Who Stole the American Dream?
Page 49
53 “In our culture” “Kendrick B. Melrose: Caring About People: Employees and Customers,” Ethix, October 1, 2007, http://ethix.org; and Ken Melrose, “2005 Minnesota Business Hall of Fame,” Twin Cities Business, July 2005, http://www.tcbmag.com.
54 The top echelons of business Jon Bakija, Adam Cole, and Bradley T. Heim, “Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data,” research paper (Bloomington: School of Public and Environmental Affairs, Indiana University, November 2010), http://www.indiana.edu.
55 Larry Ellison Graef Crystal, “Larry Ellison Rides Again!” Crystal Report on Executive Compensation, July 13, 2009, http://www.graefcrystal.com.
56 A Wall Street Journal compilation John S. Lublin and Scot Thurm, “Behind Soaring Executive Pay, Decades of Failed Restraints,” The Wall Street Journal, October 12, 2006. In his three big years, Weill was paid $230.5 million in 1997, $166.9 million in 1998, and $224.4 million in 2000.
57 The idea sprang Michael C. Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics 3, no. 4 (October 1976): 305–60.
58 Jensen became its apostle Michael C. Jensen and Kevin J. Murphy, “Performance Pay and Top-Management Incentives,” Journal of Political Economy 98, no. 2 (April 1990): 225–64.
59 Perhaps unwittingly John Cassidy, “The Greed Cycle,” The New Yorker, September 23, 2002.
60 “An orgy of self-enrichment” Ibid.
61 “There was a sea change” Stephen Young, interview, October 19, 2011.
62 Bob Nardelli, for one “Home Depot’s Nardelli Ousted After Six-Year Tenure,” Bloomberg, January 3, 2007, http://www.bloomberg.com.
63 Probably the most egregiously distorted Lucian A. Bebchuk, Alma Cohen, and Holger Spamann, “The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000–2008,” Discussion Paper No. 657 (Cambridge, MA: John M. Olin Center for Law, Economics, and Business, Harvard University, February 2010).
64 Angelo Mozilo, CEO Frank Ahrens, “Big Payday Awaits Chairman After Countrywide Sale,” The Washington Post, January 12, 2008.
65 The SEC found Eric Dash, “Dodging Taxes Is a New Stock Options Scheme,” The New York Times, October 30, 2006; “Stock-Options Scandal Fugitive Puts Roots Down in Namibia,” The Wall Street Journal, November 17, 2006; “How Backdating Helped Executives Cut Their Taxes,” The Wall Street Journal, December 12, 2006.
66 Steve Jobs had been personally involved “Jobs Helped Pick ‘Favorable’ Dates for Options Grants,” The Wall Street Journal, December 30, 2006; and Alan Sipress, “Apple Chief Benefited from Options, Records Indicate,” The Washington Post, January 11, 2007.
67 One revealing case, William McGuire “Embattled CEO to Step Down at United Health,” The Wall Street Journal, October 16, 2006; “How a Giant Insurer Decided to Oust Hugely Successful CEO,” The Wall Street Journal, December 7, 2007.
68 One reason so many CEOs got away Lucian Bebchuk, Yaniv Grinstein, and Urs Peyer, “Lucky CEOs and Lucky Directors,” Discussion Paper No. 573 (Cambridge, MA: John M. Olin Center for Law, Economics, and Business, Harvard University, December 2006), published in Journal of Finance 65, no. 6 (December 2010); John Hechinger, “Backdated Options Pad CEO Pay by Average of 10%,” The Wall Street Journal, November 17, 2006.
69 Bogle also derided the idea John C. Bogle, The Battle for the Soul of Capitalism (New Haven, CT: Yale University Press, 2005), 10–26.
70 Dissenting academics Jay Lorsch and Rakesh Khurana, “The Pay Problem,” Harvard Magazine, May–June 2010.
71 Executive stock options Despite his dismay, Jensen was against abandoning the pay-for-performance stock options. To solve the problem, he suggested better-designed stock options. “How to Pay Bosses: Michael Jensen Still Thinks He Has the Answer,” The Economist, November 14, 2002, http://www.economist.com/node/1441839.
72 “During my seven and a half years” Arthur Levitt, Take On the Street: What Wall Street and Corporate America Don’t Want You to Know (New York: Pantheon Books, 2002), 236.
73 Merrill Lynch estimated Merrill Lynch & Co., study by Gary Schieneman, C.P.A., 5, June 19, 2001, 5.
74 Buffett backed the FASB rule Warren Buffett, “Who Really Cooks the Books?” The New York Times, July 24, 2002; and Buffett, “Fuzzy Math and Stock Options,” The Washington Post, July 6, 2004.
75 Levitt backed down Levitt, Take on the Street, 106–11.
76 “Probably the single biggest mistake” Arthur Levitt, interview, March 12, 2002.
