List of Trusts Coming Due; Don't Mistake the Trees for the Forest

ZeroHedge has coverage: The Chinese Dominoes Are About To Fall: Complete List Of Upcoming Trust Defaults

I still believe this is missing the forest for the trees. A default could trigger a crisis, but the bigger picture is investor sentiment and the entire financial system. This snip sums it up:
We consider the trust market the most vulnerable part of the major financing channels for companies, i.e. loan, corporate bond and trust. The quality of the borrowers in the trust market tends to among the lowest. Within the trust market, collective trust products, i.e. those sold to more than one investor, tend to be risker than single trust products, i.e. those sold to a single investor. This is because investors in single trust products tend to be more substantial in resources, thus most likely more sophisticated in their risk control.
As I wrote earlier this week:
If investors don't want to buy the riskiest products anymore, someone has to step in and throw money into a black hole—and the banks aren't stupid. Someone has to think up a new way to fool investors, investors have to become fearless again, or there is going to be fallout.

A day earlier it was: Hunan Pooled Trust Lowers Minimum Investment to ¥200,000; Tough To Sell Investors At Higher Minimums and widening spreads as covered in Is China's Shadow Banking System Contracting, Is The Bubble Growing, Or Both?. Clearly the "single trust products" are hard sells these days, so firms are relying more on selling short-term and low minimum products. They are borrowing short to go long and increasingly relying on less sophisticated investors.

The focus on individual defaults is important, but I don't expect a trust failure will touch off a crisis. Instead, trust failures will be a sign post on the road to crisis, as this was: $3.2 Billion Move by Bear Stearns to Rescue Fund
Bear Stearns Companies, the investment bank, pledged up to $3.2 billion in loans yesterday to bail out one of its hedge funds that was collapsing because of bad bets on subprime mortgages.
That is news from July 2007. Not much money, not much impact on the markets and even a bailout. The S&P 500 would top out in late October 2007; the Fed did surprise with a rate cut in August though.

From August 2007: How Bear Stearns lost its way
Two hedge funds run by its asset-management division have gone belly-up. On Aug. 5, Cayne dumped his heir apparent, the much-admired Warren Spector; Cayne and his new No. 2, investment banker Alan Schwartz, are defending Bear's reputation -- and trying to persuade the Street that the firm can weather the credit storm -- even as they quietly seek an equity investment.

Bear got into this jam in part by coveting its neighbor's business. At Bear, trading and handling money for clients has always been the main game. The firm made a steady profit as Wall Street's back office.
The article discusses how Bear went into businesses it wasn't experienced with, in search of greater profits. Sort of like how Chinese firms went into all manner of non-core businesses over the past few years.

For all we know, the default in January (and I still call it a default because while the principal was repaid, investors did not receive all their promised interest payments) was the pin that burst the credit bubble, or maybe the market will recover and another default will be needed. The point is, the Bear Stearns hedge fund collapses did not set off a market panic. Later in the year there will problems with Citigroup (trumpeted by Meredith Whitney), then auction rate security failures in early 2008, then the failure of Bear Stearns.......and yet the market didn't fully break down until September 2008. To put it another way, when people think of the 2008 financial crisis, do they think of the Bear Stearns hedge funds in summer 2007 or do they think of the collapse of Lehman Brothers and the stock market crash in 2008? The focus on the trusts is warranted, but the whole financial system is in play.

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