Zoë Carpenter | The Nation

Protesters hold signs behind Richard Fuld, Chairman and Chief Executive of Lehman Brothers Holdings, as he takes his seat to testify at a House Oversight and Government Reform Committee hearing on the causes and effects of the Lehman Brothers bankruptcy, on Capitol Hill in Washington, October 6, 2008. (Reuters/Jonathan Ernst)

One of the great American delusions is meritocracy—the idea that everyone competes on an even playing field, and then gets what they deserve. In a meritocratic society, we would expect top-earning chief executives to represent the best and the brightest. Or, at the very least, to be good at their jobs.

Consider the case of Richard Fuld, who ran Lehman Brothers from 1994 until 2008. Fuld made the list of America’s twenty-five highest-paid executives for eight years in a row, until the bank collapsed under a slew of bad investments. The Lehman bust was the largest bankruptcy in the nation’s history and a defining event in the financial crisis. For his leadership in the eight years prior to the collapse, while the firm was making bad bets and covering them up with accounting tricks, Fuld raked in more than $466 million.

Then there’s Vikram Pandit, former CEO of Citigroup. Pandit made the top-twenty-five list in 2008, earning $38 million. That same year, his firm laid off 75,000 employees, and took government bailouts ultimately exceeding $472 billion. Pandit accepted only $1 for his services while his firm was in the red, but by 2011 he was back on the list of top earners.

These cases of gross overcompensation for poor performance seem exceptional, but in fact they’re representatives of a trend. A twenty-year review released today by the Institute for Policy Studies found that the records of nearly 40 percent of America’s top-earning executives include leading their firms to bankruptcy, government bailouts, fraud-related fines and settlements, and their own firing.

(Source: Institute for Policy Studies)

“So many of the CEOs that wound up leading our economy to disaster showed up on the list [of America’s twenty-five highest-paid CEOs] both before and after the financial crisis,” said Sarah Anderson, one of the report’s authors and the director of the Global Economy Project at IPS. While the financial sector is heavily represented in the list of poorly performing, highly paid executives, women are noticeably absent. In two decades, only four broke into the top twenty-five.

More than a fifth of the highest-paid executives ran firms that either received taxpayer money or collapsed during the financial crisis. Another 14 percent of all top earners ultimately lost their jobs because they were fired, forced to retire, or their company went bankrupt. Then these CEOs walked away with severance packages averaging $47.7 million.

“The average worker is very lucky to get a small severance. To see that the average ‘golden parachute’ was worth forty-eight million [dollars] reinforces the belief that there is no accountability here,” Anderson said.

The lack of accountability extended to executives whose companies were accused of fraud during their tenure. Nineteen CEOs on the high-pay list ran companies that paid fraud-related fines and settlements—many through deals that did not force the firm to admit any wrongdoing. The majority of these CEOs pocketed their pay and left the company before the fraud settlements were finalized.

The injustice of excessive pay isn’t limited to the fact that America’s executives make hundreds of times more than their average workers in exchange for poor, and in some cases irresponsible, leadership. What’s particularly outrageous is the fact that ordinary Americans are the ones picking up the tab.

“Excessive executive compensation is a key factor driving the trend towards extreme inequality, which frays our social fabric and undermines democracy,” Anderson said. Last year, executive pay reached its highest level ever, while the number of Americans living in extreme poverty is rising.

“More concretely, through tax loopholes, all taxpayers subsidize excessive executive pay,” Anderson explained. “It has to either come out of cutting spending on government programs that mean a lot to people, or it means that the rest of us have to pay more in taxes.”

One significant loophole in the tax code allows corporations to deduct unlimited “performance-based” pay from their income taxes. (Deductions for regular compensation is capped at $1 million per employee.) In other words, companies have an incentive to increase supplemental compensation, often in the form of stock options, because it will lower their tax bill. The Economic Policy Institute estimates that between 2007 and 2010, this loophole cost the government more than $30 billion.

