David Serchuk: Brooklyn Baby Daddy

April 2, 2009

By Bill Singer


These are tough time to persevere. These are tough times to ask folks to climb through the ropes knowing that they are going to get a beat down for a small purse. It's even tougher when you realize that you're just being chewed up by the machinery and this may be your last paycheck. The Bum of the Month Club is not a job that anyone aspires to--it's what you accept when it's near the end of the line and you have rent to pay and a family to feed. Everyday, we see folks swallow their pride in order to get through the day, and the next.

There have been some recent glimmers. We were up a few hundred points this week in a resurgent market. Still, the stories keep coming in of layoffs and business failures; and that's likely to be what we're going to continue to read for some time. This mess isn't going to clean up quickly and what we're likely to see at the end is a battered palooka rather than some matinee idol.

This evening, one of the classiest reporters in the business sent me a link to his Blog. I've know this editor for many years and always appreciated his eagerness to understand what he was asked to write -- not merely to get enough lines on the page to fill out his article. He was never one to go through the motions. Right now, there is a lot of pain on Wall Street, on Main Street, in our offices and our homes. There is nothing funny about it. It's not a sound bite. It's not a few lines of fill at the end of a column. Blame who you will (and there's plenty of that go go round), but never lose sight that the devastation in our economy exacts a horrendous price that is paid with broken spirits and ravaged families. As such, I offer you a touching story by a gifted writer. I have cut and pasted it from the blog of that young reporter, now just a tad older. It's a slice of life, not pretty, but it's honest. I find it compelling in that odd way that we press our tongue into a sore tooth -- there's the pain and there's no pain, and that seems to make us feel better. Of course, at the end of this story, there is that photo of the beautiful baby. I hope you come away from this blog with a smile. Bittersweet but still, a smile.

Some folks are finally getting it. They see what got us into this mess. They realize that we can't keep running around the same circle. This time, maybe, hopefully, we don't think it's simply enough to outlast the recession and go back to the same misguided policies and failed practices. And if David Serchuk can just get folks to understand where we are, how we got here, and why this insanity must change -- then maybe there's hope that this time will be different.

Me? Nah, I too much a cynic. I don't think things will change. But then I'm not the father of that adorable baby Stella. David has more reason to clean up this mess. Me? I'll just keep answering the bell and battling; but David, you need to let folks know the score.

Brooklyn Baby Daddy


This blog chronicles the life of me, David Serchuk, and my wife, Randi, right before, during and after the birth of our child. Stella. I am an editor and she is a public school teacher. We live in Park Slope, Brooklyn.

Tuesday, March 31, 2009

Get Your Recession On

Another quarter just ended, another massive wave of layoffs at the well-known business journalism firm where I still work. This one came without much warning, unlike the layoffs that came right as 2009 began, when 25 staffers were let go. But today's was stealthy, and 50 people were let go, including some truly incredible people that I admire, trust and respect. It's very hard. It's not war, what happens in cubicle-land, but it's not pretty either, and real lives are at stake just the same.

My former boss, I'll call him Sam, was laid off today. Sam is one of the greatest financial minds I've ever known. He literally knew everything I ever asked him. And when I'd ask him for help he never made me feel bad, never belittled me. He was truly my friend, as well as my boss. Seeing him go is very tough. But when I said goodbye to him today he said he's just glad I wasn't let go, because I'm a dad.

I mean, c'mon, how much classier can one guy get? Sam was always gruff, but the kind of gruff that you couldn't help but love. I owe him just about everything. He interviewed me to work under him while I had been at the magazine, and wanted to get out. He decided he wanted me about two minutes into the interview. He pushed for me to get a bonus in 2008 that really, really helped around here. He trained me to work by his side, and taught me more about business than I could have learned in two years of b-school for journalists, should such a thing exist. He also is directly responsible for producing a lot of the native grown talent that writes for our website. Many people got their start under Sam as raw rookies, barely able to write a paragraph. Sadly I'm not exaggerating. He'd whip them into shape. I did the whipping, too, over the course of the year and a half we worked arm-in-arm. It wasn't easy, but teaching people how to write--again, I am not exaggerating in some cases--was intensely rewarding. As a result many of Sam's students remained loyal to him, and trusted him, even as they went on to bigger and better.

So he's gone, and my well-known financial journalism firm will be the worse for it.

How did this all come to pass? It's easy to say no one knows for sure, but there are some real culprits here. All you have to do is look to a piece of legislature called the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999. Spearheaded by Texas Republican Senator Phill Gramm, it dispersed with the Glass-Steagall Act, which had been in place since the Great Depression, and kept banks, brokerages and insurance firms from being under one roof. GLB basically reversed that in the name of competitiveness generally, and specifically so that Citigroup could become the behemoth it became. Now that Citi is trading for $2.60 a share, or less than the cost of using one of their ATMs, we see how that worked out for everybody.

And it's not like GLB passed without a fight, 45 Senators voted against it, but that wasn't enough. So in the name of keeping up with the rest of the world, ironies abound sadly, we threw our best safeguards on the fire, and put nothing in their place. In retrospect, this disaster was inevitable. Imagine screwing anyone and everyone without a condom for 10 years. You might just get a disease. You might get AIDS. Well, that's pretty much what our financial services industry did for a decade, and, guess what, our world economy got AIDS. There is no real cure except for time, which is a euphemism for lots of businesses dying off and people losing their jobs and for wealth to be destroyed.

