| Email not displaying correctly? Click here for the online edition | Subscribe |
|
|
October 19, 2009 |
 |
|
|
America’s biggest banks, amid the shakiest economic times since the 1930s, last week announced record earnings — and deposited record billions into bonus pools for their top execs and traders. How did U.S. lawmakers and officialdom respond? In Congress, a pivotal House committee gave the green light to a Wall Street regulatory reform bill that “does not do enough,” disappointed consumer advocates quickly charged, “to protect taxpayers and our economy.” The nation's top executive pay regulator did some disappointing, too. “Pay czar” Ken Feinberg, the White House pick to oversee pay at the nation’s biggest bailed-outs, last week convinced soon-to-retire Bank of America CEO Ken Lewis to give up his $1.5 million 2009 salary. Why did Lewis agree? He gets to walk away, at year end, with a retirement package worth $69.3 million. Might outrages this in-your-face eventually drive some average Americans to do something crazy? One Yale business prof thinks so. In this week's Too Much, we have more on his unnerving new book — and the latest of the indignities from Wall Street that drove him to write it. |
|
 |
|
New York’s lawyers may soon have a few more hedge fund managers to defend — if prosecutors pick up a newly released business school study on hedge fund manager behavior. Over 40 percent of hedge fund managers, the study suggests, “misrepresent” and “supply incorrect or unverifiable” data about their track record and the funds they manage. The source of the study’s data? Deep-pocket investors typically ask “due diligence” firms to investigate hedge funds before they invest in them. The reports these firms prepare can cost up to $100,000 a pop. Researchers led by NYU Stern School of Business prof Stephen Brown gained access to 444 of these “due diligence” reports prepared between 2003 and 2008 and analyzed the truthfulness of the info hedge fund managers provided for them. The researchers ended up categorizing 16 percent of the hedge fund managers as either “strategic liars” or just plain “liars.” Defending “strategic liars” can be an enormously lucrative line of work. Daniel Fischel, an attorney whose clients have included Enron’s Ken Lay and junk bond king Michael Milken, just picked up a $8.45 million Manhattan apartment that features custom electric shades and a steam shower. But this month’s biggest condo news comes from Hong Kong, where a five-bedroom duplex went for a record $56.6 million. Luxury real estate in Hong Kong’s luxury lofts has leaped 39.5 percent so far this year. Also jumping: the number of China’s billionaires. The new Hurun Report of China’s 1,000 wealthiest counts 130 dollar billionaires, up from 101 last year. Only the United States, with 359 billion-dollar fortunes, currently outpaces China in super rich . . . China’s rich, says one global business journal, are throwing a “lifeline” to global luxury retailers. Overall Mercedes-Benz sales, for instance, have dropped 17.5 percent worldwide since January, from a year earlier. But Mercedes sales in China, over the same period, have climbed 49 percent. One reason why China’s rich can afford so much luxury: They don’t run for public office. That hobby can be expensive. Billionaire Meg Whitman, the former eBay CEO, has spent $19 million on her current run for the California GOP gubernatorial nomination. Billionaire New York mayor Michael Bloomberg, news reports note, “has already spent at least $70 million” on his latest re-election effort. As of late September, Bloomberg had aired 336 times more TV spots than his top challenger . . . Who’s going to pay for health care reform? That question is splitting Democrats in Congress. Conservative Dems, to avoid any direct income tax hike on America’s rich, want to tax what they call “Cadillac health plans.” But the definition of “Cadillac” that the Senate Finance Committee adopted last week would end up covering huge numbers of middle class workers who labor at dangerous occupations or live in high-cost urban areas. Still, as corporate watchdog Michele Leder noted last week, “Cadillac health plans” do exist – and top executives have them. One case in point: Houston's Allis-Chalmers Energy spent just over $72,000 on health care for the company’s CEO last year — and $42,647 more to keep the company chief financial officer in fine fiddle. |
Quote of the Week “How is it possible that the year after billions of taxpayer dollars helped companies like Goldman Sachs return to financial health, this company shows absolutely no restraint? Goldman Sachs is poised to become the poster child of the company that drives income disparity in the United States."
