December 14, 2009

BALCONY BREAKFAST DECEMBER 4TH

NYS Comptroller DiNapoli & NYC Comptroller-Elect Liu

Wall Street and the New York Economy: One Year After

Special Report by

Bill Hohlfeld, Coordinator Local 46 LMCT

NYS Comptroller Thomas DiNapoli	NYC Comptroller-Elect John Liu
BALCONY Co-Chair Bruce Ventimiglia	BALCONY Co-Chair Alan Lubin

 

On Friday, December 4, 2009, an impressive array of speakers gathered at the Hard Rock Cafe on 43rd St. and Broadway in New York City, not to sip cocktails or gaze at the instruments of rock n roll’s famous, late and great, but rather to discuss over bagels and coffee, the topic that is on every New Yorker’s mind today — the state of the economy.

Click here for the full report: NY Economy

 

November 23, 2009

Wall Street and the New York Ecomony -- One Year After

Breakfast Forum, December 4, 2009, with New York State Comptroller Thomas P. DiNapoli and a panel of financial experts.

For more information, click this link: DiNapoli

To view the prior Forum (2008) photos and/or videos, click the photos or videos link here.

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November 24, 2008

DiNAPOLI REPORT: WALL STREET’S TRANSFORMATION WILL
LEAD TO LOWER TAX REVENUES; CONTINUED JOB LOSSES

Wall Street’s Shift from Investment Banking Model Will Lower Industry Profits

The financial crisis could cost New York State and New York City 225,000 jobs and $6.5 billion in securities industry-related tax revenue over the next two years, according a report released today by New York State Comptroller Thomas P. DiNapoli. The Comptroller noted that the Governor and Mayor have been proactive in dealing with the crisis, but New York, like other states, may require federal assistance given the magnitude of the projected budget gaps.

“Wall Street is the engine that drives the economies of New York State and New York City, but the global credit crunch has slowed that engine down,” DiNapoli said. “This year is on pace to be one of the worst years ever on Wall Street. Through the first half of this year, broker dealer operations of New York Stock Exchange member firms reported a loss of nearly $21 billion.

“These numbers are translating into job losses. The securities industry in New York City has lost more than 16,000 jobs and the industry could lose a total of 38,000 jobs by next October, with another 10,000 jobs lost in banking, insurance and real estate. And those job losses translate into more job losses in other industries.

“The financial crisis highlights the need for greater transparency and oversight, but there has to be a balance. Overregulation could hurt the securities industry, which is vitally important to the State and the City.”

“This important report captures the substantial damage inflicted on New York by the collapse of global financial markets and underlines the importance of stabilizing the banking system in order to maintain our position as the world’s financial capital,” said Kathryn Wylde, president & CEO, Partnership for New York City.

Over the past year, the securities industry in New York City has lost 16,300 jobs. DiNapoli predicts the securities industry could lose a total of 38,000 by October 2009 and another 10,000 jobs could be lost in banking, insurance and real estate. The Comptroller estimates total private sector job losses could reach 175,000 in New York City but losses could be greater if the economic downturn is deeper and longer than currently forecast. In total, New York State could lose 225,000 jobs during this period.

According to DiNapoli, while top executives may not receive bonuses, lower level employees will still receive payments although the size of the bonus pool will be much smaller than in prior years. In the early 2000s, bonuses fell by 50 percent over a two-year period in the years following the bursting of the dot-com bubble and the events of September 11, 2001. According to the Comptroller, recent developments suggest that a decline of a similar or even greater magnitude could occur this time. By January of each year, the Comptroller issues an estimate of cash bonuses paid in the prior year.

“Top Wall Street executives ought to forego bonuses during this difficult time; it’s inappropriate to reward poor performance,” DiNapoli added. “But the public must keep in mind that bonuses paid to lower level employees are often used to purchase goods and services in other industries, which benefits the overall economy. New York will feel a lot pain from a shrunken bonus pool.”

The DiNapoli report also found:

Broker/dealer operations of New York Stock Exchange member firms reported near record profits of $20.9 billion in 2006 but a record loss of $11.3 billion in 2007. These firms reported a loss of $20.7 billion in the first half of 2008 and New York City’s financial plan projects a loss of $25.5 billion for the entire year, but the Comptroller’s report warns that losses could be even greater.

