Robert Reich
President Barack Obama waves while speaking at the Fox Theater in Redwood City, Calif., in this May 23 file photo. Reich argues that Obama needs to stress the importance of economic fairness for a thriving economy. (Jeff Chiu/AP/File)
Obama and Cory Booker: Fairness is essential to growth
The Cory Booker imbroglio has ignited a silly but potentially pernicious debate in the Democratic Party between so-called “pro-growth centrists” who want the President to focus on how well he’s done getting the economy back on its feet after the Bush administration almost knocked it out, and “pro-fairness populists” who want him to focus on the nation’s widening inequality and Wall Street’s (and Romney’s) continuing role in generating profits for a few at the expense of almost everyone else.
According to the National Journal’s Josh Kraushaar, for example:
Conversations with liberal activists and labor officials reveal an unmistakable hostility toward the pro-business, free-trade, free-market philosophy that was in vogue during the second half of the Clinton administration….. Moderate Democratic groups and officials, meanwhile, privately fret about the party’s leftward drift and the Obama campaign’s embrace of an aggressively populist message… [T]hey wish the administration’s focus was on growth over fairness.
This is pure bunk – or should be.
Fairness isn’t inconsistent with growth; it’s essential to it. The only way the economy can grow and create more jobs is if prosperity is more widely shared.
The key reason why the recovery is so anemic is so much income and wealth are now concentrated at the top is America’s the vast middle class no longer has the purchasing power necessary to boost the economy.
The richest 1 percent of Americans save about half their incomes, while most of the rest of us save between 6 and 10 percent. That shouldn’t be surprising. Being rich means you already have most of what you want and need. That second yacht isn’t nearly as exciting as was the first.
It follows that when, as now, the top 1 percent rakes in more than 20 percent of total income — at least twice the share it had 30 years ago — there’s insufficient demand for all the goods and services the economy is capable of producing at or near full employment. And without demand, the economy doesn’t grow or generate nearly enough jobs.
Wall Street is part of the problem because it’s responsible for so much of the concentration of income and wealth at the very top – and for much of the distress still felt in the rest of the economy after the Street nearly melted down in 2008.
The Street has turned a significant part of the economy into a giant casino involving mammoth bets with other peoples’ money. When the bets go well, the rich owners of the casino (Wall Street executives, traders, hedge-fund managers, private-equity managers) become even richer. When the bets go sour, the rest of us bear the costs.
The casino also requires continuous transfers of wealth from ordinary taxpayers. Some are built into the tax code. One is the preference of debt over equity (interest on debt is tax deductible), which awards Wall Street banks like JPMorgan for risky lending and awards private-equity firms like Bain Capital for piling debt on the firms it buys.
Another is the “carried interest” rule that, absurdly, allows private-equity managers (like Mitt Romney) to treat their income as capital gains even when they haven’t risked any of their money.
The biggest of all is the invisible guarantee that if the biggest banks get into trouble, taxpayers will bail them out. This subsidy reduces the big banks’ cost of capital relative to other banks and fuels even more risky lending.
None of this is fair. It’s also bad for economic growth and jobs – as we’ve so painfully witnessed.
Translated into presidential politics, all this means the President should be talking about fairness and growth and jobs, and explaining why we can’t have the latter without the former.
It also means he should be attacking Mitt Romney because Romney is part of the system of casino capitalism that has harmed America and held back growth — and Romney wants even less regulation of Wall Street (he’s vowed to repeal Dodd-Frank).
And because the budget Romney has put forth would gut public services vital to the middle class and poor, while cutting taxes on the rich and on corporations even more than they’ve already been cut.
In other words, Romney epitomizes the unfairness of the American economy in this new Gilded Age. For that same reason, Romney is the quintessence of an economic approach shown to be anti-growth and anti-jobs.
President Barack Obama waves as he board Air Force One before his departure from Andrews Air Force Base, Md., Wednesday, May, 23, 2012. Reich argues that Obama should draw the link between the risky financial practices of Bain Capital and JPMorgan. (Pablo Martinez Monsivais/AP)
Obama should attack what Bain and JPMorgan have in common
I wish President Obama would draw the obvious connection between Bain Capital and JPMorgan Chase.
