Here are my Top 10 links from around the Internet at 10 past 1 pm, 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 Wednesday'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. Here comes Wikileaks to a financial market near you - Julian Assange says in this Forbes interview that he has leaked documents that make take down "one or two" large US banks.
Yikes.
Wikileaks has already caused a stir in diplomatic circles, revealing that Saudi Arabia wants America to "cut off the head of the snake" (bomb Iran), that China is sick of Kim Jong Il and wants North Korea to unify with South Korea, and that Prince Andrew fancies himself as an entertainer/diplomat.
Now the blonded one is sitting on financial dynamite.
Could it be the Goldman Sachs?
He says it will be like the Enron.
It will give a true and representative insight into how banks behave at the executive level in a way that will stimulate investigations and reforms, I presume. Usually when you get leaks at this level, it’s about one particular case or one particular violation. For this, there’s only one similar example.
It’s like the Enron emails. Why were these so valuable?
When Enron collapsed, through court processes, thousands and thousands of emails came out that were internal, and it provided a window into how the whole company was managed. It was all the little decisions that supported the flagrant violations.
This will be like that. Yes, there will be some flagrant violations, unethical practices that will be revealed, but it will also be all the supporting decision-making structures and the internal executive ethos that cames out, and that’s tremendously valuable.
2. America's courts choked with debt collectors - This WSJ piece details the problems in America's court system with a mountain of foreclosures and law suits against people who have defaulted on their debts. The scale of the problem is sobering. HT Andrew via email.
Handing debt over to collectors is an important step in cleaning up the financial system, but the explosion in lawsuits—many for small sums—creates problems for the legal system.
"There exists a real danger that the courts will be perceived as mere extensions of collection agencies," says Thomas Donnelly, an associate judge in Cook County, Ill.
There are no nationwide figures available, but a survey of 20 judges across the nation by The Wall Street Journal yielded anecdotes of court calendars choked with debt-collection suits. For example, Judge Donnelly says he has heard as many as 400 cases a day, filed by debt buyers, debt collectors and their attorneys who have often lugged their filings to his courtroom in crates.
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3. An efficiency problem - CNN Money reports China is now the world's largest energy consumer, largely because its industrialisation and use of less energy efficient steel plants. It is also using an awful lot of iron ore, which is keeping the Australians happy.
"They are building massive amounts of infrastructure," said Lynn Price, a scientist in the China Energy Group at Lawrence Berkeley National Laboratory, a U.S. Department of Energy research lab. "It takes incredible amounts of these energy-intensive commodities."
Over the next 15 years China is expected to build the equivalent of New York City -- 10 times over. The Chinese use a different technology than that used in the United States, the result of having to use more iron ore and less recycled steel in the manufacturing process.
4. Too right - Andrew Gawith writes at NZHerald that our most important industry, agriculture, appears to be one of our least commercially rational.
The idea that businesses should generate a return sufficient to cover the cost of capital doesn't seem to apply to farming. That is, the yield most farmers and horticulturalists achieve does not cover the cost of fully funding the market value of the assets they purchase. It seems silly to have so much of the nation's capital tied up in businesses that don't meet this basic financial test.
The rise in land values over the past 20 years may, of course, largely reflect financial deregulation and falling inflation. Lower funding costs (interest rates) have made it easy for purchasers of land to pay more.
The downswing in interest rates has now played out - the best that can happen from here is that interest rates stay low. Higher interest rates are more likely, and that would most certainly cramp land price inflation.
5. 'The Germans aren't as as righteous as they appear - Marshall Auerback at Credit Writedowns points out that the German banks lent like drunk sailors to the Irish and all the smug German voters bleating about having to bail out the profligate on the periphery are a bit too cute.
Auerback predicts a Yugoslavian style break up of the Euro-zone. Ouch. Today's must read
The truth of the matter is this: the eurozone seems rotten to the core, literally. Germany represents that core. The Germans might occupy the penthouse suite, but it is the suite of a roach motel. And we know what happens to those who enter such “ establishments.”
Yes, longer term the problems currently afflicting the eurozone could be sorted via the creation of a supranational fiscal authority — a “United States of Europe”. But with each crisis (Ireland today; Portugal and Spain tomorrow; Italy and then France next?), the political forces are coalescing in a radically different direction.
