http://www.wsws.org/articles/2008/nov2008/ceos-n28.shtml
Balzac’s maxim that “behind every great fortune lies a great
crime” may yet prove a fitting epitaph for American capitalism. A
recent survey by the Wall Street Journal reveals that CEOs
at major US financial and real estate firms converted tens of
millions of dollars of overvalued stock into cash prior to the
eruption of the current financial crisis, even as many of their
corporations approached the precipice.
The Journal analyzed the fortunes of CEOs from 2003 to
2007 based on executive compensation and stock sale data. Fifteen
of these CEOs took home more than $100 million in cash during this
period. At the high end was Charles Schwab, who made over $816
million from his self-named accounting firm, almost all of it from
stock sales.
Of the 120 publicly traded firms the Journal analyzed,
CEOs cashed out a total of more than $21 billion. However, data was
gathered only from publicly traded companies, and thus does not
include similar fortunes that have been made by “hedge fund chiefs,
Wall Street traders, and executives who sold their companies
outright.” Nor did it include data related to exit packages, the
multimillion-dollar “golden parachutes” awarded to retiring or
fired executives.
The Journal’s findings underscore the parasitism and
criminality of the US financial elite. Defenders have long
justified extravagant CEO pay by claiming that these were the
talented “risk-takers” who generated enormous wealth for investors.
But the Journal’s data shows that there is no correlation
between compensation and a firm’s success. On the contrary, many
CEOs rewarded themselves just as their corporations approached
ruin.
These included Richard Fuld, the CEO of Lehman Brothers, who
transformed his firm’s stock into well over $100 million in cash.
When added to his salary and bonuses, Fuld pocketed nearly $185
million in the five years before 2008, even as he guided his
150-year-old investment bank to ruin. James Cayne of Bear Stearns
did nearly as well at his investment bank, collecting over $163.2
million, the vast majority of which was garnered from selling stock
that would soon be scarcely worth the paper upon which it was
printed.
Maurice Greenberg of American International Group (AIG) made
$132.8 million between 2003 and 2005, when he was forced to resign.
Well over $100 million of this came from windfall stock sales of
the giant insurer. AIG collapsed in September, but was determined
to be “too big to fail” by the federal government, and was bailed
out twice in less than one month to the tune of some $120
billion.
In August, the sub-prime mortgage giant Countrywide Financial
Group collapsed spectacularly, and was absorbed by Bank of America.
In the previous five years, however, Countrywide’s CEO, Angelo
Mozilo, took home $471 million, over $400 million of which came
from sales of the company’s soon-to-be-worthless stock.
A look at the sectors of the economy where these richly
remunerated executives worked, moreover, demonstrates the advanced
rot of the US economy as a whole. Without exception, they
represented corporations that engaged in financial
speculation—“industries closely tied to the financial crisis,” as
the Journal puts it—and that produced no real value. These
until recently “vibrant” parts of the economy functioned only to
siphon off enormous social wealth and deposit it in the bank
accounts of the CEOs and big investors.
One example the Journal considered is the private
student loan sector, which made Daniel Meyers, the CEO of a firm
called First Marblehead, a very wealthy man. Marblehead specialized
in servicing loans to students who had “exhausted the cheaper
government-backed variety,” and then repackaging and selling the
debt to big banks such as Bank of America. Meyers earned nearly
$100 million, almost all of it in the sale of company stock;
together with other Marblehead insiders, $660 million was taken.
The Journal notes that Meyers used $10.3 million of his
fortune to buy an ocean-front property in Rhode Island—the state
with the highest unemployment rate. Meyers tore down the villa that
was there and has put up a 38,000-square-foot mansion he named,
befitting a pirate, “Seaward.”
Another sector of the economy that has proved highly lucrative
for CEOs is that of home mortgages. In addition to the
aforementioned case of Angelo Mozilo and Countrywide, the
Journal highlights the case of New Century Financial, the
nation’s second largest subprime lender. While the lender is now
bankrupt, over a period of four years its three leading executives
took home a combined $74 million. The Journal also
mentions the case of Herbert and Marion Sandler, who made $2
billion off selling their mortgage firm, Golden West Financial
Corp., to Wachovia in 2005. This purchase likely contributed to the
demise of Wachovia, which collapsed in October and was bought out
by Wells Fargo.
In the field of “credit-default swaps,” Michael Gooch made $82.5
million through his firm GTI Group. Over $77 million of this came
from a remarkably well-timed sale in May of 2006. Since then, GTI’s
stock has lost over 90 percent of its value. Gooch owns three
mansions, and boasted to the Journal that he could pay off
his only debt, a $1 million mortgage, “with the spare change in my
bank account.”
The Journal notes with some surprise that one of the
most highly remunerative fields was that of “home-building.” The
wealth accumulated by CEOs in this sector is a clear byproduct of
the speculative real estate bubble that emerged over the last
decade. Toll Brothers, specializing in building suburban mansions,
made Robert and Bruce Toll three quarters of a billion in cash,
largely in stock sales. The company has lost 74 percent of its
value in the past year.
Chad Dreier, CEO of Ryland Group, made $181 million building
homes in “hot markets” such as Las Vegas that have now gone bust,
exposing thousands of families to foreclosure. Dwight Schar, the
CEO of a building firm called NVR, took home $626 million in
2003-2007, almost all from the sale of stock. Schar spent about $86
million of this fortune in 2005 to buy the Palm Beach, Florida
estate of billionaire Ronald Perelman. The Journal notes
that the 11-acre oceanfront complex includes two swimming pools and
a tennis court.
It is perhaps a sign of the times that the Wall Street
Journal, long a mouthpiece of US finance capital, would run a
prominent article that questions the enormous personal fortunes
built up by CEOs through dubious means even as their corporations
sailed toward disaster. Running such an article aims in part, no
doubt, to appease the rage of thousands of middling investors who
have lost their shirts in the economic crisis.
In any event, the criminal methods of these CEOs, who have led
their companies and American capitalism as a whole to the brink of
ruin, do not derive from personal greed alone. In their criminality
and nearsightedness the CEOs reflect, instead, the narrowing
horizon and historical decline of US capitalism, in which the
accumulation of extreme wealth long ago lost whatever connection it
had to the creation of real value.