What are they thinking? Tales from the recession

I think it started during the Internet boom. About 8 AM, Gary Forger, who was then my editor at Modern Materials Handling, and I would get on the phone and chat about the interviews we’d just done or the news stories we’d just read that really made us think. Truth be told, what were usually thinking was: What are they thinking?

The first conversation like that I recall was after Gary interviewed a company that was setting up a web site to sell stuff cheap – this was long before eBay and Amazon were multi-billion dollar companies.

Gary’s question to the executive: How are you going to handle returns?

Executive: Why would anyone want to send something back?

Our first thought: What is this guy thinking going into retail? Soon after that, we began to do stories on reverse logistics. The website: It’s history.

The second conversation I recall was after a young Harvard grad working in the office complained to us that she’d just turned 25 and had yet to make her first million. This was, after all, the era of irrational exuberance. Our first thought: What was she thinking going into publishing? Hopefully, she married a dot.com millionaire, before he went bust.

It’s a decade later and Gary now works for the Material Handling Industry of America, but those 8 AM conversations are still taking place. We’ve been sharing stories and anecdotes about how this recession is affecting people and businesses, which are often the same thing. What has struck me is how unreal it feels, and how in many respects many of us in middle and upper management still want to party like it’s 2005 or 2006, when we could leave a job today and get snapped up by a competitor tomorrow. I still come across stories that make me ask: What are they thinking?

Have you noticed, for instance, how many friends and colleagues go on vacation right after they get laid off? My daughter is a college student in Chicago. Until mid-March, she was a part-time nanny to a professional couple. One night after work, she was told the husband’s bank had just been shut down by the Feds and they could not afford to keep paying her to care for their children while Dad was out of work. The next morning, they left for a Caribbean vacation. Who goes on vacation when you’ve just lost your job? But I’ve heard this story over and over again: “I need a break before I start hunting for a new job.” Some days, I think the only way I’ll be able to afford to take some time off is if I get fired. 

Wharton is generally considered the finest MBA program in the country. But, according to the New York Times, the current crop of graduates is frustrated that signing bonuses have been cut in half and $55,000 to $70,000 a year starting salaries no longer include year-end bonuses that might double the annual take. It’s so dispiriting, what with all the competition, that some have just stopped looking for jobs. That prompted Wharton’s director of career services to tell them to buck up. “You are attending one of the world’s finest universities,” she reminded them. Let me get this right: These kids have just spent 60 grand a year to get an MBA, and are giving up the job hunt because there’s a lot of competition? That’s like not bothering to suit up for the Super Bowl because the other team has some pretty good players.   

“Why is the company doing this to me?” That was the question asked in the Wall Street Journal by a 68-year-old retired stockbroker after his $50,000 investment in GM bonds was reduced to just $5,000. Did he really believe that stocks and bonds can only go up when he was giving hot tips to the likes of you and me?

It’s not just retired stockbrokers who are recalibrating their thinking. The Wall Street Journal ran an article the other day about the rising default rate on student loans. The article quoted a young woman who graduated last year with a major in international studies and $87,000 in debt from a private university. Now, that she’s working, her $685 a month student loan payment is more than a third of her take home pay. “It feels like I’m being punished for having gone to school,” she told the paper. For the life of me, I can’t understand why anyone feels like they’re being punished because a bank is asking them to make their loan payment. No one forced this 24-year-old to bypass a state college for a private university she couldn’t afford. But, for years we’ve been telling our kids to go to the best school they can get into, not the best school they can afford. Now all those student loans have to be paid back, and as they used to say in the movies, payback is a … well, it rhymes with rich.  

Still, it seems that some kids still don’t get it. Newspaper after newspaper is running stories about the dashed dreams of high school seniors. The other day, I read the story about a kid from Virginia who dreamed of studying environmental science at the University of Texas. Unfortunately, he has to settle for Virginia Tech because Texas is offering him loans – about $80,000 over four years - while giving scholarships to kids from, well, Texas. “I’m still a little bitter about it,” the kid said. Bitter about what? The fact that a state college in Texas is going to support its own students rather than let you go for free?

The housing crisis also has me stymied. My wife and I purchased our home in 1986, the height of the last real estate boom in New England. In 1989, we refinanced and took money out to remodel. That was just in time for the savings and loan crisis. A year later, the value of the house dropped by about $30,000 and we were $10,000 under water. We continued to make our mortgage payments. Today, I read a story in the Wall Street Journal about a couple in Arizona who is able to afford the payments on their $400,000 mortgage but is unable to refinance into a lower interest rate because they’re about $75,000 under water. The husband says he’s so frustrated, he’s considering buying a new house and defaulting on the one he currently owns. Now think about it: In order to qualify for another mortgage, he has to have a pretty hefty down payment sitting in the bank and a pretty good income. If that’s the case, he could just use the money to pay down his current mortgage enough to qualify for a refinance and then build up equity over time. By the way, that’s what I and my wife did. Instead, he’s willing to risk ruining his credit by welching on his current mortgage? What is he thinking?

No, this doesn’t have a lot to do with materials handling, but let me know the stories from the recession that are catching your eye. If they’re good, maybe I’ll call you at 8 AM.

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