Here's my Top 11 at 11 (my punishment for being an hour late - HT NZKoz). I welcome any additions in the comments below or please send suggestions for Monday's Top 10 at 10 to bernard.hickey@interest.co.nz We don't have scissors at interest.co.nz... 
1. The ASX has done a deal to launch a house price derivative in Australia, Money Management reports. Is there a case for the NZX to do something similar here given the RBNZ and the REINZ look like they've come up with a way to produce timely data that is not skewed by price action in certain price bands? Might be a good way for people to bet on a falling or rising market without all that pesky and expensive business of dealing with a real estate agent and lawyers.
According to Rismark managing director Christopher Joye, a residential property derivatives market would be attractive to any investor who wants to buy or sell regional residential property as well as to renters who are currently priced out of the market but want to hedge against future house price increases and developers looking to set benchmarks for pricing and returns. "A residential property derivatives market has the potential to allow individuals and institutions to cost-effectively access index-linked exposures to the $3.2 trillion residential property asset class," he said.
2. Bruce Sheppard at Stuff has unleashed his final missive in the great debt debate where he challenged 20 companies to come clean on their debt situations. All hell broke loose when he said he was doing this. The NZX told him to put up or shut up. Here on the Shareholders Association website he puts up all the letters to the culprits and their responses. He makes some interesting points about the covenants many companies have with their banks and how secretive everyone is about them. He calls on the banks to allow their customers to publish the covenants.
If banks or borrowers want confidentiality they should remain private companies. Investors in equity deserve to be told of the major risks they are taking. Relying on continuous disclosure doesn't fix the issue. Because until the company actually defaults it is not obliged to disclose this risk. And even when a company has defaulted it won't necessarily disclose. If NZX prosecutes this issue the poor shareholders will have their equity eroded by a fine. Thus all regulation does is dig a bigger hole for the victims. The whole structure of regulation and penalties needs to be rethought. The SA will be submitting to government on this as well as on NZX's role in regulation. The second point is which party is demanding confidentially, - the listed companies or the bank? It's the banks. So why do the banks want to hide the arrangement they make with their borrower? Here are a couple of clues. When the market was running hot, if a customer disclosed its full lending terms, it was an open invitation for another bank to under shoot the terms and steal the business. Another reason is this, if the SMEs knew the terms listed companies were getting debt and compared this to their own borrowing arrangements, customers would scream and yell and the terms on which SMEs borrow would come under pressure. Thus the banks' desire is to hide their arrangements to protect the securities that they demand from the SME market and to avoid being low balled further in the corporate market. Or maybe they don't want depositors with the bank to truly understand the risks banks are prepared to take with the life savings of the poor old mum and dads again. In short the corporate banking sector is likely to be as messy as the housing lending market where banks in euphoria lent up to 100% of a house's value. Heaven only knows how stupid they have been prepared to be with the corporate borrowers.
3. Kapiti Coast financial adviser and broker Chris Lee also unleashes on finance company trustees in this piece on his website. Perpetual Trust, which was the trustee for Lombard and Capital and Merchant Finance, and Covenant, which had Bridgecorp, get the full treatment. Lee is calling for court cases to punish the trustees and then tough, new laws. He's grumpy about the whole trustee thing.
I have dealt with trustees and trust deeds for 30 years, and observe, politely, that with one or two exceptions, the trustees lack the commercial skills to defeat incompetent or crooked directors and managers. I believe the trustee companies could not recruit suitable staff to combat rotten companies with the revenue they get for overseeing the deed. They need to be paid properly. I believe the deeds, being contractual rather than being defined by statute, have allowed companies to exploit unworldly or incompetent trustees. Is there a solution? Apparently, the current proposed solution will make trustees accountable to the Reserve Bank. There will be other new requirements of trustees being negotiated now. I am unsure that the broken model can be repaired. I am unsure whether the public has a legal right to expect more of trustees, than the pitiful amount of help the trustees have delivered. We need a court to determine this debate. We need class actions against trustee companies from bitten investors. Perhaps the new Auckland litigation funding company should be approached to fund such a case. Once the courts decide what is a reasonable standard of behaviour, we need to price the cost of achieving that standard, we need to know whether the expectation of investors is achievable "“ and then we need new, tough law. Ask any group of investors in the currently frozen finance companies and you are likely to hear huge dissatisfaction not just with the earlier behaviour of the trustee companies, but more so with their current "all-fees, no-communication" attitude.
4. Here's my NZHerald blog saying ministers should not be landlords when they're supposed to be unbiased when considering tax reform on property. 5. There were at least 34 million Americans receiving food stamps in May, which one in every 9 Americans, Reuters reported here. Ironically, the article has an ad for a new Porsche Panamera right next to it. HT Juha via Twitter. 6. The Wall St Journal has done an analysis of how much investment banks might make in fees by carving up and selling off AIG for the government, which owns 80% of the toxic insurance heap and has pumped in over US$100 billion of taxpayer money to support. Morgan Stanley and others stand to make US$1 billion. Will the Wall St porkfest ever end. When will the US populace revolt?