77 The hand of U.S. regulators “Foreign Firms to Expense Options: New International Rule Pressures U.S. to Handle Stock Grants the Same Way,” The Wall Street Journal, February 20, 2004.
78 Ten months later Gary Rivlin, “Regulators Adopt Tighter Rules on Accounting for Stock Options,” The New York Times, December 18, 2004.
79 But business opposition succeeded John Nester, SEC communications director, and SEC, email and interview, October 18, 2011.
PART 3: UNEQUAL DEMOCRACY
1 Unequal Democracy Bartels, Unequal Democracy.
2 “My friend Dirk Van Dongen” President George W. Bush, remarks, White House, May 28, 2003, PR Newswire, http://www.prnewswire.com; Bush, remarks, U.S. Chamber of Commerce, May 6, 2003, PR Newswire, http://www.prnewswire.com.
3 “They knew I was loyal” Dirk Van Dongen, interview, April 25, 2011.
4 Van Dongen was Rove’s man Kristin Jensen, Jonathan D. Salant, and Michael Forsythe, “Bush Relies on Corporate Lobbyists to Help Him Push U.S. Agenda,” Bloomberg, September 23, 2005, http://www.bloomberg.com.
5 Added $2.9 trillion A Congressional Budget Office study estimated that Bush tax cuts reduced tax revenues by $2.9 billion from 2001 to 2011, while less than expected growth reduced revenues another $3.5 billion, cited in Bruce Bartlett, “Are the Bush Tax Cuts the Root of Our Fiscal Problem?” New York Times Economix, July 26, 2011, http://economic.blos.nytimes/2011/07/26.are-the-bush-tax-cuts-the-root-of-our-fiscal-problem; James Horney and Kathy Ruffing, “Economic Downturn and Bush Policies Continue to Drive Large Projected Deficits,” Center on Budget and Policy Priorities, May 10, 2011, http://www.cbpp.org/ms/index.fm?fa=view&id=3490; “The Bush Tax Cuts Costs Two and a Half Times as Much as the House Democrats’ Health Care Proposal,” Citizens for Tax Justice, September 8, 2009, http://www.ctj.org.
CHAPTER 9: THE NEW 2000S POWER GAME
1 “Whatever elections may be doing” Bartels, Unequal Democracy, 287.
2 “Current U.S. tax policies” Page and Jacobs, Class War?, 88, 93.
3 “This is the ultimate” Richard W. Stevenson, “Itching to Rebuild the Tax Law,” The New York Times, November 24, 2002.
4 “Over the years” Dirk Van Dongen, interview, April 25, 2011.
5 “There’s a chorus” Alison Mitchell, “Interest Groups Are Gearing Up for High-Stakes Tax Cut Fight,” The New York Times, February 24, 2001.
6 Bush’s proposal for $1.78 trillion Estimate, Joint Committee on Taxation, “Congress Cuts Deal on Taxes,” CQ Almanac 2001 (Washington, DC: Congressional Quarterly, 2002), http://www.cqpress.com.
7 At Treasury Michele Davis, memo, February 27, 2001, in Ron Suskind, The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O’Neill (New York: Simon & Schuster, 2004), 150.
8 That very morning “Key Goals Face Early Obstacles,” The Washington Post, February 27, 2001.
9 An NBC/Wall Street Journal poll “Public Buys Bush’s Tax-Cut Plan, but Details Magnify Differences,” The Wall Street Journal, March 8, 2001.
10 An even stronger tilt “Poll Analysis: Bush in Honeymoon Period,” Los Angeles Times, March 8, 2001.
11 “Washington derives so much of its power” Stevenson, “Itching to Rebuild the Tax Law.”<
br />
12 “Dirk is always well positioned” Jeffrey Birnbaum, “The Man in the Middle,” CNNMoney.com, April 1, 2002, http://money.cnn.com.
13 “That coalition was very important” Jensen, Salant, and Forsythe, “Bush Relies on Corporate Lobbyists.”
14 “The President has it backwards” “Bush Pushes Huge Tax Cut in U.S. Congress Debut,” Dallas Morning News, February 28, 2001.
15 Protests in several cities “Union Campaigns to Thwart Tax Cut Plan,” Atlanta Daily World, April 8, 2001.
16 Bush was the one urging voters Marc Lacey, “Bush Deploys Charm on Daschle in Pushing Tax Cut,” The New York Times, March 10, 2001.
17 A staggering $2 billion Jensen, Salant, and Forsythe, “Bush Relies on Corporate Lobbyists.”
18 The Business Roundtable The Center for Responsive Politics reported business interests pouring $333 million into the 2009–10 election campaign cycle. By the center’s calculations, just one of Dirk Van Dongen’s six groups, the Business Roundtable, and its 208 corporate members and their executives and families contributed $142,955,958 to that campaign cycle. Email April 16, 2012. See also “Business-Labor-Ideology Split in PAC & Individual Donations to Candidates and Parties,” Center for Responsive Politics, based on Federal Election Commission data, March 27, 2011.
