Wall St slump's ripple effects hit average Joe
May 22 (Bloomberg) -- After former Bear Stearns Cos. trader Guy Irace lost his job on the bond desk a year ago, he moved back to Long Island to teach high school math and dropped 40 pounds. Jack Yang’s deli in Manhattan cut three employees.
Cavonberry’s, Yang’s 46th Street shop near the headquarters of the New York firm taken over by JPMorgan Chase & Co., once bustled with finance workers jostling to buy a barbeque chicken chopped salad and bottled water for $12. “They used to be turning them away at the door,” Irace said.
Last week, slow enough that one cashier instead of the usual two operated the register at midday, Yang tallied up the ripple effect of the financial slump that cost Bear Stearns its independence: He negotiated a $4,000 monthly decrease in rent with Sierra Realty Corp., to $17,000, and is spending 35 percent less a week with Fischer Foods of New York Inc. for such things as artichokes and ham.
“Since January, everything’s dead,” said Yang, 52.
The biggest Wall Street crisis since the Great Depression isn’t just a setback for New York or bankers.
The finance industry’s contraction may wipe out $185 billion in wages and profits, or $600 for every man, woman and child in the U.S., according to Thomas Philippon, a finance professor at New York University’s Stern School of Business. The trail of reduced income affects car mechanics, waiters, sports teams, hair stylists, jewelers, housecleaners and watch repair shops.
Largest Absolute Drop
“We’re seeing lots of lives derailed,” said Simon Johnson, professor of entrepreneurship at the Massachusetts Institute of Technology.
Irace, who worked at Bear Stearns for 19 years and is now a teacher in Uniondale, New York, is one of 255,441 people who’ve lost U.S. finance jobs since January 2008, according to data compiled by Bloomberg. Thousands more have seen cutbacks in pay.
In New York City alone, bonuses fell to $18.4 billion last year from $32.9 billion in 2007, the largest absolute drop ever, according to the state comptroller’s office.
The consumer discretionary and industrial sectors -- dependent on people who buy refrigerators, restaurant meals or cars -- are the only areas that have shrunk more than finance, with 383,340 and 270,278 job losses, according to the data. For each finance post eliminated, 3.3 in other industries will vanish, the comptroller’s office estimated.
“The higher your income, the more in services you consume,” said Ariell Reshef, an economics professor at the University of Virginia in Charlottesville. “You don’t iron your own shirt.”
A Pound Of Ham
On the convertible bond desk at Bear Stearns, traders made from $175,000 to $1 million annually, depending on bonuses, Irace said. He dined with co-workers at Del Frisco’s Double Eagle Steak House, home of the $55.95 porterhouse. Now he earns $75 to $175 a day at Kellenberg Memorial High School and often brings a packed lunch from home.
“You buy a pound of ham and you’ve got sandwiches for the whole week,” said Irace, 44.
Other banking refugees are navigating new lifestyles. Peter Stavropoulos, a one-time hedge fund strategist, said he handles drunk-driving cases as a lawyer in upstate New York. Amy DePaulo, a facilities manager at a New York bond firm for 14 years, may retrain as a paralegal after losing a job paying $100,000 annually. Michael Gabriel, a former money market fund manager for Victory Capital Management in Cleveland, said he’s applied for 100 jobs since his position was eliminated in 2007.
Lots Of Underwear
All are cutting back, with consequences for those who depended on banks’ outsized pay. The average securities industry salary reached a record high of almost $400,000 in 2007, or 6.8 times the average for nonfinancial jobs in the city, according to the comptroller’s office.
Gabriel started cutting his own lawn, costing his gardener $450 a year, he said. DePaulo used to splurge on gifts for her nephew, spending $1,000 at Christmas. This past year the 22- year-old got lots of underwear, she said.
Stavropoulos, whose father, George, was a clothing designer who made dresses for opera singer Maria Callas, got a dual degree in law and business and worked for almost a decade as a credit analyst at firms including Standard & Poor’s. He joined the Stamford, Connecticut, hedge fund Sailfish Capital Partners LLC in 2006. He left in 2008, as the firm wound down funds.
Now his office looks out over a supermarket’s rooftop in Millerton, a town of 925 people about 100 miles (160 kilometers) north of Manhattan.
$125 Haircut
Earning less, the attorney stopped buying a daily venti black iced tea, unsweetened, from Starbucks Corp., which said Jan. 28 it will cut 6,700 jobs this year. He goes less often to Procter & Gamble Co.’s Frederic Fekkai salon in Greenwich, Connecticut, where haircuts start at $125. His wife’s cousin in Queens trims it.
