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"Magic" Collateral: A Frank Look At The Sheer Credit Horror About To Be Unleashed In China

Tyler Durden's picture




 

While the world is terrified about what China - where corporate bond defaults are now permitted - may be about to unleash on the world, most are all too happy to remain in a state of delightful ignorance. We decided to take a peek behind the scenes.

Recall that as we have repeatedly shown in the calendar of coming Chinese bond default, on March 31, a borrower named "Magic" (no comment) is set to default on a CNY196 million Trust.

The default may or may not happen, as there is always a high likelihood it will simply be bailed out as has happened frequently in the past, but regardless of the final outcome, here is what is really going on behind the scenes. From Bank of America:

31 Mar 2014, Rmb196mn borrowed by Magic Property & arranged by CITIC Trust

 

Details: invested in an office building in Chongqing. The Chongqing developer ran into financial problems in mid-2013. CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.

 

Potential outcome: The developer and the trust company may share the repayment.

 

Reasons: 1) When CITIC Trust sold the product, it did not specify the underlying investment project. 2) The local government has intervened, fearing social unrest. A local buyer of a unit in the office building committed suicide as he/she could not obtain the title to the property due to the title dispute between the trust and the developer.

Please re-read that first part again:

CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.

So, "Magic" not only sold the collateral... but also mortgaged it to a few other lenders: lenders who count its as a perfectly performing asset when in reality they have zero claims to it. Did they steal that straight from the MF Global instruction manual?

Now add this:

"The local government has intervened, fearing social unrest. A local buyer of a unit in the office building committed suicide as he/she could not obtain the title to the property due to the title dispute between the trust and the developer."

... and multiply by a few thousand for all the other shadow (and not so shadow) players who have engaged in precisely this kind of gross abuse of underlying collateral, which also happens to be the main reason why China can magically create trillions in debt out of thin air with zero collateral constraints, each and every year, no questions asked.

Well, the time to ask a question or two has finally arrived.

 

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Tue, 03/11/2014 - 13:15 | 4534745 LawsofPhysics
LawsofPhysics's picture

How much of what does the U.S. have?  Be specific.  Moreover, are you using mark to market or mark to fantasy accounting?  remember it's a global market now...

Tue, 03/11/2014 - 13:22 | 4534783 Omegaman2211
Omegaman2211's picture

He's quite obviously asking how much gold the US has.

Tue, 03/11/2014 - 13:41 | 4534881 pods
pods's picture

That again is an unclear question.

How much does it have on the books?

Or

How much physical gold is within the defendable United States?

Two very different questions.

pods

Tue, 03/11/2014 - 14:19 | 4535037 hobopants
hobopants's picture

The only one that matters would be physical that is within their grasp. There is no philosopher's stone... lead is lead, paper is paper, gold is gold. This magic show posing as alchemy is coming to a close...applause or tomatoes you think? Maybe a golf clap?

Tue, 03/11/2014 - 14:34 | 4535123 LawsofPhysics
LawsofPhysics's picture

Yes, but lots of lead, at the correct velocity, can do wonders...

Tue, 03/11/2014 - 14:42 | 4535157 hobopants
hobopants's picture

An interesting dichotomy between the metals for sure, im sure there is a myth in there somewhere. 

Tue, 03/11/2014 - 13:18 | 4534760 highly debtful
highly debtful's picture

The question is: do their assets, including gold, outweigh their debts or is it the other way around? 

Of course, a massive revaluation of gold might be quite helpful.

Tue, 03/11/2014 - 16:49 | 4535691 MsCreant
MsCreant's picture

The way this goes, you hold on to your asset and default on the debt. Win/win. See that there?

Tue, 03/11/2014 - 13:22 | 4534784 DLux
DLux's picture

Depends how many more governments they can topple...

http://www.relbanks.com/rankings/world-gold-reserves

Libya 116.6 tonnes

Ukraine 36.1 tonnes

Iraq 29.8 tonnes

Syria (not yet) 25.8 tonnes

look out South America and Eastern Europe...

Tue, 03/11/2014 - 13:25 | 4534792 fijisailor
fijisailor's picture

Yeah how the hell did Venezuela get their gold back and why haven't they been invaded yet?

Tue, 03/11/2014 - 13:33 | 4534838 DLux
DLux's picture

Destabilizing RIOTS...check

UN demands investigation of the evil government...check

Time for a new government (and new loans backed by....GOLD)

Tue, 03/11/2014 - 13:34 | 4534844 i_call_you_my_base
i_call_you_my_base's picture

In due course.

Tue, 03/11/2014 - 20:04 | 4536351 Vendetta
Vendetta's picture

US doesn't want to have more than 6 war fronts going on at the same time.

Tue, 03/11/2014 - 13:35 | 4534850 Kirk2NCC1701
Kirk2NCC1701's picture

Every oil-rich or pipeline country that is not totally friendly to the US (Fed+BigOil) gets taken out, and their Precious stolen by... "those filthy Hobbitses", among others.

Venezuela is WIP.  The US is helping & organizing the Revolt & Takeover. 

Then the gold goes to the US, or whatever other destination that people speculate about (China, Israel).

Tue, 03/11/2014 - 13:47 | 4534903 Kirk2NCC1701
Kirk2NCC1701's picture

"look out South America and Eastern Europe..."

