The Starbucks, sidewalk and subway comments continue to flow abundant as New Yorkers processed the country's latest made-for-TV sex scandal. The reality that New York Governor Eliot Spitzer, Time Magazine's former Crusader of the Year, the man now dubbed "George Fox" and "Client #9," had repeatedly gotten too hot and heavy with various high-class call-girls broke in salacious bits. This is the stuff that causes political dreams in America to dissolve even faster than the seismic destruction unleashed by the subprime mortgage crisis and the economic recession that has followed it.
Spitzer's meteoric rise to heady 'American Dream' heights guarantees that his sudden plunge will furnish rich fodder for everything from Saturday Night Live to Hardball with Chris Matthews. The governor's shattered dream is a bit like those of the subprime mortgage moguls who found their professional successes crumbling at a House Financial Services Committee hearing nearly a week earlier.
That March 7th hearing was called by Chairman Congressman Henry Waxman (D-CA) to examine the wildly exorbitant compensation packages of the three CEOs who rode the housing boom to great heights before it burst in their faces. Their combined take during that five-year period was $460 million! That's the kind of wealth that buys a lot of privilege, if not necessarily the kind in which Spitzer indulged.
Former Citigroup CEO, Charles Prince worked his way up his firm's ladder over a 30-year period, the first member of his family to go to college. The father of former Merrill Lynch CEO Stanley O'Neal labored at a GM factory in Atlanta, the same one in which his son worked while putting himself through college; O'Neal's family lived in a federal housing project until they bought their first home. Countrywide CEO Angelo Mozilo's grandfather came to America because 'anything is possible in this great country,' a mantra Mozilo held close as he built Countrywide from nothing over 40 years, increasing its stock value by 23,000 percent. He also fortuitously cashed out almost $150 million in stock as his firm navigated a share buyback in early 2007.
Subsequently, the firms that Prince, O'Neal and Mozilo ran respectively lost a combined total of $20 billion in the last two quarters of 2007. Their past compensation packages were scrutinized in the context of a banking industry that has so far written off $120 billion in deteriorating loans and counting - an industry running so scared, banks have stopped lending money to each other.
Their firms stand at the crossroads of an over-leveraged, non-transparent, risk-saturated banking and credit industry that will be deteriorating for the next several quarters to come, if not longer, and whose unregulated workings have spilled into the larger economy. As this industry tries to contain future corporate losses, individuals are already feeling more pinched than ever with escalating credit card, mortgage, home equity and auto loan interest rates and payments.
Indeed, the Spitzer scandal provided citizens a momentary respite from an economy collapsing on the subprime-housing-turned-full-fledged-economic-crisis which faces them in their daily lives. But shocking though the revelations about Spitzer were (and hypocritical to the max, given his platform of lily white ethical standards), his personal choices haven't actually damaged the quality of life for any Americans - other than those of his family, of course. Spitzer didn't transfer any actual money from the pockets of New York State or other homeowners around the country into his own.
But, there is one striking similarity between Spitzer and the group of men who defended their career paths and corporate stewardship last Friday morning. It can be summarized in one word: entitlement.
Both Spitzer and the CEO triplets assumed that certain perks came with their roles. In Spitzer's case, expunging fraud and various prostitution rings only made the lives of the prostitutes miserable, nonetheless under the covers, he felt a sense of entitlement to the sex, its secrecy, and the classic double-standard "do not as I do, but as I say." What Spitzer prosecuted as criminal behavior in his professional life, he wholeheartedly embraced in his personal one.
The CEOs lived under no such self-imposed professional constraints. They enjoyed America's ballooning executive pay which allowed the CEOs of the five largest companies to receive average compensation of $50 million each in 2006 - a 38% increase over the prior year. In 1980, America's CEOs were paid 40 times more than the average worker; today that figure hovers around 400 times more. Nearly 10% of all corporate profits go to top executives, while average workers' wages remain stagnant.
All three CEOs echoed similar refrains at their hearing. They cast themselves in rags-to-riches stories - ordinary men who had realized the classic American Dream - that hard work and perseverance would catapult them beyond their parents' social class. And it did. So they believed they deserved all the wealth that their dreams bestowed upon them.
But they failed to heed a deeper truth, that "with great power comes great responsibility." As Countrywide stock lost 85% of value, Merrill lost 40%, and Citigroup lost 45%, the CEOs argued that they were victims as well, not responsible participants. Mozilo referenced a housing market not seen this dire since the Great Depression. He recognized no liability, nor did he acknowledge that his company, the acts he lobbied for, and the greed of his industry might have caused the disastrous decline in that very market.
Besides which, Mozilo's financial cushion is substantially more plush than that of the average borrower facing foreclosure. This insulated status appears to transcend culpability (though the timing of Mozilo's stock sales may yet get him criminal charges). The issue of such extreme compensation should be examined not merely as a case study of personal avarice, but as a true problem which throws into question what is moral and what should be accepted as right or wrong in our society.
Most New Yorkers, average Americans and national pundits seemed certain that if Spitzer broke any law, he should forfeit his governorship, which he did this morning. On the other hand it's unlikely that these CEOs will have to forfeit their gains, even if some have resigned from their positions.
Yet, shouldn't the average American have the right to question the wildly extravagant pay these CEOs received when they refuse to bear any accountability in return? And why should they be allowed to protect themselves by exercising the power they enjoyed while busily stacking the decks in their favor at the expense of all the rest of us? If Spitzer has to pay the piper, surely the CEOs should be made to dance, or at least do community service.
Nomi Prins is a journalist and Senior Fellow at Demos, a non-partisan public policy research and advocacy organization. She is the author of Other People's Money: The Corporate Mugging of America and Jacked: How "Conservatives" are Picking your Pocket (whether you voted for them or not). Other People's Money, a devastating exposÃƒ© into corporate corruption, political collusion and Wall Street deception was chosen as a Best Book of 2004 by The Economist, Barron's and The Library Journal.
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