Inefficient Capital Allocation

In my last Russia Reading List I bemoaned Putin dictating how banks should operate and their lending policies. There are a number of problems with this sort of state meddling, but one I did not touch on in this post was the resulting inefficient capital allocation. Over at SA, Peter Fuhrman has authored a cut-to-the-chase post on how state meddling in banks' lending policies can skew the efficiencies of the free market - in a China context. Now obviously Russia and China are different beasts - but there is an uncanny correlation in how state authorities in both countries apply pressure to banks resulting in how debt is deployed to who for how much. I misquote Peter Fuhrman: Capital is not a problem in Russia. Capital allocation is.