Here's my edition of Top 10 links from around the Internet at 10:00 am today. We now have a Monday-Wednesday-Friday schedule for Top 10.
Bernard will be back with his version this Wednesday. Then we will have a final 2013 edition on Friday.
As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.
See all previous Top 10s here.
1. The Volker Rule is In
The Volker Rule is tough. And it's complicated. Banks operating in the US can now no longer engage in 'proprietary trading'. Whether the new rules will work won't be know for some time as the process and tests settle in. Certainly there are no lack of cynics (the usual suspects) and plenty of column inches saying 'its a paper tiger'.
It will probably operate a bit like the NZ legal clampdown on the finance company failings - slow to start, but effective in the end. US legal efforts against bank GFC crimes are looking similar.
One thing is for certain; the banks will try to game the new rules, and the regulators will work to prevent that. At least US regulators batted back the 'foreign bank' exemption attempt.
Here's more from BusinessWeek:
In 2009 former Federal Reserve Chairman Paul Volcker had a simple idea to prohibit deposit-taking banks from trading for their own accounts. Proprietary trading - wherein banks make bets in pursuit of profit, putting depositors and taxpayers at risk - shouldn’t be that hard to define, he told the Independent, a British newspaper, last year. “It’s like pornography,” he said. “You know it when you see it.”
Defining the sin of proprietary trading wasn’t as easy as the wise man believed. Regulators’ first crack at a Volcker Rule drew more than 18,000 comments. Wrangling went on for a year and half past the summer 2012 scheduled date for completion. Five agencies finally adopted the rule on Dec. 10. Including a preamble, it comes to 964 pages. The only people who seem truly happy with the final product are lawyers: Jones Day alone had 200 attorneys around the world reviewing the rule the week it came out. Compliance is expected to take 2.3 million hours of paperwork annually, according to government estimates.
No one can say for sure how the rule will work, because even in 964 pages it doesn’t spell out unambiguously what’s allowed. Janet Yellen, who has been nominated to become the next chairman of the Federal Reserve, said as she voted to approve the rule: “Supervisors are going to bear a very important responsibility to make sure the rule really works as intended.”
2. 'A paradise of untouchable assets'
Here's a new headache for New Zealand. The Cook Island's are now in the spotlight with their shameless tax-haven industry.
Being the Cooks' sovereign mentor will not be a good look for New Zealand. But no doubt the Cooks government won't take kindly to any 'patronising' from us. The problem is, they are running a tax evasion rort, pure and simple. And it won't end well for them. Similar schemes are not working out well for other tax haven jurisdictions, and the Cooks need to abandon this money-making track, which probably seemed like a good idea at the time. Alternative revenue sources are hard for tiny island nations to find. Also problematic will be that Rarotonga is now home to a bunch of fast-talking, persuasive lawyers and accountants who have the ear of elected officials. Their money is seductive.
The NY Times is featuring the Cooks in its weekend edition. Washington, their Treasury, and the IRS will have noticed.
International regulators have become more aggressive in efforts to clamp down on tax haven countries, offshore banks and their customers, but they have paid scant attention to the Cooks. Yet Americans are the biggest customers of the trusts, which may be held only by foreigners, not Cook Islanders. The islands’ official website calls the Cooks a “prime choice” for “discerning wealthy clients.” There are 2,619 trusts, according to the Cooks’ Financial Supervisory Commission, offering anonymity as well as legal protections. The value of the assets is not disclosed and it is against the law in the Cooks to identify who owns the trusts or to provide any information about them.
But a cache of documents obtained by the International Consortium of Investigative Journalists, based in Washington, reveals the owners of about 700 Cook trusts. The Cook data were among 2.5 million documents containing information about customers of offshore havens throughout the world. Earlier this year, the release of some of those documents, disclosing the names of tax-averse companies or government officials and their close allies, caused an international furor.
A close study of the Cook Islands documents by The New York Times and the international consortium shows that these trusts are popular with the wealthy in Palm Beach, Fla., New York and Hollywood. The trust owners include people who have been convicted of Medicaid fraud, Ponzi schemes and bilking employee pension funds. Many others are simply rich.
