Dec 19, 2019

Axios Capital

By Felix Salmon
Felix Salmon

Situational awareness: This time last year, I noted that Netflix was paying its content chief Ted Sarandos a base salary of $18 million. I asked if anybody had ever been paid a higher base salary, and all I really got was sports stars. But here comes Denise Coates to utterly obliterate that record.

  • Coates, the CEO of British online sports betting company Bet365, made £323 million ($422 million) last year, of which £277 million ($362 million) was base salary. Beat that!

In this week's newsletter: Can a technocrat ever again be heroic? What exactly does the Mormon church intend to do with its $100 billion? And where are the most credit-constrained areas of the United States?

  • Find out in the next 1,432 words, which should take you about 5 minutes to read.
  • Have a very happy holiday. I’ll be back on Jan. 2.
1 big thing: The last of the heroic technocrats

Felix Rohatyn (l) and Paul Volcker. Illustration: Aïda Amer/Axios. Photos: Wally McNamee/Getty Contributor and Ted Thai/Getty Contributor

Two giants of the postwar economic landscape died last week. The actions of Paul Volcker (1927–2019) and Felix Rohatyn (1928–2019) had profound effects on millions of Americans, and bestowed stellar reputations on both men.

Why it matters: There are, and will be, many other successful and powerful technocrats, many of them just as capable as these two paragons of austerity. But none of them are likely to receive the kind of popular acclaim that Volcker and Rohatyn enjoyed.

The big picture: In good times, economic institutions tend run themselves reasonably effectively. But in times of crisis, the leadership of key individuals often becomes paramount.

  • Volcker became Fed chair in 1979, when inflation was close to 15%. By hiking the Fed funds rate to a peak of 20% in 1981, he sparked the 1980–82 recession, drove unemployment to over 10%, and cost President Jimmy Carter his job. But he also killed inflation, bringing it down to 3% by 1983.
  • "Felix the Fixer" spent most of his career as an M&A banker, but is remembered chiefly for rescuing New York City from the brink of bankruptcy in the 1970s. He refinanced the city's debt, slashed its budget, raised prices in the subway and the city university system, and exercised astonishing fiscal control for almost 20 years as the unelected head of the Municipal Assistance Corporation.

Neither man was broadly popular at the time, but history treated them both very kindly.

  • Volcker and Rohatyn were in large part responsible for the neoliberal consensus that painful measures are often necessary in the short term, in order to build the foundations for long-term prosperity.

Subsequent technocrats were just as important, but didn't receive the same kind of broad public acclaim.

  • Ngozi Okonjo-Iweala did a magnificent job in almost singlehandedly restructuring Nigeria's massive debt burden in 2005, after moving to the country from a long career at the World Bank.
  • The New York Fed's Terrence Checki and Lee Buchheit, a senior partner at Cleary Gottlieb, were also instrumental in helping multiple countries get out from unsustainable debt burdens.
  • Natalie Jaresko, who's managing Puerto Rico's bankruptcy process, is currently performing a role there that's very similar to the one Rohatyn played in New York.

Flashback: Alan Greenspan, Robert Rubin, and Lawrence Summers famously appeared on the cover of Time in 1999 as "the committee to save the world." That cover has not aged well.

  • All three men are now viewed as having mostly benefited the financial services industry, while laying the deregulatory groundwork for the 2008 financial crisis.

The bottom line: Volcker and Rohatyn lived in an era of smoke-filled rooms, and cultivated a certain degree of mystery and opacity. Today's civil servants spend much more time in the public spotlight, being second-guessed every minute on Twitter and on cable news. That makes it much harder for leaders to accumulate the broad respect that's a crucial component of effective leadership.

2. Communities without credit
Expand chart
Data: New York Fed; Map: Danielle Alberti/Axios

This is a map of credit inequality. The dark areas show counties where a large proportion of the population has no access to credit, while the lighter areas are considered "credit-assured" or "credit-likely."

  • The source is an ambitious new report from the New York Fed, which is designed to measure access to credit not at the individual level but rather at that of the community as a whole.

Why it matters: Communities with good access to credit can grow faster and prove more resilient to shocks than their less creditworthy counterparts.

The report creates a credit insecurity index, which is a proxy for the percentage of the population with no access to credit.

  • "Credit-assured" communities have an index of less than 19%, while "credit-at-risk" communities fall between 29% and 35%. Anything above 36% is considered "credit-insecure."
  • For guidance: San Francisco gets a score of 19.4%, Manhattan is 23.2%, and Washington, D.C., is 30.8%.

