It is just over seven years since the terror attacks of September 11 brought the Twin Towers crashing down, and fear dominates the streets of New York once more. Back then it was the World Trade Center that collapsed in the largest terrorist attack ever. Today it is world trade itself that is collapsing in the largest event of financial devastation and mayhem the global village has ever experienced.
Back then it was left to Rudy Giuliani to pick up the pieces and demonstrate supreme leadership. This time, the man whose leadership is being put to the test is Michael Bloomberg, who took over from Giuliani as mayor of the world's most vibrant city just three months after September 11. Bloomberg is the man who will now have to meet the challenges that the current crisis has created, and find alternative sources of income for the city, a third of whose revenue came from the financial institutions that are now collapsing around him like a house of cards, dragging the entire US public with them into the unknown. Recently, the New York city comptroller released a forecast predicting that 165,000 people could lose their jobs over the next two years in New York - double the estimates in July. And that is before we have said a thing about dwindling consumption and shrinking tax revenues. The apple is no longer as big as it was in the past.
Bloomberg is aware of the burden on his shoulders, and has no interest in toning down the reality with superficial statements. "Of course we're feeling the crisis in New York, there's no question. In recent days stores have been completely empty," he admits in his honest style in an exclusive interview with "Globes" G Magazine and broadcast on Channel 10. "There's fear across the world, a crisis of confidence, and that's the main problem. Even if they're not affected directly, people are afraid because something is happening that they don't understand. The unknown is just as frightening as the tangible fear that something is going to change in their lives."
Are we heading for a recession?
Bloomberg:"Reporters want to use the word recession, which has connotations of percentages and things like that, but I don't know. In some places yes, in others the definitions are different. What we certainly are experiencing now is adjustment. I think that's the right word to use to relate to the situation."
Adjustment in what sense?
"In the sense of returning to a situation of consumption according to means. People stop doing things that are beyond their means, and that is painful for the economy. If you were accustomed to buying a new luxury car every year - a Mercedes, Rolls Royce, or a Bentley - and you suddenly stopped, the salesperson won't get a commission, the garage mechanic will be affected, and the factory worker will lose his job. These workers will buy fewer clothes, they won't go on vacations, they won't eat out at restaurants and so on, it filters downward. This is the process that is happening now, the financial crisis. Its results are changing people's behavior and filtering through to the economy."
Do you already feel the changes?
"Sure. I was in London a week ago and the streets were abandoned. We were in the city's financial district, which is usually crowded in the afternoon with clerks, secretaries, bankers, all flirting with one another, buying, eating, and sitting in the park. But the streets were empty.
"Over the past few days I've played golf on three different courses, and they were also empty. I talked to the manager of the hotel employees union, and he told me that a large number of reservations had been cancelled. I talked to Chuck Schumer, the senior Senator for the State of New York, and he told me of a friend of his, who runs an ice rink on Long Island, and he too has been seeing a lot of cancellations lately. People may not have actually been harmed, but the fear spreads much quicker. You have no idea what will affect you, whether you've been hit or not, and maybe in your company the boss says you're OK, but you see firing going on around you, and think, 'perhaps I could be next.'
"In addition, there are, of course, people who have retired and are seeing their savings in danger. The markets have fallen 35% here, 40% in Europe and even more in Asia. The market in Israel has been OK but lately it has been having problems too. If you've already retired and your savings suddenly shrink by 40%, you say to yourself, 'am I not going to be able to live'? will I have to go back to work now, at my age? And now of all times, when the economy is shrinking."
Is there a way to cope with this?
"In New York, we've put $2.5 billion into a healthcare insurance fund for our employees; we've also put a few billion aside by advance payment upfront of interest on future debts. But have we put aside enough? No. We'll have to raise taxes or find other sources of income. We'll have to cut costs, in the hope that we won't harm services or have to fire employees. But we will still have to find ways of doing more with less. No matter how much you save, it's never enough."
Last month, Bloomberg announced that he would be raising property tax by 7% from January 2009, and that he would inject a further $600 million into the revenue item on the city balance sheet. Is this the final word? It's too early to tell.
We meet Bloomberg at the official residence of the mayor of New York, Gracie Mansion, on the banks of the East River. A historic building originally built in 1799, it become the official mayoral residence in the 1940s. Bloomberg shows up for the interview casually dressed - he doesn't live at Gracie Mansion, preferring instead his apartment in the Upper East Side. As the founder of the financial information service giant that bears his name, with a fortune estimated at $20 billion, he can afford it. He is surprisingly relaxed, calm, and affable - a complete antithesis to the atmosphere just around the corner on Wall Street.
