Top 10 at 10: Litigation funder created; 'Fiscal ruin beckons'; Philadelphia bankrupt; Dilberts (Update 1)

Here's my top 10 links from around the Internet at 10 am. I welcome your additions in the comments below and please suggest any links for tomorrow's Top 10 at 10 via email to bernard.hickey@interest.co.nz I don't make sheep noises (Updated to include Westpac contesting Rob Stock's story on mortgage fraud) 1. Rob Stock at the Sunday Star Times has details of the High Court decision against the BNZ in the structured finance tax case, including signs that BNZ knew their tax rate of 20-25% in the years in question may have been too low to be 'acceptable'.Here's the link here to the story titled 'Is my tax too small in this'. I think the banks should strike a deal with the government and pay back the NZ$2 billion now. A backlash is building.

2. Rob Stock also has an opinion piece on a case at Westpac of mortgage fraud where Westpac tried to sell a house where the owner had no idea someone had fraudulently obtained a mortgage against the house. Here's a link to the article titled: "Bank tactics laughable, chilling'.

For such a relatively small amount of money, it seems amazing that Westpac was willing to show such a frightening face to its customers.

Update: Westpac said it had not tried to sell the house in question and contested Rob Stock's article. Here is a link to a full background piece on this case. 3. The Sunday Star Times reported that the Westpac worker that mistakenly allowed Rotorua man Leo Gao to have NZ$10 million expects to be sacked this week. Here's the link to the article. 4. Here's my column in the Herald on Sunday in which I say the Reserve Bank needs to find a way to make property lending appear more risky for banks and reduce the cross subsidy between business and housing lending.

Alan Bollard must address a couple of pressure points in the banking system if he is to break this addiction to property and aversion to business lending. Somehow, he must convince the banks to view property as more risky than is perceived. Somehow, he must convince them to lower their business lending rates and raise their mortgage lending rates to remove the effective cross-subsidy. Somehow he needs them to better train their business bankers to know how to price risk in businesses. Something has to change or the bubble history will repeat.

5. Brian Gaynor in the NZHerald picks up on the launch of a litigation funding operation called LPF group, which looks a positive move for smaller finance company investors who want to band together to sue for compensation and damages. Brian thinks it could solve a lot of things. I'm not so sure it's a silver bullet, but anything that puts the fear of god (or at least losing money) into the minds of directors is a good thing.

There are a number of recent circumstances, including Hanover, Bridgecorp, Blue Chip, the ING income funds, Vestar, Feltex and Tranz Rail, where litigation funding would have been welcomed by investors. Litigation funding would give investors an alternative option to moratoriums or payout deals that essentially exclude them from taking any legal action. A strong funder may also encourage quicker resolutions to disputes as defendants settle out of court to avoid long and costly proceedings. A successful and proactive litigation fund sector could have a positive impact on corporate governance in New Zealand and encourage investors to become less reliant on residential housing and have a higher percentage of their wealth in financial assets.

6. Fund manager Andy Kessler talks some sense in the WSJ's op-ed section about how the US Federal Reserve has 'become the market'. He essentially says all the stimulus from the US Federal Reserve and the Treasury has simply held up the market and not fixed the basic problems.

What really bothers the market is that the structural problems that got us into trouble in the first place still exist. We took the easy way out and, with the help of Treasury Secretary Tim Geithner's loose "stress tests," swept banking problems under the carpet. We waved off mark-to-market accounting and juiced bank stock prices to help them recapitalize, but all those toxic mortgage assets on bank balance sheets are still there as anchors on lending. All the pump priming and stock market flows didn't get rid of them. Hats off to Mr. Bernanke for getting the worst behind us. He'll be pressured politically to keep pumping out dollars, but he should resist the urge. The stock market will ignore his dollars if it doesn't believe they'll turn into real profits. Green jobs and government health-care clerks do not make a productive, sustainable economy. That can only come from innovative companies with access to growth capital. The stock market won't turn bullish until it sees that type of economy. Again, when it's clear that you are the market you have to stop buying and begin tackling the hard stuff. By not restructuring banks, by not getting bad loans off bank balance sheets, by not standing up to the massive increases in government debt crowding out private capital, the Fed and Treasury are holding back real economic growth.

7. And I thought I was downbeat. Ambrose Evans Pritchard at The Daily Telegraph writes an epic warning about how the Fiscal Ruin of the Western World beckons, pointing to the savage cuts happening in Ireland where the market has lost faith in its ability to service its debt.

The imperative for the debt-bloated West is to cut spending systematically for year after year, off-setting the deflationary effect with monetary stimulus. This is the only mix that can save us. My awful fear is that we will do exactly the opposite, incubating yet another crisis this autumn, to which we will respond with yet further spending. This is the road to ruin.

8. Tyler Durden Zerohedge has a gallop around the balance sheets of the Fed, the Bank of England the European Central Bank and concludes the Eurozone is losing in a competitive game of a money printing-led devaluation.

Ironically the more pressured Europe is to take up America's and Britain's economic slack, the more pronounced will be the pressure on Europe, both fiscally and monetarily, resulting in yet another eventual round of liquidity swap bail outs (and that is without even mentioning the "Eastern European Question"). But for now America is happy (the dollar is getting pillaged) and a disorganized Eurozone is dropping deeper into deflationary chaos.

9. Mish at GlobalEconomicAnalysis makes the point that many Americans on unemployment are due to start losing those payments soon when they expire. Obama has already extended it twice. Mish thinks it will be 1.5 million without income by the end of the year.

What are the odds Obama creates 1.5 million jobs by the end of the year? I suggest the answer is zero.

10. CIT, America's biggest small business lender, appears to have dodged the bullet. The WSJ is reporting it has struck a deal with its bondholders to survive, the WSJ.com reported. 10 (bonus!) Philadelphia, America's 6th largest city, has stopped paying its bills, joining California, the WSJ reported. This municipal and state crisis are now turning very ugly, threatening to undo any benefits of Stimulus 1.0.