Monday's Top 10 with NZ Mint: A London banker turns on his own; More fake bonds; Casino capers; Emissions trading fail; The anti-science movement; Dilbert

Here's my Top 10 links from around the Internet at 2 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.

#1 is my must read today.

1. 'Ban securitisation and break up the banks' - Terry Smith, the CEO of London broker Tullet Prebon, is an unlikely supporter of the 'Occupy' movement.

He describes himself as having views that are pro-market, pro-small government and sceptical of climate change science.

Yet late last week he threw a big hairy cat among the pigeons in the The City of London with his 'Is 'Occupy' right' speech at the annual World Traders lecture at Guildhall in the The City.

He attacked his fellow traders and bankers with the force and accuracy that only someone can do when they know the heart, lung and guts of the beast inside out.

Anyone who has been to this type of event knows it is right in the heart of the City.

It's a bunch of brokers and investment bankers quaffing champagne and slapping each other on the back. I regularly went to these events when I covered banking for Reuters in London.

It's the last place you'd find someone who sympathised with anything in the 'Occupy' movement or anyone suggesting banks and brokers be controlled or reformed.

Smith unleashed with a call to ban securitisation and break up the banks on both sides of the Atlantic. To be fair, he was also against a Tobin Tax and regulation of banker pay, but he makes some strong points.

Here's the speech (which is well worth a read in full) and a sample:

On breaking up the banks:

What is needed is the full separation of retail and investment banking. The Volcker rule is bogged down in the minutiae of the definition of proprietary trading and Vickers is so far off from implementation of even ring fencing that it will have no impact at least for many years. What I would suggest is just simply undo the repeal of Glass-Steagall and introduce the same restrictions on this side of the Atlantic.

And on securitisation:

The severance of the link between lender and borrower which existed when I was in banking led to a mispricing of risk with catastrophic consequences. Historically, lenders exercised caution because eventual repayment depended upon the viability of the borrower. Securitisation not only broke this all-important link. Now, lenders could issue mortgages in the comforting knowledge that, if the borrower failed to meet his commitments, someone else would bear the loss.

This distortion of the relationship between lender and borrower led not just to the mispricing but to the reverse pricing of risk, such that lending to the riskiest borrowers became a high-returns process because risk could be unloaded. This process ran its wholly predictable course in the subprime disaster. Securitization should be banned. People should have to hold assets they are responsible for until maturity.

I wonder what he thinks of covered bonds. They're not quite full securitisation, but they still break that link...

He also calls for the reversal of the 'Big Bang' reforms in the City of London from the mid-1980s:

It may seem inconceivable that any of the Big Bang reforms will ever be repealed but until they are I think we will be condemned to suffer the sort of mistakes, malpractice and calamities which helped to cause the current financial crisis.

You may ask the question: what does this mean for New Zealand. Not much immediately, is the answer. Our banks are simple things that haven't polluted their balance sheets with dodgy gambling on markets or securitisation.

But, indirectly, it's worth watching what happens in London because it remains the centre of much of the world's financial markets, which we rely on to fund our unsupportable lifestyles.

Here's the video of his speech:

2. Fake bonds - BBC reports Italian police have uncovered US$6 trillion worth of counterfeit 1934 era US Treasury bonds.

3. Capital controls - As the debate around the world about capital controls heats up, Argentina has imposed yet more controls, including forcing companies to repatriate export revenues.

I'm not sure I'd go this far, but it's worth knowing about. Not everyone believes in the lily-white level playing field and most play as if there are no rules.

Here's Bloomberg:

With Argentina blocked from international credit markets since a 2001 default, Fernandez depends on a trade surplus to bring dollars into the economy. After winning re-election in October, Fernandez ordered energy and mining companies to repatriate export revenue, tightened oversight of foreign exchange purchases and told insurance companies to bring investments back into the country.

“The controls were very effective and there has been a strong slowdown in outflows,” said Jorge Todesca, a former deputy economy minister who now runs Finsoport Economia y Finanzas research company in Buenos Aires.

4. Listings lag - Realestate.co.nz's Alistair Helm has analysed his listings data at unconditional and estimates a six month lag between sales and listings.

He sees a 15% rise in listings in 2012. The chart below is a cracker. Here's a sample:

Looking at this most recent 5 year period, the supply side cycle tends to lag the demand side cycle by around 6 months. That is to say that the actions of sellers seeking to list their property tends to lag the ups and downs of property sales. This is highlighted by the horizontal arrows tracking each of the peaks and troughs of this 5 year period.

