Thursday, October 16, 2008


David Ignatius in the Washington Post analyzes the similarities of the Chinese bailout of its own staggering markets in 1998 to the current US government's intervention with our own faltering system. While some experts may see this Federal intervention as a last ditch desperation akin to rearranging the deck chairs on the Titanic as the stock market continues to swing wildly, the majority of pundits caution us to remain calm.

As I posted a couple of days ago here, I saw this shift in American capitalism coming of necessity as the inevitable pressures of globalism frayed the interlocking financial systems with the parade of trade imbalances, currency wars, resource deficits, and the like now beginning to show their true natures as leaders attempt to deal with the flaws inherent in those particular systems. We are cautioned that we should not sweat this apparent end of orthodoxy, but should embrace this new paradigm of progressive strength, retool our own industrial base decades lost, address the needs of our national security including energy and other economic strategies, and move along. This is good advice. Monetary purists were never all that honest anyway.

Ignatius writes:

WE ARE ALL CHINESE NOW. That is, we have a nominally capitalist economy, but we don't trust the freewheeling private market when it comes to the crunch. So we turn to the government for protection and stability.

The new interventionism isn't so much socialist as it is Confucian—a belief that a public-private partnership of the wise ones will get us out of the mess. And if it's any consolation, the Chinese are becoming more like us, even as we are becoming more like them.

A Chinese preview of this week's government-funded recapitalization of the banks came in the Hong Kong stock market crash of August 1998. To counter a typhoon of speculation that had battered the local market, Chinese authorities intervened to buy up sagging stocks with public money. The government spent $15.1 billion to acquire about 7.3 percent of the companies in the blue-chip Hang Seng Index.

Free-market partisans in the West were shocked by the Chinese intervention and decried it as a dangerous precedent. But it helped stabilize the Hong Kong market. Now, that earlier bailout seems modest indeed—compared with the quasi-nationalization of the world's leading banks we're seeing this week.

Read it all.

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