Sunday, February 21, 2010

The 1970's New York City Financial Crisis

I just finished watching an excellent BBC documentary around New York City's financial crisis. A hat tip to Itulip for digging this up. The parallels between of the financial crisis seen in NYC in the '70's versus the one we witnessing today are eerily similar.

In the 1970's New YorkCity found themselves up to their eyeballs in debt and on the verge of bankruptcy.

City Hall started to panic as the banks began cutting their lines of credit off when they stopped buying their bonds. Sound familiar?

Eventually the city realized that they had to break the unions and drastically cut spending in order to balance the budget. The city nearly collapsed but when push came to shove spending was cut and the unions backed off and New York City saved itself.

What I find ironic in this video is how New York officials repeatedly went to Washington threatening that if the city didn't get a bailout it would threaten the countries whole economic system.

Gee have we heard this one before? How many times have the bankers threatened us with Financial Armageddon if they didn't receive a bailout?

Washington said no to a bailout of New York and told them to fix the problems themselves. Eventually they did and guess what? The economy never imploded! The sun rose the next morning like it always does!

The government did did provide financial assistance to New York City several years after their meltdown occurred BUT the federal aid came with strict guidelines.

As you will see below, DC sent in bean counters that watched every penny that went out the door. Drastic cuts were then forced to be made, workers were laid off, and the unions took it on the chin but the city eventually balanced its budget.

New York City prospered soon after. Perhaps our government needs to grab the NYC playbook and apply the same rules to our economy. The only way we will get out of this is by cutting spending and balancing our own national budget.

There are multiple lessons that can be taken from the New York City financial crisis. First of all the world did not end when they weren't bailed out. When the government did provide assistance it came with strings attached versus simply dropping it out of a helicopter like we do today.

Reigning in spending will be painful but eventually it will lead us back to prosperity just like it did in New York City. I strongly suggest that you watch the whole series below.


Part 1

Part 2

Part 3

Part 4

Part 5

Part 6

Part 7