Chinese Banks Face Default Risk on 23% of $1.1 Trillion Loans; Chinese Rating Agency Criticizes Moody’s, Fitch, S&P
by ilene - July 24th, 2010 6:05 pm
Chinese Banks Face Default Risk on 23% of $1.1 Trillion Loans; Chinese Rating Agency Criticizes Moody’s, Fitch, S&P
Courtesy of Mish
Here is an interesting pair of stories at odds with each other, the first article is about problem loans at Chinese banks, the second is about a rating agency mud fight.
Bloomberg reports Chinese Banks See Risks in 23% of $1.1 Trillion Loans
Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation’s regulator.
About half of all loans need to be serviced by secondary sources including guarantors because the ventures can’t generate sufficient revenue, the person said, declining to be identified because the information is confidential. The China Banking Regulatory Commission has told banks to write off non-performing project loans by the end of this year, the person said.
The nation’s five-largest banks, including Agricultural Bank of China Ltd., plan to raise as much as $53.5 billion to replenish capital after the sector extended a record $1.4 trillion in credit last year.
“In China now, it is the same as the people getting loans in Phoenix here in the U.S. three years ago,” said Vikas Pershad, chief executive officer of Chicago-based Veda Investments LLC. “People who want money get money, and then they all lose track of it.”
Local governments set up the financing vehicles to fund projects such as highways and airports due to limits on their ability to directly borrow money. The central government this year restricted borrowing on concern money isn’t being used for viable projects.
“The issue is symptomatic of the way the stimulus package was rolled out in 2008,” said Nicholas Consonery, Asia specialist at the Eurasia Group. “It is difficult for local governments to finance these projects. It is written under the Chinese constitution that local governments cannot offer their own debt.”
Chinese Rating Agency Criticizes Moody’s, Fitch, S&P
The Financial Times reports China rating agency condemns rivals
The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.
“The western rating agencies are politicised and highly ideological and they
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DiggThe Con of the Decade Part I
by ilene - July 8th, 2010 5:06 pm
The Con of the Decade Part I
Courtesy of Charles Hugh Smith Of Two Minds
The con of the decade (Part I) involves the transfer of private debt to the public (the marks), who then pays interest forever to the con artists.
I’ve laid out the Con of the Decade (Part I) in outline form:
1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.
2. Sell these MBS as "safe" to credulous investors, institutions, town councils in Norway, etc., i.e. "the bezzle" on a global scale.
3. Make huge "side bets" against these doomed mortgages so when they default then the short-side bets generate billions in profits.
4. Leverage each $1 of actual capital into $100 of high-risk bets.
5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).
6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.
7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.
8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.
9. Slowly acquire trillions of dollars in Treasuries--not difficult to do as the Federal government is borrowing $1.5 trillion a year.
10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.
11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.
12. Enjoy the hundreds of billions of…
Fannie And Freddie: We’ve Fixed Nothing
by ilene - June 14th, 2010 9:41 pm
Fannie And Freddie: We’ve Fixed Nothing
Courtesy of Karl Denninger at The Market Ticker
June 14 (Bloomberg) — The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.
Uh, how?
Remember, the government has funded $145 billion thus far. Where is the rest of the money going to come from?
This year, thus far, $730 billion has been borrowed by Treasury beyond tax receipts – and spent. $1.5 trillion, roughly, on an annualized basis.
Where will we find the other trillion dollars?
Neither political party
wants to risk damaging the mortgage marketwants to admit it has run a 20-year long Ponzi scheme, said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and White House economic adviser under President George W. Bush.“Republicans and Democrats
love putting Americans in housesare both looking for ways to maintain that Ponzi for just one more day, and there’s no getting around that,” Holtz-Eakin said.
Now there’s a bit of truth. Oh wait – that was mine, not Holtz-Eakins 
“People all over the world think, ‘Where is the safest place I could possibly put my money?’ and that’s the U.S.,” Shiller said in an interview. “We can’t let Fannie and Freddie go. We have to stand up for them.”
