on: June 30, 2015, 11:16:46 AM
Started by DougMacG - Last post by Crafty_Dog
e 29, 2015 6:49 p.m. ET
A miserable Supreme Court term got worse on Monday when another 5-4 majority decided to rewrite the Constitution’s Elections Clause to limit legislative redistricting. We’ve deplored legislative gerrymanders as much as anyone, but that doesn’t mean our policy preference should trump the Constitution.
In 2000 Arizona voters approved a ballot measure to amend the state constitution and give a five-member commission the power to draw the map for Congressional districts. The idea was to take redistricting away from politicians who invariably use it for partisan advantage.
Good intention, but the Elections Clause says the “times, places and manner of holding elections for Senators and Representatives, shall be prescribed in each state by the legislature thereof.” And the legislature didn’t sanction the referendum.
Justice Ruth Bader Ginsburg nonetheless writes for the liberals and Anthony Kennedy that when the Framers wrote the word “legislature” they didn’t mean “legislature.” They meant it loosely because “the people themselves are the originating source of all the powers of government.”
The Founders weren’t perfect but they were more precise wordsmiths than the average Supreme Court Justice. For example, when they meant “the people,” they wrote “the people.” So when they wrote “the legislature,” confidence is high that they meant “the legislature.”
The majority’s ruling has “no basis in the text, structure, or history of the Constitution, and it contradicts precedents from both Congress and this Court,” Chief Justice John Roberts writes in withering dissent. The Constitution, he notes, uses the word legislature in 17 instances where it cannot possibly be interpreted to mean “the people,” and Supreme Court precedents have specified that in the Elections Clause the word legislature means “the representative body which ma[kes] the laws of the people.”
When the Constitution was written, state legislatures were given the power to choose the Senators the states sent to Washington, D.C. It took decades, and the Seventeenth Amendment, to give that power directly to voters. “What chumps!” Chief Justice Roberts writes, “Didn’t they realize that all they had to do was interpret the constitutional term ‘the Legislature’ to mean ‘the people’?”
The position of the four liberal Justices isn’t all that surprising because taking redistricting away from legislatures has become fashionable on the left now that Republicans hold the House. But Justice Kennedy’s vote rankles in particular because he has shown good judgment on election law in previous cases including 2008’s Crawford v. Marion County (upholding Indiana’s voter ID requirement), 2013’s Shelby County v. Holder (striking down the Voting Rights Act’s preclearance requirement) and 2010’s Citizens United v. FEC (invalidating a ban on corporate and union independent expenditures).
Partisan gerrymanders deserve criticism, but Justice Ginsburg’s opinion is an act of judicial invention. Like so many other rulings this term, it subordinates the Constitution’s plain language and the Court’s own precedents to a policy agenda. That does more damage to constitutional democracy than any redistricting can.
on: June 30, 2015, 10:49:11 AM
Started by Crafty_Dog - Last post by Crafty_Dog
Police in Cairo on Monday inspected the wreckage of a convoy carrying Egypt’s top prosecutor, Hisham Barakat, who was killed by the attack.
Publish Date June 29, 2015. Photo by Hatem Safwat/European Pressphoto Agency.
CAIRO — A powerful bomb killed Egypt’s top prosecutor as he drove to work Monday morning, broadening the violent insurgency against the government that militants have been waging for two years.
The prosecutor, Hisham Barakat, was the most senior official to be killed in Egypt since the insurgency began in 2013, after the military ousted the country’s first freely elected president, Mohamed Morsi of the Muslim Brotherhood.
Gen. Osama Bedeir, chief of security here in Cairo, said the bomb was in a car parked along Mr. Barakat’s route and was probably detonated by remote control. The apparently sophisticated mode of attack foiled security measures that were meant to protect Mr. Barakat, who had repeatedly received death threats.
The daylight assassination of so senior a figure was a blow to President Abdel Fattah el-Sisi, who rose to power on a promise to restore stability after years of political tumult. His government has justified a broad crackdown against Islamists and other opponents as necessary to eradicate the threat from militants.
