Why the Rich Are Losing Their Share of Wealth

Economic populism is back, with attacks against inequality and the “greedy rich” back in style. But at the very moment that the public is outraged over the rich getting richer, the rich might actually be losing their share of the nation’s wealth.

Associated Press

Fred Bell, a one-time millionaire and now unemployed, sells apples at his stand on a busy street corner in San Francisco, Ca., on March 7, 1931 during the Great Depression. Bell, known as “Champagne Fred” in the earlier days, has nothing left of his share of the Theresa Bell fortune as a result of the stock market crash in 1929.

Of course, the economic crisis is affecting all income and wealth groups. But if history is any guide, the proportion of national income and wealth held by the richest 1%–decried for years as being close to pre-Depression levels–probably will shrink markedly in coming months.

To understand why I interviewed Emmanuel Saez, the income-share expert and economics professor at the University of California, Berkeley. Here is an edited excerpt:

ROBERT FRANK : Does history offer any guide for what will happen to wealth shares of the top 1% in the current crisis?
EMMANUEL SAEZ: Perhaps the best comparison is the Great Depression. During that period, the income share of the top 10% was stable. But that masked a sharp fall for the top 1%. The income share of the top 1% fell from 24% in 1928 to 15.5% in 1931.

RF: Why such a big drop?
ES: Mostly because capital gains took a big hit, and I think it will in the coming years as well. One of the most important (factors) during the Great Depression was that profits to business took a huge hit. That affected the top 1%, but the top 10 % as a whole remained stable because the high-wage earners did pretty well during the Great Depression. Those guys rarely lose their jobs and don’t get much of a pay cut.

RF: How much will the shares for the top 1% fall in the current crisis?
ES: It was 23% in 2006 and I believe it will have peaked around 23% or 24% in 2007. It’s likely to drop by about 4% or 5%. It will be probably be pretty significant but it might be temporary. Today the new reason (for drop in top 1%) is related to incomes from stock options.

RF: So they lost their share of incomes. What about wealth?
ES: That dropped dramatically, too.

RF: Public concern over inequality seems to be at a peak. There is a growing call by Sen. Barack Obama and others to raise taxes on the wealthy to shrink the wealth gap. Are they worried about a problem that’s already being fixed by the markets?
ES: The key question is whether you want to take a chance and let such excess come again. If the public and government don’t want that anymore they might impose law and regulations.

RF: But the top 1% didn’t regain its share immediately after the Great Depression.
ES: Because the New Deal made the fall in top incomes permanent. Today, it can easily come back if the stock market comes back.

RF: What is your best guess about what will happen with wealth shares and policy?
ES: My guess is that without a change in policy, inequality will fall temporarily in the next two years but not too much, because compensation structures have changed dramatically. It cannot be totally undone by the financial bust. Policy makers now have a golden opportunity like [President Franklin] Roosevelt to do something more permanent.

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Treasury Clears Way for $700B Bailout

By AP/MARTIN CRUTSINGER

(WASHINGTON) — The government has cleared the way to ship out $125 billion this week to the country's largest banks, beginning the biggest government bailout in history.

"The money will go out the door for those institutions early this week," predicts Assistant Treasury Secretary David Nason, one of the chief architects of the rescue plan.

Not only is the money ready to be sent to nine major financial institutions, including Bank of America, Citigroup Inc. and JPMorgan Chase, but the government is reaching preliminary agreements with a group of more than a dozen major regional banks, who will share a part of an additional $125 billion the government hopes to pump into the banking system.

Before the end of the year, Treasury Secretary Henry Paulson intends to have spent $250 billion of the $700 billion bailout package buying ownership stakes in U.S. banks. The goal is to improve their balance sheets so that they will resume more normal lending practices and prevent the country from sliding into a deep recession.

Another $100 billion is earmarked to be spent buying troubled assets from banks such as bad mortgage loans as another way to spur banks to resume lending.

However, a long line of other industries are hoping the government will decide to help them as well. Insurance companies, automakers, hedge funds and foreign-owned banks are all making appeals to be included in the rescue package, contending that they need assistance as well.

Treasury and White House officials signaled on Monday that their cases are being reviewed. That review is coming in the closing days of a heated election campaign when the country will be electing a new president and a new Congress for next year.