3. Stand up to bullies
The US has an embarrassing problem when it negotiates trade deals - the domestic tobacco industry. But the legal sands have shifted and it looks like it will no longer 'protect' its status when the deals like the TPP are negotiated. The Council on Foreign Relation magazine has the detail.
They also have detail suggesting New Zealand has been a country that backed off tackling the big US tobacco companies when they tried to use negotiated trade agreements to enforce access to our market and the right to use their trademarks. Not sure how accurate their claim is, but if it is true, shame on everyone involved.
As the tobacco industry's tactics on trade shifted, the controversy reignited. Tobacco companies began using trade and investment agreements to file legal challenges to block new cigarette labeling and advertising restrictions. Australia is fighting four different trade and investment cases against its cigarette packaging law. Similar cases have been filed against Norway and Uruguay and threatened against Togo. Investment disputes are expensive and the outcomes can be unpredictable. Many developing countries do not have the expertise or resources to fight. Even New Zealand and Canada backed away from planned tobacco regulations in the face of litigation threats.
4. China's drive to shutdown the foreign press
An issue every news organization knows about but rarely makes the front page is China's increasing aggressive attitude towards foreign journalists working there. Unless you toe the party line - literally - China has forcefully indicated it will not renew or issue visas. Criticism of officials is out - even if you are writing from outside China. China's intolerance to any scrutiny is growing, worrying. They only want reporting to parrot Xinhua (which is part of their intelligence network).
New Zealand is 'lucky' in a sense. We have no news people there. We take other's reports as part of our information stream, and our commercial people just get on with trade. But it will be the Americans who will have to do the heavy lifting again. But we will benefit if that pressure for openness and accuracy pays off.
So, what do they do? here's one suggestion on how to bring pressure on an an autocracy that tolerates little criticism of their ruling elite:
A US-China Bilateral Investment Treaty is near the top of the cooperation agenda for the two nations. It would be an important agreement for both sides, and China may in fact want it even more than the US does.
One of the prerequisites for good investing is accurate information. If China continues to tighten its restrictions on American journalists and/or if the US retaliates by limiting PRC journalists in the US, information flow will diminish markedly and businesses and governments on both sides will be unable to make informed investment decisions. Preaching to the Chinese about American values will not help move the Chinese on this issue, but making it about economics might.
The US should link the journalist issue to the bilateral investment treaty negotiations by insisting the agreement contains language guaranteeing fair treatment of each others’ correspondents, a reciprocal number of journalist visas etc.
That message needs to come from the White House before the end of the year. If Beijing balks the Obama administration should call off the BIT talks.
5. US$86 bln and counting
The financial punishment for the wrongdoings in the US mortgage market are adding up - seriously. They now exceed half of NZ's GDP - and that's just for six big banks. The table below is the score so far:
Since 2010, the Street’s six biggest banks by assets have shelled out $85.8 billion in settlements tied to the credit and mortgage crisis. That amounts to $40 million every day since March 2008 when JPMorgan Chase bought Bear Stearns.
Regulators have become increasingly aggressive recently in their pursuit of financial firms that played a role in the crisis. The $13 billion JPM settlement is a perfect example.
Many believed JPM was being punished by the DOJ after essentially helping the US government when it bought Bear Stearns and Washington Mutual. JPM says 80% of the $13 billion settlement is attributable to the those two firms it bought in 2008.
No matter though, because it looks like the DOJ isn’t stopping there.
In a recent interview with Reuters, U.S. Attorney General Eric Holder said the four components of the JPMorgan settlement would serve as a template for the Department of Justice in seeking future mortgage fraud resolutions. The settlement included a fine, acknowledgement from the company of the problems with the securities issued, consumer relief and the exclusion of any open criminal investigations.
