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Some plaintiffs even assert that practically all the loans should never have been included in some bonds issued in 2006 and 2007. For instance, in litigation against Bear Stearns, private investors, after doing analyses of the underlying mortgages, have asserted that 80 to 100 percent of the loans did not meet minimum standards, according to a survey of court filings by Nomura bank.

“I know you don’t want to hear this from me, but the wealthy are getting wealthier, and again, the belly of America is getting hurt,” he said. “Look, I’m a hard-core capitalist. But let’s be fair — capitalism only works if it starts at the top and filters down. If it doesn’t get down, we’re going to lose.”

“Taken together, they are fraying the fabric of our system,” he said.And once again, he pointed the finger at Washington, prompting the crowd to cheer

Mr. Fuld also quickly offered three data points that he suggested made it clear that Lehman could have survived, had the Fed not forced it to fail: “When Lehman was mandated into bankruptcy, we said our equity capital was $28 billion. Second, we had a Tier 1 capital ratio of 11 percent. Third, Lehman had unencumbered collateral of $127 billion.”

“It’s very easy to look back. As they said, hindsight is 20/20. There is no ‘if’ or ‘woulda coulda shoulda,’ ” he said. “You can only make a decision at any specific time with the best information that you think you have.”Going further, Mr. Fuld insisted that he could have saved the firm: “Lehman Brothers at the point of 2008 was not a bankrupt company.”

Asked what he could have done differently, he avoided answering directly, and instead said, “I think I missed the violence of the market and how it spread from one asset class to the next. Did we do everything we could? Did we fall prey to some other agendas? I’ll leave it at that.”

In the end, Mr. Fuld seemed hung up on the fate of his own firm, not the broader crisis that its bankruptcy helped ignite.

globalization has produced enormous benefits. From 1970 to the 2008 financial crisis, global output quadrupled, and the benefits did not flow exclusively to the rich. According to the economist Steven Radelet, the number of people living in extreme poverty in developing countries fell from 42 percent in 1993 to 17 percent in 2011, while the percentage of children born in developing countries who died before their fifth birthday declined from 22 percent in 1960 to less than 5 percent by 2016.

statistics like these do not reflect the lived experience of many people. The shift of manufacturing from the West to low labor-cost regions has meant that Asia’s rising middle classes have grown at the expense of rich countries’ working-class communities

from a cultural standpoint, the huge movement of ideas, people and goods across national borders has disrupted traditional communities and ways of doing business. For some this has presented tremendous opportunity, but for others it is a threat.

This disruption has been closely associated with the growth of American power and the liberal world order that the United States has shaped since the end of World War II. Understandably, there has been blowback, both against the United States and within the nation.

Liberalism is based on a rule of law that maintains a level playing field for all citizens, particularly the right to private property

The democratic part, political choice, is the enforcer of communal choices and accountable to the citizenry as a whole

Over the past few years, we’ve witnessed revolts around the world of the democratic part of this equation against the liberal one

Vladimir Putin, perhaps the world’s chief practitioner of illiberal democracy. Mr. Putin has become very popular in Russia, particularly since his annexation of Crimea in 2014. He does not feel bound by law: Mr. Putin and his cronies use political power to enrich themselves and business wealth to guarantee their hold on power.

Mr. Orbán, Mr. Putin and Mr. Erdogan all came to power in countries with an electorate polarized between a more liberal, cosmopolitan urban elite — whether in Budapest, Moscow or Istanbul — and a less-educated rural voter base. This social division is similar to the one that drove the Brexit vote in Britain and Donald Trump’s rise in the United States..

Mr. Trump’s ascent poses a unique challenge to the American system because he fits comfortably into the trend toward illiberal democracy.

Like Mr. Putin, Mr. Trump seemsto want to use a democratic mandate to undermine the checks and balances that characterize a genuine liberal democracy. He will be an oligarch in the Russian mold: a rich man who used his wealth to gain political power and who would use political power to enrich himself once in office

The citizens of India and Japan have elected nationalist leaders who many say they believe champion a more closed form of identity than their predecessors

How far will this trend toward illiberal democracy go? Are we headed for a period like that of the early 20th century, in which global politics sank into conflict over closed and aggressive nationalism?

The outcome will depend on several critical factors, particularly the way global elites respond to the backlash they have engendered.

In America and Europe, elites made huge policy blunders in recent years that hurt ordinary people more than themselves.

