Power Shifts From N.Y. to D.C.
After Wall Street's Quake, Manhattan Braces for Financial Tsunami
Sunday, September 28, 2008; Page A01
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.)