Wednesday's Top 10 with NZ Mint: Monster money laundering settlements a cost of doing business for Too Big To Fail banks; Australia's 'Mortgage miracles' sub-prime mortgage scandal; 'China land prices may fall 80%,' says Xie; Dilbert

Here's my Top 10 links from around the Internet at 11.30 am today in association with NZ Mint.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is #4 from Andy Xie about what's really happening in the Chinese economy. I hope someone in the New Zealand government reads it. Currently a Chinese rebound is New Zealand's Plan A. We might need a Plan B.

1. Just a cost of doing business - Another day, another big bank settlement.

Standard Chartered has just paid US$340 million to make allegations go away that it helped launder US$250 billion of Iranian money.

This follows regular settlements by banks over various misdemeanors that allowed them to make astonishingly high profits.

I just don't get it.

Anyone else who commits a crime can't just pay over a bunch of other people's money to make a crime go away and avoid punishment.

Why should banks? So the executives who committed the crimes get off and keep their bonuses from the wrong-doing while shareholders foot the bill. Although, the cynics would say, shareholders may view these settlements as just another cost of doing business to keep the profits flowing.

Here's Bloomberg with the details:

The settlement amount is the largest ever paid to an individual regulator as part of a money laundering accord. In June, ING Bank NV agreed to pay US$619 million to settle similar allegations. That sum was split evenly between a US$309.5 million payment to the federal government and an equal sum to the Manhattan District Attorney’s office.

And here's Reuters.

In the end, Lawsky's office won a settlement that was on par with fines paid by a handful of other banks that had improperly done business with sanctioned states such as Iran and Cuba. In 2010, Barclays Plc paid $298 million to settle a U.S. probe.

Lloyds Banking Group and Credit Suisse Group have previously agreed to pay settlements of US$350 million and US$536 million, respectively. ING Bank NV also paid a settlement. HSBC Holdings Plc currently is under investigation by U.S. law enforcement, according to bank regulatory filings.

2. Australia's sub-prime mortgage scandal - You couldn't make this stuff up. The woman behind Western Australia's mortgage broker of the year for 2007, Mortgage Miracles, has spilled the beans in an exposé on ABC's 7.30 report.

Kate Thompson, who is being prosecuted for fraud, explained how she inflated incomes and assets for 'low doc' loans. HT Leith at Macrobusiness

"I would get upfront commission, I would get a trailing commission. I was probably earning about $5 million a year. It was great. It was wonderful. But it was all a lie," she said. But she was not alone.

"Hook me up to a lie detector test and hook them up. I'll lay my evidence on the table. They will fail a lie detector test miserably. They are corrupt. They are protecting each other," Ms Thompson said.

Along with similar claims before a parliamentary inquiry in Canberra last week, her evidence has the potential to rock the finance industry.

"Through a series of emails from banks to brokers how to get their deals across the line, make the deal fit. They targeted older people, people on carers allowance, age pensions," Denise Brailey, from the Banking and Finance Consumers Support Association, told the inquiry. The evidence suggests that banks and other lenders tacitly encouraged mortgage brokers en masse to make up fictitious stories about customers so they could get loans and to falsify their income.

3. How to get a 5% mortgage - Campbell Hastie from mortgage broking outfit Go2Guys.co.nz writes here on his blog about how banks in New Zealand are making it easier for first home borrowers to buy a house without saving any money.

One lender we deal with has made a slight change so that your deposit can be a gift of 5%, no need to have saved it yourself. This opens the door to more first home buyers who may be saving but not getting far very fast. If mum and dad can help their kids out by writing a cheque then they’re away. I realise a willing benefactor with a fat enough bank account could be difficult to find, still the option is there. Gifted deposits are widely accepted but as you’re not demonstrating a record of savings yourself they always need to be big (like 20%) to give the bank the comfort it needs. So what’s significant about this change is that the requirement to demonstrate good behaviour has been watered down a little as a way to attract some of the demand that is obviously floating around from the first time punter.

Another lender we deal with has changed their affordability formula which is also interesting. I won’t bother you with the detail but basically they don’t require as much surplus income after outgoings as before. For some borrowers it could mean a big improvement in their ability to get on the ladder in the first place because a dollar of income will buy a bit more loan. For others it could mean the houses that were just out of reach are back on the radar.

4. What's really going on in China - Here's Andy Xie at MarketWatch explaining why he thinks land prices may fall 80% in most Chinese cities.

He says there's a risk China will try to devalue away the problem. Is New Zealand ready for that?

