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November 3, 2008 |
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Have you now read enough daily tracking polls to last you a lifetime? Ready to start Day One of a new era? In this week's Too Much, we have a suggestion for some sobering — yet ultimately hopeful — post-Election Day reading. This week's issue also takes a look at the power-suits in executive suites who've driven our global economy into the ditch. Things have been rocky, these execs admit, but they're convinced that's no reason they should have to take a pay cut. We have the latest on all the new pay games top execs are playing — and a deft counter-move now emerging in Chicago. |
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Hedge fund managers have made some pretty pennies buying and selling mortgage-backed securities the last few years, more even than banking CEOs like Sandy Weill. Philip Falcone of Harbinger Capital, for instance, cleared $1.7 billion last year, betting on a subprime meltdown. Now two of Falcone ’s fellow hedge fund kingpins, William Frey of Greenwich Financial and Harvey Allon of Braddock Financial, are threatening mortgage lenders with legal action if they agree to renegotiate mortgage loans with homeowners. More affordable terms for homeowners would devalue the mortgage-backed securities their hedge funds still hold. At least two other hedge funds, still unnamed, have also sent out letters warning lenders not to join in any bailout renegotiation programs. Five Congressional committee chairs last week blasted the threats as “intolerable” and announced plans to hold a hearing on them November 12 . . . Another piece of evidence that America’s rich — or at least the merchants who market to them — live in a world all their own: JustLuxe.com, a luxury lifestyle portal, has just launched “The Luxe List,” a “best of the best” in luxury living. The global financial meltdown doesn’t seem to concern the folks at JustLuxe any. They’re reporting a 141 percent increase in ad revenue, and they’re absolutely convinced they have a big winner with the new Luxe List. Crows company prez Gilbert Gautereaux: “Our audience of sophisticated, wealth-driven consumers is indelibly on the hunt for the hottest, most compelling products and services that will foster their luxurious, jet-set lifestyles.” Among these compelling products: a set of three tiny jars of foot-care scrubs scented in sweet cream, whipped honey, and sugared maple. Only $52 . . . Meanwhile, over in the luxury collectables sector, a grand debate is raging. The industry’s movers and shakers can’t agree whether the world’s current economic unpleasantness means bleak or sunny days ahead. Fine art dealers are still grinning over the $198 million bidders spent on a pile of works by British artist Damien Hirst at a Sotheby’s auction held the same day Lehman Brothers tanked. Wealthy investors, some dealers argue, will be spending even more on “real” assets like art as they flee from risky paper investments. On the other hand, Sotheby’s corporate share price has sunk from $61 to $23, and the Fine Violins Fund, a new investment opportunity built around buying and selling rare instruments from the 17th and 18th centuries, hasn’t even raised half its $66 million goal. Observers are blaming a “nervous wealth community.”
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Quote of the Week “It's not much fun for kids to have the wealthiest parents in private school when everyone knows they made their money in a Ponzi scheme that brought the world economy to its knees.”
New Wisdom Tim Boreham, The case for limits to a chief executive's pay. The Australian, October 29, 2008. The CEO at one of Down Under's top retailers “subscribed to an unusual policy that the highest-paid exec be paid no more than 30 times more than the lowest-paid toiler.” Kathy Jones and Katie Paul, What They Got Away With, Newsweek. An eye-opening slide-show display of the top execs walking away from bailed-out firms with “mountains of money.” Brian Schaffner, Why the 'Joe the Plumber' Tax Debate Hasn't Helped McCain, pollster.com, October 31, 2008. An analysis of survey data shows that “most Americans, particularly those beyond the Republican base, appear to think that high income people should be shouldering more of the tax burden than they are.” Sarah Anderson and Sam Pizzigati, The Massive Wealth Redistribution that Doesn't Bother John McCain, AlterNet. November 1, 2008. Thank you, John McCain, for shoving the issue of “redistributing wealth” back into America's political primetime.
