TOO MUCH: Tracking excess and inequality

TOO MUCH

January 25, 2010 [print_link]

Tracking excess and inequality

Paul Volcker, the Financial Times believes, has finally come “in from the cold.” Remember Paul Volcker? Right after the 2008 elections, many thoughtful economic analysts hoped the new President Obama would consider Volcker, a former Federal Reserve Board chair, for the top slot at Treasury.

The reason? Volcker had emerged, over recent years, as a principled critic of excess at the top of America’s economic ladder. He had vigorously opposed attacks by wealthy families on the estate tax. In 2008, he blamed the global high-finance meltdown on Wall Street’s wild, unregulated chase after personal fortune.

But the new White House would end up giving Treasury to the Wall Street-friendly Timothy Geithner. The 82-year-old Volcker would be named, instead, to chair the White House’s Economic Recovery Advisory Board – and then ignored.

Until last week. On Thursday, the President, with Volcker at his side, proposed new regulations that directly challenge the source of beaucoup bank riches. Does this White House embrace of Volcker signify a new willingness to confront our richest? We can only hope so. Those richest, says a new Capitol Hill analysis, have never been richer. We have the details in this week’s Too Much.

 

GREED AT A GLANCE

George W. Bush may be history, but support for extending his tax cuts for America’s rich is growing – among Democrats. The Bush tax cuts will all sunset at the end of 2010 unless Congress acts to extend them. And Congress should do just that, says Rep. Gerry Connolly, a Virginia Democrat. A Dow Jones reporter last week found Connolly arguing for the “logic” of “leaving well-enough alone for now, given the fragility of the economic recovery.” Rep. Harry Mitchell, a Democrat from Arizona, is urging President Obama to reject any rate hike on the taxes the wealthy pay on capital gains, dividends, and top-bracket income. Says Mitchell: “We need to retain these tax cuts that encourage investment that stimulates growth and job creation.”

If Congressmen Connolly and Mitchell need some evidence for their contention – and conviction – that we can’t afford to tax a single more dollar out of rich people’s pockets, they can find plenty in the luxury game sector. That sector is creating jobs right and left, to meet the booming demand for “sculptural table-tennis tables” that go for $40,000 a pop and hand-crafted chess sets that retail at $55,000. Esquire magazine just hosted a show in Manhattan that featured the jazziest of these “investments” in home entertainment. The biggest buzz-generator of them all: an $80,000 pool table that electronically tracks pool balls as they roll, “revealing a hidden image on the table’s felt.” Today’s young affluent male, says Esquire publisher Stephen Jacoby, “deserves to enjoy himself.”

This year’s Super Bowl, the 44th all-time, will feature a first: a “super fleet of luxury armored limousines.” Some 25 bullet-proof Vault-brand limos will be converging on Miami from a Dallas company that specializes in helping “people of wealth, power, and fame” better face “threats to their personal well-being.” Each new armored limo, says Vault PR chief Wally Lynn, offers “customers a luxurious environment” where they can “relax, have fun, and minimize risk.” Limo armoring first became a lucrative business over a decade ago in Brazil, then the world’s most unequal nation. Over 120 firms are now armoring up vehicles for Brazil’s affluent, and the tab has dropped from $55,000 to just $22,000 an auto . . .

High up in the Alps, the awesomely affluent worry more about snow tires than car armor. “White weeks” – ski holidays at exclusive alpine resorts – have become de rigueur for many of the world’s most financially fortunate. The most exclusive resort for the glitterati: Courchevel 1850 in Three Valleys, France. Property at Courchevel averages about €37,000 per square meter, a price that puts a 1,000-square-foot chalet at just shy of $16 million. If you’re only planning on a daytrip, be forewarned. In Three Valleys, says a new report on Europe’s ten most expensive ski resorts, you won’t find a beer under $6.50 in the entire town . . .

Alpine ski resorts are having their best winter in years. But that’s not the only sign the recession has ended – for the global super rich. Sales for the international luxury retailer Richemont, maker of Cartier watches among other baubles, jumped 25 percent in 2009’s last quarter. Meanwhile, over in India, deep pockets have already snapped up that nation’s entire 2010 allotment of the new $600,000 Rolls-Royce Ghost. The first of the 60 new cars will be delivered next month. Luxury automakers are also funneling new cars to Saudi Arabia. The most prized: the new $1.6 million Zonda from Pagani, an Italian specialty house.

 

Wall Street’s Bonus Binge in Perspective

A relative handful of Americans, says a key congressional panel, will take home more this year than half the nation’s taxpayers combined.

Americans worried about the ever-intensifying concentration of wealth at America’s economic summit have been focusing of late, quite understandably, on the latest annual round of Wall Street bank bonus awards.

But we now have even more reason to worry about our savagely unequal distribution of income and wealth – from researchers at the congressional Joint Committee on Taxation. Earlier this month, that panel released income estimates for the coming year. They make for a sobering read.

