David Frum

05.03.12

Are the Rich Really Risk-Takers?

The most pungent response I've yet heard to the Conard thesis comes from a fellow member of the wealthy investor class, Nick Hanauer, the co-author with Eric Liu of Gardens of Democracy.

I spoke to him by phone earlier today. The following is not an exact quote—Hanauer was talking too urgently for me to capture every word, but here's the gist:

Risk-taking? These guys aren't risk-takers. Think of the founders of Google. They came from middle-class families and went to Stanford. Short of inheriting the crown of England, there's nobody in this life less exposed to risk than a Stanford Ph.D. in computer science. They had a business idea. They didn't put up their own money. They used other people's money—venture capital. And the venture capital company wasn't using its own money either. They were investing other people's money too—and taking fees of 2% on principal and 20% of profits for their trouble. You know the only people at risk in this deal? The teachers and university professors whose pension money would have been lost if the business had failed. Pension funds and insurance companies: they're the source of almost all our domestic investible funds. It's the middle-class and working-class people whose wages go into those funds who are at risk, not the rich—and especially not a chop shop like Bain, where they buy a company, lever it up, charge huge fees, and then sell the parts.