Redistribution: From Joe the Plumber to Robert Rubin

Okay, as we all know now that almost everything about Joe the Plumber is a lie. He doesn't own a plumbing business and apparently is not even licensed as a plumber, but he does raise a legitimate concern about "spreading the wealth around." The only problem is that in this country, when the government spreads the wealth around it usually means redistributing it upward.

That is certainly the case with the hundreds of billions of dollars being used to bail out the banks. The public has a real interest in keeping the banking system functioning. It has zero interest in subsidized the pay checks of wealthy bank executives or enriching the bank's shareholders, which Secretary Paulson is now doing.

There is no question about what is going on here. The public is providing massive subsidies to the country's major banks. The terms of the bailout were far more generous than what the banks could get from the private market. As a result, banks that might not have survived otherwise, or at least would have been forced to make serious cutbacks, can now keep operating as they had been.

This means that their high level executives will continue to draw salaries in the millions or tens of millions of dollars. It also means that the shareholders will continue to receive dividends.

This was not inevitable. Paulson could have imposed serious pay caps on executive compensation. In Germany, the banks that are getting government money can't pay their executives more than 500,000 euros, about $680,000. The United Kingdom also limited executive compensation as part of its bailout.

In addition, the banks in the UK are prohibited from paying dividends as long as they have public capital. This makes sense not only as a punitive measure, but it will also help them to build up the capital they need to stay in business.

It has sometimes been argued that the healthy banks would not take part in a bailout under such conditions. Let's see.

Suppose we apply the compensation limits/no dividend bailout rules, and then give everyone the option to opt in or out. Those taking the opt-out route will not benefit from the government's extension of deposit insurance nor will they be able to count on access to the Fed's discount window. My bet is that no banks go this route, but if any do, there will be plenty of investors happy to short their stock, assuming the government allows it.

But, Paulson went the bank welfare route. Joe the Plumber and everyone else should be very upset about this method spreading around the wealth. The top executives at the big banks will be getting the equivalent of several thousand years of TANF checks for a mother with two kids. And, unlike the mother receiving a TANF check, the bank honchos inflicted serious damage on the economy.

The big question is, which candidate is opposed to this sort of spreading around the wealth?

Comments

[kicksave7]

www.nationalenquirer.com/joe_the_plumber_flushed/celebrity/65599 Why isn't this being picked up by the national media???

[NedFlanders19]

When it serves politicians and those in power they call it a baliout, or reacting to a crisis. When someone out of "the loop" talks about it, it is socialism. It doesn't matter what it is called, for they are so similar its like saying a red apple is an apple, but a green one isn't. This country has never had complete capitalism, because if we did, then all the banks and mortgage companies that created all of these shenanigans would be out of business. Basically, corporate welfare is fine, but another type isn't. There is a USA for those with $$$ and another for those without $$$. The sneakiest type of caste system, because it is veiled.

[4Heavenssake]

Here! Here!

Think snake oil.

[irishgawdess]

Last night on '60 Minutes,' Leslie Stahl interviewed the CEO (President?) of Bank of America, who claims to serve 50% of Americans' financial needs (checking/savings, credit card(s), mortgages, etc.) by having bought out Countrywide and MBNA. B of A is one of the nine banks to receive bailout funds, although the CEO told '60 Minutes' HIS BANK IS NOT IN FINANCIAL STRAITS AND DOES NOT NEED THE $25 MILLION THE GOV'T IS FORCING THEM TO TAKE!
Asked by Stahl if he'll use the money to start lending to other banks, he said something to the effect of "probably.­" I thought the whole eff'n point of the bailout to these nine banks was to loosen up frozen credit so banks would start lending to one another. HeII, it's "free" money to them, why not gamble that the other guy might be willing to lend their "free" money?
A. Bank of America doesn't need to be bailed out.
B. They "might" use their portion of the bail out to lend to other banks. If not, what else will they use it for? Executive bonuses?
BTW, the B of A CEO has no golden parachute, but does receive a $25 million salary plus in perks.
Nationalizing rewards while privatizing the risks. Way to go W!

[javagirl]

I saw that interview, it was very informative, but just continued to fuel my outrage. I could not believe that Paulson basically strong-armed these banks. It just goes to show how much corruption is going on behind the scenes in this whole fiasco.

[WritusMaximus]

Obama is on board the Paulson Express. Me thinks Obama during his presidency will keep Mr. Paulson as head of the US Treasury & in charge of the bailout.

[Donald-Iowa]

Me thinks, you thinks WRONG...Pa­ulson has $112 million in stock options just sitting at Goldman Sachs awaiting his return. He can't touch them as long as he remains in government. No way on earth he's not going to return to the private sector, pick up those options, and sail off to the Bahamas. :-)

PLUS.....H­e's already hand picked his number one boy at Goldman Sachs to handle the details of the bailout at Treasury. Talk about being in the driver's seat :-)

[ijgibson]

The problem is that Americans are encouraged to believe that as long as wealth is redistributed upwards (towards the wealthy) that's the 'American Dream'.

