What is the difference between a Chinese bank and an American Bank?

Wednesday, September 17, 2008 22:12
Posted in category Uncategorized

(A) The Chinese bank has money in it.
(B) There is no difference. They are both supported by the RMB.

This was a joke that my good friend provided when we were going back and forth about the recent meltdown of many of America’s largest financial institutions.

On a wider China angle, what I find most ironic about this is the fact that 5 years ago (while American banks were taking on a stupid amount of risky mortgages), they were lamenting the fact that China has 20-30% non performing loans in the system… that the risk assessment and management mechanisms were a fraud..

Interesting how only 5 years later all the big Chinese banks still exist, and now the American banking and mortgage system is going toundergo an overhaul we haven’t seen since Bretton Woods.

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11 Responses to “What is the difference between a Chinese bank and an American Bank?”

  1. bizCult | How to Get Your Yuan Out of China says:

    September 18th, 2008 at 4:40 am

    […] A momentary thought crossed my mind: If you’re an expat in China, why not keep all your savings here? The value of the yuan has been rising against the U.S. dollar. And now, compared to U.S. banks, Chinese ones suddenly look more secure, as the All Roads Lead To China blog notes. […]

  2. News Galore! | The China Vortex says:

    September 19th, 2008 at 6:14 am

    […] Hmmm, on second thought… UPDATE: Once upon a time, jokes were about comical situations which had a tenuous relationship with reality. Now, the jokes ARE reality. […]

  3. Jay Boyle says:

    September 19th, 2008 at 8:01 am

    One thing is for certain the entire concept of what is best practice of risk management is now being rethought.

    ERM or Enterprise risk management is a way of managing risks systematically and holistically as opposed to the traditional way of managing risks in silo’s. However most companies only pay it lips service.

    In my humble opinion the B-schools should spend more time studying Goldratt, Mandelbrot and Taleb instead of Markowitz, Scholes and Merton

  4. Rich says:

    September 19th, 2008 at 8:30 am

    Jay

    What I love about this is that Paulson is now out talking about the billions it will take to clean this up… billions his friends will be managing.

    Where was he 2 years ago when it was clear that things were about to blow? He was in China talking about reforming the Chinese system …

    I can’t help thinking that the top 25% of these firms really need to become fry chefs.

  5. Doug says:

    September 19th, 2008 at 5:59 pm

    Rich,
    Good joke, but I think it`s a peculiar logic to conclude that Chinese banking system is functioning well by comparing it to the U.S. banking system.

  6. Dan says:

    September 20th, 2008 at 12:21 am

    I would not be touting Chinese banks as paragons of safety.

  7. Rich says:

    September 20th, 2008 at 3:09 am

    @ Doug

    I didn’t say it was functioning well. I said it was functioning, and that it was ironic that the same people who just destroyed the US banking system were over here 5 years ago telling the Chinese that they did not know how to manage risk.

    Personally – I am pretty sure that NPLs in China are still a problem, and I am pretty sure that the banks here are exposed. They are not going to walk away clean from this.. but with the largest reserves in the world, China has options that the US doesn’t

    @Dan – see above. I am not imply they are safe – I was making a statement about the irnoy of the situation. Were I to pick bastions of safety, I would probably stick to the piggy bank in the back yard.

  8. Dave S says:

    September 20th, 2008 at 4:15 pm

    When are the Chinese going to finally dump our Treasuries? I wish you guys would… so we can have global financial reset, remake our own government into a republic instead of a fascist dictator ship, and make it so I can actually PLAN for my future with at least a reasonable set of economic assumptions.

    Right now, things are so FUBAR it’s impossible to plan for anything past about 12 months. The rules are in constant flux, contracts are meaningless, government rules by pure fiat… it’s a joke. This thing is irrepairably broken.

    PLEASE… as prudent US saver…. PLEASE stop supporting our Kafkaesque debt machine. You’ll only be dragged down with us.

    MARK TO MARKET.

    Best wishes to you all.

  9. Dave S. says:

    September 20th, 2008 at 4:31 pm

    One more thing…

    There’s a small percentage of people in the USA that are savers. We WORK to earn US currency. We live below our means, and save the excess for a future use (U.S. readers – that’s called a “Saver”). I save my currency basicaly in a mattress (not kidding). It’s a helluva’ lot of currency I’ve accrued over 30 years of WORK. Some has also been exchanged for metals (U.S. readers – see US Constitution; that’s ‘money’ as defined by the founders).

    Until this credit crisis / inflation crisis / deflation crisis / trade imbalance / treasury shenanigans / etc. stops, and the books are balanced, not ONE DAMN DIME of that money is going ANYWHERE… for any reason. I will stand here tapping my foot, arms crossed with a tight jaw until this crap is marked to market and RESET. Then I’ll put my capital into to the market. No sooner.

    There’s many like me. All you financier types are broke. We have ALL the real money. You want it? Sell those T’s, bust the idiots, and let us grownups rebuild an honest, prudent economy that grows in tune with population growth.

    This is going to happen. Don’t put it off, as it’s only going to get worse with time. Savers insist.

    Thanks

  10. Jay Boyle says:

    September 21st, 2008 at 9:24 pm

    In my humble opinion besides the obvious reason that the banks stopped screening candidates for credit worthiness. Another reason the mortgage back securities and CDO’s caused so much damage is that they were individual contract between two parties. The contract was not standardized or traded on a secondary exchange. When this happens the contract writers undergoes significant counter party risk. The best way to reduce this risk is to create a liquid and regulated market just like a stock market or commodities exchange.

    Now the question will be will they force banks to move all of these instruments onto an exchange or will they continue to deal in one off contracts?

    Jay

  11. Al G. says:

    September 23rd, 2008 at 11:24 am

    I do not understand why you guys are so worried?
    Don’t the Chinese with their hundred of billions US$$$$ caught up in the sub-prime mortgage “crisis” ? Apparently the Chinese are scalded, NOT the American! It was irrelevant that Paulson knew the potential problem two years earlier.
    This is real free trade whereas they the Chinese willingly handed back their hard earned US$$$$ into our hands for us to “manage”! This is brilliant!