Just Say “NO!” and Walk Away…
It seems now days, that no one feels obligated to fulfill the terms and responsibilities of a contract of any kind. Consider the article - Chinese firm says won’t pay Goldman on options losses.
A small Chinese power generator on Tuesday rejected demands from a Goldman Sachs unit to pay for nearly $80 million lost on two oil hedging contracts, part of a long-running dispute over how China deals with derivatives losses.
Goldman Sachs (GS.N) was one of the foreign banks, along with Citigroup (C.N), Merrill Lynch and Morgan Stanley (MS.N), blamed by the state assets watchdog for providing “extremely complicated” and difficult to understand derivatives products.
Yeah? Where was the (China’s) state assets watchdog, when the contracts were offered and signed? Now after the fact, when the Chinese company lost money, they say they will not pay. What, if the bets were right and the option related derivatives resulted in a profit? What if then the other side refused to pay?
The State Assets Supervision and Administration Commission said in September that it would back state-owned companies in any legal action against the foreign banks that sold them oil derivatives, which resulted in losses when oil prices dived late last year.
Nanshan said in October last year that two oil option-related contracts with J. Aron were signed by its officials without authorisation from the company. In December 2008 it said in a statement it had terminated the deals, and that it would not accept J. Aron’s demand for payment.
The Chinese government is willing to back state-owned companies and they probably will – by using the leverage they have, by threatening to stop financing our economic suicide. And I do not have doubt in my mind, that our government will bend over and pressure the US banks to accept a loss on those contracts or to accept a partial payment from the US government instead payment from the Chinese companies, that originally owe them on those derivative contracts.
And how in the hell you reject a contract, cause it was signed by companies officials, but without the company authorization and you just terminate the contract in December 2008, when you see oil is at rock bottom and is not going up soon, because USA is in a Second Great Depression and the contract no more is even worth the paper that is written on… Convenient isn’t it?
The paragraph actually resembles a gambler in a casino, who loses on stupid (speculative) bets and then calls the police and demand from them to arrest the casino owner and get his money back, because you see - the owner have sold a fake chips, with a false hope (or promise), that the gambler had a chance of making real money…
Do not get me wrong … I have no doubt, that GS, Citi, ML,MS have done everything possible to push the sales of these derivatives, but that is why we have the so called “STUPID TAX” – the tax paid by someone, who has been so stupid, that made a stupid move. And these Chinese companies were stupid. They have to pay the tax, so they can learn and be aware for the next time.
Not paying the “stupid tax” results in morale hazard
And today we have plenty of it….
*note that morale hazard is different from moral hazard
