Top 10 at 10: Fast follower now leader; Sh*#ty Goldman email; Cruise missile container; Dilbert

Here are my Top 10 links from around the Internet at 10 to 9am (!) I welcome your additions and comments below or please send suggestion for Thursday's Top 10 at 10 to bernard.hickey@interest.co.nz 1. Drop the ETS now - Fran O'Sullivan does a fine job in the NZHerald of pointing out that New Zealand's Emissions Trading Scheme due to kick in from July 1 will make New Zealand a leader in the world of such schemes now that Australia has shelved its scheme. Fran points out that momentum among business leaders is building for a call for John Key to shelve our own ETS until we know what the Australians are doing.

John Key's refusal to postpone the implementation of the next phase of the emissions trading scheme (ETS) is setting the scene for a 'winter of discontent' with New Zealand business. In just two days the perception of the Key Government as a climate change laggard has morphed into an unwitting climate change leader as our major trading partners, like Australia and the United States, prepare to defer their own schemes leaving this country out in front of the pack instead of the "fast follower" the PM promised.

2. 'Ham fisted response' - Gareth Morgan has commented in the NZHeraldabout how the May 20 budget won't fix the main problems in the tax system and may just create more juicy opportunities for tax lawyers and accountants to structure peoples' tax affairs. A true path to greatness...

The tax fix options suggested by the working group include depreciation on residential property not be claimed as a deduction for tax, that rental losses be ring-fenced and not used to offset tax on other forms of income or that a completely different tax regime (the risk-free rate of return system) be applied to rental property. Now you can just imagine the response of virile tax dodgers to these types of boundary-specific measures - they don't bear thinking about. Yet we run a real risk that this year's Budget will bring down such a ham-fisted policy response.

3. What a shi*#ty email - All the best stuff is coming out now. Officials in the US Senate have released details of Goldman Sachs emails which show what they really thought of the sub-prime mortgage CDOs. One in particular was less than popular within Goldman Sachs, Bloomberg reports.

“Boy that timberwo[l]f was one shi**y deal,” Montag, who is now Bank of America Corp.’s president of global banking and markets, said in a June 22, 2007, e-mail to Daniel Sparks, who ran Goldman Sachs’s mortgage business at the time, according to the statement yesterday. Within five months of Timberwolf’s debut, the CDO had lost 80 percent of its value, and it was liquidated in 2008, according to the panel. The CDO was among securities that Goldman Sachs sold to clients after deciding the New York-based firm needed to reduce its mortgage holdings, Carl Levin, a Michigan Democrat who leads the panel, said in the statement.

4. 'Customer satisfaction culture' - Abigail Field at DailyFinance.com reports detail from a congressional panel about how the ratings agencies failed during the sub-prime debacle. It shows the agencies were more focused on keeping their good banking clients happy than accurately assessing the strength of the ratings.

Rather than claim management deliberately required inflated ratings, the ex-employees suggested that massive underfunding and understaffing of the ratings departments coupled with a shift to a customer-satisfaction culture -- customer being defined as the banks issuing the securities, not the market at large -- inexorably led to inflated ratings. The most specific charge was made by Eric Kolchinsky, who said he believed Moody's committed securities fraud in connection with a 2009 deal named Nine Grade Funding II by issuing a rating that it knew wasn't true, because it knew the ratings on underlying assets -- ratings that played into Nine Grade's -- were inaccurately high. The most detailed and devastating testimony came from Richard Michalek, a former attorney and vice president at Moody's Investors Service, a subsidiary of Moody's. Michalek joined the Moody's Structured Derivative Products Group in June 1999 and left when his position was eliminated in December 2007. In his oral testimony (at about 66 minutes into the webcast), Michalek charged that as Moody's became more profitable and the structured-finance department accounted for more of that profit, the department lost the ability to say no to issuers. Indeed, management's attitude was "must say yes," Michalek said. Market share concerns were deeply corrosive to ratings integrity, he explained, noting: "The threat of losing business to competitor rating agencies, even if not realized, absolutely tilted the balance away from the independent arbiter of risk towards captive facilitator of risk transfer."

