James Surowiecki wonders about the failure to rein in out-of-control CEO pay, and reaches a conclusion that may surprise you

"[T]he failure of say-on-pay suggests that shareholders and boards genuinely believe that outsized C.E.O. remuneration holds the key to corporate success."

-- James Surowiecki, in "Why C.E.O. Pay Reform Failed"

by Ken

Remember, not so long ago, when the issue of outlandish, and ever outlandisher, executive pay was a burning issue, or at least an issue, in the land? What ever happened to all that outrage? In his latest New Yorker "Financial Page" column (April 20), James Surowiecki looks at the question Why C.E.O. Pay Reform Failed."

Our James begins by pointing out that now, in the heart of corporate shareholder meeting season,

American companies will engage in a quaint ritual: the shareholder meeting. Investors will have a chance to vent about performance and to offer resolutions on corporate policy. Many will also get to do something relatively novel: cast an advisory vote on the pay packages of C.E.O.s and other top executives. This power, known as “say-on-pay,” became law in 2010, as part of the Dodd-Frank bill. In the wake of the financial crisis, which amplified anger about exorbitant C.E.O. salaries, reformers looking for ways to rein in the practice seized on say-on-pay, which the United Kingdom adopted in 2002. The hope was that the practice would, as Barack Obama once put it, help in “restoring common sense to executive pay.”

"Say-on-pay," James notes, "is the latest in a series of reforms that, in the past couple of decades, have tried to change the mores of the executive suite.

For most of the twentieth century, directors were paid largely in cash. Now, so that their interests will be aligned with those of shareholders, much of their pay is in stock. Boards of directors were once populated by corporate insiders, family members, and cronies of the C.E.O. Today, boards have many more independent directors, and C.E.O.s typically have less influence over how boards run. And S.E.C. reforms since the early nineteen-nineties have forced companies to be transparent about executive compensation.

These reforms were all well-intentioned. But their effect on the general level of C.E.O. salaries has been approximately zero. Executive compensation dipped during the financial crisis, but it has risen briskly since, and is now higher than it’s ever been. Median C.E.O. pay among companies in the S. & P. 500 was $10.5 million in 2013; total compensation is up more than seven hundred per cent since the late seventies. There’s little doubt that the data for 2014, once compiled, will show that C.E.O. compensation has risen yet again. And shareholders, it turns out, rather than balking at big pay packages, approve most of them by margins that would satisfy your average tinpot dictator. Last year, all but two per cent of compensation packages got majority approval, and seventy-four per cent of them received more than ninety per cent approval.

"WHY HAVE THE REFORMS BEEN SO INEFFECTIVE?"

"Simply put," James says, "they targeted the wrong things."

People are justifiably indignant about cronyism and corruption in the executive suite, but these aren’t the main reasons that C.E.O. pay has soared. If they were, leaving salary decisions up to independent directors or shareholders would have made a greater difference. As it is, studies find that when companies hire outside C.E.O.s—people who have no relationship with the board—they get paid more than inside hires and more than their predecessors, too. Four years of say-on-pay have shown us that ordinary shareholders are pretty much as generous as boards are. And even companies with a single controlling shareholder, who ought to be able to dictate terms, don’t seem to pay their C.E.O.s any less than other companies.

Are you getting this? The people directly affected by crazy CEO salaries, surprisingly independent corporate boards and of course the shareholders themselves, are A-OK with the salaries they're shelling out to supposedly star CEOs. Why? Because, says James, "Just about everyone involved now assumes that talent is rarer than ever, and that only outsize rewards can lure suitable candidates and insure stellar performance." And it doesn't seem to matter that "evidence for these propositions is sketchy at best."

James turns to Southwestern Law School corporate-law professor Michael Dorff, author of the new book Indispensable and Other Myths.

Dorff told me that, with large, established companies, “it’s very hard to show that picking one well-qualified C.E.O. over another has a major impact on corporate performance.” Indeed, a major study by the economists Xavier Gabaix and Augustin Landier, who happen to believe that current compensation levels are economically efficient, found that if the company with the two-hundred-and-fiftieth-most-talented C.E.O. suddenly managed to hire the most talented C.E.O. its value would increase by a mere 0.016 per cent.

"HIGHER PAY FAILS TO PROMOTE BETTER PERFORMANCE"

Professor Dorff tosses another disclaimer into the issue of rightful CEO compensation: "that performance pay is overrated."

For a start, it’s often tied to things that C.E.O.s have very limited control over, like stock price. Furthermore, as he put it, “performance pay works great for mechanical tasks like soldering a circuit but works poorly for tasks that are deeply analytic or creative.” After all, paying someone ten million dollars isn’t going to make that person more creative or smarter. One recent study, by Philippe Jacquart and J. Scott Armstrong, puts it bluntly: “Higher pay fails to promote better performance.”

Oops!

"So," says James, "the situation is a strange one."

The evidence suggests that paying a C.E.O. less won’t dent the bottom line, and can even boost it. Yet the failure of say-on-pay suggests that shareholders and boards genuinely believe that outsized C.E.O. remuneration holds the key to corporate success.

Lurking here, James suggests, may be "the powerful mystique" of a smattering of "truly transformative C.E.O.s" like Apple's Steve Jobs. "But, more fundamentally," he says, "there’s little economic pressure to change: big as the amounts involved are, they tend to be dwarfed by today’s corporate profits." (The emphasis here is mine.)

Big companies now have such gargantuan market caps that a small increase in performance is worth billions. So whether or not the people who sit on compensation committees can accurately predict C.E.O. performance—Dorff argues that they can’t—they’re happy to spend an extra five or ten million dollars in order to get the person they want. That means C.E.O. pay is likely to keep going in only one direction: up.

