The Leading Indicators (6 page)

“Which was my fiduciary responsibility. If more shares had come onto the market, our stock price would have declined.”

“When I get to the office Monday, the first thing I'm going to do is go to the files and—”

“You won't be in the office Monday,” Ken said. “A few hours ago the board fired everyone except me. They invoked a clause in your contract that forbids you to step on company property. Can't have you making photocopies, pal. Security will call the police if you try to enter the office. Don't take it personal or anything.”

Years of work gone in an instant, and Tom had never guessed what was happening.

In the back of his mind it had sometimes seemed too good to be true—revenue gushing in, numbers rising, stock analysts touting the firm; yet what was it, exactly, they created? He had tried not to think about the musical-chairs aspect of the modern financial industry. Presidents, prime ministers, governors, editorial writers, the
Harvard Business Review—
all were praising the financial sector as the growth engine of the West. But unlike carmakers or farmers who had inventories that could be inspected, financial firms asked you to take their numbers on faith. If the numbers were lies … Tom's head reeled with the realization that he had been part of such a lie, and too credulous to notice.

“We're sort of—delicately balanced, financially,” Tom said. “I don't have a lot of savings. My contract calls for two years' salary if leaving the firm for any reason. I want those funds immediately.”

“Bankruptcy voids financial promises that may have been made. No golden parachute. You can buy back your benefits, though. Keep the executive life insurance, so long as you make the payments. It's a very generous offer.”

“Unbelievable.”

Ken said, “You know, I don't have any trouble at all believing it.”

Tom was silent. A few months before, he had been offered a senior position with a great package to join General Electric; Ken talked him out of it. Tom now realized Ken would have known then their enterprise was fixed and sure to fail. Ken didn't just steal from the investors, he stole from Tom. Wiped out, and a fool to boot.

“Many business-school success stories lost their shirts at some point—maybe that can be you,” Ken said, trying to sound soothing. “We live in a fast, flexible, kanban, six-sigma economy. To achieve maximum throughout, people must be expendable. Besides, you've been expressing qualms about materialism. Now you'll get a nice break from that.”

At that moment Tom felt glad there was no rifle in the house, because he would have dropped Ken where he stood. Instead Tom said softly, “I will see to it that you end up in jail.”

“No you won't, buddy boy. My tracks are covered. While you were philosophizing, I was taking care of Number One.”

Tom had not punched anyone since a silly high-school rumpus that barely constituted a fight. He had, however, been in regular attendance in boxing aerobics at his health club: the woman who taught the class was good-looking and hardly wore anything. The haymaker hit Ken with such force, Tom was surprised he had delivered the blow so effectively.

Sitting by the kitchen island having an agreeable conversation, Margo and Lillian did not hear the sound of a guest falling unconscious onto the deck. Making popcorn to take into the basement for the girls and the sitter, they were discussing how at times like this, life seems perfect.

Outside the wind rustled pleasantly through the trees as Tom's chest heaved from the exertion of the punch—every now and then he had a bit of trouble breathing. Ken's jaw was broken in four places. On advice of counsel he did not press charges, in order to avoid a situation in which Tom could hire an attorney who would receive court permission to engage in discovery. Nicole's favorite magazine-cover model contestant won the reality show episode by planting an Internet rumor that her rival made a sex tape with her personal trainer at Canyon Ranch. And Margo's life would stop being perfect.

 

Chapter 4

October 2008

Dow Jones Index: 8,000.

Unemployment: 6.6 percent.

National debt: $10.4 trillion.

F
rom the office tower the view was of a frenzy of freeways: chock to the lane markers with cars, buses and trucks moving insistently, everyone wanting to be somewhere they were not. Watching so many vehicles in motion might be inspiring if the motion were purposeful. The traffic Tom saw from the office tower window was streaming along close together in space and time, as if someone had planned this outcome. You'd like to assume the traffic was acting out a plan. But there was no design. Each person behind a wheel was on his or her own, and none had the slightest idea what the next was doing, other than exhibiting nervous anxiety.

