Home » Posts tagged 'ghost collateral'
Tag Archives: ghost collateral
How “Ghost Collateral” And “Yin-Yang” Property Deals Will Collapse China’s Credit Bubble
How “Ghost Collateral” And “Yin-Yang” Property Deals Will Collapse China’s Credit Bubble
A second lesson from the 2007-08 crisis was that as the value of the collateral underpinning the vast amount of leverage declined, the surge in margin calls led to cascading waves of selling in a downward spiral.
A third lesson was that the practice of re-hypothecating the same subprime mortgage bonds more than once, meant collateral supporting the most vulnerable part of the credit bubble was non-existent. It only became apparent with the falling prices and margin calls. Few people realised the bull market was built on such flimsy foundations, as long as prices kept rising.
A fourth lesson was that in order for the bubble to reach truly epic proportions, key financial institutions, especially banks, needed to conduct themselves in a negligent fashion and totally ignore increasing risks.
Each of these warning signs from the 2007-08 crisis exists in China’s property market now – and other parts of its financial system – bar one…falling prices leading to cascading waves of selling. However, as we’ll explain, we think it’s only a matter of months away now.
We should note that our thesis that China’s bubble would eventually be undermined by a “black hole” of insufficient collateral is one that we have been developing for several years. What we came to realise is that insufficient collateral is nothing more than normal business practice in the Chinese economy.
…click on the above link to read the rest of the article…
Chinese “Ghost Collateral” Scam Leads To Market “Shockwaves”, Huge Loss For Giant Commodity Trader
Chinese “Ghost Collateral” Scam Leads To Market “Shockwaves”, Huge Loss For Giant Commodity Trader
Back in 2014, a scandal erupted when media reports confirmed what many had previously speculated about China’s banking system: namely that much of China’s staggering loan issuance had been built (literally) upon air and that trillions in loan collateral had been “rehypothecated” between two, three or many more debtors – or never even existed – forcing banks to accept that they would never recover much if any of the pledged collateral – in most cases various commodities – if the economy were to suffer a hard-landing resulting in mass defaults. The most famous example involved collateral fraud at China’s 3rd largest port, Qingdao, where numerous borrowers were found to have “pledged” the same collateral of steel and copper to obtain funding from various banks.
For those unfamiliar there is an extensive selection of stories covering the topic, which peaked three years ago, and then quietly faded away as China did everything in its power to deflect attention from what some have said is the biggest threat facing its economy: a giant hole . Below we link to some of our more comprehensive articles on the topic:
- China’s “Evaporated” Collateral Scandal Spreads To Second Port
- What Is The Common Theme: Iron Ore, Soybeans, Palm Oil, Rubber, Zinc, Aluminum, Gold, Copper, And Nickel?
- China Faces “Vicious Circle” As Commodity Collateral Collapses
- China Scrambling After “Discovering” Thousands Of Tons Of Rehypothecated Copper, Aluminum Missing
- Copper Plunges Most In 3 Months As “Rehypothecation Evaporation” Concerns Grow
- Western Banks Scramble As China’s “Rehypothecation Evaporation” Goes Global
- BIS Warns About Rehypothecation Threats
- How China’s Commodity-Financing Bubble Becomes Globally Contagious
- China’s Collateral Rehypothecation Fraud Is Systemic
…click on the above link to read the rest of the article…
China’s “Ghost Collateral” Arrives In Canada, “Heralding A Crisis”
China’s “Ghost Collateral” Arrives In Canada, “Heralding A Crisis”
Two weeks ago, a key China-linked concern that made headlines back in 2013 and 2014 reemerged after an extensive analysis by Reuters reporter Engen Tham found that China’s “ghost collateral” problem, or collateral that was either rehypothecated between two or more loans, or simply did not exist, had not only not gone away but was still as prevalent as ever if not worse.
The report, a continuation of extensive reporting conducted on this site, said that 60% of all loans issued in China’s system are backed by property, and that China’s property values are “wildly misleading, which is part of the reason that China’s credit rating was recently downgraded.” Reuters reported that Chinese lenders are prone to fraud with loan officers turning a blind eye to the quality of collateral and knowingly accepting dubious and even fraudulent documents.
Now, in a follow up by the Vancouver Sun’s Sam Cooper, the real estate reporter explains that China’s “ghost collateral” problem has jumped across the Pacific and is threatening the Canadian banking system.
As Cooper notes, “as a result of the flood of money pouring from Mainland China into Vancouver real estate in recent years, some financial experts say they believe Canadian banks are directly exposed to shadow lending in China and the risks of so-called “ghost collateral”, collateral that may not exist or is used continuously to secure loans for multiple borrowers.”
And the stunner: “Postmedia confirmed that Canadian banks are allowed by the federal regulator, the Office of the Superintendent of Financial Institutions, to accept collateral from China to secure real estate mortgages in B.C.”
“OSFI does not dictate what type of collateral (federally regulated banks) can accept,” spokeswoman Annik Faucher said. “Whether the borrower is foreign or domestic, OSFI (allows) financial institutions to compete effectively and take reasonable risks.”
…click on the above link to read the rest of the article…
