| The New York Optimist October 2008 |
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| Under the Rock: Ground Zero in the Financial Crisis By Neil Patrick Parent, Esq. Everyone knows about the Ripple Effect – drop a rock in a pond and the ripples will have a far reaching effect, in this case globally – but in terms of the current financial crisis, we in New York don’t need to wait for the ripples: the rock has been dropped directly on us! We are the Ground Zero of this tumultuous event and it has the potential to have a more severe effect on the everyday lives of New Yorkers than the 9/11 attacks. Notwithstanding the fact that we are the New York Optimist, it is probably appropriate that we peer over the edge of the abyss and try to see what’s in store for all of us. The first and most obvious effects are job losses. With the disappearance of Bear Stearns and Lehman Brothers, two firms that together employed more than 38,000 people worldwide, most of them in the City, financial services firms in the have shed more than 83,000 jobs in the last twelve months, the bulk of those coming in the last six months. 65,000 of those jobs were lost in the New York Metropolitan Area. On the optimistic side, things could have been worse: almost half of the Bear Stearns employees found jobs at Morgan Stanley, which acquired the remnant of the firm and 10,000 of the Lehman Brothers employees, have been kept by Barclays Bank of London, which acquired most of the assets of the brokerage division. Furthermore, another large-scale layoff was avoided when Merrill Lynch ducked and was acquired by Bank of America, which is headquartered in Charlotte North Carolina and will probably keep most of Merrill’s New York employees. |
But that is small consolation for the people who were not picked up by those other
firms, because the entire industry is in crisis with other, smaller firms failing (watch
for the hedge funds to go next) and the survivors freezing hires or cutting back,
shrinking the industry overall, and more layoffs are anticipated. In other words, these
people haven’t just been let go, their jobs have been eliminated from the economy.
Most, if not all of them, will have to switch to other fields of employment.
And that points up more bad news for the rest of us. Financial services accounts for
10% of all jobs in the City. But because those firms and the jobs they create are more
highly compensated than average companies or workers, the industry contributes a
disproportionate one-third of all income and 27% of all tax revenue for New York City.
So what does this mean for those of our readers not employed (or formerly employed)
by the finance industry (which includes insurance companies and mortgage brokers,
etc.)? Don’t get caught up in the schadenfreude of seeing those fat-cat Masters of the
Universe cut down to size. Economists estimate that each financial services job
supports three other jobs in the City. Without those investment bankers spending their
big bonuses every year, as many as three other jobs could disappear for every one of
them. The news stand guy near their office, the counter guy at the deli and the bike
messenger could all go down the tubes with him.
Retailers may see the earliest effects. Just as we move into the fourth quarter this
month, the year-making Christmas season, consumers have lost all confidence in the
economy and have simply stopped buying stuff they don’t need No amount of
discounting is likely to free up purses until that confidence is restored. Anything that
is sold on financed terms, like cars? Forget it! Financing is simply not available.
And don’t look for bargain hunting Europeans and Asians to bail us out. This crisis is
truly global in scope, with European governments taking over banks and preparing
“bail-out” packages like our own.
firms, because the entire industry is in crisis with other, smaller firms failing (watch
for the hedge funds to go next) and the survivors freezing hires or cutting back,
shrinking the industry overall, and more layoffs are anticipated. In other words, these
people haven’t just been let go, their jobs have been eliminated from the economy.
Most, if not all of them, will have to switch to other fields of employment.
And that points up more bad news for the rest of us. Financial services accounts for
10% of all jobs in the City. But because those firms and the jobs they create are more
highly compensated than average companies or workers, the industry contributes a
disproportionate one-third of all income and 27% of all tax revenue for New York City.
So what does this mean for those of our readers not employed (or formerly employed)
by the finance industry (which includes insurance companies and mortgage brokers,
etc.)? Don’t get caught up in the schadenfreude of seeing those fat-cat Masters of the
Universe cut down to size. Economists estimate that each financial services job
supports three other jobs in the City. Without those investment bankers spending their
big bonuses every year, as many as three other jobs could disappear for every one of
them. The news stand guy near their office, the counter guy at the deli and the bike
messenger could all go down the tubes with him.
Retailers may see the earliest effects. Just as we move into the fourth quarter this
month, the year-making Christmas season, consumers have lost all confidence in the
economy and have simply stopped buying stuff they don’t need No amount of
discounting is likely to free up purses until that confidence is restored. Anything that
is sold on financed terms, like cars? Forget it! Financing is simply not available.
And don’t look for bargain hunting Europeans and Asians to bail us out. This crisis is
truly global in scope, with European governments taking over banks and preparing
“bail-out” packages like our own.
Asian markets could be severely impacted as we cut back on imports of goods manufactured there. The dollar had its highest gains in fifteen months against
the Euro yesterday and the yen is barely holding its own.
Work in a restaurant? Expect business to fall off dramatically, not only at high-end establishments, but chain restaurants, which have been being hammered all
year, with several, like Ruby Tuesday’s closing down altogether, will bear the brunt, too. If you developed a fondness for Burritoville’s tacos, you’re out of
luck. The chain closed all its stores last month. Tips should remain fairly stable, but shifts will probably shrink and many eateries will be forced to shut their
doors.
Art gallery employee? There’s good news/bad news here, depending on what kind of art you’re selling. Contemporary art will be the worst hit, especially the
less well established artists whose work does not have a predictable resale market. That same investment banker who comes by every now and then to spend
$10,000 to $50,000 on “something” to hang on the walls of his new Hamptons house won’t be dropping in any time soon. In fact, dealers can expect calls
from some of their best customers seeking to unload purchases they’ve made from them over the years. This can lead to some particularly awkward
conversations (just what is art “worth”, anyway?). Notwithstanding that, although even old masters and impressionists may see prices at auction come in
under expectations, these works are a perennial hedge in a financial crisis. A relatively safe place to put what ever money the rich folks have left when the
stock market is dropping 5% a day.
the Euro yesterday and the yen is barely holding its own.
