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Add cities to the list of victims of the Great Disruption

Some of America’s most prosperous cities are also among the casualties of what I’m calling the first stage of The Great Disruption — the current financial crisis.

Charlotte, a middling Southern town built into a city by two money center banks, will see its world changed radically whether Wachovia is bought by Wells Fargo or Citigroup. At least one-fifth of its jobs are in banking, and these are high-paid corporate jobs with benefits. Virtually every advance in Charlotte, particularly its revived downtown, came from the leadership of Wachovia and Bank of America. Now half of that will be gone, and the claim to being America’s second-largest banking center.

I make a prediction: Bank of America will soon move its headquarters to New York. The decision will likely be camouflaged in language of "dual headquarters" or some such corporate claptrap. But BofA’s best and brightest will feel an increasing need to be in what’s left of America’s financial capital. After all, the men who built these powerhouses as a powerful, personal gift to Charlotte are retired.

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The danger to the economy: Size does matter

One of the biggest underlying problems behind the financial crisis is size. These are the wages of years of mergers and industry consolidation, combined with weak or non-existent regulation. Thus, Wachovia today posted a loss of $8.9 billion — enough to add to the public funding of Amtrak by nearly eight-fold. In a healthy market economy, a bank with such performance could simply be allowed to "fail," with depositors covered by the FDIC and the shareholders who enabled the disaster taking the fall.

But Wachovia is too big to fail. Like its cousin investment banks on Wall Street and Freddie Mac and Fannie Mae, its collapse could bring down the entire economy. If necessary it will be propped up, as the Fed and Treasury have done with those other giants. (The immediate damage: $25 billion). That’s your money. Of course, the executive class will continue to take home tens-of-millions paychecks as a reward for these disasters.

And yet, the brain surgeons in the executive suites of Wachovia are merely trying to fix the bank enough to sell it. Jamie Dimon’s JPMorgan Chase seems to be the last shopper standing at the garage sale of the American economy. The result, in addition to calamity in Wachovia’s hometown of Charlotte, will be an even bigger behemoth to hold taxpayers hostage next time.

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Charlotte faces its moment of truth

Around 1996, when I was the business editor of the Charlotte Observer, I provoked the ire of the president of the chamber of commerce — as I so often do with such caudillos — by pointing out an inconvenient truth: the city’s economy was too dependent on two big banks. Charlotte was in the middle of a historic boom that turned a sleepy, mid-sized Southern city into the nation’s second-largest banking center.

An Oz-like skyline shoots up dramatically from the flat treeline of the Carolina Piedmont. Signs of fabulous wealth are everywhere, from the expensive cars on the street to the beautiful people shopping at Dean & Deluca. It’s an amazing testmony to what money can do — to what being positioned at the heart of the capital markets can do. And it’s mostly because of the two money center banks, what are now Bank of America and Wachovia, that are improbably headquartered there.

Then came the subprime and credit crises, partly authored by the smartest people in the room in Charlotte. Now, as the Wall Street Journal put it, "Charlotte is fretting over whether it can remain the last great U.S. banking center outside of New York." It should be fretting over more than that.

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