Tuesday, February 17, 2009
Denial In New York (and London, and Hong Kong, and Tokyo)
I keep CNBC on for sole purpose of sneering at the commentary. I really should switch to The Food Channel.
The tremendous rise in the market's value over the last 20 years made rock stars out of Wall Street CEO's and CNBC bobble-heads. But this retraction cannot be buried on page 8 in small print.
The world's big financial cities have seen the crest of the tide, and the tide's ebb is going to be brutal. Not only will these cities NEVER regain their luster and stature, the adjustment period is going to make them an unpleasant place in which to be STUCK. There will be a new "Escape From New York". Folks that thought it was a good idea to spend $5 Million on a 1500 square foot apartment are going to be harshly re-taught economics & finance 101, i.e. supply and demand, balance sheet, etc... Just as the Chinese factory workers are fleeing back to the country side from the cities, so, too, the financial services workers in New York (and London, and Honk Kong, and Tokyo... from now on I will simply say "et al") will, over time, repopulate the American landscape, leaving a trail of defaulted mortgages and Mercedes leases, unpaid credit card bills from "Scores", and pawn receipts for the wife's jewelry that will never be reclaimed.
There are no banks left willing to finance New York real estate, and there are certainly no cash buyers. Ergo, we have NO IDEA what ANY of these properties are worth. Zip. Zero. Nada. Zilch. Bupkis. Ugatz... so asking prices are more fantasy and for appearances than anything. Over time, fantasy gives way to reality. When properties cannot be sold, and one can't make the payments, the foreclosure process discovers the REAL value of a property.
New York depended on Wall Street and the "mortgage express". Wall Street is no more, and the "express"was striped bare after it broke down. Still, the city and state made promises and developed programs (and addicted people to these programs) with no thought that the gravy train, the "mortgage express", could ever jump the tracks. The federal government can't bailout Wall Street, Detroit, the Pension System, California, New York, etc... it is going to draw the line somewhere, or the Treasury market will draw the line for the government.
I love New York. I grew up there, my mother's family lived in the Bronx for over 100 years. But if one is going to be poor, might as well be in Rio.
Mentatt (at) yahoo (d0t) com
Posted by The Short Story Man at 11:50 AM