Here's my Top 10 links from around the Internet at 10 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.
Clarke and Dawe are here for their regular Friday thing. We can all laugh at a Kiwi making fun of Australians in Australia.
1. 'Public-private pillaging' - Two Californian academics have written a book about how lobbyists and corporates have used public private partnerships to ruin San Diego.
A cautionary tale for those looking to introduce such things in New Zealand.
Even the conservatives in Britain are disillusioned with these things and the Australians aren't happy either.
And don't get me started on sports stadiums and arts centres for games and festivals.
Is there some rugby on at the moment?
Here's the San Diego story via the San Diego Reader (HT Troy via email):
The hucksters have an alliterative name for San Diego’s corporate welfare: “public-private partnerships.” The authors show why the name should be “public-private pillaging.”
For example, Centre City Development Corporation (CCDC) is “a shadow government with little direct contact with the voters,” says Erie. The system is rigged so that redevelopment money goes into a downtown that is not blighted while neighborhoods get crumbs, even though they are blighted. In San Diego, “As long as the sun rises, people aren’t watching what happens. This gives leaders considerable leeway to craft these public-private partnerships that benefit the private partners without close public scrutiny or criticism.”
One way this is achieved is through “stacked deck committees,” Erie explains. A task force or committee will be appointed to study a particular issue, such as a massive subsidy to a sports team. But the committee members will have a personal stake in downtown interests. “You know what the report will be before it comes out.”
2. The thing about the Renminbi - Arthur Kroeber writes this must-read analysis of Chinese exchange rate policy at Foreign Policy. He says it's a mistake for America to fear the Chinese currency because it is very unlikely to become a reserve currency.
I found this insight into the difference between the US and Chinese approaches to managing their currencies interesting:
The international conversation over the RMB remains perennially vexed because China and its trade partners have fundamentally divergent ideas on the function of exchange rates. The United States and other major developed economies, as well as the IMF, view an exchange rate simply as a price. Consistent intervention by China to keep its exchange rate substantially below the level the market would set is, in this view, a distortion that prevents international markets from functioning as well as they could. This price distortion also affects China's own economy by encouraging large-scale investment in export manufacturing, and discouraging investment in the domestic consumer market. Thus it is in the interest of both China itself and the international economy as a whole for China to allow its exchange rate to rise more rapidly.
Chinese officials take a very different view. They see the exchange rate -- and prices and market mechanisms in general -- as tools in a broader development strategy. The goal of this development strategy is not to create a market economy, but to make China a rich and powerful modern country. Market mechanisms are simply means, not ends in themselves. Chinese leaders observe that all countries that have raised themselves from poverty to wealth in the industrial era, without exception, have done so through export-led growth. Thus they manage the exchange rate to broadly favor exports, just as they manage other markets and prices in the domestic economy to meet development objectives such as the creation of basic industries and infrastructure.
These policies do not differ materially from those pursued by Japan, South Korea, and Taiwan since World War II, or by Britain, the United States, and Germany in the 19th century. Because the Chinese leaders perceive that an export-led strategy is the only proven route to rich-country status, they view with profound suspicion arguments that rapid currency appreciation and markedly slower export growth are "in China's interest." And because China -- unlike Japan in the 1970s and 1980s -- is an independent geopolitical power, it is fully able to resist international pressure to change its exchange-rate policy.
3. Only half way there - WSJ columnist David Wessel has written an excellent piece on how long the US household leveraging will go on for.
It is the driving force holding back the world's largest economy at the moment.
Wessel says households are perhaps only half way through their deleveraging and points out the government hasn't even started.
"Unlike banks," says David Scharfstein, a Harvard University economist, "households can't raise equity capital to pay down debt. So the only way to get deleveraging is house-price appreciation (which hasn't happened), debt writedowns/modifications (some), or foreclosures/short sales (some)."
He points to the mortgage-debt burden—and winces. Until the late 1990s, the sum of all American mortgages was about 40% of the value of the underlying homes. Americans borrowed heavily against their houses and then house prices fell. By this metric, the debt burden rose to about 62%—and hasn't yet come down. (This is an average, of course. Some people have no mortgage debt. About one in five homeowners with a mortgage owes more than 100% of the current value of the house.) While banks and consumers have been deleveraging, the government has been doing the opposite.
Measured against the size of the economy, federal debt is at highs not seen since World War II. In part, that's by design: The plan was for the government to borrow more for a time to cushion the effects on the economy of bank and household deleveraging. For government deleveraging, it's still the first quarter.Add it up: U.S. bank deleveraging is in the fourth quarter, but European banks are in the first. Overall U.S. consumer deleveraging is at halftime with housing still in the first quarter. Government deleveraging has barely begun. This will hold back economic growth for a long time.
I'll include the charts again. Used them yesterday. The second and fourth charts are particularly worrying. They suggests an enormous amount of work needs to be done.
4. Trickle down theory - China's direction seems not that different from the American one...
The latest Hurun rich list is out.
The Hurun rich list, which has been tracking China's tycoons since 1999, on Wednesday said it had counted 271 dollar billionaires in China last year, up from 130 in 2009.
China now has the second most billionaires in the world, after the United States with more than 400.
Huang Weiping, an economist at Renmin university in Beijing said the proliferation of billionaires was "no surprise". He said: "This phenomenon is occurring all over the world. And as China becomes more advanced, and improves its industries, it is only natural that a large share of the wealth will end up with the people at the top of the value chain."
