The Crash of 2008

As we look back at some of the most frightening days in Charlotte’s history, we see that the crash can’t be measured in numbers. Rather, its legacy is the anxiety it created and how we resolved to not let hard times beat us
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Fall 2008.The people on the higher floors know sooner. For the rest of Charlotte, things start to feel different in September. Gas prices shoot up past $4, and the stations start running out. Cars stalk tanker trucks and rush to pumps on rumors of gas at any price. Lines form 30 cars deep down Park Road and Monroe Road and N.C. Highway 51—anywhere with running pumps. Shouting matches erupt at a station on 521 in Ballantyne.Police respond to a dozen calls about fistfights. 

Others, who months before wouldn’t have been caught dead riding public transportation, pack standing-room only buses and the recently opened light rail.

Rounding the corner from the 3rd Street station, the stock ticker in the distance at One Wachovia Center looks broken. It’s showing an unending stream of red. Getting closer, the down arrows come into focus.

Not long before this, 28 cranes hung over uptown, and the sidewalks were all jackhammers and orange cones. Now, construction projects remain half-finished or just begun. Office towers and luxury condos. Art galleries and museums. TheEpiCentre complex opens with clubs and a movie theater with pulsing electro music and bathroom attendants and $20 cocktails. What are they thinking?

Meanwhile, grim-faced security guards escort people holding cardboard boxes to revolving doors, their faces even grimmer. Layoffs are a part of life in banking—but not 3,772 financial jobs gone in one year in the same city.

Autumn in uptown is usually a time for festivals and outdoor lunches on the Square. Heat and humidity loosen their grip on the city. The kids are back in school. So even though the third-quarter numbers are coming due, this is the time of year when people sometimes take a longer lunch break than usual. 

Not this year. Not 2008.

This fall is a time for frantic emails and texts to old friends and co-workers and friends of friends. 

You safe?

You make it?

Any openings for me?

 

Fall 2013. It’s now five years after the biggest financial crash in a generation. But you wouldn’t know that walking around uptown. The cranes are gone and the glass of new office towers, hotels, and condos glimmers in their place. Charlotte’s still the second-biggest banking city in America. We don’t brag about that quite as much anymore, though. What other city makes a slogan out of such a dull statistic? Yet for a decade starting in 1997, that fact made it into countless travel brochures andpromotional publications. Other cities might have culture and romance and history and grit. Charlotte has numbers. And what else matters in banking? 

Chris Sager, 33, had seen thosebrochures and that statistic when he came to UNC Charlotte for college in 1998. They made it easy for him to choose a major. He was good with numbers, and the work was challenging enough, even if it wasn’t all that interesting. Finance was lucrative. Banking seemed safe.He started with the tax escrow department at Wachovia in 2002. Wachovia had just absorbed First Union, and over in the tower on Tryon Street, NationsBank had acquired Bank of America a few years before that. It was the high point of a decades long arms race of mergers and acquisitions between CEOs Hugh McColl of NationsBank and Ed Crutchfield of First Union.

“Deals were being made and loans were being acquired,” Sager remembers. “Things were very good not only for Wachovia but for banks in general. Hiring new employees was never a problem.”

Charlotte had long been a banking center. It was where the textile industry kept its money in the early 20th century. And unlike many other states, North Carolina law allowed banks to open branches statewide. Regulations prohibited interstate banking. Not satisfied with statewide banking, McColl and then-CEO Tom Storrs of North Carolina National Bank, NationsBank’s predecessor, tested a legal loophole in 1981 by buying a Florida bank. The purchase stood up to a challenge in court, setting up the flurry of mergers and acquisitions that gave Charlotte claim to its second-largest banking center title.

What was good for banking was good for Charlotte. Just as Crutchfield and McColl had competed in the 1990s, the banks they acquired competed to raise money for Charlotte charities, community organizations, and museums. Yearly United Way campaigns became internal contests between bank departments. 

And the people in those departments had deep pockets. By 2007, about 9 percent of the workforce in Mecklenburg County was in finance. But they brought home about 20 percent of the county’s private-sector wages—more than $1 billion. That money rippled through the rest of the economy—to restaurants and repairmen, grocery stores and parking garages, coffee shops and CPAs.

