Top 10 at 10: US commercial property implosion; US Mint runs out of gold; Dilbert

Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments in the comments below or please send your suggestions for Friday's Top 10 to bernard.hickey@interest.co.nz My apologies for lateness today. Had to give a speech in Blenheim. Luckily there is no industry average for us... 1. A bitter pill - We must swallow, says Brian Fallow in his excellent column in the NZHerald. He's talking, or course, about tax reform to broaden the tax base.

Any substantial increase in the tax base is bound to be unpopular, and present difficult transitional and boundary issues. An invertebrate Government would have no shortage of reasons to shrink from such changes. But it set up the working group for good reasons. The status quo is far too reliant on taxing personal and corporate income in a world where labour and capital are mobile and New Zealand is not well placed to compete for either.

2. Here it comes - The commercial property market in the United States is in deep trouble and this will eventually flow through to the banks there. US office vacancy rates rose to a 5 year high in the third quarter, Bloomberg reported. HT Troy Barsten.

Vacancies climbed to 16.5 percent from 13.7 percent in the year since Lehman Brothers Holdings Inc. filed for bankruptcy, New York-based Reis said in a report. Effective rents, the amount actually paid by tenants, fell 8.5 percent, the biggest year-over-year drop since 1995. "The decline in effective rents really accelerated after the fall of Lehman Brothers," Victor Calanog, director of research at Reis, said in a statement. "Tenants will continue shedding occupied space as jobs are lost." "Weakness in rents is not concentrated in just a few" cities, Calanog said. "We have yet to observe clear, systematic evidence that the office market is bottoming out."

3. Implosion - Manhattan's commercial property market has imploded. This piece at PBS includes a startling interview. HT Brodie Davis.

First stop: Worldwide Plaza, 1.6 million square feet of prime midtown office space, developed by one Harry Macklowe. ROBERT WHITE: In early 2007, it sold as part of a package of buildings, and this building was priced around $1.7 billion. PAUL SOLMAN: And what was the deal? ROBERT WHITE: His organization bought this property and six others for a package deal for around $7 billion. PAUL SOLMAN: And how much did he put in? ROBERT WHITE: Well, that's what's amazing. Only $50 million, reportedly, was the equity component of that deal. The rest was a combination of a first mortgage and a second mortgage. PAUL SOLMAN: So $50 million on $7 billion, that's less than 1 percent down. ROBERT WHITE: But at the time, the market was full of such optimism that rents would keep increasing and office buildings would stay fully leased. The economy was still growing, banks had a lot of money to lend, and there were many investors that also wanted to be in commercial real estate. PAUL SOLMAN: But not any more: Great Recession, sky-high unemployment, a glut of office space, so rents fell, building values, too. Meanwhile, the short-term one-year mortgage for Worldwide Plaza came due. Owner can't refinance; the lenders take over. Resale price? ROBERT WHITE: It just traded about a month ago for just under $600 million. PAUL SOLMAN: Wait, it sold two years ago for $1.7 billion and now for $600 million? ROBERT WHITE: Yes, in very rough numbers. That's a significant discount, and that is...

4. Water, cigarettes and sheep - These are the currencies that helped rebuild a part of Iraq after the war, according to a US Marine Captain who worked in the region. An interesting insight into how money works. HT Gertraud.

These three moneys all circulated in the villages free of any government mandate or oversight. The exchange rate also fluctuated free of mandate. Sheep were the most stable commodity as they were held and bred in the villages. Bottled water and cigarettes were transported in from the cities. This transport was subject to logistical difficulties, and therefore their value fluctuated. Farmers and fisherman also drank much more water in the summer months, which had a great effect on its value. As individuals built up more savings in the form of bottled water and cigarettes, the values of these currencies became more stable but were still subject to greater fluctuations than were sheep.

With these three free market currencies, I watched village markets grow, farmers increase productivity, fisherman save capital in order to improve or build new boats, and young couples commission houses to be built with borrowed money. All this progress was made possible through the real savings of valuable commodities.

So, for those who are deeply worried about a currency crisis in the United States, I bear a positive message. When a currency fails, as long as there is no outside coercion implemented, individuals will act and find sound money in what is around them. Gold and silver will certainly be prime candidates, but even in small towns with limited access to these precious metals, there is an infinite supply of sound money available. Depending on the situation and location of the community, a form of sound money might spring from anywhere.

5. Even in booming China - It seems real estate agents are unpopular everywhere, almost as unpopular as journalists... This piece at peopleforum.cn points to an online poll by Daqi that shows that real estate agents are the second least reputable group in society. Coal mine owners are the least reputable. Economists come in at number 3. HT Gertraud

1, Owners of Coal Mine, evil-minded making money with utter disregard for human life. 2, Real Estate Businessmen, as they are born swindlers. 3, Economists, as they are always talking nonsense. 4, Heads of Public Hospitals, as they concern nothing but money. 5, Presidents of Universities,  as they can put Diploma on sale at the cost of basic cultural conscience. 6, Girls put in charge of selling apartments, as they are forever lying. 7, Civil Servants, as they are actually civil masters. 8, Prostitutes, fortunately, their reputation is seen on a steady rise at the moment.