6. Small fry loses
"In a global sense, car production in Australia is of a magnitude smaller than a rounding error." So says a local analyst. What surprised me in this review is that the big Aussie car maker is neither Holden or Ford. Mark Hawthorne looks at the demise of Holden through a international lens.
7. New politics of compromise?
The Americans are very close to having an official 2014 budget. It was achieved this year without the stress of last year - and no-one seems to have noticed it is a bi-partisan effort. What changed? Two astute observers, Zachary Karabell and Anatole Kaletsky both say it was the November election.
The result of the budget deal is to remove crisis from the agenda in 2014. Yes, the debt limit still has to be raised in February, but it is difficult to see Congress refusing to increase the limit on a budget that it passed. Crisis also creates a negative feedback loop with partisans such as the Tea Party and the media. You need crisis to fuel passion, and donations to the cause, and you need crisis to justify media coverage.
But the extremists lost those elections and the centre won.
And for all of this, we should be thankful. In an ideal world, we would be served by a political system of noble legislators attending to the public good with dignity and passion. There are many such individuals throughout government, on the local, state and federal levels. But Washington has become a morass of a system, and expecting and demanding the locus of societal change to emanate from that system is unrealistic and counterproductive. Lowering the volume, shifting the focus away from the goings on of government, and turning to what is happening outside of that realm, in a world teaming with billions of new entrants to the middle class and hundreds of millions of Americans navigating a changed workplace without daily reference to government, that is all for the best.
8. Asset sales vote changes no minds
Despite all parties doing their best to spin the results, the Referendum on assets sales turned out to be a big yawn. Here are the results in the perspective of the last general election, and the latest Morgan poll data.
You have to say that the 'no' voters participated less than would have been expected, and surprisingly, the 'yes' vote was stronger than you would have otherwise thought, given the result was never going to change anything. It doesn't look like this issue changed any minds, nor is it likely to have any significant impact in next years election. The campaigners seem to have motivated about three quarters of their supporters, and given there wasn't an active 'yes' campaign, it looks like they motivated 40% of their opponents to give them the finger!
To have any cred, this referendum needed the 'no' vote to exceed 1.1 mln - but no-one seemed to actually switch sides over it. (Ironically, a third more people voted 'yes' than signed the petition calling for the referendum in the first place.)
| Left ('no') | Right ('yes') | ||
| 2011 General Election | votes | 1,048,682 | 1,188,782 |
| % | 46.9% | 53.1% | |
| 2013 Referendum | votes | 895,322 | 432,950 |
| % | 67.2% | 32.5% | |
| Participated (of 2011 election) | % | 85.4% | 36.4% |
| Dec 9 Roy Morgan poll | % | 51.5% | 48.5% |
| Current potential voters | votes | 1,152,293 | 1,085,170 |
| Participated (of Dec 2013) | % | 77.7% | 39.9% |
9. Deflation in agriculture
The Europeans are advising the world that agriculture needs to shift from its output maximisation approach to an input minimisation approach. Somehow this will feed the world 'sustainably'.
Actually, they might be right, although getting there may not be very friendly to the poor at the margins. But it will satisfy Western middle-class sensitivities. Rabobank has the details: actually, New Zealand seems to be a long way down this path already with our pasture-based approach.
"Without a holistic approach towards feeding the world, the global agriculture industry's capacity to keep up with demand will be stretched at the expense of the environment", states Rabobank analyst, Dirk Jan Kennes. "A strategy that includes resolving structural resource imbalances, optimising F&A supply chain efficiency and reducing waste within the global F&A complex would ease the pressure on agricultural yield improvement and would help align the interests of the different stakeholders".
Rabobank has identified the over-application of fertilisers and inefficient water usage as critical to a step change shift in farmers' perception of best practice. Agriculture accounts for 70 percent of global water demand and technologies to optimise irrigation systems will be key to future water conservation. Similarly, an integrated approach is needed to optimise farm inputs to enable farmers to apply at the right time, place and rate; subsequently reducing the environmental impact and initial cost. Technological innovations in both areas are being developed as higher farm input prices incentivise farm input companies to spend more on research and development (R&D).