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Max Baucus, the Democrat in charge of the Senate Finance Committee, and Dave Camp, the Republican leader of the House Committee on Ways and Means, are both expected to introduce massive overhauls of the tax code this fall, but whether the “performance pay” exception will be on the table isn’t clear. In early August, Democratic Senators Richard Blumenthal and Jack Reed introduced a bill to put an end to unlimited write-offs for performance-based pay, capping total deductions for compensation at $1 million per employee. Democratic Representative Barbara Lee introduced a similar bill in the House in January.

Other reforms have been signed into law, but regulators are dragging their feet. The Dodd-Frank financial reform legislation, passed in 2010, includes a provision that would force corporations to disclose the gap between what their top executives and their typical workers earn, making the culture of inequality more transparent. Dodd-Frank also instructs regulators to rein in incentive-based pay that “encourages inappropriate risk.” Both of these checks have yet to be implemented, and Republicans in the House have moved forward a bill to repeal the pay disclosure requirement.

Government contracts offer another example of how CEOs benefit from America’s taxpayers, according to the report. More than 12 percent of the highest-paid CEOs worked for firms among the government’s top 100 contractors. “We could be doing more to use the power of the public purse to encourage more rational pay practices,” said Anderson.

America has yet to achieve racial equality in its justice system.

Farmers from Miyagi prefecture raise their fists along with other farmers from across Japan during a rally against Japan participating in rule-making negotiations for the US-led Trans-Pacific Partnership (TPP) in Tokyo, October 26, 2011. (Reuters/Yuriko Nakao)

One thing members of Congress probably aren’t hearing about from their constituents during the August recess is the Trans-Pacific Partnership (TPP), the most significant international trade agreement underway in decades. The nineteenth round of talks began yesterday in Brunei, with negotiations reportedly in the “end game.”

Congress itself hasn’t heard much about the TPP; the negotiating process has been characterized by extreme secrecy and the Obama administration has denied repeated calls from legislators to make the process more transparent, while pressing to finalize the agreement this year. Dubbed “NAFTA on steroids,” the TPP is a free-trade pact currently comprised of twelve participants, including Mexico, Canada, Japan, Vietnam, Singapore, Malaysia, Brunei, Australia, New Zealand, Peru and Chile.

Lawmakers do have one critical decision to make regarding the TPP when they return to Washington this fall: whether to grant fast-track authority to President Obama. Fast-tracking (formally called Trade Promotion Authority) would allow Obama to sign the agreement prior to congressional approval, before legislators even read the final text. Congress would have to vote within ninety days to approve the deal retroactively, but debate would be limited and no amendments would be allowed.

Fast-track authorization would limit Congress’s ability to address three major concerns with the TPP: the potentially harmful economic impacts of the deal, the very real prospect of the agreement superseding domestic policy in areas ranging from internet privacy to environmental and financial regulations and an unbalanced negotiating process and its likely outcome, both tipped towards corporate rather than public interest.

First, the economy. After promising to reform NAFTA-type models during his campaign, Obama has now made them a central part of his economic strategy. “I’m asking Congress for the authority to negotiate the best trade deals possible for our workers,” he declared on July 30 in Chattanooga, Tennessee, in a tacit reference to his fast-track aims for TPP and another massive deal with the European Union.

As the story goes, access to new overseas markets will boost exports, decreasing our trade deficit and reviving the US manufacturing sector. But freer trade isn’t a jobs policy. “Those who say these deals are going to create thousands of jobs and increase exports, they don’t talk about imports—which are just as important, if not more so,” said Robert Scott of the Economic Policy Institute. According to his analysis, in the year after Obama’s recent agreement with South Korea was finalized, US exports fell, South Korean imports rose and the US trade deficit to South Korea increased by nearly 40 percent, costing some 40,000 jobs. The TPP could worsen income inequality, too.

Significant as its economic impact could be, the TPP is only marginally about trade. Just five of the twenty-nine draft chapters cover traditional trade matters, according to Ben Beachy, the research director for Public Citizen’s Global Trade Watch. The rest of the deal, he said, “could rewrite broad swathes of domestic policy that affects our daily lives, from Internet browsing to what we eat for dinner.”

