Monday, November 24, 2008
Your Average Wall Street Professional and the Energy/Credit Crisis
Let us take the average, and I know there is no such thing, Wall Street professional (Broker, Banker, Salesman, Trader), and game his future career in the energy/credit crisis.
Same assumptions on U.S. Oil imports as my previous post (a decline of 8% per year) and GDP (decline of 3%+ per year for 5 consecutive years once the Oil import decline begins).
Our hero lives in Metro New York City. He is 40, a bit younger than our professional from Boca Raton, married, one child and they are thinking about another, he works 60 hours per week (including internet research), commutes 12 hours per week, and bears a tax burden that would choke a boa constrictor. He is nearly broke - relatively. He thinks he has assets of just over $1mm, down from $4mm. He lost big when his company stock, Lehman Brothers, Bear Stearns, Merril Lynch, Citigroup, etc... fell out of bed. Unfortunately, half of his net worth is the "equity" in his home, which he has deceived himself into believing still exists.
His income was $500k to $1.5 per year. Yes, that is a big range, but that is the way it works for the well paid foot soldiers of Wall Street. Remember, I am not talking about the "Master's of the Universe" here. I am talking your average working stiff on the professional staff with 15 years experience. The "Racoons" as they were known (while the big shot's were out at dinner parties we were back at the office doing the night garbage - hence "Racoon"). Anyway, I use the past tense to describe his income because that income level is gone, and it ain't coming back, to Wall Street's army of buttoned down BS artists.
So what do 100,000 very well paid, highly educated financiers do for a living in a world in which the financial services industry is contracting like a nudist swimming in cold water? What do their skill sets transfer to? These guys are the equivalent of the Rust Belt worker in the 1970's and 1980's. I can just see one of these highly testosteroned maniacs being "retrained" in a tech school classroom learning HVAC repair! Now there's a picture.
After all, what is their training? Discounted cash flow analysis was never the rocket science that Wall Street's public relations firms convinced everybody it was. Many of these guys invested $300k in an education that I could have taught them, and their dog, over a long weekend (provided they were sober). This was one of the ways Wall Street could justify their outrageous compensation when compared to folks that actually do something productive for a living. Most of these guys couldn't change the Oil in their car. (It might seem that I am being a bit harsh, but it wasn't the Foot Soldiers that created this environment. The Masters of the Universe from our establishment families and institutions pulled this set of wool over America's eyes.)
But I digress...
New York real estate values, are crashing, and are NEVER coming back. They were artificially inflated by the money pipeline coming into the region and industry in the form of every mortgage underwritten across America, and that pipeline has been permanently shut off. The Wall Street minions living out in the suburbs are going to have to make other arrangements with which to make a living. The problem is that pesky mortgage payment and the OUTRAGEOUS property tax bill. It does not take a rocket scientist to see how that is going to turn out. Remember that Talking Heads song, "Life During Wartime"? Just kidding. A little drama never hurt a good story.
The defaults and foreclosures and homes lost in this group is going to stagger the region. New York is/WAS the financial capital of the WORLD. There is a worldwide financial crisis... ergo, New York is going to be synonymous with that crisis in every way. All of the other industries feed off of the food chain brought in by Wall Street. That food chain is no more.
So what does a 40 year old guy who is used to making too much money do when he is stranded in a region with hundreds of thousands of others that are in the same boat as he is? How does he sell his $2mm home? To WHO? Where does he work? HOW LONG BEFORE HE COMES TO THE CONCLUSION THAT THIS IS A PERMANENT SHIFT IN HIS REALITY?
For the family living in a mobile home in a trailer park in Lebanon, Tennessee the adjustment just isn't going to be that bad. For the Yuppie Wall Street professional living in his McMansion, driving his Range Rover to the club for a round of golf this weekend, and living the fast lane life, the REAL adjustment is going to be mental. His very identity is going to be shaken to his core.
Most of us tend to identify ourselves by what we do for a living. We are "Investment Bankers" or "Bond Traders", not "Fathers" or "Boy Scout Leaders". The identity crisis is going to be as big a problem as the financial crisis. Again, I recommend my readers search out Dmitri Orlov's excellent white paper "Anatomy of a Collapse" on the web.
Mentatt (at) yahoo (d0t) com
Posted by The Short Story Man at 4:26 AM