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September 22, 2008 |
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“What we are witnessing,” a front-page Washington Post analysis announced last week, “may be the greatest destruction of financial wealth that the world has ever seen.” The ongoing Wall Street meltdown is drawing all sorts of breathless historical comparisons. But few analysts seem to have noted an equally compelling historical coincidence: The “greatest destruction” of wealth we are now witnessing follows three decades of wealth’s greatest concentration, years that have seen America's wealthy double their share of our nation’s treasure. Could these two phenomena be related? And if they are, can a Wall Street bailout that ignores America’s ferociously top-heavy distribution of income and wealth ever restore real economic security back to average Americans? Good questions. We explore some answers in this week’s Too Much. |
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Enron may actually have been good for something. The 2005 overhaul of the federal bankruptcy law includes a provision — inspired by executive looting at Enron — that lets a bankrupt company’s creditors go after the company’s top executive paychecks. Creditors left in the lurch by last week’s Lehman Brothers bankruptcy are now plotting to use this provision against Lehman CEO Richard Fuld, who took home $34.4 million last year, and his four top executive buddies, who pulled in another $46.7 million. Notes Harvard law prof Lynn LoPucki: “Bankruptcy law allows recovery of compensation paid to insiders if the company didn't receive reasonably equivalent value. The value of the services of a CEO who runs a company into bankruptcy is less than $34 million.”
Big rewards for CEOs, apologists for inequality like to claim, act as an incentive for innovation. Au contraire, says Peter Thiel, the founder of the Internet PayPal e-commerce service and the current investment committee chair at Clarium Capital, a global hedge fund. Earlier this month, in an interview with a high-tech trade journal, Thiel noted that he always wants to know how much CEOs of start-up companies are paying themselves. The lower the CEO salary, he explains, the more likely the start-up “is to succeed.” The size of executive paychecks, this expert in tech innovation adds, speaks “to whether the mission of the company is to build something new or just collect paychecks.” Did Rolls Royce see the Wall Street meltdown coming? The luxury carmaker has spent the last three years revving up operations in India — about as far from New York as you can go — after a 50-year absence. Worldwide, Rolls sold just over 1,000 cars last year. Indian sales accounted for only 12 of those, at over $640,000 a shot. But Rolls marketer Graeme Grieve remains bullish about the South Asia market. What’s fueling that optimism? India, he told the Times of India earlier this month, is filling up with customers who fit the Rolls “targeted customer profile”: the entrepreneur with at least $30 million in liquid assets who already owns “several brands of luxury cars” as well as a jet or a yacht . . . Have you started thinking yet about the 2014 Winter Olympics? Better get a move on, the Moscow Times suggested last week. If you don’t visit Sochi, the Black Sea resort that will host the 2014 games, before the Olympics end, you may never have another chance. Private developers are hoping to turn Sochi, post-Olympics, “into Russia's answer to the French Riviera,” a haven for the super rich from around the world. Sochi landed the 2014 Olympics just over a year ago. Since then, the city has already witnessed $800 million in private investment. Planners now foresee 25 new five-star hotels. Says one cheerleader for the effort, Sergei Nikitin, the general director for Penny Lane Sochi, a local realtor: “Let's for once have expensive hotels, an expensive resort, and an expensive sea.” What about Sochi’s current middle class vacationers? Provincial authorities are planning to divert them elsewhere. |
Quote of the Week “It is one of the ironies of the subprime mortgage crisis that while millions of people stand to lose their homes because they can no longer afford to pay their mortgage, the people at the top of the financial institutions that wrote the loans or packaged the risky debt on Wall Street are still tucking themselves in at night, safe and sound inside some very ritzy real estate.”
New Wisdom Class and Health, September 2008. A new newsletter on inequality and physical and mental well-being. Bernie Sanders, McCain, Bush, Obama, and Inequality. A gripping video. Reza Dibadj, Time to discuss deregulation and the distribution of wealth, Baltimore Sun, Sept. 19, 2008 Naomi Klein, Free Market Ideology is Far From Finished. Guardian (UK), Sept. 19, 2008. If ever more corporations need taxpayer dollars to stay afloat, “why can't taxpayers make demands in return — like caps on executive pay”? Mike Marqusee, Level Playing Field: For an equal share, The Hindu, India's national newspaper, Sept. 21, 2008. “If you really want equality of opportunity,” this thoughtful analysis argues, “then you have to have a starting point of material equality.” |
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How America Caught Speculative Fever This week, in and out of the corridors of Congress, progressive activists will be working to expand the debate on the bailout that Wall Street’s colossal collapse has made an urgent necessity. They'll be pressing lawmakers to target the top. They figure to find a much more receptive audience than they might have expected only weeks ago. The staggering suddenness and size of Wall Street's meltdown has left many observers convinced that ever-escalating rewards for America's movers and shakers have become a significant contributor to everything that ails us economically. Even conservative-leaning economists are bewailing the consequences of overgenerous compensation at the business summit. Huge “short-term rewards” for Wall Street’s finest, as economist Robert Samuelson wrote last week, “blinded them to the long-term dangers” inherent in the hazardous risks they were taking — with other people’s money. But decades of concentrating wealth have had consequences that go even deeper into the roots of the current Wall Street crisis. That concentrating served to inflate America's now-popped housing bubble. In metro areas throughout the United States, housing costs rose fastest in those areas where income and wealth had concentrated most intensely. Asset bubbles like the housing speculative surge come naturally to extremely unequal