What a glorious day to be an American worker! Pay is skyrocketing, the Great Recession is hardly a memory and leaders in Washington are putting labor concerns at the front and center of their agendas -- provided you are a worker who happens to be at the top of the corporate organizational chart.
In the latest sign of the growing disconnect between reality as enjoyed by corporate chieftains and that experienced by pretty much everyone else, compensation for chief executives of publicly traded companies in the S&P 500 last year leaped by more than 28 percent compared to 2009, according to a new survey from Equilar, a research firm that tracks executive pay.
Among those enjoying perches at the top of the pyramid, according to a table on Equilar's site: John G. Stumpf, chairman and chief executive of Wells Fargo, the bank recently accused in a confidential federal audit of cheating taxpayers in its handling of foreclosed homes, pulled down $17.6 million; Lloyd Blankfein, overseer of Goldman Sachs, the banking giant that has become synonymous with malevolent Wall Street shenanigans, took home $14.1 million; and Jeffrey Immelt, chief of General Electric, netted $15 million in pay last year and is now tasked with helping President Obama create American jobs.
How is that going, by the way? Unemployment remains stuck at 9.1 percent, and even those people with jobs are predominantly consumed with a struggle to hang on, rendering upward mobility a fantastical aspiration in many homes. During 2010, while executives at major publicly-traded corporations were enjoying their 28 percent pay boost, the average rank-and-file American worker saw weekly pay increase by less than 1 percent, after accounting for rising prices, according to Labor Department data.
You may be tempted to shrug this off as more of the same, and you would have the facts on your side. The average weekly earnings for rank-and-file employees now sits at roughly the same place it did at the beginning of 1980, after adjusting for inflation. Several caveats go into absorbing this data: among them, the fact that millions of women and millions of immigrants entered the workforce, tending to pull wages down. Yet the compensation numbers merely add the official stamp to a painfully apparent trend: the breakdown of the basic American middle class opportunity. An awful lot of people have gotten up early, gone off to work, brought home as much as they could for their families and -- over the last three decades -- found themselves sliding backward.
The latest snapshot of the chief executive pay picture also underscores a more recent vintage truth that should be disturbing for anyone intent on trying to avoid another financial crisis: The number of short-term measures used to determine executive compensation actually increased slightly in 2010 compared to the year before.
Have we learned nothing from our near slide into the abyss? The financial crisis of 2008, which made an already weak job market punishingly bleak while putting taxpayers on the hook for speculative bets made by bankers, was about many things, but one of its biggest causes was a failure to get the incentives straight in our economy.
How did huge mortgage companies like Washington Mutual and Countrywide wind up scattering so many terrible loans that they eventually ran out of money and required expensive rescues? Simple: Their chief executives were handsomely rewarded for making their stock prices go up in the short term, and the markets applauded any sign of growth in loan volumes.
So the banks paid obscene commissions to mortgage brokers who wrote loans to anyone capable of signing the documents, and the volume grew and the stocks climbed, and the executives collected their bonuses and cashed their stock options. Major investment houses bundled these crummy loans into complex investments and traded them with abandon, greasing their own short-term profits and triggering higher pay for executives -- and generating even more demand for fresh bundles of crummy loans. (And a lot of regular people felt compelled to avail themselves of these easy money mortgages because -- as we have seen -- their paychecks were failing to keep up with the costs of housing, health care and education.)
And when the whole predatory-lending-as-economic-engine scheme collapsed in a disastrous heap, sowing unemployment, spreading a foreclosure and leaving the broader economy discombobulated, the executives hung on to their pay. The rest of us paid the full freight through lost jobs, lost retirement savings, lost homes, lost confidence.
And now here we are, three years later, all of this well understood by anyone who is paying attention, and yet the short-term incentives through which executives are compensated is on the increase. It's as if we are inviting the speculators to try it again.
Much of the cash that landed in executives' pockets was enabled by trade in exotic investments known as derivatives, which functioned as de facto insurance policies, covering potential losses on the great bales of mortgages Wall Street was trading during the housing boom. With outstanding loans seemingly backed up by insurance, investment banks were free to pour even more capital into the mortgage market. This turned out to be bogus, of course. There was no insurance, because the companies selling the policies, such as the American International Group, were not setting aside real dollars in preparation for actually having to pay up. (This is how the taxpayer wound up bailing out AIG at a price exceeding $175 billion, but that happened so long ago that there seems no reason to bother ourselves with it, or so it seems in Washington.)
Congress wound up putting a provision into the Dodd-Frank financial regulatory reform bill that mandated new rules on derivatives, including the requirement that they be backed up with actual reserves. The work of writing the new rules fell in part to the Commodity Futures Trading Commission. (That regulatory agency is headed by Gary Gensler, who played a key role in deregulating derivatives while he served in the Clinton Treasury, aiding his boss, Larry Summers, and their hero, Alan Greenspan. But, again, ancient history! In contemporary Washington, convicted pyromaniacs get to come back and run the fire department.)
On Tuesday, alas, the commission delayed writing the new rules by six months, leaving derivatives -- the instruments at the center of the last crisis -- as free to trade as ever.
Surely, they are busy inside the CFTC. Surely, they have lots of demands on their time, important meetings to take and other areas of concern to address. But doesn't the public have the right to demand action on this piece of business? Absent a convincing reason otherwise, shouldn't derivative regulation jump the queue, given how this lack of regulation ended up the last time?
Nearly three years have passed since the public was forced to accept that the same banks whose reckless gambling created the crisis needed an immediate bailout or the world would blow up, and here is the situation that confronts us: The banks are logging profits, the executives of major corporations are counting huge increases in pay and the whole economic system seems as jury-rigged and vulnerable as ever. Ordinary working people are still waiting for the tiniest slice of the spoils, while the people who are getting the biggest share -- the executives -- are left free to gamble, with regular people still on the hook for their losses.
What a glorious time, indeed. Just probably not for you.
