US Financial Crisis/Bailout, China's Role

pla101prc said:

yes CCP has all that problems, the fact is nobody is perfect. like i said you cant simply start grabbing ppl from the local government and try them for whatever crime they have committed, though i am sure they all deserve no less. however we are talkin about offering a practical solution here. and the practical solution is that you cannot invoke some policies and just expect it to work out. cuz in reality you gotta ask yourself what if it doesnt? sure limiting one's own power, grabbing all the corrupted officials and shoot them in the head, completely press freedom, they all sound good on paper. but when you put this stuff into practice they are GUARANTEED to produce greater adverse effects than you can imagine. afterall, if its that easy to govern a country or even understand what is going on then i should become president too.
also the last thing you wanna do is to undermine the power of the CCP before China's society matures. not for the sake of CCP but for the sake of China's development. its like raising children, when the kid is young the parents are needed to guide him. and in a more practical sense, China's most prosperous periods has always been that which is highly centralized,one can develop a thousand theories against this claim being applied to today's China but its not gonna convince the decision makers in Beijing that its gonna work out. as far as i can see there will be no alternative to CCP for quite a while.

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The Chinese people aren't some imbecile children, and CCP bureaucrats sure as hell aren't some responsible and all-knowing paternal figure. It seems to me that the CCP ought to limit itself to the functions of any other society, which is to guarantee the protection of property, rights, and national defense. No more, no less. It's when people begin to argue that the CCP ought to have controls over their everyday lives and treat everyone like children that serious corruption, abuse of power and extraordinary burden are levied on society. Again, some of the effects are visible, like the unfair tax burdens levied by corrupt local officials and land grabs against poor farmers, but even more are not visible. No one is complaining about the billions of investments into the economy that have not materialized as a result of corrupt practices and political risk. No one is complaining about the government's restrictions on pricing that have hindered investment into agriculture. No one is complaining about the shoddy infrastructural work by monopolistic government contracting that have caused countless death until the earthquake. Again, in times where economic growth occurs at a very rapid pace, the fattening wallets of bureaucrats get overlooked. But these are extraordinary times, and the best policy that the CCP can adopt is less policy and more restrictions on themselves.

Engineer said:

You are right, local officals try to cover up. They aren't doing it because they felt embarassed, as they clearly know what they are getting themselves into. They cover up to prevent their criminal activites from being found out by the central government.

What you are proposing is to remove the only power that can rein in corruption, and expect the hapless public to remove corrupted officals when the needs arise. Well, if the corrupted officals have enough guts to hide things from the central government, they could certainly deal with the public easily. Your alternative system would literally turn these corrupted officals into feudal lords, and make them more powerful than they are now.


The central government have came up with laws to prevent land grabs, abuse of power, bribery, officals' ties to criminals, but are ignored by local officals who continue their business as usual. This highlights enforcement issues. Decentralizing power only makes enforcement more difficult, and wouldn't improve the current situation at all.

Also, here is a news flash for you: the corruption you have described has been going on over the past 3000 years. It is quite unfair to blame it solely on CCP. Unless another Li Shimin rises to power, the situation isn't going to improve much any time soon.

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I'm not proposing that we ought to turn local officials into feudal lords. Rather, I'm proposing that we ought to restrict the power of local officials so that they do not have a monopoly over information. It seems to me that the best way to protect the consumer is the demand of the consumers themselves for adequate product disclosure and the demand for information on product feedback. The government has been extremely inefficient and in some case downright counterproductive to promote these goals. Thus, let the market place create the institutions such as consumer advocacy groups to monitor these things. After all, if the demand for such knowledge is sufficient, it would be profitable for someone to gather and dissimilate the information to the consumer. Then we wouldn't have the problem of corrupt and inept officials trying to cover their asses.

I'm not arguing whether what I'm proposing has a historical precedent. Indeed, if you look at the course of history, there has been very few instances where the government has not exercised brutal rule over its subjects. All I am saying is that it's not the way that it ought to be and the Chinese people can achieve even greater prosperity without the government bureaucrats impending their progress at every step of the way.

“Oops, We Meant $7 TRILLION!”
What Hank and Ben Are Up to and How They Plan to Pay for It All

Ellen Brown, November 30th, 2008


“We make money the old fashioned way. We print it.”
- Art Rolnick, Chief Economist for the Minneapolis Federal Reserve Bank

The $700 billion that was arm-twisted from Congress by Treasury Secretary Hank Paulson in October was evidently just the camel’s nose under the tent. According to a November 24 Bloomberg report, the Paulson/Bernanke team is now prepared to pay $7.76 trillion to rescue the financial system.[1] Prepared to pay how? Congress has not raised its debt ceiling to anywhere near that level; but the approval of Congress, which originally voted down the controversial $700 billion bailout, is apparently no longer necessary. The door has been opened, and the Treasury Secretary and Fed Chairman feel they can now pledge whatever they want. Perhaps they are inching up a zero at a time just to see what the public’s tolerance is for unrepayable debt. The new sum – $7.76 trillion – represents $25,000 for every citizen in the country, or half the value of everything produced in the nation last year; yet it’s not clear that a mere half of our net worth will rescue the financial system. One bankrupt bank after another has been bailed out with public money, in a futile effort to prevent a collapse of a massive multi-trillion dollar derivatives pyramid created by the banks.[2] But according to the Comptroller of the Currency, U.S. commercial banks now carry over $180 trillion in derivatives on their books. The public is liable to be bankrupted before this mess is resolved.

