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Wednesday's Top 10 with NZ Mint: Trying to regulate shadow banking without crashing the world; Australian mining investment 'in survival mode'; Victoria's Ransom; Dilbert
Here's my Top 10 links from around the Internet at 12 pm today in association with NZ Mint.
As always, we welcome your additions in the comments below or via email firstname.lastname@example.org.
My must watch today is number 1 on shadow banking and how difficult it will be to put it back in the boss without crashing global financial systems.
1. Trying to regulate the shadows - Sebastian Mallaby has written an excellent column at FT.com about whether and how central banks should regulate the shadow banking system that operates around the fringes of repo markets, hedge funds, money market funds and securitised mortgage markets.
Mallaby says regulators have yet to really tackle it.
The same pseudo government and central bank guarantees remain, exposing tax payers to the same risks and creating the same old moral hazards.
The numbers are mind-boggling and the implied deleveraging required to bring these markets back to some decent level of leveraging is sobering.
Here's Mallaby's thoughts.
Now that the crisis has receded, what next? On both sides of the Atlantic there is an earnest push to fix the plumbing of the shadow banking system: regulators want money market funds to hold capital buffers; they aim to reduce the repo market’s precarious reliance on vast financing from clearing banks. But, though these initiatives are valuable, policy makers are not grappling with the core dilemma. Should asset-backed securities, money market funds and repo be viewed as a private system? Or should they be entitled to expect more rescues in the future – rescues that depend ultimately on emergency lending from the central bank?
Wherever you come down on these questions, what is really striking is their absence from the public square. It has been politically easier to chase bankers and their bonuses than to reckon with these fundamental problems: is quasi-money real money? If so, under what conditions? Yet until we resolve these issues, large swaths of finance will exist in limbo. There will be implicit guarantees but not explicit ones. There will be moral hazard but no honest recognition that its consequences must be managed. Whatever your preferred understanding of money, this intellectual muddle promises the worst of both worlds.
2. Astonishing Indian power collapse - The BBC covers the second collapse in Northern India's power grid in as many days. This won't help economic growth there, which is already slowing.
3. 'In survival mode' - The West Australian reports (via Yahoo) on the sharp slowdown in investment planning by Australia's mining companies. We need to watch this space as the lucrative 'fly-in-fly-out' jobs dry up for Kiwis and the 'escape valve' for the New Zealand labour market starts to close.
Only a quarter of Australia's mining companies are looking to invest in major projects this year, further fuelling concern the mining investment boom is over.
A report released today says the mining industry appears to be in survival mode, with just 25 per cent of Australian companies planning to invest in major capital expenditure projects in the year ahead, compared to 52 per cent last year.
The Mining Business Outlook report, compiled by Newport Consulting, also found that only 20 per cent of mining leaders were very optimistic, down from 57 per cent last year, and more than a third were not optimistic, compared to just 13 per cent last year.
4. Attacking the mining lobby - Australian Treasurer Wayne Swan has doubled down on his criticism of mining magnates Clive Palmer, Gina Rinehart and Andrew Forrest.
As acting prime minister in March he challenged the "vested interests" of the billionaires in an essay published in The Monthly magazine, in which he accused all three of using their financial muscle to unfairly influence the national political debate.
"My only regret is not going in hard enough, because every criticism I made has been played out almost to the letter on our national stage," he will say in a speech in Melbourne on Wednesday night.
"So one tycoon is using his money to challenge the principle of fair taxation through electioneering," Mr Swan will say, according to a copy of his John Button Lecture address obtained by AAP. "A second is using his money to challenge it through the courts. And a third is using her money to challenge it by undermining independent journalism.
"Parliament, the constitution, independent journalism - all three are fundamental pillars of our democracy, being used as their playthings, supported every step of the way by the leader of the opposition."
5. How will Christchurch pay? - The Press reports the central government is dumping the cost of the big new CBD rebuild on Christchurch ratepayers.
That will only delay the rebuild.
I think there's a case for the government to borrow the money at 3% or simply print it to get this rebuild going.
Ratepayers face having to bankroll most of Christchurch's planned new civic facilities after the city council was given a clear message by the Government that it will not pick up the tab.
While the Government is happy to take the lead on some projects, such as the new emergency and justice precinct, it expects the council to drive the construction of facilities like the new sports stadium, convention centre and metro sports facility.
6. A Victoria's Ransom - The AFR reported San Francisco-based Kiwi entreprenuer Victoria Ransom looks to have done fantastically well from the sale of her Wildfire Interactive social media firm to Google for around US$250 million.
Good on her. Here's a 3News interview from 2011 with her.
7. 'Thursday's meeting will be a nail biter' - Ralph Atkins has a nice preview at FT.com of the ECB's key Thursday meeting to decide what 'Super Mario' Draghi meant last week when he said he would 'do whatever it takes' to rescue the euro.
The options are limited by what the Bundesbank will accept. This could get real ugly real fast if the markets are disappointed on Thursday night our time.
Mr Draghi has left a lot of unanswered questions, however. Will the ECB overcome the “seniority” problem of a revamped bond-buying programme by finally taking losses on its Greek bonds? How will he keep the Bundesbank on side, or at least prevent it undermining the credibility of any ECB intervention? Will it somehow try to distinguish between “convertibility” premiums and other factors driving up bond yields?
The unscripted nature of his comments last week – ahead of Thursday’s ECB policy decision – suggests Mr Draghi was trying to bounce some members of its governing council into backing a plan for which he had not yet secured sufficient support. Does that mean a decision could be delayed? Will politicians have to act first, for instance in dealing with Spain? Thursday’s meeting will be a nail-biter.
8. 'Just get on with' - GMO's Jeremy Grantham is always worth watching and now he is saying the world should just get on with letting the chips fall where they may.
The economic environment seems to be stuck in a rather unpleasant perpetual loop. Greece is always about to default; the latest bailout is always about to save the day and yet never seems to; China is always about to collapse but instead teases us by inching down; and I swear the Financial Times is beginning to recycle its reports! In the U.S., the fiscal cliff looms along with debt limits and the usual election uncertainties. The dysfunctional U.S. Congress continues for the time being in its intractable ways. The stock market rises and falls and rises and falls again. It is getting difficult to find anything new to say at client meetings. I, for one, wish that the world would get on with whatever is coming next.
One slight change, though, is that fantastic (almost unbelievable) profit margin and earnings gains have finally weakened a little. They, together with Bernanke’s super low rates, have been the twin pillars of the market and not bad ones at all: here we are up 8% for the year in a thoroughly unsettling financial and economic world. With margins weakening, one of the twin pillars is looking shaky and price declines look more likely than before.
9. And then they just disappeared - SinoForest, the Chinese-Canadian company that is now bankrupt after being accused of fraudulently claiming revenues and businesses, has now disclosed it is owed US$500 million by companies that no longer exist...
Be very careful when doing business in China....
Because of rules in China, Sino-Forest used two different models for its business including using subsidiaries and “authorized intermediaries” acting as sales agents, as well as subsidiaries that directly carried on the forestry business in China.
According to its records, Sino-Forest says it is owed $887.4 million from authorized intermediaries, of which $504.8 million is owed from intermediaries that have been deregistered.
Of another $126.2 million owed from other corporate customers, $63.8 million is owed by six Chinese companies, including one of the three main deregistered companies.
Sino-Forest, which was once a stock market darling, has been mired in accusations of fraud, after Carson Block and his research firm Muddy Waters accused the company last summer of being a giant Ponzi scheme.