China toxic debt out of greater fools?

In finance, complexity has been a highly effective cloak for deceit, but eventually you run out of captive ‘dumb’ money. China seems to be finally getting there. A block in the septic system there presents problems for the flow of capital sludge through the global financial system.

On paper, China’s latest effort to rid its banks of bad loans looks sensible. By packaging the debt into securities, lenders hope to unload them onto risk-hungry investors, a potential win-win solution that garnered praise from billionaire Wilbur Ross.

But if the first deals in this 50 billion yuan ($7.6 billion) program are any guide, the whole exercise may end up just shuffling bad debt between banks, doing little to improve the health of China’s financial system as a whole. Here is a direct video link.

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