Top 10 at 10 with NZ Mint; Goldman settles SEC action with 14 days profit lost; Where's NZ's China strategy?; Dilbert

Top 10 at 10 with NZ Mint; Goldman settles SEC action with 14 days profit lost; Where's NZ's China strategy?; Dilbert

Today we welcome our new sponsor New Zealand Mint. Many thanks to Nicola and the team at New Zealand Mint for helping to make this possible every day. Here are my Top 10 links from around the Internet at 10 to 12 pm brought to you in association with New Zealand Mint for your lunchtime reading pleasure.

I welcome your additions and comments below or please send suggestions for Monday's Top 10 at 10 via email to bernard.hickey@interest.co.nz

1. Where's the strategy - Fran O'Sullivan has rightly asked in her NZHerald column where John Key's China strategy is after his visit to China, where he made a few promises without the strategy to back them up.

Fran's piece is well worth a read, as much for the flavour of how far behind we are and a sense of the contempt the Chinese (!) have for our lack of competition and our welfare state.

Yikes. When the Communists start criticising you for being too socialist then you know you have a problem.

First, how does Key propose to treble NZ's estimated $4 billion annual exports to China to reach $12 billion within five years?

Second, how does Key plan to arrest an apparent trend of Kiwis becoming "tenants in their own country"?

Third, is Key going to insist that Mandarin becomes a core component - or even an alternative language - as part of the curriculum in every secondary school in New Zealand?

Surely, it's not too much to ask that a policy response to these core questions should be part of the discussion when Key chairs next week's Cabinet meeting.

2. Deleveraging dominates - Brian Fallow has a good wrapup at the NZHerald on the Reserve Bank's latest comments on 'macro-prudential' policy tools such as the Core Funding Ratio to complement the Official Cash Rate and the 1-3% inflation target. He rightly points out that de-leveraging may be more powerful than anything the Reserve Bank might or might not do.

People have embarked on what may prove to be an extended period of deleveraging. In real per capita terms household debt is falling. Tax changes in the Budget, while milder than many feared, have reduced the incentive, and to a lesser extent the opportunity, for investors to use rental properties as a tax shelter. That should reduce demand in at least some parts of the housing market.

Meanwhile, on balance a return to a world awash with cheap money seems less likely than not. It is possible, if those who believe the western world is slipping inexorably towards deflation are right.

But the more widespread view is that high levels of household and government sector debt will inevitably mean higher interest rates and slower economic growth.

3. Money to make the problem go away - Goldman Sachs has agreed to pay US$550 million to settle the SEC charges against it over misleading investors on sub-prime mortgage instruments. That settlement amount is equal to 14 days worth of profit for Goldman Sachs. It has admitted no fault and simply says it "regrets that marketing materials did not contain full disclosure." Fabulous Fab appears to have been thrown to the wolves. Here's the Zerohedge verdict. Here's the PDF of the full SEC ruling for the junkies.

We, in turn, regret that America no longer has a fair and just legal system There is still some vague hope that a Judge Rakoff wannabe will block this travesty of justice but we are not holding our breath. And sorry Fab Fab, you are still going to be the sacrificial lamb (for now)

4. The China-Japan relationship - China's deep seated grumpiness about Japan is legendary in Asian trade and political circles. They just can't help remembering that war thing. The Japanese, meanwhile, have some remarkable double standards when it comes to trade and immigration. They love trade, except when foreign companies want to operate in Japan. And they hate immigrants, even when they have to have them in to work for them. Here the Economist reports on a little known part of the relationship: Chinese migrant workers in Japan. It's not nice. The Japanese work some of the Chinese to death, it seems.

Far from the bright lights of Japan’s shopping districts, however, young Chinese working in small industrial firms get anything but red-carpet treatment. On July 5th Kyodo, a news agency, reported that 21 Chinese were among 27 foreign trainees who died last year on a government-sponsored skills-transfer scheme for developing countries that over the past four years has brought in an average of 94,000 workers a year, mostly from China.

Of the 27, nine died of heart or brain diseases, four died while working and three committed suicide. A few days earlier officials confirmed that a 31-year-old Chinese trainee who died in 2008 after clocking up about 100 hours a month of overtime was the victim not of heart failure, as originally reported, but of “karoshi”, the Japanese affliction of death from overwork. Japan International Training Co-operation Organisation, the outfit set up by five government ministries to oversee the skills-transfer programme, refuses to discuss the deaths.

But Lila Abiko, of the Lawyers’ Network for Foreign Trainees, an NGO, says many guest-workers do so much low-paid overtime—with the support of their employers—that they literally work themselves to death. The mortality rate from heart disease and other stress-related ailments among trainees in their 20s and 30s is almost double that of Japanese of the same age, she says. “Japan is the richest country in Asia, yet this programme is exploiting poor Chinese like slaves.”

