Twenty years ago, with his patented terminal and worldwide news service, Michael Bloomberg changed Wall Street forever. Now, with fears of a recession deepening, many are looking to him to save it.

“As mayor, he can be a force for articulating what the issues are and advocating for change,” said Kathy Wylde, president of the Partnership for New York City. “But in terms of what he can do himself, it’s very limited.”

Despite Bloomberg’s expertise in the world of business and finance, the problem is larger than the CEO mayor may be able to tackle, said Bob Greifeld, president and CEO of NASDAQ.

“The subprime issues reach well beyond New York and can not be reversed by any one individual or administration,” Greifeld wrote in an email.

The problem, said Wylde, is that the most serious economic issues facing New York are national and global, not local.

The financial sector represents between 15 and 25 percent of the city’s gross domestic product, second only to real estate, an industry which has been hit hard by the subprime mortgage crisis. And as it suffers, evidence is emerging that New York’s status as the world financial capital is starting to slip as the city begins to lose its competitive edge to London, Dubai, Hong Kong and Tokyo.

After five years of economic growth, the city’s fiscal outlook is grim, according to the latest report from the Independent Budget Office, which projects a budget gap of $3.1 billion in 2009, or roughly $360 million more than Bloomberg’s October estimate.
Bloomberg has always tied the city’s economic fate directly to Wall Street’s.

“We are still very sensitive to Wall Street profits,” Bloomberg said at a recent press conference. “There’s no question revenues will go down as Wall Street profits go down. So that’s not good.”

Last year, Bloomberg released a joint report with Sen. Charles Schumer (D) full of dire warnings about the city’s precarious economic position. The post-Enron regulatory environment is too restrictive for New York to remain competitive and economically viable in the face of global competition, Bloomberg and Schumer concluded.

Wall Street observers say that though the problem is much bigger than New York, there are still several things that Bloomberg and his administration can do to prop up the local financial industry.

Charles Geisst, a professor of finance at Manhattan College and author of Wall Street: A History, believes Bloomberg could offer financial incentives in the form of tax abatements to brokerage firms, hedge funds and other financial groups to convince them to keep their businesses in New York.

“But once he’s laid out the red carpet, he can’t just keep standing there in the uniform, greeting people at the door. Because it’s not necessary,” Geisst said.
Very important may be deals to keep financial firms in Manhattan, such as the ones that went to JP Morgan Chase to build a 42-story skyscraper near Ground Zero and to Goldman Sachs, which received $650 million in subsidies in 2005 to build its headquarters in Battery Park City.

Even these tax breaks may not be enough to keep the city competitive in the face of overly restrictive visa policies, Wylde said.

“The more barriers the U.S. erects, the more difficult it is to attract people here,” she said.

But Bloomberg’s most powerful tool may well prove his ability to bend ears in Washington, where policy fixes can take place, said Nicole Gelinas, a senior fellow at the conservative Manhattan Institute think tank. But whether he has been as adamant as he should be over the last year is hard to say, she said.

Gelinas said Bloomberg could go a step further by cutting income taxes across the board, which would encourage job growth on Wall Street as well as work toward diversifying the city’s economy.

The Bloomberg-Schumer report also recommended a joint venture between city and state officials and local business and financial interests to oversee efforts to strengthen Wall Street in the face of the twin crises of subprime mortgages and overseas competition.

To that end, last spring, Gov. Eliot Spitzer (D) created the New York State Commission to Modernize the Regulation of Financial Services, which includes representatives from the worlds of insurance, securities, banking, business and government.

Most of all, though, Bloomberg’s power may come down to his persona. His standing as an international business and media figure gives him the credibility to speak forcefully about economic issues, Wylde said.

And that would only be helped if, as many expect, he wades into the presidential campaign.

“If he entered the race,” Wylde said, “this would become a critically important issue.”

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Recession Could Buoy Bloomberg ’08

From a housing slump to record high oil prices, the economy and a looming recession are edging out all other issues on the presidential trail these days, even Iraq.
At town hall meetings and during debates, the candidates are being asked how they would handle a serious economic downturn. Voters regularly say they want to hear more about candidates’ approaches to handling the economy.

The Republican candidates say they would cut spending to preserve President George W. Bush’s tax cuts as a way to stave off a recession. The Democrats, not surprisingly, have followed a slightly different tack: Sen. Hillary Clinton unveiled an economic strategy that includes billions in spending and billions in tax rebates, and Sen. Barack Obama would cut taxes for middle and lower income families.

But Mayor Michael Bloomberg, whose presidential prospects are reaching a fever pitch as the Super Tuesday primaries get closer, arguably has more business and financial expertise than all the other candidates combined.

As a partner at Salomon Brothers and the head of financial services giant Bloomberg LP, the mayor accrued not only billions in personal wealth but years of experience tracking the ups and downs of Wall Street.

A recession could amount to an ace-in-the-hole for Bloomberg’s presidential platform, provided he presented a plan of action.

“I haven’t heard Bloomberg articulate an economic plan for the country,” said James Parrott, chief economist at the Fiscal Policy Institute. “Conceivably, he would have some credibility. But you have to start with a compelling economic program.” —AH