Top 10 at 10 past 11: Lee criticises Hubbard; Big leaky mess; German dungeon; Dilbert

Here are my Top 10 links from around the Internet at 10 past 11. I welcome your additions and comments below or please send suggestions for Monday day’s Top 10 at 10 to bernard.hickey@interest.co.nz We buy half as much at interest.co.nz 1. Leaky, leaky, leaky - Yesterday I talked about New Zealand being so 'lucky, lucky, lucky' (HT to the immortal Kylie Minogue) to be next to the Lucky Country. Today it's worth pointing out we're not so lucky with leaky buildings. This NZHerald report explores another aspect of the problem that is only now dawning on New Zealanders. Many of our schools and hospitals are leaky too. HT Troy Barsten via email. Finance Minister Bill English talked a bit about this earlier this week in our video interview with him. This school in Papamoa will cost NZ$7 million to completely rebuild. How many other rotting public buildings are out there?

Tahatai Coast School in Papamoa has begun a rebuilding project which is expected to take up to three years and cost $7 million. Principal Ian Leckie said not a single building at the modern school was unaffected by the rot. Twelve of 33 classrooms will be demolished, with the library, a special-needs unit and teacher resource rooms. Classrooms that are not demolished will be completely refitted.

2. The missing link - Vincent Heeringa at Idealog has written a long and thoughtful piece on why our economic performance has been so poor compared to others. He rightly laments John Key's decision in his reform speech not to reform the economy, but Heeringa goes on to ask some tough questions about New Zealand's ability to turn our R&D into money.

Since 1995 we have doubled the number of researchers per thousand employees and rank fourth in the OECD on that measure. What’s missing is not so much the science, but what comes next, the commercialisation. Contrast the number of papers we published with the number of patents: 0.03 US patents per 1000 people compared to 0.15 for Finland and 0.26 for the USA. Or compare the amount of R&D done by Kiwi businesses, where the only justification for investment in science is financial return: only 0.5 percent of our GDP is spent by business on R&D, less than a quarter of the OECD average. New Zealand is missing a magic sauce, a catalyst that turns our world-class research into world-class intellectual property.

3. 'Vee haf vays of making zem stop zee speculating' - The head of Europe's group of finance ministers is threatening bond speculators with torture if they don't stop speculating against the euro. He actually referred to a cellar and torture equipment in Handelsblatt. Yikes.

“If the Greeks hold on to the strict parameters and the markets continue to speculate against Greece, we will not let them just march through,” Jean-Claude Juncker, Luxembourg’s prime minister, told Germany’s Handelsblatt newspaper. “We have the torture equipment in the cellar, and we will show them if needed.” Mr Juncker chairs meetings of eurozone finance ministers.

4. 'Vee haf vays of making zem repay zere debts' - The name calling and rhetoric between the Germans and the Greeks is still rumbling on. The latest idea has come from a senior member of Germany's ruling coalition government. He is suggesting that Greece sell a few uninhabited islands to repay the debt. I'd like to buy that one used as the background in the  film of the 'Mamma Mia' musical. The NZ dollar has appreciated 30% vs the euro in the last year. I fancy myself a leetle island in the sun... Reuters has the story. HT David via IM.

Josef Schlarmann, a senior member of Merkel's Christian Democrats, and Frank Schaeffler, a finance policy expert in the Free Democrats, were quoted on Thursday as saying that selling islands and other assets could help Greece out of its crisis. "Those in insolvency have to sell everything they have to pay their creditors," Schlarmann told Bild newspaper. "Greece owns buildings, companies and uninhabited islands, which could all be used for debt redemption."

5. An interesting idea - Renowned economist David Hale has proposed a radical idea in the FT to help solve Greece's budget crisis. He suggests the imposition of a 6 member commission to replace Greece's government. It would include 3 Greeks and 3 Europeans. There is a precedent. A similar thing was done for Newfoundland in the 1930s.

The European Union could follow this example by asking the Greek government to suspend its parliament and turn over the powers of government to a commission of six bureaucrats, three from Athens and three from Brussels. The commission would guarantee Greece’s debt and rule the country until it regained solvency. There would probably be more protests against the loss of democracy in Greece than in Newfoundland, but it could set the stage for the radical economic restructuring that Greece needs. Greece could return to democracy in 2015 with the highest growth rate in Europe.

6. 'Stay long gold' - Former Economist journalist Christopher Wood now works for investment bank CLSA in Hong Kong and his 'Greed and Fear' newsletter is always an entertaining read. He doesn't think the 'Club Med' debt crisis is over by a long shot. The amount of debt that has to be issued in coming months is staggering.

