Here are my Top 10 links from around the Internet at 10 past 1pm, brought to you in association with New Zealand Mint for your afternoon reading pleasure.
I welcome your additions and comments below, or please send suggestions for Friday's Top 10 at 10 via email to bernard.hickey@interest.co.nz.
I'll pop any surplus suggestions I get into the comment stream under the Top 10.
We haven't had an American warship visit us for a few years. But we're happy to have the Chinese visit.
New Zealand sailors will join the ship in Auckland and travel with the Chinese sailors back across to Australia, "enjoying recreational activities with the Chinese midshipmen."
This will enhance the mutual friendship between the two countries, it seems.
“The aim of the visit is to strengthen the pragmatic exchanges and cooperation between the Chinese military and the navies of the five south pacific countries and develop the friendly relations,” said by an officer of the Information Affairs Bureau of the Ministry of National Defense of the People’s Republic of China.
The Chinese naval ship formation will make its first visit to Papua New Guinea, Vanuatu and Tonga during this trip. Besides, the formation will invite two midshipmen from the Royal Australian Navy and the Royal New Zealand Navy to board the Chinese ships to sail together during its voyage between Auckland of New Zealand to Sydney of Australia.
The four midshipmen will eat, live, go through training, work and enjoy recreational activities together with the Chinese midshipmen, so as to enhance the mutual understanding and friendship between them.
2. Allan Crafar just won't budge(t) - NZ Farmers Weekly reports that Allan Crafar appears to have magicked up a tenancy document that would allow him to stay on the farm at Reporoa.
Needless to say, this has yet to be proven in a court and Mr Crafar is conducting his own arguments in the court. How entertaining.
His requests for legal aid have been turned down three times.
Maybe someone could find some space for him in a bunk on a Chinese warship.
A tenancy agreement with one's own farming company was unusual and Crafar would not confirm if he had created one in anticipation of the possibility of being evicted from his own property.
"Anyone in their right mind has some sort of safeguard against these sort of things," he said.
He encouraged any farmer facing a similar situation to think about such agreements. The tenancy agreement allows for him, his wife Elizabeth, brother Frank, and Allan's sons to remain on the property.
Receiver Michael Stiassny said such an agreement was unusual.
"I think the particularly unusual thing is that we have not been made aware of such a document until this week."
3. Are the figures wrong ? - Victoria Thieberger at Reuters in Melbourne wonders if the weakish retail sales figures recently in Australia are because of lot of activity is now happening online and is therefore not being reported.
This is an interesting question for New Zealand too, given the strength of TradeMe and the amount of activity there. A question for Statistics NZ and the RBNZ. HT Kevin via email. I've linked to TradeMe because they need the traffic...
If billions of dollars of online sales are being under-recorded, it could mean consumption is stronger than official data shows, adding to the case for a further increase in interest rates to throttle inflationary pressures. "Many Australians are now shopping for certain products online that they would have traditionally gone into the stores for.
Plus, you can buy products that are simply not available in Australia," eBay Australia spokesman Daniel Feiler said. Consumers will spend up to $27 billion on online shopping this year, which could help explain why retail sales data have appeared subdued, despite robust income growth. Data on Tuesday showed retail sales, which account for around a quarter of Australia's economy, rose a scant 0.2 per cent in June, below forecasts, to $20.2 billion.
The statistics office follows internet sales by big domestic retailers such as Coles and Kmart, owned by Wesfarmers and electronics chain JB Hi-Fi But it doesn't track smaller online stores or overseas sites such as Amazon.
4. How KiwiSaver is helping the banks - This story in The Australian about how Australian pension fund cash is helping the Australian banks meet their funding requirements raises some interesting questions about what's happening here in New Zealand.
Essentially Australian pension funds have parked an extra A$50-55 billion in cash in Australian bank accounts since the Global Financial Crisis. This is helping the banks fund their lending, but the risk is when that cash is invested in equities and bonds the banks will have a much tougher task to fund their lending, potentially pushing up interest rates further.
