What Zapping Bonuses Will Do To NYC Metro Economy

As I've noted previously, hitting the executive compensation packages will make the demogogues in Congress feel better, but it will harm the local economy. Badly. Let's start with real estate:

Manhattan apartment sales declined 23 percent last year as the Dow Jones Industrial Average fell the most since the Great Depression. Now co-operative and condominium prices are dropping as Wall Street firms cut the bonuses that contributed to the property market boom of the past decade.

A 50 percent reduction in bonuses would push down prices by about 24 percent from their peak through mid-2010, said Sam Chandan, chief economist at property research firm Real Estate Economics LLC in New York. That would mark the biggest slide since 1980 when appraiser Miller Samuel Inc. started tracking Manhattan prices.

“This will probably be the worst price correction the city has seen,” said Marisa Di Natale, senior economist at Moody’s Economy.com in West Chester, Pennsylvania.

When bonuses climbed 114 percent between 1998 and 2000, Manhattan co-op and condo prices followed, rising 51 percent during those years, data compiled by Miller Samuel show.

Sliding Prices

“If bonuses next year are expected at or below the current level, then prices will slide,” Miller Samuel President Jonathan Miller said.

Real estate prices slide, which means that all the related business - including furnishings and home goods will also slide. Expect sales of cars to slide further, along with all other kinds of service transactions, including restaurant business.

The slowdown in the financial industry has a ripple effect and the effects have been devastating on the state and local tax revenues. This isn't going to make the situation any better, even if the feds manage to pass their confiscatory taxes on executive compensation.