China Threatens to Rescind Commodity Derivatives

I have repeatedly argued that credit default swap contracts be rescinded because they are continuing to drag the economy down the drain.

Nobel-winning economist Myron Scholes pretty much agrees.

This advice has been ignored by the powers-that-be in the U.S. and Western countries. But China is thinking outside of the box, at least in connection with certain types of derivatives.

According to Reuters:

A report that Chinese state-owned companies will be allowed to walk away from
loss-making commodity derivative trades provoked anger and dismay among
investment bankers on Monday as they feared it may set a damaging precedent.

The State-owned Assets Supervision and Administration Commission, the
regulator and nominal shareholder for state-owned enterprises (SOEs), told six
foreign banks that SOEs reserved the right to default on contracts, Caijing
magazine quoted an unnamed industry source as saying in an article published on
Saturday.

The report hasn’t yet been confirmed by the government. And this could just be a trial balloon, so we’ll have to wait and see.


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