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Suggestion Speculation: The NEXT peril?

Discussion in 'Banking - Investing - Finances' started by Notmyrealname, Sep 14, 2021 at 7:03 PM.

  1. Notmyrealname

    Notmyrealname DI Forum Luminary Highly Rated Poster Showcase Reviewer

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    I am sure many read in December 2019 of a strange 'pneumonia-like' illness affecting China and had no idea this was a 'small acorn ready to grow into a big oak' - after all, many localised illnesses arise, come on the radar and then disappear.

    So, what next? Where lies the next 'small acorn'?

    This is purely speculative but I think it has a strong chance of being a 'financial pandemic'. Could this 'pandemic' again have its origins in China?

    So when we read this, do we know if this is just another localised 'illness' of the financial system or something which will affect China greatly and then the 'financial contagion' will spread Worldwide as a 'financial pandemic'? [Many will know the names 'Fanny Mae' and 'Freddie Mac' when pre-2008 some of us had no awareness!].

    https://www.bbc.com/news/business-58540939 for the full report.

    Shares in the highly-indebted Chinese property giant Evergrande have plunged after it outlined the extent of its financial problems.
    Note: On Monday, Evergrande said speculation about its potential bankruptcy and restructuring was "totally untrue". [They would say that, wouldn't they.]

    The firm said it is struggling to sell assets fast enough to service its massive $305bn of debts. A statement issued by the company also said that its cashflow was under "tremendous pressure".

    Evergrande shares have fallen by more than 80% in the last six months.

    Some analysts have suggested that the company's debt problems could pose widespread risks to the financial system of the world's second-largest economy.

    As the firm struggles to sell assets quickly to avoid defaulting on its liabilities, there are concerns that other heavily-indebted developers may also be seen as at risk.

    Businessman Hui Ka Yan founded Evergrande, formerly known as the Hengda Group, in 1996 in Guangzhou, southern China. He grew the company from being a small local firm to a property giant, mainly using borrowed money. [The World is awash with debt - will it ever be repaid or 'written-off' in a massive financial bankruptcy'?]
     
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  2. eskirvin

    eskirvin DI Forum Adept Blood Donor Veteran Navy

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    Well, we know what to expect from any financial drama, at least in America. The taxpayer will pony up and foot the bill for the speculation of the rich because they're just too big to fail. Imagine being unable to buy a home because some "property" company was snapping up houses at ridiculous prices, they can't make a return on their investment, and file bankruptcy. The banks can't afford it, so the government bails them out with tax dollars that you paid into. Oh wait, we don't need to imagine.
     
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  3. Dutchie

    Dutchie DI Forum Adept Showcase Reviewer Veteran Army

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    Yes the world is awash with debt, and there may well be a financial meltdown of some sort at some point.
    With Evergrande's dollarbond, due march next year, trading at 27% or so, so having a theoretical yield now of around 500%, the question isn't if Evergrande will default, but how soon. The bondmarket, evidenced by that 500% yield, says it won't be long. I don't think Evergrande's demise will trigger such a meltdown though.
    It will cause some problems for smaller banks with large exposure to Evergrande and its supplier-creditors but the ripple effects will still be limited.
     
  4. God Bless Texas

    God Bless Texas DI New Member

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    I am in agreement with the govt. bail out. China wants to be a super power, not the start of an economic downfall. They have bailed out (or subsidized) other companies to save face on the local markets. Also, I am doubtful they want to mess up their 30+ years of economic growth over 10%.
    The govt will get involved, have more oversight and control, and just get richer. Unlike the tech companies they are now over regulating for dual listing this ....I hope.... is just a news cycle. Could be a good time to buy their ADR or equivalnt shares.... but I wont
     
  5. OP
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    Notmyrealname

    Notmyrealname DI Forum Luminary Highly Rated Poster Showcase Reviewer

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    The US government allowed Lehman Brothers to fail and that is regarded as the spark causing the 2008 financial crisis - the 'too big to fail' paradigm may actually be true.

    The UK government bailed everyone out and then let the failed bankers (in banks which the UK taxpayer owned) to receive obscene bonuses on top of their obscene salaries. Some probably received Honours. But pity the person who evades small taxes or makes a minor infringement of a benefit claim - no bonuses, no Honours, just the weight of the criminal injustice system.
     
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