Thursday's Top 10 with NZ Mint: Bringing the bankers out of the shadows; Chinese builder plans to build the world's tallest skyscraper in 90 days and call it Sky City; The morality of repaying unrepayable debt; Dilbert

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

As always, we welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read is #1 on the morality of debt repayment when it cannot be repaid. Too late for me. I'm repaying mine.

1. The moral power of debt - David Graeber, the author of Debt:the first 5,000 years, talks in this BusinessWorld interview about the moral power of debt and how we just assume that 'monetary debts always win.'

He's talking about some deep issues in a radical way.

Ultimately, the western world's debts are unpayable unless growth bounces back to a reasonable level reasonably soon.

At what point do the powers-that-be acknowledge that slow growth outlook and revalue those assets?

At the moment central bankers, pension funds, governments and term deposits are hoping they can extend and pretend loan terms and print enough money to keep the whole shebang together for long enough until the engine fires up again. It hasn't yet and doesn't look like it.

It's about time we had that moral hazard conversation. At the moment we're putting it off.

Moral hazard cuts both ways. Making all debts collectable no matter how irresponsible the loan makes a moral hazard too, as does backstopping lenders as we now do. But somehow no one ever talks about that one. But that's pretty consistent throughout history. All I am saying is that a loan is just a promise and it should be treated no differently than any other promise. Of course, if you make a promise you should try to keep it. Our whole society is made up of promises we make to one another. But we are in the habit of treating promises made it monetary terms to be somehow more sacred than any other — so if you have different conflicting ones, we just assume that the monetary debts always win.
 
That's why if politicians promise to provide free education, to make an obvious example, and then get elected and realise they can't do that and also repay the countries' loans at their specific terms and rates, well, so much for free education, it's the promise to the banks that cannot ever be renegotiated.
 
One point I make in the book though is that debts aren't always treated in this way. Debts between poor people are renegotiated all the time. Same is true of debts between the wealthy and powerful — in 2008, they made trillions of dollars of debt disappear when it was AIG or Citibank in trouble. It's just when the poor owe to the rich that debts have always tended to be treated as an absolute, sacred obligation. That tells you something.

2. Europe's problems are enormous - Here's the FT with its analysis on the fissures opening up within the Eurozone and the EU over its new budget.

In the best of times, agreeing the long-term budget is a brutal and complex negotiation. Even diplomats practised in the arts of arm-twisting, conniving and “constructive ambiguity” say it is excruciating. Each of the bloc’s 27 member states has its own urgent priority, each wields a veto and each must be able to go home and declare victory. The joke is that the EU only undertakes the exercise every seven years because it is so painful.

But as heads of government converge on Brussels on Thursday for a special budget summit, the process is looking more fraught than ever. The hope is to strike a deal on roughly €1,000bn in spending from 2014 to 2020 for agricultural subsidies, roads and infrastructure projects, research and development and other items – a 5 per cent increase from the current budget. Yet the worst economic crisis since the second world war – and the resulting bailouts and austerity – have opened a faultline between the bloc’s richer and poorer countries, while hardening public opinion in many corners about the merits of EU spending.

3. Yale financial economics professor Gary Gorton writes in this FT Op Ed that the world's shadow banking system needs to be measured so it can be regulated in the same way that GDP was properly measured after World War Two.

National income accounting, one of the greatest achievements of economics, was built largely as part of the second world war effort and intimately involved the government, which had an interest in understanding the capacity of economies to go to war. Now we need to build a national risk accounting system. The financial crisis occurred because the financial system has changed in very significant ways. The measurement system needs to change in equally significant ways. The efforts made to date focus mostly on “better data collection” or “better use of existing data” – phrases that, at best, suggest feeble efforts. A new measurement system is potentially forward-looking in detecting possible risks. Another problem is conceptual.

Why weren’t we looking for the possibility of bank runs before the crisis? The answer is that we did not believe a bank run could happen in a developed economy. Modern macroeconomics and financial economics were developed during the recent period when there were bank runs in neither the US nor in Europe. The idea was that the economy had outgrown such problems. We did not understand that bank money is vulnerable to runs. Why did we think that? For no good reason. But, when an economic phenomenon occurs over and over again, it suggests something fundamental, such as other laws of economics – the laws of supply and demand, for instance, or the law of one price. Another law, we now know, is that privately created bank money is subject to runs in the absence of government regulation.

4. 220 stories in 90 days - Gizmodo reports a company in China called Broad Sustainable Building says it can build the world's tallest skyscraper (838 metres) in 90 days.

They plan to call it Sky City. Bags I'm not the first person in it...

Gizmodo details:

The record figures don't stop there: in addition to the 90-day construction time—as opposed to the 210 days initially reported by the Chinese media—the company claims it will cost $1,500 per square meter as opposed to the Burj's $15,000 per square meter, all thanks to the prefab technology.

