THE COMPETITION between New York City and London threatens to get out of hand. New York mayor Mike Bloomberg, a billionaire capitalist, trekked to London to see how Red Ken Livingstone, the communist mayor of London, runs things. Well, not precisely. But he did come to see how Callum McCarthy, chairman of the Financial Services Administration, is regulating the financial sector that seems to be wooing business from New York at an alarming rate. "London is gaining on us in area after area," moans Bloomberg.

Perhaps even more important, the ordinarily dull New York Times, under the headline, "The Best Town to Make an Upper Lip Stiff," quotes New York saloonkeeper Audrey Saunders as concluding, "London is the best cocktail city in the world right now. I hate to admit it, but it's true." It's one thing for a New York investment banker to lose a big deal to a London rival, quite another to know that the victor is celebrating in a bar superior to one in which the loser is drowning his sorrow.

Bloomberg's voyage of discovery was prompted by data showing that Wall Street is losing its preeminence as a capital market to The City. This view is shared by Treasury secretary and former Goldman Sachs chief Hank Paulson, and New York's two Democratic senators, presidential contender Hillary Clinton and Chuck Schumer. Even Eliot Spitzer, once the scourge of Wall Street and now governor of a state heavily dependent on the financial services sector for tax revenues, lined up with

What most troubles New Yorkers is that not only has London become a capital market of choice for more and more companies, but that the American press is reporting that London has succeeded New York as the world's most exciting city. New Yorkers like to boast about the high price of property in the city--although the boast is often thinly disguised as a complaint. But now they read that prices in the Upper East Side are lagging behind those in London's Belgravia. The Wall Street Journal reports that property in the most desirable areas of London fetched £1,450 per square foot ($2,863), 63 percent more than luxury condos in Manhattan. I doubt that the difference is that great, when real like-for-like comparisons are made, but for people who equate desirability with price, the undoubtedly large difference in price means that London is more desirable as a place to live and work than is the Big Apple. That is an idea New Yorkers have difficulty getting their heads around, to use the city's jargon.

In the hunt for villains, it is unsurprising that investment bankers point to government regulation. Their complaint is that regulation is more onerous in the United States than in the United Kingdom, thanks largely to the Sarbanes-Oxley Act. The cost of compliance, this argument goes, is so much higher in America than in Britain, that it is only natural for growing firms to seek capital in the less-stringently regulated London market. Peter Wallison, a resident fellow at the American Enterprise Institute, quotes academic scholars as concluding that "no explanation other than over-regulation in the United States fully accounts for the loss of business to overseas markets." And he finds a gold lining in this cloud, "The erosion of U.S. predominance in global financial services . . . may finally have captured the attention of people in government who can actually do something about it."