Monday's Top 10 with NZ Mint: Mark Hotchins' Roman entourage; Bollard's 'blood on the floor' fear; Marijuana the new reserve currency?; Dilberts

Monday's Top 10 with NZ Mint: Mark Hotchins' Roman entourage; Bollard's 'blood on the floor' fear; Marijuana the new reserve currency?; Dilberts

Here are my Top 10 links from around the Internet at 10 past 9 pm, brought to you in association with New Zealand Mint for your reading pleasure.

It's been a tad busy today. I was hoping things would quieten down a bit after the collapse of South Canterbury Finance...

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.

Remember that registered commenters can more easily include links out in their comments. Use the box in the right hand column to register. We're turning off unregistered comments from September 12. I'll pop any surplus suggestions I get into the comment stream under the Top 10.

1. The dangers of too much growth too quickly - Brian Gaynor points out in the NZHerald the problems South Canterbury Finance experience because it grew too fast in the wrong areas.

He also rightly wonders why the government didn't force the finance companies to start reducing their lending after the guarantee was imposed, rather than use it as an excuse to grow on a fresh lending spree.

This demonstrates the moral hazards associated with government guarantees. Prudent businessmen would have pulled in their horns and reduced their high risk lending but SCF, which took huge advantage of the guarantee scheme to grow its business, acted as if there was no financial crisis and the property boom would continue.

The SCF debacle shows that the Government should have insisted that all companies covered by the scheme be required to reduce, not aggressively increase, their loan book. In the 10 years ended June 2009, SCF's net lending increased 6.2 fold yet its lending to the property and business services sector surged 32.0 times.

Property has also been the company's major problem in terms of write-offs as 34.8 per cent of its property loans were impaired as at December 31, 2009, compared with only 8.5 per cent of all remaining loans.  

2. Lucky for some - As Cantabrians deal with natural disaster in Christchurch and the rest of us pay for a financial disaster in Timaru, Amanda and Mark Hotchin are having a lovely time in Italy, the Herald on Sunday reports.

The Hotchins have been Spy-ed sunning themselves by the pool of a five-star Italian resort in the heart of the capital with an entourage befitting royalty... or a hip-hop star. Sources say the couple, their kids and their friends were joined at the pool by two elderly women (believed to be grandmothers) and two personal trainers - one male and one female.

Hotchin and his friend trained with the male beefcake, while his wife and her pal trained with the female instructor.  

3. The next few weeks will be very tough for Canterbury's small businesses - The real challenge will be for banks and others to support those Cantabrian businesses with cashflow problems. Here TVNZ reports on what the Canterbury Chamber of Commerce is seeing.

Concerned businesses owners and operators have been flooding the phone lines of the Canterbury Chamber of Commerce, chief executive Peter Townsend said. "We are getting calls this morning from businesses worried about their cash flow, about their ability to pay wages this week. There is a lot things going on."

He said he could not put a number on the loss business faced, but "we do know that if you're not in business and you are not generating cash flow, you have trouble paying your wages".  

4. 'Brace for the Greek riots' - The head of Germany's IFO Institute reckons civil unrest is imminent in Greece, Ambrose Evans Pritchard reports in the Telegraph.

"This tragedy does not have a solution,” said Hans-Werner Sinn, head of the prestigious IFO Institute in Munich.

“The policy of forced 'internal devaluation', deflation, and depression could risk driving Greece to the edge of a civil war. It is impossible to cut wages and prices by 30pc without major riots,” he said, speaking at the elite European House Ambrosetti forum at Lake Como.

“Greece would have been bankrupt without the rescue measures. All the alternatives are terrible but the least terrible is for the country to get out of the eurozone, even if this kills the Greek banks,” he said.

5. 'America stole demand from the future' - Ambrose Evans Pritchard at the Telegraph quotes Nouriel Roubini saying some sensible if sobering things about America's financial situation.