Yeah, did you see yesterday's ZH article about people rushing into Portuguese Bonds?  Given their surprisingly large gold holdings (382.5 tons), how long will it be before those get "collateralized" and shipped off to NY -- or wherever?

p.s. Some time ago I talked to the guys at Kitco, and they told me that the reason that the Gov of Canada does not like having their gold in a vault, is that its contents tend to get "relocated" to NY.  So they now keep it where Mother Nature guards it best:  as Ore, which is harder to store in a foreign vault.

Tue, 03/11/2014 - 23:11 | 4537093 Angus McHugepenis
Angus McHugepenis's picture

I store my gold in the ground near Fort Steele, BC. It will come out when needed.

Tue, 03/11/2014 - 13:24 | 4534789 fijisailor
fijisailor's picture

This may have been the Chinese plan all along.  They INVENTED paper money.  The plan is to create a shit ton of paper, buy up PMs and then revalue their paper against their PMs which they have more than anyone else.  Seemed like a perfectly logical way of dealing with crony capitalism.

Tue, 03/11/2014 - 15:14 | 4535326 walküre
walküre's picture

Bingo. It's come to an end though. Nobody is accepting anything from the Chinese, recorded or manufactured.

Tue, 03/11/2014 - 16:21 | 4535604 fijisailor
fijisailor's picture

I wish you were right but I was just in S America and they're still buying Chinese crap like crazy.

Tue, 03/11/2014 - 17:17 | 4535774 walküre
walküre's picture

As an example, I was shopping for a coffee maker. After looking at the selection of machines ranging in price from $15 to $150, I bought the $15 machine. All are made in China. They all brew coffee. I can replace the $15 machine 10x and definitely get more bang for my buck than buying a $150 machine that is just as crappy and needs to be replaced after a year.

See, my attitude as a consumer has changed due to the Chinese fraud. Spend $15 on the coffee maker that does the same job as the $150 coffee maker, save $135 and buy +/- 6 oz of silver with the savings.

My dogs love the cheaper machine as well. It doesn't make any freaking beep sounds which annoys the dogs and sets them off to bark.

Win, win, win. Thanks China for making crappy stuff that I can throw away after a year, no hard feelings, no remorse, no guilt. Allowing me to stack for a while now as well. I could buy a high end European made appliance but even those are not what they used to be.

People need to realize that the more expensive machine or appliance does not work any better just because some Chinese factory worker had to stick on a different brand label to the same Chinese made crap. It all comes out of a Foxcon type facility anyway where they're produced a dime a dozen.

When more people just buy the cheapest product of one kind, the Chinese manufacturing model is obsolete.

Tue, 03/11/2014 - 20:06 | 4536366 Vendetta
Vendetta's picture

Yep, did the crappy chinese coffee maker thing too.  You are correct about it all.

Tue, 03/11/2014 - 22:07 | 4536834 jonjon831983
jonjon831983's picture

Sigh... It is the CEO of the company or some C level in there who thought of a brilliant plan to increase profits and juice up their salaries.

IF the companies that contracted manufacturing out to China really cared about quality they wouldn't be driving for rock bottom pricing AND they wouldn't have accepted these products in QA.

Tue, 03/11/2014 - 23:41 | 4537178 Things that go bump
Things that go bump's picture

I have a German dishwasher that is such a marvel I should bow to it regularly, adorn it with precious objects and sacrifice a small animal to it on holy days.

Wed, 03/12/2014 - 01:27 | 4537463 Ward no. 6
Ward no. 6's picture

awesome!!! lol

Tue, 03/11/2014 - 23:30 | 4537154 Things that go bump
Things that go bump's picture

Apparently, a lot of the gold on the US books is in "deep storage." Personally, I suspect that is the stuff that is still in the ground or suspended in sea water. 

Tue, 03/11/2014 - 13:13 | 4534736 DLux
DLux's picture

Got a...Strange Magic

Tue, 03/11/2014 - 13:13 | 4534737 Seeking Aphids
Seeking Aphids's picture

Real estate WAS one of the places for the Chinese to invest.....looks like that is no longer a sure thing. Bullish for gold as it is now the last man standing......and no counter-party risk to worry about!

Tue, 03/11/2014 - 13:13 | 4534739 Luffk73
Luffk73's picture

CNY 196 million is about $32 million dollars.  Magic mortgaged the poperty a few times, so your looking at about $100 million in possible defaults.  Printing presses don't have to work any overtime to cover that.

Tue, 03/11/2014 - 13:49 | 4534918 KidHorn
KidHorn's picture

I think the point is that this deal is just the tip of he iceberg. Mulktiple this x1000 and now you have a problem.

Tue, 03/11/2014 - 14:25 | 4535081 debtor of last ...
debtor of last resort's picture

It's a collateral CHAIN, interconnected. All paper is connected, worldwide. This is not about a stand alone entity.

Tue, 03/11/2014 - 16:57 | 4535719 MsCreant
MsCreant's picture

Give someone a few bucks and he or she can eat for a day,

Teach them how to print bucks and they can eat the poor for a lifetime.

Edit: Or sustain a Potemkin economy.

