Against All Expectations
Two years back, a wave of pledge crises swept through public companies — the unintended consequence of a well-meaning policy. To prevent excessive market volatility, rules barred major shareholders and executives from selling large blocks of shares through normal market transactions. Under this framework, the only way shareholders could convert holdings into cash was by pledging them as collateral. The result: it became standard practice for controlling shareholders and key executives to pledge 70–80% of their equity stakes to unlock liquidity.
What does this lead to? The survival of these companies becomes completely decoupled from the personal interests of the people running them. If you’re a major shareholder and you’ve already pledged 70–80% of your stake as collateral — pocketed the cash and moved on to other ventures — what motivation do you have left to fight for the company’s long-term success? None. You’ve already cashed out 70–80%, maybe 90%. If the company collapses, walking away from the remaining 10–20% is a minor inconvenience. Why chase the last copper coin?
And so you find that most public companies have become instruments of speculation — nobody is seriously planning to build a lasting legacy. On paper, a founder holding 70% of a company looks like their long-term interests are deeply tied to that company’s fate. Outside observers naturally assume every decision is anchored in long-term value. But once that founder has pledged away 90% of their stake, their actual interest in the company’s future has shrunk to almost nothing. Serious operators are becoming rarer; storytellers and hype-builders are multiplying — the real money has already been extracted. Get what you can while you can.
Since that crisis, the authorities have started closing the barn door after the horse has bolted — requiring dividend distributions and introducing exit mechanisms. Form still outweighs substance, and the effects aren’t yet obvious. But it signals the direction of change. At this stage, a market is needed to absorb and channel the capital flowing through trade supply chains upstream and downstream.
Robbing Peter to Pay Paul
Whether it’s 1 trillion or 4 trillion — all of it is domestic debt in the end.
Domestic debt means moving money from one pocket to another. Issuing bonds isn’t printing money — it’s fundraising. In its most straightforward form, it means redirecting the savings of ordinary people to purchase these debt instruments, then using the proceeds to resolve more urgent short-term debts elsewhere, or channeling investment into specific projects to inject capital into local economic activity and protect jobs.
How does this shuffling work? Take the simplest example: your fixed-term deposits sit untouched for years — the bank can deploy that money. Financial products marketed through banks to the general public are another mechanism for redirecting household savings. Some frontline bank employees push things even further — coaxing elderly customers into ticking boxes for high-risk investment options, converting what they came in to set up as fixed deposits into “voluntary” purchases of risky products. By the time these can’t be honored, those high-turnover sales reps have long collected their commissions and moved on.
This extraction isn’t only aimed at the elderly — it targets “greedy” middle-aged savers too, lured by high-interest financial products to willingly hand over their savings. Whatever the method, no new money is created. It simply moves from one place to another. From some people’s hands to others’. This holds at the individual level and at the macro level: if the authorities directly assign quotas for major institutions to absorb new debt issuances, the money these institutions deploy for that purpose — however collected — cannot simultaneously flow into financial markets or elsewhere. This creates a liquidity shortage. Asset values depend on their contribution to the real economy; asset prices depend on the volume of capital chasing them. When capital runs thin, asset prices lose their upward mobility.
The funds deployed to purchase special bonds must be withdrawn from the market — and gathering them carries a cost: interest. Whether used to defuse urgent short-term debts or fund targeted public projects, one hard reality always applies: return on investment. The returns must exceed — or at least match — the interest promised to those whose savings were mobilized. Otherwise those promised returns simply can’t be delivered.
And even when they can be delivered: the money collected by the banking system and financial institutions represents years of ordinary people’s savings. Had that money not been redirected, it might have flowed into consumption — improving people’s lives. Once redirected, vast numbers of ordinary people lose not just their savings, but their confidence and willingness to spend. And consumption is the engine that drives production. Without demand at the front end, there is no motivation or incentive to produce.
Without the motivation to produce, there’s no need for as many jobs. Economic life is a chain of interlocking links.
When sustained rate hikes and inflation in the United States cut into ordinary Americans’ purchasing power, total US imports fell by 1 trillion dollars compared to the same period last year. A few individuals can manufacture an image of prosperity through frenetic financial trading, but that has nothing to do with other countries. Most countries need American orders — not access to its financial markets. Even without artificial barriers inserted into each other’s economic activities, a drop of that magnitude in aggregate demand simply means fewer orders for us. And we need those orders — generated by their consumer demand — to drive production and protect employment. Stable jobs with reliable incomes are the foundation of family life.
Right now, protecting jobs is the priority — not protecting asset values. When the same pool of money must choose between the two, it will always go to jobs — unless asset price volatility threatens employment itself.
Weighing Two Evils
For the past two decades, real estate has not only been the most important sector of the economy — it has also been the single greatest mobilizer of capital and the single greatest creator of debt.
A person who owns several properties may nominally hold assets worth tens of millions. In reality, that same person carries tens of millions in debt and must continuously service that debt with interest payments. To protect this nominal wealth, every other form of consumption and investment gets squeezed to the maximum, wringing out cash flow to sustain the long-term drain these debts impose on disposable income. The moment that flow breaks — all the assets vanish in an instant.
Such is the situation for one person. Multiply it across the dominant social class composed of millions in this same position, and the picture becomes self-evident. Scale it further to the entire sector, and it seems to operate by the same rules. The size of apparent wealth is matched exactly by the size of debt. Debt is a black hole — it devours the present and mortgages the future. Its consumption of the present breeds oppression; its mortgaging of the future breeds despair and fear.
If social wealth is water, then debt is an iceberg that refuses to flow. The current situation: the water supply is abundant, but the icebergs are too large and too numerous — creating a liquidity shortage. Plenty of water exists, but everywhere that needs it is running dry.
The urgent task is to find a way to melt the icebergs — not to make it rain harder.
Because in this cold, path-dependent environment, new rain simply freezes into new icebergs. The problem doesn’t get solved — it gets harder to solve.
Is there a way to melt the icebergs? Yes — but it could trigger another kind of uncontrolled collapse. Internal deliberations are weighing the trade-offs; nothing has been formally announced. Every new mechanism carries the potential for both opportunity and catastrophe. This is much like 1998, when all restrictions were lifted and powerful policy momentum transformed real estate into the core engine driving social and economic growth. It solved the urgent problem of an export-oriented economy lacking internal drivers — but also planted the seeds of today’s predicament. Any major course correction has trade-offs; the question is at what level they are made.
As far as I know, some official financial institutions have already begun studying a mechanism to melt the icebergs — to make debt mobile again. But the side effects are obvious: it would flood the market with junk bonds. That’s something the Americans have lived through in their own history. In truth, the trade-offs extend well beyond what’s described here — there are deeper layers of consequence not convenient to discuss openly.
Many prominent figures have fallen from power recently — all of it deeply connected to these icebergs. While the problems within the sector appear to have been caused by outside actors, the ones who have fallen are insiders. Every activity that creates social wealth also cultivates a group — even forges a power bloc. Once that bloc’s entangled interests cross the line between inside and outside — or link up with like-minded counterparts overseas — things become both complicated and dangerous.
This is much like the medieval European kings who, to curb the great lords, deliberately cultivated the clerical class — granting them land, privileges, even arming them. Over time, a new kind of priest-lord emerged, straddling both secular power and religious influence, forming a far more troublesome force.
As these priest-lords multiplied and their territories and influence expanded, the kings of Europe found themselves servants of the Pope.