Top 10 at 10; Student loans next bubble?; UN wants new global central bank; Cupcake bubble

Here are my Top 10 links from around the Internet at 10am. I welcome your additions and insight in the comments below or please send suggestions for Wednesday's Top 10 at 10 to bernard.hickey@interest.co.nz Apologies but there is no Dilbert today because the Dilbert site is not showing any fresh strips. 1. It had to happen. The United Nations has called for the creation of a global central bank and a new global currency to protect emerging nations, Bloomberg reported. Can anyone imagine what a UN central bank would look like. Would Zimbabwe's Gideon Gono eventually get a turn to run it? HT Ross Palmer via email.

UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report. China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world's largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund's special drawing rights, or SDRs, may add stability. "There's a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management," Heiner Flassbeck, co-author of the report and a UNCTAD director, said in an interview from Geneva. "An initiative equivalent to Bretton Woods or the European Monetary System is needed."

2. Rolfe Winkler at Reuters points to the potential for another bubble in US student debt, which jumped 25% last year to US$75.1 billion. Do we have the same problem here? The government pays the interest cost and fees keep rising. Is the extra cost worth the extra benefit?

But the extra credit isn't benefiting students. It's just inflating the price of their education, burying them under a bigger pile of debt despite stagnant wage growth and poorer employment prospects. This is eerily reminiscent of the housing bubble, when too easy credit inflated the price of houses well beyond their fundamental value. What is the fundamental value of a house? Roughly speaking, it is what a buyer can pay for it, some portion of his income plus what he can borrow. Historically, the increase in house prices has tracked income growth. But excessively easy credit disrupted this relationship over the past several years. A similar dynamic is playing out in the market for college education. A college degree can be valued by the incremental earning power that it can provide over a working lifetime. In other words, how much more will you make if you go to college than if you don't? Are those extra earnings enough to pay back your loans with interest, along with the opportunity cost of forgoing full-time wages while you're a student? A common misconception is that a college degree is worth a million dollars over the average working lifetime. But a paper published late last year by the National Association of State Universities and Land Grant Colleges pegs the value at close to a tenth of that, $121,539.

3. This is an interesting discussion over at the Mises blog (very Austrian view of the world) about whether a central bank can go bankrupt. Essentially, a central bank is fine as long as the nation's debts are denominated in local currency. So America is alright because it can use its reserve currency to keep printing, until it is no longer the reserve currency...

The possibility of an insolvent central bank, however, bypasses the question of whether the central bank should be abolished and concludes that it will, in certain instances, abolish itself as insolvency renders it helpless. Banking systems heavily indebted in foreign-denominated currencies are especially vulnerable to this possibility, simply because central banks are only able to bailout domestically denominated debt obligations.

4. Here's another way to view credit rating agencies. According to the Washington Blog, they are a lot like art authenticators who take bribes to certify works of art as real.

[Former Federal Reserve attorney and economist Walker] Todd: Right. They also drop the ball. I've been around failing banks and financial crises since 1974, and the rating agencies have dropped the ball almost every time. They were always at best late to the party. Mayer: John Heimann [former comptroller of the currency] used to say that the function of the ratings agency is to go on the battlefield after the battle is over and shoot the wounded.

5. The anniversary of the collapse of Lehman Bros is coming up. A Reuters reporter tramped out to Lehman boss Dick Fuld's mountain retreat to see how he's holding up. He appears unrepentant and bitter about not being bailed out like the rest.

"You know what? The anniversary's coming up," he said. "I've been pummeled, I've been dumped on, and it's all going to happen again. I can handle it. You know what, let them line up." Fuld again emphasized his concern about what will be said and written about him in the days leading up to the September 15 anniversary of the Lehman collapse but also stressed his ability to see it through. "They're looking for someone to dump on right now, and that's me," Fuld lamented and later added: "You know what they say? 'This too shall pass.'"

6. Now there is a cupcake bubble. There has been a proliferation of cupcake stores in America since 2007, according to this article in Slate. It rings true. We have a new cupcake shop that has opened on our street in Herne Bay. Why would you buy a cupcake when our cafes (not Starbucks) have such good food.

The trend started, as most trends do, in Los Angeles and New York. In Los Angeles, Sprinkles, which bills itself as the first cupcake bakery, has expanded from its base in Beverly Hills tofive locations in California, Texas, and Arizona"”with 16 more outlets in the works. Crumbs, started six years ago on Manhattan's Upper West Side, is up to nearly two dozen locations: five in Los Angeles, and 18 in chi-chi zones of the New York metro area"”New Canaan, Conn.; Westfield, N.J.; East Hampton, N.Y."”with three more on the way. Magnolia Bakery, immortalized in Sex and the City, has three locations in Manhattan. Washington, D.C., is getting in on the act, too. As the Washington Post notes, "at least half a dozen cupcake bakeries have opened around Washington in the past 20 months, and more are on the way," with Georgetown Cupcake and Red Velvet out front.

7. One sixth of all construction loans are in trouble in the United States, the New York Times reports. This will hit the smaller banks that are not too big to fail.

Reports filed by banks with the Federal Deposit Insurance Corporationindicate that at the end of June about one-sixth of all construction loans were in trouble. With more than half a trillion dollars in such loans outstanding, that represents a source of major losses for banks. Construction loans were highly attractive in recent years for many banks, particularly smaller ones without a national presence. One reason was that other types of loans were not easy to make. A handful of big banks came to dominate credit card loans, for example, and corporate loans were often turned into securities. Construction loans, however, needed local expertise and were not easy to standardize. In a booming real estate market, there were few losses on such loans.

8. The Cayman Islands, which was the world's biggest hedge fund venue and fifth biggest banking centre, is about to go bankrupt and may even -- quelle horreur -- have to impose taxes, FTAlphaville points out. 9. Quantitative easing in the UK is failing because banks are hoarding cash at their Bank of England accounts, FTAlphaville points out. The raises the prospect of banks being charged negative interest rates on these accounts to get things moving.

QE galore in the UK, and yet banks are reportedly still failing to pass on the extra liquidity. A recent report by Investec pointed out commercial banks were holding some £138bn on account at the Bank of England. So does that indicate QE might be failing? Popular opinion would suggest yes, at least to a degree. For one, the debate has increasingly turned to whether the Bank might be forced to apply punitive rates on banks' excessive reserves to boost lending "” a notion no doubt encouraged by Mervyn King's comments on August 12. When asked if the Bank would consider Sweden's example of paying negative interest rates on reserve deposits, King replied the BoE "˜would certainly be looking at' the idea.

10. This is another sign of a grim US economy. The Hilton in Portland Oregon has decided to shut the entire 23 floor hotel for four weeks in the US winter because of a lack of bookings, The Oregonian reported.

The Hilton, Oregon's biggest hotel, is staring down a still struggling economy and deep cuts in corporate travel. "It's one of the more challenging markets we've seen nationally," said Elaine Sahlins a senior vice president at hotel consulting firm HVS San Francisco. Hotel occupancy in the central city was 85 percent in July, down from 87 percent in the same month a year earlier, said Jeff Miller, president of Travel Portland. Miller said the decline in occupancy was relatively small in part due to the national Elks convention. But the average room rate in July was $125 compared to $146 a year ago. The revenue per available room -- a key industry measure -- was down nearly 17 percent in July from the same month last year. That falls at the low end of markets across the country. Sahlins said revenue per available room is down between 15 percent to 25 percent in U.S. markets, Sahlins said.