They also claim it will be able to sustain earthquakes of a 9.0 magnitude and be resistant to fire for "up to three hours," as well as be extremely energy efficient thanks to thermal insulation, four-panned windows and different air conditioning techniques that were already used in their previous constructions.

Here's a timelapse video showing the same company building a 30 story hotel in 15 days.

5. Stress in China's local governments - The Atlantic reports local governments in China are starting to ask businesses to pay their taxes early because they are short of money.

As China's economic growth loses steam, its government has started to place more burdens on the shoulders of its citizens. According to the the Xiaoxiang Morning Post (@潇湘晨报), at the end of October, the Treasury Bureau of Zhejiang province asked companies to pay business taxes which were not due until 2013. Ye Tan (@叶檀), an economics and finance commentator, wrote on Sina Weibo, China's Twitter, that the phenomenon was not confined to Zhejiang. "I just received a call from a friend who is an entrepreneur in northeastern China. He said that local officials were collecting taxes for 2013. If companies refused to pay, officials would look up account books [and find an excuse to fine them]."

By pre-collecting taxes, the government is trying to offset a decrease in revenues. The growth rate of public revenues on a year-on-year basis was "only" 10.9 percent during the first three quarters of 2012, compared to 22.4 percent in the same period in 2010 and 29.5 percent in the same period in 2011. Although the growth of public revenues still far exceeds those of GDP and per capita income, many local governments have opted not to adopt austerity policies to rationalize their balance sheets, instead desperately searching for more revenue to cover their spending.

China's revenue stagnation can be traced to two chief factors. First, there is the slowdown in economic growth. In the second quarter of 2012, the year-on-year GDP growth rate was 7.6 percent, the first time the number has been lower than 8% since the outbreak of the global financial crisis. In the third quarter, the rate fell to 7.4 percent. Lower aggregate demand reduces the country's taxable base.

The second reason is a reduction in revenues from China's unique and troubling system of "land finance" (土地财政). The term refers to a local government practice of appropriating land from farmers with low compensation, then selling the parcels at high prices to real estate developers.

6. US$12.9 million for 34 parking spaces - Chinese investors are now being taxed for buying bolt-hole apartments in Hong Kong. So they're trying to find other ways to park their money in Hong Kong.

Here's the Reuters report:

Hong Kong investors are snapping up car parking spaces, raising fears of a bubble after government moves to cool soaring property prices last month drove speculators to seek new options.

One investor had put a total price tag of HK$100 million ($12.9 million) on 34 parking spaces in a commercial building near Western, said Sean Tsoi, a dealer at property development and investment agency AGW Holdings Ltd, referring to an area just five minutes by car from the heart of Hong Kong's financial district.

7. Extend and Pretend  - Here's a Reuters analysis on how Chinese banks are extending their loans to troubled companies.

The problems at China's Yingli Green Energy, the world's No.3 solar-panel maker, are going from bad to worse as the company struggles with mounting losses, collapsing product prices and a stock in free-fall. And yet, despite a government directive to rein in loans, Chinese banks keep extending credit to the New York-listed firm, and at below-market rates. Outstanding short-term borrowing has almost tripled to 8.2 billion yuan ($1.3 billion) since 2009, according to Yingli's 2011 annual report.

"You sometimes have to wonder why a certain loan was made," said Stanley Li, head of China bank research at Mirae Asset Management. "One problem with many Chinese banks is that we do not have much insight into their lending practices."

Yingli is one of many companies in China receiving life support from the country's banks. That support - at a time when China's economy and financial system are also under pressure - is raising fears that a spike in bad loans will push Chinese lenders into default.

A Reuters News analysis on 40 of China's most indebted companies - most of them from sectors already reeling with overcapacity such as wind-turbine maker Xinjiang Goldwind Science & Technology Co Ltd (002202.SZ) and COSCO Shipping Co Ltd (600428.SS) - showed debt levels rising as profits decline across industries that Beijing has said it wants to promote. On average, operating profit at these companies dropped 15 percent in 2011 as their debt piles grew by the same percentage, according to company and Thomson Reuters data.

8. Defaults grow as prices fall again - Reuters reports Chinese coal traders have started defaulting on their purchases of Australian thermal coal shipments again.

Traders had signed agreements to buy November-delivery cargoes in early October, according to the three sources, when benchmark Australian coal prices were at around $85 a tonne. The defaults came after prices slipped to a low of $81.40 in early November.

"Prices fell around $2-$3 a tonne when it was close to the delivery period. Stockpiles at ports and power plants were also high, so some of them got worried," said one of the sources, who declined to be identified as they were not authorized to speak to the media.  A fall in China's benchmark thermal coal prices last week, the first in ten weeks, has also unnerved some local buyers.

"It was a combination of reasons; weak demand, high stocks and some of them might be having problems issuing letters of credit at year end," said a second trader based in China.

9. Here's Tongariro's eruption at 10 times speed courtesy of Geonet via Youtube.

10. Totally Jon Stewart on the Texas Secessionists...'Stop, come back....'.