Dr Roubini said average public debt in the rich countries would rise to 120pc of GDP by 2015 in the rich countries, leaving no scope for a further fiscal stimulus. If they push their luck, they too risk the sort of bond crises seen in Southern Europe this year.

In the US, the fiscal boost has faded, switching to tightening over coming months The lift from the inventory cycle is finished. Capex spending by companies has held up well, but this slowed sharply in July. Housing is already in a double dip. The last support for the US economy is consumption, barely growing at 1pc.

“All we did was kick the can down the road and stole demand from the future,” he said.  

6. 'There would have been blood on the floor' - RBNZ Governor Alan Bollard tells TVNZ's Guyon Espiner in a Q&A interview just how much trouble the financial system was in late September 2008 and how blunt an instrument the deposit gurantee had to be.

If we hadn't then our banks were at risk. If we had cut the finance companies out, all the finance companies would have gone. If we'd cut specific ones out, there would have been law suits all over the place, and there would have been blood on the floor the next morning.

New Zealand was caught in a very nasty situation where it had to balance up the possibility of not going in, and the possibility of doing it, and the possibility of not doing it was far worse.  So there's no winners in this situation, but we did stop a bank crisis, and we did stop a financial sector crisis.  So ultimately that was a successful scheme, not an unsuccessful one. 

Bollard also talks about the mood he encountered at Jackson Hole a few days ago when meeting other central bankers.

The mood in the United States from an economic point of view is a bit sour at the moment. Somebody gave a paper there that said, if you look at 100 years of banking crises and economic crises around the world, there's some common features. One is that it takes a decade to build up the imbalances, and then it takes a decade to clear them.

GUYON Well we've got another decade of this?

ALAN No I wouldn't say it like that, but there's going to be a slow grinding recovery for some countries around the world.  

7. Subdued, but in line - Our Treasury says in its monthly Economic Indicator series that the recovery is subdued, but in line with budget forecasts.

The performance of retail sales and the labour market suggest the economy grew around 0.8% in the June quarter, in line with the Budget forecasts. Retail volumes lifted sharply in June, with another strong contribution from motor vehicle retailing, lower food prices and discounting of a range of largely-imported durable goods. The outlook for consumer spending is for a gradual recovery, apart from the effect of the increase in GST on 1 October, with the contribution from motor vehicles waning and prices rising.

Total consumer spending on core retail is about the same now as a year ago, suggesting future strength will require support from key drivers, namely household wealth (mainly housing) and income. House prices have been trending down since late last year, following a mini-recovery in mid-2009. The housing market is expected to be weak in the near term, with short-term mortgage interest rates increasing, net migration easing and investor confidence down.

A softer housing market is feeding through to fewer building consents, posing downside risk to our near-term forecasts for residential investment and limiting support for consumer spending. This month’s special topic looks further at the impact of housing on households’ balance sheets.  

8. Will weed become the new currency? - Tim Harford at The FT.com carries some interesting correspondence from a regular user of marijuana, which apparently has been priced at around US$10/gramme in California since the mid 1980s. Harford is perplexed, but points out there is some good things about constant prices. HT Jeremy via email.

This could be a handy discovery. In hyperinflationary times, people turn to tobacco or coffee as more stable currencies.

If quantitative easing gets out of hand, you have found a stable currency for the 21st century.

9. American students face US$830 billion of debt and the inability to find a job -  Russia Today points this out helpfully in the video below. HT Andrew via email.

10. Totally relevant video - Americans have started turning their houses into restaurants to get by. HT Juha.

11. Finally a bit of fun - Some young fellows in Britain go for a morning run. HT Kevin via email.

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

21 Comments

RE; 10 - ' people are ripping up their lawns to grow gardens'.........

WOW - how radical.

Whatever will those resourceful yankees think of next.

A long grinding recovery, eh?

Somebody's on another planet.

True.  It's why I've stopped being involved in environmental campaigns for the last decade or so. They were just rearguard actions, and only valid stalling if education was happening.

