Assignment:
Capitalism Challenged: Morality
Beyond fears about capitalism's economic performance, particularly its instability and harshness, critics point to capitalism's indecencies.
Wall Street Abuses
Certainly many Americans are puzzled, if not angered, by the government's inability to criminally punish the big banks and bankers who profited so handsomely in the events that led to the nation's economic collapse and who, in several cases, had to be bailed out with public money following the collapse. (For more, see Chapter 2.) Those same bankers have not only escaped jail, but they continue to earn stunning sums of money. Responding, however, to harsh publicity, among other factors, some of the big banks have either cut or curbed executive pay. In 2013, at Goldman Sachs and JPMorgan Chase, compensation costs were falling and Morgan's high-profile CEO, Jamie Dimon, took a 2012 pay cut of 50 percent, down to $11.5 million. The cut, at least in part, served as a signal to regulators and investors that the board of directors was in charge following a troubled year that included a $6 billion trading loss.
Greed
CEO salaries for the top 200 U.S. corporations (not limited to bankers) rose 16 percent in 2012. Among those top 200 CEOs, the average income was 273 times the income of the average worker-up from a 20 to 1 ratio in 1965.
The average CEO's daily salary at those 200 biggest firms now exceeds the average annual salary of their workers. Actual salaries have often remained limited or flat in recent years, but stock-based pay has fueled an overall rise. Congress showed its concern about CEO pay in a Dodd-Frank provision requiring the Securities and Exchange Commission to give shareholders a "say on pay" by writing new rules requiring periodic shareholder voting on executive compensation. At this writing, "say on pay" seems to have encouraged attention to CEO pay, but a shareholder backlash has not yet materialized.
Anger with corporate greed and perceived abuse of power led to a grassroots global protest movement labeled Occupy Wall Street. Hundreds of peaceful protesters (mostly young, often college-educated and jobless) camped in New York's financial district in late 2011 to "restore democracy" while denouncing the "greed" and "corruption" of the "upper 1 percent." The movement then spread to many other American cities and around the globe. Occupy Wall Street gained enormous publicity as a leftist assault on corporate America and the wealthy, but the movement sputtered-perhaps for want of a clear, coherent message.
Occupy Wall Street continues its efforts, but at least for the present, the attention of the broader American public has been lost. (See occupy.org. [For an overview of the Lehman Brothers banking collapse and a critique of the government's regulatory oversight, see Steve Croft, "The Case Against Lehman Brothers," 60 Minutes, CBS News, April 22, 2012, at www.cbsnews.com/video /watch/?id=7406224n]. [For an investigation of "why no Wall Street execs have been prosecuted for the financial crisis," see Martin Smith, "The Untouchables," Frontline, PBS, January 22, 2013, at www.pbs.org/wgbh/pages/frontline/untouchables/].
Questions
1. Thomas Hoenig, a member of the board of directors of the Federal Deposit Insurance Corporation, observed: "[Americans] realize that more must be done to address a threat that remains increasingly a part of our economy: financial institutions that are ‘too big to fail.' Do you agree that our concentrated financial sector is a threat that must be addressed? Explain.
2. Journalist/lecturer Richard laments what he believes to be unfair and excessive pay to executives: "Executive greed has perverted risks, rewards. . . . The American system has been rigged to over-enrich those at the top." What do you think? Is greed the culprit? Has the system been "rigged," or can we continue to count on the market to properly distribute pay? Explain.