Greed at a Glance
November 16, 2009
What has the potential to save more lives, the insurance reforms in the landmark health care bill that passed the U.S. House of Representatives earlier this month or the higher taxes on the rich the bill imposes to pay for those reforms?
This rather odd question would likely strike most Americans as somewhat silly. What could the level of taxes on the rich possibly have to do with our health? Maybe more than we think. Maybe much more.
So suggests new research — by a team of Japanese and American health analysts — just published in one of the world’s most prestigious medical journals. Inequality, this research helps establish, kills. In societies where public policies — like higher taxes on the rich — keep the distribution of income and wealth relatively equal, fewer people die. Staggeringly fewer people.
In this week’s Too Much, we take a look at this latest work on the link between inequality and how long — and how well — we live.
The new tax on America’s rich that House lawmakers have now adopted, to offset the cost of health care reform, sets an unexpected — and healthy — tax precedent. The House bill adds a 5.4 percent surtax on income, for couples, over $1 million. The wealthy currently face a top tax rate of 35 percent on income over $372,950. But this 35 percent rate only applies to salaries and other “ordinary” income. The capital gains that come from wheeling and dealing on stocks, bonds, and other assets face, under existing law, just a 15 percent tax, as does income from dividends. That’s one big reason why America’s 400 top taxpayers, at last IRS count, paid only 17.2 percent of their $263.3 million average incomes to Uncle Sam. The new House surtax, by contrast, would apply to all income, capital gains and dividends included. Only the most affluent 0.3 percent of American households — average income, $2.8 million — would pay higher federal income taxes if the House bill becomes law . . .
The organizers of the 50th annual Ft. Lauderdale International Boat Show didn’t quite know what to expect when they opened up, earlier this month, their mile-long display of over 600 luxury boats. Would they have buyers for their $3 billion worth of floating opulence? They would. Sales soared this year at Florida’s biggest yachting extravaganza. One luxury boat maker, Viking Yachts, sold three times more vessels this year than last, with none under $1 million. The new demand, says luxury analyst Michael Gerrity, is coming from America’s Northeast and the Persian Gulf. Notes Gerrity: “That correlates in timing with both the big bonuses about to be handed out by several Wall Street Investment banking firms at year end and increased oil prices in the Middle East.”
The biggest take-homes in the world these days don’t go to bankers. They go to hedge fund managers. Last year, the top 25 hedgies each pocketed at least $75 million. Now Sweden’s financial markets minister, Mats Odell, is moving to have the European Union start regulating hedge fund manager compensation, and these wizards of high finance simply cannot understand why. Last week, a top hedge fund industry honcho, Christopher Miller, tried to derail the Swedish move by comparing hedge fund managers to the creator of the world’s most beloved wizard, Harry Potter. Why pick on hedge fund managers, asked Miller. After all, “no one begrudges J.K. Rowling her riches.” Maybe that’s because Harry Potter never pumped up the asset bubbles that help crash the world economy . . .
Hedge fund managers have more these days to worry about than Swedish finance ministers. A new survey of super rich families, the Financial Times reports, has found that wealthy households are increasingly moving their investments into gold and out of hedge funds. The prime reason: The Madoff and Stanford frauds have shaken the super wealthy’s “level of trust in financial institutions and investment advisers.” Rich investors, says the new survey, “clearly feel they cannot rule out the idea that the failings symbolized by these events are systemic,” not the product of rogue bad-apples . . .
Chairman Mao, meet Cinderella.
This coming weekend, in the booming South Chinese city of Shenzhen, 40 carefully screened single women — selected from over 7,000 applicants — will be attending a lavish ball where they’ll all have a shot at meeting Prince Charming. The prince might not show up, but plenty of Chinese mega millionaires will. They’re paying $5,400 each to attend. Cheng Yongsheng, the evening’s organizer, says the festivities meet a real social need. Explains the entrepreneur: “Rich men, because of their busy work and strict requirements for dating girls, find it hard to meet their Cinderellas.” Any man of means who does find a Cinderella this weekend might want to hop up to Beijing’s chic new dining palace, the Lan Club. A platter of fresh shellfish at the club, reports Agence France Presse, runs $775.
Quote of the Week
“We need to tie the fortunes of Wall Street to that of Main Street. The best way would be a President’s Wage Cap: No one on Wall Street should earn more than the President of the United States until unemployment drops to below 5 percent. We need shared sacrifice and shared prosperity.”