Securities industry revenues fell from $70.3 billion in the first half of 2007 to $32 billion in the second half of 2007. According to the report, total compensation averaged an unsustainable 97.4 percent of net revenues for the first half of 2008 (compared with an average ratio of 53 percent from 1990-2006).

For the six largest securities firms headquartered in New York City, revenues fell by 63 percent in the second half of 2007 and by another 48 percent during the first three quarters of 2008. These firms reported write-offs of more than $140 billion during this period.
As Wall Street contracts, the Comptroller estimates that jobs will be lost throughout the rest of the City economy due to the industry’s multiplier impact on jobs. DiNapoli’s multiplier effect estimates that for each financial sector job lost, two more jobs will be lost in other industries in New York City and 1.3 jobs will be lost elsewhere in the State.

During the 2001-2003 recession, New York State lost 329,600 private sector jobs, of which Wall Street directly and indirectly contributed a loss of 173,500, or more than half of the decline. New York City lost a total of 232,100 private sector jobs during this period.
The average securities industry salary reached a record high of nearly $400,000 in 2007 paying approximately 6.8 times the salary of all nonfinancial jobs in the City. Salaries averaged $150,640 in credit intermediation and insurance and $62,060 in real estate and related industries.
Tax collections (personal income and business taxes) from Wall Street-related activities could drop by $4.5 billion for New York State and $2 billion for New York City by 2010. Wall Street activity generates a disproportionate share of State and City tax revenue because of high levels of compensation, profitability and capital gains.

Wall Street-related activities account for 12 percent of New York City tax revenues and up to 20 percent of New York State revenues. Prior to the current crisis, the securities industry accounted for five percent of the City’s employment but nearly 25 percent of the wages.
Hedge funds and private equity firms, which have also been hit hard by the crisis, play an important role in the securities industry and have a strong presence in New York City. According to a survey of large hedge funds and private equity firms conducted for the Comptroller by The Partnership for New York City, respondents leased nearly 1.5 million square feet of office space in New York City and paid more than $100 million in unincorporated business taxes to the City.

Click here for a copy of the report or visit http://www.osc.state.ny.us/osdc/rpt7-2009.pdf.

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October 15, 2008

Comptroller Revises Job Forecast Downward

by Patrick McGeehan

Expecting a national recession to compound the effects of the Wall Street crisis, the New York City comptroller’s office is now forecasting that the city will lose 165,000 private-sector jobs over the next two years.

That would be almost twice as many as the comptroller’s office had projected three months ago, when it said that about 85,000 jobs would be lost. The difference, according to the comptroller, William C. Thompson Jr., is that the nation has slipped into a general recession with effects that will spread far beyond the financial services sector and across the whole city economy.

About one-fifth of those lost jobs, about 35,000, will come in investment banking and other financial services, according to the revised forecast. The previous projection was for a loss of 25,000 jobs in financial services, or almost one-third of the expected total.

The financial-services sector has had one of the biggest declines this year, while some sectors — including construction and tourism-related businesses — continued to add jobs through the summer. But the comptroller’s new forecast envisions significant cutbacks in those fields as a recession lingers and the cutbacks on Wall Street ripple outward.

“Some of this is a combination of the financial-market downturn, the credit crunch that’s having an effect on small businesses and the rest of the nation finally catching up with New York,” Mr. Thompson said. “While this is perhaps more abrupt than the last recession, we don’t think it’s going to be as prolonged.”

Mr. Thompson also said he expected that the rebounding dollar would lead to a reduction in tourism here. “Tourism has been up because the euro has been so strong, but in the last few weeks you’ve seen the euro tumble against the dollar,” he said.

The projected losses would amount to about 5 percent of all private-sector jobs in the city, but they would not be as great as in the last recession. In the downturn that lasted from 2001 into 2003, the city lost about 235,000 jobs, according to data from the federal Bureau of Labor Statistics.

Ronnie Lowenstein, director of the New York City Independent Budget Office, said her office had not updated its forecast of the city economy since the financial crisis worsened this fall. But she said she agreed with the view that the national recession would weigh heavily on a local economy, already beset by the devastation of its leading industry.