That way his so-called “attack” on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.
It’s an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples’ money to make big bets which, if they go wrong, can wreak havoc on the economy.
It’s the substitution of casino capitalism for real capitalism, the dominance of the betting parlor over the real business of America, financial innovation rather than product innovation.
It’s been terrible for the American economy and for our democracy.
It’s also why Obama has to come out swinging about JPMorgan. The JPMorgan Chase debacle would have been prevented if the Volcker Rule were sufficiently strict, prohibiting banks from using commercial deposits to make bets except very specific offsetting bets (hedges) on narrow classes of trades.
But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they’re still at it, as evidenced by Dimon’s current claim that the rule that eventually emerges would allow those bets.
As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite — a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance — any exception — will be stretched beyond recognition by the big banks.
So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open.
There’s no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.
At the same time, there’s no point to the “carried interest” loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they’ve risked no money of their own.
If private equity were good for America it wouldn’t need this or the other tax preference it depends on, elevating debt over equity. But the private equity industry has huge political clout, which is why these tax preferences remain.
Get it? Bain Capital and JPMorgan are parts of the same problem. The President should be leading the charge against both.
Republican presidential candidate, former Massachusetts Gov. Mitt Romney speaks in Hillsborough, N.H., Friday, May 18, 2012. Romney has had high praise for Bill Clinton recently, though Reich argues that the Clinton administration opposed everything that Romney stands for. (Mary Altaffer/AP)
Mitt Romney's skewed praise of Bill Clinton
Mitt Romney is full of praise for Bill Clinton even as he heaps scorn on Obama.
“Almost a generation ago, Bill Clinton announced that the era of big government was over,” says Romney, “Clinton was signaling to his own party that Democrats should no longer try to govern by proposing a new program for every problem.” By contrast, President Obama has “tucked away the Clinton doctrine in his large drawer of discarded ideas.”
It’s politics at its stupidest. Polls show Bill Clinton with higher favorability ratings than Obama, so Romney does what any vacuous opportunist politician does — try to associate himself with more popular, and maybe bring along some of those white males who voted for Clinton in ‘92 and ‘96.
But it won’t work. It might even backfire.
I was in Bill Clinton’s cabinet. I was in charge of Clinton’s economic transition team even before he became President. I’ve known Bill Clinton since he was 22 years old.
Romney doesn’t know what he’s talking about.
Clinton doctrine? As president, Bill Clinton raised taxes. Government receipts as a percent of gross domestic product rose from 17.5 percent in 1992, when Clinton was elected, to 20.6 percent in 2000, when he left office. Supply-siders screamed. They predicted the end of civilization as we know it.
In 2011, President Obama’s third full year in office, government receipts were down to just 15.5 percent of GDP.
Does Romney really prefer Clinton’s approach?
Under Bill Clinton, the top income tax rate was 39.6 percent. It’s now 35 percent, courtesy of George W. Bush. Obama wants to return to the 39.6 percent rate, but he doesn’t want to restore the Clinton rates on the middle class. Obama wants a lower rate on the middle class than the rate under Clinton.
(Romney doesn’t even mention George W. Bush, by the way. He now refers to him as “Obama’s predecessor.”)
So why, exactly, does Romney prefer Clinton over Obama?
The Obama administration has been far friendlier to business than Bill Clinton ever dreamed of. Obama bailed out Wall Street, no strings attached. He bailed out General Motors and Chrysler. His healthcare law creates giant benefits for Big Pharma and big insurance. By contrast, business hated Clinton’s major initiatives, such as the Family and Medical Leave Act.
Think about the modesty of Obama’s healthcare plan (which was enacted) relative to Bill Clinton’s immodest one (which wasn’t, due largely to the opposition of Big Pharma, big insurance, and the AMA). Obama’s plan bears far more resemblance to Romneycare in Massachusetts than to Bill Clinton’s failed plan.
