Kenneth Feinberg, the Obama administration's “pay czar” for executive compensation at the biggest bailout basket cases, appears to be getting a little frustrated. One Wall Street executive, Feinberg told an interviewer last week, recently asked him why he was only paying the exec $9 million a year.

“Why don't you like me?” the power suit pressed.

“They really do believe they are entitled to $9 million," says an exasperated pay czar Feinberg. “That's the problem.”

In this week’s Too Much, we explore this “culture of entitlement” that Feinberg has stumbled into — and how that culture is costing us every time we step up to a checkout counter.

Also this week: We join a crack international team of brain scientists and take a look at our lobes. On inequality, says this team’s fascinating just-published research, our brains turn out to have a mind of their own.

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Not all the winners at the just-concluded Olympics in Vancouver won medals. Consider, for instance, George Wong, the real estate developer who spent the Olympic weeks hawking his new Three Harbour Green condo complex in Vancouver’s Coal Harbour. Wong was counting on the Olympics to generate interest in his luxurious condos, the most expensive ever built in Canada, and the games most certainly did. Of Wong’s 81 condo units — priced from $2 million to $22.3 million — 38 have now sold, with about half going to non-Canadians. Notes Wong about these visitors from afar: “They're buying for recreational use. They come here for two or three months out of the year.”

Former Vice President Dick Cheney suffered a heart attack late last month. The source of his latest stress? Maybe the news that James Stewart, the CEO of BJ Services, a Houston-based oil-field services firm, will be collecting $92 million in severance this month when his company’s merger with Baker Hughes, another Houston oil-field company, finalizes. Why might this news upset our former vice president? The $34 million exit package that Cheney took home in 2000 when he left his CEO office at Halliburton, still another Texas-based oil services firm, “now looks like a pittance,” says Houston Chronicle analyst Loren Steffy . . .

Thank goodness for nasty divorces. Without them, we might never find out how much the ultra rich are raking in — and how little they’re paying out in taxes. Eight years ago, for instance, we learned from a divorce case affidavit that General Electric had bestowed upon CEO Jack Welch a retirement package that included an $80,000-per-month Manhattan apartment, on-demand access to a private jet, dues for three golf clubs, and a limited-edition Mercedes, all on top of a $9 million annual pension. Last week, the Los Angeles Times revealed, from still more divorce filings, that Frank and Jamie McCourt, the estranged owners of the Los Angeles Dodgers, had collected $108 million in income from 2004 through 2009 and paid, thanks to various business tax loopholes, zero in state and federal income taxes. The McCourts currently own eight homes . . .

Brent Hill, an Idaho state senator, believes in government helping people. Some people. Hill, the chair of Idaho's Senate tax committee, last week pushed along a bill that would let wealthy victims of Ponzi schemes write off all their losses at tax time. Ponzi victims can already write losses off against income they make in the year they lose their money. Hill’s bill would let investors who lose more than their annual income subtract losses off income they claimed in previous years. This change, says Hill, would help at most a few dozen investors and cost the state no more than $1 million a year. The week before last, this same Brent Hill had his Senate tax panel kill a bill that would have temporarily, until the recession ebbs, exempted Idaho homeless shelters from sales tax. That bill would have saved five shelters $15,000 this year and next. Hill’s rationale for denying the shelters help? Doesn’t make sense, he opined last month, to favor only a handful of charities . . .

Brent Hill seems to have some soul mates at the national level. In Washington, conservative lawmakers are threatening to bottle up unemployment benefits for jobless Americans until the Senate agrees to lower the estate tax that wealthy families will, under current law, start facing next year. Jon Kyl, a Republican from Arizona, said last week he wants to see “a path forward fairly soon” on cutting the estate tax — or else. Iowa Republican Chuck Grassley has been trying to cut a deal with conservative Democrats that would trade help for the jobless for an estate tax “compromise” that would save wealthy households, over ten years, nearly a quarter-trillion dollars. One group working to preserve the estate tax, United for a Fair Economy, is calling any move to tie jobless aid to estate tax relief an “outrage” that would, if successful, “shower more tax breaks on the rich while Americans lose their homes and fill unemployment lines.”

Quote of the Week

“Today's super-rich are not robber barons, but bubble barons: they extract their fortunes from intensifying cycles of imaginary wealth creation and destruction, live at a far remove from their businesses, and evade accountability in the public spotlight. The robber barons stood behind their economic crimes; the bubble barons, for the most part, do not.”
Kevin Connor, Exposing the Great American Bubble Barons, AlterNet, February 24, 2009, announcing a new effort to track the wealth and power of U.S. billionaires who realized astronomic gains during the housing bubble.