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TALKING OURSELVES OFF THE EDGE OF THE CLIFF
by ilene - May 29th, 2010 5:53 pm
TALKING OURSELVES OFF THE EDGE OF THE CLIFF
Courtesy of The Pragmatic Capitalist
Yesterday’s WSJ MarketBeat blog took David Einhorn to task for his op-ed in the NY Times titled “Easy Money, Hard Truths“. They make the argument that Einhorn is simply pushing his massive gold position. I fear Einhorn is doing something much worse – helping to scare us all into continued recession.
First off, I have no problem when someone talks their book. In fact, I almost prefer for people to talk their book. There’s a certain trust in someone who is willing to “put their money where their mouth is”. It’s the primary reason why I believe the hedge fund business is such a wonderful advancement beyond traditional mutual funds – the manager’s interests are generally aligned with those of the investor. If you can find a manager who is not only intelligent, but has a sound moral compass you’ve wandered upon quite a gem. From all accounts David Einhorn appears to fit the mold. But I take very serious issue with his recent comments which I believe are filled with half-truths and propaganda that we continually hear from the inflationistas (all of whom have been terribly wrong thus far in terms of their macroeconomic outlook) who are driving the country towards the edge of the cliff.
Einhorn is a great investor and clearly a brilliant man, but for two years I have watched policymakers and fear mongerers misdiagnose the problems that we confront and this is, in my opinion, why we are still wrangling with these issues. In 2008 I wrote a letter to the Federal Reserve saying that this was a classic “balance sheet recession” with problems rooted in the private sector – specifically the consumer. I told them that saving banks was not the solution and that monetary policy would prove as fruitless in the U.S. as it has in Japan. I was shocked to receive a friendly response to my letter but not shocked to see Mr. Bernanke implement his Friedman-like monetarist campaign of “saving the world”. Obviously it hasn’t worked (unless you’re a banker) as we sit here two years later still discussing this wretched credit crisis and the ranks of the unemployed continue to climb. If we cannot properly diagnose the problems we cannot find a proper cure. Thus far, we have failed.…
SP 500 Daily Chart and The Planet of the Apes
by Chart School - May 22nd, 2010 2:17 am
SP 500 Daily Chart and The Planet of the Apes
Courtesy of JESSE’S CAFÉ AMÉRICAIN
The SP futures declined to briefly touch a channel trendline that goes all the way back to the intraday spike lows of October 2009!
The market is rallying sharply now, and if it can retake the old support, now resistance, around 1105 it has a good chance of setting a new uptrend back to the top of the channel. This could just be a dead cat bounce. I was looking at some of the indicators last night, and they were at record oversold levels going back at least four years, including the crash.
Was all this a trading gambit mixed with petulance over the financial reform package? In a normal market I would say "nonsense." But this market is thin, like a Ponzi scheme, driven by high frequency trading and artificial liquidity. The few genuine investors are being chased and shot down like the human beings in The Planet of the Apes. The Wall Street gorillas have all the horses, nets and rifles, courtesy of the government, the regulators, and the Fed.
The smackdown in gold and silver ahead of option expiration next week, and the miners’ option expiration today, was some of the most blatant and heavy handed market manipulation I have seen in a long time.
The US is badly in need of adult supervision and behavioural modification. Not the much maligned people, the long suffering public which seeks only to go about its daily business creating wealth in the real economy in the face of mounting hardships, but rather the corrupt and irresponsible government, and the pampered princes of Wall Street, who are engaged primarily in wealth extraction and redistribution, primarily for themselves.
Washington can pass all the reforms it wishes. But until it obtains the will and the regulators to enforce the laws, including the existing laws, it is all merely a show to placate the public and maintain a misplaced confidence in ‘extend and pretend’ sustained by self-serving neo-liberal economic mythology.
"Meanwhile, the financial sector is to be enriched by the translation of junk economics into international policy. Living in the short run is the financial sector¹s time frame while distracting the attention of indebted populations from calculations that Wall Street understands quite well: the debts cannot be paid in the end.
