Why We Need A War On Greed

"Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit." So said fictional character Gordon Gekko, the embodiment of a 1980s corporate raider in the movie Wall Street.

Yet, sadly, just as the Gekko character was based on real men and the greed speech on an actual address, today we also see real live Gekkoesque creatures of venality kwown as equity fund managers. For these self-appointed demi-Gods who lord over Wall Street, no amount of compensation is too much and no amount of compassion too small. Furthermore, it is this very ruinous rapacity that is playing an important role in damaging our economy, assaulting the standard of living of middle class Americans and raising economic disparity to levels unseen since The Gilded Age.

That is why Brave New Films--who kindly employs me--is declaring a War On Greed, and unlike the Bush Administration, when we declare war on something, we actually plan and send the appropriate resources. So get ready to learn the sickening details over the next few months about how the haves continually screw the have nots, beyond even what you think you know.

That is how we got to the point where CEOs of large companies make, on average, 600 times what their workers take in. In general, while both policy and our cultural ethic dictated in the 1950s and 1960s that CEOs didn't make exorbitant salaries while the wages and benefits of their workers stagnated, the Right has led an assault on both since the 1970s, which has been a startling "success." According to Paul Krugman, in an article entitled The Great Wealth Transfer:

The reason most Americans think the economy is fair to poor is simple: For most Americans, it really is fair to poor. Wages have failed to keep up with rising prices. Even in 2005, a year in which the economy grew quite fast, the income of most non-elderly families lagged behind inflation. The number of Americans in poverty has risen even in the face of an official economic recovery, as has the number of Americans without health insurance. Most Americans are little, if any, better off than they were last year and definitely worse off than they were in 2000.

But how is this possible? The economic pie is getting bigger -- how can it be true that most Americans are getting smaller slices? The answer, of course, is that a few people are getting much, much bigger slices. Although wages have stagnated since Bush took office, corporate profits have doubled. The gap between the nation's CEOs and average workers is now ten times greater than it was a generation ago. And while Bush's tax cuts shaved only a few hundred dollars off the tax bills of most Americans, they saved the richest one percent more than $44,000 on average. In fact, once all of Bush's tax cuts take effect, it is estimated that those with incomes of more than $200,000 a year -- the richest five percent of the population -- will pocket almost half of the money. Those who make less than $75,000 a year -- eighty percent of America -- will receive barely a quarter of the cuts. In the Bush era, economic inequality is on the rise.

Rising inequality isn't new. The gap between rich and poor started growing before Ronald Reagan took office, and it continued to widen through the Clinton years. But what is happening under Bush is something entirely unprecedented: For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth -- and they know it.

Here is another example of what Krugman is talking about:

Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution -- currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics.

Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash. Now it is back, and Mr. Weill [Sandy Weill, of Citigroup] is prominent among the new titans. His net worth exceeds $1 billion, not counting the $500 million he says he has already given away, in the open-handed style of Andrew Carnegie and the other great philanthropists of the earlier age.

One of the largest culprits in this economic sea change are the latter day financial predators known as private equity firms. They borrow money from banks to take over companies--often companies in distress. These leveraged buyouts are great for their bottom line, as the head honchos at these firms receive compensatory stock options, management fees, tax writeoffs, etc., that reach the multi-millions and sometimes even billions. But this gratuitous wealth is often accomplished by slashing jobs and unimportant benefits such as healthcare for workers who don't have access to the corporate jet or "company housing." In fact, here is an example of how this market dynamic often plays out, to the chagrin of everyone not sitting in a corporate boardroom or owning large caches of the stock:

Employees knew that Hastings Manufacturing Co., a family-owned auto-parts supplier 30miles south of Grand Rapids, Mich., was in deep water. Facing financial pressure, 375employees--two-thirds of whom were in the United Auto Workers' (UAW) bargaining unit-conceded $1 million in benefits to save their company, relinquishing newly negotiated pay raises and agreeing to cover part of their own health care costs.

But according to UAW Local 138 Chief Steward Kim Townsend, who testified before the House Commercial and Administrative Law subcommittee in September, when Hastings' management declared bankruptcy and was taken over by the private equity firm Anderson Group in December 2005, the slicing didn't stop there. Sick days were cut in half, an existing two-tier wage system with a top rate of $13.49 an hour was maintained and the allotment for bargaining time was limited to two hours a month on company time. For retirees, the consequences were more dire, with pensions and health care coverage all but severed.