During the first three years of Bill Clinton’s administration the government invested far more in education, infrastructure, basic R&D, and the Earned Income Tax Credit (a wage subsidy for the poor) than has the Obama administration to date.
So Romney really prefers Clinton to Obama?
In his absurd attempt to drive a wedge between Obama and Clinton, Romney has even gone so far as to suggest Obama has a “personal beef” with the Clintons.
Doesn’t Romney know the Obama White House is brimming with veterans of the Clinton Administration – from Gene Sperling (head of the National Economic Council) to Alan Kreuger (chairman of the Council of Economic Advisors), to Hillary Clinton herself?
Doesn’t he know Bill Clinton is already campaigning hard for Obama?
And that almost everyone who served with Bill Clinton is dead set against almost everything Mitt Romney stands for?
Oh, one more thing. Romney has done whatever he can to appeal to right-wing evangelical Christians, from opposing same-sex marriage to decrying abortion. Perhaps Romney doesn’t remember Bill Clinton was impeached for lying under oath to cover up an affair with an intern?
Barack Obama appears on a taped episode of the television show, "The View" at the ABC Studios in New York Monday. Posing with him are Barbara Walters (L) and Joy Behar The President talked about JPMorgan Chase on the program but disappointed Reich by not coming out in favor of tougher financial regulations. (Larry Downing/Reuters)
Obama's disappointing response to JPMorgan Chase
The dog that didn’t bark this week, let alone bite, was the President’s response to JP Morgan Chase’s bombshell admission of losing more than $2 billion in risky derivative trades that should never have been made.
“JP Morgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion,” the President said on the television show “The View,” which aired Tuesday, suggesting that a weaker bank might not have survived.
That was it.
Not a word about Jamie Dimon’s tireless campaign to eviscerate the Dodd-Frank financial reform bill; his loud and repeated charge that the Street’s near meltdown in 2008 didn’t warrant more financial regulation; his leadership of Wall Street’s brazen lobbying campaign to delay the Volcker Rule under Dodd-Frank, which is still delayed; and his efforts to make that rule meaningless by widening a loophole allowing banks to use commercial deposits to “hedge” (that is, make offsetting bets) their derivative trades.
Nor any mention Dimon’s outrageous flaunting of Dodd-Frank and of the Volcker Rule by setting up a special division in the bank to make huge (and hugely profitable, when the bets paid off) derivative trades disguised as hedges.
Nor Dimon’s dual role as both chairman and CEO of JPMorgan (frowned on my experts in corporate governance) for which he collected a whopping $23 million this year, and $23 million in 2010 and 2011 in addition to a $17 million bonus.
Even if Obama didn’t want to criticize Dimon, at the very least he could have used the occasion to come out squarely in favor of tougher financial regulation. It’s the perfect time for him to call for resurrecting the Glass-Steagall Act, of which the Volcker Rule – with its giant loophole for hedges — is a pale and inadequate substitute.
And for breaking up the biggest banks and setting a cap on their size, as the Dallas branch of the Federal Reserve recommended several weeks ago.
Wall Street’s biggest banks were too big to fail before the bailout. Now, led by JP Morgan Chase, they’re even bigger. Twenty years ago, the 10 largest banks on the Street held 10 percent of America’s total bank assets. Now they hold over 70 percent.
This would give Obama a perfect way to distinguish himself from Mitt Romney — who has pledged to repeal Dodd-Frank altogether if he’s elected President, who has also been raking in more than $20 million a year through financial games, and who shares the same prevailing Wall Street view of the economy as profits to be maximized while people are minimized (to Romney, corporations are people).
But the Obama campaign has so far chosen to attack Romney’s character rather than his place in the new American plutocracy, with ads highlighting the jobs that were lost when Romney, as head of Bain Capital, took over a Midwest steel company.
It’s the same personal attack Newt Gingrich and Rick Perry leveled at Romney. But Gingrich and Perry had little choice. They didn’t want to criticize the system that allowed Romney to do this because their party celebrates no-holds-barred free-market capitalism.
