Wall Street gives Mayor thumbs down

WHAT would the Michael Bloomberg who was once a hotshot bond trader make of Michael Bloomberg, Mayor of New York City? Not much, judging by the distinctly tepid reaction by Wall Street to the city's attempt to raise $800m (£496m) in municipal bonds in the teeth of a growing budget crisis.

Within hours of the bond offering, several financial institutions were reviewing New York's creditworthiness - and the news wasn't good. Standard & Poor's gave it a middle-ranking A rating, while Moody's marked it as A2. Both firms also see the city's credit outlook as negative.

As a senior partner at Salomon until 1981, Bloomberg might have agreed. Indeed, given his no-prisoners reputation - he once asked a trader to move his father's funeral back a day because the market was busy - he would probably have something more forceful to say about the way City Hall is being run these days.

But as the elected successor to Rudy Giuliani little more than a year ago, Mayor Bloomberg finds himself in a financial hole. He has managed to close a $1.5bn shortfall this year by jacking up property taxes. Next year, though, could see the city as much as $6bn in the red.

This week's bond offering is intended to raise $500m for general expenses and $300m to refinance existing debts at lower interest rates. However, yields from municipal bonds have been steadily shrinking for several years, making them a less attractive investment for the market.

What looms now is the worst financial crisis for the city since the bad old days of the 1970s when New York went begging to Washington for a handout and was told, as the Daily News headline put it, to 'Drop Dead'. President George Bush is unlikely to be more helpful than President Gerald Ford was then.

New York has already been given billions of dollars in federal aid after the destruction of the World Trade Center on 9/11. Given the state of the United States economy, it is pretty clear the city is on its own again. Even Bloomberg's own financial news network was forced to admit the outlook is not looking good.

It quoted one bond fund manager as saying: 'People have finally resigned themselves to the fact that the city's got a lot of problems,' adding that he would not touch Mayor Bloomberg's bond 'at any level'.

The irony is that the Mayor's supporters have played up his Wall Street connections as one of the few areas in which he outscores his famous predecessor. Now Wall Street expects its man to balance the budget by slashing public services and jobs, a move that could cost Bloomberg the next election. The alternative would be to raise taxes even higher, both on businesses and workers, many of whom have been warned they face a new 'commuter tax' if they live outside the city.

At the same time several banks and institutions are hinting strongly that they may move out of the city altogether to the State of New Jersey, where expenses are lower and terrorists less likely to strike.

It would be a strange end to Michael Bloomberg's political career if he went down in history as the man who killed Wall Street.