Defaulting banks - where will it stop?

[Jan Klimkowski]

The game of musical chairs with parcels of "assets" which are in fact so toxic that they're glowing like Chernobyl fallout has rendered nation states, corporations and funds dizzy and nauseous.

:dancing:

They're all completely panic-stricken that the music might stop whilst they're holding a complete crock.



It looks like China may be about to switch the music off...

:call:

China’s Premier Wen ‘Worried’ on Safety of Treasuries (Update2)

March 13 (Bloomberg) -- China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.

“We have lent a huge amount of money to the United States,” Wen said at a press briefing in Beijing today. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

White House National Economic Council Director Lawrence Summers, asked about Wen’s remarks, said overseas “confidence” in Treasuries would be hurt without the administration’s steps to end the economy’s decline. President Barack Obama is relying on China to sustain buying of Treasuries amid record amounts of debt sales to fund a $787 billion stimulus package.

“China’s purchases of American debt have been one of the few bolts keeping the wheels on the global economy,” said Phil Deans, a professor of international affairs at Temple University in Tokyo. “If China stops buying, where does Obama’s borrowing to fund his stimulus come from?”

Treasuries declined after Wen’s remarks, before recouping the losses later. Yields on benchmark 10-year notes rose as high as 2.96 percent, from 2.85 percent late yesterday, and were at 2.83 percent at 12:27 p.m. in New York.

Loss on Treasuries

Treasuries have handed investors a loss of 2.7 percent in yuan terms this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index. Chinese investors increased their holdings of the bonds 46 percent to $696 billion in 2008, according to U.S. Treasury data.

“Of course we are concerned about the safety of our assets,” Wen said after the annual meeting of the legislature. “To be honest, I am a little bit worried.”

Summers said that taking “austerity” measures would be even worse for the economy and financial markets, which he said he tracks “very closely.” Answering questions after a speech at the Brookings Institution in Washington, he said it’s “fiscally responsible” to implement measures in the near term that will restore longer-term growth.

China should seek to “fend off risks” as it diversifies its $1.95 trillion in foreign-exchange reserves, Wen said. Yu Yongding, a former adviser to the central bank, said in an interview on Feb. 10 that the nation should seek guarantees that its Treasury holdings won’t be eroded by “reckless policies.”

http://www.bloomberg.com/apps/news?pid=2...refer=home