Party on

For American International Group (AIG) executives, the party goes on even after the corporate meltdown that required a $123 billion (and counting) federal bailout since September. A House committee recently examined the events leading up to, and following, AIG's collapse:

One of the key items discussed was AIG’s spending of no less than $442,000 for a corporate retreat at the St. Regis Monarch Beach resort in Dana Point, California, south of Los Angeles. This original amount was spent on Sept. 22, a week after the Federal Reserve attributed an $85 billion emergency loan to AIG in order to keep the company afloat, avoiding bankruptcy due to insurance liabilities.

This event was hardly unique, as New York Attorney General Andrew Cuomo pointed out in a letter (.jpg) to AIG's Board of Directors dated October 15th:

In the last several months, as AIG was teetering toward bankruptcy, and operating with unreasonably small capital, AIG nevertheless made numerous extraordinary expenditures in the form of executive compensation payments, junkets, and perks for its executives.

For example, in March 2008, ignoring the massive losses AIG was experiencing, the Board awarded its Chief Executive Officer a cash bonus of over $5 million and a golden parachute worth $15 million. Similarly, in February 2008, a top-ranking executive who was largely responsible for AIG's collapse was terminated, but still permitted by the Board to keep $34 million in bonuses. This same individual apparently continued to receive $1 million a month from the company until recently.

Moreover, even after the taxpayer-funded bailout of AIG, the company paid hundreds of thousands of dollars for luxurious retreats for its executives, including an overseas hunting party and a golf outing. We believe these expenditures and payments, made in the absence of fair consideration, violated New York law... which deems such payments to be fraudulent conveyances.

AIG, the world's largest insurance company, has been deemed "too big to fail." The corporate leadership seemed genuinely surprised by all the fuss, though a spokesperson said: "We regret that this event [the retreat at the St. Regis] was not canceled."

The sense of entitlement and heedlessness that AIG's behavior reflects have deep roots in recent economic history. Consider this chart, from the Economic Policy Institute (EPI) in D.C.:

The graph shows the ratios between the incomes of the highest 0.1% of earners (top line), the next highest 1% (second line), and the rest of us (bottom 90%). As EPI notes, the most telling line is the top one:

...when it comes to the wage income of the highest of the high earners, the staggering gap has become a chasm: in 2004 the upper one-tenth of 1% earned 70.4 times as much as the average person in the bottom 90% of the income scale. Just 25 years earlier in 1979, the ratio that was only 21.0-to-1.

During the postwar period from 1947 to Reagan's election in 1980, the ratio was fairly constant — even flattening during the '60's. For the highest earners, though, the party really begins around 1980 despite a nasty recession under Reagan. The red line steepens again during the 90's, only to fall under Bush II with the bursting dot-com bubble.

The EPI concludes: "...in 1979 it took the highest-paid earners 12.4 days to make what most other earners did in a year, but by 2004 that feat was accomplished in a mere 3.7days."

For the top 1% of earners (bottom line in the chart), the news is less dramatic but still very good: in 2006, they earned 20 times as much as the bottom 90% compared to 9.4 times as much in 1979.

Since it focuses only on "earnings," EPI's chart only tells part of the story. A more complete picture would include asset values and other indications of wealth.

John McCain and other Republicans howl reflexively about "class warfare" whenever anyone points out the gross inequalities in the distribution of wealth and incomes in the U.S. Considering the spectacular failure of "trickle-down" economics, and the obvious need to create a more equitable alternative, maybe we need more of it.

It hardly needs to be mentioned that such unequal distributions of income and wealth are a direct function of conscious public policies, notably in the tax codes, that privilege the highest 1% over the rest of the population. It's a form of social Darwinism — not a law of nature, but a failed system of political and economic organization that needs to be restructured.

Meanwhile, AGI's share price has fallen from about $70 one year ago to $2.10 on October 17th.

[H/T to Paul Campos at LGM]

UPDATE: A relevant quote

Economist James K. Galbraith, writing in Harper's Magazine (November 2008) on the economic crisis of "casino capitalism:"

The rot comes from predators posing as conservatives and mouthing the rhetoric of “free markets.” They are not actually interested in free markets. Their goal is to use the government to build monopolies, to control resources, to block regulation, to crush unions, to divert as much as possible from taxpayers into private pockets. They have a reckless attitude toward war-making and they put the financial system in peril by failing to enforce standards of ethics and transparency. As a result, they imperil the country’s credit in the world.

Geaghan: Sunday Snippets from the paper of record

Since she began writing a regular column for the New York Times in 1995, Maureen Dowd's career has been distinguished by an almost indiscriminate series of personal hit pieces on everyone from the Clintons to Al Gore to the Bush dynasty and, this week, Paul Wolfowitz. Her name has even become a verb in some quarters, as in "to dowdify." If she has ever written a kind word about anyone in politics, I must have missed it. (I readily admit, however, that there may be few reasons to write anything positive about our political classes.)

Wolfowitz, the neocon who played a central role in selling and quickly botching the Iraq war, is now embroiled in a scandal involving nepotism, among other things, in his new gig as president of the World Bank. As with Iraq, he seems incapable of recognizing his mistakes. Dowd, as she often does, skewers her target nicely:

Like W., Wolfie is dangerous precisely because he’s so persuaded of his own virtue.

Not surprisingly, people who are so convinced of their own infallibility can do no wrong and are not bound by the same limitations (including the law) that constrain the rest of us. Or so they believe.

