Top 10 at 10: The real Allan Hubbard; Octogenarian pictured on dialysis; The runaway general; Dilbert

Here are my Top 10 links from around the Internet at 10 to 1pm. I welcome your additions and comments below or please send suggestions for Thursday's Top 10 at 10 via email to bernard.hickey@interest.co.nz

1. The real Allan Hubbard - Rebecca Macfie at The Listener wrote an excellent profile of Timaru's Allan Hubbard in May which is now online. Many thanks to our readers who pointed me to it again. It is well worth a full read as it paints a broad and detailed picture of how Hubbard operates. Reading between the lines, it seems Hubbard is a confident man who has many, many details in his head. But don't take my word for it. Read the full story. 

Here's the most revealing segment in my view.

Maier describes the work of the past five months as “triage”, and says he can’t guarantee no further problems will be discovered. If the resuscitation effort fails, it’s not just the mana of Hubbard that will be damaged: so will the Government purse, given its liabilities to 40,000 SCF investors under the terms of the guarantee.

So, what is the American-born corporate doctor’s diagnosis of SCF’s ills? He uses management guru Jim Collins’ book How the Mighty Fall: And Why Some Companies Never Give In as his framework for analysing what went wrong.

“It’s a five-step model of why companies collapse. The first step is that people get arrogant. They believe their own bullshit. They get a sense of righteousness about what they are doing. The second step is that based on that, they feel they can grow enormously. There are no bounds to what they can do. They feel very pumped up. Then, thirdly, when warnings begin to sound they decide that the smoke they can smell is the other guy’s house, that the alarms are not theirs.”

Maier thinks SCF has gone through at least these first three phases. With everyone engaged in a “mutual admiration society”, the Government then announced the retail deposit guarantee scheme in late 2008.

“When that alarm went off, I think South Canterbury probably said, ‘This is wonderful – now we have a huge flow of money and other people are in trouble, so we can hop into real-estate lending and take all these deposits and go’, rather than saying, ‘Wow, what are we into here, what is prudent and conservative, and it may be our house that’s on fire.’”

2. An unusual picture - Here is an interesting picture taken by The Timaru Herald of Allan Hubbard in his home on dialysis. Again, very revealing.

 Here's Hubbard version given to the Timaru Herald -- again slightly different from previous iterations given on Radio NZ and TVNZ -- on the sequence of events that led up to the Statutory Management decision.

He asked the Companies Office to delay the visit by a week, but that request was turned down.

"So I met them and gave them what I could. ... I said, `Look, if you came back at the end of June I'll have everything you want in strict order' ... but they didn't seem to want to do that. [Now] if I was a criminal or something, maybe they would have to act immediately because I might have skipped off to South America with all the booty."

However, in terms of natural justice, someone who was being co-operative and entering into correspondence on the matter should have been given more time, Mr Hubbard said. A day or so after the visit a letter had arrived saying the Companies Office wanted answers within 24 hours.

The next moment he was aware the situation had moved on was at the weekend, at the same time as Commerce Minister Simon Power held a press conference to outline the Government's concerns.

"I think if John Key had been there – he's a practical person – he would have seen this as nonsense," Mr Hubbard said.

3. The hunt is on - The ODT's Simon Hartley looks a bit closer at who was actually invested in Hubbard's Aorangi and what they expected. The picture painted is not reassuring.

Myles Wealth Management principal Craig Myles said a southern investor with life savings of more than $1 million was referred to his company about a year ago by a lawyer for advice on retaining Aorangi-based investments.

"The investor was not covered by any [Crown deposit] guarantee. There was no secured position and no documentation," Mr Myles said.

He advised the investor, understood to be one of 400 from Otago and Southland, "not to leave his money in", but he understood the investor "stayed in".

4. Timaru backs its man - The Timaru Herald has written an editorial backing Allan Hubbard. For the record, here it is. I know the Timaru Herald's Editor Dave King well and have a lot of time for him. He is the former business editor of The Press and knows his way around  these issues. This issue is obviously generating some real heat in South Canterbury, which is rapidly closing ranks. King is no doubt is hoping the SFO does not find any wrong doing. Fair enough. 

His sin in official eyes appears to be the unconventional way he does business. The Hubbards are a deeply religious couple who have spent their lives backing individuals, building up their businesses, supporting them in tough times. They have returned the profits to dozens of charities. As philanthropists they are in a league of their own. All the while they have lived extremely modestly, with no flashy cars, overseas holidays or any trappings of wealth. It is well known that Mr Hubbard conducted many of his business deals on the shake of a hand, and this may be the reason for the minister's angst.

