Sunday, February 1, 2009

New York--Detroit Redux?

Rudy Guiliani has pointed out an inconvenient truth.

The regional economy of the New York metropolitan area is driven by the bonus structure and bonus dollars of the financial services sector. Take away the excessive financial services sector compensation, and the place will start looking like it did back in the 1970s.

Stop and think about it. What drives an average Manhattan apartment price to around a million dollars? What makes five thousand dollars a month seem like a reasonable rent for a one bedroom apartment? Where does the money come from to pay all that private school tuition?

The antics of the new Guilded Age may have seemed pretty repugnant to those of us on the outside looking in, but there is no denying the trickle down effect. All those nannies, car service drivers, executive coaches, real estate agents and so one were indirectly feeding from the trough that was nourishing the managing directors and their kin. Take away the bonus, take away the personal trainer. This year, send the kids to camp to pass on renting in the Hamptons. Let's do something more adventurous (and cheaper). It's pretty safe to predict that there will be many fewer new kitchens, much more jewelry discretely on consignment, and an reduction in the size of expense account tabs.

Generally, the regions that have been ground zero for the economic impact of bad news have been peripheral, perhaps even remote. Detroit is a long way from either Coast. Back in the 80s, the Oil Patch was flyover territory. Today, in Southern California, the misery is centered in the Inland Empire, and a few delusional homeowners are still hoping that the Westside of LA will get a free pass in this mess (it won't).

Well, it looks like the residents of Manhattan, the tonier parts of the outer boroughs and the better suburbs are going to get to eat their own cooking for a change. I hope they like Spam.


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