Not a happy weekend topic, but another cycle of misery appears to be upon us: state-mandated default for reasons of convenience.
The Chinese are reportedly of a mind unilaterally to allow state-owned entities to default on OTC commodities derivatives (presumably out-of-the- money forwards or swaps entered into when prices were high last year).
There is some history here: way back in 1994 a Chinese firm called Minmetals defaulted on derivatives contracts and Lehmans, its US counterparty, tried but failed to get them enforced in the courts (finally only settling out-of-court in 2002).
Since then, China has preferred to be seen playing by Big Boy's Rules and, when in the last few years Chinese companies have made stonking derivatives losses, they have swallowed them. It would be a serious turn of events if they are now to be selective as to which contracts they honour - with geopolitical overtones potentially making the enforecability issues raised by famous cases like Orange County, Gibson's Greetings and Hammersmith & Fulham, appear rather provincial. A China-Syndrome meltdown in derivatives is the last thing the system needs right now.
This one's got our full attention. Next week we'll also take a look at Euro-interference with banks redeeming and paying coupon on their bonds ... or not ...