Deregulation of financial markets laid the groundwork for the subprime crisis in the United States, while a badly designed euro contributed to the debt crisis in Greece, and the Schengen system of open borders made it difficult to control the flood of refugees in Europe. Elites must acknowledge their roles in creating these situations.

Now it’s up to the elites to fix damaged institutions and to better buffer those segments of their own societies that have not benefited from globalization to the same extent.

Above all, it is important to keep in mind that reversing the existing liberal world order would likely make things worse for everyone, including those left behind by globalization. The fundamental driver of job loss in the developed world, after all, is not immigration or trade, but technological change.

We need better systems for buffering people against disruption, even as we recognize that disruption is inevitable. The alternative is to end up with the worst of both worlds, in which a closed and collapsing system of global trade breeds even more inequality.

the financial industry has grown much faster than either the flow of savings it channels or the assets it manages.

Defenders of modern finance like to argue that it does the economy a great service by allocating capital to its most productive uses — but that’s a hard argument to sustain after a decade in which Wall Street’s crowning achievement involved directing hundreds of billions of dollars into subprime mortgages.

Wall Street’s friends also used to claim that the proliferation of complex financial instruments was reducing risk and increasing the system’s stability, so that financial crises were a thing of the past. No, really.

if our supersized financial sector isn’t making us either safer or more productive, what is it doing? One answer is that it’s playing small investors for suckers, causing them to waste huge sums in a vain effort to beat the market.

Another answer is that a lot of money is going to speculative activities that are privately profitable but socially unproductive.

n short, we’re giving huge sums to the financial industry while receiving little or nothing — maybe less than nothing — in return. Mr. Philippon puts the waste at 2 percent of G.D.P.

et even that figure, I’d argue, understates the true cost of our bloated financial industry. For there is a clear correlation between the rise of modern finance and America’s return to Gilded Age levels of inequality.

Tooze calls it a problem in “Western capitalism” intentionally. It was not just an American problem.

One of the great strengths of Tooze’s book is to demonstrate the deeply intertwined nature of the European and American financial systems.

In 2006, European banks generated a third of America’s riskiest privately issued mortgage-backed securities. By 2007, two-thirds of commercial paper issued was sponsored by a European financial entity.

“Between 2001 and 2006,” Tooze writes, “Greece, Finland, Sweden, Belgium, Denmark, the U.K., France, Ireland and Spain all experienced real estate booms more severe than those that energized the United States.”

while the crisis may have been caused in both America and Europe, it was solved largely by Washington. Partly, this reflected the post-Cold War financial system, in which the dollar had become the hyperdominant global currency and, as a result, the Federal Reserve had truly become the world’s central bank.

therein lies the unique feature of the crash of 2008. Unlike that of 1929, it was not followed by a Great Depression. It was not so much the crisis as the rescue and its economic, political and social consequences that mattered most

The Fed acted aggressively and also in highly ingenious ways, becoming a guarantor of last resort to the battered balance sheets of American but also European banks. About half the liquidity support the Fed provided during the crisis went to European banks

Before the rescue and even in its early stages, the global economy was falling into a bottomless abyss. In the first months after the panic on Wall Street, world trade and industrial production fell at least as fast as they did during the first months of the Great Depression. Global capital flows declined by a staggering 90 percent

But Tooze also convincingly shows that the European Central Bank mismanaged things from the start

China, with its own gigantic stimulus, created an oasis of growth in an otherwise stagnant global economy.

The rescue worked better than almost anyone imagined

The governing elite did not anticipate the crisis — as few elites have over hundreds of years of capitalism. But once it happened, many of them — particularly in America — acted quickly and intelligently, and as a result another Great Depression was averted. The system worked

The Federal Reserve, with some assistance from other central banks, arrested this decline. The Obama fiscal stimulus also helped to break the fall.

On the left, the entire episode discredited the market-friendly policies of Tony Blair, Bill Clinton and Gerhard Schroeder, disheartening the center-left and emboldening those who want more government intervention in the economy

On the right, it became a rallying cry against bailouts and the Fed, buoying an imaginary free-market alternative to government intervention. Unlike in the 1930s, when the libertarian strategy was tried and only deepened the Depression, in the last 10 years it has been possible for the right to argue against the bailouts, secure in the knowledge that their proposed policies will never actually be implemented.

The crash brought together many forces that were around anyway — stagnant wages, widening inequality, anger about immigration and, above all, a deep distrust of elites and government — and supercharged them. The result has been a wave of nationalism, protectionism and populism in the West today.

confirmation of this can be found in the one major Western country that did not have a financial crisis and has little populism in its wake — Canada.

