The indisputable economic (and moral) fact of our time is that America’s most wealthy, from whom capitalism’s CEOs, directors, guardians and gatekeepers are drawn, not only allowed this torrent of financial chicanery and deception to occur, they profited handsomely from it.
These pages have voiced strong doubts over the years about the leadership and compensation practices that prevail at many of America’s corporations. Chief among the criticisms were that these plans provided incentives and rewards that caused companies to take improper risks which allowed CEOs to rack up huge gains in the short run while investors — and, ultimately, society — were left holding the costly bag of empty promises when reality came crashing down.
Take Bank of America, for example, which recently settled with the U.S. Justice Department by agreeing to pay a record $17 billion in penalties and restitution. In the long history of American business, there has never been anything approaching this outsized penalty. It stems from improprieties at Countrywide Financial, which B of A bought in another fit of misguided thinking, just before the onset of the Great Recession. There were also irregularities involving disclosures about its takeover of Merrill Lynch as well as with Bank of America’s own mortgage practices.
You might think that CEOs and boards are paid well for keeping companies out of trouble and avoiding these kinds of disasters. Half of that observation is certainly true. In the five years leading up to the crash of 2008 and the beginning of the worst recession since the Great Depression, B of A’s CEO Ken Lewis was paid more than $200 million. Each of the bank’s directors awarded themselves a minimum of $1.5 million in the same period. Many collected more.
When he retired in 2009, Mr. Lewis walked away with a further $83 million in retirement benefits. Others connected with B of A, such as former Merrill Lynch CEO John Thain and Countrywide Financial’s former CEO Angelo Mozilo, also made off with huge fortunes as a result of deals made with the bank under Mr. Lewis.
And for all that, one of America’s most prominent financial institutions did not walk — it ran — into the giant propeller of U.S. government in a predictable and avoidable financial collision that resulted in this staggering record payout.
Bank of America was, as we documented over the course of several years, far from alone in practicing financial acrobatics that were more suited to a travelling carnival than an iconic institution of capitalism. Yet in this mighty tsunami of boardroom wrongdoing and excess that nearly upended Main Street, barely a ripple of bother was felt among the first-class decks of Wall Street and America’s financial elites. No CEO has been sent off to jail. No director or chief executive has been forced to return any pay. As we noted in The Fallacy of Giants, in most cases when these kinds of eye-popping settlements are announced, the company’s stock shoots up. Government fines, no matter how staggering, and accusations of abuse and betrayal by top management and boards, no matter how shameful, are regarded by many business insiders and much of the market as just another cost of doing business.
The indisputable economic (and moral) fact of our time is that America’s most wealthy, from whom capitalism’s CEOs, directors, guardians and gatekeepers are drawn, not only allowed this torrent of financial chicanery and deception to occur, they profited handsomely from it. The result is that those same elites in the period between 2007 and now managed to gain an even larger choke hold on the wealth and income of America than at any time since the 1920s. This, despite the fact that were it not for the bailout provided by America’s taxpayers who largely live on Main Street, not only would this expansion of wealth not have occurred, but capitalism itself might not have survived. On that point, is it not interesting that the same voices that are generally quick to rail against government excess and demand fiscal discipline when it comes to the public purse are uncharacteristically silent when it comes to the $5 trillion the U.S. Fed paid to finance the bailout? Does that have any connection with reality, or is it just another case, like CEO compensation, for instance, where there is one set of ever accommodating rules for those at the top and another for everyone else?
What happened with Bank of America, and other prominent institutions like it, and the ease with which moral and legal improprieties can be sloughed off with little consequence for those in charge, is at the heart of the current record level of public disaffection with capitalism and those who lead it. Having spent nearly half a century working with and around capitalism and its leaders, it is hard for me to imagine that one day it may cease to exist. But the too often overlooked reality is that the fundamental currency that sustains modern capitalism is not capital at all — it is the consent of the public.
If present trends in income equality and corporate immorality continue, and its leaders fail to ensure that capitalism is governed by a set of values that is consistent with the needs and dreams of Main Street, it is hard to imagine how it will survive.
Only Dick Cheney could make Spiro Agnew look better.
“So?”
Never have fewer letters signified the arrogance of power and disconnection from reality more vividly than this reply from U.S. Vice President Dick Cheney. He was responding last week to the statement from ABC News’s Martha Raddatz that two-thirds of Americans believe the war in Iraq is not worth it, according to recent polls.
It is a war that has cost hundreds of billions of dollars, destroyed the lives of countless Iraqis, inflamed an already unstable region, sent America’s reputation to a new low around the world, and, most importantly, cost the lives of 4,000 American heroes and left tens of thousands badly injured. Mr. Cheney’s role as an architect of the war is well established. What he has managed to conceal to date is his utter disdain for the American people. This was exposed fully last week in that single-syllable response to a legitimate public concern. This one word from his own lips sums up the man better than entire books will do in the future.
