Courtesy of The Automatic Earth.
Albert Fenn for OWI “New York. Negro taxi driver” 1942
I was going to write a nice piece on how the trusts and trust companies in China’s shadow banking industry are really no different from what we had 7+ years ago for instance in the hedge funds Bear Stearns had set up, and which they initially tried to save with $3.2 billion when they went awry, even though they had first put only $50 million or so in them.
The Chinese trust companies are exactly like these hedge funds, they were probably set up by the same people too, and the trusts they offer for people to invest in are like the SIVs and CDOs western banks offered to investors: opaque boxes filled with often very questionable paper, which was sliced and diced and tranched to make it magically transform from questionable to AAA. The Chinese have simply copied the entire set-up and nobody ever raised their voices. And that means we know where this is going, simply because we’ve seen it before, at the end of 2007.
China’s version has copied the whole thing, and that includes the great awe-inspiring and faith-inducing names the products have. Now, I said I was going to write a nice piece, but I can’t; I have a bout of the flu that has my skin shivering and my nose running and all my energy hiding somewhere I can’t touch it. So I’ll have to leave you with just those names, and the Two Johns video the topic made me think of.
They identified two of the Bear Stearns vehicles as the ‘High-Grade Structured Credit Strategies Fund’ and the ‘High-Grade Structured Credit Enhanced Leverage Fund’, and rightly remark how good those names sound (“I’d buy anything that says ‘enhanced’”). That video is from way before the Lehman crisis, late 2007 or January 2008. Just like The Automatic Earth.
The first Chinese fund that went down a few weeks ago – and was then saved by a mystery guest – was of course ‘Credit Equals Gold’, a name that has so many different layers of meaning, non-meaning and sheer obfuscation that I’m not even going to go there (but think about it: what does that mean, are they not polar opposites?).
The second one, which missed a $126 million payment the other day, could have been a brainchild of Bear Stearns’ China branche (and for all we know was): “Songhua River #77 Shanxi Opulent Blessing Project”.
I’m well aware that many people claim Beijing can, and will, make sure the trusts system won’t collapse. But if it’s anything like the Bear Stearns SIVs, which were, as per the numbers we know, leveraged at least 60-1, that may not be so easy.
Anyway, it’s the couch for me now, tea, honey, lemon, rum, aspirin and sleep.