Call it Christmas in April.

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How About Limiting CEO Pay To 100 Times The Minimum Wage?

Lately we've come to the conclusion that the whole concept of billionaires is illegitimate and an existential threat to democracy. But, short of a guillotine, how do you protect society by getting rid of them? Progressive taxation is the obvious choice, of course. And Switzerland is voting on an interesting way of guaranteeing better income equality today. Have you heard about the maximum wage ratio yet? It sure isn't something the billionaires who control the American corporate media want you to hear about.

The plan, widely labeled "radical," limits the monthly pay of top executives to 12 times that of their lowest paid employees' yearly salary. Here in the U.S., the average CEO earns 200 times the salary of their lowest paid employee.

Limiting compensation to 1:12 would be a historic change: Currently, a lot of Swiss firms have a ratio of more than 100:1. Roche, the Swiss drug giant, reportedly paid its top executive $13.9 million in 2012, and its lowest $59,000-- a ratio of 1:236.

…The idea was proposed through Switzerland's direct democracy system, and if more than 50% of voters and representatives of the Swiss federal states (cantons) agree to it, it must become law. Voters have had a month to vote via post, and on Sunday they can attend polling stations.

It's fascinating to wonder what a country with a 1:12 salary cap would look like. David Roth, the leader of the youth wing of Swiss party the Social Democrats, and one of the architects of the plan, recently told Business Insider that he expected that salaries would go down, and then the money would be spent on lower paid workers and investing in the companies. On the other hand, however, Swiss executives had warned that their companies would leave the country if the bill passed (Roth said that such an attitude was "quite arrogant").

Of course, such a plan is a long shot-- Business Insider recently spoke to a number of experts on Swiss politics, and none of them thought the bill would pass. One recent poll says that the yes votes stand at 36%, which would mean a clear defeat.

We should know in a few hours. This week John Sutter reported about it for CNN, urging that the U.S. start taking the proposal seriously. He says "the idea of tethering top executive pay to SOME sort of concrete metric might stop American execs from floating further into the stratosphere."

Here in America, the land of unequal opportunity, the CEOs of top-500 companies make in a single day about what it takes an average "rank-and-file" worker a year to earn, according to the AFL-CIO, the federation of unions. Switzerland has an average CEO-to-worker compensation ratio of 148 to 1, the group says.

The average U.S. rate is 354 to 1, according to the AFL-CIO.

Others put the ratio somewhat lower, around 273 to 1 in 2012.

Either way, it's bad. And some U.S. companies are worse, still. JC Penney Co. has the highest ratio-- 1,795:1-- on a list of 250 businesses compiled by Bloomberg. That department store's CEO got $53.3 million in pay and benefits in 2012, Bloomberg says. Workers, by comparison, earned only about $30,000 a year.

So, like, whatever, right? What's Miley up to? It's tempting to excuse sky-high exec pay as either necessary (to attract top "talent" and because these inequality-era celebs are thought to increase the value of the companies where they exercise said talents) or inconsequential. The Swiss vote, for example, does nothing to increase average worker pay. It aims solely to clip cash from the very top of the economic ladder.

But the pay ratio does matter, for a couple of common-sense reasons.

One is that democracy starts to unravel if a few people become wildly, ethereally successful, while the rest of a country struggles. That was the best argument I heard on a recent phone call with Cedric Wermuth, a Swiss politician who has been one of the earliest proponents of the 1:12 initiative. Wermuth is not arguing for the enforced pay ratio on practical or economic grounds. His is a moral position-- that it is fundamentally unfair for the pay gap to be so wide, and that it allows a few uber-rich people to wield undo influence over society, economics and politics.

"There is a certain threat to democracy," he told me.

Wermuth doesn't expect the 1:12 initiative to pass, but it does have about 35% to 40% support in recent polls, he told me, which is fairly staggering, and indicates people are fed up.

Another argument against sky-high CEO pay is that it's unnecessary. Lynn Stout, a distinguished professor of corporate and business law at Cornell Law School, told me CEO pay has been rising for decades and that the Untied States is, in effect, subsidizing the trend with "unlimited tax deductions" on certain forms of pay.

"I'm a big fan of capitalism," she said. "I love corporations and I love the business world and I think it's done more for peace and prosperity than people may realize. But there are structural reasons to think that executive pay and CEO pay are out of whack."

A $1 million salary worked for American CEOs from the 1930s to 1980s, she said. CEO pay, including options realized that year, jumped about 875%, to $14.1 million, from 1978 to 2012, according to the Economic Policy Institute. That increase, which is calcuated using 2012 dollars, according to EPI, is "more than double stock market growth and substantially greater than the painfully slow 5.4% growth in a typical worker's compensation over the same period."

A 5% increase at the bottom versus 875% at the top.

That's the same, right?

"What we've got is basically an arms race," Stout said, "where the CEOs are competing on pay because they each want to have higher status than the others."

Finally, all of this is bad business. Peter Drucker, who is recognized as the father of business management, famously said the CEO-to-worker salary ratio should not exceed 20:1, which is what existed in the United States in 1965, according to the Economic Policy Institute. Beyond that, managers will see an increase in "resentment and falling morale," Drucker once wrote, according to a blog post by The Drucker Institute.

That resentment is behind both the Occupy movement and the Swiss vote.

So the question to me is not if we should do something about outlandish executive pay, but what, exactly. The 1:12 ratio would be unlikely to gain any traction in the Untied States, said Mark Borges, principal at Compensia, a company that does consulting on executive pay issues. He called the measure, which, according to Wermuth, includes stock options and other non-salary forms of pay, "potentially draconian" and said most ratios between CEO and worker pay he hears discussed deal with three-digit numbers. Twelve is a shock, I'll agree, and it's probably too extreme for the United States.

