Comments on: First Blackstone, then Barclays … http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/ Wed, 07 Jan 2009 20:46:32 +0000 http://wordpress.org/?v=2.6.1 By: bsetser http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97988 bsetser Tue, 24 Jul 2007 15:01:41 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97988 love the term legal arbitrage ... love the term legal arbitrage …

]]> By: 8bits http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97987 8bits Tue, 24 Jul 2007 14:42:35 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97987 "That system requires that the dollar continue to be linked to oil reserves, otherwise known as US Dollar hegemony. But everywhere the petrodollar is under attack. The only solution is to control two-thirds of the world's remaining petroleum -which is in the Caspian Basin—and demand payment in dollars and only US dollars." If anything, China, Russia, Japan, and the Gulf Oil states are supporting the dollar hegemony by their large purchases of Treasuries, Agencies, and the like. By the way the Caspian Basin doesn't hold anywhere near the 2/3s of the worlds remaining petroleum. Oil is a fungible commodity, all of those articles that claim the US is trying to fence in China on oil appear to be written by people unfamiliar with the oil industry. Even during the oil embargo of 1973 the US was receiving plenty of Middle East oil via third and sometimes fourth parties. (Read up on how Marc Rich and this period..) The so called oil for food program of the Iraqi government was compromised. All of the offshore drilling bans for Florida, California, etc.. will go away if you gasoline hits $10 a gallon in the US. If oil goes high enough, also, coal to liquids processing will become viable and profitable. “That system requires that the dollar continue to be linked to oil reserves, otherwise known as US Dollar hegemony. But everywhere the petrodollar is under attack. The only solution is to control two-thirds of the world’s remaining petroleum -which is in the Caspian Basin—and demand payment in dollars and only US dollars.”

If anything, China, Russia, Japan, and the Gulf Oil states are supporting the dollar hegemony by their large purchases of Treasuries, Agencies, and the like. By the way the Caspian Basin doesn’t hold anywhere near the 2/3s of the worlds remaining petroleum. Oil is a fungible commodity, all of those articles that claim the US is trying to fence in China on oil appear to be written by people unfamiliar with the oil industry. Even during the oil embargo of 1973 the US was receiving plenty of Middle East oil via third and sometimes fourth parties. (Read up on how Marc Rich and this period..) The so called oil for food program of the Iraqi government was compromised. All of the offshore drilling bans for Florida, California, etc.. will go away if you gasoline hits $10 a gallon in the US. If oil goes high enough, also, coal to liquids processing will become viable and profitable.

]]> By: Guest http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97986 Guest Tue, 24 Jul 2007 11:21:23 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97986 yen and vix are spiking, markets are pricing in an abe implosion sunday -- cf. http://www.morganstanley.com/views/gef/archive/2007/20070706-Fri.html#anchor5142 -- if he just manages not to and is able to put together a reform agenda (like he was supposed to) and yen slingshots higher... coupled w/ countrywide ceo -- http://web.servicebureau.net/conf/meta?i=1112943903&c=2343&m=was&u=/w_ccbn.xsl&date_ticker=CFC -- saying he's seeing home price declines like in the depression and problems spreading to prime and existing home sales (+ inventories and prices) tomorrow... also note moody's and mcgraw hill (S&P) are tanking, in my mind because half their revenues in the last year came from rating CDOs and conflict of interest puts them on the hook for, what's known in the hedge fund world as, 'legal arbitrage'... yen and vix are spiking, markets are pricing in an abe implosion sunday — cf. http://www.morganstanley.com/views/gef/archive/2007/20070706-Fri.html#anchor5142 — if he just manages not to and is able to put together a reform agenda (like he was supposed to) and yen slingshots higher… coupled w/ countrywide ceo — http://web.servicebureau.net/conf/meta?i=1112943903&c=2343&m=was&u=/w_ccbn.xsl&date_ticker=CFC — saying he’s seeing home price declines like in the depression and problems spreading to prime and existing home sales (+ inventories and prices) tomorrow… also note moody’s and mcgraw hill (S&P) are tanking, in my mind because half their revenues in the last year came from rating CDOs and conflict of interest puts them on the hook for, what’s known in the hedge fund world as, ‘legal arbitrage’…

]]> By: bsetser http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97985 bsetser Tue, 24 Jul 2007 10:23:15 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97985 agree with two fish -- the losses seem a bit on the high side. Re: RMB + 5% +3% on deposits/ gov bonds = 8% -- and given that there isn't much risk of a depreciation/ there isn't a lot of volatility, it is the kind of bet that could be leveraged up if china had an open capital market ... it is basically free money. agree with two fish — the losses seem a bit on the high side.