The Germans are becoming increasingly resentful as they perceive their country as the bailout mechanism of last resort (even though the Irish experience suggests that their bankers are also guilty of many of the same excesses as the “Celtic Tiger”). The PIIGS themselves are seeing that the benefits of euro membership have been vastly overstated and in fact now act as a cancerous influence through the Germanic embrace of austerity.
(Paradoxically, it has been the “profligate” behavior of those so-called lazy Mediterraneans that has enabled Germany to retain its export-driven model, as well as allowing it to run lower budget deficits than most other countries.)
6. Nick Leeson says Ireland should default - The Galway City Tribune (yes I spread a wide net) reports international financial markets expert Nick Leeson now lives in Ireland and thinks it should default on its debts. Chortle.
The trouble is he is right, despite being the ultimate rogue trader. Leeson is now the CEO of football team Galway United.
Nick Leeson, who was sentenced to six and a half years in a Singapore prison for his actions at Barings Bank, says that given the relatively small size of the Irish population, the country cannot afford the bailout being offered to the Irish Government as it would cripple the country for years to come.
“Ireland has to default on its debt to the bond holders, and the time to do that is now – if you get involved with the IMF, it will be too late,” said Mr Leeson, who now works as CEO of Galway United.
“The Government needs to postpone the budget, resign and call a General Election, because any other course of action will be too severe for the country. The size of the bailout being discussed cannot be repaid by a country with a population of less than five million people, it just can’t be done.
5. 'Time to tighten' - Caixin online reports that a new member of China's monetary policy committee is saying it's time to tighten China's loose monetary policy.
Li Daokui, who was added to China’s monetary policy committee earlier this year, said the loose monetary policy was introduced to stimulate the economy affected by a sharp export decline in the wake of the global financial crisis.
6. Problems in the China miracle? - Morgan Stanley's Chief Economist for China Wang Qing writes at China Stakes that China's Business Conditions Index fell sharply in November.
This is a weaker reading for two consecutive months since October, pointing to a significant deterioration in business conditions amid rising inflationary pressures and attendant policy uncertainties. Renewed uncertainties about the economic and policy outlook of late may have contributed in part to the softening in MSCBCI.
First, the rise in inflation will likely trigger further policy tightening, and monetary and credit conditions will turn much less accommodative. We expect new bank lending for 2011 will likely be set at Rmb7tn and three 25bps interest rate rises through mid-year.
Second, the effect of anti-inflation policy will be reinforced by existing austere measures against property market speculation, pointing to deceleration in growth down the road.
7. 'Sucking out the cash' - Beijing University Economics Professor Fan Gang (great name) writes here at Project Syndicate that Chinese authorities have been successful so far in sucking a lot of liquidity (cash) out of the economy in the wake of a massive build up of foreign reserves, which normally create a money supply surge and inflation.
China is using 'unconventional' ways of tightening monetary policy rather than putting up interest rates. It is soaking up cash with various sterilisation measures and locking up some of the rest by increasing reserve asset ratios (RRR) at its banks, forcing them to leave money on deposit with the Peoples Bank of China.
In September alone, China’s foreign-currency reserves increased by almost US$100 billion compared to August. With the global economy recovering, China’s trade surplus began to grow. Moreover, capital inflows increased significantly, owing to real investment opportunities in the high-growth economy and the expectation of renminbi revaluation.
But rapid growth in foreign-exchange reserves means an increase in the domestic money supply, because the PBC issues RMB6.64 (down 3% since June) for every dollar it receives. That means that money supply increase by nearly RMB700 billion in September.
The two 50-basis-point RRR increases just locked up the same amount of liquidity. A country with current-account and capital-account surpluses and increasing foreign-exchange reserves normally sees an excessive money supply and high inflation. But, while excessive money supply is a reality for China – the PBC now holds more than US$2.6 trillion in foreign reserves – inflation has been quite moderate so far, thanks to the sterilization policy.
8. Not a good position - New Zealand has one of the worst current account deficits in the world, this great list from the IMF on Wikipedia shows.
9. Totally hilarious video - RIP Leslie Nielson. This video is funny. Sad to hear he's gone. 84 not too bad though. HT Alex.
10. Totally political video - Johnny Carson pretends he is a politician who is hooked up to a lie detector. There's a lot of buzzing. You may need to turn down your sound. HT Cosmo
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