Wednesday's Top 10 with NZ Mint: The fig leaf of Open Bank Resolution; 'Shut down or break up JP Morgan Chase'; The sneaky use of Salt, Sugar and Fat; Dilbert

Here's my Top 10 links from around the Internet at 10 am 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 #5 on Salt, Sugar and Fat. One for all in Fonterra to read. 

1. The fig leaf of Open Bank Resolution - It's great to see the Greens have managed to launch Open Bank Resolution (OBR) as a policy issue above the radar into the full spotlight of a political debate.

Gareth, David and I have been beavering away for a couple of years now reporting and commenting on the issues around OBR without getting much traction.

Now I'm in the Press Gallery it's interesting to see how these stories bubble away in the nether regions and then break out. The Greens leapt on the Cyprus haircut and it worked. 

Suddenly, the Press Gallery were interested. Hence the coverage last night and today.

I've explained what I think of OBR before (November 4) but here we go again.

OBR is a figleaf for the government and the banks to pretend there would not be a government bailout in the event one of the big four failed.

There is no way a New Zealand Prime Minister is going to stand up in the Beehive Theatrette and announce the savings of New Zealand Mum and Dad depositors in one of the big four banks was going to be used to recapitalise that bank. That is not a haircut. That is a political death sentence and would of course start runs on the other three banks. 

Our banking system is way too concentrated to allow for such a thing to be contained.

The OBR is a way for the banks and the government to pretend there is no taxpayer subsidy. Of course there is and it should be accounted for with a deposit insurance scheme. It would cost banks and depositers some money, but that would at least offset the cost over time of a taxpayer bailout. 

2. And the fudging begins... - Here's John Key explaining why OBR is better than a deposit insurance scheme: he thinks OBR would never be needed and is cheaper than a deposit insurance scheme.

Key is essentially betting a bank will never fail in New Zealand and he's using taxpayer money in the future to fund that bet.

Here's Key in this NZ Herald article:

Prime Minister John Key said the OBR policy was a "last-resort facility" and when told that few people seemed to know about it he responded that it was unlikely to be used.

"The basic principle is, what would you do in the event of a catastrophe, how would you recapitalise the bank and it's reasonable logic to say that is one way through that.

"This is really in the event a bank was in such a terrible mess that it fell over and had to start again," he said.

When asked about deposit insurance, Mr Key said there were significant costs involved. "The argument is it is so unlikely to happen that this is a cheaper way through it."

3. 'Why JP Morgan Chase should be shut down' - Les Leopold writes here at HuffPo about a damning US senate report into JP Morgan Chase.

By the way. JP Morgan Chase is registered as a New Zealand bank.

Here's Leopold:

If you want more evidence that JP Morgan Chase is closer to a criminal enterprise than a economically useful bank, then read the report from the Senate's Permanent Subcommittee on Investigations, JP Morgan Chase Wale Trades: A Case History of Derivatives Risks and Abuses. It shows in high definition how this mega-bank, touted as the best managed bank on Wall Street, repeatedly lied and dissembled to regulators and investigators.

We see a federally insured bank gambling recklessly in clear violation of the letter and spirit of the law. Although it was not the committee's intent, the report makes an overwhelming case that JP Morgan Chase it is far too big to regulate or even manage. That points us to only one sane and rational response -- shut it down.

4. The snakes are back in Ireland - The New York Times has this fun report on how many of the nouveau riche in Ireland bought pet snakes during the boom times.

Now the boom is over they have abandoned their snakes, which have escaped into the prevously snake-less countryside of Ireland.

A California king snake was found late last year in a vacant store in Dublin, a 15-foot python turned up in a garden in Mullingar, a corn snake was found in a trash bin in Clondalkin in South Dublin, and an aggressive rat snake was kept in a shed in County Meath, northwest of Dublin, an area dotted with sprawling houses built during the boom.

“The recession is the thing that’s absolutely causing this,” said Kevin Cunningham, a 37-year-old animal lover who started the National Exotic Animal Sanctuary after he left his job at a Dublin nightclub. He has transformed an old single-room schoolhouse near Ballivor, a hamlet in the Meath countryside, into a reptile sanctuary.

