Monday's Top 10 with NZ Mint; The LIBOR rort; Greek debt repayment innovation; the banks' banker says bank numbers are fudged; Latvia; our buggy moral compass; Dilbert

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

Bernard will be back with his version tomorrow.

As always, we welcome your additions in the comments below or via email to

See all previous Top 10s here.

1. NZ banks must lead claims for the LIBOR rort
British business is turning on British banks. When the rest of the world joins the fray, the claims will be enormous. I hope the British taxpayers are ready and willing to back up their banks. More from the UK Telegraph:

John Walker, the FSB’s national chairman, said: “Suspending repayments immediately would relieve and possibly rescue small firms that have been burdened with huge bills – in most cases for years – and who in some cases are close to bankruptcy.

“However, it will not resurrect the many small businesses that have already been destroyed by this appalling breach of trust: firms that turned to their banks for support and who were instead exploited.”

He also said it was “not enough” that Britain’s four main high street lenders have agreed to compensate affected small companies.

“At what point will big banks’ chief executives take responsibility for the litany of scandals their employees have been found guilty of and which are causing untold damage to small businesses and Britain’s economy?

“The situation will not improve until and unless punitive measures are taken to stamp out these sharp practices and the fundamental attitude of the banks towards their small business customers changes.”

When will the NZ banks tell us how we can claim for this outrageous rort? Surely it's criminal. I know our banks may have been among the victims, but the restitution must flow back to their customers - and our banks must front foot the claim process. We need the pending class action legislation passed now - urgently.


2. Debt repayment innovation
Greek shipping heir Peter Nomikos has taken matters into his own hands. While EU leaders wrangle for a solution to Greece's problems, Nomikos started a non-profit to wipe out the country's debt. If all of his countrymen do their part, he tells Spiegel Online, they will be able to shore up the country's finances.

Nomikos: Professionally, I deal with distressed debt. And it struck me that Greece has a historical opportunity. In the euro, the Greeks have a very strong currency, while the price of their government bonds has collapsed. That makes it possible to buy back debt at very low prices and reduce the Greek debt burden with relatively little expenditure.

Spiegel Online: You are asking your countrymen for donations. What do you tell them?

Nomikos: If you break down the national debt, each Greek owes around €25,000 (NZ$39,350). So I am telling my fellow citizens to make themselves debt-free. Greek government bonds with a nominal value of one euro currently trade for around 12 cents. For a donation of around €3,000, every Greek can buy his freedom.

Peter Nomikos, 33, is the scion of a Greek family that has been successful in the business world. His father built a billion dollar empire in the US from shipping and medical technology. Nomikos grew up in London and studied economic history at Princeton University. The entrepreneur still lives in the British capital and finances both commercial and non-profit projects. Nomikos says that he spends about 70 percent of his time earning money, the rest he devotes to charitable ventures. With a seven member team he now runs the campaign for a Debt-free Greece. His Santorini beer company, Volkan, contributes 50 percent of its profits to the charity.

3. Inaccurate numbers
The Bank for International Settlements, which acts as a bank for the world’s central banks, should know fudged numbers when it sees them. What may come as a surprise is how openly it has been discussing the problem of bogus balance sheets at large financial companies. This from Jonathan Weil at Bloomberg:

“The financial sector needs to recognize losses and recapitalize,” the Basel, Switzerland-based institution said in its latest annual report, released this week. “As we have urged in previous reports, banks must adjust balance sheets to accurately reflect the value of assets.” The implication is that many banks are showing inaccurate numbers now.

4. Could peer-to-peer lending challenge our banks?
In a recent speech, BofE director Andrew Haldane suggests innovations in commercial peer-to-peer lending, using the web as a conduit, could make some bank functions surplus to requirements.. It was followed by a recent announcement by the British government that it would channel £100 million pounds to small business through alternative banking channels such as P2P. Milind Sathye at Business Spectator has taken a look at the British offerings:

No wonder taxpayers ask: are banks a necessary evil that one has to put up with, or is there an alternative?

