- The Washington Times - Wednesday, March 19, 2008

NEW YORK (AP) — The near collapse of investment bank Bear Stearns, and the wave of layoffs it threatens, could mean hard times ahead for an already worrisome New York City economy whose survival depends heavily on Wall Street.

For every billion dollars in Wall Street profits, New York City gets $70 million in direct taxes and receives even more revenue indirectly from all the money that is spent here.

So alarm bells go off at City Hall, at real estate brokerages, at pricey restaurants and elsewhere when one of the nation’s largest investment banks falters, as Bear Stearns Cos. Inc. did in recent days before it was absorbed by JPMorgan Chase & Co. in a frantic deal to avoid bankruptcy.

The $260.5 million sale of Bear Stearns — with its 14,000 employees who own nearly a third of the company — had investors and others worried about which investment bank might fall next. Trying to soothe nerves, the federal government said that no other financial institutions are on the brink of failure.

Sen. Charles E. Schumer, New York Democrat, yesterday asked JPMorgan to try to soften the economic blow of Bear Stearns’ problems by finding a new buyer for the parts of the company the new owner doesn’t want.

“The crisis in the financial and housing markets is hitting New York City’s economy particularly hard as a result of the city’s stature as a financial center. The loss of thousands of additional jobs would create serious additional problems to the city’s economy,” Mr. Schumer wrote to JPMorgan’s CEO James Dimon.

The turmoil in the markets, including layoffs at financial companies, is already being noticed by businesses that cater to the Wall Street crowd.

Take Gracious Home for example. Even before the Bear Stearns crisis, the high-end home accessories store that sells door knobs for up to $1,000 each was experiencing a decline in business of 10 percent over the past six months, with sales deteriorating even more in the past few weeks.

“This has rocked the boat,” said Carol Kappenhagen, a corporate services manager at Gracious Home.

At Delmonico’s, the historic steakhouse a few blocks from the New York Stock Exchange, lunch business has declined from 15 percent to 20 percent over the past few months, according to Carrado Goglia, general manager.

While Mayor Michael R. Bloomberg publicly expressed his confidence in the economy on Monday, senior administration officials have been in touch with JPMorgan since the news of the Bear Stearns takeover. Aides say the discussions have centered on potential job losses that might come with the move, as well as JPMorgan’s plans for office space.

The short-term situation is grim, but not catastrophic, officials said.

“It’s not positive,” said Robert Lieber, Mr. Bloomberg’s deputy mayor for economic development who previously served as a managing director in the Global Real Estate Group at Lehman Brothers.

“Clearly New York City is significantly dependent on the revenues generated from taxes on Wall Street,” he added. “But we’ve been very focused these past six years looking for ways that we can diversify our economy in ways that complement Wall Street, so that we are in a position to better withstand things like this.”

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