Obama does have a choice. He can assail Romney’s character but he can also take on the system that allows private-equity managers, as well as Wall Street’s biggest banks, to continue to make huge profits at the expense of average Americans. Romney is the poster-child for the excesses of that system, just as is Jamie Dimon and JPMorgan Chase.
We are still at the very early stages of the 2012 campaign. There’s still time for Obama to come out swinging – not only at Romney but also at the system of which Romney is a part, and to base his campaign on policies that will make that system work for ordinary people. Let’s hope he does.
Automobiles pass a JP Morgan Chase building Thursday, May 10, 2012, in New York. JPMorgan Chase, the largest bank in the United States, said Thursday that it lost $2 billion in the past six weeks in a trading portfolio designed to hedge against risks the company takes with its own money. (Frank Franklin/AP)
JPMorgan collapse: Can we regulate Wall Street now?
J.P. Morgan Chase & Co., the nation’s largest bank, whose chief executive, Jamie Dimon, has lead Wall Street’s war against regulation, announced Thursday it had lost $2 billion in trades over the past six weeks and could face an additional $1 billion of losses, due to excessively risky bets.
The bets were “poorly executed” and “poorly monitored,” said Dimon, a result of “many errors, “sloppiness,” and “bad judgment.” But not to worry. “We will admit it, we will fix it and move on.”
Move on? Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.
Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets).
Dimon argued that the financial system could be trusted; that the near-meltdown of 2008 was a perfect storm that would never happen again.
Since then, J.P. Morgan’s lobbyists and lawyers have done everything in their power to eviscerate the Volcker rule — creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near-meltdown.
And now — only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent and pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression — J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, excessively risky trades poorly-executed and poorly-monitored, that caused the crisis in the first place.
In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.
The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?
Several weeks ago there were rumors about a London-based Morgan trader making huge high-stakes bets, causing excessive volatility in derivatives markets. When asked about it then, Dimon called it “a complete tempest in a teapot.” Using the same argument he has used to fend off regulation of derivatives, he told investors that “every bank has a major portfolio” and “in those portfolios you make investments that you think are wise to offset your exposures.”
Let’s hope Morgan’s losses don’t turn into another crisis of confidence and they don’t spread to the rest of the financial sector.
But let’s also stop hoping Wall Street will mend itself. What just happened at J.P. Morgan – along with its leader’s cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded.
President Barack Obama is seen on television monitors in the White House briefing room in Washington, Wednesday, May 9, 2012. President Barack Obama told an ABC interviewer that he supports gay marriage. (Carolyn Kaster/AP/File)
Forget gay marriage. America's real problem is in its boardrooms.
The 2012 election should be about what’s going on in America’s boardrooms, but Republicans would rather it be about America’s bedrooms.
Mitt Romney says he’s against same-sex marriage; President Obama just announced his support. North Carolina voters have approved a Republican-proposed amendment to the state constitution banning same-sex marriage. Minnesota voters will be considering a similar amendment in November. Republicans in Maryland and Washington State are seeking to overturn legislative approval of same-sex marriage there.
Meanwhile, Republicans have introduced over four hundred bills in state legislatures aimed at limiting womens’ reproductive rights – banning abortions, requiring women seeking abortions to have invasive ultra-sound tests beforehand, and limiting the use of contraceptives.
The Republican bedroom crowd doesn’t want to talk about the nation’s boardrooms because that’s where most of their campaign money comes from. And their candidate for president has made a fortune playing board rooms like checkers.
Yet America’s real problems have nothing to do with what we do in our bedrooms and everything to do with what top executives do in their boardrooms and executive suites.
We’re not in trouble because gays want to marry or women want to have some control over when they have babies. We’re in trouble because CEOs are collecting exorbitant pay while slicing the pay of average workers, because the titans of Wall Street demand short-term results over long-term jobs, and because of a boardroom culture that tolerates financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign “donations.”
