Tuesday, May 15, 2012 7:22:57 AM
Why We Regulate
By PAUL KRUGMAN
Published: May 13, 2012
One of the characters in the classic 1939 film “Stagecoach” is a banker named Gatewood who lectures his captive audience on the evils of big government, especially bank regulation — “As if we bankers don’t know how to run our own banks!” he exclaims. As the film progresses, we learn that Gatewood is in fact skipping town with a satchel full of embezzled cash.
As far as we know, Jamie Dimon [ http://topics.nytimes.com/top/reference/timestopics/people/d/james_dimon/index.html ], the chairman and C.E.O. of JPMorgan Chase, isn’t planning anything similar. He has, however, been fond of giving Gatewood-like speeches about how he and his colleagues know what they’re doing, and don’t need the government looking over their shoulders. So there’s a large heap of poetic justice — and a major policy lesson — in JPMorgan’s shock announcement that it somehow managed to lose $2 billion in a failed bit of financial wheeling-dealing.
Just to be clear, businessmen are human — although the lords of finance have a tendency to forget that — and they make money-losing mistakes all the time. That in itself is no reason for the government to get involved. But banks are special, because the risks they take are borne, in large part, by taxpayers and the economy as a whole. And what JPMorgan has just demonstrated is that even supposedly smart bankers must be sharply limited in the kinds of risk they’re allowed to take on.
Why, exactly, are banks special? Because history tells us that banking is and always has been subject to occasional destructive “panics,” which can wreak havoc with the economy as a whole. Current right-wing mythology has it that bad banking is always the result of government intervention, whether from the Federal Reserve or meddling liberals in Congress. In fact, however, Gilded Age America — a land with minimal government and no Fed — was subject to panics roughly once every six years. And some of these panics inflicted major economic losses.
So what can be done? In the 1930s, after the mother of all banking panics, we arrived at a workable solution, involving both guarantees and oversight. On one side, the scope for panic was limited via government-backed deposit insurance; on the other, banks were subject to regulations intended to keep them from abusing the privileged status they derived from deposit insurance, which is in effect a government guarantee of their debts. Most notably, banks with government-guaranteed deposits weren’t allowed to engage in the often risky speculation characteristic of investment banks like Lehman Brothers.
This system gave us half a century of relative financial stability. Eventually, however, the lessons of history were forgotten. New forms of banking without government guarantees proliferated, while both conventional and newfangled banks were allowed to take on ever-greater risks. Sure enough, we eventually suffered the 21st-century version of a Gilded Age banking panic, with terrible consequences.
It’s clear, then, that we need to restore the sorts of safeguards that gave us a couple of generations without major banking panics. It’s clear, that is, to everyone except bankers and the politicians they bankroll — for now that they have been bailed out, the bankers would of course like to go back to business as usual. Did I mention that Wall Street is giving vast sums to Mitt Romney, who has promised to repeal recent financial reforms?
Enter Mr. Dimon. JPMorgan, to its — and his — credit, managed to avoid many of the bad investments that brought other banks to their knees. This apparent demonstration of prudence has made Mr. Dimon the point man in Wall Street’s fight to delay, water down and/or repeal financial reform. He has been particularly vocal in his opposition to the so-called Volcker Rule [ http://topics.nytimes.com/top/reference/timestopics/subjects/v/volcker_rule/index.html ], which would prevent banks with government-guaranteed deposits from engaging in “proprietary trading,” basically speculating with depositors’ money. Just trust us, the JPMorgan chief has in effect been saying; everything’s under control.
Apparently not.
What did JPMorgan actually do? As far as we can tell, it used the market for derivatives — complex financial instruments — to make a huge bet on the safety of corporate debt, something like the bets that the insurer A.I.G. made on housing debt a few years ago. The key point is not that the bet went bad; it is that institutions playing a key role in the financial system have no business making such bets, least of all when those institutions are backed by taxpayer guarantees.
For the moment Mr. Dimon seems chastened, even admitting that maybe the proponents of stronger regulation have a point. It probably won’t last; I expect Wall Street to be back to its usual arrogance within weeks if not days.
But the truth is that we’ve just seen an object demonstration of why Wall Street does, in fact, need to be regulated. Thank you, Mr. Dimon.
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Related News
JPMorgan Chase Executive Resigns in Trading Debacle (May 14, 2012)
http://www.nytimes.com/2012/05/14/business/jpmorgan-chase-executive-to-resign-in-trading-debacle.html
Dimon Says JPMorgan Made an ‘Egregious Mistake’ (May 14, 2012)
http://www.nytimes.com/2012/05/14/business/dimon-says-jpmorgan-made-an-egregious-mistake.html
S.E.C. Opens Investigation Into JPMorgan’s $2 Billion Loss (May 11, 2012)
http://dealbook.nytimes.com/2012/05/11/s-e-c-opens-investigation-into-jpmorgans-2-billion-loss/
Related in Opinion
More on the Economy
http://topics.nytimes.com/top/opinion/economy/index.html
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© 2012 The New York Times Company
http://www.nytimes.com/2012/05/14/opinion/krugman-why-we-regulate.html [with comments]
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Elizabeth Warren Calls for Restoring Glass-Steagall
By Sarah Jaffe
Posted at May 14, 2012, 3:02 pm
Last week, JP Morgan Chase managed to gamble away $2 billion in an extremely short period of time--and more losses are likely coming for the world's biggest bank. CEO Jamie Dimon [ http://blogs.wsj.com/deals/2012/05/10/j-p-morgan-to-host-surprise-conference-call/ ] himself admitted that the move was going to play right into the hands of "pundits" and others who support the Volcker Rule, which would restrict US banks from making certain kinds of risky trades.
Today, though, Elizabeth Warren and the Progressive Change Campaign Committee went further, calling for a restoration of the Glass-Steagall act, repealed in 1999 after heavy lobbying by the big banks.
The email reads, in part:
A new Glass-Steagall would separate high-risk investment banks from more traditional banking. It would allow Wall Street to take risks, but not by dipping into the life savings and retirement accounts of regular people.
And by making banks smaller, a new Glass-Steagall could also help put an end to banks that are "too big to fail" -- further avoiding costly taxpayer bailouts.
Wall Street's risky bets nearly brought the economy to its knees in 2008. But instead of taking responsibility, Wall Street lobbied to water down the Dodd-Frank financial reforms of 2010 and fought to weaken the reforms Congress passed.
It has become clear over time -- and made even clearer this past week -- that additional Wall Street reforms are needed.
Warren told the Washington Post's Ezra Klein [ http://www.washingtonpost.com/blogs/ezra-klein/post/elizabeth-warren-thats-the-strongest-argument-for-a-modern-glass-steagall/2012/05/14/gIQAfxTLPU_blog.html ] in an interview, "Glass-Steagall said in effect that hedge funds should be separated from commercial banking. If a big institution wants to go out and play in the market, that’s fine. But it doesn’t get the backup of the federal government."
Copyright 2012 AlterNet (emphasis in original)
http://www.alternet.org/newsandviews/article/929448/elizabeth_warren_calls_for_restoring_glass-steagall/ [with comments]
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Elizabeth Warren on risk and regulation
The Rachel Maddow Show [video]
May 14, 2012
Elizabeth Warren, Democratic candidate for Senate from Massachusetts, who helped create the Consumer Financial Protection Bureau, talks with Rachel Maddow about why the $2 billion dollar loss by J.P. Morgan is a sign that the banking industry is still not adequately regulated despite what should have been the lesson of the financial crash.
© 2012 msnbc.com
http://www.msnbc.msn.com/id/26315908/vp/47422131#47422131
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Capitalists and Other Psychopaths
Ted Parker
By WILLIAM DERESIEWICZ
Published: May 12, 2012
THERE is an ongoing debate in this country about the rich: who they are, what their social role may be, whether they are good or bad. Well, consider the following. A recent study [ http://theweek.com/article/index/225046/why-is-wall-street-full-of-psychopaths ] found that 10 percent of people who work on Wall Street are “clinical psychopaths,” exhibiting a lack of interest in and empathy for others and an “unparalleled capacity for lying, fabrication, and manipulation.” [well howdy there, Mitt!] (The proportion at large is 1 percent.) Another study [ http://www.pnas.org/content/early/2012/02/21/1118373109.abstract ] concluded that the rich are more likely to lie, cheat and break the law.
The only thing that puzzles me about these claims is that anyone would find them surprising. Wall Street is capitalism in its purest form, and capitalism is predicated on bad behavior. This should hardly be news. The English writer Bernard Mandeville asserted as much nearly three centuries ago in a satirical-poem-cum-philosophical-treatise called “The Fable of the Bees.”
“Private Vices, Publick Benefits” read the book’s subtitle. A Machiavelli of the economic realm — a man who showed us as we are, not as we like to think we are — Mandeville argued that commercial society creates prosperity by harnessing our natural impulses: fraud, luxury and pride. By “pride” Mandeville meant vanity; by “luxury” he meant the desire for sensuous indulgence. These create demand, as every ad man knows. On the supply side, as we’d say, was fraud: “All Trades and Places knew some Cheat, / No Calling was without Deceit.”
In other words, Enron, BP, Goldman, Philip Morris, G.E., Merck, etc., etc. Accounting fraud, tax evasion, toxic dumping, product safety violations, bid rigging, overbilling, perjury. The Walmart bribery scandal, the News Corp. hacking scandal — just open up the business section on an average day. Shafting your workers, hurting your customers, destroying the land. Leaving the public to pick up the tab. These aren’t anomalies; this is how the system works: you get away with what you can and try to weasel out when you get caught.
I always found the notion of a business school amusing. What kinds of courses do they offer? Robbing Widows and Orphans? Grinding the Faces of the Poor? Having It Both Ways? Feeding at the Public Trough? There was a documentary several years ago called “The Corporation” that accepted the premise that corporations are persons and then asked what kind of people they are. The answer was, precisely, psychopaths: indifferent to others, incapable of guilt, exclusively devoted to their own interests.
There are ethical corporations, yes, and ethical businesspeople, but ethics in capitalism is purely optional, purely extrinsic. To expect morality in the market is to commit a category error. Capitalist values are antithetical to Christian ones. (How the loudest Christians in our public life can also be the most bellicose proponents of an unbridled free market is a matter for their own consciences.) Capitalist values are also antithetical to democratic ones. Like Christian ethics, the principles of republican government require us to consider the interests of others. Capitalism, which entails the single-minded pursuit of profit, would have us believe that it’s every man for himself.
There’s been a lot of talk lately about “job creators,” a phrase begotten by Frank Luntz, the right-wing propaganda guru, on the ghost of Ayn Rand. The rich deserve our gratitude as well as everything they have, in other words, and all the rest is envy.
First of all, if entrepreneurs are job creators, workers are wealth creators. Entrepreneurs use wealth to create jobs for workers. Workers use labor to create wealth for entrepreneurs — the excess productivity, over and above wages and other compensation, that goes to corporate profits. It’s neither party’s goal to benefit the other, but that’s what happens nonetheless.
Also, entrepreneurs and the rich are different and only partly overlapping categories. Most of the rich are not entrepreneurs; they are executives of established corporations, institutional managers of other kinds, the wealthiest doctors and lawyers, the most successful entertainers and athletes, people who simply inherited their money or, yes, people who work on Wall Street.
