FOR IMMEDIATE RELEASE
October 6, 2008
MAYOR BLOOMBERG DELIVERS LECTURE ON THE FINANCIAL CRISIS AT CITY OF LONDON SPEECH AND RECEPTION
The following are the Mayor's remarks as prepared for delivery in London this evening:
“Good evening, and thank you, Stuart for that kind introduction – and for sponsoring me for the Freedom of the City of London, which I’m deeply honored by. I’m told I now have the right to drive sheep and cattle over London Bridge. My only question is: Do they each have to pay the congestion charge? (Maybe Boris can give me an exemption.)
“I just had the honor of going to Clarence House for a meeting with Harry. We’re actually a lot of like: we both like to go out and have a good time, we’ve both been called style icons, and our mothers both considered us a prince. It’s always great to be in London, and over the years, I’ve spent a good deal of time here. I own a home here, my company has offices here, and my daughters have British passports. So it feels almost like home. And I think that’s natural, because the U.S. and U.K. have so much in common.
“We share a language. (Forgive us for mangling it.) We share a history. (Forgive us for 1776. And we’ll forgive you for 1812.) We share a commitment to liberty, democracy, and human rights. And, of course, we share Posh and Becks. I’m sure all of you have been reading about the troubles on Wall Street lately – and I’ll get to that in just a moment. But let me begin by offering some perspective.
“Because of the independent approach we’ve taken to running city government, New York is better prepared to deal with a Wall Street downturn than at any time in our history. During the good times, we didn’t squander excess revenues as many liberals wanted, and we didn’t recklessly cut taxes, as many conservatives wanted. We saved the extra revenue for the hard times we knew would eventually come, as they always do. We also pre-paid long-term debt. We created a $2.5 billion trust fund to pay for retirees’ health care. And when the first storm clouds started appearing on the horizon a year ago, we started trimming the budget.
“But there’s no doubt that the months ahead are going to be awfully difficult, as we come to terms with a financial system that spun out of control – and the pain is going to be spread far and wide. It would be nice to believe that the financial crisis is only a problem for bankers – and that taxpayers shouldn’t bail them out. But that’s the same kind of wishful thinking that got us into this mess in the first place.
“The reality is that we are facing the worst confidence crisis in our lifetime and it is going to affect anyone who wants to borrow money to buy a car or a house or to expand their business or take out a student loan. Millions of people are just not going to be able to do those things – and millions of people who carry a balance on their credit cards are going to see their costs go up – or their credit limits slashed. There’s no sugarcoating this – it’s bad. And it’s only going to get worse as more and more jobs are lost.
“There’s no use pointing fingers, but if we’re going to avoid these situations in the future, we have to understand how we ended up here. I arrived on Wall Street in 1966 – the year that a New Yorker named Bob Dylan was booed at Royal Albert Hall for going electric. (I’m sure that would never happen here at Haberdasher Hall – or at least I hope not.) I started on the bottom rung of a brokerage firm and worked my way up to partner. I was there for 15 years and loved every minute of it – right up to the day I was fired. I walked out on a Friday and that Monday, I started my own company with three guys, one coffee pot, and zero customers.
“But what we did have was a new idea: providing up-to-the-minute financial data to Wall Street firms via computer terminals. And it turned out to be a pretty good one. Today, that little start-up has nearly 10,000 employees in more than 130 cities around the world including more than 2,100 here in London. The company’s success has allowed me to run for public office and work for $1 a year. (93 cents after taxes, but who’s counting.)
“The Wall Street that I left behind in 1981 is very different from the one that exists today. Not only do Bloomberg terminals provide comprehensive real-time information to companies smart enough lease them but other computers actually decide when to buy and sell stocks and bonds. Automated trading was an inevitable development – and mostly, it’s been a positive one. But it has also added an extra gear to the market’s volatility, because when the herd mentality gets automated, the stampede gets turbo-charged. I don’t know that we can put the brake on automation – or that we’d want to. But it’s a good example of how the sophistication of the financial markets has moved faster than regulatory bodies, faster than the bond rating agencies, faster than investors, and – I believe – faster than many financial executives.
