Did China Threaten to Boycott Treasuries?

This is going to cause a stir.
One of the evil side effects of the BHC structure that has been illustrated by the failures of WaMu and Lehman Brothers is the reality that the customers and counterparties of the bank subsidiary are actually senior to the debt holders of the parent BHC. This tension has caused a great deal of delay and confusion in moving forward with a solution to the solvency problems facing the large zombie banks. Foreign bond holders, like the government of China, have reportedly told the Obama Administration that further losses to debt holders of US banks will result in a boycott of US Treasury auctions.
This sentence is already being picked up on left-wing blogs, right-wing blogs, and financial websites.

Here's the risk if the governments of China and the U.S. do not help each other:
China: unemployment, losses of potentially hundreds of billions of dollars on investments.
U.S.: government unable to fund wars, forced to reduce its role in the world.

If that bolded sentence is true, they've forged a deal——transfer the wealth of America to China to cover China's investment losses, and China will finance the American government's wars, welfare and deficits. Of course, this means American taxpayers are being drained of their wealth for the benefit of the Chinese and American governments. This is high stakes, because, if true, both governments risk the wrath of the American people.

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