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Thursday's Top 10 with NZ Mint: What the red tops think of the UK budget; An Epsom house sells for double CV and will be bowled; The shadow over Australia's Iron Age; Dilbert

Posted in Opinion Updated

Here's my Top 10 links from around the Internet at midday 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 #1 from Martin Wolf on the need for bank shareholders to just accept lower returns on equity. 

1. Show me the equityAll this debate about Open Bank Resolution and deposit insurance would all be redundant if banks had a lot more equity.

Martin Wolf at the FT points this out when discussing the Cyprus crisis.

If New Zealand's banks had a 20% equity buffer then there would much less of a need for a deposit insurance scheme or the fig leaf of an Open Bank Resolution scheme.

But instead they have around 8%.

They do this to ensure a high return on equity and high dividends.

That's the guts of the economic crisis globally. Banks are too leveraged.

The eurozone must either make the industry far more robust, by hugely increasing equity capital, or consolidate fiscal capacity and tighten regulation, to ensure adequate eurozone-wide oversight and fiscal support. What is frightening is not that tiny Cyprus got into trouble, but that it is a source of wider danger. Banking is dangerous everywhere. But it still threatens the eurozone’s survival. This has to change – and very soon.

2. The genie is out of the bottle - Government and policy maker fear about moral hazard is driving a lot of the attempts to pull back from guarantees and use Open Bank Resolution style schemes. Cyprus is just sheer desperation.

Here's a survey via The Street of bank bond holders in America saying they now expect government bailouts. If that's the case, the way to deal with it is a deposit guarantee.

Asked by the panelists to raise their hands if they expected banks to be bailed out if they ran into deep trouble, all of the roughly 40 bond investors in attendance on March 14 at the Bank of America Merrill Lynch 2013 Fixed Income Bank and Finance Conference did so, according to two people who were there.

3. A growing shadow over the Iron Ore Age - So says Stephen Bartholomeuz at BusinessSpectator. 

4 God help us - Or at least impose some macro-prudential controls and an OCR hike. 

Anne Gibson at NZHerald has the story of the house in Epsom that sold for double its CV this week. 

5. Some times the British tabloids can be excellent - Here's the Daily Mail with some fancy Photoshop footwork to comment on the budget.

6. And another one from The Sun explaining the British budget.

7. Capital controls in Cyprus - Here's the Telegraph with the latest on capital controls in Cyprus, where the banks look like they will be closed for another week. 

8. Keep an eye on Bitcoin - Bloomberg reports that the price of Bitcoin, an alternative currency, has soared in recent days and downloads of the apps in Spain and Portugal are surging. 

9. Unconventional policy forever - Ryan Avent at the Economist has a look at the latest comments from Ben Bernanke after the US Federal Reserve kept rates on hold near zero% again and said they would stay there until 2015. 

10. Totally Stephen Colbert on North Korea and a new 'Save the World' video.

 

(Updated with missing links and video)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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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.

45 Comments

Yes, 8% means for each $1 in

Yes, 8% means for each $1 in equity the bankers can lend $12.5 on the operations side.
So $11.5 comes from depositors and or bond holders.
And the $12.00 (less bank fees) goes to the dairy farmer, when his whole farm facility needs be less that 50% LVR for at least one day of the year..... See the income effect of bank fees.....
 
In the scheme of things you can see how equity really is just an accounting entry, and the true scale of what gteeing the banks creditors means. In this case a 10% haircut for depositors doubles the bank equity (assuming the first lot of equity was really there to begin with).
 
On the bank end/finance side ever increasing dividends mean share price goes up, and with exe rewards.
And continued credit growth by them is such a must inspite of the condition of the bank borrower.....
 
As an aside we heard from a bank IT boffin last week, he thinks they can reduce bank it costs by 30% to 40% p.a . And the the saved money you ask.
Well he said its great, that money we put back into "product development" - letting customer "tweet" their account etc, so as to increase business and let us IT types do cool things in the cloud......
What on earth we thought, they are running the bank like a wii game /ps3 / xbox(grand thieft auto/gone in 60 seconds) we hear you say.
 

"... 8% means for each $1 in

"... 8% means for each $1 in equity the bankers can lend $12.5 on the operations side.
So $11.5 comes from depositors and or bond holders..."

