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I think the biggest issue that Levine writes about today is the fate of the Chinese banks. If you thought that the American banks were in bed with the governme

I think the biggest issue that Levine writes about today is the fate of the Chinese banks. If you thought that the American banks were in bed with the government then you haven't seen anything yet. The worry is that the banks are currently propping up alot of companies that are for all intents and purposes already bankrupt. The linked article mentions that about 10% of their loans could go bad which may wipe up to 3.5 trillion of equity away. Most of these companies are limited to China with a bit of exposure due to their ADR's trading in North America so there isn't much direct market worry. The real worry is that to prop up their own economy China may have to: - start selling US Dollar holdings to keep its own at a rate that the rest of the world can't absorb, - have their economy grow at a zero rate, something that was almost unthinkable even 2 years ago. Both of these have significant knock on effects for the rest of the world. I have no insight to this myself, I'm not an economist but the guy really making noise about this is Kyle Bass who made alot of money off the 2008 crash but whose fund hasn't done so well since then. So you can either believe he knows what he's talking about and get ready or assume he's a "one hit wonder" who is unlikely to be right about such a big event again. I will say this. I talk to alot of people who would love to short China but are afraid of getting burned as there is really no way of predicting if the govnermnet will let some banks fail or if they will throw everything at the problem to prop up their financial sector. My suspicion is that they will follow the US example and throw billions at the banks in an attempt to right them.

exelius 11y ago
> My suspicion is that they will follow the US example and throw billions at the banks in an attempt to right them. My suspicion is that China will actually let a few banks fail before the government steps in. And China culturally prefers to find scapegoats - it's easier to say the bad action taken by a company is not reflective of the company, but the result of a few criminals who betrayed the rest of the company for personal gain (this rationale is often used in government corruption cases). In any case, if they let a bank or two fail, then anger about economic losses is redirected away from the government and towards the corrupt, greedy bankers, and the government is the knight in shining armor that comes and heroically saves the day. The US did the exact same thing with Lehmann - they found the bank that was more fucked than the rest, let them fail in a controlled manner, and it sent a signal to the market that "this is serious, equity will be wiped out, but it's not financial Armageddon". I expect China to send the same signals.
- ktRolster 11y ago
  >My suspicion is that China will actually let a few banks fail before the government steps in Too late, the government has already stepped in. http://money.cnn.com/2015/02/04/news/economy/china-economy-stimulus/ http://money.cnn.com/2015/02/04/news/economy/china-economy-s... (cutting the reserve ratio is basically like giving money to banks) Don't expect to see something like TARP, the central banks have found less controversial ways to fund banks (by buying mortgages, etc)
- chollida1 11y ago
  > The US did the exact same thing with Lehmann - they found the bank that was more fucked than the rest, let them fail in a controlled manner, and it sent a signal to the market that "this is serious, equity will be wiped out, but it's not financial Armageddon". Umm, I guess this could be a matter of opinion but this seems completely wrong to me. I'd argue the Lehman failure was anything but controlled, and so would pretty much anyone in the finance industry. I'd also argue that the government didn't let them fail to be an example, that was done with Bear Sterns. The government try extremely hard to save Lehman and ultimately it was Lehman's ownership,who refused to have their equity wiped out, who sunk the company.
  - scott_s 11y ago
    Agreed that the quoted account on Lehman is wrong. Bernanke was clear in his book last year: “In congressional testimony immediately after Lehman’s collapse, Paulson and I were deliberately quite vague when discussing whether we could have saved Lehman,” Mr. Bernanke writes. “But we had agreed in advance to be vague because we were intensely concerned that acknowledging our inability to save Lehman would hurt market confidence and increase pressure on other vulnerable firms.” Now, however, he appears to have some misgivings about some of those early statements. “I wonder whether we should have been more forthcoming, and not only because our vagueness has promoted the mistaken view that we could have saved Lehman.” See http://www.nytimes.com/2015/10/06/business/dealbook/in-ben-bernankes-memoir-a-candid-look-at-lehman-brothers-collapse.html http://www.nytimes.com/2015/10/06/business/dealbook/in-ben-b...
  - deleted 11y ago
Riod 11y ago
Bass was kinda wrong on his Japan trade though. Doesn't work every time. Also the big issue with 2008 was that the government led Lehman fail; a huge mistake. They should have nationalized it or taken a majority equity stake in it at punitive terms.

exelius 11y ago

> My suspicion is that they will follow the US example and throw billions at the banks in an attempt to right them. My suspicion is that China will actually let a few banks fail before the government steps in. And China culturally prefers to find scapegoats - it's easier to say the bad action taken by a company is not reflective of the company, but the result of a few criminals who betrayed the rest of the company for personal gain (this rationale is often used in government corruption cases). In any case, if they let a bank or two fail, then anger about economic losses is redirected away from the government and towards the corrupt, greedy bankers, and the government is the knight in shining armor that comes and heroically saves the day. The US did the exact same thing with Lehmann - they found the bank that was more fucked than the rest, let them fail in a controlled manner, and it sent a signal to the market that "this is serious, equity will be wiped out, but it's not financial Armageddon". I expect China to send the same signals.

ktRolster 11y ago
>My suspicion is that China will actually let a few banks fail before the government steps in Too late, the government has already stepped in. http://money.cnn.com/2015/02/04/news/economy/china-economy-stimulus/ http://money.cnn.com/2015/02/04/news/economy/china-economy-s... (cutting the reserve ratio is basically like giving money to banks) Don't expect to see something like TARP, the central banks have found less controversial ways to fund banks (by buying mortgages, etc)
chollida1 11y ago
> The US did the exact same thing with Lehmann - they found the bank that was more fucked than the rest, let them fail in a controlled manner, and it sent a signal to the market that "this is serious, equity will be wiped out, but it's not financial Armageddon". Umm, I guess this could be a matter of opinion but this seems completely wrong to me. I'd argue the Lehman failure was anything but controlled, and so would pretty much anyone in the finance industry. I'd also argue that the government didn't let them fail to be an example, that was done with Bear Sterns. The government try extremely hard to save Lehman and ultimately it was Lehman's ownership,who refused to have their equity wiped out, who sunk the company.
- scott_s 11y ago
  Agreed that the quoted account on Lehman is wrong. Bernanke was clear in his book last year: “In congressional testimony immediately after Lehman’s collapse, Paulson and I were deliberately quite vague when discussing whether we could have saved Lehman,” Mr. Bernanke writes. “But we had agreed in advance to be vague because we were intensely concerned that acknowledging our inability to save Lehman would hurt market confidence and increase pressure on other vulnerable firms.” Now, however, he appears to have some misgivings about some of those early statements. “I wonder whether we should have been more forthcoming, and not only because our vagueness has promoted the mistaken view that we could have saved Lehman.” See http://www.nytimes.com/2015/10/06/business/dealbook/in-ben-bernankes-memoir-a-candid-look-at-lehman-brothers-collapse.html http://www.nytimes.com/2015/10/06/business/dealbook/in-ben-b...
- deleted 11y ago

Riod 11y ago

Bass was kinda wrong on his Japan trade though. Doesn't work every time. Also the big issue with 2008 was that the government led Lehman fail; a huge mistake. They should have nationalized it or taken a majority equity stake in it at punitive terms.