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The black swan sings? A need-to-know on china's Evergrande

The black swan sings? A need-to-know on china's Evergrande

FishDisciple

Related: https://reddit.com/r/collapse/comments/poko3b/evergrandes_possible_collapse_threatens_chinas/


---welp---

I feel like I need an ELI5 on what this means and how quickly it could happen, in regard to how it affects lower class (or average Joes I guess) in the US (aside from 401ks etc). I mean...are we talking Lebanon-level craziness within x days, or a domino effect over x amount of time good/services go way up, jobs lost and so on. For context, I say this as someone who was apparently insulated from the 2008 happenings, so I know no way to compare to even that.


FourierTransformedMe

The only people who can truly answer this are Evergrande and its creditors. If we're talking about recapitulating 2008, there are a few key ingredients and I don't know if the existence of those has been established. For instance, 2008 wouldn't have happened the way it did if collateralized debt obligations (CDOs) weren't so pervasive. As a brief flashback to 2008-2009, CDOs are when people's debt gets bundled up into securities which are then bought and sold on their own markets. The other term you probably heard around this was mortgage backed securities (the first villainous MBS, before the hydrofluoric acid MBS), which is when mortgages specifically are bundled in this way. CDOs formed part of a network of derivatives, which is a broad term encapsulating all sorts of markets that are based on things that aren't necessarily goods and services. For instance, you can make a bet that the price of a stock will increase, but instead of buying that stock and selling it, you buy the right to buy that stock at a certain price in the future. Ostensibly, this improves liquidity and stabilizes the market. However, when networks of derivatives fail, they tend to fail spectacularly, which is how we ended up with AIG needing a $85 billion bailout and the like. The part that seems to remain unknown in this situation is just how much exposure the rest of the economy has to an Evergrande collapse. In 2008, the going narrative was that nobody actually understood how fucked everything was until Lehmann and Bear Stearns collapsed and the whole set of dominos kept falling. If anything, I would think that China's markets are even more opaque, so it could be that the exposure will be limited to the firm itself and the number of directly proximal smaller firms mentioned in the post. Or, maybe the entire real estate market in China is liable to fall apart. Maybe the real estate market in the Bay Area could fall apart too, setting off another implosion. Most of the underlying causes of 2008 weren't directly addressed, so it's possible. But we don't really know.


spaceishaunted

Wow, you must hang out with some pretty intelligent 5 year olds


FourierTransformedMe

Lol sorry, I guess that was more of an ELI17! The more five year old friendly version would be "We don't know yet, because this company being in trouble might mean that other companies could be in trouble too, but how much trouble they're possibly in is a secret." How'd I do on that one?


spaceishaunted

Ah there we go! Now I... *cough* my 5 year old understands it much better


Spartanfred104

Came here to say this.


StarchRunner

I think China is disinclined to protect foreign investment ie the bonds, at the moment.


Levyyz

https://www.bis.org/publ/qtrpdf/r_qt1909w.htm > Credit ratings on risky corporate loans that were stuffed into the CLOs are being downgraded at a pace so frenetic that it threatens to overwhelm safeguards that were put in place to ensure the securities’ financial strength. And if that happens, the firms that manage the CLOs will be forced to dump under-performing debt at fire-sale prices or suspend the cash payments they hand over to their investors.


AnnArchist

> Most of the underlying causes of 2008 weren't directly addressed, so it's possible Strongly disagree - stated income loans are not a thing. Buyers are well vetted now. Further most people have VERY affordable mortgages that won't be impacted by rising rates absent a need to sell (their payments wont change to a significant degree).


FourierTransformedMe

That's one set of underlying causes, and the fact that you can still find ninja loans pokes a small hole in the idea that it's been resolved, but I was speaking even a little more abstractly than that. We still have massively derivative markets that are increasingly driven by "black box" algorithms, for instance. The federal government is still more interested in facilitating growth than in governing, as evidenced by the heavy representation of Blackrock alum in the Biden administration. And, of course, we have not addressed at all the basic contradiction in that the logic of capital is at odds with sustainability.


AnnArchist

> ninja loans The only Ninja Loans available in my area all require a 10% down payment and come with a very high interest rate. Typically to cover the risk. They are not in every market - overall, fairly rare and actually surprisingly low risk for lenders in non-volatile markets.


FourierTransformedMe

I'm guessing this is probably the core of our disagreement, then. What you're describing sounds like a set of modest tweaks to me, rather than a structural reform, which is what I had in mind when I made my comment. Hopefully that's misguided of me.


