Anatomy of a Scam

As commentor Ragnar stated on my last post:

National: Give New Zealand to the Chinese. Let them launder their dirty money into New Zealand real estate, thus boosting the wealth of landowners (who tend to vote National) while all other kiwis get priced out of ever owning a house in their own country.

While we're waiting for the election results, I thought about how I'd do it. I decided that the easy way was to have a bunch of Chinese do the following:

Mr A comes in with $100k of dirty money that he vows and avers is clean and legit (har fucking har). He buys a piece of property for $100k.

Mr B comes in with $200k of dirty money and buys the property from Mr A, who walks away with $200k of clean money.

Mrs C comes in with $350k of dirty money and buys the property from Mr B, who walks away with $350k of clean money.

Mr D comes in with $500k of dirty money and buys the property from Mrs C, who walks away with $500k of clean money.

Repeat process as follows: Mrs E, $800k. Mr F, $1.1m. Mr G, $1.4m. Mrs H, $1.9m. Mr I, $2.9m. Mr J, $4.9m. Mrs K, $8.2m.

By this point: $22.35 million has been successfully laundered.

Mrs K now sells to Mr N (a Naive New Zealander) and walks away with $11.7 million - her $8.2 million has been laundered plus she has a cool $3.5 million in extra freebies.

Mr N (and his bank) now finds that the property is actually only worth about $1.8m, on a good day with a strong tail wind. They've just watched $9.9 million evaporate.

Mr N probably goes bankrupt, leaving the bank having to choke down that $9.9 million in losses. Repeat that loss 1,000 times and the bank has lost $9.9 billion dollars. They then fold, their investors getting fucked up the ass for the money the bank should have been a steward for. In extreme situations the government - and taxpayers! - bail the bank out because it's "too big to fail" and it's failure might cause a domino effect of other banks failing in swift succession.

Does this sound a bit like America to you? It sure does to me.

Now, the American bailouts also involved derivatives of "liar loans" - dodgy mortgages sliced finely and bundled together in a lunchmeat of financial interests that even the smart fuckin' quants couldn't keep straight in the end. To the point where quite a few of them were left looking at each other and going: "say, where the fuck is the actual mortgages that these pieces of toxic waste were built on?"

They're currently making a similar Frankenstein lunchmeat with the credit bubble: credit cards, student loans, all that good shit. Again, at the end someone is going to be asking: "say, where the fuck is the actual debts that these pieces of toxic waste were built on?"

But that's just the self-inflicted seppuku of the financial systems over there. Richly deserved and probably taken advantage of by dirty Chinese money as well. After all, when you can launder via property plus leverage and add that rotten horsemeat on the side, you'd be a fool not to do it.

There is some thoughts which occur to me.

How much dirty Chinese money has been laundered through American Treasuries?

How much are they supposedly worth, vs their actual worth?

Who ultimately has those Treasuries in-hand when they fall due?

Not a hot-potato that I want to be holding.