Top 10 at 10: MAF warned last year (by Carter); PGC and Jacks Point; Norris attacks Kiwibank; Dilbert

Here are my top 10 links from around the Internet over the last couple of days. My apologies to regular readers disappointed by the non-appearance of the Top 10 at 10 yesterday and today's late appearance. I was simply swamped with the news, tips and interviews from the Crafar story, where the wider economic and financial implications are now becoming apparent. Please put additions in the comments below or send suggestions for tomorrow's Top 10 at 10 to bernard.hickey@interest.co.nz 1. 'Bushfire to bushfire' - It turns out MAF have been criticised before for not having enough animal inspectors and not being focused enough on animal welfare. This is an excellent post from Rocky at The Standard that picks up on some parliamentary questions to then MAF minister Jim Anderton from current MAF minister David Carter, who was then the opposition spokesman. It seems this is not a new problem...sigh

Hon David Carter: Does the Minister think it acceptable that there are only five Ministry of Agriculture and Forestry animal welfare investigators across New Zealand dealing with 50 million head of livestock, which is one officer for every 10 million animals; if so, why?

Hon JIM ANDERTON: No, I do not think it is adequate, but I find it strange to have a question from the National Party on this matter, our having heard from National members that they want the bureaucracy of the Government to be cut drastically, and that they want the tax revenue that the Government receives to be cut drastically. Every day in this House I hear from Mr Carter that National wants more animal welfare staff, I hear from Mr Ardern that National wants more biosecurity workers, I hear from Mr Carter that National wants more policy analysts, and I hear from Nathan Guy that National wants more officials who can stop poisonous trees from growing over farmers' fences, but, actually, National members would not have any money to do any of that"”in fact, they would get rid of most of the bureaucrats we already have. I do not know how that works.

Hon David Carter: Does the Minister agree with the comment of the Ministry of Agriculture and Forestry investigations manager, Greg Reid, that animal welfare resources in New Zealand are "chaotic" and "running from bushfire to bushfire"; if so, what is the Minister going to do to fix that problem?

Hon JIM ANDERTON: No; I do not agree with that official. I think that on my watch"”nearly 3 years now"”he is the second Ministry of Agriculture and Forestry official who has had a bad day at the office.

2. Blast from the past - I dug up this excellent piece from Andrea Fox at NZ Farmers Weekly on just how stretched MAF's inspectors were last year.

MAF investigations manager Greg Reid says the problem is money. His unit's annual budget is $860,000 - but after fixed annual costs for administration, staff, buildings and vehicles there is only $180,000 left to cover so-called "discretionary capability" -responses to events in the paddock. The "discretionary" part of the annual budget was reduced this year, Reid said. He would not say by how much. A bid by his division for more funding was turned down. "We load a lot of our capability into the winter period so we have the capability to respond, so we load it up perhaps at the expense of the summer months. And suddenly you're stretching the rubber band." The result? Reid stops short of saying farmers are getting away with being prosecuted for neglect and cruelty to animals, but says MAF's efforts have to be concentrated, because of lack of resources, on mitigating animal pain and suffering and advising farmers how to avoid a repetition. "(That's been) at the cost of more standard processes which includes the balance around assessing criminal liability and prosecuting those farmers who fail the attitude test, who tell us to **** off the property immediately and who clearly have shown a real lack of appropriate inputs in terms of their decision-making around the managing of animals. "The reality is at the moment we are so thin on the ground and we are running from bushfire to bushfire. A lot of what the public see is just the surface of it - it's quite chaotic."

3. No, not us - South Canterbury Finance told the Timaru Herald that it was not in talks with Pyne Gould Corp regarding PGC taking a stake in SCF.

After the completion of its $270 million capital raising, PGC is hoping to have about $50m in the kitty for opportunities such as acquisitions of other finance companies after pumping $160m into subsidiary Marac Finance. PGC is speculated to have been in talks with SCF that have broken down. South Canterbury Finance chief executive Lachie McLeod, said "no" to the question of whether SCF or Alan Hubbard's company Southbury Group had been or were in talks with PGC about PGC taking a stake in either of the two companies.

4. Oh no, not again - Fisher and Paykel Appliances is in talks with bankers again after missing forecasts and faces 3 months of intense scrutiny, the NZ Herald reported.

The whiteware maker revealed last Thursday it was in talks with its banking syndicate for the second time this year amid a profit warning. The company breached an agreement with its bankers because its trading performance for the six months ended September 30 was more than 20 per cent below the variance agreed to as part of a capital restructuring in May. Yesterday acting chief executive Stuart Broadhurst said its bankers had agreed to waive the breach and accept a revised budget forecast but the company would be subject to testing for the three months to December 31 and the six months to March 31.

