January 1, 2007

And how did you ring in the New Year? With a $15,000 bottle of champagne? On one American street, Wall Street, high-grade bubbles flowed freely this holiday season.

We explore how and why in this week's Too Much.

Greed at a Glance: Party Peacocks

Tens of thousands of poor people run out of New Orleans by Katrina may still be waiting for a place to call home. But city officials have an excuse for the delay. They've been working overtime to welcome back into town rich people-magnets like Trinity Yachts, the top custom big-boat builder in the entire United States. Trinity will soon be operating, full-bore, at a site off the New Orleans Industrial Canal. That news has Port of New Orleans president Gary LaGrange calling himself  “ecstatic.” What's the big deal? Trinity customers typically visit New Orleans regularly while their $30 million boats are taking shape. One customer, says Trinity VP Billy Smith, filled a new yacht with $1 million worth of artwork from a gallery on Royal Street. Customers like that, adds Steve Molnar, a local business development exec, are “staying in the finest hotels, eating at the best restaurants.” Adds Molnar: “We’re honored to have them back in New Orleans.”

Augusto Pinochet, the brutal Chilean strongman who died last month, never seemed to smile much in official portraits. He apparently left behind, says a new international “happiness” survey, a people who don't smile all that much either. Chile, says just-released CimaGroup public polling research, sports a lower level of happiness than all but one of its South American neighbors, despite holding the region's highest average income. Unfortunately, that income tilts significantly to the top, and, generally, notes the CimaGroup's Pablo González, “people in countries with a better distribution of wealth are happier than those where there is a greater level of inequality.” Chile, once South America's second most equal society, became, after Pinochet's 1973 power grab, the continent's second most unequal nation . . .

Who'll win next month's Super Bowl? Nobody really knows. In the National Football League, the world's most profitable sports enterprise, parity reigns. And that's no accident. Football owners have been “sharing the wealth” for years, with each team, no matter how small, getting the same share of the league's lucrative TV revenues. But this share-the-wealth ethos seems to be ebbing. The most recent sign: Team owners recently okayed a $300 million loan to build a new stadium in New York that will generate $50 million a year in luxury-box revenue for New York's two pro franchises, none of which will be shared with the league's other teams. Buffalo owner Ralph Smith voted against the loan. His small-market team grosses only $7 million from luxury boxes. With football's new economics, asks Smith, “what chance have we got long-term?” In Europe, a milliard dynamic is unfolding, and European Union officials are debating whether lavish spending for star players by soccer team owners like Russian billionaire Roman Abramovich is violating laws against unfair competition. Says Lars-Christer Olsson, Europe's top soccer executive: “The uneven distribution of wealth is one thing that needs to be addressed.”

Why do middle class families take on the crushing burden of huge mortgages to buy homes in affluent communities? A new report from the Education Trust, a Washington, D.C.-based research group, has one answer. Across the United States, notes the group's just-released Funding Gaps 2006, states and localities spend $825 more per student in districts serving mostly affluent kids than they do to educate kids in districts “educating the most low-income students.” This high-income/low-income school funding gap varies enormously by state. In New York, one of the nation's most unequal states, the spending gap between students in the highest-poverty districts and the lowest has stretched to $2,319 per pupil per year, or over $50,000 per typical classroom . . .

The chef's table at Claridges, a London eatery that caters to the royalty of the UK financial services industry, is now charging a minimum of £550, or $1,075, for a meal. Want a reservation? Get on the list. You may have to wait until the fall for a table. The swells who dine at places like Claridges don't, of course, make their own reservations. That's where global concierge services like Quintessentially come in. Pay your annual fee – with Quintessentially, the going rate starts at over $45,000 per year – and these services will help you experience your dearest desire. One example: A Quintessentially concierge  recently fulfilled a client's request to have 12 albino peacocks brought to a party. On three hours notice. Those fortunate enough to reside in the “wafer-thin upper echelon of wealth,” notes Frank Rejwan, a managing director at Quintessentially, “are having to emphasize their status by spending their money in increasingly imaginative and extraordinary ways.”

A Record Year for Wall Street's Bonus Boys

Who works harder on Wall Street today, the power-suited execs and traders who regularly pocket multi-millions in year-end bonuses or the flacks those power-suits hire to justify all those multi-millions?