Work in a restaurant? Expect business to fall off dramatically, not only at high-end establishments, but chain restaurants, which have been being hammered all
year, with several, like Ruby Tuesday’s closing down altogether, will bear the brunt, too. If you developed a fondness for Burritoville’s tacos, you’re out of
luck. The chain closed all its stores last month. Tips should remain fairly stable, but shifts will probably shrink and many eateries will be forced to shut their
doors.
Art gallery employee? There’s good news/bad news here, depending on what kind of art you’re selling. Contemporary art will be the worst hit, especially the
less well established artists whose work does not have a predictable resale market. That same investment banker who comes by every now and then to spend
$10,000 to $50,000 on “something” to hang on the walls of his new Hamptons house won’t be dropping in any time soon. In fact, dealers can expect calls
from some of their best customers seeking to unload purchases they’ve made from them over the years. This can lead to some particularly awkward
conversations (just what is art “worth”, anyway?). Notwithstanding that, although even old masters and impressionists may see prices at auction come in
under expectations, these works are a perennial hedge in a financial crisis. A relatively safe place to put what ever money the rich folks have left when the
stock market is dropping 5% a day.
Party planner? Once again, this hits just as we are entering the all-important fourth
quarter. Look for large numbers of cancellations, not only for usually reliable annual
company Christmas parties, but for lavish promotional events, birthdays, bar mitzvahs
and weddings.
Is there any good news? Well, yes, for some. The residential rental market is expected
to come down sharply. Especially on the lower end – studios and one bedrooms. That
third-year investment banker who just lost his job can no longer afford the mortgage on
his new one bedroom condo. He can’t sell it either, because there are no buyers. One
solution is to move back to Des Moines and rent it out for enough to cover the mortgage
payments. This sudden increase in inventory of apartments should drive rents down
across the board.
Any other good news? Well, we are not the New York Optimist for nothing. Certain
jobs not related to the Service Economy, Real Estate or Finance can be recession-proof.
Healthcare, Security, Academia are all areas that will provide shelter from the storm
(notice I did not mention government employees: shrinking tax revenues will require
cutbacks in the public sector.) My law firm handles a lot of employment law cases and
I can tell you that if you do lose your job, even in a massive lay-off, there is always a
slight chance you, as an individual, were discriminated against and, if so, you may have
some rights that could increase your severance pay or even give you damages. Consult a
lawyer.
quarter. Look for large numbers of cancellations, not only for usually reliable annual
company Christmas parties, but for lavish promotional events, birthdays, bar mitzvahs
and weddings.
Is there any good news? Well, yes, for some. The residential rental market is expected
to come down sharply. Especially on the lower end – studios and one bedrooms. That
third-year investment banker who just lost his job can no longer afford the mortgage on
his new one bedroom condo. He can’t sell it either, because there are no buyers. One
solution is to move back to Des Moines and rent it out for enough to cover the mortgage
payments. This sudden increase in inventory of apartments should drive rents down
across the board.
Any other good news? Well, we are not the New York Optimist for nothing. Certain
jobs not related to the Service Economy, Real Estate or Finance can be recession-proof.
Healthcare, Security, Academia are all areas that will provide shelter from the storm
(notice I did not mention government employees: shrinking tax revenues will require
cutbacks in the public sector.) My law firm handles a lot of employment law cases and
I can tell you that if you do lose your job, even in a massive lay-off, there is always a
slight chance you, as an individual, were discriminated against and, if so, you may have
some rights that could increase your severance pay or even give you damages. Consult a
lawyer.
History teaches us that in times of economic hardship, simple pleasures attract and simple sinful pleasures attract particularly. Look for boom times at sports
bars, less expensive night clubs (no more Cristal!) and strip clubs ;-).
During the Great Depression in the thirties, the masses went to the movies. Escapist fare was in, gritty was out (excepting feel-good Frank Capra style rags-to-
riches stories). Screwball romantic comedies set among the very wealthy were the big draw. And lavish musicals. Goodbye Hip-Hop, Hello Busby Berkeley!
Who is our next Ruby Keeler? Seriously, inexpensive live music theater and dance performances will prosper. $80 concert tickets and $100 Broadway shows
will be out, intimate coffee shop and bar venues will come back in. CD sales will plummet even further and the Big Music Industry infrastructure will crumble.
We intend to keep tabs on the economic situation in the City and report back from time-to-time with specific observations. Meantime, hang on, it’s going to be
a bumpy ride!
bars, less expensive night clubs (no more Cristal!) and strip clubs ;-).
During the Great Depression in the thirties, the masses went to the movies. Escapist fare was in, gritty was out (excepting feel-good Frank Capra style rags-to-
riches stories). Screwball romantic comedies set among the very wealthy were the big draw. And lavish musicals. Goodbye Hip-Hop, Hello Busby Berkeley!
Who is our next Ruby Keeler? Seriously, inexpensive live music theater and dance performances will prosper. $80 concert tickets and $100 Broadway shows
will be out, intimate coffee shop and bar venues will come back in. CD sales will plummet even further and the Big Music Industry infrastructure will crumble.
We intend to keep tabs on the economic situation in the City and report back from time-to-time with specific observations. Meantime, hang on, it’s going to be
a bumpy ride!