China denounces U.S. banks for 'evil intent' with derivatives

GATA ^ | 12/3/09

[FromLori]

A senior Chinese official who oversees the country's largest state-owned enterprises has publicly slammed Western investment banks for "maliciously" peddling complicated derivative products that caused huge losses for Chinese companies over the last year.

In Beijing's strongest criticism on the matter to date, Li Wei, vice director of the state-owned Assets Supervision and Administration Commission, singled out Goldman Sachs, Morgan Stanley, Merrill Lynch, and Citigroup in a long and highly critical article in the latest issue of an official Communist party newspaper.

The large losses suffered by Chinese state companies were "closely associated with the intentionally complex and highly leveraged products that were fraudulently peddled by international investment banks with evil intentions," Mr Li asserted. "To a certain extent some international investment banks were the chief criminals and the root of ruin for the Chinese enterprises who encountered this financial derivatives Waterloo."

In his article, Mr Li said 68 of the 130-odd state companies controlled directly by Sasac had been buying derivatives to speculate or hedge against rising commodity prices and fluctuating currencies and interest rates, even though some of them were not authorised to do so.

These 68 companies had booked total combined net losses of Rmb11.4 billion on the Rmb125 billion worth of financial derivatives products they had bought by the end of October 2008, Mr Li said.

The government has not previously revealed the full extent of losses suffered by Chinese companies that made ill-fated bets on over-the-counter, mostly offshore derivatives.

In September, Sasac warned that some of the contracts were illegal and might be invalidated, a move that prompted some Western banks to agree quietly to renegotiate contracts behind closed doors.

Air China, China Eastern Airlines, Cosco, China Railway Engineering Corp., China Railway Construction Corp., and Citic Pacific were among the companies that lost the most from buying complex derivatives.

Some of the biggest losses came from the airlines and shipping companies' purchases of options to hedge against rising oil prices between June and August last year, when oil hit a historic peak of more than $140 a barrel.

When prices fell during the financial crisis, these companies were saddled with large losses, partly because they had chosen riskier -- and cheaper -- derivatives products to hedge against rising prices.

Mr Li said the most important reason for the derivatives losses was unnecessary speculation and attempts at arbitrage by these state companies.

He also cited weak risk management procedures, a lack of expertise, and intentional breaking of rules that restrict most kinds of financial derivatives in China.

But he said China should "not give up eating for fear of choking" and that it was imperative for Chinese companies to keep using financial derivatives.

[FromLori]

PING AND might also want to read

China urged to avoid open markets when buying gold

http://www.gata.org/node/8116

http://www.zerohedge.com/article/goldman-gold-1450oz

[jessduntno]

No mention of Bawney Flank?

[C19fan]

Air China, China Eastern Airlines, Cosco, China Railway Engineering Corp., China Railway Construction Corp., and Citic Pacific were among the companies that lost the most from buying complex derivatives. Some of the biggest losses came from the airlines and shipping companies' purchases of options to hedge against rising oil prices between June and August last year, when oil hit a historic peak of more than $140 a barrel. When prices fell during the financial crisis, these companies were saddled with large losses, partly because they had chosen riskier -- and cheaper -- derivatives products to hedge against rising prices.

That what happens when you hedge. If oil shot up way above $140 a barrel these companies would of made out like bandits. There is nothing complicated about hedging commodity prices.

[org.whodat]

If oil shot up way above $140 a barrel these companies would of made out like bandits.

Yes, and you don't give a rats ass what the impact would have been on your fellow consumers do you.

[Freddd]

All that money to buy ‘toxic assets’, and not one toxic asset has been bought. Where’d the money go?

[Last Dakotan]

Owing China money is like borrowing from your nagging sister-in-law.

[nkycincinnatikid]

Hmmmm.... Give the Commies enough noxious financial instruments and they will poison themselves.

[FromLori]

Better them then us it irks me we ever did business with them in the first place I have often wondered when they started forgetting they were COMMIES and it was ok!

[OafOfOffice]

http://www.americanchronicle.com/articles/view/49224
January 16, 2008

We have 600 trillion in world liabilities plus more than a 400 trillion-derivatives neutron bomb, all of which will go off when the Westerners (from EU and US) will no longer be able to borrow.

http://www.bostonherald.com/news/us_politics/view.bg?articleid=1216044&srvc=next_article

Geithner says legislation to bring transparency to the global, unregulated $600 trillion derivatives market is needed to restore confidence in the U.S. financial system.

[FromLori]

Thanks for the links interesting I was just reading another story along the line of your first one about destroying the middle class.

http://financemymoney.com/the-corporatocracy-a-new-economic-system-for-the-connected-banking-sector-and-political-elites-providing-the-new-serfdom-massive-debt-servitude/

[OafOfOffice]

Lori, the derivatives problem was known for a long time and Geithner pops up now about it? What a crock. It does seem like it is one big conspiracy against us.

I first read about derivatives crisis going to hit around March I think.

[FromLori]

I know smoke and mirrors to obfuscate the truth.