So far employees, employers and the government have contributed NZ$5.5 billion into KiwiSaver funds and all managed funds have NZ$6.3 billion invested in cash, RBNZ statistics show. That amount parked in cash has risen NZ$1.7 billion since mid 2007 and almost half of that has come from KiwiSaver.
I understand New Zealand banks here are aggressively targeting growth in conservative KiwiSaver funds to help boost their local term deposits to meet the Reserve Bank's Core Funding Ratio targets. They are also looking for 'switchers' in other default (non bank) funds to go into their funds.
That begs the question: is this the best long term strategy for savers? It's the right short term strategy for the banks. Maybe savers actually quite like the fact their money is in the bank rather than in stocks...
Here's what's happening in Australia.
With the major banks typically facing an annual net funding requirement of $20bn, Royal Bank of Scotland economist Kieran Davies says in a report that any reallocation of cash or near-cash holdings into equities would intensify funding pressures.
"Depending on the size of the reallocation, (this would) increase the odds of an out-of-cycle rate rise, or see banks penalise business borrowers in order to keep more politically sensitive mortgage rates steady," Mr Davies says. Looking at it from the perspective of bank balance sheets, pension funds now hold 13 per cent of all bank deposits and cash, up from 10 per cent before the GFC, as well as 17 per cent of bank short-term debt, up from 9 per cent. Further funding-cost pressures would be unwelcome for banks, which are continuing to roll over term debt issued before the financial crisis at more expensive rates.
There has also been intense competition for deposits, which are "stickier" through a crisis than wholesale funding.
5. The dirty little secret of NZ banking - Through all of the housing boom years not much was said about mortgage fraud or 'hydraulicking' where bank managers and agents and buyers conspired to extract cash from banks using false valuations.
Their hope, of course, is that house prices would keep rising and cover up the fraud. Now that house prices are flat to falling, the tide is going out and is leaving a few people (and banks) naked.
Alanah May Eriksen at NZHerald has an interesting report on the conviction of an ANZ National (now renamed ANZ New Zealand) staffer called Zamir Zane Hussain for mortgage fraud. I wonder how widespread this is. Any other cases out there we don't know about? I welcome your comments below. Hussain has been ordered to pay NZ$1.3 million in damages to ANZ New Zealand.
Zamir Hussain, who is understood to have moved to London, was found in January to have repeatedly breached ANZ National Bank's credit risk policy in his work as a mortgage manager.
The Employment Relations Authority earlier ordered the 31-year-old to pay $54,000 to the bank after it said he had authorised 18 mortgage loans worth far more than each property's value, costing it more than $3.5 million.
He had received $10,000 a month commission between May and July 2007 from what the ERA said was an "elaborate scheme" by borrowers who have been referred to the Serious Fraud Office.
The detail on the deals involved is fascinating. There seems to have been some ... ah... confidence about the future direction of house prices within the bank....
"Borrower A" was given loans totalling $511,000 to buy a Birkdale property and $760,000 for a Chatswood property. The mortgagee sales for both raised $835,000 in total and after deduction of legal and other sale expenses, the loss to the bank was $621,621.
"Borrower B" was given a $995,200 loan to buy a Paremoremo property which brought $670,000 at mortgagee sale. After expenses, the loss to ANZ was $440,429. "Borrower C" was given $420,000 to buy a Beachhaven property and $796,000 for a Rothesay Bay property. The mortgagee sales made $756,000, resulting in an after-expenses loss to the bank of $605,968.
6. Chinese stress tests - China's banking regulator has told banks to conduct a new round of stress tests that assumes property prices fall 60%, Bloomberg reports.
HT David and Hugh via email.
Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively, the person said, declining to be identified because the regulator’s requirement hasn’t been publicly announced. Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.
The tougher assumption may underscore concern that last year’s record $1.4 trillion of new loans fueled a property bubble that could lead to a surge in delinquent debts. Regulators have tightened real-estate lending and cracked down on speculation since mid-April, after residential real estate prices soared 68 percent in the first quarter from a year earlier, according to estimates from Knight Frank LLP, the London-based property adviser.
A deep slump in China’s property market may further slow the nation’s economy, which grew at a less-than-forecast 10.3% pace in the second quarter.
