Get Us a Grant’s

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The New York Sun

When the Senate Finance Committee sits for its confirmation hearing on the nomination of Henry Paulson to be the 74th treasury secretary, let them call as a witness New York’s own James Grant. He’s the newspaperman who is editor of Grant’s Interest Rate Observer, the elegantly written bi-weekly known for its reportorial digging and acerbic comments. The lead story in its issue out today is about the $9.7 billion initial public offering that was underwritten for the leading communist Chinese “bank” by Mr. Paulson’s Goldman Sachs. The nominal issuer of the shares – in what is, Grant’s notes, the biggest such offering of the 21st century – is the Bank of China. “The transaction,” Grant’s notes, “will stand as a monument to something, we are certain – if not to the development of the mainland’s capital markets, then to the limits of full disclosure.”

Grant’s put a man on the prospectus for the offering and it says that to judge by the brisk sale of shares in Hong Kong, its man might be the only one who has read the document. Grant’s calls the prospectus “a catalog of misgovernance, theft, reckless lending, lack of controls and other such trifling flaws in the Bank of China business model.” It quotes the prospectus as citing the bank’s lack of proper title to property it occupies, as lacking in information needed to assess risk in dealing with its customers, as listing all sorts of employees and officers who got in trouble with the law, “So, this $590 billion institution has no legal claim to a certain number of the premises it occupies, has no coherent system for appraising credit risk and – in any case – lends at uniform interest rates imposed by the central bank.”W e commend our readers to for particulars.

What we are interested in is not the details of the Bank of China. It is true that we have never been in the camp that sees the communist Chinese regime as a friendly government. It operates against America and the free world politically and is a rapidly rising military power of great concern to the free world. It imposes a one-party communist state on the world’s largest population. But we’re not in the camp that would deal with such problems by refusing to do business with China or resorting to protectionist measures. Exposing China to capitalism is good for the world, and we don’t fault Goldman for underwriting the offering. What we are interested in is learning, at the confirmation hearing, what is made of all this by the man who is going to be selling debt for America.

We’re old enough to remember the days when a Soviet regime supposedly on the brink of transition was issuing securities in Europe. The Wall Street Journal/Europe published an editorial about one of prospectuses under the headline “Red Red Herring.” Then the institution issuing the securities was something called the Bank for Foreign Economic Affairs of the U.S.S.R. and the securities were 100 million Swiss francs in bonds. The Journal reported how the prospectus skated past such problems of communism as slave labor. But the world was in the thrall of glasnost, and one of the Soviet bankers was asserting, “We are a normal commercial bank.” Within a few years, the whole Soviet Union collapsed. Which is something to think about as the man whose company handled the century’s biggest IPO for the Chinese communists goes up the Hill to be interviewed for a job selling securities for America. It would be useful to get Mr. Grant into the hearing for a sense of the questions the senators should ask.

The New York Sun

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