The banking giant Citigroup is saying goodbye to its $100 million man, Andrew J. Hall, and the commodities firm he ran. While the firm had generated big profits for the bank, it had also led to significant controversy because of Mr. Hall's huge promised bonus.... Citigroup announced on Friday that it was selling its energy-trading operation, Phibro, to the oil and gas company Occidental Petroleum, potentially allowing the bank to avoid a confrontation with the Obama administration over executive compensation.
The way in which oil speculator Andrew J. Hall is going to get his $100 million demonstrates clearly why we need to return to the 91 percent top bracket income taxes of the Eisenhower years.
Hall was scheduled to get nearly $100 million in bonuses for his services he and his firm Philbro provided to Citigroup. (Philbro is currently a subsidiary of Citigroup.) He earned his keep by using Citigroup capital to play the oil markets, which he did successfully. It's unclear if his actions resulted in any real economic value--no part of our economy functions more efficiently and no one has fuel in their gas tank they wouldn't have had because of his commodity trades. More than likely it resulted in a slight increase in overall oil prices that we all pay. Nevertheless he earned a pretty penny for Citigroup in the process--and for himself.
Unfortunately for Hall, the financial system collapsed and Citigroup was about to go under. Had it collapsed his contract would have been worthless as he lined up behind thousands of other creditors. However, the American taxpayer bailed out Citigroup with about $350 billion in TARP funds and asset guarantees. So Hall, who had a contract that predated the coronation of the Pay Czar, was all set to get his $100 million.
But the public and maybe a few of us bloggers got in the way. We created enough of a stink that Citigroup appears ready to sell him off. Out of sight, out of mind.
But Hall will still get his $100 million, and more. The Obama administration will look the other way because he'll no longer be at Citigroup and therefore not under Pay Czar review. But we should keep looking, especially at the tax code that treats the super-wealthy as if they were Pharaohs.
We have yet to face up to the fact that our current crisis was caused in large part because we threw away the progressive taxes instituted by our forefathers to prevent speculative excess. The more extreme the distribution of income, the greater the chance of a fantasy finance casino. The last time we had a distribution as skewed as today was 1929. Is that coincidental? No. When capital builds up in the hands of the few, the economy becomes imbalanced. There are not enough tangible investments in goods and services to satisfy the investment desires of concentrated wealth holders. So the money runs to Wall Street-created securities and Wall Street-enabled bubbles. You can bank on it.
During the New Deal and afterward we tamed such excesses through steep progressive income taxes. The rate hit 91 percent during the Eisenhower years on incomes that today would be about $3 million. That means the next dollar of income would send 91 cents to the Treasury (while the tax rate applied to the first $3 million was lower). Our economy did not suffer. Quite the contrary, this coincided with America's economic "Golden Age." And we had no financial crashes. Yes, there were all kinds of loopholes but we had the narrowest distribution of income on record during those years. Rich people were still rich, but the blind race to accumulate billions was held in check.
Such progressive taxes are the only way to stop the excesses represented by Andrew J. Hall. If Ike's taxe rates were still with us, Hall would see his income reduced to about $10 million, hardly a hardship.
Look, the 1950s was not nirvana. You have only to watch Mad Men to be reminded of the overt racism, sexism and discrimination against gays. But that era with its compressed income brackets was making a statement. It was important to build the middle class. It was important to strive for goals other than accumulating wealth. In fact, public service was held in high esteem. Can we even imagine that anymore?
In contrast, the Andrew J. Hall era is all about grabbing as much as you can for yourself. Milton Friedman preached that society would benefit as a whole if each of us pursued our self-interest and maximized our gains. With this philosophy we didn't have to ask hard questions about whether or not our actual work contributed to the social good. By definition if we made millions by speculating it meant we were doing good.
But it turns out there's a price to pay for ruthless selfishness. The system crashes. We send millions to the unemployment lines because we let the accumulation process run wild. We no longer give a damn about the middle class and the jobs it needs. All that matters is accumulating vast riches.
We may patch together our rickety financial system and restart the economy again, now that we've bailed out the very people who gambled us into the ground. But failure to grapple with our obscene wealth distribution is still with us and still tears at the fabric of our society. If we don't change it, the next crash can't be far away.
Eisenhower, a conservative Republican understood this well and kept our excesses in check. It's stunning that both our parties today don't have the guts to tackle our billionaire bailout society. The best they seem able to do is make sure Andrew J. Hall's loot is no longer in plain view.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
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