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 suggestions for Monday's Top 10 at 10 to bernard.hickey@interest.co.nz We don't do camping at interest.co.nz... 
1. It's starting - The exit strategy has begun. Overnight the US Federal Reserve, the Bank of England, the Swiss National Bank and the European Central Bank announced plans to withdraw US dollar injections from early 2010, Reuters reported. But can global markets and economies cope with the withdrawal of the sugar hit? Or will it trigger a double dip recession? The S&P 500's reaction overnight was a moderate fall. October could be very interesting.
The U.S. Federal Reserve said it would begin to scale back short-term cash auctions in early 2010, while the European Central Bank, the Swiss National Bank, and the Bank of England announced they would curtail steps taken to ensure dollar liquidity. The joint actions signaled a gradual removal of extraordinary measures central banks around the world have taken to prop up banks and financial systems during the worst period of instability since the Great Depression in the 1930s.
2. Here we go - Meanwhile the US Federal Reserve itself announced plans to scale back lending to banks to US$150 billion by the end of January from US$450 billion now, Bloomberg reported. But the Fed is being a little cautious, as can be seen from the comments below.
The central bank today said it will further shrink auctions of cash loans to banks and Treasury securities to bond dealers, reducing the combined initiatives to $100 billion by January from $450 billion. The Treasury has "begun the process of exiting from some emergency programs," the chief of the government's $700 billion financial-rescue fund said separately. The Fed cited "continued improvements" in financial markets in reducing the size of the Term Auction Facility, created in December 2007, and the Term Securities Lending Facility, begun in March 2008. The TAF will sell $50 billion in 70-day funds next month, down from $75 billion in 84-day funds in September, with the auctions' size and maturity decreasing more in November and December, the Fed said in a statement today. The Term Securities Lending Facility will shrink to $50 billion, and then $25 billion, from $75 billion. Because the economic recovery is just beginning, Herb Allison, assistant Treasury secretary for financial stability, said that the government's withdrawal from TARP will be slow. "Significant parts of the financial system remain impaired," he said, citing potential problems with commercial real estate and downward pressure on housing prices. "In this context, it is prudent to maintain capacity to address new developments."
3. Indefensible - US bank CEO pay is vastly higher than CEO pay for bankers in the rest of the world, even accounting for their extra size, Reuters reported. This table below is cracker. This is bound to get your blood boiling. HT Alex via IM. By the way, New Zealand's own Ralph Norris at CBA made the list with the 7th biggest banking salary in the world. Gail Kelly from Westpac is the next best paid, according to Reuters.
You wouldn't know it by his pay stubs, but Jiang Jianqing heads the world's largest bank. Jiang, chairman of Industrial and Commercial Bank of China, made just $234,700 in 2008. That's less than 2 percent of the $19.6 million awarded to Jamie Dimon, chief executive of the world's fourth-largest bank, JPMorgan Chase & Co. "The U.S. executive pay levels have always dwarfed pay for companies elsewhere in the world," said Sarah Anderson, a fellow with the Institute for Policy Studies, which is critical of Wall Street, and co-author of the recent study "America's Bailout Barons." "They have claimed it is impossible to recruit people without paying such compensation. Yet, if you look at the pay levels in Europe and in a lot of Asian countries, somehow they manage to find people who can run major global firms while making a fraction of what they make in the U.S.," she said.
4. Obama's failure - US central banking legend Paul Volcker, who is an official adviser to Barack Obama, has slammed the Obama administration's plans to allow the 'Too Big to fail' banks to totter on cloaked in moral hazard, Bloomberg reported.
Former Federal Reserve Chairman Paul Volcker criticized the Obama administration's plan to subject "systemically important" financial firms to more stringent regulation by the Fed. Volcker told lawmakers today that such a designation would imply government readiness to support the firms in a crisis, encouraging even more risky behavior in a phenomenon known as "moral hazard." "Whether they say it or not, that carries the connotation in the market that they're too big to fail," Volcker, who is chairman of the White House Economic Recovery Advisory Board, said in testimony to the House Financial Services Committee. "The danger is the spread of moral hazard could make the next crisis much bigger," said Volcker.
5. Geithner a goose - John Gapper at FT.com also hammers on this theme, pointing out that Volcker's approach is much more honest than US Treasury Secretary Tim Geithner's view that there was no government subsidy to the 'Too big to fail' banks.
Mr Volcker has been agitating for some time about what he regards as an inadequate approach to dealing with large financial institutions that combine commercial and investment banking arms. He has called for some form of reinstatement of the Glass-Steagall Act. In his evidence to Congress this morning, he zeroed in on the problem that a range of big institutions, now including investment banks such as Goldman Sachs and Morgan Stanley, as well as traditional commercial banks and hybrids such as JP Morgan Chase, are being designated as "systemically important". On the whole, I agree with Mr Volcker and cannot help but think Mr Geithner is indulging in wishful thinking. As my column this morning noted, such institutions gain higher ratings and a lower cost of funding, as well as the comfort of a "heads I win, tails the taxpayer loses" implied government backstop. In return for that, they merely have to suffer (or continue to outwit) their regulators. That will be irritating but it sounds like a good bargain to me.
6. Talkshop - Nouriel Roubini at RGE Monitor looks at what might come out of today's G20 meeting in Pittsburgh. He says the key problems of banking regulation and exit strategies are unlikely to be solved in Pittsburgh.
New capital requirements seem more likely, in the vein of suggestions raised by the Bank of International Settlements (BIS) and the Financial Stability Board. The recent meeting of the G20 finance ministers and central bank governors supported such moves. The meeting broke, however, without an agreement on compensation reforms to avoid a procyclical focus on short-term returns, a policy championed by the European Union. The issue of banks' balance sheets still being impaired also needs to be addressed. All G20 countries have pledged to maintain fiscal andmonetary accommodation for as long as is required to ensure a stable recovery. That implies that countries and central banks might begin exiting at different paces. Some countries have already begun to remove some of the excess monetary accommodation (Israel and China are perhaps the most noticeable), and others are likely to follow through rate hikes or other measures later this year and in 2010. The record growth in national debt will force some countries towards fiscal consolidation in the not-so-distant future, though tax hikes could weaken a recovery of private demand.
7. Groupthink - Simon Johnson at Baseline Secenario believes the G20 meeting will confirm a dangerous 'groupthink' among the world's economic leaders. He points out a push for increased capital requirements is likely to fail. This is disappointing for New Zealand because RBNZ Governor Alan Bollard has pointed to this talk of capital requirements a factor that might push him into something similar here. We certainly need our banks to put aside more capital for housing and farming lending.
The open secret is that even the US is not pushing for significantly higher capital requirements "“ the US Treasury view is that our largest banks currently "have enough capital," even though Citi and JP Morgan have roughly only about as much of an equity cushion against losses as did Lehman Brothers the day before it failed. So the US proposal is largely meaningless "“ which does not prevent the continental Europeans from opposing it; many of their banks are very thinly capitalized but their governments don't want to draw attention to this fact. The Europeans want, instead, to focus on how bankers are paid. Compensation systems in big banks encourage reckless risk-taking, but more this is more of a symptom than a cause. Unless the underlying causes are tackled "“ the excessive size of our biggest banks, their thin level of capital, and the revolving door that has top Wall Street people running bailout strategy in Washington "“ changing compensation rules would just increase the effort that smart lawyers and accountants put into figuring out new ways to pay people. If the G20 fails to deliver, is it really possible that we are doomed to repeat the same mistakes with regard to building up vulnerabilities in our financial system? Amazingly, the answer is: a definite yes. How can this happen, with so many smart people in government? Unfortunately, it is not about having clever individuals on the job; it is about their incentives, their world view, and whether or not they really face pressure for change. During World War I on the Western Front, well-educated British generals with great practical experience insisted on repeating the same mistakes again and again, at great cost. Democratic oversight, in that context, was worth little. If you delegate to "experts" and they fall into dangerous groupthink "“ and are allowed to construct sophisticated sequential cover-ups "“ expect the worst.
8. Heads you win, tails I lose - James Kwak at BaselineScenario points out that the US Treasury's PPiP (Public Private Investment Partnership) scheme to subsidise private firms buying toxic assets has finally started. He's livid.
Our government is providing large subsidies to private investors to buy toxic assets. The only possible justification for these subsidies is that they are necessary to restore health to the banking system, by taking toxic assets off the balance sheets of banks. But these toxic assets are already the property of the U.S. government. This means that the government owns 100% of the upside and 100% of the downside on those assets. Or at least it did until last week. Then it gave half the upside to an investment fund "“ "Residential Credit Solutions of Fort Worth, a three-year-old company founded by Dennis Stowe, a veteran of the subprime mortgage industry" "“ and kept all of the downside to itself. What could they possibly have been thinking?
9. Dear Beijing - Julian Robertson, the well-know political donor in New Zealand and fund management legend, tells CNBC that Americans and its government need to reduce spending and increase saving. He says if the Chinese and Japanese stop buying US bonds he sees US inflation going to 15-20%.
It's almost Armageddon if the Chinese and Japanese don't buy our debt. I don't know where we'd get the money from
10. Someone's buying - Despite all this and the US dollar's fall, there was strong demand at the US Treasury's record auction overnight of US$29 billion worth of 7 year Treasury bonds, Treasury reported.
"It was surprisingly strong," said Lawrence Dyer, an interest-rate strategist in New York at HSBC Securities USA Inc., one of 18 primary dealers required to bid at Treasury auctions. "People are willing to take risks at these yield levels." The existing seven-year note yield fell four basis points to 2.99 percent at 4:45 p.m. in New York, according to BGCantor Market Data. The 3 percent security maturing in August 2016 rose 1/4, or $2.50 per $1,000 face amount, to 100 2/32. The 10-year note yield fell four basis points to 3.38 percent. "With the Fed being a good buyer of agencies and mortgage- backed securities, this has driven spreads inwards," said Martin Mitchell, head of government-bond trading at the Baltimore unit of Stifel Nicolaus & Co. "It has probably allowed banks to move out of that sector and park money into the Treasury market so there has been better buying."
11. (Bonus!) Here's some fun thanks to Geoff Duncan via email. Someone scrapped a Bentley in America's Cash for Clunkers bailout last month, BusinessInsider reported.
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