MOST important, neither entrepreneurs nor the rich have a monopoly on brains, sweat or risk. There are scientists — and artists and scholars — who are just as smart as any entrepreneur, only they are interested in different rewards. A single mother holding down a job and putting herself through community college works just as hard as any hedge fund manager. A person who takes out a mortgage — or a student loan [ http://topics.nytimes.com/top/reference/timestopics/subjects/s/student_loans/index.html ], or who conceives a child — on the strength of a job she knows she could lose at any moment (thanks, perhaps, to one of those job creators) assumes as much risk as someone who starts a business.
Enormous matters of policy depend on these perceptions: what we’re going to tax, and how much; what we’re going to spend, and on whom. But while “job creators” may be a new term, the adulation it expresses — and the contempt that it so clearly signals — are not. “Poor Americans are urged to hate themselves,” Kurt Vonnegut wrote in “Slaughterhouse-Five.” And so, “they mock themselves and glorify their betters.” Our most destructive lie, he added, “is that it is very easy for any American to make money.” The lie goes on. The poor are lazy, stupid and evil. The rich are brilliant, courageous and good. They shower their beneficence upon the rest of us.
Mandeville believed the individual pursuit of self-interest could redound to public benefit, but unlike Adam Smith, he didn’t think it did so on its own. Smith’s “hand” was “invisible” — the automatic operation of the market. Mandeville’s involved “the dextrous Management of a skilful Politician” — in modern terms, legislation, regulation and taxation. Or as he versified it, “Vice is beneficial found, / When it’s by Justice lopt, and bound.”
An essayist, critic and the author [ http://www.amazon.com/William-Deresiewicz/e/B001HCXOYO ] of “A Jane Austen Education.”
© 2012 The New York Times Company
http://www.nytimes.com/2012/05/13/opinion/sunday/fables-of-wealth.html
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It’s good to be rich in America, in two graphs
Posted by Ezra Klein at 10:42 AM ET, 05/11/2012
That’s from Josh Bivens at the Economic Policy Institute [ http://www.epi.org/publication/taxes-fallen-furthest-top/ ]. Note that during this same time period, the very richest Americans saw their income rise by far more than those in the 20th-99th percentiles, as you can see in this graph from the Center on Budget and Policy Priorities [ http://www.cbpp.org/cms/index.cfm?fa=view&id=2908 ].
So even as the rich were making more and more money, they were paying lower and lower effective tax rates. Sweet deal.
© 2012 The Washington Post
http://www.washingtonpost.com/blogs/ezra-klein/post/its-good-to-be-rich-in-america-in-two-graphs/2012/05/11/gIQAky66HU_blog.html [with comments]
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Romney Economics: Bankruptcy and Bailouts at GST Steel
Learn more: http://www.romneyeconomics.com
Kansas City's GST Steel had been making steel rods for 105 years when Romney and his partners took control in 1993. They cut corners and extracted profit from the business at every turn, placing it deeply in debt. When the company eventually declared bankruptcy, workers not only lost their jobs but were denied their full pensions and health insurance, and the government was forced to step in and provide a bailout.
http://www.youtube.com/watch?v=ZMndjLIQUFw
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Steel [the 2-minute version]
Learn more: http://www.romneyeconomics.com
Kansas City's GST Steel had been making steel rods for 105 years when Romney and his partners took control in 1993. They cut corners and extracted profit from the business at every turn, placing it deeply in debt. When the company eventually declared bankruptcy, workers not only lost their jobs but were denied their full pensions and health insurance, and the government was forced to step in and provide a bailout.
http://www.youtube.com/watch?v=sWiSFwZJXwE
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How the Ayn Rand-Loving Right Is Like a Bunch of Teen Boys Gone Crazy
Photo Credit: ShutterStock.com
Flowers are nice, but this Mother's Day, what I really want is for these immature boys to grow up already.
By Sara Robinson [ http://www.alternet.org/authors/8994/ ]
May 11, 2012
If, as George Lakoff says, we view politics through the metaphor of family, then Mother's Day is a good time to ask the question: Where's Mom in this picture? What are all those dirty socks and pizza boxes doing in the living room? (Seriously: it looks like a frat house in here.) Who's been drinking the beer I hid in the basement fridge?
And, sweet mother of God: how did we end up letting the 16-year-old boys take over the entire household?
Make no mistake: all this Ayn Rand libertarian me-first-and-the-rest-of-you-go-to-hell stuff -- the there's-no-government-like-no-government theology that's now being piously intoned as Holy Received Truth by everybody, male and female, in the GOP -- is, very precisely, the kind of politics you'd come up with if you were a 16-year-old boy trying to explain away his dependence on Mom.
Parents? I don't have any parents. I raised myself, on roots and berries and small vermin I dug up in vacant lots. That lady hanging around, feeding me and nagging me and picking up my socks and driving me to practice? She's just the nanny state. That bitch. I hate her.
Society? There's no such thing as society. There's only what I want right now, which is the ultimate good in my universe. And what I want right now is more time on the XBox, pizza money, and the keys to the family car.
The future? If I pursue everything I want now, then the future will magically take care of its self. Dinner will appear. So will clean socks and the next-gen XBox.
Obligations? I am God's gift to the world. I don't owe it anything. In fact: it owes me -- just for being so magnificent, cute and special. (Even my mom thinks so.)
On behalf of America's mothers, let me say: I have had enough of this. I don't care how cute they are: it's high time these so-called "libertarian" freeloaders get off the couch, stand up, and show some respect to the rest of us who've done the hard work that makes their cushy lives possible.
You know what I want for Mother's Day? I want these so-called "self-made men" to grow up and get a life.
No More "Nanny State" -- Ever
Also: I'm putting them on notice: I don't ever want to hear one more word about the "nanny state." Not one. Not ever again.
First of all : It's ugly. It just reeks of that 16-year-old boy being told to clean up his mess. The big sigh. The dramatic eye-roll. The drawn-out, agonized, "yyezzzz, mommmm..." that lets you know you're about to spend the rest of the evening in a passive-aggressive battle during which your teenager will generate enough inertia to bring the rotation of this and several neighboring galaxies to a dead stop.
The "nanny state" is making you do the dishes, and then it wants you to clean out the garage. You poor persecuted darling. Go dial 1-976-WAAAAAH.
Second of all: It's sexist as hell. Anti-feminist at its very core. It says that the concerns that we most identify with mothers -- cleaning up your crap, minding your manners, not annoying other people, taking responsibility for your actions -- are intrusive and unwarranted infringements on your essential freedom, instead of the basic adult responsibilities that are required of everybody if society is going to remain free and functional.
It says that the power and authority by which mothers -- "nannies," in this construction -- set the rules within the family is illegitimate. It belittles women who are bossy enough to insist on adult behavior from men.
It suggests that the things women are stereotypically most bossy about -- politically, this would be issues like child welfare and education (looking after your little brother), the environment (housework), and peace and social justice (playing fair and being nice) -- are beneath the attention and dignity of men. You can almost hear John Wayne: "Don't you worry about what your Mom says, boys. Dad's here, and he'll set her straight. (Big fat wink. Deep chuckle.) You go right on ahead with what you were doing."
(Of course, when the Duke said stuff like this, the result was usually a shrieking, hair-pulling fight with Maureen O'Hara, which always ended with her turned triumphantly over his knee. And then, after a good, sound spanking that put the little lady firmly back in her place, he'd wrestle her tiny hands away so she couldn't slap him, and kiss her until she stopped struggling. And she'd love every minute of it, because in this deranged view of gender relationships, that kind of manhandling is just what all pissy women are really secretly asking for.)
It implies that Real Americans are honor-bound to resist any and all exercise of female bossiness in the sacred name of preserving their almighty "freedom."
And then, as the final insult, it identifies all government action with that exaggerated feminine weakness. Corporations: the domains of independent, active men who are busy creating a better world for themselves -- and therefore, automatically, for everybody else as well. Government: the domain of dependent, passive women who are fussing about everybody's business, insisting that they clean up their stuff, eat right, play nice, and get to bed at a decent hour.
Government, like Mom, is a real buzz-killer. And also powerless. You can safely ignore her. After all: all she can do is yell at you, ground you, and dock your allowance. And Dad (or, in the case of government, his lawyers and lobbyists) is the truly sane and powerful one around here, and can be counted on to set her straight when he gets home.
How to Tell the Men From the Boys
Conservatives completely fetishize masculinity. They idolize sports heroes, warriors and the Manly Jesus of modern evangelicalism. They eagerly seek the trappings that will buttress their sense of maleness in their own minds -- guns, big trucks, enough money and power to push other people around. The further right you go, the more exaggerated this focus on hypermasculinity becomes.
Psychiatrist Stephen Ducat explained this phenomenon at long length in his book, The Wimp Factor [ http://www.amazon.com/The-Wimp-Factor-Politics-Masculinity/dp/0807043443 ]. Ducat's research shows that right-wing men are so obsessed with the external trappings of maleness precisely because they've failed to develop the inner qualities and accept the obligations that are required of actual adult men. It's all show, with nothing solid on the inside to back it up. And the more fragile their masculinity feels to them, the more exaggerated the outer display they put on is.
Given the insecurity that lies at the heart of this sad compensation, it's especially ironic that they've got the whole country buffaloed into thinking this is appropriate adult behavior. We've ended up with a culture of maleness that emphasizes the objectification and degredation of women, a lack of male accountability for anything that happens in the culture, and a definition of masculinity that's all about empty shows of dubious might -- like peacocks preening on parade.
For the record: This is a comic-book stereotype of manhood as it's imagined by little boys. But it's not the real deal -- not even close.
The essential difference that separates the men and the boys is that men understand and accept that they have an obligation to the greater good, and are willing to unflinchingly step up to that responsibility. They commit to their families. They work to improve their homes and communities, so they're safe and nurturing places for everyone to be. They take the long view as they plan for their kids' future. They look out for people around them who are weaker than they are. And they respect and cherish the co-parents of their children as their equal partners in that effort.
Adult men do not resent being asked to contribute to the collective whole. They know that their actions have consequences, and that they are responsible for the impact of those consequences on the greater good of the community.
As a veteran mom, I understand that it's totally developmentally appropriate for a teenage boy to desperately struggle to separate from his female parent as he begins to find his way toward his adult male identity. But at some point, that oppositional process is supposed to come to an end -- usually in the early- to mid-20s, with a reconciliation and renewed acceptance of Mom as a useful guide in his life. And, if he's straight, there will be a mature acceptance of his obligations to a female partner and their children as well.
A 50-year-old CEO who's still whining because Big Bad Government is asking him to clean up his shit, look after his little brother, and not act like a psychopath in public is flat-out suffering from arrested emotional and social development. He's not a grown man, despite his thousands of employees and millions in salary. He's still that teenager, hating on Mom because she dared to remind him that he's still deeply dependent on the resources of provided by his larger family. And as a mother, I'd invite other moms to join me in calling out this immaturity for what it is, wherever we see it.
What I really want for Mother's Day is for America's Lost Boys -- the libertarian Peter Pans, the free-market feral children, the neo-liberal ramblin' men -- to stop pretending that they're something special and uniquely free because they've managed to disassociate themselves from women's care and women's concerns.
I want respect for the role mothers play -- both in our personal families, and in our national one. I want some recognition of the fact that the issues that are typically dismissed by the masculine fetishists as "women's issues" or "nanny-state meddling" are, in fact, the issues that the future of our country most depends on. And I want the common wealth and the common good -- the health and wealth of our national family -- to get the same kind of loving respect that all mothers are entitled to.
Flowers and chocolate and a nice brunch are appreciated, too. But they're a meaningless insult -- a sop to authority we don't have, and aren't seen as entitled to -- long as we let the 16-year-olds run the household the other 364 days out of the year.