But they can be paid in
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How is that GM Bailout Coming Along?
by ilene - April 23rd, 2010 6:02 pm
New GM Cars Run on Efforts of U.S. Taxpayers
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By Excerpt: "…we thought it best to cut out the middle man and have taxpayers themselves power GM cars."
More Op-Toons Review on GM innovation here.>>
See also:
GM Repays Government Debt; Was The Bailout A Success?
Courtesy of Mish
GM repaid $6.7 billion in US loans and another $1.4 billion in Canadian government loans. So where does that leave GM? Let’s take a look.
Please consider Gas in the tank: GM repays $8.1B in gov’t loans
Fallen giant General Motors Co. accelerated toward recovery Wednesday, announcing the repayment of $8.1 billion in U.S. and Canadian government loans five years ahead of schedule.
Much of the improvement comes from GM slashing its debt load and workforce as part of its bankruptcy reorganization last year. But the automaker is a long way from regaining its old blue-chip status: It remains more than 70 percent government-owned and is still losing money — $3.4 billion in last year’s fourth quarter alone. And while its car and truck sales are up so far this year, that’s primarily due to lower-profit sales to car rental companies and other fleet buyers.
The U.S. government still owns 61 percent of GM. The automaker is counting on a public stock offering to allow the U.S. government to begin recouping its remaining $45.3 billion investment. The Canadian government’s $8.1 billion stake, which equals a 12 percent ownership interest, also could also be unlocked if GM sells shares to the public.
GM lost $88 billion between 2004, when it last turned a profit, and last year when it declared bankruptcy. It endured years of painful restructuring, closing 14 factories and shedding more than 65,000 blue-collar jobs in the U.S. through buyouts, early retirement offers and layoffs.
GM received $52 billion from the U.S. government and $9.5 billion from the Canadian and Ontario governments starting in 2008. At first the entire amount of U.S. aid was considered a loan as the government tried to keep GM from going under and pulling the fragile economy into a depression.
But during bankruptcy, the U.S. government reduced the loan portion to $6.7 billion and converted the rest to company stock. Canadian governments also converted part of their debt to shares, reducing its loan balance to $1.4 billion. The final installments on those loans were repaid Tuesday, comfortably beating
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Grecian Formula 16 Now On Sale
by ilene - April 12th, 2010 2:57 am
Grecian Formula 16 Now On Sale
Courtesy of Mish
At long last the EU has embraced Grecian Formula 16, a product guaranteed to enhance credit ratings, hair color, stock rallies, debt offerings, and improve one’s libido.
News on Grecian Formula 16 is everywhere you look this weekend. Please consider …
EU Readies Formula 16 Bazooka
The Wall Street Journal is reporting Europe Bankrolls Greece
Euro-zone finance ministers agreed Sunday that if heavily indebted Greece were to get a bailout, it could receive as much as €30 billion in loans this year at about 5% interest from fellow euro nations.
The move puts Greece closer to a bailout as it heads into a week headlined by an auction of Greek treasury bills Tuesday. That is seen as a crucial test of whether Greece can still borrow from capital markets. If it can’t, it would likely have to turn to the European Union package.
The ministers didn’t decide to give Greece the aid; that step would require the unanimous assent of euro-zone leaders. But they laid out terms—especially an interest rate—in an attempt to convince wary financial markets that the European Union does indeed have a plan in place.
Sunday’s decision, said Jean-Claude Juncker, the Luxembourg premier and the head of the council of euro-zone countries, "shows that there is money behind this."
Still undisclosed is precisely what set of circumstances would be enough to trigger the bailout. Mr. Juncker said it would come "if needed"; reluctant German officials have said Greece needs to try, and fail, to borrow on financial markets before it gets help.
Please note the EU did not actually apply formula 16. However, the EU proudly put a bottle on the table for everyone to see.
Huge Bottle of Formula 16 Unveiled
After months of denial about unwillingness to offer below market pricing on formula 16, the EU stepped up to the plate with a gigantic $61 billion subsidized offering.
