Here are my Top 10 links from around the Internet at 10 past 10pm, brought to you in association with New Zealand Mint for your reading pleasure. Many thanks again for your patience today.
It's been another one of those days. I welcome your additions and comments below, or please send suggestions for Friday'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
1. A leaky delay - Andrea Vance at the DomPost reports that governnment negotiations with the banks over solving the leaky homes crisis have stalled. The government may also have to pass some legislation to cap the bill for councils. A package which was supposed to be agreed by late this year may not now be ready until May next year.
The basic problem here is that the banks are facing a hit of some sort and want some government help to ease the pain. Under the current proposal, the central and local government will bear half the cost of rebuilding or recladding. The home owner bears the other half of the cost. But, of course, most cannot afford to pay for it out of savings and will instead need to borrow the money from their bank.
The real problem is most of these borrowers are already in debt up to their gills and don't have any equity left in their properties. The government is offering a guarantee, but the banks can't grant the loan under existing criteria for equity and serviceability. Many of the homeowners simply can't afford to take on more debt. So what is the way out?
The banks could take part ownership of these houses, or engineer some sort of help from the government. The end result is that many of the banks are sitting on unrealised losses on these loans, which could easily get bigger. How big a hole is anyone's guess. The total cost of leaky buildings could be NZ$10 billion. It could also be NZ$20 billion, according to a PwC report. Here's more background here in Gareth Vaughan's story.
The government is estimating its 25% share of the cost of planned package is around NZ$1 billion, which suggests the banks have to front up with up to NZ$2 billion of borrowing. I suspect it's a bigger problem than that. Labour's Phil Twyford says the following:
Labour building and construction spokesman Phil Twyford said there were questions over what it would cost the Government to make it worthwhile for banks to provide loans.
"The banks approach it from a commercial perspective ... With the slowdown in the real estate market and some of these houses needing huge repairs, there is a question whether some of the houses have enough collateral value to secure the bank loans."
2. Key's 'scaremongering' on land values - RBNZ Governor Alan Bollard has rejected John Key's claim that blocking foreign buys of local land would force land prices lower and hit farmers, NZHerald's Adam Bennett reports from Bollard's appearance before the Finance and Expenditure Select Committee yesterday.
Mr Key this week warned Labour's policy restricting foreigners from buying farms in this country meant land prices would fall.
"Those farmers that have a lot of debt on their property will find that they owe the bank more than their property is worth and will be forced off the land and I don't think that's healthy."
Yesterday, however, as Reserve Bank Governor Alan Bollard appeared before Parliament's finance and expenditure committee, Labour MP Shane Jones asked if local banks would face challenges if New Zealanders only were able to buy dairy farms.
Dr Bollard said he doubted that would be "particularly significant" in terms of the value of the assets against which banks made loans.
3. Hubbard's kennel full of dogs - Chalkie has an excellent column in the Dominion Post about exactly what speculative stocks Allan Hubbard was investing Hubbard Management Funds in. It's not pretty.
Before moving onto the liquidation problem, the portfolio confirms what the statutory manager has already stated. HMF has a whole number of relatively small, but annoyingly difficult-to-shift stocks. The fund looks as though it has "taken a few" shares in all of the new small company listings that have occurred over the past decade and held them - companies like Ecoya, Pike River, IRG (formerly Viking), Jason's Travel, Solution Dynamic.
This is not the look of a particularly well-run funds management operation, with so many irrelevant positions. There has been no regular spring clean and it is difficult to see how this small cap portion of the overall HMF portfolio could have assisted in producing high returns.
4. Even rarer earths - The New York Times is reporting that China has started blocking the export of rare earths to places other than Japan. It's all part of the deteriorating currency, political and trade outlook. HT Rob via email.
China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted some shipments of those materials to the United States and Europe, three industry officials said this week. The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further intensify already rising trade and currency tensions with the West.
Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese leaders are willing to use their growing economic muscle. “The embargo is expanding” beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities.