There have been storied figures in American history who have occupied the office of vice president, beginning with John Adams. One can also remember characters from another unpopular war involving a different administration. But not even Richard Nixon’s corrupt vice president, Spiro T. Agnew, displayed such contempt for public opinion as his present day successor.
It takes quite a talent to make Spiro Agnew look better. He may be one of 46 vice presidents to have held the office, but as to the discredit and destruction he has wrought, Richard B. Cheney is in a class by himself.
Maher Arar, the Canadian citizen who was detained at a New York airport in 2002 by U.S. officials and sent off to Syria where he was tortured, testified before the United States Congress yesterday —by video conference. He could not appear in person because he is barred from entering the U.S. on the grounds of alleged terrorist links, despite having been cleared earlier this year of having any such connections by an exhaustive public inquiry in Canada. As we noted here some months ago, the Canadian government has already apologized to Mr. Arar for its role in the travesty and paid him some $10 million in restitution. (more…)
Alan Greenspan, whose selective vision we have written about before, appears to have been “shocked, shocked” that tax cuts were contributing to the mounting deficit in the Bush administration. That is, if you believe his just released autobiography The Age of Turbulence. This is a man who, as head of the Fed until just 18 months ago, had nothing but praise for these same deep tax cuts when asked about them before Congress on several occasions. He wanted them made permanent, in fact. He also seemed to have lost his tongue when it came to raising red flags about other aspects of deficit spending that took hold of Mr. Bush and his fellow Republicans the likes of which no liberal would have dared attempt. Now both figure prominently as a source of outrage in the mind of the once revered oracle of U.S. monetary policy.
I recall Dr. Greenspan having a similar change of heart when it came to Sarbanes-Oxley legislation, which he initially supported along with the White House and both houses of Congress. More recently, however, private citizen Greenspan, who consults regularly to American business, expressed chagrin at the dampening effects of such legislation.
There is a very old toy, still popular with children, called Silly Putty. It is remarkably malleable and can be molded into just about any shape. It is an amusing property for a toy, but not so much for the character of those who hold high office. The public is entitled to expect that its leaders will be forthright in their views when it comes to the responsibilities they hold —not hold back their real thoughts for the best seller list.
How many other momentous events will later turn out to enjoy less support than met the eye at the time? What faulty decisions are being made today in Washington and around the world by figures who could stop them if only they had the courage to speak out. The lessons of Vietnam, and now Iraq, are painful testimony to the consequences of the voices unraised, the silent doubters and those who just could not bother to ask the tough questions.
The world needs leaders who are on the job today, when it matters and when they can effect change for the better, not in the book store telling us about what they really, really sincerely felt —tomorrow.
There was an interesting contrast between two prominent American figures who support the war in Iraq over the weekend. On Meet the Press, former House Republican Majority leader Tom DeLay took the position that during times of war, like now, there should be no opposition. And demonstrations of the kind that occurred during the last few days in Washington and elsewhere were “aiding and abetting the enemy.” All Americans have a duty to stand by their “commander-in-chief” he asserted. On Face the Nation, Defense Secretary Robert Gates said he believed that everyone involved in the debate about the war is “patriotic” and looking for the best solution. (more…)
The shameful condition of U.S. medical facilities for treating wounded veterans was highlighted this week in what will surely be Pulitzer Prize winning stories for the Washington Post. It symbolizes a culture of betrayal on the part of official Washington that has rightly seen Americans everywhere register their indignation.
But the outrage goes beyond the squalor in certain buildings or even the red tape and run around facing returning military personnel. It is that this was allowed to happen for years without anything being done. During this time, veterans and their families were writing to their members of Congress and senators pleading for action. Yet with all their staff, these political representatives of the people apparently couldn’t be bothered to pull together the same story that virtually fell into the laps of Post reporters Anne Hull and Dana Priest. There was no investigative reporting here. The deploring situation was out in the open for anyone to see.
It is bad enough for the military chain of command to have permitted this situation. But one likes to think that at least elected officials –and there are enough of them in Washington– are there to serve as a check on executive power especially when it drops the ball. America’s federal lawmakers are busy folks. But they have no higher duty than to ensure that the best treatment and care is provided to those who are sent off into battle and return the worse for it. What happened to the staffs of the armed services committees of Congress or to the committees that oversee veterans affairs? Much is made on both ends of Pennsylvania Avenue about the need to support the troops. But no senator or congressman —Democratic or Republican— it seems cared enough to respond affirmatively to the hundreds of letters they received or to walk over to Building 18 of the Walter Reed medical campus to see what the reporters saw. They, like the officials in charge, let the troops down.
This would be a disgrace anytime. During a time of war, it is an intolerable outrage.