Our crisis has nothing to do with private morality. It’s a crisis of public morality – of abuses of public trust that undermine the integrity of our economy and democracy and have led millions of Americans to conclude the game is rigged.
What’s truly immoral is not what adults choose to do with other consenting adults. It’s what those with great power have chosen to do to the rest of us.
It is immoral that top executives are richly rewarded no matter how badly they screw up while most Americans are screwed no matter how hard they work.
Regressive Republicans have no problem intruding on the most personal and most intimate decisions any of us makes while railing against government intrusions on big business.
They don’t hesitate to hurl the epithets “shameful,” “disgraceful,” and “contemptible” at private moral decisions they disagree with, while staying stone silent in the face of the most contemptible violations of public trust at the highest reaches of the economy.
We must protect and advance private rights of individuals over intimate bedroom decisions. We must also stop the abuses of economic power and privilege that are characterizing so many decisions in the nation’s boardrooms and executive suites.
In this March file photo, job seekers stand in line during a Career Expo job fair, in Portland, Ore. The Labor Department said Friday, May 4, 2012, that the economy added just 115,000 jobs in April. U.S. employers pulled back on hiring for the second straight month, evidence of an economy still growing only sluggishly. (Rick Bowmer/AP/File)
Jobs report: The stall has arrived
The economy has stalled.
Friday’s jobs report for April was even more disappointing than March. Employers added only 115,000 new jobs, down from March’s number (the Bureau of Labor Statistics revised the March number upward to 154,000, but that’s still abysmal relative to what’s needed). We need well over 250,000 new jobs per month in order to begin to whittle down the vast number of jobs lost in the Great Recession. At least 125,000 new jobs are necessary each month just to keep up with an expanding population of working-age people.
With only 115,000 jobs in April, the hole is getting even deeper.
Most observers pay attention to the official rate of unemployment, which edged down to 8.1 percent in April from 8.2 percent in March. That may sound like progress, but it’s not. The unemployment rate dropped because more people dropped out of the labor force, too discouraged to look for work. The household survey, from which the rate is calculated, counts as “unemployed” only people who are actively looking for work. If you stop looking because the job scene looks hopeless for you, you’re no longer counted.
In the winter months — December, January, and February – hiring had seemed to pick up, averaging over 250,000 new jobs per month. Then the mini-surge stopped. The simplest explanation is that the mild winter across much of the United States gave an unusual boost to hiring then, leading to a correction by the spring.
Most of the job gains in April were in lower-wage industries – retail stores, restaurants, and temporary-help. That means average wages continue to drop, adjusted for inflation – continuing their long-term decline. Most of the new jobs that have been added to the U.S. economy during this recovery have paid less than the jobs that were lost during the downturn.
What does all this mean? Together with other recent data showing slower economic growth during the first quarter of this year, it’s safe to say the economy has stalled.
This is bad news for millions of Americans.
It’s also bad news for Obama and the Democrats. Voters don’t pay much attention to the economy in an election year until after Labor Day, so it’s not necessarily a huge help to Romney and the Republicans. But it’s a bad political omen nonetheless.
No set of policies between now and Election Day are likely to expand the economy. To the contrary, government at all levels continues to contract, acting as a fiscal drag when government needs to be doing the exact reverse – boosting the economy through additional spending. In 2013, when spending major cuts are scheduled, we’ll fall off a fiscal cliff.
Obama needs to push back loudly and clearly, saying he won’t support additional spending cuts until the economy is showing clear signs of improvement.
But widening inequality is the underlying culprit here. As long as almost all the gains from economic growth continue to go to the top, the vast middle class doesn’t have the purchasing power to boost the economy on its own. And rich Americans spend a much smaller portion of their incomes than does the vast middle class. Their marginal satisfaction from additional spending falls off. The second yacht isn’t nearly as much fun as the first.
Get it? We’ve still got a terrible cyclical problem – we can’t get out of the gravitational pull of the Great Recession.
