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Friday's Top 10 with NZ Mint: EU to extend and pretend again on Portugal and Ireland's debts; France's Tobin Tax disaster; Rolexes and bags of cash; Clarke and Dawe; Dilbert

Friday's Top 10 with NZ Mint: EU to extend and pretend again on Portugal and Ireland's debts; France's Tobin Tax disaster; Rolexes and bags of cash; Clarke and Dawe; 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 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 #3 on how US banks are pulling the wool over the eyes of regulators wanting them to hold more capital. CDOs are involved.

1. So why aren't there riots? - It's hard to believe this is happening, but a bunch of home owners in America were kicked out of their homes by banks even though they hadn't missed payments or it wasn't their fault.

They've just received compensation ranging from US$300 to US$5,000.

For losing their home unfairly.

It's as if America's population is asleep. No Wall St executive has been imprisoned yet to account for their role in creating the global financial crisis.

Banks have been bailed out by taxpayers and now the US Federal Reserve is debasing the currency, at least partly to save these banks.

Here's the Salon report. Read it and shake your head. HT DH in yesterday's Top 10.

The Office of the Comptroller of the Currency (OCC) announced Tuesday details of how much money the banks will pay homeowners who were found to be wrongfully foreclosed on, or who suffered financial harm at the hands of the banks. Just as a sampling, individuals who had loan modifications approved by banks but were still foreclosed upon will receive a paltry $300. Six hundred seventy-nine people were faced with foreclosure even though they were never once in default; they will be compensated $5,000.

2. If you're going to do it, make sure everyone does it at the same time - A Tobin Tax on financial transactions makes sense when all countries do the same thing at the same time. 

A unilateral Tobin Tax, as attempted by France, will simply trigger an exodus of trading to the next door neighbour.

Here's Ambrose Evans Pritchard pointing to the disastrous experience in France. Although he thinks the Tobin Tax is a 'war on Britain', the current attempts in Europe will only bolster London's status as a Tobin Tax free zone. He also raises the prospect the Tobin Tax being planned by the 'Euro 11' could destabilise the Euro-zone's financial system.

The Tobin Eleven will impose a fee of 0.1pc for trade on shares and bonds, and 0.01pc for derivatives. These rates are far higher than the Swedish tax in 1989 that led to an 85pc crash in bond sales and a 98pc fall in bond futures, before being abandonded.

ICAP market analysts warn that the tax will "undermine prospects for sustainable economic recovery in the eurozone", raise borrowing and hedging costs across the board, make EU companies sitting ducks for takeovers and hobble banks as they grapple with €4 trillion of deleveraging. It does not make Europe safer. It will "increase the vulnerability of the financial system".

The International Capital Market Association says it would devastate the repo market, a vast pawn shop that allows banks to raise funds quickly and easily by pledging assets. It expects transactions to plunge by two-thirds overnight.

 3. Those sneaky banks - The New York Times reports how US banks are shuffling assets off their balance sheets to ensure they meet tougher capital rules being imposed by regulars. 

Twas ever thus. This sort of behaviour will just fuel the drive to break these monstrosities up and crack down ever harder on their leverage levels.

Banks have been shedding risky assets to show regulators that they are not as vulnerable as they were during the financial crisis. In some cases, however, the assets don’t actually move — the bank just shifts the risk to another institution. This trading sleight of hand has been around Wall Street for a while. But as regulators press for banks to be safer, demand for these maneuvers — known as capital relief trades or regulatory capital trades — has been growing, especially in Europe.

CitigroupCredit Suisse and UBS have recently completed such trades. Rather than selling the assets, potentially at a loss, the banks transfer a slice of the risk associated with the assets, usually loans. The buyers are typically hedge funds, whose investors are often pensions that manage the life savings of schoolteachers and city workers. The buyers agree to cover a percentage of losses on these assets for a fee, sometimes 15 percent a year or more.

The loans then look less worrisome — at least to the bank and its regulator. As a result, the bank does not need to hold as much capital, potentially improving profitability.

4. How expensive homes drive migration patterns - Here's a useful Forbes article and chart showing the connection between over-valued housing in California and migration rates out of California. There seems to be a connection. This may explain some of the high migration rates of certain age groups and demographics from Auckland to parts of Australia in recent years. HT Brendon.

