We’ve all seen bloggers link to articles they claim best explain the current global financial mess. I’ve given a few such links myself. But this article opened my eyes and got me thinking like few others, and i strongly recommend you read it now. It’s simply the best single piece I’ve found.

I wrote a huge post with big snips but then realized the article speaks for itself, and I can’t tell it better than its authors. Please, read it.

The most illuminating aspect is its focus at the beginning on the Madoff scandal, illustrating how it is symbolic of why the whole train wreck took place. Sure, Madoff is just a sideshow of the Big Global Crisis going on in the main tent. But the authors show, dramatically, how the way it was handled, or mishandled, or not handled at all, tells us much of what we need to know about why we are where we are today. This is exquisite stuff, and the thesis is kicked off with a look at the efforts of a man who wrote a detailed and damning report seeking to alert the regulators about what was clearly a fraud of monumental proportions. It was ignored because exposing Madoff went contrary to the short-term interest of all involved. The regulators, the investment houses, everybody. And that is why the same regulators and banks failed to clean house even when all the evidence was in front of their eyes that we were heading toward a global calamity. It was bad for their own short-term interest. And the way they are handling the crisis now follows the exact same mold: they are shoring up their own short-term interests yet again. That’s what the bailout was all about.

It reminded me of another gem I saw today over at this site. It uses a rather crude metaphor to make its point:

Forrest Gump Explains Mortgage Backed Securities

Mortgage Backed Securities are like boxes of chocolates.
– Criminals on Wall Street stole a few chocolates from the boxes and replaced them with turds.
– Their criminal buddies at Standard & Poor rated these boxes AAA Investment Grade chocolates.
– These boxes were then sold all over the world to investors.
– Eventually somebody bites into a turd and discovers the crime.
– Suddenly nobody trusts American chocolates anymore worldwide.
– Hank Paulson now wants the American taxpayers to buy up and hold all these boxes of turd-infested chocolates for $700 billion dollars until the market for turds returns to normal.
– Mama always said: “Sniff the chocolates first Forrest”.

Hank Pauson is using his gift from you and me to yet again protect the immediate interests of an elite group of power brokers who, instead of seeking to stem the tide of failing mortgages, want mainly to focus on pushing stock prices back up (again, for their own short-term gain) with no consideration of the long-term consequences of their not actually fixing the heart of the problem. And the cycle continues. The NYT column gives you the entire picture, and makes you wonder why we are asking those who filthied the stables to now clean them up.

Again, read the whole thing, and prepare to shake your head in stunned disbelief.

An unhappy ending to an upsetting story. If I believed in God, I’d say my prayers were with Addie. My thoughts certainly are, as are my condolences to Ryan. Life goes on, but at the moment I know that’s of little consolation.

Have a good New Year’s Eve. Forget about blogs and other nonsense and start writing your resolutions.

In just a few hours this will be the 8th year this blog has been in existence. Thanks for sticking around.

I missed this story from two days ago, and it’s a great one, an important reminder that as a lot of good things happen here and people’s lives improve, there is still the same horror of corruption that pervades all levels of society here, right down to the teachers. That photo at the beginning of the couple clutching the photo of their murdered teenage son….

A couple of years ago I basically stopped posting stories of corruption in China because it’s such a common topic and it’s always the same story with different players. This one, however, is especially heart-wrenching and more than just an individual story – it’s a panoramic view of the problem that’s blighted China since its “economic miracle” began, adding an atrociously dark side to one of history’s most stunning success stories.

The story begins with the maddeningly familiar anecdote of corruption destroying the lives and dreams of innocent Chinese people:

The last time his parents saw Liao Mengjun alive, he was heading to school to pick up his junior high school diploma.

A few hours later, they were called to the morgue. They found that their lanky 15-year-old son’s forehead had been bashed in. His right knee jutted through the skin. Both his arms had been broken. He had several stab wounds, internal injuries and a swollen foot. His index finger was slashed, suggesting his tormentors had tried to make him write something in his own blood.

As if things could be worse, writer Liao Zusheng and his wife, Chen Guoying, concluded that they knew who had killed their son: his teachers. And they believed they knew why: because of their bitter, public complaints about unauthorized fees and systemic corruption in schools and across Chinese society.

Corruption is an everyday experience for millions of Chinese that taints not just schools, but relations in business, on farms and in factories, and potentially any contact citizens have with officialdom.

