Financial Regulation: Which Way is Forward?
In the May/June edition of E-News, we took a look at President Obama's proposal to regulate the financial industry in the wake of the economic collapse. While critical of what was missing the lack of accountability for the financial managers who were hell-bent on pumping up the housing bubble, and the regulators who chose to ignore the looming disaster this created we applauded the President's promise to limit and scrutinize executive compensation at companies that received bailout money.
But a recent WSJ story has us scratching our heads. The Journal reported that Goldman Sachs "is on track to pay out as much as $20 billion this year, or about $700,000 per employee." Another financial giant, Morgan Stanley, is set to pay close to an average of $340,000 per employee. Both companies are reverting back to their 2007 compensation levels before the bubble burst and the recession began (how quickly they forget).
Gordon Gecko was wrong when he declared, "Greed is good." These old dogs still haven't learned that exorbitant pay packages for financial managers are a major problem. And, without accountability and oversight on the big betters in the "casino" economy, we are instead providing incentives for more risk-taking. Backing off on rule changes that would put a lid on executive compensation ensures fabulous wealth for a few and mountains of unsustainable debt and worldwide recession for the many.
We absolutely need to restrict pay for those behind the financial collapse who are now receiving bailout money. But President Obama and Congress also need to support the Income Equity Act, which would allow corporations to pay executives whatever their hearts desire, but would deny them a tax deduction on compensation greater than 25 times the lowest compensation paid to any other employee.
The gambling addicts on Wall Street have helped push unemployment to its highest point since 1983. It's about time that they be reined in and held accountable.
Obama administration targets executive pay, Jim Puzzanghera, Chicago Tribune
Big Pay Packages Return to Wall Street, Aaron Lucchetti, Wall Street Journal.
The Great American Bubble Machine, Matt Taibbi, Rollingstone
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Taxes: A State Budget's Best Friend
In last month's E-News, we discussed the small, but emerging, trend of states raising taxes on those who can pay in order to help close their budget gaps. We pointed out that tax increases are a must for states to preserve public services like education, health care and infrastructure projects. A recent report from the Center on Budget and Policy Priorities (CBPP) affirms that well-structured tax increases are a necessary measure for states during recession.
Thirty states have already raised various taxes, and seven more are considering similar measures. If there were ever a time to consider tax increases, rather than deep cuts alone, that time is now. The report finds that, historically, increasing taxes is a common response for states during economic downturns.
Back in December '08, Paul Krugman argued that public spending should continue because, while the economy is shrinking, our capacity isn't that we still have a trained public workforce to do good work. A cuts only approach will not only hurt individuals and families in need, but will continue to drive the economy down.
But, back to the issue of who can pay. According to CBPP's report, a growing number of states are looking to generate revenue by raising taxes on those with higher incomes. States including Hawaii, New Jersey, New York, Oregon, and Wisconsin are opting for the addition of new tax rates at the top of their states' income tax structures. And, a few states plan to raise a few more bucks with taxes on capital gains.
The good news is: a balanced approach to budgets including revenue increases appears to be gathering steam.
Tax Measures Help Balance State Budgets, Center on Budget and Policy Priorities
Fifty Herbert Hoovers, Paul Krugman, New York Times (Dec. 2008)
Pope Benedict XVI Calls for a New Economy
On the eve of the G8 summit in Italy, and just days before a sitting with President Obama, Pope Benedict XVI released an encyclical calling for a new economy. While the document, chock-full of economic buzz words, seems to straddle political lines, a dominant message is the problematic nature of the growing divide between the rich and poor.
In the 79-part letter, entitled "Caritas in Veritate" ("Charity in Truth"), The Pope asks for (business leaders, listen up) "greater social responsibility" saying, "Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty." And, he calls for the restoration of people-centered ethics in the finance industry.
Much of the language in the encyclical is reminiscent of the overarching goal of the Solidarity Economy movement: to build new frameworks for an economy "that puts people and planet before private profits and power."
This could be a step in the right direction for the creation of a "we" economy, rather than a "me" economy.
"Caritas in Veritate" ("Charity in Truth"), Pope Benedict XVI
Pope Urges Forming New World Economic Order to Work for the 'Common Good,' Rachel Donadio & Laurie Goodstein, New York Times
Pope urges bold world economic reform before G8 summit, blog by Tom Heneghan, Reuters
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