The Ownership Society goes into foreclosure
"There may be some tough times here in America. But this country has gone through tough times before, and we're going to do it again." George W. Bush, Aug. 13, 2002
February 23, 2009
By Rob Lafferty
Well, Dubya got that one right. Tough times are here, indeed, for poor folks and the middle class. The rich are feeling some pain, too, although most of them still have enough cash flow to compensate for their shrinking stock portfolios. Others, however, must return to a simpler lifestyle. A surprisingly large number are headed for jail.
According to FBI and Justice Department statements, mortgage fraud and corporate criminal behavior were significant factors in creating the economic crisis we now face. Those two law enforcement agencies have more than 2,300 investigations underway that are focused on illegal financial activity, with 38 of those identified as directly affecting the crisis.
As important as fraud may have been in creating this depression, the legal activity of corporate America had just as serious a impact. Financial policies at the high corporate level based on overstated value reverberated down through large companies and out into the economy. A prime example of that is the housing bubble, but a simpler example can be found in executive pay packages.
In 2007 the 500 biggest companies in the US paid their CEOs a collective total of $6.4 billion an average of $12.8 million each, but that's a deceptively low number. The top 25 executives took in 1.8 billion of that total all by themselves, as 21 of them took home more than $50 million each. At the head of the pack was Lawrence Ellison of Oracle, who received a remarkable $192 million in total compensation.
I don't know what these people did to justify being paid $50 million or more for twelve months of management, but I do know this: only a few prepared their companies to weather the coming recession, and none of them sounded warnings about a coming economic collapse that other people foresaw clearly.
Dropping one level down on the compensation scale, a total of 87 corporations paid their CEO more than $20 million in salary, stock options and bonuses in 2007; another 91 paid their top person more than $10 million that year. So it was a pretty good year for each of those 199 executives but it wasn't a great year.
With the global recession already having an effect, total pay for those same 500 jobs dropped 15 percent from the banner year of 2006. That was the best of times to be a CEO; top executive pay jumped a whopping 38 percent overall within the Fortune 500 companies that year.
The numbers aren't in yet for 2008, but they're likely to drop a bit more. Not too much, however, as the board of directors of those corporations who are all wealthy individuals themselves remain willing to pay top dollar for management people regardless of their recent performance.
Even the directors at Fannie Mae, the bankrupt mortgage company now under the direct control of the government, will be paid between $160,000 and $280,000 for their occasional duties. Three of the ten current directors helped oversee the company into failure, yet they remain in their positions and continue to be well paid for their part-time roles.
Meanwhile, as I read and do research about greed at the upper levels of the corporate world and American society, I keep getting emails from people who complain about illegal immigrants being a drain on society. I won't argue with them on that issue; even if I don't agree with their perspective, I agree that it's a serious social and economic problem. But most of the illegal aliens in this country work at jobs of some kind, especially the lowest-paying jobs in the agriculture, food production and food service industries.
So many, in fact, that every time we sit down for a meal we probably benefit from the labor of an illegal worker somewhere along the line. Some of those workers are paid by subsidiaries of those same Fortune 500 corporations, with local managers well aware of the dubious citizenship status of some of their employees. Yet how many of us actually benefit from the actions of any of those multi-million dollar executives? How many of us have been indirectly harmed by their mismanagement?
We spend taxpayer dollars to care for and to deal with illegal immigrants. We now spend taxpayer dollars to bail out some of those corporations from bankruptcy. But among a surprisingly large number of people I know, there's a greater resentment over money spent on poor immigrants than there is over money given to failing businesses owned and badly managed by wealthy people.
$85 billion to one company, AIG. $350 billion to the banks that bought up bad mortgage packages. $150 billion in tax rebates for the rest of us. That huge giveaway of borrowed cash was how the Bush administration closed out its long and miserable term of office, but I didn't hear much complaining from those same people who think illegal immigrants are ruining our country. They took their government money and spent it like true American patriots, I'm sure.
Those same angry taxpayers send me emails complaining about tax dollars being used to bail out homebuyers who sailed into deep fiscal waters on the day they signed their mortgage papers. They make a very good point, usually, but they ignore the preaching of Dubya as they do so.
In June of 2002, President George W. Bush celebrated National Homeownership Month with several speeches. In his own words:
"I believe owning a home is an essential part of economic security. Let me first talk about how to make sure America is secure from a group of killers, people who hate you know what they hate? They hate the idea that somebody can go buy a home.”
“I believe when somebody owns their own home, they're realizing the American Dream. So I've set this goal for the country. We want 5.5 million more homeowners by 2010 a million more minority homeowners by 2010. I'm going to do my part by setting the goal, by reminding people of the goal, by heralding the goal, and by calling people into action, both the federal level, state level, local level, and in the private sector."
"Well, probably the single barrier to first-time homeownership is high down payments. People may have the desire to buy, but they don't have the wherewithal to handle the down payment. We can deal with that. And so I've asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy."
"We believe when this fund is fully funded and properly administered, that over 40,000 families a year will be able to realize the dream we want them to be able to realize, and that's owning their own home. It is essential that we make it easier for people to buy a home, not harder. Yesterday, I called upon the private sector to help us and help the home buyers. We need more capital in the private markets for first-time, low-income buyers. And I'm proud to report that Fannie Mae has heard the call and, as I understand, it's about $440 billion over a period of time."
Over the next five years Bush proposed affordable housing tax incentives, set new low-income lending goals for Fannie Mae and Freddie Mac to meet, passed legislation to spend $200 million per year to help first-time homebuyers, but failed to pass a law allowing first-time buyers to qualify for federally insured mortgages with no money down. His administration fought legal challenges by states trying to stop predatory lending and won a Supreme Court decision that prevented states from exercising any authority over national banks.
John W. Snow, former Treasury Secretary, described the history of the Ownership Society this way: "The Bush administration took a lot of pride that homeownership had reached historic highs, but what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost."
And now, so do we all. One way or another, it’s a cost we’ll all have to pay.