Top 10 at 10: Aussie bank margins; Corporate dairy farmer bailouts?; ATM for gold; Dilbert

Here's my Top 10 links from around the Internet at 10 pm (my apologies for lateness today). Again, I welcome your additions in the comments below. I'm glad we don't have an executive compensation committee at interest.co.nz... 1. The Australian banks are doing well with their margins in Australia, Michael Pascoe points out at BusinessDay.

Australia's big four banks - parents of New Zealand's big five - are now enjoying fatter net interest margins than they were before the global financial crisis, according to the Reserve Bank of Australia. "The major banks' (Net Interest Margin) NIM currently averages 2.27 per cent, which is a little above the level before the onset of the financial market turbulence in mid 2007," states the report in today's RBA Bulletin on banks' funding costs. But the report shows residential mortgage holders have little to complain about - mortgage rates have fallen by more than the banks' average cost of funds during the period of global turmoil. The banks could spin a line that the politically-sensitive mortgage rates are being subsidised by much higher personal and business loans, although it could be argued that the residential mortgage market represents much safer banking and therefore deserves to fare better as risky and simply dud business lending costs the banks dearly. The RBA's implied warning for big business though is that the banks are only about one-third the way through repricing their business loan book - and it's going up.

2. The World Bank has raised its forecast for Chinese GDP growth, the FT.com reported. 3. The case of the two Japanese guys arrested in Italy with a suitcase filled with US$134 billion (yes b for billion) worth of US Treasury bonds is finally breaking into the mainstream. They could be counterfeited...or not. I think not, but there's some interesting unanswered questions pointed out by Bloomberg columnist William Pesek. 4. It's taken me a while to pick this up, but it's still worth noting. Fran O'Sullivan curiously suggested in her NZ Herald column this week the government should engineer the bail out of the biggest corporate dairy farmers who are in all sorts of strife with massive debts on their factory farms. Hmmm. I wonder who is lobbying whom. Here's a taste below. A very interesting discussion about this piece has already flared up on our site over on this thread.

...there is an argument which suggests it may be fast approaching the time when the Government steps in to broker a deal with the more exposed parts of the dairy sector - and their bankers - to manage out the more marginal loss-making farmers in a fashion which does not send land prices into complete freefall. Or a deal where the banks - who after all went a little crazy themselves with boom-time lending - would contribute to a financial restructuring of the exposed parts of the sector, by forgiving an element of the loans or reducing interest rates - so that dedicated farmers can hunker down until the international market recovers. What I am suggesting is not a full-blown statutory management. That worked well in the late 1980s when the then Government put loss-making companies like Chase Corporation and DFC into statutory management allowing assets to be disposed of in an orderly fashion so that the commercial property market did not completely collapse. But some sort of broker-driven arrangement that allows creditor claims (aka bank loans) to be compromised so that a valuable sector (in the long term) can keep producing short-term. Right now New Zealand's most valuable (long-term) industry is staring at its own (smaller) version of the sub-prime mortgage crisis as bankers begin to run the ruler over many of the newer more marginal farmers - or those that expanded large to cash in on the dairy boom - who are not only having to carry forward significant financial losses due to lower dairy payouts, but also face a potential shock if land prices slump back to pre-boom levels.

5. Edward Harrison over at CreditWritedowns has a comprehensive look at the not-so-comprehensive reforms to financial regulation proposed by Barack Obama. He says we should wait a while to see the true scale of the regulatory failure rather than jumping in now and producing a flawed and political compromise.

It is much to soon to start making comprehensive reforms.  We are still in crisis mode.  On the whole, it would be a deep disappointment to see any legislation resulting from this white paper, particularly now as we are in crisis.  However, by this time next year, things should be clearer and having this white paper in hand will be to everyone's benefit. One last thought: Barack Obama does a very good job of striking the right tone and saying the right things, but I am suspicious about his commitment to true reform.  This document is not the product of someone who wants reform, but of someone looking to strike a middle ground in a political game.

6. Here's what the Wall St Journal thinks of the reforms and the reaction on Wall St.

Some Wall Street insiders criticized the Obama plan as timid, citing a retreat from a proposal by former President George W. Bush's administration to merge the Securities and Exchange Commission with the Commodity Futures Trading Commission. The new blueprint is "unfortunately more of the same," without any "effective solution to the overlaps and cracks in the financial regulatory system," said Gary DeWaal, general counsel at Newedge USA LLC, a derivatives broker. Meanwhile, reality is sinking in that the Obama administration's plan to boost the amount of capital required at financial institutions, consolidate the regulation of "large, interconnected financial firms" and "create comprehensive regulation" of customized over-the-counter derivatives point toward a less-profitable future.

7. Meanwhile, Obama's sky-high support in opinion polls is starting to fade as voters dig a little deeper on all the bailouts and deficit spending, the WSJ.com reported after conducuting a wide ranging poll.

Nearly seven in 10 survey respondents said they had concerns about federal interventions into the economy, including Mr. Obama's decision to take an ownership stake in General Motors Corp., limits on executive compensation and the prospect of more government involvement in health care. The negative feeling toward the GM rescue was reflected elsewhere in the survey as well. A solid majority -- 58% -- said that the president and Congress should focus on keeping the budget deficit down, even if takes longer for the economy to recover.

8. Paul Kedrosky at Infectious Greed reckons California is 'Latvia on the Pacific' and should just default. HT Felix Salmon at Reuters.

...while California won't default, at least not right now, for practical purposes it should. Its income and expenses are structurally out of whack, not merely temporarily so. The imbalance is an artifact of a bygone era, one that won't come back any time soon -- perhaps not in our lifetimes. So, default. Say "whoops", financially speaking, and bite it. Better now than later.

9. Standard and Poor's cut its ratings on 18 banks, sending their shares tumbling, Bloomberg reported. 10. There is an ATM that dispenses gold in 1 gram and 10 gram lots in Germany, the FT.com reported.

The venture by TG-Gold-Super-Markt, a company based near Stuttgart, aims to build on soaring retail interest in gold since the financial crisis shook confidence in other investments. "German investors have always preferred to hold a lot of personal wealth in gold, for historical reasons," said Thomas Geissler, the owner of the company. "They have twice lost everything."