Top 10 at 10: Securency probed; Standard and Poor's debated; Schiff less popular; 'Council bond bank'

Here's my Top 10 links from the last 48 hours at 10 am. I welcome your additions in the comments below. I wish I had an MBA. 1. The Agereported on Saturday that Securency, which is half owned by the Reserve Bank of Australia, paid commissions to "shady middlemen" to win banknote printing deals in third world countries. Securency prints New Zealand's plastic currency. It also reported today that Securency had sent millions of dollars in commissions to accounts in tax havens.

Securency Pty Ltd, a Melbourne-based banknote supplier half-owned by the RBA, has made a substantial number of "commission" payments to agents, including some previously implicated in corruption scandals. The company, which has supplied polymer material to print money in Australia and 26 other countries, is chaired by the RBA's assistant governor, Robert Rankin. Its board has another two RBA appointees, as well as executives from British firm, Innovia Films, owner of the other half of Securency. Some of Securency's agents are closely tied to government or central bank officials in countries ranked by Transparency International as highly corrupt.

2. Rod Oram at the Sunday Star Times argues that the New Zealand government should ignore the threat of a Standard and Poor's rating downgrade because Standard and Poor's is considering New Zealand's current account deficit, whereas Moody's and others are not. Oram thinks Treasury is scaremongering.

If we were to suffer the same downgrade as Ireland, we could expect to pay an additional 1.5 percentage points interest on our debt, John Whitehead, the Treasury secretary, said 10 days ago in a budget scene-setting speech, the first ever by Treasury. That would equate to another NZ$600 million a year in interest on government debt "the same as two new Wellington hospitals". By invoking Ireland, and in such emotive language, Treasury sounds like a stooge of the government. Yet, as Moody's analysis shows, we are far from another Ireland waiting to happen. We have none of Ireland's problems. For example, its banks blew out their assets to six times GDP and so they need tax-funded rescue; and its labour costs are 20% higher than its European competitors.

I don't agree with Rod that we can relax about our current account deficit and that Standard and Poor's is wrong to focus on this measure, but he makes some good points and has some quotes from Moody's and others to back up his argument. 3. Standard and Poor's analyst Kyran Curry, who will see the budget two days before anyone else, has told the NZ Herald they want to see the budget back in surplus within 5 years. That could be a tough task and that timeframe gives us some idea whether the budget on Thursday will do enough to stave off a downgrade of our AA+ credit rating. "We are looking for a more sustainable position over the medium term," Mr Curry told the Herald. "It is hard to put a timing on it, but we would expect that over the cycle of the Government [it] would be recording operating surpluses within, I guess, the next three to five years."

4. Rob Stock at the Sunday Star Times reported the government is about to ask for expressions of interest to build a "bond bank" agency to sell bonds on behalf of councils.

The proposal would ask private organisations wishing to run a bond bank to suggest the structure they would operate, and there are likely to be competing versions put forward. The desire to set up a bond bank comes from the very pressing need of local authorities to spend big bucks on infrastructure while keeping a cap on rates. Local authority projections for infrastructure spending over the next 10 years total some $33 billion. It's a huge sum and, given the unpopularity of rates increases, could require as much as $20b in new borrowing.

5. It turns out the Australian banks have not been gouging profits in Australia, says Stephen Bartholomeuz at BusinessSpectator. 6. The US Federal Reserve's Open Markets Committee (FOMC) sets interest rates and can be an eclectic group where dissidents can pop out of the woodwork sometimes. The leader of the black sheep at the moment is Richard Fisher, the President of the Dallas Federal Reserve. He has dissented on some rate cuts because of his fears about inflation and he has grumbled about all the bond buybacks (money printing) that has gone on. Here he gives an interview in the WSJ.com where he says the Chinese are utterly focused on the US Federal Reserve's money printing and how he doesn't trust ratings agencies.

The looming challenge, he says, is to reassure markets that the Fed is not going to be "the handmaiden" to fiscal profligacy. "I think the trick here is to assist the functioning of the private markets without signaling in any way, shape or form that the Federal Reserve will be party to monetizing fiscal largess, deficits or the stimulus program." The very fact that a Fed regional bank president has to raise this issue is not very comforting. It conjures up images of Argentina. And as Mr. Fisher explains, he's not the only one worrying about it. He has just returned from a trip to China, where "senior officials of the Chinese government grill[ed] me about whether or not we are going to monetize the actions of our legislature." He adds, "I must have been asked about that a hundred times in China."

Here's my favourite quote on money printing.

"Throughout history," he says, "what the political class has done is they have turned to the central bank to print their way out of an unfunded liability. We can't let that happen. That's when you open the floodgates. So I hope and I pray that our political leaders will just have to take this bull by the horns at some point. You can't run away from it."

And here he is on ratings agencies, which our Reserve Bank is relying on in its regulatory regime for finance companies.

"I never paid attention to the rating agencies. If you relied on them you got . . . you know," he says, sparing me the gory details. "You did your own analysis. What is clear is that rating agencies always change something after it is obvious to everyone else. That's why we never relied on them."

7. National Australia Bank staged the first non-guaranteed foreign bond issue last week, opening the way for the scrapping of the government guarantee, some market players told AAP, as republished in BusinessSpectator. NAB became the first Australian bank to raise money in the offshore debt markets without using the government's triple A credit rating via the wholesale funding guarantee, raising STG 500 million ($A1.02 billion) in five-year unsecured notes at 5.735 per cent.

Bankers attending a corporate lending conference this week said the government guarantee should be dropped once local banks no longer needed it to tap offshore debt markets. "I think that's probably the trigger point to actually get rid of the guarantee when we can tap international markets without the government guarantee," ANZ Banking Group director of syndication markets Sean Joseph told the Finsia conference in Melbourne.

8. It turns out the remarkable story of the financial woes of New York Times economics correspondent Edmund Andrews wasn't the whole story. Andrews' New York Times Feature report of how even an intelligent 'everyman' such as himself was enticed into foreclosure by the nasty banks and brokers was a sensation that I linked to in an earlier Top 10 at 10. But now Megan McCardle at The Atlantic Monthly has reported Andrews' wife Patty Barreiro had declared bankruptcy twice and her spendthrift ways may be the cause of the problems. HT Felix Salmon 9. Time reports that Peter Schiff, the prophet of doom who got it right, has seen his bookings for media appearances drop 75-85%. HT Tyler Durden.

His investment record surely can't be the reason for his fall from media grace. No, the main issue with Schiff seems to be that he hasn't changed his tune--and it isn't a pleasant tune to listen to. He thinks the "phony economy" of the U.S. is headed for even harder times. He believes that the crisis-fighting measures coming out of Washington are merely delaying the inevitable, debasing the dollar and loading future taxpayers with huge debts.

10. Alastair Helm at realestate.co.nz argues mortgagee listings may have peaked. He has some interesting analysis showing the correlation between listings and sales.