 

Tue, 03/11/2014 - 13:26 | 4534803 McMolotov
McMolotov's picture

"Bear Stearns is fine!" —Jim Cramer, March 11, 2008

Tue, 03/11/2014 - 13:14 | 4534741 youngman
youngman's picture

developer has sold the collateral and also mortgaged it to a few other lenders.     Now that is a nice honest way of doing business..just sayin

Tue, 03/11/2014 - 14:31 | 4535104 NotApplicable
NotApplicable's picture

Well, the day you quit feeding the beast, it eats you!

Tue, 03/11/2014 - 16:18 | 4535590 negative rates
negative rates's picture

And it takes one to know one.

Tue, 03/11/2014 - 13:15 | 4534748 denverdolomte
denverdolomte's picture

They should create a drone to fight that "dragon"

Tue, 03/11/2014 - 13:19 | 4534768 tlnzz
tlnzz's picture

"Magic",  seems appropriate. Magic makes money disappear.

Tue, 03/11/2014 - 16:58 | 4535724 MsCreant
MsCreant's picture

Magic = Vaporrized = Corzined

Tue, 03/11/2014 - 13:20 | 4534773 ghostzapper
ghostzapper's picture

So I ask again - why oh why on earth are so many people intimidated by big, bad China and their so called plans to dominate the world with their gold-backed reserve currency?

T R U S T

Tue, 03/11/2014 - 13:48 | 4534915 joego1
joego1's picture

Sounds like the Japan deal a few years back. I agree with the notion of tossing the "global deal" and working on the home front for a while. We need to give the bankers and politicians the middle finger and start figuring out how to make this local again.

Tue, 03/11/2014 - 15:06 | 4535286 LFMayor
LFMayor's picture

And don't forget it was the towel heads there for a while, too.  Buying up everything, they'll own us all, by god.

Tue, 03/11/2014 - 13:23 | 4534786 Sufiy
Sufiy's picture

No wonder why Chinese are buying so much Gold now:


Koos Jansen: Chinese Gold Demand 418 Tonnes YTD, West Confused 


  Koos Jansen reports another set of numbers indicating that the unprecedented demand for Gold from China continues well into 2014 and even gathering pace. We can see China's state-level military plan to accumulate Gold in action.Withdrawals from the Shanghai Gold Exchange Vaults account for 418 mt of Gold year to date. China alone is taking out annualised Gold world-wide production now!    The acquisition of a serious Gold Mining Assets will be the very logical next step for China now. http://sufiy.blogspot.co.uk/2014/03/koos-jansen-chinese-gold-demand-418....

Tue, 03/11/2014 - 14:42 | 4535154 ghostzapper
ghostzapper's picture

This cutesie stuff is all fine and dandy but the point is everyone and their brother can report that China is importing a shitload of gold but who gives a fuck?  They can't dominate with a global reserve currency as some seem to fear because NOBODY will trust them.  Their accumulation of gold certainly helps prices of phyzz but it does not overcome the fact that essentially everything in their economy and financial system is bullshit and a house of cards.  

Tue, 03/11/2014 - 15:09 | 4535299 Almost Solvent
Almost Solvent's picture

Whoa - you mean revaluing their currency to be backed by gold (gold that would then become worth tens of thousands of dollars per oz) would inflict no harm on China's export economy? Billions of Chinese citizens would simply consume all China's former exports themselves? Brilliant!

Tue, 03/11/2014 - 15:18 | 4535356 walküre
walküre's picture

Anyone stupid enough to convert Mao paper into Dollars or Euros is stupid and deserves to be taken to the cleaners. Mao paper is literally printed like toilet paper and has flooded China and beyond. It's the official currency, not Dollars or Euros. Somewhere in the process, someone has to be willing to send gold and silver to China and settle for Mao paper. Dumb.

Tue, 03/11/2014 - 15:55 | 4535503 ebear
ebear's picture

Heh.... I was in China in the 80's and decided to pick up a bunch of these cute little fen notes to give to my friends:

http://tinyurl.com/p7skokx

Went to a dept. store and asked for some in exchange for a 5 yuan note.  Woman at the counter pushed the 5 yuan back to me, reached in a drawer, grabbed a handful of fen notes and just handed them to me, no charge!

Later, someone told me most people just threw them away and old ladies would pick them up off the street and take them to a bank to exchange for real money.  Drove the bank tellers nuts.

Tue, 03/11/2014 - 13:23 | 4534788 bigrooster
bigrooster's picture

This is the best part.  I sure wish that I could mortage my house to several different banks at the same time!

 CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.

Tue, 03/11/2014 - 13:27 | 4534807 fijisailor
fijisailor's picture

Yeah.  I think I'll take out home improvement loans on my house 10X its value, buy PMs with it all and disappear.  Those Chinese are on to something.

Tue, 03/11/2014 - 14:21 | 4535068 tenpanhandle
tenpanhandle's picture

be careful who arranges your disappearing act.

Tue, 03/11/2014 - 13:27 | 4534810 Notsobadwlad
Notsobadwlad's picture

Is the west(US) any different with its chain of re-hypothecated collateral?

But seriously folks. Why on earth would a bank expect to be able to receive real assets as collateral in return for debt they created out of thin air, with no apparent risk to themselves. Isn't that the very definition of a fraudulent trade?

