The deepening upheaval on Wall Street has rippled throughout New York’s business community, hurting everyone from luxury goods stores to charities to Manhattan restaurants, storeowners and experts. With New York already feeling the effects of a weak US economy, the fall of bank Lehman Brothers, the sale of its rival Merrill Lynch & Co Inc and the struggles of insurer American International Group, all headquartered in Manhattan, have only added to concerns as Wall Street lays off well-paid bankers and the wealthy rein in their spending.
These people will probably have to start curbing on some of the more lavish expenses, said editor of Forbes magazine’s list of the richest Americans. A $20 martini might need to turn into a $15 martini, it’s all relative. There’s probably a lot of millionaires who can’t buy their girlfriends Prada bags this Christmas, he equipped. The biggest financial industry shake-up since the Great Depression will likely worsen an already tough situation, the city’s restaurant owners and retailers say.
There has been a definite downturn in the economy and a restaurant purchase is a discretionary purchase. People don’t have to eat in restaurants. The only thing restaurants have got going in terms of customers are the Europeans that come in with their euros that are worth a lot more than dollar at this point, said chief executives of a boutique which sells items priced up to $5,000, said people trying to stay in fashion are definitely shopping more responsibly.
People want to shop but even the wealthy people they are buying differently. New York’s millionaires may also be choosing more humble means of transportation. Chief executive of Blue Star Jets said, People who are wealthy are still wealthy. They are being more prudent with their money, making wiser decisions. Not knowing what the future is especially on Wall Street right now, people are looking for less expensive alternatives to fly private. The head of the Luxury Institute, an organization researching high net worth consumers, said the wealthy were looking for alternative ways to maintain their lifestyles such as renting instead of owning assets.
US fed holds rate steady:
The Federal Reserve held US interest rate steady opting to soothe rattled financial markets with central bank lending and saying it was worried both about economic weakness and price pressures. The US central bank’s unanimous decision leaves the inter bank overnight federal funds rate at 2%, where it has been since April. It said “downside risks to growth and the upside risks to inflation are both of significant concern, surprising many in financial markets who had expected the Fed to signal greater worries on growth.
Investors had begun to speculate this week that the central bank would lower rates in the wake of the bankruptcy of 158-years old Lehman Brothers, the sale of investment bank Merrill Lynch to Bank of America, and a scramble for cash by insurer American International Group Inc. US stocks dropped and the value of the dollar rose, while prices for US government bonds held steady after the central banks decision.
Strains in financial markets have increased significantly and labor markets have weakened further, the Fed said in a statement. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters, it added. Asian share markets tumbled on the black Tuesday, with Japanese, Hong Kong and South Korean stocks down 5-6%.
Meanwhile the prospects of a private market solution to the deterioration of the AIG appeared to be faltering on Tuesday, as talks involving the Federal Reserve and several banks turned to the possibility of using government money to shore up the ailing insurance giant. Fed officials were still meeting with AIG, JP Morgan Chase, Goldman Sachs, Morgan Stanley and others at the Federal Reserve Bank of New York Tuesday morning to discuss possible options. It is not clear that any solution including the one involving government money will emerge.
Earlier major credit ratings agencies downgraded the AIG, worsening its financial health, as Federal Reserve officials and two leading investment banks were in urgent talks to put together a $75 billion line of credit to stave off a crisis at the company. The credit downgrades are likely to force the company to turn over billions of dollars in collateral to its derivatives trading partners. Without the financing, which was being arranged by Goldman Sachs and JPMorgan Chase in talks with the Federal Reserve officials, AIG might be forced to declare bankruptcy.
The talks, which began last week and continued through the weekend, added to the sense of agitation in the stock market on Monday, as investors grappled with the implications of the bankruptcy of Lehman Brothers, which, like AIG, was a large counterparty to derivatives contracts held by countless financial institutions. Shares in AIG tumbled more than 60% on Monday morning as concerns grew that the firm lacked capital to withstand cuts to its debt rating.