Don’t forget the homebuilders. Transferred executives and loan a officers and lawyers who supported the banks filled new suburban developments that sprouted on the south side and in Huntersville, Cornelius, and Matthews. And thousands of construction workers from surrounding counties and Mexico and Guatemala came to build them. The county gained 185,000 people in the 1990s, and 225,000 more between 2000 and 2010.     

Around 2006, Sager began to sense that something was wrong. That’s when Wachovia started outsourcing its loan processing and customer service operations. He was still working on servicing Wachovia loans, but now his check came from a spin-off company called Zenta. And he and his co-workers spent much of their time working with teams in India who processed the loans.

But for the most part, things stayed the same until the last week of September in 2008.

 

Fall 2008. Anyone paying attention to banking has heard the murmurs of trouble with bad loans and falling home prices. Bear Stearns sold in March for $2 a share. IndyMac collapsed in July. All these problems are linked to too much exposure to subprime home mortgages, sliced up and sold and traded again. Summer also brought the start of dismal earning reports, and the steady downtick of the Dow and S&P 500 continues into late September. 

Type image credit here

Although many people have been able to move on from the 2008 financial fallout, the signs of the mortgage collapse are still visible, like in this unfinished subdivision in South Charlotte.

Wachovia’s stock price is down. But so is everyone else’s. And Wall Street likes new CEO Bob Steel. He’s a former Goldman guy with government experience—something that’s important now that the regulators are taking a closer look. But trouble brews. After Washington Mutual, the sixth-biggest bank in the country, fails on September 25, the big depositors want out of Wachovia. If one big bank can fail, they figure, so can others. They start to wonder: Maybe buying up California bank Golden West, with all of its subprime mortgages, wasn’t such a good deal. Maybe letting mortgage holders pick their own payments—often for less than the interest each month—wasn’t a great idea either. Depositors want out. They make a silent run, withdrawing $5 billion from Wachovia on Friday, September 26 alone.

Over the weekend, with guidance from the Federal Deposit Insurance Corporation, Wachovia agrees to be sold to Citi for $1 a share, with the FDIC absorbing losses.

In most offices at Wachovia and its various support arms like Zenta, the details of the deal don’t matter as much as what will happen next.

When Sager walks into Zenta at South Tryon that Monday morning, he feels the anxiety. He spends the day emailing his friends “across the street” at Wachovia headquarters to figure out what this all means while hitting refresh on The Charlotte Observer website for anything new.

“It just hung over the whole day,” he says later. “I doubt if anything work-related got done.”

The confusion gets worse on October 3, when Wells Fargo puts in a rival bid for Wachovia, and Steel agrees. It is a better offer—about $7 a share withno government help. Citi sues, but the deal goes through anyway.

At Zenta, there are meetings with bosses and visits by bosses’ bosses from New York. More than anything, there are questions. In the meetings and at the happy hours across Church Street at Picasso’s.

Now what? What does this mean? What are we going to do? 

That Monday afternoon, the stock ticker hints that the answer might not be so pleasant. Wachovia is down to $1.84, just one year after it was $50. Now, it is cheaper than a gallon of gas. Cheaper than a cup of coffee.

The sale and the miniscule price are a “body blow” for Charlotte, says the retired McColl. A “punch in the gut,” Mayor Pat McCrory calls it. 

Analysts say it’s time for Bank of America to strike. The in-town rival can snap up all Wachovia’s best employees. But an earnings report October 7 shows Bank of America’s earnings down 68 percent. The crisis won’t skip the Tryon Street tower. During the next few months, the September 2008 purchase of Merrill Lynch and the 2007 purchase of Countrywide will leave Bank of America weaker. By the end of the year, the bank will announce a plan to lay off 35,000.

A block up College Street, the mood at BB&T Center, the Winston-Salem-based bank’s large Charlotte office, borders on smug. BB&T had stayed conservative during the late 1990s and early 2000s when the subprime market was hot. It steered clear of questionable borrowers and the risky adjustable-rate balloon payment loans. The bigger banks brought these problems on themselves, BB&T leaders say, and the government regulators had helped them along. As depositors make their silent run on Wachovia, BB&T seems like a safer bet.   

“There was a lot of runoff from Wachovia,” Corey Wilson, who managed a BB&T branch on Monroe Road, says later. “We really had an increase in business. For a good six months maybe.”

