Let’s Face the Music and Dance
Readers suggested a topic on the economic fallout from the housing bubble. “It seems to me housing and the recession are being soft-pedalled by both Rep’s & Dem’s. Reasons? Huckabee’s 23% across the board sales tax promoted on Leno sounds outright devastating to the middle class.”
A reply, “If the sales tax is a substitute for the income tax and is backed up by some sort of Constitutional Amendment against income taxes, I’m all for it. Most likely though we will get a sales tax on top of the income tax.”
To which was posted, “That’s why I can’t back the so-called Fair Tax (as it’s called by its supporters, or National Sales Tax, by detractors). You have to be realistic. There is no way Congress is going to eliminate all taxes and replace it with one tax on sales.”
“Unfortunately, we ARE going to have both. The new National Sales Tax will start at 2-3% and will be used to pay for National Health Care. It will have a fancy, important-sounding name that includes the words ‘fair,’ ‘just,’ and/or ‘investment,’ but definitely not ‘tax.’ It will eventually morph into a large European-style VAT.”
One added, “Improved High Leverage Enhanced Value Tax.” Another predicted, “A 23% sales tax will spawn a gigantic black market. Crooks will make money at the expense of the law abiding. Think booze in the Twenties, drugs today.”
One said, “If its a VAT, then only the final markup by the ‘retailer’ wouldn’t get taxed. VATs are used a lot in countries where tax evasion is common. In the end we will still buy our stuff at Kroger, Safeway, Albertsons Target and Walmart, etc.”
Another brought up the employment report, “5% unemployment. NAR Spin: ‘Now that people have more time to evaluate their housing options we expect sales to soar in the early part of 2008.’”
To which was added, “Recession fears have a negative effect on housing demand, as would-be buyers become precautious about making big-ticket purchases when their job security become tenuous.”
And another, “Or any non-essential purchases for that matter.”
From Bloomberg. “From Sacramento and Albany to Boston and Tallahassee, politicians in state capitals across the U.S. are wrestling with the biggest increase in borrowing costs in three years as they struggle to shore up budget deficits widening on the national housing slump.”
“The extra yield investors require on 10-year bonds from California, Florida, Massachusetts and New York relative to benchmark tax-exempt rates doubled since July to the widest since at least 2004, according to data compiled by Bloomberg.”
“California’s gap grew to 0.44 percentage point from 0.20 percentage point, adding $24 million in extra interest over 10 years for every $1 billion borrowed.”
“The cost to borrow for roads and schools is rising as property values drop and consumers cut spending, reducing sales- tax revenue that funds about one-third of state budgets.”
“Thirteen states face cash shortfalls totaling $30 billion next fiscal year, the Center on Budget and Policy Priorities, a Washington research group, said in a Dec. 18 report.”
“Officials in 24 states said the housing slump is cutting tax receipts, according to a survey released last month. Respondents in 18 states said they are concerned the trend may continue through the middle of 2008, three times as many as a year earlier.”
“In Florida, which doesn’t have an income tax, the Legislature slashed $1 billion out of the current fiscal year’s budget because the sluggish housing market will cause revenue to decline for a second consecutive year.”
“Maryland raised taxes by about $1.3 billion a year. Indiana Governor Mitch Daniels ordered state agencies to hold back spending by 5 percent.”
“New York Governor Eliot Spitzer must close a $4.3 billion hole in next year’s budget, up from $3.6 billion projected in August, according to the state’s Division of Budget.”
“‘States are going to be challenged by the economic slowdown, the housing downturn and the amount of impact it will have on revenue while spending needs continue to grow,’ said Richard Raphael, who follows state credit ratings for Fitch Ratings.”
The LA Times. “Hopes that the economy could shake off the sub-prime mortgage mess and dodge recession grew fainter Friday as the Labor Department reported that U.S. employers last month added the smallest number of new jobs in more than four years — driving the unemployment rate to a two-year high of 5%.”
“Analysts say that economic activity in some states — notably California, Nevada and Florida — as well as substantial swaths of the Northeast corridor is probably already contracting.”
“But what was particularly disheartening about the report, analysts said, was how widespread the job losses were. For example, the retail sector, which normally adds jobs in December to accommodate holiday shoppers, gave up 24,000 positions last month.”
“Manufacturing, which was thought to be in the midst of a turnaround because of an export boom, dropped 31,000 jobs.”
“‘There’s nothing heartwarming about this report,’ said Neal Soss, chief economist at Credit Suisse Group Inc. in New York. ‘It confirms what economists have been worried about, which is a broad-based economic slowdown.’”
“”The report also left analysts shaking their heads over how problems in a relatively obscure corner of the financial world, the market for mortgages made to people with poor credit, could erupt into such an economy-threatening event and could do so in such short order. Most economists barely made note of sub-prime mortgages six months ago.”
“‘You look at the magnitude of the sub-prime problem, and it’s just not that big relative to the size of the economy or the financial market,’ marveled David Wyss, chief economist at Standard & Poor’s in New York.”
