July 2, 2007
Years ago, outside of National Secretaries Week, the movers and shakers of the American economy never gave secretaries a second thought. Last week, amid America’s growing debate over growing inequality, secretaries seemed to be on everyone’s mind.
We have more on why in this week’s Too Much.
Also this week: our take on the just-released latest annual census of the world’s wealthy and some summer-time recollections on brigands and brie along America's distinctly unequal Atlantic coast.
His stock-trading admirers like to call Warren Buffett the world’s greatest investor. But years from now the sage from Omaha, the world’s third-richest man, may be remembered more for his common sense than his talent picking common stocks. Last week, in a New York appearance, Buffett once again shook the bully pulpit his wealth supplies him, this time blasting the moral bankruptcy of America’s tax system. His secretary, the 76-year-old billionaire noted, last year paid 30 percent of her $60,000 income in taxes while he, without even trying to avoid taxes, only had to pass tax collectors 17.7 percent of his $46 million. Summed up Buffett: “If you're in the luckiest 1 percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.”
Capital One, the credit card colossus, last week announced plans to eliminate 2,000 jobs, 6 percent of the company's 32,000-employee workforce. The layoffs, said Capital One CEO Richard Fairbank, will help restore “disciplined expense management.” Why does Capital One suddenly need discipline? Seems that company profits started tanking right after Fairbank orchestrated the takeover of mortgage lender giant GreenPoint — in the middle of a major housing slump. Wall Street analysts still have faith in Fairbank. His job cuts, says Eric Wasserstrome of UBS Securities, will “better rationalize” the Capital One cost structure. Any other way to “rationalize” costs at Capital One? CEO Fairbank, who has collected $306.5 million in compensation the last five years, can’t so far seem to find one . . .
Another Pirates of the Caribbean is packing movie theaters this summer, and the author of a new history of 18th-century piracy is anguishing about a missed opportunity — to tell a real-life Robin Hood tale much more fascinating than Hollywood fiction. The pirates who sailed the New World’s Atlantic coast, author Colin 
Woodward related last week in the Christian Science Monitor, “saw themselves in a social revolt” against the shipowners and captains who used to employ them. Legally sanctioned warships, says Woodward, gave ship captains — the CEOs of their day — 14 times more booty from captured ships than seamen received. Pirate captains and crews, by contrast, “shared their treasure almost equally.” That endeared them to local populations chafing under the heavy hand of colonial officials. As one pirate leader put it: “They plunder the poor under the cover of law . . . and we plunder the rich under the cover of our own courage.” The real pirates of the Caribbean, adds pirate museum curator Ken Kindor, “organized themselves very democratically” in an era “when the distribution of income, land, and power is becoming increasingly concentrated.”
A century ago, on a pirate-less Atlantic coast, about 400 wealthy families — who together owned the bulk of the Gilded Age United States — turned the Rhode Island seaside town of Newport into America’s “first resort.” The Newport they built has largely disappeared, but the few mansions that remain, the Hartford Courant noted last week, make for a great summer-time walking tour. The most popular remnant of Victorian plutocratic excess: the 70-plus-room “Breakers” built by the Vanderbilts in the 1890s. This “cottage” needed 40 servants to maintain and featured a “French chateau fireplace large enough to comfortably house 20 standing adults.” The Vanderbilts spent eight weeks a year at Newport. Their regular digs, in Manhattan, sported 150 rooms . . .
In the United States today, news accounts last week divulged, parting can truly be sweet sorrow — if you happen to run a corporation. The CEO at oil-and-gas-drilling Nabors Industries, Eugene Isenberg, is working under a contract that will entitle him to as much as $525 million if his company gets bought out, reports the Houston Chronicle. The number-two exec at Nabors, Anthony Petrello, could walk off with as much as $187 million in the same situation. Shareholders across the nation have been challenging this sort of excess at corporate annual meetings all this spring. How are they faring? CorpWatch, the San Francisco Bay Area-based media and advocacy group, has just published an appraisal.
Quote of the Week
“One dollar one vote is not democracy; it's plutocracy, and it's hurting the non-rich in America.”
Phil Tedesco, American Constitution Society,
June 29, 2007
New Wisdom
on Wealth
Dmitri Iglitzin and Steven Hill, Inequality has run amok. Do leaders care? New York Daily News, June 27, 2007.
Barbara Ehrenreich, The Rich Have Priced the Outdoors out of Everyone Else's Hands, June 30, 2007
Two of the world’s top financial services companies, Merrill Lynch and Capgemini, have just released their 11th annual census of the world’s rich. This may be their most revealing annual report yet.
