Wednesday's Top 10 with NZ Mint: Aussie banks blamed for consumer slump; Krugman vs Rogoff; An historic grand bargain unravels; The 'Cross of Gold' speech; Dilbert

Here's my Top 10 links from around the Internet at 11.30 am 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.

A good crop of cartoons today.

1. It was the banks wot did it - The Australian reports The Reserve Bank of Australia's Deputy Governor Ric Battellino has singled out the Australian banks as the culprits for damaging consumer confidence last year when they increased their floating mortgage rates by more than the RBA's increase in the Cash Rate.

Our banks should take note.

If they do the same to boost margins when the RBNZ lifts rate as expected in December then you'd hope our Reserve Bank would be just as grumpy.

There are initial signs of grumpiness emerging.

That's largely because of these RBNZ statistics showing a significant tick up in net interest margins in the last year.

Here's the Australian:

"Banks responded to the November increase in the cash rate with substantially larger increases -- around 40 basis points -- in interest rates on housing loans," he said.

"The size of the increase and the controversy it created seemed to have a noticeable impact on household behaviour.

"Consumer confidence fell -- though to levels that were still above average."

2. Switzerland's disaster zone - Helen Pidd writes at the Guardian about the disaster unfolding in Switzerland because of the franc's surge vs the Euro. She goes to the Swiss-German border town of Kreuzlingen where shoppers are regularly nipping across the border to Konstanz in Germany for a few bargains.

Last Saturday, the tiny road border crossing between Konstanz and Kreuzlingen had a record day. "We were stamping 380 an hour at one point," said Robert Helfrith, a customs spokesman. "Last year we stamped 5m forms; in the first six months of this year we had already stamped 3m, so we're looking at a 20% increase in Swiss shopping trips in Konstanz year-on-year."

The Swiss National Bank (SNB) has warned that what the billionaire entrepreneur Christoph Blocher this week described as the "catastrophic" overvaluation of the franc could tip the country into recession and deflation. It is also causing losses for millions of east European homeowners with mortgages in francs, as well as for European banks holding franc-linked derivatives contracts.

3. The rich hit back - Warren Buffett's call last week for the hyper-rich to pay more tax struck a nerve.

Here's former American Express CEO Harvey Golub writing at the WSJ about how wrong Buffett is (HT Troy via email):

Over the years, I have paid a significant portion of my income to the various federal, state and local jurisdictions in which I have lived, and I deeply resent that President Obama has decided that I don't need all the money I've not paid in taxes over the years, or that I should leave less for my children and grandchildren and give more to him to spend as he thinks fit.

I also resent that Warren Buffett and others who have created massive wealth for themselves think I'm "coddled" because they believe they should pay more in taxes. I certainly don't feel "coddled" because these various governments have not imposed a higher income tax. After all, I did earn it.

4. The undoing of a grand bargain -  Harvard history professor Alexander Keyssar writes at the Washington Post about how free marketeers unravelled a grand bargain that had taken decades to build. That bargain was that government took enough of the hard edges off capitalism to stop the poor from rioting.

The free marketeers have progressively put those hard edges back on since the mid 1980s. And now the 'bargain' constructed painstakingly between the 1890s and the 1930s is being undone. Ready for the fallout?

This is today's must-read. HT Rob via email.

A century ago many, if not most, Americans were convinced that capitalism had to be replaced with some form of “cooperative commonwealth” — or that large corporate enterprises should be broken up or strictly regulated to ensure competition, limit the concentration of power and prevent private interests from overwhelming the public good. In the presidential election of 1912, 75 percent of the vote went to candidates who called themselves “progressive” or “socialist.”

Such views, of course, were vehemently, sometimes violently, opposed by more conservative political forces. But the political pressure from anti-capitalists, anti-monopolists, populists, progressives, working-class activists and socialists led, over time, to a truly grand bargain.

The terms were straightforward if not systematically articulated. Capitalism would endure, as would almost all large corporations. Huge railroads, banks and other enterprises — with a few exceptions — would cease to be threatened with nationalization or breakup. Moreover, the state would service and promote private business.

In exchange, the federal government adopted a series of far-reaching reforms to shield and empower citizens, safeguarding society’s democratic character. First came the regulation of business and banking to protect consumers, limit the power of individual corporations and prevent anti-competitive practices. The principle underlying measures such as the Sherman Antitrust Act (1890), the Pure Food and Drug Act (1906) and the Glass-Steagall Act (1933) — which insured bank deposits and separated investment from commercial banking — was that government was responsible for protecting society against the shortcomings of a market economy.

