Monday's Top 10 with NZ Mint: Aussie home listings surge; US collapse prediction; Banker gets girls; Macquarie's Chinese mess; Dilbert

Here are my Top 10 links from around the Internet at 10 to 5 pm, brought to you in association with New Zealand Mint for your reading pleasure.

My apologies for lateness. It's been a tad frantic with all this house price and Allied Farmers news around.

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

I'll pop any surplus suggestions I get into the comment stream under the Top 10.

1. Funding costs on the rise - The Reserve Bank of Australia (Page 47/48) has had a close look at funding costs for banks in the wake (midst?) of the European Financial crisis.

It doesn't make pleasant reading if you were hoping for interest rates to fall in coming months. It also shows how much pressure our banks' parents are under.

"Looking ahead, if bond spreads and hedging costs were to remain around their current levels, then as maturing bonds and hedges are rolled over, the average spread on banks’ outstanding bonds is estimated to increase by around 20–25 basis points by the end of 2011.

Together with spreads on deposit and short-term wholesale funding staying around current levels, this would imply a rise in banks’ overall funding costs of around 5 basis points over the next 18 months or so."

2. Too much profit - The Australia Institute has published a paper titled  "Money and Power: the case for better regulation in banking", which makes for interesting reading.

The power of Australia's big four banks is unmistakeable. Their underlying profits equate to almost three per cent of GDP, up from less than one per cent a quarter of a century ago. Of every $100 spent in Australia, nearly $3 ends up as underlying profit for the banks. Profits are so high because the banking market is highly concentrated.

The big four banks now control more than 75 per cent of all bank assets and banks account for over 90 per cent of all lending by financial institutions in Australia. This level of concentration has distorted competition, allowing the big banks to reap underlying profits of around $35 billion per year, including $20 billion in 'super-profits' attributable to their market power.

3. Not a double dip - More like a depression followed by hyperinflation and complete collapse. John Williams from Shadow Stats talks to The Energy Report about the American economic situation. He makes the point that all the money printed by the Fed in the first bout of QE is back sitting in the Fed's vaults because the banks wouldn't lend it out. Now money supply is falling.

He seems to be saying the government has no choice but to print money, which would just lead to hyperinflation. It gets a lot worse after that. This is slightly worrying. This is a very serious guy predicting a complete US economic collapse. HT Andyh

With the bulk of the reported GDP in the first half due to inventory building, the stage for renewed contraction has been set. By then we'll find the consensus pretty much in the camp that we're in a double-dip recession. The popular press will describe it as a double dip, but we never had a recovery. Actually, this is just a very protracted, very deep downturn that has had a pattern of falling off a cliff, bottoming out, having a little bit of bump due to stimulus and then turning down again. Sort of shaped like the path of a novice skier going down a jump for the first time.

Speeding sharply down the hill, he goes up in the air and starts spinning wildly as he tries to figure out which end is up with his skis. Then he takes a pretty bad tumble. We're beginning to spin in the air.Most of the growth we'd seen in the last decade prior to this downturn was due to debt expansion. The debt structures have pretty much been put through the wringer and consumers are not expanding credit, generally because it's not available to them. Absent debt expansion and/or significant growth in income, no way can the consumer expand personal consumption.

You have to address employment, quality of jobs.The government is effectively bankrupt. Using GAAP accounting principles, the annual deficit is running in the range of $4 trillion to $5 trillion.

That's beyond containment. The government can't cover it with taxes. They'd still be in deficit if they took 100% of personal income and corporate profits. They'd also still be in deficit if they cut every penny of government spending except for Social Security and Medicare. Washington lacks the will to slash its social programs severely, to change its approach to ever bigger government.

The only option left going forward is for the government eventually to print the money for the obligations it cannot otherwise cover, which sets up a hyperinflation. We've been talking about an economic recession, but we are headed for something far worse. I define a depression as a 10% peak-to-trough contraction in the economy. In terms of the broad economy, we're not down 10% in GDP yet.

So while we're not formally in depression, we're certainly seeing it in a number of indicators and I think we'll be in a depression, with GDP down 10%, in the near future. A contraction greater than 25% peak-to-trough puts you in a great depression.

That is what I envision, but we'll be taken there by hyperinflation and a resultant cessation of normal commerce.