5. Do these guys have any shame - The Telegraph reports Amazon doesn't pay any corporate tax in Britain despite having 2,000 staff...
When are governments going to stop these multi-nationals gaming the global tax system to enrich shareholders? The mood is building.
The last time Amazon.com appeared to write a cheque for corporation tax was in 2007 when it handed over the less than princely sum of £19,367 to the Inland Revenue. The retailer does of course pay National Insurance, business rates and VAT in the UK.
So how does the internet giant do it? Well, while Amazon may package and send the vast majority of its UK orders from its giant distribution centre in Milton Keynes – where it employs more than 2,000 people – Amazon.co.uk is a "service company" rather than a retailer, providing fulfilment, marketing and support services to a Luxembourg-based parent.
That means that while it may be Amazon.co.uk that sends UK customers that discounted copy of How to Win Friends and Influence People it will be Luxembourg-based Amazon Eu Sarl that collects the £6.19.
It's a structure that (presumably) means Amazon books its profits in Luxembourg, which has a lower corporation tax rate than the UK, although it is impossible to know for sure. It is not just tax rates that are lower in Luxembourg – so are levels of disclosure. There is no requirement for Amazon Eu Sarl to publish annual accounts, unlike Amazon.co.uk.
6. Even Gen Y are abandoning the stock market - Here's Investmentnews pointing to a survey showing how even young investors are wary of the stock market
According to the results of a survey of members of Generation Y (age 18 to 30), younger Americans lean towards a conservative approach when investing their money. The survey of nearly 1,000 Gen Y investors with more than $100,000 worth of investible assets —conducted by MFS Investment Management Inc. — found that 40% of the respondents agreed with the statement: “I will never feel comfortable investing in the stock market.”
Indeed, Gen Y'ers, who have between 35 and 47 years before reaching retirement age, have allocated more money to cash (30%) than any other age group. Ironically, such conservative views are in line with their parents and grandparents, many of whom grew up in the wake of the Great Depression.
“Many Gen Y's reached investing age during the dot-com bust, lived through 2008's Great Recession and continue to experience significant economic uncertainly and market volatility today,” said William Finnegan, senior managing director of U.S. retail marketing for MFS.
7. Financial nihilism - Satyajit Das is always worth watching. He is a whistleblower from inside the arcane world of options trading. In this Q&A below he nails the blinkered thinking of the 'frat boys' who run financial markets. HT Naked Capitalism
PP: There’s something so enclosed, so incestuous with those involved in the financial markets. In your book you document how the hedge fund industry in particular displayed this insularity to a rather remarkable degree. Some of your anecdotes remind me of a group of late-adolescent males preparing for a drinking trip or a football match. You worked in and around this industry, what do you make of this dynamic? What effects does it have on the way these people make decisions?
Satyajit Das: Fraternities; ‘frat boys’ (and they are mainly boys) as the Americans would say. It’s a monoculture. They generally go to the same schools, the same universities; they have similar backgrounds and spend time with each other reinforcing their narrow worldview. Even the few outsiders who make it in – usually by dint of sheer desire and skill, usually in making money – seek to be ‘insiders’. It means that they can only see the world through the same lenses and perspectives. They can’t think outside the consensus – whatever it is at a given time. They can’t see that things could be different to what they perceive it to be.
They also see themselves as superior beings – ‘God but with a better suit’. The reason for their superiority is that they make more money than anyone else which in my view is purely accidental. But in their minds they see money and brilliance as synonymous. David Hare captured this neatly in his play ‘The Power of One’. He has a character, who looks remarkably like Gillian Tett from the Financial Times, say: “These people genuinely believe they’re masters of the universe. And why are they masters of the universe? Because they’re paid fifty times as much as anyone else. So they must be cleverer than anyone else.” Unfortunately, as subsequent events demonstrated, they weren’t that clever; they were just in the right place at the right time, at least for a while.
This culture creates a kind of ‘financial nihilism’ – those on the inside can’t see the consequences of their actions on other people at all. That’s because other people are inferior – outside the bubble. Justin Cartwright in his novel ‘Other People’s Money’ has one of his characters describe how financiers see ordinary people: “The rest of us are just the extras, without speaking parts, just fill in the blank spaces in the frame.” I think that’s accurate – these people really have a weird sense of being always right, not to mention generally superior. They can’t see what damage they have caused. They still think that they were right. The fascinating thing is that ordinary people and even powerful people like politicians actually believed that they were really special. Maybe, they still do.
8. Interconnectedness - Here's Barry Ritholz from The Big Picture on PBS Newshour on the European problem.
Watch the full episode. See more PBS NewsHour.
9. Just do it - Bank of America should file for bankruptcy protection says Chris Whalen
Bank of America has over $100 billion in mortgage liabilities, says Chris Whalen Co-founder of Institutional Risk Analytics. On a web broadcast published on KingWorldNews, he advocates "the classical American way of dealing with this problem"-- complete and total restructuring through Chapter 11. Before its too late. He says, "The only sane way of fixing this and I mean fix it so that Bank of America comes out of the process restructured, ready to support growth, support leverage, is a classic chapter 11..."
His point: Countrywide's bond trusts are worthless, were never properly constructed, and don't protect investors at all. Bank of America is on the hook for all of that, and while its subsidiaries are well capitalized, the parent company is bust. The only thing to do to fix this problem is to unmake $100s of billions worth of bond contracts.
10. Totally Clarke and Dawe - Wayne Swan is determined to break a business model. It might work.
"Your mob couldn't sell lamb to a Kiwi."
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