John Kenneth Galbraith and the "bezzle" - It is a global issue

"At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks."

 from - The Great Crash of 1929 by John Kenneth Galbraith

Galbraith idea of the bezzle is often quoted but has never really been internalized by investors. Galbraith wrote about the concept of hidden embezzlement in 1961, yet we still seem to suffer from the same problems of ignoring the bezzle during good times. We can think of Chinese property developers as the current poster child for "mismanagement". These property development house of cards did not just arise in 2021. There may not be direct embezzlement rather there has been an attempt to leverage deals for the gain of a few with risk placed on the many through creative ambiquity.

There was no sudden shock to the system although the pandemic started to cause China growth adjustments that we are still just beginning to feel. Some of problem comes from new China redline policies, yet again this is a shock that is impacting an economic stricture already overextended.  

If the bezzle is large in China, you should believe it is also large in some tech sectors and other overvalued equity markets. The search for embezzlement should be redoubled as a clear way to protect wealth in the current market. Deals too good to be true should be avoided regardless of the great investment narrative.