It should come as no surprise that China is trying to curb lending. Excessive bank credit – unique mostly to China in an environment of tight credit in most countries – prompted to belt-tightening in Beijing this week. The result was a major sell-off for commodities, especially the base metals, which are heavily linked to China's growth cycle.

I got to thinking about this because of Nick Rowe’s question - Does the "industry" of Finance actually *create* short, safe, liquid, simple assets out of long, risky, illiquid, complex assets (in the same way that the steel industry creates steel out of iron ore). Or does it just redistribute those properties so that the people most/least willing to hold assets of a particular length, safety, liquidity, complexity get to hold most/least of what they want?

I think my post from Inauguration Day one year ago holds up pretty well, though I caught a lot of grief for it at the time  [a few spelling errors fixed]

The administration's proposed bank tax can be considered an insurance payment that is paid after disaster strikes rather than the more usual case of collecting premiums ex-ante (as I talked about here). But what's the best way to structure this after the fact insurance premium? Diamond and Kashyup say that the answer is to base the tax on the difference between bank assets at the end of August 2008, and their level of capital today: