Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please email your suggestions for Thursday's Top 10 at 10 to bernard.hickey@interest.co.nz. 
1. Hotchin into Hell - Hanover Finance's lawyers are, it seems, now spending Hanover Finance investors' money sending legal threats to Hell Pizza over the now infamous 'Greed' billboard placed outside Hotchin's Paritai Drive 12 car garage (with mansion attached). Hotchin is grumpy that his wife and children saw it outside their school, Stuff reported. Maybe it's about time New Zealand investors expressed their anger publicly by treating the finance company owners (property developers with their own banks attached) as social pariahs. If the legal system won't provide justice, this seems like one way to do attempt it, in my view. Hell is doing this for its own cheeky promotional reasons, but it is serving as a focal point for public anger. Fair enough. Let's not forget the suicides, the broken families and the sleepless nights that tens of thousands of finance company investors have endured because they trusted the likes of Mark 'Weather the Storm' Hotchin, Rod Petricevic, Mark Bryers and Anthony Bowden.
Hanover lawyers served Hell Pizza with a cease and desist order yesterday. They accused Hell of parking the billboard outside the school of Mr Hotchin's daughter "just as her and her mother were leaving the building". Hell spokesman Matt Blomfield said the billboard did not go within four kilometres of the school and it was "distasteful that [Mr Hotchin] is using his daughter to try and get public sympathy".
2. S&P warns - Standard and Poor's has toughened up its measures of tier one capital and warned that most of the world's banks need to raise capital to meet these tougher standards. Some banks, such as Citigroup, are very short of capital, Ambrose Evans Pritchard points out at The Telegraph.
Every single bank in Japan, the US, Germany, Spain, and Italy included in S&P's list of 45 global lenders fails the 8pc safety level under the agency's risk-adjusted capital (RAC) ratio. Most fall woefully short. The most vulnerable are Mizuho Financial (2.0), Citigroup (2.1), UBS (2.2), Sumitomo Mitsui (3.5), Mitsubishi (4.9), Allied Irish (5.0), DZ Deutsche Zentral (5.3), Danske Bank (5.4), BBVA (5.4), Bank of Ireland (6.2), Bank of America (5.8), Deutsche Bank (6.1), Caja de Ahorros Barcelona (6.2), and UniCredit (6.3). While some banks may look healthy under normal Tier 1 and leverage targets, critics claim these measures can be highly misleading since they fail to discriminate between high-risk and low-risk uses of leverage. The system failed to pick up the danger signals before the financial crisis. The supposedly moderate leverage of US banks in 2007 proved to be a spectacularly useless indicator. S&P has shifted to a tougher code. It is less tolerant of hybrid capital "“ a liability rather than an asset, and no defence in a crunch "“ and insists that banks must quadruple capital put aside to cover trading desks. Private equity exposure will be treated more harshly.
"Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates for an extended period," minutes of the Nov. 3-4 meeting said, "including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an un-anchoring of inflation expectations." While policy makers agreed that the chances of such effects were "relatively low, they would remain alert to these risks," the minutes showed. Fed officials at their meeting indicated the benchmark lending rate would remain near zero "for an extended period" as long as inflation expectations are stable and unemployment fails to decline.
4. Feeble or fee bull - Alan Kohler at BusinessSpectator writes about the latest Australian report on how to regulate financial advisors and the wider push towards fee for service rather than commissions on sales. We need the same push here in New Zealand, but our gutless Securities Commission hasn't gone down that route. It's interesting to hear a parliamentary inquiry doing a proper job on the failings of the financial advice. It's a pity it's on the wrong side of the Tasman.
Over 246 pages the report details the most appalling suffering at the hands of advisers who shouldn't be at large, let alone licensed as financial planners. It runs through submission after submission from victims, advisers and regulators saying that change is needed, as well as submissions from obvious vested interests opposing it. It also acknowledges the "structural tensions" that are central to the debate about commissions, since "clients seek out advisers to obtain professional guidance on the investment decisions that will serve their interests", while on the other hand, advisers act as a "critical distribution channel for financial product manufacturers". But then it baulks at radical reform, at banning commissions and separating sales from advice, which would be at least a result of the fact that Storm Financial, the focus of the inquiry, did not get commissions "“ just a 7 per cent up-front fee.
5. Osmotic Power - This is a bit off the beaten track, but interesting nonetheless. Norway's StatKraft has opened a trial osmotic power plant that produces emissions free electricity by mixing fresh water and salt water through a special membrane, Reuters reported. However, there's a lot of water to go under the bridge (pun intended! )yet. HT Alex via IM.
