Beijing’s game of Whac-A-Mole against financial risks is sending some borrowers into darker corners
China’s crackdown on debt is driving some companies to a murkier form of financing as it gets harder to secure bank loans or tap the bond market.
New loans from so-called trusts, firms that raise money from individuals and corporations to plow into riskier areas of the economy, reached 882.3 billion yuan ($129.5 billion) in the first four months of this year, according to data from the People’s Bank of China, nearly five times as much as the same period in 2016.
Trust firms, which often charge borrowers higher rates than banks, occupy a middle ground between banking and asset management. They are licensed and loosely regulated by China’s banking watchdog, but they lack some of banks’ protections, such as government deposit insurance, and they have more flexibility to invest in risky areas than banks do.
Insiders at publicly traded commercial banks with a market value greater than $1 billion, but excluding the largest national banks, sold about $1.4 billion in their company stock between the election and the end of March
.. Private-equity investors with board seats also sold. Four of them accounted for more than $310 million of the sales, or about 22% of the total, since the election. These same investors sold $46 million in 2016 before the election.
The 1999 repeal of Glass-Steagall was unfairly blamed in the aftermath of the 2008 financial crisis. Some people—apparently Mr. Cohn among them—mistakenly believe that investment banking is so risky that it should be once again kept separate from commercial banking. The truth is exactly the opposite: Traditional investment banking entails very little risk. The danger is stand-alone investment banks that are not diversified enough to survive a shock.
In the case of Perelman, it made me want to make the school more Orthodox. Which was not what the school was. … Who am I to come in and say I have the right to own their mission and push them in my direction?… I realized hands-off is better. I can give them scholarship money and do arm’s-length things. .... We have this phenonmenon I call the “Instant Billionaire.” In five or 10 years, a person can go from being a person of above average means, to close to a billionaire... In the past the ultra-wealthy had similar characteristics. There were families that made investments in manufacturing, in transportation, in the infrastructure of this country. … They were partners with the government. They had a strong investment in the status quo.But today the instant billionaires [who have made money in intangible businesses — finance, software, liquid investments] have almost no personal investment, no ailgnment, with the status quo. They’re more like lottery winners. Even if they’ve actually worked quite hard to earn it, they don’t have the same relationship (to American society)... A lot of this kind of wealth can go to very idiosyncratic projects. And not necessarily be good.When you are that wealthy, you can make a platform to drown out everyone else’s voice.There is I think a similarly large issue: the way people are hoarding wealth is starving out the rest of us... But when you have a trading company or a hedge fund, you have a few dozen key employees at most. Your have desks, computers, tech infrastructure. You put money in. You get it back as profits.You don’t have a lot of employees. You don’t share the profits. There’s no one involved other than a few other rich white people. You are pulling money out of the economy... A lot of people blanch at a 90 percent tax rate. But I think, if you make millions of dollars a year, do you think being taxed at 90 percent above that level will affect how you do your work?It would cause you to invest more of your earnings back in. You might take you that money and pay your people more. You might enhance your facilities... As things stand, there’s no disincentive for people in my industry to take every dime as profit. People want maximum leverage. They want to take everything out so they can get whatever luxuries they buy. Or other investments …I know, economic life is not a zero-sum game. But I see the damage done when an industry that’s supposed to be just a service industry, finance, becomes 34 percent of the economy, putting a lot of wealth into a few people’s hands... I tried doing angel investing. Which I was a disaster at. I’m too generous in my valuations. People can snow me easily... It isn’t anything by itself. It’s a virtual machine, that does things. It doesn’t have a lot of customers... I was offering software to grammatically analyze text. I did it in grad school. It was the most useless field, it was never going to amount to anything. But I did it really well... The thing that drove me was, being in a lower-middle-class environment, I wanted better. I was driven. I was frugal. I was hyper-focused on education and reaching higher... I get the most constructive growth when I’ve done something wrong. It’s not usually presented to me in the nicest way. But I get a lot of value from it.Philly isn’t New York. This city hates change. No one likes change. But this city seems much more averse to change than others.