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Mortgage crisis and inequality

As the fallout from the mortgage crisis continues to spread throughout the economy, more attention is being paid to the enormous and growing gap between the incomes of corporate executives and those of the workers who keep their companies running.

According to a new report by the Institute for Policy Studies, that gap is now 364-to-1. In other words, a worker earning the average wage would have to stay on the job for 364 years to take in what an average chief executive earns in one year.

In the housing mortgage business, this gap is even larger. The CEO of Countrywide Financial, which has been foreclosing on homeowners left and right, is Angelo Mozilo. Over the past three years he has made a staggering $142.4 million. Just last year, he earned $42.9 million, making him the sixth-highest-earning CEO in the country. And, as it became clear that his company was headed for big trouble, he got busy cashing in $100 million in stock options. It was Enron all over again.

As the impact of housing foreclosures has begun to be felt in other areas of the economy, and both private banks and the Federal Reserve rush to make easy credit available to mortgage companies in order to keep them from going bankrupt, indignation has risen over the huge salaries paid to managers like Mozilo.

However, while it is easy to hate the greedy executives whose decisions may have hastened the debacle, and who line their pockets when it is clear that the Sword of Damocles is about to fall on the heads of their customers, reducing executive salaries is a picayune approach to the problem.

The problem is capitalism. Rather than focus just on the high-profile executives who rake in millions during their often brief stints in the high-paid hot seat, take a look at the real owners of the big corporations—those who may never step inside the luxurious corporate offices but earn vast fortunes as they while away their idle hours.

For it is to please them—the super-rich property-owning class—that the managers do their dirty deeds, all to show a bigger profit at the end of the year.

Back in the early days of capitalism, companies often sported the names of their owners and the workers knew exactly who exploited them, who was responsible for the dirty and dangerous conditions of their workplace, who kept them toiling away for 12, 14 and more hours a day. But capitalism has long ago evolved past the stage where most enterprises are managed by those who own them.

Today, the CEO gets all the publicity, but that doesn’t mean the owning capitalist class has withered away.

Last year, for the first time, every single person on the Forbes 400 list had a net worth of more than $1 billion. Collectively, these 400 richest U.S. individuals had assets of $1.25 trillion—that’s one trillion, 250 billion dollars, or an average of more than $3 billion each.

Compared to them, Angelo Mozilo of Countrywide is a small fry. At compensation of only $42 million a year, he would have to work for almost 80 years and not spend a cent to have that much wealth salted away.

And who are these wealthy individuals? Some have last names associated with the family fortunes that have dominated the U.S. since the 19th century—like Rockefeller, DuPont and Hearst. But others are obscure and want to keep it that way.

Among the less-than-household names on the list are Jack Crawford Taylor (Enterprise Rent-A-Car), Abigail Johnson (Fidelity) and John Werner Kluge (Metromedia). And these three are among the top 25 richest of the very, very, very rich, with fortunes ranging from $14 billion to $9 billion.

The super-super-rich may not sit behind a CEO’s desk and give the orders that have resulted in wages in this country having dropped over each of the last three years; they may not have devised the precise schemes by which aspiring homeowners have been lured into subprime mortgages that turn into millstones around their necks; but the super-rich, the ruling class, approve of the results: higher profits and higher dividends on their investments.

Until it all comes crashing down. Then they can sound surprised and indignant that “greedy” managers have pushed things over the brink in their quest for quick money and can lament about the loss of integrity since the good old days.

But the truth is that what the managers of corporations like Enron and Countrywide have been doing is not that new. Remember the Roaring Twenties, when money flowed like wine, followed by the Crash of 1929?

The misery that came with the Depression changed a lot of people’s minds about capitalism. It led to an upsurge of the working class that wrestled union contracts out of a lot of bosses, who labeled the organizers “Bolsheviks” and feared that without some concessions there’d be a workers’ revolution.

Today, the housing market is approaching a Depression-level crisis. Some 15 percent of the subprime loans, with a total value of about $67 billion, are already in default. Many more are about to “reset,” that is, begin to charge a much higher interest rate that will be unaffordable for those whose incomes haven’t kept pace.

While foreclosures are already high, some 2 million more families are estimated to be at imminent risk of losing their homes. They include many who qualified for prime mortgages, which are also seeing a rise in defaults and foreclosures.

Into this turmoil has stepped President George W. Bush, fresh from dealing with his “victories” in Iraq. He says he has an initiative to get Congress to pass legislation giving the Federal Housing Administration more flexibility in assisting mortgage holders with subprime mortgages. This plan will supposedly help some 80,000 families—out of the more than 2 million at risk.

Bush was careful to say that his initiative is not a bailout for the mortgage industry or the equity firms that loaned it money and are now also in big trouble.

But the business journal Forbes sees it otherwise:

“In a Labor Day gift to Wall Street, President Bush on Friday announced plans to expand the Federal Housing Administration so that an additional 80,000 risky borrowers can benefit from its mortgage insurance program. In doing so, he sent a signal that the federal government would act to keep the market turmoil brought on by the implosion of risky mortgage lending from damaging the economy in an election season.” (Forbes, Aug. 31)

The stock of Countrywide Financial went up after Bush’s announcement. So did that of Bear Stearns, which had loaned a lot of money to companies dealing in subprime mortgages.

What will happen to the 1,920,000 families who won’t be eligible for this “help”? And what about those who have already lost their homes?

One thing is for sure. Whether it’s in an election year or not, the “turmoil” in the economy is going to get a lot worse. Workers are going to have to fight hard to put food on the table, let alone have a roof over their heads.

There’s no fix for an outmoded economic system that has developed an immense web of production which envelopes the globe but is designed to create profits for a tiny minority who control its center.

But, through great struggle, the vast productive apparatus can be taken over by the millions who do the work that created all this wealth in the first place, and be restructured to provide for the good of society rather than for the pathological profit-needs of the gold-encrusted few.

E-mail: dgriswold@workers.org