No recalls on bad investments

Bob Moon Aug 24, 2007
HTML EMBED:
COPY

No recalls on bad investments

Bob Moon Aug 24, 2007
HTML EMBED:
COPY

TEXT OF STORY

KAI RYSSDAL: Thanks to the subprime mess China now has its own problems with tainted imports. It’s been buying products of the financial variety from American banks and brokers. Including slices of mortgage-backed securities. We learned today some big Chinese banks have billions of dollars of exposure. Marketplace’s Bob Moon reports there are differing opinions about whether that could turn into a serious problem.


Bob Moon: “Don’t panic,” was the response from one Citigroup analyst today. And Fitch Ratings said the Chinese government would likely come to the rescue of the state-run banks “in the event of stress.”

But economist William Gamble of Emerging Market Strategies fears it’s not so simple. He points out Chinese officials have recently been quoted saying the quality of home loans in their own country is even worse than in the U.S. If that house of cards starts tumbling, Gamble warns, it could make the crisis here pale by comparison:

WILLIAM GAMBLE: Where is all the money that Beijing has? Most of it’s in the United States. So if, let’s say, it does start shoring up those loans, that too has its problems.

In other words, China would inevitably suck money out of the U.S. economy.

Shares in the Bank of China actually rose in Shanghai today. Gamble says that’s because government control of information is insulating the stock market there.

It’s precisely that kind of financial isolation the U.S. has been pushing the Chinese to change. But China-watcher Donald Straszheim of Roth Capital Partners wonders if such reforms might now be derailed:

Donald STRASZHEIM: They came through the Asian crisis of 1997, a decade ago, really without a scratch. And the reason is they had their economy and many of their institutions quite insulated from the global economy. They see this subprime problem as a new hiccup, and it’s going to encourage them, I think, to go slower on the reforms that we so desperately want in their economy.

China may weather this financial storm, but if it does backtrack on reforms, Strazsheim says it’ll be bad news for everyone.

In Los Angeles, I’m Bob Moon for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.