Local media has picked up on the NYC Independent Budget Office’s blog post on the precipitous drop in wages in New York’s securities industry in 2009. The get-it-over-with-fast drop mightn’t have been such a bad thing for the city — if local, state, and federal government had responded appropriately.

IBO economist David Belkin writes that between 2008 and 2009, Wall Street wages earned in New York City experienced a fall that “was the steepest in modern history–including the Great Depression.”

Inflation-adjusted wages fell 21.5 percent, to $311,279. Including the effect of layoffs, too, “the hit to aggregate industry wages” was $21.4 billion, “almost twice as large as in 2002” after the dot-com bust and 9/11.

The decline acutely reflects the terrible year everyone had in 2008 (Bear Stearns, Lehman, etc.), since bonuses based on 2008 performance went out in early 2009. Because the figure reflects only cash payments, including the cash-in of options granted in early years, it also reflects the terrible state of the stock market, where nobody cashed in options unless they had no choice.

Longer-term, though, it means something more serious for New York.

As Belkin notes, today’s declines eclipse anything experienced in the dot-cum bust but also in the Great Depression, which saw “drastically shrinking securities employment but surprisingly limited effect on … real wages; long-term stagnation rather than precipitous drops was the rule.”

Considering how much securities-industry wages rose in New York over the past decade — — growing by $100,000 between 2006 and 2007 alone — “perhaps what has happened in the past two years can be viewed as a correction to the entire era,” Belkin notes.

If so, then quick and painful would better for New York — better than years of Depression-style stagnation. The sooner that residential and commercial property prices as well as taxes on six-figure earners adjust to reflect the fact the Wall Street firms can’t forever mint profits that are outsized relative to the rest of the economy, the better.

Cheaper apartments would attract entrepreneurs in other parts of the global economy. Cheaper taxes would attract people who, knowing that money is a scarce resource, actually care about how much of it goes to the government.

Instead, Federal Reserve policy (borrow for free) has kept real-estate prices too high and propped up the banks’ profits — giving workers, property owners and agents, and state and local tax officials the hope that everything will soon return to bubble-era “normal.” And federal stimulus has kept local and state government spending high. The state enacted a historic tax hike on the entrepreneurial class, and the city government has dithered on serious cuts to the $20 billion education budget lest it hurt the precious teacherschildren. And state-funded Medicaid spending is still going up.

New York can’t adjust. It is in a state of suspended animation. So many windows in sparkly new high-rise condos stay dark night after night, as everyone waits for something to happen.