5. Extend and pretend - Reuters reports that overnight European Union paymasters will give Portugal and Ireland more time to repay their debts. Obviously, austerity is contracting their economies and increasing the relative weight of their debts.

How long will Europe persist with this failed strategy?

Meanwhile central banks and markets continue to muddle through, avoiding the necessary debt restructure that crystallises losses for banks, pension funds and ultimately, rich savers.

The strategy is of course to try to create some inflation to make the debt go away 'painlessly'.

Dublin and Lisbon lost access to affordable financing in 2010 and 2011 respectively and took emergency loans from Europe, and extensions to these should make them less of a burden as the countries seek to put their bailouts behind them.

"The intention is very positive to look at the extension of the maturities both for Ireland and for Portugal," Jeroen Dijsselbloem, chairman of the euro zone finance ministers, told a news conference.

Lisbon called the current repayment schedule "impossible" and said it deserved an extension amid a tough austerity drive.

6. Not a good look for KPMG - FT.com reports A KPMG partner in the United States has confessed to passing on insider trading tips to a golfing buddy for Rolex watches and bags of cash. KPMG is also taking some heavy criticism for its role in the HBOS debacle in Britain.

Mr London, the former head of KPMG’s audit practice for the Pacific Southwest, allegedly gave confidential information about clients Herbalife, Skechers , as well as Deckers Outdoor and former clients RSC Holdings and Pacific Capital, to his golf partner Bryan Shaw, a jeweller.

In exchange for the information, he received a $12,000 Rolex Daytona Cosmograph watch, cash in bundles of $10,000, dinners and more than $25,000 in concert tickets, authorities allege. Mr Shaw made more than $1m by trading on the secret information, authorities said.

7. Euro exit or mass migration - Felix Salmon makes some excellent points at Reuters about why Cyprus should exit the euro.

If the troika won’t help Cyprus exit the euro — and there’s absolutely no indication that it will — then “Cypriots really are stuck”. The government would have no recourse, at that point. Individual citizens, on the other hand, could still take advantage of the relatively free labor mobility within the EU, and move to another European country where prospects are brighter. Is that likely?

Even within countries, people in poorer areas (the north of England, the south of Italy, the east of Germany) rarely move en masse to richer areas with greater potential; big movements between countries are rarer still. But the bigger the osmotic gradient between two economies, the greater the flow of human resources into the wealthier nation. And Cyprus has more than its fair share of the most mobile population in Europe: relatively young and well-educated people with good language skills.

If their future is brighter in the UK than it is in Cyprus, they’ll move there. Cyprus can implement capital controls, but it can’t implement emigration controls. Even if it does leave the euro, a lot of its most talented professionals will leave; if it doesn’t, and falls instead into what Greene calls “an endless spiral of austerity and recession”, the brain drain will make Latvia’s look modest. The cost of joining the euro, for Cyprus, will be no less than a hollowing out of its population, along with its economic and demographic future. Let’s hope that it manages to find a way to exit, somehow.

8. Why China might allow its growth to slow - Daniel Drezner writes at Foreign Policy about China's booming shadow finance sector, which prompted a recent sovereign credit downgrade by Fitch, and why China's leaders might allow growth to slow substantially.

One of the great mysteries in comparative political economy is why it's so bloody difficult for countries like Germany, Japan, and China to change their growth models. High-saving export-oriented economies don't change their ways all that much. To be fair, neither do low-saving, high import countries like the United States. This could be a "varieties of capitalism" story, but that seems ... inadequate as an explanation. 

Second, it's worth remembering that the conventional wisdom about China's government was that annual growth below eight percent a year would spell trouble for the government. The implicit contract over the past three decades was that the Chinese Communist Party would supply the growth in return for political quiescence. The end of high growth would imply that this social contract is in trouble.

Except that China's growth has been below that rate for the last two years and running. During that time, Beijing has weathered one major political scandal, a raft of minor political scandals, and a leadership transition without a hint of regime collapse. So while China's economy does seem to merit greater attention, I'm not sure that China's political economy will trigger the kinds of instability that have been predicted for so long. 

