Across the Great Divide

Will Chinese Banks Repeat Our Sins?

In a subscribers-only story, the Wall Street Journal describes a troubling lender practice that Chinese banking regulators are starting to examine more closely.

The banks temporarily sell their loans to Chinese trust companies with a promise to repurchase the loans within a few years. This gives the banks more money to lend, while moving the loans off their balance sheets, making their loan exposure appear less than it is. The trusts repackage the loans into financial instruments for their clients.

If this sounds similar to the mortgage securitization practices in the U.S. that helped pump more money into risky loans, that's because it is similar, although the motivation also appears to be a way to reduce the banks' loan balances at a time when China's regulators are pushing banks to increase reserves to protect against bad loans, the article says.

Instead of being good, the banks are just trying to look good. That usually turns into a mess, whether you are Enron, Bernie Madoff or Tiger Woods.

As I wrote in this piece about the empty villas in one Chinese city, there may be good reason for regulators to be concerned about banks getting overexposed to bad loans.

One reason Chinese banks weren't so badly hurt in financial crisis — those nasty commie regulators wouldn't let them play the games the big boys in the west were playing.

[h/t Fran in Spokane]

Empty Villas in a Empty Spaces for an Empty City.

Will China have its own real estate bubble? And what would that mean for the world economy?

Here's a very interesting news report from Al Jazeera (via TC Streets for People) that chronicles the building boom in China, which includes a $585 billion government stimulus package critics say is designed to inflate the country's GDP growth.

Ordos, Mongolia, an empty new city in "China's Texas," is the focus of the story. The government has built the city from scratch — 30 km away from the current Ordos — but so far, the city is largely vacant except for construction workers.

Gleaming new houses and apartments have absentee owners, and what economy there exists is based building and real estate speculation by China's new rich. As one commenter puts it, no one in China has ever lost money in real estate, and so that's where much of the nation's cash is going. 

While Ordos is neither Brasillia nor Dubai, it has some features of both, with central planning and capitalist ostentation in harness, pulling it into the future. 

The Ordos 100 Villas project is an example. Architects from around the world have been invited to design villas for the new city. As in this example, the designs are showy and magnificently isolated from any context or real Chinese city life.

During my trip to China several years ago, I saw new cities designed to replace those drowned by the Seven Gorges dam, as well as new city centers built next to the old and polluted cities. The contrasts were striking, as if the places had simply skipped centuries.

But the streets were not empty, and the sky was not the pristine blue of the architects' and speculators' dreams.

 

The Russians Love Their Lynyrd Skynyrd, too.

I suppose there is life after Afghanistan. The Soviet Union's nine-year stay ended just over 20 years ago.

The war cost the Soviets about 15,000 lives, and messed up the country's relations with China, the Muslim world and the West, including a trade embargo and boycott of the 1980 Olympic Games in Moscow.

They left proclaiming their "internationalist duty" finished and washed their hands of further responsibility for advancing national accord or creation of a broadly based coalition government.

From the looks of the Red Army Chorus singers backing up the Finnish band Leningrad Cowboys, some of them were around in the old days. No question where they'd rather be.

Via WINston smITH (h/t Norwegianity)

What's the Real Cost of All Infrastructure and No People?

Via Streetsblog, a Milwaukee business writer compares his home in Milwaukee with the condo he and his wife own in Spain and finds "all infrastructure — and no people":

What's the cost for living our American way? It's not just the thousands of dollars for the second car, insurance and gas. We also have to support a lake of concrete around us - and gas, electric and sewer lines to stretch out past the near-vacant belts beyond the older suburbs. Property taxes in Almería on our condo are one-twelfth our taxes in Milwaukee, even though the value of the two homes is roughly the same.

One-twelfth. Oh, and they throw in free health insurance.

Kind of flawed tax analysis for a business writer. Spain's national and provincial income tax rates range up to 43% combined, plus a 16% value added tax. But the other differences affecting quality of life are still telling.

Revenge Conservatives and de Facto Americans.

Over the weekend, I spoke with a former diplomat and World Bank type who had lived in Toronto for 20 years. He was lamenting how American ignorance of other cultures and countries made us so susceptible to anecdote-based lies — in this case, about the Canadian national health care system.

I didn't take notes on that conversation, but this post (h/t Hal Davis) from a Canadian centrist built very nicely on the theme (emphasis mine).

It pains me to see my American cousins being denied affordable and effective health care. It pains me even more the reasons it is being denied is a series of grand deceits.

