Wednesday, December 9, 2009

The 13th Floor

For some 13 is an unlucky number
For others there is no such thing as superstition

by Alexandra Lebenthal

There are two apartments on the 13th Floor of the building on Fifth Avenue. Both overlook the park and were extensively renovated before the inhabitants moved in. Price wasn’t an issue; no expense was spared in making them perfect.

The residents of 13A and 13B seemed interchangeable although the husbands worked for different banks. In the mornings, the men from both apartments would leave for work at approximately the same time. They usually left before the kids were even dressed. Early meetings and overseas markets took precedence over kid drop-off and other domestic issues. They made the money and everyone else had to work things around them.

After they left, the wives got kids ready for school, dropped them off and went on to workouts, school meetings, visiting week at ballet class and all the other daily activities.

The fathers always made the weekend soccer games, Blackberries in hand at all times.
They made good money. Money that went to pay for the usual laundry list of things: the apartment , the summer home at the beach, the warm vacations in cold weather, the ski vacation in the spring, clothes, jewelry, tuitions, camp, philanthropy and a host of people to clean up after them.

If they ran into one another while waiting for the elevator in the morning, they would have the same conversations about the markets, deals and the latest sports scores. They dressed the same and generally looked the same, except when 13A decided to stop pretending his hair wasn’t thinning and go for the full head shave. 13B gave him a hard time about it, but it was better than pretending the hair was still there.

When the financial crisis hit they shook their heads and compared notes. Both missed nearly all of their summer vacations in both 2007 and 2008. They had a beer together one night in the late August heat while their wives and kids were away. It was better than sitting in an empty apartment.

They were both in the same boat though at different firms.
In October, they were both relieved when their respective firms were handed billions of dollars in the Federal government TARP bailout.

In December, they each toasted the end of a bad year.

In January, they held their breath as Obama took office.

They were relieved when Tim Geithner was appointed Treasury Secretary. No one knew better than he did what had happened and how to fix it.

In March, they both held their breath as things took a turn for the worse and markets started tumbling yet again to levels not seen in a decade. Their portfolios suffered.

They were baffled and concerned by the public anger over bonuses that started happening with AIG and then CIti, and then everyone else.

They joked to one another in the elevator one morning that it was a good thing they had Frank the doorman to protect them if any protestors came to the building.

13A and 13B both quietly made changes at home. They cut back on expenses. They worried for the first time in years about money. Both skipped a few benefits much to their wives annoyance. It wasn’t just the money. It just didn’t seem right to be going out.

They didn’t want to go on expensive vacations. It was hard to think of dropping $30,000 for a week when they’d lost so much money.

Yet, when they saw one another in the morning neither admitted what was going on. They made a few comments about how tough things were out there but talk quickly turned to sports or the weather. It wasn’t ever a good idea to let a competitor know that things weren’t greener on the other side of the fence.

It did appear though, that things were gradually starting to get better. Or so it seemed.
Then one morning in April, 13A read that 13B's firm was planning on paying back its TARP money, with interest. It would have the US government out of its hair.

But 13A couldn’t see that happening for some time at his own company and several weeks later the Government’s stress tests revealed that his bank was considered to be among the weakest. He wondered, and worried, especially with the continued talk about clawbacks and changes in compensation rules.

In June the new pay Czar Ken Feinberg announced that compensation of the top 25 people would be restricted. He was aghast at the idea of it.

13A began to dread running into 13B, especially when he read and heard about how phenomenally well 13B’s company was doing. Record bonuses apparently were on tap for year end. In his competitive world he was on the losing side.

He was still telling his wife to stop spending. He had no idea what his compensation would be at year end. After 18 years at his company, maybe it was time to think about leaving.

His wife told him one morning that 13B’s wife was wearing a new diamond ring. She guessed it was 5 carats. They got in a fight that night.

The next day she reminded him they needed to buy tickets to the Museum Benefit. He told her to buy the cheapest ones. She said she needed a new gown. He told her not to. She tried to borrow one but the designers she had always gone to in the past were were suffering from poor sales. The last thing they wanted to do was lend a dress. It wasn’t fair to the few people that did buy. The 13Bs were at the same party. They had taken a table.
13B’s wife was wearing a dress that cost $9,800.

They avoided them for the evening, especially after the live auction when 13B bought the private dinner at Le Cirque for $26,000.

A few weeks later, word came that 13B was for sale. Things were going so well that they were buying a triplex in Tribeca. 13B would still be a trophy apartment but would likely sell for 30% less than two years ago. Meanwhile 13A was thinking about putting his apartment on the market too but was loathe to take that much less. Still, the $10 million it would likely bring could go a long way. They could get something pretty nice off 5th or even better, east of Lexington Avenue, if he could get his wife to agree, for half that.

Because his firm was still wearing TARP handcuffs, it would be sometime before his bonus would again approach it former levels, no matter how hard he worked.

He felt like Sisyphus.

In the Autumn of 2008 it seemed that everyone was in the same boat. Portfolios were decimated across the board, holdings of company stock were demolished, some to zero, others 75-90%. 13A knew that without the TARP money, his firm and several others would have failed and the system would have collapsed. But now the markets were dealing with the flip side of government intervention, how to get the government out of the areas it didn’t belong, like owning car companies, buying Treasury debt, modifying mortgages and supporting the banking system. The unintended consequences of the blunt instrument of policy were that some suffered, like Lehman and AIG, while others prospered.

TARP gave everyone a chance,
but over the last year it ended up separating the haves from the have-nots. The system that is now in place—call it socialized capitalism—just feels wrong and uneven. Perhaps there was no better answer at the time. Now the haves look like they are part of a privileged class of party apparatchiks. Everyone else is lucky to be alive, but having a hard time, especially seeing how far ahead their neighbors are.

These columns were born out of the observation that in any fancy apartment building, upscale restaurant, gala benefit and well heeled suburb, all is not as it seems. This is the case in some ways even more than at the start of the crisis as each person has their own story, and their own secrets. As bonus season comes upon us in the coming weeks the differences between 13A and 13B will be that much stronger.