Wall Street banks and lawyers could collect nearly $1 billion in fees from the Federal Reserve Bank of New York and American International Group Inc. to help manage and break apart the insurer, according to a Wall Street Journal analysis. That would represent one of Wall Street's biggest paydays -- four times the fees paid to break up AT&T Corp. in 1996, and nearly double those paid for Visa USA's 2008 initial public offering, the largest U.S. IPO ever.
7. Seeking Alpha has five reasons why the the global markets could crash this fall (September, October, November). Firstly, High Frequency Trading makes up 70% of volume and any restriction would crash the market. Secondly, underlying volume is weak, just as it was before previous crashes. Thirdly, the latest rally is a short squeeze rather than anything fundamental.
Anytime stocks explode higher on next to no volume and crap fundamentals you run the risk of a real collapse. I am officially going on record now and stating that IF the S&P 500 hits 1,000, we will see a full-blown Crash like last year.
Fourthly, 13 million Americans will run out of unemployment benefits by the end of 2009.
So unemployment claims are falling, that means people are finding jobs right? Wrong. It means that people are exhausting their unemployment benefits. When you consider that there are 30 million people on food stamps in the US (out of the 200 million that are of working age: 15-64) it's clear REAL unemployment must be closer to 16%.
It concludes by saying the banks are very exposed to 1 quadrillion (that's 1,000 US$1 trln) worth of derivatives.
I'm sure that derivatives which have absolutely NO oversight, no auditing, no regulation, will ALL be fine. There's NO WAY that the very same financial institutions that used 30-to-1 leverage or more on regulated balance sheet investments would put $50+ trillion "at risk" (only 5% of the $1 quadrillion notional) when they were trading derivatives. If Wall Street did put $50 trillion at risk"¦ and 10% of that money goes bad (quite a low estimate given defaults on regulated securities) that means $5 trillion in losses: an amount equal to HALF of the total US stock market. This of course assumes that Wall Street only put 5% of its notional value of derivatives at risk"¦ and only 10% of the derivatives "at risk" go bad. Do you think those assumptions are a bit"¦ low?
8. Here's Harry Enfield video spoof on one of those old British movies from the 1930s. The gold standard is discussed and I found myself agreeing with the women at the dinner party. I'm sympathetic to the gold bugs and Austrian economists banging on about monetary inflation, but the gold standard was a dumb idea. 9. The madness in America goes on. Fannie Mae is asking for yet another US$10.7 billion in fresh capital from US taxpayers after the cupboard was sucked bare again by the imploding housing market, Bloomberg reported.
A second-quarter net loss of $14.8 billion, or $2.67 a share, pushed the company to request money for the third time from a $200 billion government lifeline, Washington-based Fannie Mae said in a filing today with the Securities and Exchange Commission. Today's results bring the company's cumulative losses over the last two years to $101.6 billion and will bring its total draw on the Treasury to $44.9 billion since April. The credit quality of loans and mortgage bonds that Fannie Mae owns or guarantees have deteriorated as a recession that began in December 2007 pushed more homeowners into foreclosure. A record 1.5 million U.S. properties received a default or auction notice or were seized in the first half of this year, 15 percent more than a year earlier, as employers cut jobs and temporary programs to assist homeowners came to an end, RealtyTrac Inc. said July 16.
10. And the madness goes on in Britain too where the Bank of England expanded its money printing programme by 50 billion pounds to 175 billion pounds overnight, TimesOnline reports. Not surprisingly, the pound fell against the dollar and the NZ dollar. When is New Zealand going to join the competitive devaluation party by printing money too? Alan Bollard shouldn't be too surprised by a strong NZ dollar when this sort of stuff is going on every second day. Can't think of a solution though.
The move defied market expectations and put a dampener on hopes for a swift economic upturn. The decision by the Bank to expand its programme of quantitative easing from £125 billion to £175 billion breaks the ceiling set by the Chancellor at £150 billion. It also confirmed that interest rates would remain at 0.5 per cent for a fifth consecutive month. Ross Walker, UK economist at Royal Bank of Scotland, said: "This is a huge surprise. All the rhetoric seemed to point to not doing very much more."
11. (Just for NZKoz) Gillian Tett at the FT muses on the cash pipelines being clogged in the British and American banking systems. She says northern hemisphere banks are turning very Japanese, but there's a risk all their spare cash could be deployed into new bubbles.
Numerous small or risky corporate ventures in the west currently complain that they cannot get loans. Consumers are facing rising borrowing charges too. Thus, in the West, as in Japan a decade ago, the liquidity is still not necessarily flowing to those who need it most. Those pipes remain clogged, even as water is forced in. That, in turn, raises a fascinating question for investors and policy makers: where will all that "backflow" of unusued liquidity, as it were, go? Right now, some seems to be sitting in a quasi stagnant pool, deposited into reserve acounts with central banks. Much also seems to be leaking into the government bond markets, or moving directly there (as in the case of the British central bank's direct purchase of gilts). That is helping to keep long-term yields low, echoing the pattern seen previously in Japan. The longer that the banking pipes remain partly or fully clogged and the governments keep pouring water into the system, the more that investors and policy makers need to watch what this liquidity "backflow" might do; and not just in the gilts market, but other, less obvious corners of the global asset markets too.
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