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Mon Oct 15th, 2007 at 06:52:48 AM EST
I saw this in Sunday's Salon:
NYT: The Capital of Capital No More? Money in New York (by DANIEL GROSS on October 14, 2007)
The Corner [of Wall Street] is now a luxury condominium called Downtown by Philippe Starck. The most common financial transactions there probably involve paying the Chinese delivery guy or tallying bills from the luxury retailers — Thomas Pink, Hermès and Tiffany — that have opened outposts down the block. Wall Street has not been Wall Street for a long time. Big investment banks like Lehman Brothers, Morgan Stanley and Bear Stearns decamped for Midtown years ago, and the largest securities trading floor in the world — belonging to the Swiss bank UBS — is in Stamford, Conn. The N.Y.S.E., which is transforming into an electronic exchange, will close two of its remaining four trading rooms next month. The question today — one being asked with increasing frequency and anxiety in certain quarters — is whether New York as a whole is going the way of Wall Street. Are New York’s days as the world’s epicenter of finance coming to an end?
I was surprised that Jérôme didn't use jump on the opportunity to write about the Anglo Disease, because the angst in this article illustrates perfectly what it is about: if you allow one most profitable industry to cannibalize your entire economy, when the industry's economic cycle turns, you find yourself with nothing to do.
The problem ironically, turns out to be Globalization:
But in today’s burgeoning and increasingly integrated global financial markets — a vast, neural spaghetti of wires, Web sites and trading platforms — the N.Y.S.E. is clearly no longer the epicenter. Nor is New York. The largest mutual-fund complexes are in Valley Forge, Pa., Los Angeles and Boston, while trading and money management are spreading globally. Since the end of the cold war, vast pools of capital have been forming overseas, in the Swiss bank accounts of Russian oligarchs, in the Shanghai vaults of Chinese manufacturing magnates and in the coffers of funds controlled by governments in Singapore, Russia, Dubai, Qatar and Saudi Arabia that may amount to some $2.5 trillion, according to Stephen Jen, a Morgan Stanley economist.
This growth represents a triumph of everything Wall Street stands for — the ability of capital to seek returns across borders [my emphasis], the growing integration of the world’s economy and the triumph of market activity in previously closed areas. And to a degree, this is good news for New York’s asset managers, as private-equity firms and hedge funds now can raise capital from fresh sources. Nonetheless, the diffusion of wealth has unleashed angst among New York’s financial elite, who may soon rue the excesses of recent years as a last-gasp blowout.
We're living in a multipolar world:
These data points represent not so much a shifting from one power center to another but rather a change in how financial power is distributed. In this decade, the global economy has become multipolar. “On the one hand, we have tremendous strengths,” says Robert Rubin, the former Treasury secretary and now chairman of the executive committee at Citigroup. “We’re located in the largest economy in the world. On the other hand, London is creating a regulatory environment that seems to me is equally as effective in terms of safety and soundness. Hong Kong and Singapore are clearly determined to develop as centers. The Chinese are investing in Shanghai.”
And here's the rub, New York has built itself around its monopoly on global capitalism. And, when that is gone, you get what Jérôme has called the Anglo Disease:
What does all this diffusion mean for New York’s economy? Potentially, a great deal. Steve Malanga, senior fellow at the Manhattan Institute, estimates that there are 175,000 securities-industry jobs in New York, which pay an average wage of $350,000. The Committee on Capital Markets Regulation notes that the securities industry accounts for 4.7 percent of the jobs in New York City but 20.7 percent of the wages. But the impact is even larger, since the spending of Wall Street hotshots supports a huge number of other jobs. Between 1995 and 2005, the sector grew at an average annual rate of 6.6 percent in New York and provided more than a third of business income-tax revenues, according to McKinsey. “There’s no doubt that much of the financial and fiscal and economic revival of the city in the 1990s and then again after 9/11 can be attributed to the health and in fact dominance of Wall Street internationally,” Malanga says. A long-term decline, in which the financial-services business slowly moves offshore or out of state over a period of years, would certainly inflict great damage. Without a manufacturing base, New York would become more dependent on its other large sectors like tourism, health care, government and education, none of which possess Wall Street’s capacity for spinning enormous profits.
But to me what is interesting is the admission that free movement of capital is not free trade
, or maybe even that protectionism is bad only as long as it's US that benefits from free movement of capital
It seems inevitable that we will see many more studies about the loss of New York’s status. Unless they can persuade Congress to stop globalization and the free flow of capital around the globe, there isn’t much New York’s billionaire financiers can do to stop the city’s relative decline.
File under America's optimism is gone
Previous Anglo Disease
by Oui - Sep 23