On the other hand, the handling of northern rock (kind of small in the grand scheme of things) and LTCM (smaller balance sheet than a big broker dealer) suggest to me that the odds favor some kind of intervention, especially during times of broader stress.

Guest thanks for the heads-up that KIA wants to get into the act.

Don’t know about that. First, every counterpart bank is supposed to have systems in place where it handles the default of a major counterpart. There are limits how much one can trade with each bank, collateral exchanges, and so forth. The conviction that the U.S. will just nationalize a bank with lots of derivatives contracts means all this planning is just for naught, when the counterpart is a major American bank, because the real counterpart is Uncle Sam. Nobody in the industry thinks it is; so what do you know that they don’t?

Secondly, I think the political appetite to nationalize a bank will be nil. Middle America, rightly I think, sees Wall Streeters as vastly overpaid. Unfortunately, the bankers in a nationalized IB will just walk, unless they are even more overpaid than usual. And any nationalization would also be basically be in the interest of other derivative players - maintaining their bonuses and jobs. They are the gainers, and few other people are. Forget all the press releases; derivatives serve little real economic purpose. So if Main Street isn’t up in arms about this, it should be.

Thirdly, not all banks are American. The ratio of country/bank for the U.S. is pretty big. Now think of Switzerland/UBS, where the ratio is much smaller. Would Switzerland ride to the rescue of UBS? Can it? Would it want to? It would probably have to throw away a lot of tax money to do so, and it has a lot less tax money than the U.S.

You buy about net $ 5 trillion of ’stuff’ from the rest of the world by borrowing the same amount from them.

You then let them buy a like amount of US treasuries and agencies as a way of investing that money back with you.

Then because you’ve borrowed too much, you watch your domestic debts go sour and the banking system slide into the abyss as a result.

But you don’t want them to take a small portion of that $ 5 trillion and help recapitalize the banking system.

Good thinking.

Mr Al-Sa’ad said he intended to speed up decision-making at the KIA to take advantage of the opportunities thrown up by the crisis. “With Citi, the Abu Dhabi Investment Authority had good timing,” he said, noting that it took ADIA less than three weeks to seal its late November deal to invest $7.5bn in convertible securities in Citigroup.

“…The administration is facing questions from weapons experts about whether some equipment — newly authorized for export to Chinese companies — could instead end up helping China modernize its military…” http://www.nytimes.com/2008/01/02/technology/02cnd-tech.html?ex=1356930000&en=cf97296ca31f467d&ei=5088&partner=rssnyt&emc=rss

I think they have weighed the risk of not investing to be greater than that of investing, in the long run. They do not desperately need more dollar reserves in China, but greater power is welcome. The Chinese haven’t been propping up US imbalances from altruistic concerns only, have they? Granted, it would be a substantial black eye for China if the value of the dollar were to plummet, but apart from the “loss” in reserves value, what more concerns would they have?

no way could they buy the world’s gold mining producers. (DC) they would not have bought 10 per cent of them before every gambler in town was looking for a piece of the action. the price of gold would tend to infinity as they moved in on the second 50% of the producers. that would be lunatic bunker hunt policy. they have policies something more towards the warren buffet end of the spectrum.

‘wall street’ now wants to guess where the chinese will plunge next. anything the c i c look at could get expensive overnight.

so there is only one way to buy up the world - it is by a random investment ‘blind scavenger’ policy.

- also, by buying the losers china builds in stability to the global economy. ‘wall street’ on the other hand, makes bubbles of fashionable winners and thrives on volatility.

happy new year, friends - china thinks different.

.