Presenting Chinese Wealth Management Product's Infinite 'Risk' Loop

Tyler Durden's picture

While we explained - in detail here - the copper-financing-deals that are among the epicentric drivers of the credit crunch in China, there is an (albeit smaller) missing link. The so-called 'Wealth Management Products' that are discussed widely and yet little understood are basically higher yielding vehicles pitched to a greater-fool retail audience with the goal of reducing banks' risk at the behest of the PBOC. Of course that is not how these stuffed-to-the-gills-with-risky-development-projects deals are pitched to the investing public but they have allowed banks (and implicitly local governments) via the infinitely virtuous loop below to fund any and all things construction-based... until now. It seems that losses (step 5), risks (step 3), and illiquidty (step 6) are breaking the loop very rapidly and therefore implicitly lowering credit creation (and therefore growth) or driving credit demand even further into the shadows.



Simply put - the retail audience is becoming aware of the risks (Step 5 is breaking), Trust companies are increasingly illiquid and also unwilling to act as conduit carrying the short-term risk (Step 3), which stalls the recycling of deposits back into banks (Step 6) crushing the banks' ability to lend and keep the glorious growth cycle going...

From wealth-management to wealth-massacre in one easy loop.


Charts: Reuters

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astoriajoe's picture

virtuous feedback loop?

ZerOhead's picture

Oh it's a feedback loop alright...


5. Small investor's buy those products


5. Small investors buy GOLD.

JPM Hater001's picture

Didnt we see this movie once already?  I believe it was called Mortgage Backed Securities.

flacon's picture

Don't you just love that expression: "Wealth Management Product"? LOL! Dynamite shoved up your butt is a "seat warmer product".

Kiss My Icelandic Ass's picture



Chinese wealth management.


Steal from the rich, give to the poor ? (Give to the politically-connected I mean.)

old naughty's picture

"Give to the politically-connected"

But those ARE the rich who steal from the poor, no?

NotApplicable's picture

I'm guessing that Benron's ponzi contains a LOT MORE LOOPS.

Renewable Life's picture

So Paulson, Pelosi, Timmy G, Bernanke, and Blankfien are all sitting at a table in late 2008 and Blankfien is explaining MBS and derivatives and Pelosi after seeing what is going on says, "I got this fixed right now"!!

"I'll wtite a one page bill and take it before the house, outlawing non investment banks from selling any loans off their books! If you have a loan, its stays on the books until its retired or goes bad, at which time the bank eats the lose"! "There this is settled", and she sat back in her chair as proud of herself as could be.  The room remained silent for a little will and everyone looked each and then Blankfien says, "that's great Ms. Speaker, but what do you want us to do with the 57 trillion in current products, margin debt, and leveraged collatoral that is still out in the marketplace????"

At which time Paulson says, "I got a great idea!"

I wonder what China will do????

Kirk2NCC1701's picture

More likely an unvirtious entrapment loop:

q99x2's picture

If they haven't learned by now how to make money by destroying their own corporations then they never will.

WAMO556's picture

It's ALL about perception management!

ZerOhead's picture

I had a 'Hot Wheels' track layout identical to that when I was a kid....


ebworthen's picture

Me too!

Except there was no bridge, the cars could smash into each other in the middle of the loop!

Winston Smith 2009's picture

Wow, the MBS scam redux, this time with entire ghost cities!

ebworthen's picture

Ah the infinity loop; or Ouroboros, or a dog chasing it's tail while the owner laughs.

Reminds me of Wall Street.

Sequitur's picture

"Hello, China wealth products desk? Yeah, John here. I have but one requirement: custodial account control. I'll help them 'manage' their wealth."

- John Corzine

ring ring ... ring ring

"Mr. Corzine, I have Mr. Dimon on line 2 . . . ."

Dareconomics's picture

When a central bank attempts to limit credit, the unintended consequence is that existing credit, particularly at the margins, is not rolled over.  This is the problem the PBOC is having.

Unknown Poster's picture

Slice and dice bad government debt and pass it around, -Wealth Mismanagement Products.

Brett Merkey's picture

The easy loop -- just lie to the liars...

Inside Anglo: the secret recordings:

Kirk2NCC1701's picture

Aha, I knew it:  It's not the Jews.  It's the fucking Brits!

Oops, will I now have the British Anti-Defamation League, or just John Cleese coming after me and ZH?   ;-)

Central Ohio's picture

I wondered how the shadow banking system worked.  Thank for the post.