Monday's Top 10 with NZ Mint: BNZ professors call for more bank regulation; dependency cultures; shrinking government; milk production; Dilbert; Clarke and Dawe

Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.

Bernard Hickey is on vacation and won't be back until early May.

I welcome your additions in the comments below or via email to I am still keen to get your suggestions for suitable cartoons. If you notice a really good one, please email me.

See all previous Top 10s here.

1. 'Split them up. Regulate them tighter'
The size of Australia's big four banks poses a unique risk for the economies of both Australia and New Zealand, according a group of academics who are calling for tighter regulations for the financial sector.

Ironically, one co-chair is Professor Glenn Boyle, the "BNZ Professor of Finance" at the University of Canterbury according to the group's website. Professor David Mayes, the "BNZ Professor of Finance" at Auckland University is another member.

They have just released a paper “Do the Big Four Australasian Banks Require Special Regulation?” Basically, they want the big four to split their operations across the Tasman. And they say, increased regulation of these banks would be an added safeguard against the fallout of one major bank encountering trouble through poor lending or risky transactions. Likewise, a national emergency, such as another major quake in New Zealand, could weaken the business of the big four in that market, creating a risk for the overall banking system in both countries.

They also think more focus should be placed on the bank leverage problem.

We are of the view that greater consideration should be given to making the Basel Committee’s proposed leverage ratio requirement a first line of defense against bank failure rather than a secondary backstop. That would involve a significant increase in the proposed required minimum. While SIBs may react to such a non-risk-weighted requirement by increasing the riskiness of asset portfolios, there is nothing to prevent regulators applying higher minimum requirements for individual institutions which they perceive as adopting increased risk.

The leverage ratio approach appeals because of its simplicity and potentially lesser scope for manipulation – which the risk-weighted approach of Basel was supposed to, but did not, prevent. While Australasian bankers and regulators are generally not in favour of the leverage ratio approach (having invested substantially in the costly Basel risk-weighting industry) there is little evidence that the risk-based approach has proven superior.

2. Dependency cultures
The Economist has a useful comparison of how dependent some countries are on foreign "investment" to fund their borrowing-for-consumption habit.

Lots of countries in the rich world ran pro-cyclical current-account deficits before the financial crisis hit, which is to say they borrowed heavily when times were good. Yet only a handful have seen yields on their sovereign debt spike to alarming levels. One reason for this, as the chart below shows, may be an over-reliance on fickle foreigners to finance those deficits.

The markets don't seem to have noticed that we have a highly negative NIIP ("net international investment position") relative to GDP, because we are still able to roll over the international funding we have built up at damn good rates, considering.

The Economist's chart did not include the New Zealand data, so I hope they don't mind us adding it here:

3. Changing the world
Much as predicted by futurists decades ago, tertiary education is about to be turned on its head. Fifty years from now, there will be only 10 universities in the world delivering higher education - or so says Steven Leckart. Making this practical right now are two Stanford professors who teach courses at the cutting edge. Average regional universities (Auckland?) should watch out. Unless we have a world ranking university based in New Zealand, our institutions will slip dangerously out of relevance.

Michael Parker has a great relevant idea.

But back to those Stanford professors - they have already got 65,000 students signed up for one of their courses and a system that works. Maybe it won't take 50 years.

The idea is to create a menu of high-quality courses that can be rerun and improved with minimal involvement from the original instructor. KnowLabs will work only with top professors who are willing to put in the effort to create dynamic, interactive videos. Just as Hollywood cinematography revolutionized the way we tell stories, Thrun sees a new grammar of instruction and learning starting to emerge as he and his team create the videos and other class materials. Behind every Udacity class will be a production team, not unlike a film crew. The professor will become an actor-producer.

4. The official view
The US Treasury Department published an interesting slide show Friday afternoon illustrating the depth of the financial crisis, the impact of the US government’s intervention and the state of their economy. It’s a political document of course, intended to showcase the policies of the Obama administration in the best possible light.