…The best idea I've heard comes from Stout, the Cornell professor. She has suggested making CEO pay non-deductible when it's higher than 100 times the minimum wage.

I might take it one step further: Perhaps the United States should cap CEO pay at 100 times the minimum wage, combining Stout's idea with the Swiss proposal.

It's just an idea, and it should be vetted by economists and the public. But, to me, that's the point. These are concepts that should be on the table in the United States. It's ridiculous that SEC attempts to make CEO pay ratios transparent are controversial in the business community. The conversation needs to move forward.

Limiting CEO pay to 100 times the minimum wage would still allow top execs to be millionaires-- they'd earn a maximum wage of about $1.5 million per year, given the current federal minimum of $7.25 an hour, figured for a 40-hour work week. And here's the best part: If the fat cats wanted a pay increase, maybe the best way for them to get it would be to throw political weight behind a campaign to boost the minimum wage.

That's a reform simple enough to make a difference.

Keep in mind that the world's 2,170 billionaires control $33 trillion in net worth, double the U.S. GDP. Is that dangerous? You bet your life it is! Is it possible that instead of representing the interests of the general population, what the central banks simply do is follow the instructions of a far smaller cabal, that of the world's uber wealthy?

In case there is any confusion, the above is a rhetorical question. It goes without saying that what the world's largest wealth accumulators want above all else, is to preserve a status quo that allows their capital-based wealth to increase as fast and as much as possible in a regime of reflating asset prices, while keeping the bulk of the world's population distracted, entertained, and collecting their daily welfare check.

UPDATE: Swiss Weenie Out Of Reining In The Plutocrats

As expected, the vote failed. Just around a third of the voters approved, What's worse, "initiatives need a majority of both voters and cantons (states) to pass in a referendum; by Sunday afternoon, results from 20 of the 26 cantons were in and all had voted against."

Sunday's referendum came after voters in a March vote voiced anger at perceived corporate greed by deciding to boost shareholders' say on executive pay and ban one-off bonuses known as "golden hellos" and "goodbyes."

However, the new "1:12 initiative" from Switzerland's Young Socialists calling for a fixed legal cap on pay appeared to be a step too far for centrist and conservative voters.

Who Renounces Their American Citizenship?

Sunday, Vermont's Independent Senator Bernie Sanders tweeted, bright and early, that "Today, the 400 richest Americans are now worth a record-breaking $1.7 trillion-- more than 5 times what they were worth just 2 decades ago." I guess you can still make the kind of fortune in America that gives you the opportunity to dominate society and call the shots. These people even have their own political party-- the GOP-- and pretty much control what the Democrats do as well. I have some kind of foggy recollection about the Founding Fathers opposing the whole notion of the formation of the kind of great intergenerational wealth that gives birth to one of the worst of all governing systems, the plutocracy. It's why democracies have estate taxes. Even if Republicans don't Conservative Winston Churchill and robber baron Andrew Carnegie were very much in support of holding the development of plutocracy and oligarchy at bay with a strong inheritance or estate tax. From Chris Hayes' Twilight of the Elites:

The estate tax is designed to only affect those with vast fortunes, estates of more than $5 million. And it's logic is clear: We don't want an aristocracy of birth-- that's the very system our founders repudiated when they created a republic. Conservative Winston Churchill argued that an estate tax provided "a certain corrective against the development of a race of idle rich," and it was out of an ideological commitment to a kind of protomeritocratic vision of equality of opportunity that robber baron Andrew Carnegie, opponent of income and property taxes, argued for a steep and confiscatory tax on inheritance:

As a rule, a self-made millionaire is not an extravagant man himself... But as far as sons and children, they are not so constituted. They have never known what it was to figure means to the end, to live frugal lives, or to do any useful work... And I say these men, when the time comes that they must die... I say the community fails in its duty, and our legislators fail in their duty, if they do not exact a tremendous share.

And yet, over the past decade, this fundamental and basic means of gently enforcing some modicum of a level playing field has been gutted. In 2002, the rate for estates of more than $1 million was 50 percent, but it was diminished each year, until it was entirely phased out in 2009. It has since been restored (extended in December 2010 only for two years, for now), but at the historically rock-bottom rate of 35 percent, with a $10 million exemption for married couples. The New York Times said House Democrats opposed the deal brokered by Obama and congressional Republicans in the lame-duck congressional session of 2010 because it "would cost 68 billion, help only the richest of the rich-- an estimated 6,600 households-- and do nothing to stimulate the economy while adding to the national debt."

Over the weekend one of the U.K.'s more conservative newspapers, The Telegraph, took a look-- albeit a typically superficial one-- at Americans who renounce their citizenship. The tradition is England-- at least among wealthy rock stars-- has always been to live outside Britain enough months of the year so as to qualify for low tax rates in America or France or Spain. I dealt with dozens of them when I was at Warner Bros. Lately we've been seeing rich French tax avoiders seeking to shelter their money by moving to Belgium and the U.K. or even taking Russian citizenship. The number of Americans applying for U.K. citizenship has risen since the end of the Bush years. But most of them have already been living and working in London.

London-based American lawyers, who specialize in tax and immigration, report a threefold increase over the last five years in the number of American citizens who are giving up their citizenship-- a process known as “renunciation."

Across the world 1,781 Americans renounced their citizenship in 2011 compared with just 231 in 2008, when US tax laws changed, although it remains unknown how many are adopting British rather than any other nationality.

Many decide to give up their American citizenship after tiring of the lengthy US tax return process, which requires them to pay tax on their total income regardless of where they live.

“There’s no question that the number of people renouncing their US citizenship is increasing,” said Diane Gelon, a US tax and immigration lawyer based in London.

