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TechnoratiWhile the American dream of home ownership has turned out to be merely a house of cards for hundreds of thousands of families, the costs of the mortgage crisis are not being shouldered equally by those at the top of the economic ladder.
Take Countrywide Financial, for example. The nation's top mortgage lender is scrambling to stay out of bankruptcy as its foreclosure and delinquency rates have hit a five-year high. But while many of the company's borrowers are facing the loss of their homes and their employees are worrying about losing their jobs, the executives who are largely responsible for building that house of cards have been lavishly rewarded.
Over the past three years, Chairman and CEO Angelo Mozilo has pocketed a whopping $142.4 million. Just last year, he made $42.9 million, a payout that made him the 6th-highest-earning CEO in the country. Fortune 500 firm chief executives overall made an average of $10.8 million in 2006.
And even as his company began to crash, Mozilo cashed in more than $100 million in stock options. Other top Countrywide managers also made out like bandits. The company's top five executives in total earned $323 million over the past three years.
Meanwhile, Countrywide was pushing the kind of risky, subprime loans with little to no down payment and ballooning interest rates that led to the current mortgage meltdown. Last week, New York Times columnist Gretchen Morgenson called the company "Exhibit A for the lax and, until recently, highly lucrative lending that has ... touched off a housing crisis of historic proportions."
The mortgage industry isn't the only one marked by extreme inequality. Private equity fund managers, for example, are raking in billions while forcing mass layoffs at many of the firms they acquire. Indeed, success in the sphere of private equity is often measured by the number of jobs eliminated. Stephen Schwartzman of Blackstone Group, for example, made $940 million last year. His fund's buyouts have resulted in cuts of 10 percent of the workforces at VNU, the parent of Nielsen Media Research, and at Travelport, the owner of Orbitz.
With selfishness and greed running rampant, there is a growing public outcry for reforms to address the country's rising inequality. A recent Financial Times/Harris poll, for example, showed that 77% of Americans think that corporate executives earn too much. Public admiration for U.S. business leaders is at a pitiful 11%. And a majority does not oppose caps on CEO pay, a telling statement for a populace that supposedly reveres the free market.
One practical policy response would be to return to a more equitable system of taxation. In 1943, the top 25,000 income-earning households paid 68.4% of their income in taxes; in 2004 they paid a paltry 21.9%. Factoring in government policies that have steadily eroded the social safety net, it is clear why the richest 1% of Americans has accumulated six times more wealth since 1983 than the poorest 90%.
Making sure that America's ultra-wealthy pay their fair share of the tax burden would increase faith in the American goal of shared prosperity. It would also generate a considerable amount of revenue that could be used to meet the basic housing, health and education needs of ordinary Americans. Maybe we could even afford to keep our mines safe and fix our bridges.
Of course, many pro-market cheerleaders would have us believe that placing checks and balances on the financial activities of America's economic elite will eliminate incentives for wealth creation and lead to Soviet-style stagnation. However, several studies have shown that inequality itself can harm the economy's efficiency. Management guru Peter Drucker, for example, believed that no CEO-worker pay gap could be over 20-to-1 without damaging company morale and lowering productivity. According to a new report by the Institute for Policy Studies and United for a Fair Economy, that gap is now 364-to-1.
To truly turn around the alarming trend of extreme wealth concentration, it will be necessary to restore the trust and sense of shared responsibility that characterize any truly healthy society. And that's a goal that cannot be met as long as financial executives are raking in outrageous compensation while their customers are becoming homeless.
Jeremy Koulish was a researcher on "Executive Excess," the 14th annual report on executive compensation released August 29 by the Institute for Policy Studies in Washington, DC, and Boston-based United for a Fair Economy.
31 Comments so far
Show AllBXman, we don't need to be that simplistic. How about a tax on stock transfers, and a progressive tax rate? We used to have that back when we had a middle class and it worked well. We also had money for roads and schools. Back then, every school had a full time school nurse. And provided musical instruments for kids that couldn't afford them. School lunches were prepared on site, were nutritious and good tasting and free to kids who couldn't afford them. We had public clinics that were free for the poor. We also had free access to public parks, zoos, aquariums, beaches. My family was poor when I was growing up, but we went to all these places. Now they are out of reach for the working poor. With wage stagnation the working poor can't even afford to pay for food and shelter. Wal-Mart doesn't need to provide even the rotten health insurance it offers, their employees qualify for Medicaid. The working poor deserve at least a living wage for their labor.
