Washington: boom town amidst the gloom

Business Times - 18 Nov 2008

The capital tends to grow and prosper during times of economic and international troubles


WHETHER you examine economic indicators or study anecdotal evidence - rising unemployment, home foreclosures, business bankruptcies, falling consumer confidence, deserted shopping malls - they all seem to point to one conclusion: the American economy is in a recession and may be sliding into a depression.

Unless, that is, you happen to live and work in Washington, DC, the capital city of this nation that is supposed to be in the midst of economic distress.

In my neighbourhood, they have just completed the construction of a tall luxury apartment that overlooks the new and the always packed Bloomingdale's department store. And guess what? The manager tells me that the very expensive apartments are selling 'like hot cakes' and that his company is planning to put up one or two more buildings in the area. 'There is already a lot of demand from those who are going to join the new Obama administration,' she said.

'We are getting quite a lot of phone calls from many 'transients' who are involved in the bailout programme,' she adds, referring to thousands of lobbyists and lawyers representing American businesses who hope to get a bite of the federal government's US$700 bailout money.

Indeed, US Treasury Secretary Henry Paulson announced last Wednesday that the Treasury and the Federal Reserve were no longer planning to use the federal government's US$700 billion to buy troubled assets from financial firms but instead would offer aid to banks and many other businesses that issue loans as part of an effort to revive the faltering economy.

In a way, the decision seems to make official a clear trend that has been evident for a while: the federal government is gradually replacing Wall Street as the main financial source for credit to consumers and businesses.

The financial markets have, 'for all practical purposes, ground to a halt', Mr Paulson said at a news conference last Wednesday, noting that while securities helped finance 40 per cent of consumer loans for several years, lenders are now less likely to issue such securities.

Against this backdrop of an almost total credit crunch, the federal government has decided to turn the bailout programme, also known as the Troubled Asset Relief Program (TARP), into a source of capital investment.

Several banks and the insurance behemoth American International Group (AIG) - are already standing in line for an infusion of handouts - in return for ownership stakes.

But the Democrats have suggested that after President-elect Barack Obama enters office, the TARP could be transformed into a huge source of finance for the ailing auto industry and struggling homeowners, and eventually for other weakening segments of the US economy.

And that is good news for lobbyists and lawyers who work not only for banks and financial institutions but also trade associations that represent almost every industry that needs credit in order to survive, including car dealers and hotel owners.

Many of these companies that have never had any presence in Washington have decided now to hire lobbyists and open offices in the city, as they press the administration and Congress to get what they consider to be their fair share of the TARP. Indeed, as the national unemployment rate rises to a 14-year high, jobs in Washington, DC were up 1.6 per cent in July 2008 from July 2007. Personal income in this area was up 6 per cent in the first quarter of the year, compared to about 4 per cent in the rest of the country.

And good luck, trying to find parking in a local shopping mall or a room in one of the city's hotels.

Also, although estimates suggest that the area is going to experience some economic pressure in the coming months, most forecasts also show that it is going to see a large increase in population, including thousands of middle-class professionals, many of whom are probably going to settle in northern Virginia, the state's prosperous suburbs that are adjunct to the District of Columbia. These are the sort of people who voted by a large margin for Mr Obama on Nov 4 and made it possible for a Democratic presidential candidate to carry this southern state for the first time since 1964.

It shouldn't surprise anyone that Washington, DC tends to grow and prosper during times of economic and international troubles.

The city was transformed from a sleepy southern town into a large metropolitan area during the 1930s and 1940s, as the Great Depression and World War II brought about a dramatic expansion in the size of the federal government, and the administration of President Franklin Delano Roosevelt helped attract thousands of lawyers, economists and military staff to the city.

The war on terrorism has already led to the emergence of a new class of defence contractors (known locally as Beltway Bandits), whose members provide services to the Pentagon and other government security agencies. They established their presence in the area as they opened new offices or settled down with their families in the suburbs or exurbs.

And now, thanks to the continuing financial crisis that is responsible in part for the election of a young and visionary president who has promised to bring 'change' (read: more government, more bureaucrats) to Washington, the city is expected to experience even more growth and prosperity.

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.


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