Top 10 at 10: Gaynor questions Hubbard; US house prices to halve; Goldman Black Box revealed; Dilberts

Here's my Top 10 links from around the Internet at 10 am. I welcome your additions and comments in the comments below. Please send any suggestions for Tuesday's Top 10 at 10 to bernard.hickey@interest.co.nz I'm not working out and our best practices are quite good. 1. Brian Gaynor at NZHerald has put his column's blowtorch on South Canterbury Finance and asks some pointed questions. The full article is well worth clicking through to, but here is a taste.

SCF has survived the finance company meltdown but there are a number of important questions that need to be answered: * Why has it lent so aggressively during the recession, particularly to the property sector? Why has it not improved its reporting and disclosure standards, particularly as investors are now demanding higher standards? * Why has there been a dramatic rise in related party loans when these advances are now considered to be inappropriate? * Why is the company buying farms from related parties? * Why hasn't the board been freshened up with younger and more independent directors? The good points about SCF are that it had $322.5 million of cash and cash equivalents at the end of December, Hubbard has injected $40 million of new capital and he is prepared to underwrite any further loan losses. No other finance company has had a major shareholder with such deep pockets who was prepared to support their company. However, he also has to address the issue that SCF's total assets have grown from $0.4 billion to $2.2 billion since June 2000 but its disclosure, corporate governance structure and related party rules are more appropriate to a small 1970s company. These issues will also have to be addressed before full confidence in the company is restored.

2. It seems another major bank collapse is brewing in the United States. CIT, the nation's largest small business lender with over US$70 billion in loans to over one million businesses, is being refused support by the Federal Deposit Insurance Corp (FDIC) because it isn't safe enough. The WSJ.com reported it is close to filing for bankruptcy. Bloomberg reported the FDIC was refusing to stump up a guarantee. 3. The underground movement in America to rein in or even destroy the US Federal Reserve is gaining momentum. The HR1207 'Audit the Fed' law is before Congress and now a bunch of representatives have written a letter demanding Barack Obama star an investigation into whether the Fed has overstepped its boundaries, Tyler Durden at Zero Hedge points out. 4. This is a very cool interactive chart in the New York Times showing what's happening with retail sales in the major chain stores. Something fundamental has changed with consumer behaviour over there. 5. This is an interesting piece in The Australian about Brian Johnson, the top-ranked former JP Morgan banking analyst in Australia who is now with CLSA. The newspaper reckons he loves Macquarie just a little too much, but is not in love with the big four banks.

In his first big publication on the Australian banking sector in his new role as chief banking analyst for Hong Kong-based and French-backed securities house CLSA, Johnson delivered a cautious outlook for the big four banks, including a sell on Commonwealth Bank shares and an underperform on ANZ Bank, NAB and Westpac. Johnson's 200-page report, which warns that the big four banks face serious headwinds in the form of higher loan losses, limited opportunity to grow, higher expenses and rising cost of funds, has been well-read around the fund management community in Australia and Asia. He sees the big four banks as caught between the closing jaws of a giant tyrannosaurus rex -- slowing revenues and rising costs.  The report argues that Macquarie is cashed-up and well-placed to take advantage of the financial crisis.

6. This row between Australia and China over the Rio Tinto negotiator accused of espionage is getting ugly, Mark Dodd and Glenda Corporaal report in the Australian. It's one for us to watch given the lucky country's dependence on China buying its minerals and Australia being our largest trading partner by a mile.

AUSTRALIA is directly challenging China's claims of espionage against detained iron ore executive Stern Hu, setting the Rudd government on course for its most serious foreign policy crisis since taking office in November 2007. As Australian consular officials gained access to Mr Hu for the first time since his arrest last Sunday by Chinese secret police, Foreign Minister Stephen Smith suggested Mr Hu had been conducting normal commercial negotiations. "Frankly, it is difficult for a nation like Australia to see a relationship between espionage and national security and what appeared to be suggestions about commercial or economic negotiations," Mr Smith said.

7. The US$3.5 trillion US Commercial Real Estate (CRE) market is a "ticking time bomb" that could trigger a second wave of losses at US banks, Chris Whalen at The Big Picture points out.

Our view of CRE exposure has not changed at all, namely that the loss rates in that asset class will be multiples of the record loss rates on residential or RES exposures.  Why on earth is the Obama Administration still listening to Tim Geithner and Ben Bernanke on the latest PPIP proposal to buy CMBS at current prices when the cash flows are falling every month?  If you look at the yields on bank CRE and then extrapolate to the securitization market where much of the CRE exposure resides, there is no way that the pricing assumptions in the PPIP make sense.   Guess we have to wait for T-Day for Obama & Co to wake up and smell the bird burning.

8. Here's an excellent presentation on the US housing crisis and why the fallout is far from over. T2 Partners forecasts US house prices could fall 50% from their peak and the losses for banks will top US$3.8 trillion. 9. Rod Oram writes in the Sunday Star Times about New Zealand's structural problems in very big picture and excellent way. This piece is well worth a read.

The third chapter, from the late-1990s to last year, has been a story of excessive consumption. When all our hard work on economic reforms failed to deliver us higher incomes, we decided we deserved a reward anyway. We significantly increased our consumption, paying for it by dramatically increasing our debt. Our households became the biggest dis-savers in the developed work, the polite term for accumulating debt rather than assets. Only a handful of nations are so profligate. The rest are savers. In 1990, our average household debt as a percentage of disposable income was less than 60 percent. We peaked last year at over 160 percent, second only to Iceland. While households were piling on debt, businesses were enjoying brisk economic growth. Glossing over the very brief, shallow recession during the Asia Crisis, we enjoyed the longest period of continuous economic growth in 60 years.

But businesses and government failed to understand this was a sugar high, a debt-fuelled spending boom. They, like households, were living for the present, rather than investing enough in the economic future.

Intrepid hackers, nascent program traders, Goldman lawyers and DHS lackeys should be all over this. As Zero Hedge will be out of pocket for the next few hours, it might make sense for a reader to create a mirror of the content as I have a sinking suspicion this Google page will be taken down faster than Tila Tequila's modesty.

Customers are complaining that interest rates are too high, costs are increasing, credit is getting less accessible and the banks are using any change in facility to seek additional guarantees. Some politicians are demanding that banks take on "their share" of the crisis-driven problems and drop their interest rates closer to the OCR.

However, they have now resiled from commissioning a select committee inquiry on the basis that inquiries don't change things. The banks are largely ignoring all the talk from politicians, regulators and customers, claiming that difficulties accessing credit and larger reserve ratios needed to deal with their own toxic loans justify their actions.

This Daily Show video has absolutely nothing to do with economics, finance, banking or interest rates. It has everything to do with Bald Eagles crapping on Toyota Corollas. The result is 'freedom frosting'