Letter: Bagehot’s bubble warnings describe Evergrande today

Published in The Financial Times.

Hui Ka Yan, the boss of Evergrande in the heady days of the vast Chinese real estate bubble, and China’s richest person in 2017, has now been sentenced to life imprisonment for fraud and other financial crimes. But he is far from the first of the type (“Evergrande founder jailed for life and assets seized,” Report, August 21). As Walter Bagehot pointed out in his classic book Lombard Street more than 150 years ago, fraud and bubbles go together.

“The good times of too high price almost always engender much fraud. All people are most credulous when they are most happy; and when much money has just been made, when some people are really making it, when most people think they are making it, there is a happy opportunity for ingenious mendacity. Almost everything will be believed for a little while.”

Just as today’s investors believed in those “billions of dollars in international bonds”, now worth pennies on the dollar, that they bought from Evergrande.