Re: RMB + 5% +3% on deposits/ gov bonds = 8% — and given that there isn’t much risk of a depreciation/ there isn’t a lot of volatility, it is the kind of bet that could be leveraged up if china had an open capital market … it is basically free money.

]]> By: Twofish http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97984 Twofish Tue, 24 Jul 2007 09:10:40 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97984 Those numbers for the total value of CDO's and the actual mark to market value seem implausible to me. Where did they come from? Also, there is a reporting bias in that you hear about situations when something goes bad, but not things to good. Hypothetically, if someone were to have seen that the sub-prime sector was a mess, put in the right bets, and made a huge amount of money from the sub-prime blow-up, they have no reason to talk about it. Those numbers for the total value of CDO’s and the actual mark to market value seem implausible to me. Where did they come from?

Also, there is a reporting bias in that you hear about situations when something goes bad, but not things to good. Hypothetically, if someone were to have seen that the sub-prime sector was a mess, put in the right bets, and made a huge amount of money from the sub-prime blow-up, they have no reason to talk about it.

]]> By: Greenspit http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97983 Greenspit Tue, 24 Jul 2007 07:49:17 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97983 $850 Billion Mortgage backed CDO's now likely worth only $300 Billion http://www.safehaven.com/article-8025.htm Hit by US sinking subprime loans, the near collapse of Bear Sterns' subprime hedge funds exposed investors to the harsh mispricing of the $850 billion mortgaged backed CDOs or collateralised debt obligations which back subprime mortgages. Rather a value of $850 billion, the underlying value of the CDOs on the books of the hedge funds, investment banks and insurers may be something less than $300 billion. Indeed, the mark-to-market losses exceed the capital of the big investment banks that underwrote the CDOs. $850 Billion Mortgage backed CDO’s now likely worth only $300 Billion
http://www.safehaven.com/article-8025.htm

Hit by US sinking subprime loans, the near collapse of Bear Sterns’ subprime hedge funds exposed investors to the harsh mispricing of the $850 billion mortgaged backed CDOs or collateralised debt obligations which back subprime mortgages. Rather a value of $850 billion, the underlying value of the CDOs on the books of the hedge funds, investment banks and insurers may be something less than $300 billion. Indeed, the mark-to-market losses exceed the capital of the big investment banks that underwrote the CDOs.

]]> By: Twofish http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97982 Twofish Tue, 24 Jul 2007 06:22:56 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97982 Chinese behavior in unpegging the yuan makes more sense if you look at the fact that different economists argue that different things will happen with a floating currency. HZ: Actually, Chinese policy has been to split up the state-owned enterprises so that they do compete against each other. Dr. Dan: My point is that China doesn't have a good internal mechanism for allocating capital. If you don't put the money off-shore, where does it go? Into the stock markets or real estate? Anyone who is foolish enough to invest in Chinese stocks or real estate right now is looking at more than a 20%-30% loss. Corporate bonds? Undeveloped, and SOE's are not lacking for investment money. Boost consumption? You'll probably overheat the economy if you do that. Right now moving capital overseas seems like the least bad thing for China to do. Chinese behavior in unpegging the yuan makes more sense if you look at the fact that different economists argue that different things will happen with a floating currency.

HZ: Actually, Chinese policy has been to split up the state-owned enterprises so that they do compete against each other.

Dr. Dan: My point is that China doesn’t have a good internal mechanism for allocating capital. If you don’t put the money off-shore, where does it go? Into the stock markets or real estate? Anyone who is foolish enough to invest in Chinese stocks or real estate right now is looking at more than a 20%-30% loss. Corporate bonds? Undeveloped, and SOE’s are not lacking for investment money. Boost consumption? You’ll probably overheat the economy if you do that.

Right now moving capital overseas seems like the least bad thing for China to do.

]]> By: Guest http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97981 Guest Tue, 24 Jul 2007 05:00:48 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97981 "With the news that energy companies such as Chevron, BP, ENI, and Enel are interested in participating in the upcoming auctions of Yukos assets, investors and shareholders are beginning to cry foul. The first major indication - a letter from California State Controller John Chiang to Calpers, California's massive state pension fund, expressing concern over the group's stake in Chevron and BP... Rosneft announced... that it has arranged a $22-billion (U.S.) loan to finance Yukos acquisitions. Its lenders include Barclays, Goldman Sachs and JPMorgan..." http://www.robertamsterdam.com/2007/03/investor_backlash_to_oil_compa.htm “With the news that energy companies such as Chevron, BP, ENI, and Enel are interested in participating in the upcoming auctions of Yukos assets, investors and shareholders are beginning to cry foul. The first major indication - a letter from California State Controller John Chiang to Calpers, California’s massive state pension fund, expressing concern over the group’s stake in Chevron and BP… Rosneft announced… that it has arranged a $22-billion (U.S.) loan to finance Yukos acquisitions. Its lenders include Barclays, Goldman Sachs and JPMorgan…” http://www.robertamsterdam.com/2007/03/investor_backlash_to_oil_compa.htm

