NY new governor says economy headed toward a crisis

By Joan Gralla

NEW YORK (Reuters) - New York's new governor, David Paterson, was sworn in on Monday and said increasingly dire problems on Wall Street imperil the economy, and the state's budget will have to be modified.

"We are looking at an economy that appears to be headed toward a crisis," said Paterson, who became governor after Eliot Spitzer was forced to resign last week in a sex scandal.

He cited the deal reached over the weekend for Bear Stearns Cos Inc. BSC.N to be bought by JPMorgan Chase (JPM.N: Quote, Profile, Research) for just $2 a share, less than 10 percent of what it had been valued at on Friday.

He asked government and business leaders to meet with him in the coming weeks to help "adjust our budget accordingly."

He offered no details how he might close a budget gap estimated as high as $5 billion. Cutting spending, raising taxes or borrowing more money are all options.

Mayor Michael Bloomberg, who skipped New York City's St. Patrick's Day parade to attend Paterson's swearing-in, said he would try to limit job cuts at Bear's job cuts.

"We'll do everything we can to help JPMorgan absorb Bear Stearns, keep those jobs and the economic activity in our city," Bloomberg told reporters.

Wall Street is a key employer in New York, with estimates that financial employees account for about 11 percent of the city's total payroll employment.