On Monday, Wall Street outlets admitted that they have no idea what part of the gigantic trans-Atlantic financial bubble is linked to the bankrupt Chinese real estate company Evergrande, whose Ponzi-scheme financial model is being taken apart by China’s sensible regulators restoring the primacy of physical production (housing) over financial profit. Talk spread in financial circles of how a chain-reaction of defaults, spreading from Evergrande outwards, could become a systemic crisis, a “Lehman Brothers” event like 2008.
Today, Wall Street’s Bloomberg news service issued what it hoped would be a reassuring wire: “Wall Street’s Message on Evergrande: China Has It Under Control.” Its third sentence confided that “Wall Street analysts are putting their faith in the Chinese Communist Party.” Bloomberg had interviewed no fewer than 11 “analysts,” from Citigroup to UBS, Barclays, et.al., who all said this is “no Lehman moment… the expectations of a broad contagion may be overdone… the [Chinese] government has the will and capability to intervene, if the market goes into panic,” etc. JPMorgan cheerily suggested that the sell-off of Evergrande is now “an opportunity to buy the dip.”
However, Bloomberg reported separately, citing sources familiar with the matter, that Evergrande missed interest payments today that were due to “at least two of its bank creditors.” This was expected, as it is also expected that Evergrande will default on Thursday on the $83 million in interest that comes due on a dollar-denominated bond. This looming bond default has Bloomberg particularly worried, because it will hit foreign interests. Morningstar reports that Fidelity, UBS, HSBC, Pimco, Blackrock, and Allianz Dynamic are the top foreign funds with the highest exposure to Evergrande.
