The New York State Division of the Budget reported that the recent troubles in the financial service sector and the weakening of the real estate market make it unlikely that the state will see higher projected revenues from last year. The state gets 20 percent of its tax revenue from Wall Street in the form of taxes on bonuses, income, capital gains and large real estate transactions. According to the Division of the Budget, New York State is especially sensitive to any problems that happen in the area of the economy. The agency said that low earnings and potential layoffs from companies like Lehman Brothers and Merrill Lynch will impact the state’s finances. The sub-prime lending market and Wall Street credit crunch are also factors.
Amid the crisis plaguing Wall Street, Gov. David Paterson announced that New York State will start regulating part of the credit default swap market beginning in January 2009.The action mirrors the recent regulation by the government that restricts profiting from falling stock prices. “The absence of regulatory oversight is the principle cause of the Wall Street meltdown we are currently witnessing. While I applaud the recent federal intervention to stabilize the market–and thus, our entire economy–it is important we also take the next step as a nation by regulating areas of the market which have previously lacked appropriate oversight,” said Paterson. Paterson’s goal is to protect policyholders by making sure that providers are able to pay claims on policies they issue. AIG’s insurance companies are regulated by the state and are required to hold substantial reserves, and as a result those companies are solvent and able to pay claims. According to the governor, a major part of AIG’s problems were created when a non-insurance unit issued credit default swaps. Paterson said, “Earlier this year, New York was the first state in the nation to mandate certain regulatory control of the sub-prime lending market, and today’s action is just the next step. I urge the federal government to follow New York’s lead once again by regulating the rest of the credit default swap market, which will have a positive impact on our collective efforts to get the national economy back on track.” In another move to help with the financial crisis, Paterson sent letters to Treasury Secretary Henry M. Paulson, Jr. Federal Reserve Chairman Ben Bernanke and other key financial governing bodies for a federal asset relief program to be headquartered in New York City.