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Friday's Top 10 with NZ Mint: Barclays' shock LIBOR admission; 'Dude I owe you big time. Let's open a bottle of Bolly'; Bright Dairy's detergent problem; Frau Nein is the Euro Terminator; Clarke and Dawe; Dilbert

Posted in Opinion

Here's my Top 10 links from around the Internet at 5 pm today in association with NZ Mint.

We welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must watch today is #10. I haven't laughed so hard in days.

1. The LIBOR shock - Barclays' admission that it falsified its London Interbank Offer Rate (LIBOR) submissions to protect its reputation is stunning.

It has already been fined 290 million pounds and a criminal investigation has been launched. Its market value dropped 3.2 billion pounds overnight.

The implications are enormous given US$500 trillion worth of securities base their rates on LIBOR. There are also 12 other banks being investigated for rigging LIBOR.

Class action lawyers and investors around the world will be licking their lips at the prospect of huge compensation claims.

CEO Bob Diamond has pledged to give up his bonus for this year.

But investors and others are calling for his head.

Here's The Telegraph with the tone:

Politicians and investors joined the chorus of disapproval of the bank’s admission that it attempted to manipulate the Libor borrowing rate for several years.

Investors last night were reported to be demanding a meeting with the bank’s senior independent director, Sir Michael Rake. Martin Taylor, a former chief executive of the bank, described the findings against Barclays as showing a “policy of systematic dishonesty”.

“It’s hard to believe that a policy which seems so systematic was not known to people at or near the top of the bank,” added Mr Taylor.

2. And there's another scandal brewing in British banking - Reuters reports the Financial Services Authority is expected to announce the discovery of another mis-selling scandal by banks who sold products to protect small businesses against rising interest rates.

With public, political and business outrage at bankers' behavior deepening, the industry is likely to draw compensation claims that could cost it billions of pounds, legal experts say.

A string of mis-selling cases has rocked the financial services industry for over two decades and banks are already likely to pay upwards of 9 billion pounds ($14 billion) in compensation for mis-selling loan insurance.

3. Not so Bright Dairy - WSJ reports Chinese milk company Bright Dairy, which owns 51% of the Synlait dairy plant in Canterbury, has been caught with milk tainted with detergent in China.

This is one reason why New Zealand milk powder is now in such hot demand. New Zealand and Fonterra blew the whistle on its SanLu JV partners in 2008, cementing in Chinese consumers' minds the idea that New Zealand cares about and produces safe food.

The latest incident comes just weeks after another top Chinese dairy company, Inner Mongolia Yili Industrial Group, recalled infant formula products containing mercury.

Both incidents pale in comparison to the 2008 scandal that led to the death of six babies and the poisoning of 300,000 people by milk products tainted with melamine, an industrial chemical. That led to the failure of major milk producer Shijiazhuang Sanlu Milk, a jail term for the Sanlu chief and two death sentences. China Mengniu Dairy, another industry heavyweight, also saw its reputation go sour.

China’s failure to purify its tainted milk, despite the heavy penalties meted out in 2008, has helped ignite demand for milk powder across the border in Hong Kong, nurtured a new population of food safety activists and even briefly inspired a few entrepreneurial mothers to try their hand at selling human breast milk.

Here's Campbell Live with the latest story about baby formula shortages in New Zealand caused by Chinese families taking home tins and tins of the stuff.

4.  Merkel relents...a bit - Bloomberg reports the euro surged this afternoon after it emerged from the European summit that leaders had agreed not to give European government seniority over other creditors to Southern European governments, and after they agreed to inject money directly into Spanish banks from rescue funds.

We can only guess at the half life of this latest 'We are saved' rally.

After 12 hours of talks ending at 4:30 a.m. in Brussels today, leaders of the 17 euro countries dropped the requirement that governments get preferred creditor status on crisis loans toSpain’s blighted banks, European Union President Herman Van Rompuy said. Banks can also be recapitalized directly by bailout funds rather than going through governments, he said.

Euro-area leaders also discussed ways to reduce the risk premiums on Italian and Spanish bonds, which have driven concern by economists, investors and Europe’s global partners including the U.S. that the currency union risks coming apart.

5. 'Dude I owe you big time' - Reuters reports on the emails that exposed Barclays' LIBOR setting fraud.

Never, never say anything interesting in an email.

"Done ... for you big boy," read a message sent by a Barclays banker to one of the lender's traders, who had asked him to fix a key lending rate artificially low.

