Nero fiddled while Rome burned. James Cayne, the chairman of investment banking giant Bear Stearns, would have played bridge. In fact, earlier this month, with Bear Stearns about to go up in financial flames, the 74-year-old Cayne did play bridge — at a national tournament in Detroit.

Cayne could afford to be somewhat nonchalant about his company’s future. His future will forever be secure. As Bear Stearns CEO — he stepped down this past January — Cayne pocketed over $232 million in compensation.

What did Cayne do to earn that excessive sum? He helped create what Nobel Prize-winning economist Joseph Stiglitz last week called “the worst financial problem we've had since the Great Depression.”

What can we do about the excessive sums still flowing freely to power suits like James Cayne? In this week’s Too Much, we explore some options.

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The annual national CEO pay surveys that pop up every spring will start appearing in major media outlets over the next several weeks. In the meantime, numbers on executive pay in 2007 are continuing to surface from individual companies. Last week, for instance, Occidental Petroleum released the latest pay figures for Ray Irani, the company’s CEO since 1990. Irani topped many of last year’s CEO pay surveys, with a total 2006 take-home estimated at $416.3 million. The bulk of that represented dollars Irani cleared from exercising stock options collected in previous years. In 2007, Irani didn’t exercise any options and took home, says the Los Angeles Times, only $77.6 million. But that sum actually tops the core compensation Irani pocketed in 2006 — by 40 percent. Occidental’s top flack, Richard Kline, attributes Irani’s “superior pay” in 2007 to his “superior performance.” Industry Week, a trade journal, notes another possible factor: the $100-per-barrel oil prices that have jacked Occidental’s profit margin up to 23 percent . . .

With ordinary consumers cutting back on all but essentials, global retailers are searching for ever more routes into the pockets of the world’s rich. The latest product to go full-bore luxury: the mattress. At a recent Las Vegas trade show, mattress maker Magniflex unveiled a new model, the “Platinum,” that runs $75,000. Matching pillows each cost $2,000 extra. The mattress that received the most attention at the Las Vegas show turned out to be the “Starry Night,” a not-yet-available model that manufactuer Leggett & Platt has dubbed “the world’s smartest bed.” The mattress “auto-elevates” if any sleepers are snoring. Leggett & Platt hasn’t yet set a price . . .

Champagne has always connoted luxury, but the French drink firm Pernod-Ricard, after all these centuries, has come up with a new way to up the luxury ante on the world’s most famous sparkling wine. The company has just begun marketing — for the global “community of super-rich”— “customizable” champagne. Deep pockets who purchase a boxed set of 12 bottles, at $77,820 per set, will be asked to meet one-on-one with Pernod-Ricard’s wine “cellar master,” who will, after taking the measure of the buyer, add a liqueur into each bottle to personalize the taste . . .

Two U.S. biotech companies are now racing to corner the market for personal genetic blueprints. Knome, a firm headquartered in Cambridge, Massachusetts, will unravel your genetic code for a straight $350,000. The company has already built up a client list that includes hedge fund managers and Hollywood executives. The San Diego-based Illumina is hawking genetic sequencing to this same “rich and famous market,” says CEO Jay Flatley. What’s motivating deep pockets to shell out big bucks for the inside scoop on their DNA? Explains Eugene Katchalov, a New York money manager: “I feel like everyone's going to have to get it done at some point, so why not be one of the first?”

Recessions don’t just mean lost jobs, paycheck dollars, and health insurance. They mean lower revenues for the state governments that bear the burden of helping people who have lost those jobs, income, and insurance. So far, notes the Center for Budget and Policy Priorities, 17 states are moving toward deep cutbacks in badly needed social services. In New York, labor and community activists in the Working Families Party are pressing lawmakers to avoid those cutbacks by upping the current 6.85 tax rate on income over $250,000 to 9.95 percent on income over $1 million. State Assembly leaders have so far agreed to a “millionaire's tax” that would hike the rate on million-plus income by 0.85 percent.

Inequality
by the numbers

CEO pay:
the scorecard

Good reads
for your bookshelf

Quote of the Week

“America is a plutocracy now We still have the chance to make it a democracy again, but we're going to have to work for it. We have to reach for it.”
Bob Weir, former Grateful Dead guitarist-vocalist, St. Louis Post-Dispatch, March 20, 2008

New Wisdom
on Wealth

Johann Hari, Has market fundamentalism had its day? The Independent (UK), March 20, 2008

Mark Dayton, This time, let's be fair about the budget gap, Minneapolis Star Tribune, March 23, 2008. A former U.S. senator explains why states like his need to tax the rich.

America’s top business journalists spent most of last week working overtime to explain the debacle of Bear Stearns. They largely succeeded. By week’s end, a consensus had emerged. Wall Street investment houses, analysts seemed to agree, had flouted prudent business practices. They had followed, as Fortune magazine charged, “a highly flawed business model.”

“Put simply,” says Fortune, “Wall Street firms used towering leverage to make tons of money in a long-running bull market that blatantly underpriced risk.”

The risk should have been easy to see. Shaky subprime mortgage loans made up just 17 percent of all new mortgage loans in 2000. By 2006, subprimes constituted almost half, 44 percent.

