It might relieve you to hear that Arthur—43, with a wife and four kids and three cars and a two-story white clapboard center-hall Colonial in Connecticut and $15 million in the bank—doesn’t want your pity. He’s been a good provider, saved his pennies, sold his stocks the second the nasdaq took its first dip in March 2000. And he’s doing fine now, just fine. Except that now and then he seems a little adrift—glancing out of the sides of his eyes as if he can’t remember where he put his BlackBerry. He is mindful of the tastelessness of complaining, of suggesting in any way that he is a victim. Which is why he insists he wasn’t really a business casualty of September 11—although, come to think of it, it did happen four months after the attack. The semantics of what happened are still in question. “I was ‘relieved of my responsibility’ but not ‘fired,’ ” he says, after eighteen years in the same credit-sales department at the same bulge-bracket investment bank. Did he mention that he was meeting every projection set for his department, all ten of them? But the reality is that Arthur (not his real name; he’s far too circumspect for that) didn’t sleep at all the night he was let go. He stared up at the bedroom ceiling, trying to remember what he had said or done to piss them off. “I’ve never been that crushed in my life,” he says. “It’s like I had a child or a spouse die. That’s how I felt. I was totally blindsided. I’m an average guy on Wall Street, not a superstar. But I did everything I was asked. Met all the expectations. And in the end, was expendable.”
Get him talking about the whole thing—the indignity of a job search, the disconnect of aimlessly sitting at home while the wife lunches with her friends, the guilty pleasure of coaching his kids’ sports teams, four of them, on weekday afternoons—and he’ll wax a little poetic. “The first reaction is ‘Why me?’ ” he says. “Then you see it’s not just me.”
Arthur looks around town—New Canaan, Greenwich, a town like that—and sees a lot of unemployed investment bankers. He sees them at the schools, on the golf courses, in the supermarkets. Nobody really talks about it. They just put off that home renovation and say they’re consulting.
“You know how every recession has a name?” he says. “Once, there was a Rust Belt Recession. The last one was a White-Collar Recession. But this one isn’t even white-collar. This is Wall Street investment bankers getting blown out of the water. I like to call it the Top-Down Recession.”
They’re an endangered species now, Arthur and his colleagues—the komodo dragons of Wall Street. The assumptions of a career like his—become an investment banker, work ridiculously hard (and play hard, too), make a lot of money for others and a respectable pile for yourself—have been thrown out the window. In their place is nothing. No rules. No guarantees. No security.
One out of every ten employees in the securities industry has been relieved of responsibility since April 2001; by all reports, the cutbacks continue. But now it’s not just lost jobs. Two trends are at play in the Top-Down Recession: the worst layoffs in a generation and, for those who have dodged them, the withering away of Wall Street bonuses. In 2000, the financial-services bonus pool was $19.4 billion; last year, it was $7.9 billion. The average bonus dropped from $104,600 to $48,500. Wall Street hasn’t seen a two-consecutive-year decrease in bonuses since the eighties. “What I keep hearing now is base pay of $80,000, and the bonus is eat-what-you-kill,” whispered one once-and-future investment banker at a networking session for unemployed executives in midtown. “If you don’t close a deal, you don’t get a bonus.”
Without the bonus, the career collapses. “In the nineties, the model was ‘guaranteed bonus,’ ” says Andy Klein, the former force behind Wit Capital, the Internet investment bank. “The model today is ‘variable compensation.’ ” Klein’s new project, Soleil Securities Group, is an affiliation of Wall Street analysts who essentially work on commission. “These researchers are people who made on average millions of dollars a year, and now they’re making next to nothing,” he explains. “In our model, they get to keep 50 percent of what they produce. But if they can’t produce anything, they get zero. We pay them nothing. We’re not hiring them. We’re partnering with them.”
It’s a profound change in the way Wall Street people are paid—and the end, for the foreseeable future, of financial services as a bulletproof career. Investment banks that two years ago offered signing bonuses, relocation costs, and even guaranteed second-year bonuses to new M.B.A.’s, are now redefining the terms of the deal. “I talk to recruiters who’ve been at this for 30 years, and they’ve never seen anything like this,” says Tony Brown, director of staffing for Bear Stearns. “Even someone who saw the downturn in ’74—he says he’s never seen anything remotely like this. The year-end bonus has become discretionary. Now, to a student sitting on a business-school campus, that seems almost unfair. But how in the world can you expect a firm to guarantee a bonus when no one internally is guaranteed of even having a job?”
