Payback Is Hell
Here's another Great Depression parallel: «China is the America of this century.»
The initial stages of the credit crunch in 2007 were managed so apparently painlessly because sovereign wealth funds from the Middle East, but above all from China, were willing to step in and recapitalize the debt of American and European institutions. The pivotal moment in today's events came when the Chinese SWF China Investment Co. was unwilling to go further in its exploration of buying Lehman Brothers. CIC's turning back will be held up in the future as a moment when history could have turned in a different direction.
Now there will be plenty of reasons why the Chinese pulled back. The logic sounds like the American case of 1931. Some of the arguments that are reverberating around Beijing are very reasonable: there is a great deal of uncertainty, and the SWFs might lose a lot of money. CIC would have initially lost some money with Lehman. Some lines of thought are more emotional: might not 2008 be a payback for the American bungling of the 1997-1998 East Asia crisis?
We are about to see what stake China really has in the survival of the globalized world economy. As in 1931, the political arguments are all against such an operation. Only the far-sighted will see that the economic case for a rescue is compelling.
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