7. The looming funding task in Britain - British banking profits are starting to return, but as Channel 4 Economics Editor Faisal Islam points out, they still face a monstrous funding task once the low cost government money is switched off. HT Kokila via email.
This is why I think pressure for retail bank interest rates to rise or at least stay high will remain despite the very weak global economy and low inflation. The British banks need to raise 132 billion pounds over the next two years and the European banks need to raise 3.3 trillion euros over the next 4 years. No matter how much money is printed, Australasian banks are going to have to offer a pretty penny to meet their funding needs in the next couple of years.
Tens of billions of state funding through the Bank of England liquidity scheme, and the taxpayers’ guarantee of its funding gets switched off in 18 months time, and it needs to replace that, as well as some of the HBOS legacy funding. Lloyds has made some progress, but that number is still £132 billion. In addition, the international money markets have most of the UK banks, including Lloyds on a very short leash, lending to them only over very short timeframes.
That is why conveying hard-won confidence is essential for Lloyds. It will kick start a virtuous circle of cheaper, longer term international funding that will in turn help to solve Lloyds most intractable problem. If this doesn’t happen, and to be clear it is an issue facing many banks worldwide, then something has to give when the public drip of funding gets switched off. Either some of form of credit crunch returns, or the government will have to renew part of the bank bailout.
8. Now that's a central bank - The Monetary Authority in Singapore has just instructed DBS Bank to put aside an extra S$230 million in regulatory capital to prepare for regulatory risk in the wake of a 7 hour electronic banking system outage, Channel News Asia reports. HT Paul via email.It seems IBM was the culprit in Singapore.
IBM was at fault in New Zealand recently when an Air NZ system went down for a day. I wonder which New Zealand bank is relying on an IBM system. They may be interested in this story.
DBS Bank did not exercise sufficient oversight of the maintenance, functional and operational practices and controls employed by IBM.
It has therefore not adequately observed Sections 5, 7 and 8 of the MAS guidelines on Internet Banking and Technology Risk Management.
MAS has also directed DBS Bank to adopt several measures including diversifying and reducing its material outsourcing risks so that it does not overly rely on a single service provider or a single vendor's products and services.
9. Let's mess with Texas - The lone star state is a bit of a star. A lot of Americans are wondering why Texas hasn't been quite so slammed by the US recession/depression. Some say it's because Texas' housing boom was not nearly as big as the rest of the country, therefore it didn't suffer so much because prices/borrowing didn't fall so much. Hugh Pavletich may have something to say about this.
Some say the reason Texas has done so well is its liberal planning laws that allowed plenty of new home building, which kept prices under control. No 'smart growth' policies restricting land supply and the development of new 'sprawl' in Texas.
Others, including Ryan Avent and Matt Yglesias are not so sure. Here's Avent:
Take a tech-oriented region like Greater Boston or the Bay Area, subtract out a housing collapse and add in an energy boom, and I suspect you've covered most of the discrepancy in performance. Concerning the "Something About Texas" factor, I'd also note that success has probably been self-reinforcing. A stable, cheap housing market and a relatively robust job market has likely acted as a magnet for migrants from other areas—especially the Midwest and South.
And a steady inflow of migrants has likely provided support to demand, to home prices, and to tax revenues. The interesting question is whether Texas can keep this up. Texas builders have constructed an astonishing number of new homes, right through recession. Should migration slow down, a housing crash could loom.
And just as Texas was slow to get into recession, it may be slow to get out. At present, Texas and New York have identical unemployment rates, but in recent months labour force and employment growth have been far stronger in the latter than in the former. There is something to be said (quite a lot, actually) for a state economy with low volatility. But if a surge in growth in other areas drains some of the migrant flow to Texas, its economic model could face challenges.
10. Totally relevant video - Stephen Colbert reports on the creation of the new Consumer Financial Protection Bureau in the United States. All people need is a safe word.
"Just shout 'Pumpkin Patch' to tell the banks to take the clamps off your balls."
He then speaks to the curiously impaired Barney Franks.
| The Colbert Report | Mon - Thurs 11:30pm / 10:30c | |||
| Consumer Protection Agency - Barney Frank | ||||
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