Remember the stories of shoeshine boys playing the stock market just before the 1929 crash? Everything old is new again. A doorman at an exclusive Manhattan apartment building told me that he had bought two investment properties when the housing bubble was expanding: an empty lot in Florida and a house in a new development in Virginia, 45 minutes from Washington. The empty lot in Florida is worth $40,000 less than it was at the peak of the bubble. He bought the Virginia house on the advice of his adult children who live in the area. He put only $5,000 down against the purchase price of $420,000 after his kids told him, "Dad, you'll be able to flip this house in a year for $500,000 or more." Now the same models in the development are going for $340,000, and no one's buying. His daughter and son-in-law have taken over the house, but the doorman has to help them pay the mortgage.
A guy at one of the big financial firms told me that many traders had bought swanky houses by pledging the stocks they owned, which are now -- in the cases of Bear Stearns and Lehman -- worth pennies. He is also expecting divorce rates to skyrocket when the trophy wives discover that they can't maintain the lifestyles they thought they'd married into.
And that lifestyle will definitely be changing. All the big firms are downsizing dramatically. One estimate puts the number of jobs lost on Wall Street at 10,000, with at least 10,000 to 20,000 more to come.
One trading-floor denizen described how it happens: Your phone rings, and you're told to report to human resources. You stand up and announce to the people in your row that it's all over. If they like you, they hug you and maybe even applaud. In many cases, they'll be the ones to clean out your desk. Right after you get fired, you're marched out of the building by security. An employee at one of the biggest, best-run firms told a shoeshine boy, "Nobody is safe. I could be out of here tomorrow."
When a financial journalist friend of mine asked a prominent executive how this would all end, he replied, "With riots in the streets."
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