Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please send suggestions for Thursday's Top 10 at 10 to bernard.hickey@interest.co.nz 
1. 'Eat your words' - Brian Fallow writes an excellent column in the NZHerald today arguing why Prime Minister John Key needs to abandon his pledge to resign before he changed the rules around NZ Superannuation. I agree. The promise to keep paying all 65 year olds 66% of the average wage forever is unsustainable and the government's own research proves it.
Winston Churchill said that he had sometimes had to eat his words and found it a wholesome diet. Prime Minister John Key needs to follow the great man's example with respect to his pledge to resign rather than tamper with the entitlement parameters of New Zealand Superannuation. The long-term fiscal projections the Treasury released late last year show that current policy settings (not just for super but across the board), combined with prevailing trends in underlying economic variables, set us on a course for a crushing level of public debt by the middle of the century: twice the size of the economy, give or take, compared with just 15 per cent now.
2. The penny drops - Max Fisher at The AtlanticWire asks the very valid question: Are seniors bankrupting America? HT Blair Rogers via Twitter
Here's the problem: those same elderly Americans are outraged at the rising tax rate and growing federal spending. Seniors are using their tremendous political weight to push a conflicting agenda, expanding services to seniors while reducing the taxes need to pay for them. The New York Times's David Brooks laments that "Far from serving the young, the old are now taking from them." They are "taking money" (the federal government spends $7 on the elderly for every $1 on children), "taking freedom" (tax revenue is completely tied up in programs for the old, limiting new programs) and "taking opportunity" (the focus "will mean less growth and fewer opportunities").
Sound familiar? 3. Year of sovereign risk - Mohamed El-Erian, the co-CEO of bond fund manager PIMCO, has warned that 2010 will be the year of sovereign debt risk in this Bloomberg piece.
Greece is "Europe's big game of chicken," El-Erian, 51, said in a Bloomberg Radio interview today. Europe needs to provide "significant aid" to the country, while the Greek government works to adjust its fiscal deficit, he said. Greece, which had the European Union's widest deficit at 12.7 percent of output last year, has struggled to convince investors it can bring the budget shortfall within the bloc's limit of 3 percent. European Union Monetary Affairs Commissioner Joaquin Almunia endorsed the nation's deficit-cutting program announced yesterday that pledged to freeze state workers' pay, boost fuel taxes and raise the retirement age to reduce a deficit that is more than four times the EU's limit. "Widening of Greek spreads happened so quickly you have quite a few people that are still stuck in the trade," El- Erian, a former deputy director at the International Monetary Fund, said in the interview. "Market liquidity is limited."
4. This chart from the Economist helps tell the story on the fiscal and sovereign pain ahead.
5. Breathing space? - Greece won a bit of breathing space overnight when the EU endorsed its austerity plans with heavy monitoring, although the political challenge in Greece is enormous, the New York Times points out.
Greece's economic predicament is particularly toxic. Not only is its deficit huge, but the country's debt also amounts to 113 percent of G.D.P. Though it was hit by the global financial crisis, Greece failed to get its finances in order during the previous decade, when economic growth was generally good. Worse, a sudden and drastic upward revision of its deficit after a change of government last year exposed alarming deficiencies in Greece's ability to produce reliable economic data. Domestically, Mr. Papandreou has a difficult balance to strike with the risk of widespread unrest if he pushes his austerity measures too far. Daniel Gros, director of the Center for European Policy Studies, said it was one thing for the Greek government to agree to implement public sector pay curbs, but that the crucial question was "whether the body politic of Greece allows them to do it. If you have a general strike and the trade unions don't agree, what do you do?" Moreover, a wage cut of around 20 percent in the private sector was required, he argued. "They are not out of the woods," Mr. Gros said. "They have taken the first step into the woods and they have to see how dark it becomes."
6. Glass Steagall Crash course - CNN Money explains in this 3min video what happened when the Glass Steagall Act was passed in 1933 and after it was repealed in 1999. It also looks at moves afoot to bring it back. It's well worth watching. HT Emma Geraghty via Google chat 7. Just walk away - The number of Americans with mortgages in negative is forecast to rise to a peak of 5.1 million by June or 10% of those with mortgages, the New York Times reports.
The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call "house arrest." Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation. Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment. "Since the beginning of December, I've advised 60 people to walk away," said Steve Walsh, a mortgage broker in Scottsdale, Ariz. "Everyone has lost hope. They don't qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old." Mr. Walsh is taking his own advice, recently defaulting on a rental property he owns. "The sun will come up tomorrow," he said.
8. Volcker rule disintegratin rapidly - Hopes that Obama's new-found cohones and Paul Volckers' 'Rule' to break up the 'Too Big to Fail' banks and stop playing on market casinos with government guarantees looks like it is fading away to nothing. Felix Salmon at Reuters points out there is plenty of uncertainty and scepticism in the US Senate about the rule, although some clarity is emerging and it's not attractive.
The contours of a Volcker rule are slowly emerging all the same, and that they carve out two enormous loopholes. Firstly, the Volcker rule seems to apply only to depositary institutions: if you don't take deposits, then you're exempt. The result is that it'll be easy for Goldman Sachs and Morgan Stanley to get around the rule just by returning their current (tiny) deposit base and voluntarily withdrawing from access to the Fed's discount window. But the point here is that banks with deposit bases are already insured and regulated, by the FDIC. The definition of a bank isn't an entity which takes deposits; it's an entity which borrows short and lends long. So long as the likes of Goldman Sachs can fund themselves in the wholesale market and continue to lend money to large clients in things like the syndicated loan market, they're banks, and they should be subject to rules like Volcker's which apply to banks. Secondly, it seems that banks might be allowed to continue to own hedge funds, private-equity funds, money-market funds, and the like, just so long as they're run for clients, with client money, rather than being vehicles for the investment of the bank's own capital. This too is dangerous, because the history of the financial crisis is clear: Bear Stearns ended up bailing out its internal hedge funds even when it didn't legally have to. Large banks ended up bailing out clients who invested in auction-rate securities. Fund managers ended up putting up their own capital to stop money market funds from breaking the buck. Banks with SIVs ended up bringing them onto their own balance sheet, taking enormous associated losses. Etc etc. Essentially, a bank might say that it has no exposure to such things, and that all the risk lies with its investing clients. But that's never, ever true.
Plus ca change. Until voters kick out the senators and replace them with a truly sceptical lot who are not beholden to their bank donors nothing will really change in America. The Supreme Court's decision to allow big businesses to spend on politicians again looks like cementing that. When are the American taxpayers going to really revolt? (ie with pitchforks and guns etc) 9 Just how corrupt? - Robert Reich, a former Secretary of Labour under Clinton, (ie no nutter or teabagger) has this to say at Huffington Post about just how corrupt policymaking has become in Washington. Not to FTA negotiators in NZ. Don't trust the bastards.
Personally, I want the government to limit the pay of financial executives, regulate greenhouse gases, and reform health care. And no one wanted a financial meltdown. But I'm appalled by the process that's been used to reach these objectives. A big piece of the problem is this: Washington is now so overrun by lobbyists representing moneyed interests that it's become almost impossible to make policy in the open. If the Treasury and Fed tried to decide publicly which industries and firms should get hundreds of billions, they'd be inundated. Wall Street lobbyists are blocking real financial reform. The energy industry has filled the House's cap-and-trade bill with special subsidies and exemptions. Big Pharma and Big Insurance would have killed off the health-care reform if they hadn't been bought off. When it comes to the long-term deficit, Congress is incapable of acting because so many special interests have their hands out.
10. Totally relevant video making fun of economics - Fair enough too.
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