Wouldn't we all like to be able to create fiction out of thin air, loan it to someone and say that if they do not pay it back on our terms we get to take their house or their business. It is not a dream. It is a nightmare fraud.

Tue, 03/11/2014 - 14:01 | 4534969 lasvegaspersona
lasvegaspersona's picture

heresy but...banks do not create money 'out of thin air'...they create it based upon trust, the credibility of the borrower and his promise to repay. They do get sloppy and lend way to much to governments because they are essentially tools of the government. When borrowers en masse cannot repay things (are supposed to ) collapse and there is a cleansing of the system. This of course is not being allowed to happen because the banks that hold these loans would be found to be bankrupt.

I'm sure this is not news but that is where we are. We are in an economy in which the amount of creation of wealth is less than the amount of money being created to keep these unpayable debts from failing. It is not new but the degree to which it is happening is. The outcome of this is certain but the timiing is in question.

There you go, accurate but completely useless info.

Tue, 03/11/2014 - 14:48 | 4535195 Ban KKiller
Ban KKiller's picture

"Fractional Banking methodology" A deposit of one hundred lets the bank lend nine hundred. Out of thin air. 

Tue, 03/11/2014 - 20:22 | 4536436 itstippy
itstippy's picture

... and the $100 on deposit isn't the bank's either.  It belongs to the depositor, who has merely loaned it to the bank for interest.

A banking license is a license to create money and loan it out for interest.  The bank gets to keep the interest it earns on the money it creates.  In return, the bank is supposed to be an expert at risk assessment, and only make sound loans backed by solid collateral to sound customers who have the ability to make the loan payments on time and in full.

That's what I learned about commercial banking back in Jr. High school in the early 1970's.  Investment banking is a different game, with different rules that resemble Calvin Ball.

Has the nature of banking changed since the early 1970's?

Tue, 03/11/2014 - 14:49 | 4535203 mc225
mc225's picture

--heresy but...banks do not create money 'out of thin air'...they create it based upon trust, the credibility of the borrower and his promise to repay--

 

oh, so they create money out of hopium.

Tue, 03/11/2014 - 16:43 | 4535670 css1971
css1971's picture

Innocence.

Bankers are basically the serpent.

Tue, 03/11/2014 - 13:30 | 4534826 williambanzai7
williambanzai7's picture

Sounds like the developer worked in the City of London somewhere along the line.

Tue, 03/11/2014 - 14:46 | 4535183 Ban KKiller
Ban KKiller's picture

AND his accountants! 

Nationstar Mortgage, LLC would fit right in to lawless China as they love financial crime. FIG is s pile of shit.

Tue, 03/11/2014 - 13:32 | 4534833 Ifigenia
Ifigenia's picture

the commies would adopt Mao`s method but with a human face, they would let the millions investors capital perish, starve to death. 

Tue, 03/11/2014 - 13:34 | 4534840 atthelake
atthelake's picture

STOCK UP  on food, drink, meds, seeds and supplies NOW, when they're on sale because it looks like a lot of us are going to starve to death.

Tue, 03/11/2014 - 13:35 | 4534848 kevinearick
kevinearick's picture

terrified, not...

Homosexuality & US Navy:  Breeding Extortion

So, you need a transmission device that will propel you forward into the future, instead of backward into the past, and depending upon how far you want to go, you flip the switch at empire implosion time…

Bay Area is on a roll, right? Another way to look at it is that Bay Area requires 20% RE inflation to keep the automaton rockstars autonomic. The difference between Bay Area and Detroit is that Detroit actually had a product, albeit a crappy one. America’s one and only product is military, going backward in time.

Homosexuality is not evil; it’s just a derivative outcome, of single people forming civil marriages, mimicking real marriage, to gain benefits at the expense of someone else’s responsibility. Empires breed themselves out of existence, unless you fuel them, adding event horizon filters, dividing by zero with inflation, to ensure the outcome, to load the spring.

Free speech isn’t free, and the Internet has consumed itself with filters exchanging entertainment for privacy. The majority, globally, has lost its ability to rear children, which means that those remaining will determine the course of the future, as usual.

You need a navy that will take you to the future, instead of the past, which means that you need a navigation system. Marriage always produces the best military discipline, and leaves the shell behind for corporation to exploit, until it can’t.

Groupthink crowd sourcing, best as the enemy of better, always ends badly, for those employing fiat as a measuring tool. The US Navy is a force for stupidity, chasing its own tail with fiat money, debt arbitrarily applied to production as a measure of control.

The Nazis were bred over decades, by public education, and were wiped out with 6 months work, by farm kids, whose parents left the empire to educate their own children. That is the lesson of WWII, and this empire has done us all the favor of wiring itself together globally, so much for nuclear power. You don’t have to go anywhere. Russia finds itself in a preemptive finance war, surprise, surprise...

The middle class is replacing itself with software, capitalized with RE inflation. Distance, time, is a function of perception, not the other way around, depending upon your perspective. The only difference between the Global City and its predecessors is its dress. Funny, where the bombs fall when the time comes.

Since when wasn’t a port the source of slush money? Follow the script, and have a nice day.

Tue, 03/11/2014 - 13:47 | 4534906 lasvegaspersona
lasvegaspersona's picture

huh?

Tue, 03/11/2014 - 18:30 | 4535986 Herd Redirectio...
Herd Redirection Committee's picture

Anyone remember "Random Thoughts" on SNL?