Why do we need banks? Why can’t we lend to each other? Just as we may borrow from friends and relatives, can we not borrow from and lend to strangers? Is there an alternative to old-fashioned banking, as Andy Haldane calls it?

The good news is an online alternative that could take on the banks – at least in the sphere of small loans – is emerging.

5. 'Dimon should quit his Fed role'
Simon Johnson, an economics professor and former International Monetary Fund counselor, says JPMorgan CEO Jamie Dimon should leave the New York Federal Reserve board if "he wants the Fed to again become a bastion of stability".

6. China's elite protect their own
Xi Jinping and his siblings are the children of the late Xi Zhongxun, a revolutionary fighter who helped Mao Zedong win control of China in 1949 with a pledge to end centuries of inequality and corruption. Now in line to be China’s next president, Xi Jinping has risen through the Communist Party with a reputation for clean government. Bloomberg has the back story in great detail - too much detail for the Chinese though; it is blocking Bloomberg in retaliation.

Xi Jinping, the man in line to be China’s next president, warned officials on a 2004 anti-graft conference call: “Rein in your spouses, children, relatives, friends and staff, and vow not to use power for personal gain.”

As Xi climbed the Communist Party ranks, his extended family expanded their business interests to include minerals, real estate and mobile-phone equipment, according to public documents compiled by Bloomberg.

Those interests include investments in companies with total assets of $376 million; an 18 percent indirect stake in a rare- earths company with $1.73 billion in assets; and a $20.2 million holding in a publicly traded technology company. The figures don’t account for liabilities and thus don’t reflect the family’s net worth.

7. The attraction of tax breaks
Switzerland has quietly developed into the global center of commodities trading. Critics say the industry's business practices in countries such as Congo and Zambia are immoral, and that it puts profits before people. Spiegel Online reports:

Sanctuary for Kleptocrats and Tax Evaders

Ironically Switzerland, a country with few natural resources to speak of, has grown into one of the most important centers for the global commodities industry in recent years. In Switzerland, companies encounter optimal tax conditions, sympathetic officials and an army of lawyers and bankers who specialize in the needs of the deep-pocketed industry.

Companies like Glencore now process 15 to 25 percent of the global trade in ore, copper, oil and agricultural products from their headquarters in Switzerland. Net revenues in the industry have increased by a factor of 15 between 1998 and 2010.

8. Lessons from Latvia
Here is Valdis Dombrovskis, Latvia's prime minister, on his country's astonishing economic recovery, the advantages of austerity and why he's still keen on joining the embattled euro zone. A key message is, front-load the pain - in other words do substantial reform early because the effectiveness will get watered down or not done at all if delays are allowed to infect the process. He's been re-elected. (Reminiscent of New Zealand in 1984 - and perhaps quite different to one lesson in #10 ?)

9.a. Go figure
The big loser in today's introduction of a carbon tax in Australia is ... electric cars!  The most environmentally focused cars on the market will cost more to run when the carbon tax is introduced, says the Sydney Morning Herald. Unintended consequences strike again (although, actually the impact was intended. They exempted petrol!)

9.b. Waning dependency
Innovation in efficiency and conservation seems to be sorting out America's dependence/need for Middle East oil, rather than new local sources (from fracking?). At least that is what Kevin Drum thinks he has found.

10. The last laugh
Dan Ariely, a professor of behavioral economics at Duke University, on our buggy moral code.

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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Loving no# 4. Had a few rants about the glaring opportunity for real paradigm shift in finance. Have asked what is it about retail banking that anyone couldnt do with access to cheap funds?
They aren't special. They are just like the rest of us. They are acting in their own self interest. We should all learn that lesson and act accordingly. 
I pitched the old man to take over our mortgage, he'd get a better return, us a cheaper rate. Win win. Only stumbling block is liquidity.
He quite open to it, we got low debt to value. What are the potential issues?

