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Friday's Top 10 with NZ Mint: The Capitalist's Dilemma; An Italian banker with wavy, shoulder length hair; Are Universities the newspapers of the future?; NZ ranked 31st in the love list; Dilbert
Here's my Top 10 links from around the Internet at 11 am in association with NZ Mint.
As always, we welcome your additions in the comments below or via email to email@example.com.
My must read today is #4 from Clayton Christensen, the author of the Innovator's Dilemma. He has a new theory about why so much corporate cash is not being invested and why so few genuinely innovative technologies that would restart growth are being created.
1. 'The Emperors of Banking have no clothes - Economics professors Anat Admati (Stanford) and Martin Helwigg (Bonn) have written a book called 'The Bankers’ New Clothes: What’s Wrong With Banking and What to Do About It.'
Here they write at Bloomberg about the problems with banking.
They're, of course, talking particularly about the Northern Hemisphere banks, but many of the principles and problems are the same down here.
They point out banks need to have plenty of equity to be safe, even though this reduces returns on equity for shareholders.
They reject the idea that extra regulation and the need for more equity will depress lending, and therefore the economy.
Some bankers may admit to mistakes leading to the financhttp://www.wired.com/business/2013/02/mf-clayton-christensen-wants-to-transform-capitalism/all/ial crisis that began in 2007, but they portray the crisis as a fluke or as an accident that is highly unlikely to recur in our lifetimes. It would be costly and wasteful, they claim, to tighten regulation to forestall an event that might happen once in 100 years. Tighter regulation, we are warned, would interfere with what banks do to support the economy, and this would have serious, unintended consequences.
Take bank borrowing. Excessive borrowing was identified as a major factor in the financial crisis. Bankers sometimes admit this. Nevertheless, the banking industry fights aggressively against tighter restrictions on bank borrowing. The constant refrain is that too much tightening would harm economic growth.
This is a typical bugbear, suggesting that we must choose between economic growth and financial stability. After all, who would be in favor of a regulation that reduces growth and therefore might have negative effects for all? In fact, the history of financial crises and instability, including the recent crisis, has shown that the greatest damage to bank lending and growth occurs when banks become distressed from having borrowed too much and lost on their investments.
2. An Italian banker with wavy, shoulder length hair - The drama around the world's oldest bank, the Bank of Monte Paschi, is fun to read from a distance. I wouldn't want to be a depositor or an Italian taxpayer though.
Here's the FT's investigation. The next couple of weeks in Italy could be interesting and dangerous for the European financial markets.
The roots of MPS’s downfall lie in its costly €9bn acquisition of Banca Antonveneta in the last days of the economic boom in November 2007. The buyout, done without due diligence, gave MPS the largest corporate loan book relative to its size in Italy, which today remains the jewel at the centre of the bank.
But at nearly 20 times earnings, almost double the average for Italian banks at the time, it drastically weakened its capital strength just as the financial crisis was about to hit. It was a deal from which chairman Giuseppe Mussari – a Calabrian dubbed Belli Capelli for his wavy, near shoulder-length hair – and his softly spoken chief executive Antonio Vigni, were never to recover.
Howe: If you had to list some industries right now that are either in a state of disruptive crisis or will be soon, what would they be?
Christensen: Journalism, certainly, and publishing broadly. Anything supported by advertising. That all of this is being disrupted is now beyond question. And then I think higher education is just on the edge of the crevasse. Generally, universities are doing very well financially, so they don’t feel from the data that their world is going to collapse. But I think even five years from now these enterprises are going to be in real trouble.
Howe: Why is higher education vulnerable?
Christensen: The availability of online learning. It will take root in its simplest applications, then just get better and better. You know, Harvard Business School doesn’t teach accounting anymore, because there’s a guy out of BYU whose online accounting course is so good. He is extraordinary, and our accounting faculty, on average, is average.
Cash hoards in the billions are sitting unused on the pristine balance sheets of Fortune 500 corporations. Billions in capital is also sitting inert and uninvested at private equity funds.
Capitalists seem almost uninterested in capitalism, even as entrepreneurs eager to start companies find that they can’t get financing. Businesses and investors sound like the Ancient Mariner, who complained of “Water, water everywhere — nor any drop to drink.”
It’s a paradox, and at its nexus is what I’ll call the Doctrine of New Finance, which is taught with increasingly religious zeal by economists, and at times even by business professors like me who have failed to challenge it. This doctrine embraces measures of profitability that guide capitalists away from investments that can create real economic growth.
5. The love ranking - Bloomberg reports on a survey asking people in various countries who had experienced love the previous day.
New Zealand ranked number 31 on the list, below Rwanda and Lebanon, but above Australia and Britain. Yay.
6. 'It's the voters' fault' - Economist Simon Evenett writes at VoxEu about the root causes of the Currency Wars and the lame excuses given by the likes of the Swiss, the Japanese and the Americans. He argues what's really needed is looser fiscal policy and freer trade, both of which are seen as politically unacceptable by their respective populations. Fair comment.
The root causes of today’s currency war lie not just in parochial monetary policy choice but in the backlash against fiscal stimulus packages and the political unviability of trade reform in the major industrialised economies. Pointing fingers at Japan misses the point. The responsibility for this latest outbreak of parochial decision-making goes much deeper.
7. Here come the Azerbaijanis - WSJ reports the sovereign wealth fund of oil and caviar exporter, Azerbaijan, is planning to invest heavily in Australian commercial property. It's all part of the safe haven buying by Middle Eastern and Asian countries awash with freshly printed US dollars.
Foreign investment in the last financial year into Australian commercial property—such as hotels, offices and malls—came to 39.4 billion Australian dollars (US$40.7 billion), nearly twice the year-earlier A$20.6 billion.
"Australia, in our mind, offers the best of the two worlds," said the fund. "Growth dynamics of the Asian countries coupled with strong landlord rights, long tenancy agreements and market transparency of the Western world."
8. Finish your plate - New Chinese President Xi Jingping wants everyone in China to finish the food on their plates. Seriously. It's all part of a crackdown on fraud and waste. It turns out lavish dinners with way too much food are a status symbol when bribing officials. HT Bill Bishop at Sinocism, which has an excellent daily email of curated Chinese news that's well worth paying for.
The Chinese Communist Party wants you to clean your plate, and it’s not afraid to barge into the dining room and take matters into official hands if you don’t.
Take for example an anecdote posted to Sina Weibo, China’s leading Twitter-like microblog, on Feb. 4 by Cao Lin, an editor and columnist at the state-owned China Youth Daily. Cao recounts a recent, large banquet ordered by several military officers in Beijing -- presumably on the state’s dime.
For the officers, the timing couldn’t have been worse: They convened just as the Clean Your Plate Campaign, a propaganda effort to encourage frugality and discourage food waste, especially by government officials, was taking off. Their banquet, like most government banquets, was assumed to be extravagant and include more than they could eat: “When the food came, a military inspector showed up. Those who go against the spirit of the times must be punished, so everyone at the table was criticized. Though the party hadn’t even started to eat, they were told to go Dutch and take home the leftovers and the consequences.”
“It is truly a blessing to start a new life in a place of such unbounded prosperity and plenty,” said 43-year-old émigré Bart Willard, adding that in his American homeland he had once been a construction worker but, like many of his shipmates, had gone years without work. “There was nothing left for us in the old country. Few trades were available to honest workers, most of us couldn’t afford our own dwellings, and our lives were plagued by routine deadly violence. That’s no way for anyone to live.”
“We’ve come here searching for a piece of the Chinese dream,” he added, wiping a tear from the corner of his eye. “Here, they say, anything is possible if you work hard for it.”