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Flush China Calls US Out For Mishandling Their Economy

It's the ultimate economic version of the pot and the kettle and all that talk about being black. After having been on the receiving end of US scolding over their mishandled economy, the shoe has moved to the other foot. In recent weeks senior Chinese officials have been pointing the finger back at Americans for mismanaging their own economy. Among their criticisms is the “warped conception” of market regulation following the subprime mortgage debacle now eroding the world economy. At the latest World Trade Organization meeting, the Chinese envoy called upon the US to halt their dollar’s freefall depreciation before its complete failure further sends world oil and food prices upwards. To see who agrees, and how the Olympics fit in,

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A professor of economics at Columbia University agrees: “US credibility and the credibility of US financial markets is zero everywhere in the world. Anybody looking at this from the outside says ‘there’s been a lot of hot air coming out of the US, so why would we listen to these guys when they didn’t know how to manage risk?’" Adding to the Chinese anger is the fact that the US has failed to stop the plunging dollar — a problem as China keeps most of its 1.76 trillion reserve in dollars, which have been plummeting in value.

The impact of the Olympics has added a small bump to the Chinese — though the proportion of the economy tied to the Games is small — meaning a post-Games slump might not materialize, though Olympian improvements are all investments in China for the future.

Is the recently criticized country now strong enough to point fingers? Was China right to criticize the US on its handling of the economy?