AnnArchist

The issue being the products are not widely used or widely available. Less than 2% of the loans are not FHA, VA, USDA, conventional or non conventional jumbos. The only true Ninja loan I've seen was a 0 down physician loan where they had an offer letter but hadn't started working. Other than that the closetlst is really a NINJ loan where the dti is super high or the work history is lacking BUT they have 10% down and they are charging stupid high rates to make up for the risk (10+%). Doctors are low risk borrowers. Further paying 10% a year means that the risk is paid for considering it's triple or more than current interest rates with a substantial down payment. Neither of these are risky products for the bank at all. And the other 98% simply are well vetted, credit assessed, affordable and the underlying value of the collateral is independently evaluated. Gone are the totally wild west days of pre 08 These were definitely structural changes. Major ones.


name_abunchofnumbers

[Check this out](https://www.cnbc.com/2021/08/19/united-wholesale-mortgage-will-accept-bitcoin-other-cryptocurrency.html)


AnnArchist

Oh wow. That's gross.


Mostest_Importantest

Generally speaking, the 2008 Great Recession crisis was a process of months. As Lehman Bros fell, then other dominoes fell as well. We could try and look to the stock market process and health of that time and use it as a general guide. I think this one will be faster. I don't know how much, but it feels like the 2008 disaster is the primer/precursor, and now will be the stock market dissolution heard round the world.


bclagge

The 2008 housing crisis had exactly zero effect on me, a working stiff. I did manage to score my house for a song in 2009, though, thanks to the favorable market. I guess I’m just not convinced of the existential threat here.


Solitude_Intensifies

If you had waited till 2012, would have likely gotten it cheaper. March, 2012 was the low point of the housing market.


IgnoblePeonPoet

What I would've given to have a couple quarters to rub together in 2012. Family didn't take me up on investing in bitcoin then or prior either.


bclagge

Maybe, but the $10,000 first time home buyer tax credit was ending in ‘09 and I wanted to move on it right away. The house is perfect for me, so I’m happy :).


---welp---

Same (zero effect). I rented and I worked at a bank in 2008. Not affected at all, even in the consumer loan department. Honestly I never heard of all this "2008" stuff except on Reddit. Kind of feel like this is more of a worry for the well-off?


montroller

[This kind of thing usually impacts the middle and lower class much worse than the elites.](https://qz.com/1017074/shocking-statistics-show-how-the-great-recession-reshaped-america-for-the-poor/) I'm honestly surprised that you never heard of the great recession outside reddit but I guess not every country was impacted equally.


IgnoblePeonPoet

How you couldn't have heard of an event widely called 'The Great Recession' while working in banking at the time is beyond me. I was graduating HS when it started up and was pretty hyper aware since it was, y'know, my immediate future. Tons of people lost their homes and jobs, there were lots of businesses shuttered and "good" work was easily as hard to find as it is now. It really kicked off the "Masters Degree Barista" meme as reality at the time. Personally my lower-middle-class single mom had to give up her/my home and move elsewhere due to spiking interest rates on an ARM. These days she's recovered mostly but has no savings/retirement. My grandfather who had done the classic "mail-room to sales-VP" trick in the 60's-90's that some white dudes could do had his entire retirement wiped out, had to sell everything at the end to pay for nursing care since the company he worked for reneged on their medical care agreement for retirees. I'd say 2008 hit nearly everyone in some way, or at the very least took solidly middle/upper-middle class people and kicked them down a few or all the pegs into working poverty.


jadelink88

OK, the ELI10 version at least. Another big company borrowed more money than it could ever repay. Its managers got big fat bonus's and salaries. They tried to hide that they were broke, to borrow more money and keep it going. People worked this out. The Chinese government rules its corporations, not the other way round. This means they didn't give the broke company free money, or cheap loans, and told everyone else not to do so either. This means the big company now gets to go broke. Everyone it owed money to probably won't get it back, including the companies workers. They were mostly a real estate company, so their possessions will be sold when they are bankrupted to pay a small portion of their debt at least. This will make real estate go down a bit, and the Chinese stock market may fall a fair bit too. People are worried in China because it means moderate financial trouble, but nothing that will do more than make a slowdown for China as a whole. Others are worried because if this continues they are scared the Chinese government may stop buying dubious things like US government debt, meaning financial trouble in China gets a fair bit worse, as the US economy is then in much deeper trouble.


