September 24, 2007
The latest Forbes 400 list of America’s richest surfaced last week, amid more than the ordinary annual hoopla. Why the extra attention? This year’s list marks a milestone, the twenty-fifth anniversary of the first annual Forbes list back in 1982.
That first Forbes list, a generation ago, counted only 13 billionaires. By 1996, the net worths of America’s richest 400 were averaging $1 billion. Last year, for the first time ever, you needed $1 billion just to enter the Forbes 400.
For this year, the entry price has jumped to $1.3 billion. The United States now sports, also for the first time ever, billionaires who don’t rate Forbes 400 status, 82 of them in all. We take a closer look at the new Forbes 400 — and much more — in this week’s Too Much.
Undergrads currently at Florida State University were only just starting school back in the mid 1990s when Al Dunlap, the ruthless CEO widely known as “Chainsaw Al,” was slashing his way to personal fortune as a layoff-happy corporate “restructuring” specialist. So FSU students can be forgiven for not 
protesting when their university handed Dunlap a honorary degree last April. But FSU administrators don’t have that excuse. They went ahead with the honor, bestowed after Dunlap dropped a $5 million gift on the university, despite the $500,000 fine Dunlap has paid to settle federal charges that he cooked the books at appliance-maker Sunbeam, his last CEO posting. At Scott Paper, an earlier stop, Dunlap had laid off over a third of the company’s workforce and cleared a $100 million personal profit. At Sunbeam, Dunlap tried cutting the workforce by half, then played accounting games when the layoffs didn’t pay off as intended. Notes one critic of Dunlap’s FSU honorific, PR executive Steve Cody: “What's next: The O. J. Simpson School of Sports Management at USC?”
For the typical American family. maintaining the typical American home — all 2,349 square feet of it — can be quite a chore. For wealthy families, living in mansions of 5,000 square feet and up, that chore can be next to impossible. Fortunately, notes Celeb Staff magazine, those families can afford help — and plenty of it. Medium-sized mansions, homes between 5,000 and 10,000 square feet, cost their owners about $650,000 per year to maintain, the magazine estimates. That sum will usually be sufficient to cover nannies, housekeepers, a personal assistant, and a household manager. Mansions that span over 30,000 square feet will run up annual maintenance bills of at least $3 million. The upkeep of one such mansion, says Celeb Staff, requires 10 butlers, 12 laundresses, 20 security personnel, and 30 housekeepers . . .
The U.S. Bureau of Labor Statistics has been publishing reports on how much Americans earn, by economic sector, for some time now. Last month, the Bureau released its first survey on how much Americans are making in investment banking and securities trading, the sector historically known as “Wall Street.” In March 2006, the Bureau reports, investment banking employed 173,430 people across the country, 44,356 in Manhattan. Nationally, those employed in investment banking averaged a remarkable $8,367 a week in last year’s first quarter, ten times the $841 average weekly take-home in U.S. private employment overall. In Connecticut’s Fairfield County, a top national hedge fund center, weekly investment banking income averaged even higher, a stunning $23,846. The stratospheric weekly pay averages in investment banking, notes Pulitzer Prize-winning journalist David Cay Johnston, reflect the “huge incomes” that go to top money managers, not the “much lower pay” that goes to the investment fund industry’s secretaries and clerks . . .
Need more evidence to show how wonderfully the world economy is working — at the top end? Sales of Bentleys, the British-made luxury motor car, have ballooned nearly 1,000 percent since 1993. Last year, Bentley moved 9,386 units at prices that ranged from $170,990 for the company’s low-end model to $263,990 for the high-end Arnage sedan. Cars from Mercedes and BMW, says Kelley Blue Book auto analyst Jack Nerad, are no longer striking wealthy car-buyers as exclusive enough, with many complaining that now everyone on their block has one. Adds Nerad: “That's not true on my block or perhaps yours, but there are plenty of blocks in the U.S. like that.”
“Viva Brazil!” shouts September's Vanity Fair, the world’s top fashion mag, in a luxurious photo spread full of long-limbed models and tuxedoed twenty-somethings. Most all of them, more likely than not, do plenty of their shopping at Daslu, a “mega-luxury designer store in Sao Paulo” where customers, notes a recent British Guardian piece, “arrive by helicopter and are ferried in golf carts across marble floors to spare their Jimmy Choo heels.” Workers in Brazil, Latin America’s most unequal country, currently average $200 in monthly wages, about what the nation’s privileged pay for two Jeep Cherokee tankfuls of gas.
Inequality
by the numbers
Newly revised!
Quote of the Week
“The rich want to splash money so they can talk about it.”
Romi Datta, CEO of Paradiso, a New Delhi company that specializes in selling luxury travel to Indians “with the urge to spend,” Business Standard, September 19, 2007.
New Wisdom
on Wealth
James Repetti, Democracy and Opportunity: A New Paradigm in Tax Equity, Boston College Law School Legal Studies Research Papers. Explores how truly progressive income taxes can effectively limit the “disproportionate political power of the wealthy.”
Scott Mayerowitz, How the Rich Hide Their Wealth, ABC News Business Unit, September 21, 2007. Even Forbes can't find all the wealth the rich have stashed away.