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Jillness Jillness 8 years
Citizen...can you post my flagged post? Pwetty Pwease? ;)
Jillness Jillness 8 years
Arg, sorry about the bold! Here is one sentance I do want to stand out... "SIVs were created by major banks including Citigroup Inc. and HSBC Holdings Inc. to hold assets off their balance sheets. "
Jillness Jillness 8 years
LA Times: At the heart of the massive accounting scandal at Enron Corp. in 2001-02 was the energy company’s use of so-called special purpose entities—enterprises that were effectively controlled by Enron but weren’t consolidated on its balance sheet. The SPEs allowed the company’s executives to hide debt and losses and thereby distort the firm’s true earnings picture. Until it all blew up. SPE, meet SIV—the structured investment vehicle. SIVs were created by major banks including Citigroup Inc. and HSBC Holdings Inc. to hold assets off their balance sheets. The basic idea was to borrow with short-term funds to buy long-term assets, such as sub-prime mortgage-backed bonds. If all went well, the profit was the difference between the cost of short-term money and the returns earned on the long-term assets. What happened beginning in August, as the credit crunch deepened, was that lenders and investors began to balk at providing the short-term money that funded the SIVs. Bank shareholders had a rude awakening: It became clear that the banks managing the SIVs were on the hook to ride to the cash-strapped funds’ rescue—even though, technically, SIV assets weren’t the banks’ responsibility. With the SIVs, nobody is alleging the kind of blatant fraud that went on with Enron’s SPEs. But SIVs smack of the same kind of obfuscation of liability. Deception drains investor confidence, and confidence ultimately is the only thing that holds a banking system together. Why did the world’s financial geniuses need a refresher course on this point?
Jillness Jillness 8 years
Here is how one article described it: After we get the mortgage, the lender sells that mortgage, along with others, to a larger international, investment or commercial bank, or, to a hedge fund or private equity fund, who then takes these separate mortgages—and the expected payments on them coming from us—and combines them into a bundle, and then uses the promise of the future income stream (the monthly mortgage payments from us) as collateral to take out a large loan (from another institution) of their own to finance something like a corporate merger or the restructuring of a major business. I am aware of the amount of mortgages bundled together in one asset reaching as high as 4,000. I would not be surprised to learn of even greater amounts. This bundling process is known as securitization. In a December 10, 2007 article in CFO magazine entitled, “Saving Banks: How the Mortgage Bailout Strains Accounting Efforts” we read, “In a securitization, a bank or other mortgage lender sells the future proceeds of a mortgage loan to a trust, or special purpose entity (SPE). The trust then pools them with other loans and issues bonds backed by the loan payments.” This article makes clear that the current effort to contain damage from the subprime mortgage meltdown is stretching accounting safeguards that were put in place after the Enron scandal. The mortgage crisis became publicly visible through the financial media in 2007 when it was learned that major banks like Bear Stearns, Bank Of America, Citibank and Morgan Stanley owned a dangerously large amount of these SPEs, some of which are also known as Structured Investment Vehicles (SIVs), and that they could no longer find a market to sell them to others. The reason there were no additional buyers for the SIVs/SPEs was because those who had previously been interested in them—including many hedge funds and private equity firms—began to see that the mortgage payments that supported them were not being made on time or at all.
Jillness Jillness 8 years
I think that the higher ups at the companies weren't shocked because they knew that the risks they were taking weren't being reflected in their numbers. I think the people under them knew that it was probably too good to be true, but the numbers looked misleadingly good. That is what bundling does. This is what happens when investment companies play by different rules than banks and are allowed to be misleading. With Bear Stearns for example...their own employees were HUGE owners of stock in the company. Do you really think they would have held onto that stock if they knew that the company was going down in flames and would eventually be sold for $2 per share instead of $150? This wasn't a shock in the sense that they knew the house of cards would come tumbling down eventually. It is a consequence of legislation being passed that allowed companies to give inaccurate information about their business. I do think that there were a lot of people who got mortgages they shouldn't have, and companies that gave loans they shouldn't have. But these people would never have gotten loans if the loan companies had to accurately report the type of stupid risks they were taking on borrowers.
popgoestheworld popgoestheworld 8 years
If the mortgage companies did anything illegal, there is already a system in place in our country to take them to court. I do feel bad for people who entered into contracts that they didn't understand. However, I think that was a fraction of people in comparison with the rest who were either stupid or greedy.
cine_lover cine_lover 8 years
I disagree Jill. None of this was a shock. The news was reporting the mortgage bubble for years and years and people ignored it. We don't need the government regulating us more, we need people taking responsibility for their actions, then maybe they won't turn such a blind eye anymore.
Jillness Jillness 8 years
Yes, there are risks with investing. But legislation was passed that allowed the risks to be misrepresented to investors. This is part of the reason why everyone was caught off guard by Bear Stearns. "The mortgage companies risked by taking on clients with bad credit." The mortgage companies misrepresented the credit they were taking on by bundling the loans. The mortgage companies were very stupid, but I do feel for the people that invested in them. The US has allowed some veeeeery sketchy business practices to occur.
popgoestheworld popgoestheworld 8 years
Investments are RISKS. The sooner that we all realize this, the better. China risked by investing in the U.S. The mortgage companies risked by taking on clients with bad credit. Individuals risked by taking on more debt than they could afford. With the exception of a small minority of people who were perhaps lied to, everyone experienced the myriad effects of risk taking, including China.
hypnoticmix hypnoticmix 8 years
Sure why not? If it was mishandled it was mishandled and being on the receiving end of the mishandling I'm inclined to agree. Why does every one feel so insulted and like they have to pull up skirt and run behind a tree because they F'd up. Say yeah its F'd up got any idea's on how to fix it and get the $#!+ rolling again, don't get bogged down in a quagmire of posturing. Well you did this so you can't talk so there. Oh brother!
CaterpillarGirl CaterpillarGirl 8 years
I keep getting this picture in my head of this sad dollar bill jumping off a building and a big USA figure just letting it fall. and a bunch of chinese people poking thier heads out the windows going "boooo"
Jillness Jillness 8 years
There has been recent legislation that has allowed American companies to give false impressions about the status of their companies. (I heard that Gramm introduced it very shortly after the Bush/Gore decision was made). If investors and stockholders in these companies can not accurately gauge if their investment is gaining ground or losing, it leads to these surprise breakdowns that take massive amounts of people down with it. That is why insider trading is illegal. One of the reasons the sub-prime issue became so big, is because they "bundled" the loans with other loans. It gave a blurry impression of how much was loaned, the quality of the loans, and the amount of Capital the companies had. I think it makes sense that all investors, American and foreign, would want to make sure that an accurate picture was being painted of the company they invested in. (*side note, Obama introduced mortgage fraud legislation allllllll the way back in 2006.)
stephley stephley 8 years
We've never been perfect yet criticize other countries all the time -so why shouldn't China give us some of our own back?
mondaymoos mondaymoos 8 years
While I agree with most of what the Chinese said regarding our economy, I must say it's not our fault they chose to keep their trillion dollar reserve in US dollars.
raciccarone raciccarone 8 years
It's a good thing China wasn't the Gambino Crime Family or Bush would have his legs broken by now ... hmmmm ...
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