Here's an excerpt from the state's report:

In February 2012, the Comptroller estimated that the cash bonus pool for securities industry employees who work in New York City declined by 13.5 percent to $19.7 billion. Revenue and compensation trends have edged downward since that report and based on those trends the total cash bonus pool for work performed in 2012 is likely to decline for the second year in a row.

That doesn't exactly square with the findings of eFinancialCareers, which reported that 48 percent of respondents see bonuses rising for 2012. What's more:

The mood is lifting with more respondents believing that  bonuses will increase and less believing they will decrease. Of those who believe bonuses will increase in the next three years, over half (53%) are convinced bonuses will return to 2006-2007 levels. Fifty-eight percent of respondents say they expect bonuses to increase or remain the same over the next three years, up from 54 percent a year ago.

Of course, there's a third option: Amid lower revenues and job cuts, Wall Street firms will marshal compensation pools to reward profit-generating bankers, leaving less pay for those whose units perform less well.

Reuters jumped on the Wall Street job-cuts theme last night, forecasting more firings in months to come. From the story: "It's just the perfect storm: You've got zero rates which are unheard of, squashing net interest margins like never before in history; the greatest regulation ever limiting fees, raising costs, demanding more capital; and then you've got a brewing economic disaster in Europe," said [JPM Securities analyst David] Trone.

Felix Salmon suggests investment bank cutbacks aren't really news.

The payback: Timothy J. Mayopoulos was named Fannie Mae's next CEO, which should do little to ease tensions between the government-sponsored entity and Bank of America. Mr. Mayopoulos was fired from his role as BofA's general counsel in 2008. The two companies have been grappling over whether BofA will buy back billions in mortgages with faulty underwriting that it sold to Fannie.

Whale inquest: Officials from the Office of the Comptroller of the Currency, the Treasury Department and the Federal Reserve will testify at a Senate Banking Committee hearing today on trading losses in JPMorgan's chief investment office.

Whither Europe: Germany is working on a plan to recapitalize Spanish banks with European rescue funds without burdening Spain with the stringent economic reforms placed on bailed-out neighbors such as Greece and Ireland.

Trustees clash: Tensions were already high between Louis Freeh and James Giddens, the two trustees seeking to recover claims arising from MF Global's collapse last fall. Then Mr. Freeh, who's responsible for recovering funds for the parent company's bondholders, demanded $2.3 billion from MF Global's brokerage unit—a move Mr. Giddens said would force him to set aside funds that might otherwise go to MF Global customers.

Complaint box: Treasury Secretary Tim Geithner pressed bank executives to spell out specific objections to Dodd-Frank.

Gotcha: After burying its head in the sand for years when it came to a ponzi scheme that cost investors billions, the government appears to be tying up loose ends such as this one—a former Bernard L Madoff Securities employee named Craig Kugel pled guilty yesterday to tax fraud. On one hand, Mr. Kugel was aware that the firm paid salaries and benefits to people who did not actually work for the firm. On the other, Mr. Kugel "charged more than $200,000 in personal expenses, including luxury clothes, jewelry, and vacations for himself and his family, to a corporate American Express card but did not report it as income on his tax returns." Mr. Kugel faces up to 19 years in prison.

I love New York City. As a New Yorker who wants to see our commercial real estate market thrive, I know that a strong local economy is an essential element to healthy real estate fundamentals. In order for our local economy to be strong, we need a strong financial services sector, and Wall Street is the keystone to our most dominant industry. As it goes, so goes the city.

The topic of Wall Street bonuses is one which elicits tremendous emotion from U.S. citizens and most of that emotion has been anger. Certainly, we have seen Congress object strenuously to these bonuses and even the president has referred to them as "the height of irresponsibility" and "shameful" and "obscene." He claimed that the Fat Cat bankers were acting in a manner which was "in violation of our fundamental values." The president endorsed a special tax on the big banks because he said, "We want our money back," referring to the TARP money which was invested in the system. After all, "Wall Street caused this mess," according to the White House.

Recently, Mr. Obama has softened his language. Perhaps this was because he realized a populist position against New York's big businesses was not the only thing that he could do to revive his plummeting approval ratings; perhaps it was because bankers pointed out that they were really not the cause of the crisis; or, perhaps, it was because he doesn't want to appear to be as overly anti-capitalistic as some of his positions convey.

The anger felt across the nation is palpable and hit home for me when I made a pro-Wall Street bonus comment at a distressed asset conference I was speaking at in Los Angeles recently. I mentioned that the way Wall Street bonuses were being paid, in both amount and nature, was anti-stimulative, particularly relative to the New York City economy. My argument didn't go over well. I have been contemplating whether to write this piece or not for weeks as I know it is not likely to be popular. I do, however, think it is important to look into this issue further, especially given the impact it has on New York City's local economy and on our commercial real estate market.

THE FIRST ASSUMPTION that needs to be challenged is that Wall Street created the financial crisis. There were indeed many market participants with culpability in creating the worst recession since the Great Depression. Bankers were joined by brokers, appraisers, rating agencies, mortgage brokers and other players, all operating under the assumption that housing prices would never go down. This was not as outlandish an assumption as we now think as average home prices in the U.S. had remained fairly steady for decades prior to this recession. But understanding the dynamics of this downturn helps us realize that Wall Street was not the cause.

The first domino to fall, and the main reason that the recession has been so severe, was the government's initiative to increase the homeownership rate in the United States. For decades, a homeownership rate of 62 percent seemed to have been a stable, sustainable rate. In order to increase the rate, it was necessary for the government to exert pressure on Fannie Mae and Freddie Mac to loosen their standards. With governmental direction and significant pressure, the table was set for these government-sponsored enterprises to facilitate people buying houses who could not afford them. At the same time, in the early 2000s, the Federal Reserve kept interest rates too low for too long, another key ingredient in this process. This set the stage for the private sector participants to take advantage of the government's "push homeownership" initiatives. When Congress decided to interfere with the free market, as they thought it would be better for the country to increase the percentage of Americans owning homes, they left a window wide open.

Another misconception about the crisis is that with proper regulation it would have been averted. Clearly, there were millions of foolish loans made during the housing boom. Some say that banks took advantage of unsuspecting borrowers while others say that borrowers' lies took advantage of banks. Both of these perspectives are probably equally correct. Lender fraud was, however, not the overriding cause of the crisis; therefore, additional regulation would likely not have prevented it.

If we look at the housing meltdown carefully, we see three distinct phases. In the first, Fed Chairman Alan Greenspan kept interest rates too low for too long, which not only inflated the housing asset bubble but created a very steep yield curve where short-term rates were so low that they encouraged adjustable-rate loans. The percentage of floating rate loans ballooned during this period. These mortgages, which had exceptionally attractive rates in the first few years of the loan, attracted speculators and flippers just looking to make a fast buck. Mortgage equity withdrawal hit all-time highs as homes replaced ATM machines as the fastest way for Americans to put cash in their pockets. Loose underwriting standards, precipitated by what Fannie and Freddie were instructed to do, let many people qualify who never should have. These adjustable-rate loans were the first to hit the fan.

In the second phase, the myth that average home prices never fall was shattered. Across the country, values plummeted, leaving nearly one-quarter of homeowners with mortgage balances in excess of the value of their houses. When this happened, owners responded by sending their keys back to the bank. With Fannie and Freddie under pressure to get Americans into homes they owned, mortgages with overly accommodative terms like miniscule downpayments, low initial interest rates or even negative amortization were abundant and the results were devastating. While the S & P / Case-Shiller index showed average prices falling by about 22 percent nationwide, several markets were really battered, including Miami, Las Vegas, Phoenix and many areas of California. In fact, Florida, Nevada, Arizona and California are home to nearly half of all foreclosures nationwide. Not surprisingly, there appears to have been more speculators and flippers in those markets than anywhere else.

In the third phase of the housing crisis, we have seen stress caused by traditional recessionary pressures, particularly unemployment, which, if you are a frequent reader of Concrete Thoughts, you know I believe has a more profound impact on real estate fundamentals than anything else. These pressures have been magnified by the conditions that preceded this phase of the crisis.

When this first domino, the housing market, was toppled, a chain reaction resulted. As early as 2003, stresses in the housing market were apparent and it was clearly having an impact on the GSEs. When looming problems with Fannie and Freddie were brought to Congress' attention, it was Barney Frank who infamously exclaimed, "Let's roll the dice with Fannie and Freddie". The rest of Congress concurred and that decision may lead to over $400 billion in losses before the dust settles.

GIVEN THIS SET OF facts, how can the administration credibly say that Wall Street was the sole cause of the problem? The fact is that the government invested in the banking system-it was not "bailed out." The automakers were bailed out, and Fannie and Freddie were bailed out; and we will likely never see a return of our investment in those zombies. TARP funds were extended to save the economy, not just to save the recipients.