"Dude, I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger," a trader from another firm emailed a banker at Barclays, showing his thanks for the rate set artificially low.

Requests came in such as: "We need a really low 3m fix, it could potentially cost a fortune. Would really appreciate any help."

And: "Your annoying colleague again ... Would love to get a high one month. Also if poss a low three month ... if poss ... thanks."

Traders made their requests in person, via email and through electronic "chats" over an instant messaging system.

On a few occasions, some traders even made entries in electronic calendars to remind themselves what requests to make of Barclays' Libor submitters the next day.

And this is the interesting bit suggesting there is much more to come out of this:

 In late 2007, Barclays told the UK Financial Services Authority and the British Bankers' Association, the trade body under whose auspices Libor is set, of its concerns that rivals were setting rates too low.

Months later, a senior Barclays treasury manager called the BBA and warned them that rates were not accurate, but that Barclays was not the worst offender.

"We're clean, but we're dirty clean, rather than clean-clean," he said.

"No-one's clean-clean," the BBA representative responded.

6. Not so popular - Reuters reports on the vitriol now being poured on German Chancellor Angela 'Nein!' Merkel over her unwillingness to bail out the rest of Europe.

Demonized in Europe's media as a red-eyed Terminator robot, a flabby centerfold pinup and a fleshy Roman god eating Greeks, German Chancellor Angela Merkel has become the subject of a new wave of vitriol for her tough stance on the euro zone crisis.

Already a figure of hate in Greece for insisting on austerity in exchange for aid, Merkel has long endured montages of herself in a Nazi uniform, but the run-up to this week's EU summit has unleashed particularly savage images and headlines.

But 'Frau Nein' shows little sign of giving ground on such issues as mutualizing Europe's debt or slashing public spending - not least because her approach has boosted her popularity among German voters in the countdown to next year's election.

7. 'The big conceit at the very heart of the banking world' - The FT's Gillian Tett wrote five years ago that LIBOR was rigged. Barclays and others accused her of scaremongering at the time.

She nails it.

Here's her thoughts.

No doubt some financiers would like to dismiss this as the work of a few rogue traders. And, in line with usual banking practice, the more junior authors of the incriminating emails have already been fired. But the wider symbolic significance of these revelations cannot be overstated; for they expose a big conceit at the very heart of the modern banking world.

Most notably, in recent decades large investment banks in the City of London and Wall Street have increasingly wrapped their activities with an evangelical adherence to the rhetoric of free markets; whenever they have wanted to justify
sky-high profits, wacky innovations or, most recently, the need to prevent a new regulatory drive, they have invariably cited the ideals of Adam Smith.

But what the story of Libor shows is that this free market language has been honoured as much in the breach as the observance, to borrow Shakespeare’s phrase. And that was not just because a few Barclays traders were failing to “post honest prices”, as the emails admit. Instead, the real issue was that Libor was never organised as a proper market in the first place, which is precisely why the manipulation continued unchecked on such a wide scale for so long.

This week’s revelations show why it is right for British political figures, such as Alistair Darling, to call for a radical overhaul of the Libor system. They also show why British policy makers, and others, should not stop there. For the tale of Libor is not some rarity; on the contrary, there are plenty of other parts of the debt and derivatives world that remain opaque and clubby, and continue to breach those basic Smith principles – even as bank chief executives present themselves as champions of free markets. It is perhaps one of the great ironies and hypocrisies of our age; and a source of popular disgust that chief executives would now ignore at their peril.

8. This sound familiar? - Chinese savers desperate for yields higher than the meagre negative real returns from bank accounts have been investing heavily in less regulated 'Wealth Management Products' in the last four years. All very South Canterbury Finance. I've bolded the key last sentence.

Nicholas Borst writes at Peterson Institute for International Economics about the excrement about to hit the spinning object in China.

Even many of the “guaranteed principal” products are riskier than they first appear. The Chinese press is now full of stories (CN) of savers who have taken losses on their guaranteed WMPs due to deceptive fine-print put into the sales documents by banks. Given that many WMPs invest in highly speculative assets, i.e., the stock market, savers should demand an even higher premium over normal savings deposits for the risk they are taking. Regulators have already begun calling for greater transparency (CN) on the risks associated with these products and much more investor education will be needed to help protect savers.