The companies and governments of the world—you'd like to assume they are working from a well-thought-out blueprint intended to keep things together. Perhaps that is too much to ask. You might be content to assume they are following a slapdash plan or even a dumb plan, as long as events are happening for a reason later to be revealed. You'd like to assume there is a person in charge in a master control room, turning dials—like Professor Marvel in
The Wizard of Oz,
or like in a James Bond movie. Maybe that person is the president or a billionaire banker. Maybe it's someone really powerful, like the CEO of Walmart.

Movies, thriller stories—there's always a hidden hand, a master villain, a secret committee orchestrating events. If there were a committee of illuminati covertly controlling world events, they aren't doing much of a job. But just as no one was in charge of the mess on the freeways, no one is in charge of the international economy. The president, the chair of the Federal Reserve, the military-industrial complex, those European bankers with their fine Champagnes—nobody has control over the economy, which autonomously does what it is supposed to do: increases the output of goods and services without regard to individual welfare. It's not that the plan isn't working. There is no plan.

Tom looked for a moment at the view, reflecting that in less than a year he'd slipped from a plush corner office at a firm that was a Wall Street darling, to a small office with no window at General Electric headquarters in Connecticut while he was a contract hire filling a six-month post, to a cubicle at the Internet start-up ZiZi, which hoped to allow people to broadcast personal television networks using smart phones.

In the wake of the financial market freeze that began in September 2008, ZiZi went out of business. Tom was now helping place what was left of the company into boxes so ZiZi could vacate the premises. He unplugged high-tech servers, stuffed with advanced microscopic circuits whose function hardly anyone understands, surrounded them with bubble wrap and placed them into shipping containers. On one table was a large box of glossy pamphlets touting the new firm's generous pension plan, which now would never exist. There was a sticky note attached to the box, instructing that its contents be recycled.

A few months before this moment Tom had been called to the office of Jeff Immelt, CEO of General Electric. There was no reason for him to have facetime with the top executive unless he was being offered a senior position, a real post with security and benefits, not just an extension of his glorified-temp status. Tom's résumé showed him well qualified for a senior position, and he'd been receiving glowing evaluations in his current trial run. He walked happily through the broad, chrome-trimmed halls of General Electric headquarters, a building raised in an era when it was thought that major corporations would be more stable than nations.

Immelt's Chief of Staff met Tom in the executive reception area. He wasn't an assistant, he was the Chief of Staff, to whom a Deputy Chief of Staff reported. Even charities and think tanks were embracing such inflated White House–style titles.

Instead of escorting Tom in to see Immelt, the aide motioned him to a side room. “Change of plans,” he said. “You're being let go.”

Immediately Tom knew he never should have mentioned the appointment to Margo. Now he would seem at fault in some way, as if he'd blown his chance at a secure, high-paying job.

Tom tried responding in corporate psychobabble, of which there is a surprising amount.
We should empower the stakeholders by inviting them into the conversation
is the sort of thing modern corporate managers say when what they mean is,
Let's go through the motions of consulting community groups before we crush them.
Tom told the aide, “If there is a deficiency issue in my performance, I would be happy to discuss a remediation schedule.”

“No, sorry, you're out,” the aide replied. He wore his blue blazer indoors. Any place the CEO might stroll past, the men keep their sport coats on and the women keep on the jackets of their power suits, though Immelt himself walked around in khakis without a tie. Once suits meant you were the boss and jeans meant you were the help. Now jeans mean you are the boss.

“The board just imposed a white-collar slots freeze,” the aide explained.

“But the stock market is in good shape, the GDP is solid, the Bear Stearns disintegration was just a bump in the road.”

“Company internal analysis shows the U.S. economy is overextended. We are hunkering down.” He paused. “The board feels it's better to let top people go now when they can find something, rather than wait till the recession hits.”

“Recession!” Tom was shocked at that word. Stocks, real estate, banking—all had been go-go for years, with no clouds on the horizon. Hedge funds and private-equity managers were complaining they had so much liquid capital they couldn't find enough assets to invest in.