Les Leopold, director, The Labor Institute, Of Billionaires, Bailouts, and Bonuses, November 11, 2009
Ekklesia, Bankers are doing ‘God’s Work,’ says Goldman Sachs, November 10, 2009. The Church Action on Poverty response to the latest bold assertion from the world’s most profitable big bank.
Citizens for Tax Justice, Millionaires’ Surcharge in the House-Passed Health Care Reform Bill, November 13, 2009. A state-by-state breakdown on what the mega rich will pay if this legislation becomes law.
Against Wall Street, Prosecutors Strike Out
The bankers at Goldman Sachs, Goldman’s CEO pronounced last week, are doing “God’s work.” God, these days, must truly be working in strange ways. Take what happened a few short years ago, right before the bubble burst on the market for subprime-backed securities.
The power suits at Goldman Sachs saw that pop coming. Late in 2006, expecting the worse, they began “selling off” their own inventory of subprime securities and, as the McClatchy newspapers detailed earlier this month, betting against subprimes “in secretive swaps markets.”
Meanwhile, at the same time, Goldman Sachs insiders merrily continued to collect huge fees helping their clients buy up the same subprime paper the insiders knew had no future.
The chair of the theology department at your local university might not consider this sort of duplicitous behavior “God’s work.” Professors at your local law school might even wonder whether behavior this brazen qualifies as criminal.
Last week, in a federal courtroom in Brooklyn, jurors gave Wall Streeters worried about their potential criminal liability some most welcome news. They acquitted two hedge fund managers at the failed Lehman Brothers banking empire on charges they had defrauded their clients — by encouraging them to keep their money in a fund the traders knew to be stuffed with junk securities.
Those clients eventually lost $1.6 billion. The senior of the two Lehman Brothers defendants, Ralph Cioffi, took home $32 million managing their money.
That money ensured Cioffi the finest lawyering money could buy, and those lawyers did their jobs. They painted a vivid picture of the defendants as “scapegoats” for Wall Street’s nosedive. By the trial’s end, the jurors saw Cioffi more as the valiant captain of a sinking ship than a simple swindler.
One juror, in an interview after the acquittal, even said she’d be happy to invest her money with the defendants — if she had any money to invest.
The jurors didn’t just acquit the defendants. They returned their verdict in a lightning-quick nine hours. Jurors, in a complicated white-collar case, typically take four or five days just to sort out the evidence.
Federal prosecutors will now likely take far longer than that licking their wounds. Indeed, the surprising outcome of the trial — the first against Wall Street high-flyers since last fall’s meltdown — may mean that no one will ever go to jail for cooking up the deals that drove the global economy into the ditch.
Federal prosecutors, news reports last week agreed, will now be “less likely to bring criminal charges against Wall Street executives for their role in the financial crisis.”
In other words, the American public can no longer count on the threat of criminal prosecutions to scare Wall Street straight.
Americans, unfortunately, can’t seem to count on legislative action either.
Last week, Senate Banking Committee Chairman Chris Dodd introduced “sweeping and long overdue” financial reform legislation that he vowed would protect “consumers and our economy as a whole from another crisis like the one we are now in.”
Dodd’s bill would certainly make some “long overdue” changes. One example: The legislation would yank from big private banks the authority to handpick the officials who run the nation’s regional Federal Reserve banks.
“It’s insane,” the New Republic’s Noam Scheiber observed last week, “that big Wall Street firms get to choose the directors of the New York Fed, which is often their chief regulator.”
But Dodd’s bill takes a tougher line on Wall Street than the “White House-blessed” legislation that has emerged from the House, and that leaves any “sweeping” new regulation of Wall Street “unlikely to pass this year.”
And Dodd’s bill, even if enacted this year, would do nothing to limit the huge windfall rewards that give Wall Streeters the incentive to behave recklessly in the first place. Those rewards, as Forbes analyst Matthew Goldstein noted last week, drove the distasteful behavior of the two indicted Bearn Stearns hedge fund managers acquitted last week.
Those two, says Goldstein, didn’t behave any differently than their counterparts elsewhere on Wall Street. They all “got greedy on the easy money that was made off of collateralized debt obligations and other subprime-related securities.”
