When the gods dance...

Monday, February 27, 2012

A Too Big to Fail Story



We’re all still feeling, four years later, the 2008 Wall Street crash that tanked the financial industry — and our economy. But an even deadlier 2008 crash in Manhattan has largely faded into obscurity. Last week, in a New York courtroom, memories of that forgotten tragedy edged back onto the public stage.

This particular stage would be the manslaughter trial of multi-millionaire James Lomma, the owner of New York’s largest construction crane company. In May 2008, one of Lomma’s giant cranes crashed down on New York’s Upper East Side, killing two construction workers.

These two men died, an assistant D.A. told a packed courtroom Tuesday, “because a wealthy man” cared about “the bottom line and nothing else.” The crashed crane, the D.A. noted, had suffered damage the year before. Lomma, the prosecutor charged, had refused to wait for a qualified repair firm. He cut corners instead to rush the damaged crane back into service.

Lomma may beat this rap. Cases against big cheeses remain devilishly difficult to bring to trial, let alone win, one reason why no high-finance chief exec has yet gone to jail for the frauds behind Wall Street’s epic 2008 crash. But you don’t have to be a Wall Streeter in America today to dodge accountability. We have more, on that score, in this week’s Too Much.


Cheerleaders for America’s ultra rich finally have a comedian they can call their own. Adam Carolla, a 47-year-old “radio personality,” captured right-wing hearts last fall with a profane rant against Occupy Wall Street. Carolla then burnished his friend-of-fortune credentials in an interview — with conservatism’s most prestigious magazine — where he bemoans “that the rich have to pretend they’re not wealthy.” Next up for the right: a search for a star rocker to offset the likes of Bruce Springsteen. That hunt may intensify next week after Springsteen’s latest album, entitled Wrecking BallappearsRolling Stone is calling the album “a scathing indictment of Wall Street greed.” Springsteen himself is crediting Occupy Wall Street for the album’s inspiration. Before Occupy, he noted earlier this month, “nobody had talked about income inequality in America for decades.”

They don’t make Republicans like Herman Andersen anymore. Andersen, a Minnesota congressman, opposed moves after World War II to cut income taxes by a fixed percent “across the board.” Such cuts, he charged, conceal big giveaways to America’s rich. To save workers $45 off their taxes, Andersen asked, why must we “give our million-dollar-income friend $90,000?” A good question for New Jersey governor Chris Christie. His new proposal to cut state income taxes 10 percent “across the board” will save households making $50,000 just $80. The savings for taxpayers making $1 million: $7,265. Christie's pick in the GOP primaries, Mitt Romney, last weekunveiled a plan to cut 20 percent, across the board, off federalincome taxes. Average savings for taxpayers in the bottom 20 percent: $78. Savings for the top 0.1 percent: $239,000.

Five years ago, France’s rich celebrated royally after conservative Nicolas Sarkozy won the French presidency and moved swiftly to slash inheritance taxes. But Sarkozy later raised taxes on the high-income set, and his main rival in this April’s upcoming French presidential election, Francois Hollande, is vowing to raise them even higher, from 41 to 45 percent on top-bracket income. The top current U.S. rate: 35 percent. French conservatives are predicting a massive rich people exodus to tax havens like Switzerland should Hollande be elected. But Charles-Marie Jottras, a luxury real estate firm CEO, sees “no major groundswell” among the rich for exiting France. One reason: Any massive deep-pocket exodus would flood the luxury home market with mansions up for sale — and depress the price departing mega millionaires could fetch for their properties.


Billionaire David Koch is standing in the Moorish-tiled entry hall of his Florida manse, dressed in white pants and blue blazer. He’s grousing to a Palm Beach Post reporter. Fumes the 71-year-old: “They make me sound like a bully. Do I look like a bully?” No, David Koch doesn’t look like a bully. He just spends like one. David and his brother Charles, theNew Yorker estimates, have spent over $200 million since 1998 on right-wing causes that range from denying climate science to busting unions. His latest cause: saving Wisconsin governor Scott Walker from recall. A Koch-funded group is currently blitzing Wisconsin with a $700,000 “It’s working” TV ad deluge on behalf of the Walker administration. But Wisconsin isn’t working. Under Walker, new stats show, the state now leads the Midwest in layoffs and jobless claims.



Too Big to Fail: An Executive Suite Story

If a blunder you committed cost your employer $4 million, how long would you stay employed? In America today, a CEO can cost his company $4 billion and still collect both a paycheck and a bonus.

People in America get fired all the time. Break too many plates as a dishwasher, lose too many games as a coach, miss too many deadlines as a reporter, you’re going to be history.