The International Herald Tribune. “The scene: a kickoff party in late November for the new Paris office of the troubled U.S. investment bank Bear Stearns. As applause for a formal presentation faded, and the cocktail party began in a nearby salon, a swing band struck up the 1936 Fred Astaire hit ‘Let’s Face the Music and Dance.’”
“It all served as an ironic reminder of how many banks and investment houses are now facing the music of easy money, risky lending and massive write-downs - and how disconnected the present gloomy picture is from the upbeat gloss being spread by economists, politicians and other pundits.”
“And while 2007 may be remembered as the year of credit crisis and bursting real-estate bubbles, 2008 may go down as the year when all players in the financial markets had to face the music about formerly safe bets like hedge funds, real estate and the U.S. economy.”
“Avinash Persaud, chairman of an investment advisory in London, (and) one of the most prescient voices on international finance in the post-Sept. 11 era, noted that the American consumer boom was financed with real-estate debt: Americans have spent 130 percent of their income over the past five years. ‘They borrowed money against their property,’ he said.”
“‘In our opinion, in a year’s time we will see more of a credit crisis unfurling as opposed to the current liquidity crisis,’ said Persaud, who warned that as gold and oil prices soar, signaling inflationary forces, it will be hard for the Fed to slash interest rates to reinvigorate the economy.”
“Looking ahead, Robert Shiller, a Yale professor and the author of a seminal work on investment bubbles, explained that once real estate prices started dropping, they usually did not turn around until they had hit bottom. ”
“‘Real estate markets rise year after year, and then they slow down and stop, and then they start going down,’ he said.”
“But real estate prices also begin to accelerate on the way down - and that is exactly what is happening currently in the United States. Shiller notes the market is also turning down in Britain. Shiller said that it may also be time to get out in Paris, where real estate prices are no longer accelerating.”
“Despite his pessimistic view of certain sectors, Shiller, who does not make predictions, thinks we are far from a global crisis. The real estate market is worth about $20 trillion, and so far, the fall in real estate prices has wiped out $1 trillion, or 5 percent - much of that bubble-related. ‘It was easy come, easy go,’ Shiller said.”
“But that is a long way from assuming that things will go back to business as usual. Edward Johnson, the founder of the Fidelity mutual fund empire, gave as good advice as any about how to handle times like these: ‘When the music stops,’ he said, ‘forget the old music.’”
“”The report also left analysts shaking their heads over how problems in a relatively obscure corner of the financial world, the market for mortgages made to people with poor credit, could erupt into such an economy-threatening event …’
The denial and disconnect is the real threat.
These economist don’t factor in how allowing poor people to buy homes with 100% financing multiplied into every area imaginable.
Joe bought autos, big screens, boats, 2nd homes, pissed off money on vacations, etc.
turns out offering free call options to low-income debt burdened for real estate was not a very good idea.
an option by definition has no value without consideration.
“Joe bought autos, big screens, boats, 2nd homes, pissed off money on vacations, etc.”
But Joe can’t do that anymore, so the jobs Joe created/supported by his borrowing-and-spending will vanish and those so employed will be out of work.
But the big screens, autos, 2nd homes will remain, to be bought for pennies on the dollar for those who want them and have the cash.
Cash is king.
And at long last responsibility found its small reward in the form of low-priced jet skis and plasma TVs.
The lure of the tv being what it is…
I imagine people will sell their plasma, before giving up their plasma.
“And at long last responsibility found its small reward in the form of low-priced jet skis and plasma TVs.”
… And everything else that is for sale.
Cash is king
Maybe but few will have cash, the ecconomic crash comming will take most if not all of us down.
Tiny little sub-prime…. allows false demand for housing, pushing prices up at a crazy rate, allowing MASS equity withdrawl, allows 3% inflation and 4% annual consumer spending increases despite 1.5% wage increases, allowing the middle-class to spend 10% more than it makes. AND, that is the huge problem.
Now, credit standards tighten, removing false demand, house prices drop, and “consumers” lose the ability to spend 10% more than they make. The economy will slow, AS trillions of property value deflation results in MASS losses to the money supply.
Last week I had a guy tell me that a depression is simply not possible in today’s economy? WTF? Do you know what triggers a depression? Drastic drop in the money supply. I don’t know about you, but $5-10 trillion in “money” going poof just in lost residential property values sounds like a drastic drop in the money supply to me. Multiply as commercial property loses value, as derivitive market collapses, as coprorate profits go away, as bond funds collapse…
We have 2 choices…. govt. spends like crazy and we get stagflation, or govt. doesn’t go crazy and we get a depression.
(BTW: it may not take mass spending increases to goose stagflation. If they keep spending the same amount as tax receipts shrink due to the slowing economy, it will probably be enough to juice inflation.)
Another brought up the employment report, “5% unemployment. NAR Spin: ‘Now that people have more time to evaluate their housing options we expect sales to soar in the early part of 2008.’”
me thinks they meant foreclosures expected to soar…
the last home i purchased was sans realtors on both sides of the contract. the reason is obviously self explanatory.
perhaps sales of foreclosures will soar?
I believe I wrote that and it was dripping with sarcasm. I believe Realtors are dumb enough to think the unemployed are better prospective buyers because they can spend their day looking for homes instead of being involved in the time-consuming process of earning a living.
