One year ago this week, Wall Street's 158-year-old Lehman Brothers tanked — and spooked an entire globe into near-depression. The 12 months since haven’t been easy for former Lehman CEO Richard Fuld. He lost his $40 million annual paycheck. And he had to sell his Park Avenue apartment — for $7 million less than the $32 million he was asking.

But waste no tears on poor Richard. He still has three residences to call home, in Connecticut, Florida, and Idaho’s Sun Valley. Our sympathies better belong with folks like with the one-home owners who still populate the housing-bubble developments dropped on marshy dairy farm pastures in Riverside, California.

Subprime-crazed wheeler-dealers stuck little swimming pools behind many of the homes in those developments. Now, in some neighborhoods, every other home sits foreclosed and vacant, and the swimming pools have blackened with hundreds of thousands of mosquitos. They’ve become a public health hazard.

Wall Street, one year after Lehman, remains an even bigger hazard. No new laws or regulations have yet dismantled our financial infrastructure of greed. Other nations, meanwhile, are actually rethinking the outrageous rewards that make outrageous behavior inevitable. In this week’s Too Much, we look at one.

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Luxury retailers are starting to smile again, and the manager for a global investment fund that specializes in luxury brands last week explained why. A year after the global financial meltdown, Huang Sun of the Swiss-based Julius Baer Luxury Brands Fund notes in a new report, “the worst is over.” The rich, adds Huang, haven’t just survived. They “continue to get richer.” The Julius Baer Luxury Fund, so far this year, has jumped up 27 percent. Among the happy high-end merchants: Diego Della Valle, the chairman of Tod’s, a luxury shoe retailer that offers $400 penny loafers. He’s expecting well-heeled consumers to go on a boffo Christmas shopping spree. Says the shoe man: “I can already feel the change in their thinking.”

Some among today’s rich, amid the worst economic times since the Great Depression, seem to be feeling a bit antsy about their good fortune. One sign of our antsy times: In 2008, USA Today revealed last week, America’s 100 biggest publicly traded corporations more than doubled what they spend to protect their CEOs. FedEx shelled out $595,875 to keep CEO Fred Smith safe and sound — at the same time the company was ending employer matches on employee 401(k) contributions. Counting his security perk, FedEx CEO Smith took home $44.5 million last year. One leading executive security firm, 360 Group International, is reporting a 50 percent hike in sales over the past 12 months. State-of-the-art home protection systems from firms like the 360 Group will typically include long-range infrared cameras, fence detectors, and motion sensors “that can detect someone lingering outside a fence for more than a few seconds.”

Are corporate boards of directors spending too much on CEO security and other perks? A majority of the power suits who sit on corporate boards of directors apparently think so. Just under 60 percent of U.S. corporate directors, says the latest annual University of Southern California business school director survey, feel CEO perks ought to be decreased. Almost half, 47 percent, also feel that overall CEO take-home ought to be lower — but not at their company. Most corporate directors, 86 percent, rate their own corporate CEO pay plans as “effective,” and 71 percent oppose any government move to limit executive pay. None of this surprises Edward Lawler, the director of USC’s Center for Effective Organizations. Many directors, he points out, work as CEOs at other firms. So any government crackdown on executive pay, says Lawler, would depress the dollars many directors take home in their “day job.”

Nearly 40 years ago, to discourage financial speculation, Nobel laureate economist James Tobin proposed a tiny tax on all financial transactions. This “Tobin tax” notion may now be gaining some momentum. In the United States, 30 members of Congress are backing a 0.2 percent transaction tax on crude oil futures to help deter “short-term traders" from “speculating on the price of oil.” AFL-CIO labor leaders are calling for a broader 0.1 percent “Wall Street tax” on all stock transactions. In the UK, Britain’s top financial watchdog says he’d be willing to support a Tobin tax to discourage excessive risk-taking. Explains Financial Services Authority chair Adair Turner: “If you want to stop excessive pay in a swollen financial sector, you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit.”

If you want to sell style to billionaires, on the other hand, you better live stylishly. The Candy brothers — Chris, 35, and Nick, 36 — certainly do. Bloomberg news last week offered a jaw-dropping profile of the world’s top interior designers for the rich and famous. The brothers live in a five-servant, 30-room Monaco duplex valued this past June at $274 million. They own four other homes and have a 200-foot yacht under construction. They already have two other yachts, not to mention “two Maybachs, two Rolls Royces, two Bentleys, and two Ferraris.” The Candy brothers owe their fame and fortune to home designs that almost always emphasize the “wow factor.” In one case, that meant a subterranean swimming pool with a grand view of a 25-foot-wide movie screen. They also favor wow-inducing cheap tricks. Among their favorites: toilets that flush with a wave of the hand.

