Thursday's Top 10 with NZ Mint: Bearer bonds 'discovered' on Mindanao; Negative equity in Australia; A Great Australian bond run; Kodak, maker of 1st digital camera, goes bankrupt; Dilbert

Here's my Top 10 links from around the Internet at 7 pm in association with NZ Mint.

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

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

The SOPA GIF is hilarious at #9.

1. A cracking read - Bloomberg reports on how a Filippino social worker apparently discovered US$25 billion worth of bearer bonds and gold coins dated from 1934 buried in a chest deep in the jungle.

The plot thickens from there.

Some amazing counterfeiting work has been done.

The moral of the story is this.

Be very careful when someone tells you they have discovered billions of dollars worth of bearer bonds...

In the jungle...

Here's Bloomberg's Craig Copetas:

Jose Cojuangco contacted Bloomberg News last month. “There’s $50 billion in U.S. Treasury bearer bonds we’d like you to take a look at,” he said. “Would you mind?”

Cojuangco said he still wanted to believe the bonds were real. After all, they came from Mindanao, an island regularly ravaged by typhoons and inhabited by the demon horse Tikbalang, the vampire Aswang and armed insurgents who have made kidnapping an industry. As Quiwa says, it’s a place where there’s nothing extraordinary about a tropical rain forest chieftain trying to figure out U.S. Treasury bond coupon yields.

2. Negative equity in Australia - News.com.au reports that the number of Australian homes that are worth less than the mortgages on them has risen to 4.9% from 3.7% in the last year after a fall in house prices.

Thousands of homes are sitting on the market - and Melbourne is the worst offender. However, Melbourne has held up better than Sydney and most capitals in terms of negative equity, the RP Data report says. Victoria's Mallee and Ovens and Murray districts were among the worst, with 9.8 per cent of properties in negative equity.

3. The Great Australian bond run - FTAlphaville points to a blog by (Great name) Bond Vigilantes showing how more than 80% of Australian government bonds are owned by foreign investors, making Australia vulnerable to an attack from bond vigilantes if people ever stopped believing the Australian story.

The chart says it all. It (in part) explains the strength in the Australian dollar.

4. The final countdown - PFP Wealth Management's Tim Price writes here at Business Insider that he is less than convinced by the bulls confident that Europe (or the Western world for that matter) has solved its problems.

It may be a new year, but we are beset by the same problems that have been recurring since the crisis began. In most cases, those problems have worsened. One of the few improvements has been in the recapitalisation of Anglo-Saxon banks, but continental European banks seem acutely vulnerable to the potential outcome of a disorderly sovereign default.

Euro zone politicians and policy makers have had plenty of time to come to terms with the continent’s problems, and continue to show no willingness to grasp admittedly difficult nettles. It is symptomatic of the balkanisid and adversarial nature of politics in the euro zone (a unified body that exists in theory but barely in fact) that Christian Noyer, chairman of the French central bank, anticipated France’s credit downgrade by suggesting that Britain should be downgraded first.

As the Hildebrand scandal also revealed, most of Europe’s central bankers are not fit to sweep the streets. And still time is running out. Readers of a certain age will recall a late 1980s “big hair” rock anthem called “The Final Countdown.” It was released by essentially a one-hit wonder band. Its name was Europe.

5. How private equity went off the rails - The political debates in America are turning to Mitt Romney's role as head of private equity shop Bain Capital and how he doesn't pay much tax.

William Cohan has written a tough piece attacking Romney and Bain at the Washington Post over reneging on deals.

In a return of serve, former investment banking lawyer John Carney writes a fascinating piece here explaining how investment banks and private equity firms and banks used to work to assess the risk in deals. In the process he explains a lot about what went wrong from 2005 to 2007 in the world of debt-funded private equity deals.

We had a few of those here in New Zealand, including the likes of Yellow Pages, MediaWorks, Metropolitan Glass, Independent Liquor and EnviroWaste.

