The Ax Man Cometh: Can the Tax Man Be Far Behind?
According to a recent Bloomberg article, the body count on Wall Street has hit 34,000 in the past nine months as a result of the subprime market fallout. The article quotes Jo Bennett, a partner at executive search firm Battalia Winston International as saying, "The crisis is much worse than 2001, and we don't know how long it's going to last." It adds that the Securities Industry and Financial Markets Association showed 39,800 Wall Street jobs lost in 2001, and this number climbed to 90,000 in the next two years.
Bennett also opined that some firms have not fully disclosed their job cuts to avoid looking weak.
The job losses related to the subprime collapse are already impacting ancillary areas.
According to Jeanne Branthover, a managing director at Boyden Global Executive Search in New York, "This is filtering down to the vendor, the firms Wall Street was using are also feeling the pain."
A list compiled by Bloomberg of layoffs by firm from company disclosures as of 3/27/08 follows:
Please note that the Bear Stearns numbers don't include fall-out from the JP Morgan take-under and the Goldman Sachs numbers don't reflect the NY Post's recently rumored additional cuts. These job losses have significant implications fot the Manhattan office market, despite the lack of significant new supply coming on, similar to the 2001 experience....but that's the subject of a future post. For now, let's look at some of the data and projections on job losses and consider the implications for the residential real estate market.
According to the International Herald Tribune, "The New York economy is more dependent than ever on high Wall Street incomes, which have jumped by more than half since 2001, to an average $387,000, according to the city comptroller's office." As an example of the impact the Times cites a company called SeamlessWeb, which delivers food to Wall Street firms and is reconsidering hiring plans.
According to the New York Post: "Economists at the city's Independent Budget Office have calculated that for every job lost in the securities industry, there are eventually another four to five jobs lost across the city economy." The conservative Manhattan Institute Empire Center for New York State Policy released a study back in October in its Fiscal Watch publication, which predicted a less draconian loss of two non-securities jobs for each lost Wall Street paycheck. So depending on whose estimates you want to believe, 103,000 - 208,000 total job losses are already being baked into the pie, if the losses in the table above are the absolute total.
Below you can see a visual representation of New York City job trends and securities industry job trends historically. This excellent chart from the New York Fed only extends through 1999, unfortunately (I have inquired into getting an updated one). Note that in the 1970s and 1990 contractions on Wall Street, city employment ex-Wall Street rolled over slightly after Wall Street employment, fell faster or for longer than Wall Street employment and took longer to recover. This bodes ill for employment's impact on the city's real estate market, this time around.
Interestingly, the recent Manhattan Institute study echoed several themes we have been pointing to here at Urban Digs (see States & Cities At Risk) , like the knock-on effects of likely lower tax revenue and city budgetary issues. Below is a chart of what happened to city tax revenue after the dot com employment swoon, according to the NY Fed.
Check out this chart chronicling the super-charged growth in tax funding and spending growth in New York City during the upturn vs. the more mundane growth of other economic growth measures over the last decade. This has got be partially driven by real estate market impacts on tax revenue and something of a loss of spending discipline. The reduction in employment, coupled with lower real estate-related taxes, is an evil omen for city tax revenue.
As you can see from the chart below, which is also from the Manhattan Institute, the dot com downturn was not enough to stop the secular upturn in city funded operating expenditures as a percentage of personal income, which began out of the depths of the 1990 recession and Wall Street slump. According to the New York Fed: "Between 1988 and 1991, Wall Street employment fell 16 percent and real earnings dropped 12 percent. About one year into the securities industry downturn, the overall economy also faltered: from 1989 to 1992, total employment fell 9 percent and real earnings dropped 3 percent. Since the city recovered from that hangover and Wall Street employment recovered to 1987 levels around 1996, operating expenditures compared with personal incomes has been on the rise. This has undoubtedly contributed to a steadily improving "quality of life" in Manhattan and a virtuous cycle of increased prosperity and both income and real estate driven tax dollars to work with. The question is whether this downturn will reverse that trend.
Note that the Bloomberg administration briefly raised taxes after 9/11. They were taken to task for it by the the Manhattan Institute in prior studies, which suggested that when taxes are raised in New York City, jobs are lost. Tax cuts when they were forthcoming appeared to have helped boost the city's fortunes.
So keep your heads down, dodge the ax man.....and then look out for the tax man!
From the Blogosphere
Will Wall Street Cutbacks Hurt New York City Real Estate
Heads Rolling on Wall Street: Job Losses Starting to Rival Tech Bust
Job Cuts Shake Wall Street Nerves
Posted by Noah
Fri Mar 28th, 2008 10:44 AM
knowing these tax revenues are likely to go down in coming years, how do you think Bloomberg is preparing? Is there a general priority list of what services/plans get cut first should this situation play out?
