China’s Old-Fashioned Banking Fraud

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David Pierson of the LA Times reports on the bubble-rific city of Hangzhou, which has lately become the leading edge of China’s looming property bust:

The median price for a 1,000-square-foot home here in July was $290,366, a steep 18.2% drop from the previous month because so many high-end homes have been taken off the market. By comparison, a national index of median prices rose 1.6% over the same period.

….Experts said up to half of Hangzhou’s housing market has been driven by investors rather than homeowners — double the estimated national rate. In this no-holds-barred environment, raising capital was easy if you knew how. In a scheme called “returning the flat,” small groups of speculators would sell the same property to each other to drive up the listed value of a home. With each transaction, the next speculator could obtain a larger mortgage, using the excess cash from the lender to invest in other properties. The conspirators would then divide the profits once they unloaded the property outside their circle.

“A flat could be worth 10 times more by the time they were done,” said Chen Zhencheng, director of the National Real Estate Management Alliance, who said that the practice broke no laws. “This was happening in 30% to 50% of some building projects. The places were full of speculators.”

Roughly speaking, I think this is just the old-fashioned version of what Wall Street did with structured finance during the aughts. It’s also a lot easier to understand. If Americans ever figure out that this is what happened, they might actually start to get seriously mad at the banking industry instead of just faux mad as they are now.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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