“That goes for both the high-tech tools that traders use and the highly complex products they buy and sell. Earlier today, I sat down with a group of financial executives – most of them from London – to discuss the crisis and its ramifications. We were honored to have Boris there. (Boris is like Bono or Sting – only one name is required.) There are no quick solutions to the serious problems we’re facing – we all recognize that. But it’s also important to recognize that the world has changed – and if we’re going to avoid these meltdowns in the future, we have to adapt. And not just the private sector, but government too.
“That doesn’t mean we need more regulation, necessarily, just smarter regulation. In the U.S., we have an antiquated patchwork of overlapping regulatory bodies. There are five federal banking regulators, plus 50 state regulators. Insurance companies are regulated almost entirely by the states – and yet, as we saw with AIG, there isn’t much difference anymore between an insurance company and an investment bank.
“There is even less difference between an investment bank and a hedge fund – and yet hedge funds are almost completely unregulated. And in the days of global markets, most problematically, our regulation is written and enforced as though the world stops at our borders. Here in the U.K., the regulatory structure is more streamlined, but both our systems share an underlying weakness: a lack of transparency. And that is a big reason not only for the panics that our countries have experienced, but also for the freezing up of credit markets. We simply don’t know the value of the assets that financial institutions are holding.
“In many cases they are custom-created, one-off securities that require enormous computer power to model, and they depend on impossible-to-value underlying assets. Further, it is probably true, as has been alleged frequently, the management of institutions that hold these investments don’t understand them – their risks or volatility. All this uncertainty puts further downward pressure on stock prices, which hurts a firm’s credit – which limits its ability to do business.
“That, in turn, puts downward pressure on stock prices, and the cycle continues – sometimes, as we have seen, spiraling all the way down to the bottom. Greater transparency will help restore confidence and trust – which is exactly what the market needs to break that cycle and prevent it from happening again. Hank Paulson – we are lucky to have him as Treasury Secretary – gave an important speech here in London several months ago. He called for giving our central bank – the Federal Reserve – greater authority to access vital information on all kinds of financial institutions – banks, investment banks, hedge funds, or otherwise. And he applauded the proposal here to give similar authority to the Bank of England. I think both countries have an interest in moving swiftly to adopt these changes, and to undertake broader reforms that will promote stability, transparency, and efficiency.
“The dramatic changes that we’ve seen in financial instruments and institutions reflect even bigger changes in the global economy. Capital now moves around the world at light-speed, companies are more mobile than ever, countries are increasingly inter-dependent on each other for goods and services, and China, India, and other emerging economic powers have become – for the first time in history – major exporters of capital. We’re still learning the ropes of what all this means, and it appears that we may be about to get our first lesson in what a truly global downturn feels like.
“Back in America, we’ve heard a lot of comparisons to the Great Depression – and that’s natural, because none of us have ever experienced such a massive breakdown of confidence in the financial system. I certainly hope that the analogy will prove grossly overstated, but regardless, I’m not sure that it provides much in the way of guidance for what should come next. The better analogy to make – at least in terms of how we should be thinking about our next steps – might be to a terrible crisis that is far more recent: The attacks of September 11th. And let me explain why.
“Al-Qaeda twice attacked the World Trade Center – once in 1993, and again in 2001 – because it was the ultimate symbol of free enterprise and global commerce. The first time they attacked, our federal government failed to recognize that the world had shifted beneath our feet – away from the Cold War and towards global terrorism. But by the second time, there was no mistaking the threat – and no mistaking the danger that it posed not only to America, but to all countries that prize freedom in politics, religion, society, and markets.
“In the weeks and months after the attacks, we worked hard to improve our understanding of the threat: how it developed, why government failed to anticipate it, and how we could prevent it from occurring again. The answers we arrived at made it clear we needed to take some major steps – some of which may sound familiar. First, we needed to overhaul a federal bureaucracy that had not kept pace with the times, we needed to improve the transparency of flow of information – so that government agencies do not miss important signs and developments, we needed to adopt smarter and more sophisticated policies and regulations to safeguard the public. We needed to invest more money to shore up our underlying vulnerabilities and promote public confidence. And, maybe most importantly of all, we needed to work more closely with our allies abroad to share information and strategies.
