The China case for its own system over others neglects to acknowledge the fact that its economy is in crisis like almost every other.
One of the programs China wants to peddle to the rest of the world is the notion of a “bad bank”. According to the FT, the head of the countries largest financial repository for troubled assets taken from otherwise healthy financial firms said “Bad assets in a bank are just like a rotten spot in an apple – you must cut it out if you want to eat the apple and if you don’t get rid of it the rotten part will spoil the rest.”
What is left unsaid is that rescuing institutions by nationalizing all or part of them may work well in a country with a central government which can dictate financial and industrial policy. China’s government spends its money as it likes. Tax-payer interests are not given the slightest consideration.
The trouble with the “bad bank” in the West is that it represents two things which a free market economy loathes. The first is that putting tax-payers at risk for anything of substance beyond national defence and social programs meant to help the needy is out of character with the system. The second is that nationalizing industry of any sort undermines the normal balances that allow companies to go through normal economic cycles.
Otherwise, the Chinese program is a brilliant solution.
Douglas A. McIntyre
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