This is China! BLOG

Everybody Was Jive Talking

Paul Denlinger posted a an article on his blog this month about that gave me a perspective on the subprime mess I hadn’t thought of before.

“So, while Chinese factories have on occasion exported defective products, the US has exported defective financial products. And the US government participated because Treasury sold T-bills which were backed by these defective financial instruments.”

In other words, Denlinger makes the point, if the “quality fade” of Chinese suppliers ultimately resulted in the execution of a high-ranking government official - and the suicide of a company owner in China to boot - who is too be held criminally liable in the cases of financial “products” exported from the States:

“No one yet knows the size of the credit bubble, but I have heard numbers from $15 billion to $45 billion bandied about. Mind you, the US economy is a US$12 trillion a year economy, so we are basically talking about anywhere from 1 year to four years of economic output disappearing.”

Steve Clemons in The Washington Note in his aptly named article America Exported Poisoned Financial Productsmakes the analogy all too clearly. Paul Krugman’s article, to which Clemons refers, talks about a “shadow banking system” that was the source of the poisoned financial products. Interestingly, China has a great deal of experience with its own shadow banking systems, having shut down several of them in the last couple years and putting the shadow bankers beyond bars if not to death.

To paraphrase what one China official said about the issues facing the Chinese banking system, compared with the problems confronting the American sector: we’re just not sophisticated enough to make mistakes that big.

Maybe the BeeGees got it right after all.