“I'm sorry that as a contract hire you don't have any vesting, which means no buy-out,” the aide said. A Wharton grad carrying two mortgages—residence and vacation home—the boss's Chief of Staff seemed nervous, as if wondering how long till he, too, was motioned into a side office.

Tom was close to speechless, so listened as the aide laid it out for him: “Our internal data show a major housing bubble based on subprime liars' loans securitized into ersatz bonds—the buyers and the brokers are both cheating. Plus crazy-bad leverage at the big pinstriped Wall Street houses. Big financial firms are declaring paper profits based on debt swaps and derivatives that are phony as three-dollar bills. Top corporate bonuses are way too high—too high for the system to sustain itself, even if you don't care about stepping on the fates of average people. The hedge funds' big numbers are not coming from productive investments, the hedge funds are simply being used as covers for insider trading. Next there will be a huge run-up in federal borrowing for bailouts and giveaways to interest groups. The ratio of government debt to GDP will soar, unless the politicians show some courage, and can you name one politician in Washington who cares about anything other than personal power and campaign donations?”

The aide made a whisper motion, though no other person was present to overhear. “Mr. Immelt was in Washington last week and tried to talk to the treasury secretary about this. The treasury secretary got angry and practically threw Mr. Immelt out. The White House wants to cut taxes for the rich even more, and expand the Iraq War into Iran. No one in his right mind would do those things if a recession was coming.”

A few months later, Treasury Secretary Henry Paulson would stand at the White House press room podium, visibly shaking, and say the American economy would collapse within days if Congress did not give a $700 billion bailout, without oversight, to big banks and Wall Street. Paulson would tell a journalist he picked $700 billion based not on econometric analysis but because he thought it was the highest number that would not make people laugh.

To work his contract job at the General Electric campus, Tom had been living in an extended-stay hotel, far from the family, and expensing the cost. On the day he was let go, he received a legal-looking notice saying the company would pay for one additional night in the hotel, but would charge him to ship home his box of miscellaneous office stuff. Page after page of tiny-type disclaimers followed the notice. He had to initial each page, as a General Electric lawyer watched.

Shortly after Tom was dismissed in Connecticut, the venture capital firm backing ZiZi called, and soon Tom was in another hotel far from wife and girls. The start-up's idea seemed weird, but so did the idea for the Kaypro, a 1980 invention that was the first computer light enough to carry. Who needed
that
? Tom grimaced when ZiZi offered him mainly stock options at a $1 strike price, little regular pay. The family was burning through savings fast—he wanted salary. But the lore of the high-tech economy is fired one day, rich the next. He took the offer and plunged into work, often at the office till ten
P.M.
then back at seven
A.M.
There was nothing at the hotel except watching television anyway.

In September 2008, Tom had been in Manhattan doing a road show with investment bankers. Startups meet with investment bankers to see which proposes the best terms to underwrite an initial public offering, and ZiZi was ready for its IPO. Ready financially and in terms of market buzz, at least: even ZiZi employees couldn't explain what a “personal television network” might be. If the IPO went according to ZiZi's projections, Tom would become a millionaire after all.

In the morning, Tom and ZiZi's founder met some investment bankers who said the new company should be worth $1.2 billion. At that price, Tom's options would have left him, Margo, and the girls set for life. Then the investment bankers began gaping at the crawl on CNBC. Lehman Brothers, a citadel of money and privilege, had just admitted its books were cooked and gone bankrupt, the largest corporate failure in United States history.

Over lunch, another set of investment bankers said that considering the sudden equities downturn, ZiZi should have an initial capitalization of $400 million. Two-thirds lost in a few hours, but at that number, Tom, Margo and the girls still would be out of the woods. By late afternoon at the market close, the Dow Jones having fallen five hundred points in a single day, the last investment banking firm they called on said ZiZi was worthless. No one would buy any start-up equities until Wall Street recovered. A week later the venture capitalists, who lived in California beachfront homes and received million-plus bonuses for shuffling paperwork, pulled the plug on ZiZi, and Tom was unemployed again. The venture capitalists offered him a thousand dollars to help close down the firm. He accepted.