China’s land market will experience a dramatic adjustment ahead. In most cities, land prices may fall by 80%. The financial consequences will be severe. Most bank loans are backed up directly or indirectly by land. If land prices fall so much, the banking system would suffer a crippling level of bad loans.

Local governments increased their spending appetite during the heyday of land sales. They will have a difficult time adjusting to the new reality. Their struggle to source new revenues will be the main reason for social instability ahead.

The government may face the choice between devaluation and collapse of land prices. I still believe, as I did last year, that China won’t devalue. However, the temptation for decision-makers must be very high at some point. Devaluation essentially spreads the cost of a bubble bursting among people, which saves powerful vested interests.

In addition to the bubble bursting, the looming prospect of a declining population may trap China’s property market in a permanent bear market like in Japan. Three decades of one-child policy have laid the seeds for a dramatic decline in property demand. This force follows a period of dramatic overbuilding. The overhang of empty properties will haunt China’s economy for a decade or longer.

5. China's grey income - Andy Xie also writes this startling description of how wealth is generated in China. Are we in New Zealand so confident about the sources of income behind Chinese companies and individuals who buy assets here? Maurice Williamson is completely convinced about the legitimacy of Shanghai Pengxin in Alex Tarrant's story here.

The discussions over inequality are misconstrued as rich vs. poor, as in other countries. This is totally wrong. It should be about asset bubbles, excessive monetary growth, the excessively big government role in the economy and the resulting surging gray income.

There is a widely circulated view that Chinese people hate the rich. This is totally wrong, too. It is not about who is rich, but about how one becomes rich. Chinese people suspect that most riches in China are ill gotten. Unfortunately, this view is true. With widespread excess capacity, few entrepreneurs can get rich through normal market competition.

Many entrepreneurs have given up on gaining wealth from normal business activities. Instead, they rely on cultivating special relationships with government agencies or state-owned enterprises to gain special advantages. Or they use illicit means to gain bank credit for speculation.

Special favors from the government and speculation with other people’s money are the most important sources of wealth. It is for this reason that Chinese people view wealth unfavorably.

8. A threesome in Nanjing - Bill Bishop's Sinocism points out Caixin Online has gone in depth into the corruption around disgraced Chinese Railway Minister Liu Zhijun, including details of some nefarious activity in a five star hotel in Nanjing.

The cover story of this week’s Caixin goes deep into the corruption of former Raliways Minister Liu Zhijun. The first paragraph makes it sound like the police sent by Beijing to arrest him may have interrupted Liu in the middle of a threesome at a 5-star Nanjing hotel.

7. A Fannie Mae for Britain? - The FT.com reports the Tory/LibDem coalition government is considering a package of measures to boost house building in Britain, including removing requirements on private developers to build affordable housing and guaranteeing bonds for housing associations.

Under the Letwin plan, housing associations and private housebuilders would have to “sit around the table” and agree to work together on large sites.

Housing associations were able to borrow cheaply from banks before 2008, but have since seen a squeeze on their finances with many facing expensive refinancings. They are instead turning to the bond market, where they have raised over £3bn already this year.

Ministers believe that a state guarantee on such bonds would make them even cheaper, allowing housing associations to build affordable housing on private developers’ sites.

8. Land Tax in China? - Again HT to Bill Bishop for pointing out Credit Suisse research saying China has decided to introduce a Residential Property Tax to try to slow down its housing market. Yikes.

China has decided to extend the holding tax for commercial properties to investment purpose residential ones, to avoid legislation issues for implementing a new property tax. Several industry experts, including those that we brought to meet investors recently, believe that the property tax could cause China’s residential property prices to drop 40% or more. In our opinion, however, property tax is just one component of China’s property policies – it should not crash the property market and its upcoming implementation could actually signal a bottoming in China’s property sector.

We expect it to cool the sentiment in the near term for investment and speculation in the property market, but property tax by itself cannot solve the housing issue. The Ministry of Human Resources and Social Security’s proposal to double average wages in China within five years, if approved and implemented, should improve the affordability ratio significantly.

9. Couldn't resist - I enjoyed Mo Farah winning gold for Britain in the 5k and 10k on the track at the Olympics. Here's a tribute site called 'Mo running away from things', courtesty of Tumblr and our old friend Photoshop. Click here for more.

10. Totally Clarke and Dawe on the Olympics. John Clarke says Australia is a sailing nation and there might be some more government funding for Australia's swimming programme.