Oh, I forgot. According to MtnGoat, corporate boards get to decide how much a worker's labor is worth. Not much, not enough to live on.
We need to separate the corporate tax issues from the indivdual income tax issues. Do we want to perpetuate the 15% tax rates for dividend income for even the hedge funds or do we want to raise the income tax rates on working people, particulalrly the CEO's? The former will lower the profits and value of the stocks, thereby endangering pensions and health benefits. The latter will decrease the purchasing power of wage earners, thereby increasing unemployment and stifling wages. I vote for increasing the tax rates for dividends and profits, not for wages.
"This doesn't solve anything. Those who are not rich pay for the products produced by the rich, and they will likewise be the actual end payers even when you tax the rich.
The problem with this thinking is the false idea that you can somehow tax one party in trade without it coming out of the pockets of those doing the paying."
The rich produce nothing!
"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration." Lincoln's First Annual Message to Congress, December 3, 1861.
MtnGoat August 29th, 2007 6:17 pm
"Such profits/incomes are outrageous, unjust & unethical."
"What stockholders feel their executives are worth is between the board and the executive…it's simply none of your buisness."
What stockholders feel their executives are worth should be decided by the stockholders, not the board of trustees who make these decisions for the stockholders.
Stockholders don't get to decide how much money a CEO of a company should be earning unless they happens to be stockholders sitting on the board of trustees.
Who the hell do you think you're bullshitting?
"He believes that no one should have to contribute to the common good unless they feel like it."
That is correct. No one was placed on this earth to satisfy your or anyone elses views of how they should pay for something as nebulous as 'the common good'..or anything else. Keep your religion to yourself and we'd all get along just fine.
"I haven't figured out how he justifies using public roads because he hasn't talked about that."
Easy. There is this thing called a gas tax which pays for roads and is largely self proportional to use and vehicle weight. Don't use the roads, don't pay the tax. Buy food, still pay the tax for the roads the trucks used because it's price is included in the food. It's not all that complex.
"Like it or not, eventually the rich are going to have to pick up a larger share of the burden or the nation will crash. "
This doesn't solve anything. Those who are not rich pay for the products produced by the rich, and they will likewise be the actual end payers even when you tax the rich.
The problem with this thinking is the false idea that you can somehow tax one party in trade without it coming out of the pockets of those doing the paying.
Kernel, you misunderstand MtnGoat who could care less about the middle class and objects to any taxation. If you read his posts, you will realize he is coming from a philosophical perspective of survival of the fittest where if he sees someone who needs a helping hand, and in his opinion, deserves it and feels inclined to do so, will extend it. Otherwise it's every man for himself. You will better understand him if you read "Atlas Shrugged". He believes that no one should have to contribute to the common good unless they feel like it. I haven't figured out how he justifies using public roads because he hasn't talked about that.
MtnGoat___You surely must be a Republican billionaire that is petrified by the thought of a proper progressive tax system being put back in place. There will always be the poor, but when the middle class is being destroyed by having to pay more than they can manage and still survive, we have a disaster in the making. Like it or not, eventually the rich are going to have to pick up a larger share of the burden or the nation will crash. How can anyone try to say it makes good sense for someone who is making ten or twenty times more than he is worth
to be allowed to pocket most of it? Some of the middle class working people are probably contributing as much or more to the economy than these bloated pigs who get their hand-picked board to give them the moon. Reagan and his "trickle down" philosophy was a bunch of bull cooked up by his rich friends.
Comarc: Let's see a little more dignity there. Prior to the medieval fief system, people really did own land. Renting, when it is out of economic necessity and not choice, is despicable in my estimation. It depends on your life circumstances. If you have children, you want to pass some of your wealth onto them. Renting for a lifetime and you have nothing except landlessness (serfdom status) to pass on. Even in the middle of the largest cities, whether American or European, people should generally not be renting. They should be able to buy condos.
Modern so-called civilization really is predicated on the maintenance of a permanently displaced and largely landless work force. I've read that similar things are going on in China -- uprooting people from the countryside, forcing them to work cheaply in the sweatshops, turning them to tenant farmers, etc. The same thing that happened in the Anglo-American Industrial Ages. Being forced to rent is predicated on maintaining artificially inflated real estate values. Only it got out of hand this time.
We should be so lucky if real estate values were genuinely subject to laws of supply/demand based on ability to pay -- not on ability to borrow.
To do this, we need to tie a noose around those FIRE industries...