Every year, an estimated 1 billion tonnes of produce is wasted along global F&A supply chains. In addition to reducing waste, it is crucial that all links in the supply chain work together to solve the food supply problem. However, there is no one-size-fits-all solution. Rabobank has identified four different farming groups-agro-enterprises, family farms, smallholders and agricultural adventurers-which each require a unique approach to improving best practices. Such methods include:
- Soil conditioning for those farms which operate with less crop rotation
- High-tech innovations including accurate soil-water sensors and GPS technology for variable planting density
- Research, education and farming recommendations through less intensive ICT-services
- Land transformation and infrastructure through collaborations of funders, agronomic consultants and contract farmers
10. Today's quote
"Money’s only something you need in case you don’t die tomorrow." - Carl Fox (Martin Sheen) Wall Street
17 Comments
The campaigners seem to have motivated about three quarters of their supporters, and given there wasn't an active 'yes' campaign, it looks like they motivated 40% of their opponents to give them the finger!
Re:#8, I voted No sales and I did not buy any of the crippled MoM offerings - I knew better.
Who got the 'bird' again?
No chance - I said these companies were not fit for purpose and highlighting that matter through a partial public sale inevitably devalued the rump held by the taxpayer. Both sides of the state versus capitalist ownership divide ended up losers except for the advisory, underwriting cult.
Is it Dutch Disease or are the Dutch are giving Fonterra a headache ?
Anyone see the story about Anchor butter in the UK?
I have been wondering fro some time about the sustainablility of Fonterra exporting to the UK .
The Kiwi $ / GBP exchange rate has gone from 3 to 1 all the way down to 2 to 1 over the past few years.
This has made our dairy ( and lamb) very pricey in the UK .
I mentioned last week that when I was in Dubai earlier this year , I noticed that some Kiwi dairy products were often more expnesive thatn the Dutch , US, Polish and even Swiss competitors.
The Kiwi $ / GBP exchange rate has gone from 3 to 1 all the way down to 2 to 1 over the past few years.
This has made our dairy ( and lamb) very pricey in the UK
The collapse of STG against KIWI was a stand out trade the day Tony Blair won the election for Labour - I sold at 3.06 and came home - silly not to. Others knew too.
Re the referendum (and Chch East by-election), it can't statistically be argued that only supporters of one side turned out because anyone who felt strongly on the issue would have voted either way. Anyone who didn't vote obviously didn't care about the issue and was therefore indifferent to the outcome, ie they were as much for as against.
Given a democratic election or referendum where everyone has a chance to vote, how can one party come out and say the results not valid because of the turnout! If this were the case then the no general election would be valid either as up to a third of voters normally don't turnout!
All this referendum shows is the arrogance of John Key. The asset sales have only succeeded in devaluing the assets and little else. The price will be paid in due course when potential future private foreign control of these critical infrastructure assets squeezes the lifeblood out of NZ's economy.
LOL - and lose one's nerve and sell to a fund manager at the bottom - witness Chorus
Notably, I know some original float Air New Zealand scrip is sitting resolutely at the bottom of my Father's drawer.
The cook islands is well know for this. Interesting that David highlights tax avoidance possibilities rather than asset protection merits of assts held there in his commentary.
If I was running a business with tangible risk of law suit in the US, even if I was humble medical specalist, it would a make a great deal of sense to hold you assets in the Cooks for asset protection reasons alone. Many do and still pay their taxes.
Actually the amount of active medical practioners in the US would matreially fall if the Cooks was not available for assets protection.
Oh the Irony - the instrument of ones own fate
Ten years ago, it was widely recognised that 90% of the Cook Islands economy was made up of civil servants employed by the Cook Islands Government, which in turn derived most of its funding from the New Zealand Government
Today the Cook Islands are a tax haven
The Australian Tax Office has had a ten year running battle with it, called "Project Wickenby", obtained a few jail sentences, and it's still ongoing today.
A monumental fiasco seeded by the New Zealand Government
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