PREFACE

I emigrated to the United States from Hong Kong with my parents in time to join the second grade. I learned English in addition to Cantonese and Mandarin, so I grew up with two cultures simultaneously, one related to my parents and their friends and one that I experienced with my peers at school and later at work. The process of assimilating in the United States while preserving Chinese values and traditions helped me master the important life skill of straddling cultures.

Being part of the U.S. melting pot makes me grateful to be an American. While my experiences in the United States are probably not so unusual, what distinguishes me from many Americans are my frequent trips to China for lengthy periods. I first returned in 1985, when I accompanied my mother, who was in search of her real mother after 36 years of separation. That year was when my mother learned from the man she’d always thought was her father that she was separated from her real parents during the Communist Revolution in the 1940s. Upon hearing news that the Communist soldiers were coming, the people I knew as my grandparents opted to buy safe passage out of the country and took along my mother—who was three years old at the time—without my grandmother’s consent. The rest of my mother’s family remained behind because they underestimated the length and severity of the civil war to come. Her father passed away during the revolution. In 1985, my biological grandmother was dying of cancer. My adopted grandfather had reconnected with her that same year, and he felt morally obligated to convey the news to my mother. Upon hearing the truth about her real parents, my mother bought the two of us tickets to China.

When my mother and I journeyed back to China, I didn’t know what to expect. We traveled to Hangzhou where my grandmother awaited, and I was shocked by the level of poverty that she and all my relatives endured for decades. After walking down a narrow, curvy road filled with mud and cow dung, we arrived at Grandma’s address. Her home had exactly two rooms with concrete floors, which was considered average living conditions by Chinese standards in those days. The kitchen was simply a single stove, and the bathroom was a shared community toilet without toilet paper or flushing. The majority of the homes in the town were dirty and dingy in varying degrees. Walls were uniformly black and brown with soot and other stains.

Back then, except for the occasional government vehicle, people either traveled by foot or bicycle, and everyone wore navy blue Mao suits. When I showed up wearing a white T-shirt, jeans, and sneakers, the townspeople stared at me as if I had come from Mars.

I later learned that because my relatives in China came from privileged backgrounds, they were treated especially cruelly by the Communists who came to power after the civil war ended in 1949. As wealthy intellectuals and business people, my aunts, uncles, and grandparents were forced out of their home, which was later converted into a hospital by the Communist government. All of their possessions were taken away or destroyed. Books were burned; eyeglasses were smashed; and art was desecrated. The widespread destruction during the Cultural Revolution was promoted in the name of social equality so that elites would appreciate manual labor. Against their will, my relatives were separated and sent to work in the fields as part of the Communists’ effort to create a more egalitarian society. Grandmother didn’t reconnect with any of her children until years later.

I was surprised to discover that despite the extreme poverty, the Chinese I met were notably sanguine. One of my uncles who traveled from Wuhan to come see my mother and me was an electrical engineer by training but was confined to farm work for most of his adult life. When he met me, he showed me designs he had sketched for various electronic equipment that had not yet been invented. He even shared with me his fantasies of working with an American company and asked me if I could assist him someday.

My cousin, Yao Qun, was optimistic about China’s future. She was the only relative who spoke English and wanted to converse with me in English every opportunity she had so that she could practice. Over the course of the summer while I lived there, she asked me thousands of questions about what living in the United States was like. She continued to write me letters after I returned to the States, even though it was obvious from the torn envelopes that all our correspondence was opened and read by the government officials.

I saw Yao Qun again in 1995, but this time we met in Shanghai. We were naturally excited to see each other and talked a great deal about all the changes that were happening in China. It was clear to me that at this point Yao Qun no longer pined to be in the United States. Life in China, though still antiquated, was starting to show signs of improvement, both economic and civic. Government officials were no longer reading her mail and monitoring her every step. Women began to express themselves through fashion, makeup, and hairstyles. Such materialistic forms of expression didn’t exist under Mao’s rule, but they were among the first manifestations of the liberalization and modernization that was taking place in China.

I traveled to China for personal and business reasons numerous times on trips that usually lasted less than a month. But in 2008, I went back for an extended stay to teach graduate finance and economics as a visiting professor at Peking University in Beijing.

During the course of my stay, I met a number of high-level Chinese government officials who learned about my financial expertise on credit derivatives. Some heard about me from my students, while others I met through fellow professors. These officials consulted me privately about my predictions for the financial system and the global economy. Though some of them, notably from the Ministry of Finance, found my forecast of a global financial collapse unbelievable, they nonetheless listened with interest to observations and analyses in the beginning of 2008 before the market crashed.

I had predicted the credit crisis as early as 2005, and in 2006 I wrote a 30-page paper titled “Wall Street’s House of Cards” that was sent to U.S. government officials such as former National Economic Council (NEC) director, Lawrence Lindsay, and former commissioner of the U.S. Securities and Exchange Commission (SEC), Annette Nazareth, who dismissed it. I also sent the piece to dozens of policy journals whose editors initially expressed interest. But upon reading its contents, they responded to me by saying either that the concept of regulating credit derivatives was too esoteric for general public consumption or that the idea of increased financial regulation was just flat out against the politics of the think tank publications connected to the financial institutions that were their large donors.

Suffice it to say, the Chinese officials with whom I had come into contact showed greater receptiveness to my warnings about the unsustainable financial system than their American counterparts. In return, these individuals such as Shi Zulin, Hu Xuanwen, Erh-Cheng Hwa, and dozens of others have given me perspective and insight into China’s approach to governance that I thought was worth sharing with the broader public.

As a former stock research analyst for an investment bank, I fashioned a career out of making predictions. Though I was more certain about the coming credit crisis back in 2005 than I ever was about short-term stock price movements, I’ve come to appreciate how difficult it is to report a story that the politically powerful do not want released, even in a country such as the United States that is known for investigative journalism and free speech. It is deeply unfortunate for the citizens of the world that it took the domino collapse of Fannie and Freddie, Lehman Brothers, AIG, and dozens of other American financial institutions before the U.S. government and the media would admit to the general public that the modern financial system and the U.S. economy were sick patients that required intensive care. The few souls who read my paper anticipating the credit crisis back in 2006, such as Charles Kolb, who heads the Committee for Economic Development, have asked on various occasions for my next predictions.

One prediction I hope I never have to make is a world war between nations; I do worry that conflict will become more likely unless we make room for a more civilized way to oversee international relations and cooperate more effectively to solve global problems. Though such a disastrous outcome may be remote, the accumulation of small stresses may be likened to a “death by a thousand cuts.” If we fail to take seriously even the smallest of problems and we make no effort to repair them, they can escalate out of hand. We live in precarious times, which will require extraordinary international leadership. While the United States has a leading role to play, some of the leadership is already coming from China. By offering a perspective about China’s development and governance that is not widely shared in the West, I hope that Americans and people around the world will find more inspiration to work through our growing tensions over economic fortunes and political relations and find the will to drive a quiet but productive revolution in human enlightenment.