The Bush administration’s “war on terror” may be stumbling in Iraq, but you won’t find America’s defense contractors complaining.
In the five years after 9/11, the CEOs at five major defense contractors pocketed over $345 million in paychecks, notes a new analysis released last week. Over this same time span — 2002 through 2006 — five other CEOs at somewhat smaller defense contractors saw their average annual pay more than triple.
All these glad tidings — for defense contractor executives — appear in a MSN Money pay survey that draws on data collected by the Washington, D.C.-based Institute for Policy Studies.
And these glad tidings show no sign of slacking off. At the largest U.S. defense contractor, Lockheed Martin, CEO Robert Stevens has already cleared, in 2007, over $19 million cashing out stock options.
What’s wrong with this picture? A dozen years ago, Congress actually passed a law that was supposed to limit defense contractor pay — after news reports revealed that a host of CEOs with federal defense contracts were laying off workers by the thousands and, at the same time, collecting paychecks in the millions.
Under the 1995 law meant to prevent that sort of excess, the federal Office of Management and Budget now sets an annual limit on the executive pay allowable under government contracts. The limit, announced last March, currently stands at $597,912.
How can defense CEOs be pulling in annual windfalls in the eight figures if the law limits CEO pay for contractors to the mid six figures? Easy. The annual OMB pay limit only limits the executive pay contractors can directly bill the government.
If a company gets a bundle of Iraq War contracts, in other words, and those contracts send the company’s share price soaring, the company’s CEO can take home as much as that CEO can grab.
General Dynamics CEO Nicholas Chabraja grabbed $97.9 million in the five years after 9/11. The share price for General Dynamics stock has more than doubled since the “War on Terror” began.
Shares of stock for defense contractor Halliburton, Vice President Dick Cheney’s old stomping ground, have soared even more, from $5 to over $40. Halliburton CEO David Lesar raked in, on average, just under $16 million a year from 2002 through 2006.
Lesar owes his ample good fortune to taxpayers. Tax dollars from defense contracts constituted only 4 percent of Halliburton revenues in 2001. By 2004, that share had exploded ten-fold, to 40 percent.
Tax dollar-subsidized windfalls for defense CEOs, notes MSN’s Michael Brush, complicate an already complicated post-9/11 picture. They create very real risks “that a war might be prolonged for profit motives.”
How best to eliminate this risk? The latest executive pay study from the Institute for Policy Studies and United for a Fair Economy suggests one answer: deny government contracts to companies that pay their top execs over 25 or 50 times what their workers are making.
In fact, Congress could deny contracts to companies that pay CEOs over 50 times what generals are making and still be able to force cuts in CEO pay land. Since the start of the Iraq War, CEOs from the likes of General Dynamics have averaged “more in four days” than the $187,390 top generals make in an entire year.
This past year hasn’t been particularly kind to average Americans. Over 100,000 families defaulted on their mortgages in August, over twice as many as defaulted a year earlier, and many millions more saw their personal net worths plummet as home values tanked.
But a select group of other Americans ended August just fine. As of August 31, Forbes magazine announced last week, the 400 richest Americans held $1.54 trillion in net worth, $290 billion — or over 23 percent — more than America’s 400 richest held last year.
America’s 400 richest now appear to hold more wealth than the 56 million or so families that make up the bottom half of the U.S. wealth distribution. In 2004, the most recent year with Federal Reserve wealth stats available for all Americans, the bottom half of America’s households held only $1.28 trillion in combined wealth.
Who is basking these days in the golden glow of Forbes 400 status? The top 400, more and more, reflect high-tech and high finance. Bits-and-bytes guys hold six of the top 11 slots on the new Forbes list. Google brass alone have five slots on the overall top 400.
But the power-suits of high finance are catching up fast. About half the 45 new deep pockets in the Forbes 400 come from the hedge and private equity fund world. The nation’s two most celebrated private investment funds — the Carlyle Group and Blackstone — together added five new personal fortunes to the Forbes list.
What about those fabled entrepreneurial risk-takers of American business lore? Where do they stand in the latest 400? You actually won’t find too many affluents on the Forbes list who’ve actually faced real risk, the sort of risk that firefighters and emergency room nurses face every day, but you will find plenty of super-rich who profit off the risk average Americans take — at casino tables.
The gaming industry has become a prime generator of modern American fortunes. Kirk Kerkorian, the biggest shareholder in the company that owns a huge chunk of the biggest Las Vegas casinos, sits number seven on the 2007 Forbes list.
Kerkorian’s fellow Las Vegas casino king, Sheldon Adelson, sits number three, two slots behind the top name on the 2007 400, Microsoft's Bill Gates.
The top name on the original annual Forbes 400 list in 1982, shipping and oil magnate Daniel Ludwig, held a $2 billion fortune, about $4.3 billion in today’s dollars. On the 2007 Forbes list, Ludwig’s $4.3 billion would place him only seventy-seventh.
Stat of the Week
The world's 946 billionaires now take home as much income as the world's poorest 1 billion people, notes Jeffrey Sachs, director of the Earth Institute at Columbia University. That makes the per capita income gap between the world's superrich and superpoor, Sachs pointed out last week, “a neat one million to one.”
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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E-mail: editor@toomuchonline.org.
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