Quote of the Week

“In a society based on the principle of fellowship, no group of individuals should be so rich or poor that they are able or forced to live as a class apart. The aim is not to impose uniformity of material condition. It is a society in which differences of wealth and income are contained within limits that allow the individuals to relate to each other in a spirit of mutual regard.”
Jon Cruddas, British Labor Party member of Parliament, Compass Summer Lecture, September 8, 2009

New Wisdom
on Wealth

Chuck Collins and Sam Pizzigati, The CEO pay debate: Why reform is going nowhere, Miami Herald, September 4, 2009. On the importance of going beyond “shareholder empowerment.”

William Pfaff, The United States of Plutocracy, Truthdig, September 8, 2009. Why “American national elections usually function more or less correctly, except that they have become all but completely dominated by money.”

Barbara Ehrenreich and Dedrick Muhammad, The Recession’s Racial Divide, New York Times, September 12, 2009. A portrait of an economy where "there is no middle class anymore, just a top and a bottom.”

Watch Out Wall Street, Here Come the Dutch

Remember that fabled Dutch boy who stuck his finger in a dike and saved family and friends from a ravaging flood? That wonderful tale turns out to be a flight of fancy from a 19th century American novelist who never set foot in tulip land.

But now a real-life Dutchman is trying to trump that mythic Dutch boy and save the world from a menacing new flood — of banker bonus cash.

Dutch finance minister Wouter Bos last week announced a deal that will limit Dutch banker bonuses to no more than one year’s salary. Next week he’ll be taking that deal to Pittsburgh, where the leaders of the world’s 20 most important economies will be debating possible curbs on the banker pay incentives that one year ago nearly deep-sixed the entire global economy.

The Dutch won’t be the only players in Pittsburgh seeking to rein in excessive financial industry pay. The French and the Germans are talking tough, too. But all these Europeans face a determined opposition — mainly from top American and British officials, who seem content, even eager, to let banker pay settle back to business as usual.

And that could prove catastrophic. Bonus business as usual could trigger the same sort of recklessness that so devastated the world economy in 2008.

“It's obvious we're setting ourselves up for a repeat,” Sarah Anderson of the Washington, D.C.-based Institute for Policy Studies noted last week. “If people can still make loads of money on investments that blow up a year later, where is the disincentive for doing it all over again?”

The new Dutch bank pay deal aims to avert that repeat. Banks in the Netherlands, under pressure from finance minister Bos, have agreed to “implement a meticulous, restrained and long-term” approach to compensation that takes into account both bank financial self-interest and Dutch public opinion, or “society’s acceptance,” as the new Dutch banking code puts it.

The code will go into effect this January. After that date, executives at any bank based or doing business in the Netherlands will only be able to pocket “variable” pay that adds up to no more than an executive’s annual salary. This “variable” pay encompasses all executive pay incentives, not just bonuses but options and other stock awards as well.

The new Dutch pay standard, finance minister Bos enthused last week, “goes farther than anything that has happened so far in any other country.”  

Indeed, the new Dutch code — if adopted internationally — would turn current financial industry pay practices upside-down. Salary currently only represents a tiny piece of bank executive take-home. Last year, for instance, Goldman Sachs CEO Lloyd Blankfein waltzed off with $42.95 million in total compensation. Only $600,000 of that came from salary.

The Dutch code — to discourage risky short-term profiteering — also postpones financial industry bonus payouts until three years after financial transactions have taken place and lets banks “claw back” any bonus outlays discovered to rest on phony short-term “performance.”

The new code, the Association of Dutch Banks crowed last Wednesday, fixes the Netherlands at the “forefront of international discussions” on restraining banker pay. That's certainly true. But the code does sport troublesome weaknesses.

The code’s cap on pay incentives, for one, only applies to top bank execs, not to the traders who do the highly lucrative grunt work of wheeling and dealing.

And the code carries no penalties for noncompliance. Instead, the code takes a “comply or explain” stance. Firms that don’t comply must explain why in their official shareholder filings. The code's assumption: Dutch shareholders, once informed, will vote out of power managements that ignore the code’s strictures.

Other critics of the new Dutch initiative point to a more basic flaw: The code takes aim at the structure of financial industry pay, not the overall level of pay.

The current banker pay structure, Dutch finance minister Bos believes, creates a “perverse incentive to take excessive risks.” If banker pay revolved more around fixed salaries and less around bonuses, he contends, that incentive to engage in risky behavior would ease. For Bos, in effect, the “how” of executive pay now matters more than the “how much.”

But Bos himself, in the past, has recognized that the “how much” most definitely counts for plenty.

“I believe cohesion in society,” he told a British conference just last year, “is not served by inexplicable inequalities.”