5. What do they do? - Eliot Spitzer, the scourge of Wall St, is having the time of his life post the call-girl scandal. He has rightly asked the question in a column in Slate Magazine about what the investment banks actually do that is of any social value. HT Greg Pritchard via email.

It's time to start figuring out whether and how investments banks perform economically useful functions. To do that, we need to know how big banks deploy their capital and how they make their money. We need to get a real measure of the social value of investment banking activity and to determine whether they are fulfilling the essential capital formation and liquidity needs of the markets. We taxpayers have given them billions upon billions upon billions based on the theory that they perform economically useful activities. They need to prove that they do.

6. The Goldman Sachs case explained - Michael Lewis, the author of the excellent book 'The Big Short', explains what Goldman Sachs is being sued over and believes it's just the beginning as other investment banks are sued by both the SEC and shareholders. He does it on Charlie Rose's show. HT Rob Mackintosh via email. Its worth watching the entire 34 minutes.

It points to the degree of corruption in the fixed income markets. Goldman Sachs seems to have using a CDO manager as a front for selling things to people who really shouldn't have been buying them. On the other end of these transactions are putatively sophisticated institutions (but actually not that bright) such as a German state banks. Around the world you have investors who now may feel they have a legitimate claim.

7. 'Apologise Lloyd' - Felix Salmon from Reuters looks at the latest email revelations and cuts to the core of the problem for Goldman Sachs: damage to its reputation.

Where does this leave Goldman? In a pretty tough spot, I’d say. The SEC case has severely damaged its reputation among its clients, while Levin and the press are doing their bit to undermine Goldman’s public image more generally. To Blankfein, I’m sure all of this seems horribly unfair. But the FT’s 2009 Man of the Year can’t whine about persecution. Instead, he should take the apology he’s already proferred, and make it more explicit: explain exactly which “things” Goldman participated in which were “were clearly wrong” and which Goldman has “reason to regret”. I’ve never got a very straight answer out of Goldman’s PR team on that front, although CDOs were certainly mentioned. Blankfein should be more forthright about that, and try as best he can to put a line under this whole episode.

8. 'Sickening abuse' - Simon Johnson, the author of '13 Bankers' and former IMF economist writes at The Baseline Scenario of 'The Sickening Abuse of Power at the heart of Wall St'

Large global banks make money, in part, through nontransparent manipulation of information – this is the heart of the SEC charges against Goldman Sachs. But the problem is much broader: the Wall Street-Washington corridor is alive and well on its way to another crisis that will empower, enrich, and embolden insiders (public and private) while impoverishing the rest of us. The big players on Wall Street are powerful like never before – and they use this power to press for information and favors from sympathetic (or scared) government officials. The big banks also appear hell-bent on abusing that power. One consequence will be further destabilizing global financial markets – watch carefully what happens to Greece, Portugal, Ireland, and Spain at the beginning of next week. It is time for Congress to step in with a full investigation of the exact flow of information and advice between our major megabanks and key treasury officials. Start by asking tough questions about exactly who exchanged what kind of specific, material, market-moving information with whom this weekend in Washington.

9. Asymmetric warfare - This is (not) a helpful development from Russia, which has developed a cruise missile that can be hidden in a shipping container, Reuters reports.

A Russian company is marketing a devastating new cruise missile system which can be hidden inside a shipping container, giving any merchant vessel the capability to wipe out an aircraft carrier. Potential customers for the formidable Club-K system include Kremlin allies Iran and Venezuela, say defense experts. They worry that countries could pass on the satellite-guided missiles, which are very hard to detect, to terrorist groups. "At a stroke, the Club-K gives a long-range precision strike capability to ordinary vehicles that can be moved to almost any place on earth without attracting attention," said Robert Hewson of Jane's Defense Weekly, who first disclosed its existence.

10. Totally irrelevant video - Jon Stewart at The Daily Show finds out that the Geico guy has had to quit. Geico is the insurance company owned by Warren Buffett.