Redistributing wealth downwards ie to the poor - those who actually need it - that's socialism and therefore treated with disdain.

While much of Marxism simply could never work, a basic idea - 'From each according to his ability and to each according to his need' would seem to be a fundamentally Christian ideal, and should therefore be espoused by the overly religious Americans. It seems to me - an atheist - to be a reasonable basis for a decent and caring society - and I'm certainly no marxist.

[bannorhill]

I have a better idea. Let's not redistribute. Each person keeps what they earn.

[Whatareyouthinking]

The whole thing is one big mess with enough blame for each side. It was not one side or the other as many seem to believe with their red or blue colored glasses. Those on this site blame everything on the Republicans. Those on their sites blame the Democrats. Everyone has had to much of the kool-aid and should look in the mirror.

[ShastaFox]

It seems to me that the opposite of "spreading the wealth" would be "concentrating the wealth" which is exactly what this bailout seems to be doing and what tax cuts for rich people and rich corporations promotes. Also, any time you tax the income of citizens, it is understood that the wealth accumulated will be "spread out" in some way, hopefully for the benefit of all citizens, even those who don't "work" (stay at home Moms and Dads, Children, for instance).­Redistribu­tion is a given, is it not?

[Bladernr1001]

So why did it have overwheling support of liberal democrats?

[bannorhill]

And why was it the Republicans who shot it down the first time?

[pistoo]

Afte a few days of hearing talks about the fake Joe the Plummer, i had hoped someone to come out and correct both McCain and the Plummer.
my understading is that you have to net $250K to be taxed, this means a gross of around one million a year .
so the way the Republicans are presenting this is for a change a BIG lie.
considering that Mr. McCain doesn't have any idea of his monthly expenses, it is difficult for him to grasp the difference between net income and gross income.
someone should explain it to him.
Pistoo

[JPSousa]

Wow, where to begin. Do you pay your taxes on your net, please let us know how you do it? Your income is you salary (the gross) is what you're are taxed on, not your bring home pay. It works the same on a small business. Yes, you have various deductions that everyone employs to reduce your tax liability which gets you to your taxable income, but it sure would not be 750,000.

Number 2.) Joe the Plummer is a fake? No, he is real. The employee of a plumbing company - which Joe currently is, does not need a plumbing license, they work under the license of the owner or master plumber. Same in the electrician field, HVAC and other trades.

The amazing parts of this argument are this. An average citizen dares to ask a simple question of the messiah and hell, the media and bloggers come down on him like a ton of bricks. His tax records are scrutinized, his licensing position, I expect any day we will find out he cheated once on his wife. Where is the investigative reporting on Bill Avers, Resko and a host of others. I guess once anyone reaches the magic plateau of $250,000 the American Dream is over and your hard earned money is now in the hands of the very efficient US government to determine who gets it under the phony guise of "fairness.­"

Oh, sorry for spouting off like this, I suspect my Kool-aid wore off.

[Donab]

You can believe with confidence that the (Republica­n-leaning) Chicago Tribune investigated the Resko and other issues on Obama back in 2004. If there were anything there, we would know about it. But since what you want to be there isn't, just blame the press for the lack of anything bad.

And what Obama is talking about redistributing is the tax cuts that were not evenly calculated back in the first Bush administration. Did you go back and do your taxes for 2001 on (according to the rules of) 2000? Did you see how much you saved? How close did it come to the tens and hundreds of thousands that people with incomes over $1 million saved? Even proportionately? Consult the IRS analysis of what the average results were for the different income levels.

[Bladernr1001]

The Koolaide is still flowing hot and heavy on this site......­...great post.

[janellrcarter1]

Sen. Obama isn't proposing -- nor is he interested in -- REdistributing wealth. He would, however, like to return some of the existing wealth to whence it came before the Bushites and other corporate/­wealthy-we­lfare activists did their own version of asset redistribution. The shrinking middle-income sector of this country isn't on a voluntary diet . Nor is it evapoprating. Their 'wealth' has been redistributed to the upper reaches of the country's income scale via tax 'cuts', tax shelters, tax exemptions, tax 'incentives, subsidies and other gifts, both in the form of direct infusion of tax dollars and indirectly as average folks must shoulder that portion of the tax burden the wealthy have been enabled to avoid.

[Whatareyouthinking]

Whether you like Bush or not, he cut the tax rates for everyone when he made his tax cut. He did not raise taxes on the middle class as it seems many on this site believe.

Re wealth distribution, the top 10% of American income earners already pay in 70% of the income tax dollars each year. The bottom 50% of earners pay in 3% each year. If you cut income taxes for those people, 50% of the population may not pay any income taxes and some will even get "credit" money back that they did not pay. That is wealth redistribution, however you cut it. If you support that concept, that is your own decision, but I do not think it is right.