Also, guess what? Once these safeguards were removed our financial markets acted, well, unregulated, in the sense that they no longer were regular. We had two booms within just a few years of each other, with matching crashes. Volatility went haywire, even as our pensions evaporated. Just as investing became more dangerous than ever we were all told we had to become our own financial advisers. Seemingly time-tested and ironclad strategies like buying indexed mutual funds in domestic stocks, bonds and some international stocks suddenly made as much sense at laying down long odds at the dog track: even if you won it's still a dog. And very few people have won in the past year. A decade's worth of stock gains are gone. We've all heard about Japan's lost decade, like it's something to avoid. Guess what, it's already happened. Now we have to see if we'll have two lost decades.

The greatest irony of the passage of GLB is that it was banks, brokers and insurance firms that pushed for it the hardest, but they've reaped the whirlwind too. Of course they all made easy billions for years before the Grim Reaper stopped by, and left us losers holding the bag. Did they know it was going to play out like this? No, but the truth is, they didn't care much if it did. Instead they just were overjoyed that they had greater leeway to sell truly terrible products like variable annuities, which are annuities wrapped in an insurance product of some kind; expensive to buy, sold but not bought. Can anyone explain to me why anyone would need one? No, they can't, because you don't. But millions of people own them, and they're seeing the variable part of this rotten deal fall apart. You see annuities are by definition supposed to give you annual returns that are steady and predictable, why would anyone be fool enough to want that to change? I don't know, I truly don't. I never will.

When GLB passed I was just starting out as a financial reporter, at Compliance Reporter, a newsletter. I knew it was a big change, and I had a strong feeling it would not be good. I probably have a story somewhere that attests to this, as I reported on the passage of the act. But at the time none of my friends cared. I once brought it up at a party and was met with stony silence, like I had mentioned euthanizing puppies. My generation didn't care. And I didn't really know what to do about the story--it was so big, yet seemed so dull--so I kind of forgot about it for a while. Until I couldn't forget about it any longer. I understood the act, kind of, but not the whole thing. But don't be mislead, as mentioned, there were people who saw a lot of this coming, but they were ignored. And the people who pushed for this have never paid the piper.

One person who saw a lot of this coming is a former source of mine, and one of the smartest people I've ever met in this business world, or any world: Pam Martens. Pam worked on Wall Street for two decades, and saw the filth from the inside. She was the lead plaintiff in the groundbreaking Citigroup "boom-boom room" sexual discrimination class action lawsuit against Citi, until she was fired by her own attorneys for being too uncompromising. She gave me one good tip after another when I was at Securities Week from 2002-2004. And she warned about the problems to come from de-regulation at places like Citi--i.e.the dangers of letting places become too big to fail--like a true Jeremiah. But, sadly, she was also a Cassandra, i.e. right but ignored when people could have done something about it. So, Pam, it's a great, great shame that more people didn't listen to you five years ago. May they listen to you now.

Bill Singer, a longtime securities attorney, also gave plenty of warnings about the dangers of driving the small firms out of business in the securities industry. I met Bill in 1999, what a fateful year!, on my first day at CR, and he gave me a front page scoop right off the bat. I didn't understand what any of it meant, but when I called other sources they seemed impressed with what I told them. (The story involved something called SOES firms, and its pretty technical and outdated by now.) But mainly Bill advocated for the little guy. And, again, he was right. This mess never could have gotten so horrible had there been more small firms. What happened is almost that in the financial services world we created something akin to a mono-culture, shared among maybe five or six firms. And when one went down they all went down, because they all shared in the same garbage. More small guys, more competition, more, yes, capitalism could have prevented a situation where there were five major banks, and one huge insurance firm called AIG, and they all got infected with subprime crapola, passing it off amongst one another in myriad ways. But it was all, in the end, the same shit. When the firms all became huge they became doubly dangerous. Bill saw it coming.

So there are a few heroes to go with the much longer list of villains. GLB is still on the books, and Glass-Steagall remains gone, despite the fact that when it was in place our banking system never had a large, systemic breakdown. And yet, somehow, when I ask questions like, hey, why don't we just bring Glass-Steagall back, people look at me like I'm nuts. Why that would be wrong, somehow. It would be admitting the sheer scale of our folly, it would be admitting that those old guys in 1938, or whatever, were about 12 times smarter than we are, with our computers. Maybe they were just less greedy.

I get the same look, by the way, whenever I ask the same question about why don't we simply rebuild the Twin Towers? We just can't. No one knows why, and everyone I talk to wants it to happen, but we just can't. It would be admitting that we got it right the first time and can't do better.

But I'd rather admit defeat and be right, than pretend there is a better answer when there is not. Banks and brokerages need to be kept at arm's length. Insurance companies need to avoid both of them. Where I put my money and where I invest my money should not be the same place. This makes it harder to rob me. Don't worry, Wall Street, about your so-called barriers to investment. You still all became millionaires when they were in place and most of you still had jobs, unlike today. We'll call you.