In some ways, Bloomberg has reduced the potential for friction by getting ahead of the labor-deal curve. Many of the nastiest, strike-inducing fights of the Koch years came over contracts with civil- service unions. Today, two of the city’s most politically potent labor groups—the teachers and the cops—are locked into contracts through fiscal year 2010. The largest ongoing negotiation is with DC 37, which represents 121,000 city workers ranging from lifeguards to epidemiologists.

Though the city was already facing a $2.3 billion budgetary shortfall next year, Bloomberg was confident he could close it, and outside monitors praise him for creating a reserve fund that dwarfs, in percentage terms, what the state has set aside, for trimming city spending ahead of the slowdown, and for using surpluses to pay off debt. As he steers the city through the Wall Street fallout, Bloomberg will also be helped by what has always been his greatest selling point: that he’s free of traditional political baggage. Having bought his way into office with his own money, Bloomberg—even after more than six years in office and plenty of old-fashioned horse-trading—owes little to the favor bank that restricts politicians who’ve come up through the ranks. That independence should make it easier for Bloomberg to make cuts.

Not that it will make anyone on the receiving end any happier. Bloomberg’s tendency to play the scold could also fray nerves. Last week, and not for the first time, he placed some of the blame for the current economic meltdown on weak-willed consumers. “They say, ‘I want the great American Dream. I want it now, and I’m not going to wait until I put some money in the bank,’ ” Bloomberg said. The mayor also flayed greedy lenders for having lost their “moral compass.” But a prolonged, widespread downturn that hits the city’s middle and lower classes hardest will test one of the weaker elements in Bloomberg’s leadership skill set, his capacity for public empathy. And it will revive something else that has lain on the shelf these past few years—the coldhearted “Billionaire Bloomberg” media trope.

Which is one reason the mayor should act now if he’s serious about running for a third term. Giuliani’s personal popularity was soaring after 9/11, but his attempt to extend his stay in City Hall failed because it appeared to be (and was) blatantly anti-democratic. Bloomberg faces a similar hurdle: Even those who’d like to see him stick around are made queasy by the notion of changing the rules this late in the game. So Bloomberg needs to do it as transparently as possible. Sure, it would be easier for him to quietly back a City Council bill making the limit three terms instead of two, but that would smell of sneaky insider deal-making. Bloomberg should do it the hard way: He should ask that a referendum be placed on this November’s ballot. Calling for a vote of confidence would be sort of British, and essentially make this fall a one-man mayoral primary—certainly not a fair contest, but a good test of whether the city really wants him for four more years. Third terms are historically treacherous; Bloomberg could use a clear public mandate going in.

Whatever the future might bring, the present is plenty scary. Bloomberg is facing the same whirlwind that’s shaking hedgies and homeowners alike. “I have a couple of Lehman brokerage accounts,” says Forsythe, who once worked at Shearson Lehman and is now a professor of financial management at NYU’s Wagner school. “If somebody had asked me a year ago was there any chance at all that Lehman would be going into bankruptcy, I would have said, ‘That’s crazy.’ All of a sudden, there’s a whole new world of uncertainty out there.”

Remain calm, counsels the mayor. He is. “It is easier to govern in difficult times than it is in flush times,” Bloomberg said on that Friday afternoon—before Merrill Lynch was sold, Lehman declared bankruptcy, and AIG became a ward of the federal government. “[In hard times] you have more leverage with legislatures; the public is more sympathetic. They know it’s not easy, and they might not be happy with your decision, but what they want is somebody genuine, somebody they think is at least trying to do what’s right.”

Maybe the city has matured and we realize we’re all in this together, especially after September 11, so the old divide-and- conquer political dynamic won’t fully return. In 2003, the last time severe budget problems forced him to raise property taxes, Bloomberg’s approval rating plummeted to 24 percent (imposing the smoking ban didn’t help). Things certainly turned around, for both the city and for Bloomberg. We’ll see if he can repeat the trick, only this time on a higher tightrope.

E-mail: chris_smith@nymag.com.

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• Archive: “The City Politic”
• Articles by Chris Smith