Muppet budgets

by Nicole Gelinas |  | NY Torch

U.K. Prime Minister David Cameron and New York Mayor Mike Bloomberg paid separate visits to Goldman Sachs chief Lloyd Blankfein in New York last week. The visits highlight a big risk to both Britain and New York’s recoveries. Top leaders of both Britain and New York cannot imagine Wall Street or the City shrinking permanently.

The visits may have seemed odd. They came just days after a top Goldman employee, Greg Smith, had quit. Smith said the bank was “toxic and destructive.” Goldman, he says, thinks of its clients as “Muppets” to be manipulated for money.

Maybe true; maybe not. All companies have unhappy workers. Yet either way, Goldman is hardly popular with those other Muppets, the voters. Both politicians risk public anger in being seen with Blankfein. So why did they do it?

Bloomberg said it best: “it’s my job to stand up and support companies that are here in this city that bring us a tax base.” Bloomberg cannot conceive of Goldman doing poorly, and bringing in less tax to New York.

Likewise, Cameron is in awe of Goldman’s power, or he would have asked Blankfein to stay away from the PM’s meeting with top Wall Street execs.

Of course, it is good for both New York and Britain for Goldman to do well. Both places are heavily dependent on the investment industry for money and jobs.

But both men have to consider the possibility that Wall Street and the City won’t be as profitable as they once were. Banks’ business mis-steps — plus bad regulation as government mis-steps in response to those mis-steps – may have damaged the financial industry. The damage won’t last forever, but it could last for a long time.

Hoping that Lloyd Blankfein can save himself and the City may only be natural for the top leaders – and it may work out in the end. But it may not.

The Blankfein visits show that Cameron and Bloomberg don’t get that risk yet. As they do their budgets, both men harbor secret hopes that the City and Wall Street will be back to rescue them from deficits – and voters should remember that.

It’s as if you know you can’t pay your mortgage, but expect a rich uncle who has left town to come back and save you. You’re not really serious about your spending cuts until you really believe he may not come back.

- Nicole Gelinas is the at the Empire Center for Public Policy.