Wednesday's Top 10 with NZ Mint: S&P 'bends over for bankers and takes it', before rating toxic junk AAA; The 1%ers and the 99%ers; 4 Chinese hard landing signs; Back to the USSR; Dilbert

Here's my Top 10 links from around the Internet at 3 pm in association with NZ Mint.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

I'll pop the extras into the comment stream.See all previous Top 10s here.

Today there's another cycling video for those who loved yesterday's trick-fest in a junkyard.

1. Standard and Poor's exposed in Australian court case - As you can imagine, this is all very topical now in the wake of S&P's downgrade of New Zealand on Friday and its downgrade in August of America's credit rating.

An Australian court case bought by 12 Australian councils against ABN Amro and Standard and Poor's is now being heard in the Federal Court and the details emerging are sensationally bad for Standard and Poor's, Michael West reports from the Sydney Morning Herald.

The allegation is that S&P and ABN Amro misled the poor wee councils into buying toxic mortgage bonds in 2007 at the peak of the bubble.

It turns out Standard and Poor's poor wee analysts were forced/chose to swallow the rats served up by ABN Amro and gave the toxic junk AAA ratings without much of their own analysis.

It turns out S&P didn't do an independent report. There was a lot of copying and pasting from ABN Amro.

It looks real ugly for the ratings agency. It's always the emails that get them.

Here's a selection of the juiciest revelations courtesy of West:

“Smart” investment bankers had “sandbagged” Standard & Poor’s, “bulldozing” the world’s most venerable ratings agency into delivering its premiere “AAA” credit rating for a high-risk, and ultimately disastrous, financial product.

Just as remarkably, documents submitted to the court show these investment bankers were surprised to find that S&P didn’t even bother to do its own research for an “independent” report on the Rembrandt notes.

Rather, the ratings agency virtually cut and pasted a chunk of ABN Amro’s own analysis of the notes - even though this was the very bank seeking the credit rating and trying to sell the notes.

According to an email presented in opening submissions, one employee of S&P chided another, writing, “You are the wuss for bending over in front of bankers and taking it… You rate something AAA, when it is really A-?”

2. The reign of the 1 percenters - This long piece in Orion Magazine from Christoper Ketcham catches the mood of revolt that's brewing in New York over how less than 90,000 people in Manhattan (mostly bankers, traders and hedge fundies) have cornered America's wealth and income.

The tone of the piece is most interesting. It's almost febrile. You can see why the #OccupyWallStreet protests are taking off.

The anger is palpable now. It's taken a while, but it's coming now.

Good.

Here's a taste:

“Here,” I tell her, standing in the canyons of world finance, “is what New York is about. Sociopaths getting really rich while everyone else just sits on their asses and lets it happen.”

3. A New Zealand perspective - Here's an excellent musing by online entrepreneur-consultant guy Lance Wiggs about #OccupyWallStreet and the 1%.

Lance talks about how he brushed up against the 1% when he worked as a McKinseyite a few years ago and why he's glad he made it out.

He suggests a few ways that New Zealand can avoid becoming the divided place that America now is.

Here's a taste:

 I was lucky (or unlucky) enough to temp for a few months in a bank that sold structured financial products in London, counting the amount of money that the bankers had made over and above the internally calculated value of those products. It was a calculation of a knowledge advantage, and the units were millions of dollar per day.

Those bankers or traders were seen as the elite within the bank people, but in reality they were arseholes, and like everyone else there, including me, they were dedicated to making money and to little else. I was lucky because I managed to get kicked out relatively quickly.

Lance, who's a good guy and former colleague of mine from my Fairfax days, links to this excellent site telling the story of the 99% who are struggling in America. Here's a sample of the picture below.

4. Chinese hard landing sign # 1 - Beijing based Tsinghua University Professor Patrick Chovanec writes an excellent piece detailing the signs of a hard landing in China.

He describes it as an "Economy on the edge of a nervous breakdown"

I hope John Key (HT The DimPost for the womens mag cover below) will read it.

In Shanghai, primary market property sales for Sept. 1-18 were down more than 50% year-on-year (contrasted with the all-time high inventories I mentioned earlier).  In Beijing, nearly 5% of the city’s property agents have shut down in the past two months.  The global price of copper, 40% of which is driven by Chinese demand, including wiring for all those new homes and office buildings, is down almost 25% since the beginning of August.  But more dramatic, and worrisome, is what is happening in Wenzhou.

Wenzhou is a city on the southeast coast that is well-known as the center of free-wheeling entrepreneurship in China.  Plenty of those entrepreneurs operate businesses and factories in Wenzhou itself, but others scatter themselves far and wide across China, forming networks of trade and commerce.   With a reputation for getting by on their wits and the skin of their teeth, Wenzhou merchants have long relied on — and sponsored — informal methods of financing.  So it’s no surprise that, as formal credit conditions tightened this year, they were front and center in providing alternatives.  The fact that credit tightening has fallen disproportionately on China’s private sector presented them with both opportunity and risk.

