Michael Steele, the embattled Republican Party chairman, last week delivered what one reporter called “an exceedingly odd speech.” Opined Steele, in an attack on Democrats in the White House and Congress: “You cannot help the poor by destroying the rich.”

America’s rich, truth be told, show precious little sign of tottering on the brink of destruction. Take, for instance, Richard Fuld, the former CEO of Lehman Brothers, the Wall Street banking giant that collapsed last fall and pitched the world economy into meltdown mode.

Fuld is doing quite nicely. He’s now selling, we learned last week, his 16-room Park Avenue apartment. He’s expecting $32 million, $11 million more than he paid to buy the place four years ago. The Fulds, after the sale, will do their hanging out at family manses in Connecticut, Florida, Vermont, and Idaho.

Many Americans of means, amid our economic meltdown, are cutting back. But America’s awesomely affluent — Richard Fuld’s peers and pals — are still thriving. And these rich and powerful, if current trends persist, seem almost certain to survive the mess they’ve created with their wealth and power largely intact. In this week’s Too Much, we do some exploring about why.

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Has our new Gilded Age gone kaput? Two experts on the U.S. luxury scene last week made that case. The National Jeweler, a top trade journal, urged “high-end” jewelers Monday to face up to an “inconvenient truth.” Their industry, the mag observed, will see no more “meteoric growth fueled by the swelling ranks of the super-rich.” Two days later, the Wall Street Journal reported “a new moment in the fall of the latest Gilded Age.” In Vero Beach, Florida, and other haunts of America’s deepest pockets, “fire-sale auctions of mansions, yachts, sports cars, and other trappings of wealth have become increasingly common.” But some rich seem to be having trouble letting go. Real estate prince Richard Peacock recently put his six-bedroom Florida mansion — complete with waterfall, tiki bar, and aviary — up for auction. Peacock had spent $8 million on his lavish abode. But bids for it stalled at $5.5 million. Peacock refused, at that price, to sell. He did accept a $110,000 bid on a Ferrari he bought five years ago for $207,000 . . .

In Austria, at least one wealthy businessman is having no trouble letting go. The 47-year-old Karl Rabeder is raffling off his $2.2 million villa in the Tyrolean mountains and donating all the proceeds to a nonprofit he set up to finance microcredit in the developing world. Rabeder made his fortune with interior furnishings, but he’ll be leaving his villa’s plush interior behind after the raffle. He’s only taking, notes the daily Der Standard, “his clothes, his laptop, and his idealism” into the Innsbruck apartment he’ll be renting. Says Rabeder: “For a long time I believed that more wealth and luxury automatically meant more happiness. Now it's time to sell my house, so I can be 'free' for my new life.”

In North Jersey, home base of TV's most famous mobsters, you don't have to make like Tony Soprano to run rackets. In fact, Tony and his pals would have to go some to beat the sweet racket that David Snow, the CEO of Medco Health Solutions, has going. Snow “fell short” on a key “performance goal” last year, reports the Hackensack Record, but Medco upped his bonus $400,000 to $3 million anyway, given “the difficulty of achieving 2008 performance goals” in the current economic climate. Over at Hertz Global Holdings, another North Jersey firm, an almost identical story. Hertz Global shares sank 68 percent last year. But CEO Mark Frissora walked off with over $600,000 in bonus and $5.7 million in new stock options after Hertz Global directors decided to recognize “that the terms of our annual incentive plan as originally established were no longer realistic and therefore provided insufficient direction and motivation to our management.”

North Jersey, amazingly enough, once actually sported a CEO who didn’t need paycheck windfalls to feel motivated. That chief executive, Ray Carey, took the reins at ADT, Inc. in 1970 and, over the next two decades, helped the New Jersey-based firm become the nation’s largest security services company — by striving to build a “cooperative work culture” that rewards all contributors to enterprise success, not just top execs. ADT, after Carey’s retirement, left North Jersey, but Carey is still working locally — and nationally — to help Americans understand how Wall Street “finance capitalism concentrates wealth and slows growth.” Carey’s latest project: a student essay contest that will award five $500 prizes. The contest’s challenge to students: If your school or college has not prepared you to understand our current economic disaster, and the concentrated wealth behind it, “then you must educate yourself.”