Copyright 2012 Sara Robinson (emphasis in original)
http://www.alternet.org/teaparty/155393/how_the_ayn_rand-loving_right_is_like_a_bunch_of_teen_boys_gone_crazy/ [ http://www.alternet.org/teaparty/155393/how_the_ayn_rand-loving_right_is_like_a_bunch_of_teen_boys_gone_crazy/?page=entire ] [with comments]
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After $2 Billion Trading Loss, Will JPMorgan Claw Back Pay?
By STEVEN M. DAVIDOFF
May 14, 2012, 1:16 pm
Ina Drew and two JPMorgan Chase traders are leaving in the wake of the bank’s $2 billion trading loss, and others could follow.
The question now is whether JPMorgan will invoke its newly implemented clawback policy to penalize these executives, including forcing the return of Ms. Drew’s reported $14 million salary last year.
We are on new terrain.
Prior to the financial crisis, a clawback wasn’t really an option. Bank executives and other employees kept prior compensation, even if it turned out that they bore responsibility for their institution’s later billion-dollar losses. For example, Charles Prince, the former chief executive of Citigroup who left in the midst of the financial crisis, not only kept the hundreds of millions he was paid but also received a $68 million exit package.
Financial institutions were savagely criticized for these practices, the “heads I win, tails you lose” nature of Wall Street compensation. It was a problem that extended beyond the C-suite. Traders could pocket millions of dollars for strategies that later soured.
One of the most egregious examples was Joseph Cassano of the American International Group. The executive, who headed up the A.I.G. Financial Products, kept more than $300 million in salary and bonuses despite heading the group the led the insurer to near collapse.
When things went bad during the financial crisis, many Wall Street traders pulled the eject button, escaping with millions and leaving the wreckage behind.
In the wake of the financial crisis, the Dodd-Frank Act was supposed to change all this by implementing clawback policies. By ensuring that prior compensation could be returned to a company, employees would act in the long-term interest of the company instead of trying to make money in the short term. The clawback ensures that employees have the right incentives and can’t just run with the money.
But the clawback policy in Dodd-Frank as adopted [ http://www.fdic.gov/regulations/laws/federal/2011/11finaljuly15.pd ] by the Federal Deposit Insurance Corporation has been criticized as weak, since it only applies to the “too big to fail” banks and other financial institutions. The policy is triggered if the bank is put into insolvency proceedings and employees are found to have failed to apply their job with the “degree of skill and care an ordinarily prudent person in a like position would exercise under similar circumstances.”
This is a legal standard and allows the employee to simply claim they made an error but acted with appropriate care. And the policy only applies to senior executives and directors, not traders. The standard is so high and the circumstances it can be used so narrow, I doubt the F.D.I.C. will ever invoke this clawback provision.
But this does not end the matter. Regulators and institutional shareholders have been at work in the market to build on these requirements. New York’s comptroller, John C. Liu, has been pushing financial institutions to adopt stronger clawback provisions, including getting Goldman Sachs to implement tougher rules. Not surprisingly, given Jamie Dimon’s prior criticism of financial reform, JPMorgan resisted most assiduously although it did eventually address [ http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2012/nyceretirement031412-14a8.pdf ] some of Mr. Liu’s concerns.
Under JPMorgan’s policy adopted in 2009 [ http://files.shareholder.com/downloads/ONE/0x0x563739/a14ed273-d905-48c0-9ddb-de6efd350642/JPMorgan%20Proxy%20Discussion_4.24.12.pdf ], JPMorgan retains “the right to reduce current year incentives to redress any prior imbalance. . . . ” In addition, prior equity compensation can be clawed back if the employee “engages in conduct that causes material financial or reputational harm to the Firm or its business activities” or “for members of the Operating Committee and Tier 1 employees, such employees improperly or with gross negligence fail to identify, raise, or assess, in a timely manner and as reasonably expected, risks and/or concerns with respect to risks material to the Firm or its business activities.”
According to Mr. Liu, JPMorgan takes the position that this clause not only applies to the business as a whole but also to various units. So it is possible that the policy could ensnare executives in the chief investment office, where the trading losses occurred.
I do not know if any of these traders or Ms. Drew is a Tier I employee, but there is a real question whether they and others have acted in a way to trigger these policies. It is even worth asking the question whether the intelligent Mr. Dimon — who admittedly has been upfront that this was “stupid” and has been a valuable chief executive for JPMorgan — has acted in a way to trigger this policy as the supervisor of these people.
JPMorgan’s shareholder meeting is on May 15. No doubt shareholders will be asking whether JPMorgan rewarded these traders with termination packages, but also about clawbacks. At a minimum, the JPMorgan board has a duty to look at this issue, find out the facts are and determine the situation warrants clawbacks. Others are likely to be scrutinizing the board to make sure there is no whitewash, since these clawbacks and compensation adjustments are seen as ensuring that Wall Street does not again profit and leave others holding bag.
We are about to see the first real test of the new post-financial crisis regime. Hopefully, Wall Street will do better this time.
Copyright 2012 The New York Times Company
http://dealbook.nytimes.com/2012/05/14/after-2-billion-trading-loss-will-jpmorgan-claw-back-pay/ [with comments]
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The Boss and Everyone Else
Editorial
Published: May 1, 2012
One lesson of the financial crisis is that excessive pay led to excessive risk-taking. To help curb exorbitant pay, the Dodd-Frank reform law included a so-called say-on-pay provision, which requires companies to put their pay practices to a shareholder vote at least every three years.
The law also included a pay-gap provision, which requires companies to calculate and disclose the ratio of the chief executive’s compensation to the median pay package at the company. Say-on-pay, though nonbinding, lets investors influence executive pay, while the pay-gap ratio is crucial to determining whether executive compensation is excessive and to judging the effect of pay gaps on company performance and the broader economy.
Nearly two years after the passage of Dodd Frank, say-on-pay is slowly emboldening investors to question executive pay, most prominently this year at Citigroup, where shareholders recently rejected a $15 million pay package [ http://dealbook.nytimes.com/2012/04/17/citigroup-shareholders-reject-executive-pay-plan/ ] for the bank’s chief executive, Vikram Pandit. But the pay-gap provision has not yet gone into effect.
The delay is disturbing. The law specifically directs the Securities and Exchange Commission to require companies to compute and report the pay gap. Unlike other provisions in Dodd Frank, where Congress gave the S.E.C. the authority to weigh in on issues, but not a statutory mandate, the pay-gap provision does not leave crucial details up to regulators. Some regulatory guidance is needed, for example, in explaining how to factor in the pay of part-time workers. But, for the most part, Congress did not create much leeway for regulators — or for corporate opponents — to do anything but follow the law. Yet the S.E.C. has not issued the pay-gap rules. The main problem seems to be foot-dragging in the face of objections from corporate lobbyists, who claim the ratio would be too complex to calculate. But the real issue is not complexity; it is the reluctance of executives and boards to reveal and justify what are bound to be some very large pay gaps.
The most informative approach would be to measure the gap both for a company’s American work force and its global work force, which would show how an international work force affects the ratio. Coming up with such measures would be an additional burden on companies, but not an unreasonable one. Congress enacted this provision to enable investors, policy makers and the public to better understand — and to change — the dynamics behind indefensible pay gaps. It is past time for the S.E.C. to carry out the law.
© 2012 The New York Times Company
http://www.nytimes.com/2012/05/02/opinion/the-boss-and-everyone-else.html
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London’s Shareholder Revolt Is a Win for the 1 Percent
Illustration by Nous Vous
By A.A. Gill
May 9, 2012 6:04 PM CT
Depending on who signs your paycheck and what blogs you read, London has become embroiled in either “Bonusgate” or a “Shareholder Spring.”
Denizens of the City of London are masticating or ruminating (contingent on whether they’re bears or bulls) on the news that Andrew Moss, chief executive officer of the insurer Aviva Plc (AV/), has stepped down after more than 50 percent of shareholders voted against his proposed pay raise. He did agree to forgo it, but that wasn’t enough. Since Moss had been in the big chair, Aviva’s share price halved and its dividends evaporated. So he picked up his severance package with both hands and took the elevator. As one incandescent shareholder said, only two things were going up: executive pay and nonexecutive pay.
William Hill Plc (WMH), the London bookmaker, won’t be taking bets on whether its chief executive officer, Ralph Topping, will hold onto his paycheck after a similar shareholder revolt. Sly Bailey, one of the most ferociously prominent female executives in the City, was tipped out of her corner office at Trinity Mirror Plc (TNI), the newspaper publishers, after investors objected to her pay. Barclays Plc (BARC) is trying to put an insouciant face on its shareholders revolting against the $28.7 million pay package awarded to its chief executive, Bob Diamond. The shareholders’ votes are not binding, but it is the sort of notice banks are happier handing out than receiving. There is something in the air.
Carrot of Capitalism
You may well think all this strikes at the very carrot of capitalism, that businesses have an obligation to hire the best and that the best have a right to charge whatever the market will pay. But politicians all over Europe and the U.S. have been calling for restraint, or at least delicacy in pay. An eight- digit bonus for the head of a business that is foreclosing on mortgages and calling in loans goes way beyond tasteless. Politicians reassure us that we are “all in this together,” but every grinningly unapologetic bonus and golden handshake shows that some of us are in it, but standing on the heads of others, who are as a consequence much deeper in it.
Europe’s most stable and generally happy societies are the bungalow economies of Scandinavia, where the distance between the gutter and the ceiling is the shortest. Francois Hollande, just stepping into the unrestrained grandeur of the Elysee Palace, has called for executive pay to be capped at 20 times those at the bottom of the ladder. It’s not going to happen, but in most European cafes and pubs that sounds like a very modest proposal.
The Occupy Wall Street movement sprung directly from this perceived inequality. It sprung, but it wasn’t Spring. In retrospect, despite the miles of liberal-egalitarian wishful commentary, it achieved very little. It wasn’t the rebirth of 1968, it wasn’t the vanguard of a new, youthful awareness and commitment to equality and fraternity (though, in Germany, an Occupy group applied for official permission before pitching its camp, and was given it). What it did give us was the slogan “We are the 99 percent,” which neatly identified and focused the anger of people suffering recession onto the 1 percent.
But to be in the 1 percent you only have to earn $380,000 in the U.S. I say “only” because the folks who are facing the U.K.’s Shareholder Spring are the top 0.01 percent and 0.001 percent who have seen their incomes steeple. The people who are taking them down are not the 99 percent but the 10 percent, or even other 1 percenters. Those who own stock and bother to turn up to shareholders meetings are the real forces of change.
Worth Every Cent
It’s not just individual shareholders -- it’s also the institutional investors who are beginning to feel uncomfortable with the unapologetic and willfully unconcerned boardroom venality. Ironically, one of the biggest investor-critics of Bailey at Trinity Mirror was Aviva.
Those readers -- and I expect there will be many -- who believe that corporate and banking remuneration just reflects the market, and that the pool of possible chief executive officers is shallow and rare, and that if you get a good one he or she is worth every cent (not least to the workers and the shareholders), and that to call for restrictions is just jealousy, bitterness and a misplaced general anger that should be aimed at politicians, also probably believe that the market shouldn’t be fettered or regulate its success.
Well, that would be all well and good, except that markets do fetter and regulate all sorts of things. Not least for the protection of businesses and consumers: monopolies, copyright, false representation, insider trading, to mention a few. Executive pay is increasingly seen to be set by those who themselves hope to gain from its largesse. Although it may be pegged to results, there is rarely a commensurate downside for negative outcomes. Improved figures too often look like a chief executive appropriating the wages of dismissed employees.
