China's stock market loses $2.8 trillion in huge sell off

Bloomberg:

Chinese brokerage firms have come together to set up a stock-market fund, the latest effort to stem the biggest three-week drop in China’s key share index since 1992.

The 21 brokers led by Citic Securities Co. will invest the equivalent of 15 percent of their net assets as of the end of June, or no less than 120 billion yuan ($19.3 billion) in total, the Securities Association of China said in a statement on its website Saturday. The fund will invest in blue-chip exchange-traded funds, it said.

The move comes after measures to shore up equities failed to stop margin traders from unwinding positions at a record pace, with the market losing more than $2.8 trillion of value in three weeks. The People’s Bank of China cut interest rates last week, while margin-trading rules were eased and trading fees were cut Wednesday.


The new fund to bolster equities may have only “a fleeting effect when daily turnover has reached 2 trillion yuan”, according to Hao Hong, China equity strategist at Bocom International Holdings Co. in Hong Kong.

“This 120 billion yuan won’t last for an hour in this market,” Hong said by phone from Beijing Saturday. “It might benefit blue-chip stocks, as investors may see them as value, but the bursting of the bubble in small-cap/tech stocks is likely to continue.”
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This looks like a real panic that is unlikely to be stemmed by brokerage firms putting up their assets.  Here is some more perspective on the market losses in Greece and Hong Kong:

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For instance, the market value of the MSCI Greece Index fell below that of Bed Bath & Beyond just this week. Credit default swaps on bonds sold by Puerto Rico, in the midst of its own debt crisis, jumped to 3,868—nearing CDS levels on Venezuela and indicating investors were paying more to insure the debt.

On top of that, the 10-day loss for Shanghai stocks of 20 percent is larger than the market cap of Germany's Dax Index. That 20 percent fall equated to $1.2 trillion in lost value for Chinese investors. That's also equal to the GDP of Mexico.

This causes many to ask if and when the volatility could spread to markets in the U.S. According to Hartnett, contagion isn't likely unless there is an interest rate shock or a sharp contraction in manufacturing. But that seems improbable.
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You may see a rush to cash and hard assets if the panic spreads to other markets.   China has been dealing with a real estate bubble which appears to be spreading to its stock market.  Greece has been spending itself into oblivion for years.  I think the Tea Party rebellion agbainst Obama's spending may have saved the US from the same fate.