The market maker, which had been running on backup generators since Sandy landed on Monday evening, is said to have lost power around 11:45 a.m. yesterday. According to a memo obtained by The Times, the firm told clients that "all computer interfaces with Knight will be shutdown with no new orders, both by phone or electronic, being accepted at this time."

It's been a hard year for Knight. The firm was one of the market makers to lose millions to technical difficulties at Nasdaq during Facebook's initial public offering, then required rescue from outside investors after losing $440 million due to a technical glitch in its own trading program.

Citadel Group and Goldman Sachs were among the firms to take increased trading volumes during Knight's outage, according to Bloomberg.

Other new from around Wall Street:

Morgan Stanley's office building at 1 New York Plaza, and AIG's headquarters at 180 Maiden Lane, will be closed for weeks as building managers deal with flooding after the storm, according to Bloomberg.

Activist investor Carl Icahn disclosed a 10 percent stake in Netflix in a filing with the Securities and Exchange Commission yesterday. “The reporting persons believe Netflix may hold significant strategic value for a variety of significantly larger companies that are engaging in more direct competition with one another due to the evolution of the Internet, mobile, and traditional industry,” Mr. Icahn said in the filing, according to The Times.

A British man charged with involvement in an insider trading scheme that stretched from New York to Central Asia told an informant he got privileged information from a former director of the New York Stock Exchange, reports Bloomberg.

The Federal Energy Regulatory Commission said it was seeking $435 million in civil penalties from Barclays for alleged energy market manipulation in the Western U.S. between 2006 and 2008. Barclays, which agreed to a $450 million settlement this summer over Libor-rigging charges, is also facing a Justice Department anti-corruption investigation over the firm's efforts to raise money in the Middle East in the early days of the financial crisis, The Journal reports.

JPMorgan is suing Javier Martin-Artajo, the trading manager who supervised the gamble on credit derivatives that led to the bank's $6 billion London Whale loss, in London Court.

From Jess Pressler's New York magazine profile of American Insurance Group CEO Robert Benmosche:

Benmosche was so notoriously frugal that soon after they got married, his wife Denise granted him a divorce just to avoid unfavorable tax laws. “We were in the hotel in Santo Domingo, and I said, ‘Oh, look, honey, we can get a divorce for $400,’ ” she says. “I knew if we didn’t go through with it, he would be so angry come April 15.” Benmosche pulls a sitcom-­husband face. They remarried the following year, although for the past ten they’ve had what he calls an “off-and-on relationship” that seems, at least in Croatia, to be mostly on. Still, Denise lives in Manhattan, while Benmosche, who has various “female companions,” lives mainly in tax-friendly Boca Raton. I’m wondering how rude it would be to ask if finances had anything to do with their not getting a second divorce when Benmosche comes up with an anecdote he says describes his “philosophy of life,” from when he was driving the Coke truck back in high school.

(If you count yourself as too classy to settle for the "various" companionship a government-owned CEO, fear not: Mr. Benmosche expects the Treasury to divest its remaining stake in AIG by the end of the year.)

Illustration: Tim Lane

Last week, as the Chicago teachers’ strike was puttering out of the news cycle and the National Football League’s lockout of its referees was thundering in, a federal labor mediator announced to little fanfare that the International Longshoremen’s Association and U.S. Maritime Alliance had agreed, “for the good of the country,” to extend the master contract governing dock work from Maine to Texas for 90 days.

The media barely covered the news, but the implications were enormous. If the two sides had failed to reach a deal before the existing contract expired on Sept. 30, the resulting chaos would have touched not only the 20,000-some longshoremen who punch a clock on the East Coast, but thousands of truckers and railroad men, mechanics and warehouse workers, and the many millions of Americans who buy and sell automobiles, home electronics, designer jeans, toothpaste and anything else that’s manufactured on foreign shores. Pretty much everyone.

Three months from now, it could still happen.

The last time the U.S. had a major work stoppage on the docks, when the West Coast longshoremen’s union was locked out amid stalled contract negotiations in 2002, the economic costs were said to reach $2 billion a day. And then there are the political implications. Had the ILA followed through on its strike threat, President Barack Obama would have faced an interesting decision not five weeks from Election Day: allow the work stoppage to drag on an already sluggish economy, or invoke Taft-Hartley to send the longshoremen back to work, provoking the ire of a loyal and powerful constituency.