Home mortgage delinquencies, the Federal Reserve noted last week, have hit their “highest levels” since the Fed started tracking delinquency data. That’s bad news for millions of families — and a new shortcut to fortune for hedge fund king John Paulson. In 2007, Paulson scored a $3.7 billion payday “shorting” subprime mortgage-based securities, betting these assets would plummet in value. Now he’s betting that prices on subprime-crashed property have nowhere to go but up. As Paulson put it in a recent letter to potential investors in his new Real Estate Recovery Fund: “Given the continued downward pressure on housing process and lack of capital in the real estate sector, there will be numerous investment opportunities going forward.”

Quote of the Week

“It's time to spread the wealth and recognize that a company is the sum of its parts, not the reflection of a single manager's efforts. Yes, CEOs of publicly held companies should get bonuses for a job well done — and so should rank-and-file workers.”
David Lazarus, Los Angeles Times business columnist, May 23, 2009

New Wisdom
on Wealth

John Kay, Beware bail-out kings and backbench barons, Financial Times, May 19 2009. Why “bankers genuinely believe that the state should carry off their toxic assets while they continue with business and bonuses as before.”

CNBC, Grounding Corporate America, May 20, 2009. An illuminating debate on the impact of private corporate jets on the quality of our overall transportation — and environment.

Jonathan Weber, Greed, Bankruptcy, and the Super Rich, The Atlantic, May 20, 2009. On the future of the ultra-high-end resort economy.

On Wall Street, Back in the Saddle Again

The American economy hasn’t been working — for working Americans — for a generation. Over the last three decades, average American families have essentially had to make do with little more than stagnant wages and rising debt.

But this same economy has worked exceedingly well for America’s most financially favored. The nation’s richest 1 percent have, since the 1970s, over doubled their share of the nation’s income and wealth.

Last fall, this gravy train — for the rich — derailed. America’s biggest banks collapsed. The stock market tanked. The unthinkable, a real depression, suddenly became thinkable.

To the rescue came the feds. Bailout bills passed, loan guarantees flowed, confidence grew. The feared depression has receded, at least for the moment.

But where is our “rescued” economy now heading? Back to the “bubble economy” status quo that didn’t work for average people? Or ahead to a restructured economy that undoes decades of growing inequality and sets the stage for a lasting new prosperity?

Most signs, unfortunately, now seem to be pointing backwards.

Bank executives, for instance, are once again stuffing their pockets, just like the “old” days. Goldman Sachs, in 2009’s first quarter, set aside $4.7 billion for bonus compensation. At that rate, the New York Times points out, power suits at Goldman Sachs will see “almost as much as the pay in 2007, a record year.”

At Bank of America, a handful of power suits, after ingesting $45 billion in taxpayer bailout dollars, have personally gained over $25 million on the bank shares of stock they bought cheap earlier this year.

Bank of America and other top-tier banks, the Wall Street Journal reported last week, are also using the proceeds from the life-insurance policies they hold “on hundreds of thousands of their workers” to pay off the “bonuses, deferred pay, and pensions they owe executives.”

Execs at other financial giants — like Blackrock, a money manager about half-owned by Bank of America — are making big bucks running the bailout, on a day-to-day basis, for federal officials. Blackrock cleared a $786 million profit in 2008, a majestic sum that ensured Blackrock CEO Laurence Fink a $21 million payday and $26.2 million more for Bob Doll, a Blackrock investment officer.

The federal bailout effort isn’t, of course, supposed to be making anybody rich. The most visible federal bailout initiative, the Troubled Asset Relief Program, even carries a variety of limits on executive pay for the around 400 firms now getting TARP dollars.

But executives at these firms don’t appear to have any intention of letting these limits actually crimp their compensation. Bank execs are rushing to “pay back” their bailouts and escape the TARP pay limits.

These same banks, predictably enough, also have no intention of forsaking the federal bailout programs that don’t carry executive pay limits. These programs — the credit extended by the Federal Reserve, the loan guarantees from the FDIC — are enabling banks to borrow at low interest rates and lend out at high, a quick ticket to easy profits.

Treasury Department officials, for their part, have no intention of clamping down on the cash once again cascading into executive suites. The bailouts that Congress has so far blessed give Treasury Secretary Timothy Geithner wide latitude on enforcing executive pay limits — and Geithner would rather not do any enforcing.

“I don’t think our government,” Geithner noted last week at the National Press Club, “should set caps on compensation.”

Executives at bailed-out banks are arguing that executive pay limits leave them unable to compete for talent against hedge funds and other financial institutions that face no limits. Geithner appears to have bought in to that argument.

So do lawmakers in Congress. They could fix the talent competition “problem” by taking legislative action to discourage excessive executive pay across the economic landscape, not just at bailed-out firms. But lawmakers remain unwilling to take that step.

