After one too many face-rippings by the merry Pranksters of Wall Street, China's state-owned companies have run to their government to complain about the fraudulent nature of their derivatives contracts.
The hearty capitalists of Wall Street wouldn't run to their government and whine and complain if the market went against them.
Except of course if they needed several trillion dollars because they lost all their money gambling. Then they would just threaten to hold their breath and wreck the economy until the Great Reformer gave them all the change the country could spare, and then some.
If the US will not put its house in order, the rest of the world will increasingly start to rein in the the US financial institutions.
Reuters
Beijing's derivative default stance rattles banks
Mon Aug 31, 2009 7:42am EDT
For banks that are hoping to sell more derivatives hedges in China, the world's fastest-expanding major economy and top commodities consumer, the danger goes beyond the immediate risk to existing contracts to the longer-term precedent that suggests Chinese companies can simply renege on deals when they like.
The report follows an order from SASAC in July that required all central government-controlled state companies engaged in trading derivatives to make quarterly reports about their investments, including details of holdings and performance.
But the reported letter opened several important questions that could not immediately be answered.
"If we were among the banks receiving that letter, we would be very angry. But now the key is to find out more details on the letter: In whose name the letter was issued, the government or the corporate's? And under what was the reason for defaulting?" said a Singapore-based marketing executive with a foreign bank.
The source, whose bank did not receive a letter, said that Air China, China Eastern and shipping giant COSCO -- among the Chinese companies that have reported huge derivatives losses since last year -- had issued almost identical notices to banks.
"If it's in the name of the government, the impact will be very negative," said the source, who declined to be named.
Beijing-based derivatives lawyers said the so-called "legal letter" has no legal standing -- SASAC as a shareholder has no business relationship with international banks.
"It's like the father suddenly told the creditors of his debt-ridden son that his son won't pay any of his debt," said a lawyer from the derivatives risks committee of the Beijing Lawyers Association. (or perhaps its more like a son who has been cheated by unscrupulous businessmen going to his father who is a Mafia don with big guns, instead of complaining to the Better Business Bureau - Jesse)
It's also unclear why Chinese state firms, which have complained that their foreign banks sometimes did not disclose full information of potential risks when selling them complicated products, did not seek redress through the courts. (or binding arbitration lol. - Jesse
"If that is the case, these firms should seek through legal measures to safeguard their rights, instead of turning to the authorities for political interference," said a different lawyer. (LOL - Jesse)
SASAC took over the job of overseeing SOEs' derivatives trading from the securities regulator in February after several Chinese firms reported huge losses from derivatives....
