Wall Street Wanes: Why New York City Is Becoming the Not-So-Big Apple in the World of Finance

The financial headlines are delivering a persistent message. New York, and all those who live and work in the self-proclaimed financial capital of the world, is showing rising signs of financial irrelevance.

Sure, the New York-based stock and bond markets have been gyrating with their usual velocity, processing news, fear and greed. But increasingly, it seems that the real action is happening elsewhere, and that New York is now the tail being wagged by a distant dog.

In the accompanying video, I discuss this phenomenon with my Daily Ticker colleague, Henry Blodget, joining via Skype. (Note: New York has lost its magnetic pull to such a degree that Blodget, usually a regular at our midtown Manhattan studio, connected from an undisclosed offshore location.)

Consider the evidence:

On a daily basis, American investors are obsessing over the latest details from Europe. Will the European Central Bank come to the rescue of Spanish banks? Will Italy manage to avoid the fate of its fellow Club Med members Greece and Spain, who sought a bailout? How will the new regime in France alter the dynamics in European politics? These distinctly non-American questions, previously only of interest to readers of the Financial Times and Francophiles, are now driving the daily action in the stock and bond markets. Sure, the ditherings of the Federal Reserve and Congress help dictate the ebb and flow of markets. But this summer, the ECB matters more than the Fed.

Over the past few decades, from the dotcom boom to the housing bust, from the flash crash to the Facebook IPO, New York's financial services industry seemed to lead the world in epic screw-ups. But now it seems that New York has lost its ability to generate attention-hogging scandals. Sure, we've got Bernie Madoff and the ongoing insider-trading prosecutions. But connoisseurs of big time financial malfeasance are increasingly turning their eyes to London. There, Barclays has just been nailed for fixing an interest rate known as LIBOR, which stands for London Inter-Bank Overnight Rate. (New York chauvinists can take some solace in the fact that Barclays is run by an American executive, Robert Diamond -- at least for now.) The trader behind J.P. Morgan Chase's disastrous trading losses was known as the London Whale.

But it's not just the incompetent financial sector elites who have decamped from their historic homes. In Monday's New York Times, Nelson Schwartz reports that many large investment banks who regarded Manhattan as their oysters are moving rank-and-file posts out of the city. As Blodget notes, this is a longstanding trend. But now, instead of moving call-center, compliance and human resources jobs across the Hudson River to New Jersey, or up I-95 to Stamford, Connecticut — locations which could plausibly defined as in Greater New York — banks are looking to backwaters like Jacksonville, Florida; Lake Mary, Florida; Salt Lake City, Utah and Delaware. And why not? Both the cost of living and the cost of labor are significantly cheaper in these areas than in New York.

To a degree, even the most avid New York chauvinists should embrace the rising irrelevance of New York to financial markets. In 2008 and 2009, Manhattan was a hotbed of financial activity in large measure because the massive institutions based here were all failing as one. Today, by comparison, the U.S. financial sector has become much more boring. Consolidated, less-leveraged and better-regulated, New York's financial industry has simply lost some of its capacity to inflict damage.

There are also healthy signs that New York is getting over its frequently unhealthy attachment to finance as an engine of growth. Google has become a major employer in the city. Kevin Roose of New York last week reported that Facebook is raiding Wall Street firms for technological talent to staff its New York office. And one of the most anticipated development announcements of this year wasn't a new tower to house a financial services company. Rather it was the news that Cornell University is going to build a new campus on Roosevelt Island.

Gotham is not becoming irrelevant to the financial world by any means. But it is turning into a not-so-big financial apple.

Daniel Gross is economics editor at Yahoo! Finance.

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.