sign up log in
Want to go ad-free? Find out how, here.

Wednesday's Top 10 with NZ Mint: The fig leaf of Open Bank Resolution; 'Shut down or break up JP Morgan Chase'; The sneaky use of Salt, Sugar and Fat; Dilbert

Wednesday's Top 10 with NZ Mint: The fig leaf of Open Bank Resolution; 'Shut down or break up JP Morgan Chase'; The sneaky use of Salt, Sugar and Fat; Dilbert
<a href="http://bit.ly/107VHl0">Five key reasons people buy gold and silver</a>

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

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.

My must read today is #5 on Salt, Sugar and Fat. One for all in Fonterra to read. 

1. The fig leaf of Open Bank Resolution - It's great to see the Greens have managed to launch Open Bank Resolution (OBR) as a policy issue above the radar into the full spotlight of a political debate.

Gareth, David and I have been beavering away for a couple of years now reporting and commenting on the issues around OBR without getting much traction.

Now I'm in the Press Gallery it's interesting to see how these stories bubble away in the nether regions and then break out. The Greens leapt on the Cyprus haircut and it worked. 

Suddenly, the Press Gallery were interested. Hence the coverage last night and today.

I've explained what I think of OBR before (November 4) but here we go again.

OBR is a figleaf for the government and the banks to pretend there would not be a government bailout in the event one of the big four failed.

There is no way a New Zealand Prime Minister is going to stand up in the Beehive Theatrette and announce the savings of New Zealand Mum and Dad depositors in one of the big four banks was going to be used to recapitalise that bank. That is not a haircut. That is a political death sentence and would of course start runs on the other three banks. 

Our banking system is way too concentrated to allow for such a thing to be contained.

The OBR is a way for the banks and the government to pretend there is no taxpayer subsidy. Of course there is and it should be accounted for with a deposit insurance scheme. It would cost banks and depositers some money, but that would at least offset the cost over time of a taxpayer bailout. 

2. And the fudging begins... - Here's John Key explaining why OBR is better than a deposit insurance scheme: he thinks OBR would never be needed and is cheaper than a deposit insurance scheme.

Key is essentially betting a bank will never fail in New Zealand and he's using taxpayer money in the future to fund that bet.

Here's Key in this NZ Herald article:

Prime Minister John Key said the OBR policy was a "last-resort facility" and when told that few people seemed to know about it he responded that it was unlikely to be used.

"The basic principle is, what would you do in the event of a catastrophe, how would you recapitalise the bank and it's reasonable logic to say that is one way through that.

"This is really in the event a bank was in such a terrible mess that it fell over and had to start again," he said.

When asked about deposit insurance, Mr Key said there were significant costs involved. "The argument is it is so unlikely to happen that this is a cheaper way through it."

3. 'Why JP Morgan Chase should be shut down' - Les Leopold writes here at HuffPo about a damning US senate report into JP Morgan Chase.

By the way. JP Morgan Chase is registered as a New Zealand bank.

Here's Leopold:

If you want more evidence that JP Morgan Chase is closer to a criminal enterprise than a economically useful bank, then read the report from the Senate's Permanent Subcommittee on Investigations, JP Morgan Chase Wale Trades: A Case History of Derivatives Risks and Abuses. It shows in high definition how this mega-bank, touted as the best managed bank on Wall Street, repeatedly lied and dissembled to regulators and investigators.

We see a federally insured bank gambling recklessly in clear violation of the letter and spirit of the law. Although it was not the committee's intent, the report makes an overwhelming case that JP Morgan Chase it is far too big to regulate or even manage. That points us to only one sane and rational response -- shut it down.

4. The snakes are back in Ireland - The New York Times has this fun report on how many of the nouveau riche in Ireland bought pet snakes during the boom times.

Now the boom is over they have abandoned their snakes, which have escaped into the prevously snake-less countryside of Ireland.

