NewGeography.com blogs

The financial services sector (finance, insurance, real estate, management) lies at the heart of the economic crisis and recession. This is the sector that doubled in its share of the labor force over the last 30 years, creating vast but uneven wealth. It is instructive to see which American cities are most culpable in these excesses.

New York dominates, as it has for centuries, especially if we include neighboring Fairfield county, CT (Bridgeport, Stamford, Greenwich), based on its very high share (20 %) of resident employees in finance. This does not include the very high share of incomes that financial services represents in the New York area, as discussed in our recent report on the city’s middle class.

But Washington, DC has by far the highest share; there are also high shares in neighboring Baltimore and Richmond. These figures illustrate the rising relative power of center of government in the contemporary political economy. Los Angeles is roughly equivalent, but with a slightly lower share than New York. Chicago, the economic capital of the interior, tops off the big four centers of control.

The next tier of five major regional capitals, all also Federal Reserve cities, are Dallas, Atlanta, Philadelphia, Boston and San Francisco, with Boston and San Francisco among places with the highest shares in finance. They are followed by four regional capitals on the path to financial stardom – if you can use that term today – including Miami, Houston and Seattle and Phoenix, as well as another federal reserve city, Minneapolis.

Several major metropolitan areas are far less important in finance than in earlier times. These include the Rust Belt cities of Detroit, Cleveland, St. Louis, Pittsburgh and Cincinnati. These, in turn, are being challenged by the growing smaller metro areas and regional capitals of Denver, Portland, San Diego, Sacramento and Tampa-St. Petersburg.

Finally smaller, often growing metropolises with high shares in finance include, most obviously Charlotte, but also Austin, Columbus, Madison, Raleigh, Des Moines and Olympia, WA, all state capitals and/or university towns. But the highest shares, after Bridgeport are located smaller areas in Florida, Palm Coast and Fort Walton Beach.

The national conversation in the wake of President Obama's introduction of a mortgage relief plan has centered on "fairness" and the conditions to qualify for a mortgage modification. This misses the point. The effects of "innovative" mortgage products were felt far more broadly than the relationship between a single buyer (responsible or not) and his particular mortgage broker (despicable or not). To illustrate the point, meet Mrs. Conservative And Responsible Mortgage Neighbor ("Carmen" for short).

In 2003, Carmen bid on a home and took a 30 year fixed mortgage with 20 percent down.

Fast forward to today. Carmen has enjoyed her home and made all of her payments to the bank on time. Unfortunately, her home has dropped in value to the point where it is now significantly underwater . Her investment portfolio has fared just as poorly, losing 40 percent of its value in the last 18 months. All the while, her mortgage obligation has slowly amortized lower.

If Carmen were to turn to her investments to pay off the loan today, she would come up short. Worldwide deflation has resulted in every asset in our little vignette having fallen by 40 percent. Carmen's debt burden, however, remains the same,, struck in yesterday's dollars.

How does the current mortgage relief plan – which certainly excludes all of the Carmens out there -- make sense? The short answer is that it doesn't. It is neither fair nor effective. It lacks boldness, universality and an understanding of the problem.

A far better answer to the problem is one time across-the-board principal reductions to all primary residence mortgages originated in the last ten years. Such a plan avoids the piecemeal approach of subjective formulae and doesn't make personal bankruptcy a precondition to the reduction of principal. It acknowledges that the nation's housing stock was overvalued because of unintelligent home buyers, products that have been discredited, fairly widespread fraud and inexcusable encouragement by naive government officials. Following the principal reduction, each loan can be re-amortized over its remaining life, resulting in the stimulus of a reduced monthly payment for every American homeowner.

I recently recieved this this link to a short essay and some stats titled "Texas on the Brink". I thought I'd share my response with you:

Although I don't really think "we're on the brink" (most of our economic growth stats outpace the nation), I do partially agree with it, with some caveats. Our air pollution is getting better/lower every year, although maybe not as fast as some would like. We have such a vibrant economy, and are a border state, so we attract a lot of uneducated immigrants (both domestic and international) without health insurance looking for work. The opportunities are better for them here, and they're better off here. So we're never going to look great on those sorts of stats compared to most other states. It's like Europe: you can severely limit immigration and reduce opportunities, but make your stats look better as you exclude certain disadvantaged groups from your population, but is the world any better off by keeping those groups away from opportunities? Countries, states and cities seem to play these games of "hot potato" with disadvantaged populations, trying to push/keep them over the border into other jurisdictions to make their own stats look better (and reduce their welfare costs), but it actually makes the world as a whole worse off (for the same reasons protectionism makes everybody worse off vs. free trade). Texas has always pretty much welcomed anybody seeking opportunity and willing to work hard, but in exchange we don't offer much of a welfare state apparatus. That's our deal. The states that are more welfare-oriented tend to have fewer opportunities, play the "hot potato" game by doing things like restricting housing to make it unaffordable, or, like California, simply start to go broke.

And if, as those stats imply, Texas is such a bad place, why are we attracting waves of both domestic and international migrants? Clearly they see value not reflected in those stats. (37th most 'livable' state?! Give me a break.)

All that said, we need to make good investments in both lower and higher education. But I think a lot of what is needed are better systems rather than more money, like increased charter school competition and forcing universities to stress teaching and graduation rates as much as research.

It's hard to find a quality of life ranking that satisfies the preferences and desires of everyone but Bizjournal's recent ranking of mid-sized metros does highlight and affirm the presence of colleges and universities as an increasingly common and important thread in quality of life analyses.

The study compared 124 mid-sized metros in 20 statistical categories, using the latest U.S. Census Bureau data. The highest scores went to well-rounded places with healthy economies, light traffic, moderate costs of living, impressive housing stocks and strong educational systems.

Mid-size places of 100,000 to 1 million residents have experienced strong growth since 2000, exhibiting some of the strongest domestic migration rates among all metropolitan areas regardless of size.

The Hadley Center in the UK has recently reported a “correlation between reduced prosperity and reduced greenhouse gas emissions associated with global warming.”

The report states that since 2000, as greenhouse gasses have risen 2 to 3 percent each year, the world gross domestic product has also risen. The current ½ percent reduction in GDP is therefore correlated with the ½ percent reduction in greenhouse gasses.

Paul Taylor, of the examiner.com, suggests that the “reductions in greenhouse gases will reduce GDP and punish economic prosperity.”

President Obama’s $646 billion spending bill on a new carbon trading system to mitigate greenhouse gases would enact a “cap and trade” system that is “in effect a massive new national tax…[that] would impose substantial additional cost on power producers and manufacturing,” according to Taylor.

The extent to which greenhouse gasses are a direct cause of the world GDP dropping or increasing remains to be seen – a myriad of additional factors should be considered – but these issues will continue to be at the forefront in such volatile times.