Even those who have kept their jobs have lost much of their income—not everyone stashed away as much as Arthur. The wealth on Wall Street was largely illusory, based not on salary but on bonuses that created paper millionaires. “People in financial services work all the time, and they are extremely sophisticated about trading, but they’re incredibly naïve about their personal financial situation,” says Maggie Craddock, a former portfolio manager who now works as an executive coach at some of the top investment banks. “What’s happened to a lot of these seven-figure people, they’ve become what I call ‘poor rich people.’ ”
How abruptly can you lose it? During the bull market, let’s say, like many mid-level people, you made close to $1 million a year—about $150,000 in base pay, the rest in bonus. But then, let’s say, one year that bonus is cut by 40 percent. And because of the ownership culture of these firms, as much as 60 percent of the bonus is in stock. And no one can sell that stock, because the company has placed restrictions on it, and in this recession it’s worth less every day. “You have professionals whose personal wealth is mainly in their company’s stock,” Craddock says. “Their bosses tell them, ‘If you want to eat lunch in this town, you’re gonna take this stock position. Eat it.’ ”
Which leaves a $200,000 cash bonus, for a total of $350,000—about $200,000 after taxes. But remember, you’ve been living like a millionaire—relying on your paper bonus, even borrowing against it, as if it were your salary.
For some, it means the end of a distinctly New York life. “My wife and kids are in Philadelphia looking at schools,” says Carl, 40, a fifteen-year investment-banking veteran laid off last fall. He’s crunched the numbers: If he sells the five-bedroom house in Chappaqua, he could buy a nice new house in Philadelphia for $700,000 and still have enough money to buy a business. In 2001, Carl earned $2 million, “but several hundred thousand of those were options that aren’t worth anything today.” In 2002, he earned $380,000 including his bonus. “In my current house, spending what we’re spending, on a pretax basis I’d probably need to make $350,000 just to break even.” That’s Wall Street money—and Wall Street isn’t hiring.
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Imagine the city without them. Imagine cocky 22-year-olds not being drawn here like moths to the flame, not setting up camp in Hoboken, not boarding the path to become millionaires by way of the Merrill Lynch training program—not engaging in mating dances at Bungalow 8 or attending nightly services at Scores. And the older ones, the ones with families and tuitions: Picture them just leaving town. Imagine, this year or next, a mammoth real-estate sell-off, a market crash.
And imagine city coffers left unfilled by their tax dollars (Wall Street profits last year were just recalculated at $4.8 billion, $2 billion less than the city had thought). Imagine their problem becoming our problem.
Three M.B.A.’s sit at a table. no one’s collected a paycheck in at least a year. “Renée has a completely blue-chip résumé,” says Michael, their career coach.
“Right. Blue-chip,” says Renée. She worked for McKinsey and Enron, enrolled in Stanford Business School, and then spent four years at a major investment bank before being laid off last spring. “I did okay for the first three months without a job,” she says. “But then it doubled. You think, ‘I’m very qualified, and I think I did a great interview, and I know the right people, and I sent the dang thank-you letter and dotted the i’s and crossed the t’s. And why not me?’ ”
I ask Renée what skills she could bring to a non-investment-banking job. She lets out a sharp laugh.
“Michael,” she says, “what skills can I bring to a non-investment-banking job?”
“The ability to get the job done?” he says.
“‘Sometimes,’ says one unemployedbanker, ‘I think the worst thing that ever happened to me was being accepted by Harvard Business School.’”
“I’ve got a lot of skills,” she says. “I’m a smart person. I can do strategy, finance, I could probably figure out marketing if I had to.”
“You know,” offers Michael, “being smart is a skill.”
“Try getting a date in New York when you’re unemployed,” says John, an M.B.A. who worked in Telecom and venture capital and who’s been searching for a job since spring 2001. “I met somebody for drinks yesterday at the Royalton, and it was 72 bucks.”
“I worked downtown,” says Jill, laid off last year from a diversified financial-services company where she led a department of 50 people. “So I say all the time, ‘You know, I could be dead.’ But you know, I don’t know how I would have functioned had September 11 not happened.”
Michael turns to me. “These are people who’ve basically done everything right,” he says. “They’ve gone to good schools, taken the right jobs. And not passively, either—they took risks from time to time, they did entrepreneurial things. Then this recession made them ask if they even picked the right career in the first place.”
“Sometimes,” says John, “I think the worst thing that ever happened to me in my life was being accepted by Harvard Business School.”
