细语归川

No place compares to New York City in the financial world. Even at the height of the real estate breakdown in many parts of the United States, Manhattan's real estate price is rock solid, at least for now. At the time when all these financial giants take tens of billions of losses in a span of six month period and thousands of employees will be let go in the coming months, still, there are people taking millions of dollars of paycheck or bonus and bidding up Manhattan penthouses.

Welcome to New York. It is the heart of the capitalism, a city whose GDP is higher than that of Switzerland and whose vibrancy is fueled by the financial powerhouses. Financial sector is the pillar industry that supports the city's employment and skyrocketing real estate market. No wonder it has a city mayor of a self-made billionaire by selling news and data to the financial community. So much so is dependent on a robust and profitable financial industry. New York City, in and of itself, tells a story how financial industry becomes such an influential force in the 21st century economy.

What about the profits of those financial institutions? The profit growth looks almost incredible when the real economy of the Unites States grows only 3%-4% a year at best. After all, aren't banks just taking in money and lending them out and making a difference on the interest rates? How high can that profit margin be? It turned out that the magic of the banks was leveraging hard on their capitals, and they lend too much through so called "innovative financial products". These products wok wonder to the upside and to the downside alike. Take an example of Merrill Lynch, the grand daddy of the brokerage firms on Wall Street: in a six-month period, it lost more than $5billion compared to its whole year profit of $7.4billion in 2006. The loss will continue for the next quarter. So basically, it has worked for zero profit for the past two years.

So far, we have not seen the ramification of the financial malaise caught by the banks to its full extent, until when New York City starts to feel the pinch. By that time, we will get a full picture of how bad things are. Wait for the carnage to play out.