WMPs are also potentially problematic for the financial system as a whole. Interest rate liberalization is one of the trickiest tasks facing developing countries as they modernize their financial systems. Uncontrolled interest rate liberalization in the form of WMPS is a risky approach.  The low and often negative real interest rate environment created by China’s policymakers has led savers to seek investments beyond low-yielding savings deposits, most notably in residential real estate. Banks are desperate to keep hold of these deposits and high-yielding WMPs are one way to do this. WMPs are also attractive because they allow banks to make money off sales and management fees. To pay for the higher returns on WMPs, money is invested in riskier assets such as real estate and the stock market.

9. Hammered and Sickled in China - Abram Dylan writes at TheAwl about the need to get completely drunk when doing business in China.

The pressure to drink, and drink a lot, is so great that even Mormon Jon Huntsman admitted he tippled while serving as U.S. Ambassador to China.

In 2009, a Guangdong police officer who passed away after drinking to excess at an official event was said to have "died in the line of duty." He received the official designation of "martyr," which greatly increased the compensation his family received. The officer's death came just after another official, ironically with Wuhan's water resources bureau, also succumbed to too much drink.

While not the official cause of death, the Guangdong cop and the Wuhan cadre died of inadequate jiuliang (酒量), which literally means "booze capacity," or in common usage, "ability to hold one's drink." In modern China, showing off one's jiuliang, often on numerous nights (or afternoons) a week, is part of doing business or being important. Like the eighth rule of Fight Club, if it's your first time, you have to drink.

In fact, you pretty much have to drink no matter how many times it's been. That's the whole point of what has been branded "ganbei culture." Ganbei (干杯) is the Chinese toast which directly translates as "dry glass," and means something between "cheers" and "chug!" And if you hear it, well, at least you're still conscious.

10. Totally Clarke and Dawe covers Wimbledon. Merkel could win this year. She did well in the doubles against Spain.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

36 Comments

#3  unbelievable   down at

#3  unbelievable
 
down at the local Coles supermarket today, getting some "local milk" and while in the dairy section noticed some new brands of butter .. suprise surprise .. new imported products from .. of all places .. china .. and .. thailand .. sitting right next to the "mainland" brands ..

Coles !  ...... shame upon

Coles !  ...... shame upon you ..... I'm a Wooly Bully , and proud of it .....
 
....... are the Chinese dairy products excess stock from one of their paint manufacturers ?

"We've heard there's a market

"We've heard there's a market [in China] for empty [formula] cans."
 
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1081...
 
Page said Biopure would sell its formula only through its own retail stores and its own website in China, which gave the company maximum control over its supply chain.
However, there was always a risk of someone getting hold of used Infapure cans, filling them withfake product and reselling them, he said.
"We've heard there's a market [in China] for empty [formula] cans."
Page and Li will travel to China this month and spend three months in the country launching the brand.
 

Prawns from Thailand Garlic

Prawns from Thailand
Garlic from China
Pork from the States
Welcome to globalisation
Wish food monitoring was more thorough

Food, really easy to monitor

Food, really easy to monitor if it doesnt say NZ, AU or EU I put it back.  I dont buy Japanese now, and never ever USA or china.
regards

Why EU?

Why EU?

Limited choice in

Limited choice in organics....I buy organic potato starch to make tempuri (1 scoop plain floor, 1 scoop starch, 1/4 baking powder, hing and salt, add water) for instance, stuff on shelves is all Japanese and nothing will be fit to buy for millenia off them. So point me at a NZ brand and I will buy it....
regards

Given your story about

Given your story about tainted milk products in China , again , Bernard ...... I wonder if your " Hammer & Sickled " piece is off the mark that businessmen are drinking themselves to death in China .... it's not the quantity of alcohol they're sucking that's the problem , is it ...
 
.... methinks they've got more than the permissable quantities of Jif floor-polish and anti-freeze in their alcohol ..........
 
The new lemon Jif gives quite a nice citrusy tang as the shaojui burns your throat out ......

Wonder if Fonterra could

Wonder if Fonterra could concoct a tipple of fermented permeate

Kumis ! ....... fermented

Kumis ! ....... fermented mare's milk , has a long history in China ...... commonly made from cow's milk today ( probably 'cos the mare's all bolted ..... and who can blame them ! ) ...
 
..... there is a niche for Fonterrible to exploit and screw up , .. yup ....

