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China cracks down on derivatives

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posted on Nov, 24 2009 @ 09:39 PM
As much as I hate to admit it, the Chinese seem to have shown themselves to be more savvy than anyone else in this area. As most of you know, derivatives and other exotic financial instruments have played a big role in the current economic turmoil. They have allowed banks to create credit out of nothing, to empty 401(K)s and pension funds, to create and trade "phantom shares" of stocks that don't exist, to bet against the performance of their own companies and assets even as they hard-sell such toxic goo to clients...the list goes on. And then who's left holding the bill after the CEOs of investment banks give themselves another year of record bonuses? You, the taxpayer.

Some derivatives have valid roles to play in the economy. Nevertheless, the US, Europe, and elsewhere should have regulated these instruments much more tightly starting decades ago, and they should have payed careful attention to the abuse thereof. It seems China has learned this ugly lesson well. If only the rest of us had been this perspicacious from the start.

From the Financial Times

China derivative rule change hits banks

...In stark contrast to the slow pace of reform in derivatives markets in the US and Europe, China’s regulators have in recent months shut down the main route by which foreign banks sold derivatives from offshore operations and have banished speculative deals – moves that have important implications not only for Chinese companies and foreign banks, but also for the evolution of China’s capital markets and the internationalisation of the renminbi.

As a result of the sweeping regulatory overhaul, trading volumes have plunged and foreign banks are scrambling to adapt to doing business in the new environment. “If you compare the business we are doing today with the business we were doing two years ago, it’s completely different,” says Mr Castel. “You have to forget about [the old] market. It’s gone.”

Previously, dozens of western banks such as Goldman Sachs and Morgan Stanley were striking huge deals with mainland companies that wanted to manage their exposure to swings in commodity prices, interest rates and currencies....

...Total trade volumes have more than halved since a year ago, say market participants. Complex trades have vanished from the market.

“We are selling plain vanilla business in China, that is it,” says Mr Castel.

More at source:

[edit on 11/24/09 by silent thunder]

posted on Nov, 25 2009 @ 12:22 AM
I have a feeling that even though he did not know it, one of the members here hit it on the money.

We are at war economically with China.

They are in a precarious position, holding the amount of fiat money of ours at a point that our gov thinks devaluing the US dollar will help us.

The US gov has done it before, I just hope to hell that the countries we have to destroy monetarily to enforce the money for bankers does not make them attack us militarily.

posted on Nov, 25 2009 @ 12:33 AM
They dont even speak as to what these derivatives are.

There are plenty of derivatives in the marketplace and 99% of them make sense, and should be there.

posted on Nov, 25 2009 @ 01:52 AM
reply to post by GreenBicMan

Well, as I noted in my original post, many derivatives have valid uses and there is no reason to ban them all. The Roman Empire even had a floruishing grain futures and options market at its height, for a number of centuries. When used correctly, derivatives can bring great benefit to those involved in agriculture and commodities. Even short selling can be enormously useful in "punishing" weak or corrupt companies ("creative destruction").

Nevertheless, if you are claiming that "99% of them make sense" then you must have access to information that eludes the Treasury, the Fed, Morgan Stanley, Goldman Sachs, AIG, and so forth...these people have spent the better part of a year and a half puzzling over the valuations of many derivatives and they have come up with very little that is truly conclusive. Moreover, the highly illiquid conditions pertaining in derivatives markets show that the old "invisable hand" of the free market has grave doubts about the value of many if not most of the so-called "toxic waste" out there...just sayin'.

posted on Nov, 25 2009 @ 02:04 AM
If you read about the banks that closed and other money firms that closed you would find that alot of them where comprised of foreign investments. It is my belief that intelligence agencies know full well of this and even go as far to bait foreign investments into those same companies to keep them all localized so they can do what they want, like shut them down or take over. Alot of money tomfoolery is afoot with this "recession", alot of the market has disappeared but at the same time i don't think alot of people are loosing money as it is reported.

posted on Nov, 25 2009 @ 06:00 AM
reply to post by silent thunder

99.9% - CDS (etc.) - REPO Agreements -

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