Why single out the banks? Because it is politically popular? The banks have repaid most of their TARP money, with about $20 billion of interest to boot. The administration has unfairly vilified the big banks. Who among us would like to be treated the way the government has treated the banks? They were given TARP funds; some reluctantly agreed only after the support was forced upon them. Then, after the fact, compensation was restricted at banks which received the money, and, recently, it has become apparent that each bank has jointly and severally guaranteed repayment of all TARP funds. Who would have knowingly signed up for that?

And Wall Street is being chastised for making profits. This is amusing as the main reason the Street is making so much money is because of government intervention. And I am not talking about TARP. Two major competitors were allowed to fail before it was decided that some institutions were too big to fail (too big to fail produces many shortcomings and should not be part of a capitalist society, but that is another column for another day). Less competition is a good thing for business. Imagine if two of the large national brokerage companies disappeared. How happy would the survivors be?

Additionally, the Fed's monetary policy is allowing the banking industry to recapitalize as they borrow at rates close to zero and can either make loans to achieve massive spreads or simply buy risk-free instruments and make spreads of hundreds of basis points. The administration clearly agrees with this policy as a re-nomination of Fed Chairman Bernanke would not have occurred otherwise. The government is allowing these profits to be made. Funny that they begrudge them.

The constant bashing of Wall Street has been particularly punishing to New York. I am not suggesting that the Street has not done a poor job of explaining that their bonuses are really not bonuses-they could have done a better job of explaining the compensation structure. The Street has historically paid about 50 percent of revenue in the form of compensation. This year, the percentages will be well below the historic norms. Moreover, much of the bonuses will be paid in restricted stock, which is a second body blow to our local economy and is simply a response to political pressure. The city and state do not collect income taxes on pay that is not distributed and taxes are not paid immediately on restricted stock. This forgone tax revenue, and the resulting decrease in disposable incomes, is devastating for New York.

The result for the local economy is that tax revenue will be off by billions and billions of dollars, adding to our fiscal difficulties.

Equally important, bonuses paid in restricted stock cannot be spent to buy products. Most of these products would have been purchased locally. Also, what about all of the jobs that will be lost due to cuts that would need to be made to balance municipal budgets? Even more of today's precious jobs will be sacrificed as tax revenues fall even lower than expected. Those additional jobs lost produce an additional drag on our economy.

So, yes, the way Wall Street bonuses have been paid is anti-stimulative to our economy. So if you love New York, consider the consequences of agreeing with populist anger against our economic engine.

rknakal@masseyknakal.com

Robert Knakal is the chairman and founding partner of Massey Knakal Realty Services and has brokered the sale of more than 1,050 properties in his career.

The penthouse apartment, asking $11.75 million, speaks to the investment market rather than the celebrity or prestige market, said David Lowenfeld, one of its developers. “We don’t have any athletes or Page Six people in our building. Some people like that notoriety about an address, but our buyers are looking for a sound investment that provides comfort and convenience to their family.

“Our competition for a unit like this is really Park Avenue, Fifth Avenue and Central Park West. But the buyer is getting a comparable commodity for 20 to 30 percent less than the other options—once you include renovations and co-op fees. Wall Street businessmen like to buy here because it is both a good value and an ideal way to raise a family in Manhattan. It is a perfect home for the successful Wall Street banker with a family. They like it because their wives love the Equinox; and their kids love the play center and they don’t have to do any work to remodel it before moving in like you would with most of the older co-op buildings on Park and Fifth. You just bring in your personal decorator and put your key in the door.”

The Hit Factory, at 421 West 54th Street, is a glossy development in Clinton. In 2007, this might have looked to Wall Street as its main market, but these days, despite high bonus forecasts, bankers probably won’t be beating down the doors, says Warburg Realty broker Steven O. Goldschmidt, who has the listing for the $3.9 million penthouse: “The bonuses are not necessarily going to have an effect on markets like this.”

The historic building, which holds the claim to fame of recording artists from Barbara Streisand to Michael Jackson, boasts a lobby with 13-foot ceilings and honed granite floors; a common roof deck that resembles the Soho House without the pool; and a state-of-the-art fitness center.

But Mr. Goldschmidt is not looking to Wall Street for buyers. “This is a large showcase apartment, it’s not your discreet quiet nook. We are in an environment where people are playing down what they have rather than saying, ‘Gee, look what I got.’ We see the effects of that mentality with our place. It’s just too grand, too luxurious. We have also heard that the bonuses are not heavy in cash, but rather are mostly deferred compensation. We aren’t anticipating a major bump after bonus season like you might see in the more traditional, family-type apartments.