5. Bob vs Paul - Ding Ding. Followers of Australian politics will be fascinated by the explosive exchange in public in recent days between Paul Keating and Bob Hawke. I certainly am. \I was a political and economics reporter for Reuters in Canberra from 1994 to 1996 in the last two years of Keating's Prime Ministerial reign. He was a dangerous, brilliant man who New Zealanders should all worship. I'm not kidding. His picture should be on every wall like the Pope or Kennedy.

Keating (and this is the key point) singlehandedly led the massive reforms in the Australian economy in the 1980s that has created the amazing economy that is there now and singlehandedly keeps our economy afloat. He set up the A$1 trillion compulsory pension scheme and the 4 pillars policy for banks that effectively created and then guaranteed the strong banking system we have on both sides of the Tasman that saved us in the Global Financial Crisis. I'm not kidding about that either.

Now Bob Hawke (or more correctly his new biographer/wife) has slammed Keating in public with a new book which described Keating as an 'ailing ditherer'. Here's The Australian report on that.

And here below is the seething, scathing letter Keating then sent to The Australian opening up on Bob (extracts below). Keating bascically said that Hawke had a mental breakdown in 1984 and never really got out of it.

Australia is a wonderful place to report politics because politicians and business leaders say what they really think in public. All the time. Only in Australia. See the irrelevant video below.

I will also bet, London to a brick on, that notwithstanding what the serialised account on Saturday had to say of your breakdown in 1984, that the book will fail to make clear that your emotional and intellectual malaise lasted for years. All through the Tax Summit year of 1985; through to your lacklustre performance through the 1987 election, to the point when in 1988, four years later, (John) Dawkins had to front you, asking you to leave. It was only after that that you approached me, at your initiative, to enter into an agreement with me to succeed you following the 1990 election.

An agreement you subsequently broke. The fact is, Bob, I was exceedingly kind to you for a very long time. I knew the state you were in in 1984 and notwithstanding a lot of unhelpful advice from Garnaut and other obsequious members of your staff, I carried you through the whole 1984-1987 parliament, insisting you look like the prime minister, even if your staff, the Manchu Court I called them, were otherwise prepared to leave you in your emotional hole. No other prime minister would have survived going missing for that long.

Enough is enough. That yours and Blanche's rewriting of history is not only unreasonable and unfair, more than that, it is grasping. It is as if, Narcissus-like, you cannot find enough praise to heap upon yourself. In hindsight, it is obvious yours and Blanche's expressions of friendship towards me over the last few years have been completely insincere.

I can only promise you this: if I get around to writing a book, and I might, I will be telling the truth; the whole truth. And that truth will record the great structural changes that occurred during our years and my own as prime minister, but it will also record without favour, how lucky you were to have me drive the government during your down years, leaving you with the credit for much of the success.

6. A lot of empty apartments - And Wellington apartment owners think there is a glut in their market after the opening of Soho. In China the situation is 65 million times worse, Zerohedge points out, citing a South China Morning Post article in the wake of slower GDP growth data. ZH also talks about a Fitch report on the health of the Chinese banking system... HT Hugh P via email.

Yet this data pales in comparison with disclosure from a recent article in South China Morning Post, in which an economist at the Chinese Academy of Social Sciences noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country!

This number is five times larger than the roughly 12 million in total US public (3.89 million) and shadow (8 million as estimated by Morgan Stanley) home inventory available currently. Forget Stephen Roach - China is covertly funding and creating a housing bubble that is at least 5 times as big as that of the United States.

We leave it up to you to imagine the consequences of that particular bubble's bursting...

The Fitch report is pretty self-explanatory (presented below) but here is a section that highlights that China's banks are increasingly becoming more opaque in data presentation, which one can assume is due to their unwillingness to reveal the true state of affairs. Of course the same tactic worked very well for our own subprime sector... until virtually every company in the space went bankrupt in the span of 3 weeks in 2007.

7. When will the US and UK investment bankers wake up - Max Hastings writes at FT.com about the sense of unreality that pervades the British and American financial scenes. He rightly says the investment bankers have learned nothing and their refusal to pull their snouts out of the trough threatens capitalism itself. Remember, this is not some left wing nutter saying this. (Sir) Max Hastings is a pillar of the British establishment and a former editor of the (er right leaning) Telegraph who is writing this in the (not very socialist) Financial Times of London.

