I mentioned that a stylish friend once looked me over and said,
“You can get away with those thrift store jackets if you just go into the Boutique and get yourself one pair of black pants that really fit.”
“Oh, you look fine,” Ina reassured me. “But we can still do black pants.” She took my address and promised to send me a notice next time the Boutique had a sale on petite pants.
And if I wanted a good buy on a cashmere sweater to go with the pants, Bendel was closing its clothing department, Ina told me. It would also be a good place to find some unemployed salespeople, she suggested. But I had an appointment with an unemployed securities analyst the next day. I like cashmere, but I wasn’t interested enough to stop at the sale on the way to our meeting.
Patrick Dolan, the living cliché of this recession, was a young man who’d been earning somewhere in the low hundreds of thousands just a few years out of college, until his hedge fund shut down abruptly toward the end of 2008. I tried to figure out exactly how much he’d been earning; he countered by explaining how hedge fund compensation works in general.
“The hedge fund industry is bonus-driven. In addition to a base salary, the researcher gets one-third of the profit the company gets from the stocks he recommends. Say they buy a stock at 10 and it goes to 100 by the end of the year—say 110 to make the math easy. The investors made 100. The fund charges 20 percent of that, which is 20. Assuming nothing else, my bonus would be a third of that or $7.” (That’s $7 times the number of shares purchased by the fund, which is presumably in the tens or hundreds of thousands.)
I doubt that Patrick picked many stocks that went up by 100 points in a calendar year. Still, he’d been a researcher during a few pre-crash years when stocks generally went up. And stock pickers don’t give back their bonuses when the stocks they picked later go down. So although he’d worked for a relatively small hedge fund, his bonuses would easily have been in the low six figures.
In any case, Patrick saw no sense to job hunting in other fields where he’d be up against unemployed people with better qualifications. Besides, he loved stock picking, he was good at it, he said, and he intended to stay in an industry where he could make bonuses based on his own skill.
I told him about the saleswoman I just met who loved outfitting people and was skilled at it. But with the recession, everyone at her shop had been moved onto flexible shifts with no commissions. “Her pay is down by three-quarters, she says. And she’s worried that things will stay that way even after the recession is over.”
“They might,” Patrick answered. “Some of the most innovative businesses and business theories have come up during tough times. For example …”
I was so nonplussed that I could hardly listen to his examples. I called Ina that evening to tell her about the stock picker who wanted to stay in an industry that awards $100,000-a-year bonuses but thinks that her company may have hit upon an “innovation” by getting rid of sales commissions.
“That was his take? It’s innovation?”
“Well, he’s young,” I said, making an excuse for him. “He knows stock picking; everything else is textbook business school stuff.”
“Maybe he’ll get ‘innovated’ in his next job,” Ina replied. And our conversation turned from callow youth to cashmere. There wasn’t much of a selection left at Bendel, Ina informed me. I’d missed the window of opportunity. But once again, she promised to keep her eye out on my behalf.
————
Patrick isn’t out to get people like Ina. It’s his profession to spot the practices that would give certain companies an edge. And though he’d been unemployed for nine months, he kept his stock-picking skills honed by looking out for businesses that can keep share prices up in tough times. He had to keep up with innovations, as he’d been asked to name some of his current stock ideas at job interviews.
I asked about labor-cost innovations in his own industry. “Do you think that researchers like you will be offered less pay after the recession?”
“Hedge funds are very small organizations,” Patrick told me and cited some as small as three to six people. “If you think about a hedge fund with $500 million in assets, you might have fifteen employees running that. If the fund makes 20 percent return for its investors, the fund itself generated $20 million in fees. So if you had twenty employees, that’s $1 million per employee. The owner of the fund will keep a lot of that. But that’s still a lot left over.”
So although the 30 percent bonus is not an entitlement—“You’ll never find that in writing,” Patrick said—he thought that hedge funds were not likely to deviate much from the customary. After all, “the people who really generate the profits for the firms are the researchers. And the owners don’t want anyone working so close to them to be unhappy.”
In the meantime, Patrick and his wife, still employed at another hedge fund, had been making some recession adjustments. “We used to eat out almost every day. Now we’re cutting back on things. Like where I used to automatically take a cab, now I might take a subway, little things, things that make sense. I spend a lot of time with my dog. I had a dog walker before. Now I take care of her during the day.”
“But it seems like you could probably manage if you never worked again,” I said. “I mean, if your wife keeps working.”
“Financially, yes; emotionally, no. It’s, I just …” Patrick wavered, perhaps on the verge of telling me or himself something. “It’s just not good for my psyche; it’s not good for my …” He let that go and abruptly shifted directions.
“Bottom line: here’s the way I think about this situation. The economy will come back. Whether it’s six months or five years, we will be fine as a country. But if I leave the hedge fund industry and I go work somewhere else, the odds of me getting back into the business are slim to nothing. I love this industry.”
I’m sure Patrick endured mental distress that he might have told me about if I’d been more empathetic. But I was too put off by his admiration for the one innovation that worries me the most—making people “contingent.”
