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China is absolutely doing the right thing in cracking the power of the private banking system. Having a powerful private banking system is the recipe for disast

China is absolutely doing the right thing in cracking the power of the private banking system. Having a powerful private banking system is the recipe for disaster, since the predatory (rentier) nature of banking suffocates the development of industry and even the long term survival of a consumer base. It is funny that this was very well understood by economists an politicians as far back as the 19th century but it has been largely ignored throughout the 20th and 21st century. Now we see the US and the EU largely controlled by banking interests, with very little if any taxes applied to financial gains and little support for industrial development. It is not a surprise that practically the entire industrial complex has moved to China, with the exception of highly subsidized industries such as weapons production.

Buge 9y ago
I was under the impression that the move of industry to China was due to cheap labor, not due to different banking regulations. Is it possible to get a loan in the US and use it to build a factory in China? How about vice versa? Because if so, then I don't see how banking regulations would change where a factory would be built.
- coliveira 9y ago
  With few exceptions, you cannot get a loan in the US to do anything productive. Most of the loans given to business nowadays are to buy back stocks, private equity (M&A), or to speculate on real estate.
  - landryraccoon 9y ago
    I’m sorry do you have a citation? I was able to get a line of credit and an installment loan from a bank for my small business. We didn’t do stocks, private equity or real estate.
  - seanmcdirmid 9y ago
    So that’s two more things than you can get a loan for from a Chinese bank if you aren’t an SOE (they only support real estate speculation).
  - pas 9y ago
    Yes and no. The US banking system uses a pretty complicated maze to spread risks. Banks help you organize a bond sale/auction, then "investors" buy your bonds (usually it goes for lower than nominal price .. but sometimes not http://www.livemint.com/Money/sM11Y0RuGHmvUiGFVgNecL/Corporate-bonds-attract-bids-worth-115-billion-from-FPIs.html http://www.livemint.com/Money/sM11Y0RuGHmvUiGFVgNecL/Corpora... ), and then other banks and institutions buy your bond (invest in it).
  - will4274 9y ago
    This is FUD. Billions of dollars are loaned to businesses (for purposes besides those you list) every year. See for example the SBA annual report (available online for free on sba.gov).
    - coliveira 9y ago
      SBA loans are guaranteed by the government. They are zero risk loans for bankers, in other words, it is just another way to subsidize the banking industry.
retube 9y ago
sorry your post is juvenile garbage. banks do not suppress industry or consumers, they finance it. The reason manufacturing has moved to China is simply because it's cheaper to make stuff there.
- pas 9y ago
  [oh, before edit the parent post asked what is "rentier"] It means that the profit on/from that specific form of economic activity is due to market inefficiencies, not due to the actual added value. So, if more money chases the same stock of housing, rents and housing prices go up, yet no value was added to the houses. Similarly, if opening a bank is impossibly hard, banks can be assholes, they can raise monthly fees and so on.
- paganel 9y ago
  > sorry your post is juvenile garbage. banks do not suppress industry or consumers, they finance it. It's a complicated problem. Sometimes they do their job with so much passion that "industry and consumers" seem to depend on them, i.e. on the banks, instead of vice-versa. See the 2007-2008 crisis and the cries of "the world will die if we let the banks fail".
pas 9y ago
This is pretty fine high level grade bullshit. (Or Poe's law strikes again!) The not-too-representationally selected/elected leaders of China want to keep the power of pegging their currency, which is very essential in a centrally planned economy, at the cost of personal freedoms. (And the yearly 50 000 USD limit is more than enough for poor people to send all of their savings away to a fraudster though, so it's not absolutely the right thing.) A powerful private banking system is very different from a shadow bank that uses identity theft/fraud to store and gambling to exchange currencies. A healthy banking system helps allocate credit (which is risk), but since the barriers to entry to the finance sector is high (cost of regulatory compliance, IT security risks), margins are low (products are fungible, a mortgage is a mortgage, a savings/checking account is a savings/checking account, it doesn't matter which bank you chose, so you'll use the cheapest) and network effects are also high, we don't really see a healthy banking sector. (Thus risks are largely concentrated in too big to fail banks, and that's why the new big bank requirements include systemic exposure stress test regulations: https://en.wikipedia.org/wiki/Basel_III https://en.wikipedia.org/wiki/Basel_III - of course, it's easy to argue that this just moves bubbles somewhere else.) As to the other claims ("Now we see the US and the EU largely controlled by banking interests" - no, we don't, we see populism/nationalism/chauvinism, we see good old regulatory capture [the FCC Chairman is an ex-Verizon lawyer currently playing dumb for a lot of money, or just out of spite, the EPA lead is a proud climate change denier, the current UK leaders are typical isolationists, and so on], "very little if any taxes applied to financial gains" - cca average of 15% is not very little https://en.wikipedia.org/wiki/Capital_gains_tax https://en.wikipedia.org/wiki/Capital_gains_tax and "the entire industrial complex has moved to China" - no, only the labor and raw materials intensive things [which is of course an enormous slice of the pie], but nowadays the problem is with lack of effective retraining in the advanced economies.)
- coliveira 9y ago
  This is just a bunch of BS to try to explain away the fact that the US economy is geared towards advancing the interests of banks and other financial institutions. It is amazing that you think that a 15% tax rate is a lot when even under the proposed tax breaks all other comercial activities will pay more than that in taxes. As a result, the US in fact subsidizes an activity which is not the primary producer of ANYTHING other than interests and fees, that is, a drag in the economy. Later you claim that is just fine to support big banks because said banks exist to "spread risks". But of course the biggest risk for a country is in the existence of banks that are too big to fail, since they need to be saved by the government. Therefore, banks in fact perform ZERO risk reduction. They CLAIM to take risks away from the system, but when a crisis occur the whole tab of bad betts will be paid by the citizens of a particular country, not by bankers. As for control of the US and EU, just look at who is responsible for economic policy in these places and tell me if they're not from the same half dozen banks that are already deemed to be too big to fail! What a coincidence...
rz2k 9y ago
I think you have misunderstood the overwhelming consensus of economists on the nature of finance and banking. A excellent work to better understand the history of economic thought from before Adam Smith through to mid-twentieth century is Mark Blaug's Economic Theory in Retrospect.[1] Discussions about systemic risk, for example, have not lead to normative conclusions about nationalizing banking. An analogy might be that finance is like electricity. The very real risks of electrocution or fires don't discount its fundamental role in modern civilization. China is absolutely able to engage in megaprojects financed by the state and the PLA, however funding for the industrial centers on the Pearl River Delta which are so important to China's economic success is largely private. [1] https://www.alibris.com/Economic-theory-in-retrospect-Mark-Blaug/book/1888996 https://www.alibris.com/Economic-theory-in-retrospect-Mark-B...

