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  • When the big guns fail, call in China

    "Last week, chance and circumstance pulled down the curtains covering the smoke and mirrors of the operations of the US Federal Reserve. Behind them, instead of a magical wizard able to contain the raging crisis now spreading across the world's financial markets, we find the chairman of the United States Federal Reserve, Ben Bernanke. And his magic is proving to be as ineffective..,"

    More...
    Ed.

  • #2
    Re: When the big guns fail, call in China

    http://www.atimes.com/atimes/Global_.../IH21Dj03.html

    Or maybe the crisis will be solved in the same manner in which the United States has solved all its economic problems this decade - through reliance on China. Michael Pettis, a Peking University professor of finance, has suggested China's government-run investment agency, its Sovereign Wealth Fund (SWF). I discussed SWF in my June 22 ATol article Careful what you wish for, China may grant it). SWF may swoop in and buy, at the bargain prices generated by the crisis, the discounted mortgage securities at the core of the crisis. Then, since they're also now selling at fire-sale prices, they may buy up some of the finance companies themselves - a rumor circulated around Wall Street last week that agents acting on behalf of China's still-nascent SWF were making inquiries related to picking up Countrywide Financial on the cheap. As Pettis puts it, "The large-scale shift of global reserves into what are being called sovereign wealth funds may provide the party with at least one more bowl of industrial-strength punch."

    This solution makes perfect sense. The singular aspect of US economic life this decade has been that it has proved itself to be a society hell-bent on living beyond its means - the 7% of US gross domestic product represented by America's current account deficit means that the country sees nothing very much out of the ordinary or improper at consuming 7% more than it produces.

    Much of that excess consumption was provided for by China. In the same manner, the current subprime crisis started with homeowners wanting to live in more houses than they could afford, mortgage brokers lending out more mortgage than the borrowers could repay, and fund managers buying up subprime-mortgage collateralized debt obligations, hoping to earn higher investment-portfolio returns than their intellect and trading skills could generate.

    If the US does allow China to bail it out of a mess solely of its own creation, the US will prove itself less of a world superpower and more of a poor, hapless junkie walking into a pawnshop, desperate to sell another bit of its hard-earned family heritage built up over 200-plus years for just one more fix of plasma TVs, MP3 players, Barbie dolls and all the rest of the catalogue of cheap Chinese manufacture on which Americans are now hooked.

    I discussed this back in May http://www.itulip.com/forums/showthr...0775#post10775 and stressed the Blackstone deal was an entry for China to established a partner to represent them in future U.S. deals.

    I also discussed in this post http://www.itulip.com/forums/showthr...1992#post11992 the problems developing from the amount of debt service corporations are left with after going threw the PE re-inflating processing plant.

    With liquidly drying up and companies headed to bankruptcy it should be interesting to see what representative shows up and are granted assets from liquidation courts. I would guess it would be the PE firms doing what they do best and that is purchasing the asset from the court and flipping to Sovereign-Wealth Funds.

    Now that would be real value as discussed here. http://www.itulip.com/forums/showthr...4305#post14305
    Last edited by bill; 08-20-07, 05:02 PM.

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    • #3
      Re: When the big guns fail, call in China

      Global Crossing bankruptcy may be a good example of what’s to come.
      http://en.wikipedia.org/wiki/Global_Crossing
      Hutchison Whampoa withdrew from its planned purchase of Global Crossing after the Committee on Foreign Investment in the United States made it clear that the purchase would not be approved with Hutchison as a purchaser. Singapore Technologies Telemedia acted alone and purchased Global Crossing for $750 million, buying it out of bankruptcy and terminating Gary Winnick's control of the company. Investigations were conducted by the SEC and resulted in former CEO Thomas Casey, former chief financial officer Dan Cohrs, and former president of finance, Joseph Perrone receiving fines of $100,000 each. The SEC closed its investigation of Gary Winnick, who received no punitive action or fines.