State-owned utility Statkraft's prototype plant, which for now will produce a tiny 2-4 kilowatts of power or enough to run a coffee machine, will enable Statkraft to test and develop the technology needed to drive down production costs. The plant is driven by osmosis that naturally draws fresh water across a membrane and toward the seawater side. This creates higher pressure on the sea water side, driving a turbine and producing electricity. Future full-scale plants producing 25 MW of electricity, enough to provide power for 30,000 European households, would be as large as a football stadium and require some 5 million square meters of membrane, Statkraft said. Once new membrane "architecture" is solved, Statkraft believes the global production capacity for osmotic energy could amount to 1,600-1,700 TWh annually, or about half of the European Union's total electricity demand.
6. European wobbles - The German government quietly helped bail out Germany's third largest bank, WestLB, overnight, Bloomberg reported.
WestLB AG's owners reached agreement with Germany's bank-bailout fund to rescue the country's third- biggest state-owned lender, which is seeking to shift about 85 billion euros ($127 billion) into a so-called bad bank. WestLB will be split into two units, with the "core bank" receiving a capital injection, the Finance Ministry said today in statement e-mailed from Berlin, without providing figures. The bank must reduce its size by half, shed risky businesses and sell itself by the end of 2011 under conditions imposed by the European Commission as part of its approval of state aid. The bank said Nov. 12 that it expects a "below average" fourth quarter after nine-month profit dropped 65 percent as the bank set aside more money for bad loans.
7. Deep, deep problems - The US economy is the world's largest by a long shot and the ability of consumers and businesses to invest and consume is crucial for the global economy. Unemployment over 10%, a destroyed housing and commercial property markets along with ruinously high private and public debts are overwhelming the economy at all levels. The bank bailouts aren't working to fire up the economy because the banks are busy playing at the Wall St Casino and aren't lending to Main St. The Federal Government's stimulus package is not working because as fast as it spends, the state and local governments cut spending to balance their budgets. Here's an indication from Reuters on the ground in America about what is happening.
Dave Huston's Kansas-based plastics company is down to 34 employees from 63 a year ago. With the U.S. recession starting to retreat, he would like to add back workers but will likely buy new equipment instead. The reason? With Kansas joining the ranks of U.S. states scrambling to shore up a near-insolvent unemployment insurance fund, Huston's business is facing an almost certain rise in state payroll taxes in 2010. It's a hit his business cannot afford -- and one that virtually ensures he will not be hiring new employees anytime soon, even as the economy does slowly pick up. "I've lived through a couple of these recessions but this is by far and away the worst I've had to put up with," said Huston, whose Olson Manufacturing was started in 1917 by his grandfather to produce drafting products. Welcome to the jobless recovery. Unemployment claims have hit states so hard that they are raising taxes on businesses at a time when employers can least afford it. At least 33 states will experience some form of unemployment insurance tax increases in 2010, according to the National Association of State Workforce Agencies. The result is a vicious cycle that discourages businesses from hiring new employees and severely strains both states and job seekers.
8. No mas - The IMF's Dominique Strauss Khan makes the startling if obvious claim that voters will not tolerate more bank bailouts and that any attempts at such bailouts could threaten democracy, TimesOnline reports. Yikes. HT Greg Elliott via email
Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the "man in the street" and could even threaten democracy. "Most advanced economies will not accept any more [bailouts]...The political reaction will be very strong, putting some democracies at risk," he told delegates. "I do believe that the financial sector needs to contribute both to the costs of the financial crisis and to reduce recourse to public funds in the future," he said.
9. Don't feel too sorry for them - The standard argument about the collapses of Lehman and Bear Stearns is that the biggest losers were the executives who ended up holding worthless shares. It turns out that a study of how much they reaped in cash and through share sales before the collapses shows they made out like bandits, Yves Smith at Naked Capitalism points out. Yves makes some interesting points about the end of the partnerships and the introduction of listed investment banks that made this all worse. The graphic below from the New York Times is startling. It shows Dick Fuld pulled in over US$500 million in cash before Lehman imploded. No wonder Congress is finally understanding the depth of anger in the United States.
Prior to 1970, all NYSE members had to be partnerships (and in those days, stock brokerage provided the bulk of industry earnings). That meant partners had their wealth tied up in the firm. The line at Goldman was that partners lived poor and died rich. When someone (back in the early 1980s, when comp levels were much lower than today) a top performing non-partner might make $600,000 to $700,000 a year. When he made partner, his take-home pay dropped precipitously to perhaps $100,000-$150,000 a year. New partners were under pressure to increase their ownership stake (by becoming even more productive) so they could get increase the cash potion of their comp. Moreover, if a firm went bankrupt, as Lehman did, the partners were personally liable. The creditors could seize their personal wealth. It would be impossible to see the pattern that Stulz noted, of top management being wealthy post bankruptcy. And those pay based incentives DID matter. Goldman was incredibly risk averse, both from a legal standpoint and in how it was cautious about deploying its capital (that does not mean it was not greedy, please, but was greedy in ways that had low odds of hurting its franchise). The firm as a public company bears little resemblance to what it was as a partnership.
10. For no relevant reason - Here's Yoram Bauman, the world's first and only stand-up economist, doing his thing.
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