Via our Top News Stories Column – From the Zerohedge: Chinese Insurer Warns Of “Mass Defaults, Social Unrest” Due To “Mass Redemption” Run
Chinese banks and insurance companies have issued nearly $10 trillion in ‘asset management products’ (80% of Chinese GDP) and implicitly guaranteed the returns to the tune of 4.3% a year. Implicitly guaranteeing such high ‘risk free’ returns on such a large amount of capital is completely unsustainable but banks regularly make up the difference when actual results fall short of advertised returns. Regulators are getting wise to the risks and clamping down on the practice but issuers are now warning that they cannot continue to meet payouts unless they are permitted to continue issuing new products. Zerohedge puts it perfectly and it’s no exaggeration: “This is the definition of a ponzi scheme,” a ponzi scheme 80% the size of China’s GDP. It is hard to imagine how this problem resolves itself amicably. Investors be warned.