No government handled the crisis better than that of the United States, which acted in a surprisingly bipartisan fashion in late 2008 and almost seamlessly coordinated policy between the outgoing Bush and incoming Obama administrations. And yet, the backlash to the bailouts has produced the most consequential result in the United States.

experts are considering the new vulnerabilities of a global economy

we are confronting a quite different problem — an erratic, unpredictable United States led by a president who seems inclined to redo or even scrap the basic architecture of the system that America has painstakingly built since 1945. How will the world handle this unexpected development? What will be its outcome? This is the current crisis that we will live through and that historians will soon analyze.

Yet it's impossible to understand what happened without grasping the proactive role played by government. "The banking sector did not decide out of the goodness of its heart to extend mortgages to poor people," commented University of Chicago Booth School of Business Finance Professor Raghuram Rajan in a telephone interview last week. "Politicians did that, and they would have taken great umbrage if the regulator stood in the way of more housing credit."

Rajan, author of Fault Lines, a recent book on the debacle, speaks with special authority to fans of Inside Job. Not only is he in the movie—one of the talking heads speaking wisdom about what occurred—he is accurately presented as having anticipated the meltdown in a 2005 paper called "Has Financial Development Made the World Riskier?" But the things he is quoted as saying in the film are restricted to serving its themes.

We get no inkling that Rajan's views on what made the world riskier, as set forth in his book, veer quite radically from those of Inside Job. They include, as he has written, "the political push for easy housing credit in the United States and the lax monetary policy [by the Federal Reserve] in the years 2003-2005."

I asked Ferguson why Inside Job made such brief mention of Fannie Mae and Freddie Mac, and even then without noting that they are government-sponsored enterprises, subject to special protection by the federal government—which their creditors clearly appreciated, given the unusually low interest rates their debt commanded.

Ferguson replied that their role in subprime mortgages was not very significant, and that in any case their behavior was not much different from that of other capitalist enterprises.

As has been documented, for example, in a forthcoming book on the GSEs called Guaranteed to Fail, there was a steady increase in affordable housing mandates imposed on these enterprises by Congress, one of several reasons why they were hardly like other capitalist enterprises, but tools and beneficiaries of government.

On the outsize role of the GSEs and other federal agencies in high-risk mortgages, figures compiled by former Fannie Mae Chief Credit Officer Edward Pinto show that as of mid-2008, more than 70% were accounted for by the federal government in one way or another, with nearly two-thirds of that held by Fannie and Freddie.

podcasts were new for him. He teamed up with his friends, the writer Malcolm Gladwell and former Slate editor Jacob Weisberg, whose fledgling podcast company is called Pushkin Industries.

When he was writing “The Big Short” (2010), Mr. Lewis says, he kept seeing failures of refereeing. “There was no referee at the interface between Wall Street and the consumers—consumer finance. I saw the birth of that, when Wall Street hit segments of society it had never touched, through subprime mortgages, for car loans, through asset-backed securities. There was no one saying, ‘That’s fair and that’s not.’”

Mr. Lewis also has harsh words for the ratings firms that endorsed shady securities—sold by the people who were paying them—before the big-bank meltdown. “I’d have thought for sure they’d reform it somehow, change the incentives. It’s so obvious, and [former Sen.] Al Franken tried, but all this Wall Street money flowed into the process to prevent him from doing that, and it drove him crazy.”

Mr. Lewis doesn’t blame Wall Street and deregulation for everything. He has also faulted home buyers for their role in the crash, for example. “To blame the people who lent the money for the real estate boom is like blaming the crack dealers for creating addicts,” he wrote in a 2008 article on the lure of home ownership.

He shorted oil and, as a proxy for oil, the Canadian dollar. (That is, he bet against both.) Finally, he shorted U.S. equities.

Last October, he listened to an audiobook by the Hardcore History podcaster, Dan Carlin, called “The End Is Always Near.” “So I had pandemics and plagues in my head,” the Australian said. “In December, I started seeing the first articles about this wet-market thing going on in China, and then in early January there was a lot on Twitter about the shit in Wuhan.” He was in Switzerland on a ski holiday with his family, and he bought all the surgical masks and gloves he could find.

The Australian, who spoke on the condition that his name not be used, is a voluble redhead just shy of fifty.