6.  Money, money everywhere -  But not a drop to borrow. This piece in the New York Times explains why it is so hard to get a loan in America, despite all the cash pumped into the banks by the US Federal Reserve.  The securitisation markets are stuffed and the Fed is about to withdraw its support. What happens next? HT David via IM

The continued disarray in debt-securitization markets, which in recent years were the source of roughly 60 percent of all credit in the United States, is making loans scarce and threatening to slow the economic recovery. Many of these markets are operating only because the government is propping them up. But now the Federal Reserve has put these markets on notice that it plans to withdraw its support for them. Policy makers hope private investors will return to the markets, which imploded during the financial crisis. The exit will require a delicate balancing act, government officials said. "You do it incrementally, where and when you think you can, and not sooner," said Lee Sachs, a counselor to theTreasury secretary, Timothy F. Geithner. The debt-securitization markets finance corporate loans, home mortgages, student loans and more. In good times, they enabled banks to package their loans into securities and resell them to investors. That process, known as securitization, freed banks to lend even more money. Many investors have lost trust in securitization after losing huge sums on packages of subprime mortgages that had high default rates. The government has since spent more than $1 trillion trying to restore the markets, with mixed success.

7. 'We don't trust it' -James Kwak at Baseline Scenario riffs on the New York Times to explain the lack of confidence in the securitisation market.

The response of the Fed has been to prop up the securitization market by buying the stuff itself when no one else will buy it. But that program is reaching its provisional limit "” according to the times, the Fed has bought $905 billion out of a budget $1.25 trillion in securities "” and with the Fed hawks on the warpath, it is likely to be pulled before the private market recovers. This is especially true since the private market may never recover. The boom in securitization was based on investors' willingness to believe what investment banks and credit rating agencies said about these securities. Buying a mortgage-backed security is making a loan. Ordinarily you don't loan money to someone without proving to yourself that he is going to pay you back (or that the interest rate you are getting will compensate you for the risk that he won't pay you back). The securitization bubble happened because investors were willing to outsource that decision to other people "” banks and credit rating agencies "” who had different incentives from them.

Are investors going to go back to that mindset? Do we want them to? It seems to me the rational investor response is this: "I have no idea what is in those securitization trusts. I don't trust the banks, since they are taking fees out of each deal. I don't trust the credit rating agencies, since they are being paid by the banks, and don't have enough staff and expertise to do the job properly. I don't trust themodels, because they're wrong. There's no way I can do the analysis myself. So I'm not buying."

8. Friendly advice - It turns out Goldman Sachs were a key funder of CanWest Global, which until a few years ago owned our own MediaWorks (TV3/C4). In recent times before CanWest went bankrupt, Goldman Sachs was even providing programming ideas....sheesh. Here's a detailed piece from 'Tyler Durden' at ZeroHedge.

To date, Goldman executives have not been invited into restructuring talks, a subject of considerable frustration at the investment bank, sources say. Financiers working with Goldman said that over the past year, the investment bank put forward programming ideas for the TV networks, and offered strategic advice on restructuring, but was ignored by CanWest management and its creditors.

9. Dark pools - Often trade in global financial markets is happening in 'dark pools', which are electronic markets where fund managers can trade with each other without disclosing who they are or including a 'middle-man' who can front-run them. Some people who run established and regulated exchanges are worried, Reuters reports.

William Brodsky, chairman of the World Federation of Exchanges (WFE), said these alternative trading venues -- where stocks change hands anonymously at prices not disclosed publicly -- have no regulatory obligation and lack transparency. "What our concern is on the dark pools is that these have evolved without a careful regulatory plan," he told a press teleconference at the end of the WFE annual meeting in Vancouver. "We've allowed the technology and evolution of these markets to run way ahead of the regulators' ability to integrate what's going on in the dark pools," said Brodsky, who is also chief executive of the Chicago Board Options Exchange, the largest U.S. options venue.

10. Rampant gold demand - It seems demand for gold in the US has exploded so much the mint can't keep up. The US Mint has suspended production of the American Eagle because of 'unprecedented' demand.

Because of unprecedented demand for American Eagle Gold and Silver Bullion Coins, the United States Mint suspended production of 2009 proof and uncirculated versions of these coins.   All available 22-karat gold and silver bullion blanks are being allocated to the American Eagle Gold and American Eagle Silver Bullion Coin Programs, as mandated by Public Law 99-185 and Public Law 99-61, respectively.  Both laws direct the agency to produce these coins in quantities sufficient to meet public demand.  The proof and uncirculated versions of the American Eagle Gold and Silver Proof Coins are not mandated by law. The United States Mint is working diligently with current and potential blank suppliers to increase the supply of bullion coin blanks, so it can offer to the public the proof and uncirculated versions of American Eagle silver, gold, and platinum coins in 2010. The United States Mint, created by Congress in 1792, is the Nation's sole manufacturer of legal tender coinage.  Its primary mission is to produce an adequate volume of circulating coinage for the Nation to conduct its trade and commerce.