9. Ghost City? - Ordos in China has a reputation as something of a ghost city.

There is another side of the story. HT Leith at Macrobusiness.

A new documentary (trailer below) attempts to provide balance to the view that Ordos is a disaster in waiting, instead portraying a city signs of life and a hopeful and optimistic population. From the Atlantic:

10. Totally Clarke and Dawe on Australia's broadband plans

There's a gap between the node and the house...

The Liberals are planning a bicycle-powered Ultra-Fast Broadband plan...

(Updated with cartoons. Yay)

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.

19 Comments

Who has got their name down for Mighty River Power shares? Be interesting to see if MRP can weasel their way out of this one http://www.3news.co.nz/Iwi-looks-to-charge-Mighty-River-Power/tabid/1607/articleID/293476/Default.aspx#ixzz2Pr0uUR1o

 

 

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Thankfully, for ideological reasons I avoided putting my name down - but this outcome does raise other issues along with the fact that a piddling allocation of a few thousand dollars of MRP shares is too costly to handle brokerage wise.

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good one : once MRP is no longer in the hands of "society as a whole" a social trust should be set up to charge MRP's geothermal operations with mineral / mining style royalties for that stuff extracted out of the ground

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LOL, love it....what a classic.

regards

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1. So why aren't there riots?

....

that's a good question. Somewhere someone would have come up with an answer. I think it has to do with peoples inability to comprehend how the system works with sufficient confidence , as compared to Hitler blaming the Jews?

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John Maudlin discussing economic predictions with Anatole Kaletsky

“I think economists might be the functional equivalent of modern-day tribal shamans. Instead of peering at the intestines of sheep to forecast the future, we look at data through the lens of models we create, built with all our inherent biases, and then confidently predict the future or try to guide government policy in one direction or another, generally along paths that fit the predisposition of our immediate tribe. The most brazen of us move in and out of favor depending on whether we are telling our fellow tribe members and leaders and potential leaders what they want to hear.” Warming to my topic, I threw in this climactic line: “I think economics is more like religion and less like science than most of us want to admit.” http://www.mauldineconomics.com/frontlinethoughts/the-theology-of-inflation

....

The Catholic Church bans birth control in the Philipines turning a blind eye to the poverty that creates. Here economists tell us that population growth is a great blessing... and we similarily turn a blind eye to the harm that it does.

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Oooooops , the crypto-currency has impacted upon the financial brick wall known as  the " bigger fool theory " ........

 

... http://techcrunch.com/2013/04/11/bitcoin/

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Hugh Pavletich (the one-eyed developer) talks about "starter homes" ....naturally... in the suburbs (as there is always more land out there). Presumably "starter" is the young person getting a leg into the housing market. There is a missing X factor that is needed to explain why a nieghbourhood should necessarily prosper upwards under a a market free of regulation ( that is the implication of his Houston example), other than cheaper housing attracts workers and avoids a housing bubble (which diverts capital to unproductive investment). A house and nieghbourhood will always be a big proportion of a persons wealth and well being so if your "starter home" is crap (as we are seeing in Christchurch) ... we have shot ourselves in the foot? We work to live (some lucky people live to work.... doesn't work for me).

Suburban Disequilibrium

Today’s suburbs provide a map not just to the different worlds of the rich and the poor, which have always been with us, but to the increase in inequality between economic and social classes.

..

The point is not simply that rich and poor people live in different places through a kind of class sorting in the marketplace. The places themselves help to create wealth and poverty. Because of this power of places to fix inequity over time, current patterns are likely to outlive their residents.

Los Angeles embodies these processes in vivid ways, showing how recent trends have amplified uneven landscapes from the past. At the high end, San Marino, Palos Verdes Estates and La Cañada Flintridge have ranked for decades among the county’s top municipalities. All are picturesque suburbs, sited in some of the most visually appealing locales in the Southland. Adding to these natural advantages, each is carefully controlled by land-use restrictions that freeze in place their landscapes of high-end homes and freeze out almost everyone else. In San Marino, these buffers are so strong that home prices actually rose during the recession. At the other end, working-class towns like Azusa, San Fernando and Maywood began and remain in a lower tier. These suburbs started modestly with small homes and slender public investments, and they passed these humble trappings down through time.