societies. Inequality has always unleashed dynamics that make speculation inevitable. Where wealth tilts to the top, average people have less to spend. The wealthy, in turn, have less reason to plow that wealth into productive investment in the “real” economy, simply because average people can't afford to buy whatever that investment might produce. But big wealth-holders have to do something with their dollars. They can, after all, only personally consume so much. So what happens with the dollars the wealthy cannot consume and cannot invest productively? The wealthy plow these dollars into speculation. The concentration of wealth at the top, of course, doesn’t just leave the wealthy with more wealth. They have more power, too, more clout in the political sphere. Over recent decades, America's wealthy have translated that power into electoral and lobbying blitzes that have swept away consumer- and homeowner-friendly government regulations. U.S. mortgage lenders, freed from regulatory oversight, were then able to misleadingly market high-interest subprime loans to millions of American families. Those families, for their part, had little choice but to sign on the dotted line. In a deeply unequal United States, with workers taking home a record low share of the nation’s income, far fewer families could report enough income to qualify for a traditional mortgage. In short, inequality cooked up the current Wall Street meltdown. Any serious attempt to end this meltdown — and prevent another — has to recognize inequality's role. Progressive analysts and activists have begun peppering Capitol Hill with this message. They’re advancing a wide range of proposals designed to make any bailout legislative package a springboard for a more equal United States. For starters, notes Essential Action director Robert Weissman, Americans need to beware generic calls for “reform” and insist on specifics that would, for instance, “impose restraints on executive and top-level compensation.” What form might those restraints take? Progressive economist Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., is calling for “an absolute limit of $2 million in total compensation for any executive at any firm” that wants in on tax dollars. “Restraining compensation on Wall Street will be incredibly important in reversing the pattern of inequality that has developed over the last three decades,” says Baker, who notes that “exorbitant compensation packages on Wall Street” have “distorted pay structures throughout the economy.” The Institute for Policy Studies, an activist think tank also based in Washington, wants to require companies seeking bailout assistance to pay their top execs no more than 25 times what their lowest-paid workers are receiving. “Government action should prioritize protecting ordinary people and the real productive economy,” notes Chuck Collins, the director of the Institute’s Program on Inequality and the Common Good, “not further reward the super rich and the speculative sectors of the economy.” Toward that end, Collins adds, lawmakers ought to be placing an income tax surcharge on America's highest incomes. “The 50,000 households with annual incomes over $5 million,” he points out, “are the biggest winners from 25 years of Wall Street deregulation.” Who will be the economy’s biggest winners over the next 25 years? The bailout decisions that Congress begins to make this week will go a long way toward shaping that answer. |
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These Fortunes Need Melting The Forbes 400. Edited by Matthew Miller and Duncan Greenberg, Forbes, September 17, 2008.
The latest Forbes list has just appeared. The explosion continues — at least as of August 29, the data cut-off point for this year’s listings. On that date, says Forbes, the 400 richest Americans held fortunes worth a combined $1.57 trillion, $30 billion more than America’s most fortunate 400 held last year. The current 400 average $3.9 billion each. America’s largest individual fortune back in 1982, if inflation-adjusted to today’s dollars, would rank a mere 88th on this year’s top 400. That largest fortune in 1982 belonged to an oil magnate, Daniel Ludwig. Oil kings thoroughly dominated the original Forbes list. But the America economy has changed since then. Finance sector kingpins do the dominating today. They make up a quarter of the 2008 rich list, triple their presence on the 1982 400. The new Forbes top 400 special issue features, as in years past, plenty of gossipy anecdotes about how their rich spend their time and fortunes. The reportage, for instance, takes us to “the unpretentious yet posh Bitter End Yacht Club” in the British Virgin Islands, a Caribbean deepwater hotspot where as many as 30 megayachts — each one at least half as long as a football field — might be anchoring on a balmy winter evening. And we meet, through Forbes mini-interviews, a host of the 400 up close and personal. Some come across as thoughtful, some as clueless, others as just plain smug. Take Phil Ruffin, the casino and real estate magnate worth an estimated $2.1 billion. Forbes asked Ruffin what relationship he left behind as he became wealthy. His first wife, he answers. And what’s the difference between a millionaire and a billionaire? Replies Ruffin: “A millionaire is close to the poverty line and needs to get busy.” And to whom, Forbes wondered, does Ruffin turn to for advice. The retort: “Listen to everyone, and then do the opposite.” A real charmer. Imagine having to sit next to Ruffin for an entire cross-country flight. That, to be sure, will never happen. Ruffin and the rest of the top 400 fly — and live — in a separate world from the rest of us. Once a year, Forbes lets us peek inside. That’s enough. |
Stat of the Week Four of this year’s ten richest Americans owe their fortunes to the Wal-Mart retail empire, says Forbes magazine. Jim Walton, S. Robson Walton, Alice Walton, and Christy Walton — all part of the family of Wal-Mart founder Sam Walton — hold a collective $93.1 billion in personal wealth.
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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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Carly Fiorina, the former CEO of Hewlett-Packard and the McCain campaign’s most visible economic adviser, won’t be getting much air-time the rest of this election season. A furious McCain team, news reports say, has “
In 1982, a generation ago, Forbes magazine began publishing an annual list of America’s 400 richest. Year by year, ever since, Forbes has been tracking the spectacular explosion of wealth at the top of America’s economic ladder.