Top 10 at 10 to 12: Inside the Allco meltdown; Euro doubts; How to short America; Dilbert

Here are my Top 10 links from around the Internet at 10 to 12. I welcome your additions and comments below or please send suggestions for Wednesday’s Top 10 at 10 to bernard.hickey@interest.co.nz Our lightbulbs are not creepy. 1. Allco Warning - It's all coming out now. The chairman of Australia's Allco, which owned Strategic Finance, was warned by its Chief Financial Officer of an impending collapse, it has emerged in court hearings, The Australian reports.

A SENIOR executive of Allco Finance Group warned the company's chairman of a possible "perfect storm brewing" that would result in an "uncontrollable meltdown scenario" one year before the group's collapse, the Federal Court was told yesterday. A consortium of banks was left owed $660m and one of the contentious deals done in the final 12 months of the company's existence was a $50m loan to a related party, the Allco Partners Trust (APT), whose unitholders included a number of senior Allco executives, and the $330m Rubicon deal that involved two directors. The $50m unsecured loan was not disclosed to shareholders and Allco's liquidators have indicated they think it should be reversed. It was revealed yesterday that APT had negative assets of $120m; could not meet its bills by the end of the month (in November 2007); it was "largely illiquid"; and it was "near impossible" to predict its cashflow.

2. Euro survival in doubt - Wolfgang Munchau at the FT.com puts his finger on the significance of Germany's moves in the last few days to throw Greece to the IMF, citing constitutional court rulings against supporting other euro nations. Essentially, the euro is stuffed, he is saying.

I have heard suggestions that a deal may still be possible at this week’s European summit, but only if everybody were to agree to Germany’s gruesome agenda to reform the stability pact. That would have to include stricter rules and the dreaded exit clause, under which a country could be forced to leave the eurozone against its will. I am not holding my breath. But either outcome will mark the beginning of the end of Europe’s economic and monetary union as we know it. This is the true historical significance of Ms Merkel’s decision. While Greece faces the most acute difficulties, it is not the only member in trouble. There are at least four – Greece, Spain, Portugal and Ireland – that are probably not in a position to maintain a monetary union with Germany under current policies indefinitely. There may be several more, where the problems are not yet quite so evident. In the presence of extreme current account imbalances and a lack of bail-out or fiscal redistribution mechanisms, a monetary union among such a diverse group of countries is probably not sustainable.

3. 'So bloody lucky' - This AP piece on Yahoo highlights the new commodity boom about to be unleashed in Australia: gas. Here's the links to Jetstar (cheapest NZ$137 for March 31), AirNZ (NZ$331) and Pacific Blue (NZ$279)

Projects being ramped up to tap huge undersea fields off the country's northwest could quadruple Australia's exports of liquefied natural gas in the next few years and turn it into what the country's resources minister has called an "energy superpower." It will be the next stage of a long boom that has enriched Australia and made it a key supplier of the raw materials underpinning Asia's development -- from the girders in city skyscrapers to the fuel burned to light them. "We have what the world, and particularly the rapidly growing economies of Asia, want -- iron ore, energy and minerals," said Colin Barnett, the premier of Western Australia state, which is at the heart of the new boom. The Australian government says Gorgon could generate exports worth AU$300 billion during the next 20 years. And that's just one project. There are at least a half dozen other large gas plans in the works, including Australian company Woodside's $12 billion plan to tap the Browse fields holding an estimated 20 trillion cubic feet of gas.

4. Buffett better than Obama - Bloomberg points out in this cheeky piece that the bond markets now believe that bonds issued by Warren Buffett's AA+ Berkshire Hathaway are worth more and are safer than US Treasuries on AAA.

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market. The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves. “It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. “It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary.”

5. Bank tax - There's been rumblings for a while about some sort of special tax on banks globally, but the problem has always been getting the US, UK and European governments to agree, otherwise there's a big risk the banks will play regulatory arbitrage tennis and financial centres will eventually compete their rates down to nothing. But maybe the pollies could get their act together. Here's the New York Times talking about the US and Germany starting to talk along similar lines. I still think it will fall over somewhere, but if it doesn't this will add to pressure higher on retail interest rates globally as banks scramble to recover the profit from somewhere.

