While the rest of the world is transfixed by the latest pocket change bailout of the Eurozone, China has stealthily conducted an economic rescue bigger than than one and a half TARPs. Dylan Grice's latest note focuses on the key news out of China from last week which oddly received very little media attention, namely the onboarding by the Local Government Financing Vehicles (LGFV) of $463 billion in bad loans made to various infrastructure and development projects as part of the Chinese stimulus package. This is nothing short of a bailout the likes of TARP when Paulson transferred billions of toxic debt to the government's balance sheet. The reason why this is actually a much bigger deal than perceived is that as Grice notes, a "bail-out of $463bn is half the size of the TARP, introduced by Paulson at the nadir of the 2008 crisis, for an economy which is only one-third the size of the US. So adjusted for GDP, China has just announced an emergency bail out of one and a half TARPs!! If we calibrate the magnitude of the economic crisis with the size of the bail-out, one and a half TARPs implies a financial crisis one and half times the order of magnitude of 2008." In other words, China very quietly and stealthily buried a massive bailout with just one passing Reuters mention. And nobody cares... Or more specifically, those who have long held a very bearish view on China, should certainly care, as what happened is that the unwind catalyst, so critical for most China bearish theses, was just pushed back by several years. And since China is full to the gills with excess dollars, all that happened was that the government effectively diverted money that would have been otherwise recycled to purchase US paper, in the form of a government fund to bail out it own. Crisis averted as another centrally planned regime managed to do what the Fed and the ECB have been doing so well for nearly 3 years now.

From SocGen's Dylan Grice: