Monday's Top 10 with NZ Mint: Snakes and ladders; student success; Chinese canary; measuring recoveries; Chinese standards; Christine Lagarde; Oscar Wilde; Dilbert, and more

Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.

I will try to keep it upbeat today because Bernard is back tomorrow from Wellington ;)

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

See all previous Top 10s here.

1. Snakes and ladders
For decades, investment bankers have held the key to untold riches - but now they're being laid off by the tens of thousands.

As the crisis forces the industry to search for a new identity, is it ready to mend its ways?

Martin Hesse at Spiegel Online has his doubts: in fact there is a whif that the IB skills are shifting out and potentially creating dangers in other sectors.

Many investment bankers who are losing their jobs are also moving to hedge funds, where they now place their bets in the hidden world of the shadow banks. Others are looking for loopholes and new areas in which to ply their trade. Investment bank Goldman Sachs, for example, is engaging in risky deals for its own account, despite its insistences to the contrary. The bank's financial jugglers are circumventing a ban on such transactions in the United States by simply making bets for longer terms, which are not covered by the law.

Meanwhile, players such as JPMorgan are getting involved in the commodities market in a major way.Of all people, JPMorgan banker Blythe Masters, who became world-famous for the role she played in inventing the first credit derivatives, now heads the bank's global commodities division.

Things haven't changed much in the latest preferred sector of many investment bankers: At first, the banks only hedge against risks, but then they sell these risks and, to do so, they invent new and increasingly complex methods. Eventually, the volume they move around on the financial markets becomes so big that they acquire overwhelming influence. "If you ask me, this is the next scary thing," says one banker.

So is the system incapable of being reformed? Frankfurt personnel consultant Andreas Halin, who has been in the business for many years, answers the question with a telling comparison.

"Money is like saltwater," he says. "The more you drink, the thirstier you get."

2. Less risky? Really?
Daniel Altman of the respected magazine Foreign Policy has written that we are all missing some important shifts in official American debt and how that will benefit the US in the future. 

In the past several years, the national debt of the United States has undergone a tremendous change. Long-term securities - those with maturities of seven years or more - have gone from about 30 percent of the debt in 2009 to about 40 percent today. By 2018, according to the Treasury's own estimates, they'll make up 50 percent of the debt, a proportion the Treasury expects to maintain from then onward.

The United States is doing what any smart borrower would do: locking in low rates for the long term. As a result, its probability of default for any given level of debt has dropped.

The nature of government spending is undergoing a dramatic shift as well. For a decade, the United States spent roughly $100 billion a year on wars whose value to creditors - in terms of enhancing the nation's ability to repay its debts - was not exactly clear. Reducing spending in this area will make the United States more creditworthy. But even if this spending were simply replaced by programs that invest in the economy - infrastructure, scientific research, education, health care - it would still make the United States a less risky borrower. 

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This student grew up to become the US Federal Reserve chief.

3. Chinese canary
The explosive growth of "trust loans" in China has many insiders worried. More from Bloomberg:

So-called trust loans rose 679% to 264 billion yuan (NZ$50 billion) from a year earlier, central bank data showed on Jan. 15. That accounted for 16% of aggregate financing, which includes bond and stock sales. The amount of loans in China due to mature within 12 months doubled in four years to 24.8 trillion yuan, equivalent to more than half of gross domestic product in 2011, and the People’s Bank of China has set itself a new goal of limiting risks in the financial system.

“Short-term financing instruments such as trust loans have been rising really quickly,” said Zhang Zhiwei, chief China economist at Nomura Holdings in Hong Kong. “Quite a number of companies resort to trust loans when they face financing troubles. A breakdown in this financing chain will eventually lead to a default on debt this year.”

“Their underlying assets can be quite dodgy,” said Weisheng He, a strategist at Citigroup in Shanghai. “A lot of dodgy borrowers use high interest rates to lure unsophisticated investors. At this stage, the risk is controllable but if they continue to grow in size without strict regulation, it could be a time bomb.”

4. Today's raw market data ...
A quick holiday update:

5. Measuring recoveries
A slow recovery is better than none. The United States reported a 2.2% rise in industrial production in 2012, pushing the rate past the 2006 average for the first time since the downturn began in late 2007. Production has also exceeded the 2006 level in Germany, although it began to slip in late 2012, but other major developed countries are still below that level.

Car sales have recovered to some extent in the United States and Japan, but are still falling in much of Europe. We have superimposed the New Zealand data on this NYTimes chart.

6. When in Rome ...
Caterpillar, the world’s largest maker of construction and mining equipment, said it will take a US$580 mln (NZ$700 mln) writedown after discovering accounting "misconduct" at a Chinese unit. The discrepancy found was between physical inventory and accounting records, the company said. China represents about 3% of Caterpillar's revenue. Bloomberg has the story.

Caterpillar acquired ERA Mining Machinery, Siwei’s parent company, for HK$6.15 billion ($793 million) to gain factories that make underground coal-mining equipment in China, the world’s largest coal producer. The irregularities found at Siwei are the latest setback for Caterpillar in China, after it said in April that it was moving unsold excavators to other countries amid excess inventory.

“The actions carried out by these individuals are offensive and completely unacceptable,” Caterpillar Chairman and Chief Executive Officer Doug Oberhelman said in the statement. “We moved quickly and decisively to hold the responsible leaders directly accountable for the wrongdoing.”

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7. Bold ambition
Chrystia Freeland recently interviewed the IMF chief. Christine Lagarge wants to be the world regulator of banks. Reuters has both the video and a full transcript:

CHRYSTIA FREELAND: Well, what will be the next big fight? What’s the next big point we should be focused on when it comes to financial reform?

CHRISTINE LAGARDE: The shadow banking, which is clearly developing at a steady pace. Not outrageously fast and big, but at a steady pace. And clearly which currently escapes a degree of regulation and supervision. I would say that fragmentation is another problem that needs to be addressed as well, you know? Fragmentation by national markets ...

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8. Jakarta deluge
It may seem like a million miles away but the flooding in Indonesia is serious and the impact gets little coverage here. Fifteen people have died so far, but the bad news is that the brief lull in rain will end soon. The weather bureau is predicting the flood will peak again, with more heavy rain expected to hit this week. The floods are the worst to hit the capital since 2007, when about 50 people were killed and more than 300,000 were displaced. More from the ABC:

9. More pain for HSBC
HSBC has agreed to a US$249 mln (NZ$300 mln) "accord" (great euphemism) to settle claims of improper US foreclosures, joining 12 other mortgage servicers in a deal that now exceeds US$9 bln (NZ$11 bln), according to American banking regulators. But the level of 'consultant fees' these 13 banks have paid over the issue is eye-popping. More from Bloomberg:

Banks have paid more than $1.5 billion in fees to several third-party consultants, such as Promontory Financial Group, PricewaterhouseCoopers and Ernst & Young, during the abandoned review process, the regulators have said.

“I can’t help but question the effectiveness of a process that led to $1.5 billion in fees to a small number of consultants and only slightly more than twice that in relief to millions of injured borrowers,” U.S. Representative Carolyn Maloney, a New York Democrat, wrote in a letter to the OCC and Fed chiefs dated yesterday.

10. Today's quote
"When I was young I thought that money was the most important thing in life; now that I am old I know that it is."  Oscar Wilde