Thursday, December 20, 2007

Lenin Was Right

"When we go to hang the last aristocrat it will be the capitalist that sells us the rope." Lenin.

As American Capitalism fails it will be Chinese State Capitalism that bails it out.

Kill the competition: China bails out Morgan Stanley,

The Times: Morgan Stanley reported the first quarterly loss in its 73-year history after taking writedowns of $9.4 billion (£4.7 billion) on mortgage-related investments. The bank was forced to agree a $5 billion cash injection from Beijing.

The reason is that they are sitting on trillions in Foreign Direct Investment funds that they have not expended yet. Allowing them to be able to come in and bail out their capitalist competitors.

Dr. Kathryn Dominguez of the Gerald Ford School of Public Policy presented her paper on this topic at the U of A School of Business annual Eldon Foote Lecture in October which I attended.

I recommend reading her paper as it will explain why China's investment in Morgan Stanley is not unexpected, and in fact is the beginning of their bail out of big banks and financial corporation which are suffering as the credit crunch expands from the subprime meltdown.

International Reserves and Underdeveloped Capital Markets

International reserve accumulation by developing countries is just one example of the puzzling behavior of international capital flows. Capital should flow to where its return is highest, which ought to be where capital is scare. Yet recent data suggest the opposite – net capital flows from developing countries to industrialized countries. This paper examines the role of financial market development in the accumulation of international reserves. In countries with underdeveloped capital markets the government’s accumulation of reserves may substitute for what would otherwise be private sector capital outflows. Effectively, these governments are acting as financial intermediaries, channeling domestic savings away from local uses and into international capital markets, thereby offsetting the effects of domestic financial constraints that lead to excessive private sector exposure to potential capital shortfalls.

China: The Truimph of State Capitalism

State Capitalism By Any Other Name

Petro Dollars Bail Out The CITI

Bank Smack Down

U.S. Economy Entering Twilight Zone

Sub Prime Exploitation

Wall Street Deja Vu

Housing Crash the New S&L Crisis

US Housing Market Crash

America's Debt Economy

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Tony Trepanier said...

what's wrong with having the Chinese bank bail out Morgan Stanley? Besides reasons of national gloating, it's more a statement of capitalistic stability than anything

eugene plawiuk said...

Nothing that was my point. The false dichotomy between so called free enterprise monopoly capitalism versus state capitalism.