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Thursday's Top 10 with NZ Mint: US banks quadrupled their profit share since mid 1940s; 'Let's wipe the global debt slate clean in a Mesopotamian way'; Why China's rate cut isn't working; Dilbert

Posted in Opinion Updated

Here's my Top 10 links from around the Internet at midday 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 read today is #3 on the need for debt jubilee.

1. How the financiers took charge - Paul Krugman points to a long term chart of the share of income going to the financial sector in the United States over the last 150 years.

This is clearly a massive shift. It has quadrupled since World War II.

And how much has it benefited real workers and the economy, rather than the financiers themselves?

This fact is central to the debate now about how our economies should be run.

These Too Big To Fail banks in the Northern Hemisphere have to be broken up and regulated back into a box.

At the moment they're fighting successfully through lobbying and threats of financial armageddon to avoid this re-regulation.

Here's Krugman and that chart:

So we’re hearing a lot of people — including some alleged progressives — declaring that you can’t criticize the way we’ve run our economy for the past 30 years. Why not? The metastasizing finance sector eventually led us into the worst economic catastrophe since the Great Depression; that seems reason enough to question the model.

2. And where did the money go from the US banks?

This chart here tells the story.

3.'Back to Mesopotamia' - Here's a September 2011 report from Boston Consulting Group about the need for a Biblical style debt restructure to deal with the huge overhang of debt weighing down growth rates in the developed world.

This is my world view at the moment.

It is likely that wiping out the debt overhang will be at the heart of any solution. Such a course of action would not be new. In ancient Mesopotamia, debt was commonplace; individual debts were recorded on clay tablets. Periodically, upon the ascendancy of a new monarch, debts would be forgiven: in other news, the slate would be wiped clean. The challenge facing today's politicians is how clean to wipe the slates. In considering some of the potential measures likely to be required, the reader may be struck by the essential problem facing politicians: there may be only painful ways out of the crisis.

4. 196 very powerful people - Ezra Klein points out at Washington Post that just 196 Americans contribute 80% of the 'Super PAC' political contributions in US Congressional races.

It's not a democracy. It's a plutocracy.

5. Bad things are going to happen - This is what Electica Fund Manager Hugh Hendry reckons via FT.com.

“We have reached a profound point in economic history where the truth is unpalatable to the political class – and that truth is that the scale and magnitude of the problem is larger than their ability to respond – and it terrifies them.”

He believes that financial markets are single-digit years away from a crash that will present investors with opportunities of a lifetime. “Bad things are going to happen and I still think the closest analogy is the 1930s.”

6. Is the Chinese housing market rebounding? - Kate Mackenzie looks at the evidence in this FTAlphaville piece pointing to an apparent rebound last month in prices. It may not be enough, she says, to get the developers building again.

A few tactics suggest the bounce isn't real.

The problem is, the construction industry that fuels much actual economic activity — and which is the real aim of the targeted easing on property restrictions — has not been revived. Property developers are after all still stuck with extremely large inventories. Increased sales may be helping them meet existing debts, but it’s not enough to encourage them to start new projects.

Cash-poor developers are paying construction companies in apartments. This has become so common that it has its own catch phrase in Chinese, (di gongcheng kuan fang, or “apartment to reduce project expense”). Several listed developers have been reported to be using this strategy.

Developers lend buyers the down-payment: Developers are providing one-year loans to buyers so that they can meet the down-payment requirements. Some also help investors find nominee buyers who will process the purchase in order to evade restrictions on speculation.

Dummy buyers: There are also reports of developers setting up paper companies to sign purchase agreements and obtain loans. Note that pre-sales of properties that will not be completed for about 1.5-2 years account for about 80% of total sales, meaning that there is generous room for returns.

7. Germany's choice - Ambrose Evans Pritchard does a nice job here of explaining Germany's current debate over the euro.

Mr Sarrazin said EMU has demonstrably failed. Germany must draw the proper conclusion: either abandon the euro or accept the revolutionary step towards a European superstate. Morton’s Fork has arrived, with all its fateful consequences.

Europe’s integration process stands at a parting of the ways and we must now choose between a dangerous step back on the one side and a full-blown loss of sovereignty to Europe on the other."

8. Bypassing the banks - CNBC reports China's recent rate cut isn't working because small businesses are bypasssing the banks and going to loan sharks instead.

Twin moves to cut and deregulate interest rates have effectively chopped borrowing costs by up to 170 basis points, a potentially eye-popping squeeze on bank lending margins.

Still, that rate-reduction has not been nearly enough to tempt a dozen small factories and wholesalers around Beijing visited by Reuters in the wake of July's policy shift.

