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what seems to be happening is that one such chinese bank is in deep shit in a variety of ways, and the market is responding as though people don't really believe the chinese have their backs anymore
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this is bad for the people who lent the chinese bank money because they lose their money, BUT it's possibly even worse for other chinese firms to whom people make loans with the expectation the CCP are guarantors, because it will be harder for them to get loans
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I dont have any idea how much of chinas economy would be affected or how likely it is to domino. or really much of anything else about chinese financial markets. these are just the usual pattern of the start of a potential financial crisis
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one factor that may accelerate a crisis is that this may result in Chinese state bank debt being downgraded to junk status, which would be very bad for them.
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junk ratings restrict by regulation how much junk debt a given US entity can own and it looks like a lot of the potentially-affected US institutions are probably tightly bound by those regulations this would ultimately greatly increase borrowing costs for the chinese banks
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please keep in mind as you read this that I haven't thought about this stuff at all for a decade and I may be misunderstanding or misremembering market operation, and weight it in that light
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yeah. more context chinese debt may be in a really bad state right now (we don't know but there are suspicions) how much does this matter here? it probably matters a lot. more fuel for the fire, less dry powderhttps://twitter.com/thesravaka/status/1382280941809324033?s=19 …
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more feeling more confident in my initial assessment https://www.bloomberg.com/news/articles/2021-04-14/china-huarong-showdown-reveals-beijing-s-tougher-stance-on-risk …pic.twitter.com/NmFbx9vBw5
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