Here's Carney at CNBC with the inside scoop:

Things really went off the rails between 2005 and 2007, when private equity firms and bank lenders stopped trying to renegotiate deals once the diligence process was underway. Credit was flowing out of banks at such a frantic pace, keeping up with the mania in M&A activity, that this system of shifting power and ongoing negotiations broke down. The result was astronomical acquisition prices funded by nearly covenant free—and largely diligence free—loans.

6. Europe's zombie banks - Delusional Economics over at Macrobusiness.com.au does a really nice job of explaining how many of Europe's banks are now stuck in a Zombie state and are in thrall to the LTRO carry trade keeping themselves and their governments afloat (but not lending to real people and businesses).

Delusional explains how the Italian banks were able to get their hands on so much ECB money and why they are beholden to their government to reinvest the money in Italian bonds.

The Italian Treasury offered guarantees for bonds issued by banks to give them access to ECB liquidity, in a move to lower funding costs. These bonds will stay on the banks’ books until their expiration, according to a ruling announced by Italian Prime Minister Mario Monti earlier in December.

In the lead up to the 3-year LTRO the Italian banks created billions of euros worth of bonds and got their government to rubber stamp them. These bonds were never actually issued to the market,  they were simply tossed over to the ECB as collateral to get a 1% loan. So how much did the Italian banks get ?

“It’s a 116 billion euros,” one senior banking source told Reuters. Two other sources confirmed that amount. The Italian figure includes 40.4 billion euros of state-backed bank bonds which were used as collateral for the loans.

So now the Italian banks have an additional 40.4 billion euros with which to purchase government paper, created from nowhere, and backstopped by the very sovereign that would later be the recipient the loan. The ECB’s mandate says that they can’t fund sovereigns directly, but it appears it is fine as long as there is a commercial bank acting as an intermediary and taking their “carry trade” cut. That technical point aside, what this shows is that banks now have a way to re-capitalise independent of the state of their other assets and liabilities.

For Italy, with its private sector in relatively good shape, its banking system may be able to weather the storm. In this particular case this operation is probably more about re-capitalising the banks after their exposures to other periphery nations and about funneling money to the government. However, what you will note is that the banking system can now profit independent of its loan book. So why would it bother taking the risk of lending? In an environment of increased capital requirements and a slowing economy it is far more likely that banks will use this additional capital as a buffer as they shrink down their asset base. In short, more consumption of fresh brains.

7. The evolution of American debt - Salon has a good interview with the author of what looks like a fascinating book on the history of American debt.

I need to get out more.

I know. I know.

Here's a sample:

In the US today, debt is ubiquitous. Whether it’s paying back thousands of dollars in student loans, using your Visa card for a pack of gum when you’re out of cash, or taking out a mortgage on a first home, it’s been woven into our financial system so tightly, that even when we suffer the sometimes cruel and unusual detriments of borrowing, we have little to no realistic impetus to stop. But it wasn’t always this way. In fact before the 20^th century, debt was a taboo, feared, shameful, and kept in the shadows. So what events and institutions brought debt from its meager beginnings to its central role in American life?

In his new book, “Borrow: The American Way of Debt,” Cornell professor Louis Hyman writes, in essence, a biography of American debt. He traces debt through American history: from the late 19^th century, when unpaid dues meant public ignominy, to the 1920s, when the auto industry changed the face of borrowing to the mortgage fallouts that led the Great Depression to the invention of the credit card as we now know it, all the way to the current shambles of our national economic livelihood.

8. Finally it has happened - The company that invented the digital camera, Kodak, has filed for bankruptcy, MarketWatch reports.

And here's a good 2005 article from SeattlePI about Kodak's first digital camera made in 1975.

9. Totally irrelevant GIF on SOPA - It's worth a click. Some cats get blasted by a flamethrower.

10. Totally irrelevant and unfunny but very insightful piece from Clay Shirky on SOPA.