A California king snake was found late last year in a vacant store in Dublin, a 15-foot python turned up in a garden in Mullingar, a corn snake was found in a trash bin in Clondalkin in South Dublin, and an aggressive rat snake was kept in a shed in County Meath, northwest of Dublin, an area dotted with sprawling houses built during the boom.

“The recession is the thing that’s absolutely causing this,” said Kevin Cunningham, a 37-year-old animal lover who started the National Exotic Animal Sanctuary after he left his job at a Dublin nightclub. He has transformed an old single-room schoolhouse near Ballivor, a hamlet in the Meath countryside, into a reptile sanctuary.

5. I hope Fonterra reads this book - This is a new New York Times best seller by Michael Moss called Salt Sugar Fat. Moss exposed the Pink Slime problem.

Fonterra is pursuing an 'ingredients' strategy. Food companies tweak their products with many ingredients, including those from Fonterra, to get to the 'bliss point'.

“Salt Sugar Fat” is not “Pink Slime: The Book,” in that it is not a shocking exposé. We already know that its title subjects exist andare bad for us. As Jeffrey Dunn, a former Coca-Cola executive, tells Moss of the highly sugared beverage he used to sell: “It’s not like there’s a smoking gun. The gun is right there. It’s not hidden.”

But “Salt Sugar Fat” continues Moss’s hot streak of ace reportage, chronicling the insidious ways in which big food companies, over time, have sneaked more and more of the bad stuff into our diets, to the point where we now consume 22 teaspoons of sugar a day and three times as much cheese as our forebears did in 1970. Supersizing, the bête noire of Morgan Spurlock and Michael Bloomberg, is only part of it. Moss visits with neuroscientists whose M.R.I.’s of test subjects demonstrate how the brain’s so-called pleasure centers light up when the subjects are dosed with solutions of sugar or fat. He then describes how consultants and food scientists calibrate products — “optimize” them, in industry-speak — to maximize cravings.

Virtually everything you can buy in a supermarket that’s not an outer-aisle pure food like milk or kohlrabi has been fiddled with to make you shiver with bliss — which will in turn make you buy the product again and again. The term “bliss point,” in fact, is used in the soft-drink business to denote the optimal level of sugar at which the beverage is most pleasing to the consumer. As a manufacturer, you don’t want to surpass or come up short of the bliss point because you’ll lose sales. By the same token, you want to locate the lower end of the bliss-point spectrum (and it is a spectrum, rather than a fixed point), because otherwise you’re just wasting money on unneeded sugar.

6. It's great to see Xero doing so well - I'm a customer and I hope it takes over the world. Here's a good interview Rod Drury did with Andrew Patterson on his Sunday Business show on Radio Live over the weekend. Drury criticises the government's apparent lack of support for services export drive 

It's the same old problem. Government is doubling down on dairy, which reduces the diversity of our income streams and therefore increases the risks.

7. Useful chart - This chart courtesy of Zerohedge shows how much depositors in various countries would need to be 'haircut' to rescue their banks. It's a near wipeout in many.

8. Money laundering - We should be thinking a lot about money laundering now as waves of freshly printed cash cascade around the globe and as governments embark on a rolling series of crackdowns on tax havens and lax banks.

Here's an Atlantic article on how one Chinese company laundered millions of dollars through slot machines in Las Vegas.

 

In a December 31 filing with the New York Southern District Bankruptcy Court, the Hong-Kong based liquidation firm, Borrelli Walsh, alleged that instead of being invested in China Medical, hundreds of millions of dollars that the company raised were "funneled to Wu [Xiaodong, its CEO] and his associates, including [Jenny] Bi [Xiaoqiong, his wife]." According to the filing, Wu gave Bi over $26 million between 2005-2010.

According to information that two of China Medical's creditors shared with Quartz -- and which they say they also got from the liquidators -- Bi put $62 million through slot machines at the Bellagio casino in Las Vegas between 2008 and 2012. Another source separately confirmed that the casino's records do show Bi's $62 million slot machine spend in that time period.