This month, militants carried out separate attacks near the Pyramids at Giza and the Karnak temple in Luxor, two of Egypt’s most popular tourist destinations, further denting the government’s efforts to project order. Monday’s attack appeared to set Egypt on a course for more violence. The killing of Mr. Barakat was seen as likely to embolden the militants while prompting an even more forceful response from the security services. There was no immediate claim of responsibility.
As one of the nation’s most prominent judicial officials, Mr. Barakat was a focal point for militant groups vowing retaliation for the prosecutions of hundreds of Islamists and the death sentences handed down against senior Brotherhood leaders, including Mr. Morsi.
Many of Mr. Barakat’s prosecutions had also been criticized by human rights advocates, who said the cases were built on flimsy evidence and politically motivated charges.
An Egyptian jihadist group affiliated with the Islamic State — one that has killed judges in the past — posted a video Sunday that appeared to threaten more attacks against the judiciary. The group, which calls itself the Sinai Province, included images that appeared to show an attack in May that killed several judges; fighters are seen spraying a minibus with machine-gun fire.
The three-minute video also included brief images of several other prominent judges, including one who sentenced Mr. Morsi to death.
But analysts said the bombing on Monday might have been the work, instead, of one of a number of militant groups that have surfaced in the last year with smaller-scale attacks. The emergence of these groups, with names like Revolutionary Punishment, have added to longstanding fears in Egypt that Islamists and other opponents of the government would turn to violence in response to the government’s crackdown.
The rise of the new groups coincided with a shift in the insurgency’s focus: After nearly two years of attacks mainly against the security services, killing hundreds of soldiers and police officers, the militants have broadened their targets to include civilian officials in the judiciary.
“This was something that was a long time in the making,” said Mokhtar Awad, a researcher at the Center for American Progress in Washington who studies Egyptian Islamist groups. “The groups that I classify as non-jihadist violent Islamists have always had, at the center of their discourse, the issue of retribution. It was clear that police officers were No. 1 on their list, but eventually, this had to include judges.”
The explosion on Monday hit Mr. Barakat’s small convoy around 10 a.m. as it left the Heliopolis neighborhood near Cairo International Airport. The force of the blast set several cars on fire and shattered windows along the street, injuring at least eight people.
Egyptian officials initially said that Mr. Barakat’s wounds were not life-threatening and included bruises to his face and a dislocated shoulder. Later, the Health Ministry said Mr. Barakat had suffered a lacerated liver and died in the hospital from internal bleeding.
The explosion raised troubling questions about the government’s security measures, which failed to protect one of its most vulnerable officials even though militants had attempted similar attacks before. In September 2013, Mohamed Ibrahim, who was interior minister at the time, survived a bomb attack on his convoy in Cairo.
Ahmed Shazly, who lives near the site of the latest bombing, said Mr. Barakat appeared to follow the same routine every morning, leaving for work in a two-vehicle convoy, one of them apparently an armored vehicle.
In a statement on Monday, Mr. Sisi praised Mr. Barakat as a “model of judicial integrity” who “exemplified patriotism and diligence.” The government said it was canceling celebrations planned for Tuesday to commemorate the start of the mass protests that preceded Mr. Morsi’s ouster.
on: June 30, 2015, 10:46:10 AM
Started by Crafty_Dog - Last post by Crafty_Dog
Christianity is in decline in the United States. The share of Americans who describe themselves as Christians and attend church is dropping. Evangelical voters make up a smaller share of the electorate. Members of the millennial generation are detaching themselves from religious institutions in droves.
Christianity’s gravest setbacks are in the realm of values. American culture is shifting away from orthodox Christian positions on homosexuality, premarital sex, contraception, out-of-wedlock childbearing, divorce and a range of other social issues. More and more Christians feel estranged from mainstream culture. They fear they will soon be treated as social pariahs, the moral equivalent of segregationists because of their adherence to scriptural teaching on gay marriage. They fear their colleges will be decertified, their religious institutions will lose their tax-exempt status, their religious liberty will come under greater assault.
