Zero Hedge: Goldman May Be At It Again, This Time on Greece

Zero Hedge's Tyler Durden thinks that the Vampire Squid aka Goldman Sachs is at it again, this time sucking the blood off Greece, just like it did off A.I.G. Spain, Portugal, Dubai, too. Japan and the U.S. next. Maybe.

The Ever Increasing Parallels Between AIG And Greece... And The CDS Puppetmaster Behind It All (Tyler Durden, 2/8/2010 Zero Hedge)

"...... Yet as we look forward, we ask, who now determines the variation margin on Greek CDS (and Portugal, and Dubai, and Spain, and, pretty soon, Japan and the US), the associated recovery rate, and how much collateral should be posted by sellers of Greek protection? If Greek banks, as the rumors goes, indeed sold Greek protection, and, as the rumor also goes, Goldman was the bulk buyer, either in prop or flow capacity, it is precisely Goldman, just like in the AIG case, that can now dictate what the collateral margin that Greek counterparties, and by extension the very nation of Greece, have to post on billions of dollars of Greek insurance. Let's say Goldman thinks Greece's debt recovery is 75 cents and the CDS should be trading at 700 bps, instead of the "prevailing" consensus of a 90 recovery and 450 spread, then it will very likely get its way when demanding extra capital to cover potential shortfalls, since Goldman itself has been instrumental in covering up Greece's catastrophic financial state and continues to be a critical factor in any future refinancing efforts on behalf of Greece [Note: Goldman is trying to broker Greek debt off to China]. Obviously this incremental margin, which only Goldman will ever see, even if the CDS was purchased on a flow basis, will never be downstreamed on behalf of its clients, and instead will be used to [buy futuresbuy steepenersprepay 2011 bonusesbuy more treasuries for the BONY $60 billion Treasury rainy day fund].

"In essence, through its conflict of interest, its unshakable negotiating position, and its facility to determine collateral requirements and variation margin, Goldman can expand its previous position of strength from dictating merely AIG and Federal Reserve decision making, to one which determines sovereign policy! This is unmitigated lunacy and a recipe for financial collapse at the global level.

"This is yet another AIG in the making, with Goldman this time likely threatening to accelerate the collapse not merely of the US financial system, but of the global one, in order to attain virtually infinite negotiating leverage. Of course, the world will not allow a Greece-initiated domino, allowing Goldman to call everyone's bluff once again.

"As the amount of gross and net sovereign CDS notional is constantly increasing, as more and more hedge funds join the shorting fray with Goldman as the intermediate (just like in AIG), it behooves any remaining regulators and any sensible Federal Reserve parties to supervise precisely what the terms of Goldman's collateral margins with various sovereign debt sellers are, especially when it pertains to increasingly distressed CDS, where a liquidity squeeze, again as in the AIG case, would have tremendous adverse downstream consequences. If indeed Goldman's counterparties are the banks of respective countries, then the parallels with AIG are nearly complete. And we all know what happened then.

"Furthermore, we are now convinced that Goldman will join the government in facilitating the engineered market swoon with a bifurcated goal: while the Treasury will take advantage of a sell off to offload as many UST as it can in the rush for safety (which could backfire now that Gold is increasingly seen as a dollar alternative), Goldman (with or without Warren Buffett - it depends on what the actuarial tables say) will jettison its own stock price in order to go private in an increasingly hostile world. "

[Here's a better link for the Spiegel article on Goldman instrumental in covering up Greece's financial state. Der Spiegel writes better English than Google Translate.]

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Chinese Investors Seek to Double Their Bets on Dubai 'Crisis'

Investors in Zhejian Province, a region in China known for the sharp business acumen, are eyeing Burj Dubai, the tallest building on earth, to double down their bets. According to Yomiuri Shinbun (in Japanese) on 1/10/2010:

"According to Zhejian Daily, a tour is planned during the Chinese New Year holidays (starting February 14) to shop for investment properties within the building.

"'Merchants of Wenzhou [city located in southern Zhejian]' are known as shrewd merchants in China from ancient times, and they are known for investing in high-priced assets as a group. They have reportedly lost a huge amount of money (2 billion yuan, or about $292 million) because of the Dubai crisis. [Other reports put the figure near $440 million, on top of $2 billion loss on their investment in coal mines in China.]

"However, as the average property value of Burj Dubai has dropped 50% from the level seen in the first half of 2008, the 'merchants of Wenzhou' are eager to double down on their bets that the bottom has been hit."

United Arab Emirates already has the Wenzhou Chamber of Commerce. There are currently 150,000 Chinese citizens living in Dubai, and 20,000 of them are merchants from Wenzhou. (For more, here is an English article from People's Daily.)

They may be doubling down on Burj Dubai, but at the same time they seem to be selling their investment properties in Beijing in a hurry. Rumor is that they are sensing the imminent burst of real estate bubble in China.

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China: Dubai Crisis Good for Buying Gold, Oil

call it "Beijing Put"...

Chinese are counting on the Dubai crisis to linger for a while so that they can buy gold cheaper. Will they get their wish?

Dubai crisis gives China chance to buy oil, gold: report (11/30/09 Reuters via Washington Post)

"BEIJING (Reuters) - Dubai's debt crisis could be China's opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday.

"No Chinese banks have yet reported exposure to debt from Dubai World, a flagship firm that last week said it was seeking to delay debt payments by six months. Some Chinese real estate and construction firms have limited exposure to projects in the emirate, state television reported this weekend.

"China's $2.27 trillion in foreign exchange reserves are mostly parked in U.S. treasuries, despite calls from some in China to invest the reserves in oil and other natural resources that the fast-growing Chinese economy will need in future.

"While the impact of the Dubai crisis on the global economy and on China was not known yet, it would last a while at the very least, Ji Xiaonan, who chairs the supervisory board for big state-owned companies under the State Council's state assets commission, told the Economic Information Daily.

""That could give China a buying opportunity to put some forex reserves into gold or oil reserves," Ji was quoted as saying by the paper, which is widely read by Chinese officials.

"Another paper, the China Youth Daily, quoted Ji as saying that a team of experts from Beijing and Shanghai had set up a task force last year to look at the issue of gold reserves.

""We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him as saying."

Currently, China's gold reserve is 1,054 tons, making it the 6th largest gold reserve holder in the world just above Switzerland. The U.S. gold reserve, in comparison, is 8,133 tons, the world largest. The second largest gold reserve holder is Germany, with 3,408 tons.

"Beijing put" is indeed on gold price.

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