Here are my Top 10 links from around the Internet at 10 to 11 am, brought to you in association with New Zealand Mint for your reading pleasure.
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.
I'll pop any surplus suggestions I get into the comment stream.
1. Has Ralph misjudged the mood ? - Ralph Norris was not shy of telling governments to get stuffed when he headed the Business Roundtable here in New Zealand.
Now he's telling the Aussie government to get stuffed in his current job as the CEO of a Commonwealth Bank of Australia by increasing mortgage rates by more than the Official Cash Rate.
This is political dynamite in Australia.
CBA is the former state-owned 'People's Bank' with the biggest mortgage market share and now it's saying it needs to further boost profits that are already at a record high A$6.1 billion?
Treasurer Wayne Swan went ballistic, accusing CBA of arrogance and a 'cynical cash grab'. He is now looking to regulate the banks, who strengthened their market positions in the wake of the Global Financial Crisis and benefited from government guarantees.
Here's some of the Aussie press. It's not pretty for the banks. Here's Matthew Stevens at The Australian
RALPH Norris has put the Commonwealth Bank's mortgage pricing where his rhetoric has been for the past month or two. In doing so he has brazenly challenged the political consensus currently building around the idea that our greedy four pillars require further constraining regulation.
There is commercial logic aplenty to support Norris's decision to stare down banking's critics and add a further 20 basis points to the Reserve Bank's decision to lift the official cash rate by 25bps to 4.75 per cent. But, at the same time, the politics of banking appear to be uncertain enough to suggest Norris might have been better served by sucking-up his higher funding costs for another quarter or so.
Norris, though, is having none of that.
2. Not so smooth - Westpac took a major hammering when it did something similar to CBA's 'bigger than OCR' hike to mortgages last year.
Remember the Banana Smoothie video? Here it is again.
3. 'Hung out to dry' - Elizabeth Knight at the Sydney Morning Herald comments that CBA has been hung out to dry by the other banks.
To give you a sense of the coverage over the Tasman, I've reproduced the picture that was used this morning with the SMH story online of a grinning Norris.
The former ASB and Air NZ CEO must surely be the most hated New Zealander in Australia right now.
Sonny Bill Williams has passed that mantle onto Ralph for now. This went with a story headlined 'The Bank that stopped a nation'
The Commonwealth Bank of Australia has been hung out to dry. For a day, at least, it has been left on its own as the only bank to raise variable interest rates beyond the quarter of a percentage point announced by the Reserve Bank yesterday.
At least two of its competitors, ANZ and Westpac, will probably follow in the slipstream and raise rates beyond the cash rate over the next couple of days - hoping that hiding behind the CBA will minimise their own public relations damage. There will be pressure on the National Australia Bank to follow.
None may match the rise of 45 basis points announced by the CBA - taking the view that staying just underneath the CBA would reduced their visibility on the radar. Inside the banking industry bunker, there is a view that this could be the last opportunity to raise interest rates out of step with the official cash rate.
However, there is only so much that the public will take, and there will be a serious consumer backlash against the banks. The issue has become too hot and the banks are aware of it. Canberra has already begun its own public relations campaign. Banks see themselves as a business like any other. But the public, and most certainly their customers, do not. The public puts banks in an entirely different category. They are not selling baked beans, and customers cannot choose to stop buying the product if the price goes up and switch to a substitute item.
The public takes the view that banks are in a privileged position - the recipients of government guarantees, with a responsibility to the community. More importantly, an increase in the cost of borrowing has an enormous effect on households with a mortgage.
4. 'Boycott the banks' - News.com.au reports that a Federation of Small Businesses in Australia will roll out a campaign to boycott the big four banks in Australia.
The United Retail Federation said it was preparing a campaign to boycott banks that increase rates beyond the official Reserve Bank move. The Federation represents tens of thousands of small business owners around the country.
“What has occurred in Australia’s banking sector is nothing short of a national crisis and economic terrorism striking at the heart of the national economy," URF national president Scott Driscoll said.
