Top 10 links; China twists America's arm; the near meltdown on Sept 15

Finally the Chinese get heavy For a long time the unspoken fear of global financial markets and many US politicians is that China would use its ownership of the biggest single chunk of US Treasury bonds to start trying to influence US budget policy or to try to somehow use it as leverage in any political disputes. US interest rates are dependent on Chinese purchases of US debt and the upcoming mountain of US Treasury issuance will have to be bought at least partly by the Chinese. Now Bloomberg is reporting that a former Chinese adviser to the Bank of China (and there is no such thing as a former Chinese official...) has said China should demand a guarantee that America doesn't embark on 'reckless' budget policies. He says China will demand a guarantee from Hilary Clinton that America won't do anything to devalue US assets. This means China is pushing back on the currency manipulation issue and not so quietly telling America to run smaller budget deficits and not print money. Oh dear. Finally somone has called America's bluff on all these spend-ups. The Chinese problem Inflation is dropping fast in China, which is a worrying sign as it indicates demand and activity is slowing. Producer Price Inflation fell 3.3%. This from Bloomberg. Also here is more signs of collapse. Chinese export shipments fell 17.5% in January after falling 2.8% in December. This was worse than the 14% fall economists expected. Yikes. Just nationalise them Nouriel Roubini comments again today, but with more force after Geithner's damp squib, that the US government should nationalise the major banks. Here's a taste.

This "nationalization" approach was the one successfully taken by Sweden while the current US and UK approach may end up looking like the zombie banks of Japan that were never properly restructured and ended up perpetuating the credit crunch and credit freeze. Japan ended up having a decade long near-depression because of its failure to clean up the banks and the bad debts. The US, the UK and other economies risk a similar near depression and stag-deflation (multi-year recession and price deflation) if they fail to appropriately tackle this most severe banking crisis.

Roubini is behind a subscription firewall, but this piece is worth the price if you need to know what could happen to the global banking system.  The big debate It's clear the big debate in Washington right now is how to save Bank of America and Citgroup. It seems Bernanke and Geithner are firmly in the camp they have always been in, which is to use taxpayer money to bail out their mates in Manhattan. This from Chris Whalen at The Institutional Risk Analyst lifts the covers on the debate going on in America right now. Winding in the credit lines Bloomberg has an excellent piece here showing what's happening on the ground in America where the big banks are rapidly winding up unused credit facilities for medium to large companies. A tad chilling. It's your fault Alan ...Greenspan that is... Alan Kohler at Business spectator reports on RBA Governor Glenn Steven's hachet job of a speech attacking Alan Greenspan's negligence in allowing the US asset bubbles by keeping rates low from 2001 onwards. Steven is right on the money. I've been pointing the finger at Greenspan for at least two years. Why TARP V2.0 will fail Martin Wolf at the FT has a strong argument to say the Geithner plan to fix the banks will fail. Make them pay Nassim Taleb doesn't mince words in this interview with Jim Saft from Reuters (a nice guy I used to work with). Taleb, who wrote the Black Swan, says the first TARP was a scandal that enriched bankers that should never happen again. He says banks should be nationalised and any bankers taking risks should do it with their own money. Fair enough. Jimmy hates it too... Even Jim Rogers, the guy who blew the whistle on UK Plc's bankruptcy, thinks the Geithner plan is a dead duck. Here's what he told CNBC.

It is mind-boggling to me. If I were on your show 15 weeks in a row and was wrong, you'd probably never invite me back. These guys have been wrong year after year after year consistently and here they are making the same mistakes again. This is not going to solve the problem, it's going to make it worse.

10 dirty tricks

This is fun from Paul B Farrell at MarketWatch (a great bunch of people I used to work with), pointing out the 10 tricks lobbyists would use to try to start a new bull market.

We were this close to collapsing....

In a strange revelation, a little known congressman has spilled the beans here on what the Federal Reserve and the Treasury told Congress back in September that scared them into TARP. Paul Kanjorski tells of how the US financial system was a few hours away from complete collapse on September 15. Chilling to watch. The revelation is 2 minutes 20 seconds in. Hattip to Mark Frauenfelder at BoingBoing for the spot on this one.