“I probably get a dozen cases a year now when before 2008 when the tax laws changed it was just three or four.”

...Even if a US citizen earns all their income in Britain they are liable for tax in their home country which can lead to unusual tax situations arising, said Ms Gelon.

For example, US citizens are expected to pay capital gains tax to the US government if they sell a property in Britain which is their main residence, even though a similar tax is not imposed by the British Inland Revenue.

The US rules make concessions for tax paid overseas but there is still a risk that their citizens will be hit with a large tax bill, she added.

“Actually giving up your citizenship is dead easy-- once you have an appointment with a consular official it takes a matter of minutes.

“But getting an appointment in London can take three months and that is largely because of the tax issues,” she said.

“It can be an emotional thing, to give up one’s citizenship. I’ve had clients cancelling their appointments at the embassy on the day they were due to renounce because they just couldn’t go through with it.”

Susan McFadden, another London-based US attorney who specializes in immigration matters, said: “I’ve definitely seen a surge. In the last few years it’s gone up threefold and I see through about two dozen cases a year.

“The US Embassy in London has responded to that demand-- and quite a long queue for renunciation appointments-- by streamlining the process.

“We are told they have trained additional officers to reside over renunciation processes.”

The 2011 census found 177,185 people living in England and Wales were born in the US. All American citizens are required to file a tax return on their world-wide income. The rule applies even if they have not visited the US for decades.

The US Internal Revenue Service is likely to discover tax returns have been missed in a number of different scenarios. For example, it may come to light if a citizen applies to renew a passport, is named as a beneficiary in a will or their foreign-based bank complies with new legislation which requires them to notify the US government about all American customers.

Of course, for every American who would give up his or her citizenship rather than pay his or her taxes, there are hundreds thousands of people from everywhere in the world who would do anything to get American citizenship. As an earlier Telegraph look at immigration noted, "The most common reason given by immigrants for wanting to make a home in the US is 'freedom.' It’s what drove the original settlers from Ireland and Italy, and those persecuted by Nazi Germany and the Soviet Union. But many of the repressive policies that Bush was introducing resembled those of the oppressors who had propelled people to come to the US. The 'Patriot Act' gave security forces the power to spy on people’s lives in ways the Stasi once applied in Eastern Germany. Illegal, arbitrary detentions were introduced, à la Pinochet. The use of dogs to terrorize detainees in Burma was aped in Gitmo and Abu Ghraib. The establishment of secret dungeons, or 'black sites,' where fingernail extraction and electrocution could allegedly take place, became a joint venture between government agencies and Egyptian President Mubarak.

Bush’s "war on terror" was also a "war on immigrants," Thousands of "aliens" were imprisoned without trial or access to a lawyer, many just for having Arab-sounding names... [T]he US government has indeed used "denaturalization" to get rid of its dissidents. In 1919, J. Edgar Hoover ordered the arrest of anarchist leader Emma Goldman under the newly passed Anarchist Exclusion Act, revoked her citizenship, and placed her on a ship, nicknamed the Soviet Ark, to Russia. She was never allowed back to the US.

Nearly a century later, in 2004, that same fate befell Yaser Esam Hamdi, a US citizen captured in Afghanistan in 2001. The Bush Administration imprisoned Hamdi in Guantanamo bay as an "an illegal enemy combatant," but made no formal charges for three years. Under pressure from human rights groups, Bush’s officials agreed to deport Hamdi to Saudi Arabia, as long as he renounced his citizenship. When Hamdi refused to give up his passport, the Justice Department revoked it anyway.

And then, in 2007, Rice’s State Department released a list of new “potentially expatriating acts,” including treason.

The E.U. has been in the process of making the wise decision over the past couple of years to curb bonuses for banksters and that's about to kick in-- as it is in Switzerland, a non-member. So I suspect banksters aren't among those rushing to renounce their U.S. citizenship over taxes.

The European Union moved to slap a strict limit on bank executives' bonuses in the latest effort to curb what is seen by many as corporate and banking excess.

Negotiators for the European Parliament and EU states said they reached a preliminary deal on a measure that would forbid bonuses that exceed a bankers' fixed salary. Flexible pay could increase to twice fixed salary, but only with explicit shareholder approval.

The initiative, part of a broader law that forces lenders to build up more-robust financial cushions, is designed to reduce incentives for the type of risky behavior widely blamed for contributing to the 2008 financial crisis.

The EU push comes as Swiss voters will indicate on Sunday just how deep their resentment of big executive paychecks runs when they vote on a controversial plan that would give shareholders sweeping authority over executive compensation.

The 24 items contained in the Swiss referendum, dubbed the "rip-off" initiative, would allow shareholders to block salaries, ban so-called golden handshakes and parachutes-- forms of guaranteed parting packages-- and require greater transparency on loans and pensions to executives and directors. The measure includes fines and prison sentences for violations.

The moves in Brussels and in Switzerland, if successful, would represent the most intrusive intervention yet into how banks and corporations compensate employees and executives-- an issue that was for years considered an internal corporate matter.

The EU pay limits would apply to all European banks, including their operations abroad, as well as U.S. and other foreign banks' subsidiaries in the EU, officials representing both member states and the Parliament said. That provision may be reviewed in a few years' time, they added.

I guess greedy banksters can always move to China. I hope they do. Rush Limbaugh lives in Costa Rica now, right?

Is Obama Finally Taking On The Bad Guys?

If not him... who? If not now... when?

