April 16, 2010
An odd question, I know. Isn’t the global financial centre New York? Why ask if it is changing?
My thoughts are becoming more and more based on the economic realities of life. The regions with the strongest economies have strong financial centres. People go to these places to access capital to help their company grow.
But isn’t that changing? If New York is the global financial centre, why do they have all the debt? Aren’t they meant to have all the money? Perhaps that money comes from an economy that, you know, produces something???
In addition, the US is gathering an ever greater reputation as being the place where wealth is transferred from investor to manager (Enron, WorldCom, Madoff, lots of hedge funds) and where wealth is turned from useable capital into funny money (US$).
Then there are the regulations. Sarbanes Oxley anyone???
For my money, the future of New York as the global financial centre is limited. It might take years for this to change, or if the Dow Jones and dollar collapse, it might take weeks. Who knows?
If this supposition is correct – which I admit it might not be (read probably will never happen) – then where will the money go to? London? Frankfurt? Singapore? Tokyo? Hong Kong? Shanghai?
It is, for now at least, a pretty short list of choices.
This is why I find the many recent pronouncements of new European Commissioner Michel Barnier (in charge of financial services) to be slightly bonkers. He likes the idea of banning prop trading (investment banks trading on their own accounts), fine. He likes the idea of a banking tax, fine. He likes the idea of a tax on financial trades, fine.
But all of them together?
Individually, each idea may prove to be a step towards reigning in the mismanagement of money as we have seen in the last decade. As a group, they would be a mortal wound to the financial services industry in Europe. That would be a disaster. And it would be a disaster that would almost certainly make many funds, fund managers and their ilk to flee to a friendlier part of the world.
It would happen at a time when America and New York’s dominance is waning. Somewhere will benefit if New York perishes.
It seems unlikely that a new centre would be Shanghai, Beijing, Tokyo or Hong Kong. Either would need to use English far more than is currently the case. In Hong Kong’s case, the city would also need to be able to house an extra million or so people…
That narrows the list down a little doesn’t it! And if Barnier’s plans get to be launched, then perhaps Europe would be off the list as well.financialguy