

There’s a pall over the financial markets this holiday season, and it has little to do with the shortage of daylight this time of year.

The lifeblood of the street — bonuses — will be cut, and if you survive, there’s no guarantee of a better 2016.

That’s because Wall Street is bracing for merciless job losses that could total 100,000 in the US alone by June.

By this estimate, Wall Street head count in New York City — some 170,000 today — could shrink by as much as 17,000, with the downsizing hitting everyone from million-dollar backers to middle-class backoffice workers.

For the past two decades, New York City has enjoyed a remarkable run of economic growth, falling crime rates, and cultural vibrancy. The food scene has never been better, new museums (and new buildings for old ones) keep cropping up, parks are cleaner and more numerous, and, of course, there’s a nice little housing boom. Experts point to policing and reduced crimes rates to explain New York’s resurgence, but Wall Street’s success and government support of it has been equally critical.

The Obama era, in general, has been a great one for Wall Street, but not so much for Main Street. Wall Street rebounded from the 2008 crash faster than most of the country, in large part thanks to bailout money from Washington. Although the banks shed plenty of jobs, they didn’t collapse the way businesses in other parts of the country did. The 2009 federal stimulus sent $9.1 billion to New York.

The result was that property values never really caved in New York like they did elsewhere. Perhaps partly for this reason, newly rich oligarchs in China and other emerging market economies saw New York real estate as a place to keep their money safe from autocratic and potentially-unstable regimes. That phenomenon has only driven home prices higher, and encouraged more construction.

Look around, however, and all the springs which have helped New York grow are drying up. Low federal interest rates were great for Wall Street over all, and thus great for New York City. Many predict that the Fed will be tightening soon, the era of easy money is over, or will be over soon. There’s no more stimulus, of course. The rush to move money to the U.S. from collapsing commodities-dependent countries can’t last forever, particularly as a strengthening dollar makes New York property even more expensive. And that strong dollar also discourages international tourism, which is the city’s second-biggest economic engine.

But it’s the slowing of the biggest engine, finance, that causes the most concern. New York City could probably survive a decline in tourism, and residents might even appreciate a cooling off of the construction boom, even if it meant the end of skyrocketing housing prices. But if Wall Street cuts jobs and salaries, the city will suffer in ways all of its residents feel.

This is particularly bad news for Mayor Bill de Blasio and his progressive agenda, which relies on ever-increasing tax revenues to fund new education and housing initiatives. Bigger, bluer government is also more expensive government. And, although New Yorkers might have trouble imagining why anyone would want to live anywhere else, we suspect they’d change their tune if taxes rose much higher—particularly as schools and subways fail to improve (to say nothing of the city’s apparent inability to house its homeless).

New York’s decline isn’t at all inevitable, or necessarily going to be particularly steep, but the winds which have blown New York so far are starting to change direction. Of course, even if the city does weather the storm, we doubt historians will credit de Blasio, the City Council, and their corrupt overlords in Albany for able steering.

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  • WigWag

    Via Meadia forgets to mention New York City’s greatest asset and it isn’t Wall Street or the financial industry though that industry is incredibly important to New York City’s prosperity. New York City’s greatest asset is that more billionaires chose to call it home than any city in the world (including London).

    Arch-conservative Republicans love New York as much as radically progressive Democrats do. Rupert Murdoch is a New York City resident. So is David Koch of Koch brothers fame. So are Steve Ross, (the owner of the Miami Dolphins), John Griffin (Blue Ridge Capital) and Dan Loeb (the hedge fund billionaire); each of them are major bundlers for the Jeb Bush campaign. Chris Christie’s main financial backer, Ken Langone, a founder of Home Depot, lives in New York. Jeb Bush and Marco Rubio have raised more money in New York City than they’ve raised in any state in the nation, including Florida, Texas and California. Before he left the race, Scott Walker, the Tea Party flavor of the month, had one financial supporter who almost single-handedly kept his campaign afloat in its early months. His name is Anthony Scaramucci, a hedge fund guy who recently purchased the rights to that old Louis Ruckeyser show, “Wall Street Week.” Where does Mr. Scaramucci live and work? If you guessed New York City, give yourself a gold star.