Many conservatives proudly introduce themselves as "fiscal conservatives" as if to imply they have a monopoly on money matters. If they are politically inclined their "expertise" extends to public expenditures. It is mainly conservatives who are telling Americans they cannot afford universal single payer Medicare when the reverse is true America cannot afford to not implement such a program. Many governments learned long ago that the only cost effective way to deliver certain services, specifically Medicare, to the public was through universal programs where the cost was spread over the entire population; in other words a collectivity-or that dreaded word that strikes fear in to the heart of every American-socialism.

This writer has the benefit of our national Medicare plan, a group benefit plan through my employer, and government run universal car insurance. These services become affordable or much more affordable only because a very large number of people make it so by pooling resources. A so-called fiscal conservative who denies the cost benefits and efficiencies of this sort of collectivity denies an immutable truth and one that is ageless.

The idea the private sector provides goods and services more efficiently than government is only one of the big lies of our times- and another of the sins of the revenge conservatives has been to denigrate the role of government to facilitate their greed.

The Sweeper, the Boy and the Bike.

A different bicycle story, from China.

Health Care May Account for Small-Business Disparities Between U.S. and Other Rich Countries.

Credit Lee Egerstrom of MN2020 with finding this study by the Center for Economic and Policy Research that compares U.S. small business employment with that in 20 other rich nations.

By every measure of small business employment, the United States has among the world’s smallest small-business sectors (as a proportion of total national employment). The lower taxes, less stringent regulations, and freer labor markets in the United States, it appears, have not yielded greater small-business employment here than elsewhere.

That's right. Although it's an article of faith in both parties that small businesses fuel America's job creation and innovation, we're worse than an also-ran in the global economy.

The study looked at:

• self-employment (the U.S. has the second lowest share of self-employed workers at 7.2 percent)
• shares of small business employment in manufacturing (only Ireland (9.6 percent) and Luxembourg (8.5 percent) ranked lower than the U.S. (11.1 percent)
• high-tech fields — computer-related services and research and development —where we ranked second- and third-lowest, respectively (Luxembourg spanked us in both categories)
• and lower-tech services (“restaurants, bars, and canteens”; “real estate activities”; and “renting of machinery and equipment etc.”) where we ranked dead last.

One comforting myth is that businesses are started by entrepreneurs with a design for a better mousetrap or maverick employees who wrote a business plan to exploit an opportunity their employer refused to invest in. These start ups will overcome obstacles and grow into healthy, profitable enterprises that provide good jobs and make the world a better place.

The job statistics will tell you that Minnesota’s smallest businesses (with 1-19 employees) account for about one-quarter of all new jobs annually. Even when its job losses are counted, this segment provides a net gain of jobs about equal to the state’s overall private sector job growth.

A lot of these small business simply deliver basic services and provide individuals a way to make a living in an economy that increasingly relies on part time labor and independent contractors. For every long-time mom and pop store or entrepreneur with a dream to build a company, there are several spouses supplementing the household income, displaced executives “consulting” between jobs, and painters, programmers and truck drivers who don’t know who they’ll be working for or what they’ll be making next month.

These may represent "new jobs," but they are hardly an engine of economic growth. Nearly three quarters of "small businesses" in Minnesota do not have employees.

I believe the downsizing and outsourcing by larger corporations is responsible in large part for this “job growth.”

Nearly three quarters of small businesses in Minnesota do not have employees. Most of these business owners will tell you the biggest decision they face is whether to hire some help; most never will. The second biggest is whether to offer "benefits" — which means health care and a 401(k) plan.

By outsourcing more work to small businesses, corporations can effectively buy the services without incurring the obligation to provide benefits. We've seen this gambit occur also in the retail sector, where employers use part-time work as a way of avoiding providing health care and other employee benefits.

The CERP study puts this practice in global perspective. In countries where there's national health care, a real barrier to entrepreneurial growth is removed. People are more likely to start businesses — and hire employees — knowing that health care will not be a cost that constrains their growth.

When I started my business I made an early decision to provide employee benefits that were competitive with what big companies offered — because those were our clients, and we wanted to attract talent that was comparable to what a major corporation would hire. That was the right strategic decision for my business at that time, but I know many start ups and sole proprietors who see health care as a major cost that they can't risk funding.

