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New York Post

 

Wall Street's Winter

October 07, 2011

By Nicole Gelinas

Grim news for NYC’s budget

Tick-tock. Thanks to Washington’s support for big banks, New York City has been a cocoon of prosperity compared to the rest of the nation over the last three years.

But banks can’t stay on the dole forever -- and the city’s done nothing in the 37 months since Lehman Bros. collapsed to prepare for a leaner Wall Street.

Without endless financial-industry profits, New York can’t afford to make good on the promises it’s made to workers and pick up the trash and keep criminals off streets.

From 1997 to 2007, the city’s tax collections nearly doubled, from $20.4 billion to $38.6 billion, growth nearly three times the inflation rate. Why? The financial industry was making record profits from debt and derivatives.

Yet even during these “good” years, New York could barely keep its head above water. That is, the city needed the biggest bubble that the modern world has ever seen just so it could continue to:

* Let cops and firefighters continue to retire after 20 years.

* Provide nearly free health benefits to its army of workers and retirees and their dependents.

* Throw a few dollars to bridges and transit.

* Oh, and double the schools budget.

Without a bubble, doing this stuff isn’t tricky. It’s impossible.

In the four fiscal years since Lehman collapsed (including this year), the city has run an average deficit of 4.6 percent of its tax collections. We’ve kept going thanks to an $8 billion surplus we had built up in the five years pre-meltdown -- but that money is now gone.

And those budget holes would’ve been bigger were it not for our other reprieve: Washington’s decision, post-Lehman, to protect Wall Street at all costs.

First came the TARP bailouts, which kept some companies afloat when they should have gone bankrupt. Then came the Federal Reserve’s zero-percent interest rates -- which essentially meant free money for Wall Street, which made it easy to turn a profit.

Then, too, regulators have ignored the fact that banks have had no idea how to do foreclosures (when millions of houses need them) without, um, bending the rules.

Welfare-for-Wall-Street worked for a while. The banks even started adding back jobs. After shedding 41,100 positions between 2007 and 2010 -- 8.8 percent of the total -- New York’s financial firms hired back 10,600 people starting in spring 2010.

That may not sound impressive. But each of those 10,600 people makes an average $262,195 -- more than four times what a New Yorker who’s not in the financial sector makes. And each of these new workers has supported other local jobs -- in the private sector via consumer spending, and in the public sector through higher tax payments.

Last year, for example, the city took in $2.1 billion more in “economically sensitive taxes” -- closely tied to Wall Street -- than it had the year before. That staved off a lot of wolves.

But the wolves aren’t dead -- and now Wall Street is shedding jobs again -- 4,000 since May, and that’s just the beginning. If tax revenues surprise us this year, it’ll be on the way down, not up.

As bailout anesthesia wears off, Wall Street can’t figure out how to make money -- and the problem’s not just the European crisis or new regulations. It’s worse: Investors and clients are increasingly skeptical of the Wall Street business model, and of the Western governments upon which too-big-to-fail finance depends.

And the demonstrators in Zuccotti Park are a reminder to astute bank investors that the broader public remains inconveniently white-hot angry about bailouts. The Tea Party hasn’t gone away, either

In other words, banks and their investors have no idea how the shifting business and political climate will affect their profits in the years to come. But it’s pretty clear they won’t enjoy the growth they experienced before 2007 -- and neither will New York.

Nor has Mayor Bloomberg (or anyone else in city government, like mayoral wannabe Christine Quinn) used the four-year reprieve to prepare for wrenching change in our bread-and-butter industry.

Pension costs for public workers will reach $8.4 billion this year -- up from $5.7 billion when Lehman collapsed. Add in health and other non-wage benefits for workers and retirees, and this year’s total is $16.4 billion -- 39 percent of city tax revenues. Almost every dollar of property tax that the city collects goes toward these costs.

These numbers are an existential threat to everything New York has gained in the past 20 years -- declines in crime included.

Though it may be hard to believe, we may soon wish we had the last three years back.

Original Source: http://www.nypost.com/p/news/opinion/opedcolumnists/wall_street_winter_7Y6DBT4FLdFlIqGNrERQqO#ixzz1a6GaMODA

 

 
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