    Why do these billionaires, who could live anywhere, chose to live in New York City and put up with it’s sky high taxes? It’s because they have so much money, taxes just don’t matter to them. They like living in New York and as long as they continue to like living in New York, the city is likely to do just fine.

    • Anthony

      You write like a Homer (in sports metaphoric sense).

    • Dale Fayda

      You may rest assured that all of the above mentioned billionaires have done their outmost to minimize their NYC tax liabilities. Each one has a host of prominent tax attorneys handling their corporate taxes (you don’t think they all file as individuals, do you?) and while their contribution to NYC tax coffers is likely to be considerable, it’s probably not what’s keeping the city afloat financially. Being billionaires, they may declare their legal domicile to be practically anywhere in the country, which many do in order to cushion the tax hit.

      Moreover, no matter how much money New York City takes in, it will never be enough to support the rotting Blue Model on which the city is built. Under Bloomberg, the city’s long-term debt had risen dramatically, the percentage of its population on public assistance is sky-high and the middle class and small business is voting with their feet by fleeing. It will only get worse under Comrade DeBlasio. While I’m not predicting NY City’s fast – approaching demise, I’ve seen it as much, much worse shape than now, and it wasn’t that long ago – as recently as the early 80’s, it was a mess – teetering on the edge of bankruptcy, public unions running roughshod, burned out building, graffiti and abandoned cars. It was pulled back from Detroit’s fate by the Reagan boom and by largely sensible policies of Ed Koch. A few more years of leftist rule plus a serious economic downturn and NYC’s fortunes may head south with astonishing rapidity.

      Also, none of the Republican donors you mentioned are “arch-conservatives”, not one of them. They’re barely even Republicans. They’re all the epitome of the term “establishment Republican donor class”, with the emphasis on “establishment”. Just look to whom they’ve largely donated – Bush, Christie and Rubio, on whom the establishment’s money now rides. Real conservative billionaires, like Sam Walton don’t live in NYC; pro-amnesty, pro-abortion, pro-drug legalization “compassionate conservatives” like the Koch brothers do. But, that’s a minor point.

  • Nevis07

    Though not entirely, a good deal of this is the China effect part II. Prior to the financial crisis in ’08, we had a great deal of Chinese money flooding the US treasury market, which the US government (and of course you and I (some more than others)) who were willing to use in excess to help our government borrow more and keep our credit card payments lower. Now that the Chinese have effectively reached the end of their own major credit expansion – and the fact taht they are unable to wean themselves off overseas capital drain, their own capital is fleeing for more reasons than a government corruption campaign alone. Those funds are seeking the most familiar assets to the Chinese middle class, which is real estate. In effect, our own circular credit is being cycled back not in the form of purchases of US Treasuries but in in US property. The two are not so different, though one is more liquid than the other. The consequences are however much different.

  • Jacksonian_Libertarian

    The “Great Depression 2.0” is finally catching up with New York. As long as the Fed was printing $1 Trillion a year in new money, Wall Street enjoyed rising Stock Prices as there was no other place for the money to go. Lending is stagnant during a deflation as despite the historically low interest rates, private debt levels are too high to support new lending without the huge profit opportunities which are lacking in a moribund Depression economy. This means the money isn’t going into the Bond Market, and the M3 money supply remains stagnate, and the result is no inflation to dig the economy out of the Depression.
    The Fed is now talking about raising interest rates, why? Because they are incompetent, they think the economy is overheating, when it’s just enjoying a shot in the arm from lower energy prices. It certainly isn’t because of inflation as there is none, we are still in a deflation, and fighting inflation is the only reason for raising interest rates. The Fed raises interest rates to reduce lending and the expansion of the M3 money supply in excess of an expanding economy’s money supply needs, and thereby fight inflation. But with falling energy prices there is NO inflation, so the result will be a recession as the economy shrinks. It’s all simple “Supply and Demand” the ONLY economic Law.

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