“We’re facing a problem that’s both cyclical and structural,” Ms. Lowenstein said. “We’re going to be affected by the U.S. downturn but there are going to be long-term changes in the financial sector that are going to affect us well beyond this recession. It’s likely that those structural changes will be accompanied by a smaller financial-activities sector than we’ve seen in recent years.”

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October 4, 2008

Paterson Seeks $2 Billion in Budget Cuts

By Danny Hakim and Jeremy W. Peters

Gov. David A. Paterson said on Friday that he would seek $2 billion in new cuts to the state’s current budget and challenged lawmakers to abandon Albany’s spending habits amid a deepening financial crisis.

In a meeting with legislative leaders that was at times remarkably testy for what are often scripted affairs, the governor said he would call the Legislature back to Albany — but not until after the election — to reopen the state budget. The governor and lawmakers agreed during a session in August to cut $427 million from this year’s budget, but recent turmoil on Wall Street has opened an additional $1.2 billion hole, and the numbers are expected to worsen.

While Mr. Paterson and legislative leaders have warned that the Wall Street crisis would have a magnified impact on New York, the extent of the damage is only beginning to emerge.

Preliminary tax receipts released this week by the state comptroller’s office showed that revenue in September from sales, business and other taxes declined by about 7 percent, or $154 million, compared with September 2007.

Tax receipts are expected to get worse, Mr. Paterson said. Tax revenue from Wall Street bonuses, expected to be down sharply this year, will not be counted until early next year.

Mr. Paterson said he would take the unusual step of submitting an executive budget more than a month early — in mid-December instead of late January — in an effort to stave off a downgrade of the state’s financial rating. Such a downgrade would raise the state’s borrowing costs.

Delivering a budget that early — which has not been done since 1995 — will present challenges for the State Division of the Budget, which will have to forecast next year’s revenue earlier than usual. Mr. Paterson also said that he would seek to move up the start of the fiscal year from the current April 1.

“With the tremendous amount of deficit hanging over our economy, it appears clear that we are going to have a downgrade in our financial rating by the ratings agencies,” the governor said during the Friday morning meeting, which was held at his Midtown Manhattan office. “I want to try to avoid that, and I want to try to avoid it in a way that addresses their concerns as quickly as possible, letting them know that in spite of the difficulty of these times, New York State is going to attack this problem.”

Under the law, however, the conditions under which New York can borrow money to pay for its operating costs are very narrowly defined.

The governor and lawmakers ruled out raising taxes to plug this year’s deficit, but Assembly Speaker Sheldon Silver, the Legislature’s top Democrat, would not preclude such a step for next year. Dean G. Skelos, the Senate majority leader and the Legislature’s top Republican, has adamantly opposed tax increases; the governor, too, has said that he does not want to raise taxes, but he has resisted making any promises.

On Friday he would not flatly rule out a tax increase. During a contentious exchange after Mr. Paterson said he did not believe taxes should be raised, Mr. Skelos pointedly asked him, “Will you stand firm on that pledge?”

Mr. Paterson paused and said, “I just did,” but later declined to say that he would never approve a tax increase.

The two men, who are known to have cool relations, in no small part because Mr. Paterson and his fellow Democrats are trying to wrest control of the Senate from Mr. Skelos, also had a bitter exchange after Mr. Paterson accused the Legislature of not grasping the severity of the state’s financial problems.

The governor, himself a former state senator, brushed aside the compliments conferred on him by the legislative leaders sitting beside him and said he was “going to risk some of those friendships” and “say some things I would have normally said privately.”

“I don’t think we all get how serious this problem is,” he said.

Mr. Paterson then challenged the legislative leaders to cut their own budgets the way the executive branch has cut its own—the governor has already ordered state agencies to cut 10 percent from their spending.

Mr. Skelos bristled.

“I’m not in college and I’m not in law school anymore and I don’t need to be lectured,” he said.

“I apologize, Senator, if I hurt your feelings,” the governor said later, to which Mr. Skelos replied sharply, “I’ve been in the business a long time, so my feelings don’t get hurt.”

Wall Street accounts for a fifth of the state’s revenue. And the state is now forecasting that it will take in about $39.6 billion in general fund revenue this year, while earlier forecasts had projected $43.2 billion.