But it is also a useful summary of the recent economic events - from a US perspective naturally.  Included is the projection - expectation - that the US Treasury will make a profit of as much as US $163 bln on the myriad of bailouts it funded during the height of the GFC. Here is one of the charts, to which we have added the New Zealand data:

5. Not extinct yet
While Antarctic's emperor penguins are not an officially endangered species, they are considered a bellwether of any future climate changes in Antarctica because their icy habitat is so sensitive to rising temperatures. A recent satellite survey counted as many as 600,000 of them, up from previous estimates of 350,000 and the survey team declared this "good news from a conservation point of view". The WSJ reports:

6. The big cost of a policy error
German exports are the engine behind the German economy. We hear anecdotal stories about how well BMW is doing in China, for instance. But is that what is really going on? Well, maybe not; most German exports are going to other EU countries. In fact, within the EU it's basically a giant zero-sum game. And this will be a problem for the Euro zone. Germany is "going Japanese"; deflation is their future and that means both real interest rates and a rising euro will happen at the same time which will make them uncompetitive at a time the rest of Europe can't step up.

In turn, that should mean good export opportunities into EU markets for its competitors while the locals face austerity and deflation. Not much fun for them.

7. American federal income taxes
We all know that Americans pay less tax than we do. Here's a graphic that sets it out so you can see what you might have incurred if you lived there.

Actually, its only part of the story; remember most States also levy an income tax; and many Counties (and some Cities) do as well. Still, the big focus is always on the US Federal income tax. If you need to file there you have until April 17 this year (US time). And of course, once you have done the standard return you also need to do them again to ensure you don't fall under the AMT rules (Alternative Minimum Tax). Good luck. By comparison, New Zealand's income tax system is simple.

8. Milk production
We are now tracking the New Zealand milk curve. Data is from the DCNZ and tracks milk produced for Fonterra, Tatua Co-operative, Westland Milk Products, Goodman Fielder, Open Country Cheese, NZ Diaries and Synlait. It is now a fundamental benchmark for the New Zealand economy and critical we watch it along with prices. Our export receipts will rise if volumes rise and is just as important as the dairy price tracking we do.

The expanding volumes show up well in these charts. That can be from both better farm productivity, but recently more likely by bringing on more production through farm conversion.

9. 'The incredible shrinking U.S. Government'
What do Republican presidents Reagan, Bush 1, and Bush W have in common that Obama doesn't? Total government grew under those presidents after they faced recessions. By contrast, federal, state, and local government has declined by more than half a million workers in the last three years. Big government ain't what it used to be.

10. The last laugh
Glenn Stevens, Governor of the Reserve Bank of Australia, meets Clarke and Dawe and responds to criticism from union leader Paul Howes.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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 from California milk producers

Milk production is edging towards Spring peak levels, setting new records virtually every week so far this year. Many drying plants are at capacity; few can take in more raw supply regardless of how low the price offers may be.  With class 1sales still heading lower in all parts of the country, additional milk and condensed skim is being offered into an extended buyer’s market. That market begins with milk plants themselves, includes their direct customers, and extends to secondary markets and beyond. Price structures for dairy powders are beginning to show signs of collapse; nonfat dry milk is leading the way down and dairy powders of all kinds are following.

Will our export receipts rise if if we export more milk? What is the government doing to ensure NZ economy and society maximise the benefits from those export receipts? What role does DIRA regulation and TAF have in this? Don't know? Not many seem to; well it paves the way for those export receipts to be directly exported back to transnational corporate bank accounts minus a bit for working expenses (those that aren't tied to exports eg fuel, fert, feed...). If not that, then to foreign domiciled banks, and it seems international fund managers (TAF).
Given the way the government is doing its darndest to continue to undermine Fonterras co-operative status justfied with machiavelian rational (competition, innovation so on and so forth) like so many governments these days, and with a compliant board towing the line and pulling the wool over suppliers eyes, I'd say that milk volumes and prices wont accurately illustrate the 'health' of export reciepts. I will hazard a guess this will inhibit NZs ability to build our much needed super university. Shame, because despite the importance of dairy farming we probably need it.
As a major export earmer it is a good indicator of the state of the economy, maybe also fresh water quality. Whatever your viewpoint given our ability to grow grass (capture solar energy) and convert it to protein rich milk, on a relatively efficient basis  (despite being dependent on non renewable fuel and fert etc.). Without retaining export reciepts from utilising our inherent strategic natural resources; it's goodbye to Australia, hello to Fiji. What were Don Brash, and John Key going on about a few years ago?