I think we got the Random Thoughts of Skynet, right here.

Tue, 03/11/2014 - 13:53 | 4534932 novictim
novictim's picture

Didn't get the gay references.  Really incoherent on the sum of your points.

Consider unifying these concepts you delve into under the primary flaw of capitalism: Wealth inequality and a failure of consumerism to maintain sufficient demand compared to production.

If you can grasp this linkage and then insert ideas of population numbers, representative democracy and oligarchy then you might get somewhere. 

Tue, 03/11/2014 - 13:54 | 4534939 drdolittle
drdolittle's picture

Did you do a lot of drugs back in the hippy days, kevinearick?(repo man)

Tue, 03/11/2014 - 13:56 | 4534943 Jugdish
Jugdish's picture

Well I do a majority of my business on the toilet. Calls, e-mails, texts, follow-up, things of that nature. That way I'm getting paid to take a shit. Just a bit of free advice for you.

Tue, 03/11/2014 - 14:07 | 4534996 forwardho
forwardho's picture

So... You say you want to fuel our Empire with Homosexuals?

How exactly does that work... design wise?

Keep Coming Back!

Tue, 03/11/2014 - 14:33 | 4535120 NotApplicable
NotApplicable's picture

Do you have any idea what the queers are doing to the soil?

Tue, 03/11/2014 - 13:37 | 4534856 dark pools of soros
dark pools of soros's picture

China is taking that paper gold market to all their markets...  why not?  The whole global economy is fake.. the only losers are people playing by the rules

Tue, 03/11/2014 - 15:12 | 4535315 WillyGroper
WillyGroper's picture

>>>the only losers are people playing by the rules

FSA figured that out long ago.

Had to listen to the indignities of a tax mule bitching about some going Galt this weekend. 

Exhausting. 

To the vege garden.

Kill the BEAST!  999

Tue, 03/11/2014 - 13:40 | 4534876 Bogdog
Bogdog's picture

From the Ferengi Rules of Aquisition:

#189 Let others keep their reputation. You keep their money.

 

http://www.sjtrek.com/trek/rules/

Tue, 03/11/2014 - 13:40 | 4534879 hardcleareye
hardcleareye's picture

Micheal Pettis has a pretty good article on the underlaying structural problems of this issue.

"These are the two paths the world faces today. As the developing world cuts back on wasted investment spending, the world’s excess manufacturing capacity and weak consumption growth means that the only way to increase productive investment is for countries that are seriously underinvested in infrastructure – most obviously the US but also India and other countries that have neglected domestic investment – to embark on a global New Deal.

Otherwise the world has no choice but to accept high unemployment for many more years until countries like the US redistribute income downwards and countries like China increase the household share of GDP, neither of which is likely to be politically easy. But until ordinary households around the world regain the share of global GDP that they lost in the past two decades, the world will continue to face the same choices: an unsustainable increase in debt, an increase in productive investment, or higher global unemployment, that latter of which will be distributed through trade conflict."

 

http://blog.mpettis.com/2014/03/will-emerging-markets-come-back/

Pettis' stuff is usually "pretty dry and technical", for him to write doom and gloom like this raises my eyebrows.  There isn't going to be any "global New Deal", and he knows it (if you follow his articles).

Tue, 03/11/2014 - 13:43 | 4534891 lasvegaspersona
lasvegaspersona's picture

I wonder if Magic is the Chinese version of the Fed.

Tue, 03/11/2014 - 14:35 | 4535128 NotApplicable
NotApplicable's picture

Too close. You need to step down a layer or two... like say, SAC Capital.

Tue, 03/11/2014 - 13:44 | 4534895 buzzsaw99
buzzsaw99's picture

it just doesn't matter. in china there will be crony tbtf and there will be everyone else, just like in the usa.

Tue, 03/11/2014 - 17:29 | 4535813 walküre
walküre's picture

The scope of shadow banking which is "everyone else" is just so much bigger in China. The PBoC will have their hands full trying to bail out just the cronies. I doubt they can even accomplish that without losing control completely. It's not so much the amount that's concerning, it is the vast and wide web of the ponzi and the different layers. The US never had anything like that because the people here don't have that ability except for TBTF. Wall Street has the monopoly on that and Wall Street is TBTF.

Tue, 03/11/2014 - 13:50 | 4534922 Spungo
Spungo's picture

Watching China is like having access to a time machine. This is what America looked like when there were zero rules. Of course, it fails because people are stupid and evil. 

Tue, 03/11/2014 - 14:02 | 4534975 forwardho
forwardho's picture

Thought the same. Remember the "Limited partnerships" that flurished in the early 80's, that were in fact "unlimited" in the number of people investing in the same commercial property.This was the main reason for the savings and loan failures back then.

The scale of this shakes the mind.

Tue, 03/11/2014 - 14:15 | 4535030 SmittyinLA
SmittyinLA's picture

their* business plan relies on people being stupid and evil 

Tue, 03/11/2014 - 14:23 | 4535075 Jugdish
Jugdish's picture

Impying that now we have rules.(?) Yea rules for everynne that is productive and normal. Open your fuckin eyes jackass. Fuck your rule system that favors the weak and evil. Get on your knees and pray it holds together.