The beleaguered auto industry is making its appeals to both presidential candidates and lawmakers running for re-election and their are indications those pleas are being heard.

Presidential press secretary Dana Perino told reporters Monday that officials at the "highest levels" of the Treasury, Energy and Commerce departments have listened to automakers make their cases. She said the administration is "working as quickly as we possibly can" to finalize the rules needed for automakers to start tapping a $25 billion loan fund that Congress approved last month.

The fund is designed to help automakers develop new energy-efficient technology but is seen as a way to help keep the companies afloat during hard times. The expectation is that an initial $5 billion could be freed up soon.

Perino said Treasury was also trying to determine whether the financing arms of the automakers might be eligible for federal help under the bank stock-purchasing program of the rescue package.

The rescue program is just one of the efforts the government is making to combat the worst financial crisis to hit the country since the 1930s. The Federal Reserve began a program Monday to purchase the short-term debt of businesses, known as commercial paper. This market has been frozen since the collapse of Lehman Brothers spooked credit markets last month.

Fed officials were also scheduled to begin a two-day meeting on interest rates on Tuesday with economists widely forecasting that the Fed will cut a key interest, the federal funds rate, to 1% in an effort to boost borrowing demand as a way to deal with the economy's current troubles.

So far, the efforts to battle the severe credit squeeze have shown little in the way of results. Libor, the London Interbank Offered Rate, a key goalpost for international lending, edged down only marginally on Monday and still remains at elevated levels.

"All these efforts are doing some good, but the question is whether they will do enough," said David Wyss, chief economist for Standard & Poor's in New York. "The credit markets are still pretty locked up."

Major Asian stock markets rebounded Tuesday after several days of steep declines. Japan's benchmark Nikkei 225 index jumped 6.4%, Hong Kong's Hang Seng index surged more than 13% and South Korea's Kospi jumped 5.6%.

Treasury announced that Paulson, who is the administration's point person on the bailout effort, will not make a scheduled speech to Wall Street executives on Tuesday, sending an aide in his place, so that he could remain in Washington to work on the details of the rescue program.

That program has undergone a major change in emphasis since it was passed by Congress. After global markets imploded, forcing other countries to rush to the aid of their banks, Paulson decided that it was urgent to get assistance to U.S. banks more quickly. As a result, he earmarked $250 billion for the stock purchase plan and only $100 billion for what had originally been the centerpiece of the proposal, the purchase of troubled bank assets.

Treasury has given the go-ahead for stronger banks to use the money it receives in the rescue program to acquire troubled banks. That has prompted criticism the government could be getting into the position of picking winners and losers.

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Are tech companies turning into banks?

By Owen Thomas

When Wall Street fails, Silicon Valley must step up. So goes the hubristic thinking here. Debt greases the wheels of commerce, and the sale of servers and software is no exception. And that part of the credit industry has hit a rough patch, too, with defaults on equipment loans nearly doubling in the past year. As with other credit markets, this had made traditional lenders nervous. So cash-rich tech companies are venturing into lending themselves. IBM has long had an in-house lending arm, with $24.5 billion in loans outstanding. Cisco lent $4 billion to customers last year. Even eBay is getting into the game through Bill Me Later; it acquired $550 million in consumer loans in conjunction with the purchase of the payments startup.

We know how this ends — with tech-company shareholders footing the bill. Cisco wrote off $900 million in bad debt in 2001. It will surely claim to have learned its lessons since then. But as others rush in to help customers acquire their wares, some will surely get burnt. As will investors, who may think they're buying shares in a tech company, only to discover they've put money into a bank.

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St. Louis Claims First Pregnant Catholic Priest

A little over a year ago, 26-year-old Jessica Rowley shattered the stained-glass ceiling, so to speak, by being ordained a Catholic priest. Now the St. Louisan is on the verge of giving birth to her first child, and a Washington, D.C.-based group that advocates for women’s ordination says that makes Rowley the world’s first pregnant Catholic priest.

"I'm due November 19, but the doctor believes it could be any day," says Rowley. "I'm feeling very ripe."

Rowley is one of roughly a dozen pastors with two X chromosomes presiding over churches in the Ecumencial Catholic Communion, a splinter group of the Roman Catholic Church.