So let me ask again, is Obama starting to get tough on the selfish assholes who have taken it upon themselves to stand in the way of Change and Hope Americans voted for last year? If so-- it's about frickin' time! Greed has certainly been running as rampant under his administration as it did under the previous one-- long considered the worst in the nation's history. Yesterday I listened to a radio report on the Administration's plans to enforce truth-labeling rules and the First lady's attempts to talk up healthy nutrition for children-- a real security concern in a country where so many young people are obese that the military is freaking out and the health care industry is drowning in a sea of fat-- only to have the CEO of Coca Cola attack the endeavors! Similarly a report on CNN about the Baltimore school district's lauditory Meatless Monday program included an hysterical sociopath from the American Meat Institute calling down the wrath of God. God didn't respond, but Satan did-- in the form of his not so humble servant, Lou Dobbs, calling the program "unhealthy indoctrination." If I have to tell you what the insurance companies, the lobbyists and Fox News have been trying to do to scuttle health care reform, you've been asleep for the past several months.

What do all these things have in common? Change can be painful and when the status quo is threatened, the selfish and greedy (and powerful) react, regardless of the well-being of society at large. We elected Obama president, and by a helft margin at that, because we liked the whole Change theme. And now we expect to see some actual, tangible change, and not just a crooked Wall Street Bush hack like Paulsen being exchanged for a crooked Wall Street Clinton hack like Summers.

Treasury Department watchdog, the inspector general of TARP, Neil Barofsky made clear today that Change is not what we're seeing so far. In terms of his end of the world, everything is pretty much as screwed up and gamed for the rich and powerful as it was when Bush and his cronies were running the show. "The American people's belief that the funds went into a black hole," he warned, "or that there was a transfer of wealth from taxpayers to Wall Street, is one of the worst outcomes of this program, and that is the reputational damage to the government." Listen to his assessment:



Perhaps in anticipation of Barofsky's report today, the Obama "pay czar," Kenneth Feinberg, cut the compensation for the CEOs and top mangement staff (25 highest paid executives) of the seven companies that got the biggest federal bailouts.

Under the plan, which will be announced in the next few days by the Treasury Department, the seven companies that received the most assistance will have to cut the cash payouts to their 25 best-paid executives by an average of about 90 percent from last year. For many of the executives, the cash they would have received will be replaced by stock that they will be restricted from selling immediately.

And for the 25 best-paid executives, the total compensation, which includes bonuses, will drop, on average, by about 50 percent.

The companies are Citigroup, Bank of America, the American International Group, General Motors, Chrysler and the financing arms of the two automakers.

...And at all of the companies, any executive seeking more than $25,000 in special perks-- like country club memberships, private planes, limousines or company issued cars-- will have to apply to the government for permission. The administration will also warn A.I.G. that it must fulfill a commitment it made to significantly reduce the $198 million in bonuses promised to employees in the financial products division.

Democracy Coming To The Board Rooms? Geithner Has A Plan

You may have noticed that there aren't many big fans of Obama's economic team here at DWT. Summer and Geithner seem more determined to represent Wall Street and corporate interests than the interests of ordinary working families. But it's not as black and white as it is under Republican regimes. Yesterday, for example, Geithner was actually pushing a real pro-business proposal that's actually good for business and for investors and for society-- not just something for upper echelon corporate management of the type politicians usually support. It's a small step in the right direction. He told reporters today that Obama wants Congress to pass new laws giving regulatory agencies power to compel public companies to let shareholders have more say in setting executive pay and bonuses.

Pay packets for executives that sometimes are several hundred times what average employees earn have angered the public since the U.S. Treasury began pumping hundreds of billions of taxpayers' dollars into banks to keep them afloat.

Geithner said Treasury wants Congress to pass two specific pieces of legislation. One would give the SEC authority to oblige companies to give shareholders a non-binding vote on pay packages for top executives.

...Geithner has said previously that Wall Street compensation practices became "divorced from reality" in the period before a severe financial crisis set in that helped drive the U.S. and much of the global economy into a recession that continues today.

CQPolitics, however, makes it clear that Geithner's upraised, clenched fist for democracy isn't too clenched or upraised and certainly not for too much democracy. He only wants a non-binding vote by stock holders-- the owners of the companies-- over what management gets to pay itself.

Barney Frank is holding a hearing on the proposals today. He has a much more proactive (and pro-shareholder) view that Geithner. “I believe that we should be going beyond the proposals the secretary makes with regard to the compensation structure," he told The Hill.I wish the damn TV anchors would let the members of Congress answer the questions they ask instead of being argumentative and interrupting and not letting them speak. It's disgraceful. Barney managed to make his case on MSNBC anyway:

Virginia Foxx-- Is She Corrupt? Crazed? Or Both?

Unlike some of her colleagues, Virginia Foxx can read, even quasi-dramatically... if haltingly. And she's not a total idiot. After all, it was Foxx, the proud owner of a prosperous Christmas tree farm, who offered a resolution praising Christmas tree farms. Now, many people claim-- and with good reason-- that she's one of the dozen most radical right extremists in Congress. Her voting record would attest to that assessment. In fact when 11 members of the KKK Caucus in the House were the only members to vote against aid to the victims of Hurricane Katrina, crazy Virginia Foxx may not have brought her sheets but she was in the forefront of the lunatic fringe racists (Lynn Westmoreland R-GA), Joe Barton (R-TX), Steve King (R-IA), Tom Tancredo (R-CO), Scott Garrett (R-NJ), etc). 213 of her fellow Republicans joined all 196 Democrats to pass the bill 410-11. And in case anyone missed the point, ole Virginia was one of only 33 die-hard segregationists to vote against extending the Voting Rights Act. It passed 390-33 but all kinds of racist slime stood with Foxx against it-- all the regular suspects, from Westmoreland, Tancredo, King and Garrett to Patty McHenry (R-NC), Gary Miller (R-CA), Jeb Hensarling (R-TX), Jo Bonner (R-AL), Tom Price (R-GA), John Linder (R-GA), Dana Rohrabacher (R-CA), Mac Thornberry (R-TX), Nathan Deal (R-GA), Phil Gingrey (R-GA), John Shadegg (R-AZ), etc.