5. Ralph is grumpy - CBA's Ralph Norris has had a go at Kiwibank and the Labour government that set it up, Denise McNabb at the Dom Post reports. Norris' comments came at a trans-Tasman Business Circle lunch.

On Kiwibank, he said: "I don't think the Labour Party was particularly enamoured with the idea but had to buy support of its coalition so that was the price it was prepared to pay." He said when state banks in Victoria and South Australia collapsed in the early 1990s they created considerable problems in those state governments which set them back for some time. He pointed to Bank of New Zealand when it was owned by the Government. "It effectively failed as well," Sir Ralph said. "In my view it's a salutary lesson for politicians in Australia. I don't think governments are good owners of financial institutions. "I don't think they are good owners of businesses, full-stop. "I think it would be a pretty brave move by a new government to create a potential time bomb in future by getting involved in a bank."

6. The Jacks Point connection - PGC director George Kerr has sold property he and business partner John Darby owned at Jack's Point in Queenstown, the Dom Post reports. It has recently been suggested that PGC was looking to buy properties off Kerr, although PGC has subsequently said these plans had been withdrawn.

Mr Kerr and business partner John Darby have sold 14 large blocks of land at Jack's Point to wealthy Singaporean investors for $24.3m. Mr Darby confirmed the 31.7 hectare land sale yesterday. "We are in the business of developing and selling land and now we've sold," he said. One of the buyers, Brian Chang, is a substantial shareholder in a shipping business and is rated one of the 40 wealthiest people in Singapore by Forbes magazine, with a net worth of about US$160m. The buyers plan to market and sell a dozen of the land blocks and retain two.

7. Quantocracy - This article in Vanity Fair about AIG's quants and its widely reviled Financial Products division (AIF FP) is getting on a bit, but it's worth reading because it's by the excellent Michael Lewis. It's starts off with a plea from Jake DeSantis, who was in the AIG division that nearly blew up the world's financial markets, for some understanding. This is the first real inside story of what went on inside AIG FP. It explains a phenomenon that's very interesting in financial markets and in many large corporates: how bullying changes the way a company operates. Hank Greenberg is fingered as the bully in chief and Joe Cassano as the bully on the ground. HT Kevin via IM. It is a must read for anyone trying to understand what happened in the last year.

The typical hedge fund kept 20 percent of profits; the traders at A.I.G. F.P. kept 30 to 35 percent. The typical hedge fund or private-equity fund has to schlep around and raise money all the time, and post collateral with big Wall Street firms for all the trades they do. The traders at A.I.G. F.P. had essentially unlimited capital on tap from the parent company, along with the AAA rating, rent-free. For the people who worked there, A.I.G. F.P. was a financial miracle. They were required to leave 50 percent of their bonuses in the company, but they were happy to do so; many of them, viewing it as the best way to grow their own savings, invested far more than the minimum back in the company. When it collapsed, the employees lost more than $500 million of their own money. How and why their miracle became a catastrophe, A.I.G. F.P.'s traders say, is a complicated story, but it begins simply: with a change in the way decisions were made, brought about by a change in its leadership. At the end of 2001 its second C.E.O., Tom Savage, retired, and his former deputy, Joe Cassano, was elevated. Savage is a trained mathematician who understood the models used by A.I.G. traders to price the risk they were running"”and thus ensure that they were fairly paid for it. He enjoyed debates about both the models and the merits of A.I.G. F.P.'s various trades. Cassano knew a lot less math and had much less interest in debate. Across A.I.G. F.P. the view of the boss was remarkably consistent: a guy with a crude feel for financial risk but a real talent for bullying people who doubted him. "A.I.G. F.P. became a dictatorship," says one London trader. "Joe would bully people around. He'd humiliate them and then try to make it up to them by giving them huge amounts of money." "One day he got me on the phone and was pissed off about a trade that had lost money," says a Connecticut trader. "He said, "˜When you lose money it's my fucking money. Say it.' I said, "˜What?' "˜Say "Joe, it's your fucking money!"' So I said, "˜It's your fucking money, Joe.'" "The culture changed," says a third. "The fear level was so high that when we had these morning meetings you presented what you did not to upset him. And if you were critical of the organization, all hell would break loose." Says a fourth, "Joe always said, "˜This is my company. You work for my company.' He'd see you with a bottle of water. He'd come over and say, "˜That's my water.' Lunch was free, but Joe always made you feel he had bought it." And a fifth: "Under Joe the debate and discussion that was common under Tom [Savage] ceased. I would say what I'm saying to you. But with Joe over my shoulder as the audience." A sixth: "The way you dealt with Joe was to start everything by saying, "˜You're right, Joe.'" A.I.G. F.P.'s employees for their part suspect that the only reason Greenberg promoted Cassano was that he saw in him a pale imitation of his own tyrannical self and felt he could control him. "So long as Greenberg was there, it worked," says one trader, "because he watched everything Joe did. After the Nikkei collapsed [in the 1990s], a trader in Japan lost 20 million. Greenberg personally flew to Tokyo and took him into a room and grilled him until he was satisfied." In March 2005, however, Eliot Spitzer forced Greenberg to resign. And, as one trader puts it, "the new guys running A.I.G. had no idea." They thought the money machine ran on its own, and Cassano did nothing to discourage the view. By 2005, A.I.G. F.P. was indeed, in effect, his company. The A.I.G. F.P. traders left behind, much as they despise him personally, refuse to believe Cassano was engaged in any kind of fraud. The problem is that they knew him. And they believe that his crime was not mere legal fraudulence but the deeper kind: a need for subservience in others and an unwillingness to acknowledge his own weaknesses. "When he said that he could not envision losses, that we wouldn't lose a dime, I am positive that he believed that," says one of the traders. The problem with Joe Cassano wasn't that he knew he was wrong. It was that it was too important to him that he be right. More than anything, Joe Cassano wanted to be one of Wall Street's big shots. He wound up being its perfect customer.

