I suppose that it is some consolation to know that the Chinese economy is just as vulnerable to the tender ministrations of Goldman Sachs as is the American economy. It will be interesting to see if the Chinese government has any better luck than ours holding Goldman accountable when, as seems likely, the Chinese economy falls apart.
All of this raises an interesting question, one with which I have wrestled, but to which I’ve never found a satisfactory answer. In this case, it appears that the Chinese government, in league with Goldman, has snookered allegedly sophisticated investors into buying stock in companies set up specifically to own non-performing loans, which were purchased by those companies at face value, despite the absolute knowledge that they were in default, or nearly so. So there’s your business plan: pay top prices for worthless assets and hope someday those assets will appreciate in value, when there is no reason on earth to believe that will ever happen. Who are these investors buying these stocks, and how could such smart people do such dumb things? You say: maybe they’re not so smart; to which I say how could that be; ask any one of them and they’ll tell you how smart they are.
I’ve asked myself the same question about the folks on the losing end of the deals engineered by folks like Mitt Romney and his friends at Bain Capital. You know, the deals where Bain buys a company (pays itself a fee for doing so); loads it with debt (pays itself a fee for doing so) that it uses to pay itself big returns and then steps aside while the thing goes bankrupt, costing loss of jobs to workers and loss of money to the idiots who lent the money to Bain in the first place. Maybe there’s something I’m not seeing here. Maybe these “investors” are betting with other people’s money and paying themselves large fees for doing so, so that they too can step aside and let someone’s 401k take the hit. There’s a common thread in all of this; win or lose, there is no social utility in any of these financial devices. They are simply ways to divert other people’s money into the pockets of Wall Street con men. We count ourselves lucky if they just take a cut and leave the economy relatively unscathed, but if history is any guide, sooner or later they bring everyone down, except, nowadays, themselves.
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