Top Broker Says China Crisis ‘Could Exceed 400 Percent’ Of 2008 Crash

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JP Carroll National Security & Foreign Affairs Reporter
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Renowned hedge fund manager Kyle Bass told his investors the Chinese banking system is a “ticking time bomb.”

His hedge fund, Hayman Capital Management LP, is betting billions on the Chinese yuan and Hong Kong dollar nosediving soon, according to Market Watch.

The Dallas-based financier told investors in a letter Wednesday the manner in which China is handling its economic woes is similar to the approach taken by U.S. authorities in the lead-up to the 2008 crash. Bass told investors, “Similar to the U.S. banking system in its approach to the Global Financial Crisis (GFC), China’s banking system has increasingly pursued excessive leverage, regulatory arbitrage, and irresponsible risk taking,” according to CNBC.

Bass is one of the few investors who saw the subprime mortgage crisis coming. Author Michael Lewis, whose book “The Big Short” became an Oscar-nominated film, names Bass in his book “Boomerang” which focuses on “the European credit crisis.”

Bass alleges in his letter to investors the Chinese government is lying about how much in liquid foreign reserves the country’s central bank has, according to the Wall Street Journal. In his letter to clients, Bass “estimates that China’s liquid foreign reserves are $2.2 trillion at most. That compares with the $3.23 trillion reported by the People’s Bank of China, the central bank, for the end of January.”

Among China’s multiple holdings are U.S. securities worth $1.76 trillion as of last October. Bass states in his letter that losses in Chinese banking “could exceed 400% of the U.S. banking losses incurred during the subprime crisis,” according to the Wall Street Journal.

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JP Carroll