The Supreme Court’s gay marriage decision landed like some sort of culminating body blow onto this beleaguered climate. Rod Dreher, author of the truly outstanding book “How Dante Can Save Your Life,” wrote an essay in Time in which he argued that it was time for Christians to strategically retreat into their own communities, where they could keep “the light of faith burning through the surrounding cultural darkness.”
He continued: “We have to accept that we really are living in a culturally post-Christian nation. The fundamental norms Christians have long been able to depend on no longer exist.”
Most Christian commentary has opted for another strategy: fight on. Several contributors to a symposium in the journal First Things about the court’s Obergefell decision last week called the ruling the Roe v. Wade of marriage. It must be resisted and resisted again. Robert P. George, probably the most brilliant social conservative theorist in the country, argued that just as Lincoln persistently rejected the Dred Scott decision, so “we must reject and resist an egregious act of judicial usurpation.”
These conservatives are enmeshed in a decades-long culture war that has been fought over issues arising from the sexual revolution. Most of the conservative commentators I’ve read over the past few days are resolved to keep fighting that war.
I am to the left of the people I have been describing on almost all of these social issues. But I hope they regard me as a friend and admirer. And from that vantage point, I would just ask them to consider a change in course.
Consider putting aside, in the current climate, the culture war oriented around the sexual revolution.
Put aside a culture war that has alienated large parts of three generations from any consideration of religion or belief. Put aside an effort that has been a communications disaster, reducing a rich, complex and beautiful faith into a public obsession with sex. Put aside a culture war that, at least over the near term, you are destined to lose.
Consider a different culture war, one just as central to your faith and far more powerful in its persuasive witness.
We live in a society plagued by formlessness and radical flux, in which bonds, social structures and commitments are strained and frayed. Millions of kids live in stressed and fluid living arrangements. Many communities have suffered a loss of social capital. Many young people grow up in a sexual and social environment rendered barbaric because there are no common norms. Many adults hunger for meaning and goodness, but lack a spiritual vocabulary to think things through.
Social conservatives could be the people who help reweave the sinews of society. They already subscribe to a faith built on selfless love. They can serve as examples of commitment. They are equipped with a vocabulary to distinguish right from wrong, what dignifies and what demeans. They already, but in private, tithe to the poor and nurture the lonely.
The defining face of social conservatism could be this: Those are the people who go into underprivileged areas and form organizations to help nurture stable families. Those are the people who build community institutions in places where they are sparse. Those are the people who can help us think about how economic joblessness and spiritual poverty reinforce each other. Those are the people who converse with us about the transcendent in everyday life.
This culture war is more Albert Schweitzer and Dorothy Day than Jerry Falwell and Franklin Graham; more Salvation Army than Moral Majority. It’s doing purposefully in public what social conservatives already do in private.
I don’t expect social conservatives to change their positions on sex, and of course fights about the definition of marriage are meant as efforts to reweave society. But the sexual revolution will not be undone anytime soon. The more practical struggle is to repair a society rendered atomized, unforgiving and inhospitable. Social conservatives are well equipped to repair this fabric, and to serve as messengers of love, dignity, commitment, communion and grace.
on: June 30, 2015, 10:41:14 AM
Started by Crafty_Dog - Last post by Crafty_Dog
Jindal did the "Center Seat" on the panel of Bret Baier's Special Report yesterday and impressed me quite a bit.
The only negative was I thought he pandered a bit on Christian themes but overall he was quite good.
*By far the best specificity I have heard about what should replace Obamacare.
*Surprisingly well informed and thoughtful (i.e. he wasn't just regurgitating) on foreign affairs
*Sounded very strong on his record of Governor in LA
*Sounded persuasive on what he had learned from being governor
*Spoke simply and directly, not much a politician's puffery.
