Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Keep CounterPunch ad free. Support our annual fund drive today!

Take the Money and Run


Take the money and run. That’s what appears to have been behind the crash of the Shanghai stock market on February 27.

In early February, Time did a good job of describing the liquidity-fueled stock bubble in China, which looked just like the last stock market bubble in China, and the one before that.

Last year 2.4 million investors began trading stocks through the Shanghai exchange, a 250% increase in new accounts. That’s an average of about 7,000 a day, a flood of fresh blood from san hu (as the Chinese call small investors) that is making seasoned traders nervous. “When you see shop assistants and taxi drivers racing out to borrow money to buy stocks, you’ve got trouble,” says commodities guru Jim Rogers. “That’s the market sucking in a whole lot of neophytes priming to get slaughtered.”

When that article was written, the average P/E ratio on the Shanghai Stock Exchange was 45, compared to 18 for the NYSE.

And it had gone up since then, with the index crossing the 3000 mark and setting a new record on the first trading day after Chinese New Years’.

To my mind, there are only two kinds of people who continue to pour money into an overvalued market like this: cretins and criminals.

The cretins never know when to stop.

The criminals, on the other hand, know when a good thing is about to come to an end.

Some observers apparently thought that the rumor of an impending capital gains tax was enough to end the party.

I tend to attribute the crash to reports of an impending government crackdown against illegal bank loans i.e. bank loans taken out for ostensibly for business and capital construction purchases but diverted to stock market speculation.

This is probably as close to a smoking gun as we’ll get, from China Daily on January 30:

China’s banking regulators have banned commercial banks from giving loans for stock investment and to investigate and call in all loans suspected of being used for such investment.

The China Banking Regulatory Commission (CBRC) would dispatch officials to examine loans at all commercial banks after the Spring Festival, which will fall on February 18, said an official with the China Banking Regulatory Commission, who declined to identified.

A crackdown right after Chinese New Year.

Just when the market crashed.

How about that.

The first thing the banks do when they hear about a possible audit is to try to call in suspicious loans and clean up their books; and that would be the signal for the speculators to realize their gains and get out of the market.

As to why the loss of 8% in market capitalization on a highly speculative bourse with minimal foreign exposure would give the New York Stock market the heebie-jeebies: it would be a dismaying indication of the tangential bad news that U.S. traders were looking for to confirm their own pessimism.

If I were in the U.S. markets, I would worry less about a much-needed $100 billion correction in Shanghai, than I would about the absolutely catastrophic news that the OMB was correcting its growth estimate for fourth quarter 2006 U.S. GDP from a heartening 3.5% to a dismal 2%.

That’s an overestimate of 75%, representing a contraction in anticipated GDP of perhaps $50 billion for the quarter, with a commensurate reduction in profits translating into a shrink in market capitalization of perhaps $200 billion based on real world-as opposed to speculative-valuation.

And it’s a sign that the U.S. is continuing to plod into a recession instead of pulling out of one.

For China, on the other hand, the crash is good news for everyone except, inevitably, its mismanaged banks, which have probably accumulated a fresh inventory of funny paper for their bad debt portfolios.

Fewer loans are written, macro control of the runaway economy is strengthened, inflationary pressures are reduced, the hemorrhaging of money from productive to speculative endeavors is staunched, and taxi drivers and shop assistants learn a salutary lesson about the risks of capitalism.

The big money players, I suspect, didn’t get skinned.

They took the money and ran-away from the stock market and back to the bond market and banking system.

That’s something I suspect doesn’t bother the government one bit.

CHINA HAND edits the very interesting website China Matters.



More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine


October 26, 2016
John W. Whitehead
A Deep State of Mind: America’s Shadow Government and Its Silent Coup
Eric Draitser
Dear Liberals: Trump is Right
Anthony Tarrant
On the Unbearable Lightness of Whiteness
Mark Weisbrot
The Most Dangerous Place in the World: US Pours in Money, as Blood Flows in Honduras
Chris Welzenbach
The Establishment and the Chattering Hack: a Response to Nicholas Lemann
Luke O'Brien
The Churchill Thing: Some Big Words About Trump and Some Other Chap
Sabia Rigby
In the “Jungle:” Report from the Refugee Camp in Calais, France
Linn Washington Jr.
Pot Decriminalization Yields $9-million in Savings for Philadelphia
Pepe Escobar
“America has lost” in the Philippines
Pauline Murphy
Political Feminism: the Legacy of Victoria Woodhull
Lizzie Maldonado
The Burdens of World War III
David Swanson
Slavery Was Abolished
Thomas Mountain
Preventing Cultural Genocide with the Mother Tongue Policy in Eritrea
Colin Todhunter
Agrochemicals And The Cesspool Of Corruption: Dr. Mason Writes To The US EPA
October 25, 2016
David Swanson
Halloween Is Coming, Vladimir Putin Isn’t
Hiroyuki Hamada
Fear Laundering: an Elaborate Psychological Diversion and Bid for Power
Priti Gulati Cox
President Obama: Before the Empire Falls, Free Leonard Peltier and Mumia Abu-Jamal
Kathy Deacon
Plus ça Change: Regime Change 1917-1920
Robin Goodman
Appetite for Destruction: America’s War Against Itself
Richard Moser
On Power, Privilege, and Passage: a Letter to My Nephew
Rev. William Alberts
The Epicenter of the Moral Universe is Our Common Humanity, Not Religion
Dan Bacher
Inspector General says Reclamation Wasted $32.2 Million on Klamath irrigators
David Mattson
A Recipe for Killing: the “Trust Us” Argument of State Grizzly Bear Managers
Derek Royden
The Tragedy in Yemen
Ralph Nader
Breaking Through Power: It’s Easier Than We Think
Norman Pollack
Centrist Fascism: Lurching Forward
Guillermo R. Gil
Cell to Cell Communication: On How to Become Governor of Puerto Rico
Mateo Pimentel
You, Me, and the Trolley Make Three
Cathy Breen
“Today Is One of the Heaviest Days of My Life”
October 24, 2016
John Steppling
The Unwoke: Sleepwalking into the Nightmare
Oscar Ortega
Clinton’s Troubling Silence on the Dakota Access Pipeline
Patrick Cockburn
Aleppo vs. Mosul: Media Biases
John Grant
Humanizing Our Militarized Border
Franklin Lamb
US-led Sanctions Targeting Syria Risk Adjudication as War Crimes
Paul Bentley
There Must Be Some Way Out of Here: the Silence of Dylan
Norman Pollack
Militarism: The Elephant in the Room
Patrick Bosold
Dakota Access Oil Pipeline: Invite CEO to Lunch, Go to Jail
Paul Craig Roberts
Was Russia’s Hesitation in Syria a Strategic Mistake?
David Swanson
Of All the Opinions I’ve Heard on Syria
Weekend Edition
October 21, 2016
Friday - Sunday
John Wight
Hillary Clinton and the Brutal Murder of Gaddafi
Diana Johnstone
Hillary Clinton’s Strategic Ambition in a Nutshell
Jeffrey St. Clair
Roaming Charges: Trump’s Naked and Hillary’s Dead
John W. Whitehead
American Psycho: Sex, Lies and Politics Add Up to a Terrifying Election Season
Stephen Cooper
Hell on Earth in Alabama: Inside Holman Prison
Patrick Cockburn
13 Years of War: Mosul’s Frightening and Uncertain Future