Tuesday, December 23, 1997

Top brokers drawing gigantic bonuses

By MOLLY IVINS

AUSTIN - Since I subscribe to the cheerful theory that the stock market is a cross between a giant casino and a pyramid scheme, little that happens there seems to me of much social import.

Between 75 and 80 percent of the people in this country make less than $50,000 a year, and because I believe their problems deserve some attention, the woes and triumphs of the stock-brokering classes are not usually high on my radar. But I was interested to find from the New York Times the other day that end-of-the-year bonuses in the big brokerage houses are expected to range from $25 million for top managers to a piddly $100,000 for peons.

Perhaps we should have end-of-the-year bonuses for teachers: Your students all do well on standardized tests and you get, say, a modest $5 million.

Doug Henwood's book, Wall Street: How It Works and For Whom, is an instructive manual on this giant craps game, one of the most interesting examples of the fine art of debunking to come along in years. For those of you who think the stock market exists to raise capital for corporations to invest their plants and equipment, Henwood points out that the stock market has almost nothing to do with this.

Corporations finance about 90 percent of their investments internally, through their own profits, and according to Henwood, on those rare occasions when they turn to outside finance, they go first to banks and then to the bond market. "A more accurate description of what the market is all about is that it's a mechanism for the very rich, as a class, to own the productive assets of the U.S. economy and extract wealth from them," Henwood wrote for the Los Angeles Weekly. "Despite all the palaver we've heard in the last five years about the democratization of ownership through mutual funds, the richest 1 percent of the population has more investable wealth than the bottom 90 percent. Financial democracy is even more an affair of the elites than the political kind."

Speaking of financial democracy, the Securities and Exchange Commission, which theoretically regulates the stock market, has recently proposed new rules that will damage the tiny move for corporate democracy - perhaps irreparably. Under the current rules, shareholders with at least $1,000 worth of common stock can place a resolution on a company ballot.

If the resolution receives 3 percent or more of the vote on the first ballot, it can be re-introduced the next year. In succeeding years, it must garner increasing support - 6 percent and 10 percent - to be reintroduced. Under the new rules, submission thresholds would be raised to 6, 15 and 30 percent.

Mark Dowie, writing in The Nation, points out that this requirement is virtually impossible to meet in any Fortune 500 company and it means the death of the shareholder movement "that over the past 25 years has publicized corporate shortcomings ranging from polluting the nation's water to assisting South Africa's apartheid regime."

Obviously, corporate managers loathe the shareholder movement, and for at least 10 years, their lawyers and lobbyists have been working to kill it. I know many shareholders who, when they come across those "green" initiatives and social conscience items on their corporate ballots, figure it has nothing to do with profit so to hell with it. I know even more who never look at the shareholder ballots at all: The myth that common stockholders control the corporations is truly pathetic.

But, as Dowie reminds us, corporations were originally chartered to serve the public trust. A corporate charter was a "privilege" granted to an enterprise formed "for the public good," and profit to shareholders was explicitly described as a secondary purpose. We do have a right to call corporations to account, and now, one of the few feeble mechanisms for doing so is damaged by the very watchdog agency that's supposed to be on our side.

The Left Business Observer recently reviewed a book by an apostate derivatives salesman, F.I.A.S.C.O. by Frank Portnoy, and quotes the following passage on why he left that lucrative trade: "By April 1995, I had become the most cynical person on Earth. I now believed everything was a fraud, and I had a well-founded basis for my beliefs. Derivatives were a fraud, investment banking was a fraud, the Mexican and Japanese financial systems were frauds. The value system I had acquired in recent years included shooting at clients and blowing people up (Wall Street slang for parting clients from their money), all in the name of money."

Hey, me no Alamo - the guy worked for Morgan Stanley.

E-mail Molly Ivins at mollyivins@star-telegram.com.

Creators Syndicate, Inc.