Yesterday’s report was devastating to the REIC. It knocked the living $hit out of their argument that real estate would remain high because people were still working. What is the REIC’s fall-back line of defense now that their front line has been breached? Reality continues to outflank propagandistic bulls–t.
dear nycb,
silly me… was only on my first few sips of cofffee when i started reading and mistook that as a quote from a NAR representative. please forgive me, as it’s an honest mistake on my part… it simply seemed like a plausable reaction from their side…another great NAR-Brain idea…
Your sarcasm was obvious to all but the caffeine-deprived.
why would anyone that can read use a realwhore ?
Because the Realtor cartel controls almost all of the data (all listings for sale, how much a listing eventually sold for, how many times a property has been relisted), etc).
That’s the reality today, at least.
Public Records at the County Recorders Office are essential to understand and use for future purchases. The MLS is full of games, that the REIC use to hind facts.
“‘You look at the magnitude of the sub-prime problem, and it’s just not that big relative to the size of the economy or the financial market,’ marveled David Wyss, chief economist at Standard & Poor’s in New York.”
I’m still amazed by these fools who don’t understand what happens when you kick the leg out from under a stool.
But what if you include other troubled areas like the ALT-A’s which will be resetting over the next 5 years? Now that is a big problem. Really the elephant in the living room no one wants to talk about. This is not a subprime issue it is about people borrowing more than they can repay in a falling market.
“…You have to be realistic. There is no way Congress is going to eliminate all taxes and replace it with one tax on sales.”
Let’s see…behavior in regards to the “current era”:
Seek help in the following order:
1. Oprah
2. Dr. Phil
3. Gov’t funds
4. local church
5. reverse mortgage funds from parents or grand-parents
6. payday loan
7. self loathing & self reliance
8. Jack Daniels
Jack is a great guy. He can be there for all of us in good times and bad.
Personally I prefer Jose.
I have this friend, Harvey Wallbanger…..
Rob Roy has been a good friend.
just drive a rusty nail into me.
Baileys is a good friend of mine
Guinness. I never drink anything in which a spoon won’t stand up.
I suppose gravey would be considered a “beverage”
I think it is tragic that our federal government has us so distracted by the income tax that we do not realize that they are taxing twice as much out of us from other sources. The income tax is only the most visible third of our tax payment and costs $0.67 for each $1 collected.
We went for 130 years without an income tax.
The “Fair Tax” is unconstitutional and would double tax everyone’s savings. (They were taxed when the earned it, now they will be taxed when they spend it).
The whole pre-bate would also be a giant wealth redistribution scheme.
The argument about an underground economy is moot, we already have one with the income tax. A sales tax is easier to enforce on businesses because there are less of them and there are two parties involved in every transaction.
If you want to help out the economy cut government spending, legalize gold and silver as money, and eliminate the income tax with NO new taxes. That and clone Ron Paul 600 or so times and have them run Congress and the White House.
It’s easy to say, “cut government spending,” but I dare the powers that be to cut the obvious military industrial entitlement: defense spending. Let’s see, we have enough nuclear weapons to obliterate the world about 60x over, and we worry about a rag tag bunch with beards living in caves. Talk about the mouse that roared. Meanwhile, back at the farm, we’re scared shoeless at airports. FearProp is just another way to control the huddled masses. I say, give me Liberty or give me Death.
I agree… cut government spending? 80% of federal spending is DoD, VA, Social Security, Medicare and interest on the debt.
Any talk of cutting spending is moot unless it involves MASS cuts to those big 4 (interest really can’t be cut unless we get rid of the Federal Reserve, put govt. back in charge of the money supply, and just swap the treasuries for cash).
Slice 50% from the military? Then the terrorists win. Slice 20% from VA and watch the news fill up with veterans denied healthcare and disability? Social Security and Medicare? Not if you plan to win any future elections.
Let’s face it. Any talk of government spending cuts is limited to 1% of this 1% or 3% of that 3%, which are amounts that will be dwarfed by increases in Social Security, Medicare, and VA.
Hey salad!! that ragtag bunch killed 3,000 innocent civilians on 9/11/01 two of which, were close to me. Shove it moron.
Chill out.
The British lost that same number nearly every WEEK during the entire Blitz which went on for months- and they didn’t panic and go nuts. They just kept on doing what they needed to do everyday.
I certainly haven’t forgotten 9/11, nor have I forgotten the Okalahoma City bombings. Both are tragedies of epic proportion, but it doesn’t mean that we have to act like frightened cowards and give up the very civil liberties that make us Americans.
Well, Iiiii say, give me liberty, and give someone *else* death.
‘Cause I’m busy. And I don’t want to leave my shoes and books.
It really irritates me that the masses are to stupid to understand that inflation is a tax!
If I we’re in charge inflation would be the tax system. Gubmit would just print money to pay its bills. Quick, easy, no lawyers or accountants involved, no loopholes, no Fed reserve, no IRS, no Federal gov. bonds. This debt as money bullshit is the root cause of so many problems in our (the worlds) economy that are inevitable in such a system. The bureaucracies required to support it must be a staggering portion of our GDP that produce no real value to the system at large.