I was watching a George Carlin clip on YouTube the other day. http://www.youtube.com/watch?v=ccYoVnBc_fk. As is typical for Mr. Carlin, he has a great line right at the end of the clip.
"They call it the American Dream .... because you have to be sleeping to believe in it!".
So of course "the American dream of home ownership has turned out to be merely a house of cards for hundreds of thousands of families." because the whole thing was a con to start with. Anytime you see someone hustling anything as "the American dream", you know there's a con involved.
If it makes more sense to own rather than rent, then people will own. If it makes more sense to rent instead of own, then that's the way people should go. As soon as you see people being BS'd into owning when it doesn't make any sense for them because 'its the American Dream!", you know there was a lot of BS involved and people were being conned.
No offense, but no one made these people take these loans. No one made them decide to own instead of rent. I know last time I was in the market for a house, what the mortgage company would lend me was orders of magnitude more than what I thought I could afford. I think I cut the number about in half when I told my real estate agent what I was really looking for. Surprised my agent, who I guess didn't see that so often and had to recalc in her head her new commission on the cheaper homes I insisted on looking at. But if I'd gone with what the mortgage company suggested, I'd have been much, much deeper in debt. And when I described this to my mom, she laughed and said its always been thus.
So, I have sympathy for people losing their homes. And the pain of the market should definitely be shared with the mortgage companies that pushed these loans. But lets not forget that these people did sign up for these loans of their own free will. I don't think anyone was holding a gun to their head and making them take these bad deals. Renting sucks sometimes, but its not that bad. In some ways I am getting a little tired of hearing about these pitiful victims who knowingly signed up for a deal that was bad for and which couldn't work out for them.
"However, the financial sector works somewhat differently. The goal of a company like Countrywide is not to produce a good or service, but rather to extract as much value from other sectors of the economy as possible."
All companies seek to extract as much value as possible from other sectors. It what responsible dealmaking in purchasing and investment is based on.
They sure as heck DO produce a service or product, otherwise no one would pay them. Who will freely choose to pay good money to a company for no reason?
"This company in particular has been accused of misrepresenting its product in order to boost its cash flow at the expense of aspiring homeowners. "
What it's accused of is hardly a critique. IF you can find actual fraud taking place, that is, and should be, illegal. If people just don't like who they loaned money to, that's an entirely different matter. Taking a loan and the need for it is the choice of the lendee.
"Such profits/incomes are outrageous, unjust & unethical."
Then use your own control over your own life to not patronize buisnesses that do so. What stockholders feel their executives are worth is between the board and the executive...it's simply none of your buisness.
"If you think it's fine and normal for children to go hungry while some millionaire makes off with our national treasure and evades taxes, you need to find a moral compass."
I'd suggest that you talking about moral compasses when you think so many other people are evil, or stupid, or both, and that they need to be forced to abide by ideas you support for their own good because you know better than they do, isn't exactly consistent.
If you are so concerned about the chilluns..YOU feed them. Or is carrying the full load of your incredible morals, too much trouble?
Just when did someone elses money become your 'national treasure'?
Such profits/incomes are outrageous, unjust & unethical. No one is worth more than $100,000/yr. If the law put a cap on income, what great sums of money would be available for universal health care, free education from K through graduate school & affordable housing & food! In the meantime, is it possible Congress might increase the rate of taxes for the rich to 90%?
www.patrick.net
great website to understand the current crisis!
Mtngoat, you're all wet. Your mind is not in reality, it's in some Ayn Rand la la land. If you think it's fine and normal for children to go hungry while some millionaire makes off with our national treasure and evades taxes, you need to find a moral compass.
Hey nondescript, how about even a reasonable value for our work? Like enough to live on? It seems to me that if someone works full time, no matter what the job, they should have enough to eat and not have to sleep on the street. It's ridiculous that a boss can make $6,000 an hour while his worker can't make enough to keep from being homeless.
End corporate welfare!
www.vote.org
"The American Dream" is a powerful motivator. I know from personal experience. And let's face it, advertising works. "Countrywide is on your side" they just really want to help you get your home. And don't worry, house prices will never come down. Just like the dot-coms. As Voltaire said: "History teaches us that History teaches us nothing".
So, expect that the feds will bail out the lenders and let the little people go down.
