Sunday, September 21, 2008

Helena Cobban
Did you know that China has over $900 billion of exposure/investment in US Treasury bills and in debt issued by Fannie Mae and Freddie Mac-- and that the Chinese government has therefore (quite understandably) been exerting its influence in Washington and elsewhere to prevent the US financial system tumbling completely off the cliff of insolvency?

You might never know that fact if you read only the mainstream media in the US, which have been dominated by highly Americo-centric stories about the anguished interplay among the big players in the US government and economy.

But an article buried deep within today's WaPo tells us this:

As U.S. financiers scrambled this week over how to deal with possible collapse of major financial institutions, Chinese Vice Premier Wang Qishan arrived in Washington with a message: To survive the crisis, U.S. equity markets need countries such as China that have massive foreign exchange reserves to jump in a big way.
... China ... is estimated to hold a fifth of its currency reserves -- as much as $400 billion -- in Fannie Mae and Freddie Mac debt. In addition, its banks have billions of dollars worth of exposure to the American International Group, Merrill Lynch, Lehman Brothers and other companies in crisis. The Industrial and Commercial Bank of China, for example, has $151 million in bonds issued or linked to Lehman; China Merchants Bank has $70 million of Lehman bonds; and the Bank of China has $75.62 million of Lehman bonds.

...In a week of epochal market turmoil, for the Bank of Japan being very careful has meant being aggressively interventionist. Besides injecting the equivalent of about $96 billion in four days into money markets for overnight loans, the bank has gone into the business of making dollar loans.

It joined with four other central banks in a $180 billion currency swap with the Federal Reserve and will use its $60 billion share to supply dollars to local and foreign institutions.

...Andy Xie, an independent economist who was formerly Morgan Stanley's chief Asia economist, said the United States needs to accept that a large amount of U.S. assets must be transferred to other countries' ownership. "If the U.S. is not willing to accept that," Xie said, "they will have to print money and the dollar will fall. And we will be headed toward a global financial meltdown."
Companies in the United States and in Europe are already reaching out to Chinese investors.
Read the WaPo article and Cobban's analysis.

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