Many Netherlanders want to see bolder action than a new banking code to level down those “inexplicable inequalities.” Some are calling for the adoption of what has come to be known as the “Balkenende standard,” the notion that no one paid with tax dollars should be making more than the about $265,000 that now goes to Dutch prime minister Jan Peter Balkenende.

Last month, the Dutch Labor Party gave the Balkenende standard a major boost. No one working in a publicly subsidized enterprise who makes over the standard, the party chair announced, will any longer be able to run as a Labor Party candidate for major office.

Meanwhile, outside the Netherlands, the world’s bankers can’t seem to agree how to respond to the global anger that the “Balkenende standard” reflects.

One banker camp, led by Goldman Sachs CEO Lloyd Blankfein, wants to play nice. Last week, at a financial industry conference in Germany, Blankfein called public outrage over banker pay “understandable and appropriate” and acknowledged that “misapplied” bonuses “can also encourage excess.”

Blankfein’s “solution”: have bankers take more of their pay in stock awards instead of cash bonuses, a subtle shift that simply switches the power-suit pockets that get stuffed.

Other bankers are acknowledging nothing. Bonuses “alone have not caused the financial crisis,” a Credit Suisse exec told last week's high-finance conference in Germany. Other financial dynamics “are substantially more important than the question of compensation,” pronounced the Deutsche Bank CEO.

“We're against absolute caps on compensation levels,” added a Morgan Stanley co-president.

Morgan Stanley need not worry. “Absolute caps” will get no blessing at next week’s G-20 summit in Pittsburgh — and neither, analysts predict, will anything close. The Dutch, apparently, simply don’t have enough fingers.

Blue Dogs and Their Wealthy Friends

Citizens for Tax Justice, The Bush Tax Cuts Cost Two and a Half Times as Much as the House Democrats’ Health Care Proposal, Washington, D.C., September 8, 2009.

Last week, in his widely awaited health care address, President Obama scored a powerful debating point against critics who assail the high cost of comprehensive reform. The $900 billion the White House plan will run, the President pointed out with panache, adds up to “less than the tax cuts for the wealthiest few Americans that Congress passed at the beginning of the previous administration."

Much less, documents this concise new report from Citizens for Tax Justice. America’s top 5 percent, the study shows, will realize $79 billion more in tax savings from the first decade of the George W. Bush tax cuts than the Obama health reform plan will cost over its first decade.  

In 2010, the study goes on to detail, 37.8 percent of the benefits from the Bush tax cut package will go just to America’s most affluent 1 percent alone.

The Bush cuts, next year, will save an even richer group of Americans — those taxpayers making over $1 million — an average $168,000 each in 2010.

Two months ago, in July, House Democratic leaders saw in these numbers a golden opportunity to help finance health care reform. They called for a 5.4 percent surtax on income over $1 million.

Taking that step, House leaders noted, would fund a major chunk of the bill for health care reform and cost taxpayers making over $1 million an average $88,582 in 2011, just over half their 2010 Bush tax cut savings .

White House officials, earlier this year, talked in similar tax-the-rich terms, and the President’s reference to America’s “wealthy few” in his speech last week likely left many Americans assuming that the new White House health care plan expects the wealthy to help foot the bill for health care reform.

But the new administration plan includes no such expectation. The new White House health care blueprint is counting on savings from “reducing the waste and inefficiency in Medicare and Medicaid,” not taxes on the rich, to offset the bulk of the cost of reform.

Why the switch? The White House desperately wants the health care reform votes of so-called “fiscally conservative” Democrats, and these lawmakers want no part of any tax hike on the rich. And that, observes Citizens for Tax Justice, raises the ultimate irony of the current health care reform battle.

“Many of the lawmakers who argue that the health care reform legislation is ‘too costly’ are the same lawmakers,” CTJ notes, “who supported the Bush tax cuts.”

The White House attempt to placate these rich people-friendly lawmakers — by abandoning any tax-the-rich financing for health care reform — carries a fairly stiff political price. Taxing the rich to help pay for health care reform makes sense to most Americans. Talk about Medicare “savings,” on the other hand, leaves many Americans, especially seniors, worried and apprehensive.

Right-wingers opposed to health care reform, in any form, are already exploiting these apprehensions. And sober advocates of comprehensive health care reform — like former Medical College of Wisconsin dean Richard Cooper — are making a compelling case that Medicare savings offer no “magical fix.”

“The best care is the most comprehensive care, and it costs more,” Cooper related in an op-ed Friday that explored why any serious move to meet the health needs of people in poverty will always drive up the cost of quality care.

“If we want a technologically advanced, socially equitable health-care system,” Cooper concludes, “we will have to organize our finances accordingly.”

Without taxing the rich, that may just not be possible.

Stat of the Week

America's richest 400, notes Les Leopold, the founder of The Labor Institute in New York, now have enough wealth “to endow all of our public colleges and universities so that tuition would be free . . . forever.”

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.