New Wisdom Les Leopold, Break Up Goldman Sachs? October 13, 2009. The author of The Looting of America proposes that Congress enact a “President's wage cap,” a mandate that “no one on Wall Street should earn more than the President of the United States until the unemployment rate drops below 5 percent.” Ann Lee, The Banking System Is Still Broken, Wall Street Journal, October 15, 2009. Muses this former banker: “If banks are being supported by taxpayer dollars as a public good, wouldn't it be logical to make Citigroup and Goldman part of the government so that they can serve the public like the Department of Motor Vehicles?” Graham Bowley, Bailout Helps Fuel a New Era of Wall Street Wealth, New York Times, October 17, 2009. How federal policies since last fall have paved the way for new executive windfalls.
|
 |
|
|
Banker Bonus Bingo: Every Card's a Winner Welcome to post-meltdown America. One year and counting after last fall’s high-finance collapse, average Americans are reeling and Wall Street is rejoicing. The boom's back! In fact, for Wall Street’s premiere financial giant, business is booming better than ever. Goldman Sachs last week announced $3.19 billion in third-quarter earnings, about quadruple the firm's quarterly profit a year ago. Goldman now has $16.7 billion sitting in its bonus pool. That pool, by the end of December, will likely top off close to $23 billion, enough to pay each and every Goldman Sachs employee over $700,000 if the bonus dollars were divided equally. The bonus dollars, past practice makes clear, won’t be equally divided. In 2007, Wall Street's previous record year, Goldman CEO Lloyd Blankfein took home $68 million. In 2008, 212 Goldman Sachs power suits stuffed their pockets with over $3 million each. This year figures to be even more lucrative. Goldman, as one analyst points out, has so far in 2009 “earned three times as much as it did in all of 2008.” That's not, to be sure, all good news for Goldman. In a record recession, record earnings create a bit of a public relations problem. To forestall any serious political blowback, Goldman's movers and shakers have opened a “charm offensive.” Message: We feel your pain. Reality: Goldman feels no pain — and doesn't intend to start any time soon. The $200 million Goldman is now donating to charity, as the first thrust in its charm offensive, equals a mighty 6 percent of the firm’s third-quarter profit. No other U.S. financial firm is matching Goldman’s stunning success. But you won't find other firms complaining. One new survey, released last week, estimates that 23 top U.S. banks and hedge funds will shell out $140 billion in 2009 compensation, $23 billion more than their previous record high in 2007. “We can't go back,” a resolute White House press secretary Robert Gibbs told the nation earlier this year, “to the type of pay structure that incentivized wild speculation, like we had before this economic collapse.” We now have gone back. But could the situation have turned out any differently? Could U.S. officials be doing more, given the complexities of our globalized economy, to prevent a return to standard executive pay operating procedure? They surely could. At a minimum, U.S. authorities could be insisting, as British officials did last Wednesday, that every big bank in the nation either agree to the modest executive pay reforms that surfaced at last month’s global economic summit in Pittsburgh or lose the right to do business with the government. The reforms the UK is imposing will keep bankers from immediately collecting all the bonus dollars they “earn” this year. They'll have to wait several years, a delay intended to prevent bankers and traders from cashing in on risky short-term deals that later go sour. But these UK reforms don't speak at all to the overall size of the rewards that can go to the world’s banking and corporate elite. They should. Governments, as Institute for Policy Studies analyst Sarah Anderson noted last week on the PBS News Hour, should be leveraging “the power of the public purse to encourage more rational pay practices throughout the economy.” Congress and the White House could do that, Anderson explained, by “limiting how much companies can deduct from their taxes” for executive pay and “using procurement policies to give preferences to companies that have more reasonable gaps between what their executives and their workers are making.” One day after Anderson’s comments, progressive lawmakers took a daring move in just the direction she was suggesting. Progressive lawmakers in France, that is. The legislators brought before the French National Assembly the world’s boldest executive pay reform package yet. The new French legislation, if enacted, would cap executive pay, in companies subsidized by tax dollars, at 25 times the pay of a company’s lowest-paid worker. At all other firms, boards of directors would set the executive-worker multiple that determines the executive pay ceiling, after a process that includes worker input. Shareholders would have the final say on what that multiple would be. Support in France for an income cap — a “maximum wage” — has been building since last spring when the French weekly, Marianne, launched a petition campaign for a “salaire maximum.” How far politically can this campaign now go? One appraisal came last week from Jean-Philippe Huelin, the editor of the French maximum wage campaign’s online presence. “With a little perseverance — and luck,” says Huelin, the French maximum wage drive just might become a “flagship” issue in the next French presidential election. |
|
 |
|
|
The Dirty Bomb Coming to a City Near You Bruce Judson, It Could Happen Here: America at the Brink. Last week’s headlines about Wall Street’s latest bonus windfalls once again raise a question most basic: How much greed at the top before America says enough? How much more before some Americans, incensed by the contrast between that greed and their daily struggle to get by, take matters — rashly — into their own hands?