There are reasons for the lack of attention. In an era when virtually every consumer good is available at the click of a mouse, it’s easy to take for granted the massive enterprise required to move a pair of Nikes from a factory in Vietnam to a stockroom on the Upper West Side. Perhaps as important in explaining the quiet surrounding the issue is that neither side in the negotiations is known to cherish attention. One is a labor union with a history of mob ties dating back to the days when stevedores gaffed stray cargo with steel hooks. The other is a group of mostly faceless institutional investors who have been snapping up terminal operators for the last five or so years.

There’s a famous story about ILA President Harold Daggett. It was the early 1980s, and as the newly elected secretary-treasurer of Local 1804-1, Mr. Daggett had taken it into his head to move the local’s offices closer to the New Jersey waterfront, where his membership worked. The idea went over well with the local president, and with the bank officer who approved a loan for a union hall behind a tangled stretch of rail yard in North Bergen. But not everyone was onboard.

Mr. Daggett was still working out of the old local offices at 403 Greenwich Street when a messenger ferried the young union man to a grocery store in East Harlem. Beyond a pair of steel doors in a windowless storeroom, a Genovese family hitman was waiting, a canvas athletic bag thrown open on the floor.

“You motherfucker,” said the mob tough who awaited him in a dimly lit back room. “Who the fuck are you to take this local away from me?”

At least, that’s the story Mr. Daggett told in federal court in 2005, where he faced charges of conspiracy and extortion.

Daggett told the court: “I said, ‘I’m not taking anything, I’m going closer to the membership,’ and he pulled out a gun and shoved it in my head. I said, ‘Please, don’t do this to me,’ and he cocked back the trigger and he said, ‘I will blow your brains all over the fuckin’ room. I’m going to kill you.’”

Mr. Daggett walked out of the storeroom alive, and he moved his local to North Bergen. But the union’s relationship with the mafia persisted. In 1987, a federal commission reported that the ILA “has been virtually a synonym for organized crime in the labor movement.” In 1999, a federal judge found that Local 1588 in Bayonne was under control of the Genovese crime family; five years later, the same local was placed under court monitorship after investigators discovered that the union’s top officials were kicking back half of their salaries to the mob. In 2010, Nunzio Lagrasso, then vice president of the ILA’s Atlantic Coast district, was charged with extorting tribute payments after longshoremen received their Christmas bonuses.

When approached for comment, the ILA lived up to the ideal posited by Johnny Friendly’s gang in Elia Kazan’s 1954 classic, On the Waterfront, keeping it “D and D,” or deaf and dumb, declining to return emails and phone calls. In past statements, representatives have said that charges against the ILA amount to a governmental effort to take control of the union.

Whatever the truth of that claim, the whiff of organized crime emanating from the harbor didn’t prevent institutional investors from engaging in a dockside turf war of their own. Beginning in 2006, when the soon-to-be-embattled insurer AIG acquired a terminal operator with businesses in Newark, Philadelphia, Baltimore, Tampa and Miami, container terminals became hot properties. By the end of the following year, Deutsche Bank and the Ontario Teachers’ Pension Fund had also bought into the Port of New York and New Jersey, and Goldman Sachs had acquired a majority stake in SSA Marine, the biggest terminal operator in the U.S.

Of course, those were the days of the boom economy, when buying into the shipping business seemed like a smart way to get linked to inflation and take advantage of the growth in global trade. As a result, the investment funds paid great multiples on earnings for the terminal operations. When Dubai Ports World took over CSX World Terminals in 2004, it paid 14 times earnings, according to research published by Jean-Paul Rodrigue, a professor of transportation and logistics at Hofstra University. When Deutsche’s RREEF Infrastructure fund bought Maher Terminals in 2007, it paid a multiple of 25.

“Just like there was a real estate bubble, there was also a port real estate bubble,” Mr. Rodrigue told The Observer. “People bought ports at very high rates, so they had very high expectations.”

Then the financial crisis came steaming toward shore. The bottom fell out of the housing market, and workers were laid off in droves. Demand for foreign goods plunged, and container traffic slowed to a crawl. If the institutional investors that bought in at the high end of the market were going to make good on their acquisitions, they’d have to get serious about cutting costs.