The nod, this holiday season, has to go the flacks. What task could possibly be more trying than the labor needed to make Americans smile upon the bonuses that are currently raining down on Wall Street?

Start with the sheer immensity of this latest bonus round. For Goldman Sachs CEO Lloyd Blankfein, $53.4 million, the largest single annual executive bonus in Wall Street history. For Lehman Brothers CEO Richard Fuld Jr., $11 million in bonus, plus a stock goodie bag worth $189 million over the next ten years.

In all, according to the New York State comptroller, Wall Street securities firms shelled out $23.9 billion in 2006 bonus pay, a total up 17 percent over 2005. Top Wall Street traders, assuming a 60-hour work week, averaged from $17,000 to $33,000 an hour.

The typical American household, by contrast, only took home $46,326 in 2005 for the entire year.

Numbers like these certainly make life challenging for Wall Street flacks. Unfortunately, for the flacks, Wall Street's top guns are only adding to that challenge — with their spending habits. Those bonus millions are translating into luxury spending binges that, once reported, leave average Americans shaking their heads in disbelief.

Down the street from Goldman Sachs, for instance, the Barclay-Rex Tobaccionist shop is now selling cigar lighters at $700 a pop. The same store, the New York Post reports, offers a “gold-plated, double-bladed” cigar clipper for $320.

How can all this excess be justified? Fortunately for the flacks, they can count on some help, from an eager-to-please assortment of academic and media apologists. We have more on the apologetics for America's latest inequality explosion.

A Rush to Make 2007 Safe for Executive Excess

If you're a public official in Washington, D.C. with a piece of news you have to release — but want to hide — you know what to do. You have the news released at a time when no one will be paying attention. A time like late on the last business day before Christmas..

Securities and Exchange Commission chairman Christopher Cox last month did exactly that. Just before the Christmas holiday break, his federal agency released a rule change that essentially allows America's top corporations to conceal how much in stock options they pay their executives until years after the fact.

The SEC described the new rule as merely a “relative technicality.” But everything about this “technicality” smells suspicious. The vast majority of SEC rule changes only go into effect after a period for public comment. This rule change went into effect immediately.

Why the rush? Most companies will be issuing their financial statements for 2006 in the next several months, SEC chairman Cox explained, and he didn't want companies to have to report executive pay one way in 2007 and another in 2008.

Now, with the change, companies will report out pay the same — incomplete and misleading — new way in both years. Under the old rule, companies had to reveal a total value for the stock options they awarded top execs in the year they made the award. Under the new rule, they need not.

The result: Some highly compensated executives will not show up in the “summary table” that SEC rules announced last July now require corporations to file. This summary table is supposed to provide full and clear disclosure of just how much in compensation a company's five highest-paid execs are collecting.

CEO pay critic Ann Yerger, the executive director of the Council of Institutional Investors, last week labeled the unexpected SEC rule change “a holiday present to corporate America.” But some good may actually come out of the agency's maneuver. The SEC's holiday sneak attack on transparency has apparently firmed up the regulatory resolve of Congressman Barney Frank, the incoming chair of the House Financial Services Committee.

“Backtracking by the SEC on this important matter of stock options,” Rep. Frank told the Boston Globe last week, “reinforces my determination that Congress must act to deal with the problem of executive compensation that is now unconstrained by anything except the self-restraint of top executives, a commodity that is apparently in insufficient supply.”

Stat of the Week: A Big 'Mack' Attack on Pay Sanity

Morgan Stanley CEO John Mack collected a $40 million bonus in December, a windfall that briefly stood as a Wall Street record. But Mack's bonus only tells half, quite literally, of his Morgan Stanley pay story. Mack took the CEO reins at Morgan Stanley in June 2005. He immediately received $26 million in stock, then another $13 million for his first five months on the job. That's about $80 million, notes the Corporate Library's Paul Hodgson, “in less than two years.”

Quote of the Week: Who Do You Trust?

“Wall Street bankers aren't firefighters and doctors. They're not on the ground in Darfur trying to deliver food and shelter. Responsibility for an investment bank doing billions, even trillions of dollars in transactions is weighty stuff. But come on, even if you're a shareholder, you have to ask who does more for you, John Mack or the teacher who spends seven hours a day with your kids?”

David Weidner, columnist MarketWatch, December 21, 2006

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