He introduces himself to each of the people present in turn, and waits to hear the name of the person standing in front of him. At the end of interview, he waits to have his photo taken with all those present, giving a warm hug to each. The main event on his agenda is the Columbus Day Parade, or in other words - an opportunity to shake hands, show how popular he is, and signal to the public that the city is continuing to move forward. That is no mean feat at a time when trading on Wall Street is breaking new records daily, most of them negative.
What is Wall Street's role in this crisis? Would it be fair to say that Wall Street sinned?
"First of all, Wall Street is not just Wall Street. It's Tel Aviv, it's London, Madrid, Milan, New York, Chicago. It's not as if Wall Street was the one that created exported the problem. All these companies are multinationals; they all have offices and branches in every city. I don't think it's fair to blame anyone in particular; everyone did it."
But the sub-prime crisis was born here.
"That's utter nonsense," he replies, the only time he raises his voice during the interview. "It's not true. Relatively speaking, the banks in Europe have far greater exposure. In Spain, for instance, the amount of over-building has been enormous, and the problem is even bigger - that's where all the Europeans went to buy homes they couldn't pay for. It's true that sub-prime here has had a big effect, but everything is connected.
But someone is to blame for the crisis, someone should take responsibility.
"Sure. Let's get out the guillotine, there must be someone who's corrupt," says Bloomberg, with unbridled cynicism. "Let's forget, for a moment, my role, the citizen who bought a home I couldn't afford, who took a vacation I couldn't pay for, or who bought myself a boat when I didn't really have the money for it. It's you, 'the rich guys', not me, the citizen, who lived beyond his means."
But someone provided the citizens with the finance. Someone made it all possible.
"For years, the global economy has been expanding consistently. There was a certain halt in growth with the end of the high-tech bubble, and a bit more after September 11, but essentially, the expansion has been going on for years. But nothing goes on for decades without there being a correction; nothing lasts for decades without creating surpluses. And eventually, these surpluses come home, 'home to roost' as we call it.
"And that's what you're seeing. We see people who bought things that had no economic value, we see people who borrowed money to buy things and had no ability whatsoever to repay it, we see people who made unrealistic assumptions about what was going to happen in the world. I'm 66, and I have yet to come across the person who can claim to have invented the continuous rise. I've heard people tell me they've done it, I've met people who told me I'm old and don't understand, and that there's a new paradigm. But so far no one has overcome the laws of physics, thermodynamics, or economics.
"In economics, if you borrow in the short-term and lend in the long-term, one day you will find yourself with liabilities that you can't meet. You're supposed to lend in the long-term and borrow in the short-term. If you're not diversified, one day you will find yourself stuck because of an over-concentration in something. If you don't understand what you own, one day you'll discover that you will have to bear results you hadn't planned for. All these things are."
So why was everyone so surprised?
"They shouldn't have been. Why now? Why today? Why in this fashion? Nobody could have really predicted exactly when the crisis would erupt. But what they could have predicted was that one day there would be a large and painful correction, and that it takes a long time for corrections to balance out, precisely like the long process until the problems surface. The discovery and understanding that there is a crisis, or collapse is fast, but the process until it breaks out, and then the correction, are long processes."
Is there something to do to speed up the recovery?
"Part of the problem is that we're turning to economists, and maybe we should be turning to psychologists. It's a crisis of confidence, it's not just one problem that can be solved. And we live in a society, in a world where everyone wants everything and quickly, instantly. We waste even before we've earned. That's exactly what has been happening in states in the US, like California - they build on tax money before they've even got it, so they borrow in the short-term. And what happens if the money doesn't come in? You've got more debts.
"We've gone through a period in which extraordinary wealth has been created in some countries. Look, for example, at Russia. Russia is a country whose economy is becoming more capitalist. They have natural resources; they're a much more open society than they were before - certainly not democratic the way we or Israel think, but better than in the past. And still, why when you look at the list of the world's billionaires, are the top 25 suddenly from Russia? What have they learned to do that no else knows? The answer is that they haven't learned anything that no one else knows, it is simply expansion that cannot be sustained. If you look at the 25 Russian billionaires on the "Forbes" list today, I bet that maybe 20 of them are already no longer billionaires. Unless you have an asset and have sold it, what's the big deal, it's just paper."
How long do you believe the crisis will last?