That is the first time since I can't remember when , that I have actually enjoyed the Top 10 stories ......
...... bravo David ! ...... no hickeysterical gloomsterising ....... instead , some serious food for thought articles , excellent ......
Much appreciated : Gummy .

adding NZ data points to those graphs is also a big +++

Same here.........thanks David!

I thought it was a crap top 10 - and judging by the shortage of comments (11 after nearly 12 hours?) so do most of the rest of the readership.
If Hello magazine had a top 10 methinks it would read something like this.

Re edumication:  The notion that higher ed is yet another giant bubble is well rehearsed in the US.  Glenn Reynolds (Instapundit) has been on this case for years:  the basic bubble definition is that for a large fraction of the students, the net present value of their 'education' (the quotes are needed, to signify the dubious quality of the goods in any case) is negative.
IT education has been private for a decade or more:  a Microsoft, IBM, Cisco or SAP certification is the ticket to this world:  forget yer basic DipComputing found in the bottom of the Weetbix packet, whoops, I mean, gained through Earnest  Study at the local Polytech.
To use an awful phrase, the linked article shows aspects of the new paradigm.There's so much wrong with the old model - not least that it keeps people who in other ages would be in their reproductive, inventive and physical adult prime, trapped in institutions in a state of eternal adolescence -  that one should expect a Cambrian Explosion of new learning methods, to be whittled down, Darwinian fashion, to the few new body shapes that have survival characrteistics.
But enough long convoluted sentences!
I do think we are seeing the emergence of small furry creatures, even as the old dinosaurs still roar and stomp around....

"IT education has been private" I do not agree.......vendor certification with the possible exception of CCNA (Ive done it) is very vendor specific and dates quickly....."DipComputing" is far more general and can build built and extended on......Ive seen ppl do these vndor courses and struggle because they didnt have the foundation needed.
For US higher education, certainly the cost of it and the return is dubious....but when you consider the middle class has been destroyed by the top 1% taking all the real gains then that is an external effect...not the problem of education.
Though the costs appear to be out of control, and again some external factors such as the cost of health insurance?  effect on fees ? not sure...

When I went to university a lot of the classes involved a ton of students sitting in an enormous hall watching a dude scrawl on a whiteboard at the front of the room.  That part could so easily be replaced with a screen and keyboard.  Want to pause the lecture?  Check.  Want to rewind it a little to go over that bit you didn't quite understand?  Check.  Sounds better if you ask me.  Cheaper too.
The interactive part of the university courses generally involved working in a smaller room with a tutor (not the lecturer!).  You'd still need this, replicated around the world.  Though in some places technology might be able to assist too.
For an example of this at work at a lower level, check out Khan Academy.  People are running courses based on this - do your lecture work at home, then come to school to review, try, and expand upon the knowledge.

#3 O.K. let's step back a little from the self-promotion coming out of what is now a standalone startup company- the originator of the experiment has split off into a startup company while Stanford is also continuing with its own stream of offerings.
I actually did one of the computer papers they offered in the later part of last year. And I would like to point out as a student I could have learned the same information by getting a textbock out of a library and working through it (particularly if I actually did the exercises at the end of chapters). It is just that video lectures + online quizes and assignments (+ plus a cohort of fellow students) suits some people better. So it is likely to shake up the sector about as much as people learning on their own out of textbooks does.
Udacities long term plan, as I understand it at the moment, is that it is going to offer courses free but effectively unsupervised (a little bit of interaction with teaching assistants via discussion forums, but largely with the expectation that students answer each other's questions). Their potential profit stream is by identifying bright motivated students, and matching them to companies looking for people and collecting the recruiter fee.

The govermnent should do this, that is the problem with our thinking these days, like it's all the goverments problem to sort out the mess,  have you ever considered the value or motive of the government's involvement in these matters anyay or their vested interests for wanting to be involved in any of this the first place , ... I say they ought not be involved in any of the issues above, they are only involved because we let them become involved, lets rethink that & see if there is a way to operate outside of this total scam ..... no?........... too hard basket? ..... ok,  lets all vote Key again & be further loved.