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Are We No Longer the World’s Financial Capital?


Some skeptics suspect that New York’s bankers are exploiting the specter of London’s growth to sweep away regulations they did not like anyway. They even say that New York may be better off without some of the companies, and the investors, that have flocked to London.

“I think this is a false issue,” says Jeffrey Garten, a professor of international economics at Yale University. “When you analyze why London is getting more than its share of IPOs, you realize that a lot of them really should not be listed in the U.S., given our tradition of investor protection. Many come from emerging markets, particularly Russia and China. By any standards, they lack accounting rigor and transparency.”

The modern City of London is certainly exotic. After the U.S. security crackdown following 9/11, billions of dollars in Middle Eastern oil money were transferred to London, and many Russian and eastern European billionaires also hold assets there. The fatal poisoning of Alexander Litvinenko, a former Russian spy, with polonium-210, in London in November showed that it is home to plenty of intrigue.

So investors (and Russian spies) are probably better protected in New York. But that is not everything. London has taken the qualities associated with New York—openness to immigrants and unfettered free enterprise—and stretched them beyond what even the U.S. now tolerates. New York can look parochial by comparison.

“The single biggest issue [for New York’s competitiveness] is the hardest to change,” says John Thornton, chairman of the Brookings Institution and a former president of Goldman. “Americans as a culture are insular and essentially hold the point of view that the way we do things is the best. The U.S. market is deep enough and the country is big enough that, in many cases, they can go about their business without worrying.”

They ought to worry more. As capitalism spread around the world, New York could never have hoped to maintain its unchallenged position in the global financial order. But the U.S. has been complacent in allowing London to outflank it as a cosmopolitan city.

If New York lets itself retreat further into being just America’s financial center, it will lose some of the qualities that made it great in the twentieth century. “We are not doing them a favor. They are doing us a favor,” says Bloomberg of the foreigners who want to come here.

Indeed so. Once, they might have waited patiently for the privilege of being New Yorkers. These days, London beckons.

John Gapper is a columnist for the Financial Times, based in New York.


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