Part of the problem Evergrande is in their balance sheet.

They've listed properties *under development* as an asset and not a liability.

That means empty, unfinished or unrented buildings were used to help them secure loans.

These buildings could range from completed and operating, nearly complete but empty, right up to being only land or concrete shells of a building.

Using this they became extremely overleveraged.

The whole predicament kicked off when their subsidiaries in electric vehicles and financial products failed to meet payment obligations, which lead to questions about cash flow in the company.

The financial products were heavily offered to their own employees which has made matters worse for them, as it is a number of employees who are protesting which has disruption to attempts to get Evergrande back on track.

Either way 65% of their assets on the balance sheet are questionably priced which leads to the challenges faced in unwinding this (which the CCP will attempt most likely, but in a manner focused on prioritizing 'social order')

It's kind of like DAO treasuries in crypto.

If a DAO says it has a $100M treasury, but $99M of that is in their own token that has thin liquidity, then taking loans out against it could have detrimental effects because the book value is not the same as liquid value.

There are more than 1.4 million outstanding properties that Evergrande that the firm had committed to completing and were pre-sold, before its operations suspended.

China is likely to act swiftly to insulate the market as best it can, but contractors, materials importers and international holders of the debt are likely to be the last in line. As even if this gets handled gracefully it will be pennies on the dollar.

That may end up being enough to stop global drawdowns, but it will be a delicate operation (assuming it happens)

But this balance sheet shows why its important to peel back and look at what "assets" a company is declaring.

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More from @adamscochran

16 Sep

At this point I'm convinced that the SEC's current regulatory stance on crypto is more someone's personal political agenda.

Highly technical, educated people, informed on this space cannot reach the conclusion that defi platforms can simply 'come in and register'

First take @brian_armstrong's post about the SEC blocking Coinbase aggressively, something the entirely doesn't align with a department that should be acting in good faith to support innovation while protecting consumers.

Then we factor in Gensler's history at MIT where he spent so much time looking into crypto and decentralized systems.

Yet the statements he makes in hearings don't align with his knowledge.

Read 21 tweets
14 Sep

Tuning in late to the banking committee hearing but will dump anything interesting here.

Sen Warner specifically notes that he has *never* seen a community so well organized and in strong communication as the crypto community.

Gensler suggested that crypto is a problem for subverting AML laws and references some matter of intelligence debriefings that aren't public.

Seems a stretch.
Read 14 tweets
14 Sep

One thing really stands out about @GaryGensler's written testimony that he submitted before his banking committee hearing later today.

His continued use of the phrase: "stable value coins"

Why is that relevant?

Gensler is well informed of the industry and likely knows the jargon we use around 'stablecoins' choosing to repetitively name them something else signals either:

1) He is trying to frame a difference between name expectation and reality.

2) He is trying to make stablecoins seem closer to something else that he already has clear jurisdiction and guidance on.


3) He is trying to widen the definition to catch more things under existing regulation.
Read 24 tweets
14 Sep

Chinese commodities like coal, nickel and aluminum starting to show weakness in the afternoon session as well.


Meanwhile the Shanghai Composite Index at a moderate day showing a loss of momentum compared to its long run up

The composite index has been on a tear up since 2019 and just retouched its 2020 highs despite concerns with Evergrande, commodities and inflation, leaving it well off all moving average points
Read 4 tweets
14 Sep

Evergande and other Chinese developers stocks dropping off a cliff in the HK morning session today.

Here is what you need to know about why Chinese Real Estate may impact crypto and even US markets.

Evergande ($3333.HK) is a major Chinese real estate developer, who through leveraged properties and issuing US denominated junk bonds, built up a real estate empire making it the second biggest in the country.

Assets and equity boomed over the past decade, but net income struggled. The reason is debated, but it seems they were over leveraging properties that were getting very little actual revenue to grow their empire.
Read 34 tweets
13 Sep

Gensler's approach here makes it feel like the SEC still thinks its 1934 when the Securities Act was passed and that the US is the only country that matters in a digital era.

Look, I'll echo again, I *strongly* support investor protections. The *GOAL* of the SEC is noble, but outdated frameworks like the Howey test and accredited investor status do not take into account the realities of today, nor the technologies they hope to govern.

Yes, the SEC has the responsibility to protect American investors, and that is exactly what they should be doing.

But protection isn't a single problem.
Read 25 tweets

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