Anything Goes: China Embraces Ponzi-Bonds

China is about to truly take its place at the head table of the dubious world of modern western capitalism (Or MWC, like the NWO but worse and actually in affect).

China is preparing to launch a program that will create the same complex debt-instruments that triggered the global financial crisis in 2008.

The purpose of securitization is not to boost lending to consumers or businesses, but to recycle securities and cash between the banks themselves in a way that masks the buildup of leverage. (“the buyers of the securities will be mostly banks.”) And the buildup of leverage is done in a way that puts the entire financial system at risk. (“securitization …could leave China’s banking system with less of a buffer for loans that default.”) In other words, the banks may not have enough capital to meet their liabilities. This is precisely what happened in the so called shadow banking system prior to the Lehman Brothers default. China is now taking the first step on that same path.

How exposed would western banks be to a Chinese banking meltdown? I would think a lot. The Fed and ECB are heavily indebted to Chinese private and state banks.

Securitization makes periodic meltdowns unavoidable since bank leverage is not regulated and since the underlying collateral used in the bonds is not supervised. It’s “anything goes”, which means disaster is never far off.

www.counterpunch.org...

If the Chinese banking system collapses who will be left to keep the global economy from sinking into a morass beyond short or medium term repair? You may ask why would the Chinese embark on such a mine filled course?

So, the 1 percent can scoop the cream off the top (like they did in the US and EU) before the whole thing blows up in their faces. That’s why.

Mike Whitney, the author, has pretty much been spot on with his predictions since this whole crisis started so I think this is something to take seriously.

There is more information on this here.

online.wsj.com...
usa.chinadaily.com.cn...

reply to post by Peruvianmonk


What an alarmist.

Funny to see anti-China propaganda saying, ' look, China is doomed because they are acting like us. they are putting us at risk'.

What a joke.

Guess what? China is good for it. They know they will have the 'reserve status' before too long. They can handle what they are doing no problem.

"Chinese and Japanese banks, they are really following and supporting their clients into the Australian resources industry, and filling the gaps left by the withdrawal of the European banks," said Andrew Dickinson, a partner in KPMG's Australian Financial Services division.

online.wsj.com...

Thank god for the East. We are the future.

The west is the past.

Be afraid. The beast in the East is coming.

reply to post by Germanicus


How is this anti-China propaganda? It is simply pointing at the extremely risky venture that is securitization (created on Wall Street and the City of London) as being a threat to the future of the nation. If anything it is anti-western banking elite and warning the Chinese not to embark on this unsustainable path.

The same source you used in your post, The Wall Street Journal, also warns against the risks of this move.

“Despite the cautious approach adopted by Chinese regulators, securitization boasts risks that could leave China’s banking system with less of a buffer for loans that default. That is because any buyers of such repackaged products sold in China’s still-underdeveloped capital markets are likely to be banks themselves. “In China, risk transferring through securitization will be limited because the buyers of the securities will be mostly banks, and, therefore, most of the risks remain in the banking system,” said Yvonne Zhang, a Beijing-based senior banking analyst at Moody’s Investors Service. In addition, Ms. Zhang said, “If banks, with the capital relief, go on to take on more risks in their new lending, it could also increase the risks for the banking system.”

online.wsj.com...

Chinese banks recycling debt among each other with no end in sight. Does this sound familiar? If anything it is even more dangerous than the west's obsession with derivatives as at least that was spread throughout vast swathes of industry rather than just right at the heart of the economy, the banks, who the west were just about able to save, even if they are effectively zombie banks now.

Would China be able to bailout its banks? Would the world help?

It is not alarmist to point out that the financial engineering that has almost bought the worlds economy, and definitely the west's to its knees, may not be the right course for China in its future development.

The fact that an initial trial in this financial technique in China was abandoned in the face of its clear failure in the west is telling.

China began allowing asset securitization on an experimental basis in 2005, but put the experiment on hold in 2007 when the technique became a byword for problems in the West.

www.marketwatch.com...

Risk is a part of life, no escaping it. Such a move sounds like it is protecting investors so they can continue to get their returns while passing the risk onto the banking sector and the rest of the economy. A few things go bad and the losses are absorbed, lots of things go bad and everything goes down.

reply to post by kwakakev


Well yea I suppose if you think transferring the risk and keeping all the profit taken by banks, hedge-funds, pension-funds in buying up securitized debt, to the rest of the real economy this is perfect free market policy.

reply to post by Peruvianmonk


I am just trying to understand what exactly is going on, economic policy is generally a very technical process with many interactions. On the surface saying China is now adopting a US style of economic management suggests that another black hole accounting system is emerging to fund the super rich while the masses starve in the streets. Maybe it is. Leverage is a very slippery slope where $1 can instantly turn in $100 as the issues of risk are managed to some degree.

Overall this report does not provide a lot of confidence in the steps China are taking. The issues of banking profits and government services does look to be a growing one around the world as the balance of power is moving towards the financial sector.

reply to post by kwakakev


I pretty much agree with that second post Kwak. I'm trying to get my head around this kind of decision as well. It is clearly being made despite the well being of the masses.

The Chinese are as pissed off if not more so with their super-rich as the citizens in western countries are. If this all goes wrong and the Chinese banking industry goes belly-up I think a political revolution will follow the economic one instituted by the Communist Party over the past 30 years

I expect China to start dealing with a lot of these kind of corrupt individuals following this decision.

Former billionaire Allen Stanford was sentenced to 110 years in prison on Thursday for running a US$7 billion scheme in which he stole money from his investors to finance an extravagant lifestyle in the Caribbean. U.S. District Judge David Hittner said Stanford's actions were among the most “egregious criminal frauds,” and investors who lost money said Stanford's crimes were worse than those of Bernard Madoff, another Ponzi schemer.

www.chinapost.com.tw...

posted in wrong thread. Im having a really bad day on ATS today

reply to post by woodwardjnr


Interesting Woodward, although I don't see quite what this has to do with China embarking upon the derivatives market?

Some metaphor perhaps? I'm clutching.