8. We have a problem Canberra? - Three senior economists have called on Australia's banking regulators to change the system to slow lending growth into housing. One of them, former ANZ deputy CEO Bob Edgar, hits the nail on the head. This is a crucial debate to watch and these are heavy hitters, as Tim Colebatch reported in The Age.

In a wide-ranging critique of the roles played by governments, central banks, regulators and financial institutions in the build-up to the worst financial crisis in 75 years, he painted a picture of lax controls, in a climate of easy money, where lending standards were diluted as banks fought for market share. ''What was the role of the macro policy regulators? [ie, the Reserve Bank],'' he asked. ''Why did monetary and credit growth exceed economic growth by so much for so long? Why did policy makers fail to miss the shift from consumer price inflation to asset price inflation?'' He urged the bank to focus on leading indicators that point to what lies ahead, such as trends in lending, and tackle problems before crises unfold. The Reserve debated in 2003 whether it should ''lean against the wind'' of rising housing prices by raising interest rates to slow lending growth, but came under heavy pressure from the Howard government, banks and business to desist.

9. Australian housing risks - This is an excellent piece from Dan Denning at BusinessSpectator which highlights some insight from the Reserve Bank of Australia on the housing market there.

On Wednesday, we peeled our eyes over this paper on Australian houses by RBA man Tony Richards. Richards inadvertently made a lot of interesting points. One was that the so-called improvement in affordability over the last year is, "mainly due to movements in interest rates rather than in house." He added that, "Mortgage rates are particularly low at present and, as the bank has noted on a number of occasions, it is not reasonable to expect that interest rates will stay at the current low levels indefinitely. When they do rise towards more normal levels, discussions on housing affordability will again focus more on the level of housing prices relative to incomes." That is clever to suggest that when rates rise people will have to find another way to say that houses are affordable. But we reckon when rates rise, as they eventually must, a lot of new home buyers will find out that access to cheap credit does not make a house affordable. It just makes the amount of debt you owe to the bank a lot larger. The most interesting part of the paper, for our twenty minutes, was the discussion of 'underlying demand'. 'Underlying demand' is the phrase that gets trotted out when the banks and real estate brokers tell you there's a housing shortage, or when the RBA tells you not to worry about a house price crash in Australia. But what does it really mean? Richards says the four components of 'underlying demand' are population growth, household size, new houses to replaced demolished homes, and demand for "second or vacant homes". Note that none of these are like the Ten Commandments. They aren't carved in stone. They are changeable. By the way, who on earth can afford to own a home they neither live in, nor rent? "Honey we're going to buy a third home. But we're not going to generate any rental income from it. And we're certainly not going to live in it. We're just going to pay the mortgage on it."

10. This is an unusually highly produced video for Youtube about the growth of the US government and its bailouts, but interesting the none-the-less. HT Geoff Duncan via email.