The latest World Wealth Report tallies, as did previous editions, just how many individuals globally hold at least $1 million or $30 million in assets, above and beyond the value of their primary residence.
The latest report, released last week, adds a new wrinkle. Merrill Lynch and Capgemini have, for the first time, detailed where the wealth of the wealthy is going.
The world’s wealthy, the new World Wealth Report documents, spend a serious chunk of their change on “investments of passion.” But this passion doesn’t seem to extend to charitable giving.
The numbers: The 9.5 million people world-wide who hold over $1 million in financial assets last year spent $670 billion on what Merrill Lynch and Capgemimi term “investments of passion,” everything from vintage yachts and luxury cars to jewelry and wine.
These same 9.5 million fortunates devoted less than one-half that total, just $285 billion worldwide, to charitable causes.
“That’s equivalent,” notes Reuters analyst Tim McLaughlin, “to someone worth $100,000 giving about $766 to charity, or 0.76 percent of their wealth.”
The international high-net-worth set, the new World Wealth Report data suggest, could have easily afforded to be considerably more generous. In 2006, their total global net worth jumped a robust 11.4 percent — to $37.2 trillion.
In other words, the global rich could have contributed over ten times more to charity in 2006 than they actually did and still ended the year wealthier than when the year started.
Needless to say, Merrill Lynch and Capgemimi — two companies eager to manage more of rich people’s money — did not pause to record this observation in their new World Wealth Report.
The report does note that “global wealth continued to consolidate in 2006,” with the fortunes of the world’s wealthiest individuals growing faster than the total number of wealthy. That’s particularly true for the deep pockets Merrill Lynch and Capgemimi dub “ultra-high net worth individuals,” those fortunate souls worth at least $30 million.
In 2006, the number of these “ultra” rich individuals grew by 11.3 percent, to 94,970. But the combined wealth of these ultras grew even faster, by 16.8 percent to $13.1 trillion, “another sign,” concludes the new World Wealth Report, “that global wealth is rapidly consolidating among this ultrawealthy segment.”
The ultra rich in the United States didn’t have much time to celebrate the new World Wealth Report numbers last week. They were too busy mobilizing to stop an unexpected congressional challenge to their pursuit of even higher ultra status.
That challenge emerged, in June, after news reports revealed that the top two execs at America’s largest private equity partnership took home home over $600 million last year — and paid taxes on that windfall at the capital gains bargain rate of just 15 percent.
In response, two dozen lawmakers, including one powerful committee chair in the Senate and two in the House, have introduced legislation that would deny investment management partnerships capital gains treatment at tax time.
Last week, the ultras moved to squelch this congressional impudence. On Wednesday, over 70 lobbyists from the finance, real estate, and oil industries gathered in Washington, D.C. to announce a new “Coalition for the Freedom of American Investors.”
The U.S. Chamber, of Commerce, the Wall Street Journal reports, is launching a similarly themed effort, as is the National Venture Capital Association.
Individual Wall Street heavyweights are also descending on Capitol Hill. The top gun at private-equity giant KKR, Henry Kravis, last week “made the rounds to rally lawmakers” against any attempt to up the tax rate on investment partnership profits — what Wall Street calls “carried interest” — from 15 to 35 percent.
The Bush administration is chiming in, too.
“We're not inclined to be in favor of tax increases,” White House press secretary Tony Snow told reporters inquiring about private equity tax reform Wednesday.
The same day, the top Bush administration money man, Treasury secretary Henry Paulson, called investment partnerships a “great structure to promote risk taking” and urged lawmakers not to pass any bill that might get in the way of deal making on Wall Street.
Still more piling on came from Christopher Cox, the chair of the federal agency that regulates Wall Street, the Securities and Exchange Commission. He warned, in testimony before the House Financial Services Committee, that any tax hike on investment partnership profits could threaten “capital formation.”
Earlier Wednesday, a somewhat more independent observer, Yale tax professor Michael Graetz, suggested to the Senate Finance Committee that a tax increase on partnership profits would really only threaten the formation of undeserved personal fortunes.
“I think it’s odd,” said Graetz, a Treasury Department official in the early 1990s, that investment fund managers pay taxes on their labor income at a lower rate than their secretaries.
Stat of the Week
Michael Dell, the CEO of computer giant Dell, booked a $153 million gain last year exercising stock options he had collected from the company in previous years. Notes MSN Money analyst Michael Brush: “That's enough to buy each of the nation's incoming freshmen a laptop for the next 38 years, at current prices.”
Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954.
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