 
Like 99.9% of us that's what I thought until recently. In fact it's not so. for mortgage money the truth is much more serious than that. The banks create that $11.50 out of thin air.
 
I'm surprised that the learned folk here didn't pick that up. I suppose those who understand it are happy benefitting from the system and the least said the better.
 
Most of the money lent by banks is created out of thin air and backed only by your commitment to pay it back. It’s just a data entry in a computer. The banks conjure up money out of nowhere and then they charge you interest on money they don’t actually have. They are literally making money out of nothing, it’s been going on for hundreds of years,

it’s getting more and more blatantly immoral with every passing day, it fuels the ever increasing spiral of debt, consumption, resource depletion, environmental destruction and climate change and it won’t stop as long as our current economic system continues

.

Nice work if you can get in on it. Ask John Key.

 

Ask yourself another question or two. Everybody in the whole damn world seems to owe money. It’s almost as if there is more debt than there is credit. That it’s not a balanced credit sheet. Not a zero sum game.

 

That can’t be true, can it?

 

Yes it can. That's the other aspect of this obscene system. The bank creates the money but the interest that must be paid over the life of all the loans in existence doesn't exist. There isn't enough money in the world to pay it. Therefore we require continual unsustainable growth and/or inflation to ceate the money to service the debt.

 

It sucks.

I think Bernard a little run

I think Bernard a little run up to Paratai Drive might be an eye opener for you.
 Three very large properties earmarked for demo, or in progress , absurd figures paid by..?
Non resident mainland Chinese
 Now as Council has rateable values for Commercial/residential /Industrial....which these good people are helping to put through the roof since the 2011 revision process, I suggest the add another category ........in the interests of balance when levying  N.Z.'s contributing  to the economy.
Non resident rateable values, based on prices set by non residents, becase the rest of us carry the burden  for the few who skew the averages.

The three don't include Mark

The three don't include Mark Hotchin's place do they Christov?

Now who do you spose bought

Now who do you spose bought them Gareth......?
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10840523
Is the PRC buying the world as we know one house/farm at a time...?
if you live in Auckland, you'd be forgiven for thinking so....eh?

The Parliamentary Press

The Parliamentary Press Gallery is obviously too exciting, Bernard.To save you time, let me add your standard commentary to #3:
 

  • Australian dependence on Chinese mineral demand blah blah
  • New Zealand dependence on booming Australian economy blah blah
  • When Fonterra becomes the new BHP will our kids come home and pay for our old age blah blah

Your grateful thanks is enough

you stopped at #6. Has the

you stopped at #6.
Has the goverment claimed the other 4 overnight and given it to the banks?

Tony Ha. Nice one. No. Twas

Tony
Ha. Nice one. No. Twas technical gremlins at my end. Updated now with the missing links. 
Can't blame the RBNZ or the Government for this one. Darn it.
cheers
Bernard

Double CV. Well says more

Double CV. Well says more about the Council and their valuers being piss poor at valueing as opposed to the actual price achieved....

Not at all. This is WAY above

Not at all. This is WAY above recent sales. I would have picked 1.8 max, although it was subdividable which is not so common for the area.

#1.  20% minimum Bank

#1.  20% minimum Bank Equity has my vote.  22% would be better

  Interesting

 
Interesting timing.
 
Glencoal (owned by Fonterra) has applied for resource consents to construct & operate an open cast coal mine at Mangatawhiri just south of Auckland.
Deadline for submissions is 5pm, Thurs 28 March 2013
 
 
Core business?

Core Business ?  Probably

Core Business ?  Probably is.  Fonterra is a huge consumer of energy in it's processing.  And has a big focus on managing that cost.  Because it's important for them.

F putting farmers first (its

F putting farmers first
(its more a management thing, rather than structure)
in the firing line / line of fire...
 