Rumors float around some of the offices that the much smaller BB&T will try to snap up Wachovia. Though, Wilson will say later, “there wasn’t any truth to it.”

Even in the worst days that fall, Wilson still makes his goals, often loaning $1 million a month or more while working in a busy branch. But as home values continue to decrease, lending standards get stricter. Flexible guidelines become hard and fast rules. Unsecured loans go away. Before the crisis, “it was no problem to write a home equity loan for $100,000,” Wilson says. After the crash, though, “if people didn’t fit into the strict guidelines, you couldn’t lend to them.”

If you can’t lend money, you can’t meet your goals. If you can’t meet your goals, you get let go. Wilson is laid off in mid-2009.

 

2013. At 1 p.m. on a Thursday this July, Suzie Ford sits at a table in an old factory on North Davidson Street. Two large dogs with wagging tails gather around her feet, getting up to bark at the UPS truck pulling up to the warehouse’s back entrance. Her husband, Todd, eats a sandwich on a barstool, stopping to take calls and direct the men working in the other room.

The Fords have been working 70 hours a week—and that’s on a slow week— for a few years now, building NoDa Brewing Company from the bottom up.

In a way, it’s the brewery the recession built.

In 2008, Ford was working for a small bank, American Community, in Monroe. Even during those worst days that fall, she believed she might be safe. She had lived through the scare of the 1987 crash while working for a small bank in California—the anxiety then was made worse as she was pregnant with her first child. And in 2008, she was in a similar situation. No one in American Community’s operations division was talking about the crash.

Uptown was a world away; Wall Street a different universe.

But the roots of the 2008 crisis ran deep and wide. Eventually, they touched everyone. Ford’s employer merged with another small bank, Yadkin Valley. They laid her off in January 2009.

“Everything changed. People’s attitudes toward banking changed,” Ford says now. “I wanted a change.”

Back at Zenta, answers came slowly. The company disappeared. Wells Fargo had in-house loan servicing and didn’t need Zenta. But merging two banks takes time, so it would be more than a year before the real layoffs started. There was concern. There was confusion. But no panic, Sager says.

The long transition gave people time to find something new. Jobs with other servicing companies. Jobs in different departments at Wells. 

Sager took the chance to follow a passion he’d had for years. He collected his severance in 2010 and enrolled in graduate school at UNC Wilmington, starting off on the long road to becoming a history professor. He finished his master’s last year and plans to start working toward his Ph.D. in the fall of 2014 at the University of Tennessee.

“We all needed a change,” he says. “And maybe it was the perfect time for it.”

It certainly was for Ford. After she was laid off in 2009, she went back to school to learn stenography, while Todd kept his job as a pilot with DHL. The downturn affected air shipping, too, and DHL slashed pay, cut jobs, and stopped domestic delivery. Flights got longer. Pay got lousier. Weekends disappeared.

“You might be stuck in Europe and they’d call and say, ‘Well, someone called in sick. You’re going to have to do their trip,’” Todd says. “Your guaranteed days off would evaporate.”

The time apart from each other was getting old.

Todd had been a homebrewer for 15 years, making small batches and sharing the beer with friends at parties. He and Suzie never took anyone seriously when it was suggested the couple should open a brewery. Until after the crash. 

In 2010, the couple rolled their retirement savings into the business and took out a few loans. The brewery opened in October 2011 just as the microbrewing scene in Charlotte hit its stride. So far, the risk is paying off. Their brews have won national awards and sit on shelves and behind bars at 300 vendors in the Charlotte area. Their taproom is a popular hangout, hosting running clubs and football fans—there’s even a Shakespeare troupe that performs occasionally in the parking lot.

For the Fords, who are preparing to go on their first two-day vacation since before the brewery opened, success means long hours.

“We thought we worked very hard before,” Suzie says of her previous life in banking. “But we found out we were wrong. It is very demanding. But it’s demanding for us. It’s our company.

“If it hadn’t been for 2008 and the economic crash, we wouldn’t have opened the brewery. It opened our eyes and made us realize we wanted to control our own destiny.”

Chuck McShane is a freelance writer based in Davidson. Email him at chuckmcshane@gmail.com.

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