Asked about whether the US dollar would be replaced by gold or silver, he says this:

I think they will become a backup fairly quickly, but we don't have any widely developed black market for another currency at this point because the dollar remains the world's reserve currency. All sorts of things may develop that we don't anticipate. What will be used to cover for the dollar? Gold and silver? The precious metals are limited in supply and not widely held by the population in general. Hard currency from Canada or Australia?

That wouldn't be in wide circulation, at least not early on. I think a barter system is where it will go until the currency system is stabilized, but the currency system can't stabilize until the government's fiscal house is in order.

4. Fat cats party hard while hard working Brits suffer - That was the headline in the Daily Star after SkyNews ran a videophone clip of a party in London where one drunk banker said it had been a tough year because he had only been able to afford one Maserati.

Not a good look. The picture is priceless. It was subtitled Banker gets girls. I suspect however there might have been an hourly fee involved...

Alcohol wasn't the only thing on offer, as guests were also entertained by burlesque dancers, singers, casino tables and free massages.

Co-sponsor of the event Jaguar showed off its latest models, which were eagerly eyed up by those looking to spend their bonuses. The atmosphere was buzzing with little sign of the austerity facing the rest of the country. Speaking to Sky News Online, one City banker joked about how the recession had affected him.

"It's been a very hard few years. I have had to survive on my bonus and only one Maserati - that's how it is." And here's the video that it's based on.

5. Taibbi is back - Matt Taibbi, the Rolling Stone journalist who described Goldman Sachs as the Vampire Squid, is back with an excellent piece explaining just what happened with the Dodd-Frank financial reforms that just went through Congress. It is titled 'Wall Street's big win" and explains how finance reform won't stop the high risk gambling that wrecked the economy.'

Dodd-Frank was neither an FDR-style, paradigm-shifting reform, nor a historic assault on free enterprise. What it was, ultimately, was a cop-out, a Band-Aid on a severed artery. If it marks the end of anything at all, it represents the end of the best opportunity we had to do something real about the criminal hijacking of America's financial-services industry. During the yearlong legislative battle that forged this bill, Congress took a long, hard look at the shape of the modern American economy – and then decided that it didn't have the stones to wipe out our country's one ­dependably thriving profit center: theft.

The huge profits that Wall Street earned in the past decade were driven in large part by a single, far-reaching scheme, one in which bankers, home lenders and other players exploited loopholes in the system to magically transform subprime home borrowers into AAA investments, sell them off to unsuspecting pension funds and foreign trade unions and other suckers, then multiply their score by leveraging their phony-baloney deals over and over. It was pure financial alchemy – turning ­manure into gold, then spinning it Rumpelstiltskin-style into vast profits using complex, mostly unregulated new instruments that almost no one outside of a few experts in the field really understood.

With the government borrowing mountains of Chinese and Saudi cash to fight two crazy wars, and the domestic manufacturing base mostly vanished overseas, this massive fraud for all intents and purposes was the American economy in the 2000s; we were a nation subsisting on an elaborate check- bouncing scheme. And it was all made possible by two major deregulatory moves from the Clinton era: the Gramm-Leach-Bliley Act of 1999, which allowed investment banks, insurance companies and commercial banks to merge, and the Commodity Futures Modernization Act of 2000, which exempted the entire derivatives market from federal regulation.

Together, these two laws transformed Wall Street into a giant casino, allowing commercial banks to act like high-risk hedge funds, with a whole new galaxy of derivative bets to lay action on. In fact, the laws made Wall Street even crazier than a casino, because in a casino you have to put up actual money to make bets. But thanks to deregulation, financial companies like AIG could bet billions, if not trillions, without having any money at all to back up their gambles.

Dodd-Frank was never going to be a meaningful reform unless these two fateful Clinton-era laws – commercial banks gambling with taxpayer money, and unregulated derivatives being traded in the dark – were reversed. The story of how the last real shot at reining in Wall Street got routed tells you everything you need to know about how, and on whose behalf, our government works. It was Congress at its most cowardly, deceptive best, with both parties teaming up to subject reform to death by a thousand paper cuts – with the worst cuts coming, literally, in the final moments before the bill's passage.