“The new players in the shipping business are looking at significantly diminished earnings,” said Chris Ward, the former PANYNJ chief. “It’s gone into a nose dive due to the economy, and people are beginning to ask, ‘How are we going to recover that cost?’ The ILA contract has potential for that.”

Last July, as Sam Cooke’s “A Change is Gonna Come” played over the speakers in the ballroom of the Westin Diplomat Resort & Spa in Hollywood, Fla., Mr. Daggett, a bald bear of a man, appeared on a podium to formally accept the position of ILA president and warn his delegates of the fight to come.

“Investment bankers, pension funds, have invested billions of dollars in our industry,” he said. “And they fully intend to get a return on investment.”

From where Mr. Daggett stood, that meant the new terminal owners would soon be pushing for increased automation on his docks—rail-mounted gantry cranes, which not only move containers off of ships but carry the boxes around the yard, and powerful software that tracks the cargo, allowing truckers to locate their freight with less human assistance.

In case the delegates wondered where Mr. Daggett stood on such innovations, he told them about what he’d seen on a visitto the Port of Rotterdam two decades back: a ship-to-shore crane lifting containers onto railroad cars, smaller cranes at the end of the line lofting containers onto stacks. The entire operation seemed to be run by a handful of computer operators in a glass-enclosed tower.

“There was not one person on that terminal who was there to run that terminal except those men in that tower,” Mr. Daggett said. “If I had a hand grenade, I would have threw it up there.

“It was terrible,” he continued, “I was sick. You gotta believe me, we are against automation in the U.S. on the East Coast and the West Coast.”

The degree to which Mr. Daggett’s explosive imagery should be credited is unclear. Joseph Curto, president of the New York Shipping Association, which represents management in negotiations over local contracts, told us that Mr. Daggett has an inclination toward “colorful language.”

“He’s a strong union leader, and he’s interested in protecting the jurisdiction, better benefits and pay,” Mr. Curto said. “He’s doing all of the things that a strong leader does.”

One source suggested that, Mr. Daggett’s public stance notwithstanding, he knows change is inevitable and is intent on making the best of the situation. “If that technology is eliminating jobs, it’s also creating them somewhere down the line,” the source said. “If automation is going to create jobs, that should go under the union’s jurisdiction.”

In the days before container shipping revolutionized global trade, dockworkers performed grueling work for low pay and uncertain hours. Containers changed that, replacing sheer manpower with mechanized cranes, reducing at once the number of hands needed to work a ship.

As the old longshoremen left the docks, the union’s rank-and-file dwindled, but the jobs that remain pay well. The average longshoreman earned $124,000 last year, according to the USMX, while in New York, one-third of ILA members earned more than $208,000. What’s left is a membership that may be better able to withstand a strike—at least economically—than any other. What’s more, the ILA’s role as the gatekeepers of global trade allow the union to exact an economic toll out of proportion to the size of its membership.

“They’re strategically located in the choke-hold position,” noted David Jaffee, a sociologist at the University of North Florida who studies transport workers. “This is the last stronghold of union power in the U.S., or in the supply chain at least.”

In the end, automation wasn’t the issue that brought the ILA to the brink of a work stoppage. In July, USMX CEO James Capo said the sides had reached a tentative agreement on terminal technology. Having given ground on the issue, though, USMX demanded concessions.

In the early days of containerization, the ILA struck a sweetheart deal. Recognizing that the new container cranes would vastly reduce the need for longshoreman labor, the union demanded and won a guarantee that the workers would not lose their jobs to the new machinery. For decades, that meant longshoremen got paid for a set number of hours regardless of whether their labor was required. While the workers who received those early guarantees are gone from the waterfront, the principle remains intact, with pension plans and bonuses funded by royalties based in part on the weight of containers that cross the terminal.

Other rules vary from port to port. To operate a ship-to-shore crane in New York and New Jersey, management is required to employ three crane operators, though only one works the crane at a time. Shop stewards, meanwhile, get paid whenever a member of their craft is on the clock, no matter where the shop steward is or what he’s doing—an arrangement that allowed Ralph Gigante, a relative of former Genovese family boss “Vinny the Chin,” to earn more than $400,000 in 2009, and allows ILA timekeepers to be paid for more than 25 hours in a day.