The voters in this Shareholder Spring are those who might in the future have had an interest in artificially fattened executive pay, but see it now as not just a serious drain on resources but as intrinsically bad for business, bad for the market. We may not all be in this together, but most of us are in the High Street, and avarice is not a good look.
And one can sense something else, something more nebulous: a growing realization that perhaps the market mythology and the headhunters’ black magic are mere guff and PR. There will always be executives whose decision making doesn’t live up to their tailoring, and there do seem to be an awful lot of them around right now. A glut, in fact.
(A.A. Gill, the restaurant and TV critic of the Sunday Times of London, is a Bloomberg View columnist. The opinions expressed are his own.)
To contact the writer of this column: A.A. Gill in London at aagill1@bloomberg.net.
To contact the editor responsible for this story: Tobin Harshaw at tharshaw@bloomberg.net.
©2012 BLOOMBERG L.P.
http://www.bloomberg.com/news/2012-05-09/london-s-shareholder-revolt-is-a-win-for-the-1-percent.html [with comments]
===
The Lobbyist in the Gray Flannel Suit
A sample of WPP’s companies.
Courtesy of WPP
By THOMAS B. EDSALL
May 14, 2012, 9:40 am
As the American political classes become more polarized, with faction pitted against faction, there is a consolidating force at work in the $6 billion-a-year influence-peddling industry.
Once a free-wheeling, if ethically challenged, crowd of men (and almost no women), who swapped stories about their clients over Jack Daniels, these expert manipulators of the legislative process and of public opinion have become corporate employees. Slowly but surely, WPP, an immense international holding company based in London [ http://www.wpp.com/wpp/about/wppataglance/ ] — with a workforce of 158,000 in 107 countries and 2011 billings of $72.3 billion — has been buying up Washington’s top lobbying, public relations, advertising and political strategy firms.
WPP has become, in effect, a special interest mega-firm [ http://www.wpp.com/wpp/companies/ ], with offerings for conservatives and liberals, environmentalists and polluters, gun lovers and gun haters, Tea Party die-hards and public sector unions, old guard media and their high tech competitors – the entire gamut from left to right, top to bottom.
Companies once viewed by those in politics as independent powerhouses — QGA (formerly Quinn Gillespie), Glover Park, Hill+Knowlton, Burson-Marsteller, Public Strategies, Prime Policy Group, Dewey Square, Ogilvy Government Relations, Wexler & Walker – are now minor players in a marketing-communications conglomerate.
In the process, Washington political media strategy shops have come to play second fiddle to the biggest money makers for WPP — Madison Avenue advertising firms like Y & R.
The consolidation of the special interest and influence communities — lobbying, public relations, media strategy, political consulting, fundraising, the bread and butter of Washington — has substantial consequences:
*As more and more members of the House and Senate leave their positions to go into these lucrative fields, one company more than any other will oversee their compensation, bonuses, performance requirements and tenure.
*In the formerly highly entrepreneurial fields of public relations, lobbying, and legislative and election strategizing, the young and hungry are no longer rewarded with glamorous renegade stature (for example, Lee Atwater and Roger Stone). Nor can they count on equity in a small but growing operation. Now they must get their rewards in stock options and bonuses.
*Although a center of world power, Washington, from the vantage point of WPP, is a profitable second tier market, a city subordinate to the glitter and cash of New York, London, Paris and Buenos Aires.
Asked why, unlike most of his competitors, he had kept his firm independent, the Democratic strategist Lawrence F. O’Brien, III, founder of the OB-C Group, LLC, whose clients include Anheuser-Busch, Eli Lilly, Honeywell International and K.K.R., emailed The Times:
Master of own destiny, create your own work place rules and atmospherics and performance standards, report to no one else, answer to no one else, far better able to discern and manage potential client “conflicts” in a thoroughly professional and ethical manner.
A top Republican lobbyist, who has tried out working for a conglomerate but is now back on his own, described the former experience as “poison.” The conglomerate “sucks out 40 to 50 percent of the profit, and your bonus is set by folks in some other city,” he said in an interview.
WPP is prepared to swallow everybody with a profitable bottom line.
Shortly after the 2004 election, four Internet specialists who had worked for Democratic presidential candidate Howard Dean founded Blue State Digital [ http://www.bluestatedigital.com/about/history/ ] “to develop tools and strategic services that would empower campaigns and cause-related organizations to build meaningful action-oriented communities.”
In 2008, Blue State asserted that it had “raised more than $500 million online, mobilized millions of volunteers, and built an unprecedented community of 13 million individual supporters that helped propel President Obama into office.”
Then, at the end of 2010, WPP bought Blue State. “Any political clients are still going to reflect our values,” Joe Rospars, a founding partner, told Fast Company [ http://www.fastcompany.com/1713358/wpp-acquires-blue-state-digital-co-founder-joe-rospars-dishes ], affirming the company’s ideological commitment, before adding:
What we really liked about WPP was that they have a broad network of companies in spaces that are complementary to where we work — whether it’s in advertising, research, or general consulting. We’re working alongside different companies like that all the time, so having closer relationships with them makes our work better and makes the overall experience for the client better. The other thing about WPP is its international footprint. They’re in over 100 countries. Having a set of ready-made potential partners in different countries will offer us the opportunity to take both our agency services as well as our technology to market in a much more organized fashion.
Martin Sorrell, WPP’s C.E.O., argues that there are three major advantages for a Washington firm that joins an international company like WPP.
First, in Sorrell’s view, successful representation increasingly “depends on international connections and international capabilities are becoming more and more important.” Second, lobbying and other forms of advocacy require access to multiple communications systems, including social media, advertising and others that WPP can offer to its individual subsidiaries. Third, while lobbying used to be based primarily on “who you know, not what you know,” now detailed understanding of issues in all their complexity is essential, putting a relatively small independent operation at a competitive disadvantage.
WPP (“the Group”) describes itself this way [ http://www.wpp.com/annualreports/2011/overview/the-fast-read.html ] in its 2011 annual report:
There are more than 150 companies within the Group – and each is a distinctive brand in its own right. Each has its own identity, commands its own loyalty, and is committed to its own specialist expertise. That is their individual strength. Clients seek their talent and their experience on a brand-by-brand basis. Between them, our companies work with 344 of the Fortune Global 500, all 30 of the Dow Jones 30, 63 of the NASDAQ 100 and 33 of the Fortune e-50.
What this means in Washington is that WPP is everywhere.
It you want a lobbyist with close ties to Mitt Romney, look no further than Charlie Black [ http://campaignstops.blogs.nytimes.com/2011/12/05/the-reinvention-of-political-morality/ ], the iconic Republican operative, now a senior Romney campaign adviser and chairman of the Prime Policy Group. Or top fundraiser Wayne Berman at Ogilvy Government Relations (distinct from another WPP subsidiary, Ogilvy & Mather Worldwide).
Want a former member of the House? How about Norman Mineta at Hill+Knowlton – he represented California in the House and was Secretary of Transportation under George W. Bush, not a bad choice to lobby Congress and DOT on behalf of the U.S. Coalition for Advanced Diesel Cars [ http://disclosures.house.gov/ld/pdfform.aspx?id=300454997 ].
When Bain Capital, the company Romney helped found, sought to hire someone to “monitor tax reform developments” – in other words, to watch out for ominous changes in the tax code – it turned to WPP’s Public Strategies, paying the firm $320,000 in 2011 [ http://disclosures.house.gov/ld/pdfform.aspx?id=300449121 ].
There are two other advertising and media conglomerates buying up Washington, Interpublic and Omnicom Group, but they remain minor league compared to WPP.
Omnicom is “a strategic holding company [ http://www.omnicomgroup.com/AboutOmnicomGroup ] that manages a portfolio of global market leaders” It owns, and recently merged into one firm, Clark and Weinstock, a Washington-based operation run by Vin Weber, a former Republican congressman and lobbying superstar, and Mercury, which boasts a leadership team including former Republican Senator Jim Talent and former Democratic House member Max Sandlin. Clark and Weinstock collected $5.9 million in lobbying fees in 2011 [ http://www.opensecrets.org/lobby/firmsum.php?id=D000022461&year=2011 ], and Mercury made $2.9 million that year [ http://www.opensecrets.org/lobby/firmlbs.php?id=D000064442&year=2011 ].
Intergroup [ http://www.interpublic.com/interpublicgroupinfo ], “one of the world’s premier advertising and marketing services companies,” owns Cassidy & Associates [ http://www.washingtonpost.com/wp-dyn/content/article/2009/01/15/AR2009011503650.html ], which, in 2011, had lobbying billings of $19.8 million [ http://www.opensecrets.org/lobby/firmsum.php?id=D000000208&year=2011 ] from such clients as AT&T, Bayer AG, B.M.W., Estee Lauder and the Motion Picture Association.
Charlie Black, who in 1980 founded Black, Manafort and Stone, now runs the WPP-owned Prime Policy Group, which absorbed both B.M. & S. and the former Timmons & Co. In 2011, Prime had billings of $10.9 million [ http://www.opensecrets.org/lobby/firmsum.php?id=D000045879&year=2011 ], including such high dollar clients as AT&T ($480,000 in 2011 billings), Chrysler ($280,000), and the Securities Industry & Financial Markets Association ($240,000).
Black said in a phone interview that becoming a subsidiary “changes things. You have some accountability to the parent company, you work out with them, budget goals, what to bring in. If you miss your numbers, they get upset.” At the same time, he said, there are the advantages of “cross-pollination” with client references from other firms and sharing clients.
Carter Eskew, a founding partner of the firm Glover Park, argued in an interview that getting acquired by WPP “gave us more managerial flexibility.” Glover Park was started with backing from a private equity company that demanded high annual returns in the 40 percent range, Eskew said. “We were slaves to margins.” WPP has put much more stress on long-term growth and on reinvesting profits.
The conversion of the lobbyist from a backslapper into the “man in the gray flannel suit” has already had a significant effect on American politics.
The most important is that the influence industry has become unexpectedly depoliticized and disaffected. While disdained by the public at large, many lobbyists, campaign consultants, and P.R. types were, in the past, deeply concerned with and involved in the political system. They were personally vested in the institution of government.
The steady take-over of this unofficial branch of government by WPP, Omnicom, Interpublic and other conglomerates has turned premier lobbyists, strategists and political operatives into a species of bureaucrat, now vested in bottom-line corporate goals. Their interest in the substance of what Congress accomplishes, in policy outcomes, and in the direction of the country, has diminished. In fact, one could say that the more legislative dysfunction, the more billable hours.
“It’s chipped away at the quality of work on both sides,” says a senior Democratic operative, now a partner in an independent boutique lobbying and public relations firm. “This has become a business where mediocrity abounds. Once you get bought, you are dis-incentivized. There’s no pride of ownership, and everyone knows the top folks are going to leave as soon as their earn-out [ ] comes to an end.”
Still, the corporatization of K Street and of the political consulting industry has taken on a momentum and inevitability that assure the process will continue, regardless of the consequences.
Thomas B. Edsall, a professor of journalism at Columbia University, is the author of the book “The Age of Austerity: How Scarcity Will Remake American Politics [ http://www.amazon.com/The-Age-Austerity-Scarcity-ebook/dp/B0050DIX2E ],” which was published earlier this year.
© 2012 The New York Times Company
http://campaignstops.blogs.nytimes.com/2012/05/14/the-lobbyist-in-the-gray-flannel-suit/ [with comments]
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By PAUL KRUGMAN
Published: May 13, 2012
One of the characters in the classic 1939 film “Stagecoach” is a banker named Gatewood who lectures his captive audience on the evils of big government, especially bank regulation — “As if we bankers don’t know how to run our own banks!” he exclaims. As the film progresses, we learn that Gatewood is in fact skipping town with a satchel full of embezzled cash.