Stat of the Week

U.S. workers currently pay 1.45 percent of their wages in Medicare tax, with another 1.45 percent paid by employers. But a millionaire who makes a killing trading stocks faces no Medicare tax at all. That would change under the new health care plan the White House announced last week. The plan would subject capital gains, interest, and dividends that go to couples making over $250,000 to a 2.9 percent tax. The health care bill the House has passed places a 5.4 percent surtax on all income, for couples, over $1 million.

Wall Street's Protection Racket: Still Rolling

To really reform big bank behavior, we need to scuttle the pay system that 'entitles' Wall Streeters to however much they can grab.

Too many Americans, conservative ideologues often lament, feel entitled to the good life, even if they haven’t worked to achieve it. Conservatives typically go on to blame this sorry state of affairs on government, all that taxing of the “successful” to bankroll handouts to the “undeserving.”

In fact, we do indeed have a “culture of entitlement” here in the United States — and a dangerous one at that. But you won’t find this dangerous entitlement culture in poor neighborhoods. To witness the entitlement culture that actually threatens our social order, you have to look up the economic ladder — into the executive suites of our biggest banks and corporations.

The power suits who sit in these plush offices have come to feel absolutely entitled to the multi millions that get stuffed into their pockets. And to keep that stuffing going, they feel entitled to our money, too. And they keep grabbing at it, with the single-minded desperation of addicts racing for their next fix.

We saw that desperation last week. On Monday, the new credit card reform law enacted last year — legislation designed to protect consumers from excessive credit card fees and penalties — went into effect.

By Wednesday, consumer watchdogs at the Demos think tank in New York were reporting that banks nationwide were blitzing consumers with “a wide range of new and excessive fees and penalties” that sidestep the new law’s prohibitions.

One example: The credit card reform law prevents banks from automatically enrolling their debit card customers in “overdraft protection” programs.

A decade ago, merchants would simply reject transactions when consumers walked up to checkout counters without enough money in their debit card accounts to cover the items they wanted to buy. No big deal — and no penalty either for the consumer, beyond having to postpone the purchase.

But then the subprime crash sent banks scurrying for new cash cows. Enter the automatic overdraft protection program. Banks started letting consumers complete transactions even if their debit card accounts couldn’t cover them. The catch: The banks charged consumers stiff penalty fees — an average of $34 per incident — for this “benefit” they had never requested.

Consumers, on average, were soon paying a $34 penalty fee on purchases that averaged only $20. Needless to say, this overdraft protection proved incredibly lucrative for banks. In 2009, the industry collected $20.2 billion in debit and ATM card overdraft fees.

The new credit card law’s prohibition against automatic overdraft protection puts all these billions at risk. But the law has a loophole. Banks can continue charging exorbitant penalties if consumers “agree” to sign up for “overdraft protection.”

The banks, no surprise, are going all-out to gain that agreement. The industry, the New York Times reports, is “mounting an aggressive campaign aimed at keeping billions of dollars in penalty income flowing into its coffers.”

The core of the campaign: torrents of misleading letters and emails designed to panic consumers into agreeing to keep their “overdraft protection.”

The new credit card law now in place has enough loopholes to make this sort of scare campaign well worth the banking industry’s effort. Thanks to these loopholes, predicts Washington Post consumer reporter Michelle Singletary, lenders won’t have any trouble finding “ways to continue pummeling consumers.”

This pummeling makes an arrogant mockery of the claims banks made back in the 1980s and 1990s, during their push to deregulate the financial sector. Bank executives argued back then that letting banks merge into every larger national agglomerations would, as JP Morgan’s Michael Patterson testified, bring “greater convenience, more innovation, and lower costs” for consumers.

Reality has brought the exact reverse. The giants that now dominate consumer banking — just five banks now hold 48 percent of all U.S. banking assets — don’t need to innovate to increase revenue. They need only squeeze customers — and they have all the marketplace might they need to do that squeezing.

The nation’s banking giants, as industry analyst Stacy Mitchell pointed out last week, charge consumers higher fees than local community banks on everything from bounced checks to stop-payment orders — and pay consumers much less on interest-bearing savings accounts.

Economic innovation, adds the New America Foundation’s Barry Lynn in a new Washington Monthly analysis, flourishes in societies that encourage small enterprises to take root. But small enterprises can’t take root when powerful corporate giants dominate the marketplace.

This dominance has worked wonders for our executive class. At JP Morgan Chase — the banking colossus that came into being after JP Morgan swallowed up Chase in 2000, BankOne in 2004, and Washington Mutual in 2008 — CEO Jamie Dimon took home $17.6 million in 2009.

Four other JPMorgan execs — vice-chairman Steven Black, chief investment officer Ina Drew, managing director James Staley, and executive vice president Charles Scharf — each took home at least $10.2 million.

Jamie Dimon and his fellow JPMorgan execs are now fiercely opposing any attempt to create an independent Consumer Financial Protection Agency strong enough to keep banks from pummeling consumers. They’re currently paying, the Los Angeles Times reports, over 30 lobbyists to gut real financial reform.

