By Keith B. Richburg
Washington Post Staff Writer
Sunday, September 28, 2008
NEW YORK -- This is the town of money -- freewheeling, high-stakes, high-risk and big-spending. The home of the $20 martini, the seven-figure bonus, the multimillion-dollar condos owned by the titans of the Street.
Washington is the town of politics -- bureaucratic, stodgy, conservative. The home of cheap happy-hour beer and clean-cut young interns living in cramped quarters on the Hill, who are about making a difference, not making money.
But with Wall Street hobbled by the biggest financial crisis in generations, the culture of big money has lost some of its luster. And with the Street now looking to the U.S. Treasury for an unprecedented bailout, it's suddenly Washington that has become the center of financial action -- creating, at least for this instant, an unlikely shift of power and influence.
"The financial capital just underwent a huge downsizing," said James Parrott, chief economist of the Fiscal Policy Institute, which analyzes New York's tax structure and finances. "When you're drowning and at the risk of going under completely, the taxpayers as embodied by the government in Washington are the only place to turn to."
He added: "It may not be a bad thing that more decision-making rests with people in Washington rather than New York."
Besides the bailout negotiated between the White House and Capitol Hill, there was also the stunning specter this past week of Wall Street's two remaining big investment banks -- Goldman Sachs and Morgan Stanley -- asking to be transformed into more traditional banks with deposits, and subjecting themselves to greater Washington strictures.
"I've never seen anything like this," said a veteran investment banker of more than 20 years, who spoke anonymously to be able to speak candidly. "You've got two big investment banks saying, 'Please regulate me!' . . . It will be interesting to see how they implement this thing. Will the Treasury and Washington tell investment banks what to do?"
Asked whether this realignment signaled a shift in power, he paused and ruminated for a few seconds. "What does power really mean?" he replied at last.
Nicole Gelinas, an analyst with the Manhattan Institute for Policy Research, said: "It's kind of amazing. You had these guys who said, 'We can buy and sell companies.' . . . But suddenly when their industry is in need of consolidation and facing failures, they're very willing to take the Washington handout."
Gelinas questioned how, precisely, the Treasury plan would work, with specialists -- presumably from Wall Street -- helping the federal government manage its massive new asset-backed holdings.
"It's kind of bizarre for them to go down to Washington and work on a government contract," she said. "The fast train will be busy -- unless they make them take the regional."
This is not the first time New York has been forced to turn to Washington for a bailout in a crisis. It happened in 1980 and, most famously, in 1975, when the city was facing bankruptcy and went begging to President Gerald R. Ford for a federal rescue. Ford initially demurred, leading to the iconic New York Daily News headline "Ford to City: Drop Dead." (For the record, Ford never said that, although he later blamed the headline for costing him the election to Jimmy Carter.)
"I think it was a humbling experience," said George Artz, who was a young political reporter during the 1975 financial crisis and later press secretary to Mayor Edward I. Koch.
With the contraction on Wall Street threatening New York with a new fiscal crisis, given the city's heavy reliance on the financial sector for a large chunk of its tax revenue, Artz said, "I think people who went through '75-76 fear a recurrence and are watching it carefully . . . with a slight feeling of deja vu all over again."
Mayor Michael R. Bloomberg (I) is already warning residents to brace for the worst. Anticipating a big drop in tax receipts from Wall Street, Bloomberg has ordered all city agencies to cut spending by a total of $1.5 billion over the next two years. Earlier this week, he floated the idea of a 7 percent increase in property taxes to make up for the expected shortfall.
There are signs that the sagging fortunes of the Wall Street titans are already being felt in myriad ways in the city.
Renowned defense lawyer Edward W. Hayes, a self-described night owl, long ago developed two measurements for gauging the ups and downs of Wall Street: the HEGI and the HESI, which stand for High End Girlfriend Index and High End Stripper Index. When the financial sector's business is good, he said, the traders and bankers spend huge sums on high-end girlfriends and in the VIP rooms of Manhattan's pricey strip joints.
Now, said Hayes, who represents many of the woman in the business, he is seeing evidence of the downturn.
"The strippers are getting killed -- it's terrible," he said. "It really started in the last month. What they really need are the guys who go in and spend $500."
In fact, while New York City has for years enjoyed the fruits of Wall Street's decade of dizzying success -- an estimated 10 percent of all tax revenue comes from the Street -- the highflying traders and financiers are far from loved in this city. For many, who didn't share in the spoils, there is a certain sense of schadenfreude -- enjoying the new misery of the formerly wealthy.
"I do have a vengeful streak in me," said Rachelle Pachtman, a public relations consultant who lives in an Upper West Side building heavily populated by some of the rich and privileged financial titans.
"I know that there's going to be a glut of apartments that are going to be dumped in the multimillion-dollar range," Pachtman said. "They pay a lot for their mortgages. They've all got their children in . . . private schools. They all have a lifestyle. How are they going to keep this up?
"It's going to take their breath away, because they're going to have to deal with the reality that all the rest of us do," she added. "I think there's going to be a lot of people on the therapist's couch -- a very typical New York thing. People are going to start drinking a lot."
Douglas Muzzio, a professor of political science at the City University of New York's Baruch College, agreed that the fall from grace is likely to be hard for the formerly well-heeled.
"This mythology of the swashbuckling capitalist entrepreneur and trader, that may be damaged," he said. "They screwed up. And they're asking us to pay for their mistakes."