Woes for Wall St. & New York
When an Atlanta-based firm bought the New York Stock Exchange just before Christmas, everybody yawned. But its a sign of accelerating changes on Wall Street that mean trouble for New York — which still depends on Big Finances huge profits.
Twelve-year-old upstartICE didnt so much want the stock-trading exchange as the NYSEs huge business in global derivatives.
Thats the far more complex — and lucrative — business of making bets on everything from interest rates to corporate bankruptcies.
In fact, long before the ICE announcement, this change away from the simple and toward the opaque had already cost New York thousands of middle-class jobs.
Its easy to see this in the average salary and bonus Wall Street pays. In 2001, the peak year for Wall Street before the credit bubble, the average income for the Streets 188,100 workers (including bonus) was $247,000.
As Wall Street has shrunk since then, the industry has cut more jobs at the lower end. From 2001 to 2011, the industry shed 9.6 percent of its jobs. But the average income of the people who kept their posts rose to $364,900, a 13.5 percent hike after inflation.
That poses one question for New York: How to replace lost middle-class and upper-middle-class jobs?
So far, were not doing it. Over the decade, the citys average non-financial wage rose only 1.3 percent faster than national inflation, even as the cost of living here has soared.
The more acutechallenge for New York is that now, even the rarified top of the Wall Street pyramid is crumbling.
Nearly half a decade after Lehman Bros. collapsed, the financial industry is slowly coming to terms with the fact that the housing and credit bubbles were one-off events. Easy profits are much harder to come by.
Without bubble-era profits, the industry doesnt need so many highly paid geniuses. It turns out even a lot of those hedge-fund profits were just illusory, dependent on ample credit.
Thats why todays average Wall Street wage — mostly made up of bonus — is still 19 percent below what it was in 2007.
The bonuses for 2012 are unlikely to be a boon; Wall Street revenues for the year will likely be flat over 2011.
And we may be in for more bloodletting — in bonusesandjobs. "Cost cutting . . . by investment banks . . . [is]likely to continue for several years," analysts at Standard and Poors said recently.
Last month, Citibank said it will cut 1,900 more jobs worldwide. Globalbanks including UBS, Deutsche Bank and Nomuraaredoing the same.
The only thing keeping Wall Street doing as well as its donesincethe credit bubble burst has been the Federal Reserves zero interest rates.
These cheap rates let financial firms borrow nearly for free. Cheap borrowing allows big corporations, too, to tap cheap money through Wall Street (paying big fees).
But Fed chief Ben Bernanke has hinted he may raise rates when national unemployment falls below 6.5 percent.
In the past year and a half, unemployment has fallen from 9 percent to 7.7 percent. If it keeps dropping, Wall Street will be looking at higher rates — and still-lower profits — by thenexttime the New Years ball drops.
Thats a big problem for New Yorks next mayor — because even as Wall Street has changed and cut back, the city budget has continued to grow.
City spending this year, at $52.6 billion (not including federal and state grants), is 55.8 percent higher than it was a decade ago (after inflation).
Since Wall Street collapsed, New York has run chronic deficits — relying on rainy-day funds and one-shot revenue windfalls to cover the shortfalls.
The financial industry still accounts for 21 percent of all wages earned in the city, and an even greater share of tax dollars.But this big chunk of the pie is inexorably getting smaller.
Meanwhile, Mayor Bloomberg hasnt cut back on the big-ticket items driving the deficits, like health-care spending on public workers and the poor.
The mayor will announce his final budget in the coming weeks; unless he uses it for a serious course-change, the real fix will be up to thenextmayor.
Original Source: http://www.nypost.com/p/news/opinion/opedcolumnists/an_unlucky_Dg0oUnS7xWG2kqpXHBUJSN