Aubible.com just released a new show on Bernie Madoff (Ponzi Supernova: Bernie Madoff Speaks, available for free to subscribers) that explains how the world's biggest financial scam was enabled by banks and hedge funds who were making so much money that they chose to ignore obvious red flags.

Which sounds a lot like today's China, Inc. Here, for instance, is a sequence of events involving China Huishan Dairy Holdings, an apparently too-big-to-fail chain of dairy farms:

March 21. Huishan Dairy misses payments on some of its loans. The wife of the chairman and largest shareholder (herself an executive in charge of relationships with the company's bankers) goes missing.

March 23. The local provincial government holds a meeting with the company and its creditor banks to propose a plan to inject liquidity into the company. None of this is announced publicly.

March 24. Huishan's shares plunge 85% in an hour, wiping out more than $4 billion of market value and leading to an indefinite trading halt.

March 28. Huishan admits to missing loan payments and misplacing the Chairman's wife, but denies reports of faked invoices and misappropriation of funds. The local government, it promises, will buy some of the company's excess land to bolster its balance sheet and the Chairman will sell some of his shares and invest the proceeds in the company.

Somewhere along the way, the government "ordered financial institutions involved not to downgrade the company's credit rating or file lawsuits against it."

As Quartz.com noted at the time:

The Chinese government can't afford to let Huishan fail. Credit markets already deeply distrust the rust-belt Liaoning province. Authorities there were revealed to be faking economic numbers, including the province's GDP growth, from 2011 to 2014. The province was the only province that fell into recession last year. Meanwhile local firms Dongbei Special Steel and Dalian Machine Tool went into default last year.

If Huishan does go bust, the fallout could also be disastrous for some Chinese banks. At least one of them has already felt the chill: Jiutai Bank, which is the dairy maker's second-biggest creditor, saw the biggest one-day drop in its shares this week. According to Caixin, the small bank's loan to Huishan currently stands at around $266 million, bigger than its estimate of impairment losses on bad loans for the whole of 2016.

The situation is not much easier for the midsize Ping An Bank, which lent nearly $300 million to Yang's offshore entity Champ Harvest, with a 25% stake in Huishan as collateral.

And now this, from today's Wall Street Journal:

Chinese Aluminum Giant Faces Credit Crunch

The world's biggest aluminum producer is in trouble, locked in a feud with its accountant over fraud allegations that have forced it to suspend trading of its shares and seek help from the central government in Beijing.

China Hongqiao Group Ltd., has drawn the attention of the global aluminum market and U.S. trade officials as it soared to the pinnacle of the industry in the past few years, leapfrogging the production of giant competitors like Alcoa in the U.S. and United Co. Rusal in Russia.

Its rise coincided with American allegations that Chinese companies—helped by government subsidies—flooded the world with cheap aluminum, coal and steel, depressed prices and decimated U.S. industries. U.S.-Chinese trade issues were a focus of a two-day summit last week between President Donald Trump and President Xi Jinping of China.

Now China Hongqiao, a Hong Kong-listed company that employs nearly 60,000 people, is facing fraud allegations from two short sellers that the firm says threaten its financial stability.

In a March 4 letter reviewed by The Wall Street Journal, China Hongqiao sought assistance from a trade group, the Chinese Non-Ferrous Metals Industry Association, or CNIA, saying the short sellers' claims of inflated profits were forcing the company's accountant, Ernst & Young, "to adopt an extremely conservative and careful attitude."

Then, on March 6, Ernst & Young notified the company it had suspended its audit of its 2016 financial results, according to a March 31 statement by China Hongqiao. Ernst & Young asked the company to commission an independent investigation into the short sellers' claims, delaying the release of the company's annual financial results, China Hongqiao said.

Without audited results, China Hongqiao said in its letter to CNIA, the company risks an investigation from Hong Kong securities regulators and a credit crunch. The company has about $10 billion in debt, according to securities filings. It could be in default on a $700 million loan unless it gets waivers from creditors, says Standard & Poor's Global Ratings.

S&P, citing the move by Ernst & Young, has downgraded China Hongqiao's bonds a notch deeper into junk territory to B-plus.

China Hongqiao asked the CNIA and the Chinese government to come to its aid, warning in its March 4 letter of "serious effects" if nothing is done, including "regional systemic financial risks" and "dramatic social unrest."

The U.S. government in January launched a formal complaint against the Chinese government with the World Trade Organization, accusing China of funneling artificially cheap loans from state-run banks to aluminum producers including China Hongqiao. China provides China Hongqiao with access to cheap coal, aluminum and electricity, according to the WTO complaint.

There's a pattern here that isn't confined to just these two companies: Cheap financing either subsidized or provided directly by government enables Chinese companies to expand beyond the limits of the global marketplace, producing a glut which makes the previously-mentioned loans unmanageable.

The companies hide their failure for a while but eventually are exposed, leading local governments to step in with new money and the central government to change the rules to prevent market participants from warning others and/or moving their capital out of the way.

As with Madoff's Ponzi scheme, the game goes on as long as new money continues to flow in and the major players continue to pretend (or are forced to pretend) that things are okay. It ends when either of those conditions changes.

Such scams don't tend to peter out over time. Usually -- like the above dairy and aluminum companies -- they seem fine until one day they're not.