Huijin, the domestic part of China’s sovereign wealth fund has come in for some criticism from Western banks and experts this morning.
Huijin’s crime is that it is going to have a large bond sale to raise money which it is then going to use to re-capitalize some of China’s main banks. So far so reasonable. Except that the banks it plans to re-capitalize are the very ones buying the bonds. In fact they already bought 80% of the last issue. And Huijin also says it is going to be a main buyer of bonds the banks are planning to issue.
As one expert here, cutting to the chase and applying all his/her rasor sharp accumen said to the FT, ‘There’s a certain circularity about this that seems strange.” No, do you think?
This continues to remind us that China’s banks are, and have been for a decade, a sham. A sham that works simply because the Chinese State buries billion after billion, decade after decade of bad debts in unmarked graves somewhere outside Beijing.
But the reason I write about this is because of hypocrisy of western bankers being ‘concerned’. This circular, “I’ll buy tyours if you buy mine”, is how western banks have gone about puffing up their balabnce sheets for years.
Every bank issues debt. Every other bank buys it. And because its from ‘a respected bank’ is counted as AAA. Regardless of the fact that every bank knows every other bank is in trouble. How many banks do you think are holding Citigroup bonds?
Then there is the small matter of the ECB being stuffed to gagging point with Greek bonds and Irish bonds and uncle tom cobblys bonds for all we are allowed to know. Commercial confiendtiality don’t you know. And the Fed is so rigid with fear that anyone should know what circular shit eating festival they have been engaged in with their consenting adult, banker friends, that they have defied, sorry appealed, every demand for details of their lendings and holdings to be made public. Every time a court has told them to comply they have refused on the grounds that it would destabilize the banks involved if people knew.
The Fed’s last refusal and appeal takes the case all the way up to the US Supreme Court. Last chance for the rule of law. So far the rule of finance has won every round.
So what exactly is the ‘concern’ here in the West about Chinese actions? It surely can’t be a moral or ethical objection to dishonesty and circular stupidy? Is it just that our bankers are worried their bankers aren’t as practiced in the arts of financial deceit as we are?