That’s just the starting point. By the time you get to the end your blood pressure will be up several notches. The most infuriating aspect is that there’s so little hope for change. The central government is paralyzed, because it needs the support of the local officials carrying out most of the outrages. The argument that the central party is impotent against them won’t fly. They intentionally let it go, for their own survival.

“Even if the central government wanted to see justice carried out at the village level, it is afraid of losing the support of local officials,” said Tang Jingling, an activist based in Guangzhou. “They need them to control society since they’re scared to death of any sort of unrest. And to do that, they must let them run their fiefdoms.”

It’s fine to love China and hope for the best for its people. But you can’t ever forget that a lot of bad things happen here, the kind of things most societies with rule of law could deal with quickly. On New Year’s Eve as we get ready for the parties, let’s not forget that there’s more to China than the glitter and glitz and glamour, and that a big chunk of the population lives in what is in effect a police state. So much progress and hope, and so much criminality and rot.

Read it all. Maybe there’s a tiny glimmer of something that might be called hope at the very end, where the reporter describes protest banners let fluttering in the wind – proof that at least the people can get their story told, and appear increasingly willing to challenge the criminal officials. But it seems a small and futile step, and there’s nothing like a happy ending. Quite the contrary.

Obligatory disclaimer: The US killed Native Americans, kept slaves and did all sorts of awful things under Bush. I condemn those things as heartily as I do the evils of the officials described in this article, and the system that encourages evil to thrive so the CCP can maintain its iron-grip on power. I write positive posts on China as well as negative ones and choose to live here of my own free will. You can’t write about China and ignore this elephant lurking in the corner.

It’s not a totally absurd notion. When people lose their livelihoods and their homes, and see the investment bankers who brought this upon us continuing to reap fat bonuses after receiving taxpayer-funded handouts of unprecedented size, there’s no telling where their emotions might lead them. Expect to see more articles like this in early 2009, as people begin to realize exactly what’s at stake here. The troops are standing by. Those giving the order for them to do so know what’s coming down the road.

[Note: Moving this up to keep it on top.]

Big question mark in the headline. Things have been slow, it’s the Holidays, comments have been relatively thin. But I’ll be in classes most days and want to offer a space for posting links, random thoughts and whatever, especially to keep extraneous comments out of the threads.

Simply beyond belief.

A commenter compares this to saying the pledge of allegiance in the US or having a flag in school. I beg to differ, strongly. We were indoctrinated in America’s schools, too (I still remember the USDA poster on the wall extolling the benefits of drinking milk and eating beef), but nothing like this. Not even close. A taste of the toxic chorus:

Lead: Earthquakes, shifting back and forth like the positions of Sarkozy, with his dirty tricks, trying to shake the great China

Lead: Did China retreat?

All: No. The Shenzhou-7 launched. We are victorious!

Lead: Pathetic Europe will never stop the insurmountable force of our great dynasty

All: Just the aftershocks from the earthquake would destroy France!

Watch the video. A shocker. And we wonder what makes the anti-CNN crowd so hostile. It’s surprising they aren’t hunting down French people in the streets with machetes.

Update: Speaking of propaganda, stop what you are doing and go here now. A moving, Karaoke-ready tribute to the Chinese heading to the Gulf of Aden to fight the Somali pirates.

With lofty sentiments, the Chinese navy heads for the deep blue
Braving wind and waves, the warship’s flag flutters,
The Chinese navy, a bright sword to harmonize the ocean.
Chinese warriors, valiant men with iron wills….

Has to be a parody, right? Harmonize the ocean?

No, not the musical – the debate raging in Guangdong on whether or not to eat them. Photos and message board comments and lots of passion.

This is a hard one, Do we not eat animals that are adorable and/or smart? Because no animal (aside from man) is as smart as the pig, and some of them can be quite adorable. Being a cat lover, I could never eat one, but does that mean others shouldn’t be allowed to? My emotional impulse is to answer Yes, but I’m not sure that argument would sway the jury.

Update: Speaking of pets, please take a look at this heartbreaking post by a fellow China blogger whose dog may be dying due to Optima dog food made in the US but apparently contaminated in China:

Allegedly, the reason for the contamination is because during the Olympics the Chinese gov’t set tight restrictions on ports of entry for importing. All the dog food was therefore brought in through the hot and humid Guangzhou, where it sat in a non-temperature controlled warehouse long enough for the aflatoxin to develop in the food.