When we left Ina Bromberg, her commissions at the Boutique had been eliminated and her hours temporarily reduced, but she still had her health insurance. There were rumors that the company was going to get rid of all staff salespeople and end all benefits.
Eventually, the managers called the remaining full-timers into the office and gave them two choices. They could take a severance package and collect unemployment, or they could stay, if they wished, but as part-timers with no benefits. In a way, the Boutique had made U.S. unemployment compensation a part of the company’s buyout package. Managers were telling the regular staff, “You go voluntarily, and we’ll say we laid you off.”
According to Ina, every full-timer took the buyout. The Boutique was now closer to what Ina had postulated as its ideal staff—part-timers with no benefits working flexible, lunchless, four-and-a-half-hour shifts.
Ina had been tense while things were uncertain. Now she sounded not only relieved but satisfied with her own deal.
“So far, knock wood, they let me do what I want about my schedule. I took the whole month of December off. I still enjoy going in to see my old clients who learn my new hours. In a way it was already a semiretirement for me. I didn’t depend on the benefits because of my husband. It’s also a good deal for college students if someone’s paying their tuition. They can come in a couple of evenings or weekends and earn spending money.”
Temps
When McDonald’s was a new phenomenon, its part-time, minimum-wage jobs were presented as a way for high school students to earn spending money. The company even lobbied Congress to pass a subminimum youth wage as a kind of internship grant for introducing so many American youth to the discipline of work. Now the Boutique has become a good place for college women to earn spending money. With that, another great swath of breadwinner jobs disappears.
Despite Patrick’s choice of word, there’s nothing terribly innovative a
bout transforming steady jobs into contingent work. Just-in-time staffing has been on the increase since (you guessed it) the 1970s. By 2008, eighteen million people, or one-eighth of the U.S. labor force, were hired as consultants, temps, adjuncts, e-lancers, day workers, or under one of the many other labels used for people who don’t have what we used to think of as a regular job. (These statistics come from Steven Greenhouse’s Big Squeeze: Tough Times for the American Worker.)
At first this hit unskilled workers like those Big Box warehousemen. But now brain workers like Feldman, of the Pink Slip Club, have increasing difficulty finding staff positions. From low-paid university adjuncts to high-paid mercenary soldiers, skilled work like teaching and assassinating is increasingly handled on a per diem basis by freelancers.
This brings with it a demotion that’s often more than just financial.
The nineteenth-century phrase “factory hand” suggested an interchangeable part or tool to be used as needed. There might be an almost familial feeling between the owner and the salaried clerks in the office, but that didn’t carry over to the factory floor. You don’t treat a hand the same way you treat a whole person.
An employer’s diminished investment in his contingent workers affects their relationships to each other too. When a permanent employee is sick or injured, the company pays his medical bills, his colleagues sign a get-well card, and a few may visit the hospital. But if a Big Box warehouse temp gets run over by a bus, the company phones the staffing agency to send a new one. The get-well card and the visit are unlikely.
Patrick is probably right that the owner of a hedge fund won’t want the half a dozen researchers and perhaps his personal secretary to be alienated from the enterprise. There’ll always be a core of real employees in any company. But what if he’s also right that an important “innovation” of this recession will leave another large swath of Americans out on the periphery? Aside from being painful to individuals, it’s dangerous to a democracy when so many of its citizens are marginal, contingent, and peripheral.
Chapter Four
EVEN BANKERS CAN BE UNEMPLOYED
Sunday Night Fright
Bank workers are no more responsible for financial crashes than autoworkers are for auto crashes, right? I can understand why many Americans were angry when they read about the salaries and bonuses that top bankers awarded themselves right after the bailout. But we’d also seen images of Lehman Brothers employees filing out of the bank carrying cartons of personal belongings. Bankers were recession victims also, and it seemed only fair to interview them too. So I set out to find some.
One Sunday evening around 9:30, I got a call from an unemployed loan officer who had been putting me off. He asked if I could manage lunch the following day.
Russell Wynn is a mellow and amiable-looking man in his late forties. His wife, about a decade younger, still works at the same bank he did. Between her earnings, his severance, and their savings, the couple didn’t feel hard-pressed. So far the only thing Russell and his wife had talked about cutting back on were two private school tuitions. But they weren’t going to move their children, five and eight, precipitously. They’d see how things worked out.
Russell had been a traditional banker; that is, he made loans. He isn’t the man you see for a mortgage, a car loan, or money to upgrade a nail salon. He worked upstairs in middle-market lending. His clients were companies that grossed between $15 million and $750 million a year. Some of his customer relationships spanned almost the entire twenty-six years he’d worked at the bank, he told me.
“Those relationships must have made you very valuable to the bank,” I said.
“Unfortunately, my customers had very little need to borrow … Right, even before the downturn.”
“Businesses didn’t need money?” I asked.
“The importers needed seasonal credit,” he answered. “But most of my customers didn’t need new money. They were awash with cash.”