Posted by Jeff
Fri Mar 28th, 2008 12:34 PM
I am not well versed on the city's contingency plans for a significant revenue shortfall. However, various arms of the city government that have put out estimates of the city's financial needs in recent months have been lowering their expectations for the economic growth of the city and tax revenues. I am sure this is a subject that is being looked at closely.
Posted by TA
Fri Mar 28th, 2008 02:13 PM
Don’t believe one optimistic word from any public figure about the economy or humanity in general. They are all part of the problem. Its like a game of Monopoly. In America, the richest 1% now hold 1/2 OF ALL UNITED STATES WEALTH. Unlike ‘lesser’ estimates, this includes all stocks, bonds, cash, and material assets held by America’s richest 1%. Even that filthy pig Oprah acknowledged that it was at about 50% in 2006. Naturally, she put her own ‘humanitarian’ spin on it. Calling attention to her own ‘good will’. WHAT A DISGUSTING HYPOCRITE SLOB. THE RICHEST 1% HAVE LITERALLY MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. Don’t fall for any of their ‘humanitarian’ CRAP. ITS A SHAM. THESE PEOPLE ARE CAUSING THE SAME PROBLEMS THEY PRETEND TO CARE ABOUT. Ask any professor of economics. Money does not grow on trees. The government can’t just print up more on a whim. At any given time, there is a relative limit to the wealth within ANY economy of ANY size. So when too much wealth accumulates at the top, the middle class slip further into debt and the lower class further into poverty. A similar rule applies worldwide. The world’s richest 1% now own over 40% of ALL WORLD WEALTH. This is EVEN AFTER you account for all of this ‘good will’ ‘humanitarian’ BS from celebrities and executives. ITS A SHAM. As they get richer and richer, less wealth is left circulating beneath them. This is the single greatest underlying cause for the current US recession. The middle class can no longer afford to sustain their share of the economy. Their wealth has been gradually transfered to the richest 1%. One way or another, we suffer because of their incredible greed. We are talking about TRILLIONS of dollars which have been transfered FROM US TO THEM. All over a period of about 27 years. Thats Reaganomics for you. The wealth does not ‘trickle down’ as we were told it would. It just accumulates at the top. Shrinking the middle class and expanding the lower class. Causing a domino effect of socio-economic problems. But the rich will never stop. They just keep getting richer. Leaving even less of the pie for the other 99% of us to share. At the same time, they throw back a few tax deductible crumbs and call themselves ‘humanitarians’. Cashing in on the PR and getting even richer the following year. IT CAN’T WORK THIS WAY. Their bogus efforts to make the world a better place can not possibly succeed. Any 'humanitarian' progress made in one area will be lost in another. EVERY SINGLE TIME. IT ABSOLUTELY CAN NOT WORK THIS WAY. This is going to end just like a game of Monopoly. The current US recession will drag on for years and lead into the worst US depression of all time. The richest 1% will live like royalty while the rest of us fight over jobs, food, and gasoline. So don’t fall for any of this PR CRAP from Hollywood, Pro Sports, and Wall Street PIGS. ITS A SHAM. Remember: They are filthy rich EVEN AFTER their tax deductible contributions. Greedy pigs. Now, we are headed for the worst economic and cultural crisis of all time. Crime, poverty, and suicide will skyrocket. SEND A “THANK YOU” NOTE TO YOUR FAVORITE MILLIONAIRE. ITS THEIR FAULT. I’m not discounting other factors like China, sub-prime, or gas prices. But all of those factors combined still pale in comparison to that HUGE transfer of wealth to the rich. Anyway, those other factors are all related and further aggrivated because of GREED. If it weren’t for the OBSCENE distribution of wealth within our country, there never would have been such a market for sub-prime to begin with. Which by the way, was another trick whipped up by greedy bankers and executives. IT MAKES THEM RICHER. The credit industry has been ENDORSED by people like Oprah Winfrey, Ellen DeGenerous, Dr Phil, and many other celebrities. IT MAKES THEM RICHER. Now, there are commercial ties between nearly every industry and every public figure. IT MAKES THEM RICHER. So don’t fall for their ‘good will’ BS. ITS A LIE. If you fall for it, then you’re a fool. If you see any real difference between the moral character of a celebrity, politician, attorney, or executive, then you’re a fool. No offense fellow citizens. But we have been mislead by nearly every public figure. WAKE UP PEOPLE. THEIR GOAL IS TO WIN THE GAME. The 1% club will always say or do whatever it takes to get as rich as possible. Without the slightest regard for anything or anyone but themselves. Reaganomics. Their idea. Loans from China. Their idea. NAFTA. Their idea. Outsourcing. Their idea. Sub-prime. Their idea. High energy prices. Their idea. Obscene health care charges. Their idea. The commercial lobbyist. Their idea. The multi-million dollar lawsuit. Their idea. The multi-million dollar endorsement deal. Their idea. $200 cell phone bills. Their idea. $200 basketball shoes. Their idea. $30 late fees. Their idea. $30 NSF fees. Their idea. $20 DVDs. Their idea. Subliminal advertising. Their idea. Brainwash plots on TV. Their idea. Vioxx, and Celebrex. Their idea. The MASSIVE campaign to turn every American into a brainwashed, credit card, pharmaceutical, love-sick, celebrity