Wednesday, January 21, 2015


Zhu Min is the Deputy Managing Director of the IMF.  In an earlier life he held a number of positions at the Central Bank of China and within the Chinese banking system.  American educated. Zhu Min is a very clever dude so it pays to listen when he speaks and he did just that today at Davos of all places where the presence of intelligennt speech is practically unknown.

His message was a simple one which should not come as news to readers of theses pages.  The collapse of a few years ago was caused by the massive mispricing of risk and highly questionable practices in one of the most regulated financial markets in the world (I make no argument as to how good the regulators were, but God knows they were around).  Many of those excesses have been cured--at enormous cost to be sure--and an entirely new regulatory framwork has been, or in in the process of, being put in place with great political oversight.  Problem solved.

Well, not quite, argues Zhu Min.  You see, while all of this has been going on, the playing field has shifted.  While the Washington Politicos have spent billions of taxpayer money redrawing the touch lines, the game has moved from the playing fields of the regulators and the institutions which they regulate to a completely new class of financial providors, all almost entirely unregulated, offering every form of financial product that can be dreamed up by the imagination of man to all comers differentiated only by the perceived pricing of the credit.  In short, it's 2007 all over again with none of the oversight previously available and in, what we liked to refer to on the dealing floor, size.  Just how much size?  How does $17 TRILLION sound?  From whom, we are not really sure.  To whom, we don't know that either.  In what form?  Beats the hell out of us. who's buying it in packaged form? Well, we draw a blank there too.  And we worry about Dodd Frank?  OooooooK.

What was not mentioned, as to not offend the audience I suspect, was that in 2007 everybody was more or less speaking to one another in cordial tones.  Today, it's dog eat dog with Central Banks at each other's throats and governments barely on speaking terms.  The EU is an economic mess soon to be made worse by the useless actions of the ECB, the U.S. economy in a head fake to progress, currency wars all about the globe and Russia threatening world war whilst its corporations owe goodness know how much to those pesky Euro banks that they can't pay unless Saudi Arabia goes dry.  No wonder no one cares about $17 trillion of unknown credit and how it was funded.  No anxiety at all except from some little Chinese guy of whom no one ever heard.  All I can say is where the hell have you gone Joe Dimaggio?

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