Others  may see more problems but off the top of my head as long as you get the current first mortgage discharged from the title and give your Father a first mortgage probably none except when he dies.  The mortgage would form part of his estate.  If you are an only child it would probably be okay depending on his outstanding debts at that time but if you have brothers and sisters and his wife (second?) is still alive there could be problems.  

Of course it is deflationary for house prices. Both parties are withdrawing from the banking system so the reverse leverage would be quite powerful if only a small percentage did this.

No. 8.
from Michael Hudson in the FT
Austerity’s advocates depict Latvia as a plucky country that can show Europe the way out of its financial dilemma – by “internal devaluation”, or slashing wages. Yet few of the enthusiastic commentators have spent enough time in the country to understand what happened. Its government has chosen austerity, its people have not. Finding no acceptable alternative, much of the labour force has elected to emigrate. This is a major factor holding down its unemployment rate to “just” 15 per cent today.
Latvia is not a model for austerity in Greece or anywhere else. Both the impression that neoliberal policy has been a success and the claim that Latvians have voted to support this failed model are incorrect.
Latvia’s one year of solid economic growth since its economy plunged by 25 per cent in 2008-10 is billed as a success. Then, unemployment soared above 20 per cent as the shutdown of foreign capital inflows (mainly Swedish mortgage loans to inflate its real estate bubble) left Latvia with a deep current-account deficit. It had to choose between devaluation or maintaining the euro peg.
It chose the latter in order to proceed towards euro accession. To meet the eurozone criteria it cut public sector wages by 30 per cent, driving down overall wage levels and consumption to match its low labour productivity. The doctrine was that this shock therapy and poverty would soon restore prosperity.
What enabled Latvia to survive the crisis were EU and IMF bailouts – whose repayments will soon fall due. Relatively low public sector debt (9 per cent of gross domestic product at the start of the crisis) also provided some protection from bond traders. Latvia’s problem was mostly private sector debt, especially mortgage debt, which is secured not only by property but by the personal liability of entire families of joint signatories. The bank insurance agency insisted on this measure as it saw unaffordable housing prices being inflated by reckless bank lending. (Its job was to protect the banks, not the economy.)
The resulting austerity programme is anything but popular. Latvia’s parliament often polls approval ratings in the single-digits. Yet the government has survived two elections. How is one to read this?
Chiefly by ethnic politics. The biggest party opposing the austerity programme (Harmony Centre) largely represents ethnic Russians and had no chance of winning given its focus on rights for Russian speakers. The smaller parties run by post-Soviet oligarchs also are seen as being in league with Russia and are widely resented for fiscal imprudence during the boom years, when oligarch-controlled parties were part of the governing coalition. So the only political force left is the “austerians”. While most voters dislike their economic policy, a majority are convinced that they are best able to resist Russia’s embrace. All other issues come a distant second for Latvian voters.
That said, Latvians have protested against austerity. In January 2009, in the dead of winter, 10,000 protested in Riga. Teachers, nurses and farmers held demonstrations of their own. The police were called to suppress protests over the closure of a hospital. After these protests subsided, Latvians resigned themselves and began to emigrate. Demographers estimate that 200,000 have left in the past decade – nearly 10 per cent of the population – at an accelerating rate that reflects the austerity being inflicted.
Why have so many left Latvia if it is such an economic success, with such popular support for austerity as the advocates claim? Birth rates fell during the crisis – as is the case almost everywhere austerity programmes are imposed. Only now is Latvia seeing the social effects of austerity. It has among Europe’s highest rates of suicide and of road deaths caused by drink driving. Crime is high because of prolonged unemployment and police budget cuts. There is less accessible, lower-quality education and there is a soaring brain drain alongside blue-collar emigration.
The moral for Europeans is that a Latvian economic and political model can work only temporarily, and only in a country with a population small enough (a few million) for other nations to absorb émigrés seeking employment abroad. Such a country should be willing to have its population decline, especially its prime working-age cohort. In Greece, this could only worsen an already serious demographic challenge.
Politically, it helps to be a post-Soviet economy with a fully flexible, poorly unionised labour force. Above all, the population needs to put an almost blind faith in “free market” central planners. Ethnic divisions can distract voters from complaints against austerity. Only under these political conditions can austerity be considered a “success”.


