Down the Up Escalator (12 page)

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.

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 going
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.

There can be many motives for mergers. Mergers and acquisitions are sometimes about limiting competition or about getting ahold of resources or talent. The year 2011 saw a spate of mergers to avoid taxes.

A merger can certainly be part of a plan to grow. But in the 1990s, when companies were competing for declining business, the primary goal of most mergers was to downsize. The M&A loans Chase made in the 1990s were paid back out of the savings from staff cuts. The bigger the cuts, the higher the stock price rose. But with each round of mergers the companies got smaller. I wondered back then how long this no-growth lending could go on.

But the bankers who made the big M&A loans and got the big bonuses often looked down at Russell Wynn’s middle-market lending and not only because of the smaller scale. “Loans should be made only to the twenty largest companies in each country,” one big lender told me. “To
known
quantities. That way the debt can be chopped up into chunks and sold on the Euro markets.” In other words, it could be securitized.

But Russell’s mid-market loan applicants were
unknown
quantities—a fish importer in Brooklyn or a dental plate maker in Queens. His job was to investigate their business prospects individually and to lend depositors’ money to those he found creditworthy. That’s called “intermediation.” In textbooks it’s the basic function of a bank.

Each of Russell’s mid-market borrowers ran a unique business and got a unique “handcrafted” loan for specific purposes. The bank held those unique loans on its books and collected the interest through the life of the loan. But “no one wants an asset on their books,” a Chase executive had explained to me in the 1990s. “Liquidity is everything to a money-center bank.”

I called Russell back and read those quotations to him. That kind of thinking still applied, he said, and he’d be happy to explain. But first he wanted to thank me. After our lunch he’d called several of his old customers and asked them directly about a job. It hadn’t produced any offers yet, but it was the least humiliating networking he’d done so far. “I forgot how down-to-earth those people are.”

The experience was so positive that he’d decided to follow through systematically—going through his old client book from
A
to Z. He thought he might even drop by some places in person the way he used to when he was their banker. “It’s a long shot but …”

“But all you need is one,” I said, and he agreed.

Russell sounded a lot better than the day we’d met for lunch. Maybe it was because he had a project with tasks to check off each day, maybe because it was ego boosting to talk to people who admired him from his years as their banker, or maybe he felt better because it wasn’t a Monday after Sunday evening’s existential fright.

I brought Russell’s attention back to the criticism of lending to
“
un
known quantities” like these businesses whose owners he’d been calling. Russell acknowledged that if you lend to big corporations, you then syndicate or even securitize the debt. At the other end of the loan-size spectrum, you can get small standard loans off your books by bundling them together into securities that you sell to investors. “Subprime mortgage loans are a handy example of that,” he pointed out. “They don’t have to be good loans, just standard enough to bundle.

“Of course it’s exciting,” he acknowledged, “to do 100 million in mortgage loans, sell them off the same day, use the money to make more loans that you can also sell immediately, keep spinning the same money around and booking fees each time. That will obviously generate more immediate returns than if you hold the loan till it’s paid back. So, yes, that’s where the action is.

“But that doesn’t mean that the bank doesn’t want mid-market loans also,” Russell insisted. “They wanted me to make every good loan that I could. The limitation is that my customers don’t need new money.”

“Even now?” I asked.

“Especially now. Look, factories flip the ‘on’ switch when orders come in. No one borrows to buy material or equipment, no matter how low the interest rate, unless they know they’ll have orders to fill. It’s a problem of demand. I was just speaking to a guy that sells …” Then he remembered he was talking to a writer. “Your banker is like your doctor or your lawyer. That holds for your exbanker too.

“So, yes,” Russell summarized more generally, “securitization, syndication, derivatives, all the spinning stuff, it’s more profitable, more prestigious than plain-vanilla lending. But the bank still
wanted me to make as many vanilla loans as I could. The problem is to find businesses that can put the money to use.”