As far as we know, Jamie Dimon [ http://topics.nytimes.com/top/reference/timestopics/people/d/james_dimon/index.html ], the chairman and C.E.O. of JPMorgan Chase, isn’t planning anything similar. He has, however, been fond of giving Gatewood-like speeches about how he and his colleagues know what they’re doing, and don’t need the government looking over their shoulders. So there’s a large heap of poetic justice — and a major policy lesson — in JPMorgan’s shock announcement that it somehow managed to lose $2 billion in a failed bit of financial wheeling-dealing.
Just to be clear, businessmen are human — although the lords of finance have a tendency to forget that — and they make money-losing mistakes all the time. That in itself is no reason for the government to get involved. But banks are special, because the risks they take are borne, in large part, by taxpayers and the economy as a whole. And what JPMorgan has just demonstrated is that even supposedly smart bankers must be sharply limited in the kinds of risk they’re allowed to take on.
Why, exactly, are banks special? Because history tells us that banking is and always has been subject to occasional destructive “panics,” which can wreak havoc with the economy as a whole. Current right-wing mythology has it that bad banking is always the result of government intervention, whether from the Federal Reserve or meddling liberals in Congress. In fact, however, Gilded Age America — a land with minimal government and no Fed — was subject to panics roughly once every six years. And some of these panics inflicted major economic losses.
So what can be done? In the 1930s, after the mother of all banking panics, we arrived at a workable solution, involving both guarantees and oversight. On one side, the scope for panic was limited via government-backed deposit insurance; on the other, banks were subject to regulations intended to keep them from abusing the privileged status they derived from deposit insurance, which is in effect a government guarantee of their debts. Most notably, banks with government-guaranteed deposits weren’t allowed to engage in the often risky speculation characteristic of investment banks like Lehman Brothers.
This system gave us half a century of relative financial stability. Eventually, however, the lessons of history were forgotten. New forms of banking without government guarantees proliferated, while both conventional and newfangled banks were allowed to take on ever-greater risks. Sure enough, we eventually suffered the 21st-century version of a Gilded Age banking panic, with terrible consequences.
It’s clear, then, that we need to restore the sorts of safeguards that gave us a couple of generations without major banking panics. It’s clear, that is, to everyone except bankers and the politicians they bankroll — for now that they have been bailed out, the bankers would of course like to go back to business as usual. Did I mention that Wall Street is giving vast sums to Mitt Romney, who has promised to repeal recent financial reforms?
Enter Mr. Dimon. JPMorgan, to its — and his — credit, managed to avoid many of the bad investments that brought other banks to their knees. This apparent demonstration of prudence has made Mr. Dimon the point man in Wall Street’s fight to delay, water down and/or repeal financial reform. He has been particularly vocal in his opposition to the so-called Volcker Rule [ http://topics.nytimes.com/top/reference/timestopics/subjects/v/volcker_rule/index.html ], which would prevent banks with government-guaranteed deposits from engaging in “proprietary trading,” basically speculating with depositors’ money. Just trust us, the JPMorgan chief has in effect been saying; everything’s under control.
Apparently not.
What did JPMorgan actually do? As far as we can tell, it used the market for derivatives — complex financial instruments — to make a huge bet on the safety of corporate debt, something like the bets that the insurer A.I.G. made on housing debt a few years ago. The key point is not that the bet went bad; it is that institutions playing a key role in the financial system have no business making such bets, least of all when those institutions are backed by taxpayer guarantees.
For the moment Mr. Dimon seems chastened, even admitting that maybe the proponents of stronger regulation have a point. It probably won’t last; I expect Wall Street to be back to its usual arrogance within weeks if not days.
But the truth is that we’ve just seen an object demonstration of why Wall Street does, in fact, need to be regulated. Thank you, Mr. Dimon.
*
Related News
JPMorgan Chase Executive Resigns in Trading Debacle (May 14, 2012)
http://www.nytimes.com/2012/05/14/business/jpmorgan-chase-executive-to-resign-in-trading-debacle.html
Dimon Says JPMorgan Made an ‘Egregious Mistake’ (May 14, 2012)
http://www.nytimes.com/2012/05/14/business/dimon-says-jpmorgan-made-an-egregious-mistake.html
S.E.C. Opens Investigation Into JPMorgan’s $2 Billion Loss (May 11, 2012)
http://dealbook.nytimes.com/2012/05/11/s-e-c-opens-investigation-into-jpmorgans-2-billion-loss/
Related in Opinion
More on the Economy
http://topics.nytimes.com/top/opinion/economy/index.html
*
© 2012 The New York Times Company
http://www.nytimes.com/2012/05/14/opinion/krugman-why-we-regulate.html [with comments]
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Elizabeth Warren Calls for Restoring Glass-Steagall
By Sarah Jaffe
Posted at May 14, 2012, 3:02 pm
Last week, JP Morgan Chase managed to gamble away $2 billion in an extremely short period of time--and more losses are likely coming for the world's biggest bank. CEO Jamie Dimon [ http://blogs.wsj.com/deals/2012/05/10/j-p-morgan-to-host-surprise-conference-call/ ] himself admitted that the move was going to play right into the hands of "pundits" and others who support the Volcker Rule, which would restrict US banks from making certain kinds of risky trades.
Today, though, Elizabeth Warren and the Progressive Change Campaign Committee went further, calling for a restoration of the Glass-Steagall act, repealed in 1999 after heavy lobbying by the big banks.
The email reads, in part:
A new Glass-Steagall would separate high-risk investment banks from more traditional banking. It would allow Wall Street to take risks, but not by dipping into the life savings and retirement accounts of regular people.
And by making banks smaller, a new Glass-Steagall could also help put an end to banks that are "too big to fail" -- further avoiding costly taxpayer bailouts.
Wall Street's risky bets nearly brought the economy to its knees in 2008. But instead of taking responsibility, Wall Street lobbied to water down the Dodd-Frank financial reforms of 2010 and fought to weaken the reforms Congress passed.
It has become clear over time -- and made even clearer this past week -- that additional Wall Street reforms are needed.
Warren told the Washington Post's Ezra Klein [ http://www.washingtonpost.com/blogs/ezra-klein/post/elizabeth-warren-thats-the-strongest-argument-for-a-modern-glass-steagall/2012/05/14/gIQAfxTLPU_blog.html ] in an interview, "Glass-Steagall said in effect that hedge funds should be separated from commercial banking. If a big institution wants to go out and play in the market, that’s fine. But it doesn’t get the backup of the federal government."
Copyright 2012 AlterNet (emphasis in original)
http://www.alternet.org/newsandviews/article/929448/elizabeth_warren_calls_for_restoring_glass-steagall/ [with comments]
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Elizabeth Warren on risk and regulation
The Rachel Maddow Show [video]
May 14, 2012
Elizabeth Warren, Democratic candidate for Senate from Massachusetts, who helped create the Consumer Financial Protection Bureau, talks with Rachel Maddow about why the $2 billion dollar loss by J.P. Morgan is a sign that the banking industry is still not adequately regulated despite what should have been the lesson of the financial crash.
© 2012 msnbc.com
http://www.msnbc.msn.com/id/26315908/vp/47422131#47422131
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Capitalists and Other Psychopaths
Ted Parker
By WILLIAM DERESIEWICZ
Published: May 12, 2012
THERE is an ongoing debate in this country about the rich: who they are, what their social role may be, whether they are good or bad. Well, consider the following. A recent study [ http://theweek.com/article/index/225046/why-is-wall-street-full-of-psychopaths ] found that 10 percent of people who work on Wall Street are “clinical psychopaths,” exhibiting a lack of interest in and empathy for others and an “unparalleled capacity for lying, fabrication, and manipulation.” [well howdy there, Mitt!] (The proportion at large is 1 percent.) Another study [ http://www.pnas.org/content/early/2012/02/21/1118373109.abstract ] concluded that the rich are more likely to lie, cheat and break the law.
The only thing that puzzles me about these claims is that anyone would find them surprising. Wall Street is capitalism in its purest form, and capitalism is predicated on bad behavior. This should hardly be news. The English writer Bernard Mandeville asserted as much nearly three centuries ago in a satirical-poem-cum-philosophical-treatise called “The Fable of the Bees.”
“Private Vices, Publick Benefits” read the book’s subtitle. A Machiavelli of the economic realm — a man who showed us as we are, not as we like to think we are — Mandeville argued that commercial society creates prosperity by harnessing our natural impulses: fraud, luxury and pride. By “pride” Mandeville meant vanity; by “luxury” he meant the desire for sensuous indulgence. These create demand, as every ad man knows. On the supply side, as we’d say, was fraud: “All Trades and Places knew some Cheat, / No Calling was without Deceit.”
In other words, Enron, BP, Goldman, Philip Morris, G.E., Merck, etc., etc. Accounting fraud, tax evasion, toxic dumping, product safety violations, bid rigging, overbilling, perjury. The Walmart bribery scandal, the News Corp. hacking scandal — just open up the business section on an average day. Shafting your workers, hurting your customers, destroying the land. Leaving the public to pick up the tab. These aren’t anomalies; this is how the system works: you get away with what you can and try to weasel out when you get caught.
I always found the notion of a business school amusing. What kinds of courses do they offer? Robbing Widows and Orphans? Grinding the Faces of the Poor? Having It Both Ways? Feeding at the Public Trough? There was a documentary several years ago called “The Corporation” that accepted the premise that corporations are persons and then asked what kind of people they are. The answer was, precisely, psychopaths: indifferent to others, incapable of guilt, exclusively devoted to their own interests.
There are ethical corporations, yes, and ethical businesspeople, but ethics in capitalism is purely optional, purely extrinsic. To expect morality in the market is to commit a category error. Capitalist values are antithetical to Christian ones. (How the loudest Christians in our public life can also be the most bellicose proponents of an unbridled free market is a matter for their own consciences.) Capitalist values are also antithetical to democratic ones. Like Christian ethics, the principles of republican government require us to consider the interests of others. Capitalism, which entails the single-minded pursuit of profit, would have us believe that it’s every man for himself.
There’s been a lot of talk lately about “job creators,” a phrase begotten by Frank Luntz, the right-wing propaganda guru, on the ghost of Ayn Rand. The rich deserve our gratitude as well as everything they have, in other words, and all the rest is envy.
First of all, if entrepreneurs are job creators, workers are wealth creators. Entrepreneurs use wealth to create jobs for workers. Workers use labor to create wealth for entrepreneurs — the excess productivity, over and above wages and other compensation, that goes to corporate profits. It’s neither party’s goal to benefit the other, but that’s what happens nonetheless.
Also, entrepreneurs and the rich are different and only partly overlapping categories. Most of the rich are not entrepreneurs; they are executives of established corporations, institutional managers of other kinds, the wealthiest doctors and lawyers, the most successful entertainers and athletes, people who simply inherited their money or, yes, people who work on Wall Street.
MOST important, neither entrepreneurs nor the rich have a monopoly on brains, sweat or risk. There are scientists — and artists and scholars — who are just as smart as any entrepreneur, only they are interested in different rewards. A single mother holding down a job and putting herself through community college works just as hard as any hedge fund manager. A person who takes out a mortgage — or a student loan [ http://topics.nytimes.com/top/reference/timestopics/subjects/s/student_loans/index.html ], or who conceives a child — on the strength of a job she knows she could lose at any moment (thanks, perhaps, to one of those job creators) assumes as much risk as someone who starts a business.
