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New York Post


What Would 'Mayor' de Blasio Do About NY's Finances?

October 07, 2013

By Nicole Gelinas

’Wall Street has not only recovered to its pre-recession levels, but managed to set new records," Democratic front-runner Bill de Blasio proclaimed before a business group last Friday.

But it looks like tougher times ahead on Wall Street which will be a big problem for New York and an even bigger problem (assuming he wins in November) for de Blasio.

If finance slows, it will deepen a city deficit already projected at $2 billion and leave the centerpiece of de Blasio’s campaign a tax hike on the rich in shambles.

De Blasio is already wrong by one measure. His opponent, Joe Lhota, called the "new records" statement "nonsensical," noting, "We are missing 25,100 jobs" in finance and insurance (compared to the 2007 peak). The securities industry, too, is still down 19,200 jobs. "Wall Street as a New York City industry has not recovered," Lhota said.

Those still employed are making less, too. The average financial-industry wage was $266,972 last year, down 7 percent from the $286,001 peak in 2007. The wage in securities down from $403,358 to $361,137.

De Blasio had one solid point: Profits are back. So why haven’t Wall Street bosses added staff?

Because they know today’s profits aren’t likely to hold up.

That’s a problem for the city, because the tax revenues those profits create are also endangered, and New York is still dangerously dependent on Wall Street and its money.

Yes, over the half-decade since Lehman Bros. collapsed, Mayor Mike has tried to wean the city off banking.

In 2007, as the credit bubble was about to burst, New York’s economy got 33.4 percent of its total wage earnings from finance; last year, it was 27.7 percent.

Which is still a lot.

And it’s one thing to create non-Wall Street jobs. It’s another thing to create good jobs that generate high incomes and tax revenues.

Since 2007, New York has created 227,600 jobs but nearly 80 percent are in the lower-paid hotel, food and retail industries. These jobs can’t pay the city’s bills: The bottom 40 percent of city households don’t pay city income tax.

So a Wall Street downturn is still a disaster for the city budget.

Remember last time: Pay in finance slipped from $97.2 billion in 2007 to $71.7 billion in 2009 and the city’s personal-income-tax revenue fell from $8.6 billion to $6.9 billion.

Even half that drop now would widen the next mayor’s $2 billion budget deficit (and similar deficits after that) by nearly another $1 billion a year. And another hit would come in the city’s $1.3 billion annual take from bank taxes.

It may already be happening despite De Blasio’s oblivious comments. Recent headlines have warned of lower banking profits.

There’s a looming crisis: Sooner or later, the Federal Reserve has to end its welfare-for-Wall Street program by hiking interest rates from their record lows.

Low interest rates have helped Wall Street for five years. They let banks borrow cheaply, then use that money to speculate. And with low mortgage rates, everyone wants to buy a house or refinance, paying fees to banks. (Plus, the Fed’s "quantitative easing" meant buying up assets that the banks otherwise would have had trouble liquidating.)

But all the cheap cash will inevitably fuel a new bubble, which would burst all too soon, perhaps as disastrously as the last one.

So the Fed will have to hike rates. Banks are already charging higher interest rates to customers in anticipation.

With fewer people refinancing mortgages, Citigroup will lay off 2,200 mortgage workers nationwide. The bank will doubtless need fewer Wall Street workers to package up those mortgages and sell them on to investors.

Corporations, too, may start borrowing less. This spring they borrowed 40.2 percent more through the bond markets than last spring, according to Securities Industry and Financial Markets Association. That should reduce their borrowing needs for a while.

The city Budget Office warned two months ago, "The recent jump in interest rates has led to changes in investor and borrower behavior," posing "challenges to banking." Has de Blasio read these reports or noticed the warning of lower bank profits?

A shrinking Wall Street hurts other city industries, too.

The city’s information-tech field has cut 1,100 jobs this year. When Wall Street trades less, it needs fewer well-paid techies to program the computers that make the trades. And Thomson Reuters is cutting 150 jobs: Less finance means less need for financial media.

"We cannot expect prosperity to trickle down from the top," de Blasio said Friday. He may be right but not in the way he thinks.

Original Source:



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