Billionaire Blues

Treasury Secretary Timothy Geitner announced that the Obama administration will allow the Bush tax cuts to expire yesterday, setting up a battle with Republicans and a few Democrats. Billionaires could lose millions, but the very same group that is talking about closing the deficit knows that these tax cuts helped allow the deficit to balloon, together with the Iraq and Afghanistan wars and the very necessary stimulus: http://online.wsj.com/article/SB10001424052748703467304575383131306753688.html?mod=WSJ_hps_LEFTTopStories. The argument goes that tax cuts will make matters worse for the economy just when we are hoping to see a recovery. But is this necessarily true. As the Wall Street Journal argues, the top five percent account for 30 percent of consumption. But shouldn't this be troubling? Don't we need to build an economy where spending is more equitably allocated among the population?

And an article last month in Vanity Fair only strengthens the argument (http://www.vanityfair.com/culture/features/2010/07/peter-marx-excerpt-201007). It details the work of pop artist and millionaire Peter Max, who "paints" rather banal pictures of the famous for charity then sells them a triptych based on that original painting. The article starts with what I find a rather prescient argument "A sure sign of imminent collapse is when the obscene becomes normal. And it is clear that Wall Street has become obscene. Just a few points from the article should highlight the level of obscenity -- in the very year when this financial crisis started, 2007, five hedge fund managers made over $1,000,000,000. Not in net worth, in one year. How did they do it? Not by really adding value to the economy -- but by taking advantage of market imperfections and looming disaster, most obviously in the case of John Paulson, who made a fortune on CDOs and other instruments betting against bad mortgages. The top 100 earners had a combined take of $30 billion, or $300 million each (on average). The sum pales in comparison to how it was made though, as many with poor performance still pull in their 2 percent management fee and 20 percent on anything they make. That's the base, though, some charge as much as 5-44 (SAC Capital's Steven Cohn). But even former cab driver Bruce Kovner (who manages $12 billion), made $200 million for a flat performance. Infamous Liar's Poker star John Meriwether made $100 million for making 0%. The point is that these men add little to the economy, in fact leading the economy toward disaster as they control over $2 trillion in assets. Wall Street is a necessary evil that provides money to companies to grow, while helping scoot those who fail out of the market all together. The men in charge need to be well-paid to do their jobs well, ensuring the market functions properly. Yet it has been clear for some time that their added value, outside their personal wealth, has been going down for some time. Is taxing those who make obscene salaries really going to destroy the economy? Is regulating them so their are limitations on what they can accomplish really going to destroy America? As I've written about before, a society that disavows the relationship between success and performance stands in great danger of selling itself out, just as Peter Max seemed to do a long time ago. Art reflects life here in a way that should give us pause.