“The one advance with which the ILA can be credited is the discovery of quantum economics,” said Matt Yates, director of commercial operations for American Stevedoring Inc., which operated a container terminal in Red Hook until last year. “It’s where workers are being paid by different companies at the same time, when they’re at none of the workplaces.”

(Still, as Sopranos capo Christopher Moltisanti once put it, “This no-show shit is hard—deciding what not to wear to work, what not to put in my lunchbox ...”)

In August, having compromised on automation earlier in the summer, management insisted that the union give ground on work rules, including pay practices and guaranteed hours in the Port of New York and New Jersey. Mr. Daggett dug in, calling a halt to negotiations and threatening a strike.

On a recent afternoon, The Observer stopped by the Port Newark Container Terminal, owned in part by former AIG subsidiary Highstar Capital. Orange ship-to-shore cranes danced a mechanical ballet, lifting containers off a Moravian vessel called the Jennifer Rickmers and setting them ashore, from where a platoon of $1 million “straddle carriers,” piloted by longshoremen perched in cockpits two stories high, sorted the boxes along the docks.

As we headed toward the cranes, we asked our guide about a pile of scrap metal towering over the terminal. The junk, it turned out, is the biggest export from the Port of New York and New Jersey—that is, if you don’t count empty containers. Waste paper and used clothing are other big exports. “To some degree, we’ve become a colony to the manufacturing nations of the world,” Thomas Wakemen, the deputy director of the Center for Maritime Systems at Stevens Institute for Technology in Hoboken, told us. “The world has changed.”

At the docks, change may need a little longer to take hold. Although the 90-day extension announced last week moved a potential work stoppage past the presidential election, the core issues remain. The ILA must defend its jobs. The terminal operators still need to cut costs.

Shmuel Yahalom, a professor of economics at SUNY Maritime, threw up his hands when asked what the economic impact of a strike would be. “The price tag on a work stoppage is almost too big to determine,” he told us, adding that the East Coast is more densely populated and utilizes more ports than the West Coast. Start with the billions of dollars a day the work stoppage on the West Coast waterfront caused in 2002, and estimate upward.

pclark@observer.com

Tadahiro Matsushita, the Japanese official leading a recent crackdown on insider trading, died yesterday in what police concluded was a suicide. Mr. Matsushita's investigation, which Bloomberg reports was not yet complete, led to the resignations of Nomura Holding's chief executive officer.

With the government reducing its stake in AIG, Andrew Ross Sorkin and Neil Barofsky had a telephone conversation about how taxpayers have fared in the bailout.

A German court will rule tomorrow on the legality of the European Central Bank's new bond-buying program.

With the ECB set to start buying sovereign debt, investors' bets on European bonds are looking pretty smart.

Deutsche Bank will cut costs by $5.8 billion in order to meet new regulatory capital requirements, the bank said.

Carl Icahn called the board of directors at Navistar International, the truck and diesel engine maker, a “poster child for abysmal business decisions and poor corporate governance.” Navistar answered that despite Mr. Icahn's “unproductive tactics of threats, attacks and disruption,” the board knows what it's doing.

Court bailiffs in Hong Kong evicted Occupy protestors from HSBC headquarters.

Treasury Secretary Tim Geithner finished ninth in the 50 to 54 age group at a recent triathlon.

There's a 4 percent chance Ron Paul is the next chairman of the Federal Reserve, according to Morgan Stanley (via Business Insider).

Canadian banks! Hiring amid cutbacks at financial firms elsewhere.

Niall Ferguson compared the game of chicken playing out between Athens and Greece to the Cuban Missile Crisis.

If the story of Spanish banks sounds familiar, perhaps you remember Ireland?

Moody's downgraded five Dutch banks.

Blame game: Facebook is preparing to file a motion in U.S. District Court that would consolidate all lawsuits arising from the company's disappointing initial public offering, The New York Times reports. The motion, which could be filed as soon as today, is expected to lay some blame on Nasdaq for the lost shareholder value in the days after the IPO.

Quants gain: May was a good month for black-box hedge funds, Reuters reports. The BarclayHedge index of commodity trading advisers, or CTAs, as the funds are sometimes called, gained 2.6 percent last month. The BarclayHedge hedge fund index fell 2.8 percent.