9. Why so few marriages - The Atlantic looks at the economic drivers behind why two in five all babies born in America are now born out of wedlock.

This is a complex economic mystery that we've explored often at The Atlantic, but we can take a big bite out of it by focusing on three factors: (1) The changing meaning of marriage in America; (2) declining wages for low-skill men; and (3) the declining costs of being a single person.

10. Totally Jon Stewart on political gaffes.

 

(Updated with lost links to #8,9,10) My apologies. Stuck in poor reception area.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

28 Comments

#1 and #2.

OBR is an illegal entity. Now depositors of monies into NZ Banks suddenly becomes potential shareholders of the banks if and when the bank fails !! Otherwise what is the rationale for depositors to "share" in the loss of the Bank ?? But on the other hand Depositors do not become Shareholders and get a share of the profits when the Bank succeed. !!

 

When has this new business principal even being discussed ??

 

John Key is speaking without thinking....if the banking system is sound and the RBNZ is strong in it's survellience of the system that Banks will not fail to the extend that OBR is necessary, the why the need for the OBR ??

Up
0

If there were ever any doubts about who the Reserve Bank works for, then this should dispel them all. Bottom line: we will plunder and steal from you, if that is what it takes to save the banks and all their cronies. Socialism for the rich....

Up
0

You got it Ludwig..they are parasites and the pollies are in their pockets. Keep any deposits short term and do not delay when you smell trouble..grab the cash or shift it out of NZ...to somewhere safe like Zimbabwe!..harhahaaaa

Up
0

Capitalism for the poor….

 

Up
0

 

It looks like John Key has solved our over-priced exchange rate problem and our laundered money destination problem in one act of genius!

 

http://market-ticker.org/akcs-www?post=218912

 

"Meanwhile, this is what Cyprus' attempt to do this has set up in New Zealand.

The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

Here we go folks."

 

Up
0

#8 Bernard I don't read that zerohedge article as being purely about bank deposits. It is a wealth tax and as such will be targeted where the wealth lies. In New Zealands case imaging being slapped with a 10-30% weath tax on your house. It will come, as the desperate search for unecumbered assets to back dodgy debt continue. It will come because what other options have we got to cover out debts?

 

Property Investors are an indentured part of the wealth stripping exercise, when their usefulness is up then they will be on the chopping block. Family homes will be collatoral damage.

Up
0

This is one reason why you do not have too much money in the bank as if you have a sovereign debt default or bank default you might not get your money. The current financial systems means its better to have a loan with the bank through housing so you are always in a position that you owe the bank rather they owe you. This way if the bank goes belly up , no problem as you owe them money.  Until we can build up enough trust in banks then bank deposits will be on the lower side.

Up
0

This is one reason why you do not have too much money in the bank as if you have a sovereign debt default or bank default you might not get your money. The current financial systems means its better to have a loan with the bank through housing so you are always in a position that you owe the bank rather they owe you. This way if the bank goes belly up , no problem as you owe them money.  Until we can build up enough trust in banks then bank deposits will be on the lower side.

Up
0

Again and again and again the taxpayer hostage threat. No, no insurance or taxpayer money is needed when our, taxpayer funded, regulator would do its work and pull the plug when a bank threatens to get into negative capital position. Wipe the stock holders, bondholders become owners, not enough? wipe the bondholders, not enough? Sell.

Account holders are not investors or speculators, they're customers. They get a pathetic compensation for time value. Effectively negative.

It is all about the depositors backing the stock and bondholder. For free. Because they have already done the work and make it so easy to steal from. Untill now by inflation, expanding credit to the hilt, driving up prices and by government deficits (all same thing really). But why stop there eh.

Up
0

Hmm, I do hope Xero actually get to like, you know, well, actually make a profit one day and like, er, well, they might even, like, you know, wow, pay a dividend!

Up
0

It's unbelievable a share price of $11,50 and they are not making a profit.  Only in the current economic climate could this be happening.  

