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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. ■MAKING MONEY WORK
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- 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.