Yet the underlying problem is structural, and it’s been growing for decades. The structural problem of stagnant or declining real incomes for most people, and soaring income and wealth at the top, was masked during the boom years when the middle class could turn their homes into piggy banks and extract home-equity loans or refinance. But the mask came off in 2008 as home values plummeted.
There’s no way to put the mask back on. We’ve got to face the truth. Obama and the Democrats have to explain to the American people why inequality isn’t just unfair; it’s also economically unsustainable.
President Barack Obama speaks at Lorain County Community College, Wednesday, April 18, 2012, in Elyria, Ohio. Reich argues that Obama's economic plan needs to be bold nad concrete if he wants to serve a second term. (Carolyn Kaster/AP/File)
What Obama's plan for fixing the economy should be
President Obama’s electoral strategy can best be summed up as: “We’re on the right track, my economic policies are working, we still have a long way to go but stick with me and you’ll be fine.”
That’s not good enough. This recovery is too anemic, and the chance of an economic stall between now and Election Day far too high.
Even now, Mitt Romney’s empty “I’ll to it better” refrain is attracting as many voters as Obama’s “we’re on the right track.” Each man is gathering 46 percent of voter support, according to the latest New York Times/CBS poll. Only 33 percent of the public thinks the economy is improving while 40 percent say they’re still falling behind financially — an 11 point increase from 2008. Nearly two-thirds are concerned about paying for housing, and one in five with mortgages say they’re underwater.
If the economy stalls, Romney’s empty promise will look even better. And I’d put the odds of a stall at 50-50. That puts the odds of a Romney presidency far too high for comfort. Need I remind you that Romney enthusiastically supports Paul Ryan’s wildly regressive budget, and as president would be able to make at least one or possibly two Supreme Court appointments, and control the EPA and every other federal agency and department?
The Obama White House should face it: “We’re on the right track” isn’t sufficient. The President has to offer the nation a clear, bold strategy for boosting the economy. It should be the economic mandate for his second term.
It should consist of four points:
First, Obama should demand that the nation’s banks modify mortgages of homeowners still struggling in the wake of Wall Street’s housing bubble — threatening that if the banks fail to do so he’ll fight to resurrect the Glass-Steagall Act and break up Wall Street’s biggest banks (as the Dallas Fed recently recommended).
Second, he should condemn oil speculators for keeping gas prices high — demanding that the oil companies allow the Commodity Futures Trading Corporation to set limits on such speculation and instructing the Justice Department to investigate and prosecute oil price manipulation.
Third, he should stand ready to make further job-creating investments in the nation’s crumbling infrastructure, and renew his call for an infastructure bank. And while he understands the need to reduce the nation’s long-term budget deficit, he won’t allow austerity economics to take precedence over job creation. He’ll veto budget cuts until unemployment is down to 5 percent.
Finally, he should make clear the underlying problem is widening inequality. With so much of the nation’s disposable income and wealth going to the top, the vast middle class doesn’t have the purchasing power it needs to fire up the economy. That’s why the Buffett rule, setting a minimum tax rate for millionaires, is just a first step for ensuring that the gains from growth are widely shared.
The President can still say we’re on the right track. But he should also say he’s not content with the pace of the recovery and will do everything in his power to quicken it. And he should ask the American people for a mandate in his second term to make the economy work for everyone, not just those at the top.
Such a mandate can be put into effect only with a Congress that’s committed to better jobs and wages for all Americans. He should remind voters that congressional Republicans prevented him from doing all that was needed in the first term, and they must not be allowed to do so again.
A Citibank sign on a bank branch in midtown Manhattan, New York is shown in this 2010 file photograph. Shareholders of Citigroup voted down a $15 million pay package for the company's CEO. (Mike Segar/Reuters/File)
Citigroup shareholders revolt. Will CEO pay drop?
The shareholders of Wall Street giant Citigroup are out to prove that corporate democracy isn’t an oxymoron. They’ve said no to the exorbitant $15 million pay package of Citi’s CEO Vikram Pandit, as well as to the giant pay packages of Citi’s four other top executives.