5. 'Stop the whinging and get on with it' - The SMH's Eric Johnston reports Australia's banking regulator, APRA, has told the Australian banks to stop complaining about the toughening up of bank capital rules under the international Basel III rules.
All this means higher funding costs and lower lending growth. Those Australian property prices may be about to feel a sinking feeling as one of the great props is kicked out from under them.
The chairman of the Australian Prudential Regulation Authority, John Laker, has also put the nation's banks on notice to end calls for a watering down of Australian bank rules where they exceed new global regulations. Making his first public comments on regulation since new global banking rules were unveiled by the Basel Committee on Banking Supervision last month, Mr Laker said Australian banks should be able to meet the proposals that have been designed to make the sector safer.
''Nonetheless, we are still being counselled that Australia should somehow distance itself from these global reforms and avoid so-called 'one-size-fits-all' solutions,'' Mr Laker told a Finsia conference in Sydney. In the lead-up to the new rules, Australian banks had been among the most vocal in calling for an exemption, arguing they did not suffer the same problems as their counterparts in North America and Europe. But Mr Laker suggested these comments did not help their cause.
''The days when the Australian banking system can operate in splendid isolation are long gone,'' he said, noting they trade actively in global financial markets and borrow funds from offshore investors. ''These banks are global citizens, and investors and market analysts judge them accordingly,'' he said.
6. End stage debt cancer - Iceland imploded before the rest. Now it's at an end stage, Bloomberg reports. The banks are arguing with the people about whether debt can be restructured. The debt won't go away by itself. It can't be wished away and the creditors won't let it be forgiven.
Iceland’s government will water down plans to forgive overdue home loans after the country’s pension funds argued the proposals threatened to deplete the value of their mortgage assets. After meeting “financial companies, the pension funds, the municipalities and members of the labor and employers’ unions, the Prime Minister noted there was slim support” for blanket debt relief, Finance Minister Steingrimur J. Sigfusson said in an interview yesterday.
“This process will take some time.” The compromise dilutes government pledges prompted by mass protests outside the Parliament on Oct. 4. The unrest, which attracted bigger crowds than in the weeks before former Prime Minister Geir H. Haarde was ousted last year, prompted his successor,
Johanna Sigurdardottir, to indicate she may support a proposal to forgive $2 billion in mortgage debt, or 17 percent of Iceland’s 2009 gross domestic product.
7. So what next? - Ryan Avent writes at The Economist about what should replace Bretton Woods 2, the current situation where big trade and capital imbalances between Germany, China and America are causing the currency wars.
8. Obama's love affair with the big six banks - James Kwak talks about the real problem in the fraudclosure crisis.
The scary possibility is that what they’re really afraid of is systemic risk: the possibility that, as Konczal and others have pointed out, the mortgage securitization trusts (the entities that bought mortgages and issued mortgage-backed securities) could sue the investment banks, forcing them to buy back the underlying mortgages at the original cost. Since those mortgages are now worth far less than before, this would impose huge losses on the Big Six banks.
Big banks losing money isn’t what’s scary. What’s scary is that the administration may be pooh-poohing the foreclosure fraud crisis because it wants to protect the big banks once again. In other words, it’s minimizing the problem because it’s hoping that the banks will finish “reviewing their procedures,” say that everything has been fixed, and go on with their business; in that situation, it would be awkward for the administration to have come out strongly on the side of homeowners. This would basically be the operational equivalent of “it’s just a liquidity problem.” But why? If this really could damage the big banks, why not let them take the hit and clean up afterward–especially if “orderly liquidation authority” is really the bazooka they claim it is?
Why protect them now after being stabbed in the back repeatedly during the financial reform debate and in the current campaign finance cycle? Why not take this opportunity, if there really is one, to undo the mistakes of 2009?
9. Steve Keen is always a must read so here's a link to his latest column at Debt Watch
10. Totally irrelevant video - John Stewart on Kim Jong Il's son.
| The Daily Show With Jon Stewart | Mon - Thurs 11p / 10c | |||
| Rally Dos and Don'ts | ||||
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