And from economists/bloggers who actually produce data (gasp!) to back up their opinions:
When Latvia's economy has grown another 17.5% in real terms it will be back to where it was before the Americans pulled the rug from under their feet.
(But then David is a fan of wishy washy old Tom Friedman so why wouldn't he swallow the Fox News version of history)

Laurence  Kotlikoff has some insightful ideas on how the Banks actually operate.
His solution is limited purpose banking where there is credit expansion from the Reserve bank but no leverage from Banks. This stops Bank runs because the money is always there. The days where a Banker takes in a dollar and lend out 30 are gone.
Talks about fraud and corruption in the Banking system a lot.
"Until we get fraud out of it, it won't be safe"
"Whats going on is fundamentally fraud"
"Whats really radical is mainting the status quo"
His ideas are supported by lots of well known figures. eg Mervin King, Martin Wolf, former Treasury Secretary George Shultz and economist Jeff Sachs

Sacrilege, we should take you out and hang you.

Regards LIBOR:
PNCC has forecast term liabilities of $145 million as of the 1st of July 2012, and is intending to increase that by up to another $10 million over the current year.
Council is assuming the additional borrowing to have an average interest rate of 7.1%, and appears to happy with that. PNCC uses interest rate swaps, and I believe Asia Pacific Risk Management for financial advice. 

Its a long time since I saw a loan agreement with the interest rate quoted as a margin over LIBOR but I gather they are still widespread including among local authorities if i take Colin's meaning.
Does David Chaston's comment mean our banks offshore funding is priced this way? Sorry to appear dumb but I am a long way out of this loop now. It would be helpful if someone who does know could provide an estimate of how much NZ debt is affected by this rort and what the cost to New Zealanders has been.
This must be the biggest heist in history. Surely someone has to go to jail. Not getting a bonus seems a bit inadequate.

PNCC is hardly forthcoming on details so I don't know if LIBOR is involved. But it appeears the city may be paying through the nose and should perhaps be taking better financial advice.

Re 2:
A few small problems with this rich boys plan.
Prices are set at the margins, likely only a small percentage of holders of Greek debt can or will sell at 12c in the dollar. A lot of this debt is held on the balance sheets of European Banks, probably at par. If they sell at 12c they are insolvent.
Some has been traded to the ECB under LTRO, is the ECB suddenly going to let Greece off the hook for 12c in the dollar?
If holders of the debt would accept 12c then Greece may as well default and restructure now.

re9 - how about asking a physics expert?
GDP is a nonsense measure, and some of the 'efficiencies' will be virtual accounting included in GDP.
Electric cars in Australia - and it's been mentioned here before - are 70% coal cars. That's what you get when your grid is 70% coal-fired. Odd, I know, but what you get out of the plug, is actually what goes in. Sorry, economists, that concept will be a bit beyond you lot....  :)

A little education  for those who select content.
For whoever posted that 'Harvard' (think-tank clinging to respected name, more like) piece. DC?

understating it a bit there PDK. Closer to 80%. VIC = brown coal emissions mainly water and Co2, while NSW, QLD, WA = black coal, emissions = acid rain, nitrous particulates and Co2

Chuckle - well pointed out.
What gets me, is the failure to connect the dots.
These folk just go "electric cars" and stop thinking. No big picture, no thinking of relation to other paradigms. It has to be a gene which the majority don't have, and it obviously wasn't needed in simple fight/flight scenarios, or it would be endemic. One presumes that cranial grasp of things exponential wasn't needed - odd given that predator and prey must have accelerated, and that their lives must have relied on judging the relative rates of same.....

Holders of Mr Buy-up-the-debt's Debt, include a bunch of Greek pension funds.
And they very likely haven't marked it to market.  So, if his actions crystallise the value, and the auditors have an epiphany and demand some reality, their balance sheets are gonna looka leetle thin.
Devil's in the details, folks.