20 OCTOBER 2001, Page 32

The star-spangled banner yet waves over Wall Street but west of Broadway, the badlands begin


0New York ne month on, the sky is clear and the boiling cloud over Lower Manhattan has drifted away, but what remains is the smell. Acrid, invasive, tinged with burning rubber and plastic, it creeps uptown on a following wind. When the subway train to Wall Street stops at Brooklyn Bridge station, the doors open and the smell comes on board. Wall Street itself runs eastwards from Trinity Church on Broadway, and is back to something like normal. There are metal and concrete barriers around the Stock Exchange and the star-spangled banner waves everywhere. Two Wall Street, the tower block on the corner, appears to be out of commission, and a notice explains that the Banco Comerciel Portugues has been taken in by a friendly bank in Newark, New Jersey. West of Broadway, the badlands begin. New Yorkers speak of the World Trade Center site as ground zero. People have been blasted out of their homes as well as their offices, and I hear them described as refugees or displaced persons — terms from the pitiless jargon of postwar Europe half a century ago. Every day brings its round of funerals and memorial services, and everyone 1 meet is caught up in them. This is a bereaved city, and its losses will ache long after the storms of winter have swept through its canyons and driven the foul smell away.

Hey, big spender

SOME of life's problems, at least, solve themselves, and governments never have much of a problem in getting through money. When I was in New York a year ago, the presidential election campaign was in the home straight, and the two candidates were quarrelling about their government's enormous budget surplus. What should be done with it? George W. Bush was for cutting taxes. (His father had raised them and lost the election that followed.) Al Gore would hand it back in benefits. After all, he said, the new age of prosperity was only just starting: 'You ain't seen nothing' yet!' Come to think of it, we hadn't. Soon enough I was commiserating with the new President on his election and passing on a tip from Barton Biggs of Morgan Stanley: a recession was corning, so get it out of the way. Here it comes, and here come all sorts of new claims on the government's pockets. Wars consume money and, at home, much can be claimed as compensation. The Governor of New York wants funding for a high-speed rail link up the Hudson valley. No wonder the bond market twitches uneasily. It suspects that this government and its successors will find themselves back in the habit of borrowing.

Off the screen

YOU might expect Paul O'Neill, Secretary of the United States Treasury, to have something to say about the economy and the public finances, but he seems to have gone off the screen. Instead, Alan Greenspan of the Federal Reserve dispenses cautious reassurance, and is sometimes backed up by Bob Rubin, who had Mr O'Neill's job when Bill Clinton was president. These are bad times for a natural non-intervener, who saw no point in trekking to Palermo just to meet the other Group of Seven finance ministers and thought that the right treatment for Turkey's collapsing finances was cold turkey. Now Turkey, a key Nato ally, can ask for whatever it wants, and the latest cheque from the International Monetary Fund is on its way. My sympathies are with Mr O'Neill, but he may be on his way, too.

Having the money

THE Florentine fortress on Liberty Street might have been built by the Strozzi family if they had had the money. Instead it is home to the Federal Reserve Bank of New York, which has been in the wars, along with the banks that surround it. They were lucky, at least, that the false alarm over the year 2000 had made them invest in back-up systems and spare sites. 'Bony'. the Bank of New York, picked a spare site with a different telephone code, but just down the road from head office. The same blast knocked them both out. That meant trouble for Bony, and for its counterparties, and for the Fed, too. Money continued to find its way through the system but the Fed had to pump in something like $90 billion to prevent the flow of funds from drying up, and still had to remind the banks that they were in business not to freeze in fear but to lend. To be their supervisor as well as their lender of last resort gave the Fed the authority and the insight it needed. In London, that authority has now been split between the Bank of England and the new regulators in Docklands, and one of these days we shall have cause to regret it.

Morton's fork

I THOUGHT I could go to New York for a week and let Sir Alastair Morton look after the railways. He had set out the rights and wrongs in our finance issue this month, under the prescient heading 'Fortress Whitehall goes off the rails'. It's all about investment, investment, investment, he said, but at the head of the Strategic Rail Authority he had been given Mission Necessary but Impossible. Whitehall would never let go. Whitehall has now shunted Rai!track into a sand-trap and wrecked it, and wants to replace it with a corporation not conducted for profit. Anyone who has helped run a village hall knows that such corporations cannot raise capital. Issuing new shares is ruled out, along with rewards for the shareholders, and borrowing money is risky without a secure stream of income to service the debt, so what is to finance the investment, investment, investment? What private partner will now shake Whitehall's hand without checking that he gets his fingers back? 'Let us pray for Britain's railways,' Sir Alastair urged us. 'We need them.' So we do, but they may need a miracle now.

Shaken or scarred

WALL Street still bears the scars of an earlier assault, eighty years ago, when anarchists detonated a bomb outside the offices of J.P. Morgan. James Grant, who observes interest rates from the other side of the street, tells me that the bank's partners were receiving a visit of state from a French general when the bomb went off. As they picked themselves up off the floor, the general had a question to ask: 'Does this happen often'?' As to that, mon general, it may still be too early to say.