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CHINESEBANKS MIRROR THOSE OF THE OLDFRY [S&M]

Deyan Ranko Brashich

The short lived Federal Republic of Yugoslavia [Serbia and Montenegro] [1992-2000] also known as the “FRY [S&M]” is not to be confused with the Socialist Federal Republic of Yugoslavia, the“[SFRY]” whose agonizing demise led to a decade of chaos. The FRY had few redeeming qualities and many faults, most inherited from its predecessor. The most egregious was the banking system that tolerated de facto bankrupt socially owned enterprises to exist and encouraged outright fraud and wild Ponzi schemes to flourish.

The SFRY supported companies that existed on losses and loans guaranteed with the Government’s wink and nod ensuring full employment avoiding social unrest. Keep the people busy and fed was party line.

The loans and lines of credit were extended with reliance on false financial statements.Zastava, RTB Bor, Trepca, Aluminum KombinatPodgorica KAP and Genex come to mind, companies that were unable to repay their debts forcing Beogradska Banka, Jugobanka, Beobanka and Ivestbanka into bankruptcy and liquidation. Hyper-inflation was but one of the results of this policy.

The unregulated financial sector allowed “Gazda Jezda” [Jezdimir Vasiljevic] to operate Jugoskandic Banka, his mini-Bernie-Madoff Ponzi scheme guaranteeing15% interest per month on foreign currency deposits. It also allowed Dafina Milanovic with her Dafiment Banka to orchestrate a like pyramid scheme promising interest rates of 200%.

The gullible believed the siren song of easy money, of a sure thing, until reality set in with the banks’ failures.

China has embarked on a like road to financial ruin. I wouldn’t park my money in a Chinese bank, not on a bet, not now, not today.

China’s economy by and large is similar to that of the old SFRY and FRY. It has large commercial and industrial enterprises that are inefficient, outdated, bloated, unprofitable but deemed by the Government essential and to be too big to fail. But the Chinese Government continues to bail them out, to impose upon the banks to extend credit relying just as did Serbian banks on bogus financial statements.

Because of that Chinese banks and financial institutions have been caught in a severe shortage of cash, a credit squeeze with“banks temporarily suspend[ing] lending in order to preserve cash, according to Caixin, the Chinese business magazine.”

Chinese banks forced to seek cash have borrowed from Jugoskandic and DafimentBankas’ playbook soliciting deposits by offering “financial products” and “wealth management products” with “yields far above the government’s benchmark savings rate.”

The siren song of high interest rates is now in Cantonese: “China Merchants Bank will issue a high interest financing product starting from June 28th to 30th. The product will be 90 days with a 5.5% interest rate. Please call us now.”  With a follow up a day later: “The interest rate of yesterday’s product has been raised to 6%. (Product duration is 90 days). There is limited access to this product. First come first served.”

This is not to say that these unregulated financial transactions are Ponzi schemes. They may well not be. But they are “shadow banking” lending “outside the scrutiny of bank regulators” subject to abuse. Much of the money goes to funding property development and other dicey ventures where “[r]egulated banks will not make the loans because the borrowers are too risky.”

Risky loans with guaranteed high interest rates will soon morph into Ponzi schemes. When the music stops with not enough chairs to go around, when the property bubble bursts, and burst it must, when the shit hits the fan, Chinese banks will be the mirror image of those now defunct FRY [S&M] banks.

As Cypriots have learned,do not keep your Euros on deposit in a bank, keep the Euros in your mattress. If I was Chinese I would keep myYuans and Renminbis in my mattress and not in a bank, no matter what interest rate was promised.

DeyanRankoBrashich, an attorney, is an Op Ed columnist for The Litchfield County Times and other newspapers in the USA and is a frequent contributor. A collection of essays “Letters from America” has just been published in June, 2013. His contact and blog “Contrary Views” is at www.deyanbrashich.com.

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