‘For sale’ signs in New York’s affluent suburbs are starting to appear as the rich awake to an economic crisis that’s not a movie.
Bob Dowling, Caijing 6 February 2009
To return to the New York area after six months in Beijing is to see America as a movie set. It’s the set for an economic horror film, with props and players in place, waiting for the full story to unfold.
In beaten down industrial regions such as Detroit and Gary, where deep distress has been visible for years, home prices have already collapsed and unemployment rates are soaring. But much of the New York metropolitan area is retaining at least the appearance of prosperity.
The movie set image struck me forcefully as I drove to New York’s Kennedy airport recently to pick up my wife. I passed a huge lit sign that said “Citi Field,” illuminated in a way to suggest that Citibank, alive only because of a massive government bailout, was perhaps the healthiest bank in the world. Like the famous “Hollywood” sign on a Los Angeles-area hillside, the huge blue letters on the Citi signboard suggested something eternal.
A few days later, an Ohio congressman named Dennis Kucinich blew the lid off the Citi Field deal, demanding the bank end its US$ 400 million sponsorship of the stadium built for the New York Mets baseball team. That came just days after Citi was forced to cancel delivery of a US$ 50 million corporate jet after the posh purchase was exposed by The New York Post. Citi’s response was that bailout money was not being used to pay for the plane or stadium sign -- an answer that infuriated taxpayers who know money, like oil, is one of the world’s most fungible commodities. Who cares which pocket it comes from?
But the Citi Field scene is only a small slice of the horror film’s massive set. From the stadium on Long Island to the capital of world hedge funds in suburban Fairfield County, Connecticut, the New York area’s buildings, golf clubs and luxury stores still look untouched. One reason is that, before the layoffs began, Wall Street firms paid out US$ 18.4 billion in bonuses, making 2008 the sixth largest bonus year ever for the Street.
Many of the largest bonuses went to Wall Streeters who commute by train from affluent towns in Fairfield County. But before 2008 ended, some 60,000 Wall Streeters had lost their jobs. Mark Zandi, chief economist at Moody’s Economy, predicts the number could top 100,000 this year.
Now, the area’s wealthy but unemployed have to decide what to shed first to maintain their comfortable lifestyles, as long as possible. Will they give up the private schools, vacation houses, boats or country club dues? Which of the five cars be sold?
The real impact on wealthy New York won’t show up in official statistics for at least a year. But distress signs will be impossible to ignore. In the last great Wall Street collapse of the early 1990s, plenty of leased Mercedes, Audis, Porches and other trophy cars with “for sale” signs in their windows could be seen in commuter train station parking lots outside New York. “Please take over the lease payments,” said the some of the window stickers. Now, unwanted trophy cars are starting to reappear at commuter stations. There will be many more by mid-year.
The same is true for houses. In upscale Connecticut towns such as Greenwich, Darien, New Canaan and Westport, the “for sale” signs are sprouting. But the streets look nothing like the everything-must-go neighbourhoods of Brandenton, Florida, or the overbuilt suburbs of Las Vegas. That’s because in exclusive sections like Darien’s Tokoneke, where homes trade for US$ 6 million and up, sale signs are banned. Still, says one Tokoneke homeowner who didn’t want to be named, everyone in the area knows that “on my street there are four for sale, and six around the corner.” Scenes of tranquillity can be deceiving.
The rental market is an even better indicator of what’s going on behind the scenes on this New York movie set. Builders and homeowners trying to ride out the storm have saturated the region with offers to rent large houses. Thus, rental rates have risen 50 percent over the past 18 months, says Tom Vazzella, manager for Prudential Realty’s Darien and New Canaan offices.
“People think they can ride this out with a rental and recover their price when they see offers 30 percent below what they are asking from a sale,” Vazzella said. “We tell them you are in a decaying market; no one knows where the bottom is. You have to get ahead of the decline, not follow it. That’s for them to accept.”
How the affluent suburbs of New York face up to the reality of the downturn will benchmark how badly the recession hits all of affluent America. These are not Wal-Mart shoppers. These are people who spend the money that trickles down, watering the nation’s economy with spending on services and providing jobs for those who do shop at Wal-Mart, as well as immigrant day labourers who send their earnings back home to villages around the world.
So far, the real pain of the economic crisis has been borne by middle class workers living paycheck to paycheck. The upper middle class may be next. America’s upper middle class had safety nets that allowed them to ride out past downturns. They earned dividends from blue chip stocks, had healthy bank accounts and received generous corporate pensions. Today, most of those losing jobs cannot count on early retirement corporate pensions; companies stopped those programs in the 1980s. Stock portfolios are down 40 percent and, across America, it’s safe to say that everything has been discounted by one-third.
Eventually, the shock wave will hit the affluent in New York suburbs and other upscale areas across the country. The tranquil movie sets will change, while the rich anxiously wait and wonder whether the unfolding horror creates a U-shaped recovery with a lower baseline, or a long and drawn-out L-shaped recession, during which their spending power disappears.
Bob Dowling is an editorial adviser to Caijing and a visiting professor at the School of Journalism and Communication at Tsinghua University in Beijing.
