London Falling

(3 of 5)

To see how finance has reshaped the British capital, take a trip to Greenwich--about 3 1/2 miles (6 km) downstream from Tower Bridge--home to the Royal Observatory, which dates back to 1675. It's the birthplace of Greenwich Mean Time, but for years the area was as well known for its mean streets: 19 Greenwich neighborhoods rank among the most deprived in England.

But these days, coexisting with the urban blight are plenty of new, well-heeled residents in new, well-appointed residences: bankers and others who work at Canary Wharf, the docklands development where Barclays, Morgan Stanley, Credit Suisse and many others have their offices. Greenwich is just a short hop from the wharf, thanks to the Docklands Light Railway. Liam Bailey, head of residential research at the real estate firm Knight Frank, says the gentrification started a decade or so ago and has accelerated in the past five years. Knight Frank is currently offering one-bedroom apartments with river views there starting at about $500,000 apiece.

Local businesses blossomed with this growth, but they are now seeing the swoon. At one end of Greenwich's High Street is the Green Baby store, which sells Earth Friendly Baby organic chamomile shampoo and diaper balm made from sweet-almond oil and shea butter. A short walk away is the Greenwich Park Bar & Grill, where a burger made from "Kobe" beef raised on a farm in north Wales will set you back $33. At the Nevada Street Deli, which serves up smoky cheese from County Cork and freshly made poached-salmon sandwiches, owner Laura Heap says she's already noticed a downturn in business. "I get a lot of local moms, and they're spending less," she says. "Whereas they used to buy their eggs and bread, now they're just buying a cup of tea." Heap, who opened the shop less than a year ago, has dropped her prices 25% and let some staff go. She remains upbeat about the future, but with Canary Wharf on her doorstep, she concedes, "I do feel a slight wave of fear."

She has every reason to be scared, because financial services have a record of retrenching fast in a crisis. And the business in some sectors has evaporated. The volume of mergers and acquisitions, for example, is down about two-thirds from its peak in 2006, while the public stock offerings that made the London Stock Exchange an international shooting star have fizzled. Given the role played by arcane financial engineering in triggering the current crisis--the troubles at AIG, for example, stem largely from its freewheeling London financial-products division--the future looks especially bleak for people working in structured finance and complex derivatives. No surprise, then, that HSBC, Citigroup, Credit Suisse and others have started cutting staff.