We need this accountability. We couldn’t function, as a healthy society, without it. But accountability has to be universal. To create and sustain excellence, no society can hold only some people accountable — and give others a free pass.

Yet some societies — deeply unequal societies — do give out free passes. All the time. In these unequal societies, grand accumulations of wealth translate into grand accumulations of power. The powerful make their own rules. They rig daily life's games. They come out winners no matter how poorly they play.

Consider Randall Stephenson, the chief exec at telecom giant AT&T. Stephenson had a bad year in 2011. A really bad year. His decisions cost AT&T over $4 billion. What price did Stephenson pay for this debacle? Last week we learned that price — and much more about the dysfunction that defines us.

Our story starts back last March when CEO Stephenson triumphantly announced that AT&T had just closed a deal to buy T-Mobile, the American wireless phone subsidiary of Germany’s Deutsche Telekom.

Stephenson clearly wanted T-Mobile in the worst way. The $39 billion purchase price he agreed to pay for the wireless carrier amounted to almost double the $23.2 billion value that analysts on Wall Street had placed on the company the previous December.

Stephenson also agreed to pay Deutsche Telekom a $4.2 billion “break-up fee” should his deal for T-Mobile fail to gain the necessary antitrust approvals from the U.S. Department of Justice and the Federal Communications Commission.

That fee amounted to a substantially greater share of the T-Mobile takeover price than the typical break-up fee in a major acquisition deal. Stephenson must have figured that AT&T couldn't possibly fail to gain a green-light from regulators.

His optimism did make a certain sense. AT&T had been working hard to tip the eventual regulatory decision. With a Capitol Hill lobbying army of over 90 power suits, including former GOP Senate leader Trent Lott, AT&T boasted what theWashington Post called one of the nation’s “most muscular” political operations.

Stephenson had a line into the White House as well. Bill Daley, then White House chief of staff, had been both a top exec at a phone company that merged into AT&T and an executive with JPMorgan Chase, the Wall Street bank that stood to make hundred of millions in fees from brokering the T-Mobile takeover.

That takeover, once approved, would instantly make AT&T by far the nation’s largest wireless carrier — and ensure Stephenson one of the largest payday windfalls in telecom history.

But both the Justice Department and the FCC would balk at the takeover as public — and rival corporate — pressure against it mounted. This past December, Stephenson folded and took the takeover offer off the table. AT&T would swallow hard and pay out to Deutsche Telekom the $4.2 billion break-up charge.

The enormity of “billions” can be difficult to comprehend. How much in real assets did Stephenson's T-Mobile fiasco cost AT&T? Try this analogy.

Imagine a terribly disgruntled AT&T employee out to inflict as much damage on the company as he possible could.

This troubled employee picks up a sledgehammer and walks up and down the aisles of an AT&T mobile phone warehouse, smashing one $100 phone box after another. He can smash 10 boxes a minute, 600 an hour. After an eight-hour day, he has inflicted $480,000 worth of destruction.

How long would this destructive demon have to keep that sledgehammer swinging to do as much damage to AT&T's bottom line as CEO Randall Stephenson's $4.2 billion T-Mobile merger break-up? Another 8,749 days.

The disgruntled employee in this parable, needless to say, would be fired — and spend no small amount of time in prison. The actual penalty on Stephenson? Did he lose his job for costing AT&T all those billions?

Not even close. Stephenson, AT&T corporate filings revealed Tuesday, didn’t even lose his bonus. AT&T paid the CEO, for his 2011 executive labors, $1.6 million in base salary, $3.8 billion in cash bonus “incentive award,” $12.7 million in stock compensation, and enough other goodies to value his total pay at $22 million.

“AT&T is committed to paying for performance and the compensation reflects that,” the telecom’s McCall Butler told reporters last week after the release of Stephenson’s pay figures.

How could a $22 million take-home reflect an appropriate reward for a “performance” that cost AT&T $4.2 billion? The AT&T board, company flacks explained, did absolutely penalize Stephenson for his performance. The boardreduced his bonus $2.08 million from what the top exec could have received.

Interesting penalty. Stephenson saw his pay drop less than 9 percent for an executive performance that dropped AT&T annual earnings by 52 percent.

AT&T shareholders can’t be too happy about that. But other stakeholders in AT&T also have reason these days to feel a bit out of joint. Customers, for instance.

In Connecticut last year, the state Department of Public Utility Control levied a $1.1 million fine against AT&T for poor customer service. Last fall, AT&T customers in Connecticut went up to six days without phone service after a “Nor'easter” blew through the state. Why the delay? Telephone workers had to be called up from the South to make the necessary repairs.

