Lehman 2.0, China Moves to “Securitize” Toxic Debts

This morning, Reuters and Bloomberg are reporting securitization of distressed assets once again is emerging as a creative venue, this time for Chinese banks to offload their toxic bad debts.

Pick up out 21 Lehman Systemic Indicators Here

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Central Banks and Investor’s Reach for Yield

 Act #1: 2004-8

$3 Trillion:  US Mortgage Backed Securities, CDOs, RMBS, MBS, NINJA loans (No Income, No Job, No Assets)

 Act #2: 2010-16

$5 Trillion: Commodity Debt, Emerging Market government debt, EU Bank CoCo debt, MLP debt, China SEO Debt, Puerto Rico debt

Bloomberg

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In a repeat of 2007-8, Central Banks have kept interest rates far too low for to long.  This forces yield hungry investors to reach for yield, oh how we’ve seen this show before. The bottom line, trillions (U.S. dollars) of capital is in places it just shouldn’t be.

The fundamental problem, 99% of central bankers have never taken professional risk, they’ve never hit a 90mph fast ball.  The have written and theorized at great length on the subject, but they’ve never actually been in the game.

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In 2007, they couldn’t see the 2008 financial crisis coming at U.S. financial markets, as many recall Fed Chair Ben Bernanke lectured us “subprime risks are contained.”  The Iceberg was right there, they couldn’t see it. 

Today, they sit back as the disgusting debt load floats, floats and floats higher.

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The recent success of bad-debt securities sales by Bank of China and China Merchants Bank may prompt more securitization by China banks. The six largest listed banks are all taking part in a 50 billion yuan ($7.6 billion) pilot program, Reuters reported. Broker Guotai Junan estimated bad-loan securitization will reach 1.5 trillion yuan in 2016. The sales may limit credit costs and help banks’ profits.

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Companies Impacted: Bank of China and China Merchants Bank sold distressed asset-backed securities totaling 534 million yuan in May. AgBank and China Construction may soon follow with similar plans, according to the Shanghai Securities Journal. ICBC and Bocom are also participating in the pilot program.

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