January 07, 2004
BAILING BUT SINKING:
China Announces New Bailout of Big Banks (KEITH BRADSHER, 1/07/04, NY Times)
China announced a complex transfer on Tuesday of $45 billion from its soaring foreign exchange reserves to two of the four big government-owned banks, the third large bailout in the banking system in less than six years.The transaction is intended to help shore up the financial institutions, the Bank of China and the China Construction Bank, so they can sell stock for the first time, the Chinese central bank said in a statement. The central bank admonished the commercial banks to do a better job of controlling fraud and limiting bad loans. [...]
The costs of the American savings and loan bailout more than a decade ago - $123.8 billion in public funds and $29.1 billion in supplemental deposit insurance premiums from financial institutions - drew considerable complaints from politicians and the public in the United States. China has been eager to prevent a similar controversy. Its latest bailout, while costly, covers less than half of the nonperforming loans at two of the four troubled banks, and in an economy that is one-eighth the size of America's.
Two things pointed up by this story: (1) China's internal troubles tend to be as massive as its population, though free trade/pro-business folk on the Right only ever consider the latter; (2) even if you weren't a fan of George H. W. Bush or of the S&L bailout, it remains a significant achievement that the administration managed to pull it off at the same time as the economy was adjusting to the end of Cold War militarization with hardly a blip in America's long economic boom. Posted by Orrin Judd at January 7, 2004 09:44 AM
As some of the deregulation fiascos here in the US recently demonstrated, few things work less well than being half-capitalist. China's economy seems to be making a transition into something like fascism; I really don't know what to make of it.
Posted by: Mike Earl at January 7, 2004 10:33 AMChina's "banks" have been in financial distress since 1998 (and probably sooner). The government has to bail them, float them, whatever you want to call it, because it is the only way to maintain the economy (i.e., maintain liquidity). Otherwise, most of China would still be bartering.
Posted by: jim hamlen at January 7, 2004 11:55 AMOJ
I also never felt that George H.W. Bush got the credit for such action, but the other side of the coin is that Reagan could have prevented it from getting as inevitable as it became if he had resolved many of those issues in his administration.
If people have forgotten about the S&L crises and who bit the bullet to fix it, for sure they would have also forgotten that right about the same time, they were also working to fix the Third World Debt crises which had led to the default of hundreds of billions in debts to US, European, and Japanese Money Center Banks. Through a lot of financial engineering, diplomacy, and relatively little tax-payer money, billions of dollars of debt were restructured (into Brady Bonds) which originally traded at 20 or 30% of par. Most of them trade close to par or have been called!
Posted by: MG at January 7, 2004 12:30 PMHardly a blip? Not from where I sat.
Posted by: Harry Eagar at January 7, 2004 02:27 PMHarry --
I did not know you had worked on GHWB's re-election campaign?
Posted by: MG at January 7, 2004 03:58 PMWhatever happened to Fernand St. Germain?
Posted by: jim hamlen at January 7, 2004 07:19 PMIsn't he advising Kerry?
Posted by: ratbert at January 7, 2004 08:46 PM