LIBOR-gate, as Michael Lewitt titled it, is a mess. It is potentially huge. We expect more ugly revelations. Other institutions may be implicated. Critics of emerging-market governance standards need to look in the mirror. The so-called developed markets now exude a rising stench. We will end this weekend missive with an email exchange.
Steve wrote, “David, Do you have any insight into this article? To what degree is it true / false?” He furnished this link to a Business Insider piece that discusses corruption in China.
My answer follows.
Steve, we have continuing questions about reporting from China. It takes on-site anecdotes to gain a picture that reveals trends. We do that by obtaining data from sources we know and trust. For example, one can count containers on ships or coal inventories or financial holdings at public institutions. But why is the writer looking at China? Business Insider penned this opening: “[Other articles have described the] widespread fraud that has become apparent, both in mainland and US listed Chinese companies…..an extraordinary number of the Communist Party and the military cadre had massive unexplained wealth …” Let’s take a different approach. I have rewritten his sentence into a different context. Suppose you, Steve, were an honest Chinese observer, reading the following sentences about the United States.
“Widespread fraud has become apparent in the Mainland US and among US-listed financial firms. Extraordinary numbers of political figures and public appointees have massive wealth. Examples include (1) Dick Fuld, who was a director of the Federal Reserve Bank of NY until his firm, Lehman Brothers, went into bankruptcy. He has not been charged with any crime. He denied knowledge of any accounting irregularities. (2) Former US Senator Jon Corzine’s firm was a Federal Reserve primary dealer before it failed. Huge balances of client funds are unaccounted for at MF Global. Corzine says he does not know what happened. (3) No one knows the counterparties of the transactions that cost JPM billions. (4) Members of Congress and their staffs trade on insider information and are not violating US law because of the congressional exemption that Congress legislated for itself.”
Read more: http://www.businessinsider.com/david-kotok-what-a-crazy-week-2012-7#ixzz20PoJI6c5