How amazing have the last two weeks of high-finance meltdown been? This amazing: Last Thursday saw the biggest bank bankruptcy in U.S. history, and that collapse didn’t even rate mention as the day’s top news story.

In this week’s Too Much, we have a little bit more about Washington Mutual, the fallen savings bank giant, and a lot more about the battle to prevent the bailout from becoming a Wall Street pig-out.

Have a friend who could use a Too Much perspectve on all the bailout dealings? Just click the Forward to a friend link you'll find at the end of this week's issue.

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Just imagine what the stress level must be on Wall Street these days. But at least some high-rollers are finding relief — in a far sunnier clime. Last week, several top Wall Streeters purchased villas in The Colony, a new Caribbean luxury project touted as Jamaica’s “most expensive gated oceanfront development on record.” The villas run up to $7 million each and carry a $72,000 annual fee that gives owners 60 days of butler, chef, and maid service. The best part: Villa owners pay no taxes on their properties, thanks to a complex financing deal that involves an “offshore special purpose vehicle” based in the Cayman Islands, the notorious super-rich tax haven . . .

Three weeks ago, America's largest savings bank, Washington Mutual, named banking veteran Alan Fishman its new CEO. Exulted the WaMu board chairman: “The board has great confidence in Alan's ability to lead WaMu and to return the company to profitability as quickly as possible.” Things didn’t quite work out. Last week, just days after handing Fishman a $7.5 million signing bonus, WaMu totally tanked. The feds seized the failed bank and sold its savings operations to JPMorgan Chase at a fire-sale price. JPMorgan hasn’t decided yet whether to fire Fishman. If Fishman does get the ax, his WaMu contract entitles him to $11.6 million in getaway cash. Fishman’s predecessor at WaMu, Kerry Killinger, took home $14.4 million last year. The WaMu board axed Killinger earlier this month after his massive bets on subprime mortgages cost the company over $12 billion this year alone . . .

Who’s afraid of a little global financial meltdown? Not Jonathan Breeze, the 36-year-old CEO of Jet Republic, a luxury air travel service that last week announced plans to buy $1.5 billion worth of brand-new Lear jets. The UK-based Breeze will be offering “fractional ownership” of the jets via plans that will charge buyers about $14,000 per flying hour. How will Jet Republic find buyers in a world economy hovering over a financial abyss? Jet Republic, Breeze told a news conference last week, will offer “proper espresso coffee,” a product “often unavailable or of poor quality in the private jet industry.”

The principality of Monaco has just edged out London as the “world's most expensive location for luxury homes.” On average, luxury housing in Monaco now runs $6,916 per square foot. In other words, you could buy a Monaco apartment the size of a walk-in closet for $280,000. The super rich, says realtor Roger Munns, feel secure in Monaco, where the ritziest neighborhoods have one law enforcement officer for every 100 residents. The wealthy, he adds, like to live in a “police state.” New York ranks as the world’s fifth most expensive place for luxury housing, one slot above Moscow . . .

CEOs in India may soon be demanding Monaco-style protection. Last Monday, in Delhi’s Noida suburb, an auto parts CEO died from head wounds after a meeting with downsized workers turned into a bloody melee. Authorities have arrested over 60 workers, but a spokesperson for India’s Chambers of Commerce federation fears that the murder will “sully India’s image among overseas investors.” Oscar Fernandes, India’s labor minister, fears that top executives in his nation may not understand how angry Indian workers have become. The day after the killing, Fernandes called the bloodshed “a warning for the managements.” Added the minister: “Workers should not be pushed so hard that they resort to whatever happened in Noida.”

Quote of the Week

“John Kenneth Galbraith's comment that in America the only respectable type of socialism is socialism for the rich has never seemed more apt.”
John Cassidy, Bailing Out, The New Yorker, September 29, 2008

New Wisdom
on Wealth

Chuck Collins, Jubilee for Wall Street? Sojourners, September 24, 2008. A “bailout that fails to require the Wall Street superrich to pay more would be another assault after the robbery.”

Larry Durrence, Bring Back Progressive Leadership, The Ledger (Lakeland, Fla.), September 26, 2008. A historian looks back on the Republican Party maverick, Teddy Roosevelt, who crusaded against “that small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power.”

Kathy Kristof, Why limiting CEO pay is a good idea, Los Angeles Times, September 28, 2008

Robert McElvaine, Their Party Crashed, Ours May Too, Washington Post, September 28, 2008. An exploration into the concentration of income and wealth that eased the nation into hard times eight decades ago, a concentration eerily similar to our own.

The Bailout Deal: The Rich Haven't Won Yet

Act One of the great bailout debate has now ended. This January, with a new President in the White House, the curtain will go up for Act Two. The agreement that lawmakers and the White House announced Sunday essentially buys time — by committing the federal government to buy up to $700 billion of “troubled assets.” But the agreement leaves several fundamental questions unanswered.

No one yet knows, despite the new agreement, exactly where all the dollars from that $700 billion pot are going to go — and where the dollars in that pot are going to come from.  

How many bailout dollars, for instance, will go to feathering the already opulent nests of Wall Street executives? And how much of the bailout bill will ultimately go to taxpayers?

Negotiators are acting as if these questions have now been satisfactorily resolved. They’re trumpeting the provisions in the bailout deal that speak to restraining executive pay. They’re also emphasizing the provision that will give taxpayers an equity stake — shares of stock — in bailed-out companies.

These provisions certainly do represent a clear step forward over the blank-check bailout that Treasury Secretary Henry Paulson originally proposed. But these added provisions don’t go nearly far enough.

The equity stake will indeed return dollars to taxpayers, but not until years down the road, and only if the bailed-out companies recover enough to see their share prices rise.

