New Jersey feels Wall St. impact

September 16, 2008 3:55:50 PM PDT
From young stock market professionals in Hoboken who suddenly find themselves unable to pay the mortgage or patronize the city's restaurants and bars to Atlantic City casinos struggling to borrow money to expand or pay down debt, the Wall Street crisis is making itself felt in a big way in New Jersey. Gov. Jon Corzine said between a quarter to a third of New Jersey's economy depends on Wall Street, either directly or indirectly. The bankruptcy of Lehman Bros. and the forced sale of Merrill Lynch at a price half of what it was worth a year ago will cause widespread pain in New Jersey, he added.

"I'm worried about the state budget, the state economy in the context of the very dramatic restructuring that is taking place on Wall Street," Corzine said Monday morning during an appearance in Ewing Township. "The northern half of the state, there are many, many people who are involved with that industry. That's one of the reasons you have high levels of income in the state."

In July, the head of New Jersey's Economic development Authority said nearly 1,700 employees of Lehman Brothers worked in the Garden State. The state labor department would not say how many Merrill Lynch employees work here.

New Jersey's investments will take a hit from the weekend meltdown, but the state deliberately diversified its assets to avoid overexposure to just such a problem, state Treasurer David Rousseau said.

"We have exposure to every sector; when financial stocks suffer the most severe shocks in decades, we will lose market value in that sector," he said. "While we owned a small position in Lehman Brothers, we note as well that New Jersey, unlike most peers, completely avoided exposure to market losses because we did not own any Freddie or Fannie common stock when they were seized by the U.S. Treasury.

Corzine, the former co-chairman of Goldman Sachs, worries about significant job losses.

"Both Lehman and Merrill have substantial operations in the state," he said. "And any time you have a bankruptcy, you have to worry that there are going to be closures, and people will lose their jobs."

Hoboken Mayor David Roberts said thousands of his city's residents work on Wall Street. He's concerned about the impact of unemployed residents who can no longer make mortgage payments, or spend money in restaurants and bars.

"Having so many young people lose their jobs is certainly cause for concern," he said.

He could not estimate the impact on the city's budget next year.

Senate Majority Leader Stephen Sweeney on Monday called on the Legislature to convene an emergency economic summit to address the impact of the job losses and economic downturn on New Jersey's workers and businesses.

But Newark actually hopes to profit from the turmoil.

"We are perpetual, unapologetic optimists in Newark," said Deputy Mayor Stefan Pryor. "To some degree, that optimism is based on the economic downturn and the fact that in pricey markets like Manhattan, CEOs are deciding to locate parts of their operation in lower-cost locations. So the market turbulence could actually work to the advantage of cities like Newark."

Merrill Lynch is the second-largest employer in Mercer County, with about 6,000 employees working in a huge complex it moved into in Hopewell Township a few years ago.

Joseph Seneca, an economics professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, said the merger of Bank of America and Merrill Lynch, both major employers in New Jersey, will lead both companies to eliminate jobs and close or sell some offices. He said the fallout from the latest surprise on Wall Street could include even tighter credit, keeping companies and individuals from being able to borrow.

That is an increasingly serious problem in Atlantic City, the seaside gambling resort that's heavily dependent on financing for expansion projects and paying down massive amounts of debt.

Already, two massive casino-hotel projects have been delayed by the credit crunch; Pinnacle Entertainment and MGM Mirage have put a combined $7 billion worth of Atlantic City projects on hold until credit markets improve.

But the prospect of even tighter financing - not to mention thousands of suddenly unemployed stock brokers and investment bankers - is worrying some here.

"It's adding to an already challenging climate," said Joel Simkins, senior vice president of Macquarie Securities. "Not only is Wall Street an important source of financing for the casinos, but Wall Street is also a good customer of Atlantic City. Traders and investment bankers frequently visit the casinos as guests and spend a good deal of money there as well, so there could be an impact in that regard."

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