Monday's Top 10: Matt Tabbai on ratings agencies; threepeat; rising credit spreads; low-cost supplier; Bernanke's replacement; Pascal Bruckner; Dilbert, and more

Here's my Top 10 links from around the Internet at 10:00 am today.

Bernard is back tomorrow with his version.

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. Fiddling the ratings
Bernard Hickey says it's a doozy, and he's right.

Matt Tabbai has written a searing expose of the credit ratings industry, drawing on documents that the US Government is using in its lawsuit against S&P and Moody's.

In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

You've got to read it. (I feel sorry for the many honest diligent people who work in these companies, but they are all going to be smeared by this.)

It probably deserves its own movie.

It's in Rolling Stone Magazine here:

What's amazing about this is that even without a mass of ugly documentary evidence proving their incompetence and corruption, these firms ought to be out of business. Even if they just accidentally sucked this badly, that should be enough to persuade the markets to look to a different model, different companies, different ratings methodologies.

But we know now that it was no accident. What happened to the ratings agencies during the financial crisis, and what is likely still happening within their walls, is a phenomenon as old as business itself. Given a choice between money and integrity, they took the money. Which wouldn't be quite so bad if they weren't in the integrity business.

2. Threepeat
For the third year in a row, the BIS has ranked Australia's big four banks the most profitable in the developed world, raising questions about their market dominance. They make profits of  of NZ$84 million per day according to a story today in the Sydney Morning Herald:

With big bank profits likely to exceed AU$26 billion this year, figures show the Commonwealth Bank, Westpac, ANZ and NAB made better returns last year than lenders in 10 major developed countries, including Canada, the US, Britain and Europe.

In figures to be published on Monday, the Switzerland-based Bank for International Settlements says pre-tax profits of the big four were equal to 1.18 per cent of their total assets. This puts Australian banks well ahead of all other wealthy countries on the list, with lenders only in the emerging economies of Brazil, Russia, India and China making better returns.

The league table shows Australian banks have lower costs than most of their peers and enjoy wider interest margins, a measure of profitability from lending.

3. 'The Great Degeneration'
Historian Niall Ferguson has a new book, one where he claims the world is now going to hell. It's a big turnaround for someone who has previously and fiercely argued the West was winning. From the about-face view, his change of heart is interesting.

Slender by Ferguson standards at 174 pages, the book is based on the author’s four BBC Reith Lectures delivered last year. Ferguson, who has been a professor at Harvard since 2004, diagnoses the maladies facing the U.S. and, to a lesser degree, the U.K.

And these are? We spend too much, especially on intergenerational transfer programs like Medicare, Medicaid and Social Security. We seek redemption in elaborate regulation, which is guaranteed to throttle the economy. We are in danger of replacing the rule of law with the rule of lawyers. Our system of education perpetuates the existence of a mandarin class. Finally, we have abdicated our responsibility as citizens in favor of the state.

4. Today's raw market data ...
A quick new-week update:

5. What's coming in China
Here's a video I think you should watch. It will give you a great summary of where China is in its drive to modernise, how far it has to go and where it is headed. It's a perspective you need to know.

It's fair to say New Zealand's future will be bound up with how they make these transitions - both for good and bad. I can't embed this video, so you will need to go to this link:

“It’s safe to say that China has had the single-biggest buildout of infrastructure in the history of mankind,” says McKinsey’s Jonathan Woetzel. “And clearly still more to go.”

Indeed, despite the progress resulting from hundreds of billions of dollars in investment over the past 15 years, the efficiency of China’s infrastructure still lags behind that of developed countries by decades.

Moreover, as part of the country’s effort to modernize its economy and society, it is on a path to create numerous urban clusters - of as many as 50 million residents each - that will require massive investments to make them accessible and environmentally sustainable.

6. Borrowers beware
I am not sure how many readers realise how big and potentially destabilising the Chinese credit crunch really is. It is REALLY BIG, and for kiwi borrowers it holds real risks. The Chinese authorities are working to contain it but they have a mind to let it play out to rid themselves of some considerable excesses - and they have form for doing that.

It is behind the recent rise in wholesale swap rates, but you can best see it in rising credit spreads. This chart which we put together over the weekend shows it clearly. These aren't small movements:

7. Against environmental panic
I think I am an optimist. I like the thought that while pessimists are usually right, it is only the optimists that get things done, that make worthwhile change. And so I read with interest what Pascal Bruckner, a French lefty thinks in his new book. He has lost patience with the Greens, it seems.

The friends of the earth have for too long been enemies of humanity; it is time for an ecology of admiration to replace an ecology of accusation.

Save the world, we hear everywhere: Save it from capitalism, from science, from consumerism, from materialism.

Above all, we have to save the world from its self-proclaimed saviors, who brandish the threat of great chaos in order to impose their lethal impulses. Behind their clamor we must hear the will to demoralize us the better to enslave us. What is at stake is the pleasure of living together on this planet that will survive us, whatever we do to it. We need trailblazers and stimulators, not killjoys disguised as prophets.

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8. Cheap
No wonder New Zealand is a favourite place for Chinese companies to source milk products. It turns out we are cheap.

A recent story in The Peoples Daily says the cost of raw milk in China is 3.40 yuan per litre. That's a cost of NZ$0.717 per litre at today's exchange rates.

The 2012 Fonterra financial statements show that they paid dairy farmers here $9.03 billion for 17 billion litres of raw milk, or NZ$0.53 per litre. Raw milk is 26% cheaper here than in China, and that's before the value of our trusted supply source is factored in. No wonder Chinese companies are racing to set up here.

9. Seven candidates
When you think of the US Fed, you think of Ben Bernanke. But this past week saw some signals from President Obama suggesting that Bernanke may not get (or want) to be reappointed. So who will the next Fed chairman be? Of the seven current informal candidates, two are women, and one is considered the front-runner - Janet Yellen. Marketwatch has a high powered list. This is what they say about Yellen:

A member of Bernanke’s inner circle, Yellen is a clear favorite in the race to replace Bernanke. Yellen, 66, has been helping make Fed monetary policy, with a few breaks, since 1994. Yellen, now the Fed vice chair under Bernanke, was the president of the San Francisco Fed Bank before coming back to Washington in 2010.

10. Today's quote
"Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are." – James W. Frick