Next year’s budget deficit, which had been projected at $5.4 billion, is now expected to be considerably larger.

Many observers believe that when a special legislative session is convened after the election, lawmakers will be forced to cut the two largest areas of the budget, Medicaid and education. Hospitals and their workers and teachers are among the most powerful interest groups in Albany.

“It has to be done,” said Carol Kellermann, the president of the Citizens Budget Commission. “There really isn’t anyplace else to go to make cuts of that size.”

And the challenges keep coming. Mr. Paterson lamented the news that the Wachovia Corporation had agreed to be acquired by Wells Fargo, a West Coast bank, instead of the expected acquisition by Citigroup, which is based in New York.

The governor called the development “a significant hit to the New York economy.”

“There’s no way to sugarcoat it,” he said of the overall situation, and then cited an analogy used recently by the billionaire investor Warren Buffett: “The United States economy can be compared to a great athlete who suffered a stroke.”

~~~

 

September 30, 2008

Statement From City Comptroller William C. Thompson, Jr.
and State Comptroller Thomas P. DiNapoli,
on Congress’ Failure to Pass Bailout Legislation

“We are very disappointed that Congress failed to pass a bailout package yesterday. This inertia only underscores the unfortunate reality that the crisis in confidence that is gripping our financial markets is rooted in a crisis of leadership in Washington.

The same lack of transparency and accountability that have defined our financial regulatory system in recent years were on full display during bailout negotiations.

American taxpayers are being asked to bail out those who created this crisis by engaging in unsound and short-sighted business practices. Yet information about the true cost of the bailout, the implications of granting such broad authority to the Treasury Department, and the long-term impact the federal deficit increase will have on all of us is lacking.

Nevertheless, the credit crunch is not just squeezing the wealthiest Americans, but also average families, homeowners, and small businesses. While no legislation will satisfy all parties, it is vital that the Congressional leadership move quickly to develop the best solution as soon as possible. This is not merely a Wall Street bailout, but a Main Street backstop.

New York is hemorrhaging jobs – perhaps as many as 40,000, and we have a substantial economic interest in seeing that this crisis is addressed. Every job in the financial sector creates two jobs in the City and one in the suburbs, including security guards, food service workers, and back office personnel.

Continued dysfunction in Washington is exacting a heavy price on New York and the rest of the nation. Stabilizing the current situation is of paramount importance to all New Yorkers.”

~~~

As federal bailout fizzles, state warns of ominous budgetary ripple effect

by Tom Precious

ALBANY — Just hours after defeat in Washington of the bailout package for the financial system, State Comptroller Thomas P. DiNapoli warned Monday that the state’s finances are starting to stare at the same ominous challenges that New York encountered after the terrorist attacks of 2001.

While he did not provide an actual number, the comptroller’s forecast means that the projected budget deficit for the fiscal year beginning next April 1 could top $9 billion.

In his most ominous fiscal message yet, DiNapoli said the Wall Street crisis could cost the state up to $3.5 billion in lost revenues over the next 17 months and the evaporation of up to 40,000 jobs in the securities industry alone.

The downturn is on track to reduce revenue — both personal and business taxes — to Albany by about $1.1 billion for the rest of this fiscal year and $2.4 billion next year, DiNapoli aides said.

DiNapoli acknowledged that the forecast was made more difficult by the fluidity of the nation’s financial troubles. Indeed, the documents his office released Monday used the word “could” — as in “could lose up to $3.5 billion” — 12 times.

Nonetheless, the forecast is a further sign of the state’s coming budget problems that will trickle down to hospitals, schools, parks, police, roadways and everything else that relies on state and local government funding.

The comptroller’s outlook comes in advance of a meeting Friday in Manhattan with Gov. David A. Paterson and legislative leaders to try to deal with the worsening budgetary picture.

In August, the state trimmed $425 million. Those cuts were relatively painless to most groups that rely on state funding. The next round, with less time in the fiscal year to absorb the cuts, will likely be much more painful.

Paterson praised DiNapoli’s assessment and said he is reviewing the situation, especially since New York relies on Wall Street for 20 percent of its government revenues.

