FT.com / China - China lost billions in diversity drive

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FT.com / China - China lost billions in diversity drive: "China has lost tens of billions of dollars of its foreign exchange reserves through a poorly timed diversification into global equities just before world markets collapsed last year.

The State Administration of Foreign Exchange, the opaque manager of nearly $2,000bn (€1,547bn, £1,429bn) of reserves, started making huge bets on global stocks early in 2007 and continued this strategy at least until the collapse of the US mortgage finance providers Freddie Mac and Fannie Mae in July 2008, according to analysts and people familiar with Safe’s operations.

By that point Safe had moved well over 15 per cent of the country’s $1,800bn reserves into riskier assets, including equities and corporate bonds, according to people familiar with its strategy.

Safe never discloses its holdings except to the top Chinese leadership so it is impossible to know exactly how much it has lost from diversifying before markets crashed.

But judging from the subsequent fall in global stock prices and a conservative estimate that Safe held about $160bn worth of overseas equities, Chinese"

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Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "Spreading Crisis

And in the last two years, as the crisis has spread to the broader financial system, she's been getting out in front of fellow Republicans, including Bernanke and Paulson.

In September 2006 she told a Fannie Mae conference she was concerned that the proliferation of non-traditional mortgages such as option ARMs was a danger to the banking system. In March 2007, she called for ``aggressive'' foreclosure relief.

Two months later, as Paulson declared the housing market crisis more than half over, Bernanke echoed Bair and called on lenders and the government to intensify efforts to prevent home foreclosures.

``She was one of the first to say that you couldn't just do it by interest rates, that you had to reduce the principal and that you couldn't just do it one by one,'' Frank said in an interview. Bair wasn't available for an interview."

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