I suspect--with no evidence at all- that the Chinese lion roared, in private, and put the fear of the stake into our erstwhile leaders.

The problem is that there is not enough real assets in the known financial universe to cleanly unwind this fiasco.  It is after all a giant bubble.  The only thing I can see that would help would be for everyone to take a deep breath and then freeze in place all real estate backed assets pending a competent review of their true value.  Some assets in out of the way areas will be found to be genuine.  Most assets in areas which boomed will be found to be worth half or less of their face value.

The other possible solution would be to find a way to cancel out all derivative bets.  Unless bets in excess of $40 trillion magically cancel out, there is no other way to deal with them.  If a contract between a prostitute and a john can be declared null and void on its face, why not do the same for derivative bets based on fraudulently priced assets?  The current net worth of the Forbes 400 richest individuals is ~$1.58 trillion.  The wealth of the richest 1000 is likely to be less than $4 trillion.  What else can be done besides a coordinated international devaluation or achieving the same end by inflation?

It seems to me that China is much more threatened by the freezing up of the US consumer market, upon which their entire economy depends, than on what ever happens to the entire financial system.  If they can afford to hold over $1 trillion of our paper, they don't really need it and can withstand a devaluation better than most others.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."