In 2010, the tax panel calculates, a little over 1 million U.S. taxpayers will report incomes over $500,000. These 1 million top-earners will collect an astounding $241 billion more in income this year than the just under 80 million taxpayers who will take home less than $40,000.

Tax GapWall Street’s movers and shakers did their best last week to camouflage their contribution to this enormous national income imbalance.

At Goldman Sachs, CEO Lloyd Blankfein announced that his giant bank would be devoting a mere $16.2 billion to the pay pool for Goldman’s 32,500 employees, far less than the $20 billion-plus that financial analysts had expected.

Goldman, overall, is devoting only 35.8 percent of the bank’s record 2009 revenue to compensation. Last year, pay ate up 48 percent of Goldman revenue.

Goldman’s chief financial officer, David Viniar, wants all of us to consider this smaller payout share a thoughtful, conscientious bank response to widespread public concern over excessive banker compensation.

“We are not deaf to the calls for restraint,” noted Viniar, “and we heard them.”

Restraint? Even with the smaller share of bank revenue going to pay, the “average” Goldman employee will pocket $498,153 for the year.

Relatively few Goldman employees, of course, will actually see anything close to half a million dollars. Goldman’s top bankers and traders, as always, will see far higher rewards than the bank’s clerks and receptionists.

How much higher? We won’t know the details until later this year when New York state attorney general Andrew Cuomo will release his analysis of bank payouts.

One significant Goldman Sachs shareholder isn’t waiting to find out. The public agency that runs mass transit in the Philadelphia area last week filed suit against Goldman executives for their ongoing bonus grab.

“Goldman’s employees are unreasonably overpaid for the management functions that they undertake,” the Southeastern Pennsylvania Transportation Authority lawsuit charges.

The plaintiffs may want to call billionaire investor Warren Buffett to testify on their behalf. Buffett last week exploded at the sheer greed he continues to see on Wall Street. Any bank CEOs who go to the government for bailout billions, Buffett told Fox Business News, should have to “forfeit all their net worth.”

“Make it so the CEO of the institution that fails or that goes to the government and needs help really gets destroyed himself financially,” said Buffett. “I mean, why should he come out any better than somebody who gets laid off from a job as an autoworker?”

Goldman Sachs has so far repaid the $10 billion in bailout aid the bank collected under the federal TARP program. But the bank received another $43.4 billion of direct benefit from other bailout programs that has never been reimbursed.

The American people may not know these exact numbers. But they get the drift, and their support for taking on Wall Street is soaring. A Washington Post-ABC News poll, released Thursday, found that 73 percent of Americans would support “a special tax on bonuses over $1 million.”

By a 72-to-19 percent margin, adds a new CBS poll, Americans now feel that the federal bailout has benefited “mostly just a few big investors and people who work on Wall Street.”

That judgment may be a but unfair. Last week, after all, Goldman Sachs did earmark $500 million of its revenue for charity. That truly magnanimous gesture steers into good works all of 1 percent of the company’s record 2009 rake-in.

 

In Review

Class Struggle at the Corporate Summit

Lucian Bebchuk, Martijn Cremers, and Urs Peyer, CEO Centrality. Harvard University John M. Olin Center for Law, Economics, and Business, Discussion Paper No. 601,

“Honor among thieves” may or may not exist. We just don’t have the data to know for sure. But sharing among top corporate executives? We now know, with some serious scholarly certainly, that America’s CEOs do not share the wealth – with their fellow corporate executives.

Harvard’s Lucian Bebchuk, Yale’s Martijn Cremers, and the Swiss economist Urs Peyer have been publishing academic research on compensation within top executive teams for several years now. Last week, the trio summed up their exhaustive work in a more popular paper.

In the United States, this paper details, CEOs are receiving a disproportionate share of the pay that goes to the top five execs of American corporations. On average, the numbers show, U.S. CEOs now grab 35 percent of the compensation corporations lay out for their top five officers.

This share, over recent years, has been steadily increasing.

Should we care? Bebchuk, Cremers, and Peyer think so. The higher a CEO’s share of the executive loot, their analysis shows, the shakier the performance of that CEO’s company – in everything from shareholder return to mergers and acquisitions. Companies with CEOs who make tons more than their executive colleagues tend, simply put, to do dumb things.

Why? Bebchuk, Cremers, and Peyer surmise that “the ability of some CEOs to capture an especially high slice might reflect undue power and influence over the company’s decision-making.”

In other words, CEOs who make much more than the people around them don’t have more smarts than anybody else. They just have more power.

 

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Too Much is published by the Institute for Policy Studies: Ideas into action for peace, justice, and the environment. 1112 16th St. NW, Suite 600, Washington, DC 20036. (202) 234-9382. E-mail: editor@toomuchonline.org.