Bruce Judson thinks we might — and we would be wise to listen to his warning. “History teaches that there are limits to the extent of acceptable economic inequality in any society,” this senior faculty fellow at Yale University's business school writes in his chilling new book, It Could Happen Here. “We have moved beyond these limits.” Judson’s slim new volume imagines what might happen if a small group of Americans – infuriated by the demise of the American dream — decided “to use extreme and abhorrent methods to voice its rage.” This gripping and plausible foray into futuristic fiction then segues into a well-argued, totally nonfiction brief against present-day America's extreme — and growing — inequality. The brief reads well. A lawyer by training and an entrepreneur by career, Judson knows first-hand how big money gets made in America today. The super rich do not awe him. But their impact does scare him. America's intense concentration of wealth and income over the last three decades, Judson explains, has undermined our middle class economic security. Some eight to ten million families, he notes, now face foreclosure. And nearly 80 percent of America’s middle class households lack enough in savings “to survive more than three months at three-quarters of their current spending.” “If millions of people — who believe their anger is justified — lose their homes, jobs, retirements, and dreams, can we realistically expect continued loyalty to our system?” Judson asks. “In particular, how will angry people react if they feel their lives have been unfairly ruined for the benefit of a small number of people at the top?” Judson, a self-described “ardent capitalist” and “patriot,” considers It Could Happen Here “a wake-up call” for a “dysfunctional democracy.” The Great Recession, he believes, constitutes just “the first of the dangerous perils that face the nation as a result of unsustainable economic inequality.”
The reversal we need, Judson goes on to note, “will require a far more radical realignment of the way wealth is distributed within the society.” What might that realignment entail? It Could Happen Here outlines, in broad strokes, an answer. But Judson offers no step-by-step gameplan for change. He aims instead to jolt, to help a confused and frustrated America understand what we endanger when we let wealth cascade year after year into precious few pockets. At that task he succeeds. Read this book and see for yourself. Even better, give this book to friends and family who need to see what you already do. |
Stat of the Week China's single richest individual, the Hurun Report announced last week, now holds a fortune worth $5.1 billion. Some 42 American billionaires, according to the latest Forbes 400 list, boast a highter net worth than China's number one, Wang Chuanfu, the chair of electric car and battery maker BYD Co Ltd.
|
 |
|
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 Subscribe to Too Much. |
|
The unluckiest man on Wall Street? That may be Ralph Cioffi, a 53-year-old trader who used to manage a hedge fund for Bear Stearns, an investment bank that used to rate among Wall Street’s most fabled — before spectacularly tanking last year. Last week, with new billions gushing into Wall Street bonus pools, Cioffi sat in a downtown Brooklyn courtroom as federal prosecutors 
Might we see, someday soon, unemployed nuclear engineers threatening America with radioactive dirty bombs? Might we experience a home-grown “terrorist act” that ends up collapsing the United States we we know it?
