Today, Qilu Bank is being investigated over a scandal allegedly involving $227m of forged commercial bank bills, used to provide short-term loans to business, and other forged commercial paper.
The lender, which is 20 per cent owned by Australia’s Commonwealth Bank, is based in Jinan, the capital of Shandong province, in northeast China.
Forged commercial paper?
This is a joke, right?
Who forges commercial paper? Why someone who wants to pledge it in a repo or other operation, of course. Otherwise there’s no point – if you claim to have it and really didn’t lend it, it’s a nothing, so why would you do it – except to deceive someone else up the line?
Yeah, $227 million isn’t much in the grand scheme of things. But if in point of fact China now has a bunch of banks that are stuffed full of forged paper at this level, then who knows what other fun and games are going on behind the scenes that we’re not aware of.
There’s a terminal point in all bubbles, as we saw in the Housing Market, where people start cheating outright – not because they really want to, but because it’s the only way you can keep the Ponzi-like expansion of compounding going. You run out of suckers when you can’t manage to entice anyone else to be stupid, so you do the only thing that’s left – you invent imaginary suckers.
This is the same terminal phase we saw with OptionArmZeroDownNinja loans made to straw buyers, and it’s the same phase we saw with Internet IPOs that had the word “Internet” on the face of the S1 and thus were worth an instant $300 a share the day of the offering – and $0.00 a year later.
Anyone who is still believing in the “Chinese Miracle” had better pay attention to this story – and do their diligence on whether it’s a “one-off” or is endemic of systemic problems that are starting to bubble to the surface.
If the latter – and I strongly suspect it is – we’re about to hear another big “pop” – this time in the East.