As Lee Egerstrom says:

Without a universal health care system that moves insurance costs off the backs of doing business, we will continue to thwart entrepreneurial development and we will continue to encourage large manufacturers and service providers to keep out-sourcing and off-shoring work and jobs.

Unless, of course, companies in those more enlightened countries simply take the business away from us.

Water: Simple Solutions to a Basic Problem.

When we built our house in Colorado, we decided putting a cistern under the driveway to cache rainwater was going to cost too much. But it also would have made us lawbreakers.

Harvesting the rainwater that falls on your property is now legal on Colorado.

A study in 2007 proved crucial to convincing Colorado lawmakers that rain catching would not rob water owners of their rights. It found that in an average year, 97 percent of the precipitation that fell in Douglas County, near Denver, never got anywhere near a stream. The water evaporated or was used by plants.

As growth continues in the arid west, water rights will provoke a bigger fight than gay rights.

*****
Elsewhere in the world, access to water may produce greater conflicts than over access to oil. And clean water in third world countries may do more to extend lifespans than vaccinations.

Hal Davis sent me a link to this video awhile back. It shows the winner of the 2008 Innovate or Die design contest sponsored by Google and Specialized bikes.

The Aquaduct, like a Detroit concept car, is slick and visionary and so far out of sync with the realities of the market — in this case ensuring clean water in developing countries. They designers say they are "working to evolve the concept into a viable solution," but the hurdles of cost and maintenance seem pretty high.

Segway inventor Dean Kamen has another device he showed on The Colbert Report that uses vapor compression distillation but requires much less power than conventional technology. His solution to the cost problem is micro-capital loans to entrepreneurs who sell water and power in poor communities.

Contrast the Aquaduct solution for transportation with this simple one — and the purification solution with this very low-tech one.

Personally, I can see the entry from Mayapedal working better with the bikes and conditions I've seen.

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And one last related bike link. It looks to me like George is going all right with his current can-hauler.

Could the Nanny State Actually Make Us Safer on the Roads?

The World Health Organization has published a study that found traffic accidents were the 10th-leading cause of death in the world in 2004 — and were growing at a rate that would place road deaths 5th by 2030.

But that's not even the surprising part. 

Pedestrians, bicyclists and motorcycle riders accounted for 46 percent of all worldwide traffic deaths. Most of these deaths occur in low- and moderate-income countries, where automobile registrations are much lower than in developed countries, but the rate of deaths as a percent of the population is higher. Low-income countries, including most of sub-Saharan Africa and Southeast Asia, have only 9 percent of the world's cars but almost 42 percent of the traffic deaths. 

In the U.S. [Download PDF], 24 percent of deaths involve vulnerable road users — 2 percent of fatalities involve cyclists; pedestrians and riders of 2- and 3-wheel motorized vehicles account for 11 percent each. In Thailand [Download PDF], the figure is 81 percent — cyclist fatalities are 3 percent, but the 2- and 3-wheel motorized vehicles account for 70 percent of road deaths. That's about equal with the proportion of registered motor vehicles of that type (63 percent).

In the U.S., 32 percent of road traffic deaths involve alcohol; in Thailand, only 4 percent.

I haven't studied the data enough to have any brilliant insights here. But it looks like one factor in the differences between high-income and low-income countries could be the "nanny state" — which provides has stringent safety and licensing laws, greater enforcement, safer public transportation, better infrastructure and quality emergency care.

Chambers of Communist.

In explaining China's rise and America's decline, historians may well note that capitalism -- American capitalism, anyway -- far from spreading democracy, actually has played a key role in transforming China into an authoritarian superpower. The transfer of manufacturing from the United States to China -- driven by the rise of mega-retailers such as Wal-Mart that have been able to enforce a regime of low wages all along their global supply chains -- has diminished our middle class and expanded theirs. American companies such as Wal-Mart have not been deterred in the slightest by China's authoritarian practices; indeed, before China enacted a law that infinitesimally increased workers' rights last year, the American chambers of commerce in China joined with communist hard-liners in opposing the statute.
— Harold Meyerson, Washington Post

Add another riff to yesterday's on China, democracy and capitalism on the 20th anniversary of the Tiananmen Square uprising.

Meyerson invokes Marx's "the idiocy of rural life"

by which he meant its isolation and its lack of social differentiation, but 20 years ago, it was that very "idiocy" on which the Chinese Communist Party depended to maintain its hold on power.

The urban/rural divide in China is centuries wide. Here, it's wide enough.

[h/t Norwegianity]