New York is the new Detroit

New York is the new Detroit

New York is fucked to the gills and everybody knows it. New York is the new Detroit. Hard to believe now, but once upon a time, Detroit was the ultimate industrial power-house city on planet Earth. Then Jimmy Carter asked Volker to raise the prime to 20%, we had the Saturday Night massacre, the recession of 1980 came along, and Detroit basically died.

Funny how that thing worked out. In the environment of tough credit, high interest, austerity, and difficulty, Americans has to become intensely pragmatic. We couldn't afford to have and hold illusions anymore. We admitted something to ourselves we didn't want to confess: Japanese cars were way better. Car companies like AMC went out of business. Detroit became a burned out shell of what it once was.

They are saying that the Great Depression II will do the same thing to New York. New York was the ultimate center of global finance: the greatest financial powerhouse in the world. Now Bear Sterns, Lehman Bros, Merrill Lynch have all gone south. Groups like Goldman Sachs & Morgan Stanley have turned into conventional banks. Citigroup is about to be butchered and sold in pieces. AIG has been nationalized. {You guys are headquartered in New York.} New York is just not going to be the same place it once was.

You can make a very strong case that it was the Investment Banks that made New York New York. The rank-in-file millionaires who bought all those expensive condo apartments and bought all that opulence, those guys lined the trading floors at these investment banks. Now nobody is going to the Opera. Most of those guys are going to disappear.

The floor traders and licensed brokers are unemployed at the moment. Those who can retire will be headed for Costa Rica. They won't stay in New York. Those who can't retire will have to go to work in Charlot, Minneapolis or San Francisco for a small pittance of what they used to make. There will be an exodus of talent from New York to the other lesser financial centers around the country.

In fact, they already are disappearing. Many New Yorkers, accustomed to hyper-crowded, hyper-rush environments have noted a distinct change in intensity, velocity and mass on the street, in subways, and when fighting for cab. Rumor has it, you don't need to fight for a cab anymore. Everything is slowing down, and depopulating.

The result is that the GDP of New York is going to go down like crazy. The population of New York is going to go down. The per-capita GDP of New York is going to go down. It already has. Just ask yourself what would happen in Los Angeles if Paramount, Universal and Fox were to collapse. Believe me, Los Angeles would become a shell of its former self. New York can't survive the collapse of their most noteworthy industry.

There is another thing: New York fed on hyper-leverage more than any other place in the entire world. The cash that has been flowing into New York over the past 15 years has been a function of debt peonage, loosening standards for credit, and lax leverage controls. Basically, the powers that be allowed banks to lever up to 30 fold on deposits. New York ate up the interest and thrived... until the bubble burst. Now the era of hyper-leverage is over. When the economy comes back, it is going to be with heavy-duty steel-reinforced concrete blockades on leverage. Banks are never going to be allowed to leverage up like this again.

Without hyper-leverage to feed on, Wallstreet is going to have to find a more mundane, safe, less profitable and steady line of work. That means a lot less GDP for New York City.