The vote, at Citigroup’s annual meeting in Dallas Tuesday, isn’t binding on Citigroup. But it’s a warning shot across the bow of every corporate boardroom in America.
Shareholders aren’t happy about executive pay.
And why should they be? CEO pay at large publicly-held corporations is now typically 300 times the pay of the average American worker. It was 40 times average worker pay in the 1960s and has steadily crept upward since then as corporations have morphed into “winner-take-all” contraptions that reward their top executives with boundless beneficence and perks while slicing the jobs, wages, and benefits of almost everyone else.
Meanwhile, too many of these same corporations have failed to deliver for their shareholders. Citigroup, for example, has delivered the worst stock performance mong all large banks for the last decade but ranked among the highest in executive pay.
The real news here is new-found activism among institutional investors – especially the managers of pension funds and mutual funds. They’re the ones who fired the warning shot Tuesday.
Institutional investors are catching on to a truth they should have understood years ago: When executive pay goes through the roof, there’s less money left for everyone else who owns shares of the company.
For too long, most fund managers played the game passively and obediently. Some have been too cozy with top corporate management, forgetting their fiduciary duty to their own investors. How else do you explain the abject failure of fund managers to police Wall Street as it careened toward the abyss in 2008? Or to adequately oversee executives, such as the Enron criminals, who were looting their companies in the years before 2002?
The new Dodd-Frank law, much of which is being eviscerated by Wall Street’s lawyers and lobbyists, at least requires that public companies give shareholders a say on pay. As a practical matter, this gives institutional investors the chance to speak clearly and openly about the scandal of unbridled executive compensation.
Two key questions for the future: Will institutional investors keep the pressure on? And will CEOs and boards of directors get the message?
THE MONITOR'S VIEW: CitiGroup shareholder revolt: golden-rule capitalism
In this October file photo, Darrell Willis wears a "99%" button and an American flag at the corner of LaSalle and Jackson during an Occupy Chicago protest in Chicago. Reich argues that the depth of income inequality is painfully clear on Tax Day, with the rich paying far lower rates than they should. (Rex Arbogast/AP/File)
Income inequality highlighted on Tax Day
As Justice Oliver Wendell Holmes, Jr., wrote in 1904, “taxes are the price we pay for a civilized society.”
But the wealthiest Americans, who haven’t raked in as much of America’s income and wealth since the 1920s, are today paying a lower tax rate than they have in over thirty years. Even though America faces a mammoth federal budget deficit. Even though public services at all levels of government continue to be slashed. Even though the median wage is still dropping, adjusted for inflation. Even though the typical American is paying more of his or her earnings in taxes – including payroll taxes, sales taxes, and property taxes – than ever before.
I’m not a class warrior. I’m a class worrier. And my worries go to why all this has happened.
I worry about the political power than comes with great wealth – such as the power of the wealthy to reduce their taxes, cut the public services most other Americans depend on, while at the same time garnering special subsidies and tax breaks for their businesses – big oil, big pharma, big agriculture, military contractors, big insurance, Wall Street.
I worry about the well-financed big lies that the very rich are the nation’s “job creators,” that the benefits from tax cuts on the rich “trickle down” to everyone else, that American corporations will create more jobs if only their taxes are lowered and if regulations protecting health, safety, and the environment were jettisoned.
I worry about the increasing dominance of Wall Street over our economy and democracy, and the near political impossibilities of closing the “carried interest” loophole that allows private-equity and hedge-fund managers to treat their income as capital gains subject to only 15% tax; of resurrecting the Glass-Steagall Act separating investment from commercial banking, and of breaking up the big banks to protect against another financial crash and bailout of the Street.
You and I have every right to be class worriers – and to be outraged at what has occurred. But we must get beyond worry and outrage, and do everything in our power to take back our economy and reclaim our democracy.
It was another justice of the Supreme Court, Louis Brandeis, who wrote in 1897, “we may have a democracy or we may have great wealth concentrated in the hands of a few, but we cannot have both.”
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