Under an inflation based taxing system, inflation is not inevitable. Government spending on productive infrastructure with real broad based economic benefits to the system should result in price deflation. Alas spending on pork crap will cause problems, as it does under any system.
It is just puzzling to me that the government pays interest on that which its only free product, its currency!
3% inflation my ASS! Milk will soon be $5/gallon and the scumbag gov says there is no inflation.
Please see this, long but interesting.
http://video.google.com/videoplay?docid=-9050474362583451279
8. Reagan’s Generation: Ask Nancy’s astrologer
prices don’t turn around until they hit bottom????? Shiller is a really bright guy - something tells me that’s not exactly what he said. Although it’s undoubtedly true …
Well, you have to admit that in the US anyway, it has been one long 2+ year slide in many markets.
He may have been suggesting price movements in the real estate market are far more persistent than stock prices, where dead cat bounces on Mondays following Friday selloffs are the norm.
23% across the board tax?
That will decimate home sales forever.
That will decimate home sales forever ??
It would not make any sense to purchase unless you were going to live there for most of your life….
Only “new home” sales, it wouldn’t apply to “used” goods. How they plan on determining what is new and what is used will be just as difficult as determining what your true taxable income is.
If it all unwinds badly J6P will be sitting in the dark in his McPos staring at 50″ of nothing.
good thing $1500 Coach bags are bulletproof and edible.
“Despite his pessimistic view of certain sectors, Shiller, who does not make predictions, thinks we are far from a global crisis. The real estate market is worth about $20 trillion, and so far, the fall in real estate prices has wiped out $1 trillion, or 5 percent - much of that bubble-related. ‘It was easy come, easy go,’ Shiller said.”
Er, I thunk the figure was $100 bn (BB — July 07). But I am glad to hear that $1t down the tube is no big deal, and not sufficient to set off a global crisis.
Do implants deflate in a recession? Really, I need to know.
Do implants deflate in a recession? Really, I need to know.
You mean dental implants? I’d like to know too.
why, are you planning a long popcorn fest with Neil ?
Implants are like tires, and wear out after about 10 years, requiring a new set. Betcha that implant hosts aren’t aware of this maintenance program.
“Manufacturing, which was thought to be in the midst of a turnaround because of an export boom, dropped 31,000 jobs.”
We build Boeing airplanes, a bunch of military industrial complex caca, and not much else exportable, in the state of our economy.
“Americans have spent 130 percent of their income over the past five years. ‘They borrowed money against their property,’ he said.”
He should have talked to us before he said that!
How did he come to that number, is it published somewhere?
I would have guessed 150.
150 on the Coasts.
Somewhat less elsewhere.
…i think that one of my oldest and dearest friends is a perfect example of how bad things are going to get, as i believe his thoughts about “necessary income levels of at least $150K per year, to have a decent life” is an indicator of how the average J6P thinks and has been spending, accordingly… keep in mind that he lives in SW Louisiana ( a large college town)…
It’s kind of insulting to think if you’re earning less than 100k it’s not a decent life.
dear saladSD,
i believe his thoughts are a reflection of his spending and therefore his monthly bill total… he is an engineer for a large oil company but i don’t think he realizes that his $180K per year job with great benefits places him in a small, lucky group of people. the fact that he’s keeping up with the Jones’, who make less than he does but spend more (helocs over the last 5 years?), is an ominous sign. i see and hear this attitude more and more.
for some people, anything other than a 3000+ sqft home with granite and marble galore plus a fully loaded 3 car garage is not considered decent… and lots of folks have been spending mightily to become and/or remain decent…
for some of us, less is more. but, i do believe that those of us who choose to live within or well beneath our means are a rare breed these days…
$180,000 a year puts him in the top 5% in the US.
$150,000 a year puts someone in the top 6%.
He needs a reality check.
Sing it, sister!
Even in Manhattan, contrary to popular belief that’s a handsome salary.
Everyone thinks that people here make a boatload. Yeah, then why are their cards being rejected at Fairway?
I’m retired and spent a lot of my income over the years paying for the cost of wasteful government with income taxes. Now that I’ve paid once, Hucky wants me to pay again when I spend the money that I worked for and was able to save. Double taxation.
This is a recognition that the system is broken beyond repair with so many special interests buying off politicians to make sure that they are not going to lose their tax breaks. Even with a flat tax, they will allow exemptions and that exemption list will grow.
I’m actually for a flat consumption tax but not changing the rules in the middle of the game.
Maybe they should call it a “Flat Broke Tax”?
Maybe the “flattened tax”. Where all except those who can actually afford to pay it get flattened.
“…spent a lot of my income over the years paying for the cost of wasteful government with income taxes”
This sort of attitude must be past from one generation to the next… it’s not categorically stated in the US Constitution.
http://en.wikipedia.org/wiki/Gadsden_flag
“This is a recognition that the system is broken beyond repair with so many special interests buying off politicians to make sure that they are not going to lose their tax breaks.”
