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Any news on Evergrande? I thought the world was supposed to go under last year ...

chasd00 4y ago
The thing about that is the Chinese government can just declare it’s no longer a problem and then it’s no longer a problem. Just like they can solve Covid outbreaks through starvation, separated families, and doors welded shut. When you’re free from morality or repercussions then all problems are easily solvable.
- adam_arthur 4y ago
  They can't really do that because Firm A may depend on Firm B's payment to stay afloat. So you can't just say Firm B doesn't have to pay A and all is well. Also if a Firm defaults on its debt obligations, nobody will choose to lend to that Firm in the future. Certainly it still may be possible to untangle the situation by shifting losses to those who can bear it (socialize them), but it's not as simple as you make it sound. Have to work out a whole graph of dependencies. Lehman Brothers had something like $50T of value in underwater derivatives. Good luck solving that
  - dillondoyle 4y ago
    Many problems aside, they could just print or give money.
    - adam_arthur 4y ago
      Yeah, check with South America on how that works out. It can be done to a certain extent, but obviously these aren't cost free solutions.
      - bilbo0s 4y ago
        South Am governments are dependent on banks in other parts of the world. The Chinese government is not. There's just some realities about global economics. Uruguay, Portugal, or Rwanda default, then they have a problem. China or US has the same issues, and it's just not the same kind of problem. They would just redefine things so that they don't default and then call the whole thing a "bailout". I'm not ragging on south americans or africans or portuguese, I'm just stating facts. It's not fair, but that's how the global system works. You do business with China or the US, you find out fairly early on that even in a crisis, it's their way or the highway.
        adam_arthur 4y ago
        You don't seem to understand that it's not that simple. If the trail of dependencies in the system is deep and highly leveraged, it doesn't matter if the government "wills" it to be one way or the other. Economies and companies are highly interconnected. There is no magic wand to fix the problem without serious repercussions, even with an authoritarian government. You wipe out USD debt holders, they will never lend to your companies again. You print money to pay off debts, you get inflation, weaker currency and potentially other destabilizing outcomes, like moral hazard of private sector expecting bailouts. All debt problems can be solved via arbitrarily high inflation, yes. But it's also the setup for mass suffering and potentially revolution.
  - deleted 4y ago
    [deleted]
- bandrami 4y ago
  They can also export at least some of their financial pain to their belt and road "clients". Sri Lanka comes to mind.
jsemrau 4y ago
https://www.reuters.com/business/china-evergrande-faces-winding-up-lawsuit-hong-kong-2022-06-27/ https://www.reuters.com/business/china-evergrande-faces-wind...
adam_arthur 4y ago
Many Chinese property firms are distressed now, it remains to be seen how it ends. Here's an Evergrande bond that's trading at a 90% loss, implying chance of total failure/default is quite high: https://markets.businessinsider.com/bonds/china_evergrande_groupdl-notes_201721-25-bond-2025-xs1627599654 https://markets.businessinsider.com/bonds/china_evergrande_g... Of course, the Chinese government has a lot of power to try to socialize the losses and salvage things. When you have a spiderweb of liabilities that are jointly depended on, it's difficult to intervene and find a clean resolution, despite the gov having the authority to do so

The thing about that is the Chinese government can just declare it’s no longer a problem and then it’s no longer a problem. Just like they can solve Covid outbreaks through starvation, separated families, and doors welded shut. When you’re free from morality or repercussions then all problems are easily solvable.

adam_arthur 4y ago
They can't really do that because Firm A may depend on Firm B's payment to stay afloat. So you can't just say Firm B doesn't have to pay A and all is well. Also if a Firm defaults on its debt obligations, nobody will choose to lend to that Firm in the future. Certainly it still may be possible to untangle the situation by shifting losses to those who can bear it (socialize them), but it's not as simple as you make it sound. Have to work out a whole graph of dependencies. Lehman Brothers had something like $50T of value in underwater derivatives. Good luck solving that
- dillondoyle 4y ago
  Many problems aside, they could just print or give money.
  - adam_arthur 4y ago
    Yeah, check with South America on how that works out. It can be done to a certain extent, but obviously these aren't cost free solutions.
    - bilbo0s 4y ago
      South Am governments are dependent on banks in other parts of the world. The Chinese government is not. There's just some realities about global economics. Uruguay, Portugal, or Rwanda default, then they have a problem. China or US has the same issues, and it's just not the same kind of problem. They would just redefine things so that they don't default and then call the whole thing a "bailout". I'm not ragging on south americans or africans or portuguese, I'm just stating facts. It's not fair, but that's how the global system works. You do business with China or the US, you find out fairly early on that even in a crisis, it's their way or the highway.
      - adam_arthur 4y ago
        You don't seem to understand that it's not that simple. If the trail of dependencies in the system is deep and highly leveraged, it doesn't matter if the government "wills" it to be one way or the other. Economies and companies are highly interconnected. There is no magic wand to fix the problem without serious repercussions, even with an authoritarian government. You wipe out USD debt holders, they will never lend to your companies again. You print money to pay off debts, you get inflation, weaker currency and potentially other destabilizing outcomes, like moral hazard of private sector expecting bailouts. All debt problems can be solved via arbitrarily high inflation, yes. But it's also the setup for mass suffering and potentially revolution.
- deleted 4y ago
  [deleted]
bandrami 4y ago
They can also export at least some of their financial pain to their belt and road "clients". Sri Lanka comes to mind.

jsemrau 4y ago

https://www.reuters.com/business/china-evergrande-faces-winding-up-lawsuit-hong-kong-2022-06-27/ https://www.reuters.com/business/china-evergrande-faces-wind...

adam_arthur 4y ago

Many Chinese property firms are distressed now, it remains to be seen how it ends. Here's an Evergrande bond that's trading at a 90% loss, implying chance of total failure/default is quite high: https://markets.businessinsider.com/bonds/china_evergrande_groupdl-notes_201721-25-bond-2025-xs1627599654 https://markets.businessinsider.com/bonds/china_evergrande_g... Of course, the Chinese government has a lot of power to try to socialize the losses and salvage things. When you have a spiderweb of liabilities that are jointly depended on, it's difficult to intervene and find a clean resolution, despite the gov having the authority to do so