Monday's Top 10 at 10: Hubbard says charges 'dreamed up'; North Shore's tower of debt; Israeli capital controls; China's Princelings; Dilbert

I'm back.

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.

I welcome your additions and comments below, or please send suggestions for tomorrow'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. 'They're dreaming' - Allan Hubbard seems to have acknowledged to Fran O'Sullivan that he is about to be charged.

The Business Herald understands the SFO has indicated that it had narrowed its investigation to four particular issues - one relates to the failure to issue a prospectus for Aorangi Securities, and, another focuses on statements Hubbard Funds Management made which are alleged to have misled investors.

"I think the charges they are proposing are ridiculous and I cannot see any court of law upholding them," said Hubbard.

"I've stolen no money - they're dreaming up charges."  

Meanwhile the Hubbard Support Team has released a memo calling on Simon Power to revisit the statutory management decision.

The detail is interesting.

2. 'They're vulnerable' - Fitch reports Australian house prices are high relative to Europe and the United States, but the Australian banks (which means our banks too) could survive a downturn.

However, they also noted that Australia's banks were vulnerable to another freeze on international capital markets, The Age's Eric Johnston reported.

3. Our money printer's bribery scandal  - The dramas over at Australia's Securency just got worse. The money printer which makes our money and is partly owned by the Reserve Bank of Australia has been exposed as bribing Vietnam's central bank governor, The Sydney Morning Herald reports.

THE Reserve Bank of Australia's currency maker, Securency, allegedly bribed Vietnam's central bank governor by paying for his child to attend an exclusive British university.

The bribe is one of several lucrative financial incentives funnelled by the RBA company to Vietnamese officials in return for an agreement that Vietnam would print its currency on Securency's plastic bank note material.

The alleged bribery helped Securency win huge bank note supply contracts in Vietnam, transforming the country's currency from paper to plastic between 2002 and 2009.  

4. A big tower of debt - The Sentinel Tower on Auckland's North Shore will be seen in years to come as the high water mark for the apartment building boom of the mid 2000s. Greg Ninness at the Sunday Star Times reports the company that built the tower and was owned by prominent property developer Rick Martin has been liquidated. Here's the gory detail for Strategic Finance investors. They had a second (or worse) mortgage...

By far the biggest debts are to the company's secured creditors, Bank of Scotland International and Strategic Finance, which provided mortgage funding for the project and between them are owed $16.2m.

How that debt is split between Strategic and Bank of Scotland is not specified in the liquidator's report but it is likely that most of the money will be owed to Strategic because Bank of Scotland's mortgage security ranked ahead of Strategic's, which means Strategic will only get whatever money is left after Bank of Scotland has been fully repaid.  

5. Capital controls - One theme to emerge over the Christmas/New Year break was the increasing use by many smaller economies of capital controls to try to stop their currencies rising against the US dollar and destroying their export sectors. Ynet News has the story.

Israel was the latest to introduce a 10% reserve requirement for banks on the value of foreign exchange swaps by non-residents.

Many others are doing this sort of thing.

Why isn't New Zealand?

In December foreigners made swaps worth $76 billion compared with $19 billion by Israelis and up from $59 billion in November. The shekel weakened to NIS 3.62 per dollar from 3.56 prior to the announcement.

The Bank of Israel is trying the reduce the amount of speculative capital flows by imposing a liquidity requirement of 10 percent of the value of the transaction, Ron Eichel, chief economist at Meitav Investment House, said.

"This can change short-term trends and reduce noise in the market but if the economic fundamentals are strong, in the end the currency will strengthen," Eichel told Reuters.

"Israel is like Brazil and other countries, it is trying to help exports and growth."

Brazil, Chile, Peru, Taiwan, South Korea, Turkey, South Africa and others have taken measures to keep their currencies from strengthening or control the flow of money into their economies as investors pour money into higher-yielding markets.

  6. 'We're actually prosperous' - New Zealand is actually a very prosperous place to live, according to the Legatum Prosperity Index, which ranks our economy at 17 but gives us an overall ranking of 5th (albeit just behind Australia on 5th). Our strong performance in 'Social Capital', Personal Freedom and Education boosted us up the rankings.

Although the Index does rank America at number one for health care so you do have to wonder...

7. 'It's different this time' - One of the arguments used by those who say high house prices can be justified is that interest rates have fallen in the last 20 years, justifying higher house price multiples to income.

But, as Leith van Onselen points out at The Unconventional Economist, that's not strictly true. Yes they have fallen, but they've been here before.

Interest rates were this low in the 1950s and 1960s when price to income multiples were also much lower.

So what's different? The introduction of women into the workforce? Easy credit? Global warming?

This chart beolow from Leith cuts through the arguments. These are Australian figures, but ours aren't much different.

Australasians have almost doubled the portion of disposable income we spend on mortgage payments.

That's what's different. We just more indebted. So what was that all about again?

8. And now Aussie house prices are falling... - The Sydney Morning Herald reports (with a note of foreboding) that Australian house prices fell almost across the continent in December. This is one of the things to watch this year.

Australia’s property market is stumbling in the face of rising interest rates and weakening consumer confidence, with house prices dropping in almost every capital city in December.

The near across-the-board decline caused the national median house value to fall 1.1 per cent to $444,000, according to the latest figures from analysts Residex. It marks the worst performance for the market since the global financial crisis, when Australian house values dropped 1.15 per cent in January 2009.  

9. How Chinese money travels - This is a slightly old story from John Garnaut in the Sydney Morning Herald, but it says a lot about power and money in China.

It is all about how one of the Chinese 'Princelings' (child of a Communist party leader) bought a Sydney (Point Piper) mansion for A$32.4 million and plans to tear it down to replace it with something bigger (!).

In particular, it looks at how money is moved out of China into places like Australia (or New Zealand) and how information about how that money is moved is then blocked from the Chinese public. Fascinating.

The greatest structural vulnerability of China's one-party system is that its leaders have not yet found a way of limiting each other's privileges without creating internal instability. The excesses are getting worse and will continue to do so in the absence of greater transparency, accountability or judicial independence. Such political reforms seem impossible as the leadership appears deeply divided.

When cracks appear, it may be because some leaders may have less to conceal than others.  

10. Totally relevant video - Jon Stewart does his thing on Hu Jintao's visit to America. Stewart reckons America is too big to fail.