AT&T in Connecticut, notes local AT&T union president Bill Henderson, has cut more than 2,500 positions over the last four years.

AT&T layoffs have spread beyond Connecticut. In Georgia earlier this month, phone workers and Occupy Atlanta activists joined to stage a sit-in to protest 740 layoffs AT&T’s Atlanta office had announced in December.

AT&T officials say the layoffs in Georgia — and elsewhere — simply reflect the falling market share of landline phones. CEO Stephenson had one of his vice presidents tell protesting Atlanta workers that “like any responsible business, we must work consistently to match our workforce to the needs of the business.”

Workers, in short, must be accountable to the marketplace. The way of an unequal world. Somebody has to be accountable.


Our Class War's New Defense Establishment

Jeffrey Winters, Oligarchy in the U.S.A. In These Times, March 2012.

A half-century ago, President Dwight Eisenhower warned Americans against a “military-industrial complex” he saw dominating and distorting the national political scene.

Northwestern University political scientist Jeffrey Winters sees a broader threat to our American democracy. We have, Winters argues in the cover story of the latest In These Times magazine, become an oligarchy.

U.S. political analysts do from time to time write about oligarchs. But these oligarchs always seem to reside somewhere else — most notably in post-Soviet Russia. Winters turns the mirror back on ourselves.

Down through history, Winters reminds us, oligarchs have been people “who command massive concentrations” of wealth they can deploy “to defend or enhance their own property and interests.” In medieval Europe, oligarchs “built castles and raised private armies.”

Our contemporary American oligarchs — the ultra rich who rank in the top one-tenth of our richest 1 percent — have mercenaries, too. They hire, notes Winters, “skilled professionals, middle- and upper-class worker bees, to labor year-round as salaried, full-time political advocates and defenders of the oligarchy.”

These well-paid “worker bees” make up what Winters calls our national “wealth defense industry,” a sort of super-sized military-industrial complex.

“Oligarchic theory requires no conspiracies or backroom deals,” Winters takes pains to point out. “It is the minions oligarchs hire who provide structure and continuity in America’s civil oligarchy.”

Oligarchic theory, Winters adds, doesn’t require us to dismiss American democracy as a total sham. We do at times operate democratically. On many matters, as Winters explains, “oligarchs have no shared interests.” They either cancel each other out on these issues or have no real impact.

But on those issues where the richest of our rich do share common interests, the oligarchs dominate through “the unique power that comes with enormous wealth.”

The antidote to oligarchy? In the past, Winters observes, “wars and revolutions have destroyed oligarchies by forcibly dispersing their wealth.” Can we do that dispersing today without social cataclysm? Winters ventures no ultimate answer. Democracy, he does suggest, can certainly “tame” oligarchy.

To have any shot at doing that taming, Winters helps us understand, we first need to ask some “fundamental questions about how the oligarchic power of wealth distorts and outflanks the democratic power of participation.”

This new work from Winters offers a good place to start that questioning process.

Quote of the Week

"Who do we want to be? Will we be a country where success is limited to a few at the top? This country is strongest when we are all better off.”
Michelle ObamaMichelle Obama's Pitch to The Rich, Cincinnati, Ohio, February 23, 2012

Stat of the Week

Super PACs are just getting started. How far can they go? One sign of our times: The $2.6 million PayPal billionaire Peter Thiel has so far invested in GOP White House hopeful Ron Paulequals just 0.2 percent of the value of Thiel’s stake in Facebook.

New Wisdom
on Wealth

Malte Luebker, A Tide of Inequality: What can Taxes and Transfers achieve? Social Europe Journal, February 16, 2012. Why globalization and technology do not doom nations to greater internal economic inequality.

Bruce Bartlett, What Is the Revenue-Maximizing Tax Rate? Tax Notes, February 20, 2012. The tax rate on America's top income bracket can safely double from its current 35 percent, latest research suggests.

Brian Miller, Uprooting Inequality and Its Ideological UnderpinningsCommon Dreams, February 22, 2012. The story behind the forthcoming book, The Self-Made Myth.

Thomas Schaller, An American recipe for class immobilityBradenton Herald, February 24, 2012. 
A political scientist traces how the United States has become starkly more unequal and class-bound.

John Lanchester, Why the super-rich love the UK,Guardian, February 24, 2012. A UK novelist muses on the societal impact of a super rich presence.

Bill Boyarsky, Income Inequality Goes to School,TruthDig, February 24, 2012. An economic system tilted toward the rich creates pedagogical, not just pocketbook issues.

Jonathan Baird, Income inequality deserves our attentionConcord Monitor, February 26, 2012. A jurist explains why shrinking the gap between the rich and everyone else would benefit all society.

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