China Investment Corp, a $200 billion sovereign fund, is set to spend $2 billion buying U.S. distressed assets from property to infrastructure via three funds, including one managed by Goldman Sachs, sources briefed on the plan said on Tuesday.

CIC’s latest swoop on U.S. assets comes after the state-owned investment vehicle lined up to invest up to $2 billion in U.S. mortgages under a U.S. Treasury-backed plan, Reuters reported in August.

CIC, established by China’s Communist government in late 2007, plans to invest $600-$700 million each in three distressed asset investment funds.

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At the World Economic Forum in Davos, China and Russia placed the blame for the global economic crisis on the United States. Most Americans would agree, and so do many other world leaders.

The Chinese premier, Wen Jiabao, used stronger language, leaving little doubt that Beijing blamed the US for the economic breakdown. “Inappropriate macroeconomic policies,” an “unsustainable model of development characterized by prolonged low savings and high consumption,” and “the failure of financial supervision” all contributed, he said

He also attacked financial institutions’ “blind pursuit of profit” and their “lack of self-discipline”.

Russian President Vladimir Putin described the worldwide downturn a “perfect storm” whose destructive powers were multiplied worldwide, and urged economic rivals to work together to find an exit route.

“The pride is gone,” said Mr Putin, referring to Wall Street hubris. “Today, investment banks – the pride of Wall Street – have virtually ceased to exist,” a fact that he said spoke louder than any public tongue-lashing.

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Here is a list of the largest banks in the world at the end of 2008:
1. Industrial & Commercial Bank of China, ICBC (China)
2. Bank of America (US)
3. HSBC Holdings (UK)
4. China Construction (China)
5. Bank of China (China)
6. JPMorgan Chase (US)
7. Citigroup (US)
8. Wells Fargo (US)
9. Banco Santander (Spain)
10. Mitsubishi UFJ Financial, MUFG (Japan)

The rankings certainly can change in 2009. In a review of U.S. banks Wells Fargo is described as well managed, with less exposure to subprime and other risky loans.

Citigroup plans to report quarterly results on Friday and analysts are looking for a fifth straight multibillion-dollar loss. It is also expected to provide details of a reorganisation of the company designed to ensure its survival. Citigroup is actually a group of companies organized under the Citigroup name. In 2007 Citigroup was the largest bank in the world, but by the end of 2008 Citigroup fell to 7th place.

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If subprime issues and tainted paper sold around the world didn’t start a global economic war a recent move might do so. Investors in bank debt are threatening to boycott lenders that follow Deutsche Bank in breaking an unwritten rule and failing to exercise a call option on subordinated debt.
In a coordinated action, angry bond investors are writing to bank treasurers and investor relations heads telling them that any failure to exercise a call option will be considered a breach of trust that could cause all the issuer’s debt to be shunned.

Read the part that says breach of trust. Now consider the breach of trust relative to selling homes to those who could not possible pay for them. Consider for a moment the vulnerability of credit card holders as interest rates are arbitrarily raised prior to adoption of new rules, often referred to a the “credit card bill of rights.”

While banks around the world claim to have a special trust and confidence in unwritten rules, that trust is seriously in doubt. The fact that subprime problems started in the United States is not overlooked. Trace the problem back to Phil Gramm and his proposed lack of regulation, if you will. But even as warning signs were obvious, there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.

Where was the first shot fired in the overall global economic war? Deutsche stunned the debt market last week by choosing not to redeem about $1.8 billion (USD) of subordinated lower tier 2 bonds because to do so was cheaper than refinancing. The Bank of China fired back, writing to many banks, including every bank in England, saying if trust is violated the violating bank would be put on a permanent list of those never to do business with again.

Here are the complete details of what happened.

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This was submitted by a reader: LONDON (AP) – The British government injected an unprecedented 37 billion pounds ($63 billion) into some of the country’s leading banks Monday to avoid a full-scale collapse of the sector.

In return for the rescue, the Royal Bank of Scotland Group PLC, Lloyds TSB Group PLC and HBOS PLC will cede major stakes to the government and halt cash bonuses for bank board members this year. The banks also will be required to lend more money to small- and medium-sized businesses and homeowners in a bid to rescue the country’s housing market.

“The action we are taking today is unprecedented but essential to all of us,” said British Prime Minister Gordon Brown. “We must in an uncertain and unstable world be the rock of stability upon which people can depend.”

The humiliation of holding out the beggar bowl to the government prompted the resignation of a handful of senior executives at the banks, where the government will now have the right to appoint board members and fix dividends.

The deal will leave taxpayers owning as much as 60 percent of RBS and 43.5 percent of the merged Lloyds HBOS bank _ the two are in the process of combining.

The government said its stake in each of the banks is strictly temporary, but the subsequent transformation of the sector is on the massive scale of the postwar bank nationalizations in the 1940s and the privatization of the industry in 1980s.