Members of the ECC, which formed in 2003, don’t claim any papal lineage, in contrast to Roman Catholic Womenpriests, another splinter group that ordains women and which does claim direct ties to the Vatican.

St. Louisans Ree Hudson and Elsie McGrath became Womenpriests last fall, causing quite the hullabaloo in the Archdiocese of St. Louis and prompting former Archbishop Raymond Burke to ex-communicate both women. Rowley, though, says she never heard a peep from the Archdiocese, and doesn’t expect to.

Ecumenical Catholics believe in promoting lay people to positions of leadership within the church and, obviously, in the ordination of women. In the ECC, priests are allowed to marry. The church also welcomes into the fold groups that have traditionally been marginalized by the Roman Catholic Church -- divorced people, gays and lesbians, for instance.

Rowley grew up in Chicago and attended Catholic schools there. She got her Master's of Divinity here in St. Louis at Eden Theological Seminary and last year became associate pastor at Sts. Clare & Francis, the ECC Church in Webster Groves which was formed in 2005 by former Roman Catholic priest Frank Krebs. He and Rowley share the pastor-ing duties. Their congregation numbers about 90, and consists mainly of ex-Roman Catholics.

Rowley says her congregation cheered when she told them she and her husband, a minister for the United Church of Christ, were expecting.

So what church – the ECC or the UCC -- will Rowley’s baby boy join?

"That's a good question," says Rowley, with a laugh. "It's a topic of conversation in our home a lot. We're going to baptize him in both churches. But eventually he'll be able to make a decision for himself."

-Kristen Hinman

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Georgia accused of targeting civilians

By Tim Whewell

Dr Marina Kochieva says her car was targeted by a Georgian tank

The BBC has discovered evidence that Georgia may have committed war crimes in its attack on its breakaway region of South Ossetia in August.

Eyewitnesses have described how its tanks fired directly into an apartment block, and how civilians were shot at as they tried to escape the fighting.

Research by the international investigative organisation Human Rights Watch also points to indiscriminate use of force by the Georgian military, and the possible deliberate targeting of civilians.

Indiscriminate use of force is a violation of the Geneva Conventions, and serious violations are considered to be war crimes.

The allegations are now raising concerns among Georgia's supporters in the West.

British Foreign Secretary David Miliband has told the BBC the attack on South Ossetia was "reckless".

He said he had raised the issue of possible Georgian war crimes with the government in Tbilisi.

The evidence was gathered by the BBC on the first unrestricted visit to South Ossetia by a foreign news organisation since the conflict.

Georgia's attempt to re-conquer the territory triggered a Russian invasion and the most serious crisis in relations between the Kremlin and the West since the Cold War.

They went on firing all the next day without stopping. At some point there was a pause, and we saw Georgian soldiers going along the street in their Nato uniforms Taya Sitnik

And Georgians themselves have suffered. We confirmed the systematic destruction of former Georgian villages inside South Ossetia.

Some homes appear to have been not just burned by Ossetians, but also bulldozed by the territory's Russian-backed authorities.

The war began when Georgia launched artillery attacks on targets in the South Ossetian capital, Tskhinvali, at about 2330 on 7 August 2008.

Georgia said at the time that it was responding to increasing attacks on its own villages by South Ossetia militia, although it later said its action was provoked by an earlier Russian invasion.

Eye-witness account

Georgy Tadtayev, a 21-year-old dental student, was one of the Ossetian civilians killed during the fighting.

His mother, Taya Sitnik, 45, a college lecturer, told the BBC he bled to death in her arms on the morning of 9 August after a fragment from a Georgian tank shell hit him in the throat as they were both sheltering from artillery fire in the basement of her block of flats.

Georgia's President Mikhail Saakashvili refutes the allegations of war crimes

Mrs Sitnik said she subsequently saw the tank positioned a few metres from the building, firing shells into every floor.

Extensive damage to the five-storey block appeared consistent with her version of events.

She said she and her son were watching television when the Georgian attack began.

"They started firing not from rifles, but from heavy weapons. Shells were exploding."

"We jumped up straight away, switched off the lights and ran down to the cellar."

"And we sat here on boxes. We thought it would end, but the firing got heavier and heavier," she added.

