Faced with an unnerving sell-off in its major markets that at one point had wiped out nearly $3 trillion in value, China has announced a series of measures to stabilize stock prices, including the establishment of a 120 billion renminbi ($19.4 billion) fund for the country’s largest brokerage firms to buy stocks.
The Bumbling, Irrelevant New York Stock Exchange
the truth is that the N.Y.S.E. long ago lost its dominance over the stock market, with the final blow coming in March 2006 when the veritable New York Stock Exchange, then owned by its 1,366 seat holders, completed its merger with Archipelago Holdings, an electronic-trading company. The new publicly traded company became a mere facilitator of trades or the place to go to ring “the bell” after a company’s initial public offering. The floor of the N.Y.S.E. is little more than an elaborate backdrop for the cable-TV business programs at CNBC and Fox. Computers, some high-speed, some not, rule the markets for equity, for debt, for commodities, whatever. The United States alone has 11 exchanges and something like 50 places that stocks can be traded off exchanges. The volume of stocks traded on the N.Y.S.E. is a fraction of what it once was.
China’s Stock Crash Raises New Fears
State-owned media raised confidence in the market even as the broader economy slowed. And the government encouraged the frenzy by allowing investors to useborrowed money to buy stocks. In the second quarter of this year, about 8.8 percent of urban households in China owned stocks, a big jump from 6.1 percent in the first quarter, according to a recent survey.
.. Government efforts to prop up markets, without broader financial reforms, generally do little more than delay the inevitable. A stock market crash, slow-motion or quick, is likely to stir social unrest, which the Chinese government fears. But bailing out investors is likely to fuel more speculation in stocks and other parts of the financial market.
.. Mr. Xi and his officials should also move to provide more ways for households to safely invest their savings. Historically, the country has capped the interest rates banks can pay on deposits, which has encouraged people to pour money into real estate and stocks to get higher returns. The government has taken some steps to raise the interest rate cap, but has reportedly undercut that reform by telling banks not to raise rates, fearing that would further slow down the economy.
Banks’ ‘Living Wills’ Are Murky Guides
To take one example, a major part of JPMorgan is identified as a British corporation that is a subsidiary of the United States depository bank, which itself is then a subsidiary of JPMorgan. All depend on an Indian company for daily operations.
Clearly, the process of simplifying corporate structures still has some way to go. But some additional thinking needs to go into the resolution process.