]]> By: Dave Chiang http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97980 Dave Chiang Tue, 24 Jul 2007 04:40:59 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97980 If the past record is any guide to the future, the Chinese will primarily remain minority shareholders in foreign corporations. For instance, as the largest customer of Liquidified Natural Gas, China CNOOC retains a 10 percent ownership stake of the huge Gorgon energy reserves off the Australian coast. Other overseas resource investments in Brazilian iron ore, Venezuela oil production, and Canadian shale oil are in partnerships with indigenous governments and local businesses. The Chinese will absolutely NOT attempt a hostile takeover of the entire Barclays bank, but will remain strategic investment shareholders that will support long term capital growth plans by current British management. Americans should be rest assured, the Chinese PBoC has also officially informed US Treasury Chief Hank Paulson that the Chinese government will NOT be attempting to make any strategic acquistions of any US corporations. If the past record is any guide to the future, the Chinese will primarily remain minority shareholders in foreign corporations. For instance, as the largest customer of Liquidified Natural Gas, China CNOOC retains a 10 percent ownership stake of the huge Gorgon energy reserves off the Australian coast. Other overseas resource investments in Brazilian iron ore, Venezuela oil production, and Canadian shale oil are in partnerships with indigenous governments and local businesses. The Chinese will absolutely NOT attempt a hostile takeover of the entire Barclays bank, but will remain strategic investment shareholders that will support long term capital growth plans by current British management.

Americans should be rest assured, the Chinese PBoC has also officially informed US Treasury Chief Hank Paulson that the Chinese government will NOT be attempting to make any strategic acquistions of any US corporations.

]]> By: AC http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97979 AC Tue, 24 Jul 2007 02:13:51 +0000 http://blogs.cfr.org/setser/2007/07/23/first-blackstone-then-barclays/#comment-97979 Steve Waldman 2007-07-23 11:52:04 -- I liked your remarks vey much. For example the "straightforward return maximization under existing market conditions is not the primary driver of their policy choices". I also think that many of China's moves (sometimes not really understandable from a profit-maximizing economic point of view) are driven by strategic aims. One consequence of this is that they are difficult to understand if we think only in a few-year perspective. I have made the comment several times on this blog that it will take time for China to let the yuan fully appreciate, even if they loose money on the slow process, because their main strategic aim is to lift hundreds of millions out of poverty by creating export jobs. China already has a middle class of more than 300 million (more than the entire population of the US). Maybe it will take 20 years to add another 300 million. Is that aim worth more than the few hundred billion USD they loose in the meantime by piling up more and more USD in order to have a slowly and orderly appreciating yuan? Yes it is. My other example, I also mentioned on these pages is Taiwan. China lets Taiwan to run a big trade surplus with the mainland, while in the meantime it captures the other potential export markets of Taiwan. This way it makes Taiwan's economy so dependent on the mainland, that when sometimes in the future it will be more difficult for the Taiwanese companies to export to the mainland, suddenly China will have many allies in Taiwan in its quest for a peaceful reunification. Steve Waldman 2007-07-23 11:52:04 — I liked your remarks vey much. For example the “straightforward return maximization under existing market conditions is not the primary driver of their policy choices”. I also think that many of China’s moves (sometimes not really understandable from a profit-maximizing economic point of view) are driven by strategic aims. One consequence of this is that they are difficult to understand if we think only in a few-year perspective. I have made the comment several times on this blog that it will take time for China to let the yuan fully appreciate, even if they loose money on the slow process, because their main strategic aim is to lift hundreds of millions out of poverty by creating export jobs. China already has a middle class of more than 300 million (more than the entire population of the US). Maybe it will take 20 years to add another 300 million. Is that aim worth more than the few hundred billion USD they loose in the meantime by piling up more and more USD in order to have a slowly and orderly appreciating yuan? Yes it is. My other example, I also mentioned on these pages is Taiwan. China lets Taiwan to run a big trade surplus with the mainland, while in the meantime it captures the other potential export markets of Taiwan. This way it makes Taiwan’s economy so dependent on the mainland, that when sometimes in the future it will be more difficult for the Taiwanese companies to export to the mainland, suddenly China will have many allies in Taiwan in its quest for a peaceful reunification.

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