Thursday's Top 10 with NZ Mint: 'US should prosecute Goldman Sachs'; Chinese wages to overtake US wages by 2016?; Aussie house prices to fall 5-10%; Raj convicted; Dilbert

Here's my Top 10 links from around the Internet at 2 pm  in association with NZ Mint.

I'll pop the extras into the comment stream. See all previous Top 10s here.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

My apologies for no Top 10 yesterday. Got swamped in KiwiSaver and RBNZ news. Good Dilbert laugh today.

1. The people vs Goldman Sachs - Matt Taibbi writes at Rolling Stone that the US Justice Department should lay criminal charges against Goldman Sachs.

This one just won't go away.

This is today's must read.

Taibbi lays out the evidence put together in a 650 page report by a US Senate Subcommittee led by Carl Levin.

Anyone who has doubts about Goldman Sachs' activities in America should read it.

The mountain of evidence collected against Goldman by Levin's small, 15-desk office of investigators — details of gross, baldfaced fraud delivered up in such quantities as to almost serve as a kind of sarcastic challenge to the curiously impassive Justice Department — stands as the most important symbol of Wall Street's aristocratic impunity and prosecutorial immunity produced since the crash of 2008.

Goldman, as the Levin report makes clear, remains an ascendant company precisely because it used its canny perception of an upcoming disaster (one which it helped create, incidentally) as an opportunity to enrich itself, not only at the expense of clients but ultimately, through the bailouts and the collateral damage of the wrecked economy, at the expense of society. The bank seemed to count on the unwillingness or inability of federal regulators to stop them — and when called to Washington last year to explain their behavior, Goldman executives brazenly misled Congress, apparently confident that their perjury would carry no serious consequences.

Thus, while much of the Levin report describes past history, the Goldman section describes an ongoing? crime — a powerful, well-connected firm, with the ear of the president and the Treasury, that appears to have conquered the entire regulatory structure and stands now on the precipice of officially getting away with one of the biggest financial crimes in history.

2. China's inflation problem - Boston Consulting Group wonders in this report whether China's wages and prices growth will make it more expensive to make stuff there than in the United States in future. Chinese wages might even match US wages within 5 years.

With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.

“All over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor,” said Harold L. Sirkin, a BCG senior partner. “We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”

3. 'Manifestly unsustainable' - FTAlphaville points out Nouriel Roubini has written a guide to what a Greek default and restructuring (haircut) might look like.

It's not pretty. One for the NZDMO to read with a double shot latte.

Greece’s debt problem is a globally systemic pivot: All stakeholders—Greece, the EZ and indeed all global financial markets—are better served by a pre-emptive and orderly, market-oriented debt exchange rather than sticking with a misbegotten and clearly failing Plan A …

The current approach, Plan A, in effect bails out private creditors who exit early or have short maturities, but exposes continuing creditors, by extension the reputation of the debtor and EZ and global financial stability to three rising risks: Subordination as the debt is transferred to increasingly senior creditors like the IMF, EFSM/EFSF/ESM and ECB; the rising threat of a disorderly outcome as an unsustainable fiscal adjustment, far from enhancing debt payment or carrying capacity, actually undermines it; and the risk of a vicious circle among the PIIGS, the EZ and indeed the whole world, which remains under the gun of renewed contagion when market consensus flips from bailout to get-out mode.

Indeed, repeated market experience bears this view out in other cases and in Greece/EZ PIIGS to date.

4. 'I'm no Doctor Doom. I'm Doctor Realist' - The Independent profiles Nouriel Roubini

Dr Roubini lists a series of things that could possibly go wrong in the world economy. The crises in the eurozone he believes will persist and it is a matter of "if, rather than when" there is a Greek default. Greece has, he believes, "crossed the threshold". In the next year or two, he thinks the eurozone will probably hold together and the issue will be of orderly restructuring of unaffordable debts – Greece first, then perhaps Ireland and Portugal, if their Plan As fail.

On a five-year time frame, he thinks it perfectly possible that political pressure in some peripheral economies: Greece, Ireland, Portugal, could see them exit the eurozone rather than endure "permanent stagnation or recession". He is more pessimistic about Spain than the markets generally, thinking them "probably complacent" about the chances of her falling into trouble.

Meanwhile, America has failed to come up with a credible plan to address her $1tr-a-year budget deficit and he believes that, with gridlock now, deeply-divided parties and an election next year, the next US president – "he or she", intriguingly – won't be able to do so until 2014.

Whether what he calls the "bond vigilantes" will allow the US to delay that long is debatable: "I think it was Winston Churchill who said the United States ends up doing the right thing after she has tried every other alternative. So the US will do the right thing, the question is whether it is too late," he said.