In the video below, Virginia Foxx, who adamantly and proudly supports using taxpayer money to enrich multimillionaire banksters with fat bonuses, demands to know if Florida Congressman Alan Grayson considers her corrupt. I know Congressman Grayson and he's too much of a gentleman to point out how corrupt Virginia Foxx is-- and I'm not talking about the kinds of Christmas trees that grow on her farm, either.

Virginia Foxx has never voted against a bill deregulating banksters or any other kind of corporate predators since she got into Congress. And she's gotten her share of the $2.2 billion in bribes that the finance/insurance/real estate sector has doled out to federal elected officials. She's perfectly comfortable voting on their priority legislation-- and always exactly the way they want her to-- despite having taken $377,862 from them just since 2004. And while the FIRE sector makes up the biggest bulk of her contributions, her voting record reads like a to-do list for corporate lobbyists across the whole spectrum of Big Business. She scarfs up $50,600 from Big Oil and votes for the energy bills that have helped wreck our country's competitiveness. AgriBusiness has paid her off to the tune of $271,640 and she's always there to vote against family farms and for unsustainable corporate farming. Big Pharma and HMOs found that a quarter million dollars bought them a lot of loyalty from Virginia Foxx, no matter that their vision of "health care" meant the folks in Forsyth County, Boone, Stokes and even her own hometown of Mount Airy would have to do without. So, in answer to crazy Virginia Foxx' question if people think she's corrupt-- how could anyone not! Today the normally unflappable Barney Frank lost patience with her idiocy and asked the raving lunatic, who was shouting "Regular order!" for no apparent reason, "What is the gentlewoman from North Carolina talking about?!"



Most Republicans joined Foxx yesterday in voting against Grayson's bill, H.R. 1644 which amends the executive compensation provisions of the Emergency Economic Stabilization Act to prohibit unreasonable and excessive compensation and compensation not based on performance standards. It passed 247-171, with only 10 Republicans voting in favor of keeping taxpayer money out of the pockets of crooked banksters. A small gaggle of misguided Democrats, mostly slimy aisle-crossing Blue Dogs like Walt Minnick (ID), Ann Kirkpatrick (AZ), Harry Mitchell (AZ) and Jim Matheson (UT) voted with the Republicans, although the GOP's own confused whip, Eric Cantor was too frightened to vote either way and just took the cowardly way out: "Present," he squeaked. A little afterthought: of the 10 Republicans voting for Grayson's legislation 5 of them are endangered incumbents from Florida: Ileana Ros-Lehtinen, the notorious Diaz-Balart Brothers, Ginny Brown-Waite, and Bilirakis the Younger. I suspect voters in Florida are really pissed off about executives getting fat paychecks out of taxpayer funds while the state's economy circles the toilet and more and more homes go into foreclosure while the unemployment rate accelerates. Or maybe they just like Alan?

Neil Cavuto apparently doesn't. You see, it isn't just Republicans in Congress who are trying to transfer taxpayer money to crooked executives. Longtime Big Buisness shill Cavuto is now certifiably insane. I guess Fox keeps him on the air because a psychotic breakdown is entertaining.

Corporate America And The Politicians They Own Get Ready For The Battle Over Regulations

I was up-and-at-'em by 5:30 today. Before going for a swim I turned to the NY Times and to Frank Rich's column. It made me want to go back upstairs, get under the blankets and curl up in a ball and go back to sleep. Could populism really wreck Obama's reform agenda? Angry voters will replace Democrats with... what? Corporatist Republicans whose ideology and avarice-- inasmuch as their ideology and avarice aren't identical-- caused the whole mess in the first place? I moved on to Stephen Labaton's somehow more comforting news story, Adminstration Seeks Increase In Oversight Of Executive Pay.

Aside from compensation oversight, the proposal mandates that "many kinds of derivatives and other exotic financial instruments that contributed to the crisis be traded on exchanges or through clearinghouses so they are more transparent and can be more tightly regulated. And to protect consumers, it will call for federal standards for mortgage lenders beyond what the Federal Reserve adopted last year, as well as more aggressive enforcement of the mortgage rules." OK, that part the public will easily get behind, I'm sure. Where the banksters and their bought-and-paid-for political handmaidens-- the entire GOP and the Blue Dogs in the House and the anti-Obama Bayh Bloc in the Senate-- will howl most loudly, and effectively, is the part about compensation. When progressives tried regulating it in the past, corporate America wheeled out it's biggest carrots and sticks to shoot it down. Last month Democrats in the House tried eliminating all future golden parachutes for TARP senior executives, stopping incentives for top executives to take unnecessary risks, and cracking down on future bonuses, retention awards, and incentive compensation for all TARP executives. 246 Democrats voted for the reform while every single Republican voted "no"-- and for the special interests of their corporate paymasters. They were joined by 6 reactionary Blue Dogs who habitually vote with the Republicans against working families: Bobby Bright (AL), Parker Griffith (AL), Walt Minnick (ID), Collin Peterson (MN), Heath Shuler (NC) and Gene Taylor (MS) plus one progressive who didn't think the bill went far enough, Pete DeFazio (D-OR). Reactionary Tennessee shill Lipinski, Jr (IL) hid under his desk during the vote and squeaked "present" when someone kicked him in the nuts.