"I think the crisis will last a few years. Whether it's two years or eighteen months, it's tough to say. A bit more, a bit less. It takes a long time for a crisis to build up and it takes a long time to recover from it. Six months ago, the world was sparkling and liquid, all the markets were booming, you could get a mortgage, and we were in a new paradigm. Suddenly, it turns out that we're not - a very sharp change. The recovery will take time."
Was the government wrong not to have saved Lehman Brothers from collapse? Perhaps this created a fear effect that only aggravated the crisis further?
"Looking back, you could say that Lehman Brothers should have been saved, since its fall had such a dramatic impact on so many parties across the world, who lost a phenomenal amount of money. But it certainly isn't just this. Trading in credit derivatives, which are the biggest thing, has nothing whatsoever to do with sub-prime. There's credit card debts, car loans, student loans. True, we're leveraged, but so are a lot of other places in the world. In London, for example, there's a lot of speculative real estate that they can't sell - with them it's commercial real estate - with us, we're talking more about residential properties."
Looking in the mirror
Bloomberg is no ordinary mayor, not just another rank and file politician. (He has close ties to Wall Street, just like those between Wall Street and New York). He came to New York in 1966 from Boston, after completing a MBA at Harvard, and worked at the investment house Salomon Brothers until he was fired in 1981 over professional differences. He used his $10 million in compensation to start a new company. Bloomberg saw that there was a market developing for professional financial information, and created a financial communications company, without which it would be difficult to imagine the business world of today functioning.
Merrill Lynch, which installed Bloomberg's first 22 financial information terminals at its branches, became the leading partner in the company within a few years, acquiring a 20% stake. In August this year, when it was forced to raise capital after suffering heavy losses on the mortgage market, Merrill Lynch sold its stake back to Bloomberg for $4.5 billion at a value of $22.5 billion. The net worth of Bloomberg himself, who holds 90% of the company, jumped to $20 billion, and in 2008 he climbed to eighth place on the "Forbes 400" list of richest Americans.
Bloomberg has gained a reputation in the business world as an aggressive businessman, but one who over the years has demonstrated his ability to turn distress into opportunity, a man of many parts and contradictions, but focused and goal-oriented. "I knew he wanted to do something with his life besides making money,” says his friend, ABC newswoman and reporter Barbara Walters. “This was not a man who used his money because he was going to take us all out on a yacht.”
Bloomberg financed by himself the two election campaigns he won, spending more than more $150 million on the two combined. He is now seeking a third term (New City law limited mayors to just two terms of office, but Bloomberg, who over the past two years has enjoyed a 70% approval rating among New Yorkers, lobbied the New York City Council to vote to allow many city politicians to run for a third four-year term). He will invest $80 million from his own money in the election campaign. As mayor and billionaire, he chose not to accept a salary from City Hall and is paid a token sum of a dollar a year.
He brought with him to City Hall values and behavior from the business world, appointed professionals to various roles, and even hired experts to work on the branding and remarketing of the city. One of the first changes Michael Bloomberg made upon taking office, was related to design - he had all the walls and doors knocked down, creating an open space in which he and his fifty-strong team work. In doing so he broke down a two hundred-year old tradition. A former senior City Hall employee said of the new system that it works amazingly well. "There are no decisions behind closed doors. There's nothing to hide. That's Bloomberg - transparency, clarity, and simplicity," she said. They say that Knesset Speaker Dalia Itzik, and Minister of Tourism Ruhama Avraham-Balila recently visited City Hall and on observing the open plan office asked in amazement, "and what if you need to hold a private conversation?" "That's what the lunch break is for," Bloomberg replied.
Another change Bloomberg introduced was in the annual city report. He turned it from an unreadable door stop to a coherent, 200-page report with useful tables. Contained in the report are details of the fall in the number of homicides and smokers, how many were condoms distributed in the city in the past year, and the number of high school graduates. Bloomberg believes in information, and the financial terminals are also built on the same principle - layers and channels of information accessible to subscribers. So much so, that some people have complained that they're "drowning in material."
Yet despite this, the financial press failed to warn of the impending crisis. "Aha," responds Bloomberg. "There were people who did write that this was a house of cards and that it couldn't last. Look back - there are lots of stories like these. I think it's not the financial press which failed in its duty, it is their readers who don't pay attention when it is not in their personal interest to do so."
So the public is to blame yet again.
"Newspapers and television are the ultimate democratic institutions...If you don't like what's in the newspaper, don't blame the publisher, look in the mirror."
Published by Globes [online], Israel business news - www.globes-online.com - on November 10, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008