junkie. Their idea. All of the above shrink the middle class, concentrate the world’s wealth and resources, create a dominoe effect of socio-economic problems, and wreak havok on society. All of which have been CREATED AND ENDORSED by celebrities, athletes, executives, entrepreneurs, attorneys, and politicians. IT MAKES THEM RICHER. So don’t fall for any of their ‘good will’ ‘humanitarian’ BS. ITS A SHAM. NOTHING BUT TAX DEDUCTIBLE PR CRAP. In many cases, the 'charitable' contribution is almost entirely offset. Not to mention the opportunity to plug their name, image, product, and 'good will' all at once. IT MAKES THEM RICHER. These filthy pigs even have the nerve to throw a fit and spin up a misleading defense with regard to 'federal tax revenue'. ITS A SHAM. THEY SCREWED UP THE EQUATION TO BEGIN WITH. If the middle and lower classes had a greater share of the pie, they could easily cover a greater share of the federal tax revenue. They are held down in many ways because of greed. Wages remain stagnant for millions because the executives, celebrities, athletes, attorneys, and entrepreneurs, are paid millions. They over-sell, over-charge, under-pay, outsource, cut jobs, and benefits to increase their bottom line. As their profits rise, so do the stock values. Which are owned primarily by the richest 5%. As more United States wealth rises to the top, the middle and lower classes inevitably suffer. This reduces the potential tax reveue drawn from those brackets. At the same time, it wreaks havok on middle and lower class communities and increases the need for financial aid. Not to mention the spike in crime because of it. There is a dominoe effect to consider. IT CAN'T WORK THIS WAY. But our leaders refuse to acknowledge this. Instead they come up with one trick after another to milk the system and screw the majority. These decisions are heavily influensed by the 1% club. Every year, billions of federal tax dollars are diverted behind the scenes back to the rich and their respective industries. Loans from China have been necessary to compensate in part, for the red ink and multi-trillion dollar transfer of wealth to the rich. At the same time, the feds have been pushing more financial burden onto the states who push them lower onto the cities. Again, the hardship is felt more by the majority and less by the 1% club. The rich prefer to live in exclusive areas or upper class communities. They get the best of everything. Reliable city services, new schools, freshly paved roads, upscale parks, ect. The middle and lower class communities get little or nothing without a local tax increase. Which, they usually can't afford. So the red ink flows followed by service cuts and lay-offs. All because of the OBSCENE distribution of bottom line wealth in this country. So when people forgive the rich for their incredible greed and then praise them for paying a greater share of the FEDERAL income taxes, its like nails on a chalk board. I can not accept any theory that our economy would suffer in any way with a more reasonable distribution of wealth. Afterall, it was more reasonable 30 years ago. Before Reaganomics came along. Before GREED became such an epidemic. Before we had an army of over-paid executives, bankers, celebrities, athletes, attorneys, doctors, investors, entrepreneurs, developers, and sold-out politicians to kiss their asses. As a nation, we were in much better shape. Strong middle class, free and clear assets, lower crime rate, more widespread prosperity, stable job market, lower deficit, ect. Our economy as a whole was much more stable and prosperous for the majority. WITHOUT LOANS FROM CHINA. Now, we have a more obscene distribution of bottom line wealth than ever before. We have a sold-out government, crumbling infrastructure, energy crisis, home forclosure epidemic, 13 figure national deficit, and 12 figure annual shortfall. The cost of living is higher than ever before. Most people can't even afford basic health care. ALL BECAUSE OF GREED. I really don't blame the 2nd -5th percentiles in general. No economy could ever function without some reasonable scale of personal wealth and income. But it can't be allowed to run wild like a mad dog. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. UNBRIDLED CAPITALISM ABSOLUTELY CAN NOT WORK. TOP HEAVY ECONOMIES ALWAYS COLLAPSE. Bottom line: The richest 1% will soon tank the largest economy in the world. It will be like nothing we’ve ever seen before. The American dream will be shattered. and thats just the beginning. Greed will eventually tank every major economy in the world. Causing millions to suffer and die. Oprah, Angelina, Brad, Bono, and Bill are not part of the solution. They are part of the problem. THERE IS NO SUCH THING AS A MULTI-MILLIONAIRE HUMANITARIAN. EXTREME WEALTH MAKES WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. WITHOUT WORLD PROSPERITY, THERE WILL NEVER BE WORLD PEACE OR ANYTHING EVEN CLOSE. GREED KILLS. IT WILL BE OUR DOWNFALL. Of course, the rich will throw a fit and call me a madman.. Of course, they will jump to small minded conclusions about 'jealousy', 'envy', or 'socialism'. Of course, their ignorant fans will do the same. You have to expect that. But I speak the truth. If you don’t believe me, then copy this entry and run it by any professor of economics or socio-economics. Then tell a friend. Call the local radio station. Re-post this entry or put it in your own words. Be one of the first to predict the worst economic and cultural crisis of all time and explain its cause. WE ARE IN BIG TROUBLE.