19 “You have an 800-pound gorilla” Jensen, Salant, and Forsythe, “Bush Relies on Corporate Lobbyists.”
20 Tax policy Benjamin I. Page and Robert Y. Shapiro, The Rational Public: Fifty Years of Trends in Americans’ Policy Preferences (Chicago: University of Chicago Press, 1992), 166, 287.
21 Exploiting public confusion “Bush Pushes Huge Tax Cut.”
22 White House highlighted the promise Richard W. Stevenson, “Congress Passes Tax Cut, with Rebates This Summer,” The New York Times, May 27, 2001.
23 John McCain voted against John McCain statement on final tax reconciliation bill, press release, May 26, 2001, http://mccain.senate.gov.
24 52.5 percent of the Bush tax cuts “The Bush Tax Cuts Costs Two and a Half Times as Much as the House Democrats’ Health Care Proposal,” Citizens for Tax Justice, September 8, 2009, http://www.ctj.org.
25 “Far from representing popular wishes” Jacob S. Hacker and Paul Pierson, “Abandoning the Middle: The Bush Tax Cuts and the Limits of Democratic Control,” Perspectives on Politics 3, no. 1 (March 2005): 33–53.
26 The explosive growth of corporate PACs Nace, Gangs of America, 148–49.
27 Business interests pumped in $972 million Based on Federal Election Commission data, the Center for Responsive Politics reported total business donations to the 2009–10 campaign cycle as $1,362,777,162 compared with $96,824,239 for labor, with soft-money contributions from individuals representing business interests of $971,645,729 versus $9,906,072 for labor, and $332,951,693 in contributions from business PACs compared with $69,073,927 from labor PACs. “Business-Labor-Ideology Split in PAC & Individual Donations to Candidates and Parties,” Center for Responsive Politics, based on Federal Election Commission data, March 27, 2011, http://www.opensecrets.org/overview/blio.php.
28 In all, $7 billion was spent “Lobbying Database,” Center for Responsive Politics, opensecrets.org, based on data from Senate Office of Public Records, January 31, 2011. Business groups spent $5.998 billion in those two years compared with $91.7 million by labor groups. That pattern is fairly typical in recent years. Even though the media generally treat business and labor as roughly equal “special interests,” business interests heavily outspent labor interests on lobbying from 1998 through 2010 by roughly a 60-to-1 ratio ($28.6 billion to $492 million). See http://www.opensecrets.org/lobby/index.php.
29 No other lobbying interest Ibid.; see also Drutman, The Business of America Is Lobbying, online doctoral thesis, 3–6.
30 Business leaders did not even bother Drutman, Business of America, 117.
31 The Business Roundtable Jonathan Peterson, “Lawmakers Debate Bill on Executive Pay,” Los Angeles Times, March 9, 2007.
32 Gang of Six found ways Thomas, “Shareholder Vote on Executive Compensation Act,” HR1257, Bill Summary and Status, 110th Congress, Library of Congress, accessed October 24, 2011, http://Thomas.loc.gov.
33 It took the financial collapse “New Rule Tries to Rein In the Pay of Corporate Executives,” Los Angeles Times, January 25, 2011.
34 On issues as varied Bartels, Unequal Democracy, 253–54.
35 An even stronger upper-class impact Martin Gilens, “Inequality and Democratic Responsiveness,” special issue, Public Opinion Quarterly 69, no. 5 (2005): 778–96.
36 “The mystery is how politicians” Page and Jacobs, Class War?, 93.
37 A host of modern economic studies James R. Repetti, “Democracy, Taxes, and Wealth,” Research Paper No. 2001–03 (Newton, MA: Boston College Law School, June 14, 2011), 831.
38 Come to a similar conclusion Torsten Persson and Guido Tabellini, “Growth, Distribution, and Politics,” in Political Economy, Growth, and Business Cycles, ed. Alex Cukierman, Zvi Hercowirtz, and Leonardo Leiderman (Cambridge, MA: Massachusetts Institute of Technology Press, 1992).
39 Alan Greenspan was moved to comment Alan Greenspan, remarks, Council on Foreign Relations, March 15, 2011, http://www.cfr.org; Greenspan, citing Federal Reserve data, in “Activism,” International Finance 14, no. 1 (October 2011): 165–82, http://onlinelibrary.wiley.com.
40 Not business investment but consumer demand James Livingston, “It’s Consumer Spending, Stupid,” The New York Times, October 25, 2011.
41 Major banks to big pharmaceuticals Nelson D. Schwartz, “As Layoffs Rise, Stock Buybacks Consume Cash,” The New York Times, November 21, 2011.