On top of the $700 billion initially extorted from Congress, an additional $2 trillion in loans and commitments has already been made by the Federal Reserve and the Treasury. Yet that wall of money has not kept the imperiled banks from collapsing. Citigroup was one of the nine lucky recipients of Paulson’s largesse in October, when he set out to recapitalize the banks by trading dollars for shares. The bank received $25 billion from the Treasury; yet this handout was insufficient to keep its stock from dropping below $4 a share. Citigroup was then bailed out by the Treasury to the tune of another $20 billion, along with a commitment to guarantee $306 billion in toxic assets on its books. That equals half the $700 billion bailout, just for one bank; yet Citigroup’s books, which sport derivative bets of $37 trillion, won’t look much better than before.

Meanwhile, commentators are scratching their heads over where the money is supposed to come from to pay for all this. Congress hasn’t approved these multi-trillion dollar sums, and the Federal Reserve doesn’t show them on its books. Some clues to this mystery came on November 25, when according to The New York Times:

“In the first of two new actions . . . , the Treasury and the Fed said they would create a $200 billion program to lend money against securities backed by car loans, student loans, credit card debt and even small-business loans. The Treasury would contribute $20 billion to the so-called Term Asset-Backed Securities Loan Facility and assume responsibility for any losses up to $20 billion. The Federal Reserve would lend the new entity as much as $180 billion. The new facility would then lend money at low rates to companies that post collateral based on securities backed by consumer debt or business loans.”[3]

It appears that the $20 billion in Treasury money will be serving as the “reserves” to create $200 billion in credit on the books of the Fed and its network of banks. Ten to one is the reserve requirement established by the Federal Reserve for private bank lending under the “fractional reserve” system. The New York Fed has now deleted its earlier discussion of this process from its website, but as it explained the money-creating process in 2004:

“Reserve requirements . . . are computed as percentages of deposits that banks must hold as vault cash or on deposit at a Federal Reserve Bank. . . . As of June 2004, the reserve requirement was 10% on transaction deposits [deposits immediately available to depositors]. . . . If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+ . . . =$1,000).”[4]

In a revealing booklet called “Modern Money Mechanics,” the Chicago Federal Reserve detailed how fractional reserve lending allows money to “expand.” The booklet is now out of print, perhaps because it revealed too much; but it is still available on the Internet. On page 11 of the booklet is a helpful chart (above), which shows that the original deposit is not actually “lent” but remains in the bank throughout the expansion process. What is lent is an additional sum created on the bank’s books valued at 90 percent of the original deposit. Then another sum is lent that is 90 percent of the second deposit, and so forth, until the total sum generated is 10 times the original deposit, with tidy sums collected in interest at each step along the way.

The November 25 New York Times article continued:

“The Treasury secretary, Henry M. Paulson Jr., made it clear that the new lending facility was just a ‘starting point’ and could be expanded to many other kinds of debt, like commercial mortgage-backed securities. . . . It was the first time that the Fed and the Treasury have stepped in to finance consumer debt. The $200 billion program comes close to being a government bank.”

A government bank that makes credit available to all qualified borrowers is not a bad idea. It would seem to be a more useful idea than manipulating interest rates, the conventional tool used by the Federal Reserve to regulate the money supply. When Paul Volcker raised interest rates to 20% in 1980, he bankrupted much of the Third World; and when Alan Greenspan lowered the short-term interest rate to 1% in 2001, he precipitated the housing and derivatives bubbles that are bankrupting the U.S. today. A government-owned bank that put credit into the economy in an open, accountable and impartial way could be just what the doctor ordered. The problem is, the Federal Reserve isn’t government-owned (it is owned by a consortium of private banks[5]); and it is not distributing the public credit openly and impartially. The Fed has kept the recipients of its largesse largely secret (something Bloomberg News is currently suing about under the Freedom of Information Act[6]). However, it is clearly favoring its banking cronies over consumers.