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A Whole Lot of CEO Shaking Going On! Old habits die hard. Top corporate and Wall Street executives, for over a quarter-century, have been treating their companies and banks as personal piggy banks. Now those firms are flailing and failing. But executives haven’t changed their behavior. They’re still shaking those piggy banks for every last nickel — and million. Banks are taking bailout dollars intended for increasing loan activity, say news reports, and putting those dollars into executive bonuses and dividends. Banks are setting aside still other bailout billions for buying up other banks, a tried-and-true Wall Street short-cut for upping revenues and executive earnings. Other major U.S. corporations, not yet directly involved in the bailout, are also scrambling to keep America’s rapidly slowing economy from depressing executive pay. Corporate boards are rushing this fall to change how they measure executive “performance” — and the new yardsticks they’re adopting let execs claim they’re “performing” fine even if a company’s share price and profits are shrinking. “With the stock market in tatters,” reports Financial Week, companies are “shunning such traditional incentive-pay factors as earnings per share.” Among the new CEO performance yardsticks: easily manipulable measures like “customer satisfaction” or progress on meeting “environmental” standards. These new measures, executive pay experts point out, don’t reflect any new-found corporate interest in public-spirited behavior. Executives, says Deloitte consulting’s Mike Kesner, “are worried about their bonuses.” Some pension funds and other institutional investors, says AFL-CIO analyst Vineeta Anand, will be pushing back at these corporate compensation games at the next round of annual shareholder meetings. And some lawmakers in Congress are beginning to stir, too. Last Tuesday, House Oversight Committee chair Henry Waxman asked major banks getting bailout dollars to reveal just how much they’re planning to spend on end-of-year bonuses. Goldman Sachs, Morgan Stanley, and Merrill Lynch, Bloomberg notes, have “already set aside $20 billion to pay bonuses this year.” The bailout bill that Congress blessed last month doesn’t prohibit bonus payouts. The bailout bill does prohibit financial companies that accept taxpayer dollars from increasing their dividends — without getting government permission. But Bush administration officials, the Washington Post reports, are granting that permission. In all, 33 banks in the bailout will now be shelling out $7 billion in dividends over 2008’s last three months. Other nations are putting “strings” in their bailouts to prevent this sort of executive wallet-stuffing. Britain and Germany, for instance, are requiring that bailout-out banks suspend dividends until taxpayers get their money back. Will Congress follow suit — on dividends or any other executive pay front? One good sign: On Wednesday House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid asked Treasury Secretary Henry Paulson to “seriously consider strengthening the restrictions on executive compensation” in the ongoing bailout. Even some GOP Congressional leaders are getting restless. “Funds made available under the economic rescue package,” House Minority Leader John Boehner told Paulson in another letter, “should not be used to pay for bank acquisitions, raises, and executive bonuses.” But federal lawmakers are so far not pushing any specific legislative limits on executive pay. Local lawmakers, by contrast, are. Two Chicago aldermen have introduced an ordinance that would ban the city from doing business with any bank getting bailout dollars that pays executives over $400,000 per year. Under the proposal, Chicago would not deposit city funds in, buy investment securities from, or float bonds through bailout banks that overpay their execs. Chicago last year issued $2 billion worth of municipal bonds. “I'm fed up with what I've seen on Wall Street,” says one of the measure’s sponsors, Edward Burke. “The greed of investment bankers has pushed this nation to the very brink of a depression.” |
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Reading Matter for the Days After Robert Greenstein, Center on Budget and Policy Priorities, Testimony on Widening Economic Inequality before the House of Representatives Ways And Means Committee, October 29, 2008 Last week, with desperate candidates bombarding the airwaves with caustic attacks on “spreading the wealth,” the top staffer of the closest thing America has to an inequality think tank came before Congress and delivered a rigorously thoughtful analysis of just how wide America’s great economic divide has become — and how we might start closing the gap. This testimony from Robert Greenstein, the executive director of the Center on Budget and Policy Priorities, went largely unnoticed outside the House Ways and Means hearing room. But the testimony, fortunately, lives online. If you’re looking for something sober to read after Election Day, something that will focus you on the core reality of our time that so needs changing, start here.
Most of all, Greenstein brings hope. Yes, our economy has become staggeringly unequal. But, he advises, “it would be a mistake to think that rising inequality and increasing concentration of income at the very top of the income scale have been an inevitable feature of the American economy.” Between 1946 and 1976, Greenstein goes on to remind us, “the gap between the average income of the very richest households and that of the bottom 90 percent of households narrowed.” Over this three-decade span, the average income of the bottom 90 percent, after inflation, essentially doubled. Bottom 90 percent incomes in these years actually soared four times faster than the incomes of America’s top 1 percent. Since then, the great reversal. Over the last 30 years, the income of America’s top 1 percent has skyrocketed up over 23 times faster than income of our bottom 90 percent. Why the reversal? The years after World War II featured unions strong enough to keep wages decent, progressive tax rates, and a high minimum wage. These institutions, as economists Frank Levy and Peter Temin observe, drove a “general government effort to broadly distribute the gains from growth.” We can’t today, Greenstein acknowledges, duplicate exactly the economic world that existed right after World War II. But we can strive to accomplish what the Greatest Generation achieved in those post-World War II years. We can build, here in our own century, “institutions and social norms that would contribute to an economy with less glaring and sharply widening inequality.” |
Stat of the Week A business lobbying group pushing for lower taxes on capital gains — the income from the trading of stocks and other assets — has released a new report that says half the world's top nations tax capital gains at lower rates than the United States. But the report's fine print reveals that capital gains get more preferential tax treatment in the United States than all but a handful of peer nations. Speculators in the United States need only hold an asset one year to qualify for a 15 percent tax rate. In Germany, investors pay no tax on capital gains, but only if they hold an asset for five years. And German wheeler dealers who own 1 percent or more of a company's stock face a 23.75 percent tax no mater how long they hold their shares.
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Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org. |
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The fabled Wall Street executive who made Citigroup the world’s biggest bank 
Should the rich consider paying taxes their patriotic duty? Ireland’s finance minister, Brian Lenihan, doesn’t think so. Ireland’s richest 1 percent saw their incomes soar by 75 billion euros — over $96 billion — in the “Celtic Tiger” economic boom that ended last year, and they exploited convenient loopholes to avoid taxes on the vast bulk of that gain. Lenihan raised no protest. Now the Celtic Tiger has stopped roaring, and Ireland is bleeding budget red. Lenihan’s response: Earlier this month he issued a “call to patriotic action” and asked Ireland’s elderly to give up their automatic free medical care. Lenihan’s “sickening appeal to patriotism,” 
Greenstein will walk you through the grand gap that divides us. He’ll help you understand the conscious political decisions that grew the gap — and help you get past the smoke and mirrors that blur the dangers this gap keeps creating.