"This will not be an easy campaign to inflict on the banks but we need, in my view, a popular revolution against the banks. "The message has to be clear to the banks that business is prepared to walk."
5. 'Pan European bank mutiny' - Speaking of bank boycotts, here's a real doozy in Europe. A German blog called 'All is Smoke and Mirrors' has proposed that December 7 be a Pan European bank run day, Zerohedge reports.
After German blog "All is Smoke and Mirrors" floated an idea of an organized bank run (something attempted previously in the US without much success) in France in response to French austerity protests (which have resulted in no gains), the effort has since expanded to a pan-European organized bank run day on December 7, 2010, and has metastasized to Italy, Germany, the Netherlands, the UK and Greece.
Zerohedge also includes this great chart from The Banker showing how the market values of many European and US banks have shrunk in size and are now tiny compared to their level of assets and liabilities...
Click on the chart to see a bigger version.
6. The overhang - The Wall St Journal reports that it would now take 107 weeks (just over two years) for US banks to clear their backlog of houses they have foreclosed on. House prices are falling again there now.
Banks’ vast pile of foreclosed homes doesn’t appear to be diminishing. That’s a troubling sign for the future of the housing market. Back in April, this column tallied up all the foreclosed homes sitting in banks’ inventory, as well as the “shadow” inventory of homes in the foreclosure process or on which owners had missed at least two mortgage payments. At the time, we reported that at the current rate of sales, it would take 103 months to unload it all.
Over the past six months, that number has actually risen. Banks managed to pare down the shadow inventory, but largely by taking possession of foreclosed homes. As of September, they owned nearly 994,000 foreclosed homes, up 21% from a year earlier. The shadow inventory stood at 5.2 million homes, down 7% from a year earlier. Grand total: 107 months of inventory.
According to the Sacramento Bee, CalSTRS (the big teachers retirement fund) is set to vote on Friday whether or not it should reduce its annual investment returns estimate from 8% to 7.5%, a move that will add hundreds of million to state debts (since the pension is guaranteed, and public taxpayers are on the hook).
That would be a huge decision, if they do it. 8% has been the level set since 1995 (talk about a whole nother era), and artificially high return estimates are how the pension systems aren't (on paper) even more insolvent than they already seem.
8. 'Just give it away' - In anticipation that the US Federal Reserve's QE II won't actually work if it is just done in the form of buying US Treasury bonds, CNN Money suggests the Fed buy all sorts of other assets to jump start the US economy, including securitised mortgages, small business loans and large stocks.
It's incredible that it has come to this.
Ben Bernanke may as well use that helicopter of his to tip the newly minted cash out the window.
Roger Farmer, head of economics at UCLA, proposes the Fed buy broad-based indexed stocks, and no Treasuries, as a way to boost confidence and spending in the private sector. This strategy could calm stock market volatility and encourage individual investors to put their money back into financial markets, he said.
Funneling more money into the private sector would hopefully spur businesses to start hiring and spending again.
9. Inflation squeezing out into the developing world - One of the side effects of the Federal Reserve's low interest rate and QE II policies is that it squeezes cash out into the emerging economies with closely connected currencies.
That's pushing inflation out to the fringes in the emerging economies and the commodity-linked developed economies such as Australia. That's why the Reserve Bank of India raised its official rate yesterday too, the FT reports.
Since March this year India has emerged as the most aggressive tightener of monetary policy among the Group of 20 nations, as it tries to manage high inflation, rising foreign capital inflows and growing fears that the economy is overheating.
"While the ultra loose monetary policy of advanced economies may benefit the global economy in the medium-term, in the short-term it will trigger further capital inflows into emerging market economies and put upward pressure on global commodity prices," said Duvvuri Subbarao, the central bank governor.
10. Totally irrelevant video - Jon Stewart does his thing on the eve of the mid-terms
| The Daily Show With Jon Stewart | Mon - Thurs 11p / 10c | |||
| Indecision 2010 - Republicans Can Go to the Back of the Car | ||||
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