In a democracy, of course, the ultimate check on such campaigns is the electoral system. Titans of industry may wield far more power in the economic arena than average citizens, but if all votes count equally, the citizenry can protect its core interests — and policies — through the political arena. This makes all the more worrisome recent conservative efforts to alter electoral practices and institutions. Republicans across the nation have sponsored ID requirements for voting that are far more likely to disenfranchise legitimate (and relatively unprivileged) voters than they are to prevent fraud. Last year, the Supreme Court, reversing a century of precedent, ruled that corporate funds can be used in support of political campaigns. Some Tea Partyers even want to do away with the direct election of senators, adopted in 1913. These proposals, too, seem to have roots in the Gilded Age — a period when many of the nation’s more prosperous citizens publicly proclaimed their loss of faith in universal suffrage and democracy.

5. A voice from history - Here's Williams Jennings Bryan's Cross of Gold speech referred to above by Keyssar. In it, Bryan talked about the need to end the gold standard. It's great to listen to. We forget this debate about income equality and the shortcomings of pure capitalism has been had before...

6. Krugman vs Rogoff - Paul Krugman and Kenneth Rogoff talk on CNN with Fareed Zakaria about the problem facing the global economy right now.

Krugman wants more government stimulus.

Rogoff is worried about too much borrowing.

It's a nice summary of the clash of thinking.

Krugman worries about the need for massive stimulus: "Hopefully we don't need a World War to get there."

7. Saving Capitalism from itself - Simon Caulkin writes at ManagementToday.co.uk about how capitalism shot itself in the foot, for not much gain for shareholders

How did we get into this mess? Ironically, as often in business, the roots of failure lie in success. 'When communism fell, we thought it was capitalism that triumphed,' muses Mintzberg. 'It wasn't, it was balance'. The west, he says, had a much better balance of the public, private and social sectors that make up a resilient economy. Communist societies were completely unbalanced towards the public sector, 'just as we're now completely unbalanced towards the private'. The problem isn't capitalism as such, he argues: 'It's the assumption that capitalism is the be-all and end-all of human existence, rather than a means to create and fund enterprise.'

The embodiment of this world view is the uncompromising shareholder-first doctrine that has ruled English-speaking business since the 1980s. The effects, charges Martin, have been the exact opposite of those intended. Together, stock-based compensation and shareholder-value maximisation have destroyed value and aligned executives not with shareholders but with their own wallets. The theories have driven damaging short-termism, fostered amoral and immoral executive behaviour, and favoured the mushrooming growth of parasitic players in the expectations market to whose tune real-market actors are increasingly made to jump. The most egregious are the hedge funds, pure value extractors which have been legitimised to 'make ginormously supernormal returns by wrecking the system on which they depend to make money', he fulminates.

It's not even as if shareholders have done better under their privileged regime. Martin calculates that shareholder returns have actually been lower in the era of shareholder capitalism than in the post-war decades when managers were supposedly feathering their own nests.

8. The intellectual collapse of the left and right - New America Foundation policy director Michael Lind writes at the FT.com about the collapse of the ideas of both and the left and the right.

He doesn't appear to have a solution, but it captures the mood nicely.

The two most plausible visions developed by the US centre-left and centre-right – the “knowledge economy” and the “ownership society” – lie in tatters, leaving a void in America’s discussion of its economic future.

On the right, the ownership society has been disowned. The idea began with Chicago School libertarian economists who in the 1960s and ‘70s devised elaborate private alternatives to the social insurance programme created by Franklin Roosevelt’s New Deal.

The collapse of this conservative vision should give the Democrats little comfort, however. Their idea of the knowledge economy is no more credible. According to 1990s “third way” progressives on both sides of the Atlantic, success in winner-take-all global markets would depend on human capital. Education was now to be what financial and real estate assets were to the ownership society.

Yet the story that President Bill Clinton and British prime minister Tony Blair told of college-educated individuals thriving in global labour markets was wrong. To begin with, America’s professionals owe their relative affluence largely to their protection from offshoring or competition with immigrants.

Licensing laws limit entry to the guilds of lawyers, doctors and professors. These remain old-fashioned crafts, largely untouched by productivity-enhancing technology. Meanwhile, in the financial sector, bonuses have gone to old-fashioned speculators who bet with leveraged money, knowing the state will socialise their losses.

9. Are we really turning Japanese?- FTAlphaville details a couple of arguments for why the developed world doesn't face a Japanese style slide into decades of recession and deflation.

They say property prices haven't fallen as far in Europe and the United States as they did in Japan. Also deflation isn't anywhere near setting in outside of Japan.

Here's FTAlphaville citing Nomura's Paul Sheard:

In Japan, asset price deflation and overall price deflation, a very malign combination, have gone hand in hand. Remarkably, on this measure of prices, Japan has been in deflation for 17 years. Since home prices in the US peaked in April 2006 and then started falling, the US has not fallen into deflation. The GDP deflator, after weakening from Q4 2008, has picked up again. It is highly unlikely that the US will experience the kind of decade-straddling deflation that Japan has.

10. Totally the toughest job in North Korea - Although I have my doubts given the actors seem rather portly to be North Koreans...HT AnaSamways via twitter