This would infer that sellers judge their intent to list a house by a view of the level of recent sales – probably witnessed by “Sold” signs and media commentary. This lag is likely to explain why the market often gets over supplied even after sales have slowed; and as we have seen recently, sales are picking up whilst new listings remain low.

This current situation where property sales are rising faster than new listing is shown on this chart by the blue line intersecting and rising ahead of the red line of listings has occurred once before,albeit for a short time in 2009. That occurrence as a fall out from the global financial crisis lead to a significant build up of inventory as sales fell sharply through 2010.

5. Casino caper 1.0 - Steve Wynn is a legend of the casino business in the United States. Anyone who has been to Las Vegas will know his signature Wynn Las Vegas resort.

Now Wynn has forced out a long time business partner with accusations of bribery and corruption. This one will run and run.

Casinos seem to breed ...um...unusual business practices.

Here's the Reuters report.

The company accused Okada and his associates of making improper cash payments and gifts totaling about $110,000 to foreign gaming regulators, including in the Philippines.

Okada is chairman of Universal Entertainment Corp and made his fortune off pachinko machines, a cross between pinball and slots, popular in Asia. He and Steve Wynn, the company's founder and also a self-made billionaire, were close friends and business partners for 12 years before their relationship turned sour.

6. Casino caper 2.0 - The Sydney Morning Herald reports the Star casino in Sydney is now embroiled in all sorts of allegations after a takeover by an American casino operator seems to have unleashed all sorts of dodginess...

I just can't see the need for casinos. Welcome your thoughts.

A FORMER senior manager at the Star casino has turned whistle-blower to reveal the extent of illicit drug use, sexual harassment and bullying at her former workplace. The allegations will feature in an interview with the manager for Channel Seven news, to screen tonight.

The claims follow a damaging fortnight for the Star, during which the Herald revealed Tabcorp, which until last year ran the casino, was warned about drug and alcohol abuse among casino executives and advised to swab offices for cocaine residue and introduce ''sobriety tests''.

Last week the Casino, Liquor and Gaming Control Authority announced a snap inquiry into the Star, following the sacking of its American managing director, Sid Vaikunta, for his ''behaviour in a social work setting''.

7. Relegated - Bloomberg reports on the relegation of Greek bond holders interests to junior status after the European Central Bank helped itself to a restructuring of its debt without the 70% haircut that private bond holders are getting...

I still can't quite work out why anyone would buy Portugese or Spanish bonds when there's the risk they'll be wiped out by dictat from a Eurocrat...

Here's the slow rising outrage in Europe:

The ECB will exchange its Greek debt for new bonds with an identical structure and nominal value, though they’ll be exempt from so-called collective action clauses (CAC) the government is reportedly planning. That implies senior status for the ECB over other investors, according to UBS AG, and the use of CACs may lead to credit-default swaps protecting US$3.2 billion of Greek bonds being tripped.

“It may appear that the ECB is receiving preferential treatment, raising questions about whether the ECB is senior to private-sector bondholders,” according to Chris Walker, a foreign exchange strategist at UBS, the world’s third-biggest currency trader. “If a coercive default does indeed eventually take place then a CDS event seems very likely with all the negative consequences for risk appetite that may bring.”

8. Emissions trading isn't working - Spiegel.de's Alexander Jung reports on the problems now evident in the carbon trading system in the European Union. A carbon tax is a better idea, in my view.

Here's Jung:

Emissions trading, the European Union hoped, would limit the release of harmful greenhouse gases. But it isn't working. The price for emissions certificates has plunged, a development that is actually making coal more attractive than renewable energy.

9. The anti-science movement - Robin McKie writes at the Guardian about how research paid for by big business is driving science back in to the dark ages. HT for the last two links to @samfromwgtn

Most scientists, on achieving high office, keep their public remarks to the bland and reassuring. Last week Nina Fedoroff, the president of the American Association for the Advancement of Science (AAAS), broke ranks in a spectacular manner.

She confessed that she was now "scared to death" by the anti-science movement that was spreading, uncontrolled, across the US and the rest of the western world.

"We are sliding back into a dark era," she said. "And there seems little we can do about it. I am profoundly depressed at just how difficult it has become merely to get a realistic conversation started on issues such as climate change or genetically modified organisms."

10. Totally Jon Stewart on Barack Obama's efforts to raise funds from the 1%. It costs US$35,000 to buy a ticket for dinner with the President and just US$200 for a ticket to watch the Foo Fighters.

"I ate a pork chop that cost the same as a Lexus."