A few times last year, I wondered whether the financial crisis might also dictate the end of prosperity for New York City. While I still worry that the city's glory days are in the past, it has clearly escaped collapse thanks to the Wall Street bailout. The New York Times has an article today that explains just how big a role the bailout likely played. In fact, the recession for the city is now expected to be much less severe than thought -- and relatively benign when compared with what the rest of the U.S. is going through.
Here's a chart from the article that compares the effect of this and some past recessions on New York City and the rest of the U.S.:
The Times explains how much milder the recession is thought to be by turning to Moody's economist Mark Zandi and Mayor Bloomberg:
Mr. Zandi said he expected the job losses in the metropolitan area to end within a couple of months and to amount to less than 4 percent of the region's total employment at the peak of the last boom. By contrast, the nation lost more than 6 percent of its jobs over the last two years.
City officials agree. Mayor Michael R. Bloomberg and his lieutenants have been telling audiences that the recession will cost the city 100,000 fewer jobs than they had forecast a year ago.
Considering that the financial sector, which led the recession, was heavily concentrated in New York City that's a pretty impressive feat. But since the government put an enormous amount of money and numerous emergency measures in place to stabilize Wall Street, this makes sense:
Economists say the hundreds of billions in loans and aid the federal government pumped into the city's banks fueled a quick reversal of Wall Street's fortunes. That turnaround saved thousands of high-paying jobs and the controversial bonuses that go with them, averting a sharper drop in tax collections and consumer spending that would have brought more layoffs. "A lot of us had expected there would be 60,000 or 70,000 jobs lost directly in the financial services sector," said James Parrott, an economist with the Fiscal Policy Institute.
"Then there would have been a spillover effect," he said, referring to the widely accepted idea that each job on Wall Street supports two others in and around the city.
One way in which the city clearly benefits is directly from the spending and taxes of those in the financial industry. I've noted this before. But the indirect results are also significant. If Wall Street had laid off thousands more, some would have left the industry and city, causing real estate there to further worsen and more shops and restaurants to close.
But it appears that New York City isn't losing it's mojo in finance. Although the threat of the government cracking down through regulation appeared pretty serious in early 2009, a year later bankers are likely far less worried. Financial reform is struggling in Congress, and whatever ultimately gets passed will probably be watered down compared to what was initially expected. Meanwhile other nations aren't as shy about banker bashing. As a result, New York City will likely remain one of the top financial centers in the world.
And believe it or not, banks are hiring again. I had a recruiter contact me the other day with several banking jobs he's trying to fill in securitization -- one of the last subsectors in finance I expected to recover. (Apparently he was unaware that I decided to become a journalist and forgo one of the zeros on the end of my compensation.) With Wall Street reaping huge profits again, jobs are no longer in jeopardy and some financial firms are expanding.
Of course, the story is still being written: financial regulation is pending. And while that reform might not be quite as strict as it would have been if Congress had given it a higher priority than health care, new rules could still have an impact. But one of the clearest lessons from my days of banking was that finance is all about endurance. If anyone has the survival instinct, it's Wall Streeters.