Tuesday, March 16, 2004

Credit cards concentrate wealth

Title: Expired: How a Credit King Was Cut Off
Source: NY Times
Date: March 7, 2004

This is another one of those articles where you get that piling on feeling -- where the concentration of wealth is so unbelievable, it is difficult to imagine.

This article is primarily about Charles M. Cawley, former CEO of MBNA Corporation. The article chronicles his amazing concentration of wealth. Keep in mind that all of the money described here came in one way or another from overcharging customers (you and me) -- everyone holding an MBNA credit card helped to finance this unbelievable extravagance by paying excessive fees to MBNA.
  • "MBNA accumulated a fleet of airplanes, helicopters, yachts and expensive cars, as well as a $65 million art collection."
  • "In June, [Cawley] borrowed two of MBNA's jets to ferry a group of friends and relatives to Spain and Italy, company officials confirmed."
  • "After he returned, Mr. Cawley used $3.5 million of MBNA's money to buy a painting, titled "Other World," directly from Andrew Wyeth"
  • $1 million spent on a "corporate retreat" in 2002. George Tenet was there, as was Colin Powell's wife.
  • In the lobby there were extremely expensive Duesenberg automobiles.
  • "The month before he left the company, he sold $21 million of MBNA stock. And a retirement agreement that was announced a year ago will pay him undisclosed consulting fees, provide him with two full-time personal assistants and access to the company's planes for him and his wife for the rest of their lives."
  • "The top six executives received a total of $150 million in 2002."
It goes on and on and on.

The article also mentions things like this:
    On a chilly Monday in early November, Laura Bush appeared at a lunchtime reception at a baronial mansion in Wilmington, Del., to express her husband's gratitude for $350,000 in contributions to his re-election campaign. Her host was Charles M. Cawley, and most of the money had come from employees of the MBNA Corporation, the highflying credit card company that he had run for two decades.

    The Bush family was well acquainted with Mr. Cawley and his generosity. Only Enron, before its fall, was a bigger source of political donations to George W. Bush than MBNA. Mr. Cawley was also a benefactor to the president's father. Besides donating $1 million to the foundation that built George H. W. Bush's presidential library, Mr. Cawley and MBNA have paid more than $300,000 to the former president and his wife for appearing at company events.... He curried favor in Washington through political contributions and by hiring former senior government officials. MBNA's management team is studded with retired F.B.I. officials, including Louis J. Freeh, its former director.
The concentration of wealth is usually accompanied by the concentration of power -- here we see the president's wife dropping by to pick up a check. A number of top-ranking Washington officials are mentioned in the article.

So here we have a person who is overcharging credit card customers by billions of dollars and siphoning gigantic amounts of money off of the company for personal use. With some of that money, the person is buying amazing contacts in Washington and using those contacts to change legislation.

You would think that a person worth this much money is providing the company with incredible, indispensable value. Surely, if the Board of Directors is authorizing all of these salary and benefit expenditures, then the person is vitally important to the company. Surely the company could not survive without him -- why else pay him so much money?

The fact is that Mr. Cawley was recently fired by the board. It turns out that the company did not need him at all.

This is true of every executive who is concentrating wealth through supersized pay. These executives are human beings, and like everyone else they are easily replaced. The only reason they receive so much pay is because they control the check book -- in all but the most egregious cases, they pay themselves whatever they like and the board approves it. The people who pay for the extravagance are normal consumers -- you and me -- who pay inflated prices on everything we purchase. In 2003, the company made a profit of $2.34 billion. With approximately 100 million households in America, it means that every household paid $23 on average to MBNA.


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