Wall Street: Profiles in Panic

Question

Really interesting couple of articles that I dug into today. Makes me glad to be poor.

https://www.vanityfair.com/magazine/2009 ... rentPage=1

https://www.newyorksocialdiary.com/node/70923

Soon, says wealth manager Alexandra Lebenthal, the Blake and Grigsby Somersets will find out what they’re really made of. “Were their lifestyle, friends, and even marriage based on living a certain way, without limits, or do they have the values to make it through the tough times?”

spiridon · Answer

“Why should I pay $250,000 for a private plane,” he said to a friend, “when I can pay $20,000 to fly commercial first class?”

It seems they are not yet that 'poor'

Its just a temporary cut back...

jb32 · Answer

All I have to say is that if 'Blake & Grigsby' didn't have some kind of protection, like puts on his Lehman equity, and had $9 million in exposure to one stock, then they deserved to lose everything they had due to stupidity.

He may have been smart enough to become a millionaire, but that's like only being strong enough to swim halfway across a river. You also have to be smart enough to stay a millionaire.

k88 · Answer

Kudos, interesting articles!

agold · Answer

This one is also excellent:

https://www.newyorksocialdiary.com/nysd/guestdiary

In the midst of the continuing body count of jobs lost and houses in foreclosure, Mimi and John’s extravagant lifestyle is beginning to seem like a world that never really existed. The idea of buying a second apartment at a cost of more than the total annual income of entire towns in parts of America just to showcase one’s art or to prevent the irritation of a neighboring renovation, seems so overly indulgent as to border on silly. Sadder still is that twenty good years in the lives of two people amounted to a bubble inflated life devoid any real sense of values, let alone love and partnership.

agold · Answer

Understood. Equity has its way of disappearing overnight. I definitely don't think they were necessarily way out of line with their spending though. If I made $6M cash in 2006 and $3M cash in 2007, I would have probably spent $1.4-1.5M/year of that as well.

By the way, jb or anyone else, do you know what the restrictions are on restricted stock grants? i.e. Lets say that "Blake Somerset" had accumulated $50M of Lehman shares by the beginning of 2008 that he was holding on to in good faith to show the firm that he was a loyal Managing Director. If he got an offer to head on over to a rival bank in early 2008, would he be able to cash out a majority of his Lehman holdings (whatever % is no longer restricted) and run?

Lastly, the maintenance and mortgage figure of $120,000 for the Park Avenue apartment seems a little bit off unless he put down a substantial down payment. That would realistically get you what, a 1400 sq ft. apartment for a family of 5?

LeftOut · Answer

It was mentioned previously, but I agree- if you have that much exposure to a single stock, you HAVE to do something to protect yourself. It doesn't matter how safe you think the company is, it's just plain stupid to hold onto that much risk in a single name. I know of a number of strategies that are available where you can still "own" the stock, so you appear to be loyal, but you hedge yourself on the other side. It's done quite frequently (I have seen 10-15 examples of this at work in the past year).

Also, most stock grants/options vest over time, so depending on your tenure, a certain percentage will have vested and you can exercise or sell out of the position and take (what's left of) the cash. As for the remainder, I have seen people change companies and have the new firm match their previous company's stock with current company stock (ie. a trader leaves GS for MS, so MS matches his restricted GS stock with MS stock).

agold · Answer

Thanks for your insight, LeftOut. Kudos.

LeftOut · Answer

Forgot to mention last night, but I assume that $120k number is the cost for the year (ie. mortgage/maintainence costs $10k per month), not the total size of the mortgage. Even in Manhattan, I hope $10k/month gets you more than 1400 square feet. My apt is a little less than 1400 square feet, and my roommates and I pay about $4200/month. I doubt my landlord is losing 5 grand per month by having us live there.

young_gun · Answer

agold, do you have some kind of sexual obsession w/ jeremy piven?

agold · Answer

You're right, I was a bit off. I guess a fairly "standard" apartment on Park Ave would run $10,000/month in mortgage expenses. Maybe something along the lines of 2000 - 2400 sq ft.?

Wall Street: Profiles in Panic

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