Top 10 at 10: Warren Buffett immortal?; Banking's 'Doom Loop'; End of Chimerica; Leaky building revelations; Dilbert

Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please email your suggestions for Thursday's Top 10 at 10 to bernard.hickey@interest.co.nz  Scarily relevant Dilbert today. Happy to feed off it... 1. Lost generation - Fran O'Sullivan writes in her NZHerald column about the dangers of a lost generation of unemployed youth. Fran says this is a problem globally, suggesting that New Zealand's youth may not have somewhere else to go. Fair enough. But one way flights to Australia are still cheap and unemployment will peak lower there than in New Zealand.

If you think America's got it bad, then take a look at what our own statistics reveal. Some 25 per cent of 15 to 19-year-olds who are seeking jobs can't find work. The last time unemployment was up at such stratospheric levels for the 15-19 year group was in the early 1990s - it peaked at 24.5 per cent in 1993. Crucially, high levels of youth unemployment persisted for five years. Some 20.3 per cent of 15 to 19-year-olds were unemployed by the December quarter of 1990 as the fallout from the 1987 sharemarket crash took its toll. The percentage of unemployed in this age cohort did not drop below 20 per cent until the 1994 June quarter as the impact of National's "mother of all Budgets" exacerbated the underlying conditions.

2. 'It makes no sense' - Meredith Whitney, the banking analyst that tipped the banking disasters last year, has bemoaned the apparent senselessness of the rally on Wall St. Whitney told CNBC in this interview that the banks needed more capital, there would be more pain from the mortgage sector and that there was no one else to buy mortgage bonds except the US Federal Reserve. HT Andy Hamilton via yesterday's Top 10 at 10.

"I don't know what's going on in the market right now because it makes no sense to me," she said. "The scariest thing about the Fed's program is that the money on the sidelines isn't going to support that asset class," she added. "So the trillion dollars of Fannie (Mae), Freddie (Mac) and mortgage-backed securities that the Fed is holding"”there's no substitute buyer there

3. No worries mate - Ben Bernanke is unconcerned about any bubble in asset prices, Bloomberg reported.

Federal Reserve Chairman Ben S. Bernanke said it's "not obvious" that asset prices in the U.S. are out of line with underlying values after a 64 percent jump in the Standard & Poor's 500 Index from its March low. "It is inherently extraordinarily difficult to know whether an asset's price is in line with its fundamental value," he said today in response to audience questions after a speech in New York. "It's not obvious to me in any case that there's any large misalignments currently in the U.S. financial system." "The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset-price bubble bursts in the future," Bernanke said.

Bernanke has form on this. He said from 2005 to 2007 that we didn't have anything to worry about. Here's the video proof of his prognostications. HT Mish from Global Economic Analysis. 4. The immortal Warren - Warren Buffett keeps talking about buying assets for 100 years when he must know these assets (let alone Warren) won't be around in their current form in 100 years. Felix Salmon at Reuters points this out in an interesting way.

"It's a good asset for Berkshire to own over the next century," Buffett said in an interview with Charlie Rose. It's refreshing to see the 79-year-old Buffett taking such a long view. But the fact is that Berkshire Hathaway is not going to exist in anything like its present form in 100 years' time. It'll probably last no more than 10 years after Buffett dies before it's broken up into various component parts. And when he gives quotes like this to Charlie Rose, it seems as though he's somewhat in denial about what his legacy is really going to be. The minute that Buffett dies, Berkshire becomes a large conglomerate, and will trade, like all conglomerates, at a discount to its sum-of-the-parts valuation. Sooner or later, Berkshire's CEO will be persuaded to monetize the difference, and the storied company will come to its natural end. That's no bad thing: it's intrinsic to the nature of capitalism, which Buffett loves. But it does mean that buying companies on a 100-year time horizon is somewhat unrealistic.

5. The Doom Loop - Simon Johnson at Baseline Scenario points to a eye-opening paper by Andrew Haldane, the executive director for financial stability at the Bank of England. In it Haldane and Piergiorgio Alessandri highlight the 'Doom Loop' of banks becoming too big to fail, being bailed out by the state and repeating their mistakes in the absence of any moral hazard whatsoever. Johnson's conclusion is the 'Too Big to Fail' banks must be broken up.

Haldane and Alessandri offer a tough, perhaps bleak assessment. Our boom-bust-bailout cycle is, in their view, a "doom loop". Banks have an incentive to take excessive risk and every time they and their creditors are bailed out, we create the conditions for the next crisis. Any banker who denies this is the case lacks self-awareness or any sense of history, or perhaps just wants to do it again. The overall conclusion of the paper follows uneasily from the main analytical thrust. How can we believe that for the regulators, "next time is different"? Most likely, next time will be exactly the same, with different terminology: the financial sector "innovates", regulators buy their story that risks are now properly managed, and the ensuing bailout (again) breaks all records. It's all politics. Unless and until you break the political power of our largest banks, broadly construed, we are going nowhere (or, rather, we are looping around the same doom). Barney Frank points out that small banks have political clout also, and of course he's correct that this drives some issues. But how many small banks spend their time (and lobbying dollars) on Capitol Hill insisting that large banks must not be broken up? Our core problem is that we now have banks that are Too Big To Fail; if you don't agree, read and publicly refute Haldane. In theory, these big banks could be effectively regulated, but this is a leap of faith that experienced policymakers (e.g., Mervyn King and Paul Volcker) are increasingly unwilling to make. The biggest banks must be broken up. This is not sufficient to end the doom loop, but it is necessary.

