Cows on the Street

What do China's milk incident and America's financial turmoil on Wall Street have in common?

A lot, actually. For starters, we are in a era of having to pay for someone else's responsibilities. The well behaved financial companies would have to pay for overly aggressive firms; if Washington's proposed bail-out, amounting to hundreds of billions of promised money, was to carry out, taxpayers are expected to pay for the greed of the money managing industry. The government would in effect control a huge stake in the financial industry, and in turn control a large chunk of the economy. Who says the U.S. is capitalist and China is socialist again? In China, well behaved milk producers are suffering the same as corrupt and negligent firms turn public confidence toward mil product to historical low. Diary farmers are also in a bind. As government rush to sort out the mess, for now, their daily output are only to be trusted to feed the flowers and plants.

Let's play the blame game. Washington blames greed on the Street. Traders blame stupid quants giving the wrong model. Quants blame business people feed their computer with the wrong data, and business people naturally blame banks. As banks blame on hapless people like you and me, you blame on your stupid neighbor who brought houses he couldn't really afford. The folk would undoubtedly point back to politicians in Washington. Oh, Merry go around. On the other side of the globe, consumers want to slaughter the diary giants. The diary producers would point fingers at farmers. After all, that's a easy target and it has always been first instinct of firms and officials caught red-handed to blame on them. The farmers would blame on the market and milk collectors that squeezed their profit, or everybody else who made their lives equally hard. Or, as the joke goes, they would blame on the cows, and let cows blame on grass feeds.

But you get the sense something systematically is wrong, in both cases. Oh, you can always point to greed for an answer - that's always there, but you also get the sense that the game wasn't set up right.

I read somewhere that mainstream Chinese economists - "mainstream" is a negative word in China when associated with experts - argue that China has established a bright, ideal system of localized competition, provinces, counties, and municipals competing against each other with their own industries and resources. That sounds fine and dandy, like a theory, at first glance; until you realize it involve the madness of competition of political power in the market place. Firm behavior when backed by local governments are like throwing two boxers into the ring with no judges. They would scratch and scrawl, taking turns to be judge themselves. When competition intensifies, they could literally choke babies - see the milk incident, and until then would central authority step in for a fix. Speaking of central authorities in China, they are finding out the new realities quick. Their usual ways to fix and control are lagging in this information age, so they always find a step behind the public's expectations.

The same can be said of the government in Washington.

After the dust settles, the too-big-to-fail firms on the Street will live on, the too-much-government-asset-to-fail dairy producers of China will have a happy new life. The market was up Friday, but don't mistake cows as bulls. If the Wall Street were raising cows, the situation would be described in Chinese joke parlance as "The cows remained calm," a joke with similar connotation of wacky Iraq minister in denial.

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