Race plays an enormous factor in this map.

  • 58% of the population in the credit-insecure counties is non-white, compared with 27% of the population in the credit-assured counties.
  • One of the best scores in the country, 11.5%, is boasted by Fall River County in South Dakota, which is 89% white. Neighboring Oglala Lakota County, by contrast, has a truly gruesome score of 66.1%; it is 94% Native American.
  • The highest score of all is found at the tip of the Alaskan panhandle, in the Aleutians West census area. That population, which is served by just one bank branch, has a credit insecurity score of 74.4%.

Go deeper: Axios' Danielle Alberti has put together an interactive map, where you can mouse over individual counties to see their scores.

3. What the Mormon church has in common with Larry Page

Illustration: Eniola Odetunde/Axios

One place sunlight doesn't shine is a company named Ensign Peak Advisors in Salt Lake City, Utah.

  • According to a whistleblower complaint first reported by the Washington Post, Ensign manages an astonishing $100 billion in assets while paying no taxes.
  • Ensign achieves its tax-exempt status by dint of being an "integrated auxiliary" of the Mormon church. It allegedly receives approximately $1 billion per year from church members' tithes, while disbursing nothing to charitable causes. Between new contributions and investment returns, it has managed to grow to its current gargantuan size.
  • If the complaint is true, Ensign is bigger than the Harvard endowment and the Bill and Melinda Gates Foundation combined.

What they're saying: "The Church chooses not to publish the details of its finances," it has said. A non-denial statement in response to the latest news coverage characterizes Ensign as being "a prudent reserve for the future" that exists "for no other reason than to support the Church’s divinely appointed mission."

  • The complaint quotes Ensign’s president, Roger Clarke, as saying that the money would be used in the event of the second coming of Christ. It is unclear what exactly the church would or could do with its assets in such a situation.

Be smart: The IRS requires all tax-exempt organizations to act charitably in a way that is “commensurate in scope with its financial resources,” but religious institutions have generally been allowed broad latitude to run their finances as they see fit. It's not clear that even the IRS, however, was aware of the size of the Ensign portfolio.

What to watch: Ensign would seem to have given even less money to charity than Google co-founder Larry Page's $3 billion Carl Victor Page Memorial Foundation. (Page, who is worth about $65 billion, named his charitable foundation after his late father.)

  • According to Recode, Page's foundation has given a total of $570 million to donor-advised funds, and just $21 million to nonprofits.
  • While it's possible that the DAFs have in turn given some of that $570 million to charitable causes, they have no obligation to do so.

My thought bubble: The transactions look very much as though they were entered into just to allow the foundation to retain its nonprofit status.

The bottom line: Money naturally flows into tax-exempt vehicles. Without a government agency keeping a close eye on those vehicles to ensure no shenanigans, it's almost certain that the IRS is missing out on taxes from hundreds of billions of dollars of assets.

Go deeper: Erik D'Amato writes about the backlash against so-called philantocracyrule by unaccountable nonprofits — for Inside Philanthropy.

4. Coming up: More overtime pay

Illustration: Eniola Odetunde/Axios

More workers will be eligible for overtime pay when a federal law kicks in on Jan. 1.

Why it matters: The law will give a raise to some 1.3 million employees when they work more than 40 hours a week. That's short of the 4 million who would have gotten overtime pay had a more aggressive Obama-era law gone into effect.

What's new: Employees who make less than $684 per week (or $35,568 per year) are now mandated to get paid for overtime, with the exception of managers and professionals like lawyers or accountants. That maximum is up from $455 per week (or $23,660 per year), which was the threshold set in 2004.

  • Workers in states like California and New York won't be affected since laws there mandate overtime for workers who make even more than the new federal maximum.
5. Building of the week: Palazzo della Civiltà, Rome
Photo: Stefano Montesi/Corbis via Getty Images

The Palazzo della Civiltà, also known as the Square Colosseum, is an icon of fascist architecture. It now serves as the corporate headquarters of Fendi.

  • Designed by the architects Giovanni Guerrini, Ernesto Bruno La Padula and Mario Romano and inaugurated in 1940, the palazzo was intended to be the centerpiece of a major World's Fair in 1942. While the cladding is travertine, the building is actually made of reinforced concrete.
  • 216 arches dominate the 165-foot-tall building, which sat empty until it was taken over by Fendi in 2017.
  • Arthouse filmmakers like Peter Greenaway and Julie Taymor have found the building irresistible, featuring it in movies like "The Belly of an Architect" and "Titus," respectively.
Felix Salmon