“For corporations, the TPP is a convenient back-door means of undermining public interest policies that they oppose but are not able to undermine through domestic legislation,” Beachy said. If enacted, all existing and future US law would have to comply with the treaty, or the US could face trade sanctions. Environmental, health, food safety, human rights and Internet freedom protections could all be limited by the TPP. The deal could derail attempts to rein in Wall Street, making it impossible to regulate risky financial products, implement a “Robin Hood” tax on financial transactions or enforce size limits on big banks and capital controls.

Corporations, meanwhile, would gain vastly expanded privileges over federal, state and local government. A draft chapter leaked last year detailed the inclusion of a legal structure, called an investor-state dispute settlement mechanism, that would essentially allow multinationals to sue a government if they believe a policy infringes on their rights. A tribunal unaccountable to any electorate would decide the case and the damages owed, with no option for appeal. Similar investor-state rules have been included in a number of other free-trade deals, including NAFTA, and cases are surging, as are the damages awarded. Last year corporations won 70 percent of disputes.

With the exception of leaked information, it’s difficult to weigh the substance of the TPP because the drafts have been kept secret not only from the public, but also from Congress. Meanwhile, a panel of 600 advisers, made up largely of the same business leaders who stand to benefit from the dispute resolution mechanism, have some access to the text under negotiation. After Representative Alan Grayson was granted an exception in June and was allowed to view a draft section, he called the deal “a gross abrogation of American sovereignty.”

Calls for greater transparency have come throughout the negotiating process, which began under George W. Bush in 2008. It’s standard for trade negotiations to take place out of the public eye, but there is precedent for greater openness, particularly with members of key congressional committees. The Bush administration published a draft of the Free Trade Area of the Americas Agreement in 2001, and the WTO often publishes drafts under negotiation online.

The administration argues that secrecy is essential to the negotiating process. Expect a similar argument this fall in support of granting fast-track authority—that the pact will fail unless the United States’s negotiating partners are assured that Congress won’t meddle. 

As a senator, Obama said he would “not support the extension of the existing fast track process.” Created in 1974 when trade deals were far less complex than the TPP, fast track was last authorized in 2002 by a slim margin and expired in 2007. Obama is likely to push for a rewritten fast-track authorization that includes "negotiating objectives" to address domestic labor and environmental concerns, but they won’t solve the underlying transparency issues that fast track exacerbates. 

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“Fast track is essentially an undemocratic process. Congress, when it offers Trade Promotion Authority, is promising to tie its hands,” said Scott. “Once these deals are finished they assume a life of their own, so blocking fast track is critical.”

The US Chamber of Commerce and other business interests are promoting fast track aggressively, while labor and environmental activists, along with lawmakers from both sides of the aisle, oppose reauthorization. Politico reported yesterday that Democratic Representative Rosa DeLauro and Republicans Michele Bachmann and Walter Jones are gathering signatures on letters urging their colleagues to reassert congressional authority over trade policy by denying fast-track legislation. The letters are similar to one released in June by thirty-six freshman Democrats.

In the wake of revelations about the National Security Agency’s overreach, Congress has shown a willingness to demand transparency in a surprisingly bipartisan manner. Refusing to reauthorize fast track would put a check on the administration’s push to ram the TPP through Congress before it can be thoroughly evaluated with the national interest in mind. It would also send a strong signal that Obama’s arguments for secret power have lost full credibility.

Are Americans working too hard?

President Barack Obama speaks about healthcare reform and the Affordable Care Act in Washington, Thursday, July 18, 2013. (AP Photo/Charles Dharapak)

Say someone blows the wheels off a moving train and blames the accident on whoever built the engine. Fair game?

That’s precisely what Republicans are up to with their onslaught against Obamacare. Their tactics go well beyond political opposition: as others have pointed out, what’s happening now is deliberate sabotage of a duly enacted and Supreme Court–affirmed law. This morning Norm Ornstein, a scholar at the American Enterprise Institute, called the GOP’s efforts to block the implementation of the law “unprecendented” and “sharply beneath any reasonable standards of elected officials with the fiduciary responsibility of governing.”

