Obama Attacks NYC as NYC Extends a Hand to Haiti

Last week, the President declared that he is seeking a new tax on the financial services sector, and the tragedy unfolding in Haiti captured the attention of the people of our city.

Obama's War on NYC Continues

We have come to expect the Obama Administration to attack NYC, but we are having difficulty understanding why the President's dislike of New York City would cause him to undertake policies that threaten to undermine the overall US economy.

During the early part of 2009, we focused on the counterproductive attacks on NYC that were originating in Washington, DC. We were alarmed when the Congress and the President sought to outlaw bonuses of more than 1/3rd of salary at each of the institutions that took TARP money (even at the institutions that took TARP money because they were ordered to do so by the Treasury Department), and we were stunned when the House of Representatives voted to tax Wall Street bonuses at a 90% rate.

We were frustrated when the President attempted to order our Governor (the first African American Governor in the history of our state) to step aside and leave the Governor's mansion to another Democrat, and we were disappointed that the President was unwilling to support Bill Thompson's campaign to become the second African American Mayor in the history of New York City.

But, we had started to look at 2010 as a new beginning - the start of an era of cooperation between New York City and the federal government. We were wrong.

Last week, the President declared his intention to proposed a 0.15% tax on the liabilities of large financial institutions. The President's advisors estimate that 60% of the anticipated $117 billion in government revenue achieved by this new tax over 12 years would come from the 10 largest financial institutions. He made this declaration despite the fact that credit availability in our country is still inadequate, and despite the fact that the financial services sector's largest institutions have paid back their TARP money with interest. The federal government has already made a 14% return on the TARP money that was provided to the financial sector, and the federal government ownership of many of the financial sector's institutions will lead to even greater returns.

Someone has convinced the President that the banks will start lending more money to more credit-worthy individuals and institutions if the federal government requires more of the assets of the banks to be sent to the federal government as tax payments. The logic is very difficult to understand unless we see this latest maneuver as part of a pattern of anti-NYC policies coming from Washington, DC.

We applauded when Governor Paterson addressed the need for all New Yorkers to work to defend the financial services sector from these types of attacks with his remarks in December 2009.

He addressed the issues by stating, "You don't hear anybody in New England complaining about clam chowder. If you say anything about oil in Texas, they'll string you up from the nearest tree. We need to stand by the engine of our economy in New York State, and that engine is Wall Street."

He also used his Twitter account to reinforce his views. "Iowa, corn. Michigan, autos. Texas, oil. NY, Wall Street . . . We must stand behind the engine of our state's economy & strengthen it.""If we support Wall St, and make the tough choices necessary to stabilize our state, Wall St will help NY as we build a New Economy."

Ironically, the latest attack by President Obama is targeted specifically to New York City. The Detroit auto industry (Chrysler and General Motors) was a major recipient of TARP money, and the Washington DC based Fannie Mae and Freddie Mac were bailed out by the federal government. Yet, none of those private companies' shareholders are being asked to pay additional taxes to the federal government. The financial services sector, headquartered and concentrated in New York City, will pay the tax on behalf of all of the sectors that benefited from TARP. Paterson was correct to assert that we need to speak more aggressively in favor of our city and our state. Clearly, the Michigan politicians have been successful in convincing the President that New York should pay the bill for the disastrous state of the Detroit auto industry.

We need to fix this problem quickly in order to promote a healthy economy for our country as well as to promote fairness for New York.

Haitian Relief Efforts

New York City is home to the largest number of Haitians in the world outside of Florida and Haiti itself.

We have a special connection with the Caribbean national that led the way toward the emancipation of slaves. Because the Haitians freed themselves from slavery in the early nineteenth century, freedom of Black people throughout in North America became a goal for many. Haiti paid dearly for its leadership with regard to notion that human beings should not be owned as property - Western nations abused Haiti and demanded enormous payments from Haiti in order to allow goods to flow to the nation. Western nations were determine to discourage others from seeking freedom by making life in Haiti as horrible as possible, but the Haitian nation persevered and has remained free for two centuries while still suffering from the legacy of abuse from the outside.

