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Editorial: Humankind put to test in face of money manager capitalism's risks

This September will mark 10 years since the collapse of major U.S. financial services firm Lehman Brothers, the impact of which was felt across the world, with tens of millions of people losing their jobs and their homes.

    Dick Fuld, now 71, served as CEO of Lehman Brothers for 14 years leading up to the company's fall. It has been reported that his yearly salary had been worth around 4 billion yen prior to the collapse of the financial services giant.

    So what happened to him after Lehman Brothers went bankrupt?

    Not only did Fuld avoid being prosecuted, he is now the head of a financial services firm for the wealthy that is in the process of expanding its businesses. Even after the worldwide economic crisis spawned by Lehman Brothers, Fuld does not hesitate to call himself a diehard capitalist.

    It is not easy for laborers who lost their jobs due to the crisis to return to the financial status they held prior to the crisis. Some never return. And yet, financial industry bigwigs like Fuld who are responsible for the crisis have bounced back. Why?

    Fuld has said that there are "clear opportunities in a flawed and highly fragmented financial services market." A small percentage of the population who can secure large sums of capital for investment are able to gain enormous wealth by taking advantage of the imperfections of the market.

    The late American economist Hyman Minsky called the type of capitalism controlled by professional money managers "money manager capitalism." In the 1980s onward, this form of capitalism in which money managers began employing cutting-edge technology and information for short-term speculation all over the world became increasingly common. Ultimately, what ends up happening, however, is the formation of an economic bubble and the harsh realities that emerge when its bursts.

    When that happens, however, central banks and governments step in. Markets are flooded with money, and financial services giants are saved using public funds. Public spending is increased as an economic measure. The markets eventually recover, and investments go into full gear once again.

    Complex financial derivative products have become monstrously huge under money manager capitalism.

    On the one hand, as populations in industrialized nations continue to age, there has been an increase in pension funds that must be managed. But on the other hand, as economies mature, we can no longer count on high investment yields through traditional means. This has led to the pumping of funds into derivatives, which entail high risks but also offer the possibility of high returns.

    While investments in derivatives have decreased compared to their heyday, the global derivatives market is said to exceed $500 trillion even today. According to some calculations, the amount is said to be around $1.2 quadrillion. Even at $500 trillion, the amount would be about seven times the total GDP of all the countries in the world.

    As the global economy repeats its cycle of bubbles and their collapse, wealth increasingly concentrates among the wealthy, and the middle class, who suffer the brunt of the crises that result, find themselves in more and more straitened circumstances.

    Let's look at the example of the U.S., the home turf of money manager capitalism. In 1980, the top 1 percent of income earners grabbed about 11 percent of income nationwide. The bottom 50 percent of the population took in over 20 percent of the domestic income.

    In 2016, however, the top 1 percent grabbed more than 20 percent of the country's income. Meanwhile, the share earned by the bottom 50 percent had decreased to about 13 percent, according to the World Inequality Report and other sources.

    States, or governments, which should be working to reduce the gap between the rich and the poor, no longer have the reserves to do so, having had to employ multiple fiscal crisis countermeasures. This is especially true of Japan. We could probably say that Japan's fiscal state is frailer than it was before the Lehman Brothers crisis.

    And as if to go against the direction in which they should be heading, the governments of major industrialized countries are inclined toward tax systems that reward major corporations and the rich. Regulations that were put into place to prevent the recurrence of a crisis like the Lehman Brothers collapse have been gutted by the administration of U.S. President Donald Trump.

    There is no doubt that capitalism has its strong points, such as making possible new ideas that are indispensible for humankind's progress. What we must now figure out is how to put the brakes on the out-of-control cycle of money managing, and curb the mechanism that widens the gap between the haves and have-nots, which is inherent in money manager capitalism.

    It will not be an easy task. However, a non-interference policy will likely only lead to a crisis from which the world may never recover. We have no choice but to bring together the wisdom of humankind and overcome this challenge through global cooperation.

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