(Reuters) - Chinese banks and companies looking to seize steel pledged as collateral by firms that have defaulted on loans are making an uncomfortable discovery: the metal was never in the warehouses in the first place.
China's demand has faltered with the slowing economy, pushing steel prices to a three-year low and making it tough for mills and traders to keep up with payments on the $400 billion of debt they racked up during years of double-digit growth.
As defaults have risen in the world's largest steel consumer, lenders have found that warehouse receipts for metal pledged as collateral do not always lead them to stacks of stored metal. Chinese authorities are investigating a number of cases in which steel documented in receipts was either not there, belonged to another company or had been pledged as collateral to multiple lenders, industry sources said.
So let's see....
We pledge the same mortgage more than once, we in fact get paid for it more than once, we then basically steal the other instances of the money (other than one of them of course) and then when the entire pyramid scheme we constructed threatens to collapse (because there is no collateral behind what we did and our bets have gone bad) by cry poor-mouth and armageddon and threaten to blow up the financial world unless the Federal Government and Fed borrow, spend and QE to the moon to cover up the gaping hole in our balance sheet.
This sort of abject, outrageous fraud leads to zero indictments, zero prosecutions and zero incarcerations.
So then it's done again, this time in China with a bunch of pledged steel that allegedly is there to cover loans written against that. Except just as in the case of mortgages the steel never exists either as it was pledged more than once or simply was invented out of whole cloth (instead of being invented out of iron ore and chromium!)
I'm impressed. No matter where I look, all I find is a Ponzi scheme complete with falsified documents (E.g. PFG Best, et.al.) whether it be warehouse receipts, allegedly-good "bonds" that are printed on toilet paper and are abject frauds, mortgages that are pledged, diced and sliced more than once effectively "multiplying" them (although there is in fact only one debt) and now we have steel that never really existed but there is a warehouse receipt for the illusory, invented, magical coil.
And we wonder why China is trying to gin up a war with Japan?
Maybe it's because they're teetering on the edge of financial collapse as virtually everything in their economic system is a fraud.......
Now there's something to to think about, and it should be quite-sobering when you realize that we're only marginally better in this regard than they are.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.