Please consider Greece Wins EU45 Billion Aid Pledge to Blunt Crisis
European governments offered debt- plagued Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates in a bid to stem its fiscal crisis and restore confidence in the euro.
Forced into action by a surge in Greek borrowing costs to an 11-year high, euro-region finance ministers said yesterday they would offer as much as
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Surviving Deflation: First, Understand It
by ilene - February 27th, 2010 3:07 pm
Surviving Deflation: First, Understand It
Deflation is more than just "falling prices." Robert Prechter explains why.
Courtesy of Elliott Wave International
The following article is an excerpt from Elliott Wave International’s free Club EWI resource, "The Guide to Understanding Deflation. Robert Prechter’s Most Important Writings on Deflation."
The Primary Precondition of Deflation
Deflation requires a precondition: a major societal buildup in the extension of credit. Bank credit and Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way: "In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following: (a) All were set off by a deflation of excess credit. This was the one factor in common."
"The Fed Will Stop Deflation"
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let’s try one.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars.
Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory — ironically now made fact — the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don’t care if they’re free. They can’t find a use for them. Production of Jaguars ceases. It…
Time to Worry about China?
by ilene - February 25th, 2010 2:04 pm
Time to Worry about China?
By MICHAEL SCHUMAN, Courtesy of TIME
I’ve gotten a bit of a reputation around the TIME office in Hong Kong of being something of a China basher. I don’t think that’s fair, since I have absolutely no doubt China will be the next great superpower. But I do have an issue with what I consider blind optimism on the part of many observers about the China growth story. Too many economists out here seem to wish away some of the serious structural problems in China’s economy. The prevailing attitude is that China is somehow more capable of dealing with such problems than other countries. I’m not convinced. There is every reason to be optimistic about China’s long-term prospects, but that doesn’t mean there won’t be bumps and bruises (and an occasional broken bone or minor coronary) along the road to global greatness. The U.S. had its share of crashes, panics, recessions, and even a civil war on the way to becoming the world’s indispensible economy. Why would China be any different?
I’m starting to wonder if China is heading into one of those rough patches right now. Sure, China’s GDP growth in 2009 (at 8.7%) was an amazing achievement. But now Beijing has to contend with the fallout from the measures it took to create that growth during the Great Recession.
For example, there is a fascinating story in The Wall Street Journal about the percolating problem of debt at China’s local governments. Provinces and cities gorged on bank loans during the downturn last year to spend on infrastructure projects, which was a major spur to GDP growth. But now, the Journal says, Beijing’s leaders have become nervous that local governments won’t be able to pay back their debts.
This problem gets at a much bigger issue: What damage has China’s stimulus plan done to its financial system? China’s GDP surge was created by a credit boom of biblical proportions. Banks granted almost twice the number of loans in 2009 as they did the year before, an amount equivalent to nearly 30% of GDP. This increase in credit runs counter to usual economic logic. In a downturn, banks should become more cautious, and there is less demand for loans anyway as corporations scale back investments. But China’s banks headed in the opposite direction. Could all of this deluge of loans have gone to creditworthy borrowers, to…
European Banks Prepare For €1 Trillion Debt Rollover Tidal Wave
by ilene - February 23rd, 2010 6:44 am
European Banks Prepare For €1 Trillion Debt Rollover Tidal Wave
By Ambrose Evans-Pritchard, courtesy of Clusterstock/Business Insider
From The Telegraph:
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European banks need to roll over €1 trillion (£877bn) of debt over the next two years at a much higher cost and in direct competition with hungry sovereign states, according to a report by Morgan Stanley.
The bank has advised clients to prepare for chillier times as monetary tightening begins in the US and China, causing major spill-over effects in Europe.
Roughly €560bn of EU bank debt matures in 2010 and €540bn in 2011. The banks will have to roll over loans at a time when unprecedented bond issuance by governments worldwide risks saturating the debt markets. European states alone must raise €1.6 trillion this year.
See Also:
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French
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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