BINGO. There you have it. For decades we’ve heard the “tax cut” mantra from one unnamed political party. “Tax cuts!” they bemoan…. “free markets!” they decry…. Has YOUR tax burden gone down? If you’re working on a W-2 or are paid hourly, I have $1000 that says it hasn’t. These liars who constantly harp on tax cuts and free markets cut taxes alright. Nobody ever asks whos taxes got cut.
8.5% sales tax in New York City. When I was a kid in another state it was 4%. What tax cuts? Just rename it and keep pulling at the wool, hoping no eyes will see.
Move to Jersey City. Commute is actually better on the ferry; and I save $7000 a year by not paying the NY City tax.
I have to admit that the increase in the child tax credit by $500 helped. I’ve got three. The reduction in the marginal rates also knocked my taxes down by about an additional $1,000, for a total reduction of about $2,500 per year since 2003. Not huge, but not peanuts, either.
Oh trust me, that is definitely PENAUTS! It is less than a grain of dust in the distriubtion of the tax cuts.
From the US Treasury’s 2007 Tax Relief Kit press release,nabout 32 percent of the tax cuts went to the richest 1 percent of Americans, people whose income this year will be at least $341,773. About 53 percent of the tax cuts went to the top 10 percent of the population.
dear easy pickens,
“I’m actually for a flat consumption tax but not changing the rules in the middle of the game”
i’m only 41 but even i realize that rules change all the time. not all that long ago it was said that if you received a college degree you were set for life with a secure 20 year (lifetime) job with one company followed by healthy pension with benefits… used to be that banks kept mortgages on their books wherein there was no incentive to make bad loans, just the opposite…. used to be you had to work if you wanted to simply survive, yet now we have multiple generations of people living womb-to-tomb free (housing, utilities, food and healthcare), in the way they’ve become accustomed to…
…important economic underpinnings like responsibility, obligation, innovation, common sense… oops, sorry, i forget too…those were the old rules
Oh please. Welfare queens are so 1970. Times get tough and people want to go after the immigrants and the poor. Try focusing on who is REALLY stealing your money.
“I’m actually for a flat consumption tax”
too regressive, and not in compliance with the new world order.
There is only so much someone can consume, so this would be a major tax cut for the rich (not saying that the rich deserved to be taxed). That and it is unconstitutional for the government to meddle in EVERY transaction. There is no natural market limitation on the revenue collected when the government can define the “prebate” and the tax rate and the taxed activity is impossible to avoid.
Read about excise taxes, aka privilege taxes. These are the only truly fair taxes because they charge people for government granted privileges and/or the use of government property (such as the borders). In this way the government must use its property to compete in the market to raise revenue and does not exercise powers that the people do not have to delegate.
If the government cannot regulate it, then they cannot tax it. To claim otherwise would mean that all congress would need to do to pass any unconstitutional law is to write detailed regulations and tax any and all deviations from it.
It matters not how much the government wants or thinks it “needs”, all that matters is how the tax is collected. If the tax can generate unlimited revenue and make slaves out of the population simply by tweaking a rate then it is unconstitutional.
See by blog articles:
“Illegal Regulation By Taxation”
Is the income tax necessary?
The Fair Tax Fraud
How about this concept (of mine), in keeping with the Constitution:
The Federal government does no taxing at all. It sets its budget and then simply bills the states based on their share of population. States are free to tax in whatever way they see fit to pay their share.
Notice the salutory effects: there would pressure from everyone to lower spending, there would be pressure to try to force deadbeats out of your state, states would no longer try to overcount their citizens, states with the best tax policies would attract wealth.
and advertised birth control in the red states too?
How about this one: The top can only make 20 times (20x) more than the bottom? The top would have to include ALL forms of compensation and perks. You are at the top and want to sell stock, option, get a bonus well guess what you can sell, get all you want until the TOTAL PAY FOR THE YEAR is 20x of the bottom pay. That’s it you are DONE! Not happy with that amount? Take care of the bottom dwellers you know the ones that MAKE you the money, give them more and you get a 20x return. Yep go to the board and tell them all office clerks NEED a 150K raise. Not going to happen. So what to do with all that cash that unexpectedly comes on the books? I can think of lots of things but you get the idea. This will never happen but wow what an idea it’s even a novel one pay the workers more and the big boys less. I mean who is WORTH 10-20 + mil a year AND a few mil bonus plus every other perk? Tell me some one just as good would not do the same job for one million total. Remove greed at all levels get a person to do the job because they WANT to do the job, hell they might even do it better if they know there is not much chance getting MEGA bucks someplace else. Top dude dose a super good job company makes big bucks everyone gets some and the top get it at 20x of the floor sweeper. It will never fly but if it did the pigs with wings would be lighter.
“Tell me some one just as good would not do the same job for one million total.” Find me one entrepreneur who built a business up from nothing who could be replaced by some generic million-a-year. You have no understanding of how wealth and jobs are created.
“Remove greed at all levels” - give me a break. Boortz is right. The garbage people spout coming out of government schools is embarrassing.
Yeah, your idea is real novel - it’s been spouted by every Wobblie and Communist for the last 100 years. People who are either unskilled at or unwilling to provide the goods and services that others want are always going to try to advocate dragging others down to where they are.