I expected better of the

I expected better of the Gummster, something more of a celebration since he is the paramount indulgent for life from the ranks of the interest.co forums. Somethink like "woohoo what a way to go, the only way better to exit this world would be to go during sex!"

hehehe... GBH, no its

hehehe...
GBH, no its accurate, and not just business men.......out in the sticks they make their own.....no such thing as jif....
regards

Diamond offers to give up his

Diamond offers to give up his bonus!
His firstborn son should be sacrificed. Another illustration of the sense of entitlement and divorce from reality of these people.
How many more were up to this? Hard to imagine Barclays were in it alone. Pity the Occupy Wall Street bunch are such a load of wankers. They should have this guy's head on a pike on the Tower Bridge.

CHRISTCHURCH COUNCIL TRESPASS

CHRISTCHURCH COUNCIL TRESPASS NOTICE – TRADE ME AUCTION !!!
 
Your opportunity to support democracy (well...whats left of it in Christchurch)
 
http://www.trademe.co.nz/art/prints/abstract/auction-489374161.htm
 
Here is the marketing blurb........
 
Tony Marryatt C.E. and Mayor Bob Parker of the Christchurch City Council had Chris Gilbert, Legal Services Manager for the C.C.C., issue CANTABRIAN’S UNITE watchdog member- Nicholas Lynch, a 2 year Trespass Notice effective from 28th June 2012.

This Christchurch City Council watchdog has been banned for 2 years from stepping foot in the C.C.C. 53 Hereford Street premises.

CANTABRIAN’S UNITE are now auctioning off the (suitably framed – with a cheapie from The Warehouse) Trespass notice in order to raise funds for the organisation.
 
For more exciting information......
 
Go to http://www.facebook.com/CantabriansUnite for the latest on the Clueless City Council’s antics and it’s “Democracy Suppression Programme” !!!

.....and too...this weeks Prime Ministerial Porkies on Housing.
 
Hugh Pavletich
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org

Don't worry folks. You can

Don't worry folks. You can fix it. Before Monday.
Yes you can.
Just click here.

Love it Alan H.....am I the

Love it Alan H.....am I the only one that clicked..I cannot believe Walter (Kunst) did not give it a go........ and i'd put a lazy five on Steven to have to click...he's curious like that.

I clicked it too , Count

I clicked it too , Count ...... but I logged out before the green worm got across the line  to it's destination .....
 
....... frankly , if fixing everything is gonna take more than 10 seconds , I'm just not interested .... .

"but I logged out before the

"but I logged out before the green worm got across the line"
Pull the other one Grievous Bodily Harm.
:)

"The Madoff investment

"The Madoff investment empire, built on a foundation of deceit, was a house of cards that grew to skyscraper proportions"
http://www.bbc.co.uk/news/world-us-canada-18646624
The US Federal Reserve money printing empire, built on a foundation of deceit, is a house of cards and fraud, that grew to skyscraper proportions....!

Germany kicked out of Euro by

Germany kicked out of Euro by Italy
Spain next to go.

re the asian boozing, when I

re the asian boozing, when I lived in Korea I had a client who was some kind of CRM for Hyundai, and he was contractually obligated to go out on the sauce with clients 4 nights per week. It was his duty. 

Re Accounting firms and Jimmy

Re Accounting firms and Jimmy Carr etc
I really do not think you could make up a system as strange as the one we have regarding tax collection. In essence we have a two tier system run by the accounting firms.
1. If we pay them a little bit they will help the government takeour money.
2. If we pay them heaps then they  the same firms will then take our a great deal of our money and  prove that  that the government does not deserve very much of our money at all.
The thing that strickes me is that it is all run by the same small group of firms.

Did you see this letter in

Did you see this letter in Saturday's Dominion Post? It was their most prominent letter.A friend emailed me a copy. What is described here is exactly what happened to me, just replace "bank" with "hedge fund". I fought back through the courts in New York and won but 10,000 other investors lost everything.
 
