Monday's Top 10 with NZ Mint: What Bernanke's QE III helicopter might look like; A rag tag bag of China short sellers; Why the ECB is wasting its time; Dilberts

Here's my Top 10 links from around the Internet at 3 pm in association with NZ Mint.

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

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

Did I say buckle up last Friday...

1. What QE III might look like - Ed Harrison at Credit Writedowns refers to a section in Ben Bernanke's now (in)famous Helicopters speech from 2002 when considering what QE III might look like.

Bernanke could set long term interest rate caps.

Sound familiar?

This is all about financial repression pure and simple. See my opinion piece here.

How long do savers put up with it?

Do they have a choice?

The levels of US Treasury yields (0.25% for 2 year debt...) suggest fear of outright losses outweighs the fear of inflation adjusted losses.

Who'd be a saver in this environment?

Here's Bernanke from the 2002 speech:

. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. 

If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

2. A rag tag bag of China short sellers - Some former colleagues of mine at Reuters, including Mark Bendeich, report on a bunch of short sellers of Chinese stocks listed on US and other markets.

They are a rag-tag bunch, often working from home or tiny offices scattered round the world, from rural Texas to Beverly Hills and a suburb near Australia's Bondi Beach.

Some have never even been to China; most don't speak or read Chinese. And yet in the past nine months, this small group of "short sellers" has published research exposing accounting fraud at a series of Chinese companies listed in the United States and Canada, and made as yet unproven allegations against a whole bunch more.

As a result they have scuttled a once hot sub-sector of the American capital markets.

3. 'S&P not credible' - The fury being unleashed on Standard and Poor's in America is something to behold.

Here's Paul Krugman at the New York Times:

Let’s start with S.& P.’s lack of credibility. If there’s a single word that best describes the rating agency’s decision to downgrade America, it’s chutzpah — traditionally defined by the example of the young man who kills his parents, then pleads for mercy because he’s an orphan.

America’s large budget deficit is, after all, primarily the result of the economic slump that followed the 2008 financial crisis. And S.& P., along with its sister rating agencies, played a major role in causing that crisis, by giving AAA ratings to mortgage-backed assets that have since turned into toxic waste.

Nor did the bad judgment stop there. Notoriously, S.& P. gave Lehman Brothers, whose collapse triggered a global panic, an A rating right up to the month of its demise. And how did the rating agency react after this A-rated firm went bankrupt? By issuing a report denying that it had done anything wrong.

4. 'S&P not popular' - And it's not just the Americans who want to beat up the ref. Police in Italy have raided the offices of Standard and Poor's and Moody's.

Here's the Guardian.

As stock and bond markets across the world tumbled on fears about Italyand Spain, it emerged that police acting on orders from prosecutors had raided the Milan offices of rating agencies Moody's and Standard & Poor's as part of continuing investigations into their role in the recent financial turmoil.

Carlo Maria Capistro – chief prosecutor of Trani, a small Adriatic port – told Reuters that his office was checking to see whether the rating agencies "respect regulations as they carry out their work"

5. 'Bankers got away with it' - Former Investment banker William Cohan writes at Bloomberg (so we're not talking some bolshie leftie on a dodgy blog) that the moral rot on Wall St has to be ended.

What will it take for Americans to finally get the message that much ofWall Street, in its current form, is a corrupt enterprise in need of a top-to-bottom overhaul, a task that the year-old Dodd-Frank law, for all its verbosity, barely attempts?

There is ample evidence in the detritus left behind by the ebb tide of the worst financial crisis since the Great Depression. There are the thorough -- and thoroughly damning -- reports (along with thousands of pages of accompanying internal Wall Street documents) produced by the Financial Crisis Inquiry Commission and the Senate’s Permanent Subcommittee on Investigations.

Each examination revealed layer upon layer of behavior that should make us seethe with anger. These include the decision to manufacture and sell mortgage-backed securities that were stuffed with loans of questionable value, plus the worthless AAA ratings placed on them by ratings services paid by Wall Street to do so. Also the business model that encouraged bankers and traders to take asynchronous risk with other peoples’ money with the knowledge that by the time things went wrong, billions of bonus dollars would be paid out, and no effort would be made to hold anyone accountable.

6. Where the US debt is - Check out this excellent interactive graphic showing where the US debt is.

Mousing over the large dot on China shows that Chinese lending to the United States has gone from $59 billion ten years ago to more than $1.15 trillion today, or one quarter of the total foreign owned debt of $4.45 trillion.

7. What the Chinese said - Here's the now (in) famous Xinhua editorial from the weekend (ie the voice of the Chinese government) on the US debt crisis where it said America needed to break its addiction to debt.

There's an element of hypocrisy in all of this. China's lending to America was the enabler for its consumption boom of the naughty noughties.

The other side of this coin is that China has to break its addiction to American consumption of Chinese exports and build consumption within its own borders. Instead it is choosing to bridge the gap left by missing American export demand by building bridges to nowhere, ghost cities and high speed rail systems that break.

Here's the voice of the great creditor (and credit creator):

To cure its addiction to debts, the United States has to reestablish the common sense principle that one should live within its means.The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone.

It should also stop its old practice of letting its domestic electoral politics take the global economy hostage and rely on the deep pockets of major surplus countries to make up for its perennial deficits.

A little self-discipline would not be too uncomfortable for the United States, the world's largest economy and issuer of international reserve currency, to bear.

8. Why the ECB's bond buying is doomed in one chart - Zerohedge points to a chart showing how the European Central Bank's buying of PIGS bonds didn't work to reduce interest rates...yet somehow it's supposed to work in a bond market (Italy's) that is many magnitudes bigger.

9. Australian housing stress growing - Smartcompany.com.au reports that 85 building and construction firms in Australia have gone under in the last month.

Over the past fortnight, Safi Brothers Constructions, Port Melbourne Building Supplies, Coastline Bricklaying and Blue Hills Bricklaying have entered administration. Others to have collapsed of late include plumbers, plasterers and landscape gardeners.

Registered company liquidator, Cliff Sanderson of Dissolve Pty Ltd, says while the building sector always features pretty heavily in the collapse lists, the numbers have increased over the past three to five months.

The reasons, according to Sanderson, are the relatively recent downturn and increased aggression from the Australian Taxation Office.

10. Totally Jon Stewart and his team of pundits (and one mime artist) on the Debt Ceiling deal