The problem, he said, was that, perhaps more now than ever, Americans lack what he called “social cohesion,” and thus the collective will, to commit to such a path.

perhaps the government should reward each citizen who strictly observed the quarantine with fifty thousand dollars. “The virus would burn out after four weeks,” he said. The U.S. had all the food and water and fuel it would need to survive months, if not years, of total isolation from the world. “If you don’t trade with China, they’re screwed,” he said. “You’d win this war. Let the rest of the world burn.

I’d been eavesdropping for a week on the friend’s WhatsApp conversation with dozens of his acquaintances and colleagues (he called them the Fokkers, for an acronym involving his name), all of them men, most of them expensively educated financial professionals, some of them very rich, a few with connections in high places. The general disposition of the participants, with exceptions, was the opposite of the Australian’s

they expressed the belief, with a conviction that occasionally tipped into stridency or mockery, that the media, the modellers, and the markets were overreacting to the threat of the coronavirus

They mocked Jim Cramer, the host of the market program “Mad Money,” on CNBC, for predicting a great depression and wondering if anyone would ever board an airplane again. Anecdotes, hyperbole: the talking chuckleheads sowing and selling fear.

it’s hard for a coldhearted capitalist to know just how cold the heart must go. Public-health professionals make a cost-benefit calculation, too, with different weightings.

This brutal shock is attacking a body that was already vulnerable. In the event of a global depression, a postmortem might identify COVID-19 as the cause of death, but, as with so many of the virus’s victims, the economy had a preëxisting condition—debt, instead of pulmonary disease.

“It’s as if the virus is almost beside the point,” a trader I know told me. “This was all set up to happen.”

the “smart money,” like the giant asset-management firms Blackstone and the Carlyle Group, was now telling companies to draw down their bank lines, and borrow as much as they could, in case the lenders went out of business or found ways to say no. Sure enough, by March’s end, corporations had reportedly tapped a record two hundred and eight billion dollars from their revolving-credit lines

In a world where we talk, suddenly, of trillions, two hundred billion may not seem like a lot, but it is: in 2007, the subprime-mortgage lender Countrywide Financial, in drawing down “just” $11.5 billion, helped bring the system to its knees.

It is hard to navigate out of the debt trap. Creditors can forgive debtors, but that process, especially at this level, would be almost impossibly laborious and fraught. Meanwhile, defaults flood the market with collateral, be it buildings, stocks, or aircraft. The price of that collateral collapses—haircuts for baldheads—leading to more defaults.

In New York State, where nearly half a million new claims had been filed in two weeks, the unemployment-insurance trust began to teeter toward insolvency. Come summer, there would be no money left to pay unemployment benefits.

As April arrived, businesses, large and small, decided not to pay rent, either because they didn’t have the cash on hand or because, with a recession looming, they wanted to preserve what cash they had. Furloughed or fired employees, meanwhile, faced similar decisions

On March 20th, Goldman Sachs spooked the world, by predicting a twenty-four-per-cent decline in G.D.P. in the second quarter, a falloff in activity that seemed at once both unthinkable and inevitable. Subsequent predictions grew even more disma

What awaits at the end of this frenetic period is not likely to resemble the 2008 housing bubble, which brought on a drawn-out crash when it finally burst, they said.

Nationwide, housing inventory was at a record-low 1.03 million units at the end of February, down 29.5 percent from a year earlier, a record decline, according to the National Association of Realtors.

“It gives the feel of a bubble,” Mr. Yun said, recalling the run-up to the subprime mortgage crisis that cratered prices after 2008. “But the fundamental factors are different.”

“We don’t have the reckless lending that we had before,” said Mr. Miller, and so even as market conditions get frothy, some may find that they overpaid for their property, but the ebb and flow will be more in line with regular economic cycles.

He also expects home prices to keep rising in the short term, because of more than a decade of sluggish housing construction, hobbled by restrictive zoning and high labor costs.

Unlike much of the country, New York had a glut of luxury inventory before the pandemic, and prices had been softening since around 2017. From 2018 to the end of 2019, Manhattan saw a roughly 15 percent drop in sale prices, Mr. Miller said.

In the week ending April 11, there were 783 new signed contracts citywide, the highest since the company began tracking weekly pending sales in 2019, when the peak was 491 contracts, she said.

“The rate at which homes are selling nationally is not sustainable, but in New York, the uptick is just getting started,” said Nancy Wu, an economist for StreetEasy, a listing website.