The fact that there are commentators like PhilBest here, totally convinced that we would be a better place with millions more people here, says that we have run out of that education time.

The vested intererst lobby-groups of the status-quo, have won that round.

Which means that our children have lost theirs, before the bell even sounded.

There IS a chance to put NZ on a sustainability path, and -war aside - that is the governance obligation.

Planet-wide, you're quite right.

Overshoot.

powderdownkiwi,

gee. looks to me you are a one man environmental campaign all of your own.

Cast your eyes across the tasman. The politicians suddenly worked out in the last campaign that  a lot of people are disgruntled by the massive immigration that has been taking place over the past 10 to 20 years. Last year between 300,000 to  400,000 net into AU.

When schools are crowded, traffic is dense and travel times increasing, house prices going to the moon (and the reason being attributed to lack of supply due to immigration), huge costs for infrastructure upgrades, then eventually the minuses of population growth for the average punter are going to outweigh the positives for the growth lobby.

Both main AU parties gave lip service to ditching the "big australian" concept espoused by Kevin Rudd. You can be sure the growth lobby will be doing all it can to reverse any effect of that lip service.

Other signs from Australia... DIck Smith has funded a population awareness dvd.

And sustainable population group seems to be getting better at getting its message across

http://www.population.org.au/

I would vote for a single issue party that aimed to have a sustainable population.

For example, balance inbound migration with outbound migration over any 2 to 3 year period.   And to have a target population band so migration could either be cranked up / wound down based on  whether there was natural pop growth or decline.

Chuckle.

Yes, they're getting it across the ditch, but sadly the race card may have made that easier.

Gillard certainly is the first leader I've ever heard articulate it so clearly.

No, I'm not so much 'environmental', my thing is physics, particularly energy.

You end up being environmentally aware as a result. Then you start learning about exponential mathematics. Then you start learning about fiat fiscal systems.

And you realise it's all a house of cards, being driven at speed towards a cliff, by rear-view-looking drivers.

To mex a mitaphor or deux.

have a good day

powderdownkiwi, You have made my day better with that wonderful mixed metaphor.

Now if only the cartoon of Bollard in the big rig could be updated from a close up view of the cab to a wide view of the terrain and the cargo.

Big rig, carrying a house of cards, heading straight to a cliff, with Bollard /  Bernanke struggling to drive via the rear view mirror.

It is like going to the doctor finding out you  have aggessive cancer that is speading to every part of your body. What wonderful, unrestrained joy. "Now I will grow bigger than a whale,an elephant or a dinosuar. Everyone will fear and envy my hugeness"- this "fantastic growth" that is taking place in the body.

You go back to the doctor for a check up a few months later, and find that the tumor has stopped growing, and in fact has gotten smaller. Oh horrors!!!!! Full of despair and grief at the loss of the dream of hugeness, you go on a asbestos sniffing, benzene tasting, unprotected sunbathing frenzy. Some XRay radiation does the trrick- and before you know it, the rapid growth has returned! BAck on the growth track! Before you know it you are one gigantic rapidly expanding tumor. Huuuraaaayyy! Nothing like the entrepeneurial spirit. Soon even the stars will be drarfed by exponential growth.

 

I like to think positive about unrestrained growth

Now aint that toot sweet Nikki....." The so-called "price appreciation" of the 2000s was false.  That is, it was not predicated on actual value, it was not predicated on a reasonable amount of leverage, and it was not predicated on rapidly rising wages.

It was a scam predicated on ever-increasing leverage - a Ponzi scheme that was impossible to continue forward with in perpetuity."( sic)

How funny it is that a comment aimed at the US property market should be 100% accurate when applied to the market here in Noddyland....nothing to see here...move along please.

My apologies. Fixed now.  Good video of students on the run. From Peter Dunne.

cheers

Bernard

Insects are flying in circles anticlockwise, frogs are doing the one legged leap, rap music coming out of my beehive, ants were seen pushing a cow inside their hole. Do you think it has to do with the EQ or with the after shocks ?

