Top Chinese banks are involved in Ponzi financing of investment deals, offering interest rates over 7% to depositors, to finance real estate projects gone bust and other projects whose assets are not even disclosed.

Banks label these schemes "Wealth Management Products" (WMPs) but any individuls foolish enough to invest in them are going to lose money, perhaps all of it.

Reuters explains in a special report China's answer to subprime bets: the "Golden Elephant"

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Mike Shedlock

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.

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15 Comments So Far
Rick 2811 Wrote: Aug 13, 2012 5:50 AM
If American cities could talk, you'd think they'd do that to one another. For example, Poway, Ca. could talk to Stockton, Ca. Perhaps that could even start a new trend of states talking to one another. Ca. NY and NJ could talk to Texas, North Dakota and beyond !!! Just talking out loud.
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Debi34 Wrote: Aug 12, 2012 12:59 PM
As a resident of Poway and a teacher in the Poway Unified School District I am appalled by the actions taken by the administrators of our school district. I voted "no" on both measures (despite heavy pressure from the district to vote "yes.") yet am still stuck with this bill for years to come. However, please note this was the school district, not the City of Poway. Our city council is actually very fiscally responsible, keeping us in the black despite the recession and lowered property values. But, then again, The City of Poway is mostly run by Republicans, making us an island of Red in the sea of Blue that is California. Our school district, however, is run by Democrats...
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KrankyMike Wrote: Aug 12, 2012 10:44 AM
Is Barney Frank involved in any of this?

If not, it's probably not as Fannie Mae was back in 2008.
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SteveandJag Wrote: Aug 12, 2012 9:52 AM
They sold it to the Poway city employees pension plan.
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Joe 145 Wrote: Aug 12, 2012 9:10 AM
Centrally run economies are going to run into financial trouble. China may have eased its economic policies over the past few decades, but the economy is still basically run by the government. Stuff like this article points out are common and are to be expected.
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poorgrandchildren.com2 Wrote: Aug 12, 2012 7:31 AM
The most durable Ponzi scheme is run by our government. Spend money, buy votes, force our descendants to invest in it, and call those "investments" the public debt.
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George33 Wrote: Aug 12, 2012 3:59 PM
But at some point you have to pay the interest, or investors will bail on you - even China. If interest rates were to hit the Carter/Reagan era highs, then the interest on our loans would exceed our whole budget. Then we default on all our debts (including social security, medicare, obamacare, etc.), like the USSR, and then Washington, DC overtakes Moscow as home to the most billionaires in the world. Sounds like a plan to me.
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Kibitzer Wrote: Aug 12, 2012 4:30 PM
Ah, but the treasury is paying the interest as the securities come due,they are just paying it with more borrowed money. That is how a Ponzi scheme works. Old investors are paid off with money from new investors. Madoff went to jail for his scheme, but the US government that put him in jail does the same thing with impunity. All Ponzi schemes ultimately collapse.
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Ranchman Wrote: Aug 12, 2012 5:41 AM
Although this article shows the instability in the Chinese "shadow banking" industry, the real story is in the U.S. investment community not learning its lesson from the sub-prime fiasco of 2008, especially California. "Based on massively rising property values?!?" Whose seen their property values rise lately? Maybe I've been living in a cave on some mountain for the past year but I haven't seen any rise in property values anywhere! Looks like Ponzie schemes are the thing of the day again, along with derivatives and other unethical, unstable banking practices. Will we ever learn?
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shubi_ Wrote: Aug 12, 2012 4:34 AM
I don't trust any of the numbers coming out of China. Anyone who invests in China is foolish.
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Black and White Brian Wrote: Aug 12, 2012 4:29 AM
Surely every fascissocialist government scheme -- and its every government -- is in the end but a Ponzi scam - none of them - perhaps not even those of the Europeon Neo-Soviet's various squalidly-socialistic on and offshore satellites -- or of the dying and/or already dead whole - as corruptly so as are the various "new deal" and "great society" Ponzis perpetrated by the "Democrat" traitors Roosevelt and Johnson et al.

Unless they are those buried deep within the unlimited rehypothecation scams that so precariously prop once great Britain's "The City."

Prop it, that is until a big enough one (and thanks to Zero's Gangster Government, Corzine's MF Global Inc wasn't it) falls apart.

And once great Britain totally collapses.
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Cincinnatus Redux Wrote: Aug 12, 2012 4:16 AM
Orange County, California's gamble on derivatives ultimately led to its bankruptcy. Poway's desperate financing deal is far worse and should be prohibited. Governments, especially small municipalities, should limit themselves to traditional financing. Times may desperate in the Golden State, but this is nuts.
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Jonathan6 Wrote: Aug 12, 2012 8:39 AM
Poway trades on the reputation of the school district.

I live in SD (former Poway resident, even), and I know there is an arrogance from folks living in that city born from sending their kids to those schools.

I can imagine the school district played on the council's/resident's arrogance and got this gamble allowed.

Surprising, though, because Poway is pretty solidly red (or at least used to be when I lived there 15 years ago), and pretty affluent. Definitely upper-middle class... not generally the types that are duped by silly financial schemes. Wait, what?

Well, I guess these are the same folks who thought real estate increasing in value at 25%/qtr was going to last forever.
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Cincinnatus Redux Wrote: Aug 12, 2012 11:54 AM
And I used to live in the OC, including sending my kids to the now discredited Capistrano Unified School District with its financial mess. Budgets are about choices and these short term gimmicks always backfire and will hurt the kids they profess to help. Good finance, like good education, depends on sound fundamentals, not gimmicks.
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