Holy Crap on a (Chinese Made) Pogo Stick

(I for one welcome our new Chinese overlords! @11am – promoted by buhdydharma )

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I’ll be a monkey’s uncle.

In a diary on mortgages, now frontpaged, a comment was made about the Chinese moving in to your home when the proverbial shit hits the fan.

My initial reaction – that sounds just a tad farfetched to me. After all, China does own a lot of our government debt, but I seriously doubt they own much in the way of our personal debt.

Well, since Google is our friend, I decided I better test my theory before spouting off.

And thus, the title of this essay.

From an August article in the International Herald Tribune:

HONG KONG: The first purchase by the Chinese government’s new overseas investment fund, a $3 billion stake in the Blackstone Group, has backfired badly and produced an unusual public backlash within China.

Blackstone shares have fallen steeply since the company went public June 22, pushing down the value of the government’s investment by more than $500 million in just six weeks. Bloggers and even some Chinese financial media have frequently mentioned the dwindling value of the government’s stake, and some have been highly critical.

Blackstone is a company that invests in private equity funds, real estate opportunity funds, and other debt vehicles. It trades on the New York Stock Exchange.

More:

For many years, China’s central bank followed the example of most central banks by investing the bulk of its assets in Treasury bonds and other government bonds. But as China’s foreign reserves have soared to $1.3 trillion, the government has started chasing higher returns – and is now learning that this involves greater risk and sometimes losses.

Over the last several years, the People’s Bank of China has led the way among central banks in buying U.S. mortgage-backed securities, accumulating an estimated $100 billion worth of them, according to people with knowledge of the central bank’s trading. The People’s Bank of China has long chosen some of the most creditworthy tranches of these securities.

Pardon my French, but who the fuck is managing the store around here? Jeebus. Do we have no sense of balancing risk in this topsy turvy world? By we, I mean of course our Federal Government. We have become so enamored with our debt driven economy, we no longer give a rat’s ass who is holding the chips at the end of the day.

This is beyond ridiculous.

But with the malaise in the U.S. housing market, even the value of some previously creditworthy mortgage investments is starting to erode. The Chinese central bank abruptly halted purchases of U.S. mortgage-backed securities in May, although it does not appear to be liquidating existing holdings, said one person who follows the bank’s trading practices closely.

This person insisted on anonymity because of the central bank’s policy of banning transactions with any individual or institution that discloses information about it.

Nice. The balance of the article talks about how the foreign investments aren’t highly thought of back home, and how China restricts foreign ownership of their financial assets while at the same time advocating for fewer restrictions from the West. And of course, we are playing along.

These corporatist, free-trade with anything goes politicians have to go. All of ’em need to wake up and smell the coffee tea leaves.

So how are things since August? The above article suggests a slow down. Not so fast, friends… From an article last week in Bloomberg:

Oct. 17 (Bloomberg) — Industrial & Commercial Bank of China Ltd., the world’s largest bank by market value, will set up branches in cities including New York and Moscow and make acquisitions to speed up its overseas expansion.

…Chinese banks, flush with cash after raising $63 billion selling stock in the past two years, are seeking targets overseas as the U.S. subprime mortgage meltdown hurts financial stocks globally. China Citic Group yesterday said it may bid for part of Bear Stearns Cos., the Wall Street firm hit hardest by the collapse in U.S. mortgage-backed securities.

…China’s largest banks could take advantage of the falling stock prices of global peers that have suffered after investing in securities backed by mortgages to riskier borrowers. Wall Street’s biggest firms recorded a combined $3.8 billion in third-quarter losses. Shares of Bear Stearns, the fifth-largest U.S. securities firm, fell as much as 37 percent this year.

China’s own banks have so far been relatively unscathed by the subprime crisis. ICBC held $1.2 billion of securities linked to the riskier U.S. mortgages as of June 30 and China Construction Bank Corp. owned $1.06 billion. That compares with 300 billion yen ($2.6 billion) at Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank.

So now they are position to buy even more US debt instruments. Not just government debt. Personal debt. And lots of it.

I sit in stunned silence, not knowing what else to add.

(h/t to stonemason)

20 comments

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  1. The only caveat, banks of any stripe don’t want to own the house you live in. They want the interest from the mortgage.

    Still, this increasing reliance on foreign ownership of our personal debt is deeply troubling. Someone needs to investigate this phenomenon and act in our collective best interests if necessary.

    Before the shit really does hit the fan.

  2. The question was asked – where did my essay go?

    Finally found it over here on the left side of the blerg.

    Thx Buhdy, and I for one wish it was the dolphins…

    • Twank on October 25, 2007 at 17:31

    would JUST SHUT UP!

    Dude must be back to drinkin’ agin and it’s only 6 in the morning, his time.

    Somebody do an intervention or somethin’!

    • KrisC on October 25, 2007 at 17:44

    I’m proud to be a “Renter!”  Not much to lose, thank gawd.

  3. of Hedge Funds and high powered financial engineers.

    The weak dollar makes it cheap for other countries to purchase US infrastructure and companies.

      The dirties secret is that the sub-prime crises is less about housing than it is about Enron style financing. Bundling mortgage loans that weren’t paid, and pretending like the money was already there. Then using that money as collatoral for other investments. The US comes out smelling like a turd.

      Remember Neil Bush’s Silverado Savings and Loan crises. Well here we go again. Only the world financial markets are involved. The big time players are sweating bullets.

      Since when have you ever ever heard of Mortgage companies being willing to restructure mortgage loans out of the kindness of their hearts. They are trying to save the financial investors that used Enron style accounting and played high risk games in world start up investments.

      Take note that China and Russia are both investing in Iran. That China has been investing everywhere, while the US has been obsessed with remaking the Middle East.

     

  4. flood you with links…

    Here is a picture of the wealth available to purchase US stuff (tangibles, dear, NOT debt this time): http://www.economist

    The misconception here about welcoming Chinese overlords is that they would not be buying your debt, they would be buying your house.  Tangibles, tangibles tangibles.  Meaning:  you would be OUT of your house.

    I was plumb blown away when our friend (construction maven) in the Big Horn Mountains of Wyoming was hired to build a road in for Chinese oil drillers.  Ahem.

    Here is a link about that platinum mine the Cheney regime sold to a front company for the Russian gummnt:
      http://karmakat.type

    A platinum mine!!! trades for twice the price of gold!!!!  Sold to a foreign entity, which is supposed to take Congressional approval (any sale of precious/strategic US assets).  This alone is enough to bring the sellers (ahem) up on some kind of treason charges.

    No the Chinese don’t want your mortgages (yawn… promises, promises) but they might take your house itself for pennies on the dollar if your local economy goes sunny side up.  Or the Saudis, or the Japanese, or the English…

  5. the best one of all?

    That 3 billion blackstone purchase?  Came the Monday following Congress’ May capitulation on Iraq war funding.  That was when I knew Congress played to “investor confidence” (i.e. creditors of the national debt) at the expense of voter opinion.

    Debt money recycling games from the wars are highly conflated with Congress’ economic decisions.  Scratch deeply enough and find that the killing itself is putting the bread and circus together in the US.  The biggest “industry” going in the US anymore is the sale of debt.

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