Red tape and tough collateral requirements mean business owners prefer to borrow from family and friends to expand in good times and, with the economy in its worst downtrend in three years, the inclination to take on bank debt is close to zero.

"Business this year has fallen by two-thirds compared to last year," said a bed linen seller surnamed He, who last took a bank loan in 2009 for 400,000 yuan ($63,500).

9. Totally a party for bankers in the City of London - The Telegraph reports this is how British taxpayers' money propping up salaries and bonuses for investment bankers in London is being spent. This is a picture from a party in The City.

Friday 13 saw over 1,000 finance professionals from banks such as UBS, Barclays and Citigroup descend on McQueen bar & club in the heart of Shoreditch for the annual Square Mile Summer Party.

Guests were entertained by the all-girl dance troupe, Girls Roc, fire-breathing strippers, snake dancers and sword swallowers.

The army of suited bankers were treated to free drinks laid on my Square Mile including bottles of Iceberg Vodka and Louis Roederer champagne.

A retreat was offered in the form of a chill out room sponsored by Small Luxury Hotels of the world with Ibiza Angels massage girls offering their service to tired bankers.

'We're known for throwing the most lavish parties for the banking industry' says Head of PR for Square Mile magazine 'and this year was no exception'.

10. Totally a video of last year's Square Mile party.

(Updated with cartoons)

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?

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29 Comments

Re #6 Bernard I put this

Re #6 Bernard I put this little gem up for you late last night just a tip of the iceberg behind the building scandals in China
  Here's a  wee story on China Natural Gas Inc.
http://www.sec.gov/litigation/complaints/2012/comp-pr2012-92.pdf

Christov: On first reading

Christov: On first reading that trial transcript, my first thought was "it's in their DNA, they cant help themselves" but on further reflection it seemed you could change the names to Pretricevich or Hubbard plus many of the other financiers, and it would read like the transcript of any of the local trials.
 
Second. Delaware is the registered domicile of the vast majority of US companies because the compliance costs in that state are the cheapest and and easiest of the lot. It's the corporate hub of the USA. This should be of interest to Gareth Vaughan and his research into John Key's drive to make NZ a financial hub, and the exploitation of the ease of registration of company structures. If the US tightens up its regulations, there will be a mass exodus to you-know-where.

On  to it as

On  to it as usual...iconoclast...and seeing a bit further than me to boot.
 

Hey Christov, I haven't seen

Hey Christov, I haven't seen any comments from your partner in crime GBH lately. Has he gone walkabout in his new homeland?

Hey Gareth...wish I knew

Hey Gareth...wish I knew myself, at the risk of sounding a little sycophantic I miss him round here.......seemed to know the buttons to get me to lighten up and remember to smile about stuff.
Nice to hear from you though....I've...uh ...been a bit slack on your colums lately, best I fix that right up.
Stay well. 

Hopefully he'll re-emerge

Hopefully he'll re-emerge soon. He does help keep us entertained.

We did suspect that Christov

We did suspect that Christov & Gummy Bear were the same person  ... manifesting different personalities? 

I don't know who " we" are

I don't know who " we" are Mortgage Belt........ But we are dead wrong....if you know your humour...we share a laugh but not necessarily from the same perspective.......
Case point in example..... in my opinion he's a good man....just like PDK or Steven..but not necesssarily from the same perspective.
 

OK  - was just checking ....

OK  - was just checking .... - perhaps it was that tolerance of perspectives that you share ....

GBH reported some time ago he

GBH reported some time ago he was being drug tested by a lady doctor for a tuna factory or some such. Can't find the reference.

........ I'm hibernating !

........ I'm hibernating ! ....... it is " winter " , here in Oz . Got a stack of books from Amazon.com , and  the coffee pot's always full .......
 
Life is good , my friends , very good . And to reward you all for your kind words ( blushing I am ! ) , I'll share my latest rort ......
 
Julia Gizzard's hard-Labour gumnut has introduced an income  tax-free threshold of $A 18 000 per worker  , to compensate for their damn fool carbon tax ......
 
.. any Kiwi couple wishing to escape the scorn & derison of the baby boomer bully , Bernard , can nip over to OZ , and earn to the tax free limit in seasonal jobs ( 40 % of all jobs in Oz are casual ! ) ....
 
...... then onceya got the $A 18 000 racked up ( $ 36 000 tax free per couple , added together ) , pop down to the local TAFE , and sign up for one of their brilliant free certificate short courses ......
 
What a bloody brilliant life this is ...... Ashamed of myself , for having once been a disparager of the Labour wastrals .......heh heh , haaaaaaaaaaaaa !

Hey up GBH...I'm just in and

Hey up GBH...I'm just in and out but coud not miss the opportunity to say Hi ....been missing you around here....Stay well Mon Ami talk soon
P.S. go read " Have the Conversation" thread  from Sunday gone....set up a week of ruckus for sure...good to see you again. 