Senate Majority Leader Dean G. Skelos, R-Rockville Centre, said he, too, is monitoring the problem and pledged to help work on a solution. Assembly Speaker Sheldon Silver, D-Manhattan, called for hearings.

This year’s Wall Street bonuses are expected to total $40 billion, according to state projections from last spring. Every 10 percent drop below that level translates into $350 million in lost tax revenue for the state. Monday, DiNapoli warned that the bonus money could match the 50 percent drop seen after 9/11. If that happens, he said, the $33.2 billion bonus level from 2007 could plummet to about $16 billion.

Job losses of 40,000 in the securities industry would have a ripple effect. DiNapoli said that as many as three additional jobs — from restaurant workers to lawyers — are created by every job in the securities industry.

The warning signals are everywhere these days in Albany. On Sept. 15, estimated quarterly tax payments — mostly by self-employed people who do not have taxes directly taken out of their paychecks — were due to the state. DiNapoli aides said Monday that the revenues from those payments are down by $120 million from the same time a year ago. The 2008 state budget is about $120 billion.

A fiscal report by DiNapoli’s office said the impact of the financial crisis on state and local economies in New York “will be substantial.”

There were some positives: Income tax revenues were up for the first five months of the year, and the number of nonfarm jobs — 8.8 million — is up from last year. But any bright spots won’t last, DiNapoli said, noting that the August unemployment rate of 5.6 percent was a full point higher than the figure a year ago.

~~~

September 23, 2008

New York City Wants Cuts by Agencies Across Board

By Michael Barbaro and Fernanda Santos

With an eye on Wall Street’s turmoil and New York City’s fragile economy, Mayor Michael R. Bloomberg ordered city agencies on Tuesday to cut spending by about $500 million this year and $1 billion next year.

The cuts are to be made across the board, affecting agencies including the Police Department, which must cut costs by $95 million this year, and the school system, which needs to trim $185 million.

Over all, the reductions represent 2.5 percent of the agencies’ budgets this year and 5 percent next year.

The midyear budget cuts are intended to provide a financial cushion should the city’s tax revenue, which is heavily dependent on Wall Street’s profits, drop further, as many expect.

The timing of the announcement suggests that Mr. Bloomberg may be seeking to soften the political fallout of a possible 7 percent property tax increase, which he disclosed on Monday. The spending cuts, aides said, showed that everyone, including government, will feel the pain from a slowing economy.

So far, the city expects tax revenue to fall by 6 percent during the 2009 fiscal year, which began in July. That projection was made before a worldwide financial crisis erupted, forcing Lehman Brothers, a major employer in New York City, to file for bankruptcy last week.

The 2009 budget remains balanced, but Edward Skyler, the deputy mayor for operations, said that “after the events of recent weeks, it’s the equivalent of putting your head in the sand to hope the projections will hold.”

“Taking no action would border on irresponsibility,” he added.

Mark Page, the director of the city’s Office of Management and Budget, sent out a letter to city agencies on Tuesday asking them to find ways to achieve the cuts for the 2009 and 2010 fiscal years by early October.

The City Council will vote to approve or modify the cuts in November. In the past, the Council has largely taken the mayor’s recommendations in midyear budget negotiations, according to members of the mayor’s staff. Since there is a citywide election in 2009, there may be greater opposition to cuts this time.

The 2.5 percent reduction that the mayor is seeking this year would translate into cuts of $11.9 million from the Department of Transportation, $7.8 million from the Department of Homeless Services and $6.7 million from the parks department. The mayor has also ordered the Fire Department to cut $33.8 million, which could force some firehouses to close, mayoral aides said.

Council Speaker Christine C. Quinn defended the cuts on Tuesday, saying, “Obviously for all of us in city government, keeping our streets safe is one of our highest priorities, keeping services going for seniors is a key priority, and schools and health care.”

She added: “But we need to look at everything and keep everything on the table at a time like this.”

Mr. Bloomberg has sought to cut the city’s budget in the middle of the year before, at rates ranging from 1.5 percent to 5 percent. The current budget has already been cut twice, and the latest reductions could prove contentious, especially when it comes to the city’s schools.

After a tough budget negotiation in June, the City Council voted to restore $120 million in cuts to the Department of Education this year. Now, Mr. Bloomberg is demanding that the school system cut spending by $185 million.

“We just went through this battle,” said Councilwoman Melinda Katz, a Queens Democrat. “Now we are back to Square 1. Actually, we are back below Square 1 and it seems very disappointing.”

After learning of the cuts, Randi Weingarten, the president of the United Federation of Teachers, said in a statement that “it is imperative that we immunize kids through these tough times and keep cuts away from the classroom.”

Advocates fear that the spending reductions could undo the progress made by agencies like the Administration for Children’s Services, which more than doubled the number of caseworkers assigned to child protective services since 2005.

“You start to wonder when it is that these cuts might start reaching into the heart of these services that have done so much to make sure no child slips through the cracks,” said Andrew White, director of the Center for New York City Affairs at the New School.