Up
0

agree - something very odd going on here. No way would I have my dosh invested with a loss-making software firm !

Up
0

I was just wanting to draw attention to the fact that Xero is a fast growing teenager of a company and sometimes these grow into a grown up business and sometimes they don't. A grown up business pays a dividend, just as a grown up supports a family.

 

As an investment putting a thousand dollars into their shares could turn out to be a very good decision, and highly educational whatever happens. There is nothing like having some money invested in something to get you to learn about that area. Just be aware that your money may evaporate or multiply and you may not be correct in your assessment of which is more likely.

Up
0

BH has been such a cheerleader for zero, Rods a great guy... however the company has moved awfully slow internationally, ,only recently connected with any US players. Wish them well. Sure the foundation shareholders will be ok :-) 

Up
0

#7 Those haircuts are just to reach 180% of GDP and "restructure" debt, not pay it off. Ireland, Spain and Portugal really should default.

Up
0

According to the MSM Ireland is supposedly recovering nicely from the GFC.

Up
0

I really don't understand what all the fuss is about. We are looking to European countries as a indication of what will happen here yet not only is the political system really different but so too is the economic system, feels like weak comparison at best. If we then look at the US we see a exceedingly un-regulated market leading to crazy loans being offered (and accepted) and the GFC. I thought NZ was well regulated?

Why is this a serious issue in NZ? What is the likelyhood of one of the banks going under? Are we talking about a serious concern here or are we planning for the worst like I did when I prepared my Volcano-Emergency kit after the minor tremor in Auckland on the weekend. I'ld much rather spend time focussing on what we are going to do about the housing issue in Auckland and why we havn't been building up and providing more apartments.

Doesn't make sense for us to all afford a nice picket fence 1 story home.

Up
0

Housing dept in NZ is enornous. One big ponzi scheme. Exactly the reason banks are collapsing. But instead of going down and make place they will take entire ecomomies down with them. Because governments and regulators appear to work for them, not for us.

Up
0

Jeremy...    what u say is logical and makes sense....

Continuing with that logic...Can u explain why they would want an OBR in the first place..???

 I think it is the underlying philosophy behind this ...that disturbs most people...  

We are getting a very fine line between private property rights and what the State                       ( bureaucracy)  feels it can take....  Between property rights of ordinary people vs big business.... the term "marxist criminology" springs to mind.

 

Think of the uproar if instead of the OBR we came out with a law that said that any failed Banks' top level management will be imprisioned for life... ( throw in the Reserve Bank Governor as well )..

This law would be better than the OBR in preventing a Bank Failure.

Also... the idea that deposit holders are simply "creditors" is mischevious in my view.

Banks and the Banking system are very..very different to any other kind of business.

All transactional accounts are a part of the payment system...which is a kind of public/private enterprise...   

The payment system is both the oxygen and the lifeblood of our economic system.

the OBR is bollocks....   

To big to fail Banks sould be regulated and have the proper oversight... so they simply cannot fail..

 

Up
0

Banks and the Banking system are very..very different to any other kind of business.
All transactional accounts are a part of the payment system...which is a kind of public/private enterprise...   
The payment system is both the oxygen and the lifeblood of our economic system.

 

Exactly why the payment system should be separated from the banks so they can't use the armageddon threat for financial and political leverage.

 

It would be like linking Apple's survival to the internet and Apple saying if you regulate us or affect our profit too much we'll bring down the whole internet and economy with us.
 

Up
0

Hi Roelof, thanks for affirming im not talking nonsense!

I think we would want an OBR in a worst case scenario to simply be prepared for the unexpected. The protection of all of our money relies on the banks not going belly up which relies on risk being safely maintained. The OBR essentially adds a factor of finacial investment risk to even the simplest of deposits although this risk is very small. This will hurt smaller banks like those credit unions? while big banks with huge capital like Westpac and ANZ will be largely uneffected.