Earlier-- in 2007-- the House tackled how executive comp-ensation should be set. Democrats were insistent that the owners of public companies (the shareholders) have a say in the pay packages for management. Management, of course, insisted that only they-- through their docile and self-serving Boards of Directors-- would determine their own salaries. Of course, most Republicans went along with management... as always. First, 6 of the House's most shameless Big Business shills-- Tom Price (R-GA), Adam Putnam (R-FL), Patty McHenry (R-NC), John Campbell (R-CA), Scott Garrett (R-NJ) and Pete Sessions (R-TX)-- tried, unsuccessfully to neuter the legislation with 7 corporately-written amendments, all of which were voted down. The final bill passed 269-134, with 55 Republicans abandoning their reactionary, corrupt leaders to vote with the Democrats. Five Democratic corporate hacks crossed the aisle in the other direction and voted with the Republicans and management: Allen Boyd (Blue Dog-FL), Nancy Boyda (KS- subsequently defeated), Dennis Cardoza (Blue Dog-CA), Henry Cuellar (TX), and John Tanner (Blue Dog-TN). And that brings us to what the Obama Administration is proposing in this area.

The administration has been considering increased oversight of executive pay for some time, but the issue was heightened in recent days as public fury over bonuses spilled into the regulatory effort.

The officials said that the administration was still debating the details of its plan, including how broadly it should be applied and how far it could go beyond simple reporting requirements. Depending on the outcome of the discussions, the administration could seek to put the changes into effect through regulations rather than through legislation.

One proposal could impose greater requirements on company boards to tie executive compensation more closely to corporate performance and to take other steps to ensure that compensation was aligned with the financial interest of the company.

The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission.

During the presidential campaign, Mr. Obama repeatedly urged regulators to adopt new rules to give shareholders a greater voice in setting executive pay for all public companies. And last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses that exceeded one-third of their annual pay.

...An important part of the plan still under debate is how to regulate the shadow banking system that Wall Street firms use to package and trade mortgage-backed securities, the so-called toxic assets held by many banks and blamed for the credit crisis.

...A broad consensus has emerged among regulators and administration officials that hedge funds must be registered and more closely monitored, probably by the Securities and Exchange Commission. But officials have not decided how much the funds will have to disclose about their investments and trading practices... A central aspect of the plan, which has already been announced by the administration, would give the government greater authority to take over and resolve problems at large troubled companies not now regulated by Washington, like insurance companies and hedge funds.

That proposal would, for instance, make it easier for the government to cancel bonus contracts like those given to executives at the American International Group, which have stoked a political furor. Under the proposal, the Treasury secretary would have the authority to seize and wind down a struggling institution after consulting with the president and upon the recommendation of two-thirds of the Federal Reserve board.

The corporate pushback, voiced by shameless shills and hacks like disgraced New Hampshire Senator Judd Gregg, recently exposed inserted earmarks in a project that directly benefited a firm owned by himself and his brother, is that Obama's plan-- not their misgovernance and not their unfettered greed of the past decade, will bankrupt the country.

Does Obama Have The Guts To Nationalize The Failed Banks?

The average American CEO makes hundreds of times more than what the average worker his company employs makes-- if we can even be sure what the crafty CEO really makes. The average big company CEO in the U.S. also makes far more than the average comparable CEO in any other industrialized country.

Nobody beats the U.S. when it comes to the difference in pay between CEOs and the average worker. In 2000, on average, CEOs at 365 of the largest publicly traded U.S. companies earned $13.1 million, or 531 times what the typical hourly employee took home. The corresponding ratio in 1980 was only 42, and in 1990 it was 85.  As one source has put it, "in 2000 a CEO earned more in one workday (there are 260 in a year) than what the average worker earned in 52 weeks. In 1965, by contrast, it took a CEO two weeks to earn a worker's annual pay". US CEOs' pay rose 313 percent from 1990 to 2003, an advocacy group UFE said. By contrast, the Standard & Poor's 500 stock index rose 242 percent and corporate profits gained 128 percent.

The closest countries to the American model are

Brazil- 57 times
Venezuela 54 times
South Africa 51 times
Argentina 48 times
Malaysia 47 times
Mexico 45 times

Countries we like to think of ourselves as having more in common with have vastly different pay gays between workers and CEOs:

Britain 25 times
Australia 22 times
Netherlands 22 times
Canada 21 times
Belgium 19 times
Italy 19 times
Spain 18 times
New Zealand 16 times
France 16 times
Sweden 14 times
Germany 11 times
Switzerland 11 times
Japan 10 times

Typically, CEO pay in other industrialized countries is only about one-third of what American CEOs make and these out-sized compensation packages are utterly unrelated to performance and in some cases are inversely related to performance-- the worse a company has done, the more money the CEO has gotten for himself. In 2006, that average American CEO made in a day more than a worker makes in a year. A hallmark of the Bush Regime has been that the old truism-- the rich get rich and the poor get poorer-- was supercharged

So now President Obama is in an awkward situation. The avaricious banksters and CEOs who have driven the American economy off the cliff need hundreds of billions of dollars to make up for the systematic looting of the companies they have overseen. He can't tell them to take a hike because if the companies all go bankrupt, they'll take the U.S. economy with them. Bush already gave them over $350 billion dollars in the first installment of TARP-- no accountability and no strings attached. Much of it has been stolen-- in the form of discretionary bonuses and golden parachutes and... well, letting the good times roll. Now they're back for another $350 billion.

Obama has said that anyone company that takes TARP money going forward-- though not the ones who already did-- have to limit individual executive compensation to $500,000 a year. Not a prison sentence not even a requirement that they be forced to give back what they've already stolen-- the punishment is half a million dollars a year until the TARP money is paid back. The Republicans, of course, are screaming bloody murder. And so are the Blue Dogs and other anti-working families pseudo- "Democrats." But aside from the politicians they own, their media outlets are also making the case that a self-respecting CEO can't be expected to survive on a measly half mil a year. This week's Economist dismisses Obama's move as "political theatre" and points out that when this has been tried in the past, CEOs have cheated and gotten around the rules with ease. The Economist warns that some will leave (for Brazil?) and others will stop working so hard.