I'm not seeing how he gets to raising the money his campaign will need, but the man is worth noting IMHO.
on: June 30, 2015, 10:35:50 AM
Started by Crafty_Dog - Last post by Crafty_Dog
A Scientific Ethical Divide Between China and West
By DIDI KIRSTEN TATLOWJUNE 29, 2015
Huso Yi, the director of research at the Chinese University of Hong Kong Center for Bioethics, said of China’s gene modification work, “The consensus among the scientific community is, ‘not for now.’ ” Credit Billy H.C. Kwok for The New York Times
BEIJING — China is spending hundreds of billions of dollars annually in an effort to become a leader in biomedical research, building scores of laboratories and training thousands of scientists.
But the rush to the front ranks of science may come at a price: Some experts worry that medical researchers in China are stepping over ethical boundaries long accepted in the West.
Scientists around the world were shocked in April when a team led by Huang Junjiu, 34, at Sun Yat-sen University in Guangzhou, published the results of an experiment in editing the genes of human embryos.
The technology, called Crispr-Cas9, may one day be used to eradicate inheritable illnesses. But in theory, it also could be used to change such traits as eye color or intelligence, and to ensure that the changes are passed on to future generations.
Dr. Huang and his colleagues tried to modify a gene that causes a blood disorder called beta-thalassemia. The experiment failed in 85 embryos. Even so, to many in global science, it was a line that should not have been crossed.
Scientists in the West generally abjure this sort of research on the grounds that it amounts to genetic engineering of humans. In any event, the technology is still in the earliest stages of development.
“The consensus among the scientific community is, ‘not for now,’ ” said Huso Yi, the director of research at the Chinese University of Hong Kong Center for Bioethics.
Yet Chinese scientists seem in no mood to wait.
“I don’t think China wants to take a moratorium,” Mr. Yi said. “People are saying they can’t stop the train of mainland Chinese genetics because it’s going too fast.”
China is quickly building infrastructure for scientific research.
In 2013, the last year for which statistics are available, the state invested more than 1.18 trillion renminbi, or $190 billion, which is more than 2 percent of its gross domestic product, in “the development of scientific research and experimentation,” according to China’s National Bureau of Statistics.
In 2011, the state invested about $140 billion, or 1.84 percent of its G.D.P., the bureau said.
“The gap between China’s new bioscience technologies and that of the West is closing,” said Zhai Xiaomei, a member of the country’s National Medical Ethical Committee and a professor at Peking Union Medical College.
But the research juggernaut is gathering momentum in a country where training in ethics for scientists was introduced, under pressure from the West, only a dozen years ago.
“The ‘red line’ in the West and in China are not too similar,” Deng Rui, a medical ethicist at Shanxi Medical University, said in a telephone interview. “Ethics are a question of culture, and that is about tradition, especially where it touches on human life.”
“Confucian thinking says that someone becomes a person after they are born. That is different from the United States or other countries with a Christian influence, where because of religion they may feel research on embryos is not O.K.”
The state does set limits, Ms. Deng said: “Our ‘red line’ here is that you can only experiment on embryos that are younger than 14 days old.”
The proscription is contained in a document issued by the health and science ministries in 2003. It now urgently needs updating, she said. Chinese scientists adhere to globally accepted ethical and scientific norms, said Ms. Zhai, the medical ethics committee member. But many scientists experience pressure not to do so, she acknowledged.
“Inside China, there are people who are opposed to international standards, citing cultural differences,” Ms. Zhai said. “This force is actually quite powerful sometimes.”
In the case of Dr. Huang’s experiment, the national committee decided that it was ethically acceptable because it “was not for reproductive purposes,” Ms. Zhai said, a stance that surprised some overseas scientists.
“They chose to use embryos that would soon be destroyed. So far, we have been regarding it as a very fundamental research, instead of interventions in or editing of germ cells,” Ms. Zhai said.
But she struck a warning note: “If you want to edit genes in germ cells with the intention of using this right away, it’s absolutely not O.K., because the technology has yet to become mature.”
