CEO voluntarily takes a $45 million dollar pay cut

This is actually pretty interesting news.

McKesson CEO John Hammergren took a ‘voluntary’ $45 million cut to his pension after shareholders said ‘no more’ to his lavish wages at the company’s annual meeting in August.

His pension is now ‘only’ about $114 million. Last year, he took home $51.7 million in pay. Meanwhile, McKesson pays some of its workers so little they can’t afford health care.

CEO’s know little of belt-tightening and sacrifice

I’m reading this piece about the astroturf group the Campaign to Fix the Debt when I came across a paragraph that irked me.

With a stalled economy and public sentiment decidedly against cuts to these popular and lifesaving programs, Fix the Debt gathered the big guns. Over 100 CEOs were named to a council and many contributed to the $40 million budget. Fix the Debt CEOs descended on the White House and the Capitol building. The nightly news was filled with images of CEOs like Honeywell’s David Cote stepping up to the mike to opine about the need for belt-tightening and shared sacrifice.

Sacrifice? What exactly has the 1 percent been sacrificing all these years? It’s insulting for David Cote to even speak that way. But he probably doesn’t know any better. Other CEO’s got in on the act as well, some from the financial sector which I found to be even more hilarious.

The cult of the CEO

Matt Breuing over at Demos highlights our prevailing economic thinking which fixates itself on central planning, when it comes to the “cult of the CEO”.

Assessing the competence of a CEO is extremely fraught. The idea that a central planner that sits atop a firm of tens of thousands of people is the primary driver for what happens in that firm is delusional at best and goes against everything conservatives like Mankiw believe about the difficulties of effectively centrally planning so many resources. What we have in the U.S. is more akin to a cult of the CEO, in which cultural norms regarding the god-like genius of CEOs drive compensation-setting for CEO “productivity” that is inherently difficult if not impossible to meaningfully assess. Other countries with other business cultures pay their their CEOs way less. It is almost certain that American CEOs are being paid more than their “marginal productivity”, which runs afoul of the principles of Just Deserts.

“The rich have always been different from you and me. . . “

Enron the play, St Martin's Lane, London

The headline is a quote from F. Scott Fitzgerald, that famous author of the classic American tale of debauchery and excess, The Great Gatsby. In light of the recent comments made by wealthy individuals like Thomas Perkins, lamenting the “soak the rich” sentiment being peppered into the daily discussion of the zeitgeist; I felt like showing how different these people really are to you and me.

Here is what Gar Alpervotiz writing in his 2005 book, America beyond Capitalism had to say about our friends in the 1 percent.

The super-elite-the people Krugman, Kevin Phillips and others have termed the new “plutocracy”-increasingly live in a very, very different world from most Americans and in a radically different culture. It is a world where homes cost $5 to $10 million and where $5,000 grills, $14,000 Hermes Kelly handbags, $17,500 Patek Philippe wristwatches, and $100,000 luxury automobiles are commonplace.

Now despite what people may think, not all of this wealth was attained by self-made people. But even for those who lived the Horatio Alger story, the fact still remains that when you are at the level of the 1 percent you see things differently than rest of us. They use their power to better their class, or at the least protect it, at the expense of other classes. Furthermore, for some to argue that they should be celebrated is disingenuous especially when economic mobility has collapsed like the pocket around Peyton Manning in Superbowl 48. There are many of us who will never be that wealthy. What we want is to simply live and that is getting harder everyday because those that are rich have become greedy.

There is also something else that we should realize about our elite and that is that they are still human. The rich are not gods to be worshiped. They are no better than you or I.

Gar Alperovitz writing in his book again says:

The world of the new plutocracy is also a world of routine white-collar corruption. The former Enron CFO Andrew Fastow as of this writing faces a 109-count indictment for alleged manipulation that prosecutors believe garnered Fastow $30 million and an additional $12 million for his associate Michael Klopper (who pleaded guilty to federal charges). Global Crossing‘s chairman, Gary Winnick, it appears, may have made off with more than half a billion dollars as his company was moving toward bankruptcy and its own federal investigation. WorldCom, another telecommunications giant facing bankruptcy and criminal investigations, paid out hundreds of millions in bonuses and loans to those at the top during its last years.

This was before the financial collapse of 2008 happened. This was was also during a time when the likes of Goldman Sachs was also paying out tons of money in bonuses too. And even after all of this has happened over the last decade, we’re supposed treat these people nicely? We’re supposed to look at them as job creators and not job destroyers? When I was a bank teller back in 2001, I remember an employee from WorldCom came into my branch devastated. She was depositing what was probably her final paycheck. She’d been with the company for a long time and now felt despondent. I don’t know if she was ever able to rebuild her career afterwards. Decisions made at the stratified top have consequences to real people. Thanks 1 percent.

