Mish's Global Economic Trend Analysis |
Posted: 11 Aug 2012 09:30 AM PDT Top Chinese banks are involved in Ponzi financing of investment deals, offering interest rates over 7% to depositors, to finance real estate projects gone bust and other projects whose assets are not even disclosed. Banks label these schemes "Wealth Management Products" (WMPs) but any individuls foolish enough to invest in them are going to lose money, perhaps all of it. Reuters explains in a special report China's answer to subprime bets: the "Golden Elephant" The Chinese investment vehicle known as "Golden Elephant No. 38" promises buyers a 7.2 percent return per year. That's more than double the rate offered on savings accounts nationally.Chinese Banks' Weapons of Mass Ponzi Financial Times Alphaville picked up on the story in Chinese Banks' Weapons of Mass Ponzi We wrote last week that China's shadow banking system was reflecting and, to an extent, contributing to a growing liquidity risk which in turn is being exacerbated by net capital outflows. Since then, there have been some interesting revelations on the domestic liquidity management, especially in shadow banking, and especially especially in wealth management products.Capital Shortfalls Alphaville totaled the above numbers and came up with a capital shortfall of Rmb 244.7 billion for 2012 and a Rmb 340.2 billion shortfall by the end of 2013. While converting Rmb 244.7 billion to US dollars (the answer is $72.11 billion), I accidentally stumbled across the Rmb 244.7 billion figure in KPMG China's weekly banking news summary Better than expected profits from Chinese banksBetter than expected earnings exactly match expected capital shortfalls. Fancy that. Poway, Golden Elephants, and Pay Option ARMs This setup sounds much like the "better than expected earnings" reports by US banks in 2006 on Pay Option ARMs. No money came in to banks but accrued interest added to the bottom line (until the deferred payment scheme on questionable assets blew sky high). Poway vs. "Golden Elephant" "Golden Elephant" also sounds like the Ponzi scheme in Poway, California. Poway borrowed $105 million and will defer interest and principal payments for 20 years at which time Poway will owe $1 billion. For further details, please see Ponzi Financing in Poway California Based on Massively Rising Property Values Regarding Poway, I was asked "Who is dumber, the city of Poway or the bank that made the loan?" That's a good question. Certainly the bank that originated the loan will not be paid back if they hold this loan to term. But did they keep it? Given the fiasco in Pay Option ARMs I rather doubt it. Indeed, I highly suspect the bank that originated the deal sold the loan to some unsuspecting pension plan such as CALPers, or perhaps some plan covering Poway itself. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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