And if any meaningful reform should get through, JPMorgan’s Staley matter of factly observed at a conference last Thursday, his bank “would respond to stricter regulation by passing any extra expenses on to its customers.”

And why not? Who could possibly be more entitled?

New Wisdom
on Wealth

Maia Szalavitz, Empathy and the Economy, Psychology Today, February 21, 2010. Why the correlation between extreme inequality and violence amounts to far more than coincidence.

Jamie Johnson. Ripping on Team U.S.A.? It's a Rich-People Thing, Vanity Fair, February 23, 2010. An insider look at the experience of “watching the Olympics among members of polite society at posh Manhattan apartments.”

George Akerlof and Rachel Kranton, It is time to treat Wall Street like Main Street, Financial Times, February 24 2010. Why bonuses and other forms of pay for performance undermine enterprise effectiveness.

Anthony Tiatorio, Ethics in The News: The Wealth Gap, Sun Chronicle (Attleboro, Mass.), February 25, 2010. A veteran educator explores the growing gap between rich and poor that's “fast approaching an ethical crisis.”

Timothy Noah, Maybe America's ruling class isn't frightened enough to create health reform, Slate, February 25, 2010. The source of our gridlock: America's leaders no longer fear that gross inequality will lead to open class warfare.

Janet Kinosian, Ms. WellPoint CEO: How Much Is Enough? Huffington Post, February 28, 2010. The same health insurer now raising premiums 39 percent paid 39 execs “$1 million or more and spent more than $27 million for 103 executive retreats in 2007 and 2008.

Rush Limbaugh, Listen to Your Brain

Elizabeth Tricomi, Antonio Rangel, Colin Camerer, and John O’Doherty,
Neural evidence for inequality-averse social preferences. Nature, February 25, 2010.

Are we humans hard-wired to “share the wealth”? Do our psyches have a preference for equality built-in, right in our brains?

An international team of scientists, from Rutgers and Caltech in the United States and Trinity College in Ireland, has an answer for us. This four-scholar team has just published in the British journal Nature the results from the first-ever experiments designed to show how our brains react to inequality.

Why should we care about how our brains, deep down in our lobes, feel about maldistributions of income and wealth? Such information, note the authors of this new brain research, could help us better understand the evidence from years of behavioral and anthropological studies.

We know from these studies, the authors point out, that people essentially “like transfers that reduce inequality.” But we don’t know why. Do human beings have a basic aversion to inequality or do we simply not want to look greedy to other people? Do we dislike the core unfairness of unequal distributions or do we worry that we ourselves might get the short end of the stick?

The field studies we have can’t answer these questions. Our brains waves can. MRI machines — those 3-D hospital scanners — can actually show how positively our brains are reacting to various situations. The new Nature study uses this MRI capacity “to test directly for the existence of inequality-averse social preferences in the human brain.”

The testing revolved around a simple experiment. The investigators assembled 20 pairs of previously unacquainted men, gave each man $30 in base pay, and had everyone choose a ball out a hat. In each pair, one participant would get a “rich” ball worth a $50 bonus, the other a “poor” ball that brought no bonus at all.

The researchers then proceeded to give each participant additional money, in varying sums up to $50 — and asked each participant to rate, on a ten-point scale, how appealing or unappealing they considered each of these additional distributions to be.

Meanwhile, with all this going on, the researchers were conducting MRI scans to see how the brains of the participants — specifically those parts of the brain that activate when we experience pleasurable rewards — were reacting.

What did the researchers find? The brains of the participants essentially lit up when an additional distribution narrowed the dollar divide between them. The “poorer” participants, no surprise, reacted positively when they received a greater additional distribution than the “richer” participants.

But the “richer” participants also reacted favorably, at the lobe level, when an additional distribution gave their “poorer” counterparts more money. In effect, the researchers note, “the high-pay group seemed to value transfers that closed the gap between their earnings and those of the low-pay group.”

The most intriguing finding of all: Some of the “richer” group, when asked to rate how appealing they found an additional distribution, gave distributions that privileged the “poorer” participants at their expense an “unappealing” rating. But the neural responses of these “richer” participants to these distributions told a completely different story. Their brains were actually cheering.  

The “basic reward structures in the brain,” the researchers observe, “may reflect even stronger equity considerations than are necessarily expressed or acted on at the behavioral level.”

The basic takeaway from the research? Conclude the investigators: “Our results provide direct neurobiological evidence in support of the existence of inequality-averse social preferences in the human brain.”

Or, in other words, down deep even Rush Limbaugh wants to share the wealth.

Inequality Links

Working Group
on Extreme Inequality

Common
Security Clubs

United for a
Fair Economy

The Equality Trust

Wealth for the
Common Good

New Economy
Working Group

Class Action

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