Bank bears: Investors increased their bets that bank stocks would fall by 9 percent in the second half of may against the previous two weeks, the largest increase over a two-week period since 2009. Short interest in Bank of America and Citigroup jumped 75 percent and 61 percent respectively, according to The Wall Street Journal.

Repaid: The Federal Reserve Bank of New York said it has been paid in full—$53.12 billion for loans plus interest—the funds used to support government bailouts of AIG and Bear Stearns.

Dalio's world: Want to know your favorite trader's batting average on tech stocks? Baseball cards are in at Bridgewater Associates.

Bank sues Schilling: Citizens Bank is suing to recover $2.4 million in loans made to former Red Sox star Curt Schilling, whose video game company 38 Studios filed Chapter 7 this week.

Whither Europe: European governments have about three months to save the monetary union, George Soros said at the Festival of Economics: "I expect that the Greek public will be sufficiently frightened by the prospect of expulsion from the European Union that it will give a narrow majority of seats to a coalition that is ready to abide by the current agreement. But no government can meet the conditions so that the Greek crisis is liable to come to a climax in the fall. By that time the German economy will also be weakening so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities. That is what creates a three months’ window."

Investors wonder whether central bankers can come to the rescue again, as Europe signals another tumultuous summer for markets.

Self-defense: Securities and Exchange Commission Enforcement Director Robert Khuzami defended his agency's low tally of prosecutions against top investment banking officials for charges arising out of the financial crisis. For one thing, said Khuzami, decisions on mortgage-backed securities weren't made at banks' highest levels. For another: “We are responsible for regulating 35,000 entities, and yet we are about the size of the D.C. police force.”

The SEC investigator suspended last month after he confided in co-workers his desire to carry a handgun had previously applied for a permit to carry a concealed weapon, but was denied.

One insider trader hit the speaking circuit, hoping to build up some goodwill ahead of his sentencing today.

What's in a hedge? Rule makers contemplate the Volcker rule and JP Morgan's recent $2.3 billion "hedging" loss.

Fee fie: Bankruptcy lawyers are under pressure to justify fees that often exceed $1,000 per hour. The lawyers will have their chance to defend themselves today, at a public meeting with the Justice Department's Trustee Program.

Golden oldies: AIG CEO Robert Benmosche looks to the European debt crisis and sees retirement ages moving as high as 80.

Who needs revenue? The world's largest social network may yet challenge the record for the world's largest IPO, as Zuck & Co. increased the price range for Facebook shares, then increased the shares offered by 25 percent, valuing the offering at as much as $16 billion. Those numbers place Facebook in the neighborhood of GM—$15.8 billion, expanded to $18.1 when underwriters exercised an option to sell more shares given high demand—and Visa, which raised $17.9 billion, later raised to $19.7 billion.

It hardly seems to matter that some ads aren't translating into product sales.

Goes around, comes around (JPM): Hedge funds weren't the only ones to jump at the chance to snap up credit default swaps on the cheap from JPMorgan's chief investment office: Turns out JPMorgan's own Strategic Investment Opportunities Fund, which runs $13 billion in client money, accumulated $380 million in credit insurance identical to the type the London Whale was selling. Which one wag suggests means the metaphorical walls meant to keep information segregated between different parts of the bank appear to have been working.

Goes around, comes around (AIG): Remember when the Federal Reserve bailed out AIG to the tune of $182 billion, assuming devalued securities from the insurer in the process? Now AIG is buying some of those assets back, including $600 million in commercial mortgage-backed securities, or CMBS.

Rush for the Grexit: This is sort of scary: Greek savers withdrew at least 700 million euros—$894 million—on Monday, as speculation rises the country may exit the eurozone. Reuters reports that withdrawals continued at the same rate on Tuesday, adding that for the moment, there aren't lines outside the banks. But when you have to mention it as a possibility...

Understocked? E-mails included in judicial filings by Overstock.com appear to show that Goldman Sachs and Merrill Lynch traders intentionally failed to find and deliver borrowed shares for short-selling clients. Overstock lawyers said that the banks' behavior caused widespread short-selling of Overstock's stock.

Battle of the Sexes: In the wake of Ina Drew's exit from JPMorgan, Time dusts off this old question: Do women make better traders than men?