People who advocate capping salaries are totalitarian, fascist idiots. Go ahead, flame away, idiot.
In 2006, the average CEO of a Standard & Poor’s 500 company received $15.06 million in total compensation, according to a report by The Corporate Library. This represents an 11.5 percent increase in CEO pay over 2005.[1]
A reasonable and fair compensation system for executives and workers is fundamental to the creation of long-term corporate value. However, the past two decades have seen an unprecedented growth in compensation for top executives and a dramatic increase in the ratio between the compensation of executives and their employees.
Boards of directors are responsible for setting CEO pay. Too often, directors award compensation packages that go well beyond what is required to attract and retain executives and reward even poorly performing CEOs. These executive pay excesses come at the expense of shareholders as well as the company and its employees.
Excessive CEO pay takes dollars out of the pockets of shareholders—including the retirement savings of America’s working families. Moreover, a poorly designed executive compensation package can reward decisions that are not in the long-term interests of a company, its shareholders and employees.
Some CEOs may have far greater control over their pay than anybody previously suspected. The past year has witnessed a stock options backdating scandal that has resulted in U.S. Securities and Exchange Commission (SEC) investigations at as many as 160 companies[2] and the departure of many CEOs, such as William McGuire of UnitedHealth Group.
Also in 2006, departing CEOs Henry McKinnell of Pfizer and Robert Nardelli of Home Depot both received exit packages of more than $200 million.[3] Both companies underperformed during their tenures, although their excessive pay was an issue in itself.
In some cases, CEOs were entitled to receive generous exit packages, despite their involvement in the stock options backdating scandal. Former CEO Bruce Karatz departed because of options backdating at KB Home, but because he retired and was not fired for cause, the terms of his employment agreement entitled him to an exit package worth as much as $175 million.[4]
Karatz’s compensation is frozen until an agreement is reached between him and KB Home on how much he will actually receive.[5] Investors have urged the company not to pay Karatz. However, because of the legally binding employment agreement, KB Home has a weakened case if it decides not to pay him
Excessive CEO pay is fundamentally a corporate governance problem. The board of directors is supposed to protect shareholder interests and ensure that CEO pay reflects performance. However, at approximately two-thirds of companies, the CEO also chairs the board. When a single person serves as both chair and CEO, it is impossible to objectively monitor and evaluate his or her own performance.
CEOs also dominate the election of directors. The vast majority of directors are hand picked by incumbent management. Because of the proxy rules, it is prohibitively expensive for long-term shareholders to run their own director candidates. Moreover, even if a majority of shareholders withhold support from directors, they still are elected to the board at many companies.
Ultimately, shareholders have to be able to trust their boards of directors to set responsible CEO pay packages. For this reason, CEO pay will be reformed only when corporate boards become more accountable. Until then, CEOs will continue to influence the size and form of their own compensation, and CEO pay will continue to rise.
The good news is that investors may finally get the tools needed to make boards of directors more accountable. Last year, a historic court decision at American International Group ruled that shareholders have the right to reform the way that directors are nominated for election.
The business community has been pushing the SEC to undo this decision through regulatory action. Hopefully the SEC will resist this pressure and ensure the protection and expansion of long-term shareholders’ rights to participate in corporate board elections.
1]The Corporate Library’s Annual CEO Pay Survey 2007, The Corporate Library, December 2007.
[2] Remarks by Linda Chatman Thomsen, director, SEC Division of Enforcement, at the March 19, 2007 conference of the Council of Institutional Investors.
[3] Pfizer 8-K, Dec. 21, 2006; and Home Depot 8-K, Jan. 4, 2007.
[4] “Exiting Under a Cloud, with $175 Million,” Los Angeles Times, Nov. 20, 2006.
[5] “U.S. Prosecutors Examining Options Case at KB Home,” The New York Times, Feb. 24, 2007.
Pay ratio CEO to worker
1980 42:1
1990 107:1
2000 525:1
2006 only 364:1
what’s so wrong with 20:1 again? OK lets go to 30:1
feel better now?
I’ll go infinity to 1. I don’t care how much a CEO makes - a $100 million a year CEO can’t screw up my life as much as a local city council person.
Look, I admit it, I’m missing that gene that allows a person to get upset with how rich other people are. I couldn’t care less about how much people make as long as they aren’t in the government, especially local government. (Then I go ballistic.)
The way I see it, if you see a bunch of rich people and you’re jealous of them, then you should figure out what they are doing that got them there and do it or else try to supply them with some goods and services.
If CEO pay is too high, it will correct downward, just like like housing prices. If people spent as much time worrying about government bloat, obscene transfer payments, and the general rape of workers through excessive regulation and taxation, as they did about CEO pay, we’d be better off, IMO.
But I acknowledge and appreciate your literate and thoughtful reply.
So how many CEOs, directors, persons from a “Board” get elected to some type of government office? Besides the skill they bring what other baggage tags along with them? What did they learn before coming to office?
Who cares if it is or is not a major tax cut for the rich (i.e., anyone with more money than me)?
At one of the recent debates, the dem candidates agreed that if you make more than $95k, you are no longer middle class. This is your school teacher married to a cop: they are now rich, you see.
