Investors, economists and academics say being China's finance minister would be a lot more fun than being America's treasury boss
(Bloomberg) — Would you rather fill Timothy F. Geithner's shoes or Xie Xuren's?
It's a question I recently asked investors, economists and academics in Singapore, Sydney and Tokyo. The near unanimous response is that it would be far less fun to be America's finance minister than China's right now. Why? The ability to snap your fingers and get things done.
Geithner must navigate around a restive Congress and anxious voters as he works to boost growth. Xie runs a command economy. More stimulus? Just do it. Too much froth in stocks? Tighten the screws. Construction companies want bank loans? Here you go. Human rights activists will disagree, but from an economic standpoint, it's good to be China in today's world.
Let's consider, too, another possibility: corruption. China's corruption woes are well known and formidable. Less appreciated is the extent to which the phenomenon is tying the Obama administration's hands behind its back. If you're not convinced, Richard Duncan's book, "The Corruption of Capitalism," is worth a read.
The capacity of Americans to debate who's to blame for the subprime-loan meltdown seems endless. Truth is, fat-cat bankers, Alan Greenspan and his contempt for regulation and borrowers lying on loan applications are all to blame. The more important issue is the underlying theme behind this collective financial recklessness.
It's all about abandoned principles in financial systems we no longer control, even if our denial tells us we can. It's the economic equivalent of animals running the zoo, and things could end badly if the U.S. doesn't address the causes of its credit crisis, not just the symptoms.
Corruption is indeed the right prism through which to view where markets are in 2010, and why Geithner's task is so Herculean.
"The U.S. economy simply doesn't work anymore," Duncan, a partner at Blackhorse Asset Management, told me in Singapore recently. That's a problem because, until a couple of years ago, the U.S. model and its "Washington consensus" formed the basis for global markets.
"The financial industry has become a menace to society," Duncan said. "Its ability to create credit has brought it undue political influence, enabling the industry to deregulate itself and to engage in such excesses that only a massive infusion of taxpayers' money has saved it from extinction. It should be broken into small pieces and very tightly regulated. Credit creation is too dangerous to be left to the discretion of bankers."
Fall of Rome
With warnings of a fall-of-Rome scenario for the U.S., Duncan can make Nouriel Roubini seem like an optimist. Over-the- top pessimism aside, an argument can be made that the U.S. suffers from "boiling frog syndrome." That's when you sit in water that heats up so gradually that you fail to realize you're being cooked. By then, it's too late to jump out.
Government stopped feeling constrained by its ability to spend and international trade no longer needed to balance. Regulation was passé—an antiquated impediment to economic growth. Advice was sought from Goldman Sachs Group Inc. and its peers, not skeptics warning we risked taking all the guardrails off our financial highways.
All the while, policymakers and economists remained oblivious to how capitalism had been corrupted and economic dynamics changed so much that neither Adam Smith nor John Maynard Keynes nor Friedrich von Hayek would recognize them.
This isn't to pooh-pooh China's corruption problems. It ranks behind Burkina Faso and Colombia in Transparency International's latest Corruption Perceptions Index. We'll never know how much of China's 4 trillion-yuan ($586 billion) stimulus package was siphoned off by illicit hands. One-party rule numbs the forces of accountability.
China also faces daunting risks, including economic overheating, social instability and environmental disaster. Still, it's not like the U.S.'s two-party system is a bastion of integrity these days. It may surprise many than the U.S. ranks 19th on Transparency International's list. Events at Toyota Motor Corp. in America show why.
It turns out that former regulators hired by Toyota helped end at least four U.S. investigations of unintended acceleration by company vehicles in the last decade, warding off possible recalls, Bloomberg News reported on Feb. 12. As a company, Toyota has acted appallingly in this crisis. Yet how is this U.S. practice not corruption?
Wall Street Excesses
An equally disturbing tale involving Goldman Sachs was reported by The New York Times on Feb. 13. Turns out, Wall Street shenanigans not unlike those that brought us subprime mortgages worsened the crisis slamming Greece and the euro by enabling European governments to hide their mounting debts. And here we thought the worst of Wall Street's excesses had already been uncovered.
President Barack Obama's team seems to think all the U.S. needs is more stimulus. What's also needed is a bold restructuring of the U.S. financial system. Even modest proposals put forth by former Federal Reserve Chairman Paul Volcker—which limit a bank's size and risk-taking—are being strongly opposed. Reform has yet to begin.
Good luck fixing that mess, Secretary Geithner. If you're looking for an easier gig, try moving to Beijing.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)