 

Open cast is certainly the

Open cast is certainly the way to go. It is our preoccupation with the RMA that is causing high risk underground mining. Do what the Aussies do. Dig a big massive hole in the ground and drive these massive warehouse size trucks to shift it. No problems with explosions with a massive great big hole in the ground. No build up of methane gas to cause explosions. Who cares about some trees. Lets make some money. New Zealand needs to start thinking about how poor we are and work towards fixing this poverty. Lets mine for our wealth.

http://www.euronews.com/2013/

http://www.euronews.com/2013/03/20/eu-soul-searching-on-cyprus-underway/
 
Euronews correspondent Efi Koutsokosta takes the story to Boston where she spoke to Athanasios Orphanides, who was Governor of the Central Bank of Cyprus between 2007 to 2012.
...
euronews: “Is this the beginning of the end of eurozone?”
Athanasios Orphanides: “I believe that unless European governments reverse the course that was outlined over the weekend, yes it is.”
 
 
...
 

Can somebody point me in the

Can somebody point me in the direction of something that explains Bitcoin in ordinary language? I really am struggling to understand where its value comes from.
And I know there is no value in Fiat money so save your fingers. ;-)

I don't know how realistic it

I don't know how realistic it is to turn the interet off, but if that is done bitcoin is worthless. Seems almost speculative as much as a currency alternative but maybe someone can convince me otherwise.
 

I know someone who is the nz

I know someone who is the nz " bank" for bitcoin. He explained it to me once. Seems kind of a honest system.At least you know what you are getting into. My thoughts were that the govts won't like it. Can't control or tax.
It's value is based on faith and scarcity. Much like a plastic hundred dollar note that is not backed by gold - is it really worth 100 bucks or are we all duped into believing it....

Posted on … Cantabrians UNITE

Posted on … Cantabrians UNITE facebook
 
·       They sure are crazy in Auckland – the Epsom transaction
 
·       Nick Smith still fiddling ?
 
·       Wendell Cox’s superb New Geography article on the New South Wales housing initiative
 
·       NZ’s Marmite famine end goes international
 
·       BBC Doco … What makes a great tenor ?
 
·       170,000 new homes for Sydney
 
·       Canadian housing market falls for 6th straight month
 
Hugh Pavletich

MoM has an interesting take

MoM has an interesting take on Cyprus.
 
She considers it's a 'pour encourager les autres' move by the ECB et al, who need to shut up the Grillinis (Italy, for those who haven't kept up so far), who (Grillinis, not the laggards) seem to be talking just a tad too much common sense some of the time.
 
The equivalent of a nice financial hanging, with rotting bank depositor corpses on public display in the gibbets.  There's certainly gonna be a stink....

Yes, curious stuff. Trying to

Yes, curious stuff. Trying to scare the Italians, trying to look tough to the German people, or, my favourite, showing the German people how untrustworthy those types in Brussels are when it comes to money. Of course it could just be bureaucratic incompetence a l'outrance (hope I got that bit right).

Wait for the next round of

Wait for the next round of increases in council rates, first in Auckland, to be followed by the rest of the country... 
Talk about cloud computing, or heads in the cloud?
Sheer madness, bring it on!!
HGW

The fact that the Epsom lot

The fact that the Epsom lot is to be subdivided shows that even at double CV, it is still financially and economicaly profitable to do so......Auckland City council Len Brown and Penny Hulse is either ignorant economically or purposefully economic with the truth about Auckland Land values.
 
If Land prices is high, how can you deliver affordable housing to the population ??
 
The high prices of land right now is a direct function of restriction of land supply via the MUL and the slowness of council approval for consent (it can take up to 18 months)....this cannot be changes until the underlying factor causinf it is changed ...ie the MUL and Council stupidity......led by its outstanding leadership.

All it means is expensive

All it means is expensive high rise buildings. Take a look at Parnell and you get an idea of how "cheap high" rise in Auckland suburbs will be. Expensive land equates to expensive apartments. We have to build in Huntly or anywhere along the southern motorway. Real cheap land. And run a railway link. Plenty of water from the Waikato river.
A mate just got an offer on his back section in Lynfield 500sqm for $480k. Ouch...and he is not selling because he is waiting.

Yes, please forward your

Yes, please forward your message to Len Brown and Penny Hulse....they don't seem to understand "Expensive Land equals Expensive apartments" and "Restriction of supply equals higher prices".
 
The cheapest land section in Flat Bush Greenfields type development is $370,000.
How much do you think the total Land Plus House will cost ??
 