Tue, 03/11/2014 - 13:56 | 4534948 Pseudonymous
Pseudonymous's picture

Which one is better:

Magic Property or Magic the Gathering Online Exchange?

He who holds the keys makes the rules.

Tue, 03/11/2014 - 14:31 | 4535106 The Abstraction...
The Abstraction of Justice's picture

Only the taxpayer is left with a set of blank cards, and his opponent is Magic the  Gathering Incorporated.

Tue, 03/11/2014 - 14:02 | 4534977 Took Red Pill
Took Red Pill's picture

Oh, ho, ho
It's magic you know
Never believe, it's not so

 

Tue, 03/11/2014 - 17:10 | 4535762 MrSteve
MrSteve's picture

Any sufficiently advanced technology is indistinguishable from magic.   A.C. Clarke

Tue, 03/11/2014 - 14:10 | 4535005 novictim
novictim's picture

How to understand this:

Chang had one house.  He then sold it to Lee who then had seven people buy the one house. Since they all owned one house, they each claimed full collateral on the property...then took out loans equivalent to this collateral.  Suddenly one property was leveraged for 7 properties.  Each of the 7 men that Lee sold the house to then, one after the other, bought one house and sold their new house to 7 other people...and so on...

This is China. 

Lee knowing the gig was unsustainable then bought US Citizenship and lives in Palo Alto, CA.  Lee lives in a very respectable neighborhood where he owns his one home which he bought as a foreclosure through a sweatheart deal via his property investment firm's insider track with the bank. 

This is the World Economy.

Tue, 03/11/2014 - 15:50 | 4535482 walküre
walküre's picture

Yup, in a nutshell. All Westcoast high end property deals with Chinese are funded by this model and have priced potential local buyers completely out of the market from San Diego to Vancouver, Canada. Totally skewing all property prices and eluding to real estate valuations that are neither sustainable nor even real.

Chinese have polluted the world in more ways than one.

Tue, 03/11/2014 - 16:51 | 4535701 css1971
css1971's picture

I'll just point out that this is basically how fractional reserve banking works as well.

 

Course in that case the simply bought off the politicians and had it legalised.

Tue, 03/11/2014 - 21:01 | 4536602 fijisailor
fijisailor's picture

In China anyone can be a fractional reserve banker.

Tue, 03/11/2014 - 18:46 | 4536052 WmMcK
WmMcK's picture

The seven chinese brothers

Tue, 03/11/2014 - 14:12 | 4535012 El Vaquero
El Vaquero's picture

Message from China to the US:  Screw you round eye!  We'll show you how rehypothecation is really done!

Tue, 03/11/2014 - 14:15 | 4535025 yogibear
yogibear's picture

Currency wars, then real wars....

Washington and the Fed try and take down China, time for Russia and China to flood the market with US dollars and no longer accept the US dollar in trade.

Tue, 03/11/2014 - 14:18 | 4535051 JasonMacko
JasonMacko's picture

late to the party here, but in terms of the free market view, this is a good thing, in terms of the short term for said bond holders - looks like a potential cliff. When you don't allow defaults and short-selling, crashes become much harder

Tue, 03/11/2014 - 14:37 | 4535138 NotApplicable
NotApplicable's picture

Yeah, now if only the "free market" were allowed to operate.

Tue, 03/11/2014 - 14:18 | 4535055 discopimp
discopimp's picture

Can one rehypocate a Bitcoin? 

 

Tue, 03/11/2014 - 14:48 | 4535191 Toolshed
Toolshed's picture

"Can one rehypocate a Bitcoin?"

Ask Reggie Middleton that one.

Tue, 03/11/2014 - 14:52 | 4535217 Devotional
Devotional's picture

who is Reggie? No really, who is he?

Tue, 03/11/2014 - 16:36 | 4535650 css1971
css1971's picture

One can rehypothecate anything at all. Rehypothecation is just a long word for fraud. You can use anything at all to commit fraud.

Tue, 03/11/2014 - 18:52 | 4536067 desirdavenir
desirdavenir's picture

I had to downvote you, because rehypothecation is not fraud, but the blood of the finance. Start calling it fraud, and soon you will talk about banksters...

/sarc 

Tue, 03/11/2014 - 14:19 | 4535058 Titan Uranus
Titan Uranus's picture

"Magic" spelled backwards is "Corzine."

Tue, 03/11/2014 - 14:26 | 4535087 Itchy and Scratchy
Itchy and Scratchy's picture

Release the hounds!

Tue, 03/11/2014 - 14:54 | 4535228 buzzsaw99
buzzsaw99's picture

er kraken?

Tue, 03/11/2014 - 18:43 | 4536042 WmMcK
WmMcK's picture

Release the miasma.

Wed, 03/12/2014 - 01:23 | 4537456 semperfi
semperfi's picture

release the printing press  (nothing a printing press can't fix!)

Tue, 03/11/2014 - 14:40 | 4535146 Westcoastliberal
Westcoastliberal's picture

It's just like "The Producers".  Sell 1000% and then go broke.  Who knew?

Tue, 03/11/2014 - 14:51 | 4535213 Devotional
Devotional's picture

eh, they will get bailed out. Move on, nothing will happen. It's a slow burn this time,sadly.