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Lights, Camera, Action: New York’s Horror
‘For sale’ signs in New York’s affluent suburbs are starting to appear as the rich awake to an economic crisis that’s not a movie.
Bob Dowling, Caijing
6 February 2009
To return to the New York area after six months in Beijing is to see America as a movie set. It’s the set for an economic horror film, with props and players in place, waiting for the full story to unfold.
In beaten down industrial regions such as Detroit and Gary, where deep distress has been visible for years, home prices have already collapsed and unemployment rates are soaring. But much of the New York metropolitan area is retaining at least the appearance of prosperity.
The movie set image struck me forcefully as I drove to New York’s Kennedy airport recently to pick up my wife. I passed a huge lit sign that said “Citi Field,” illuminated in a way to suggest that Citibank, alive only because of a massive government bailout, was perhaps the healthiest bank in the world. Like the famous “Hollywood” sign on a Los Angeles-area hillside, the huge blue letters on the Citi signboard suggested something eternal.
A few days later, an Ohio congressman named Dennis Kucinich blew the lid off the Citi Field deal, demanding the bank end its US$ 400 million sponsorship of the stadium built for the New York Mets baseball team. That came just days after Citi was forced to cancel delivery of a US$ 50 million corporate jet after the posh purchase was exposed by The New York Post. Citi’s response was that bailout money was not being used to pay for the plane or stadium sign -- an answer that infuriated taxpayers who know money, like oil, is one of the world’s most fungible commodities. Who cares which pocket it comes from?
But the Citi Field scene is only a small slice of the horror film’s massive set. From the stadium on Long Island to the capital of world hedge funds in suburban Fairfield County, Connecticut, the New York area’s buildings, golf clubs and luxury stores still look untouched. One reason is that, before the layoffs began, Wall Street firms paid out US$ 18.4 billion in bonuses, making 2008 the sixth largest bonus year ever for the Street.
Many of the largest bonuses went to Wall Streeters who commute by train from affluent towns in Fairfield County. But before 2008 ended, some 60,000 Wall Streeters had lost their jobs. Mark Zandi, chief economist at Moody’s Economy, predicts the number could top 100,000 this year.
Now, the area’s wealthy but unemployed have to decide what to shed first to maintain their comfortable lifestyles, as long as possible. Will they give up the private schools, vacation houses, boats or country club dues? Which of the five cars be sold?
The real impact on wealthy New York won’t show up in official statistics for at least a year. But distress signs will be impossible to ignore. In the last great Wall Street collapse of the early 1990s, plenty of leased Mercedes, Audis, Porches and other trophy cars with “for sale” signs in their windows could be seen in commuter train station parking lots outside New York. “Please take over the lease payments,” said the some of the window stickers. Now, unwanted trophy cars are starting to reappear at commuter stations. There will be many more by mid-year.
The same is true for houses. In upscale Connecticut towns such as Greenwich, Darien, New Canaan and Westport, the “for sale” signs are sprouting. But the streets look nothing like the everything-must-go neighbourhoods of Brandenton, Florida, or the overbuilt suburbs of Las Vegas. That’s because in exclusive sections like Darien’s Tokoneke, where homes trade for US$ 6 million and up, sale signs are banned. Still, says one Tokoneke homeowner who didn’t want to be named, everyone in the area knows that “on my street there are four for sale, and six around the corner.” Scenes of tranquillity can be deceiving.
The rental market is an even better indicator of what’s going on behind the scenes on this New York movie set. Builders and homeowners trying to ride out the storm have saturated the region with offers to rent large houses. Thus, rental rates have risen 50 percent over the past 18 months, says Tom Vazzella, manager for Prudential Realty’s Darien and New Canaan offices.
“People think they can ride this out with a rental and recover their price when they see offers 30 percent below what they are asking from a sale,” Vazzella said. “We tell them you are in a decaying market; no one knows where the bottom is. You have to get ahead of the decline, not follow it. That’s for them to accept.”
How the affluent suburbs of New York face up to the reality of the downturn will benchmark how badly the recession hits all of affluent America. These are not Wal-Mart shoppers. These are people who spend the money that trickles down, watering the nation’s economy with spending on services and providing jobs for those who do shop at Wal-Mart, as well as immigrant day labourers who send their earnings back home to villages around the world.
So far, the real pain of the economic crisis has been borne by middle class workers living paycheck to paycheck. The upper middle class may be next. America’s upper middle class had safety nets that allowed them to ride out past downturns. They earned dividends from blue chip stocks, had healthy bank accounts and received generous corporate pensions. Today, most of those losing jobs cannot count on early retirement corporate pensions; companies stopped those programs in the 1980s. Stock portfolios are down 40 percent and, across America, it’s safe to say that everything has been discounted by one-third.
Eventually, the shock wave will hit the affluent in New York suburbs and other upscale areas across the country. The tranquil movie sets will change, while the rich anxiously wait and wonder whether the unfolding horror creates a U-shaped recovery with a lower baseline, or a long and drawn-out L-shaped recession, during which their spending power disappears.
Bob Dowling is an editorial adviser to Caijing and a visiting professor at the School of Journalism and Communication at Tsinghua University in Beijing.
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