The GOP has a narrowing window in which to wreck the rollout and blame structural deficiencies in the law, and they’re intent on smashing their way through it. Not only are they sacrificing the well-being of millions of Americans—now they’re gambling the global economy, too.

Here’s a blueprint for the GOP’s sabotage act, which runs the gamut from spreading half-truths to, as John Boehner himself put it, “risk[ing] the full faith and credit of the United States.”

Refuse to expand Medicaid

The Supreme Court’s ruling last year gave states the right to opt out of the Medicaid expansion, which is one of the most significant pieces of the ACA in terms of the impact it will have on the uninsured and its importance to the overall success of the law. More than twenty states—most fully controlled by Republicans in the legislature and the governor’s office—are denying some of the neediest Americans care by refusing to expand the program. Some 9.7 million of the 15 million potentially eligible adults live in states that are refusing to expand or have not indicated whether they will do so.

Refuse to create state insurance exchanges

More than half the states have declined to establish their own insurance marketplaces. All but six are run by Republican governors and a Republican-majority legislature. Residents will still be able to buy insurance through the federal exchange, but without cooperation and promotion from state officials, it will be more difficult to reach the uninsured.

Waste time and money voting for repeal

In the past three years, House Republicans have devoted at least 15 percent of their time on the House floor trying to ruin the ACA, voting thirty-nine times to repeal, defund or delay the law. These legislative efforts have cost taxpayers upward of $50 million. Meanwhile, the GOP hasn’t offered any alternative healthcare plans of its own. These votes present no existential threat to the law, since repeal will never get through the Senate or the White House. But repeated attacks reinforce the idea that the ACA is still up for debate and that its future is uncertain. As of April, four in ten Americans were unaware that the ACA is the law and that it is being implemented.

Block improvements to the law

While implementation has brought certain weaknesses in the ACA to light, there’s about zero chance that the GOP will support operational or funding fixes. Some of the concerns raised—for example, that employers will cut full-time workers in order to avoid providing insurance for their employees—could be met with simple changes. If the GOP’s full-out attack on the Obama administration after its decision to delay the employer mandate for a year in order to smooth out some of these issues is any indication, the GOP will do no more than exploit efforts to improve the law.

Publicize misinformation

Republicans squawking about rate shocks are presenting misleading numbers, particularly in Indiana and Ohio. One of the simplest ways the GOP fudges calculations to make anticipated premium prices look higher than they will be is by not factoring in the federal subsidies that will cut the cost of the premiums for most people buying coverage. Expect the volume of lying to rise when legislators return to their home districts during the August recess.

Discourage private partnerships

When Massachusetts was promoting Romneycare in 2007, the state partnered with the Red Sox to educate residents about the new law and encourage enrollment. Public education is key to the ACA rollout, too, and the White House has enlisted celebrities and sports franchises to raise awareness, particularly in target groups like healthy young men. The GOP is trying to scare off potential partners, and it has already succeeded with the NFL.

Refuse to assist constituents

Not only are Republicans spreading misinformation and ruining education campaigns, they have also indicated that they won’t help confused constituents navigate the law or access benefits. Congressional offices expect a wave of calls once enrollment begins in the fall, but several Republicans told The Hill they weren’t preparing to answer questions. “All we can do is pass them back to the Obama administration,” Utah Representative Jason Chaffetz said. “They’re responsible for it.”

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Hold the entire government hostage

The fiscal year ends in twenty-three days, and Congress and the White House aren’t anywhere close to a budget agreement. More than a dozen senators, including the number-two and -three Republican leaders John Cornyn and John Thune along with Marco Rubio and Rand Paul, sent a letter to Harry Reid this week threatening to shut down the government if any money goes to implementing the ACA. “If Democrats will not agree with Republicans that Obamacare must be repealed, perhaps they can at least agree with the president that the law cannot be implemented as written,” the letter reads. “We will not support any continuing resolution or appropriations legislation that funds further implementation or enforcement of Obamacare.”

Minority leader Mitch McConnell, who did not sign the letter, told reporters he planned to abide by a budget agreement worked out in 2011 that contains funding for the ACA. John Boehner warned back in March that wagering “the full faith and credit of the United States over defunding Obamacare” would be “a very tough argument to make.” Still, shutdown threats could cause a major headache, and they may resurface in the debt ceiling negotiations that will follow an eventual budget deal.