The dogs started barking their heads off during the main earthquake, almost drowning out the noise of screaming kids.

Incredible huh? How would the dogs know there was an earthquake? Mind you, they do watch a lot of television.

Dogs..cats etc are aware of quakes long before they hit because they are more sensitive to subsonic frequencies.

Hi Ruru,

Yes, fine thanks, just all shaken again. I hope you're OK too. It was in no way comparable to Saturday morning's one in terms of "scare factor" but we're all on edge and the aftershocks really aren't helping, especially such big ones. So tired to be on alert all the time and spend half the night reassuring the kids.

Sorry to hear about the damage :( Better check on my friends again.

Just back from our first outing since Friday night and saw a few other people for the first time since the big shake. Oxford township doesn't appear to have suffered any damage but everybody is a bit shaken. It was good to talk people and show the kids that their daycare and school were fine.

RE #6: "and we did stop a financial sector crisis" - excuse me? NZ dodged a financial sector crisis? That's news to me Mr Bollard, because I'm pretty sure he experienced a pretty intense finance sector crisis.

Correct me if I'm wrong, but didn't Jenny Morel blurt out (Nat Radio, 9 to noon from memory) that we had to get to solar energy?

I listened for the 'highlights' that evening, but that bit was edited out - showing that the Nat Radio scribes don't get it.

So the knowledge must be close to the right places....

I missed the interview with Guyon and Bolly....... hard to believe I know considering I'm the kind if groupie Allan does not want ..... you know the stalker type..... so I'll go find it before I pass water on Bolly's good name.  

 As to the American Student debt....... yet further evidence of  the theft of wealth of a gen or two.......I'd almost think the coming gen would welcome a war....the building frustration will require venting or a means to diffuse. 

So what will it be America.....? ultimately..... Banky Boy or the citizen with nothing left to lose.

As to the Greek Tragedy.......plates make very dangerous frisbees.....and this will be Banky Boys first real engagement with the will of the people.....

There will be blood on the floor...! Ο Θεός μας βοηθά

And as soon as they can think of one that does not include the phrase.." The banks were exposed...seriously exposed" .....................you'll get it.

Well I just watched and read the transcript......... and overall it could have gone something like this......

Guyon......you were in no doubt as to which Finance Companies were in a death roll were you not.

Bolly Bib.....er ah...I can't tell you that because the Banks were exposed....er no wait...they were not exposed..... but the potential for panic and the domino effect was certain....er that is that the er..well we covered it because we didn't understand it and needed time to think...in any case the worst case scenario was the tax payer bailing it out......ah look I can't say any more on that for er..um legal reasons....yeah legal reasons....

Guyon....does it concern you that  when shown the potential for some of these financial instruments..that you just plain did not understand it much less could prepare to defend against it.....?

Bolly Bib....Well.... er ..nobody else did either..! bloody smart arsed whizz kids and their fandangled quantum thingamebobs......

I wanna talk about me book...!

Guyon ...OK...why did you leave the job summit feel good camp to go to a cricket match.

Bolly Bib.... cause they had no hotdogs at the summit and I couldn't understand what the hell we were talking about.

Guyon....Mr Bollard thank you for coming in today and sharing bugger all with our viewers.

Bolly Bib....Up yours Espina.

 

As a footnote I would add that the spin cycle has been busy and Key's announcement this morning that the.....Current.... cost of  $100.00 bailout for every man woman and child is good value....?

Good value..? what did I tell you about this guy..? 

  

Bernard....I have a great little strip about perceptions of home ownership...would like to send it without getting kicked to the spam locker....?

re: Mr Bollard interview...

I'm left with the impression of a 'note-taker'...a 'chronicler of events',
someone watching to see how things unfolded...

Alan Bennett trying to be George Smiley (Alec Guiness)  

Is this just the reality of the job?

all very odd