City Comptroller weighs in on financial crisis

City Comptroller William Thompson discussed the impact of a faltering Wall Street on New York City’s financial health at a public forum today. During the forum, hosted jointly by the Citizen’s Union and New York University’s Wagner School of Public Service, Mr. Thompson spoke in grave terms about the sudden implosions of three financial giants earlier this week while simultaneously attempting to assure the public that the city is financially healthy enough to survive the turmoil currently wracking the markets.“The subprime mortgage crisis has impacted every corner of this city,” said Mr. Thompson, who as City Comptroller heads the office that safeguards the city’s cash reserves, monitors the city budget and manages almost $100 billion of city employees’ pension funds. “I’ve never seen anything like it.”

Referring to Monday’s collapse of Lehman Brothers and the sale of Merrill Lynch, two of the world’s largest investment banks, as well as Tuesday’s government bailout of insurance giant American International Group, Mr. Thompson warned that the city was poised to lose tens of thousands of jobs in the securities and related industries. “The ups and downs of the past…have been cyclical,” he said. “This is now permanent job loss.”

Mr. Thompson sought to mitigate fears about city employees’ pension dollars, which are spread across five investment funds managed by the Comptroller’s office. “Our portfolio is safe and secure,” he asserted, noting that the loss of the combined stock owned by the city from Lehman Brothers, Merrill Lynch and AIG would represent less than 0.2% of the total cash value of all five funds. Still, he admitted that the funds are experiencing a sharp downturn, with no reversal in sight.

Asked about potential solutions to the financial crisis, Mr. Thompson called for more industry regulation, especially in terms of improving the transparency of consumer lending practices. Meanwhile, he said, the city must respond with a delicate balance between cutting budget expenditures, maintaining tax revenues and focusing on business growth. Too many budget cuts combined with high taxes, he warned, might result in a 1970s-style exodus of residents from the city. Referring to the massive boom that characterized the early part of this decade, however, he indicated that the city is in much better financial shape than it was before the ‘70s crisis.

The Comptroller, who is widely seen as a 2009 Democratic mayoral contender, tried to strike a positive tone throughout the forum. “The local economy is strong,” he said toward the end of his remarks. “New York City will continue to thrive.” Despite the massive job loss and chaos in the financial sector, he said, the city has been through worse. But he warned against being too optimistic. “We haven’t seen bottom yet,” he said, citing the public’s need for greater government protection against fraudulent and risky lending practices. “We have a ways to go.”

Still, Mr. Thompson attempted to end on a hopeful note: “We will be stronger in the future than in the past. New York City will survive.