Buge 9y ago

I was under the impression that the move of industry to China was due to cheap labor, not due to different banking regulations. Is it possible to get a loan in the US and use it to build a factory in China? How about vice versa? Because if so, then I don't see how banking regulations would change where a factory would be built.

coliveira 9y ago
With few exceptions, you cannot get a loan in the US to do anything productive. Most of the loans given to business nowadays are to buy back stocks, private equity (M&A), or to speculate on real estate.
- landryraccoon 9y ago
  I’m sorry do you have a citation? I was able to get a line of credit and an installment loan from a bank for my small business. We didn’t do stocks, private equity or real estate.
- seanmcdirmid 9y ago
  So that’s two more things than you can get a loan for from a Chinese bank if you aren’t an SOE (they only support real estate speculation).
- pas 9y ago
  Yes and no. The US banking system uses a pretty complicated maze to spread risks. Banks help you organize a bond sale/auction, then "investors" buy your bonds (usually it goes for lower than nominal price .. but sometimes not http://www.livemint.com/Money/sM11Y0RuGHmvUiGFVgNecL/Corporate-bonds-attract-bids-worth-115-billion-from-FPIs.html http://www.livemint.com/Money/sM11Y0RuGHmvUiGFVgNecL/Corpora... ), and then other banks and institutions buy your bond (invest in it).
- will4274 9y ago
  This is FUD. Billions of dollars are loaned to businesses (for purposes besides those you list) every year. See for example the SBA annual report (available online for free on sba.gov).
  - coliveira 9y ago
    SBA loans are guaranteed by the government. They are zero risk loans for bankers, in other words, it is just another way to subsidize the banking industry.

retube 9y ago

sorry your post is juvenile garbage. banks do not suppress industry or consumers, they finance it. The reason manufacturing has moved to China is simply because it's cheaper to make stuff there.