Swiss miss: Credit Suisse told New York State regulators that it would eliminate 126 bankers in its Manhattan offices.

Pepsi Next? Activist investor Ralph Whitworth's Relational Investors took a $609 million stake in Pepsi last quarter, according to filings.

Preaching to the choir: President Barack Obama told rich private equity guys he believes in free enterprise.

Road show: Mark Zuckerberg slipped into the midtown Sheraton through a side door to address investors yesterday, and left in the company of "a dozen beefy security guards," the Journal reports, as Facebook kicked off its IPO road show. The presentation opened with a 30-minute video presentation available here. Following a delay while Facebook's 27-year-old CEO was apparently having a hard time finding his way back from the bathroom, Zuck, Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman fielded questions on the company's strategies for China, mobile revenues and its recent $1 billion Instagram acquisition. With excitement building, analysts have been quick to offer opinions on Facebook, with Sterne Agee slapping a buy on the company and Wedbush Securities assigning a $44 price target to the stock.

So sorry: Yahoo! CEO Scott Thompson apologized to employees for lying on his ... wait, no, for the distraction caused by the "disclosure of my academic credentials." You can find the whole letter (addressed "Yahoos:") over at Dealbook. Third Point Capital's Dan Loeb has been calling for Mr. Thompson to step down since last week, when the hedge fund manager asserted that the executive lied on his resume.

Trader exodus: Nearly two dozen of Wall Street's most profitable credit traders have defected from banks in the past 13 months, Bloomberg reports, as lenders cut bonuses and regulators seek to limit the types of trading banks can engage in.

Chopping red tape: Bank of America data chief John Bottega has a fourth-degree black belt in Okinawa karate, so watch what you say about consolidating bank data, a cause Bottega championed in a previous position at the New York Fed.

Fashion finance: Barney's New York will escape bankruptcy after swapping about $540 million in debt for equity with Richard C. Perry's Perry Capital and Ron Burkle's Yucaipa Companies. The fashion retailer, which filed Chapter 11 in 1996, was acquired by Istithmar, the Dubai-based private-equity firm, for $942 million in 2007. Mr. Perry is known for his "sharp style," and shop's at Barney's, according to Dealbook. No word on Mr. Burkle's fashion sense.

Bailout bonus: The Government Accountability Office said the U.S. could turn a $15.1 billion profit on its bailout of AIG, and Forbes breaks down some of the math. The government had $46.3 billion outstanding in the insurer as of March 22, including the Treasury's $35.9 billion equity stake and $8.3 billion owed to the Fed.

Government nod: Ally Financial has the Treasury's support to put its ResCap mortgage-lending unit into bankruptcy, an Obama administration official told Bloomberg. The auto lender, which was bailed out to the tune of $17 billion, is 74 percent owned by the U.S. government.

Check yourself: The SEC has called for an independent investigation into charges of sexual misconduct against current and former staff in the watchdog's own inspector general's office, sources familiar told the Journal. David Kotz, who was the agency's inspector general during the time the misconduct is said to have occurred, told the paper "as far as I know, the allegations do not involve me."

[Photo by Arnaldo Magnani/Getty Images]

Who wouldn't want to live here? (About.com)

The lovely Art Deco skyscraper at 70 Pine Street has had as rough a few years as its former owner. The Financial District tower was acquired by AIG in 1976, then losses in the economic crisis led AIG to its infmaous $183 billion dollar bailout. To recoup some of that money, the company had to sell properties and assets to pay off the debt. Asian investors stormed the building and bought that and 72 Wall Street, another AIG building, for $150 million.

There was plans to convert 70 Pine into condominiums, but the partners behind the project had a rough few years themselves and ended up in the court duking it out. Another firm, Sciame Development, was brought in to determine whether it should be developed as hotel or a condominium, but paths shifted and Metro Loft Management and the Eastbridge Group bought the building last December for $205 million dollars.

Now, they are finally going ahead with luxury rental plans that will make this the highest residences in the city, according to The Times.

Metro Loft Management has owned and flipped eight office-to-apartment buildings and plans for the new building are up in the air. 70 Pine will either be converted to a hotel and apartment combo or exclusively an apartment building:

Under one plan, a 300-room hotel would be on the lower floors, and above would be 700 apartments, whose residents could avail themselves of the hotel’s services and staff, said Nathan Berman, a Metro Loft principal. Under a different plan, the skyscraper would be exclusively a residence, with about 970 apartments, he said.