To market analysts, Hastings appears more profitable today. But its value stems not from innovation but from breaking obligations to the company's employees and retirees. "We make the same products," Townsend said at the hearing, "in the same building, with the same equipment, for the same customers as we did before the asset sale."

And as if the plethora of these kind of stories are not bad enough, a tax loophole, one that both Democrats and Republicans alike appear loathe to do anything about, allows these fund managers to declare their profits from these takeovers as capital gains. This means their income is taxed at the 15% capital gains rate instead of the 35% rate appropriate for this kind of obsene economic gain. Yes, ladies and gentlemen, you're paying more in taxes than a hedge fund manager who made a cool billion last year. Big name firms such as Cerberus Capital Management, The Carlysle Group, The Blackstone Group and Kohlberg, Kravis, Roberts (KKR) take advantage of this loophole with stunning success.

How's that for fair?

So what are the economic consequences of this kind of behavior for our nation? Well, it's that we start to resemble the very Developing World dictatorships we often sanctimoniously decry in the press. Here is a nice helping of this hypocrisy for you:

According to Executive Excess 2007, a study released in August by the Institute for Policy Studies and United for a Fair Economy, the 20 highest-paid fund managers made an average of $657.5 million last year--22,255 times the average annual U.S. salary of $29,500.

This is not only an immoral way to treat the middle class and working Americans on whose backs this country's economy was built. It also provides an atmosphere ripe for the kind of Abramoffian political corruption with which we have all sadly become accustomed over the past seven years. Furthermore, this increasing subjugation of everone except those at the very top of the income ladder is dangerous for a democracy, as any historian can tell you.

Which reminds me. Gordon Gekko had another piece of sage advice in the movie Wall Street. At one point in the film he turns to his new protege, stock broker Bud Fox, and offers this prescient observation with practiced nonchalance, "now you're not naïve enough to think that we're living in a democracy, are you, Buddy? It's the free market, and you're part of it."

Yes, indeed we are.

Comments

[realitytrumpsbull]

I had another thought on your 'war on greed'.
Ask the gas stations to close on weekends,
and businesses to shut er down for Sundays,
again. Damn near everybody would get a day
off per week, guaranteed, and Mother Nature
wouldn't have to work weekends anymore, in
terms of a lot of the car pollution and stuff.
Imagine if Sundays were walking days, where you
could walk anywhere you pleased, and not get
a jaywalking ticket....that'd be awesome.

[bertisbert]

Something else to keep in mind is how these Private Equity firms have financed all these LBO's. A lot of that easy money has come from CDO's, also known as mortgage-backed securities. When you connect all the dots, you will see how these scams have really put the smack down on the middle class, who financed a lot of their spending over the past 5-10 years on the backs of their overvalued homes. Now that we are coming back to reality, and the bubble is bursting, we see that all this easy money has been funneled through a complex maze of financial instruments made possible by laws that have basically given the greed-mongers the right to plunder the entire economy. It comes down to regulation and hopefully reminds us of the role of government.
Thanks for getting the word out, Cliff. The vast majority of Americans that are getting screwed need a voice, and hopefully we'll see some drastic changes come election time!

[retarius]

Welcome to the new feudal economy....the CEOs, CFOs, and COOs that feed at the corporate trough are handed a fiefdom to plunder...while a person can work 40 hours and not be able to afford to put food on the table or a roof over his head...it's a scandal....

But it isn't going to change anytime soon...the powerful set the rules in their own interests...the rich get the tax breaks because the poor don't earn enough to pay much in taxes...and then every time something goes wrong (like the S&L crisis in the 80's) there is a bailout for the rich and famous (who, of course, are those self same free-marketeers who despise any government help for others)...

America and much of the world is on the wrong track...constant greed and the requirement for constant economic growth under the capitalist system is actually destroying the habitable world through climate change...

I can't understand the French electing Sarkozy (who appears to want to make changes in the very fine French lifestyle...to make it more like the crime-ridden, morally bankrupt US 0f A)...go figure!

[researcher]

capitalism must lead to a greed is good mentality capitalism expecially unchecked capitalism that reagan put us on with americans complete buy in and this unchecked capitalism is the engine that runs greed even to the point of having wars for profits. ie trading blood for oil.

so americans keep promoting capitalism as the middle class slides into the status of have nots while shopping at wal mart.

capitalism must self destruct but not until we have had a few decades of fascism.

capitalism is a very very powerful paradigm in america and we must go through a significant emotional event such as fascism before we are really to give up this cherished paradigm and find a middle path like some form of socialism.