pas 9y ago
[oh, before edit the parent post asked what is "rentier"] It means that the profit on/from that specific form of economic activity is due to market inefficiencies, not due to the actual added value. So, if more money chases the same stock of housing, rents and housing prices go up, yet no value was added to the houses. Similarly, if opening a bank is impossibly hard, banks can be assholes, they can raise monthly fees and so on.
paganel 9y ago
> sorry your post is juvenile garbage. banks do not suppress industry or consumers, they finance it. It's a complicated problem. Sometimes they do their job with so much passion that "industry and consumers" seem to depend on them, i.e. on the banks, instead of vice-versa. See the 2007-2008 crisis and the cries of "the world will die if we let the banks fail".

pas 9y ago

This is pretty fine high level grade bullshit. (Or Poe's law strikes again!) The not-too-representationally selected/elected leaders of China want to keep the power of pegging their currency, which is very essential in a centrally planned economy, at the cost of personal freedoms. (And the yearly 50 000 USD limit is more than enough for poor people to send all of their savings away to a fraudster though, so it's not absolutely the right thing.) A powerful private banking system is very different from a shadow bank that uses identity theft/fraud to store and gambling to exchange currencies. A healthy banking system helps allocate credit (which is risk), but since the barriers to entry to the finance sector is high (cost of regulatory compliance, IT security risks), margins are low (products are fungible, a mortgage is a mortgage, a savings/checking account is a savings/checking account, it doesn't matter which bank you chose, so you'll use the cheapest) and network effects are also high, we don't really see a healthy banking sector. (Thus risks are largely concentrated in too big to fail banks, and that's why the new big bank requirements include systemic exposure stress test regulations: https://en.wikipedia.org/wiki/Basel_III https://en.wikipedia.org/wiki/Basel_III - of course, it's easy to argue that this just moves bubbles somewhere else.) As to the other claims ("Now we see the US and the EU largely controlled by banking interests" - no, we don't, we see populism/nationalism/chauvinism, we see good old regulatory capture [the FCC Chairman is an ex-Verizon lawyer currently playing dumb for a lot of money, or just out of spite, the EPA lead is a proud climate change denier, the current UK leaders are typical isolationists, and so on], "very little if any taxes applied to financial gains" - cca average of 15% is not very little https://en.wikipedia.org/wiki/Capital_gains_tax https://en.wikipedia.org/wiki/Capital_gains_tax and "the entire industrial complex has moved to China" - no, only the labor and raw materials intensive things [which is of course an enormous slice of the pie], but nowadays the problem is with lack of effective retraining in the advanced economies.)

coliveira 9y ago
This is just a bunch of BS to try to explain away the fact that the US economy is geared towards advancing the interests of banks and other financial institutions. It is amazing that you think that a 15% tax rate is a lot when even under the proposed tax breaks all other comercial activities will pay more than that in taxes. As a result, the US in fact subsidizes an activity which is not the primary producer of ANYTHING other than interests and fees, that is, a drag in the economy. Later you claim that is just fine to support big banks because said banks exist to "spread risks". But of course the biggest risk for a country is in the existence of banks that are too big to fail, since they need to be saved by the government. Therefore, banks in fact perform ZERO risk reduction. They CLAIM to take risks away from the system, but when a crisis occur the whole tab of bad betts will be paid by the citizens of a particular country, not by bankers. As for control of the US and EU, just look at who is responsible for economic policy in these places and tell me if they're not from the same half dozen banks that are already deemed to be too big to fail! What a coincidence...

rz2k 9y ago

I think you have misunderstood the overwhelming consensus of economists on the nature of finance and banking. A excellent work to better understand the history of economic thought from before Adam Smith through to mid-twentieth century is Mark Blaug's Economic Theory in Retrospect.[1] Discussions about systemic risk, for example, have not lead to normative conclusions about nationalizing banking. An analogy might be that finance is like electricity. The very real risks of electrocution or fires don't discount its fundamental role in modern civilization. China is absolutely able to engage in megaprojects financed by the state and the PLA, however funding for the industrial centers on the Pearl River Delta which are so important to China's economic success is largely private. [1] https://www.alibris.com/Economic-theory-in-retrospect-Mark-Blaug/book/1888996 https://www.alibris.com/Economic-theory-in-retrospect-Mark-B...