The rise and rise of the Chinese banking system on the…

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“Where there is human effort, there is also greed,” said David Buckham, author and CEO of international risk assessment firm Monocle during a briefing. Daily Maverick webinar Wednesday.

Scorpio investigative journalist Pauli van Wyk and Buckham were discussing the book Buckham co-wrote with Robyn Wilkinson and Christiaan Straeuli, The End of Money: The Great Erosion of Trust in Banking, China’s Minsky Moment, and the Cryptocurrency Fallacy,

In this in-depth examination of modern banking and financial systems, the authors explain why there is a continuing erosion of faith in capitalist free markets and Western democratic institutions and the directly related unprecedented growth of the Chinese banking system.

Why we have lost our faith in the capitalist free market

Buckham thinks back to 1989, the year he graduated and the year the Berlin Wall came down: “It was the logical end of the ideological battle between communism and the free market.

Like everyone else, Buckham believed that this marked the period when this type of ideological conflict would end. However, that was not to be the case.

buckham quote The Economist The Intelligence Unit’s latest research on democracy, which paints a grim picture. “We have less democracy in the world than last year, which was worse than the year before.

“Inequality is at its highest level, it has increased since last year, it has increased since the previous year – worldwide, also in South Africa and the United States and in almost all countries of the world.”

Buckham thinks that and “bad actors” like Lehman Brothers are to blame for our erosion of trust in the financial system. The bankruptcy of Lehman Brothers in September 2008 was the culmination of the subprime mortgage crisis and contributed to the global financial crisis of 2008.

“I think we misunderstand the severity of this crisis,” Buckham said, explaining that because the South African regulator hasn’t allowed credit default swaps, that country hasn’t been exposed to the kind of multiplication. of the risks that the United States has experienced.

“So by the time you get to 2015, 2016, people like you and me don’t trust banks. I mean, I do because I work with banks,” Buckham said, “but trust institutionalism, trust in government has diminished, and with that came our turn of authoritarianism.

Growth of the Chinese banking system

Van Wyk brings up Buckham’s point in the book which highlights how China’s state-owned banks are growing at a disproportionate rate to the country’s economy.

Buckham explains that today the top four banks in the world are Chinese, unlike 10 years ago when the top 10 were French, British and American. Additionally, Buckham explains how China’s banking system is 3.5 times the size of its economy – compared to the US banking system which is 1.1 times the size of its economy.

“The American GDP [gross domestic product] is $20 trillion. And bank assets – if you take all the banks in America and just add up the balance sheets – is about $21 trillion. So the amount they lent out divided by the amount they produce as a country is 1.1,” says Buckham.

“Whereas China, even if you don’t take all the banks, just the top four, and add up their balance sheets, divided by China’s GDP which is $14 trillion. one-third of US GDP you get 3.5.

Buckham believes the reason the Chinese got here is because of their aspirations to overcome a century of humiliation and the way they capitalize on their interest.

“They have targets for different states or provinces and they have targets for their banks; banks must lend whether it is commercially viable or not. And when banks need to be paid, they are believed to inadvertently or inadvertently renew loans. We think they’re basically taking the outstanding loan, which individuals or businesses haven’t repaid — they didn’t even refund the interest and they capitalize the interest.

“Let’s say there’s a $100 million loan, $10 million in interest, they take $110 million, then make a new loan and write off the old one, not like it’s a loss. “

That’s why Buckham thinks they’ve grown so big and fast over the past decade, and he thinks it’s not sustainable.

Solutions

Van Wyk said if there’s anything they can definitely agree on, it’s where the people are, there’s drama.

Buckham nods, saying, “Where there is human effort, there is also greed.

“In a libertarian world we will always have people who believe they are better and we will always have to put in place guardrails the problem with the free world at the moment is that the safeguards have not been effective.

Buckham says one solution to this is to implement proper, rapid-fire antitrust laws.

Using the examples of monopolies, like Google in terms of search engines, or Facebook in terms of social platforms, Buckham thinks that if there were proper antitrust laws implemented in the western world, and anti-competition rules that put people in jail quickly, we wouldn’t have had so many monopolies and so much greed. DM

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