[Donab]

Clinton raised the top bracket for individuals to 39% from 35% in 1993. Which cost him the Democratic control of Congress after 1994. By bracket, I mean all that income above some level like $400,000, I do not remember exactly what the level is. There are three levels below that one. When all you do is look up your taxable income in a table, you are not aware that the amount is calculated from different levels of income at different rates. Look it up. When George W. Bush came in HE lowered that top level to around 32 or 33%, I believe. When you calculate the average rate on the total income, it is MUCH lower than the highest rate, depending on how much higher that the bottom of the top rate your income is.

Try to be an informed commenter.

[harbinger53]

Of course everyone should be upset about this redistribution of wealth. Goldman Sachs gave heavily to Barak and John McCain, and they wanted this banking bailout to happen. 90-95% of the American people did not. This speaks to the power of the bribe, with Goldman Sachs and AIPAC leading the way in bribing organizations!! What was proven out of this bailout is that we no longer have a representative form of government. Money talks, and it does so very loudly to both political parties!!

[Donab]

Actually, the American people DID really oppose the bailout initially; after all it would have been hard to find a single non-government economist who thought the initial bailout was structured anywhere NEAR properly and should be reworked completely. But by the end of the week, when consumers could not get gasoline at their local gas station because the bank would not advance the station the money to pay for the delivery and the distributor would not deliver without getting the money, people began to understand that the credit freeze-up affected more than some banker's salary. Then there was incredible pressure to do SOMETHING quickly before the mass world psychology went west on the whole structure and the costs of restoring credit went even higher. Even today, a couple weeks later, things are not back to "normal." But the TOTALLY unworkable purchasing of "toxic assets" that Paulson was initially (actually until just last week, when he recognized that the stock market and credit markets were not happy with his approach) did Paulson reverse course and do what he should have been advocating from the beginning. But that is the problem with ideologues; they have to be hit on the side of the head a few times with a BIG two by four before they come around.

[Yermammy]

Dean Baker- man of the people! How do we stop this now? Barack is helpless until sworn in and by then, this will all be law, won't it? What can WE do? I am your loyal servant. COMMAND ME!

[Pasht]

OK, so redistribute wealth may have been the wrong phrase to pass to the American public, made permanently paranoid as they are with the C word and the S word. But that, in fact is one of the things taxes do, and only the most right wingers are resigned to taxes. No taxes means no roads,bridges, sewers, parks. Homeless clogging the streets, jobless in long lines at the hiring hall. Uneducated kids running wild, society's waste. Besides, I thought the American Way was to put others--the less fortunate--before yourself. Shucks, it's the moral, human, adult way. That is how I was brought up. Maybe I was wrong...

[Chetdude]

Now as through this world I ramble
I see lots of funny men
Some will rob you with a Six gun
And some with a fountain pen.

But as through your life you travel
As through your life you roam
You won't never see an outlaw
Drive a family from their home.

-- Woody Guthrie, Ballad of Pretty Boy Floyd

[websmith]

The only people saying that everything about Joe is a lie are the ones who want to chain him to a life of serfdom. When you tax businesses, they raise prices and the only thing that gets spread around is pain.

When you ship million of jobs offshore, allow millions of illegal aliens into the country who take jobs from the poor, issue millions of H-1B visas to millions of cheap foreign workers who take jobs from the middle class, meddle with energy until you are sending 100s of billions of dollars per year out to foreign oil producers, strike trade agreements where we buy their stuff and they don't buy our stuff until we run out of money, allow your military to be used to transfer trillions of dollars worth of wealth, transfer a trillion dollars worth of wealth to banks who have backed themselves into a corner with derivatives, and borrow, spend, give away, and waste $11 trillion, you tend to have an economic problem.

What happen to the emergency $700 billion, which is heading towards $2.5 trillion, that we told them not to spend? Now Congress wants to give us $150 billion that will temporarily ease our pain just in time for the election so the public servants who went against our wishes can get re-elected?

The population no longer has the money to buy goods and services and companies have no one to sell anything to.

http://ewebsmith.com/Finance/therealproblem.html

[autish]

I am glad someone brings this up.

Let me add, at the current Capital Gains tax rate in the US, people who earn most of their income in stock grants and options, actually land up paying a lower effective rate of marginal tax than their middle class counterparts. I remember having read that Warren Buffet's tax rate was lower than that of his administrative assistant's (not sure if that;s true). That to me is redistribution of wealth, only the GOP is emulating Prince John and not Robin Hood.

[northstar11]

the fleecing of america continues unabated

the money flowing the other way is class warfare

tommy douglas -the father of the canadian medicare system would surely include the banks under his umbrella of "corporate welfare bums"

[iluvsam]

Obama needs to use this in his stump to counter the socialism argument.