Will, 33, executed M&A deals for ten years at three different major Wall Street firms. Now, for the first time, he’s living off his savings. “Somebody once told me investment bankers are either running to something or running from something,” he tells me. “I think it was some of both for me. But I didn’t know what I was getting myself into.”
His apartment—a $1.2 million, 1,800-square-foot classic six on Park Avenue—has a variable-rate mortgage, so right now it’s $5,000 a month including maintenance. He and his wife and 3-year-old daughter have a Hamptons summer rental that costs them $20,000. His monthly nut is $12,000. “I know a dozen people who have two, three kids in the city who go to private schools and big mortgages, and they have more than two years without work,” he says. “The unfortunate reality for most of us is that it’s all we know how to do. People kind of get stuck in what they call the investment-banking ghetto.”
One day at the height of the boom, when Will was making upwards of $500,000, his bosses offered him what seemed like a sweet deal: a two-year salary guarantee and the option to borrow half his second-year bonus at 6.25 percent interest. How would he repay the loan? With next year’s bonus, of course. Living off the bonus had become an institution. Not risky but shrewd.
“Not everyone took the loan—they encouraged you to,” he says. “But at the time, some people thought the firm was positioning itself for a sale—to make sure people would stay on. You’re locked up because as part of these guarantees you’ve signed noncompetes.” Will used the loan to buy the Park Avenue apartment for the wife and daughter he barely saw. And soon enough, Will found his company had been acquired. “It was a disaster,” he says. “A big chunk of my group would get fired every two months. I knew it was a matter of time before they got rid of me.”
“Doesn’t this happen in M&A all the time?” I ask.
“Yeah,” he says. “And some people outside the bank world sort of thought we were getting a dose of our own medicine.”
On September 11, Will saw both planes hit from his office. A month later, to the day, he was laid off. “They told me they were gonna give me 60 percent of my guarantee. I had taken out a loan against the guarantee, and that wouldn’t be enough to repay the loan. But they still wanted the loan repaid.”
He hired a lawyer, who told him that while he had a strong case, it would take years and cost more than $100,000 to go through arbitration. But Will was still holding a card. “There was a $5 million deal, and I was the only one who could finish it.” He offered to stay on and close it if the company paid him the bonus. “They didn’t send me a check—they just said, ‘Okay, the loan’s been repaid.’ I didn’t see any cash that year. And in banking, you know, you only get paid once a year.”
When he talks about what happened, he has none of Arthur’s proud protestation. He’s angry. He feels taken in. “It gave me very good perspective on the lack of loyalty and security on Wall Street. I canceled countless vacations, was on planes for bullshit two-hour meetings on the West Coast. And at the end of the day, there’s no consideration.”
Once laid off, Will would spend five hours a day with his daughter. “I mean, I don’t know one senior-level person I worked with who has a healthy marriage. They don’t spend time with their families. You can tell they don’t want to. People are very quick to say, ‘Let’s have a call on the weekend,’ or ‘Let’s cancel vacations.’ Divorce rates are relatively high, although I think some bankers don’t want to get divorced because it would be so expensive. And you know, to be honest with you, I don’t know too many happy bankers. People aren’t happy.”
Connecticut, a weekday morning in late June. The kids are off to summer school. Arthur turns to his wife and says, “Okay, let’s have some coffee and hang out.”
But she’s gathering her briefcase. “I’ll see you tonight,” she says. And he’s left holding the coffee.
Arthur spent his summer coaching soccer, football, hockey, baseball, and softball. “I spent some time with my wife—catching up from twenty years of ignoring her,” he says. “But I realized she wasn’t just willing to drop everything for me now that I’m home. She’s got her foundation work, and the work she does with the public schools, and she had her friend network that she’s not willing to give up.”
Arthur’s monthly expenses amount to about $25,000, including $12,000 for the mortgage, insurance, taxes, and general maintenance and $5,000 or $6,000 a month in household expenses. The country club? “For me, it’s nothing. Like $1,000 a month.” Vacations cost about $10,000 a week if they skimp, sticking to the Caribbean or skiing in Vermont. “We don’t go on any exotic European trips,” he says. “We’re watching our expenses now. But don’t get me wrong. Most people would be very envious. But we’re being careful.”
His wife? “I think I feel the pressure more than she does, because I’m paying the bills.”
He was going to spend $60,000 on painting the house. That’s out for now. He was going to sink $50,000 into redecorating a few rooms. That’s out, too. But his street is filled with others who reached higher and have more to worry about now. “People were knocking houses down and doing multi-million-dollar renovations, buying three new cars a year, spending the summer in Europe,” he says. “People rode the equity market all the way up and all the way down.”