A half-century ago, high tax rates on high incomes — the top tax rate on income over $400,000 stood at 91 percent for most of the 20 years after World War II — effectively kept “easy money” greed in check. Why bother scheming to make “easy money,” after all, if the tax collectors won’t let you keep it?
For a brief moment this past spring, Congress seemed eager to consider a similar cap on “easy money.” In March, as a recent Institute for Policy Studies report reminds us, the House of Representatives actually passed a bill that placed a 90 percent tax on bonus windfalls at an assortment of bailed-out banks.
That bill has sunk without a trace — and bank bonuses are already soaring back to pre-recession levels. In fact, says newly released research from the Financial News and Wealth Bulletin, the 20 largest banks in the United States and Europe have so far this year set aside $224 billion for 2009 pay and bonuses.
At this rate, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup, and the other 16 financial institutions the new research tracks will stuff the pockets of their leading lights with more than $300 billion in 2009, enough to break their all-time annual pay record.
“God’s work” has never paid so well.
In Review (Books and papers)
Inequality’s Death Toll: A New Calculation
Naoki Kondo, Grace Sembajwe, Ichiro Kawachi, Rob van Dam, S. V. Subramanian, and Zentaro Yamagata, Income inequality, mortality and self-rated health: meta-analysis of multilevel studies. BMJ, November 10, 2009.
Kate Pickett and Richard Wilkinson, Greater equality and better health. BMJ editorial, November 10, 2009.
Over the past year, Americans have been debating how best to help people who get sick. But why do people get sick in the first place? Why do some developed nations seem to have much healthier populations than others? Why do people in Japan live much longer, on average, than people in the United States?
Epidemiologists — the scientists who study the health of populations — have been busily exploring these questions for decades now, and they’ve fixed upon a reality that has stimulated an enormous scholarly debate within the public health community. Equal societies, the researchers have found, consistently exhibit better health than unequal societies.
Why should this be so? Last week, in the British medical journal BMJ, an editorial by epidemiologists Kate Pickett and Richard Wilkinson neatly identified the two competing explanations.
The first explanation suggests “that more unequal societies have worse health simply because they have more poor people.” If poor people had more money, they would likely spend more on “things that benefit health” — better food, for instance, or warmer housing.
But the problems inequality creates, other epidemiologists contend, go far beyond poverty. Income gaps, these scientists argue, corrode social bonds and create a chronic stress that wears away at the health of all people who live in deeply unequal societies, not just the poor.
This second explanation last week gained significant new support — from a new “meta-analysis,” also published last week in BMJ, of previously conducted inequality and health studies.
The new paper’s authors, epidemiologists from Japan’s University of Yamanashi and the Harvard School of Public Health, subjected these studies to a series of complex statistical analyses. Their goal: to offer “quantitative evaluations on the association between income inequality and health.”
Their principal finding: Individuals “living in regions with high income inequality have an excess risk for premature mortality independent of their socioeconomic status, age, and sex.”
In other words, if you’re a middle-income person in an unequal society, you’re going to have shorter life than a similarly situated middle-income person in a more equal society.
How powerful an impact does inequality have on health? In the world’s top 30 industrial nations, the Japanese and American research team concludes, “upwards of 1.5 million deaths” — nearly 10 percent of total mortality in the age 15-to-60 age group — could be prevented by reducing income inequality.
The impact of inequality on the United States turns out to be even more stunning, not surprisingly since no developed nation sports wider gaps in income and wealth. Of the deaths the new BMJ study ties to inequality, almost 900,000 came in the United States.
Too Much last week asked a leading U.S. epidemiologist, Dr. Stephen Bezruchka of the University of Washington School of the Public Health, to place that calculation in perspective.
“We can say,” he noted, “that one in four deaths can be attributed to our high rates of income inequality.”
Such numbers have, of course, enormous political implications. An unequal society, as last week’s BMJ editorial noted, amounts to a “broken society.” Political leaders, the editorial continued, now need to repair that break — “by undoing the widening of inequalities that has taken place since the 1970s.”
Stat of the Week
Last February, Las Vegas kingpin Steve Wynn announced an across-the-board wage and hour cutback for all employees at his resort empire. The total savings for Wynn Resorts: between $75 and $100 million. Last week Wynn Resorts announced a special $4-per-share dividend. Total cost of the dividend payout to Wynn Resorts: $492 million. Total dividend check that will go to Steve Wynn: $88.6 million.
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