You can help the recovery effort in Haiti with your gifts. The number of organizations poised to turn your gifts into a brighter future for Haiti is seemingly endless, but the need is equally daunting. If you have already provided aid to Haiti, we thank you.

If you are planning to offer support but have not had the time to do so, we hope that you will choose an organization and make a contribution today.

Praising Paterson's Wall Street Defense

Last week, New York's Governor Peterson became the first elected official to aggressively challenge the notion that punishing Wall Street is good for the economy. We hope that others will follow his lead.

War on Manhattan

As we have stated on many occasions, Manhattan's economy is heavily influenced by the health of the Wall Street economy.

One third of New York City's employee earnings come from the financial sector, and when that sector suffers, New York City suffers. As many in Washington, DC continue to design plans to undermine the ability of Wall Street firms to offer competitive compensation packages and retain their best employees, we are encouraged by our Governor's courageous defense of the unpopular US financial sector.

If New York City and New York State have any hope of closing their budget deficits, it is through resurgent Wall Street profits and tax revenues from the compensation received by New Yorkers who work in the firms that drive the world's financial system from headquarters located in Manhattan.

Moreover, if the US federal government makes it more difficult for firms to lead the financial sector from the US, those firms will leave Manhattan and move to other parts of the world. Manhattan's place as the world's financial capital is an economic and national security advantage for the US, and sustaining that advantage requires the type of attitude that Governor Paterson expressed last week.

Paterson's Thorough Defense

In Saturday's Presidential address, President Obama took aim at Wall Street and stated that Wall Street caused the recession through which we are all now suffering. He said that the cause of America's current economic struggles was "the irresponsibility of large financial institutions on Wall Street . . ." The US House passed sweeping financial regulatory reforms recently, and as we await Senate actions on that House bill, the President seems to be gearing up to support attacks Wall Street with these new regulations and perhaps other legislative proposals that may win him political points but will undoubtedly add greater burdens to our troubled economy here in New York City.

Governor Paterson addressed the war on Manhattan last week in a speech.

"Some people think that if you deny the bonuses, that the money’s coming back to the American taxpayers. It’s actually the other way around. If you deny the bonuses, the money stays in the firms. It’s when you pay out the bonuses that you start to get the huge tax collections that New Yorkers see."

He followed up later.

"You don't hear anybody in New England complaining about clam chowder. If you say anything about oil in Texas, they'll string you up from the nearest tree. We need to stand by the engine of our economy in New York State, and that engine is Wall Street."

He also used his Twitter account to reinforce his views.

"Iowa, corn. Michigan, autos. Texas, oil. NY, Wall Street . . . We must stand behind the engine of our state's economy & strengthen it."

"If we support Wall St, and make the tough choices necessary to stabilize our state, Wall St will help NY as we build a New Economy."

Governor Paterson, you said it well.

Latest Battles in the War Against Manhattan

We have highlighted for you recently that the US government in Washington has been engaged in attacks on Manhattan in the form of legislation and through the lack of leadership from the US Department of Treasury. Since we raised these concerns earlier this month, the situation has become more troubling.

Bonus Tax

Last week, the House of Representatives approved (by a very wide margin) proposed legislation that would tax all bonuses at a 90% rate for employees of companies that are recipients of TARP funds whose annual income is more than $250,000. This continues a very troubling trend that we saw in a provision that became law as part of the Stimulus Bill.

We have expressed concern that, in New York City where more than one-third of all employee earnings come from the financial sector, limitations on bonuses are an attack on our city and on the borough of Manhattan. The bonus limitations that are currently law limit bonuses to one-third of base salary for all employees of TARP recipient companies. The House Bill, if it becomes law, would essentially eliminate all bonuses and amplify the counterproductive impact of the bonus limitations already in place.