With investment banking no longer an option, people like Arthur have decided to hang their own shingle. “Most people who were in investment banking and got laid off—at least three quarters—are doing something else,” says Richard, a 32-year-old investment banker who has started his own private equity company, a pot of investors’ money he’ll use to buy and sell companies. His new life is more demanding than the old one ever was. “I start my computer at 7:30 or 8, send out 20 or 30 e-mails, then I’m on the phone or handling e-mail until dinner. I answer 200 or so e-mails during the day. Then after dinner I work for a couple hours, sometimes until midnight.”
“‘I canceled countless vacations, was on planes for bullshit two-hour meetingson the West Coast. And at the end of theday, there’s no consideration,’ says one banker of his firing.”
He’s working on his first major transaction—the purchase of a $20 million company. But the payoff won’t come until he sells that company, and that still isn’t enough to match his old salary. Let’s say $10 million of the $20 million is equity and the rest debt. If he sells the company in three years for three times his money, or $30 million, that’s $20 million net—20 percent to his firm, 80 percent to the investors. So that’s $4 million, or a million and a quarter a year spread out over three years, minus expenses. Multiply that by two for two deals, then subtract shares for two partners and salaries for an associate or researcher, and he’s left with a couple hundred grand a year.
“If I do two of those deals a year, that would be sustainable,” Richard says. “Three would be respectable. More and I’d be a rock star. But these things take four to eight months to do from scratch. It’s not the Holy Grail until you do more deals or increase your size.”
Richard took severance at the beginning of 2002. He turned to his wife and talked about starting his own business. They talked about having one or two nice dinners a month instead of once a week. They talked about less-lavish gift-giving, limited clothes shopping, limited travel. They’re keeping the $30,000 Hamptons rental, though, and they actually bought a half-million-dollar one-bedroom-plus-den on the East Side. Then, over the summer, his wife got pregnant.
“We laughed a lot,” he says. “You leave a firm, no cash flow, buy an apartment, then have a baby? We’ve learned we can’t control a lot of factors in life. We’ve got to go with the flow.”
After six months out, will landed a job with another investment bank. “I got very, very lucky,” he tells me. Now, in a different economy, he’s a different man. “I try to do the least amount I can to stay busy enough that people don’t think I’m not doing anything—and still be able to do yoga every day, and spend an hour or two with my daughter before she goes to bed. I delegate.”
How much is he getting paid? “My base is $125,000. I don’t know the bonus. Yesterday, the guy who runs my group said, ‘We’re gonna give people their bonus numbers this week, and they’re gonna be terrible. And it’s for two reasons. One, business is down. And two, because we can.’ I’ll probably make $350,000, maybe less. I probably need to make at least $300,000 in total, pretax, to break even.”
A few days later, I catch up with Will on the phone. He’s seething.
“I totally got fucked,” he says. “I got $100,000, and I was expecting more than double that. It’s bullshit. It’s basically a quarter of what I got last year. I’m only making $200,000 a year. It’s the same as I got my first year out of business school. I’m paying to work here now.”
And Arthur? he’s punching in and out, easy hours, at a small “alternative-asset-management company” that he’s trying on for size. He calls it an apprenticeship. His base pay is $50,000, one twentieth of what he was paid the previous year—“not enough to live.”
He’s home by 6:30 p.m. now. He helps his kids with homework, takes them to the Cub Scouts. “Eating dinner with them,” he says, “is something I’ve never done. I’ve learned how fast they were growing up. But to be honest—and I’m shocked to say this—I don’t think they treat me at all different now.”
His day is calmer—and lonelier. “I spend all day on the phone talking,” he says. “But it isn’t like a trading floor. It’s the same way the rest of the country works, only I’m not used to it. The bond with your co-workers isn’t there. That’s why so many people start hedge funds. They miss the trading floor.” He has nothing to sell now except himself.
Looking at Arthur in the Top-Down Recession is like looking at Ray Liotta at the end of GoodFellas. He’s safe now, financially secure. But he’s an average nobody. He gets to live the rest of his life like a schnook.
“I was just a salesman,” he says. “But we loved it. It’s like being on a professional sports team. You get to know these people better than you know your spouses. I hate to say it, but it’s true. And you’re not prepared for it to stop. Now suddenly you’re sitting there, a sports star bass-fishing on his 100-acre ranch, wondering how it ended.”