Tue, 03/11/2014 - 15:02 | 4535258 yogibear
yogibear's picture

The US attempts to crash the Chinese and Russian markets. Soon the Chinese and Russians will work on the US market. Good timing.

Tue, 03/11/2014 - 15:06 | 4535285 withglee
withglee's picture

Do they have title insurance companies in China?

Tue, 03/11/2014 - 15:17 | 4535351 Jstanley011
Jstanley011's picture

The solution is simple. Invade Japan.

Tue, 03/11/2014 - 15:57 | 4535514 messymerry
messymerry's picture

That would be fine as long as you don't mess with the anime studios...

Tue, 03/11/2014 - 15:19 | 4535358 besnook
besnook's picture

this is the free market of fiat money. rehypothecate every asset because the pboc is the rehypothecater of last resort. if the pboc is the counter party of last resort and the counter parties are paid with sterilized(can never be paid, can never default) pboc funds then you have the perfect fiat scheme. risk is nonexistent on debt. all debt public and private, pboc and shadow banking is guaranteed by the full faith and productivity of the yuan printing presses. communism is great and glorious!

Tue, 03/11/2014 - 15:19 | 4535360 yogibear
yogibear's picture

What a time Obama picks to have a currency war with China and Russia. Right before the democratic election.

Tue, 03/11/2014 - 15:55 | 4535489 Downtoolong
Downtoolong's picture

Rehypothecation is for chumps.

We got multiresellyhypothenobookilookiation.

Now we just need a term for leverage to the power of infinity.

Tue, 03/11/2014 - 18:34 | 4536004 walküre
walküre's picture

That's simple. The term you're looking for is "Fed". Sorry, not very exotic unlike your creation.

Tue, 03/11/2014 - 16:55 | 4535717 are we there yet
are we there yet's picture

Does anyone in China know about the brooklyn bridge? It can generate huge profits, and lots of well incomed people use it every day. For a limited time, you have to buy part of it now,  you can buy a few shares in this great money making bridge. Only serious offers please. please contact me at 'areyouanidiot.com' .

Tue, 03/11/2014 - 16:56 | 4535721 arnoldsimage
arnoldsimage's picture

honey badger is not frightened by "sheer credit horror." honey badger doesn't give a shit.

Tue, 03/11/2014 - 17:04 | 4535738 Chuck Knoblauch
Chuck Knoblauch's picture

Magical? Yes, currency based on nothing, and the power it conveys, is very magical.

Tue, 03/11/2014 - 17:18 | 4535786 Remington IV
Remington IV's picture

They are sneaky fuckers

Tue, 03/11/2014 - 17:27 | 4535809 homiegot
homiegot's picture

The corruption and debt is so massive in China it makes the U.S. look like fiduciary geniuses.

Tue, 03/11/2014 - 17:51 | 4535880 john milton
john milton's picture

Clenbuterol Economics

Clenbuterol is a ?2 agonist with some structural and pharmacological similarities to moneyprinting and QE injections,
but its effects are more potent and longer-lasting as a stimulant and thermogenic drug. It causes an increase
in monetary capacity, central bank system stimulation, bond pressure, and export transportation.
It increases the rate at which corporate fat is metabolized while increasing the country GDP.

nasty side effects: indebtedness, banker suicides

Tue, 03/11/2014 - 19:42 | 4536282 caustixoid
caustixoid's picture

You say banker suicides like it's a bad thing...

 

Tue, 03/11/2014 - 18:14 | 4535934 Rogue Economist
Rogue Economist's picture

The latest Frostbite Falls Daily Rant Podcast on the Chinese Credit Bubble Collapse, from the Doomstead Diner.  It's SHOWTIME.

RE

Tue, 03/11/2014 - 18:36 | 4536015 One of We
One of We's picture

Sounds like fractional reserve borrowing. What's the big deal?

Tue, 03/11/2014 - 18:47 | 4536056 Pareto
Pareto's picture

Nothing to see here folks.....move along....show's over (Officer Barbrady)

Tue, 03/11/2014 - 19:18 | 4536161 Loucleve
Loucleve's picture

what I wanna know is, how is this really any different than what the Fed has done?  they dont have ANY collateral, accept the Full Faith and Government.

Tue, 03/11/2014 - 22:32 | 4536951 homiegot
homiegot's picture

China has done what we've done on a scale that you cannot fathom. Watch the documentary How China Fooled the World. Then you'll want to crawl in a hole.

http://www.youtube.com/watch?v=YW3h4wv8_ko

Tue, 03/11/2014 - 19:19 | 4536168 chump666
chump666's picture

War is a perfect solution to canceling debt.   Since the Iranian terrorists that turned out not to be terrorists and a Malaysian airliner flies off course straight into the most tense region in Asia (Malacca Straits)...

China will write-down everything, collapse it's self and reset on a war footing.  The Fed won't monetize but just cancel the Chinese/Russia/Japan holdings.

WW3 is just around the corner.

For real.

Tue, 03/11/2014 - 20:19 | 4536429 zionhead101
zionhead101's picture

So what if Malay's deny that the Terrorists brought down the Plane AIPAC&ZH can sell anything to anybody.

If ZH/AIPAC-ZIO-NEO-CON want a war, there will be war.

