Start Building & Watch Wall St. Plunge
ON Thursday, New York's mayor and governor will break ground on the Second Avenue subway - again. The financial world should pay attention: Previous "good news" for the long-planned and long-postponed East Side line has always heralded a Wall Street downturn.
How could New York's elected leaders have shown this uncanny ability to mark the topping out of the markets? Consider the old adage: When your cab driver starts giving you stock tips (or real estate tips), it's time to sell.
First, the historical record: Gotham's board of transportation first unveiled plans for the fabled subway line, to run from the east Bronx to Lower Manhattan, in September 1929 - just one month after the Dow Jones Industrial Average had hit a peak it wouldn't reach again for 25 years. The city soon abandoned plans for the subway as New York, and the nation, struggled through the Great Depression.
Nearly 45 years later, history would repeat itself. Between October 1972 and July 1974, Mayors John Lindsay and Abe Beame and Gov. Nelson Rockefeller broke ground on different sections of the subway tunnel three separate times, as The New York Times recounted yesterday. The first groundbreaking neatly coincided (almost to the very day) with a peak the Dow Jones wouldn't see again until late 1982.
But the construction got going just as the economy stopped booming. New York was facing near bankruptcy by 1975, and couldn't even think of investing money in a new subway.
There's more: In between those two economic disasters, New York's temporary resurrection of plans for the Second Avenue line predicted a far less dramatic stall in the market.
In the fall of 1951, just as the Dow was hitting an all-time post-war high, city voters and officials approved $500 million in spending for transit improvements, with much of the money expected to fund the new subway. The Dow stalled immediately, fluctuating without any real advance for the next two years; it wouldn't pick up where it had left off until late 1953. And as New York struggled with debt, nobody thought much about the soon-abandoned subway plans again for a couple of decades.
New York's odd record of trumpeting plans for the Second Avenue subway just as we're on the cusp of economic, financial, and/or fiscal turmoil actually makes perfect sense. Just as cabbies giving stock tips is a sign that speculation has run wild, so too are grand schemes from politicians a sign of unrealistic political optimism.
That is, when pols feel so confident about the future that they think it's time to break ground on a decade-long project that will consume billions of state and federal dollars, it may be a sign that their vision is due for a correction.
It's hard to see how it will be otherwise this time around. New York state and city, as well as the Metropolitan Transportation Authority, all face multibillion-dollar deficits in the next few years. Abnormally high tax flows from a record real-estate market and healthy financial markets have only postponed the day of reckoning.
And what about the federal government, set to contribute a third or so of the cost for the first phase of the new subway? Over the past six years, the Bush administration has increased the national debt by about 50 percent, to nearly $9 trillion.
Two long wars, the recovery from a historical natural disaster, massive entitlement expansions - and tax cuts, too, all at the same time: When the bill for all of this spending, promising and borrowing starts coming due, it's hard to see how New York's subway project won't be seen as one of the most expendable items on the feds' list.
Gov. Spitzer and Mayor Bloomberg will smile for the cameras as they don hardhats on Thursday - but if history is any guide, the rest of us may want to call our brokers.
Original Source: http://www.nypost.com/seven/04102007/postopinion/opedcolumnists/the_curse_of_2nd_avenue_opedcolumnists_nicole_gelinas.htm