* * *

Why work to undermine the Affordable Care Act so aggressively if, as Republicans claim, the law is fundamentally flawed? One reason is that the party hopes to leverage the chaos into political benefit. More significantly, the risks of an effective ACA are just too high. Once the full range of benefits begins to reach people with pre-existing conditions, low-income adults, employees and millions of other citizens, it’s going to be a lot harder to make the argument that the ACA is ruining the country or that such benefits should be denied.

Even conservatives like pundit Byron York are looking in trepidation to January 1, when federal dollars to offset premiums will begin to flow. “At that point, the Republican mantra of total repeal will become obsolete,” York wrote earlier this week. Ultimately, success would prove just how much time and money the party has wasted in making opposition to healthcare their chief policy platform.

The House narrowly defeated a bill that targeted the NSA’s surveillance, but the results of the final vote were still remarkable.

Joint Chiefs Chairman Gen. Martin Dempsey testifies before the Senate Armed Services Committee on June 4, 2013, on pending legislation regarding sexual assaults in the military. (AP Photo/Susan Walsh)

In June, a panel of square-shouldered military chiefs sat before Congress to account for the epidemic of sexual assault. Top brass promised “zero tolerance,” and Congress began crafting reforms tied to the defense spending bill it will send to the White House this year.

Everyone says they are committed to reform—the Pentagon has been promising change for decades—but since the June hearing most lawmakers have backed away from one check that victims’ advocates argue is crucial and the military says is out of the question: authorizing military lawyers, rather than commanding officers, to decide which cases go to trial.

That policy has been adopted by peer militaries including Germany and the United Kingdom, but in Congress it has opened a fault between Senate Democrats. Toeing the Pentagon line, Armed Services Committee heavyweights Carl Levin and Claire McCaskill are fighting to put down Kirstin Gillibrand’s measure granting military prosecutors authority in serious criminal cases, thus taking the chain of command out of the legal process.

As it stands now victims must report crimes against them to their commanding officer, who then decides whether the complaint warrants a trial. Victims’ advocates argue that lawyers, not officers, should determine a case’s legality, and that preserving the command structure leaves victims vulnerable to retaliation and conflicts of interest, discouraging them from reporting crimes.

The Armed Services Committee, led by Levin, killed Gillibrand’s corrective after she introduced it as an amendment to the Defense Authorization Act and instead passed a softer measure that upholds commanding officers’ convening authority. Since then Gillibrand has been trying to drum up a bipartisan coalition strong enough to reintroduce her amendment when the defense spending bill comes to the Senate floor as soon as next week. She needs fifty-one co-sponsors to open discussion, and so far has thirty-four, including Republicans Charles Grassley, Lisa Murkowski, Susan Collins and Mike Johanns.

Tea Party darlings Ted Cruz and Rand Paul gave Gillibrand an unlikely boost on Tuesday when they announced they were signing onto her amendment. “There can be no prosecution and no deterrent if we don’t have reporting of the crimes,” said Cruz at a news conference. Their support hinged on the clarification that commanding officers would retain jurisdiction over crimes of a uniquely military nature, such as disobeying orders or going absent without leave. “I see no reason why conservatives shouldn’t support this,” Paul added. “The only thing I think is standing in the way is just sort of the status quo.”

Pentagon policy is a hard-shell status quo, and where the chain of command is concerned, Levin and McCaskill are keen to preserve it. They argue that Congress is enforcing other measures to overhaul the system, and that removing the chain of command would in fact lower the rate of prosecution. That point emerged Thursday during a re-confirmation hearing for Joint Chiefs of Staff chairman general Martin Dempsey and vice chairman staff admiral James Winnefeld, who testified that commanders have pursued cases that civilian prosecutors declined, and won convictions.

“If outside prosecutors are making the decisions, the chance of retaliation goes up, not down,” McCaskill told The Nation after the hearing. “If everybody in the unit knows the commander has said ‘this needs to go to court,’ that gives you a level of protection you will never have when everyone knows a bunch of outside lawyers have bought your bull.”