“I used to take $300 for the week -- that was walking- around money,” he said. “Now I take $100 for the week. Forget about ordering sushi for lunch.”
Stavropoulos remembers accompanying 16 people in mid-2007 to Morimoto, the West Village sushi restaurant of Masaharu Morimoto, from the “Iron Chef” television program. The group spent more than $3,200, he said, then headed to the Buddha Bar, where patrons rubbed shoulders in a high-ceilinged space resembling an Asian temple.
Many nights, financial types crowded tables where “bottle service” starts at $250 for a Veuve Clicquot Brut Rose 2000 champagne, said Jessica Rosa, a waitress at the time.
Falling Tips
It wasn’t uncommon to see someone with a black American Express Co. card ringing up a $30,000 tab, said Tim Gaglio, who helped start the restaurant and bar in 2006.
The black “Centurion” card, billed as “the world’s rarest,” is available by invitation only, according to the company’s Web site.
At the peak, Rosa, 30, said she made $85,000 a year working three days a week.
“You wouldn’t see an empty chair here,” she said, surveying the half-filled lounge last week. As tips fell, Rosa stopped taking frequent trips to Miami, where she ate at the Prime 112 steakhouse on Ocean Drive, and to Puerto Rico, where she stayed at the Palmas del Mar resort.
Buddha Bar’s Gaglio said he’s planning for sales of $12 million this year after they reached $20 million in 2007, when the restaurant was one of the country’s highest-grossing. He’s added cheaper wines, like a J. Lohr Chardonnay for $11 by the glass, and is squeezing fish vendor F. Rozzo & Sons and beef seller John Jobbagy for pennies per pound. He asked employees to work harder, and said he terminated three last week.
Period Of Excess
“For such a long time, it was such enormous volume that people got very complacent and spoiled,” he said.
The pullback may prove worthwhile in the long run, by directing the economy to more productive areas, said the University of Virginia’s Reshef.
Wall Street compensation may have been as much as 50 percent too high from 1995 to 2006, according to his December 2008 survey with NYU’s Philippon of the U.S. finance industry over the past century. The other period of excess pay was around 1930, the year after the stock market crashed.
“What happened here is a misallocation of capital on a gigantic scale,” Reshef said.
Eventually, people will replace lost income as they retrain, gain new skills, move and find jobs -- which may take as long as 10 years, said Johnson, the Cambridge, Massachusetts- based economist.
Little League
“An economy like the United States has the ability to create new jobs and it has a bounce-back ability that we shouldn’t discount,” he said.
Irace, who enjoyed coaching Little League baseball as a teenager on Long Island, said he considered a career as a coach or an athletic director when he graduated in finance from Fairfield University, in Fairfield, Connecticut. Instead he found a job at Salomon Brothers with the help of a roommate’s father, a managing director. Two years later, he moved to Bear.
After Irace got his termination papers in June from JPMorgan Chase, he called “Brother K.”
Brother Kenneth Hoagland, the principal at Kellenberg, a private Catholic institution, taught Irace at Chaminade High School in Mineola, New York.
Hoagland called Irace in for an interview in August, when he needed a replacement for a math instructor on leave. A month later, the former trader was teaching quadratic equations and factoring to freshmen in five 40-minute periods of algebra a day. He enrolled in refresher math classes at Nassau Community College, sometimes learning subjects a day or two ahead of the kids. This semester, he’s teaching sixth-graders measurements and percentages.
Conditioning Drills
Seated at wooden desks, 21 to 39 in each class, they get excited when he flashes the animated math adventures of a robot named Moby onto a classroom projector. After school, Irace, now 198 pounds (90 kilograms), puts a whistle on a yellow cord around his neck and runs girls through conditioning drills as an assistant coach for the lacrosse team. The extra coaching stipend runs $1,000 to $2,000 for the season.
Irace used to spend about as much in Manhattan every month, when he had an apartment in Gramercy Park and co-workers joked that he attended more New York Knicks games than Jeff Van Gundy, the National Basketball Association team’s former coach. This week, he stayed home and graded papers.
Single -- with his three-bedroom, Colonial-style house in Oyster Bay, Long Island, paid off -- Irace got what he called a “very generous” severance from JPMorgan that runs out in September. His teaching job ends June 16, and with no guarantee of a job in the fall, he plans to look into unemployment benefits. Irace tells Wall Street friends he won’t be back.
“Things don’t always work out this way,” he said, recalling what one teacher told him when he got the Kellenberg job: “This is probably your true calling.”
Originally Posted by firec
Reply With Quote
Out of my reach already. So ironic that we are discussing it under this thread where we were hoping to buy at 1k.
