Wednesday, August 19, 2009

Guess who is "ON THE HOOK" for the promised returns?

Tuesday, August 18, 2009
Is the Chinese Government Really This Dumb?
China's $200 billion sovereign wealth fund, China Investment Corp, plans to invest soon in U.S. taxpayer subsidised investment funds of toxic mortgage-backed securities, Reuters is reporting.

Under the Public-Private Investment Plan launched earlier this year, the U.S. government plans to seed a number of PPIP funds that would combine taxpayer money with private capital to buy as much as $40 billion in toxic securities from banks.

On the surface this is a great play for CIC, since the U.S, would, for all practical purposes, be financing CIC's leveraging up of its investment.

CIC is in talks with nine designated PPIP managers, which include Alliance Bernstein LP, with sub-advisers Greenfield Partners LLC and Rialto Capital Management LLC; Angelo Gordon and Co LP, with GE Capital Real Estate; BlackRock Inc; Invesco Ltd; Marathon Asset Management LP; Oaktree Capital Management LP; RLJ Western Asset Management LP; Trust Company of the West; and Wellington Management Co LLP, said the sources.

The Chinese have not come off as rocket scientists in the past with their investment moves. In addition to stuffing themselves with a near two trillion in U.S. Treasury securities they are stuck with, they have huge paper losses on investments they have made in Morgan Stanley and Blackstone.

The big question, of course, is, since the U.S. government will be loaning most of money for these PPIP projects, the U.S. is going to have to go into the debt markets to raise the money to make these loans, will the Chinese buy this debt, thus financing their own financing? Is the Chinese governmant really this dumb?