The Business Book

(Joyce) #1


bank kept these commercial banks
alive. The taxpayer took on the
risks that are supposed to be taken
by the private sector. Many
analysts suggest that the same is
true in China at present, although
the opacity of the Chinese banking
system makes this hard to verify.

Who bears the risk?
Roubini’s statement that losses
are “socialized” (borne by the public)
while profits remain in the private
sector appears to be true. Income
inequality has widened considerably
around the world in recent decades,
in countries including the US,
UK, China, and India. For instance,
between 1979 and 2007 in the US,
the income of the top 1 percent of
earners rose by 266 percent, while
that of the bottom 20 percent rose

by only 37 percent. Government
bailouts for big business effectively
mean that taxpayers are providing
support for those who benefit most
from today’s economic system. In
the long run, businesses may enjoy
substantial profits, and accept the
rewards as recompense for the risks
they take. But if the risks (and losses)
are borne by the taxpayer, it is fair
to question why only shareholders
gain the profits in the good times.
Often, employees and suppliers
bear higher levels of risk than
seems fair—shareholders, who
enjoy the rewards of success, should
bear the primary risk of failure.
Even trade-union protection for
workers has been eroded in recent
decades—in the US and many
countries around the world, unions
account for no more than 10 percent
of private-sector employees, which
leaves workers unprotected when
things go wrong. Although labor
flexibility has its merits, imbalance
between “my risk” and “your
reward” has perhaps gone too far. ■


Richard Fuld

Richard “Dick” Fuld was born
in 1946 in New York City, NY.
He graduated from the
University of Colorado in 1969,
and received an MBA from the
Stern School of Business in

  1. He was CEO of Lehman
    Brothers investment bank
    from 1994 to the day of its
    collapse in 2008, and during
    that time, he received more
    than $500 million. Known as
    the “Gorilla of Wall Street,”
    Fuld was the domineering
    boss who pushed the company
    into the subprime mortgage
    business. For many critics, the
    decision that illustrated his
    hubris was his refusal of
    bailout funds from investor
    Warren Buffett and the Korea
    Development Bank, even
    though Lehman Brothers was
    in the throes of being toppled
    by the 2008 credit crunch. His
    reasoning was that the offers
    of cash did not match his own
    valuation of Lehman Brothers.
    Following the company’s
    bankruptcy in September
    2008, Time Magazine named
    Fuld as one of the “25 People
    to Blame for the Financial
    Crisis,” and Condé Nast
    Portfolio magazine ranked him
    number one on its list of “Worst
    American CEOs of All Time.”

Greek citizens protest in Athens
against austerity measures in 2011.
Rescue loans from the European Union
to Greek banks mean that the country
faces years of economic hardship.

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