The reason is the absurd polarisation of views that has been allowed to develop, or even encouraged, among governments and the public (including large areas of the media) on political, economic and social developments in the East vs the West.
Not everyone is silent about the problems beginning to emerge, for example in the real estate and vast non-banking financial sectors of advanced economies, as higher interest rates on the back of huge debts take their toll. Some senior international officials are voicing concerns.
When it did erupt, it came from a quarter that had escaped the attention of commentators and regulators – an obscure part of the debt ocean known as the subprime mortgage market. It was an iceberg that sank financial titans.
The Basel-based body did not name the hedge funds but warned that they had “very high levels of synthetic leverage” – debt created by the use of derivatives and other complex financial instruments and which does not appear on balance sheets. Such debt is difficult to measure but its impact can suddenly appear.
Shadow banking describes bank-like activities (mainly lending) that take place outside the traditional banking sector. It is now commonly referred to as nonbank financial intermediation or market-based finance, and has grown dramatically in recent years.
The European Commission put shadow banking at 25-30 per cent of the global financial sector; the FSB has estimated that the shadow banking industry is worth around US$52 billion. Other examples of shadow banks include finance companies, money market mutual funds, securities lenders and structured investment vehicles.
Shadow banking problems exist in China as elsewhere. But while these have been widely noted in reports on the possible fallout from China’s real estate crisis on the country’s financial system, it receives far less mention that similar problems exist in Western economies.
Financial system problems are universal and this will come to be recognised as they erupt in an environment of much tighter financial conditions, affecting stock and bond markets, and general credit availability – and not just an (as yet) obscure part of the global financial system.
As Vinod Thomas, a former senior vice-president at the World Bank, noted in the Financial Times, when the Titanic set sail in 1912, it was considered unsinkable. “A similar assumption underpins today’s financial architecture in the face of a polycrisis [including] financial fault lines,” he wrote. He is right and those who live in glass houses should not throw stones at others.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs
The news is published by EMEA Tribune & SCMP