~~~

September 22, 2008

The End of Wall Street as We Know It

by James Parrott

The turbulent financial market events of recent days demonstrably signal the end of Wall Street as we know it. More uncertainty lies ahead, on Wall Street but also for the national economy. How is this affecting New York and what will it take to get the economy moving again?

After The Bubble Burst

Six months ago, a "disastrous foray into financial wizardry" by banks and lenders led us to the sight of the Federal Reserve giving J.P. Morgan Chase $28 billion to take over Bear Stearns. It was thought that this unprecedented action might calm the panic triggered by the sub-prime lending fiasco. The bursting of the housing bubble destroyed billions of dollars of equity people held in their homes and started to jeopardize millions of mortgages across the country, prime as well as sub-prime. This mortgage meltdown led the U.S. Treasury Department earlier this month to take over the two quasi-public mortgage giants- Fannie Mae and Freddie Mac, which together hold nearly half of the $12 trillion in outstanding mortgage debt in the U.S.

Despite several unprecedented actions by the Federal Reserve and the Treasury Department over the past six months, financial market conditions continued to worsen. Reportedly, hedge fund speculators, seeking to profit from the woes of others, used short-selling to drive down the share price of Lehman Brothers. Some market insiders contend this contributed to the demise of the fourth largest U.S. investment bank.

With no clear roadmap on how to avert a collapse, the federal government's response swung wildly over the week in diametrically opposed directions. At first, the Fed and the Treasury sought to draw the line on further taxpayer bailouts, denying federal aid to Lehman Brothers. Lehman had no choice but to go into bankruptcy on Sept. 15. Pictures of dour-faced employees carrying their personal belongings out of Lehman's offices splashed across newspapers and television screens. To avoid Lehman's fate, Merrill Lynch hurriedly agreed to be taken over by Bank of America.

Initially, the Fed had denied aid to insurance giant AIG. The day after it stood by while Lehman went belly-up, though, the Fed reversed course. Officials decided there was an imminent danger of far-flung cascading financial defaults and agreed to an $85 billion taxpayer bailout of AIG in exchange for an 80 percent ownership stake in the company.

Initially euphoric after the AIG bailout announcement, financial markets went into full-blown panic on Sept. 17, and investors and speculators mercilessly drove down the share prices of the remaining financial industry leaders. Panic even spread to the $3.4 trillion money market fund industry where millions of average investors place their savings. The credit markets "seized up," meaning that institutions became fearful of lending to each other because of the tremendous uncertainty about whether the borrower would be able to repay. Stock markets dropped sharply around the world.

The Biggest Bailout

Writing in the Wall Street Journal on Wednesday, former Fed Chairman Paul Volcker proposed the equivalent of a new Resolution Trust Corp. After the savings and loan crisis of the 1980s, the RTC assumed the assets (mainly commercial properties) of failed institutions and sold them in an orderly fashion. Ultimately, billions of dollars were returned to the public treasury. The net taxpayer cost of that massive bailout was about $100 billion.

Volcker's support for a new Resolution Trust Corp. helped legitimize an idea that had been gaining currency in recent weeks. By the end of last week -- a week that started off with officials saying "no more bailouts" -- Treasury Secretary Henry Paulson, after consulting with congressional leaders, announced that the federal government would provide what amounts to "the mother of all bailouts." Paulson's proposal, the details of which were still being negotiated with Congress as of this writing, amounted to an RTC on steroids but called for the Treasury Department itself -- rather than the new trust corporation -- to handle the purchase of shaky loans and other hard-to-sell securities.

