JUDGMENT CALLS
Robert J. Samuelson
Who's to Blame?
Why capitalists are capitalism's most dangerous enemy.
Amid the mayhem in the world's financial markets, it is becoming clear that capitalism's most dangerous enemies are capitalists. No one can have watched the subprime mortgage debacle without noticing the absurd contrast between the magnitude of the failure and the lavish rewards heaped on those who presided over it. At Merrill Lynch and Citigroup, large losses on subprime securities cost chief executives their jobs—and they left with multimillion-dollar pay packages. Stanley O'Neal, the ex-head of Merrill, received an estimated $161 million.
Everyday Americans will conclude (rightly) that this brand of capitalism is rigged in favor of the privileged few. It will be said in their defense that these packages reflected years of service, often highly successful. So? It's not as if these CEOs weren't compensated in all those years. If you leave your company a shambles—with losses to be absorbed by lower-level employees, some of whom will be fired, and shareholders—do you deserve a gold-plated sendoff? Still, the more serious problem transcends the high pay itself and goes to the wider consequences for the economy.
Wall Street's pay practices perversely encourage extreme risk-taking, which can destabilize the economy. Subprime mortgage losses may simply be chapter one. Now there are signs of problems involving securities known as "credit default swaps." Never mind the details. Concentrate on the possible fallout. If banks and investment houses sustain more losses, the nation's credit system will be further wounded, and so will the economy. The Federal Reserve cut its key overnight interest rate yesterday from 4.25 percent to 3.5 percent—a huge move—in part to shore up this wobbly credit system.
By "Wall Street" I mean all the commercial banks, investment banks, mutual funds, hedge funds and the like that comprise the financial sector—but particularly investment banks. Pay is eye-popping. In 2007, Lloyd Blankfein, chief executive of Goldman Sachs, received compensation estimated at $68 million. But pay is also heavily skewed toward annual "bonuses" based on the profits that traders and bankers generate. I asked Johnson Associates, a compensation consulting firm, for typical Wall Street pay packages. The results describe "managing directors" based in New York with 10 or 15 years' experience. Most would be in their 40s.
Here are estimates for 2007:
Investment banker: $2.1 million, consisting of $275,000 in base pay plus $1.2 million in cash bonus and $625,000 in long-term bonus. (An investment banker helps firms raise capital by selling new stocks and bonds and also advises on mergers and acquisitions.)
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Member Comments
Posted By: Nowforthetruth @ 10/09/2008 7:52:56 PM
Comment: From: http://www.marketwatch.com/news/story/rnc-obama--acorn-fact/story.aspx?guid=%7B29569FA1-136D-4B95-9D51-4EF9E87ED547%7D&dist=hppr
Obama's Campaign Paid Over $800,000 To ACORN For Get-Out-The-Vote Efforts, But "Mistakenly Misrepresented" Their Work To The FEC:
Obama's Campaign "Paid More Than $800,000" To ACORN For Get-Out-The Vote Efforts; The Campaign Originally "Misrepresented" The Group's Work To The FEC. "U.S. Sen. Barack Obama's presidential campaign paid more than $800,000 to an offshoot of the liberal Association of Community Organizations for Reform Now for services the Democrat's campaign says it mistakenly misrepresented in federal reports. An Obama spokesman said Federal Election Commission reports would be amended to show Citizens Services Inc. -- a subsidiary of ACORN -- worked in 'get-out-the-vote' projects, instead of activities such as polling, advance work and staging major events as stated in FEC finance reports filed during the primary." (David M. Brown, "Obama To Amend Report On $800,000 In Spending," Pittsburgh Tribune Review, 8/22/08)
The link below describes how some in Congress tried to use the original version of the bailout bill to divert money eventually recovered to groups like ACORN, a group Obama has a long association with. See:
http://online.wsj.com/article/SB122247015469280723.html?mod=googlenews_wsj
Posted By: kfestus @ 10/09/2008 10:48:41 AM
Comment: Although the money and power elite in this country have done a good job of encouraging the rest of us to trust their judgment, and let their beneficence trickle down on us, as income (and outcome) disparities grow, we the people can't help but notice. The big lie of America is that our commitment to so-called equality grants all of us the potential for unlimited success. Unfortunately the profit-maximization aspect of capitalism requires a win/lose dynamic. Ambitious losers will keep trying to maximize, but not winning has lasting consequences. Many years ago, my dear old great-great-great Uncle Karl predicted the existential struggle of this flawed economic system, which pits a person's individual needs for enrichment against their community's needs for sustainability, saying: "The last capitalist we hang shall be the one who sold us the rope."
Posted By: singh6y @ 10/02/2008 8:38:16 AM
Comment: How come every one is forgetting about the disaster guru Alan Greenspan, who followed reganomics and made total deregulation of financial system his mantra for prosperity. He, in fact was only helping his wall street buddies to the do the unthinkable and never be held responsible. Bernanke has no backbone so he has nothing to say. paulson is carrying on Greenspan tradition of keeping his buddies away from jail with our money. When will Amreica understand that republican government has never done anything to help common citizen. They have never exhibited fiscal discipline ever and now all of sudden, when they are up for votes, they are breaking away from this lame duck guy whose is no brain, selected (not elected) president.