[dogman44]

The nice thing about great wealth is that it puts one above national or cultural identity
and into the world of international neo-aristocracy. What do they care if they destroy
a city or a country? As long as they escape with the treasure.

[bloomster]

Real attention needs to be paid to this its a huge problem- Thank you for an excellent and informative posting!

[imadf]

Aren't there some 500 billionnaires in the US (alright, 400 if you're picky - check forbes). I'm sure they're worth some one to three trillion together. That's 40% - 80% our national budget ! How much standards of living improvement (quality social services) does that buy America every year? And I don't mean throw money ineffectively. Simple & Good education. Simple and unabused universal healthcare. Public transport. Let those billionnaires keep $10-20 million each. That's ok. But put that bulk to *good* and *real* use!

Ah... a dream world. Back to the "real" world.

[WilliePilgrim]

I think we sometimes confuse the quantity with the quality when it comes to greed. There no doubt are people with a lot more money than even they can honestly explain or justify. The question isn't really if or how they got it...it's what will they do with it? If I ask someone with money and they think it's a stupid request and turn it down, I think they're being greedy with their money but mabye they're just being realistic. As long as we equate amount of money with happiness, something we all recognize on a fundamental level that is not true, we are doomed to feel miserable and somehow cheated as we try to feel the insatiable appetite for feeling of power. If we're looking to address the problems of addiction, you could do a lot worse than focusing on the allure of excess money.

[marko77]

Excellent article, Mr. Schecter.

An earlier poster stated that you have not proposed a solution, but a good first step is to clearly state that we have a problem.

[Herrington]

Thanks Mr. Schecter, I have been talking about this for twenty years to anyone who who's eyes did not glaze over when the term Leveraged Buy Out was mentioned. The course was set and the logical conclusion is what we now see. Too bad logic is not respected. Too bad prediction is the province of the paid pundit.

Now, in addition to the ravages caused by "equity fund managers" in the publicly traded companies, you need to spend some focus on what the same forces have done in the non-profit sector of the economy, namely healthcare. You will find that the non-profit has become a ruse to hide greed of the first order, and that the mechanisms of the takings are identical, just not public, as non-profit accounting is not made public.

Taking from someone is theft. It only becomes illegal when they comprehend the loss. Help us to understand the losses we have suffered and the world will have caught up to the current generation of thieves.

herrington

[GoreSavingPlanetForJesus]

Clinton has spoke in public about the great economy of the 1990's, for which he takes credit.

It is now referred to as the decade of greed (the 80s originally carried that title).

Clinton mentioned that he created 30,000 millionaires under his watch (.com era" decade of greed). Actually, as a conservative, I applaud him. Many people realized, and achieved, the great American dream.

I wonder if democrats applaud the greed of the Clinton 1990s, or was that evil also...

..I mean, when you look at the extremely rich in our country (like John & Theresa Kerry - estimated net worth is an astounding $663 million dollars) how can you not applaud them?

[leatherneck]

Funny how the greedy gain the whole world and loose their immortal souls in the process, that is why Jesus said it will be as hard for a rich man too enter the kingdom of heaven as it will be for a camel too go thru the eye of a needle....., republicans sit at the top of this issue, since they love too give too the 2% richest in america and denigrate the poor as shiftless, lazy, deserving of their poverty..., true justice will not come on this earth, but on judgment day and that day will be a sad one for the greedy, self righteous, whom are blind too their fate....

[ksecus]

Excellent piece.
This is the most important issue of our time.
I know Im strapped and its getting worse. I used to have disposable income but today Im barely scraping by. Same money coming in but lots more going out for food, fuel and utilities. I barely have enough to eat and Im above the food stamp line. I make about 20 grand a year and I go hungry. Embarassing but true.

[FogBelter]

Mr. Schecter, all the Greedy have to remember is that when the Grim Reaper comes a knocking at their door ... he ain't interested in their Bank Account.

And the Grim Reaper knocks on everyone's door eventually.

Pretty cool, I think.

[unfoxworthy]

Greed had cost America, its backbone, the people of the middle class. EVEN WORSE, our short-sightedness of our influencing Asian nations to "pile on" and
burn fossil fuels - like us,
subscribe to heartless capitalism -like us,
and act as militaristic bad boys - like us,
WILL be our downfall.

Cliff, nice try.
"A" for a brilliant laying out of the problem, but "F" for a no attempt at a solution.