The Executive and the Cross: Moral Dimensions of the Financial Crisis

By Timothy Dalrymple

If greed is the intense and selfish desire for more than someone needs, then the only sense in which capitalism encourages greed is that it extends the opportunity to acquire more than one needs beyond the circle of the elite. I have never believed that greed is the engine of capitalism. The teacher who tutors students after class, the middle-aged black woman who opens a beauty parlor, the teenager who watches children -- all are "capitalists" insofar as they operate their businesses for profit, neither owned nor controlled by the state. Motivations are complex and multiple, yet I would venture to say that the vast majority of American workers are motivated not by greed but by what might be called filial duty, the desire to provide lives of enjoyment and opportunity for their families.

Business executives are no different from the rest of us, except perhaps on the whole they are more skilled, hard working, and ambitious than the average worker. The executives I have known are decent human beings. Most are less motivated by the desire to acquire money than the desires to achieve, excel, compete, and even create something enduring and valuable.

So I have no desire to demonize executives. Nor do I believe that executive compensation is (at least directly) among the chief contributing causes of the recent financial crisis. Simple explanations are rarely apt for complex phenomena, and "Wall Street greed put a world in need" is too simplistic for an event as intricate as the economic collapse. Free market capitalism has lifted hundreds of millions out of destitution around the world and has unleashed extraordinary productivity and innovation.

Yet surely it says something of our society, and impacts our economy, that executives can make -- without going to extremes -- hundreds of times more than the average full-time worker. In 1960, and then again in 1980, the executives of leading companies made roughly 40 times the salary of the average worker. Yet by the end of the 1980s the multiple was over 100, and according to one count the CEOs in top companies in 2000 made 525 times the salary of the average worker. Or take the example of John Thain of Merrill Lynch, who was paid $83 million in 2007. If a teacher or soldier were paid $41,500 per year, in order to match Thain's compensation he or she would have to work and save every penny since the time of Christ. (This is not to mention private equity or hedge fund managers, who can make billions of dollars in a single year.)

Only the most Orwellian distortion of language could call this ‘pay for performance.' The year after Thain earned $83 million, Merrill Lynch was hemorrhaging cash and forced into an acquisition with a $15 billion fourth-quarter loss. Or take Alan Fishman, who left Washington Mutual after eighteen days as its chief executive with a $19 million severance package, over $1 million for every day he led the company before its collapse.

Bad apples, yes, but not the worst. Gary Smith of Ciena made tens of millions each year in the early 2000s as he dealt his shareholders a 93% loss. Dick Fuld earned over $400 million from 1993 to 2006, and another $45 million the year before he led Lehman Brothers into oblivion. Heads of Fannie Mae and Freddie Mac like Jim Johnson and Franklin Raines expanded the portfolios of the GSE housing giants -- and thus increased their own bonuses -- by pushing for more and more risky mortgages, inflating the housing bubble until it burst and left the American people with trillions in losses.

Some of my fellow economic conservatives respond that there is nothing unjust in the current situation because the teacher and the soldier are completely free to pursue the CEO office instead of the schoolroom. Some claim it is a category mistake to speak of "justice" in the marketplace -- where only cool calculations of economic utility should prevail, in the theory that this is best for the economy and thus the populace as a whole.

Yet if my fellow economic conservatives cannot see that there is a problem with executive compensation then I fear they are willfully blind. The question is not whether the teacher and soldier were free to pursue different careers, but whether it is a healthy form of economic organization that rewards the CEO, regardless of performance, with hundreds of dollars for every one given to the average worker.