As long as land supply is restricted by the MUL, what is the incentive for owners to sell ??
 
Your friend is doing the right thing...wait another year and he gets another 100k for doing nothing but wait....

If you provide for

If you provide for residential development anywhere and everywhere in a totally unplanned manner - who do you think gets to pay for the infrastucture (i.e. roads and reticulated services) to get there?
 
Existing taxpayers and ratepayers.
 
Now Hugh P will argue that infrastucture bonds would solve that problem - but a return is expected on those - and who do you think will pay for that?
 
Existing and future taxpayers and ratepayers.
 
Comes a time when you just have to plan given the ability to borrow is not unlimited.  Our central government does not accept that yet - it believes most of our local authorities have plenty of capacity (based on the value of their infrastructure assets .. which valuations by the way are a questionable 'art' in itself).   
 
But that's not even the appropriate question.  The appropriate question is whether the taxpayers/ratepayers have the spare capacity. 
 
Here's a solution.  If as Nick suggests we "smash" the MUL - build a toll road access to each new subdivision as a means to pay for the infrastucture costs.   Then the REAL price of the land behind it will be revealed.
 
PS If you don't believe me - check out Kerry Knight, Director of Equinox Capital explaining it here.  He's involved with two big subdivision developments that are held up presently.  Why?  Neither central government nor local government have the money to get the infrastructure to his 'front door'.
http://www.radionz.co.nz/national/programmes/ninetonoon/audio/2548745/reforms-to-legislation-on-how-the-environment-is-managed
 
It's way toward the end but it is pretty funny... he bemoans the fact that they expect his development to pay - but admits he realises both of them (the governments) are broke.  Well, not quite those exact words - but you'll get the idea.
 
 
 

Well if we build in Huntly,

Well if we build in Huntly, then it is a Waikato council problem and not a Auckland problem. But it is cheap land. You have hectares of farmland for less than $500k. You can build for a community of 100k with land costing less than $500k. Water comes from Waikato River.

kimy, water may come from the

kimy, water may come from the Waikato River - but I can assure you those 100 thousand people aren't going to want to go down to the river daily to get a drink.

Our water is not free. It is

Our water is not free. It is charged monthly these days, $40 per household per month and it is a huge return for a investment in a pipe to the river. The average charge for a developer to use Auckland main sewerage and pipes, plan for a spend of $30k per house. Like I said it is not free. Development levies are massive. I am sure if you approach the Moari King living around the corner he would be prepared to investment in the infrastructure and collect monthly water bills from 100k residents.

Ah, but water is free - from

Ah, but water is free - from the heavens. It only costs when you want to reticulate it.
 
And these new subdivisions could also treat their own waste on site. 
 
So why then don't the developers build in that infrastructure themselves - as their developments would then likely fly through the resource consents process?

Well, if you want to go

Well, if you want to go green, then yes indeed put in water tanks and drink from the heavens. Reticulation is paid for by the developer. Auckland Council just run a big mains pipe. Like I said, speak to the Maori King, I am sure he would be keen to invest.
Sewerage, well the usual sewerage  ponds that are all over Auckland would be the usual way of taking care of sewerage. And again it is not free. We pay for monthly sewerage fees. Not too sure why you are hung up about these as difficult issues. Private investors would invest where there is a return. Council makes a massive return on the sewerage and water, they just waste money with excessive beauracracy.

Private investors would

Private investors would invest where there is a return.
 
Did you listen to Kerry's comment on the National Radio clip above?
 
The return is only there if the government (via the tax and ratepayers) cough up to get the services to/past the front door.
 
When the government's fail to commit on behalf of those tax/ratepayers - consents aren't granted and the development is delayed.
 
The high cost of your water and sewerage is what it is in Auckland because the government needs a return on its existing investment in order to fund the Kerry's of this world in to the outbacks and beyond. Get used to it.
 
 
 
 

Not so much go green think of

Not so much go green think of it as thumbs up to the council and Govn.  Take a look at earthship.org , they have houses that catch water and recycle waste and generate their own power.  So what need is there then for the council and its "wastefull" bearucracy?   or the SOEs? I would think libertarians would be jumping for joy at the prospect of not using socialised systems.
NB I doubt the council makes a return as such, but if you have numbers by all means put them up.
regards
PS I'd be all for such houses and would support them having a greatly reduced rates bill, ie no sewerage and water charges levied in the rates. 