Posted by anonymous
Fri Mar 28th, 2008 02:30 PM
wow....umm....ok....sure....whatever....
Meanwhile, back in the "real" world - In addition to all the banks cutting jobs, don't forget about all the hedgefunds that were all levered up and are now underwater. Not to mention the fact that you have all these college and MBA graduates coming out of school in a couple of months. There's gonna be a lot of slack in the job market for a while.
Posted by Noah
Fri Mar 28th, 2008 02:33 PM
wow thats a long comment
Posted by Noah
Fri Mar 28th, 2008 02:57 PM
don't jump off that ledge!
Posted by JR
Fri Mar 28th, 2008 03:28 PM
go, inventory, go!
Posted by Noah
Fri Mar 28th, 2008 03:51 PM
ha...you are the 4th person to mention this to me!
Posted by mike
Fri Mar 28th, 2008 04:22 PM
TA - that was gibberish.
Noah - before you write that article about the office market, I think the comparison is difficult and useless. In 2001, there was a terrorist attack that resulted in a loss of nearly 20,000,000 sf of office space. After 2001, vacancy went from a low of 4% in 2000 to a high of 10.5% in 2003. I think that reflects a short-lived panic of revolving around being in NYC. Vacancy peaked on top of the recession. Usually vacancy lags, vacancy in the 1990s peaked in 1993, after the 1991 recession. Meanwhile, in the last 7 years, approximately 22 million sf of office space has been added.
It's very difficult to seperate the impact of the terrorist attacks from the impact of the 2001 and 2003 recessions/slow growth periods. The analysis you present will have the same problems, and without being able to ancipate a terrorist attack, there is no reason to believe that the NYC office market will resemble the 2001-2003 period, or the 1991-1994 period. My expectation is that the market will level off, vacancy will increase at a moderate pace but won't go above 10%, but rents will level off a lot as buildings will be less commoditized (tenants won't have to pay what the guy across the street pays because "that's market", you'll see more unique pricing to specific space. )
Posted by Noah
Fri Mar 28th, 2008 04:31 PM
Mike - I did not write the article. Please check the Posted By when you read discussions here and you will see that Jeff, Christine, Beth, myself all contribute!
Anyway, you bring up very valid points and I agree it will not be a sharp spike like after 9/11. However, it could be prolonged and ultimately deeper than your prediction of 10% in hindsight. Of course I dont know for sure and by no means an expert, but then again, lets at least admit that we are in unchartered territory here and no one knows how deep the recession will be and/or how the environment might change as a result!
This problem is rooted on wall street and the banks/brokerages.
Posted by Beth
Fri Mar 28th, 2008 05:19 PM
Jeff, good point about comparing Wall St. layoffs today vs. 2001. I think it'll be worse now because 2001 was mainly driven by the tech bubble bursting. This time will affect Wall St even more. How deep and for how long remains to be seen.
Posted by Churchill
Sat Mar 29th, 2008 12:25 PM
The inherent vice of capitalism is the unequal sharing of blessings: the inherent virtue of socialism is the equal sharing of miseries.
Posted by Ed
Mon Mar 31st, 2008 09:17 PM
I have one point of note on how this time around may differ from 2000. While I realize that Technical Support is only a small portion of total staffing and services for a financial firm, I have noted over the years that as part of the post-dotcom restructuring, many companies began buying full-term support direct from manufacturers - which have most of their telephone support infrastructure overseas. In some small way this may mitigate the actual impact of changes on the local market and instead spread the losses globally. In 2000, tech itself was changing every day, costs were unpredictable and talent was diifficult to find. Everything has been standardized to a much greater extent now, which makes job skills more transferrable and mitigates prior difficulties in locating knowledgeable personnel. Part of the large job loss we witnessed in 2000 was due to this overcompensation for technical staffing. My personal experience in the field has shown me that this has become much more normalized in 2008.