Tuesday, August 9, 2011

Wall Street slide may puncture New York City economy

New York City, whose economy rests on Wall Street's shoulders, has the most to fear from a confidence-rattling economic shock because the city's budget is prepared to adjust to a gradual decline, economists say.

The stock market's meltdown and the tens of thousands of layoffs announced by the city's hometown financial industry have not -- at least for now -- matched the stresses of 2008-2009.

"There's a difference in magnitude and certainly a difference in the financial situation," said James Brown, a labor analyst, at the state Department of Labor. Banks may not be earning as much as expected, but he said: "No one's sitting around talking about going out of business the next quarter."

What is not yet known is precisely how many bankers, traders, analysts and brokers will lose their jobs in the city. Pink slips likely will descend on many workers in other states and countries.

"Volatility and unpredictability is probably the best way to characterize where we are now," State Comptroller Thomas DiNapoli told Reuters.

New financial jobs may be created despite layoffs. Wall Street, which spent the last decade or so raising capital by going public, might revisit the 1980s strategy of opening boutiques.

Successful traders, hedge fund and private equity managers and the like have the means, contacts and ability to set up their own small shops, capitalizing on the likelihood that they will be much less regulated than their former employers.

Though Wall Street usually restarts the city's approximately $420 billion economy after a downturn, in the last cycle, that role was performed by the leisure and hospitality sector, followed by business services -- accounting, law, and advertising. (more)