That unwillingness ensures that outrageously large windfall rewards — inside and outside the financial sector — will continue to give top executives powerful incentives to behave outrageously.

Senator Chuck Schumer from New York has, to be sure, just introduced a executive pay reform initiative that applies across the entire economy. Schumer’s bill — the Shareholder Bill of Rights Act of 2009 — would help dissident shareholders elect less CEO-friendly candidates to corporate boards and give shareholders the right to take advisory votes on executive pay.  

“The best check against unchecked CEOs,” says Schumer, “is an empowered shareholder group.”

But Schumer’s let-shareholders-fix-it approach to executive pay essentially punts away congressional responsibility. We don’t, as a society, expect shareholders to protect us against CEOs who pollute the environment. Why should we expect shareholders to protect us from executive pay abuses that endanger our economy?

In a more accountable world, former International Monetary Fund research director Simon Johnson testified last week on Capitol Hill, “all key insiders” would be “fired when their banks become insolvent” and, on top of that, be subjected to “large fines” that at least equal the value of the compensation they pocketed “while leading the bank that failed.”

In the current U.S. economic meltdown, none of that has happened.

“As things currently stand,” Johnson noted bluntly, “powerful insiders have learnt that they can gamble heavily and never lose personally or professionally.”

Those insiders still have that power. Will we be content to hope they never gamble again?

Does Inequality Upset Average Americans?

Benjamin Page and Lawrence Jacobs, Class War? What Americans Really Think about Economic Inequality. University of Chicago Press, 2009. 142 pp.

Why do lawmakers today so rarely dare to take any action that the super rich might find objectionable? Do politicians see public anger over Wall Street bonuses as just a short-term phenomenon sure to fade away? Do they fear that the public, down the road, will punish any pol who tries to trim America’s rich down to a more democratic size?

Or are lawmakers, with their reluctance to take on the rich, simply bending before the powerful political winds that wealthy special interests so relentlessly blow?

The cynics among us will naturally choose the latter option. They’ll find plenty of support in Class War?, a just-published analysis of American public opinion from two political scientists at the top of their game, Northwestern’s Benjamin Page and Lawrence Jacobs from the University of Minnesota.

Page and Jacobs have crunched the data from 70 years of public opinion polling on wealth and opportunity in America – and added into the mix results from an in-depth 2007 national poll conducted on their behalf by researchers at the University of Connecticut.  

Their basic finding? The conventional wisdom on American inequality — that most Americans don’t particularly care about wide gaps in income and wealth because most Americans admire the rich and want to become rich themselves — simply does not hold water.

Page and Jacobs have previously documented this point in various academic settings. With this slim new jargon-free book, they’re taking their message to a wider audience — and making their case with precision and simplicity.

“Ordinary Americans are not ignorant of the extreme inequality of income and wealth in the United States,” the two note in Class War? “They are not indifferent to the enormous, widening gaps between the super-rich and everyone else. They do not reject government action to deal with those gaps.”

Page and Jacobs readily acknowledge the data that demonstrate the “conservative” values that run through the American body politic. But these values, they argue, also encompass a commitment to equality. Indeed, the two suggest, we ought to consider most Americans “conservative egalitarians.”

“Americans both embrace the American Dream,” they posit, “and recoil from the extreme, growing gap between the rich and everyone else.”

In fact, the two scholars add, “the hope and expectation of living the American Dream is actually leading majorities of Americans of diverse backgrounds to oppose extreme inequality, as unfairly curtailing opportunity to all and stacking the deck in favor of the rich and their offspring.”

Page and Jacobs emphasize, at every opportunity, the diversity of public support for a less unequal United States. A solid 56 percent of Americans, they point out, believe “the government should redistribute wealth by heavy taxes on the rich,” and this majority goes far beyond the usual blue-state suspects.

“Most upper-income Americans and most rank-and-file Republicans,” Class War? relates, “favor redistribution to narrow the cavernous gaps between the rich and everyone else.”

Contemporary American politics does not, in any significant way, reflect this public opinion reality. But what else should we expect? We live in a deeply unequal society where wealth and power have both concentrated at the top.

This wealth and power will remain in place, there at the top, until challenged from below. Class War? just may give a good many more Americans the confidence to do that challenging.

Stat of the Week

The poorest fifth of Americans, notes the most recent U.S. Bureau of Labor Statistics survey of consumer expenditures, give an average 4.3 percent of their incomes to charity, over twice as much as the 2.1 percent share of income America’s richest fifth contribute. These figures reflect charitable giving levels in 2007.

Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org.