The problem with the Republican’s job creators. They aren’t doing a damn thing!

Don’t hurt those precious job creators says the Republican Party. Stop talking bad about the 1 percent because without them none of the goodies will ever trickle down to you and me they cry! The problem with all of this is the fact that the 1 percent isn’t doing much to help the economy anyway.

In sum, America’s leading corporations control a huge sum of money that they’re unlikely to spend on the machinery, wage increases and new ventures that might return the nation’s economy to something resembling health.

So why keep giving them money in the form of tax breaks, loans and bailouts? When you give them money all they end up doing is issuing more stock buybacks, not creating employment opportunities.

What is the Obama administration’s new MyRA savings plan?

MN: Obama in LaCrosse - IUPAT

This week after the State of the Union, the president went on the road to talk about income inequality and the need to raise the minimum wage to $10.10 an hour. What was also touted was the creation of a new employee savings plan called “MyRA” that will be backed by the federal government.

The program will operate like a Roth IRA, so contributions of as little as $5 per paycheck would be made with after-tax dollars. That means account-holders could withdraw the funds at any time without paying additional taxes. The funds would be backed by U.S. government debt, similar to a savings option available to federal employees. Investors could keep the accounts if they switch jobs or convert them into private accounts.

The Treasury Department is going to be setting up a pilot program for the MyRA savings accounts. The idea is to get Americans saving which is actually something that is long overdue. Actually, since I have yet to start saving for retirement how about including me in the pilot program and I’ll blog about it! If not , I’m going to start a 401k regardless because I need to start thinking about my future more.

photo by: aflcio

Have you seen the missing workers? There’s 3.4 million of them

If you really want to know what the employment situation is like currently, I think this excerpt from an EPI piece is right for you.

The Congressional Budget Office estimates that if we were at full employment, the labor force would now number about 159.2 million, but the actual labor force is just 155.8 million. That means there are 3.4 million “missing workers” – jobless workers who would be in the labor force if job opportunities were stronger, but in the current environment are not actively seeking work and are therefore not counted. If those missing workers were in the labor force looking for work, the unemployment rate would be 9.4 percent instead of 7.4 percent. In other words, more than five-and-a-half years since the start of the Great Recession, the labor market remains extremely weak by historical standards.

How bad will the student loan collapse be?

Student Loan

Only in America is an education so untenable for the masses within the 99 percent. In fact when Occupy Wall Street was still manifested in its physical form down in Manhattan, many of the activists there were galvanized by the amount of debt they had incurred in order to have a shot at a middle class lifestyle. The sad thing is with recent employment numbers, and the U.S. House cancelling long term unemployment for 1.3 million Americans, many of these former students have still not found work. They’ve been hit with a double-whammy of incurring enormous debt for a degree and now not being able to find employment despite earning that degree.

The college and university system in the United States of America is a racket. If I were an officer of the court, I’d want to slap the presidents of these fine institutions with RICO statutes. The only thing I can compare this glorified racket to is the U.S. healthcare system and the housing bubble. I’m starting to really think that pursuing a specialized certificate in a career like information technology or nursing is the most advisable thing these days. Of course learning a trade will also keep food on the table.  It’s a shame because in order for a democracy to function a state needs an educated citizenry, but if one cannot afford an education nor get a job after attaining that education we will have neither.

So now we come to the doom and gloom as central bankers are starting to realize that the I.O.U.’s may never be paid.

The federal government is the source and backer of most of the loans. “I’m always made very nervous by a credit market that benefits from government guarantees and is expanding very rapidly,” Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said on Jan. 10 at a Greater Raleigh Chamber of Commerce event in North Carolina. “That’s what we’re seeing with student loans, and it’s what we saw with housing.” As the New York Fed’s Dudley explained in November, “to the extent that student loan burdens become very, very high, there are presumably going to be losses” to the federal government.

Yes, the federal government which means the American people are going to end up hurting once again. This time there’s no need to even vote on a bailout as the federal government is already the safety net for the banks who made these student loans in the first place.

So how bad will the fallout be if people can’t afford to make their monthly loan payments and go into default? For individuals it will probably be cataclysmic. Their credit will be shot and riddled with holes like swiss cheese. They will lose the chance to get a mortgage or a car loan. Renting an apartment will become difficult as they pull credit scores for that too. Even looking for employment will be affected. The federal government may also attempt to garnish their future wages.

The American people will suffer most likely because the fallout would result in government spending on steroids, as they begin the bailout of the banks once again. We’d see more budget cuts and the sequester would look like a drop in the bucket. Of course this crisis would not be as bad as the housing bubble collapse as we’re dealing with a smaller subset of people with loans. The economic impact should not be as great but it will be painful nonetheless.

photo by: LendingMemo