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Bonds versus Banks



Two stories in the Wall Street Journal on December 27, 2012 reminded me of an issue I had avoided in the course of my last book, an issue I mean to address in my next one.

Near the end of GAMBLING WITH BORROWED CHIPS I wrote, "There are many fascinating and important matters that I have not even had the opportunity to mention....There is, for example, the question of bank financing versus exchange-based financing."

I then mentioned the theory of Joseph Studwell, expressed in his book ASIAN GODFATHERS, that the economies of southeast Asia suffer from an exclusive reliance on bank financing. Corporations report consistently disappointing earnings, due to the "perverse curse of high savings rates and bloated banks."

But then I moved on, to a final "confession of inconclusiveness" and a technical appendix.

In a future book, I will have to address Studwell's point.

Two stories in today's WSJ will help.I'll just give the bibliographic data for each here.

Dinny McMahon, "China's Bond Business is Booming: Expectations of Government Support Fiuel Market in Face of Concerns About Credit-Worthiness," WSJ, 12/27/2012, p. C1.

[No byline], "China's IPO Door Indefinitely Shut," WSJ, 12/27/2012, p. C2.

Dinny McMahon's story (rather deep, paragraph 11), says: "Chinese companies' push into the bond market comes amid Beijing's efforts to wean businesses off bank loans and build a competitive credit market."



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