Tue, 03/11/2014 - 19:48 | 4536303 chump666
chump666's picture

ZH called this weeks back, on wires now:

*Bond defaults part answer - main problem commodities used as collateral

Tue, 03/11/2014 - 20:18 | 4536421 zionhead101
zionhead101's picture

Only ZH is terrified by China.

One may ask, why is BITCOIN whores and AIPAC enablers, ... why do they hate CHINA?

Me thinks because JPM & GOLDMAN-SACKS, and BITCOIN were all kicked out by their ass out of CHINA.

For that you get the wrath of ZH, .. its sort of like  OBAMA farting in your face, ... or eating Feinsteins shit.  We're supposed to LOVE BICOIN, GS, and JPM.

But not everybody is a shit eater.

Tue, 03/11/2014 - 20:55 | 4536584 fijisailor
fijisailor's picture

Are you Jewish now Satoshi?

Tue, 03/11/2014 - 20:36 | 4536493 RottenAlpha
RottenAlpha's picture

<blockquote class="twitter-tweet" lang="en"><p>Next sovereign crisis on deck: Emerging Markets</p>&mdash; Ethan Michaly (@EthanMichaly) <a href="https://twitter.com/EthanMichaly/statuses/443545649938563072">March 12, 2014</a></blockquote>

<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>

Tue, 03/11/2014 - 20:36 | 4536494 RottenAlpha
RottenAlpha's picture

<blockquote class="twitter-tweet" lang="en"><p>Next sovereign crisis on deck: Emerging Markets</p>&mdash; Ethan Michaly (@EthanMichaly) <a href="https://twitter.com/EthanMichaly/statuses/443545649938563072">March 12, 2014</a></blockquote>

<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>

Tue, 03/11/2014 - 20:42 | 4536525 RottenAlpha
RottenAlpha's picture
Tue, 03/11/2014 - 20:42 | 4536526 RottenAlpha
RottenAlpha's picture
Tue, 03/11/2014 - 21:40 | 4536737 WhyWait
WhyWait's picture

 

"The local government has intervened, fearing social unrest..."

 

Watch for this closely.  Widescale daily demonstrations and strikes across China have been reportedly going on for years. The Chinese people's response to the financial collapse and the corruption it uncovers is going to make the Cultural Revolution look downright civilized!

Tue, 03/11/2014 - 22:39 | 4536977 Angus McHugepenis
Angus McHugepenis's picture

Spring is almost here. Do we have a name yet for this latest uprising that has yet to be unleashed that will do nothing but keep CNN propagandists busy?

Bang-ding-ow-spring.

Tue, 03/11/2014 - 21:56 | 4536802 gann1212
gann1212's picture

may the whole crooked house of cards collapse and may the banksters get what they so richly deserve, the very worst

Tue, 03/11/2014 - 22:22 | 4536891 The Vineyard
The Vineyard's picture

ZH has been predicting the demise of China for years now.  But the beast still lives.

Tue, 03/11/2014 - 22:23 | 4536906 Carl Popper
Carl Popper's picture

Once confidence goes, it doesn't come back for a generation.  

 

The China miracle is over now.  People will look back in 20 years and wonder how anybody believed china was about to be the new superpower as the rest of the world sees china as a big stinking detroit, a relic of an antiquated industrial model. 

Tue, 03/11/2014 - 22:28 | 4536931 homiegot
homiegot's picture

I see a bunch of empty cities. What in the fuck are they smoking over there? Oh yeah, opium.

Tue, 03/11/2014 - 23:43 | 4537209 OpTwoMistic
OpTwoMistic's picture

Sold, leased, fractionated, sounds like ft Knox gold.

Wed, 03/12/2014 - 01:19 | 4537444 Setarcos
Setarcos's picture

Question.  How many times can a fictitious 'asset' be re-re-re-hypothicated, before there are no more takers in the Ponzi scam?

This example in China is just a minnow in the global shift to Financialism (and Fascism) from whatever Capitalism really was and Mercantilism before that.

Wed, 03/12/2014 - 01:47 | 4537490 merchantratereview
merchantratereview's picture

China is North Korea with Apple stores...

Wed, 03/12/2014 - 02:33 | 4537554 luckylongshot
luckylongshot's picture

While this looks awful from a western perspective the untold part of the story is that this is not occurring in a western country with a Rothschild controlled central bank. Because China owns its own central bank it can create whatever money it needs to fix this situation and so rather than China being in line to be raped by criminal private bankers, China can restructure its way through its problems. Public banking makes a world of difference.

Wed, 03/12/2014 - 03:15 | 4537580 Bazza McKenzie
Bazza McKenzie's picture

So how does fabricating money deal with the situation where 7+ people/organisations all supposedly own the same property?

Wed, 03/12/2014 - 03:44 | 4537609 Philalethian
Philalethian's picture

Paul Craig Roberts: US is Completely Busted, Non-Delivery of Gold-Crash the System, War in Ukraine

http://www.youtube.com/watch?v=AhxZxL56B00

 

Wed, 03/12/2014 - 05:04 | 4537659 kareninca
kareninca's picture

So this evening the Nikkei went down 2.59 percent, the DAX is presently down .8 percent.  But the DOW futures are down not at all  -  just flat, not even a dip.

No doubt this great news from China, will mean a bright green DOW tomorrow.

This is so fucked.

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