We're very concerned at the use of indiscriminate force by the Georgian military Allison Gill Human Rights Watch

"They went on firing all the next day without stopping. At some point there was a pause, and we saw Georgian soldiers going along the street in their Nato uniforms," according to Mrs Sitnik.

"Then they started firing again, even more heavily. The Grad rockets were coming over all the time."

"How can you trust those people now? What possible friendship can there be? Let them all be cursed, cursed for the deaths of our children."

Neighbours said another resident of the block, Khazbi Gagloyev, also died of wounds received during the attacks.

'Basements targeted'

The Russian prosecutor's office is investigating more than 300 possible cases of civilians killed by the Georgian military.

Some of those may be Ossetian paramilitaries, but Human Rights Watch believes the figure of 300-400 civilians is a "useful starting point".

That would represent more than 1% of the population of Tskhinvali - the equivalent of 70,000 deaths in London.

Allison Gill, director of the Moscow office of Human Rights Watch, said: "We're very concerned at the use of indiscriminate force by the Georgian military in Tskhinvali.

"Tskhinvali is a densely populated city and as such military action needs to be very careful that it doesn't endanger civilians."

"We know that in the early stages there were tank attacks and Grad rockets used by Georgian forces," she added.

"Grad rockets cannot be used in densely populated areas because they cannot be precisely targeted, and as such they are inherently indiscriminate.

"Our researchers were on the ground in Tskhinvali as early as 12 August.

"And we gained evidence and witness testimony of Grad rocket attacks and tank attacks on apartment buildings, including tank attacks that shot at the basement level.

"And basements are typically areas where civilians will hide for their own protection.

"So all of this points to the misuse, the inappropriate use of force by Georgia against civilian targets," according to Alison Gill.

Human Rights Watch will talk only of the "possible" deliberate targeting by Georgian forces of individual civilians, a still more serious charge, though some Ossetians the BBC spoke to in Tskhinvali claim to have witnessed such cases.

Wreckage

Marina Kochieva, a doctor at Tskhinvali's main hospital, says she herself was targeted by a Georgian tank as she and three relatives were trying to escape by car from the town on the night of 9 August.

She says the tank fired on her car and two other vehicles, forcing them to crash into a ditch.

The firing continued as she and her companions lay on the ground.

She showed the BBC the burnt-out wreckage of the car on the town's ring-road, riddled with bullet holes and with a much larger hole, apparently from a tank round, in the front passenger door.

Ms Kochieva says a nurse from her hospital was killed while fleeing Tskhinvali in similar circumstances.

She says she counted 18 burnt-out cars on the ring-road on 13 August, at the end of the war, suggesting there may have been more casualties.

Many Tskhinvali buildings were damaged during the conflict

Asked if, at night, Georgian soldiers might not have suspected her car of carrying Ossetian fighters, Ms Kochieva said: "Fighters wouldn't have gone away from town, they would have gone towards town. We were escaping like other refugees.

"The Georgians knew this was the 'Road of Life' for Ossetians. They were sitting here waiting to kill us," she said.

Georgia's Foreign Minister Eka Tkeshelashvili told the BBC, "I can firmly say that the Georgian military, on intention, never attacked directly any civilian object.

"On the surface, the damage to some of the houses in Tskhinvali that can be observed might lead to this conclusion. But to see if some is damage inflicted by direct targeting, for that an in-depth military assessment needs to be done.

"I think the best response is a fully-fledged independent, impartial international inquiry into the issue," she added.

Her British counterpart David Miliband, who visited Georgia immediately after the war to show solidarity with its government, said he took the allegations of war crimes "extremely seriously" and had raised them "at the highest level" in Tbilisi.

Apparently hardening his language towards Georgia, he called its actions "reckless".

But he added: "The Russian response was reckless and wrong".

"It's important that the Russian narrative cannot start with Georgian actions; it has to start with the attacks on the Georgians from the South Ossetians and that is the tit-for-tat that got out of control," he said.

Revenge

The BBC saw evidence of the cycle of revenge since the war, with the demolition of most houses in the former ethnic Georgian villages on the northern outskirts of Tskhinvali.

No, it wasn't ethnic cleansing... we just let them go from our land Zaur Gagloyev

The houses, whose occupants fled during the war to other parts of Georgia, were burnt by Ossetians immediately after the fighting.