      Temasek Holdings owner of Singapore Technologies a Singapore Sovereign Wealth Fund.
      http://select.nytimes.com/gst/abstra...nick%2c%20Gary

      Several Strands Seem to Twist Around Global And Investors

      February 27, 2002, Wednesday
      By SIMON ROMERO AND GERALDINE FABRIKANT (NYT); Business/Financial Desk
      Late Edition - Final, Section C, Page 1, Column 2, 880 words
      DISPLAYING ABSTRACT - Financial relationship between group of Singapore investors and two Global Crossing directors became more extensive in days after Global Crossing filed for bankruptcy protection; relationship of directors with Singapore investors, whose full scope has not been disclosed, is significant because investors have links to Singapore Technologies Telemedia, which has made offer to buy Global Crossing; Global Crossing delays reporting its full financial results because it says its auditor Arthur Andersen has not concluded its audit for 2001; says it expects to report significant loss for quarter, including write-downs of about $8 billion to reflect drop in value of some assets; Global Crossing's chairman Gary Winnick and another director Steven J Green became part owners of last fall in Singapore investment firm KI Ventures Ltd; KI Ventures is ultimately controlled by Singapore's Temasek Holdings, which also controls Singapore Technologies; Winnick, who has resigned from KI's board, and Green say their involvement with KI Ventures was not related to effort to buy Global Crossing; closer look indicates that Winnick and Green's involvement with Singapore investors deepened after bankruptcy protection filing on Jan 28; KI Ventures on Feb 7 said it paid $14.2 million for minority stake in American wireless company; announcement did not mention that wireless company, PrimeCo Personal Communications, is partly owned by Winnick's investment firm, Pacific Capital Group
      Last edited by bill; 08-20-07, 10:44 PM.

      Comment


      • #4
        Re: When the big guns fail, call in China

        i've referred before to the ironies here. greenspan supported the bush tax cuts because, he said, otherwise the surpluses would be so big that the u.s. government would be forced to buy private assets. problem solved! china will buy the assets.

        Comment


        • #5
          Re: When the big guns fail, call in China

          Originally posted by jk View Post
          i've referred before to the ironies here. greenspan supported the bush tax cuts because, he said, otherwise the surpluses would be so big that the u.s. government would be forced to buy private assets. problem solved! china will buy the assets.
          What is this a non purchase?
          Temasek Holdings owner of Singapore Technologies a Singapore Sovereign Wealth Fund.

          Comment


          • #6
            Re: When the big guns fail, call in China

            Paulson acting like he will establish codes, control and transparency before SWF are allowed to liquidate U.S. assets.( ha-ha like he’s in control when he needs a bail out). So what if he sets guidelines it’s still going to be a purchase and control of assets by SWF at the end of the day.
            Now the U.S. is starting to analyze whom they may have to turn to for investment capital when they need it. They should have asked that question before they got us into this debacle. I’m not saying Sovereign Wealth Funds will be the only capital to draw from but will be a major contributor.

            http://www.nytimes.com/2007/08/21/bu...in&oref=slogin

            Published: August 21, 2007
            WASHINGTON, Aug. 20 — For years, the Bush administration has shrugged off concerns about the trillions of dollars that the United States owes to China, Japan and oil-producing countries in the Middle East, arguing that these debts give no undue leverage to foreign governments.
            Skip to next paragraph The New York Times




