The newest hire in the mail room of Boeing’s headquarters could have done as good a job as Jim McNerney last year, as the radical outsourcing he oversaw and encouraged led to the grounding of the 787 Dreamliner. Even so, Boeing’s lapdog board gave McNerney a 20 percent raise, to $27.5 million. At least Jamie Dimon, CEO of JPMorgan Chase had his pay cut in half, to a pauperish $11.5 million for the “London Whale” trading debacle. But a new Senate report shows how Dimon, supposedly America’s smartest and most prudent banker — the guy who bought Washington Mutual for chump change — is presiding over a financial system every bit as dangerous as the one that brought on the Great Recession.
Gretchen Morgenson of the New York Times writes:
Its pages of e-mails, testimony, telephone transcripts and analysis show that traders in the bank’s chief investment office hid money-losing derivatives positions, if only temporarily; that risk limits created by the bank to protect itself were exceeded routinely; that risk models were changed to minimize losses; that bank executives misled investors and the public; and that regulations are only as good as the regulators enforcing them.
Why do Dimon or McNerney still have jobs? Because the cult of the imperial CEO is alive and well, despite the executive malpractice and outright fraud that brought on the 2000 recession (Enron, HealthSouth, Tyco, etc. etc.) as well as the financial crash of 2008. They do whatever they want. Politicians quail before their contribution-bearing lobbyists. Boards are worthless. The message to average Americans who lost jobs, net worth and economic mobility: In your face.
No wonder Steven Pearlstein writes an essay in the Washington Post asking, Is capitalism moral?:
It was only 20 years ago, for example, that wage and salary earners reliably captured about 75 percent of the national income, with the rest going to the providers of capital. But in recent years, labor’s share has fallen closer to 67 percent.
A similar shift in the distribution of rewards has occurred within firms and within industries, with much more of the income captured by superstar performers or those at the top. Fifty years ago, the typical corporate chief executive earned less than 50 times the pay of the average front-line worker. Today, the ratio is closer to 350 to 1.
These shifts suggest that the way markets distribute rewards is neither divinely determined nor purely the result of the “invisible hand.” It is determined by laws, regulations, technology, norms of behavior, power relationships, and the ways that labor and financial markets operate and interact. These arrangements change over time and can dramatically affect market outcomes and incomes.
But the argument between what is today called “the free market” and “regulation and redistribution” in the safety net is a false one, borne of the Ayn Rand dogma that has taken over what passes for conservatism. Nobody paying attention since the Gilded Age thinks the two are exclusive, or doubts that regulation continues to exist but is largely gamed to benefit the regulated, and redistribution remains but is heavily redistributing income upward. The capitalism that made America a great world power is not what we see today at many of the highest levels of business. Instead, we see a Third World cronyism of highly concentrated industries, cartels and quasi-monopolies running the government for their benefit. That’s not American capitalism, which depended on regulation, progressive taxation, a dynamic and competitive field of many smaller players and an independent government to ensure the rule of law and fair play.
There’s no lack of policy changes to correct the situation. But liberal capitalism ultimately can’t exist without trust and virtue on the part of most actors. Thus, a shamed McNerney would forgo his entire compensation for 2012. He’s already rich. But this act would convey a message of accountability and decency. Instead, the message is, “Let them eat cake.” One thing is sure, whatever the rhetoric of their apologists, people such as McNerney and Dimon are no friends of capitalism. If the Soviet Union were still alive, one would think they were moles like the characters on the television show, The Americans.
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Today’s Econ Haiku:
EU to Cyprus:
Drop dead at the ATM
Soon to be zoned out