50% of the population pays 97% of taxes: these are the rich.
Finally, I propose that the richer you are, the less you have to pay in taxes. This is a motivation to become rich. I want my kids to work hard to become rich so that they can become richer. Having even more money is a reward for being smart and working hard.
Because I don’t understand why we must punish the rich for being smart, saving, and working hard by taking away their stuff. How is that the American way, and not some sort of envy-inspired Bolshevik maneuver?
Hard work does not always make you rich…..I’m still waiting. There are many rich people who got that way by swindling others…..realtors, bankers, politicians, ceo’s, etc. I wouldn’t say any of them are any smarter than the regular joe-schmoes. If anything, they have the ability to do more damage for being foolish and acting stupid. Their actions affect those who they are supposed to represent.
Because I don’t understand why we must punish the rich for being smart, saving, and working hard by taking away their stuff
Uh huh……..Jacquleine Mars (heiress to the Mars Candy fortune) sure worked hard for her money. She popped out of the right uterus having been fertilized by the rigth sperm who in turn had been fertilized by the right sperm who had also been fertilized by the right sperm….
Good reason for moderating weatlh is to keep the other 90% from doing something called a ‘revolution.’
It has happened before when the upper 5% had everything and paid nothing and flaunted their wealth, the middle class were carrying the bill and the poor were starving.
It is called the ‘French Revolution.’
Ann I was waiting for you.
Thank you.
Have you actually checked out the “fair tax”? It sounds pretty decent to me. The flat tax sounds horrible.
The Fair Tax
http://tinyurl.com/35c5vk
Run the numbers.
HOuehold A with 4 people has an income of $75,000. They would pay around $7800 in Federal Income Taxes with the standard deduction and 4 exemptions. They spend $60,000 on living expenses -food, housing, utilities, transportation….
Huckabee would tax them on what they buy. he would hit them for $13,800 - 23% of what they spend on buying necessities.
Household B has an income of $1,600,000 - top 1%. If it is earned, they would pay around $400,000 in income taxes. They spend $600,000 a year.
Huckabee would have them pay $138,000.
They would pay nothing on the other $862,000.
The rich get richer and those who have to spend what they earn to live, get poorer.
How do you call the bottom of the great unwinding?
Here’s a hint.
911 call:
“Hello, this is Elvis, how can I be helping you?”
In keeping with the theme of this thread, if it seems sometimes we are all alone in grasping the significance of the events:
http://www.youtube.com/watch?v=DONbY9wd6vU&feature=related
gee ,do you think he will cut spending or raise taxes ?
New York Governor Eliot Spitzer must close a $4.3 billion hole in next year’s budget, up from $3.6 billion projected in August, according to the state’s Division of Budget.”
Ben, you have a nasty snow storm headed to Flagstaff.
Are you in the higher elevation?
Yeah, it’s already here and supposed to snow for 3 days. If I stop posting, you will know what happened. The good thing is that free skiing in the ponderosas is a 10 minute walk away!
I doubt there will be much house hunting in San Jose this weekend, the storm yesterday trashed this place and there is debris everywhere on the roads and it just started raining again.
Here it comes:
Home sales down…due to weather conditions
Job hirings down…due to weather conditions
Stock prices down…due to weather conditions
Pension funds & 401K’s down…due to weather conditions
Tourism down…due to weather conditions
Damn this Global warming is really starting to effect financial’s!
I got clobbered in stocks yesterday, but that didn’t even phase me. Everything else is so much more scary.
I was numb when msft and intel went up and now they are crashing. I am prepared for this “investor hell” because HBB has prepared me, in advance, for the carnage.
Got bonds?
I read one problem with a national sales tax is enforcement. Sales tax in itself is very hard to enforce. Look at how many people work off the books so, they make more money and can still stay competitive. Look at how cheap stuff is on ebay - you don’t get nailed with a 8% to 10% tax (although you do pay for shipping).
I will be very tempting for people to work / sell off the books resulting in a collections nightmare. Especially if they can save on Huckabee’s 23% percent tax. That’s way so many countries shy away from sales taxes.
Most of our peers have a VAT Tax scheme of 10-15%, sales tax… yes indeedy.
Probably a VAT instead of a sales tax….Much harder to avoid…
Another brought up the employment report, “5% unemployment. NAR Spin: ‘Now that people have more time to evaluate their housing options we expect sales to soar in the early part of 2008.’”
Yeah, let’s just forget the fact that they have no employment or means to make a payment, but they do have lots of time to look at houses.
“Do implants deflate in a recession?”
“You mean dental implants? I’d like to know too.”
Lord I hope not. Just got some dental implants yesterday. Paid for them the old-fashioned way — with cash. No HELOC or CC involved.
…yeah, just like breast implants, dental implants, unlike a bridge, is considered cosmetic and therefore not covered by insurance…
Aye yi yi,
I was being tongue-in-check.
Breast implants, financed with HELOCs.
When the economy implodes do the fake boobies deflate?
