Heres some more good news?
People WILL be loosing their jobs!
biz.yahoo.com
Credit crunch is coming!
biz.yahoo.com
People WIll have taxes on money they dont have
For the past two nights, a Bellevue woman I'll call Mary says she's been up crying her eyes out.
That's because this time last year, Mary and her husband ``Jim'' -- a Microsoft employee who took out loans to buy stock options offered by the company -- held shares priced at $120 and worth $1.5 million.
As of the end of the day yesterday, the couple's Microsoft holdings were worth $100,000, as the software company's share price fell $3.31 to close at $41.50.
Microsoft's eight-month stock market tumble went from bad to worse last Thursday when the company lowered its sales and earnings estimates for this quarter as well as for fiscal 2001.
Mary and Jim, who asked that their names not be used, also were reeling yesterday in the wake of a phone call they got Tuesday.
It was a margin call from a Seattle office of Salomon Smith Barney. As Microsoft's preferred brokerage house, SSB loans money to help Microsoft employees, like Jim, buy stock options, which the company provides as part of its compensation.
But when the stock drops below a certain price -- and no one, the couple says, ever expected the shares to hit yesterday's closing price -- brokers phone indebted Microsoft employees to inform they are selling stock to cover the loan.
Mary and Jim say Tuesday's margin call was the third they have received since Microsoft's and other high-tech stock prices starting falling in April. But this latest call, Mary said, has put them at the doorstep of bankruptcy, wondering if they will be able to keep their Bellevue home.
The couple is not alone. Yesterday, Mary said, one Salomon Smith Barney agent (just one of potentially dozens of agents in the area) made 250 margin calls to Microsoft employees.
Salomon Smith Barney officials yesterday would not confirm or deny the report. ``As a matter of policy,'' said spokeswoman Susan Thomson, ``we don't comment on margin activity related to specific companies or individual client accounts.''
Microsoft isn't the only technology company whose stock is dropping, say local financial consultants. It's an across-the-board plummet in the wake of a number of lowered earnings forecasts.
But Mary and her husband fear that, if thousands of Microsoft shares are hitting the market this week as they suspect, it could drive the price even lower, creating what Mary is already calling a ``Black Tuesday'' -- a reference to the stock market crash in 1987.
As a result of their margin call, the couple is investigating Chapter 13, a form of bankruptcy protection that would allow them to keep their house while paying off debts, for instance, to the Internal Revenue Service.
Seattle bankruptcy attorney Larry Feinstein said he has received three calls regarding Chapter 13 since last Thursday, when Microsoft lowered its earnings forecast.
Both Mary and Feinstein say that people can get into this situation without ever touching the stock. That's because, once exercised, proceeds from stock options are considered income, as are funds from the forced sale of the stock -- even if it goes to pay off loans.
That, Mary said, ``can cause people to go into bankruptcy without any spending.''
Feinstein explained.
``A lot of people had the option to buy (Microsoft stock) at $70 a share,'' Feinstein said. ``If you had the right to buy 1,000 shares, you had to come up with $70,000'' -- not the kind of money a programmer at Microsoft would have lying around.
So, he said, the programmer would go to Salomon Smith Barney and take out a loan for the $70,000. ``When the stock went up to $110 or $120, he could sell the shares, pay off the loan and make $50,000 without ever doing anything,'' Feinstein said.
But ``when the stock drops from $70 to $40,'' he added, ``the loan is called and the stock is sold to pay the loan. But that's income. You have to pay 28 percent to government when you never got anything.
``Here you are working for Microsoft and you exercise your options,'' Feinstein said. ``Now you owe the government $15,000 for working for Microsoft.''
That's exactly why Microsoft Chief Executive Steve Ballmer sent staff an e-mail last week saying the company plans to increase salaries. If it can't dole out lucrative stock options every five years the way it used to, the couple said, Microsoft won't be able to hold employees with its low base pay.
``People stayed (at Microsoft) because of the stock options,'' Mary said. ``Now they're basically worthless.''
``The golden handcuffs are off,'' Jim added.
``Your entire life changes when you go from a millionaire to having nothing,'' Mary said.
``A lot people are getting margin calls who never thought they would,'' she added. ``Shares they thought they would keep forever and put in their children's trust fund are gone ... It's not going to be a very merry Christmas for a lot of people.''
'Soft Talk appears Tuesdays and Thursdays. Cydney Gillis can be reached at 425-453-4226 or cydney.gillis@eastsidejournal.com.
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