42 “The 2000s saw the worst” Alan Krueger, “The Rise and Consequences of Inequality in the United States,” remarks, Center for American Progress, January 12, 2012, http://www.americanprogress.org.
43 By contrast, during Bill Clinton’s presidency David Leonhardt, “Were the Bush Tax Cuts Good for Growth?” The New York Times, November 18, 2010.
44 Historical record had little influence President Barack Obama, “Investing in America: A CNBC Town Hall Event with President Obama,” September 20, 2010, http://www.cnbc.com.
45 A majority of Americans endorsed President Barack Obama, press conference, December 7, 2010, White House transcript.
46 A CNN poll CNN Opinion Research Poll, November 17, 2010, http://i2.cdn.turner.com/cnn/2010/images/11/17/rel16e.pdf. CNN found 49 percent opposed tax cuts for people making over $250,000 a year; 15 percent opposed any tax cut; 64 percent in all opposed tax cuts for upper income brackets. See also Bloomberg News Poll, December 4–7, 2010, http://media.bloomberg.com.
47 Republicans had fallen under the spell Bruce Bartlett, “Supply-Side Economics, R.I.P,” Capital Gains and Games blog, October 10, 2009, http://www.capitalgainsandgames.com.
48 “The rich are always going to say” “The Giving Pledge,” ABC This Week, November 28, 2010.
49 “We kept the coalition in business” Van Dongen, interview, April 25, 2011.
50 Van Dongen’s Tax Relief Coalition U.S. Chamber of Commerce, “Jobs for America: An Open Letter to the President of the United States, the United States Congress, and the American People,” July 14, 2010, http://www.uschamber.com.
51 All meant “Bush Scores Win on Tax Cuts,” CQ Almanac 2003 (Washington, DC: Congressional Quarterly, 2004), http://www.cqpress.com; Edmund L. Andrews, “Greenspan Throws Cold Water on Bush Arguments for Tax Cut,” The New York Times, February 12, 2003; “Nobel Laureates, 450 Other Economists Fault Bush Tax Plan,” Economic Policy Institute, February 10, 2003, http://www.epi.org; “A Tax Bill, Full of Breaks, Passes Senate,” The New York Times, October 12, 2004; “Buffett Slams Dividend Tax Cut,” CNNMoney.com, May 20, 2003, http://money.cnn.com.
52
The Gang of Six got the jump Jeanne Cummings, “Business Pushes to Extend Tax Cuts,” Politico, September 14, 2010, http://www.politico.com.
53 Senate Republicans slammed the door Republican letter to Majority Leader Harry Reid, Congressional Record, S8327, December, 1, 2010, http://www.gpo.gov.
54 Obama protested President Barack Obama, press conference, December 7, 2010; “Obama Defends Tax Deal, but His Party Stays Hostile,” The New York Times, December 8, 2010.
55 Republicans extracted a final concession David M. Herszenhorn, “Congress Sends $801 Billion Tax Cut Bill to Obama,” The New York Times, December 16, 2010.
56 Congress passed this package “Obama Tax Deal Wins Praise from Business-Lobby Critics,” Bloomberg, December 7, 2010, http://www.bloomberg.com.
57 Business forces would be ready to fight Van Dongen, interview, April 25, 2011.
CHAPTER 10: THE WASHINGTON-WALL STREET SYMBIOSIS
1 “I sincerely believe” Thomas Jefferson to John Taylor, May 28, 1816, in The Writings of Thomas Jefferson, vol. 6 (Washington, DC: Taylor & Maury, 1854), 604–8.
2 “In a political system” Robert A. Dahl, Who Governs? Democracy and Power in an American City (New Haven: Yale University Press, 1961), 1.
3 “The finance industry” Simon Johnson, “The Quiet Coup,” The Atlantic, May 2009, http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364.
4 What Woodrow Wilson once called Woodrow Wilson, “Money Monopoly Is the Most Menacing,” speech, Harrisburg, Pennsylvania, reprinted in Philadelphia North American, June 6, 1911, cited in John Milton Cooper, Jr., Reconsidering Woodrow Wilson: Progressivism, Internationalism, War, and Peace (Baltimore: Johns Hopkins University Press, 2008), 68.
5 The scale of its financial boom U.S. Bureau of Economic Analysis, National Income and Product Accounts, figure 3–1, “Real Corporate Profits, Financial vs. Nonfinancial Sectors,” shows financial sector profits growing 800 percent from 1980 to 2005, while nonfinancial sector profits grew by 250 percent. See Simon Johnson and James Kwak, 13 Bankers: The Wall Street Takeover and the Financial Meltdown (New York: Pantheon Books, 2010), 59–61; and John Bellamy Foster and Hannah Holleman, “The Financial Power Elite,” Monthly Review 62, no. 1 (May 2010).