1930’s: Hooverville
2000’s: Hooterville
dear ugh,
lol, i realized your initial tongue-in-cheek…
but really, a pair of dental implants does indeed cost as much or more than a pair of silicone or saline D cups… neither of which is paid by insurance…
remaining on a serious note…if you are a shopper of real estate, dental implants or breasts, i suggest waiting for a better pricing as discretionary income seriously contracts over the next few years…
A lot of ass-barking being posted here. Kind of gives me the jitters.
In the town I live in prices are interesting. You have those 3 -2 generation that have money, all based on their fore fathers farming. You have a rich university called Bucknell, that supplies alot of money to the town. They built a develpment with an average of $275,000 per unit. Thats expensive by this area standard. Today most are for sell.
“…and how disconnected the present gloomy picture is from the upbeat gloss being spread by economists, politicians and other pundits.”
Here’s a glossy
Americans’ lustful relationship with their homes
http://www.reuters.com/article/reutersEdge/idUSN3154166620080104
“Looking ahead, Robert Shiller, a Yale professor and the author of a seminal work on investment bubbles, explained that once real estate prices started dropping, they usually did not turn around until they had hit bottom. ”
What retard summarized Shiller, a very intelligent guy, this way? Did that retard even read his own writing? “Market doesn’t go up until to goes up.”
“Looking ahead, Robert Shiller, a Yale professor and the author of a seminal work on investment bubbles, explained that once real estate prices started dropping, they usually did not turn around until they had hit bottom. ”
Just think, it took someone with a PhD to figure that out! (sarcasm off)
No, it took a dumbass reporter. That’s not a direct quote of Shiller, but the reporter’s paraphrase.
“The extra yield investors require on 10-year bonds from California, Florida, Massachusetts and New York relative to benchmark tax-exempt rates doubled since July to the widest since at least 2004, according to data compiled by Bloomberg.”
“California’s gap grew to 0.44 percentage point from 0.20 percentage point, adding $24 million in extra interest over 10 years for every $1 billion borrowed.”
I predict our governor, BlackVader…
Will be back making awful movies, complete with guns that never run out of ammo, and bad guys firing rapid fire machine guns right at him, that always seem to miss their target.
Within a year’s time…
“The extra yield investors require on 10-year bonds from California, Florida, Massachusetts and New York relative to benchmark tax-exempt rates doubled since July to the widest since at least 2004, according to data compiled by Bloomberg.”
Can’t say I blame them. I am now and advocate of simply defaulting on state and local debts, pensions, retiree health care. Prior generations left us with a fiscal chasm. I suggest refusing to jump in.
I want my taxes to go for services and benefits, not for nothing because past generations (or well connected parts thereof) got more spending and benefits and less in taxes. As a result of what has happened, I see constantly increasing taxes and deteriorating services. Enough is enough.
I don’t hold state and local debt. Or long term federal debt.
I like your thinking.
Push the reset button and hold on.
“I don’t hold state and local debt. Or long term federal debt.”
that would imply that you live in a state of the nation that does not collect taxes….where is this utopia in which you reside?
“This is a recognition that the system is broken beyond repair.”
I think the correct acronym is FUBAR!
No sensible working person would support a national sales tax. A sales tax system that didn’t hit low and middle income people hardest would have to exempt such a large percentage of income for necessities that it wouldn’t raise enough money. And since working class folk spend all of their money on consumables, we’d pay much more than richer people who buy more services.
And it is much harder to collect than income tax. Instead of just having your employer deduct the tax from your paycheck, the feds would spend their time going round to various businesses to help them figure out how much they owe.
The only people who would pay much reduced taxes would be CEOs and others with very large incomes who can’t consume it all and instead invest in the stock market and various hedge funds.
As a quasi-Geolibertarian I must point out there’s an alternative to sales & income taxes . . . the LVT, or Land Value Tax.
Our lawmakers own too much land for this to ever get passed, but I have yet to find a coherent argument against the LVT . . . easy to admininster, easy to collect, doesn’t hit anyone unfairly, doesn’t inhibit investment or productive economic activity, etc etc.
Rather than a sales tax how about going with a carbon tax, as almost everything requires energy to make. Imports would get taxed for the estimated energy content. Very easy to collect. Easy to limit the tax by conserving energy.
To make it pallatable to the US you could return a percentage of the tax in the form of a credit. The credit could be used for insulation, energy efficient appliances, cars that got over 40mpg, vans and SUV’s that got over 30mpg, solar power ect. The people who consume the most get the most back to reduce their consumption.
US wins with new jobs. Iran, Saudi Arabia, Russia, ect loose with dropping price of oil.
This type of tax could dramatically increase US efficiency.
The problem with carbon taxes is that it unfairly penalizes, for instance, lower income workers in expensive metropolitan areas. These workers often have to drive long distances, as there is no affordable housing anywhere near their jobs. It would also penalize tenants, in that we have no control over the insulation in our rentals. And, of course, we can’t install solar panels on the roof. Carbon taxing might work if communities were forced to provide housing affordable to the workforce and landlords would be much more likely to insulate if they had to pay the power bills–although they might just turn down the heat.
Some things do make sense. Our local utility will give you a subsidy for an energy-efficient refrigerator–one of the most important home conservation measures–and will take away the old one, as well.