Disturbed by the recent study, Rao Yi, a professor of biology and director of the four-year-old Center of Life Sciences at Peking University, run jointly with Tsinghua University, warned that scientific research in China urgently needed more effective ethical oversight.
“The more technology we have, the more dangerous we are to ourselves and entire humankind,” Dr. Rao said.
Chinese scientists are generally poorly paid, he said, but may receive a bonus of up to $32,000 per article from the state for publishing in international scientific journals, providing financial incentives for pushing the boundaries.
“Do first, talk later” is the attitude of many, Dr. Rao and two colleagues wrote recently on iScientist, an online community for Chinese researchers.
A global medical ethics body run by the World Health Organization or the United Nations should be set up to regulate scientific experimentation, Dr. Rao said.
More unpleasant scientific surprises are looming, several scientists said. “Right now, human gene editing is the main thing,” Mr. Yi said. Geneticists in China “don’t want to be guided by Western people.”
The mind-set among Chinese researchers, according to Mr. Yi: “ ‘We’re going to do it, then see what’s wrong, then fix it. But the conceptual discussion may be missing.’ ”
Correction: June 30, 2015
on: June 30, 2015, 10:27:30 AM
Started by Crafty_Dog - Last post by Crafty_Dog
My prediction of several years now may now be coming to pass:
Has China's Stock Market Bubble Burst?
June 30, 2015 | 09:00 GMT
In the coming months, the stark disjunction between China's stock market boom and its slowing economy will weigh more heavily on stock performance.
As the stock market boom inevitably winds down, authorities will struggle to contain financial fires caused by the sharp increase in reliance on margin financing (both formal and "shadow") by stock market investors. The volume of outstanding margin loans is too small to trigger a systemic crisis, but temporary liquidity crunches cannot be ruled out. The eventual decline of the stock market, combined with the continued slowdown of property markets across China, will leave ordinary Chinese with fewer options for investing their savings.
The Shanghai Composite Index, which tracks the performance of stocks on China's largest exchange, fell 3.3 percent on June 29, compounding a 7.4 percent drop June 26 — the largest single-day decline since 2008, when Chinese stocks were in the midst of a global financial crisis-induced collapse. Days of sustained falls, even as the country's central bank further cut reserve requirement ratios and interest rates, have reduced the Shanghai exchange more than 21 percent from its June 12 peak, officially making it a bear market. It is unclear whether the fall will continue or, as has happened several times in recent months, whether it will stabilize or even reverse itself in the weeks ahead. But the sharp declines over past weeks cast a spotlight on the increasingly glaring gap between China's buoyant equities and the reality of its continued, and in many ways deepening, economic slowdown.
There was an extraordinary boom in Chinese stocks over the past year. In the 12 months since June 2014, when the boom began, the combined market capitalization of the Shanghai and Shenzhen exchanges rose more than 140 percent. Since early May alone, more than 5 million new investors, most of them ordinary Chinese, have entered the market, bringing the total number of investors to 90 million. Over the past five months, total assets under management at China's mutual funds have nearly doubled, from $720 billion to over $1.2 trillion. In November 2014, China overtook Japan as the world's second largest stock market, with a market capitalization of $4.5 trillion. Today, its stocks have an estimated value of around $9 trillion, roughly equivalent to the country's gross domestic product.
Strikingly, however, this dramatic growth has taken place against a backdrop of steady declines across most major indicators in the economy at large. Industrial profits fell 1.4 percent in the first four months of the year, while those across the state-owned sector — which enjoys disproportionately high representation on China's largest stock exchange, in Shanghai — collapsed by nearly 25 percent. Profits are rising among private sector businesses, but at 6.1 percent in the January-April period, their annual growth pales in comparison to concurrent gains in the Shenzhen index, on which private enterprises are better represented. At the same time, growth in fixed-asset investments, which account for nearly 50 percent of China's GDP, has fallen to its slowest pace since the global financial crisis, and housing construction-related spending — by far the largest component of fixed asset investment — is growing at roughly one-third the pace of a year ago. To be sure, home prices and sales have seen a modest rebound in top-tier markets in recent weeks. And services, high-tech and consumption-related industries continue to grow at a stable rate. But these gains are far from sufficient to support nationwide GDP growth at the government's 7 percent annual target, let alone to explain the stupendous performance of China's equity markets in recent months.
