The stock market is in the process of recovering roughly half of yesterday’s losses based on investor hope that the financial bailout bill will be revived in Congress.  But Nicole’s op-ed in today’s Post argues that the bailout, whenever it’s passed, “could just add to the confusion and lack of confidence that’s the real root of the financial world’s problems.” Her wrap-up:

The bill has one potentially huge benefit: It would mandate that the Treasury department quickly report to the public the types of assets it buys from financial institutions as well as the prices it pays for those assets. If executed well, this provision would shine some badly needed light on what remains a dark, opaque market. (more…)

The details of Citigroup’s FDIC-brokered purchase of Wachovia point up some long-term implications for New York’s economy.

Specifically, in return for shouldering $270 billion in potential losses at Wachovia’s property-related assets that would otherwise be Citi’s responsibility in the merger, the FDIC will take a $12 billion stake in the commercial and investment banking behemoth.

While the government won’t have voting shares, its ownership presence at the bank solidifies the idea that for the foreseeable future — which doesn’t extend past the next five minutes, in these markets – surviving large financial institutions will operate like government-regulated public utilities. They won’t be the same freewheeling private-sector financial firms, with risk-taking balance sheets as the tip of their spears, that they were two years ago. (more…)

Wendell Cox ponders the question in this newgeography post.  The short answer: very far, indeed, especially in markets where building is stringently regulated. (more…)

State revenues could drop $3.5 billion over the next fiscal year as a result of the continuing financial crisis, according to a just-issued report from state Comptroller Thomas DiNapoli.  DiNapoli ends his report on what apparently is intended to be an upbeat note:

The situation remains fluid and serious. Nevertheless, it should be remembered that New Yorkers have navigated through difficult situations in the past.

Well, at least he didn’t claim those “difficult situations” had been successfully navigated.  In fact, past precedents for the aftermath of fiscal meltdowns in New York are not encouraging. (more…)

The Post’s Fred Dicker reports today that Paterson administration budget officials now believe New York State’s 2008-09 budget gap will be in the neighborhood of $7 billion, up from a projected $5.5 billion in the wake of the Legislature’s August special session.

It will be surprising if the figure stays as low as $7 billion, though.  As of early July, the state’s financial plan was still forecasting that net personal income tax receipts would increase, from $38.17 billion in 2008-09 to $39.76 billion in fiscal 2009-10.   In the wake of the ongoing turmoil on Wall Street, probably the best-case scenario over the next two years would be a repeat of the trend in state revenues between 2001-01 and 2002-03, when personal income tax receipts dropped 16 percent.   Applied to the current revenue base, that would be a loss of $6 billion over the next two years — a period when baseline expenditures are headed rapidly in the opposite direction. (more…)

The story from today’s papers with the biggest potential long-term impact on New York’s economy doesn’t even contain the words “New York.” That’s Gillian Tett’s FT piece on global investors’ assessment of the credit of the United States of America. Parsing data from the world of credit insurance and comparing the cost of insuring Treasury bonds vs. McDonald’s corporate bonds against any losses from possible default, Tett finds:

This week, the cost of insuring against a US default … hit record levels. … [T]he entity that brought us big fries and the floppy clown commands as much gravitas in the credit world as the might US of A. … There are at least two factors making investors jittery. One is the rising cost of US bail-out plans. … [T]he rescue proposals from Hank Paulson … are threatening to push gross US debt well above 70 percent of GDP for the first time since 1954. … [T]he more pernicious challenge is psychological.

(more…)