Mutual fund managers skim fees

Title: FUND FEE FUROR
Source: The New York Post
Date: January 28, 2004

From the article:

"The mutual fund industry is indeed the world's largest skimming operation - a $7 trillion trough from which fund managers, brokers and other insiders are steadily siphoning off an excessive slice of the nation's household, college and retirement savings," Fitzgerald said in his opening statement at a Senate hearing yesterday.

Investment bankers, fund managers and a variety of other wall street professionals skim literally trillions of dollars off the money flowing through the markets. An article titled Ten most overpaid jobs in the U.S. puts it this way:

Everyone on Wall Street makes far too much for the backbreaking work of moving money around, but mutual fund managers are emerging as among the most reprehensible.

This isn't kicking 'em when they're down, given the growing fund-industry scandal. They've been long overpaid. Stock-fund managers can easily earn $500,000 to $1 million a year including bonuses -- even though only 3 in 10 beat the market in the last 10 years.

Now we discover an untold number enriched themselves and favored clients with illegally timed trades of fund shares. That's a worse betrayal of trust than the corporate scandals of recent years, since they're supposed to be on the little person's side.

Put aside what fund managers earn and consider their bosses. Putnam's ex-CEO Lawrence J. Lasser's income rivals the bloated pay package that sparked New York Stock Exchange President Dick Grasso's ouster. Lasser's take: An estimated total of $163 million over the last five years.

A massive concentration of wealth surrounds Wall Street.

Executive pay rises even when performance is poor

Title: Safeway Rewards 11 Top Execs
Source: LA Times
Date: January 26, 2004

From the article:

Safeway Inc. recently awarded 11 senior and executive vice presidents millions of dollars in stock grants and options under a new compensation plan that is drawing fire from labor leaders and others....

There have been questions about the timing and the appropriateness of the move to reward upper management, given the company's declining profitability and its demand that the next contract with workers in Central and Southern California institute a new tier of lower wages and less attractive benefits for new hires....

In December, eight senior and executive vice presidents received grants of restricted stock. The 409,352 shares were worth nearly $9.4 million at Friday's closing price of $22.95. The eight officers can sell the shares in 25% increments over the next four years.

All 11 of the vice presidents received a total of 672,865 shares of stock options at a strike price of $20.15, 12% below the current trading price. They can each exercise 20% of their options each year for the next five years....

Profit is down, employees are being laid off and asked to take lower pay, while executives get bigger bonuses. That is the classic profile for the concentration of wealth.

Why not give all of that stock to employees? Or sell the stock (rather than giving it to executives) and use the proceeds to reduce prices for consumers? Why not force executive pay downward in the same way that employee pay is forced downward?

Clark gets $1.2 million for providing access

Title: Wes Clark Wins! (On Wall Street)
Source: Fortune
Date January 26, 2004

From the article:

On Jan. 20, just a day after the caucuses, bankers tell FORTUNE, Clark made about $1.2 million in paper profit on his investment in Messer Griesheim, when the private German maker of industrial gases agreed to sell most of its assets to rival Air Liquide. While the $3.3 billion deal went largely unnoticed in the U.S., it was the best investment Clark ever made. And it barely cost him a dime—thanks to a low-interest, "non-recourse" loan from Goldman Sachs, which insulated Clark (a Messer director since August 2001) from any personal exposure. "Was he smiling yesterday?" wondered a Goldman executive, just hours after the Euro-deal was announced. "General Clark's probably got more money than he's ever had in his life."

Clark resigned nearly all his directorships last fall after he announced his candidacy. But he stayed on Messer's board until early January. Goldman co-owns 67% of the firm, and "Clark was our guy on the board," says a Goldman insider, who adds that the company wanted to find a way to give Clark a stake. But Goldman's stock was held by a fund whose bylaws didn't permit loans. So, in a complex swap, Messer loaned Clark 500,000 euros for his 6,734-share purchase in mid-2002, and then Goldman bought the note from Messer. The non-recourse terms mean that if the deal had gone south and Clark defaulted, Goldman would be stuck. In other words, pure upside for Clark, who repaid the note—but kept stock when he left the board.

Also:

Clark's primary role was to help the firm expand into defense and IT sectors. He used his impeccable contacts to gain not one but two audiences with Defense Secretary Donald Rumsfeld, giving Stephens an inside track on the government's Iraq thinking. And he was likable, often speaking to packed rooms during client forums. "He's smart, he knows the technology, and has the contacts," says Warren Stephens, the firm's CEO.

Wealthy corporations and individuals work with Stephens. Stephens hires Clark to get direct access to high government officials like Defense Secretary Donald Rumsfeld. Clark gets over $1 million.

Wealth provides access to key government officials

Article: KEY SCHWARZENEGGER AIDE TOUTS ACCESS, HIRES LOBBYIST
Source: The Mercury News
Date: January 23, 2004

From the article:

The political strategist who helped Arnold Schwarzenegger win last fall's governor's race by positioning the actor as an incorruptible outsider is now capitalizing on his own insider access.

Mike Murphy, who remains one of the governor's top political advisers, is expanding the West Coast operation of his firm, DC Navigators, which has hired a lobbyist and is touting its links to Schwarzenegger.

''With strong relationships on Capitol Hill and inside the Bush and Schwarzenegger adminstrations, Navigators can provide access to the highest-level decision makers in Washington and Sacramento," the company boasted on its Web site until late Thursday.

The DC Navigators Web site provided all of us with a surprisingly simple explatation of how the concentration of wealth works today. Wealthy individuals and corporations get special access to the government. Wealthy people pay DC Navigators lots of money to get "access to the highest-level decision makers in Washington and Sacramento." Because of that access, laws and policies skew strongly toward the wealthy and away from the needs of the citizens of the nation as a whole.

After the statement on the Web site was flagged by journalists, DC Navigators changed their Web site. However, they did not change their practices. Today there are hundreds of companies that "provide access to the highest-level decision makers in Washington," and there are tens of thousands of lobbyists on Capital Hill. Most of these firms and lobbyists focus solely on the needs of wealthy corporations and individuals, because the wealthy are the ones who can afford these services.

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Concentration of Wealth articles

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Concentration of Wealth