Either way, the smallest apartments would be 400-square-foot studios, the largest 1,800-square-foot four-bedrooms, in a nod to families moving to the Wall Street area.

The building, once converted, will be the tallest residential building in New York and the Western hemisphere. The current tallest—New York by Gehry at 8 Spruce Street—is only 876 feet tall. Despite having less floors, the 66 stories at 70 Pine have 12 foot ceilings, rocketing the building to 970 feet of Art Deco goodness.

Though their crown will be shortly worn: One57 will check in as the highest at 1,004 feet in the fall of 2013.

mewing@observer.com

Where can you find a Lehman Moment? Emphasis always ours:

Over the last several months, as the US debt ceiling negotiations dragged on and the sovereign debt crisis in Europe deteriorated, it seemed that a day did not go by without an article or market commentator asking if another Lehman Moment was imminent.  Today, the question is whether the Lehman Moment has arrived...Against this backdrop, clients are wondering whether the US will experience a double-dip recession and much greater downside in equities—of the magnitude seen in 2008 and early 2009.

So, did it? Mind you, this was on Sunday night:

In the US, the path to the debt ceiling agreement and the absence of clear spending cuts has undermined confidence in the long-term effectiveness of US policy makers.  In China, the high-speed railway accident has brought to fore many questions about the sustainability and quality of Chinese growth.  And yes, the odds of a recession in the US and Europe have clearly increased as global growth projections are revised downward.

However, that is not to say that we are close to a repeat of the 2008/09 economic and financial crisis: in the US, the economic backdrop, the earnings environment, private sector leverage, and market valuations do not point in that direction.

Why not? Essentially, history would have it that we just need to decompress after all the good times that lead up to the trouble we're in:

....We should expect slower growth rates for the next several years and with them, episodic concerns over renewed recessions. Our base case is for GDP growth of about 2% over the next 18 months. One of the key drivers of slower growth in the periods after financial crises is the deleveraging that is required to unwind the excesses of the prior cycle.

Odds of a recession?

We agree with our colleagues in Global Investment Research that the odds of a recession are 30% - 35%, particularly given that the low trajectory of US growth makes the economy more vulnerable  to any external shocks. These shocks include ones we cannot anticipate...such as...a negative reaction by the markets to the S&P downgrade (to which we assign a lesser likelihood).

And about that S & P downgrade:

As much as Standard and Poor’s had telegraphed their intention to downgrade US’s sovereign credit rating from AAA baring a $4 trillion fiscal consolidation plan, their announcement of a downgrade on Friday evening was still a surprise. After all, the Budget Control Act of 2011 was passed before the August 2 ―deadline, and while not $4 trillion package, the $2.1 – 2.4 trillion budget cut target seemed to be a step in the right direction and certainly ahead of expectations even last year.  It is even more surprising that they proceeded after the Treasury, according to multiple sources, pointed out a $2 trillion error in S&P’s analysis....We highlight the $2 trillion error and S&P’s assessment of the US political process because it may well temper how the markets react to the downgrade.  That said, we have no direct US experience against which to assess what a downgrade might imply, since the US has had the highest rating from both S&P and Moody’s since they initiated coverage in 1941 and 1917, respectively.

Conclusion? Things might get rocky. Or might not. Keep a diverse portfolio. And keep managing your money with Goldman Sachs.

So what should our clients do against a backdrop of slowing US growth and now a US rating downgrade? As we have written for the last several months, we think clients should brace themselves for more turbulence. With the right strategic asset allocation tailored for each client, a well-diversified portfolio has enough fixed income securities and hedge funds to withstand the current volatility. For example, while equities dropped 12.5% from their recent highs, a diversified portfolio would probably have declined 4-5%, which seems tolerable for a client with moderate risk appetite. Since a recession is not our base case, we would not recommend underweighting equities at current levels.  However, because the risk of adverse outcomes remains elevated, we have recommended clients hedge tail risks, where equities could drop well below 15%, with out of the money puts. Again, while a recession is not our central case, we believe some cheap protection against that scenario is appropriate.

Like, for example, some insurance.

fkamer@observer.com | @weareyourfek