That word “awash” triggered memories of interviews that I’d done with Chase bankers in the mid-1990s. Middle-market bankers like Russell who lent to seafood importers, dental labs, lamp parts manufacturers, and similar concerns had complained that they just couldn’t get anyone to take their money. People who lent to large corporations said the same thing. Everyone was “awash” with cash then too.
But salesmen always complain about the territory. I found it hard to believe that local businesses didn’t need money. So I’d checked it out by talking to several Chase corporate customers. I told Russell Wynn about an assistant treasurer at ITT whom I spoke to in the mid-1990s.
“This guy said that loan salesmen came around like Fuller Brush men offering interest so low that the loan was the loss leader.”
“In a way that’s still true,” Russell said. His middle-market clients may not have needed loans, he explained, but they paid well for services like currency exchange and pension plan management. “Other areas of the bank delivered those services and booked the fees, but I was the gateway in.”
“But you weren’t making loans?”
“I had the opportunity to get out of lending at just about the time period you mentioned,” Russell recalled, “mid-nineties. Investment banking was open to me, but I felt at the time, well …” He tilted his head regretfully. “I just didn’t make the move.”
To dispel his regrets, it seemed, Russell asked if my food was okay and signaled the waiter for more water. We were in an excellent, unpretentious restaurant that he’d recommended. I always buy meals for my interview subjects; still, Russell had the habits of a gracious host. He also wanted to change the subject.
“So how was your weekend?” I asked.
“Excellent,” he replied. “Very ordinary, but the kind of ordinary I like.”
I asked for details.
On Saturday he’d taken the children shopping with a stop at the park. On Sunday they visited his wife’s mother. “She was embarrassed about having no food in the house, so I went out and bought some hot dogs. Just hot dogs and buns, but cook ’em outside on a grill and everyone is happy. It doesn’t have to be summer.”
Russell felt fine until he’d put the children to bed on Sunday evening. “They’re going to school the next day; my wife is getting ready for work. What do I do Monday? I started to get … I don’t know if my wife saw how bad it was, but I was … not panicked, but frightened, actually frightened, I would have to say.”
Now I understood why he’d called me at 9:30.
“My father was retired eighteen years before he died. He only got fragile toward the end. When I visited, we’d argue. Or let’s say, we’d leave the discussion with an open point. He would say he’d look it up in the library. But one time I said, ‘Wait, I’ll Google it.’
“My wife gave me hell on the way home. Why was I taking away a trip to the library—a day with a purpose? After that I always tried to leave him with a couple of things to research. He’d call back with the information, and I thanked him. When he couldn’t get to the library anymore, I got him a computer, but he couldn’t make the leap.
“My father was a very intelligent man. He handled complicated flow problems they have computer programs for now. But eventually his idea of something to do for the day was to organize his pill case for the week. He was grateful if my mother gave him a job like going through the sock drawer and throwing out singles. Shit, is my wife doing that for me?
“Not knowing what I’m supposed to be doing the next day is the worst part of being unemployed. If I have one significant task that I can check off in the day, like researching before a job interview or writing the thank-you note after—that is much harder than it sounds—then I feel okay.”
Of late Russell has been using library computers for his job search. “At first it was embarrassing to admit to myself that I really wanted the walk and the other people around me. I said I needed to go to the library to keep up with various publications and I can’t afford to buy them all anymore. But now I admit I just like goi
ng to the library. It’s more like going to an office. I work in a more concentrated way there.”
Russell had been unemployed for five months at that point, he’d been in a backwater of banking, and he was almost fifty. Statistically, things looked bad. But he was a likable man. That was his strong point.
“Your customers obviously appreciated you,” I said. “And you knew more about their business than any other outsider. Maybe something more interesting than banking might turn up in one of those businesses,” I suggested. “Down the line, I mean, as the economy recovers. Why not put feelers out?”
That got no response.
“Or what about teaching?” I asked. “You seem to be good with children.”
Then I thought about all the teachers being laid off. What a stupid suggestion.
“If this goes on much longer,” Russell said as a joke before we parted, “I’ll need my father’s big pill case for something to do and also to hold enough pills to stay calm.”
“The Spinning Stuff”
When the U.S. government announced its $700 billion financial bailout, or Troubled Asset Relief Program (TARP), one stated purpose was to enable banks to keep lending. Since then, the president has appealed repeatedly to banks to increase their Main Street lending. Russell Wynn’s specialty is Main Street lending. The basic banking function you study in Economics 101 is Main Street lending.
Yet Main Street lending had become a backwater well before the recession and remains so today. How can that be?
After I left Russell, I reread my interviews with 1990s Chase bankers with a feeling of déjà vu. Nobody wanted the bankers’ money back then either. Everyone was “awash” in cash.
One really hot, prestigious lending area at the time was for M&A (mergers and acquisitions). Chase and other big banks competed to lend multinational corporations the money to buy each other. The borrowed money was used to buy existing assets rather than to expand an enterprise or create a new one. The loans financed a transfer of ownership and left the resulting enterprise with new debt.
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