Here's my top 10 links from around the Internet in the last day or two. Vulnerable Credit Channel The NZ Institute under its new leader Benedikte Jensen issued an eye-opening analysis of New Zealand's economic problems on Sunday entitled "The Emperor has no clothes". Jensen concluded that New Zealand cannot rely on lending growth from our banks to get the economy going again. He She says the 'credit channel' is vulnerable because 42% of bank funding comes from offshore investors and 63% of that is due to mature in the next year. It's well worth a read. And here's a few solutions... The NZ Institute then goes on in a companion paper entitled "Funding risks for New Zealand and proposed solutions" to suggest a few ways to prepare for a possible squeeze on foreign funding for New Zealand's banks and therefore our companies. They include;
- direct government financing for companies in trouble, as long as they have tried everything else and a collapse would cost lots of jobs;
- paying for this funding with partial listings of SOEs and cuts to SOE investment plans;
- encouraging the Cullen fund to invest in NZ companies;
- creating a sovereign wealth fund called the NZ Growth Fund to own the SOEs and to invest in companies directly;
- encourage foreign investment in New Zealand;
- move to a compulsory Kiwisaver scheme
- cut corporate tax rates;
- increase land and property taxes;
- consider removing our company dividend imputation credit system.
The report is well worth a read. Your views? Comments below please.
The Irish get grumpy 120,000 Irish people took to the streets in Dublin over the weekend to protest at the government's poor response to the financial crisis. In particular, they hate the idea of public pension cuts to help pay to bail out bankers. Here's the reportage from the Irish Times. This will become a theme repeated all over Europe and the United States. There is a growing movement against the bailouts. Check out Rick Santelli's rant on Friday on CNBC against the bailouts for people who borrowed more than they should have. His argument is that the responsible are paying for and encouraging the irresponsible. Fair point, I reckon. Nationalise them and get it over with Serious talk swept Wall St late on Friday that the Obama administration was preparing to nationalise Citigroup and Bank of America, which drove the Dow now to 14 year lows. Chris Dodd, the chairman of the Senate banking committee, agreed in a television interview that in the short term nationalisation may have to happen. Obama's spokesman said the government still wanted a private banking system, but did not rule out nationalisation. The US Treasury is reported to be about to start the 'stress tests' that are seen as the preliminary step to nationalisation. In my view, the American needs to get on with the clearing of the decks of the zombie banks so the good ones can flourish and get lending again. This in the FT. Worse than the depression? Former Federal Reserve Chairman Paul Volcker said over the weekend the global economy may be deteriorating even faster than it did at the start of the Great Depression of the 1930s, Reuters reported.
I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world
George Soros is equally gloomy. He said at the same function that he saw no imminent end to the crisis and that it was worse than the Great Depression, Reuters reports. The driving force behind HBOS' recklessness The FT.com has an excellent piece on Peter Cummings, the head of corporate banking at HBOS. A former bank branch manager, Cummings drove HBOS' spectacular growth from 2002 to 2007 through a series of risky mezzanine debt deals for various acquisitions and buyouts. These deals are going pear-shaped now and threaten to drag down Lloyds Group into nationalisation. The portrait of Cummings is of a 'star' banker wheeling and dealing more than a banker should. Here's a taste.
A typical deal could involve the bank taking stakes not just in the equity and debt behind a property transaction, but also in the company itself. The model was perfect for a rising market, offering high returns on the debt and staggering profits on the equity. "[Peter Cummings] was the entrepreneur's dream as he would fund almost 100 per cent but give a 50 per cent upside [on good performance]," one HBOS client says. The model was widely copied, although it was Mr Cummings who had the relationship with the industry's big-hitters. He has been described as the ultimate personal banker to the property sector. Admiration for Mr Cummings "“ and the billions in profit he was making "“ extended to the bank. One former business partner says: "There was a committee, but the committee largely deferred to him."
Very revealing. It also poses some interesting questions about the future of HBOS International here, which lent billions to property developers and finance companies, including Strategic Finance and Geneva Finance. In theory, HBOS is still here backing Strategic, Geneva and other deals such as Pegasus Town. How long before Lloyds (or more accurately the British government) pulls the plug? Here's another side story on Cummings. It's a gold rush Gold nipped over US$1,000 an ounce on Friday. The usual safe haven buying by investors who distrust Fiat currencies and the US dollar in particular. Fair enough. Here's a useful timeline on Reuters.com. GM in a right mess as foreign units beg for local help GM's Saab unit in Sweden asked for protection from its creditors (Chapter 11ish type of bankruptcy) over the weekend, while GM's Opel in Germany and its Daewoo unit in Korea are begging for local government help to survive. GM is also asking for government money in Canada. All this is in the WSJ.com. The end is nigh. I wonder about Holden. Surely Kevin "I'll show you the money" Rudd would help save that most Australian of brands. Where would we be without our Commodores? I certainly wouldn't be buying one and hoping the warranty still works until I knew which way the GM cookie had crumbled. RBOS to sack thousands and sell Asian unit The UK government-controlled Royal Bank of Scotland is expected to announce this week the sacking of up to 20,000 workers and the planned sale of its Asian banking operations. This in the FT.com. Beware Texans with fleets of corporate jets The details are emerging of 'Sir' Allen Stanford's not-so-humble lifestyle. He had a US$100 million fleet of corporate jets and regularly spent US$75,000 on Christmas presents. All these details emerged from court papers filed during a 2007 law suit by a woman who claimed to have two children by Stanford. He admitted they were his children. Stanford has surrendered his passport and his banks are being repossessed and shut down all over the Caribbean. The FT has the details. Clinton begs Chinese to keep buying US Treasuries US Secretary of State Hilary Clinton told Chinese television viewers over the weekend that the US and Chinese economies were intertwined and that China needed to keep buying US Treasury bonds to keep the United States strong. China increased its holding of US Treasuries 46% last year to US$696.2 billion, making it the single largest holder of the US debt, Bloomberg reported. Total Chinese currency reserves stand at US$1.95 trillion or 29% of the world total. The poor old Falun Gong are really up against it. No wonder there isn't much Western protest at Chinese human rights abuses. We need China's money too badly.