Because the vast majority of compensation at financial services firms is in the form of bonuses, the push by the House of Representatives to eliminate bonuses has some very negative likely consequences  - 1) in the near term, it will retroactively tax recent bonuses at 90% and thereby confiscate the wealth of thousands of employees, many of whom live and/or work in Manhattan or the rest of New York City; the confiscation will further burden the economy of our city. 2) firms may be forced to increase salaries dramatically for their best employees in order to compensate for the bonuses that have disappeared, thereby increasing the cost base of those firms and reducing the incentives for those employees to make the sacrifices ad supply to effort to achieve the very best results possible. 3) the most effective employees from the divisions and groups with the best prospects will leave the TARP recipient firms for non-TARP large firms and boutiques; because the US taxpayers have invested hundreds of billions of dollars in the TARP firms, policies that shift the best employees out of TARP firms into other firms should be avoided.

It is our hope that the Senate or the President will prevent this disastrous legislation from becoming law - in order to protect our nation's financial sector and to avoid increasing economic pain for employees in this troubled economy.

Quantifying the Attack on Manhattan

The New York Post calculated the cost to New York City of the 90% tax on bonuses for employees of TARP recipient firms as $12 billion. The New York Post arrived at the $12 billion figure by calculating the bonuses recently paid by Goldman Sachs, Merrill Lynch, Morgan Stanley and Bank of America. The New York Post estimated that 50% of all bonuses paid by those four firms would end up as revenue for the US government through this confiscatory tax. The New York Post's methodology is flawed, but it ultimately understates the impact on New York City. The Post includes Merrill Lynch, but Merrill Lynch never received TARP funds. Merrill paid bonuses before it closed its sale to Bank of America, a TARP recipient. In the other direction, the Post's $12 billion estimate ignores Citigroup and JP Morgan Chase (which now includes Bear Stearns and Washington Mutual). Citigroup and JP Morgan Chase are massive financial institutions and might have bonus pools as large as or larger than the group that the Post considered. The Post failed to consider that not all employees live or work in the New York metro area.

Whether the correct figure is $12 billion to $15 billion or as high as $50 billion or more, the loss of such a large amount of wealth is a tragedy for our city and for our borough.

TALF - A Victim of the Attacks on Manhattan

Late last week, investors showed a real reluctance to apply for funds from the Federal Reserve to purchase "toxic assets." TALF - The Federal Reserve's Term Asset-Backed Securities Loan Facility is suffering because of the attacks on Manhattan. The toxic assets are securitized loans that were previously purchased by financial institutions at values far, far above the values that they would achieve in the open market today. A solution to the toxic assets problem is the single most important ingredient in the recovery of the financial sector that we all seek and that is so crucial to the economy of Manhattan and New York City.

Investors have not taken advantage of the offer by the Federal Reserve to loan them cash at favorable rates because they see the danger of accepting government assistance. 

In the TARP experience, Goldman Sachs and Morgan Stanley did not want to accept TARP money originally. After being forced by the Bush Administration to accept TARP money, the ex post facto restrictions on those firms have caused those firms to regret caving into the demands of the Bush Administration. The restrictions seem to get worse every few weeks, and now both of those firms are aggressively moving to pay back all of the TARP funds they received in order to escape the restrictions. By forcing firms to pay back TARP early (because of the foolish restrictions imposed after the TARP funds were initially dispersed), the US government is reducing liquidity in the US capital markets at exactly the wrong time. Our economy needs credit to flow, and our government is attempting to impose restrictions on financial institutions that will result in less credit availability.

For TALF to succeed, investors need confidence that they will not regret accepting the TALF funds and that there will not be Congressional attacks on TALF recipients when the public realizes that TALF recipients are making millions or billions of dollars in profits from investments that were heavily subsidized by the Federal Reserve. 

Based on the experiences we've seen in the TARP experiment, investors are smart to be very cautious on TALF.