Over the past two or three decades, bankers have conditioned themselves to suppose that they merit a standard of living far higher than that of ordinary mortals. They refuse to acknowledge that in any society, only a tiny handful of corporate employees can stake a rational claim on seven-figure earnings.

Of course, there are some very clever bankers. But many practitioners possess meagre discernible judgment or talents, yet still collect huge pay packets. To a worker in any other business, it seems risible that the proportion of bank revenues devoted to employee pay has fallen from 50 per cent to a mere 38 per cent. Evidence that banks are still unwilling to lend – in other words, to serve the national economic interest – throws their remuneration policy into even sharper relief. A City friend describes bonuses as having fallen from obscene to merely outrageous.

A wealth manager explained to me recently: “OK, so a banker’s income and bonus drops from, say, £2m to under one. His paper wealth has declined significantly. But most people can keep their lifestyles going very nicely on three or four hundred thousand net.”

The City, like Wall Street, seems impervious to public anger, which it dismisses as the product of ignoble envy. Bankers are reassured that governments, including David Cameron’s, have retreated from threatening rhetoric about limiting compensation, because the practical difficulties are so great.

Few people in Britain or the US begrudge wealth-creators’ generous returns for risk-taking. But too many indifferently qualified people continue to receive rewards from the City far in excess of any rational recompense for their services. As long as that remains so, the rest of society will sustain its animus towards bankers. We should hound them until they change their ways, which threaten the perceived legitimacy of capitalism.

8. Yet they keep winning - The Wall St Journal reports that the world's banks appear to have staved off tougher capital rules and curbs on risk taking in the Basel III process. And overnight the US Congress passed a watered down version of reforms that leave the Too Big to Fail Big 6 (JP Morgan Chase, Citigroup, Morgan Stanley, Bank of America, Goldman Sachs and Wells Fargo) intact and using their government guarantees to run their own proprietary trading desks and paying bankers big bonuses.

The world's banks appear to be winning a reprieve from tough new capital requirements and curbs on risk-taking, as regulators and central bankers are moving toward less stringent rules than initially proposed.

Bowing in part to fears that tougher requirements would diminish the credit needed to revive a sluggish global economy, officials gathered in Basel, Switzerland, are trying to strike a compromise over a set of new international banking standards initially proposed in December.

9. Out of the shadows - One of the major contributors to the explosion in credit through mid 2000s was the growth of the so-called Shadow banking system, which included hedge funds, investment banks, private equity funds and money market funds. The Economist reports on an interesting paper by the New York Federal Reserve on the evolution of these shadow banks.

The volume of credit intermediated by the shadow banking system is larger than that of the regular banks. Prior to the crisis, shadow banks had liabilities of $20 trillion compared with $11 trillion for regular banks. Today, the figures are $16 and $13 trillion, respectively.

10. Totally irrelevant video - This is a wonderful example of Australian oratory. Right up there with Banjo Patterson. Or Bob Hawke. Or Paul Keating. More like Paul Keating. Don't watch it if you are of a delicate disposition when hearing swear words...

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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4 Comments

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Matt S

Glad to hear it! We aim to please

cheers

Bernard

Fred,

Household deposits in banks were actually NZ$92.4 billion at the end of May, these Reserve Bank figures show. http://rbnz.govt.nz/statistics/monfin/c17/data.html

Household debt was actually NZ$181 billion at the end of May, these Reserve Bank figures show http://rbnz.govt.nz/statistics/monfin/c17/data.html

 

cheers

Bernard

Anonymous,

I have cut out your personal abuse of the other commenter. Do it again and you are banned.

Bernard

FYI to all, great piece here on Zerohedge about the Goldman settlement.

"The dirty little secret on Wall Street was that all too often, due diligence was a sham. People went through the motions without a thorough understanding of what they were doing, like kids who write a report by plagiarizing the encyclopedia. Investors saw triple-A ratings and stopped thinking. Goldman didn’t need to lie in order to sell “shitty deals.” It only needed to find a greater fool with an impressive resume at a multibillion-dollar institution who didn’t ask too many questions. And it was able to keep the scam going because all CDOs remain shrouded in secrecy to this day.

"The only people who can buy access to CDO performance data on ABSNet are actual investors, who are subject to nondisclosure agreements. "The risk to Goldman was that more of its dirty laundry would be exposed. As we learned David Viniar’s testimony before the Financial Crisis Inquiry Commission, the company remains in lockdown mode. And once again, the S.E.C. shows little appetite for digging deeper, especially since its new COO of the Enforcement Division is a 30-year-old kid from Goldman."

Everyone should read Michael Lewis' The Big Short to get an understanding of this.

Goldman (another investment banksters) get away with it again

cheers

Bernard