According to Winnefeld’s testimony, the Army found forty-nine cases in the last two years in which civilian lawyers declined to prosecute; commanders pursued the cases, leading to twenty-five convictions. The Marine Corps reported twenty-eight cases declined by prosecutors that commanders pursued to sixteen convictions. To McCaskill and Levin, this data indicates that empowering prosecutors would lead to fewer convictions.

But the role of civilian prosecutors in criminal court is not comparable with military lawyers, who are not elected and work within the military legal system. It’s good that commanders added forty-one convictions, but that number vanishes into the gap between the 302 convictions won in 2012 and the 2,558 pursued.

And of the cases pursued by commanders that Winnifeld pointed out, “we don’t know if those are cases that the civilians had written off, or—more likely—that the military requested jurisdiction and civilians agreed to give it to them,” said Brian Purchia of the victims’ advocacy group Protect Our Defenders. “It doesn’t change the fact that rapes and sexual assaults are increasing while reporting and convictions are down.”

McCaskill maintained that the Senate is “making changes that will really impact the success of these cases” by reforming what happens “the moment the victim reports,” measures which include making retaliation a crime and requiring a senior officer to review all cases in which a commander declines to prosecute a sexual assault against the recommendation of his lawyers. Such instances are rare.

What happens after a victim reports is critical, but few get that far. Only about 3,300 victims came forward in 2012, while an estimated 26,000 instances of “unwanted sexual contact” occurred. “We’re still having 23,000 victims who don’t feel the system is strong enough, objective enough, and transparent enough to even report,” Gillibrand said at the hearing.

McCaskill, a former prosecutor, expressed a lot of faith that the system will fix itself. “We have made massive changes in a relatively short period of time, and without giving them a chance to work. There’s a little bit of a political rush to judgment now,” she said. “There is this notion that this one other piece is the magic elixir that will all of a sudden make the military be perfect when it comes to sexual assault, and it’s naïve and I think frankly comes from not having as much experience as some of us have in this particular arena.”

Taryn Meeks, a former Navy lawyer (judge advocate general, or JAG, in military terms) now the executive director of Protect Our Defenders, disagreed with McCaskill’s assessment. “The public eye is on commanders now, but what happens when the public shifts its attention? The system is so broken it will easily revert back to a time when commanders can sweep these issues under the rug,” she said.

McCaskill is playing defense after a Politico story alleged that the amendment she and Levin pushed over Gillibrand’s was vetted first by the Pentagon, a claim McCaskill denies. “I resent being characterized as a tool of the Pentagon on this,” she said after the hearing, during which she pounded her fist on the table and told Dempsey and Winnefeld, “There is nobody who will be further in front of the line to kick you until you’re senseless if we don’t get this problem under control.”

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But her support for preserving commanders’ convening authority doesn’t add up, particularly since she’s been so vocal about the urgency of the sexual assault crisis. McCaskill has argued that keeping prosecution within the chain is the only way to ensure that commanders are fully invested in stamping out sexual violence; that’s hardly a vote of confidence for the commitment they say is absolute. As Meeks pointed out, giving trained military lawyers authority over serious crimes “is not going to undermine commanders’ responsibility to have a healthy command climate.”

The fundamental question the debate raises is whether Congress retains the ability to enforce civilian control over the military. If Gillibrand rouses fifty-one co-sponsors, the floor debate will likely be heated. The House, which passed its defense bill last month with added protections for victims, harsher sentencing for perpetrators and no change to convening authority, would give the amendment a tougher reception. Some reform to the military’s justice system will pass, but whether it will be an effective overhaul or a half-measure remains to be seen.

“If five years from now we’re having fewer sexual assault convictions, if we have fewer reports of sexual assault that appear to be an anomaly in terms of the overall incidents coming down, I’ll be first in line,” McCaskill told The Nation. “I’m going to get this fixed.”

With 23,000 unreported cases a year, waiting to see if the Pentagon is as good as its word is a high stakes gamble.

Take Action: Tell Your Senators to Act Now to Address Sexual Assault in the Military

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