financial crises, real and imagined - center on capitalism...
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Financial Crises, Real and Imagined
David P. Goldman
Director, Asia Times Holdings
March 32, 2016
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Issuance of CDO’s
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
USD
Mill
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s
Financial Crises, Real and Imagined 2
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Banks’ ROE Reaches New Normal
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Levering the Levered Leverage: Take highly-levered obligations, put them in a levered structure, and let the banks buy it with 1.6% capital cover (20% of
8%). Then you lever the collateral.
Financial Crises, Real and Imagined 4
Guess where Lehman invested the collateral?
“What's the point of skimming if we're being skimmed? Defeats the whole purpose of what we're doin' out there.”
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Bubble Math
1. Banks target ROE of 18%-20%
2. True AAA’s swapped into floating rates pay less than banks’ cost of funds
3. Banks construct synthetic AAA’s with the connivance of rating agencies to pay LIBOR +30 basis points
4. Leverage of 62.5 * 30 bps = 18.75%
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Federal Funds Rate
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Subprime Delinquency Rate: Not as Bad As it Sounded
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AAA Bond Prices in 2009
Commercial Mortgage Backed Securities Home Equity Backed CDO’s
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Yield on Preferred Stocks (from PFF ETF)
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China’s public debt has room to grow
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Bank Credit Growth by Country
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Rising Currency Correspondents to High Real Rates
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China Has World’s Highest Real Interest Rates
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Benchmark Rate
PPI
CPI
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Real 5-Year Interest Rates (Inflation Trackers)
-3
-2
-1
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1
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2010 2011 2012 2013 2014 2015
US Germany UK
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Chinese Bank Asset Exposures
Dec-15 Balance (RMB trn)
Default Rate
Recovery Loss (RMB trn)
Mortgage 10.4 5.0% 90% 0.1
Personal 16.6 5.0% 70% 0.2
Corporate 68.8 8.0% 50% 2.8
Trust 16.3 15.0% 25% 1.8
Total 112.1 4.9
NPL ratio 4.4%
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Loan Default Risk, 2700 Listed Chinese Companies
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Risky Proportion of Chinese Firms
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Italy vs. China NPL’s
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Italy
China (Official)
China (Estimate)
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Chinese Outflows Driven by Paydown of Dollar Debt
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