FOR IMMEDIATE RELEASE
September 15, 2008
MAYOR MICHAEL R. BLOOMBERG BRIEFS NEW YORKERS ON IMPACT OF WALL STREET CONDITIONS ON CITY ECONOMY
New York City As Well Positioned as It Has Ever Been to Handle Turmoil on Wall Street
Securities and Exchange Commission Should Move to Bring Greater Stability to the Market and Prevent Short-selling Panics
Following are the Mayor's remarks as delivered:
"It has been a very difficult week in the financial markets - and another long weekend of work for many Wall Street leaders and federal regulators and for our staff. Over the weekend, I personally spoke many times with government leaders and financial executives here in the U.S., and also in Europe and Asia, regarding the latest developments and to offer our assistance, and I want to update New Yorkers on what these dislocations mean for the City's economy.
"As sobering as the economic news is, the City is as well positioned as it's ever been to handle turmoil on Wall Street. Like everyone else, I had hoped Lehman Brothers could be saved, along with the jobs that employ more than 12,000 people who live in the New York area. Lehman Brothers had provided countless New Yorkers with an opportunity to pursue the American Dream, and it's a sad day for our city to see it close its doors. However, everyone is continuing to work to structure takeovers of various divisions of the company that will protect many of the people who have worked so hard to build them. This is a firm with world-class talent, and we hope - as we saw with Bear Stearns - that many of these talented individuals - though likely not all, unfortunately - will find positions that put their talents to work.
"The turmoil on Wall Street has also affected another great corporate citizen, Merrill Lynch. Thankfully, the company appears to have worked out a deal with Bank of America that should preserve most of its jobs here in New York. Greg Fleming, the President and COO of Merrill, and Ken Lewis, the President and CEO of Bank of America, have informed me that they believe jobs losses in the New York area will be relatively minimal.
"Lehman and Merrill are both lead managers on many of the City's debt offerings, but the contracts we have with them inoculate us against any material losses. And the silver lining here is that the merger will strengthen both Bank of America and Merrill Lynch - so in the long run, even though you hate to see a great firm like Merrill lose its independence, the merger may prove to be a net positive for the City.
The week ahead will bring more difficulties, as questions remain about businesses like AIG - a great company that has more than 7,000 employees in New York City. I've had conversations with federal officials about the situation and I've given them my suggestions for how to help AIG solve its problems. I continue to believe, though, that AIG is a company with many strengths, and I expect it will survive.
"The fact is, our financial system cannot continue to stand this game of speculators preying on the weakest firms - and trying to destroy them for profit. There will always be a weakest firm - by definition, there must be one - and we have to understand that our country's future is connected to our ability to work together instead of trying to tear each other down.
"The loss of jobs in the financial sector will of course have an impact on the city's tax revenue. It's generally believed that one Wall Street job helps create two or three other jobs. This multiplier effect will have a serious impact not only on the financial sector employees who lose jobs, but also on many New York families who are indirectly affected by those job losses... and on many local governments' tax revenues.
"It is premature to quantify the specific economic impact of these job losses; a lot will depend on the outcome of continuing negotiations to minimize the losses. But clearly, the amount of money we are going to have to spend to pay our labor force, make investments, and contract for services is going to be less, while the demand for services from New Yorkers in need is certain to grow. I believe, thanks to our fiscal prudence, we are better able to deal with this crisis, but no one should look to us to provide funds that make up for their own imprudent budgeting.
"As of August, City tax revenue is coming in at more or less the level we projected - meaning the budget remains in balance. We were very careful to be conservative in our projections, and we held spending growth to just 1.6 percent - well below the rate of inflation.
"You'll remember, in spite of those wishing to spend now and pray that God will provide in the future, we also used the good times to save for the tough times. In years when revenues exceeded expenses, we saved as much as possible for the years when we would really need it. We did this in part by prepaying debt, and also by creating a health care trust fund for future retirees - one of the first in the nation. And last fall, when it was clear the economy was headed for trouble, we immediately acted by implementing a temporary hiring freeze and directing agencies to reduce City-funded spending, which will produce savings of more than $1 billion in this fiscal year. To reduce costs even further, we are slowing down the City's rate of capital spending. We will do that by stretching the current four-year capital plan for an additional fifth year, to Fiscal Year 2013.
