Extract of analysis from Song HongBing's blog.
Looking at the US commercial banks balance sheets, till 21 November 2008, US commercial banks total savings are at about 7.141 trillion USD with cash at only about 871.3 billion USD. So where are the rest of the money? They are mostly in the SIV assets, mortgage bonds, Fannie/Freddie bonds, CDO, CDS, junk bonds and based on the previous mentioned toxic investments, a 30 times high leverage. Most of them are not able to have pay backs.
Citi is just one of the most obvious examples. The whole US commercial banking system will crash in 2009. There will only be 1 ending - the US government will nationalize the commercial banking system. US bonds CDS will shoot through the sky from the current value of 49 basis points. Confidence in US dollar will be seriously hit and long term interest rate will shoot up which will cause the crash of the interest rate swaps market. A lot of financial institutions will have the problem of capital not able cover debt and this will be the 3rd phase of the crisis - interest rate volcano eruption.
The high savings rate of the Chinese people will help cushion those China banks that bet that interest rates will not rise.
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