【纽约时报】Lessons the Teacher Forgot

Roadblock

Lessons the Teacher Forgot
http://www.nytimes.com/2009/05/17/weekinreview/17goodman.html

By PETER S. GOODMAN Published: May 16, 2009

Back in what felt like the golden age of finance, before the fine print of mortgage documents suddenly became relevant and ordinary people in bars began sharing their worries about credit default swaps, American banking was celebrated as the envy of the world.

Blue jeans and electronics were arriving from factories scattered from China to Costa Rica, and even white-collar jobs were slipping overseas, but the sophisticated work of measuring risk and engineering investments remained the province of the geniuses running Wall Street. Their mastery was more lucrative than ever, and it was emulated around the globe.

So it registered as a comedown last week to read that Bank of America was selling part of its stake in the Construction Bank of China, as it scrambled to secure cash in the face of its real estate-related disasters.

Yes, it has come to this: The largest bank in the United States, putative citadel of free enterprise, must desperately unload shares in a bank controlled by the Communist Party of China. That, or risk the wrath of American regulators, newly concerned about how much money financial institutions have on hand.

Meanwhile, the Treasury last week outlined proposed new rules for derivatives, the exotic investments whose unsupervised trading was once offered up as a sign of the vibrancy of American financial innovation, only to become a prime example of how Wall Street set fire to the global economy.

Not four years ago, when Bank of America paid $3 billion for a 9 percent stake in Construction Bank as part of a wave of foreign investment into China, it was supposed to be a sign of Wall Street’s superior money management. American banks — not just Bank of America, but Citibank, Merrill Lynch and others — portrayed their purchases of Chinese institutions as savvy, strategic plays; a way to get a foothold in the world’s largest potential market for seemingly everything.

Still shaking off the cobwebs of its failed experiment in Maoist utopia, China was home to 1.3 billion people whose wallets awaited credit cards, 2.6 billion feet eager for Nike sneakers, and 13 billion fingers waiting to be licked in the thrall of KFC chicken.

American banking executives spoke paternalistically of their Chinese counterparts. Yes, China’s banking system was laced with corruption, but the American banks would bring their culture of modern finance and teach their new charges how to lend with a dispassionate eye on the bottom line.

“We see value in combining their local knowledge and distribution with our product expertise, technology and experience with size and scale,” Bank of America’s chief executive, Ken Lewis, said as he consummated the deal to purchase a piece of Construction Bank in June 2005.

Chinese leaders spoke of their great fortune in gaining Wall Street’s tutelage. “We have much to learn from our partner in serving customers and creating shareholder value,” said Construction Bank’s chairman, Guo Shuqing.

These days, of course, talk of Bank of America and shareholder value centers on how much of the company its newest shareholder — Uncle Sam — is destined to own, and whether the bank’s shares retain any value. Bank of America’s expertise with size and scale has expanded to encompass the management of $45 billion in bailout funds.

For much of Wall Street, the expertise that once was expected to elevate China’s financial system increasingly looks like sorcery, or a vast Ponzi scheme in which banks borrowed vast sums, lent to virtually anyone, and used incomprehensible models to convince markets that all was fine. They scattered low-interest credit cards and home equity loan offers like takeout menus, creating the illusion of prosperity by driving up home values.

In effect, American banks operated not unlike the Chinese banks they were supposed to modernize. They extracted profits by following a variation of the principle long pursued by their Chinese counterparts: lend without hesitation while extracting your cut, confident that the government is on the hook for the losses.

In China, ventures may be spectacularly unprofitable, yet enrich everyone lucky enough to get a piece. Developers, for example, construct vacant office buildings as an excuse to borrow from state banks. They rake off a cut for themselves, pay bribes to the party officials who deliver the land and reward bank functionaries with sumptuous banquets and trips to Macao. Soon enough, the trophy skyscraper descends into financial disaster, but the developers, bankers and party officials have already extracted their riches, and for long afterward they will still enjoy them.

Much the same can be said of Countrywide, the mortgage lender that sold itself to Bank of America last year in a fire sale, after many of its loans went bad. Shareholders were mostly wiped out. Homeowners suffered foreclosure. But the company’s executives made out brilliantly, cashing stock options amassed during the real estate boom, when Countrywide’s share price soared along with its loan volume. Ditto the Wall Street bankers who enabled Countrywide to lend with abandon by selling their mortgages to investors.

Now the easy money is gone. Wall Street’s financial alchemy has broken down, and bankers are freshly concerned about the creditworthiness of their borrowers. Bank of America is in such a fix that the investment it once portrayed as a helping hand to the primitive Chinese banking system must be sold off in haste just to stay alive.

Shorn of their auras as global paragons of excellence, American banks are even facing pressure to act more like the Chinese banks they were supposed to reform -- by lending in support of politically necessary projects.

The biggest criticism of Chinese banks has been that they lend not on the financial merits but in adherence to the wishes of party leaders. Fearful that a large state company may fail and disgorge angry, unemployed peasants onto the streets, local party officials pressure state banks to keep the credit flowing and spare the jobs.

In recent months, the center of the American financial system has effectively shifted from New York toward Washington, as taxpayer funds keep many institutions in business. Lawmakers and Treasury officials now implore the banks to use their bailout funds to increase lending, even as the banks themselves worry about the merits of making loans in a weak economy — the very conundrum Chinese bankers understand all too well.

Perversely, Bank of America is being forced to shrink its China stake just as it might actually have something to learn about banking from its Chinese partner