Capping the non-equity-based remuneration of executives in companies receiving “exceptional assistance” at $500,000 a year and banning “golden parachutes” for failed executives is likely to strike most Americans as fair, or even generous, given that Mr Obama himself earns a mere $400,000 and the rules will apply only to new bail-outs. Indeed, after the outrageous payment of billions of dollars in bonuses by Wall Street firms that had survived only because many more billions had been injected into them by the government, the executives should probably be grateful for getting off so lightly. Moreover, executives will be allowed grants of restricted stock (which they cannot sell until the taxpayer is repaid), so they may yet end up making a fortune.

...Will Mr Obama’s message to bosses that they have “got responsibilities not to live high on the hog” lead to restraint in executive pay more broadly? Ira Kay of Watson Wyatt, a pay consultant, thinks it might, because rising pay on Wall Street in recent years led to higher pay elsewhere—a trend that may now operate in reverse.

In the long run, the more significant change may be Mr Obama’s decision to give American shareholders a vote on executive compensation, through a “say on pay” resolution. A vote is certainly more sensible than a crude government limit—especially if it is extended to all public companies, not just those bailed out by Uncle Sam. A similar reform is reckoned to have made at least some difference in Britain, and not before time.

A few days ago BusinessWeek published a pro and con look at the question Should The U.S. Nationalize the Broken Banks? Pro won.
Friday Nobel Prize-winning economist Joseph Stiglitz (watch the video) came to the same conclusion: Nationalized Banks Are The Only Answer. "The banks," he says, "are in very bad shape. The U.S. government has poured in hundreds of billions of dollars to very little effect. It is very clear that the banks have failed. American citizens have become majority owners in a very large number of the major banks. But they have no control. Any system where there is a separation of ownership and control is a recipe for disaster. Nationalization is the only answer. These banks are effectively bankrupt."

Interviewed at Davos last week, Nassim Nicholas Taleb, author of the best-selling finance book The Black Swan and New York University Professor Nouriel Roubini, were in complete agreement. Taleb: "You cannot trust the banks in taking risks. We have a very strange situation in which it's the worst of capitalism and socialism, a situation in which profits were privatized and losses were socialized. We taxpayers have the worst... "We should not trust these bankers; look at their track record. They know we're going to bail them out. They hold us as hostages [and] the only way to stop the process is for the government to own those banks, tell them what to do."

The American public isn't even aware that this debate is going on. Instead they get simplistic, politically-charged drivel from the hacks we elect to office and from the sad excuse for popular media. Just watch this clueless-- but well-coifed-- CBS talking head try to get Steve Forbes to warn Americans that Obama is a socialist:



So back to the question up top about President Obama's intestinal fortitude. I'm afraid not. And I gather from what Paul Krugman wrote today is his column, What The Centrists Have Wrought, he's not counting on Obama knocking some sense into any Republican heads any time soon either.

[T]o appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts.

According to the CBO’s estimates, we’re facing an output shortfall of almost 14% of GDP over the next two years, or around $2 trillion. Others, such as Goldman Sachs, are even more pessimistic. So the original $800 billion plan was too small, especially because a substantial share consisted of tax cuts that probably would have added little to demand. The plan should have been at least 50% larger.

Now the centrists have shaved off $86 billion in spending-- much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast-- because it prevents spending cuts rather than having to start up new projects-- and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

He ends with an even more dire prediction: Obama won't be able to come back for what is needed to make this idea work after this version fails. "This," he writes, "is really, really bad." And, it could get even worse if Obama doesn't take seriously the building populist disgust with the Wall Street-Beltway Axis of Evil real Americans have had just about enough of.

Has Obama Finally Figured Out He Should Be Listening To Bernie Sanders, Not The Bankster Enablers?

Their sentence: half million dollars a year-- take that!

To answer the question in the title, ask youself another one. Is Obama really going to curb the siphoning of taxpayer money into the pockets of crooked banksters? I don't believe it. I don't believe he'll do anything that will get anyone with any power angry... ever. He's a dud. Sorry.

This morning's NY Times claims that "the Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan. Under new rules to be announced by the Treasury Department Wednesday, executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends." When Sanders proposed this before Bush handed out $350 billion to these crooks, Obama, McCain and both Inside-the-Beltway establishment parties rejected it. Now people are pissed off. Not enough to reach for their pitchforks yet... but how far away is that?

The Wall Street/GOP rap on this is that $500,000 a year is chicken feed and no one will want to work for such a pittance. No one? Chicken feed? See the crooks up top? From left to right they are Vikram Pandit of Citigroup ($3.1 million), Kenneth D. Lewis of Bank of America (over $20 million) and Rick Wagoner of General Motors ($14.4 million). Had they not worked maybe their companies wouldn't be bankrupt save for billions of our tax dollars injected into them-- and, more important, maybe the economy wouldn't currently be teetering on the brink of a Depression. So that threat doesn't hold much water. This morning's Washington Post talks about enlarging the disastrous Insider "rescue" plan. So we're going to look a bunch of Wall Street types, many of them complicit in the catastrophe, decide how to fix it-- with our money? If you trust Obama's intentions and competence, you might want to bite. I don't and it looks like crap to me.

Bernie Sanders is who America should have elected president, someone who actually doesn't pussyfoot around. Watch him with Rachel Maddow last night: Is he amazing! (Almost as good as Tom Geoghagen was when I heard him speak here in L.A. yesterday.)