6. What Goldman Sachs is really like - A former Goldman Sachs banker has written a blog spilling the beans on what life was really like inside the squid. It's not pleasant reading, but it is fascinating.

These guys have a government guarantee. I still don't understand why there is not open revolt in America. The best bit is about a hamburger eating contest on the dealing room floor. Bankers throw up into rubbish bins.

To cite a particularly grotesque example, once a year, one of the partners would buy a pallet of White Castle burgers and first-year analysts and associates would have a burger-eating competition (with some nominal amount donated to charity). All trading on the Goldman Sachs trading floor would stop as every man on the floor would gather ’round to watch the plebes stuff themselves. Trading turned from interest-rate swaps (minimal notional size: $50MM) to the over/under on the burger count for a particular analyst.

Occasionally, one poor schmuck would puke, and the partner would rush to catch it with a plastic trash bin.

Wall Street is even simpler than religion. Your entire worth as a human is defined by one number: the compensation number your boss tells you at the end of the year. See, pay on Wall Street works as follows: your base salary is actually quite modest, but your ‘bonus’ is where the real money is.

That bonus is completely discretionary, and can vary anywhere from zero to a manifold multiple of your base salary. So, come mid-December, everyone on the desk lines up outside the partner’s office, like the communion line at Christmas Mass, and awaits their little crumb off the big Wall Street table. An entire year’s worth of blood, sweat, and tears comes down to that one moment. And the entire New York economy marches to the beat of that bonus drum. Without that number though, your privileged place in the New York hierarchy goes away.

Gone is the house in the East Hamptons. Gone is the $2mm duplex on the Upper West Side. Gone is your kid’s $25K/year pre-school. And that’s why Wall Street has that roach motel property: people check in, but rarely check out. By the time you’ve been through a couple of bonus cycles and seen that wad of cash hit your bank account in mid-January, you can’t imagine a life without it. And that’s exactly how the senior management at the Wall Street banks like it.  

7. Surge of listings in Australia - The mood in the Australian housing market looks ominous, SmartCompany reports.  No wonder Julia Gillard is about to lose. The Great Australian Ponzi scheme is about to be blown up. HT Hugh P

New data shows the property market is being inundated with new listings even as auction clearance rates continue to fall, indicating market growth will continue to flatten and more discounts will appear even during the traditionally strong Spring selling season. SQM Research revealed today listings grew by 5.1% in July to 309,000, in a third consecutive month of rises. That figure is also 28% higher than in July 2009, when there were 241,783 listings.

Founder Louis Christopher says this trend, combined with low auction clearance rates and demand, means supply will remain unusually high during the remainder of the year.

"There is going to be quite a lot of choice for home buyers this Spring, and into early Summer. Quite a lot choice. And what that means is that this will increasingly become a buyer's market. There will be discounts occurring, and they're even occurring now."

8. August bombshell? - Reuters columnist James Pethokoukis repeats rumours doing the rounds in Washington and New York that Barack Obama could be about to order government controlled home lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt owed by millions of Americans. I wonder how the rest might feel about this. Talk about moral hazard. HT Gertraud via email

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.

9. The problem with China - This is a great detailed yarn about how Aussie companies with plenty of money, nous and connections can still get done over in China. This piece from John Garnaut in the Sydney Morning Herald about how Macquarie Bank and SEEK's ownership of a Chinese job site imploded is a cracker. HT Andrew Patterson via email.

On the morning of July 23, Phillips and a director from SEEK had turned up for boardroom duties at the Beijing headquarters of their recruitment firm, Zhilian Zhaopin, to find their chief executive had locked them out, according to Chinese media reports. The pair returned with their lawyers and three days later SEEK quietly informed the stock exchange that Zhaopin had fired the CEO and was "putting in place transitional arrangements".

In China it was viewed as a corporate bloodbath, replete with imagery of World War II. "Pearl Harbour has been attacked," the former CEO of Zhaopin , Zhao Peng, told a journalist outside the gates at midnight on July 23, after a day in which he and seven of the top managers had sacked each other or been sacked by the Australian directors.

The headline on that reporter's exposé in China Business News read: "Zhilian Abattoir".  

10. Totally irrelevant video - The Colbert Report on Same Sex Marriages.