Why didn’t Wall Street's financial wizards recognize the obvious risk in those numbers? They were too busy counting their personal windfalls — and angling to generate even more.

“I blame the system, I blame greed,” as Stephen Raphael, a former Bear Stearns board member, noted after the bank’s collapse. “Wall Street is really predicated on greed. This could happen to any firm.”

Wall Street’s “legendary largesse on pay,” Fortune adds, has encouraged “outrageous risk-taking” and “swashbuckling behavior.”

That largesse cascaded magnificently at Bear Stearns. Over the five years from 2002 through 2006, CEO James Cayne and his four top Bear Stearns executive buddies amassed $620.8 million in paychecks and perks and, reports Business Week, another $296.4 million cashing out their shares of company stock.

Rewards this outrageously mammoth, analysts note, give executives the incentive to behave outrageously. And some lawmakers are taking notice.

“It’s time to revisit the issue of top executive compensation,” Rep. Barney Frank, the chair of the House Financial Services Committee, contended in an interview last week.

The “large amounts of money” pouring into top executive pockets create “perverse incentives,” says Frank, who's musing over introducing legislation that might require executives, the Boston Globe notes, to somehow “pay back money when bets go wrong.”

Other analysts want executive bonuses only awarded when “firms are profitable over a sustained period of say, four or five years, not a single year,” as Fortune editor-at-large Shawn Tully proposes. The New York Times applauded this approach in an editorial last Friday.

But making bankers “perform” over a longer period of time before they can collect windfall rewards would have done nothing to prevent the Bear Stearns debacle. James Cayne and his fellow power suits did generate profits over a “sustained period.” Year after year, they laid big bets on shaky subprimes — and won. Until they lost.

Bankers will continue to make those big bets so long as they have a financial incentive lush enough to make the risks worthwhile. Capping how much executives can make could, of course, limit just how lush incentives become. But last week’s Times editorial on excessive executive pay explicitly rejected anything that smacked of capping.

“Trying to put specific limits on bankers’ salaries,” the Times intoned dismissively, “is a nonstarter.”

Not to Andrew West, a veteran Australian journalist. People worried about excessive pay, West suggested in his Sydney Morning Herald column Friday, might want to “consider reining in executive compensation using a handy little instrument called tax.”

Executives ought to pay regular taxes, West believes, on all their pay that runs “up to 15 times the wage of the lowest paid, full-time employee” in their company. But executives with compensation that crosses that 15-times threshold should pay in taxes “95 cents on every dollar thereafter.”

Bear Stearns Chairman James Cayne won’t likely spend much time worrying about proposals like West’s. Two million American families may soon be losing their homes to foreclosure, but Cayne still has a roof over his head. A new one. Cayne, the New York Observer reports, has just bought a $25.8 million Manhattan condo.

Stephanie Greenwood, editor, 10 Excellent Reasons Not to Hate Taxes. New York: The New Press, 2007. 156 pp.

People who worry about massive concentrations of private wealth have, down through the years, endeavored to do something about those concentrations. They’ve worked to tax the rich. The defenders of the rich, in response, have worked to demonize taxes. Over the last three decades, in the United States, these champions of privilege have succeeded beyond their wildest imaginations.

Taxes in contemporary America “have come to be regarded,” notes this slim but important new book, “as a drain on productive activity that distorts incentives and supports a wasteful government bureaucracy.”

Amid this anti-tax climate, America’s wealthy have been doing quite well. They have, in just a generation’s time, more than doubled their share of the nation’s wealth.

In 10 Excellent Reasons Not to Hate Taxes, a broad array of academics and activists take on head-on the assumptions that have congealed into America’s conventional anti-tax political wisdom. They blow away, in one succinct chapter after another, the top canards of the anti-taxers: that America is “overtaxed,” for instance, or that taxes torpedo growth.

In truth, observes Jeff Madrick, the U.S. economy has grown at its fastest when taxes — on the rich — have been at their highest. In the high-growth 1950s and 1960s, the top marginal tax rate on income over $400,000 ”hovered at approximately 91 percent.”

But the contributors to 10 Excellent Reasons go beyond economic statistics. They take on the “libertarian rhetoric that describes taxes as a form of theft,” deftly exposing this rhetoric, in economist Nancy Folbre's words, as “a form of individualism that denies our obligations to others.”

“Taxes shouldn't be thought of as an abstraction that can be described by demagogic sound bites,” sum up entrepreneur John Abrams and Greg LeRoy of Good Jobs First. “They are what we use to build strong, stable prosperous communities.”

The book’s ultimate lesson? In nations that let wealth concentrate, untaxed, these strong, stable communities never get built.

Stat of the Week

Scott T. Ford, phone home. You just may be the highest-paid U.S. CEO for the 2007 fiscal year. Alltel, the wireless company, last week revealed that Ford, the firm’s CEO, last year pulled in over $141.7 million. Over $100 million of that came as a reward for arranging Alltel's November takeover by two private equity groups. As a privately held company, Alltel next year won’t have to disclose how much Ford is earning.

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.