Shanghai Daily

This little gem, explaining the US mortgage bust, is from my local Shanghai Daily and is typical of the quality of local reporting aimed at expats in China. Keep in mind that most of the expat business folks over here - and I do not include myself in this category - are exceptionally bright people.

MANY people believe that in a "money matters" market economy, it's useless to talk about business morality.

This is a misunderstanding of the market economy, Kin-chok Mun stressed in his speech at Shanghai National Accounting Institute two weeks ago. Mun is emeritus professor of marketing of the Chinese University of Hong Kong.

"It is not a real market economy if everyone seeks profits regardless of the means he or she uses," says Mun.

Mun cited the recent US subprime mortgage crisis as an example.

After the terrorist attacks on September 11, 2001, to boost the US economy and keep it growing, US banks kept their interest rates quite low.

On seeing the potential business opportunity, many companies in the US were tempted to issue risky loans not only to mortgage borrowers who were unable to provide collateral, but even to private equity firms with little equity capital of their own.

The companies then sold the loans to banks and funds in the form of bonds to reduce their own risks.

This enabled the companies to make money easily by setting the interest rates of their loans somewhat higher than those of the banks.

However, as the overall interest rates in the US kept growing during recent years, the mortgage borrowers could no longer afford to pay for the loans.

The situation grew so serious that it resulted in a financial crisis across the US.

That even a developed and mature market like the US gets seriously hurt by the immoral behavior of its companies is the best illustration of the importance of business morality to the market economy.

This is not aimed at the Chinese audience. They don't pick up the Shanghai Daily. It is generally used as a weather vane among expats - what load of crap is the Chinese government selling today - as well as a source of entertainment.