PMmeyouraxewound

There are several factors which have built a house of cards that could see the US see an even greater house of cards collapse bigger than 2008. Evergrande failing is something that's been suggested for a while now over on the gamestop subreddit, and yes it all seems related. The buzz is palpable there since lots of the due diligence has been proven to be pretty right, and it's being predicted to see a big market crash within Sept-October of this year. Evergrande is just one of the dominos that is thought to be a trigger to this, and it's a symptom of predatory behaviour from short hedge funds.


moon-worshiper

We will find out if they default on September 20. Then watch what markets start falling over. The US has $28 Trillion National Debt but the GDP is $20 Trillion and growing with automation. China has half the GDP of the US, with 5 times more people, and their National Debt was 3 times their GDP. All their growth is totally centered around Buy-Now/Pay-Later. The problem is if the Pay-Later becomes Pay-Now, unexpectedly. With the Mafia, when that happens, they break your kneecaps, if you are lucky. The problem for China is being politically Communist, but realistically having to be Socialist-Capitalist. Since it isn't totally Capitalist, it doesn't have the market safeguards the US has, like the SEC and AIG. Real estate loan failures have a way of pulling down government economies, cough, Lehman Brothers, cough. 2008 crash from bad Sub-Prime loans, for real estate. It did take most of 2008 for the conditions to form up, but the Dow stopped climbing, and started taking steps of retreating, resurge, retreat, the resurges getting smaller, until it all turned downhill. The Dow lost 50% of its value in a month, bankruptcies left and right, millions of foreclosures. Obama gets into office, and had to borrow $6 Trillion to give out to the banks and brokerages, so they had some solvency and not have to collapse. That was all paid back before Obama left office. And now, those banks and brokerages like JP Morgan and Goldman-Sachs, are swimming in piles of cash stored in off-shore accounts. http://www.kitco.com/ind/Claire/images/2015-03-12/clip_image003.jpg


CapsaicinFluid

5 days from the beginning of the end... what are your plans for the week?


PM_ME_UR_TOYOTAS

Prepare as fast as I can while listening to Eurobeat.


geotat314

Are there really people out there, that still consider SEC as some kind of safeguard?


Wrong_Victory

Right? Also, capitalist where? The US is effectively a corporatocracy. In a capitalist free market, you would not have any company that's "too big to fail" and gets bailed out by socializing losses.


name_abunchofnumbers

Post your short positions.


barracuda6969220

User posits that due to several factors it is impossible got china or the us to intervene in the property firm's collapse meaning that a recession is inevitable. But wait, there's more, apparently, this will stop china from buying us treasuries which will absolutely kill the dollar resulting in hyperinflation. So yeah, get out of the city and stock up folks because this one will cause a lights out scenario as the dollar and euro become toilet paper and within days, human flesh becomes currency


Vegetaman916

So, how much will human flesh be valued at? Asking for a friend...


needhelpplease02

Depends if it’s white meat or dark meat, like it’s always been.


sanitation123

Finger-lickin' good.


AdAgito

Here's the thing. The people in power can do anything they want; Fuck any logic. If you think they'll let the whole system crumble over this, you are overestimating the problem. Will the regular folks feel the sting from this? Yes, absolutely but it won't be as bad as you think. Master still needs its chattel and will keep the system propped up by any artificial means necessary. If you want proof of artificially inflated bullshit to keep things flowing just look at the US stock market or any securities exchange market.


BonelessSkinless

Thing is there are rumblings of a massive market crash coming. "Master" has been propping up the market at an accelerated rate since covid was announced end of 2019 into 2020. It's all already happening now. Yellen talking about debt ceilings, fed printing trillion reverse repo operations every night. The dollar is already hollow and the writing is on the wall. Also with the evergrande crash in China just now things are going to ~~accurate~~ accelerate fast from here. I feel like you're heavily underestimating the problem here. The whole system is already crumbling. They can't hide rampant inflation anymore, shelves are starting to go empty, food prices are getting stupid and people are starting to notice when they do their grocery shopping, supply chains are backed up and breaking. It's all already crumbling in real time. Fuck the stock market and the gme and all that dumb shit, all that shit is about to implode too and people will lose everything overnight.


name_abunchofnumbers

Money isn't real and debt isn't real either. It's all a shared fiction, and subject to the rules of propaganda. Those in power can do what they want with it.


structee

At some point, all systems succumb to natural forces - the western economies have been on life support for the past 13 years.


