On September 15, 2008, Lehman Brothers collapsed dissolving $600B in US assets leading us to the worst market crash since the great depression. $600B in assets.
Right now, Evergrande has $200B~ in assets, and $300B in unserviced debt. $500B total.
So its entirely on the same level as the assets that Lehman Brothers had.
But, Lehman Brothers was a US bank broadly diversified across many industries.
Evergrande is not.
Evergrande is in one industry and only one industry.
And its debt is held by banks across China, the US, Canada, UK, Australia and others.
This also comes at a time when markets have been on an artificial, inflation driven, quantitative easing fueled run up like no other.
So when the hammer does drop, it will drop hard.
That real estate collapse would mean the asset sheets of other real estate developers, banks and mortgage companies in China would all crumble.
Remember the big empty houses in the US in 2008? That times 100x.
Then we have to remember that China owns 15% of all global debt, so what happens when they have an internal crisis?
They are likely to start aggressively pursuing some of that external debt.
Which much of is likely with the same overseas banks and funds that own Evergrande bonds in the first lace.
Now, there is a chance that the CCP step in and find a way to bail out or unwind Evergrande.
With China’s internal policies, it seems quite likely, although it will still likely be a pennies on the dollar bail out.
But, if they don’t then market conditions are primed for a god damn meltdown.
We’re sitting on a powder keg of weak economic involvement and yet all time high stocks, huge inflation and disconnected markets.
The question of a large correction is not a matter of if, it is a matter of when, and how bad.
That correction could be soon, it could be years from now, but it will happen.
The longer it takes the worse it gets, but there are unique events that could make it far, far worse and the collapse of Evergrande is certainly one of them.