6. Lobbyists fighting hard - Kevin Drawbaugh at Reuters (who I used to work with in London) reports on bank lobbyists in Washington mobilising to fight the growing push to break up the too big to fail banks.

The Financial Services Forum, a lobbying group for CEOs of firms including Goldman Sachs (GS.N) and JPMorgan Chase (JPM.N), said empowering regulators to break up "too-big-to-fail" banks "could lead to long-term damage to the U.S. economy." The forum made its comments in a letter to U.S. House of Representatives Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, that was obtained by Reuters a day before Frank's panel resumes work on financial reform legislation. Arguments about concentration risk, global competitiveness and firms' sheer size will dominate debate in the days ahead as Congress tries to craft what is shaping up to be the most contentious piece of the government's regulatory response to last year's financial crisis, the worst in generations. The Obama administration and Congressional Democrats want a new way to handle failing firms. The goal is to prevent another debacle like last year's, when Lehman Brothers collapsed, triggering a credit crisis, and taxpayers bailed out AIG , Citigroup and Bank of America, among others. Frank's committee will debate a bill beginning on Tuesday that would give the government far-reaching new powers to regulate and restructure large financial firms whose failure could undermine the broader financial system and the economy.

7. Leaky buildings blame game - Peter Cresswell over at Not PC is producing an excellent series of articles on Leaky Buildings in which he nails where the responsibility lies. It's not with a lack of regulation, he says in Part 1. He names names and explains the detail. A must read for anyone worried about leaky buildings and the fallout for taxpayers. There is lots of juicy detail.

Everyone did it, but no-one's to blame. Turns out you can't sue these entities. Turns out the government's bureaucrats really are above the law. Turns out that so the consequences of their mistakes and misdirections are now being visited upon the licensed and unlicensed, the registered and the unregistered, the home-owners and the would-be investors, all of whom built and designed and bought houses on the basis that the materials and standards were "certified," and all of whom now suffer the consequence of that false sense of security.

8. Dissolving paper - Peter Cresswell at Not PC writes in detail in Part2 of his leaky building series about the mysteries of leaky buildings. Again, a must read. Here's a bitter taste.

It's a fairly simple formula here, one known about for years in the pulp and paper industry but not publicly at least by those in the building research or fibre-cement industries "“ a simple formula that looks like this: in the presence of wood pulp, building paper plus stachybotrys equals . . . no building paper. If you want to know what's been been going on inside so many New Zealand walls over recent years, then that's it.

9. The end of Chimerica - TV star Harvard professor Niall Ferguson has written a sweeping piece in the New York Times about the connections between the Chinese and US economies and the need for a Renminbi/Yuan revaluation. He proposes a grand deal in a beautifully written piece.

Right now, Chimerica clearly serves China better than America. Call it the 10:10 deal: the Chinese get 10 percent growth; America gets 10 percent unemployment. The deal is even worse for the rest of the world "” and that includes some of America's biggest export markets and most loyal allies. The question is: What can the United States offer to make the Chinese abandon the dollar peg that has served them so well? The authorities in Beijing must be made to see that any book losses on its reserve assets resulting from changes in the exchange rate will be a modest price to pay for the advantages they reaped from the Chimerica model: the transformation from third-world poverty to superpower status in less than 15 years. In any case, these losses would be more than compensated for by the increase in the dollar value of China's huge stock of renminbi assets. It is also in China's interest to kick its currency-intervention habit. A heavily undervalued renminbi is the key financial distortion in the world economy today. If it persists for much longer, China risks losing the very foundation of its economic success: an open global trading regime. And this is exactly what President Obama can offer in return for a substantial currency revaluation of, say, 20 percent to 30 percent over the next 12 months: a clear commitment to globalization and free trade, and an end to the nascent Chinese-American tariff war. For as long as the People's Republic has existed, the United States has been the principal upholder of a world economic order based on the free movement of goods and, more recently, capital. It has also picked up the tab for policing the oil-rich but unstable Middle East. No country has benefited more from these arrangements than China, and it should now pay for them through a stronger Chinese currency. Chimerica was always a chimera "” an economic monster. Revaluing the renminbi will give this monster the peaceful death it deserves.

10. For no relevant reason - Here's a video on how students in Sweden changed stairs into a piano. Great idea to encourage stair walking. Though the grump in me is yelling at the video just to turn the bloody escalator off. I need to get out more... HT Bruce Grey via email.