The price cuts have been a boon to a broader range of people. First-time buyers made up 41.9 percent of sales in Manhattan last quarter, the highest share in at least seven years, Mr. Miller said.

“It does have the potential to last for a while, because the results are only based on a half-tank of gas,” Ms. Olshan said, referring to the fact that most of these signings were from domestic and local buyers, as international buyers remain mostly on the sidelines with travel restrictions.

New York’s revival also challenges one of the early assumptions during the pandemic — that the suburbs would benefit at the expense of big cities, where buyers, untethered from office commutes, could choose to live farther from work.

So far, thanks to limited supply, many suburbs remain in high demand. Fairfield County, Conn., for instance, recorded 3,045 sales last quarter, the most in that period in more than 16 years, along with the lowest inventory in 25 years, according to a report from the brokerage Douglas Elliman.

“Manhattan finally joined the party,” he said, referring to the city’s sales turnaround. “But we’re not sure if this is the party we want to be in — because there’s uncertainty about how this plays out.”

Indexing has gone big, very big. For nine in 10 companies on the S&P 500, their largest single shareholder is one of the Big Three. For many, the big indexers control 20 percent or more of their shares. Index funds now control 20 to 30 percent of the American equities market, if not more.

The problem is that the public markets have been cornered by a group of investment managers small enough to fit at a lunch counter, dedicated to quiescence and inertia.

Passively managed investment options do not just outperform actively managed ones in terms of both better returns and lower fees. They eat their lunch.

Let’s imagine that a decade ago you invested $100 in an index fund charging a 0.04 percent fee and $100 in a traditional mutual fund charging a 1.5 percent fee. Let’s also imagine that the index fund tracked the S&P 500, and that the mutual fund ended up returning what the S&P 500 returned. Your passively invested $100 would have turned into $356.66 in 10 years. Your traditionally invested $100 would have turned into $313.37.

Actively managed investment options could make up for their higher fees with higher returns. And some do, some of the time. Yet scores of industry and academic studies stretching over decades show that trying to beat the market tends to result in lower returns than just buying the market. Only a quarter of actively managed mutual funds exceeded the returns of their passively managed cousins in the decade leading up to 2019,

What might be good for retail investors might not be good for the financial markets, public companies, or the American economy writ large, and the passive revolution’s scope has raised all sorts of hand-wringing and red-flagging. Analysts at Bernstein have called passive investing “worse than Marxism.” The investor Michael Burry, of The Big Short fame, has called it a “bubble,” and a co-head of Goldman Sachs’s investment-management division has warned about froth too. Shortly before his death in 2019, Bogle himself warned that index funds’ dominance might not “serve the national interest.”

One primary concern comes from the analysts at Bernstein: “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active, market-led capital management.”

Active managers direct investment dollars to companies on the basis of those companies’ research-and-development prospects, human capital, regulatory outlook, and so on. They take new information and price it into a company’s stock when buying and selling shares.

Passive investors, by contrast, ignore annual reports and market rumors. They do nothing with trading-floor gossip. They make no attempt to research what to invest in and what to skip. Whether holding international or domestic assets, holding stocks or bonds, or using a mutual-fund structure or an ETF structure, they just mirror the market. Big U.S.-stock index funds buy big U.S. stocks just because they’re big U.S. stocks.

At least in a Soviet-type centrally planned economy, apparatchiks would be making some attempt to allocate resources efficiently.

Passive management is merely a giant phenomenon, not an all-encompassing one. Hundreds of actively managed mutual funds are still out there, as are legions of day traders, hedge funds, and private offices buying and selling and buying and selling. Stock prices still move around, sometimes dramatically, on the basis of new data and new ideas.

Still, passive investing may well be degrading the informational content of the markets, messing up price signals and making business decisions harder as a result.

When one of these commodities ends up on an index, the firms that use that commodity in their business see a 6 percent increase in costs and a 40 percent decrease in operating profits, relative to firms without exposure to the commodity, the academics found

Their theory is that ETF trading shifts prices in subtle ways, making it harder for businesses to know when to buy their gold and copper. Corporate executives “are being influenced by what happens in the futures market, and what happens in the futures market is being influenced by ETF trading,”

More broadly, the Bernstein analysts, among others, worry that index-linked investing is increasing correlation, whereby the prices of stocks, bonds, and other assets move up or down or sideways together.

the price fluctuations of a newly indexed stock “magically and quickly” change. A firm’s shares begin to move “more closely with its 499 new neighbors and less closely with the rest of the market. It is as if it has joined a new school of fish.”