Enormous matters of policy depend on these perceptions: what we’re going to tax, and how much; what we’re going to spend, and on whom. But while “job creators” may be a new term, the adulation it expresses — and the contempt that it so clearly signals — are not. “Poor Americans are urged to hate themselves,” Kurt Vonnegut wrote in “Slaughterhouse-Five.” And so, “they mock themselves and glorify their betters.” Our most destructive lie, he added, “is that it is very easy for any American to make money.” The lie goes on. The poor are lazy, stupid and evil. The rich are brilliant, courageous and good. They shower their beneficence upon the rest of us.
Mandeville believed the individual pursuit of self-interest could redound to public benefit, but unlike Adam Smith, he didn’t think it did so on its own. Smith’s “hand” was “invisible” — the automatic operation of the market. Mandeville’s involved “the dextrous Management of a skilful Politician” — in modern terms, legislation, regulation and taxation. Or as he versified it, “Vice is beneficial found, / When it’s by Justice lopt, and bound.”
An essayist, critic and the author [ http://www.amazon.com/William-Deresiewicz/e/B001HCXOYO ] of “A Jane Austen Education.”
© 2012 The New York Times Company
http://www.nytimes.com/2012/05/13/opinion/sunday/fables-of-wealth.html
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It’s good to be rich in America, in two graphs
Posted by Ezra Klein at 10:42 AM ET, 05/11/2012
That’s from Josh Bivens at the Economic Policy Institute [ http://www.epi.org/publication/taxes-fallen-furthest-top/ ]. Note that during this same time period, the very richest Americans saw their income rise by far more than those in the 20th-99th percentiles, as you can see in this graph from the Center on Budget and Policy Priorities [ http://www.cbpp.org/cms/index.cfm?fa=view&id=2908 ].
So even as the rich were making more and more money, they were paying lower and lower effective tax rates. Sweet deal.
© 2012 The Washington Post
http://www.washingtonpost.com/blogs/ezra-klein/post/its-good-to-be-rich-in-america-in-two-graphs/2012/05/11/gIQAky66HU_blog.html [with comments]
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Romney Economics: Bankruptcy and Bailouts at GST Steel
Published on May 14, 2012 by BarackObamadotcom
Learn more: http://www.romneyeconomics.com
Kansas City's GST Steel had been making steel rods for 105 years when Romney and his partners took control in 1993. They cut corners and extracted profit from the business at every turn, placing it deeply in debt. When the company eventually declared bankruptcy, workers not only lost their jobs but were denied their full pensions and health insurance, and the government was forced to step in and provide a bailout.
http://www.youtube.com/watch?v=ZMndjLIQUFw
*
Steel [the 2-minute version]
Published on May 14, 2012 by BarackObamadotcom
Learn more: http://www.romneyeconomics.com
Kansas City's GST Steel had been making steel rods for 105 years when Romney and his partners took control in 1993. They cut corners and extracted profit from the business at every turn, placing it deeply in debt. When the company eventually declared bankruptcy, workers not only lost their jobs but were denied their full pensions and health insurance, and the government was forced to step in and provide a bailout.
http://www.youtube.com/watch?v=sWiSFwZJXwE
===
How the Ayn Rand-Loving Right Is Like a Bunch of Teen Boys Gone Crazy
Photo Credit: ShutterStock.com
Flowers are nice, but this Mother's Day, what I really want is for these immature boys to grow up already.
By Sara Robinson [ http://www.alternet.org/authors/8994/ ]
May 11, 2012
If, as George Lakoff says, we view politics through the metaphor of family, then Mother's Day is a good time to ask the question: Where's Mom in this picture? What are all those dirty socks and pizza boxes doing in the living room? (Seriously: it looks like a frat house in here.) Who's been drinking the beer I hid in the basement fridge?
And, sweet mother of God: how did we end up letting the 16-year-old boys take over the entire household?
Make no mistake: all this Ayn Rand libertarian me-first-and-the-rest-of-you-go-to-hell stuff -- the there's-no-government-like-no-government theology that's now being piously intoned as Holy Received Truth by everybody, male and female, in the GOP -- is, very precisely, the kind of politics you'd come up with if you were a 16-year-old boy trying to explain away his dependence on Mom.
Parents? I don't have any parents. I raised myself, on roots and berries and small vermin I dug up in vacant lots. That lady hanging around, feeding me and nagging me and picking up my socks and driving me to practice? She's just the nanny state. That bitch. I hate her.
Society? There's no such thing as society. There's only what I want right now, which is the ultimate good in my universe. And what I want right now is more time on the XBox, pizza money, and the keys to the family car.
The future? If I pursue everything I want now, then the future will magically take care of its self. Dinner will appear. So will clean socks and the next-gen XBox.
Obligations? I am God's gift to the world. I don't owe it anything. In fact: it owes me -- just for being so magnificent, cute and special. (Even my mom thinks so.)
On behalf of America's mothers, let me say: I have had enough of this. I don't care how cute they are: it's high time these so-called "libertarian" freeloaders get off the couch, stand up, and show some respect to the rest of us who've done the hard work that makes their cushy lives possible.
You know what I want for Mother's Day? I want these so-called "self-made men" to grow up and get a life.
No More "Nanny State" -- Ever
Also: I'm putting them on notice: I don't ever want to hear one more word about the "nanny state." Not one. Not ever again.
First of all : It's ugly. It just reeks of that 16-year-old boy being told to clean up his mess. The big sigh. The dramatic eye-roll. The drawn-out, agonized, "yyezzzz, mommmm..." that lets you know you're about to spend the rest of the evening in a passive-aggressive battle during which your teenager will generate enough inertia to bring the rotation of this and several neighboring galaxies to a dead stop.
The "nanny state" is making you do the dishes, and then it wants you to clean out the garage. You poor persecuted darling. Go dial 1-976-WAAAAAH.
Second of all: It's sexist as hell. Anti-feminist at its very core. It says that the concerns that we most identify with mothers -- cleaning up your crap, minding your manners, not annoying other people, taking responsibility for your actions -- are intrusive and unwarranted infringements on your essential freedom, instead of the basic adult responsibilities that are required of everybody if society is going to remain free and functional.
It says that the power and authority by which mothers -- "nannies," in this construction -- set the rules within the family is illegitimate. It belittles women who are bossy enough to insist on adult behavior from men.
It suggests that the things women are stereotypically most bossy about -- politically, this would be issues like child welfare and education (looking after your little brother), the environment (housework), and peace and social justice (playing fair and being nice) -- are beneath the attention and dignity of men. You can almost hear John Wayne: "Don't you worry about what your Mom says, boys. Dad's here, and he'll set her straight. (Big fat wink. Deep chuckle.) You go right on ahead with what you were doing."
(Of course, when the Duke said stuff like this, the result was usually a shrieking, hair-pulling fight with Maureen O'Hara, which always ended with her turned triumphantly over his knee. And then, after a good, sound spanking that put the little lady firmly back in her place, he'd wrestle her tiny hands away so she couldn't slap him, and kiss her until she stopped struggling. And she'd love every minute of it, because in this deranged view of gender relationships, that kind of manhandling is just what all pissy women are really secretly asking for.)
It implies that Real Americans are honor-bound to resist any and all exercise of female bossiness in the sacred name of preserving their almighty "freedom."
And then, as the final insult, it identifies all government action with that exaggerated feminine weakness. Corporations: the domains of independent, active men who are busy creating a better world for themselves -- and therefore, automatically, for everybody else as well. Government: the domain of dependent, passive women who are fussing about everybody's business, insisting that they clean up their stuff, eat right, play nice, and get to bed at a decent hour.
Government, like Mom, is a real buzz-killer. And also powerless. You can safely ignore her. After all: all she can do is yell at you, ground you, and dock your allowance. And Dad (or, in the case of government, his lawyers and lobbyists) is the truly sane and powerful one around here, and can be counted on to set her straight when he gets home.
How to Tell the Men From the Boys
Conservatives completely fetishize masculinity. They idolize sports heroes, warriors and the Manly Jesus of modern evangelicalism. They eagerly seek the trappings that will buttress their sense of maleness in their own minds -- guns, big trucks, enough money and power to push other people around. The further right you go, the more exaggerated this focus on hypermasculinity becomes.
Psychiatrist Stephen Ducat explained this phenomenon at long length in his book, The Wimp Factor [ http://www.amazon.com/The-Wimp-Factor-Politics-Masculinity/dp/0807043443 ]. Ducat's research shows that right-wing men are so obsessed with the external trappings of maleness precisely because they've failed to develop the inner qualities and accept the obligations that are required of actual adult men. It's all show, with nothing solid on the inside to back it up. And the more fragile their masculinity feels to them, the more exaggerated the outer display they put on is.
Given the insecurity that lies at the heart of this sad compensation, it's especially ironic that they've got the whole country buffaloed into thinking this is appropriate adult behavior. We've ended up with a culture of maleness that emphasizes the objectification and degredation of women, a lack of male accountability for anything that happens in the culture, and a definition of masculinity that's all about empty shows of dubious might -- like peacocks preening on parade.
For the record: This is a comic-book stereotype of manhood as it's imagined by little boys. But it's not the real deal -- not even close.
The essential difference that separates the men and the boys is that men understand and accept that they have an obligation to the greater good, and are willing to unflinchingly step up to that responsibility. They commit to their families. They work to improve their homes and communities, so they're safe and nurturing places for everyone to be. They take the long view as they plan for their kids' future. They look out for people around them who are weaker than they are. And they respect and cherish the co-parents of their children as their equal partners in that effort.
Adult men do not resent being asked to contribute to the collective whole. They know that their actions have consequences, and that they are responsible for the impact of those consequences on the greater good of the community.
As a veteran mom, I understand that it's totally developmentally appropriate for a teenage boy to desperately struggle to separate from his female parent as he begins to find his way toward his adult male identity. But at some point, that oppositional process is supposed to come to an end -- usually in the early- to mid-20s, with a reconciliation and renewed acceptance of Mom as a useful guide in his life. And, if he's straight, there will be a mature acceptance of his obligations to a female partner and their children as well.
A 50-year-old CEO who's still whining because Big Bad Government is asking him to clean up his shit, look after his little brother, and not act like a psychopath in public is flat-out suffering from arrested emotional and social development. He's not a grown man, despite his thousands of employees and millions in salary. He's still that teenager, hating on Mom because she dared to remind him that he's still deeply dependent on the resources of provided by his larger family. And as a mother, I'd invite other moms to join me in calling out this immaturity for what it is, wherever we see it.
What I really want for Mother's Day is for America's Lost Boys -- the libertarian Peter Pans, the free-market feral children, the neo-liberal ramblin' men -- to stop pretending that they're something special and uniquely free because they've managed to disassociate themselves from women's care and women's concerns.
I want respect for the role mothers play -- both in our personal families, and in our national one. I want some recognition of the fact that the issues that are typically dismissed by the masculine fetishists as "women's issues" or "nanny-state meddling" are, in fact, the issues that the future of our country most depends on. And I want the common wealth and the common good -- the health and wealth of our national family -- to get the same kind of loving respect that all mothers are entitled to.
Flowers and chocolate and a nice brunch are appreciated, too. But they're a meaningless insult -- a sop to authority we don't have, and aren't seen as entitled to -- long as we let the 16-year-olds run the household the other 364 days out of the year.