They are now expected to be replaced by a brand-new housing complex with a cinema and sports facilities to be financed by the city of Moscow.

Zaur Gagloyev, a 20-year-old former law student, now unemployed, claimed he was one of those responsible for the burning.

"There were so many provocations in these villages by Georgians," he said.

"For example, they were taking Ossetians as hostages and that's why I feel so angry."

Mr Gagloyev added: "If you want an advice on how to burn a house, just set light to a curtain and the whole house will catch fire."

Asked if he was guilty of ethnic cleansing, he replied, "No, it wasn't ethnic cleansing.

"No-one was killed there. We just let them go from our land. I don't know whether they will return or not," he added.

"But I did everything I could for them not to return. Never. You can call it ethnic cleaning, but I think I just did it to prevent a future war," he said.

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Iraq demands all US troops out by 2011

(Ahmad Al-Rubaye/AFP/Getty Images)

Students from Mustanseriyah University in Baghdad demonstrate against the presence of US troops in Iraq

Deborah Haynes in Baghdad

Iraq has demanded a clear commitment from the US that its forces will have left its soil by the end of 2011.

The stance was revealed in a newly toughened-up version of a draft military pact that could eventually see the US presence forced to make their exit much sooner.

With time fast running out to seal the deal, the Iraqi Cabinet today gave Nouri al-Maliki, the Prime Minister, approval to submit a series of proposed amendments to the US side for further negotiation.

The changes would eliminate any possibility of the US military staying in the country for more than another three years, according to the source. A previous draft linked the pullout with security conditions on the ground, raising the possibility of the US troop presence being extended.

“The maximum duration is three years. It cannot be extended beyond the three years but it can be reduced,” an Iraqi source close to the matter said, explaining that under the suggested amendments either Baghdad or Washington would be able to accelerate the US withdrawal rate provided a 12-month notice period is given.

Iraq has also changed the Arabic title of the document to make it more appealing for an Iraqi audience, many of whom oppose the US presence in their country.

It will now be known as the “agreement around the temporary presence of US forces in Iraq, its activities and its withdrawal timeline”, the source said.

Further alterations have been made to clarify the immunity status of US soldiers on operation if they commit a crime punishable by Iraqi law. In addition, tighter restrictions would be placed on non-US military and civilian personnel entering and exiting Iraq on US military flights.

Mr Maliki informed a Cabinet meeting today that he had spoken to President Bush by telephone the previous day to let him know that Baghdad wanted to suggest changes to the status of forces agreement.

“He said Bush was welcoming and said: 'Okay we are ready to look into what you propose’,” the source said.

Iraq and the United States must sign the accord before the end of the year, when a United Nations Security Council mandate, authorising the presence of foreign forces in Iraq, is due to expire.

Failure to do so would force Iraq to resort to what it calls “plan B”, asking the Security Council for an emergency extension of the mandate to buy more time.

Officials are already thinking about whether to begin preparing the ground to be ready in case this becomes the only option. Both sides say publicly that the UN route is not desirable, but there is speculation that some Iraqi politicians would prefer to cut the deal with the new US administration than the outgoing one.

The source said the proposed amendments to the pact were “not fundamental”. They largely comprised “grammatical changes in the way it is presented and fine tuning some of the sentences to be far more precise and black and white than they are currently worded,” the source said. “For example, the word ‘should’ we have changed to ‘must’.”

Washington, however, remains wary of making any alterations to a text drawn up after months of tough negotiations and compromises.

Gordon Johndroe, a White House spokesman, said today: “We have not received any changes from the Iraqis. We think this is a good agreement, therefore the bar will be high.”

The United States is applying pressure on Iraq to push the pact through its Parliament, spelling out the repercussions of failing to reach an accord.

Last week, officials presented a list of activities to the Iraqi side that would become impossible for the US military to perform from January 1.

The US ambassador to Iraq also told a US newspaper that the lack of a legal basis would mean "we do nothing - no security training, no logistical support, no border protection, no training, equipping, manning checkpoints, no nothing".

Britain, which has just over 4,000 troops largely stationed in southern Iraq, would also be caught out by a failure to reach a deal. London hopes to base its status of forces agreement with Baghdad on the US-Iraq version.

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