Posted on 06/19/2003 8:04:02 PM PDT by technochick99
The Smith family--yep, like Jayson Blair, I'm making this up--lives in Redwood City, 20 miles south of San Francisco and on the northern edge of what is known as Silicon Valley. The head of the household, John, works as a software coder at Sun Microsystems. He's a good coder but not a superstar on the level of Sun's cofounder, the legendary Bill Joy. John Smith makes $95,000 a year, which sounds plentiful to most Americans. In truth, it doesn't go too far in Silicon Valley, where the cost of a modest 1,900-square-foot house with three bedrooms and one and a half baths crowded onto an 8,000-square-foot lot is--hold your breath!--$786,000. But that's the house where John, his wife, Rosa, and their two children live.
Rosa met John at Sun, back in the early 1990s. She was a newly minted English major writing brochure copy for $38,000 a year; John was making $80,000. After marrying, John and Rosa's combined income was $118,000, plus bonuses. With one child on the way, that was a pretty good sum.
Even better financial conditions lay ahead for the Smiths. After Sun's stock started on its rocket ride during the late 1990s, John's options were worth $360,000. Wisely, in 1999 he and Rosa decided to exercise and sell half their options, using the aftertax $142,000 of their capital gains proceeds as a down payment on their first home in Redwood City. They purchased it for $420,000, which left a mortgage of $278,000. With John's $80,000 base salary (not counting bonuses that averaged $40,000 a year--an amount equivalent to the salary of Rosa, who had quit her job upon learning she was pregnant again), monthly payments were a snap.
Good times rolled for John and Rosa Smith. A second child arrived, and so did job opportunities for John. He weighed offers from software giant Oracle, as well as from three dot-coms--two of which were backed by brand-name venturecapital firms and looked like sure bets to do an IPO and make their early employees rich. This was a heady experience. John decided to stay put because Sun kicked up his base salary to $95,000. John's boss at Sun also granted John more options, a six-week sabbatical and more flex time. Now that was a package!
John felt like a master of the universe! Every employer inSilicon Valley wanted him. He was calling his own shots. The money was pouring in. The Smiths were almost millionaires--on paper, anyway. It was time to trade up to an executive-style house. Time to apply to a private golf club. Time to think about private schooling for their oldest daughter, Kirstin, now 5.
Slide Down the Matterhorn
Sun's stock peaked at $65 in September 2000--six months after the Nasdaq stock composite index peaked at 5031--and the Smith family's paper worth climbed to more than $1 million. John felt like a million bucks. When Sun's stock sagged to $40 in November, he wasn't too worried. The Smiths were in good shape. John's weighted average option strike price at Sun was, after all, $22. The Smith family's paper net worth might not have been $1 million anymore, but it was easily three-quarters of that, counting their home. Thus buoyed, John flew his family (business class) to Italy, where they enjoyed their six-week sabbatical, and spent $45,000.
But Sun's stock kept falling. And falling. It fell so fast that John and Rosa felt paralyzed and missed the opportunity to exercise their options and sell. When Sun's stock fell below John's weighted average strike price of $22 in early 2001, John realized that his Sun paper wealth had vanished. Another type of compensation also vanished later that year--John's bonus. Sun suspended bonuses in 2001, and again in 2002. By then, the company's stock price was hovering around $3.
The Smiths were lucky in two respects. They had their home. And John still had his job, with its $95,000 income. But now this income had to support the entire Smith family concern. Out of the $95,000 had to come the money for taxes, food, clothing, the monthly mortgage, insurance, preschool payments and vacations. Reluctantly, the Smiths put Kirstin in public school. The closest the Smiths came to Italy in 2002--and again in 2003--was a wet slide down the Matterhorn ride at Disneyland. The Toyota Sienna minivan that propelled the Smiths to Disneyland was paid for, but it had 107,000 miles on it and smelled like sour milk.
At work, John no longer feels like a master of the universe. He feels lucky to have his job. He suddenly feels like a commodity, and he doesn't like that feeling one bit. During the last three years, thousands of software jobs like John's have migrated to Bangalore, India. John is so worried about his job that he doesn't take the flex time promised to him. He doesn't sleep well. After two hours of coding at work, the trapezius muscles connecting his neck to his shoulders feel as hard as cast iron. He would like to go for a sauna and a massage, but the $95 that costs would blow the Smith's weekly budget.
The Smiths have dropped out of the upper middle class. Should we feel sorry for them? To be a middle-middle-class American in the early 21st century is to occupy the 99.99 percentile of human existence, in terms of nutrition, wealth and ease. But the Smiths don't feel that way. For a few years in the late 1990s the Smiths had tasted something better. They were upper middle class, or at least close enough to feel like it. They miss that. They are frustrated. They want back in.
Millions of American families are just like the Smiths. Politicians, take heed. The Smiths will decide the election of 2004.
I have a subscription and almost flipped when I saw it. Forbes is not anti-Bush by any stretch of the imagination. It appears to me that this should really be taken to heart by the administration. I don't know if there is anything that can be done about it, but...
DAMN! For 786,000, I could probably get a 10 acre ranch in my county, and 40-50 acres up north.
They were living off of hot checks that Robert Reich and Alan Greenspan were writing. Now the bills are due and they have to face reality that the life they were living was an abberation based on a falsehood. If I write hot checks I too can live the life of Reilly, but sometime later I will have to cut back and pay up. The late 90s stock market and the economy it drove was a classic bubble. The bubble has burst. It turns out the Priceline.com was not worth more than Delta, United, and USAir combined. Boo.com was never going to make money. 35% per year returns on your mutual fund were not normal. Your expectations were too high. Clinton lied to you.
There comes a time when you have to grow up, when you box up the stuffed animals for good, when you put the bong in the garbage, when you have to prioritize your spending because Daddy is no longer there, because Mommy will no longer buy the toy if you throw a big enough fit. Welcome to adulthood. The adolescent 90s were fun, but that time is over. Get a haircut. Remove the eyebrow studs. Hide the tattoos. Move into a cheaper house -- maybe even rent. Grow up and deal with it.
Plenty of people have downsized before you. More will follow in the decades to come. Ask your grandparents about life in the 30s when they were little. How did Grandpa lose his hearing? Was if from the artillary on Okinawa? Did your Grandma get her arthritis from ironing clothes for cash? What tales will you tell your grandchildren when they are bouncing on your knee 40 years from now -- how life was so tough that you could no longer afford the $95 massage therapy?
I was in the same rat race, but when the boom was on I decided it was enough for me and I started planning for retirement. I took the funds out of the market. I put away enough for my son to go to Auburn. I now live in a trailer, home base is in Alabama. I have seen a lot of the country and I like your post.
Incidently, the market has crept back a little and many of these people who never saw a recession before in their lives are wiser. Most realize booms come and go and the politicians get credit or blame but they really can't do much about it. The best thing is to be able to grow your own food and live in a trailer. Life is not so bad.
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