Top 10 at 10; Somers-Edgar's First Step stumbles; Cullen fund dumps ING; US$27 trln bailout; Gold-backed currency for Ireland?; Dilbert

Here's my Top 10 links from around the Internet at 10am. I welcome your additions in the comments below or please send your suggestions for tomorrow's Top 10 at 10 to bernard.hickey@interest.co.nz My responses are healthy. 1. This story is extraordinary. The special inspector general for the US Troubled Asset Relief Programme (TARP), Neil Barofsky, says the TARP has turned into a slush fund that may cost US taxpayers US$27.3 trillion, Bloomberg reported. I have a policy of not using exclamation marks routinely, but I was desperate to use one after that US$27.3 trillion. That is 2 times US GDP. HT Mish

Barofsky's estimates include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs. Williams said the programs include escalating fee structures designed to make them "increasingly unattractive as financial markets normalize." Dependence on these federal programs has begun to decline, as shown by $70 billion in TARP capital investments that has already been repaid, Williams said. Barofsky offered criticism in a separate quarterly report of Treasury's implementation of TARP, saying the department has "repeatedly failed to adopt recommendations" needed to provide transparency and fulfill the administration's goal to implement TARP "with the highest degree of accountability." Barofsky said the TARP inspector general's office has 35 ongoing criminal and civil investigations that include suspected accounting, securities and mortgage fraud; insider trading; and tax investigations related to the abuse of TARP programs.

2. Around 7,000 investors in the First Step investment trusts, which were frozen in 2006, have been warned that half of their money may be at risk, the NZHerald reported. Investors have already received NZ$223.5 million of the NZ$457 million locked in the investment trusts, which were sold through Doug Somers-Edgar's Money Managers.

Investors were initially told to expect repayments on a regular basis but now the trustee says it is difficult to say when and how much investors will get back. "The managers are confident of further capital repayments over time but it is only appropriate to emphasise that there is also growing potential for further loan defaults by borrowers and, as a consequence, for further writedowns or losses to occur." Almost all the remaining loans are either to a geothermal project or are property loans, mainly on Auckland apartments.

3. America's biggest lender focused on small business, CIT, has avoided bankruptcy by securing a two-year, US$3 billion in emergency financing from bondholders, Reuters reported. 4. The Guardians of the New Zealand Superannuation Fund have dumped ING and NZX's Smartshares as external fund managers, and moved their portfolio management in-house, Kris Hall at the Dominion Post reported. The Fund said the decision was not performance related and was to do with internal changes. Hmmm. I bet the investors in ING's two frozen funds are happy. 5. Moody's says US banks have failed to make adequate provisions for US$470 billion of losses they are likely to incur later this year, Bloomberg reported. Green shoots anyone?

Any economic recovery is likely to be "weak and bumpy hook-shaped," Moody's said. Banks will also be challenged in an environment where government support is replaced by tighter regulation, the report said. Higher credit and funding costs may force a re-pricing of credit, Moody's added. "The fundamentals of financial institutions are still traveling on a downward slope," Moody's said. "No-one should consider recent improvements as assurance that the current rebound can be sustained."

6. Edward Harrison at Credit Writedowns has a fascinating discussion about defaulting states or nations reverting to new forms of currency, including a gold-backed currency. He talks about the possibility for Ireland, which is in deep strife.

Say Brian Lenihan is dispatched to consider how to prevent the government from sacking tens of thousands of workers in order to prevent the Irish from defaulting on its debt. He suggests that California's IOUs are a model for Ireland, but he goes one step further adding a redemption in 5 years at a 40% premium to the present spot price for gold, which represents a 7% annual return.  Today, spot gold is trading at $950 an ounce. So, a 40% premium is about $1330 an ounce for gold.  Lenihan would offer this deal to any and all creditors of the State in lieu of cash.  The IOUs would be tradable in standardized amounts of 20, 50, 100, 1000, 10,000 and 1000,000 euros in order to facilitate a secondary market.

7. There is talk in Washington that Barack Obama will not reappoint Ben Bernanke as Federal Reserve Chairman and instead appoint Larry Summers, director of the National Economic Council and former Treasury Secretary. This is according to Elizabeth McDonald. 8. Here's a fascinating read in the New Yorker from Malcolm Gladwell about the how people can become overconfident as they grow older and overrate the accuracy of their judgements. He starts off with a fascinating tale about Jimmy Cayne, the main man behind the collapse of Bear Stearns. He also compares the overconfidence that led to Wall St's disaster with the disaster at Gallipoli. Well worth a read.

Most people are inclined to use moral terms to describe overconfidence"”terms like "arrogance" or "hubris." But psychologists tend to regard overconfidence as a state as much as a trait. The British at Gallipoli were victims of a situation that promoted overconfidence. Langer didn't say that it was only arrogant gamblers who upped their bets in the presence of the schnook. She argues that this is what competition does to all of us; because ability makes a difference in competitions of skill, we make the mistake of thinking that it must also make a difference in competitions of pure chance. Other studies have reached similar conclusions. As novices, we don't trust our judgment. Then we have some success, and begin to feel a little surer of ourselves. Finally, we get to the top of our game and succumb to the trap of thinking that there's nothing we can't master. As we get older and more experienced, we overestimate the accuracy of our judgments, especially when the task before us is difficult and when we're involved with something of great personal importance. The British were overconfident at Gallipoli not because Gallipoli didn't matter but, paradoxically, because it did; it was a high-stakes contest, of daunting complexity, and it is often in those circumstances that overconfidence takes root.

9. There's a new idea growing in America where people who can't afford to pay their mortgages instead become tenants in their own homes who pay the banks a rent, essentially forcing banks to take a debt for equity swap. Felix Salmon from Reuters was very early with this idea and now the Obama administration is talking about it. 10. This one from the Burning Platform is a bit apocalyptic and out there, but still worth a read. HT Blair Rogers at PeakProvidence.com This video has been doing the rounds from the Tea Partyites in the US. Sort of entertaining, although I don't agree with the accusation that Obama is a communist. He's just wrong and isn't changing anything.