View Full Version : China denounces U.S. banks for 'evil intent' with derivatives

3rd December 2009, 15:47
Oh, snap! See, even Red China gets it--when will the nuckleheads here get it?

China is positioning for a DEFAULT on their crappy SILVER SHORTS that JPM talked them into years ago.
("We had to default on these unethical, evil derivatives foisted on us by the Vampire Squid")

LOL! Silver will rise and JPM will be out of luck!

China denounces U.S. banks for 'evil intent' with derivatives

Submitted by cpowell on Thu, 2009-12-03 21:15. Section: Daily Dispatches (http://www.gata.org/taxonomy/term/2) By Jamil Anderlini
Financial Times, London
Thursday, December 3, 2009
BEIJING -- A senior Chinese official who oversees the country's largest state-owned enterprises has publicly slammed Western investment banks for "maliciously" peddling complicated derivative products that caused huge losses for Chinese companies over the last year.
In Beijing's strongest criticism on the matter to date, Li Wei, vice director of the state-owned Assets Supervision and Administration Commission, singled out Goldman Sachs, Morgan Stanley, Merrill Lynch, and Citigroup in a long and highly critical article in the latest issue of an official Communist party newspaper.
The large losses suffered by Chinese state companies were "closely associated with the intentionally complex and highly leveraged products that were fraudulently peddled by international investment banks with evil intentions," Mr Li asserted. "To a certain extent some international investment banks were the chief criminals and the root of ruin for the Chinese enterprises who encountered this financial derivatives Waterloo."
In his article, Mr Li said 68 of the 130-odd state companies controlled directly by Sasac had been buying derivatives to speculate or hedge against rising commodity prices and fluctuating currencies and interest rates, even though some of them were not authorised to do so.
These 68 companies had booked total combined net losses of Rmb11.4 billion on the Rmb125 billion worth of financial derivatives products they had bought by the end of October 2008, Mr Li said.
The government has not previously revealed the full extent of losses suffered by Chinese companies that made ill-fated bets on over-the-counter, mostly offshore derivatives.
In September, Sasac warned that some of the contracts were illegal and might be invalidated, a move that prompted some Western banks to agree quietly to renegotiate contracts behind closed doors.
Air China, China Eastern Airlines, Cosco, China Railway Engineering Corp., China Railway Construction Corp., and Citic Pacific were among the companies that lost the most from buying complex derivatives.
Some of the biggest losses came from the airlines and shipping companies' purchases of options to hedge against rising oil prices between June and August last year, when oil hit a historic peak of more than $140 a barrel.
When prices fell during the financial crisis, these companies were saddled with large losses, partly because they had chosen riskier -- and cheaper -- derivatives products to hedge against rising prices.
Mr Li said the most important reason for the derivatives losses was unnecessary speculation and attempts at arbitrage by these state companies.
He also cited weak risk management procedures, a lack of expertise, and intentional breaking of rules that restrict most kinds of financial derivatives in China.
But he said China should "not give up eating for fear of choking" and that it was imperative for Chinese companies to keep using financial derivatives.

Ed Steer had this to say about this posturing:
"In a story posted at the Financial Times in London yesterday comes this headline... "Chinese official slams banks over derivatives". Several months ago, there was a similar story from China where officials said that they would allow state-owned companies to walk away from these sorts of contracts. Of all the stories I've posted so far today, this is the one that's really worth your time... and the link is here (http://www.ft.com/cms/s/0/9d3ce434-e029-11de-8494-00144feab49a.html?nclick_check=1)."

3rd December 2009, 15:55
If you haven't seen this clip from SNL, it says it all and is funny. :)


4th December 2009, 03:32
So, if they default on financial obligations, does that mean we can retaliate by defaulting on US debt held by China? Just something the Chinese might want to think about.

4th December 2009, 06:02
So, if they default on financial obligations, does that mean we can retaliate by defaulting on US debt held by China? Just something the Chinese might want to think about.

Bingo! That is exactly what we are doing.
The USGovt is doing a stealth default on all its debt by devaluing the currency (through money printing, QuantEasing/Stimulus/Bailouts).
When you devalue a currency, all our debt is being paid with increasingly worthless dollars.
So, we owe China $1.2Trillion? If we devalue our currency by 50%, then we will pay China $1.2Trillion, but it will be only worth half as much!
If the USGovt was honest, it would simply call China and try to renegotiate the debt, since it is unpayable.
That is why the Chinese are so PO'd.
That is why they are threatening to default on derivatives.
They see what the USGovt is doing and figure, hell, if the USGovt is defaulting on its debt, maybe we should default on our crappy commodity short-derivatives.