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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Barclays’ estimates show that in 2009, nearly $270 billion of mortgages on apartment complexes, shopping malls, and office buildings would require refinancing. In its November 17 report, Fitch Ratings said that there is every reason for commercial loan defaults to accelerate because banks and insurance companies would try to manage their balance sheets by restricting lending, and the market for commercial mortgage-backed securities is expected to remain shut.

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What do IndyMac and Countrywide have in common? Double speak and CEO public statements that mean little or nothing. Some call it outright lying to the public and stockholders. Just two months ago, IndyMac’s CEO was calling the plunge in the company’s stock unwarranted, even as house price declines accelerated. “Given the decline in our stock price, some people have questioned Indymac’s survivability in the current environment,” he wrote back on April 30, with IndyMac shares trading at $3.25 apiece. “I am here to tell you that I believe we have turned a corner and that our business is improving.” The same thing happened at Countrywide.

As Countrywide CEO Mozillo spoke last summer he said liquidity was not a problem, touting the “$48 billion” available to the company. If you remember June, July, and August of 2007 the mortgage picture was getting very ugly. Granted, one cannot expect a CEO to say anything that would reflect poorly on the company staock, but there is a fine line between promotion and pulling the wool over the eyes of investors. A classic example is William F. Aldinger of Household International. Speaking to employees at the final annual stockholder meeting before HSBC bought the company, Aldinger said “We are not predatory lenders.” Days later the largest predatory lending suit even seen in the United States was filed against Household International.

Some people like to say “If their lips are moving they are lying.”

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“There is no truth to the liquidity rumors,” Russell Sherman, a spokesman for New York-based Bear Stearns, said in an interview. Rumors have been floating around for about a week. Are agitators taking advantage of the market? Granted, nobody really knows who holds tainted paper but the picture is getting clearer. However, as anybody who has been under attack can testify, it is very hard to disprove a negative when allegations are not based on facts to begin with. Of course some rumors may be based in fact.

Bear Stearns, the second-biggest underwriter of mortgage- backed bonds, declined $6.52 to $63.56 in composite trading on the New York Stock Exchange at 1:55 p.m., the lowest level since March 2003. The shares pared earlier losses of as much as 14 percent after Bear Stearns said the speculation had no basis.

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Today seems like the day to write articles about Countrywide Home Mortgage, but Countrywide seems to be adding to their own problems. Countrywide Financial Corp. dropped the most in two decades in New York trading on speculation that it needs cash to continue operating its mortgage business. There have been rumors about Countrywide and bankruptcy. As ironic as it seems there were actually two reports about Countrywide and bankruptcy.

One speculated that Countrywide might declare bankruptcy, while the other report caught Countrywide with their drawers down as they wanted more money from home owners who declared bankruptcy and were current on their mortgage payments. In one case Countrywide just made up letters presented as evidence. See more on that subject here.

Credit-default swaps tied to Countrywide’s debt soared to a record as investors demanded as much as 30 percent upfront and 5 percent a year to protect from a Countrywide default for five years, according to broker Phoenix Partners Group in New York. Yesterday, investors were demanding 20 percent upfront and 5 percent a year. Contracts trade on upfront payments when the market sees a high risk of default.

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The mortgage crisis of 2007 worsens and threatens to tip the economy into a recession. Many are asking where was Washington? Washington was in the same place as always, the question regarding what they were doing, and why, are the issues at the heart of the matter. Of greater interest to me are political contributions and lobbying expenses in the years leading up to this point.

With help from OpenSecrets.org we compiled the data and wrote an extensive article. We show the breakdown by contributors, and who they gave their money to. If there is a moral to this story, it is money talks. Big money gets heard and things change. It would be nice if there was a coalition of real people. I know we have the right to vote, but big businesses are courting our politicians and buying influence every day of the year.

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This time it’s an investment bank with problems. Swiss-based UBS announced a $10 billion writedown this week on subprime exposures. An injection of capital from investors in Singapore and the Middle East was also announced. UBS has also slammed on the brakes at its investment bank, where the problems originated. UBS has been the biggest casualty so far among major European banks of the meltdown in U.S. subprime mortgages. Some analysts continue to characterize subprime as loans made to people with poor credit histories. Others say lack of regualtory action and oversight transformed predatory lending into acceptable lending standards.

A recent article by Andrew Hurst has more details about problems at UBS.

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Does this sound odd to you? HSBC never mentioned anything about HSBC structured investment vehicles, or SIVs. However, in a report found here on Household – HSBC Watch on Thursday, November 8th, 2007 at 10:00 am, Moodys said that it would look at two of HSBC’s SIV’s (and three belonging to Citigroup.) By Monday, November 26th, HSBC said it would pump $35 billion into the HSBC SIVs. Later in the day Bloomberg revised that amount upward to $45 billion. The amount was required to avoid a firesale on assets.

Without Moodys, what would have been done? Who knew about the problems before that? What will happen at Citigroup? Everyone generally agrees that investor confidence has been shaken, but followup reports like this one really show you why. If credit card holders begin to default will credit card receivables and asset backed securities suffer, or will that matter be hidden from the public and shareholders until it explodes like the subprime disaster? Answer will be forthcoming.

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One factor undermining investor confidence is that the projected size of this year’s credit shock is now rising rapidly. The US government initially forecast $50bn losses on subprime securities. However, investment banks now expect $200bn-$500bn subprime losses – and additional massive losses in other debt markets, such as credit card loans. End of the year audits are another problem. Here is why:

A second problem is continued deep uncertainty about which institutions hold these losses. This has prompted the six biggest audit firms to outline a common approach to the valuation of banks’ securities in their end-of-year results.

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European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region’s main source of financing for home lenders. Banks including Barclays Capital, HSBC Holdings Plc and UniCredit SpA took the step as investors shy away from bank debt on concern lenders face more mortgage-related losses. That is probably a safe bet as losses are expected through 2009. Without market making between banks, investors will shun the sales of new covered bonds.

For those of you more versed in United States markets, covered bonds are dominated by German Banks. They are tipically rated AAA. We saw what happened in the United States when funding was all but eliminated, thus a slump that closes any region’s main source of financing for home lenders could have a dynamic effect.

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