Top 10 at 10: De-leveraging is inescapable; Spanish threat to euro; Banker with cohones; Dilbert

Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please send suggestions for Fridday's Top 10 at 10 to bernard.hickey@interest.co.nz Apologies for the delay. A tad hectic on OCR day. 1. Deleveraging 201 - Here's another reason why US banks aren't lending. They want to preserve their capital so they gifted the assets of other banks when they fail, according to one anonymous banker talking to Mish.

If you're a bank with a relatively healthy balance sheet with adequate capital, (like us)you want to maintain surplus capital in order to stay on the FDIC's list of banks they can transfer the loans and deposits from a failed institution into. This is a home run for the acquiring bank and far more of an instant benefit than any new lending.

2. Spanish inquisition - Nouriel Roubini is more pessimistic about the future of the Euro than ever, telling Bloomberg that Spain's dramas could pull it apart.

"Down the line, not this year or two years from now, we could have a breakup of the monetary union," Roubini said in a Bloomberg Radio interview from the World Economic Forum's annual meeting in Davos, Switzerland. "It's a rising risk." Roubini's concern contrasts with the view of European Central Bank President Jean-Claude Trichet who said it's "absurd" to imagine that the 16-nation euro area could splinter. Speculation of a breakup has mounted in financial markets as Greece struggles to cut the continent's biggest budget deficit and countries from Spain to Ireland face rising debt burdens. "The euro zone could drift essentially with a bifurcation, with a strong center and a weaker periphery and eventually some countries might exit the monetary union," said Roubini, who predicted the recent financial crisis a year before it began. "This is the very first test" of the single currency bloc.

3. Death by euro - Martin Wolf from the FT gives an excellent explanation of the problems of Southern Europe within the euro. He is basically pessimistic.

What would have happened during the financial crisis if the euro had not existed? The short answer is that there would have been currency crises among its members. The currencies of Greece, Ireland, Italy, Portugal and Spain would surely have fallen sharply against the old D-Mark. That is the outcome the creators of the eurozone wished to avoid. They have been successful. But, if the exchange rate cannot adjust, something else must instead. That "something else" is the economies of peripheral eurozone member countries. They are locked into competitive disinflation against Germany, the world's foremost exporter of very high-quality manufactures. I wish them luck

4. Getting desperate - Greece, helped by a friendly Goldman Sachs, is trying to borrow 25 billion euros from China, Reuters reports. All this reinforces the pressure on global markets for sovereign. New Zealand will borrow a big chunk this year. Let's hope we don't get lost amid all the begging and shouting. Luckily our public debt position is much stronger than the Europeans' or Americans.

Greek Finance Minister George Papaconstantinou will visit the United States and Asia, including China, on a road show next month, the WSJ said. "There is a lot of liquidity in China. There are big funds in China. This is why China is going to be part of the road show," Papaconstantinou told the WSJ in an interview.

5. The next lurch - Felix Salmon from Reuters is at Davos and doesn't like what he sees from all the bankers there. They are way too complacent, he reckons.

My feeling is that the US poses at least as much of a risk to the global economy as southern Europe does. There's a good chance that 2010 could be the year of walking away from underwater mortgages; there's no sign of the private sector releveraging; and the government has clearly reached its limit in terms of the degree it can step in and borrow on behalf of the rest of us. If the attempt to prop up the still-overvalued housing market fails and there's another downwards lurch, there will be a whole new wave of bank insolvencies and much less fiscal space to bail them out than there was pre-crisis. And the fact that most delegates here at Davos seem blissfully unconcerned about the possibility of a second nasty lurch downwards doesn't reassure me in the slightest.

6. The double dip - New home sales in the United States unexpectedly fell 7.6% in December, Bloomberg reported. This is what happens when the government withdraws the stimulus of tax credits. Deleveraging happens. 2010 is the year of deleveraging and the double dip, I reckon.

"It's going to be a long slog for housing," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. "We will see a decline in home prices and there is still a lot of shadow inventory out there that we need to get through." Federal Reserve policy makers today retained a pledge to phase out programs aimed at keeping mortgage rates low, bringing an end to another form of government help. The end of the $1.25 trillion program of mortgage-debt purchases by the central bank on March 31 raises the risk that borrowing costs will jump. The plan helped send the rate on a 30-year fixed loan down to 4.71 percent in early December, the lowest level in Freddie Mac data going back to 1972. The Fed "will probably stop the purchases and see how things go," said Shapiro. "If rates shoot up, then they will probably be back in the game."

He wishes. Hmmm. What if they don't or can't? 7. Banker with balls - The governor of the Bank of England, Mervyn King, supports Barack Obama's plans to break up the 'Too Big to Fail' banks and moves to restrict their risky activities, the New York Times reports.

At a hearing before a parliamentary treasury committee on Tuesday, Mr. King used some of his strongest language yet to support such a separation. In the process, he hailed Mr. Obama for having moved so quickly. "The U.S. has been more open in moving to a safer banking system than we are," he said. "After you ring-fence retail deposits, the statement that no one else gets bailed out becomes credible." To illustrate his point that increased regulation and higher capital requirements alone would not be sufficient to forestall another banking crisis, he pointed to Citigroup "” which once was seen as a model for combining all banking functions under one roof. "You had regulators in the building and four of the most respected people in the world running the bank," he said, citing its architect, Sanford I. Weill; the former Treasury secretary Robert E. Rubin; the former International Monetary Fund official Stanley Fischer; and a veteran international banker, William Rhodes. "They did not set out to destroy Citibank, but when you have a large complicated institution, things happen," he said. "That is the argument for trying to create firewalls."

8. A Hayek vs Keynes rap video - That's all you need to know. There are blond groupies and a limo. And some very bad fake moustaches. "In the long run we're all dead". Instant classic. Compulsory for all economics students. 9. Another joke - How many quants does it take to screw in a lightbulb? (Quants are traders who use mathematical formulas and often use 'nano-trading' programmes to make money) HT NakedCapitalism

Using ten racks of co-located blade servers, one quant can detect a janitorial inefficiency, step in between janitor and light fixture, and screw in 49,500 bulbs in less than a millisecond, keeping five hundred lightbulbs of profit. Two quants competing with each other can screw in 99,998 bulbs in a millisecond, with each quant retaining a profit of one lightbulb. When ten quant firms try to screw in a light bulb, the bulb explodes, the light fixture gets ripped from the ceiling, the building falls down, the entire electrical grid of the city of Greenwich shuts down, innocent civilians all over the world have their retirement accounts electrocuted, and the Federal Reserve has to give the counterparties of each quant firm five hundred million light bulbs to maintain the stability of the system. Afterward, each of the ten quant firms subjects its strategies to a probing and relentless critique, hires fifteen additional Ph.D.'s from MIT, Cal Tech, Harvard, and the Indian Institutes of Technology, buys four new supercomputers, and searches for new arbitrage techniques and algorithms. Independently of each other, each of the ten firms develops the same brilliant and innovative strategy of "Knock knock, who's there?" arbitrage.

10. Totally irrelevant video - Philippino prisoners dance a Michael Jackson song in tandem. Some people have way too much time on their hands.