What's the price tag for this umbrella Wall Street bailout? An eye-popping $700 billion, roughly the amount of U.S. government outlays to date in the phenomenally costly Iraq War. This would push the total tab for bailing out Wall Street to well over $1 trillion.

The White House also announced two other historic actions. The government would insure deposits in money market funds, the modern-day equivalent of the Great Depression move to have government insure bank deposits. And the Securities and Exchange Commission banned the short-selling of all financial sector stocks. (In a short sale, a stock is borrowed by an investor expecting the stock's value to drop, and then sold. After the price falls, the borrower buys the stock to re-pay the original owner, pocketing the difference.) Some market participants sharply criticized the short-selling ban, while many of those critics and others pointed the finger at the SEC for failing to properly oversee the financial markets in the first place.

The government's decision to seemingly empty the taxpayer's purse to provide a wall-to-wall Wall Street rescue produced euphoria on Wall Street at the end of last week. On Thursday and Friday, the Dow Jones industrials, which had plummeted earlier in the week, soared by 780 points. Despite that giddiness, it remains to be seen how exactly the Paulson bailout proposal will handle several highly contentious details and whether these actions will suffice to stabilize the financial markets.

The Ripple Effects Locally

In the early summer, experts projected 30,000 jobs would be lost on Wall Street, perhaps forever, while New York City would lose 80,000 to 90,000 jobs overall. Those estimated now are being revised upward. The state labor department now expects 40,000 lost Wall Street jobs and a total job loss for the city in the neighborhood of 120,000. As severe as those job losses would be, in the 2001 to 2003 recession/downturn, New York City lost about 40,000 Wall Street jobs and nearly 240,000 overall. In the downturn of the late 1980s and early 1990s following the bursting of the commercial real estate bubble and the savings and loan crisis, the city lost even more: 360,000 jobs or 10 percent of the total in the city.

The economic decline is well underway in New York City, extending beyond the financial district. Jobs are declining in businesses supplying Wall Street, such as law firms, temp agencies, caterers and car services, as well as in retail. Over the summer, the number of New York City workers filing for unemployment insurance jumped by 25 percent over the prior year. Workers' paychecks are taking a beating as well, as the price of gasoline, food and housing have soared. The Fiscal Policy Institute estimates that the inflation-adjusted median hourly wage in the city fell by 4 percent in the 12 months between June 2007 and June 2008.

The adverse effects to the city economy of the Lehman bankruptcy were moderated when London-based Barclay's Bank agreed to buy Lehman's investment banking and trading units. Barclay's also agreed to purchase Lehman's billion dollar headquarters building in Midtown. Still, shrinking financial firms will increase office vacancy rates in both Downtown and Midtown, and bring down asking rents. In this environment, it is unlikely that ground will be broken on any new office buildings. The loss of so many high-paying jobs will push Manhattan condo prices down, particularly now that the recession has spread to Europe. All of this will shrink tax revenues, leaving city and state budget officials to face the unwelcome pain of budget cuts and tax increases.

Crafting a Better Bailout

While the effects of the financial market meltdown are particularly acute in New York, Wall Street remains the core of the national financial system. The proposed Treasury bailout might help stabilize the financial markets, but that is far from certain.

A great deal is at stake in the negotiations that will occur before Congress passes the necessary authorizing legislation, promised by the time it adjourns on Sept. 26. It is clear, however, that other actions will be needed before a sustainable national recovery can get underway. New York cannot -- and should not -- face this crisis alone. The city, the state and the country all need a forceful and on-target response from the federal government.

The key issue right now is stabilizing the housing market. Most financial institutions should be able to weather this storm if the Treasury removes from their balance sheets home mortgages whose values had been falling and if the housing market stabilizes as a result. To accomplish that, the Treasury should only take over home mortgage debt.

The legislation authorizing the proposed Treasury bailout should make sure that institutions are not let off the hook for making excessively risky investments in derivatives and other highly speculative debt instruments. Those institutions that had highly leveraged themselves with very speculative bets should have to fend for themselves. The legislation should require complete disclosure of holdings as a condition of assistance.

