China would pool a portion of its holdings of Treasury bonds under the CFR umbrella to convert sovereign debt into equity. Any CFR funds that were designated for investment in U.S. corporations would still be owned and managed by U.S. equity holders, with the Asians holding minority equity shares "that would, like preferred stock, be convertible."

This is interesting for a number of reasons. One is that they are basically acknowledging that we can't pay back the debt. So there really is no choice other than to go into an "equity-type" arrangement. This is very standard in bankruptcy/receivership. So basically, this is a bankruptcy of the US in all but name.

Second, despite the nominally less-demanding nature of equity and the touchy-feely proposals to remain subverted to US equity holders, we think we can safely say the Chinese will exert outsized influence in anything that this facility invests in.

For example, look at how quickly the government moved to support/bail out Fannie and Freddie when China started making noises about the GSEs... and this followed relentless declarations that the GSEs "were not backed by the US government", going up to mere weeks before the bailout actions!

We think it's safe to say that we are looking at a future where there is heavy Chinese ownership of US real estate and infrastructure, and more of that "public" infrastructure will be for pay, with the profits going to China.

Of course, per the current dilemma, they have to "do something" with those dollars. So they are going to need to accelerate their ability to get real estate and/or goods from the US in the long term.

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