5. I hope Fonterra reads this book - This is a new New York Times best seller by Michael Moss called Salt Sugar Fat. Moss exposed the Pink Slime problem.

Fonterra is pursuing an 'ingredients' strategy. Food companies tweak their products with many ingredients, including those from Fonterra, to get to the 'bliss point'.

“Salt Sugar Fat” is not “Pink Slime: The Book,” in that it is not a shocking exposé. We already know that its title subjects exist andare bad for us. As Jeffrey Dunn, a former Coca-Cola executive, tells Moss of the highly sugared beverage he used to sell: “It’s not like there’s a smoking gun. The gun is right there. It’s not hidden.”

But “Salt Sugar Fat” continues Moss’s hot streak of ace reportage, chronicling the insidious ways in which big food companies, over time, have sneaked more and more of the bad stuff into our diets, to the point where we now consume 22 teaspoons of sugar a day and three times as much cheese as our forebears did in 1970. Supersizing, the bête noire of Morgan Spurlock and Michael Bloomberg, is only part of it. Moss visits with neuroscientists whose M.R.I.’s of test subjects demonstrate how the brain’s so-called pleasure centers light up when the subjects are dosed with solutions of sugar or fat. He then describes how consultants and food scientists calibrate products — “optimize” them, in industry-speak — to maximize cravings.

Virtually everything you can buy in a supermarket that’s not an outer-aisle pure food like milk or kohlrabi has been fiddled with to make you shiver with bliss — which will in turn make you buy the product again and again. The term “bliss point,” in fact, is used in the soft-drink business to denote the optimal level of sugar at which the beverage is most pleasing to the consumer. As a manufacturer, you don’t want to surpass or come up short of the bliss point because you’ll lose sales. By the same token, you want to locate the lower end of the bliss-point spectrum (and it is a spectrum, rather than a fixed point), because otherwise you’re just wasting money on unneeded sugar.

6. It's great to see Xero doing so well - I'm a customer and I hope it takes over the world. Here's a good interview Rod Drury did with Andrew Patterson on his Sunday Business show on Radio Live over the weekend. Drury criticises the government's apparent lack of support for services export drive 

It's the same old problem. Government is doubling down on dairy, which reduces the diversity of our income streams and therefore increases the risks.

7. Useful chart - This chart courtesy of Zerohedge shows how much depositors in various countries would need to be 'haircut' to rescue their banks. It's a near wipeout in many.

8. Money laundering - We should be thinking a lot about money laundering now as waves of freshly printed cash cascade around the globe and as governments embark on a rolling series of crackdowns on tax havens and lax banks.

Here's an Atlantic article on how one Chinese company laundered millions of dollars through slot machines in Las Vegas.

 

In a December 31 filing with the New York Southern District Bankruptcy Court, the Hong-Kong based liquidation firm, Borrelli Walsh, alleged that instead of being invested in China Medical, hundreds of millions of dollars that the company raised were "funneled to Wu [Xiaodong, its CEO] and his associates, including [Jenny] Bi [Xiaoqiong, his wife]." According to the filing, Wu gave Bi over $26 million between 2005-2010.

According to information that two of China Medical's creditors shared with Quartz -- and which they say they also got from the liquidators -- Bi put $62 million through slot machines at the Bellagio casino in Las Vegas between 2008 and 2012. Another source separately confirmed that the casino's records do show Bi's $62 million slot machine spend in that time period.

9. Why so few marriages - The Atlantic looks at the economic drivers behind why two in five all babies born in America are now born out of wedlock.

This is a complex economic mystery that we've explored often at The Atlantic, but we can take a big bite out of it by focusing on three factors: (1) The changing meaning of marriage in America; (2) declining wages for low-skill men; and (3) the declining costs of being a single person.

10. Totally Jon Stewart on political gaffes.

 

(Updated with lost links to #8,9,10) My apologies. Stuck in poor reception area.