Roughly speaking there are two types of corporations in China. State owned (SOE) and private. During the policy driven real-estate bust, the countries biggest builder, Evergrande, went under.
But there was an assumption that the government would bail out real-estate SOEs.
Well the largest one, Vanke, is going under, and the central government is going to let it. Moreover, Shenzen’s (China’s Silicon Valley, but on steroids) has repeatedly bailed it out and that means that not only is the central government not bailing out a SOE, they’re letting a municipal government (arguably the most important in the country) take a huge hit. That will send a message to all other municipal and provincial governments.
The biggest mistake of the US financial collapse was the bailout of participants. Every firm which had financialized should have been allowed to go under. The few that were truly necessary should have been put back on their feet AFTER the shareholders and bondholders took their hits, and after being broken up. Collateral damage (those companies not responsible, but simply getting hit by the backwash, such as GM, could receive bailouts in exchange for a government stake.)
Capitalism has issues even when run properly, but it is a simple proposition at heart: people who allocate resources well should be rewarded with more resources to manage, and those who allocate resources badly should lose their ability to allocate resources. Every participant in over-financialization had made bad allocations of resources. For the American economy to operate, they needed to no longer be participants.
Take over the banks and brokerages, and either shut them down, or break them up. That included the bond rating agencies like Moodys.
The failure to do this meant that decision makers know (or believe) they can make risky bets that cause systemic economic issues, bets that damage the economy as a whole and expect to be bailed out rather than be required to take their lumps. (And, ideally, be investigated for fraud, which most of them were guilty of.)
An economy where economic decision makers are incentivized to take big risks which hold the entire economy hostage (because they might not be bailed out if the risk isn’t systemic) cannot work and doesn’t. The US economy requires a backstop that amounts to the full expectation that the Fed will print trillions on demand to bail out bad actors. (The current main bad actors are the AI cartel.)
China is, oddly, the only major economy in the world that runs markets more or less right. (Though they let their own real estate casino run for too long.)
This site is only viable due to reader donations. If you value it and can, please subscribe or donate.
spud
economic historians will look at the era in america from 1993, till the final blowout, and say it was the largest misallocation of capital and resources, the world has ever seen.
leaving the west mired in poverty and chaos that will make the dark ages look mild compared to what the west faces.
and as of today, i see no real movement to even mild socialism like the new deal.
andrew mellon will finally have his way, and its all downhill from here.