There is no phonier an argument in the capital market today than the one that says China’s economy has collapsed. The headline reads: “(China’s export) slump shows little sign of abating”.
http://uk.reuters.com/article/marketsNewsUS/idUKHKG30810820090211
Nonsense -- I’ll tell you when the China slump will be over. It will be over the day that the US banks start writing LC’s. The import-export business is based on Letters of Credit issued by banks.
A government bank could be issuing these letters of credit rather than pumping taxpayer money into TARP and then asking the banks to grease the skids for importers-exporters. Unfortunately, the legislators seem to be working for the banks.
For the same reason, the capital markets depend on banks extending credit to hedge funds that rely on margin. They can lend it to the buyers of bonds or to the buyers of equities. It's the banks decision when this market pops. They make the decision; they buy stocks; they announce the decision; other people buy stocks. Not very fair, but that's life.
Listen to the words of Canadian investment management hall-of-famer Ned Goodman, CEO of Dundee Corp, and Chairman of its largest subsidiary Dundee Wealth, home of Dynamic Funds and the Dundee Bank of Canada:
”The (economic) crisis that has overtaken the world, this so-called “liquidity crisis” is a credit crisis and a confidence crisis… There is very little we can learn from it because it was a completely unexpected event… that the banking community got themselves in such a deep hole that they had to be bailed out. They had invented a security called credit default swaps (CDS)… like a form of insurance where you get somebody to make a bookie bet that you’re not going to default. Then someone buys that piece of paper and starts trading it. The problem is CDS were never regulated… to ensure that sellers had the capital to back the credit default swaps. Wall Street, led by Goldman Sachs, Morgan Stanley and Bear Stearns had a field day in creating this paper and selling it to banks around the world… the paper was not Triple-A, just guaranteed by someone who was Triple-A… When Bear and Lehman went under you saw how good that guarantee was. Then when AIG had to cough up a bunch of money, the govt had to take them over so they could guarantee the credit default swaps, otherwise banks around the world would have gone broke because they would have had to raise money to cover worthless pieces of paper.