We get an amazing ratio at the moment 12month Term Deposits on 'safe' banks like Westpac at 4.20% while lending rates are advertised for the same period for as low as 5.19%!, Thats only 1% difference in the cost of borrowing and the cost of saving, no idea how they manage this as surely operating costs and risk (some company went under and is costing ANZ $20million or something?). But we want this to be at NO RISK which is indicitive of our relucance to put our money into something that could fail. Best put it under the pillow if you're really worried, the interest is barely anything for under 10k anyway.

When you increase the already considerable risk that financial investment has I think jail terms for anything but gross negligence would end up resulting in top level management people being paid more as they are putting their own lives on the line if they stuff up. Otherwise the risk associated with being at the top simply wouldn't be worth it the pay they would currently be getting sans prison term.

Its unfortunate that there is very little differentiation between US/EU banks and AU/NZ banks as there is significant differences there. People shouldn't compare banks that arn't in the same economic state or legislative restricitons.

I agree with increased regulation, enforcing debt/equity ratios for Home Loans would be a good start although then people would cry foul about banks not letting them buy a house and the rich get richer and the poor get poorer.

Up
0

This has to be the biggest beat up in years. People are reacting as though OBR is some new plan to make their position as depositors weaker. How many depositors realise at present that their deposits are unsecured and that in the event of a bank collapse they stand to lose 100% .? At least OBR means that some part of their deposit will be available to them and effectively next day. Contrast that with the depositors in Finance companies who had all their funds frozen for years in some cases and got back very little even then.

 

There has to be some legislation in place to deal with a bank collapse and some systems which allow a bank to start trading again quickly so the economy is not paralysed. That does not mean that one of our major banks is likely to be in harms way any time soon. Bernard is probably right that any Prime Minister would have to make depositors whole to prevent a collossal loss of confidence but OBR would make that cleaner would it not by defining the positions of various parties and enabling the authorities to take control of a bank quickly.

 

Deposit Insurance seems to me to be quite fraught as every institution would have to be admitted to the scheme and you get into the position of the srong and prudent safeguarding the weak and dodgy. It was deposit insurance that created the savings and loan catastrophe in the US by enabling those entities to solicit deposits via brokers at high interest rates while the depositors knew they were taking no additional risk for the additional reward. Those funds were then lent to speculators and spent on private jets and the deposit insurance scheme was left hopelessly insolvent.

 

They have a deposit guarantee in Cyprus. It is only as good as the guarantor.

Up
0

I agree with all you've said. The OBR at least makes it clear that depositors are second in line to take losses should a bank go belly up. And it at least tries to make some of the depositors funds immediately available should that occur. So now you know that, and if you're uncomfortable with that risk you can do something about it before things go pear shaped.

Up
0

I have updated with the mysteriously missing numbers 8, 9 and 10.

cheers

Bernard

Up
0

Bernard.  Congratulations on your good work around O.B.R.  It's really good to see such thoughtful informative Journalism.

Don't be too depressed that it did not have much impact at the time.  It's a sad but real factor that our environment looks short term only and loves hyped events.

What did kick off the interest in OBR of course was the Cyprus event.  And then everybody gets excited - for about a week.

Please keep up the thoughtful and informative work that looks below the surface.  Even if us punters don't seem too interested sometimes. 

Up
0

#5.  Can we even be sure anymore that they don't pour a bit of sugar into the milk ?

Up
0

Laugh....oh yes this has to be a fabulous funny..I thought it was nuclear powered!...so did Obama

"Barack Obama's hopes of a smooth start to his first presidential trip to Israel suffered a hitch on Wednesday when his armoured limousine broke down after a driver reportedly filled it with diesel instead of petrol. " telegraph

Up
0

#7 Um, I wonder what NZ's is....

That is of course (I assume 180% is public and Private debt)  So really shouldnt we just be concerned with the haircut of Private debt?

By that I mean default on private debt is not a soverign event, unless we did an Ireland, hence its impact is not so severe.  Bring on the OBR is all I can say.

regards

 

Up
0