After the Bear

It is breath-taking to consider how different New York looks this morning compared to only a week ago. Back then, Eliot Spitzer was seemingly ensconced in the governorship and Bear Stearns was a financial house valued by the market at something on the order of $30 billion. Seven days later, Mr. Spitzer's governorship, and many of the hopes that were invested in it, is gone, and tens of billions of dollars of market capitalization have evaporated from Bear Stearns. Tens of thousands of jobs may be lost, too.

This is a time to remember the most extraordinary thing about New York — its grit and its resilience, its determination and its optimism. It was only seven years ago that our city was attacked by a barbaric enemy, who came down out of the skies and killed thousands, destroying in the process the buildings that symbolized our commercial and trading spirit. Many reckoned it would take decades for the city to recover. And it may take years yet to internalize the grief over lost friends and colleagues, if it will ever happen.

But within only a few years, our city has rebuilt if not ground zero then the physical space needed to conduct our commerce, all in one of the greatest building booms and surges of optimism in history. It was a surge in which Bear Stearns was an important part, both in terms of its business, which surged until the latest downturn, and in terms of philanthropy, where managing directors were expected to give at least 4% of their annual compensation to charity. Bear aficionados searching for epitaphs may find themselves flipping through Alan C. Greenberg's book, "Memos From the Chairman," which includes one prescient note dated March 13, 1979: "It certainly looks like we have a dynamic future in store as long as we remember the words of the famous philosopher Haimchinkel Malintz Anaynikal: 'thou will do well in commerce as long as thou does not believe thine own odor is perfume.'"

There will be much backward looking, as there was after September 11, 2001, at how the collapses we've just seen could have happened. Our own instinct, in the case of Bear Stearns, is to look to whether it is possible to transmit true price signals with an unsound currency. But this is a time to remember that the resilience that is the hallmark of New York and to work at fashioning the right policy prescriptions in the months and years ahead.

The resilience is rooted in principles. At the city and state level, this is a time to tend to our most important crop — which is capital gains. A new administration is being assembled in Albany, and before long another will be assembled in Washington. Both of them will be all too tempted to tax the most successful leaders at producing capital and other gains. There is growing talk among the Democrats of protectionism. It is a good moment to study how the Great Depression came upon us. What is needed now is a renewed commitment to protecting the ability of and, importantly, the incentives for people to take risks, to make investments, to create jobs, and to make profits. Many governors and financial houses have come and gone, but those principles have produced the resilience that has made New York so great.