A confluence of factors accounts for the sharp growth in Chinese equity markets over the past 12 months. Excitement over China's nascent high-tech sector, along with strong growth in consumption and services industries, has undoubtedly contributed to the boom. But these factors alone do not fully account for the rapidity and scale of gains made across the board on both of China's leading exchanges, nor for its coincidence with slower growth across most of the country's industrial sector. Rather, the current stock market boom must be understood in relation to two other factors: China's regime of strict capital controls and the decline, starting in March 2014, of the real estate sector.
Expansion in China's Stock Markets
A defining feature of China's financial and economic development over the past three decades has been the government's tight control over the flow of capital in and out of the country. For most of the Reform and Opening period, individual Chinese were prohibited from investing overseas. This has changed somewhat in recent years, in part in an effort to better regulate cross-border capital flows and to combat illicit capital flight. But even today, the vast majority of overseas Chinese investment comes from state-owned enterprises and high net-worth individuals, many of them Party officials or affiliates. Ordinary Chinese by and large are barred from parking their capital and seeking returns beyond China's borders.
Domestically, partially by design and partially because of a lack of financial depth (a legacy of the Mao era, during which securities were outlawed), ordinary Chinese have traditionally had few avenues for investing their savings. Until the late 1980s, they had two options: to deposit savings in state-owned banks, where returns consistently trailed inflation, or to keep them under their mattresses, where returns were even worse. The reason for this arrangement was simple: decades of self-isolation from global trade and financial markets made China in the 1980s an extremely capital-poor economy. And since the government owned the economy, and thus bore sole responsibility for raising and investing funds, it had to ensure it could capture as much of the population's wealth as possible. The easiest way to do this was to give ordinary Chinese no choice but to put their savings in state-owned banks.
China's earliest stock exchanges emerged organically in the late 1980s in cities like Shenzhen and Chengdu in an environment of extraordinary (and short-lived) political openness, rapid growth in private sector industry (which for the most part lacked access to state-controlled funds), and rising demand for higher returns from a population getting its first taste of capitalism in decades. By the early 1990s, however, these earlier exchanges had largely been co-opted by the state and transformed into a nationwide platform — with the newly created Shanghai exchange at its center — for raising capital for the state sector. Ordinary Chinese seeking new places to invest their savings cared little whether the exchanges targeted smaller private firms (as the original Shenzhen exchange did) or larger state-owned firms (as Shanghai, which became the model for other markets nationwide, did), so long as the returns were potentially greater than what might be earned on a commercial bank deposit.
This process coincided with the creation and expansion of commercial urban real estate markets in the mid-1990s, which provided another opportunity for ordinary Chinese to invest their savings. For a combination of social, cultural and policy reasons, and in part because of the lack of transparency and high volatility in China's increasingly state-centric stock markets, the development of the commercial real estate sector vastly outpaced that of stock markets in the 1990s and early 2000s. Stocks were a useful additional means of channeling the population's wealth into state entities, but they were not critical to the state's financing efforts. Indeed, in some ways the development of the stock market threatened Beijing's interests because the more deposits that were redirected to stocks, the less that went to banks' coffers. State-owned enterprises continued to rely primarily on banks for funding, and banks relied on consumer deposits.
The current expansion in China's stock markets is by no means the first, nor even the biggest, since official exchanges were opened in 1990, but it is in many ways the most significant. It comes amid the slowdown of China's decade-plus real estate boom and at a time when ever more Chinese seek means to protect and grow their savings. For the past 10-15 years, and especially since 2008, real estate has been not only the single most important industry in China but also by far the leading investment destination for ordinary Chinese seeking high returns on their savings. This speculative investment activity, much of it fueled by state-backed credit, sustained the extraordinary proliferation of housing markets across the country, and in doing so played a crucial role in maintaining high rates of employment and social stability in the wake of the global financial crisis.