So sorry to read that post, and hope Addie pulls through. Ryan sounds uncharacteristically upset; I would be, too.

I just want to say Vineyard Cafe is now my favorite restaurant in Beijing. Their food is consistently excellent, the service is great, the manger is cool, the environment is fantastic and it’s the only restaurant I can find that isn’t playing piped-in Christmas carols at ear-splitting volumes. In fact, today they weren’t playing any Christmas carols at all; I was in heaven.

Their English-style brunch is the best in town for the money (if you want to spend a lot more, this place is highly recommended), their pizza and salad lunches are a smoking deal, and their apple pie with fresh cream has been my dessert of choice since I discovered this place four months ago, thanks to my friend and co-blogger. It’s also right around the corner from a subway stop making it easy to get to, and it’s on a street with so much “local charm” I’m willing to place bets it’ll be the next Nanluoguxiang not too long from now.

I wasn’t paid anything for this, but wrote it simply because I love the place. Last Sunday I was invited for brunch at my earlier haunt, Steak & Eggs, and the entire time I kept asking myself why I hadn’t suggested Vineyard instead. Why eat (barely) adequate when you can eat great for the same price?

It’s painful here. Worse than I ever thought it would be. Everyone, down to the taxi drivers and the lady who washes the cups at my language school, is talking about the crisis. I got a near-tearful call today from someone I know who works for a not-unprominent company here, asking if I had any suggestions for his keeping his sanity. “There are rumors everywhere. Everyone says a big reorganization is coming, that even the chairman of the company is leaving. The worse thing is that they won’t say anything formally but they’re all whispering about it. We all know the layoffs are coming, maybe up to 20 percent. But we are all in suspense. We can’t sleep, we can’t think about anything else.”

I told my friend to relax because a.) he is only 30 years old and he should thank God he is witnessing this kind of misery while he’s young and not when he’s getting ready to retire, and b.) there’s not a damned thing he can do, except keep as cool as possible and try his best to hang on to what he’s got.

But the call was deeply troubling. The anxiety level has reached the clicheed “fever pitch.” From many expats you’re hearing a lot of, “This is definitely a good time to be living in China and not America,” but also a lot of, “My company just laid XX people off, freezed hiring, cut expat packages, canceled all bonuses and stopped all travel.” Yeah, it’s a good time to be in China, but it’s not a fun time to be in China. Or at least not as fun, by a long shot, as the heady pre-crisis, pre-Olympic days, when money poured like wastewater into the Pearl River Delta.

China is scared. Everyone’s scared. Some businesses have been hit way harder than others, but everyone’s feeling the pressure. What still seems to separate China from the West, however, is the sense that even in the face of an unthinkable catastrophe, China still has more going for it than the West and this is still the better place to be. And for now, I tend to agree, cautiously. I’m not nearly as confident as I was a few months ago, when I was convinced China’s own domestic economy woud keep the engine roaring. It may keep the engine humming, softly, at least keeping the flame alive. And that is still more than you can say for the US, where it appears the lights are being extinguished one by one, leaving entire states and cities in the black. (Case in point from yesterday’s paper; this is not an exaggeration.)

Which brings us to the link of the day, an article from Foreign Affairs that begins with an agonizing description of just how deep the precipice is for the West, throwing into question the very foundations of free-market capitalism and wrenching us from what was a market-driven system to one driven by the government. After scaring us as much as he can, the author then turns to the “bright side” of the equation, i.e., the powers that may emerge stronger as US influence wanes. Need I state which of these powers comes out ahead?

No country will benefit economically from the financial crisis over the coming year, but a few states — most notably China — will achieve a stronger relative global position. China is experiencing its own real estate slowdown, its export markets are weak, and its overall growth rate is set to slow. But the country is still relatively insulated from the global crisis. Its foreign exchange reserves are approaching $2 trillion, making it the world’s strongest country in terms of liquidity. China’s financial system is not exposed, and the country’s growth, which is now driven by domestic activity, will continue at solid, if diminished, rates.

