The Schadenfreudiest victims of the financial collapse

What happened to all those high-flying investment bankers once their companies, jobs, and stock portfolios went south? A truly touching tale …

Only months ago, ordering that $1,950 bottle of 2003 Screaming Eagle Cabernet Sauvignon at Craft restaurant or the $26-per-ounce Wagyu beef at Nobu, or sliding into Masa for the $600 prix fixe dinner (not including tax, tip, or drinks), was a way of life for many Wall Street investment bankers. “The culture was that if you didn’t spend extravagantly you’d be ridiculed at work,” says a former Lehmanite. But that was when there were investment banks. Now many bankers, along with discovering $15 bottles of wine, are finding other ways to cut back—if not out of necessity, then from collective guilt and fear: the fitness trainer from three times a week to once a week; the haircut and highlights every eight weeks instead of every five. One prominent “hedgie” recently flew to China for business—but not on a private plane, as before. “Why should I pay $250,000 for a private plane,” he said to a friend, “when I can pay $20,000 to fly commercial first class?”

Why indeed, my friend? Why indeed?

The biggest problem many of them face is being over-leveraged — being in debt against “wealth” (stock) that made the borrowing quite reasonable at the time, but now is impossible because the stock is worth bupkis.

Most Lehman bankers saw little risk in borrowing against their stock to fund the lifestyle to which they were, on paper, entitled. “Say you have $8 million of Lehman stock,” suggests a senior investment adviser, using hypothetical numbers but a true-life case about a good friend who worked at Lehman. “You want to build a $2 million house. You pledge your stock and you borrow the money and you say to yourself, ‘Let’s say the worst happens: we have a terrible drop in the market. My $8 million will still be worth $4 million, and I’ve only borrowed half of that. So I’m being very conservative.’ But that doesn’t allow for $8 million down to zero.”

Of course, some “little” people are being hurt — the retail clerks and chauffeurs and cleaning people and construction workers whose product was in hot demand (for low wages) by now-thrifty Gilded Agers. Ditto the philanthropic and charitable organizations that they supported when not buying another mid-town penthouse.

But, still, in the end, it’s the families that suffer.

Alexandra Lebenthal, a New York–based wealth manager for investors with between $2 million and $20 million in assets—the modest to mid-level rich—offers a keenly authoritative portrait of a thirtysomething Lehman banker, married with kids, in a guest column called “What It Costs” on the Web site NewYorkSocialDiary. Blake and Grigsby Somerset are fictional, their finances all too plausible.

Before Lehman’s stock began to plummet, Lebenthal suggests, Blake’s annual compensation was $9.5 million—much of that in company stock. He was carrying a $2 million loan used for a house in the Hamptons, but felt perfectly able to afford his annual expenses: the Park Avenue apartment maintenance ($120,000); the Hamptons house mortgage ($75,000); the nanny and driver ($100,000); his wife’s clothing ($100,000); the personal trainer three times a week ($18,000); food, including restaurants ($30,000); charitable benefits and other nonprofit causes ($200,000); private school for three children ($78,000); Christmas in Palm Beach ($15,000); spring in Aspen ($15,000); and a wedding-anniversary diamond necklace for Grigsby ($50,000).

At least Blake has been hired on by Barclays. But his Lehman stock portfolio is now worthless. He and Grigsby have to cut their annual living expenses from about $1 million to a fraction of that, and do it in ways that don’t show, for the worst—the worst—would be the public disgrace of falling out of their social class.

First to go: vacations, the trainer, the driver, and entertaining. No restaurants, no shopping excursions, no new ball clothes for Grigsby (last year’s will have to do). But, for now—for appearances—the Somersets will scrimp to keep the kids in their schools, and the nanny, and the Hamptons house. For now.

Weep for the children.

(I write the above in at least partial cognizance that my own economic good fortune is far greater than many others in this country — and, in turn, most folks in this country have it vastly better than the majority of the population of the world. It is, I suppose, at least somewhat relative.)

(via BoingBoing)