High stakes

As for financial market reform, the situation in China is very high-risk. As Fed Chairman Bernanke said in his keynote speech, opening the financial market to western style competition and free-market pricing is in China’s best interests: It will prevent the financial collapse that is almost certainly brewing.

Chinese banks pay about 2 percent for deposits and charge about 6 percent for loans, which is a nice spread only if the loan recipients are credit-worthy. In far too many cases, they are not — they are inefficient and corrupt government entities that economically do not deserve the protection of the state. Bernanke deserves credit for courageously calling a spade a spade.

It’s not going without notice, however, that the leader of the financial reform cheerleading team, Mr. Paulson, has a potential conflict of interest. As chairman of Goldman Sachs, he has made 70 trips to China since 1991 developing business for the firm. This included the ill-fated effort of the government-owned China National Offshore Oil Corporation to acquire Unocal in 2005, a takeover that was ultimately opposed by Congress.

One Goldman Sachs-sponsored deal was underwriting the initial public offering of the Bank of China, a $9.7 billion deal. According to Frank Gaffney in the National Review, “Among other problematic activities the Bank has engaged in has been the financing over the past 15 years of extensive infrastructure projects like dam-building for the mullahocracy in Iran.”

It might be naïve to think that anyone who has already amassed a personal fortune estimated at some $600 million is above seeking additional personal gain after taking office as a public servant. But even if Paulson has the best interests of the American public at heart, what is the U.S.’s best interest when its banks are in bed with Chinese banks? Bankers have influenced foreign affairs for years. Ford and General Motors were active in Nazi Germany. It’s a nasty and dangerous game.