This relatively unscathed position gives China the opportunity to solidify its strategic advantages as the United States and Europe struggle to recover. Beijing will be in a position to assist other nations financially and make key investments in, for example, natural resources at a time when the West cannot. At the same time, this crisis may lead to a closer relationship between the United States and China. Trade-related flashpoints are diminishing, which may soften protectionist stances in the U.S. Congress. And it is likely that, with Washington less distracted by the war in Iraq, the new administration of President Obama will see more clearly than its predecessor that the U.S.-Chinese relationship is becoming the United States’ most important bilateral relationship. The Obama administration could lead efforts to bring China into the G-8 (the group of highly industrialized states) and expand China’s shareholding position in the International Monetary Fund. China, in turn, could lead an effort to enlarge the capital base of the IMF.

Kind of ironic, suggesting we turn to one of the world’s poorest countries to shore up the IMF. But that’s one of the peculiarities of China, verging (perhaps) on superpower status “while ranking just above the world’s poorest nations.” And yet there we are.

This is an immense article, like a book. Allow me to paste a final snip

[China] will suffer a lesser blow from the global crisis. It is experiencing some economic pain. Its export markets, led by the United States and Europe, are slowing dramatically. China is also suffering from price declines in certain urban real estate markets. Its growth slowed to nine percent during the third quarter of 2008 — a rate that other nations would envy but was China’s slowest in five years. These factors explain why the Chinese leadership is implementing a multiyear economic stimulus plan worth over $500 billion, or approximately 15 percent of GDP. Still, the IMF is projecting that the country’s economy will grow by 8.5 percent in 2009.

In financial terms, China is little affected by the crisis in the West. Its entire financial system plays a relatively small role in its economy, and it apparently has no exposure to the toxic assets that have brought the U.S. and European banking systems to their knees. China also runs a budget surplus and a very large current account surplus, and it carries little government debt. Chinese households save an astonishing 40 percent of their incomes. And China’s $2 trillion portfolio of foreign exchange reserves grew by $700 billion last year, thanks to the country’s current account surplus and foreign direct investment.

This means that although China, too, has been hurt by the crisis, its economic and financial power have been strengthened relative to those of the West. China’s global influence will thus increase, and Beijing will be able to undertake political and economic initiatives to increase it further. China and the Association of Southeast Asian Nations are just concluding an agreement that would create the world’s largest free-trade area, and Beijing could take additional steps toward Asian interdependence and play a stronger leadership role within the region.

China could also expand its diplomatic presence in the developing world, in order to further its model of capitalism and, in places such as Angola, Kazakhstan, and Sudan, satisfy its thirst for natural resources. In the midst of this crisis, it might also help finance emergency loans, either directly, through bilateral financing arrangements, or indirectly, by creating an additional facility at the IMF that could expand the organization’s available credit beyond what current quotas allow. China should also be expected to make strategic investments through its sovereign wealth funds. Given China’s appetite for natural resources, this is one likely area of interest; its relatively underdeveloped financial-services infrastructure is another.

Well, it sure sounds optimistic. I’ve written before about how well Hu has built relations with strategic partners in a Machiavellian way with only one thought in mind: how will this benefit China, morality be damned? Does China have the finesse and diplomatic skills to pull it all off? Looking at how clumsily they handle their own media relations, I would say no. But then, looking at how smoothly they ran the Games and how, when they set their minds to it, they can make things happen (again, morality – and the environment and safety, etc. – be damned), I’d say it’s not at all inconceivable.

In PR pitches, we often tell clients they are at “an inflection point,” a pivotal moment when they can achieve greatness or be lost in the crowd (which is why they need our services). The term has lost a lot of its meaning, but if ever there was a genuine, burning, 100-percent certified and documented inflection point for China, this is it. More than the Games, More than getting into the WTO. Yes, China is reeling from the shock waves and is getting hit by a sledge hammer. But the West is in a different boat, one with no life preservers. It won’t drown, but it won’t emerge from the water anytime soon, and when it comes up for air it won’t be the America we used to know. China will still be China, I believe. Its ruthless government, with money in the bank and massive support of its population, despite the fear and protests and angry anecdotes, is in a much better position to hold onto its power while keeping systems largely intact.

Sorry for all the metaphors. Read through the article if you haven’t yet reached saturation levels with grim news outlooks on our “crisis-opportunity,” as they say here. And please don’t misunderstand: I am not convinced China will achieve all that the authors claim it’s capable of. I think there’ll be misery aplenty along the way. But everything is relative. And China is in a better position than the US, relatively. For whatever that’s worth.