24 October 2008
Wall Street Is Gloomy After Years of Exuberance
Analysts say the Street will recover, predict no repeat of Great Depression
New York — As Wall Street’s financial businesses continue a wild ride of panicked sell-offs in stocks and face regulatory changes to their business practices, the stress is showing on the professionals working in the district's banks, stock-trading houses and insurance companies.
"I don't go out to restaurants any more," said Lara, an insurance professional who spoke a few steps from the 60-story Wall Street headquarters of American International Group (AIG), where she works. Lara, who declined to give her full name, and her co-workers worry about their jobs and their pensions, which are partly in company shares that fell sharply in value when AIG's problems became public.
Jeff Glenzer, managing director of the Association for Financial Professionals, expects more layoffs at financial services companies "as they adapt to what is clearly going to be a new world for them."
Retail businesses in the financial district, from restaurants to florists, are feeling the effects. At the BMW of Manhattan showroom on Wall Street, an employee, who declined to be identified because he was not authorized to speak with reporters, said car sales had been way down since September.
But Wall Street has seen trouble before and bounced back. The worst was the 1929 stock market crash. Stock prices plunged again in 1987, but then recovered quickly.
New York's financial district, the seat of America's financial industry, has been shaken by other traumas. After the terrorist attacks of September 11, 2001, destroyed the World Trade Center, a few blocks from Wall Street, companies had to locate missing employees, announce the deaths of employees to their surviving co-workers, and re-establish themselves in temporary offices.
The country has not seen such severe financial turmoil since the stock market crash of 1929, according to many analysts. But while the earlier calamity spilled over into the real economy, causing the decade-long Great Depression, with unemployment of around 25 percent, many economists say this time a deep economic downturn is unlikely.
"Most economists would agree the federal authorities reacted disastrously" to the 1929 crash, said Sandeep Dahiya, a professor of finance at Georgetown University. Back then, the government hoped to purge the economy of weaker businesses and so made credit harder to come by and stood by while thousands of banks failed.
Today, Dahiya said, Washington is injecting unprecedented amounts of public money into the financial system to revive it.
BELT TIGHTENING IN MANHATTAN
Wages and bonuses in the financial sector are typically higher than in other industries. In exchange, people in the sector work long hours and know their jobs are less secure. Thousands of jobs have been lost since the troubles began brewing last year, and many in the financial sector are jittery.
The “Masters of the Universe,” a term used to parody the professionals who earned millions of dollars a year trading stocks and bonds from the glass and steel skyscrapers towering over Wall Street, today are anxious and share stories of colleagues who have moved into new careers.
"People who were making and selling mortgage-backed securities were the first level of casualties," said James J. Angel, another professor of finance at Georgetown.
Wilson Chow, an accountant with the Wall Street accounting firm KVB Partners, said some of his colleagues at banks and investment companies have been laid off. Others are cutting back personal spending. One 31-year-old accountant gave up her comfortable apartment to move back in with her parents in Queens, a borough of New York City, Chow said. Others are considering going back to school to study law or other more recession-proof professions.
"They don't feel secure," he said. "Tomorrow might be their turn" to lose their jobs.
The current situation is worse than today's financial professionals have ever experienced, said Alden Cass, a clinical psychologist who specializes in treating stockbrokers and bankers. "There is a sense of powerlessness. We're seeing more anxiety, a lot of burnout and an increase in addictions."
Cass, co-author of Bullish Thinking: The Advisor's Guide to Surviving and Thriving on Wall Street, said that two weeks ago he had five new people come in for treatment in one week. “That's rare," he said. He is seeing even wealthy financial professionals cut back on spending — eating out less, canceling winter vacations and selling vacation homes.
Yet most observers expect the financial markets to bounce back. "There are lots of protections in place" that have been established in response to previous crises, said Angel, the finance professor. These include federal insurance on bank deposits and stronger oversight of the financial and banking sectors.
Congress is already considering new regulations in response to the problems that contributed to the current situation. These may include better controls over mortgage-backed securities and tighter rules for the rating companies that gave those securities high ratings until the problems arrived.
There will likely be more booms and busts on Wall Street, Angel said. But, he added, referring to the current situation, "this too shall pass."