The legislation should also require that the Treasury go to great lengths to keep people in their homes by re-negotiating mortgages on favorable terms for moderate- and middle-income home owners who have a realistic chance of paying off a new mortgage. In those cases where home owners do not have sufficient income to carry even a modified mortgage, the Treasury should allow them to rent their home in order to minimize displacement.

Washington needs to establish a new regulatory regime that covers all financial institutions (including hedge funds), controls risk and introduces a tax on financial transactions to help repay U.S. taxpayers for coming to the industry's rescue.

Above all, regulations should prevent the development and trading of high-risk, speculative instruments that do not serve a clear economic purpose. Capital requirements should be raised to prevent dangerous degrees of leveraging. Transactions have to be much more transparent and fully disclosed. As many experts such as Dean Baker have suggested, there also should be limits on compensation on Wall Street because history has demonstrated that unlimited compensation promotes excessive risk-taking.

It is critically important that the bailout authorizing legislation be linked to a second round of stimulus measures sufficient to jump-start an economic rebound. The $150 billion federal stimulus package enacted by President Bush and Congress in February provided a brief up-tick in consumer spending in May and June, but the rising price of gas and food swallowed up a good chunk of those tax rebates. A more robust and better-targeted stimulus package should be a condition for passage of the bailout legislation, and it should include:

· Sizable fiscal relief to the states so they will not have to cut spending, further eroding jobs and services and hurting the economy;
· Extended unemployment benefits and increased food stamp and home heating assistance, all measures that offer the most economic stimulus per dollar;
· Funding improvements in state and local infrastructure. This will not only address long-standing needs and support economic growth, but will ensure that there will be a stimulant a year or two down the road when it will still be needed.

Wall Street is going through a dramatic downsizing. Some of that is warranted because, motivated by unbridled greed and encouraged by reckless de-regulation, Wall Street assumed a disproportionate role for itself in the economy. According to The Economist magazine, the finance sector's share of U.S. corporate profits rose from 10 percent 25 years ago to 40 percent last year. This dramatic rise depended, in part, on a panoply of unsustainable practices that do not serve a productive purpose.

Wanted: A Real Recovery

The slumping housing market and the debt many households took on in recent years present the major impediments to an economic recovery. Families everywhere had turned to home equity and credit card debt to make up for stagnant wages. As the Economic Policy Institute has pointed out, the 2001 to 2007 economic cycle was the first time since at least the Great Depression when wages for most workers did not surpass their previous peak -- which, in this case, was reached in 2000.

A set of medium- and long-term policies is necessary to help rebuild the middle class and move the U.S. economy toward shared prosperity. These include:

· Universal health insurance that will provide lower-cost, quality options for millions of the uninsured and aid U.S. businesses of all sizes;
· Increasing the minimum wage to its 1969 peak value and then indexing it to inflation to help millions of workers struggling to escape poverty;
· Enacting the Employee Free Choice Act to circumvent illegal employer actions that thwart the efforts of workers to unionize;
· Instituting a progressive tax increase that would help pay for important investments, including in higher education and skills training for those young people who do not attend college.

Without these and similar measures that foster a middle class, the U.S. economy likely will continue to bump along from crisis to crisis, whether or not the financial markets recover.

Getting Back to Work

Wall Street Journal writer Dennis K. Berman recently observed:

Perhaps some of the country's brightest students might now recognize that the new path to wealth isn't a few years of hit-and-run work on the Street or at a hedge fund. This is a positive thing. It encourages the country to get back to creating, building and doing, rather than shuffling paper and trading it. ... The market has indeed spoken. Its message is clear: It is time to get back to work. Real work.

Amen.

While many New Yorkers justifiably took pride in our city's resilience and rebound after 9/11, we have to acknowledge that our rebound road a wave of Wall Street speculation and excess. Now, it's time to get back to work. Wall Street self-destructed. More than ever, all of us -- not only in New York -- need broadly shared prosperity, and we need a big boost from Uncle Sam to help get us there.

Maybe, a symbolic first step is to re-name Wall Street. "Broadly Shared Prosperity Place" might serve a useful reminder to financiers about the job they have to do.

James Parrott is deputy director and chief economist of the Fiscal Policy Institute (www.fiscalpolicy.org). He has been studying and writing about the New York economy since he landed in New York City a quarter century ago.