Meanwhile, Frank Rich's columns can be equally (and appropriately) devastating for his subjects, except he frequently transcends personal vilification and shifts his focus to the culture at large. In today's column, for example, he explores the fallout from last week's firing of Don Imus by CBS:

The biggest cliché of the debate so far is the constant reiteration that this will be a moment for a national “conversation” about race and sex and culture. Do people really want to have this conversation, or just talk about having it? If they really want to, it means we have to ask ourselves why this debacle has given permission to talking heads on television to repeat Imus’s offensive words so insistently that cable news could hardly take time out to note the shocking bombing in the Baghdad Green Zone...

If we really want to have this conversation, it also means we have to have a nonposturing talk about hip-hop lyrics, “Borat,” “South Park” and maybe Larry David, too.

Though we've been hearing rumors about a national "conversation" on racism for decades, it's not happening now and won't even begin unless our political, cultural or religious leaders are willing to confront some very difficult questions about both our history and current social realities.

Instead, we're seeing a sustained reaction against "political correctness" and "victimology" that's analogous to, and part of, the opposition to feminism documented by Susan Faludi in 1991 in Backlash: The Undeclared War Against American Women (1).

That reaction is based on a simple premise: women, blacks and other minorities may have had some legitimate complaints about systematic discrimination in the past, but American society has evolved towards greater equality. So their litany of complaints is entirely out of proportion to current realities and, thanks to programs like affirmative action, serves only to victimize the white majority (and especially white males). As long as that all-too-convenient perception exists, any "conversation" will be impossible or, at best, unproductive.

The right has added its own variation on this theme: the inequality of African Americans is the result of years of paternalistic federal programs created by Democratic administrations and congresses. These programs have created an unhealthy dependency that has prevented blacks from taking initiatives that might allow them to enter and thrive in the free-market system. As the inflammatory Dinesh D'Souza once wrote, "the American obsession with race is fueled by a civil rights establishment that has a vested interest in perpetuating black dependency" (4).

The reasons for the backlash? Faludi's comments in a 1999 interview still seem valid today:

Look, it's hardly a time of great jubilation for anyone. But it's much harder for men in many respects because they have this feeling that women are rising just as men are falling. The truth is, of course, that women are moving from the subbasement to the basement. By any objective measure -- pay, representation in boardrooms, status -- men are still ahead. But psychologically it's much harder to fall than to climb, even if you land at a higher point than those who are just beginning to rise.

By most measures, of course, African Americans haven't experienced even the limited social and economic mobility that Faludi describes for women (2). Until we have our national "conversation," that reality seems unlikely to change.

NOTES

(1) Followed by Faludi's Stiffed: The Betrayal of the American Man in 1999.

(2) The scope of the problem, contrary to popular perceptions about minority preferences in hiring, was revealed by a 2003 study conducted by researchers from MIT and the University of Chicago. They submitted a large number of job applications that were substantially the same in terms of education and prior experience, but they differed in one respect: half the "applicants" had names that "sounded" African American. Those applicants were 50% less likely to be invited in for interviews, and the percentage was even lower for better paying, more responsible positions. [See also this article by Tim Wise and our posting on the U.S. "Punishment Culture."]

(3) In a January posting, we attempted to apply the academic construct known, awkwardly, as "cultural pseudosubspeciation" to Iraq. That concept has equal application to racial, ethnic and gender relations in the U.S. and elsewhere. Our friend Ellis at Disambiguation (which has been far too quiet of late) has privately expressed some disagreement with our use of that notion. Maybe we can elicit a comment from him, or our hordes of readers, on this subject.

(4) In his lengthy analysis of race relations in The End of Racism (1996), D'Souza also wrote: "Activists recommend federal jobs programs and recruitment into the private sector. Yet it seems unrealistic, bordering on the surreal, to imagine underclass blacks with their gold chains, limping walk, obscene language, and arsenal of weapons doing nine-to-five jobs at Procter and Gamble or the State Department."

PHOTO: The gleaming new headquarters of the New York Times, designed by Renzo Piano, on 8th Avenue in Manhattan.

Geaghan: Department of No Comment

Sometimes the data just lend support to the obvious. Here's a recent example (with thanks to Scott Lemieux of Lawyers, Guns and Money for the tip on this article by Brad Plummer at The New Republic Online):

"The statistics on inequality are well known and... present a clear picture. Between 1979 and 2004, the richest 1 percent of Americans saw their after-tax incomes triple, while those of the middle fifth grew by only 21 percent and those of the poorest fifth barely budged, according to Congressional Budget Office data. By the late '90s, the richest 1 percent of American households held one-third of all wealth in the U.S. economy, and took in 14 percent of the national income--a greater share than at just about any point since the Great Depression.

"In politics, this all matters a great deal. Larry Bartels of Princeton has recently studied the voting record of the Senate between 1989 and 1994--a time, note, when Democrats controlled Congress. He found that senators were very responsive to the preferences of the upper third of the income spectrum, somewhat less attentive to the middle third, and completely dismissive of the policy preferences of the poorest third. In one striking example, Bartels discovered that senators were likely to vote for a minimum wage increase only when their wealthier constituents favored it--the views of those directly affected by the hike had 'no discernible impact.'"

With "wealthier constituents" refusing to support the minimum wage bill recently passed by the House, the Senate wouldn't approve an increase without an "$8 billion package of tax breaks and regulatory concessions for small business..." The Senate bill passed today by a vote of 87-10. An earlier bill, lacking these business-friendly "concessions," failed on January 24th.

GRAPHIC: "Minimum Wage History," Oregon State University (January 17, 2007)