 Now that the state’s assets are to
Be  partially  privatised,  I  predict
that  the following will take  place,
probably within a  couple of years.
     For   each  enterprise,  a  new
board    of    directors    will    be
appointed.  The  new  board  will
promote some costly project that
will require funding of up to 10 per
cent of the value of the enterprise.
      Once the whole of the loan has
been committed beyond recall, the
banks  will  foreclose  and demand
the  immediate  repayment  of  the
loan.  The loan agreement will per-
mit this.
    Since  the  enterprise  will  not
have  money  available, it  will be
placed in receivership and sold to
a  nominee  of the bank at a price
that recoups only the extent of the
loan.
     The bank will have the title to the
whole  of  the  enterprise  and can
on-sell  it  to  whomever it pleases.
All   shareholders   will  lose  their
whole investment.
    All  this seems completely legal
and, I suspect, has  already  been
 planned  by  those promoting the
sale of state assets.
     I also suspect this has already
been planned by those behind the
proposal to sell. These people need
not  necessarily  be  Finance Minis-
ter  Bill  English   or Prime Minister
John Key.
Graeme Claridge
Days Bay
Now as far as Mighty River Power is concerned I suspect their "project" just happens to be two wind farms approved on the country's most active fault lines. All covered here on a website I've posted before. This is being hushed up at the highest level, an unprecedented scandal.
http://nzwindfarms.wordpress.com/

The Govt is likely to be

The Govt is likely to be under International orders/pressure to sell/privatise.  The New World Order does not want individual countries to have sovereignty over their assets & domain. 
Now, who can they sell Social Welfare to?   Insurance companies?   Education could go to private providers.  Justice could go to the Tuhoe (see Uraweras) & Mafia.   Reserve Bank & Treasury goes to World Bank, IMF & UN.  
 

A fair assesment OMG...one

A fair assesment OMG...one I've repeated here at most every opportunity ,
........Corportise it....list it....dilute it....shift the power....expose it...( bet against it optional)...socialize the losses...repackage it.....onsell it...... You have reached GO
 

Re #1 and #7. I work for a

Re #1 and #7. I work for a niche tech-focussed investment bank in the City in London as a treasury manager/trader. So LIBOR rates are part and parcel of daily liquidity management considerations. Personally I think those manipulating LIBOR should be hunted down and heavily fined/jailed as a warning. However, I strongly believe LIBOR should be kept as a benchmark: it is a "trimmed average" of surveyed inter-bank funding costs, therefore extremes (rates done for (intrabank) mates) won't count. Also, a bank giving a false lower rate, as Barclays did to give a false impression of balance-sheet health during the worst of the GFC, will only likely support a rate close to the average LIBOR anyway. So in both cases, there is no impact on the wider economy.

Why hasn't this fiasco hasn't

Why hasn't this fiasco hasn't been exposed sooner? It must've been common knowledge in the relevant circles. Chalk another one up to the conspiracy theorists.
Bernie Madoff was put away for a couple of lifetimes. Haven't the people behind this actually ripped off far more than he did?

"Do you not know, my son, with how little wisdom the world is governed?" Axel Gustafsson Oxenstierna af Södermöre, way back when.

In a word or two - Eurodollar

In a word or two - Eurodollar futures -  real time pricing - damn near 24 hours a day.

"So in both cases, there is

"So in both cases, there is no impact on the wider economy."
But if Barclays was making money, who were they making if off? Pension funds?, the 99%?.

Kinda my point. If it had

Kinda my point. If it had been negatively affecting any bank's P&L positive or negatively (in any signifcant way) you would have heard about it earlier. But because LIBOR is an average, it's still likely a reasonably reflection of interbank, unsecured lending - hard to argue against.

Psssst .............wanna

I'll bet the Gibraltans are

I'll bet the Gibraltans are just aching to rejoin the motherland. They may be able to move one of those unused airports down their way. :)
What's always intrigued me is that Spain works itself into a frenzy over the British "usurpation" of Gibraltar whilst maintaining two healthy enclaves of their own just over the water in Morocco.
I want that glib and oily art
To speak and purpose not.
You know who

Nothing wins more votes from

Nothing wins more votes from idiots than the claim by the Spanish govt, that they own Gibraltar.....
Actually I think it belongs to a tribe of Neandethal who to this day live inside the Rock.

Harrrrrrrrrrrrhahaaaahaaaaaaa

Harrrrrrrrrrrrhahaaaahaaaaaaaaa
"Xi Jinping, the man in line to be China’s next president, warned officials on a 2004 anti-graft conference call: “Rein in your spouses, children, relatives, friends and staff, and vow not to use power for personal gain.”
As Xi climbed the Communist Party ranks, his extended family expanded their business interests to include minerals, real estate and mobile-phone equipment, according to public documents compiled by Bloomberg."
 
http://www.bloomberg.com/news/2012-06-29/xi-jinping-millionaire-relations-reveal-fortunes-of-elite.html

Some people say one thing, do

Some people say one thing, do another and another and another....etc.