A far bigger concern is that the rise of the indexers might be making American firms less competitive, through “common ownership,” in which the mega-asset managers control large stakes in multiple competitors in the same industry. The passive firms control big chunks of the airlines American, Delta, JetBlue, Southwest, and United, for instance

The rise of common ownership might be perverting corporate behavior in weird ways, academics argue. Think about the incentives like this: Let’s imagine that you are a major shareholder in a public widget company. We’d expect you to desire—insist, even—that the company fight for market share and profits. But now imagine that you are a major shareholder in all the important widget companies. You would no longer really care which one succeeded, particularly not if one company doing better meant another company doing worse. You’d just care about the widget sector’s corporate profits, which would go up if the widget companies quit competing with one another and started raising prices to pad their bottom line.

one major paper showed that common ownership of airline stocks had the effect of raising ticket prices by 3 to 7 percent.

A separate study showed that consumers are paying higher prices for prescription medicines because generic-drug makers have less incentive to compete with the companies making name-brand drugs.

Yet another study showed that common ownership is leading retail banks to charge higher prices.

Across firms, executive compensation seems to be more closely linked to a company’s performance when its shareholders are not invested in the company’s rivals, the study found. In other words, firms stop paying managers for performance when owned by the same people who own their rivals.

The market clout of the indexers raises other questions too. The actual owners of the stocks—not the index-fund managers but the people putting money into index funds—have little say over the companies they own. Vanguard, Fidelity, and State Street, not Mom and Dad, vote in shareholder elections

In fact, the Big Three cast roughly 25 percent of the votes in S&P 500 companies.

In an interview with The Wall Street Journal, the chief executive officer of State Street said he thought it was “almost inevitable, when you see this kind of concentration, that it probably will make sense to do something about it.”

But figuring out what the appropriate restrictions are depends on determining just what the problem with the indexers is—are they distorting price signals, raising the cost of consumer goods, posing financial systemic risk, or do they just have the market cornered? Then, what to do about it? Common ownership is not a problem the government is used to handling.

, thanks to the passive revolution, a broad variety and huge number of firms might have less incentive to compete. The effect on the real economy might look a lot like that of rising corporate concentration. And the two phenomena might be catalyzing one another, as index investing increases the number of mergers and makes them more lucrative.

In recent decades, the whole economy has gone on autopilot. Index-fund investment is hyperconcentrated. So is online retail. So are pharmaceuticals. So is broadband. Name an industry, and it is likely dominated by a handful of giant players. That has led to all sorts of deleterious downstream effects: suppressing workers’ wages, raising consumer prices, stifling innovation, stoking inequality, and suffocating business creation

The problem is not just the indexers. It is the public markets they reflect, where more chaos, more speculation, more risk, more innovation, and more competition are desperately needed.

Even healthy and influential private companies can be ordered to undergo painful restructuring or curtail certain business operations

When nearly every renminbi borrowed is domestic — lent by a Chinese creditor to a Chinese borrower — it gives regulators a degree of control over debt problems that their Western counterparts can only dream of.

Even the makeup of China’s high debt levels has a silver lining for regulators. China’s aggregate ratio of debt to gross domestic product was almost 300 percent (or around $52 trillion) in September 2022, compared to 257 percent for the United States.

Ultimately, all of this serves the party’s absolute priority of maintaining social stability; there is zero tolerance for financial distress or major corporate failures that could trigger street demonstrations

But less than 5 percent of China’s debt is external, amounting to $2.5 trillion, one-tenth of the U.S. level.

instead of introducing reforms to establish a healthy market-based economy in which inefficient businesses are allowed to fail, China’s Evergrande-style fixes — while defusing short-term crises — reward irresponsible behavior and perpetuate the excessive borrowing and wasteful use of funding that leads to recurring financial distress.

Soft landings may become harder to achieve. China faces perhaps its greatest array of economic challenges since it began reopening to the outside world in the late 1970s: high debt, an ailing real estate sector, a long-term economic slowdown, rising unemployment, an aging and shrinking population and worsening trade and diplomatic relations with the United States.

There is a very real risk that China could suffer the same fate as Japan, which is still struggling to emerge from an extended period of economic stagnation that began in the 1990s. Japan’s troubles were caused, in part, by a burst real estate bubble and financial-sector problems similar to what China is now facing.

China’s regulatory troubleshooters have proven the financial doomsayers wrong again and again. But their biggest test may yet lie ahead.