Re #3 - I'm interested in

Re #3 - I'm interested in your views Bernhard: Are you in favour of forgiveness of debt only, or are you are you aligned with Prof Keen's moden debt jubilee model i.e. debtors having their level of debt restructured/forgiven and non-debtors receiving a cash injection (so as not to further punish savers)?

Wildsilver I'm interested in

Wildsilver
I'm interested in Keen's idea, although I worry about inflation.
However, if this global deleveraging really gets going then deflation will be our problem.
I also worry about moral hazard.
Good question to ask though.
cheers
Bernard
 

Fair enough. Although I

Fair enough. Although I suppose it could be argued that the moral hazard might be a moot point given that the finance system has been morally bankrupt for a very long time.
 

  The forgiveness of debt is

 
The forgiveness of debt is a great concept – but for the 1% enslaved to the money fetish it is likely to be anathema.  And Wildsilver, we must at all costs keep the 1% going, as they are the job creators – just yesterday, I saw a guy in Parnell, delivering $30 of gourmet pizza to some overly large houses.  He was on $13.50 an hour and told me he finds great meaning in his work with it being especially rewarding after achieving a quick delivery so the pizza doesn’t go soggy.   

#3. Pain for the lenders

#3. Pain for the lenders (which most probably believe fair enough) but gain for the borrowers - where's the lesson to be learn't in that?
The problem with that report is that it is based purely on a financial/economic/growth viewpoint which IMO is where the global problems start.  I believe it's time to step back and really question what is an economy from a non financial base.
This of course will be up to humanity as a whole and the only way is a natural reset of everything.  The politicians and central banks need to step out of the way and let it happen.
Of course it's going to happen anyway.

Financiers taking

Financiers taking charge,Libor,Fraud etc
Former Assistant Treasury Secretary Paul Craig Roberts says, “The last thing the banks want is a rise in interest rates that would drive down the values of their holdings and reveal large losses masked by rigged interest rates.”The Libor rate rigging scandal was all about keeping the financial system and the big banks from failing.  Forget prosecuting the perpetrators becauseRoberts says, “The minute those interest rates go up, the loss to people will just dwarf the interest rate loss.”  Fraud is now part of the system that keeps it from crashing.  Roberts has a PhD and was responsible for economic policy at the Treasury.  He says, “We are probably headed for a crash anyway because I don’t think they can maintain this forever.” 
http://usawatchdog.com/one-on-one-with-paul-craig-roberts-2/

Christchurch political

Christchurch political issues....
 
 
There is a massive amount of stuff going on in Christchurch with Local Government issues – covered on http://www.facebook.com/CantabriansUnite -
 
 
·         The Trespass Notice Fiasco – booting Cantabrians Unite Administrator out of the Council building for 2 years – unjustly.
·         Poor quality housing and health issues.
·         Overpriced sections release at South Rolleston.
·         Superb The Press Editorial explaining why Light Rail is not feasible.
·         .....and much more.....
 
 
Hugh Pavletich
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org

I really want Bob Parker to

I really want Bob Parker to get his wish for a light rail system in ChCh.  Only when the cost has bankrupted the City will the people of ChCh finally realise how bad his administration has been.

Sat's the troll who spent

Sat's the troll who spent 20,000 hours investigating deckchairs
 
But not the slope of the deck.
 
Light rail is required post-peak oil, as the car (and the suburb it spawned) will be in trouble.
But we have to deny anything like that, eh Hugh?
 

the other issue with roleston

the other issue with roleston PDK is how sustainable is that town with all those gardens in an area that gets about 400mm of rain a year?

Rolleston has an industrial /

Rolleston has an industrial / warehousing area, and a prison nearby, but generally its growth seems to be predicated on its inhabitants driving to Chch to work... does't seem sustainable on that front either.   

Small clusters will have a

Small clusters will have a better time of it that big cities.
 
Rainfall doesn't sound flash, though.

I would imagine that canals

I would imagine that canals could be the go for Canterbury.

Far canal, Scarfie......   :)

Far canal, Scarfie......
 
:)

Yeah I can see some value in

Yeah I can see some value in that scarfie....of course there'd be a big difference between a sterile concrete half-pipe blasted across the plains and a canal system that could encourage and sustain ecosystems along the way...
when people mention canals i'm reminded of the huge expensive canal system Gadaffi started in Libya which loses something like 70% of its water between source and destination.

Do you have this feeling that

Do you have this feeling that the economists and the news media are trying to divert attention away from the bankers and financiers by focusing on problems in China?

more like, who owns water!

more like, who owns water!