5. Australia greater than America - (When it comes to mortgage debt) Steve Keen crunches the numbers showing how much more indebted Australian mortgage borrowers are than US borrowers...

 The GFC is still with us, and—certainly in Australia—government debt is not the key problem. Government policy that aims to drive the budget back to surplus may instead drive the economy back into recession.

Though ‘Dee and ‘Dum (Labour and Liberal) raucously debate the level of government debt, both the boom before the GFC and the crisis after it were caused by out-of-control private debt. Rising household debt fuelled bubbles in asset markets—particularly housing—across the OECD.

While Dee and Dum concur that Australia was a responsible exception to the global rule, the bubble in household debt here was in fact bigger than that in the USA—mortgage debt peaked at 74% of GDP in the USA in late 2007; Australian mortgage debt peaked 14% higher, at 88% of GDP, in March 2010.

5. The pain in Spain - Mish details the problems in Spain.

6. Phantom companies - Some listed Chinese companies are fraudelent phantoms, Reuters reports.

Many of the questionable Chinese companies gain access to U.S. capital markets through a back door. In what's known as a reverse merger, a private company buys enough shares of a public firm to essentially become publicly traded. That allows the company to pay a much lower fee to be listed than it would with an initial public offering - not to mention sidestep the more rigorous filing demands of an IPO.

Of the more than 600 companies that obtained entry to U.S. exchanges this way between January 2007 and March 2010, a total of 159 were from the China region, according to the Public Company Accounting Oversight Board (PCAOB). While many are legitimate, some turn out to be outright pump-and-dump schemes and other scams.

A study by financial web publication TheStreet indicated such schemes involving small-cap Chinese firms may have cost investors at least $34 billion over the past five years.

7. Fresh food price surge likely? - Bloomberg reports bad weather across the globe might push up global food prices again.  

“We needed everything to go perfectly, but there’s really a lot of potential for problems, based on these weather issues,” said Sterling Liddell, a vice president for food and agribusiness research at Rabo AgriFinance in St. Louis, who expects corn to reach a record $8 a bushel if conditions worsen.

“It could be a very explosive situation, because we’re already so tight.”

8. Australian house prices could fall 5-10% - Leith van Onselen at Macro Business points out that SQM Research is picking house price falls in Australia.

I still do not believe this is going to be the big one- that being the big 40% house price crash. However for many vendors, it’s certainly going to feel like it, given that the downturn is building momentum somewhere between a 5-10% decline (as an average for the capital cities), with Brisbane, Perth and Darwin potentially falling more. Sydney is likely to experience just a moderate downturn given its genuine shortage of rental accommodation and a stronger local economy.

The question is that if a 5-10% decline is already in the bag then what will be the limit to this downturn? Probably not much more than that. I fail to see how one can have a 40% decline when AT THIS TIME we have near full employment, we have a central bank that has plenty of room to cut interest rates and we have both sides of the government who have both publicly stated that they don’t want a housing crash and have the means to stop one. On top of this we have nominal GDP running at 9% and in a number of cities we have a very tight rental market as our vacancy rates illustrate.

However, there is an outside probability that future economic events can turn very negative while the Australian housing market is currently vulnerable, that would then potentially turn a 5-10% decline into something much greater. These events would have to include a major downturn in China and/or a sudden rationing of housing credit from some type of GFC II. Any sustained rationing of credit (through say fierce reduction in maximum LVRs) or major ongoing reductions in resources incomes would smash our national housing market and make it difficult for an effective stimulus response from the powers at be.

9. Guilty as charged - NYTimes' Dealbook reports Hedge fund manager Raj Rajaratnam of Galleon has been conviced of 14 counts of insider trading. He was arrested in late 2009.

Bridgecorp collapsed in mid 2007. Rod Petricevic does not face SFO charges in court until March 2012 at the earliest, depending on what sort of legal aid he can get...

“The defendant knew the rules, but he did not care,” said a prosecutor, Reed Brodsky, in his summation. “Cheating became part of his business model.”

Galleon brought Mr. Rajartnam great wealth. Forbes magazine pegged his net worth at $1.3 billion. He owns a second home in the wealthy suburb of Greenwich, Conn., and a condominium at the Setai Hotel in Miami Beach. During the trial, Mr. Rajaratnam’s former friends told the jury about lavish vacations including, for his 50th birthday, chartering a private jet to fly dozens of family and friends for a safari in Kenya.

Fiercely competitive, Mr. Rajaratnam could be heard during the trial on wiretaps speaking in sports and military metaphors. He compared himself to fighting Muhammad Ali in the boxing ring and said during the financial crisis, “I’m feeling the pain, but they can’t kill me. I’m a warrior.”

10. Totally Jon Stewart video on the Republican Presidential candidates.