The Street Slips, the City Shrugs

NEW YORK Wall Street hasn't been smacked like this since the Great Depression. Two former hedge fund managers from the collapsing firm Bear Stearns were perp-walked last Thursday to a federal court in Brooklyn to face fraud charges; Citibank is wheezing; Lehman Brothers is fighting for its life. Layoffs are rampant on the Street, and for those who are still gainfully employed -- well, it's going to be a whole lot less gainful come bonus time next January. If the old saying "As goes Wall Street, so goes Manhattan" is true (think restaurants, auto dealers, art galleries, fancy co-ops and fancier private schools), there must be a distinct pall over Gotham these days.

But in fact, Manhattan is still very much in the swim. True, there are a few soft spots. Sales of seven-figure apartments are a tad sluggish (though eight-figure apartments are still moving just fine). And yes, the nouveau money fundraiser of the year -- the Robin Hood Foundation's big benefit auction, where the Street's Masters of the Universe were teased by host Conan O'Brien and serenaded by pop stars Shakira and Wyclef Jean -- raised a paltry $56.5 million this spring, down from $71 million last year. But that's exactly the point: All of this is down a bit, but from what? The air on this island is so rarefied that when the value of something dips, it's not as though anyone's left out on the curb. Losing a $400,000 home in Atlanta to foreclosure? That's not what's going on here.

Here, the high-end art market is still going bananas. (A woman I know just left one of the big auction houses because the business is so hyper that "it's no fun anymore.") Care to dine at a tip-top restaurant? Just try to get a reservation at Union Square Cafe or Jean Georges. And as for getting your kiddies into private school in Manhattan, well, you may want to consider a second-tier boarding school in Connecticut. The number of brand-name Ivy League incubators has remained constant over the past decade, while demand has spiraled ever upward. It would take decades of "unwinding," as they say on Wall Street, to reverse that trend.

The reason Manhattan continues to hum along while the rest of the country sputters is twofold. As usual in New York, it's all about the Benjamins -- or, these days, the euros. Take a stroll down Fifth Avenue in midtown, and you will be nearly crushed by a throng bristling with shopping bags. Lean in to listen to the shoppers' banter, and you will discover that they're mostly from abroad. This is not an exaggeration. New York's most famous shopping street has become one giant European shopping mall. I recently asked a sales clerk in the NBA store at the corner of 52nd and Fifth what percentage of his customers came from overseas. "I'd say two-thirds to three-quarters," he replied. "We'd be dead without them," echoes a manager at a Paragon Sports store. Small wonder that some emporiums on the avenue have taken to accepting euros.

What's going on, of course, is that Europeans are benefiting mightily from the steep decline of the dollar over the past few years. They are coming here, basically, to savor the 40 percent-off sale that New York stores now afford them. And of course, they are also eating in our restaurants, hiring our limos and splurging on our non-representational art, God love them. And we aren't talking about just, say, Finnish telecom moguls either. I've met several London taxi drivers who've told me how much they love vacationing here now.

New York real estate has also been helped by an influx of free-spending foreigners. The richest 1 percent of the population of every country in the world has always wanted an apartment in Manhattan. But now, with the weak dollar, the number of people who might reasonably afford such a thing has probaby been ratcheted up to the top 2 percent of every country. You can see how that would help offset any decline in demand from hurting Americans.

Which brings us to the second reason why Manhattan defies economic gravity: domestic demand. How can there be so much carnage on Wall Street without the economy of Manhattan falling off a cliff? Simple: because so much profit has been made on Wall Street over the past 2 1/2 decades that the amount of money sloshing around is likely to keep the place afloat indefinitely.

Wall Street, after all, is a unique place. It is the only industry whose core business isn't about making, say, sneakers or software or silicon. It's a business about making money. Period.

And that attracts a special breed of person. These are people who don't want to build a nice little nest egg and retire. These are people who want to become filthy rich. How do I know that? Because so many of the people I talk to on Wall Street could have quit working years ago. But something drives them to keep making more and more money. Their jobs are grueling, the competition is insane, but the compensation can be ridiculous. It's hard for most of us to imagine working 12-hour days when you've got $75 million in the bank, but there are those who do just that.

As an example, let's take a guy named Joseph Gregory, 56, the former president and chief operating officer of Lehman Brothers, who was ousted June 12 as the firm's stock price tumbled and its viability fell into doubt. You've probably never heard of Joe; few people outside Wall Street have. (I actually don't know him very well; I just picked him because Lehman is in the news.) Joe Gregory toiled at Lehman from 1974, working his way up to the No. 2 spot at the firm. Besides making a very generous salary -- his total compensation last year was $34 million, according to Lehman's proxy statement -- Joe accumulated a hefty amount of Lehman stock. Over the past 18 months, he saw fit to sell much of it -- $52.1 million of it, to be precise (according to SEC filings). He also still owns many millions of dollars of Lehman stock, plus, no doubt, all sorts of other deferred compensation and other goodies.

It all adds up to real money, even by New York standards. My point is simply that even though Lehman Brothers is in terrible shape right now, Joe Gregory has made a ton of money. The larger point is equally simple: There are many, many Joe Gregorys here in Manhattan.

I once told a guy I know who runs a giant hedge fund that if I ever made as much as he did in a single year -- about $30 million -- I would promptly pack it in. "That's why you will never make $30 million," he retorted. Duly noted.

Now, I'm not saying that the economy won't fall off a cliff here in New York. It could. But as in the Great Depression, a significant stratum of the city's inhabitants would probably remain above the chaos. And today, those lucky few could just as well be London taxi drivers as stinking rich, type triple-A bankers.

andrew_serwer@fortunemail.com

Andy Serwer is managing editor of Fortune magazine.