Note that the “consumer debt” the Fed is now supposedly financing does not consist of loans directly to consumers. The loans are to lenders holding consumer debt (“companies that post collateral based on securities backed by consumer debt or business loans”). Like with subprime mortgages, lenders have pushed credit cards and student loans onto anyone who would take them, because the lenders had no intention of keeping those risky loans on their books. They intended to package them up as “securities” and sell them to investors. But the investors are catching onto this scam and are no longer buying; so the Fed is stepping in to underwrite the debt, advancing “credit” created on its books with accounting entries. When these loans are not paid back, we the taxpayers pick up the tab, either directly or through the “hidden tax” of inflation. The benefit goes to the lenders, who get off scot-free for their risky ventures, while the people bear the risk and pick up the losses.

If these investments are too risky for investors, they should also be too risky for the “government bank.” We don’t need more consumer debt to keep the economy going. We need more wages and salaries, and that means more jobs. Rather than propping up the “finance” industry (the business of money making money), the Fed should be furnishing low-interest loans directly to businesses, state and local governments and other qualified members of the producing economy.

Watching the Paulson/Bernanke bailout scenario unfold is a bit like watching the end of the Charlton Heston movie El Cid, where the Spaniards prop up their dead general on his horse and charge the Moors, giving the illusion that the champion is still alive and leading them. In this case, what they are propping up are not national heroes but banking pretenders who are not only unnecessary but have established their incompetence at managing the banking business. Congress could avoid this costly masquerade by either nationalizing the Federal Reserve or setting up its own publicly-owned lending facility, one that created credit on its books just as private banks do now and made it available openly, impartially, and at modest interest rates to all qualified borrowers. Unqualified borrowers should be denied, and that includes insolvent private banks, which should be put into FDIC receivership, had their books washed clean in bankruptcy, and reorganized as truly “national” banks advancing the “full faith and credit of the United States” for the benefit of the people of the United States.

Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden Medicine. Her websites are and .

[1] Mark Pittman, Bob Ivry, “U.S. Pledges $7.7 Trillion to Ease Frozen Credit,” Bloomberg.com (November 25, 2008). [2] See Ellen Brown, “It’s the Derivatives, Stupid! Why Fannie, Freddie and AIG All Had to Be Bailed Out,” (September 18, 2008). [3] Edmund Andrews, “U.S. Details $800 Billion Loan Plans,” New York Times (November 26, 2008). [4] Federal Reserve Bank of New York, “Reserve Requirements,” (June 2004). [5] See Ellen Brown, “The Fed Now Owns the World’s Largest Insurance Company – But Who Owns the Fed?”, (October 7, 2008). [6] Mark Pittman, et al., “Fed Denies Transparency Aim in Refusal to Disclose,” Bloomberg.com (November 10, 2008).

I do agree with crobato, engineer & pla101prc.

Whatever the faults, China has not developed enough to have hollywood type dramas of democratic elections. Take into account the hundreds of millions of ordinary people who would suffer if something like Thailand democracy were to take root in China.

While I understand Fugitivevisons remarks, the problem is how to ensure proper enforcement of laws meant to stop abuse power. This is the CCP real problem?

FugitiveVisions said:

The Chinese people aren't some imbecile children, and CCP bureaucrats sure as hell aren't some responsible and all-knowing paternal figure. It seems to me that the CCP ought to limit itself to the functions of any other society, which is to guarantee the protection of property, rights, and national defense. No more, no less. It's when people begin to argue that the CCP ought to have controls over their everyday lives and treat everyone like children that serious corruption, abuse of power and extraordinary burden are levied on society. Again, some of the effects are visible, like the unfair tax burdens levied by corrupt local officials and land grabs against poor farmers, but even more are not visible. No one is complaining about the billions of investments into the economy that have not materialized as a result of corrupt practices and political risk. No one is complaining about the government's restrictions on pricing that have hindered investment into agriculture. No one is complaining about the shoddy infrastructural work by monopolistic government contracting that have caused countless death until the earthquake. Again, in times where economic growth occurs at a very rapid pace, the fattening wallets of bureaucrats get overlooked. But these are extraordinary times, and the best policy that the CCP can adopt is less policy and more restrictions on themselves.