But being elderly and having an old-fashioned or quaint way of doing business is a far cry from fraud. That said, the law has to be upheld, and no matter how saintly Mr Hubbard's reputation, Mr Power has a duty to act if he is concerned. If the allegations are unfounded the officials involved will have humiliated one of the country's most successful and generous businessmen for nothing. They will also have wasted a good deal of taxpayers' money at a time when there is no shortage of directors of failed companies to chase.

5.Once were Warriors - You wouldn't read about. Except you can. Martin van Beynen at The Press has written an excellent piece detailing the links between David "We're here to help" Henderson and Alan "Once were Warriors" Duff. It seems Duff got into some trouble with a mortgage and got Henderson to help. Then Henderson went to Strategic Finance and Hanover Finance. They helped him until the receivers were called in. It's not a pretty story. The perils of too much debt, larger than life personalities and allure of a big flash house.

The tie-up between the authors-developers features in a Christchurch court case in which finance company Strategic Finance is seeking an order (summary judgment) that Henderson has no defence to its claim for $2.65m. Duff's company, Alan Duff Productions, owned an Ian Athfield-designed Emerald Hill house in Havelock North, valued at $3m.

The 520-square-metre house included a 15-metre exterior decorative pool, a swimming pool, waterfall, spa and wine cellar. Duff defaulted on his payments and asked Henderson for help. Eventually, Henderson's company, Cleaver Factors, bought the property in November 2007, using a $2m funding package from Strategic which required both Henderson and Duff to personally guarantee the mortgage.

Cleaver also defaulted and Strategic sold the property, but the sale price was not enough to pay the mortgage. Strategic then sued Henderson for $2.65m, plus interest and costs.

6. Another amazing Rolling Stone - Who would have thunk it. Rolling Stone, a lifestyle and music magazine, has written two long articles in the last year that have shaken the global business and political worlds to their core. The first was the epic "Great American Bubble Machine" by Matt Taibbi that characterised Goldman Sachs as a 'great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money'

The latest is this piece by Michael Hastings called "The Runaway General" on America's leading general in Afghanistan, Stanley McCrystal. The revelations about his arrogance and contempt for Barack Obama's leadership are explosive. They tear a hole in America's united front in its battle in Afghanistan and have prompted McCrystal's resignation this morning. It will no doubt spark a debate that could change the course of the war there. Now that's a piece of journalism.

The general's staff is a handpicked collection of killers, spies, geniuses, patriots, political operators and outright maniacs. There's a former head of British Special Forces, two Navy Seals, an Afghan Special Forces commando, a lawyer, two fighter pilots and at least two dozen combat veterans and counterinsurgency experts. They jokingly refer to themselves as Team America, taking the name from the South Park-esque sendup of military cluelessness, and they pride themselves on their can-do attitude and their disdain for authority.

After arriving in Kabul last summer, Team America set about changing the culture of the International Security Assistance Force, as the NATO-led mission is known. (U.S. soldiers had taken to deriding ISAF as short for "I Suck at Fighting" or "In Sandals and Flip-Flops.") McChrystal banned alcohol on base, kicked out Burger King and other symbols of American excess, expanded the morning briefing to include thousands of officers and refashioned the command center into a Situational Awareness Room, a free-flowing information hub modeled after Mayor Mike Bloomberg's offices in New York.

He also set a manic pace for his staff, becoming legendary for sleeping four hours a night, running seven miles each morning, and eating one meal a day. (In the month I spend around the general, I witness him eating only once.) It's a kind of superhuman narrative that has built up around him, a staple in almost every media profile, as if the ability to go without sleep and food translates into the possibility of a man single-handedly winning the war.

By midnight at Kitty O'Shea's, much of Team America is completely shitfaced. Two officers do an Irish jig mixed with steps from a traditional Afghan wedding dance, while McChrystal's top advisers lock arms and sing a slurred song of their own invention. "Afghanistan!" they bellow. "Afghanistan!" They call it their Afghanistan song. McChrystal steps away from the circle, observing his team. "All these men," he tells me. "I'd die for them. And they'd die for me."

Hastings finishes with this. I recommend everyone read all 6 pages of this piece and then say they think it's a good idea for America (and New Zealand) to stay in Afghanistan.