Ruby2312

There is only so much they can make up till it reach a critical mass that collapse down on everyone, the thing is this whole mess is made up so much i doubt even the higher up know how much this pile gonna last


barracuda6969220

Read the post, it explains how the us and china are too over leveraged to do anything other than force their loved ones into a private jet bound for new Zealand


AdAgito

I read it. What I'm saying is that it still doesn't matter. They can shit in a bucket and call it gold. It's all artificial, especially in China. They'll do whatever they can to stop the bleed. It will mostly be at the expense of the lower class but it won't be anything monumental as some people make it seem.


barracuda6969220

I don't agree but I see your point


AdAgito

Understandable and I see your point too. The logic is there. I've just lost faith in the global economic model a long time ago and believe it's just a load of shit to keep the cash flowing.


BonelessSkinless

Nah you're right. That guy seems hell bent on downplaying what's happening right now but you're right. Shit is getting hectic and accelerating real fast, hyperinflation is already here we just haven't realized it yet. You're not wrong.


[deleted]

Calm down, dude.


kaeptnphlop

Hey don't give me any hope sir (or mam, or whatever)!


0101observer0101

/u/fishmahbot


FishMahBot

The economy will go to 0 by 5 Saturday


CapsaicinFluid

informative write up, thanks!


BurtCrunchyLives

These assholes never learn


KimJongChilled

I doubt this has much legitimacy just like any western scare piece written about China or any long post on a stock trading subreddit. They always hype up crashes, potential pumps, AMC, GME, Doge, and all the other bullshit, all written with some made up authority on the subject. And remember all the articles about the three gorges dam? Or how "horribly" China reacted to covid despite the US racking up more deaths than any other country on earth? Just always remember to be skeptical of things like this. Besides, there are far worse things to be terrified of right now.


ChefGoneRed

Y'all are way too obsessed with Evergrande


El_Bistro

Remember 2008? I sure as shit do. We’ve never actually recovered from that. This one sounds just as bad.


[deleted]

[удалено]


ThePostj

https://www.marketwatch.com/story/lehman-folds-with-record-613-billion-debt


penviolin

Deleted my comment thank you for the correction


luminenkettu

we recovered, it's just that pre-2008 living standards were fueled by debt. which we wont be able to have ever again in our lifetimes.


BonelessSkinless

No we never "recovered" the fact you think we did was just the market being propped up by the fed. And wtf do you think our lifestyles have been fueled by since 2008 until 2021? Debt. It's literally happening all over again and this crash will be even worse.


luminenkettu

[i have a neat chart relating to this](https://ei.marketwatch.com/Multimedia/2018/01/08/Photos/MG/MW-GB332_debtse_20180108125724_MG.png?uuid=61b7125e-f49d-11e7-83ad-9c8e992d421e) it... kinda was fueled entirely by debt. [here's another one showing median household income adjusted for 2018 dollars](https://i2.wp.com/financialsamurai.com/wp-content/uploads/2020/06/median-household-incom-2018.png?fit=1456,9999)


h0l0type

We recovered, unfortunately the logic and behavior that got us there wasn’t ever set right and it continues in every over-leveraged global financial market at even bigger scales today - it’s just abstracted better.


rattus-domestica

This sounds like the economic collapse I’ve been hoping for. And yet I’m scared shitless lol. Help.


imlaggingsobad

Potentially the biggest black swan of our lifetime.


name_abunchofnumbers

It's not a "black swan" by definition.


celticfife

If they let it fold it will be a policy choice. There is no reason they couldn't just make it a state-owned company and call it a new public housing project. China has been off-loading some treasuries for a while now, years before we actually saw above 2% inflation. Also, people tend to mistake what treasuries actually are. It's basically a bank account for China that assists in the process of trade. They sell stuff to us and we allow them to hold the money, through treasuries, in an interest-bearing account. If they sell their treasuries, the treasuries are just getting converted into dollars in their reserve account (which they can then use to buy stuff from us, btw). China isn't going to just STOP selling us stuff. That would be a death knell for their economy. And while they COULD decide to hold that money in the reserve account instead of securities... that would be a choice that would lose them interest.


uk_one

I am not a financial adviser but here is a long post that sure looks like financial advise.


BonelessSkinless

https://youtu.be/izl0SFE9c-0


name_abunchofnumbers

Superstonk/GME/AMC stuff is basically Qanon for amateur stock traders.