Chinese banks and companies looking to seize steel pledged as collateral by firms that have defaulted on loans are making an uncomfortable discovery: the metal was never in the warehouses in the first place.
China's demand has faltered with the slowing economy, pushing steel prices to a three-year low and making it tough for mills and traders to keep up with payments on the $400 billion of debt they racked up during years of double-digit growth.
As defaults have risen in the world's largest steel consumer, lenders have found that warehouse receipts for metal pledged as collateral do not always lead them to stacks of stored metal. Chinese authorities are investigating a number of cases in which steel documented in receipts was either not there, belonged to another company or had been pledged as collateral to multiple lenders, industry sources said.
Ghost inventories are exacerbating the wider ailments of the sector in China, which produces around 45 percent of the world's steel and has over 200 million metric tons (220.5 million tons) of excess production capacity. Steel is another drag on a financial system struggling with bad loans from the property sector and local governments.
"What we have seen so far is just the tip of the iceberg," said a trader from a steel firm in Shanghai who declined to be identified as he was not authorized to speak to the media. "The situation will get worse as poor demand, slumping prices and tight credit from banks create a domino effect on the industry."
The big question is not whether it happened, but to what degree. Let's just no go overboard thinking rehypothecation is a widespread practice in every asset class around the globe, even if it's likely this is the tip of the iceberg in China.
From "alsosprachanalyst" the following graph regarding capital flow in and out of China:
Several months of net outflow, similar to what happened during the economic crisis in 2008.
How much does it cost to tell the one of the EU's top officials he has "the charisma of a damp rag?" About RM 12,000, as a European member of Parliament has discovered.
In 2010, Nigel Farage, an anti-European Union member of the EU Parliament, rose following a speech by Herman Van Rompuy, the president of the European Council. As Van Rompuy listened, Farage, a Briton, added that the former Belgian prime minister came from "pretty much a non-country."
The Parliament docked Farage €2,980 — 10 days' expenses. Farage appealed to the European Court of Justice. It ruled this month that he filed his appeal too late and would also have to pay Parliament's legal expenses.
According to this post from Mish (Mike Shedlock), Der Spiegel (an influential German magazine) voted Farage the 7th most dangerous man of Europe. And what is the party creed of this "dangerous" man?
That does not sound that bad to me, actually, the Malaysian government might want to check if they can learn something from it.
Article 8 says "Authorized Capital stock 700 billion Euros"
Article 9 says "ESM members irrevocably and unconditionally undertake to pay capital calls on them within 7 days"
Article 10 allows the ESM board of governors to "change the authorized capital and amend article 8 accordingly"
Article 27 says ESM shall enjoy "immunity from every form of judicial process". Thus the ESM can sue member countries but no one can challenge it. No governments, parliament or any other body or laws apply to the ESM or its organization.
Article 30 says "Governors, alternate governors, directors, alternate directors, the managing director and staff shall be immune from legal process with respect to acts performed by them (...) and shall enjoy inviolability in respect of their official papers and documents"
There are no independent reviewers and no existing laws apply. Thus Europe's national budgets will be in the hands of one single, unelected body that is accountable to no one and immune from all legal actions.
Is this the future of the EU or will the German supreme court and other governments put an end to it?
"Greece is bankrupt and the entire world knows it. Even ECB president Jean-Claude Trichet cannot be so dense as to not understand Greece is bankrupt, although he is too big a liar to openly admit it.
Nonetheless the Greek Prime Minister refuses to throw in the towel. "
For the global economy Greece is insignificant. The risk is more in the domino effect, first Greece then countries like Portugal, Ireland and the much bigger ones Spain and Italy. And then there are other countries with huge debt problems like the US and UK. Money printing seems to have postponed problems in the 2008/9 crisis, but it didn't solve anything from a fundamental point of view.