Kin -  don't blame the

Kin -  don't blame the deck-chair attendants for the sliding.
 
There are 7 billion folk on the planet, twice as many as when I was born (and I ain't that old. They are chewing into the resources - spatial area is but one - at an unprecedented rate. As Christov says, there is competition, and it's global. The old understandings get swept away at some point - there simply isn't  'enough', and can't be.
 
There's an idiot comment up-thread about the 7 billion happily trundling on - that's hogwash. Most wake up wondering where their next meal will come from. That has to get worse, given that fossil fuels are behing mass food. That food, in turn, is produced from the land the sprawl wants. Don't think 'just Auckland', this is global.
 
http://www.golemxiv.co.uk/2013/03/the-slippery-grip-of-growth-guest-post-by-hawkeye/#comment-26232
 
http://www.resilience.org/stories/2013-03-20/the-illusion-of-invincibility
 
note the need to fudge the calibration - this is spin-doctor territory now. Those things in ultimate scarcity - and land area is one - will get bid-up until the last bidder drops out, and it will be hell-and-gone from the old pre-scarcity median-multiple nonsense. The amusing question is what backs the bidding - debt? Electronic proxy? How long will that farce continue? Reminds me of Mac and the Boys, who haggled for 3 days over the coal-range, then wrote an IOU which the fellow still has.....

There are 7 billion people on

There are 7 billion people on the planet ! ........ man , that sadden me enormously , .... very very sad , ... severe enormity .....
 
..... we're currently producing enough food to adequately feed 10 billion !!!!
 
Where's the extra 3 billion folks we could have but don't , huh ..... where oh where could they be ... wish they were here ......

How many have the resources

How many have the resources or skills to support themselves ?
 
An easy number to calculate ....
 
..... just subtract from 7 billion the total number of politicians and TV reality show contestants on the planet ....

Oh they're here GBH, they

Oh they're here GBH, they just vanish every census........ 
 From a profit perspective growth in human numbers increases the percentage margins from which to glean profit.
From a realists point of view , just too damn many of us to be good for anything in the long haul.
 How's the study treating you..?

True , but what if the

True , but what if the majority of that extra 3 billion people were 16 to 19 years old , and dressed up as Dallas Cowboy's cheerleaders ....... and if some of them were females , too !
 
...... the study's going OK thanks , Count ...... but I got my fingers & one thumb horribly burnt and blistered ...... which is to be expected when you're new to kitchen ops , except that we were making Caesar Salads at the time .....

thank the farmers for their

thank the farmers for their innovation and advances over the last 3 decades
they are able to feed the world .would be easier if stupid green policies werent in the way.but kudos anyway
 

The farmers "feed the world"

The farmers "feed the world" by turning fossil fuels into food using a farm.  When fossil fuels go into decline in the next 5 years or so and are finished by 2050 the farmers output will be back to the output they had 80 years ago - the damage done to their land in that time.
So really the stupid isnt the green's because they understand this, the stupids are the ppl who dont understand or dont want to.
regards
 

Don m is right of course ,

Don m is right of course , the farmers and agricultural researchers , plant breeders and the like , are the unsung heroes of our humanity enriched world .....
 
....... and given that our known fossil fuel supplies should last us another 500 years .... there's no reason to believe that we can't easily double or triple the world's current population .......
 
We can only hope for that eventuality !

Irrigation for crop

Irrigation for crop production in the semi-arid Texas High Plains is dependent on groundwater withdrawals from the Ogallala Aquifer, which is declining because withdrawals exceed natural recharge. Irrigation development in the region accelerated during the 1950s. Both irrigated area and volume pumped peaked in 1974 and steadily declined during 1974–1989. By 2004, however, irrigated area was nearly the same as it was in 1958, and volume pumped had
increased slightly.
 
http://www.cprl.ars.usda.gov/wmru/pdfs/Colaizzi%20et%20al%20ICID%20Irrig...
 
http://planet3.org/2012/05/09/irrigation-in-the-texas-panhandle/