For a while, I’m sure the opportunity was highly rewarding, with informal interest charges soaring to monthly rates of 4-10%.  But eventually the risk caught up.  Shanghai Daily reported on Sept. 23 that, in the previous ten days, at least seven local Wenzhou business owners had fled after defaulting on millions of yuan they had borrowed from banks and private creditors, which they in turn lent or invested in real estate and other speculative ventures.

5. Chinese hard landing sign #2 - Bloomberg reports BMW, Audi and Mercedes are cutting new car prices in China to make targets as demands slows.

In Beijing, BMW dealerships are giving markdowns of as much as 19 percent on a 3-series car, while some Mercedes dealers are selling the C-Class Elegance model at 20 percent less than the suggested retail price, according to cheshi.com, a pricing guide tracking more than 3,000 dealers in the country.

BMW, Daimler and Audi, the three largest luxury carmakers, face slowing sales growth and falling prices in China, the world’s largest automobile market, as some cities impose driving curbs and the central bank tightens lending.

“We’re in a cycle of dropping prices,” said Scott Laprise, a Beijing-based analyst at CLSA Asia Pacific Markets. “Dealers are worried about sales slowing and are cutting selectively in the luxury segment. They see where the overall market is going. They want to be preventive and keep their sales going.”

6. Chinese hard landing sign #3 - BusinessIsider reports from Deutsche Bank economist Jim Ma that he is now expecting a slump in Chinese growth to 7% and that the real estate market is worrying.

Here's the detail:

In recent weeks, the number of phone calls received by an author of this report from China-based property agents has increased several fold, indicating a significant rise in the urgency for developers to raise cash from selling properties. A property consultant told us that he recently received requests to help raise RMB10bn for cash-strapped small and medium-sized property developers – this amount is a huge multiple of what he is used to dealing with. In the offshore market, where many Chinese developers seek foreign currency funding due to lack of access to domestic funds (the domestic stock, bond and trust loan markets are closed to them due to policy tightening, and banks are also very stringent), their USD bond yields have surged to 20-25% in past weeks from around 10% before August. This means that even the offshore markets are now largely closed to Chinese developers.

All these suggest that many developers are now under greater pressure to sell their properties at a bigger discount in order to avoid a liquidity crisis. An emerging consensus from potential buyers and some developers is that a 10% drop in prices in the coming two quarters would be justified.

A further decline in physical property prices will likely reduce the incentive for developers to start new projects, and thus implying a deceleration in real estate fixed asset investment. Note that real estate FAI by developers account for about 16% of total FAI, and about 25% of the demand for steel, coking coal, and cement.

7. Chinese hard landing sign #4 - Steel prices in China are dropping fast, the Sydney Morning Herald's John Garnault reports.

This of course is a problem for Australia, which exports the raw materials for steel production in China.

Xu Xiangchun, at Mysteel in Shanghai, said market anxieties over the global economy had coincided with softening domestic demand including a pullback in railway construction due to a series of scandals in the Ministry of Railways.

Prices for ''rebar'' construction steel fell 2.6 per cent last week and they have dropped 8 per cent since mid-August, said Paul Bartholomew at Steel Business Briefing. Sliding prices are squeezing steel mill profit margins and putting pressure on resource suppliers to cut prices too.

Baosteel chairman Xu Lejiang said last week that steel was the least profitable sector in Chinese manufacturing, with margins less than 3 per cent.

''Steel mills are restructuring and it is possible that we'll see steel mill bankruptcies in the near future,'' said Ms Yin. ''Iron ore prices are likely to fall.''

8. Eurasian Union - BBC reports that Russia's soon to be former-new President Vlad 'the bad' Putin is proposing the creation of a 'Eurasian Union' of the former Soviet republics.

He says he's not interested in reforming the Soviet Union, but...

"There is no talk about rebuilding the USSR in one way or another," he said in an article in the daily newspaper Izvestia.

"It would be naive to try to restore or copy something that belongs to the past, but a close integration based on new values and economic and political foundation is a demand of the present time."

He said a "Eurasian Union" would "build on the experience of the European Union and other regional coalitions".

Mr Putin said the aim was to "create real conditions to change the geopolitical and geoeconomic configuration of the entire continent and have an undoubtedly positive global effect".

9. Greeks return to bartering - The New York Times has a detailed report on a plethora of often online bartering networks that have sprung up in Greece to replace the Euro.

Part alternative currency, part barter system, part open-air market, the Volos network has grown exponentially in the past year, from 50 to 400 members. It is one of several such groups cropping up around the country, as Greeks squeezed by large wage cuts, tax increases and growing fears about whether they will continue to use the euro have looked for creative ways to cope with a radically changing economic landscape.

“Ever since the crisis there’s been a boom in such networks all over Greece,” said George Stathakis, a professor of political economy and vice chancellor of the University of Crete. In spite of the large public sector in Greece, which employs one in five workers, the country’s social services often are not up to the task of helping people in need, he added. “There are so many huge gaps that have to be filled by new kinds of networks,” he said.

10. Another totally irrelevant cycling video - This one is from Danny MacAskill riding from Edinburgh to Skye.