MtnGoat, it certainly is true that classic market transactions have two sides. However, the financial sector works somewhat differently. The goal of a company like Countrywide is not to produce a good or service, but rather to extract as much value from other sectors of the economy as possible. This company in particular has been accused of misrepresenting its product in order to boost its cash flow at the expense of aspiring homeowners.
For more information on this, I would like to refer you to Gretchen Morgenson's recent article on Countrywide in the NYTimes, http://www.nytimes.com/2007/08/26/business/yourmoney/26country.html
I think the mtnGoat should go eat some more funny mushrooms. He obviously does not see the reality we all find ourselves sitting in. Bring back the 90% tax bracket on all money earned above 3-4 million dollars. At least our friendly Mozillo would have paid a fair amount of income tax. Personally, I would love to be in that tax bracket.
And before anyone cries "fowl", that tax bracket didn't stop the millionaires of old, why would it stop them today? Maybe we could also change corporate tax law a bit so that all monies paid to executives is not deductable from the bottom line, but worker wages are. That might actually incent companies to pay better wages to the people who actually work.
The funiest part of capitalism is that we never actually get paid the full value of our work. If we did, the company would not make a profit. I suppose the only way we could ever get paid the value of our work is if we owned the company and we all pitched in to make improvements or to expand. That sounds kind of socialist or maybe something even worse.
Coffeelover, as a matter of fact I wanted to mention the point you made, but to save space I had to cut out the following passage:
"While real estate prices soared out of control, banks, lenders and real estate agents were raking in a windfall. They had a strong incentive to continue the status quo, and helped fuel a speculative bubble in the process."
Sadly, one cannot make every argument one wishes to in a short piece like this.
kathyodat,
Good point. The Soviet citizens and then the Chinese became experts at reading between the lines. But in America, it seems that poor Johnny and Jenny are too distracted by their toys and by celebrity news to even know how to read between the lines or to even know it is necessary or possible.
You just do not get it! The REAL story is not being covered, which is the artificial mega-inflation of the housing market. Houses not worth what they have been appraised for. In most cases, appraisals happen without anyone actually going to the house to appraise it whatsoever!
Coffee,,,,
I mean that's about $48 million /yr. $4 million/month, $1 million per week, or $200,000 per day. So, what exactly does one have to do to "earn" $20,000 per hour? Who are the lucky recipients of such outstanding services?
MtnGoat's delusion that Angelo Mozilo delivered $142.4 million worth of good and services in three years is such a hoot. Gosh, I guess Angelo is really, really good at what he does. Thank you Mr. Thief! We are so glad you've provided us with $142.4 million of your theft services!
The whole sub-prime scam sounds remarkably similar the Savangs and Loan Scandals of the 80's. Just on a larger scale!
Some of the same people inolved, taxpayers bailing out the perpetrators, and the little guy ending up behind the 8-ball.
The public school system was started by the banksters to create a compliant population. Ending this government mandated system is a good start to solving these problems. Educate yourselfs, and your childern.
"it is clear why the richest 1% of Americans has accumulated six times more wealth since 1983 than the poorest 90%."
Is it? Why don't you explain why you and every author on this site persists in completely ignoring that wealth is not only money, it is goods and services..and that increase in wealth is matched by an equal outflow of goods and services?
Some may suck up economic pronouncements made while intentionally ignoring one half of the transaction in trade, but not all of us will swallow this blatant manipulation just to make a political argument based on a half truth.
So while the suckers who invested in Countrywide Financial are taken to the cleaners, the crooks at the top are emptying out the till on their way out the door. We've been here before. Some lessons never get learned.
And what about the people who bought homes on credit they couldn't afford? Even as late as July of 2006 realtors were telling me housing prices would continue to rise, but I knew better. I don't think most people were reading the financial pages as I was doing. You also have to read between the lines. Something Soviet citizens got very good at with their lying press. But too many Americans don't realize we also have a lying press. In the Soviet Union it was a government controlled press, ours is a corporate controlled press. And sneakier. Plays a good shell game.
Pretty Boy Floyd by Woodie Guthrie
Yes, there's many a starving farmer
The same story told
How the outlaw paid their mortgage
And saved their home.
Some rob you with a six gun
Some with a fountain pen
Don Corleone, the Godfather, speaking to Sonny
"Don't you want to become a lawyer? Lawyers can steal more money with a briefcase than a thousand men with guns and masks."
http://theformofmoney.blogharbor.com/blog/_archives/2007/4/13/2878726.ht...
Given that these guys own the machines that put public officials into office, I think we can count on more of the same.
A lot more.