While China's property sector was booming, ordinary Chinese had comparatively little incentive to invest in the stock market. In the 2000s, China's exchanges became notorious for their dysfunction and volatility because of lack of transparency and poor oversight of the initial public offering process. By 2006-2007, the last major boom period, they had come to be viewed by most ordinary Chinese as akin to the lottery — a far cry from property, which generated seemingly never-ending profits and had the benefit of being a fixed asset. Over the past several years, however, the government has gradually introduced a number of reforms aimed at professionalizing the country's biggest exchanges, including reforming the initial public offering process, strengthening the national securities regulator, and slowly opening Chinese stocks to Hong Kong and international investors.
The redevelopment of China's stock markets coincided with the slowing of China's housing market, and this convergence — combined with the proliferation of communications technologies that allow far more people to connect to markets than ever before — has underpinned the rapid growth of the Shanghai and Shenzhen exchanges over the past 12 months. In short, with real estate no longer capable of providing the returns it once did, ordinary Chinese have turned to stocks. For Beijing, this is in many ways a welcome development. As long as the market remains buoyant, it is providing a much-needed source of financing to thousands of Chinese companies, both state-owned and private, at a time when the government is working desperately to curb the economy's dependence on state-backed credit. At the same time, insofar as it allows ordinary Chinese to expand their wealth, it can be a useful tool of social management at a time of slowing growth, heightened concern over local government and corporate debt risks, and increased political uncertainty.
But as has become clear in recent weeks, China's stock markets are increasingly vulnerable to the sort of debt-fueled speculative activity that drove the country's housing boom into bubble territory and that has made the process of deflating that bubble so treacherous both economically and politically. One key difference between the ongoing boom and that of 2006-2007 is the emergence of margin financing, or loans used to invest in stocks. Before 2010, China had no formal channels for individual investors to take out loans for investment in the stock market. Certainly margin loan-like tools existed, but on a highly informal and ad hoc basis, disconnected from the state-owned banking sector and thus posing little threat to national financial stability. When the market crashed in 2008, it wiped out the personal savings of many millions of investors, but the lack of leverage minimized the risk of financial contagion.
There has been a remarkable surge in margin financing over the past five months, both formal and informal. Since January, the value of outstanding margin loans has doubled to roughly $350 billion. Informal margin financing has an estimated value of between $80 billion and $160 billion. Though small compared to the total value of China's stock market or assets in the state-owned banking sector, the surge in margin financing both formal and shadow raises the risk of a liquidity crunch — and possibly wider financial contagion — if and when the market does enter into terminal decline. In recent weeks, the government has moved to limit banks' exposure to margin loans by raising the minimum assets required to qualify for margin financing and creating a program to facilitate the rollover of margin loans. But these measures, like policies intended to cool China's housing market by tightening the flow of bank credit in years past, could have the side effect of driving up demand for informal sources of margin financing.
One outstanding question raised by the fall in stock prices during the week leading up to June 26 is what new investment avenues may emerge if and when the current stock market boom does come to an end. The massive oversupply in China's housing sector makes a significant, sustained recovery in real estate markets beyond a handful of top-tier cities highly unlikely in the next 6-12 months and possibly for years to come. But with capital controls still largely in place and with the government likely to proceed slowly with efforts to liberalize interest rates on bank deposits, it is unclear what other high-return options exist for ordinary and wealthy Chinese alike, not to mention for China's growing industry of institutional investors such as mutual funds. China's population is increasingly attuned to the benefits of investing, and as the economic slowdown begins leading to unemployment in many regions over the coming months, it will be increasingly dependent on it. But Beijing will struggle to provide its populace with new investment opportunities.