Copyright 2012 Sara Robinson (emphasis in original)
http://www.alternet.org/teaparty/155393/how_the_ayn_rand-loving_right_is_like_a_bunch_of_teen_boys_gone_crazy/ [ http://www.alternet.org/teaparty/155393/how_the_ayn_rand-loving_right_is_like_a_bunch_of_teen_boys_gone_crazy/?page=entire ] [with comments]
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After $2 Billion Trading Loss, Will JPMorgan Claw Back Pay?
By STEVEN M. DAVIDOFF
May 14, 2012, 1:16 pm
Ina Drew and two JPMorgan Chase traders are leaving in the wake of the bank’s $2 billion trading loss, and others could follow.
The question now is whether JPMorgan will invoke its newly implemented clawback policy to penalize these executives, including forcing the return of Ms. Drew’s reported $14 million salary last year.
We are on new terrain.
Prior to the financial crisis, a clawback wasn’t really an option. Bank executives and other employees kept prior compensation, even if it turned out that they bore responsibility for their institution’s later billion-dollar losses. For example, Charles Prince, the former chief executive of Citigroup who left in the midst of the financial crisis, not only kept the hundreds of millions he was paid but also received a $68 million exit package.
Financial institutions were savagely criticized for these practices, the “heads I win, tails you lose” nature of Wall Street compensation. It was a problem that extended beyond the C-suite. Traders could pocket millions of dollars for strategies that later soured.
One of the most egregious examples was Joseph Cassano of the American International Group. The executive, who headed up the A.I.G. Financial Products, kept more than $300 million in salary and bonuses despite heading the group the led the insurer to near collapse.
When things went bad during the financial crisis, many Wall Street traders pulled the eject button, escaping with millions and leaving the wreckage behind.
In the wake of the financial crisis, the Dodd-Frank Act was supposed to change all this by implementing clawback policies. By ensuring that prior compensation could be returned to a company, employees would act in the long-term interest of the company instead of trying to make money in the short term. The clawback ensures that employees have the right incentives and can’t just run with the money.
But the clawback policy in Dodd-Frank as adopted [ http://www.fdic.gov/regulations/laws/federal/2011/11finaljuly15.pd ] by the Federal Deposit Insurance Corporation has been criticized as weak, since it only applies to the “too big to fail” banks and other financial institutions. The policy is triggered if the bank is put into insolvency proceedings and employees are found to have failed to apply their job with the “degree of skill and care an ordinarily prudent person in a like position would exercise under similar circumstances.”
This is a legal standard and allows the employee to simply claim they made an error but acted with appropriate care. And the policy only applies to senior executives and directors, not traders. The standard is so high and the circumstances it can be used so narrow, I doubt the F.D.I.C. will ever invoke this clawback provision.
But this does not end the matter. Regulators and institutional shareholders have been at work in the market to build on these requirements. New York’s comptroller, John C. Liu, has been pushing financial institutions to adopt stronger clawback provisions, including getting Goldman Sachs to implement tougher rules. Not surprisingly, given Jamie Dimon’s prior criticism of financial reform, JPMorgan resisted most assiduously although it did eventually address [ http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2012/nyceretirement031412-14a8.pdf ] some of Mr. Liu’s concerns.
Under JPMorgan’s policy adopted in 2009 [ http://files.shareholder.com/downloads/ONE/0x0x563739/a14ed273-d905-48c0-9ddb-de6efd350642/JPMorgan%20Proxy%20Discussion_4.24.12.pdf ], JPMorgan retains “the right to reduce current year incentives to redress any prior imbalance. . . . ” In addition, prior equity compensation can be clawed back if the employee “engages in conduct that causes material financial or reputational harm to the Firm or its business activities” or “for members of the Operating Committee and Tier 1 employees, such employees improperly or with gross negligence fail to identify, raise, or assess, in a timely manner and as reasonably expected, risks and/or concerns with respect to risks material to the Firm or its business activities.”
According to Mr. Liu, JPMorgan takes the position that this clause not only applies to the business as a whole but also to various units. So it is possible that the policy could ensnare executives in the chief investment office, where the trading losses occurred.
I do not know if any of these traders or Ms. Drew is a Tier I employee, but there is a real question whether they and others have acted in a way to trigger these policies. It is even worth asking the question whether the intelligent Mr. Dimon — who admittedly has been upfront that this was “stupid” and has been a valuable chief executive for JPMorgan — has acted in a way to trigger this policy as the supervisor of these people.
JPMorgan’s shareholder meeting is on May 15. No doubt shareholders will be asking whether JPMorgan rewarded these traders with termination packages, but also about clawbacks. At a minimum, the JPMorgan board has a duty to look at this issue, find out the facts are and determine the situation warrants clawbacks. Others are likely to be scrutinizing the board to make sure there is no whitewash, since these clawbacks and compensation adjustments are seen as ensuring that Wall Street does not again profit and leave others holding bag.
We are about to see the first real test of the new post-financial crisis regime. Hopefully, Wall Street will do better this time.
Copyright 2012 The New York Times Company
http://dealbook.nytimes.com/2012/05/14/after-2-billion-trading-loss-will-jpmorgan-claw-back-pay/ [with comments]
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The Boss and Everyone Else
Editorial
Published: May 1, 2012
One lesson of the financial crisis is that excessive pay led to excessive risk-taking. To help curb exorbitant pay, the Dodd-Frank reform law included a so-called say-on-pay provision, which requires companies to put their pay practices to a shareholder vote at least every three years.
The law also included a pay-gap provision, which requires companies to calculate and disclose the ratio of the chief executive’s compensation to the median pay package at the company. Say-on-pay, though nonbinding, lets investors influence executive pay, while the pay-gap ratio is crucial to determining whether executive compensation is excessive and to judging the effect of pay gaps on company performance and the broader economy.
Nearly two years after the passage of Dodd Frank, say-on-pay is slowly emboldening investors to question executive pay, most prominently this year at Citigroup, where shareholders recently rejected a $15 million pay package [ http://dealbook.nytimes.com/2012/04/17/citigroup-shareholders-reject-executive-pay-plan/ ] for the bank’s chief executive, Vikram Pandit. But the pay-gap provision has not yet gone into effect.
The delay is disturbing. The law specifically directs the Securities and Exchange Commission to require companies to compute and report the pay gap. Unlike other provisions in Dodd Frank, where Congress gave the S.E.C. the authority to weigh in on issues, but not a statutory mandate, the pay-gap provision does not leave crucial details up to regulators. Some regulatory guidance is needed, for example, in explaining how to factor in the pay of part-time workers. But, for the most part, Congress did not create much leeway for regulators — or for corporate opponents — to do anything but follow the law. Yet the S.E.C. has not issued the pay-gap rules. The main problem seems to be foot-dragging in the face of objections from corporate lobbyists, who claim the ratio would be too complex to calculate. But the real issue is not complexity; it is the reluctance of executives and boards to reveal and justify what are bound to be some very large pay gaps.
The most informative approach would be to measure the gap both for a company’s American work force and its global work force, which would show how an international work force affects the ratio. Coming up with such measures would be an additional burden on companies, but not an unreasonable one. Congress enacted this provision to enable investors, policy makers and the public to better understand — and to change — the dynamics behind indefensible pay gaps. It is past time for the S.E.C. to carry out the law.
© 2012 The New York Times Company
http://www.nytimes.com/2012/05/02/opinion/the-boss-and-everyone-else.html
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London’s Shareholder Revolt Is a Win for the 1 Percent
Illustration by Nous Vous
By A.A. Gill
May 9, 2012 6:04 PM CT
Depending on who signs your paycheck and what blogs you read, London has become embroiled in either “Bonusgate” or a “Shareholder Spring.”
Denizens of the City of London are masticating or ruminating (contingent on whether they’re bears or bulls) on the news that Andrew Moss, chief executive officer of the insurer Aviva Plc (AV/), has stepped down after more than 50 percent of shareholders voted against his proposed pay raise. He did agree to forgo it, but that wasn’t enough. Since Moss had been in the big chair, Aviva’s share price halved and its dividends evaporated. So he picked up his severance package with both hands and took the elevator. As one incandescent shareholder said, only two things were going up: executive pay and nonexecutive pay.
William Hill Plc (WMH), the London bookmaker, won’t be taking bets on whether its chief executive officer, Ralph Topping, will hold onto his paycheck after a similar shareholder revolt. Sly Bailey, one of the most ferociously prominent female executives in the City, was tipped out of her corner office at Trinity Mirror Plc (TNI), the newspaper publishers, after investors objected to her pay. Barclays Plc (BARC) is trying to put an insouciant face on its shareholders revolting against the $28.7 million pay package awarded to its chief executive, Bob Diamond. The shareholders’ votes are not binding, but it is the sort of notice banks are happier handing out than receiving. There is something in the air.
Carrot of Capitalism
You may well think all this strikes at the very carrot of capitalism, that businesses have an obligation to hire the best and that the best have a right to charge whatever the market will pay. But politicians all over Europe and the U.S. have been calling for restraint, or at least delicacy in pay. An eight- digit bonus for the head of a business that is foreclosing on mortgages and calling in loans goes way beyond tasteless. Politicians reassure us that we are “all in this together,” but every grinningly unapologetic bonus and golden handshake shows that some of us are in it, but standing on the heads of others, who are as a consequence much deeper in it.
Europe’s most stable and generally happy societies are the bungalow economies of Scandinavia, where the distance between the gutter and the ceiling is the shortest. Francois Hollande, just stepping into the unrestrained grandeur of the Elysee Palace, has called for executive pay to be capped at 20 times those at the bottom of the ladder. It’s not going to happen, but in most European cafes and pubs that sounds like a very modest proposal.
The Occupy Wall Street movement sprung directly from this perceived inequality. It sprung, but it wasn’t Spring. In retrospect, despite the miles of liberal-egalitarian wishful commentary, it achieved very little. It wasn’t the rebirth of 1968, it wasn’t the vanguard of a new, youthful awareness and commitment to equality and fraternity (though, in Germany, an Occupy group applied for official permission before pitching its camp, and was given it). What it did give us was the slogan “We are the 99 percent,” which neatly identified and focused the anger of people suffering recession onto the 1 percent.
But to be in the 1 percent you only have to earn $380,000 in the U.S. I say “only” because the folks who are facing the U.K.’s Shareholder Spring are the top 0.01 percent and 0.001 percent who have seen their incomes steeple. The people who are taking them down are not the 99 percent but the 10 percent, or even other 1 percenters. Those who own stock and bother to turn up to shareholders meetings are the real forces of change.
Worth Every Cent
It’s not just individual shareholders -- it’s also the institutional investors who are beginning to feel uncomfortable with the unapologetic and willfully unconcerned boardroom venality. Ironically, one of the biggest investor-critics of Bailey at Trinity Mirror was Aviva.
Those readers -- and I expect there will be many -- who believe that corporate and banking remuneration just reflects the market, and that the pool of possible chief executive officers is shallow and rare, and that if you get a good one he or she is worth every cent (not least to the workers and the shareholders), and that to call for restrictions is just jealousy, bitterness and a misplaced general anger that should be aimed at politicians, also probably believe that the market shouldn’t be fettered or regulate its success.
Well, that would be all well and good, except that markets do fetter and regulate all sorts of things. Not least for the protection of businesses and consumers: monopolies, copyright, false representation, insider trading, to mention a few. Executive pay is increasingly seen to be set by those who themselves hope to gain from its largesse. Although it may be pegged to results, there is rarely a commensurate downside for negative outcomes. Improved figures too often look like a chief executive appropriating the wages of dismissed employees.