"Responsible budgeting has been a central part of our preparation for this downturn, but just as importantly, we've invested in the programs, policies, and projects that have made New York stronger, safer, and more attractive than ever. Today, crime is at more than a 40-year low, our schools are making real progress with graduation rates up more than 20 percent, the streets are cleaner than they've been in 30 years, the waterfront is coming back to life, and new parks are opening in all five boroughs. New York is a city where people want to live, and that makes it a city where companies need to be. If we allow our quality of life to slip, we hurt our competitive advantage.
"We cannot control global economic forces, and the turmoil in financial markets is not limited to the U.S. The Russian and Chinese stock markets are down 40 percent and 60 percent, respectively. And along with the strengthening dollar, this will obviously have an impact on overseas investment in our economy as well as local spending by foreign tourists.
"Our defense is to mitigate the effects of these developments by strengthening our quality of life and sharpening our competitive advantages in our key industries, such as film, fashion, tourism, media, health care, higher education, bio-science and the arts. Fortunately, over the past six years, we have worked hard to diversify our economy by investing in all of these industries, and as a result, although Wall Street remains central to our economic health, we are in a much stronger position to weather a downturn.
"Today, even though Wall Street has been struggling for months, the city's unemployment rate is only 5 percent, well below the national average of 6.1 percent. The vacancy rate for Manhattan office space is 5.4 percent, less than half the national average. Tourism, which has declined nationally, is still growing to record levels here in New York City. Real estate values, which have plummeted nationwide, have held fairly steady here.
"We have as good a hand to play as any city in the world, including, I should point out, our chief global competitor: London. Interestingly, London has been hurt far more than New York by the financial crisis. We take no pleasure in that, when London succeeds, it's good for New York. But I mention it because it's important to keep a broad perspective on what is taking place in the global economy.
"To deal with the immediate crisis facing the country, I believe the Securities and Exchange Commission should move fast to bring greater stability to the market and prevent the short-selling panics that we've been seeing. This morning I spoke with Chris Cox, the Chairman of the SEC, and he assured me that this is indeed his top priority.
Some have called on the federal government to bail out Lehman Brothers, and I understand the arguments for it. Last March, I supported the federal government's role in the takeover of Bear Stearns. But the reality is that the federal government cannot save every failing company, nor should it try. America can't afford it, and it's bad policy. Capitalism is based on risk, and if we guarantee every firm that fails, we encourage bad risks and end up with more bailouts.
"In the case of Fannie Mae and Freddie Mac, the privatization of profits and socialization of losses that started with President Johnson is as good an example of government policy ignoring the basic laws of economics as you'll find. Last week, the federal government had no choice but to step in to protect people's homes, but it should never have been in that position in the first place.
"The week ahead is likely to be a difficult one on Wall Street. Other companies are facing serious questions about their future, and the uncertainty of the markets means, in all likelihood, that we still have not hit the bottom of the cycle. We shouldn't kid ourselves and think that there are not going to be very difficult decisions ahead. There will be.
"At the same time, the vital signs of the city's economy remain strong - a lot stronger than in much of the rest of the nation. New Yorkers have gotten through the ups and downs of Wall Street before, and we will get through this one too. We know how to make tough decisions, we know how to come together, and we know how to emerge a stronger city as a result.
"Our job is to continue exercising discipline, continue investing in the future, continue improving our quality of life, continue sharpening our competitive advantage in key industries, and continue pushing to fix a broken immigration system that - more than the collapse of any one company - threatens our status as the world's economic superpower.
"Finally, it's worth remembering that the sub-prime mortgage had its genesis in an admirable idea: extending the dream of home ownership to more American families. Unfortunately, the lending spiraled out of control, and we are now paying the price. But we should not walk away from the goal of helping more Americans buy - and keep - their homes, and in New York City, we will not.
"I believe that if we continue making the smart long-term investments and continue managing our resources responsibly and conservatively then our best days are yet to come."
Stu Loeser (212) 788-2958
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