“The hope is that today will mark a watershed, with vast measures of government reassurance finally rekindling some confidence in the shattered banking sector,” said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.

The government said that it will buy 5 billion pounds ($8.6 billion) of preference shares directly and underwrite 15 billion pounds ($25.7 billion) of ordinary shares in RBS. The preference shares carry a fixed interest payment _ the equivalent of a dividend _ of 12 percent.

If no other investor comes forward to buy those shares, as many analysts anticipate, the government will invest the full 20 billion pounds ($34.5 billion) itself.

It is investing a further 17 billion pounds ($29.2 billion) in LLoyds TSB and HBOS.

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Russia’s markets are facing the biggest test since the government defaulted in 1998. However, it looks like past history and a poor track record does not instill much confidence. Russia poured $44 billion into its three largest banks and halted stock trading for a second day in a bid to stem the most severe financial crisis since its devaluation and debt default a decade ago. We thought it was just a matter of time before we heard the truth from Russia.

Banks around the world struggled with losses sure to top $1 Trillion. The U.S., thanks to a bailout of AIG, is at $600 Billion and counting. The Russian interbank rate for overnight loans is at 11 percent. When Russia is involved many suspect an increased sale of weapons and secrets to the highest bidder.

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People have an amazing ability to justify anything in their minds. ‘Abilities’ is defined in the free dictionary as “The quality of being able to do something, especially the physical, mental, financial, or legal power to accomplish something.” Our emphasis is on the financial. (perhaps it should be on the power to accomplish something?) Positive proof exists and suggests that one can be asleep, miss critical factors, destroy their company, and still walk away a bonus, although slightly embarrassed. Take the case of Northern Rock.

Northern Rock said Adam Applegarth was entitled to a termination payment equivalent to a year’s salary. Without providing details, it said the payment was “substantially less” than the amount Applegarth would have received before the bank’s troubles. The amount? A $1.51 million USD (�760,000) payout. Now Applegarth must justify – in his own mind – that he was entitled, not embarassed, and did nothing wrong. It usually happens, but may take time.

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The excesses of the current ’subprime’ era are not the only excesses with ties to structured finance transactions. Many banks were sued by Enron Corporation. Enron filed suit in September 2003 against 11 banks, accusing them of conspiring with former Enron officials to manipulate the energy company’s finances. Enron says the banks helped set up a series of structured finance transactions with Enron that buried the company in debt, forcing it into bankruptcy. Every bank settled and paid Enron.

In March 2008 Citigroup, the last of the banks to settle, paid $1.66 billion to settle Enron litigation.

Many remember how the Enron debacle caused increased oversight in the form of Sarbanes-Oxley. Some of the same banks – international banks – complained about restrictions from Sarbanes-Oxley. Some even threatened to quit the U.S. stock market or leave the United States to escape what they called “oppressive needless scrutiny.” That was an empty threat. What did happen, however, is the same financial institutions later became embroiled in U.S. subprime, spreading financial infection around the world.

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Fallout from investments in the United States, subprime debt, and commercial paper has spread around the world. Some countries are feeling the impact as infection in the US has spread to the real economy around the world.

Profits at Dutch-Belgian banking group Fortis halved in its fourth trading quarter after a worse-than-expected 1.5 billion (�1.15bn) subprime-related write-down.

In Canada it was said �The inevitable conclusion is that the current Canadian real estate market is floating on a sea of unrepayable, and perhaps unserviceable, debt.� (credits)

In Germany the Dresdner Bank subsidiary reported about 1.7 billion euros ($2.6 billion) of home-loan writedowns, more than larger German rivals Deutsche Bank AG and Commerzbank AG.

China’s export-oriented companies will face a demand drop affected by the US subprime mortgage crisis, a senior banking official said on the sidelines of the parliamentary session.

How about UBS and Switzerland? Some analysts think the real world will now see actual problems as a global recession begins.

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A South Korean court on Friday found Lone Star Funds’ local head guilty of stock price manipulation and sentenced him to five years’ in prison. HSBC has been trying to buy KEB from Lone Star, but that may present a problem right now. HSBC’s August agreement with Lone Star expires in April, though the Yonhap newswire quoted an unnamed HSBC source as saying it would be extended. HSBC officials in Seoul and Hong Kong declined comment.

Meanwhile, minority investors in Korea Exchange Bank’s card unit told local press that following the verdict they would sue Lone Star for losses they incurred due to the stock manipulation. The deal reminds us of HSBC’s last great deal under shady circumstances. HSBC bought predatory lender Household International as Household’s CEO William F. Aldinger told his employees, and the world, “we are not predatory lenders.” As the stock price plummeted Household was charged with predatory lending and paid a record $488 million fine. HSBC bought Household shortly thereafter and Aldinger profited nicely.

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