“We see value in combining their local knowledge and distribution with our product expertise, technology and experience with size and scale,” Bank of America’s chief executive, Ken Lewis, said as he consummated the deal to purchase a piece of Construction Bank in June 2005.

Chinese leaders spoke of their great fortune in gaining Wall Street’s tutelage. “We have much to learn from our partner in serving customers and creating shareholder value,” said Construction Bank’s chairman, Guo Shuqing.

These days, of course, talk of Bank of America and shareholder value centers on how much of the company its newest shareholder  Uncle Sam  is destined to own, and whether the bank’s shares retain any value. Bank of America’s expertise with size and scale has expanded to encompass the management of $45 billion in bailout funds.

For much of Wall Street, the expertise that once was expected to elevate China’s financial system increasingly looks like sorcery, or a vast Ponzi scheme in which banks borrowed vast sums, lent to virtually anyone, and used incomprehensible models to convince markets that all was fine. They scattered low-interest credit cards and home equity loan offers like takeout menus, creating the illusion of prosperity by driving up home values.

In effect, American banks operated not unlike the Chinese banks they were supposed to modernize. They extracted profits by following a variation of the principle long pursued by their Chinese counterparts: lend without hesitation while extracting your cut, confident that the government is on the hook for the losses.

Image Credit... Joon Mo Kang

In China, ventures may be spectacularly unprofitable, yet enrich everyone lucky enough to get a piece. Developers, for example, construct vacant office buildings as an excuse to borrow from state banks. They rake off a cut for themselves, pay bribes to the party officials who deliver the land and reward bank functionaries with sumptuous banquets and trips to Macao. Soon enough, the trophy skyscraper descends into financial disaster, but the developers, bankers and party officials have already extracted their riches, and for long afterward they will still enjoy them.