 

http://opinionator.blogs.nytimes.com/2013/04/06/suburban-disequilibrium/

 

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#9.

It is fashionable to see cities  as wealth generators (of themselves). However:

 

Cities are the rich nodes of civilization, the centers of every nation's culture, its commerce, arts, and sciences, which explains why so much attention is focused on their forms, their structures, and their internal functions.  Much less attention has been paid to outer ties, relating the city ecologically to its larger geographic setting: the primary focus of this article.

Like coral reefs, cities are complex ecosystems: three-dimensional physical bodies, a close fusion of organic and inorganic components.  Analogous to individual organisms, each volumetric city ecosystem depends not only on internal exchanges but also on outside exchanges, relying on the latter for the provision of necessary energy/materials and for the disposal of unnecessary wastes.  The far-reaching effects of energy/material inputs and outputs constitute the ecology of these peculiar human-dominated ecosystems.

Confusion results when the inner functionings of cities, their physiology, is mislabelled their ecology.  An example is the book, "The Ecological City," a collection of essays that largely deals with internal improvements of urban settlements by designing into them more of the undomesticated world.1  True, an inner ecology does exist in every urban setting, but it is not the ecology of the city; it is the ecology of people, the connections between inhabitants and the city ecosystem that envelops them.

At the ecology-of-cities level, within Earth's regions, problems are much less tractable than at the ecology-of-people level, within cities.  Uncritically mixing the two dissimilar levels fosters an unwarranted optimism about solving city problems.  Babylon and Tikal are reminders that city planning and city beautification are no hedge against the dangers of peripheral influences, especially those rendered virulent by neglect.  

 

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"Yer what, mate? Can you say that in English please. I have no idea what you're talking about."

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BH, bein' as how Friday is the beer'n'pizza night, p'raps ye should consider introducing a Friday Rule to save our poor befuddled brains:

 

By which I mean:  a Friday Commentaterating Simplificaterationing Algorithm:

- delete any post which contains polysyllabicifications

 

Oh, wait....

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Actually, Waymad, you understood every word.

 

Unlike some polypersonifications.

 

:)

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So the tobin tax didn't work  because the banksters and corporates could escape to jurisdictions that don"t have  this tax I see this as a fault of these  countries like the USA rather than a fault of the tobin Tax idea. Just look at article  #1 and weep for the idea that the USA and the UK are in anyway jurisdictions that have the welfare of their people at heart. We are playing with fire by entertaining  a TransPacific Free Trade Partnership with these people

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#2 Tobin. 0.01pc on derivatives leads to a 98pc fall in bond futures sales. That's actually a great result.

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I gues people know this. A tobin tax is not really about revenue gathering and more about behaviour modification. So yes have a Tobin Tax to lower the number of cost free transactions.  Move transactions that have no cost to somewhere else, somewhere away from you. It is a good move. A society does not really need onor gain anything from them.

Anybody who says they help create a market is barking mad. They only create a market when things are going well anyway. If things start to go badly, then suddenly there is no market- and worse- flash crashes etc

 

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North and South The Great Kiwi Ripp-Off.. Why We Pay such a High Price to Live in NZ.

 

Blames price gouging due to lack of regulation in the non tradeables sector. "With no regulation, the companies running the show have a captive market and can pretty much raise their prices at will.  "not only electricity, gas and other utilitie services but also the financial sector and housing"

"financial services roared away and the housing market was allowed to push a long running bubble, so house prices inflated massively and with that, a whole set of associated costs".

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Yes JH and all the costs have thieving gst on top...govt just loves it....parasites happy to feed it...pollies too gutless to stop it...

The only course of action for Kiwi peasant is to avoid gst where possible. Starve govt of revenue.

As for local govt theft plus the gst on top...make it a point to vote against those in office and let them know of your intentions....pass it on.

 

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Cities are part of a wider eco system interacting with a wider hinterland. You can't just build a city in the middle of nowhere and expect it to survive.
Follow the link.
[Reply to Roger Witherspoon ..above]

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"Gridlock starts before 6am and finishes around 8pm".herald

This must be top of the list of reasons not to live in or near Auckland.

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