Whatever the nature of the new plan, the delay underscores the fundamental flaws of counterinsurgency. After nine years of war, the Taliban simply remains too strongly entrenched for the U.S. military to openly attack. The very people that COIN seeks to win over – the Afghan people – do not want us there. Our supposed ally, President Karzai, used his influence to delay the offensive, and the massive influx of aid championed by McChrystal is likely only to make things worse.

"Throwing money at the problem exacerbates the problem," says Andrew Wilder, an expert at Tufts University who has studied the effect of aid in southern Afghanistan.

"A tsunami of cash fuels corruption, delegitimizes the government and creates an environment where we're picking winners and losers" – a process that fuels resentment and hostility among the civilian population. So far, counterinsurgency has succeeded only in creating a never-ending demand for the primary product supplied by the military: perpetual war. There is a reason that President Obama studiously avoids using the word "victory" when he talks about Afghanistan.

Winning, it would seem, is not really possible. Not even with Stanley McChrystal in charge.

7. Goldman sees US$1,400/oz gold - This could mean Goldman wants to quietly sell some gold because it really thinks it's about to fall, but it's worth watching when the Vampire Squid makes a forecast like its latest one that gold will rise to US$1,400/oz because speculators are buying gold funds (ETFs). Also (especially for Wally), Goldman has also cut its Copper forecast. Here's the Zerohedge report on it. 

"Commodity markets are generally rebounding strongly off their lows but sentiment remains fragile on European and Chinese concerns and potential signs of slowing positive economic momentum, despite generally healthy macro data and further improvements in commodity fundamentals. These concerns have caused the market to revise down expectations for future growth, and, in turn, discount future commodity supply constraints."

Specifically, Goldman has revised its 3 Month oil forecast to $87 from $96 (old forecast can be found here), nat gas unchanged, copper to $6,800 from $8,125, and zinc to $2,000 from $2,600. What is most amusing is the sheer loathing that comes of the page in which Nathan is forced to be constructive on gold.

"We see upside risk to our forecast should investor demand continue to support further flows into the gold-ETFs or central banks continue to accumulate gold. For example, if gold-ETF buying were to continue at its current pace for the remainder of the year, we would expect gold prices to rise to $1,400/toz by the end of 2010."

 8. Yikes - Now the head of Australia's Treasury is talking about applying the mining super tax to all super profits. I wonder what the banks think of it... It will never fly politically and has already been shot down by Prime Minister Kevin Rudd, who is fighting the fight of his political life.

Complaining about the difficulty in converting academic ideas on tax into practical policy, Dr Henry told a tax conference in Sydney yesterday that the success of his review should not be judged by the number of recommendations adopted by Canberra but by its influence over the next 40 years. He said that although lowering the company tax rate towards 25 per cent should be a short-term target, eventually Australia would need a better method of taxing companies.

One of the problems with the existing system is that companies are allowed to claim tax deductions for interest paid on their debts, but not for dividends paid to their shareholders. This means they are encouraged to use debt finance.

9. Loonie tunes - It seems the move to include the Australian and Canadian dollars inside the basket of 'reserve' currencies is gaining steam. Bloomberg has the story here. 

That's obviously not helpful for the New Zealand dollar, which would be dragged up with any Aussie dollar strength. But it is understandable given the Australians and Canadians have stable banking systems and Australia (at least) is running a sensible monetary policy, while Europe, the US and Britain are (mostly) printing money hand over fist.

“They’ll gain an increasing place in reserves because of diversification,” European Central Bank governing council member Christian Noyer said in a June 16 interview with Bloomberg News in Paris.

Russia may add the Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. currency and euro, Alexei Ulyukayev, the first deputy chairman of the nation’s central bank, said in an interview in Moscow on June 15.

The International Monetary Fund may add the Aussie and loonie to a basket of currencies it uses in transactions, strategists at UBS AG, the world’s second-largest foreign-exchange trader, predict. Reserve managers are joining private-sector investors including Pacific Investment Management Co., which runs the world’s biggest bond fund, in boosting allocations to nations with improving economies and the ability to reduce budget deficits after the European Union was forced to commit almost $1 trillion to prevent a sovereign default by Greece.

10. Totally irrelevant video - Jon Stewart points out that Louisiana is now praying for a solution to the Oil spill. Literally. Praying. Please don't watch this if are of a delicately religious persuasion.