The reality is that this drama will come to a head sooner or later. And with Greece needing to raise €20bn in the next three months it could be sooner, especially as some other “Club Med” countries also face significant debt refunding schedules between March and May. Thus, Spain and Portugal have €31bn and €11bn of government debt maturing in the next three months. it is only a matter of time before the markets’ focus on fiscal deterioration in Euroland switches to the growing fiscal predicament in America. But in GREED & fear’s view the crisis will come first in Europe. In the meantime, the seeming inevitability of a systemic government debt crisis in the West remains the fundamental reason to remain long gold.

27531196-Greed-Fear-No-Reprieve-CLSA - 7. Bad hair day - Here's Christopher Wood on CNBC. And I thought my hair was an issue... He remains bullish on Chinese stocks and reckons the developed world is set for a deflationary recession. "The crisis is going to happen first in Europe and end in America," he reckons. 7. More watering down - Paul Volcker's plan to stop government guaranteed banks playing on the casino with public money has been watered down again. A fresh draft of the plan shows it would allow banks to keep making markets in Treasuries. It seems the banks need the government and vice versa. Bloomberg has the story.

President Barack Obama yesterday sent Congress the five- page proposal to ban proprietary trading and block mergers that give banks more than a 10 percent market share, as measured by liabilities other than insured deposits. It also would bar banks from owning or investing in hedge funds and private equity firms. The rule, which is aimed at reducing the risk of another financial crisis, exempts mergers that exceed the market-share limit in cases when a firm acquires a failing bank with regulators’ approval. Also left out are trading in Treasury and agency securities, including debt issued by Ginnie Mae, Fannie Mae and Freddie Mac. Such exemptions may help to avoid market disruptions that could affect small investors, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The market is made up of many unseen hands with different objectives and investment horizons, and if you pull out the speculators making short term bets, like prop trading banks, then” an individual investor is “going to be the one who suffers,” Rupkey said. Prop refers to proprietary trading. In a memo accompanying the plan, the administration said it doesn’t want to interfere with market-making or any hedging related to serving customers.

8. 'Way too profitable' - The Australia Institute has released a 19 page report called 'A licence to print money' saying that Australia's big four banks are reaping A$20 billion in monopoly profits because of their dominance of the Australian market. This will no doubt cause a stir across the Tasman.

This paper puts the view that Australian banks are too profitable and that their excess profits are being made at the expense of the Australian community. The paper estimates the underlying profits of the banks to remove the impact of the global financial crisis but, as the crisis passes, actual profits will again reflect underlying profits. The estimates in this paper suggest that the big four banks alone make underlying profits of around $35 billion before tax, of which some $20 billion per annum is likely to reflect the banks’ exploitation of their monopoly over the Australian payments system.

9. Questions for the great man - Kapiti coast stockbroker and financial adviser Chris Lee has written long and detailed piece on South Canterbury Finance that questions the performance and judgment of Allan Hubbard in recent years. It's well worth a read. Lee has defended South Canterbury pretty staunchly until now and, of course, recommended many clients invest with the great man of the South. Lee is no fan of this website, I understand, but I welcome his regular and detailed views on finance companies. He is one of the few willing to speak out. That should be congratulated.

Putting in that money is the first step only. At least another $100 million must be added. More capital is the headline. SCF now needs to add substance, and Allan Hubbard, who has provided it in the past, is no longer likely to be the substance. His error-rate in recent years is obvious, beginning with his failure to stop the lending errors of his directors and executives, his failure to dismiss them as being the wrong people for the job required, his failure to acquire strong, energetic appropriately-skilled directors with a focus on governance, and his failure to tap into the right advisers. He has been too soft, for too long. Too generous. I apologise if this seems cruel, tough on those genial directors he had, tough on two ex-Westpac senior managers who chose all the wrong people and projects to drive lending growth.

Lee also highlights some very interesting related party lending, if true. It doesn't look great.

Perhaps the worst mistake, motivated by kindness, was the decision to lend $15 million to Lachie Macleod, to enable Macleod to buy 10% of Southbury (Macleod was CEO of SCF until a few months ago). As if that was not a big enough error, he allowed Macleod to borrow it via a purpose-built trust and it seems he allowed the loan to be documented without personal guarantees. At least two other directors of SCF were given identical, but smaller loans; all three were documented by one of the borrowers, Ed Sullivan, a Timaru solicitor, SCF director and long-term beneficiary of Hubbard’s business interests. The security for these loans - Southbury shares - may now not be saleable to anyone other than Allan Hubbard. The borrowers would legally have the ability to walk away from the loans, if they were so inclined. Nearly $20 million was lent, in total.

10. Totally irrelevant video - Samantha Bee has a solution on The Daily Show for one man's unemployment problem on The Daily Show. She's been watching Hung....

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