“We have taken some of these steps – to some extent. (Unfortunately, history may well show that we have not gone far enough.) But today, these essential steps apply not only to national security, but to economic security – so we have an additional challenge. If we’ve learned anything from the post-9/11 years, it’s that cities cannot wait for national governments to take action on either challenge. In New York, when it comes to homeland security, we created a new counter-terrorism and intelligence division within our Police Department and assigned 1,000 of our best officers to it. We also began posting some of those officers to about a dozen foreign cities, including Tel Aviv, Madrid, Paris, Sydney, and of course, London. The officers work closely with local and national officials, and every day, they feed intelligence back to New York that is critical to our efforts to prevent another attack. In fact, we have prevented numerous potential attacks – including one to blow up a midtown subway station.
“When it comes to promoting economic growth and stability, we’ve been just as aggressive. Over the course of six and half years, we’ve worked to diversify the economy so that we’d be less dependent on the ups and downs of Wall Street. The fortunes of New York and London have historically been tied to the financial markets. In New York, financial services account for only 10 percent of our workforce – but 35 percent of all wages. When Wall Street catches a cold, the rest of the City sneezes. That’s not going to change anytime soon. But it’s our job to prevent that sneeze from becoming pneumonia. The way to do that is by promoting other industries – by creating the policies and infrastructure to attract them.
“We’ve done that in bioscience by investing in a state-of-the-art bio-science park in Manhattan. We’ve done it by adopting local tax breaks for the film and television industry that have helped us compete with Hollywood. And we’ve done it by promoting an industry that’s crucial to both of our cities: Tourism. For many years, New York took for granted that people would want to visit. But taking customers for granted is not a very good business model, especially when tourists have more options than ever before. So we did what all businesses do: we developed a real marketing strategy and put real money behind it, $50 million.
“And we opened tourism offices in 17 cities across the world – from London to Sydney to Moscow. Since 9/11, even though tourism in the United States has declined, it has increased in New York City to record levels. The rest of the country is missing out on these tourism dollars largely because the federal government still doesn’t understand that hassling people at our borders is not an effective means of preventing terrorism – and it discourages tourism.
“Local action cannot be a substitute for national leadership – and we need all levels of government to work together. But similarly, international cooperation and collaboration will prove increasingly essential for addressing our most difficult challenges. That’s true for economic growth and stability, it’s true for counter-terrorism, it’s true for fighting climate change, it’s true for improving public health, and so on down the line.
“That’s why I’m here, because if New York and London are going to remain the world’s leading financial centers, we need to bring the ‘special relationship’ that has always existed between 10 Downing Street and 1600 Pennsylvania Avenue to our City Halls. There are plenty of emerging financial capitals that are gunning for us: from Dubai to Shanghai, and from San Paulo to Singapore. The more we can work together, the more we can share ideas and strategies and promote more common regulatory standards, the more successful we will both be.
“It would be easy to think, ‘New York will be fine if London slips’ – or vice-versa. Competition can focus on which ship is the sleekest or fastest or the most flexible. But the reality is that both of us rise and fall the same amount with the Atlantic tides. To strengthen our cities’ relationship, Boris and I recently created what we called an ‘Innovation Exchange.’ The idea is to create a more regular process for sharing best practices and the most promising new policies.
“The exchange is focusing on five areas: first, public transparency and accountability; second, accessibility of government services; third, efficiency; fourth, public safety and emergency management, and; fifth, infrastructure and climate change. This December, New York City will host a high-level delegation from London, and early next year, we will send a high-level delegation to London. The bonds between our two cities, and our two countries, have never been stronger. Over the decades, we have both endured economic recessions and depressions and we both have come out stronger for it.
“We will do it again – not by looking back at the hard times of the 1930s but by looking ahead to the good times that will return – if we act with level heads and courageous hearts. To do that, we will need to do economically what FDR and Churchill did diplomatically: reject isolationism, reach out to our allies, and together, devise a strategy for promoting freedom, stability, and prosperity around the world.
“By extending our ‘special relationship’ beyond diplomacy more deeply into
matters of the economy we can build an alliance that will prove as strong in the
21st century as it was in the 20th. And we can ensure that New York and London
remain the world’s most dynamic, exciting, creative, and prosperous cities in
the world. Thank you, and God bless.”
Stu Loeser (212) 788-2958