The voters in this Shareholder Spring are those who might in the future have had an interest in artificially fattened executive pay, but see it now as not just a serious drain on resources but as intrinsically bad for business, bad for the market. We may not all be in this together, but most of us are in the High Street, and avarice is not a good look.
And one can sense something else, something more nebulous: a growing realization that perhaps the market mythology and the headhunters’ black magic are mere guff and PR. There will always be executives whose decision making doesn’t live up to their tailoring, and there do seem to be an awful lot of them around right now. A glut, in fact.
(A.A. Gill, the restaurant and TV critic of the Sunday Times of London, is a Bloomberg View columnist. The opinions expressed are his own.)
To contact the writer of this column: A.A. Gill in London at aagill1@bloomberg.net.
To contact the editor responsible for this story: Tobin Harshaw at tharshaw@bloomberg.net.
©2012 BLOOMBERG L.P.
http://www.bloomberg.com/news/2012-05-09/london-s-shareholder-revolt-is-a-win-for-the-1-percent.html [with comments]
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The Lobbyist in the Gray Flannel Suit
A sample of WPP’s companies.
Courtesy of WPP
By THOMAS B. EDSALL
May 14, 2012, 9:40 am
As the American political classes become more polarized, with faction pitted against faction, there is a consolidating force at work in the $6 billion-a-year influence-peddling industry.
Once a free-wheeling, if ethically challenged, crowd of men (and almost no women), who swapped stories about their clients over Jack Daniels, these expert manipulators of the legislative process and of public opinion have become corporate employees. Slowly but surely, WPP, an immense international holding company based in London [ http://www.wpp.com/wpp/about/wppataglance/ ] — with a workforce of 158,000 in 107 countries and 2011 billings of $72.3 billion — has been buying up Washington’s top lobbying, public relations, advertising and political strategy firms.
WPP has become, in effect, a special interest mega-firm [ http://www.wpp.com/wpp/companies/ ], with offerings for conservatives and liberals, environmentalists and polluters, gun lovers and gun haters, Tea Party die-hards and public sector unions, old guard media and their high tech competitors – the entire gamut from left to right, top to bottom.
Companies once viewed by those in politics as independent powerhouses — QGA (formerly Quinn Gillespie), Glover Park, Hill+Knowlton, Burson-Marsteller, Public Strategies, Prime Policy Group, Dewey Square, Ogilvy Government Relations, Wexler & Walker – are now minor players in a marketing-communications conglomerate.
In the process, Washington political media strategy shops have come to play second fiddle to the biggest money makers for WPP — Madison Avenue advertising firms like Y & R.
The consolidation of the special interest and influence communities — lobbying, public relations, media strategy, political consulting, fundraising, the bread and butter of Washington — has substantial consequences:
*As more and more members of the House and Senate leave their positions to go into these lucrative fields, one company more than any other will oversee their compensation, bonuses, performance requirements and tenure.
*In the formerly highly entrepreneurial fields of public relations, lobbying, and legislative and election strategizing, the young and hungry are no longer rewarded with glamorous renegade stature (for example, Lee Atwater and Roger Stone). Nor can they count on equity in a small but growing operation. Now they must get their rewards in stock options and bonuses.
*Although a center of world power, Washington, from the vantage point of WPP, is a profitable second tier market, a city subordinate to the glitter and cash of New York, London, Paris and Buenos Aires.
Asked why, unlike most of his competitors, he had kept his firm independent, the Democratic strategist Lawrence F. O’Brien, III, founder of the OB-C Group, LLC, whose clients include Anheuser-Busch, Eli Lilly, Honeywell International and K.K.R., emailed The Times:
Master of own destiny, create your own work place rules and atmospherics and performance standards, report to no one else, answer to no one else, far better able to discern and manage potential client “conflicts” in a thoroughly professional and ethical manner.
A top Republican lobbyist, who has tried out working for a conglomerate but is now back on his own, described the former experience as “poison.” The conglomerate “sucks out 40 to 50 percent of the profit, and your bonus is set by folks in some other city,” he said in an interview.
WPP is prepared to swallow everybody with a profitable bottom line.
Shortly after the 2004 election, four Internet specialists who had worked for Democratic presidential candidate Howard Dean founded Blue State Digital [ http://www.bluestatedigital.com/about/history/ ] “to develop tools and strategic services that would empower campaigns and cause-related organizations to build meaningful action-oriented communities.”
In 2008, Blue State asserted that it had “raised more than $500 million online, mobilized millions of volunteers, and built an unprecedented community of 13 million individual supporters that helped propel President Obama into office.”
Then, at the end of 2010, WPP bought Blue State. “Any political clients are still going to reflect our values,” Joe Rospars, a founding partner, told Fast Company [ http://www.fastcompany.com/1713358/wpp-acquires-blue-state-digital-co-founder-joe-rospars-dishes ], affirming the company’s ideological commitment, before adding:
What we really liked about WPP was that they have a broad network of companies in spaces that are complementary to where we work — whether it’s in advertising, research, or general consulting. We’re working alongside different companies like that all the time, so having closer relationships with them makes our work better and makes the overall experience for the client better. The other thing about WPP is its international footprint. They’re in over 100 countries. Having a set of ready-made potential partners in different countries will offer us the opportunity to take both our agency services as well as our technology to market in a much more organized fashion.
Martin Sorrell, WPP’s C.E.O., argues that there are three major advantages for a Washington firm that joins an international company like WPP.
First, in Sorrell’s view, successful representation increasingly “depends on international connections and international capabilities are becoming more and more important.” Second, lobbying and other forms of advocacy require access to multiple communications systems, including social media, advertising and others that WPP can offer to its individual subsidiaries. Third, while lobbying used to be based primarily on “who you know, not what you know,” now detailed understanding of issues in all their complexity is essential, putting a relatively small independent operation at a competitive disadvantage.
WPP (“the Group”) describes itself this way [ http://www.wpp.com/annualreports/2011/overview/the-fast-read.html ] in its 2011 annual report:
There are more than 150 companies within the Group – and each is a distinctive brand in its own right. Each has its own identity, commands its own loyalty, and is committed to its own specialist expertise. That is their individual strength. Clients seek their talent and their experience on a brand-by-brand basis. Between them, our companies work with 344 of the Fortune Global 500, all 30 of the Dow Jones 30, 63 of the NASDAQ 100 and 33 of the Fortune e-50.
What this means in Washington is that WPP is everywhere.
It you want a lobbyist with close ties to Mitt Romney, look no further than Charlie Black [ http://campaignstops.blogs.nytimes.com/2011/12/05/the-reinvention-of-political-morality/ ], the iconic Republican operative, now a senior Romney campaign adviser and chairman of the Prime Policy Group. Or top fundraiser Wayne Berman at Ogilvy Government Relations (distinct from another WPP subsidiary, Ogilvy & Mather Worldwide).
Want a former member of the House? How about Norman Mineta at Hill+Knowlton – he represented California in the House and was Secretary of Transportation under George W. Bush, not a bad choice to lobby Congress and DOT on behalf of the U.S. Coalition for Advanced Diesel Cars [ http://disclosures.house.gov/ld/pdfform.aspx?id=300454997 ].
When Bain Capital, the company Romney helped found, sought to hire someone to “monitor tax reform developments” – in other words, to watch out for ominous changes in the tax code – it turned to WPP’s Public Strategies, paying the firm $320,000 in 2011 [ http://disclosures.house.gov/ld/pdfform.aspx?id=300449121 ].
There are two other advertising and media conglomerates buying up Washington, Interpublic and Omnicom Group, but they remain minor league compared to WPP.
Omnicom is “a strategic holding company [ http://www.omnicomgroup.com/AboutOmnicomGroup ] that manages a portfolio of global market leaders” It owns, and recently merged into one firm, Clark and Weinstock, a Washington-based operation run by Vin Weber, a former Republican congressman and lobbying superstar, and Mercury, which boasts a leadership team including former Republican Senator Jim Talent and former Democratic House member Max Sandlin. Clark and Weinstock collected $5.9 million in lobbying fees in 2011 [ http://www.opensecrets.org/lobby/firmsum.php?id=D000022461&year=2011 ], and Mercury made $2.9 million that year [ http://www.opensecrets.org/lobby/firmlbs.php?id=D000064442&year=2011 ].
Intergroup [ http://www.interpublic.com/interpublicgroupinfo ], “one of the world’s premier advertising and marketing services companies,” owns Cassidy & Associates [ http://www.washingtonpost.com/wp-dyn/content/article/2009/01/15/AR2009011503650.html ], which, in 2011, had lobbying billings of $19.8 million [ http://www.opensecrets.org/lobby/firmsum.php?id=D000000208&year=2011 ] from such clients as AT&T, Bayer AG, B.M.W., Estee Lauder and the Motion Picture Association.
Charlie Black, who in 1980 founded Black, Manafort and Stone, now runs the WPP-owned Prime Policy Group, which absorbed both B.M. & S. and the former Timmons & Co. In 2011, Prime had billings of $10.9 million [ http://www.opensecrets.org/lobby/firmsum.php?id=D000045879&year=2011 ], including such high dollar clients as AT&T ($480,000 in 2011 billings), Chrysler ($280,000), and the Securities Industry & Financial Markets Association ($240,000).
Black said in a phone interview that becoming a subsidiary “changes things. You have some accountability to the parent company, you work out with them, budget goals, what to bring in. If you miss your numbers, they get upset.” At the same time, he said, there are the advantages of “cross-pollination” with client references from other firms and sharing clients.
Carter Eskew, a founding partner of the firm Glover Park, argued in an interview that getting acquired by WPP “gave us more managerial flexibility.” Glover Park was started with backing from a private equity company that demanded high annual returns in the 40 percent range, Eskew said. “We were slaves to margins.” WPP has put much more stress on long-term growth and on reinvesting profits.
The conversion of the lobbyist from a backslapper into the “man in the gray flannel suit” has already had a significant effect on American politics.
The most important is that the influence industry has become unexpectedly depoliticized and disaffected. While disdained by the public at large, many lobbyists, campaign consultants, and P.R. types were, in the past, deeply concerned with and involved in the political system. They were personally vested in the institution of government.
The steady take-over of this unofficial branch of government by WPP, Omnicom, Interpublic and other conglomerates has turned premier lobbyists, strategists and political operatives into a species of bureaucrat, now vested in bottom-line corporate goals. Their interest in the substance of what Congress accomplishes, in policy outcomes, and in the direction of the country, has diminished. In fact, one could say that the more legislative dysfunction, the more billable hours.
“It’s chipped away at the quality of work on both sides,” says a senior Democratic operative, now a partner in an independent boutique lobbying and public relations firm. “This has become a business where mediocrity abounds. Once you get bought, you are dis-incentivized. There’s no pride of ownership, and everyone knows the top folks are going to leave as soon as their earn-out [ ] comes to an end.”
Still, the corporatization of K Street and of the political consulting industry has taken on a momentum and inevitability that assure the process will continue, regardless of the consequences.
Thomas B. Edsall, a professor of journalism at Columbia University, is the author of the book “The Age of Austerity: How Scarcity Will Remake American Politics [ http://www.amazon.com/The-Age-Austerity-Scarcity-ebook/dp/B0050DIX2E ],” which was published earlier this year.
© 2012 The New York Times Company
http://campaignstops.blogs.nytimes.com/2012/05/14/the-lobbyist-in-the-gray-flannel-suit/ [with comments]
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Greensburg, KS - 5/4/07
"Eternal vigilance is the price of Liberty."
from John Philpot Curran, Speech
upon the Right of Election, 1790
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