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again i think you are oversimplifying this whole thing. as a result your proposal, albeit for a good cause, has no practical value. i'll try to point out a few of your mistakes while trying to not sound contemptuous because your proposal does expose some of the issues that China has. first of all, you are thinking entirely from the ppl's perspective, which is good cuz it'll help us discover what the problems are. however if you wanna find solutions you gotta look at things from the rulers perspective, unless you wanna topple the current regime. so if you were the president of China how would you impose these restrictions on the local government? maybe you dont have to answer this because there are very few practical options that one can employ and i'll enumerate and debunk all of them for you right now.
first in a top-down government structure you can restrain local power by centralization. however you'll always have to disperse enough power down to the local governments for them to carry out your policies. this will undoubtedly bring corruption. its also unrealistic to rely on the cadres in the higher levels of the government to adequately monitor the local officials due to the excruciatingly intricate interdependencies between these officials and power correlations that sometimes extent right up to Beijing. moreover, if you put too much restriction on these lower level officials it'll inevitably lower the president's prestige and popularity, which would put him at a disadvantage against his political opponents. so i dont see this happening unless you are a Mao level figure.
second, some propose using media to expose administrative deficiencies. this has proven to be a immature but fairly effective method of monitoring the government. however, sometimes media can become tools for power struggle (as clearly seen in the milk powder case, i am not gonna explain but if you want details i can give you) and even destabilize the state. there are also questions of to what extent should media be governed by law?or how much access should the media have to internal government affairs? hence media is effective against corruption as an auxiliary apparatus but not a constitutional component.
third, democratic elections at the local level. very attractive proposal even the CCP has adopted this one in counties. however if say you expand this system into vast and heavily populated (with middleclass) urban areas you'll end up with something like democratically elected local gov vs authoritarian central gov. as a result the central gov will completely lose its own legitimacy and control. so for now elections will be confined to a very low level in the food chain. there are also concerns about the situation engineer described up there its good that he brought it up cuz i almost forgot reading about this like 5 years ago. the proper term is "sultanization",where the local government attains so much power that it rules the area like a state government, not a very pretty scene there. obviously contradicting your benevolent intentions lol
there are prolly other proposed ideas on how to limit the government's administrative power but again they are guaranteed to produce more adverse effects than positive. so yeah before we can come up with something that actually works, the CCP will just have to keep its finger crossed and hope that the economy wont slow down too much. western democracy wont work in China (trust me i know,i specialize in this stuff) and it'll be a looong time before China develops something on its own (took the europeans 500 years to make theirs)

anyways i think we should get this discussion back onto its proper course which is how to deal with the current financial crisis...might be a simpler topic to understand than political reform in China:china:

dlhh said:

I do agree with crobato, engineer & pla101prc.

Whatever the faults, China has not developed enough to have hollywood type dramas of democratic elections. Take into account the hundreds of millions of ordinary people who would suffer if something like Thailand democracy were to take root in China.

While I understand Fugitivevisons remarks, the problem is how to ensure proper enforcement of laws meant to stop abuse power. This is the CCP real problem?

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theoretically you cant actually stop the abuse of power. because as long as there is power there is corruption. but you cant really eradicate power because you need it enforce laws and govern the state. in the case of say the US that power is simply passed down to the bankers on wallstreet because it has a strong civil society and a "small government". you still have not ended general trend of ordinary ppl's money being robbed by a few powerful individuals.

To pla101prc:

Tell me more of the role of the media & the milk powder case. You seem to have some interesting insights into this?

I think the communists learned a thing about Mao which was they never want somebody again with that type of charisma in a position of power which could lead to tremendous disaster. Which is why every Chinese leader these days is pretty boring. Which is why they also have a paranoia about religion especially cults like Falun Gong. Religion is open to charismatic individuals with power. Which is also why watching how US elections have operated gives them a bad taste too.

I find it amazing that intelligent people can still advocate economic systems which have failed so spectacularly before our very eyes. Not 30 or 20 years ago, but now, in slow motion, in the news every day.

First of all, nowhere in my posts did you find me mentioning that the ordinary Chinese ought to have the right to vote. I am indeed not an advocate for political freedom in the sense of free elections right now. What I am a proponent of is for a great right of a different kind, which is civil and economic freedom.

By greater economic freedom, I mean that there ought to be restrictions on the monopoly of government power that is widely used to force unwilling parties into detrimental transactions. For example, the local governments often use their power to grab land at extremely low prices from poor farmers, and a lot of them also tax the heck out of these poor people, thus in effect, taking away their economic freedom to use their money for the most productive causes. I do not see any way that restrictions placed on officials for these kinds of low-life activities would in any way harm CCP's control. On the contrary, I think that if these kinds of restriction are not in place in the foreseeable future, there will be enough political and social instability fostered by social discontent that CCP's power to rule will be directly and seriously challenged.

Secondly, I don't see why the government ought to restrict the civil freedoms of this country, particularly in the area of the freedom of the press. It seems to me that the issue of civil freedom is directly related to the issue of economic freedom, because without adequate disclosure on the products that government officials have again and again siphoned off from the public, there can be no economic freedom in the sense that the consumer willingly pays a fair price for the perceived benefits and risks of the product. Right now, the government has a monopoly on information from who's contracted to construct apartment buildings to which products have caused harmed to the consumers. Without loosening the grip, the public simply will not fully understand the risks involved in buying the possibly shoddily constructed apartments or poisonous milk. Again, those are tremendous burdens on the economy of the country that you don't see, because no one reports on the amount of revenue that never materializes from these uncertainties. And again, I have not seen any convincing evidence for the argument that loosening these government monopolies would in any way jeopardize CCP rule. None whatsoever.