And the bailout’s executive pay provisions don’t set a specific lid on the compensation that can go to top execs at bailed-out companies. The key bailout provision on executive pay merely directs Treasury Secretary Paulson to “require that the financial institution meet appropriate standards for executive compensation and corporate governance” — without defining “appropriate.”

Bailout critics consider that a big mistake.

“Secretary Paulson amassed a personal stock stash worth over three-quarters of a billion dollars as the CEO at Goldman Sachs,” notes Institute for Policy Studies analyst Sarah Anderson. “He hardly strikes us as the appropriate arbiter of what's appropriate and what's not.”

Bailout critics are also demanding that lawmakers make America’s high-finance power-suits pay now for the mess they’ve created — by having the federal government tax the rich, not just borrow from them.

Progressive groups have already begun laying out specific proposals — a tax on speculative transactions, for one, and a tax surcharge on household wealth over $10 million — that could offset the bailout’s upfront cost and raise dollars to stimulate the “real” economy that America’s working families inhabit.

Progressives are also pushing for specific executive pay restraints that directly challenge Wall Street’s mega-million bonus culture — and the reckless executive behavior this bonus culture incentivizes.

Some lawmakers last week did make an effort to weave specifics into the bailout bill. Rep. Henry Waxman from California proposed a $2 million cap on executive pay at bailed-out companies, and Senator Max Baucus from Montana promoted a provision that would deny bailed-out corporations tax deductions on any executive pay over $400,000.

Interestingly, GOP Presidential candidate John McCain, in a comment early last week, called for capping pay for bailed-out execs at the current compensation of the federal government’s highest-paid employee. That employee, the President, currently makes $400,000.

Democratic lawmakers, unfortunately, never called McCain’s bluff.

The bailout deal spelled out Sunday does, to be sure, include a variation on the Baucus proposal, a $500,000 cap on the executive pay bailed-out firms can deduct from their taxes.

The legislation also prohibited “golden parachutes” — severance windfalls — for execs who bail out of bailed-out companies and gives fed officials the greenlight to recover “any bonus or incentive compensation paid to a senior executive officer” based on phony accounting maneuvers.

But the bailout legislation places no limit on the pay that can go to executives at bailed-out companies — or the executives of the companies hired to manage the “troubled assets” the government goes on to buy in the bailout.

What should that lid be? The Washington, D.C.-based Institute for Policy Studies notes that $400,000 equates to about 25 times the pay of the lowest-paid federal worker. That’s the same pay ratio, the Institute reminded lawmakers last week, that Peter Drucker, the founder of modern management science, wanted to see between top and bottom in private-sector corporations.

Any pay gap wider than 25-to-1, as a recent Business Week commentary on Drucker’s work observes, undermines the teamwork that modern enterprises need to operate effectively. The actual pay gap last year between U.S. CEOs and their workers: 344 times.

A 25-to-1 executive pay standard might even get the support of some moderate lawmakers — like Senator Dianne Feinstein — this coming January, when a new Congress and a new President will dig back into the bailout details.

“The top compensation package for any company seeking a bailout,” the California senator said last week, “should be $400,000.”

And what if the CEOs object?

“Put them in their yachts,” responded Feinstein, “and ship them out to sea.”

Ronald Reagan's Favorite Loaded Question

John Schmitt and Hye Jin Rho, The Reagan Question: Are You Better Off Now Than You Were Eight Years Ago? Center for Economic and Policy Research, September 2008

The most surreal moment in last week’s nonstop bailout debate in Washington? That surely came Friday when House Republicans, after loudly blasting greed on Wall Street, pronounced that the nation desperately needs to suspend taxes on capital gains, a move that would save Americans making over $10 million dollars over $30 billion a year.

The House GOPers, bless their souls, were merely resorting to what they know best: the Ronald Reagan economic playbook. Have a problem? Cut taxes — on the rich.

Ronald Reagan, of course, hasn’t been around for some time, but George W. Bush has followed the Reagan playbook faithfully. So why not this year ask, suggest economists John Schmitt and Hye Jin Rho, a variation of the same question that Ronald Reagan famously asked in the 1980 election campaign: Are you better off today than you were eight years ago?

Schmitt and Rho, in this just-released new paper, compare the American economy in 2008 with the American economy of 2000 on 25 separate economic measures. On 23 of these measures, America and Americans are doing worse.

The price of gas? Inflation-adjusted, that stood at $2.03 then, $4.09 now. College tuition at a public four-year school: $4,221 per year then, after adjusting for inflation, $6,185 now. Wages: up 8.2 percent in the eight years before 2000, up only 1.8 percent in the eight years since.

Some figures in the Schmitt-Rho analysis simply stagger. The number of Americans without health insurance then: 38.7 million. Now: 45.7 million.

But let’s not let Schmitt and Rho paint too depressing a picture. Some people, after all, can definitely claim they’re better off today than they were eight years ago. Our most affluent 1 percent, for instance.

To enter the ranks of the nation’s top 1 percent back in 2000, you needed to have an income of at least $313,469. Here in 2008, incomes for the top 1 percent now start at $462,000.

Four more years! For the rich, eight would be even better.

Stat of the Week

Over the past five years, the top executives at five of the financial giants at the center of Wall Street's current meltdown took home $2.1 billion in compensation, calculates San Diego State economist David DeBoskey, a former corporate chief financial officer. Some 57 different individual executives shared in that pot, including Treasury Secretary Henry Paulson, who pocketed $82 million over three years as the CEO at Goldman Sachs. The most generous of the five high-finance giants: Lehman Brothers, with pay totaling $743 million for its top five officers from 2003 through 2007.

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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.