            But at a time of global financial instability, the administration has started to worry that foreign governments are increasingly converting their dollar holdings into investment funds to acquire companies, real estate, banks and other assets in the United States and elsewhere. The fear is that these so-called sovereign wealth funds could destabilize markets or provoke a political backlash.
            In response, the Bush administration is pressing the International Monetary Fund and the World Bank to examine the behavior of these funds, which control up to $2.5 trillion in investments, and develop possible codes of conduct for them. Among the proposed rules would be an obligation to disclose investment methods and to avoid interfering in a host country’s politics.
            Officially, the United States welcomes all investments, except those that could compromise national security. “Money is naturally going to gravitate toward dollar-based assets because of the strength of our economy,” the Treasury secretary, Henry M. Paulson Jr., said in an interview. “I’d like nothing more than to get more of that money. But I understand that there’s a natural fear that they’re going to buy up America.”
            Still, a note of caution can be heard. One of the American concerns is philosophical. The United States has for years preached the gospel of privatization, calling on other countries to sell their government-owned industries.
            Now, with sovereign wealth funds, many experts are asking whether cross-border investment is evolving into cross-border nationalization, raising the prospect of government interference in free markets, only this time, in other countries’ markets.
            Another concern is the sheer size and potential growth of these funds. Their estimated $2.5 trillion in assets exceeds the sum invested by the world’s hedge funds. Moreover, Morgan Stanley, in a widely cited study, projects that these investment funds could grow to a staggering $17.5 trillion in 10 years.
            Though sovereign wealth funds do not appear to have played a role in the recent turmoil in global markets, experts say they could in the future, in favorable or unfavorable ways — by selling assets abruptly and precipitating a crisis, or by bailing out funds or companies that are in trouble.
            “They could become either the source of the problem or part of the solution,” said Edwin M. Truman, senior fellow of the Peterson Institute for International Economics. “When you have foreign governments holding stocks and bonds, not just Treasury securities, you have to ask whether they will be a stabilizing force or a destabilizing force.”
            Mr. Truman said it would be easy to imagine that in a future global crisis, Mr. Paulson might be calling not just central bankers but also the directors of sovereign wealth funds. “He may be calling them right now, for all we know,” he added.
            The funds are a product of decades of the United States importing more than it exports. High energy prices have yielded trillions for oil and natural gas producers, from Norway and Russia to the Middle East, while the American thirst for imports of other goods and services has built up the reserves of China, Japan and other Asian exporters.
            The political furor over these funds so far has been limited. Efforts this year by China and Singapore to buy stakes in Barclays Bank in Britain, and by Qatar to take over Sainsbury’s supermarket chain in Britain, have caused little stir in Britain.
            Neither Dubai’s bid for Barney’s, the American retailer, nor China’s purchase of nearly a 10 percent stake in Blackstone this year has produced an outcry in the United States, although there has been some repercussion in China over the recent losses in the Blackstone investment.
            But in Germany, where there is concern about Russia’s buying up pipelines and energy infrastructure and squeezing Europe for political gain, Chancellor Angela Merkel has warned that purchases by foreign governments or government-controlled companies pose a risk.
            “How do we actually deal with funds in state hands?” Ms. Merkel said at a news conference in July. “This is a phenomenon which until now has not existed on such a scale.”
            Probably the most political turbulence caused by a sovereign wealth fund occurred when Temasek Holdings, the state-owned investment branch of Singapore, purchased a stake in the company owned by the prime minister of Thailand, Thaksin Shinawatra. The deal fed antigovernment demonstrations that led to his ouster in a coup in 2006.
            The worry is that beyond the possibility of foreign funds pushing up prices on bonds, stocks and real estate, they might exercise inappropriate control politically or in the private sphere.
            (Page 2 of 2)

            Mr. Truman of the Peterson Institute is one of many experts urging the United States, the International Monetary Fund and the World Bank to draw up codes of conduct that would keep politics out of investment decisions and require the funds to share information about the composition of their portfolios and their investment strategies.
            Skip to next paragraph Enlarge This Image





