America's Downfall (part 2)

By Ernest Beck, MSN Money

From his 34th-floor office in London's Docklands, the city's bustling new financial center, Michael Charlton has sweeping views of the glass-and-steel towers housing international banks and finance companies. In the distance, he can see the designated site of the 2012 London Olympic Games.

"We are an ideal location," says Charlton, the chief executive of Think London, the city's official agency promoting direct foreign investment. "We have high-tech infrastructure, an abundant pool of talent and easy access to the rest of Europe," he adds, ticking off London's many attributes as a world financial center. Is London the next global capital?

Charlton is biased, of course, but he isn't the only one singing London's praises. Over the past few years, growing numbers of U.S. companies, most notably banks and other financial-services institutions, have been moving some strategic operations to London. Why US bankers like London

General Electric recently announced that it was moving its consumer-finance unit, GE Money, to London -- the second GE division to cross the pond. (A health care unit is already there.) Meanwhile, Goldman Sachs, Lehman Bros., Citigroup and other major banks have been sending senior executives to head up operations in London, which is now a center for foreign exchange and derivatives trading.

International banks, many from Asia and the Middle East, have also established a presence in the city. Hedge funds are showing up, too, with an estimated 21% of global funds now located there. Smaller companies, many from emerging markets, are listing on the London Stock Exchange's Alternative Investment Market, or AIM. London has also become home to a new and lucrative financial-services industry: carbon trading. What is carbon trading?

As a result, many claim that London is giving New York a run for its money as the leading global financial capital. Moreover, some believe London's rise and rivalry with Wall Street reflect a wider trend in which many sectors of the U.S. economy are facing direct challenges from foreign competitors. Map: Global markets on the rise

Several factors have influenced London's ascendancy. Location is, of course, everything, especially in a globalized economy, and London is not only close to continental Europe but also in a time zone midway between North America and Asia.

That's one reason behind GE's decision this year to move the Money unit to London from company headquarters in Fairfield, Conn. "We feel we need to be closer to our customers, and the largest part of our business is in Europe," says GE Money spokesman Robert Rendine, who also notes that 80% of the unit's business is outside the United States.

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