“Showcase apartments don’t get a lot of traffic right now, especially from Wall Streeters, because people want to play down their wealth rather than the other way around,” he added. “If there are bonuses in cash, I’m not sure people will spend them in a way we can oooh and ahhh at.”

Rejecting Gordon Gekko’s maxim, “Greed is good,” this season’s Wall Street buyer is more likely to be someone interested in real estate investment rather than the flexing of real estate muscle and the showcasing of success. And with good reason, of course: Although a recent state comptroller report pegged year-end payouts for the six largest Wall Street firms at up to $113 billion or more, it also noted that the recession-related crises like Lehman’s collapse “permanently changed the landscape” of Big Finance.

And that, in turn, has altered Big Real Estate.

“People are not flipping apartments anymore,” Mr. Goldschmidt said. “A young Wall Street guy knows that he is probably not going to see the market bounce back in the time he will be living there.”

The Hit Factory does feature many Gordon Gekko–ish amenities that the 2007 Wall Streeter may have succumbed to, such as a Sub-Zero wine refrigerator and a five-fixture master bathroom with a Kohler “tea for two” cast-iron soaking tub, frameless-glass–enclosed shower, and Halila limestone walls and tile flooring.

“Wall Streeters are not looking to buy in the high-profile monkey buildings right now,” Mr. Goldschmidt said. “The last thing they want to do is create more animosity toward them than there already is.”

Richard Lebow, the marketing chief at 255 East 74th Street, put it this way, referencing his family-friendly development. “People are looking very seriously at this type of property now. A year ago the interest was almost zero; lately, we have two to three viewings a week. Going into the holiday time, you don’t know what the velocity of traffic is going to be, but we are confident.”

Of course, there’s still the more traditional Master of the Universe pad out there. 

Douglas Elliman broker Ilan Bracha has a $23 million listing on the second floor of the Hampshire House at 150 Central Park South. The space is currently used as an office but could be converted to residential or mixed-use. “This apartment is ideal for the finance man who wants to open his own high-end financial services office with Central Park views and a prestigious Central Park South address,” Elliman broker Lawrence Lee said.

The apartment does not allow financing at all—only cash.

“The bottom line is, people are still buying and people who have the money appreciate the product and still pay money for it.”

cmalle@observer.com

Of course, the figures are merely an estimate for now, but the low projection jibes with the bleak year in finance, one that saw the collapse of the financial sector and the dissolution of two of the biggest investment houses: Bear Stearns and Lehman Brothers.

The reduced bonuses will affect everything from luxury retail to top apartment trades. Expect a much quieter 2009.

From the Journal:

The real question now is what effects these bonuses will have on New York real estate in early 2009. Traditionally, the bonuses trickle down into everything from luxury condo sales to beefier broker commissions to retailers' abilities to expand. A solid bonus year--the last couple, 2006 and 2007, each saw bonus totals of over $33 billion (PDF)--generally means a solid succeeding year for local real estate (though the relationship is far from hard and fast, particularly when it comes to the apartment market).

Will $20 billion be enough next year to right a real estate market reeling from the financial crisis? Probably not: The local unemployment outlook is bleak, with as many as 165,000 private-sector job losses expected in the next 24 months; and the credit markets remain extremely tight, meaning it's more difficult to get all sorts of loans, including mortgages.

But stay tuned anyway.

From a new Lehman Brothers' release:

The showroom was completely empty at noon, and I was (of course) referred to PR by two bored-looking employees. One did acknowledge that the BMW 3-series (that’s code for relatively affordable) is the best-selling model at the moment, meaning thrift is trumping flash in the epicenter of conspicuous consumption.

BMW media relations declined to comment for the article because they do not want to get involved in any negative publicity surrounding Wall Street bonuses. When pressed, the PR representative said that sales are still good in the Financial District.

I asked a group of suited young men smoking cigarettes across the street whether the dealership is usually this empty.

“You should see it around bonus time,” one said. “Most of the firms have already given out bonuses, but Deutsche Bank is handing theirs out on Friday. You should go back then, but say an unnamed source told you that.”

Stay tuned…

The German-based automaker reported a 14 percent earnings increase in 2007, but did not break down sales in the fourth quarter. BMW sold 1.3 million cars in 2007, 100,000 more than the previous year, due to the popularity of its 3-series. The United States remained its second-largest market outside Germany.