            “A government is a different type of animal in the investing world,” he said. “We call them sovereign wealth funds, but once you’re operating outside your own borders, you’re not sovereign in the same sense.”
            Others favor requiring the funds to place their investment decisions in the hands of nonpolitical managers.
            “As Asian countries and petro states get rich, they certainly have the money to try to exert influence,” said Kenneth S. Rogoff, professor of politics and public policy at Harvard. “We don’t want that influence to be channeled in a reckless way. There has to be transparency in company governance and financial governance to protect against it.”
            Mr. Paulson and the deputy Treasury secretary, Robert M. Kimmitt, have traveled to China, Russia and the Persian Gulf to urge top financial officials to adopt greater disclosure of their investment practices and to ban government subsidies or other forms of incentives for their overseas investment activities.
            The administration is also telling these countries they must open their properties to American investments if they want to invest in the United States.
            In an interview, Mr. Kimmitt said sovereign funds seemed to be acting on sound financial practices and not political motivations, at least so far. “When I was in China and Russia, I was struck by the degree to which, although I was talking to government officials, it was like talking to asset managers,” he said.
            Sovereign wealth funds have been around for decades. The Kuwait General Reserve Fund was established in 1960. The Abu Dhabi Investment Authority was established in the 1970s and today has investments totaling roughly $800 billion, making it the world’s largest such fund.
            With $300 billion in its fund, Norway is seen by many financial experts as a model for disclosure of portfolio strategy, holdings and methods. But it is also unabashedly political, recently withdrawing its investment in Wal-Mart, citing accusations that the company has violated child-labor laws and scuttled efforts by employees to unionize.
            But China and Middle East countries have a long way to go before they are as transparent as Norway is. Some experts wonder what would happen if China took over an American pharmaceutical company and pressed for changes in prescription drug programs. Likewise, what would the reaction be if an Arab government demanded a bailout or tax break for its company in return for supporting peace talks in Iraq or Israel?
            “If these funds buy into a big Fidelity mutual, they make standard kinds of investments that the Yale endowment makes,” said Lawrence H. Summers, the economist who served as Treasury secretary and president of Harvard. “But if they make more direct investments, they become meaningful actors in the economy, and that raises many more questions.”
            President Bush recently signed a bill to streamline the process of screening and possibly rejecting purchases of American companies by foreigners on national security grounds. But these account for only about 10 percent of such purchases, the Treasury Department says.
            A huge outcry resulted when a company controlled by Dubai tried to take over the management of several ports in the United States and when a Chinese-government-owned oil company sought to buy Unocal, suggesting that Americans might not accept increasing amounts of foreign government purchases.
            In both cases, the concern of American politicians was that national security assets were at stake. But in the 1980s, national security was not at risk when Americans recoiled over Japanese companies’ purchases of high-profile properties like movie studios and Rockefeller Center.
            “The Bush administration is right to look at this phenomenon, not with alarm but some attention,” said Stephen Jen of Morgan Stanley. “What needs to be more transparent is the strategy and governance of these funds, so you don’t suspect of them some dark geopolitical strategy in their investments.”

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            • #7
              Re: When the big guns fail, call in China

              Another purchase by Dubai.

              http://www.bloomberg.com/apps/news?p...xaA&refer=home

              Dubai World, a government-owned company, will pay $84 each for as many as 28.4 million shares of MGM, 13 percent more than yesterday's closing price. It will invest $2.7 billion for MGM's stake in CityCenter, a hotel-and-casino project on the Las Vegas Strip, the companies said today.
              Dubai World controlled by:http://www.arabdecision.org/show_cv_..._577719601.htm

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              • #8
                Re: When the big guns fail, call in China

                Originally posted by bill View Post
                http://www.atimes.com/atimes/Global_.../IH21Dj03.html




                I discussed this back in May http://www.itulip.com/forums/showthr...0775#post10775 and stressed the Blackstone deal was an entry for China to established a partner to represent them in future U.S. deals.

                I also discussed in this post http://www.itulip.com/forums/showthr...1992#post11992 the problems developing from the amount of debt service corporations are left with after going threw the PE re-inflating processing plant.

                With liquidly drying up and companies headed to bankruptcy it should be interesting to see what representative shows up and are granted assets from liquidation courts. I would guess it would be the PE firms doing what they do best and that is purchasing the asset from the court and flipping to Sovereign-Wealth Funds.

                Now that would be real value as discussed here. http://www.itulip.com/forums/showthr...4305#post14305

                http://www.marketwatch.com/story/chi...ans-2011-10-23


                Oct. 23, 2011, 8:25 p.m. EDT







                SHANGHAI -(MarketWatch)- Sovereign-wealth fund China Investment Corp. and private-equity firm Blackstone Group LP /quotes/zigman/459729/quotes/nls/bx BX +1.64% will jointly buy bad property loans from Royal Bank of Scotland Group PLC (RBS, RBS.LN) for around GBP1 billion, the 21st Century Business Herald reported Monday, citing unnamed sources.
                The report said the bad loans include 35 loans with a total face value of GBP1.4 billion. Blackstone won the biding at the price of a 29% discount to face value and will sell half of the portfolio to CIC.

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