U.S. President Barack Obama’s proposal for a direct tax on banks to pay for future bailouts is gathering momentum in Europe, with Germany set to move ahead with its own levy and Britain expected to endorse a similar measure ahead of the Group of 20 meeting next month. The developments leave France as one of the few major Western economies yet to endorse the idea of such a levy. But while Mr. Obama and Chancellor Angela Merkel’s government seem determined to press ahead, analysts and officials cautioned that a globally coordinated approach would be preferable to deter banks from shifting operations to countries without the extra tax, potentially offsetting its effectiveness. They also stressed that U.S. lawmakers could yet block Washington’s plans to tax banks directly.

6. Australian debt - There's plenty of debt around in Australia. Maybe too much. Here's a useful chart from StubbornMule.net.

7. Confessions of an iron ore salesman - Stern Hu, the Australian citizen who represented Rio Tinto in iron ore sales negotiations in China, has admitted taking bribes in China, the Sydney Morning Herald reports. Wallpaper to make your head hurt...with zebras HT Moggit 8. New Taxes - Edmund Conway at The Telegraph has suggested many developed economies will have to find new taxes to deal with the fiscal splurges of the last couple of years, along with higher interest rates and the coming pension and health care costs from the baby boomer blowouts. One such idea is stop people claiming interest payments as a taxable expense. Nice idea. Broad, clean and drives de-leveraging. Your view? HT Ross and Andrew via email.

Here’s a prediction: at some point in the next few years Britain, along with the US, and probably most developed economies, will radically overhaul the way we treat debt in the tax system. We will go from favouring debt – allowing companies to offset it against taxes, remove or raise taxes like capital gains tax – and start to squeeze up the taxes on debt interest. The plans will at first be treated with horror and disdain by some companies, and understandably: the foundations of modern Anglo-Saxon corporate capitalism rest on the notion that one should not be charged taxes on debt interest. So this overhaul will be a gradual thing, but make no mistake, it will be one of the most profoundly important shifts in the way we run our economies in decades. Now, this is only a prediction. I have had no hint or nudge from either of the main political parties that they are considering this move any time soon, but my suspicion is that this is the way the wind is set to blow. Indeed, George Osborne floated the idea of increasing taxes on debt interest in speech not so long ago. In a sense it is striking that politicians haven’t yet pounced on this one. After all, (1) our tax system favours debt over equity (in other words, makes it more attractive for companies to raise cash by increasing their leverage), and (2) an immense debt bubble was one of the problems which led to the financial crisis. So I would be surprised if this didn’t become a big talking point in the not-too-distant future.

9. How to short America - Hard to believe, but there's now a healthy little market for people to buy Credit Default Swaps on US sovereign debt. The idea that the United States could default is almost unthinkable. Apparently some people are beginning to think it. Here's a nice Slate article. The key question is who would be left in the rubble to pay out the CDSes. When Lehman collapsed the US government paid out. If the US government collapsed, who would pay out? HT Greg out west via email.

In the long run, CDS only make sense as an asset class if they pay out in the event of default. This is why it's so curious that there is a market—albeit a small one—for credit default swaps on U.S. government debt. After all, if the U.S. government were to default, who would be able to pay the claims? According to the Bureau of Public Debt, there is $8.15 trillion in U.S. government debt owned by the public. In addition, now that the United States has taken control of the failed mortgage giants Fannie Mae and Freddie Mac, the government is formally standing behind the debts of those two entities, which surpass $5 trillion. Now, let's imagine a world in which the U.S. government, lacking the will to tax or cut spending, can't scrape up the cash to stay current on interest payments and can't roll over debt as it matures. That would trigger a huge decline in the value of treasuries and mortgage-backed securities. The balance sheet of every U.S. financial institution—JPMorgan, Goldman, Citi, your neighborhood bank, the Federal Reserve, money-market funds—would be decimated. There wouldn't be a single solvent bank, insurer, or company in the United States. The large multinational banks, which have significant U.S. operations and plenty of this stuff on their books, would likewise be wiped out. Oh, and foreign holders of U.S. debt—see this list topped by China and Japan—would be toast, too. In this dystopia, who, precisely, would be able to make good on the insurance sold on U.S. government debt? The last time we had a set of events that were supposed to trigger large-scale payment of credit-default swaps, the system basically shut down. All the investors who bought insurance on financial instruments from AIG got paid off in full only because the U.S. government bailed the company out. Who would bail out the Treasury Department and the Federal Reserve?

10. Totally irrelevant video - A cat is not sure what is happening...