Top 10 links: Inflation is John Key's biggest fear; Faster fall than Depression; Jon Stewart's anti-CNBC rant; Attack on Chris Lee

Here's my top 10 links from around the Internet over the last day or so. I welcome any gems you find. Just cut and paste them into the comment box below and post. Inflation is John Key's biggest fear...good to hear This may be a case of fine-tuning the message for different audiences, but John Key's comment in a Wall St Journal interview that inflation is his biggest fear is reassuring. Here's a few quotes.

Economic theory will tell you that inflation is going to rise -- and that inflation will be exported around the world. . . . In the short term, I'm not criticizing U.S. policy: I think inflation is probably the thing that's going to be necessary to get them out of the current issue. [Federal Reserve Chairman Ben] Bernanke sort of signaled that. But longer term, inflation is cancerous to your economy

Key also says the right things when talking about big spending governments saddling younger generations with big debts. He says big spending plans are risky and he told the WSJ that any new government spending would have to be funded out of cuts elsewhere. This is very reassuring. 

Big government is also coming under the gun. Mr. Key launched a "line-by-line review" of every government department, and committed the government to cap new spending in its May budget. "If we want to fund new initiatives, we by definition have to stop [funding] some of the things we don't think were working. . . . We're just getting better value for money."

Maybe Bill English and the analysts at Standard and Poor's have cured Key of his tendency to try to fix a problem with money first and ask questions later. Market crash worse than Depression Henry Blodget at The Business Insider has a little factoid and a chart to chill the bones. Even the WSJ is now talking about the Dow falling to 5,000 (now around 6,800) and the S&P 500 falling below 500 (now just under 700)

We just hit another milestone.  The market has now fallen farther faster than it did during the Great Crash of 1929-1932.

  Jon Stewart hammers CNBC...for fun...and it's funny Jon Stewart slams CNBC in this piece on the Daily Show for not picking the financial crisis. He also has a go at Rick Santelli's now famous 'shout' against the mortgage bailouts. Stewart's angle is that CNBC should STFU given its cheerleading for various Wall St bailouts. Fair enough. But I still watch it. Thank goodness John Fellett decided (really for no good economic reason) to put CNBC on Sky. Santelli's shout has some validity.  Here's where the AIG bailout money went WSJ.com has an excellent piece on where the AIG money went. Essentially it was poured down the black holes of European and US investment banks who were counterparties to all the Credit Default Swaps that AIG wrote with its AAA credit rating. So there we have it, despite all of the US Treasury's attempts to cover up the names of the counterparties. US taxpayers really are subsidising the bonuses of all those investment bankers. I'm amazed there have not been riots. If only they knew and understood. Here's a taste.  

The AIG bailout has become a political hot potato as the risk of losses to U.S. taxpayers rises. This past week, legislators demanded that the Federal Reserve disclose names of financial firms that have received money from AIG, which Fed officials have described as too systemically important in the financial system to be allowed to fail. In a Senate Banking Committee hearing in Washington on Thursday, Fed Vice Chairman Donald Kohn declined to identify AIG's trading partners. He said doing so would make people wary of doing business with AIG.

  I would not be doing business with AIG if I was paid to. But I suppose many bankers are being paid to do business with AIG and someone else pays. No wonder shareholders don't trust the banking system. Until these failures are shut down there will remain this stench of fear and distrust. Credit markets are freezing up again This is ominous from the Wall St Journal. It says the credit markets are freezing up again as bond investors lose confidence in the US government's willingness to protect debt holders in the event of collapses of financial institutions. Here's a taste.   

Bondholders have so far remained mostly unscathed by the intervention. But investors are now worried that if the crisis worsens, some of the government's efforts to salvage financial institutions such as AIG and Citigroup could end up hurting the interests of debtholders. The concern is that further modifications of bailout plans could place the government's interests ahead of creditors. Though the government switched from holding Citigroup preferred shares to common shares in order to improve its capital base, putting taxpayers at greater risk, the move did little to ameliorate debtholder's worries. Many investors believe the government may change course again.

  The big fear is a lack of political will. Too right. I'd be rope-able if I was an American taxpayer.

In a report over the weekend, JP Morgan analysts said they had expected government intervention to help protect the interests of bondholders at financial institutions. However, they noted that "in the extreme, losses can be so large that the political willpower to continue bailing out banks and insurance companies evaporates, forcing senior creditors to share in losses or producing other unorthodox outcomes."

The professionals become gold bugs Hedge funds are beginning to buy gold as a bet that central banks are printing too much money that will create inflation and debase currencies, says the FT.com. Some commonsense from somone at the Fed Thomas Hoenig, the President of the Kansas City Federal Reserve, gave a speech on Friday that cut to the heart of the bank nationalisation debate in America. He basically said US authorities had failed to act decisively enough to nationalise big banks and should not fear the 'too big to fail' tag. This speech is well worth a read. Brian Gaynor skewers the deposit guarantee scheme Brian Gaynor does an excellent job of exposing the frailties in the government guarantee scheme and speculates helpfully that any vulnerable finance company will simply go into receivership in the lead up to the end of the deposit guarantee on October 10 to protect debenture holders. Here's a taste. His column in the NZ Herald is well worth a read, particularly for the little gem that Viaduct Capital's CEO Nick Wevers, who recently bought the government guaranteed Priority Finance and is planning to ramp it up, was briefly the Managing Director of Blue Chip.   

If financial conditions remain tight, and the guarantee is removed in October 2010, then a number of boards may put their guaranteed companies into receivership before the scheme ends. This would enable depositors to get all their money back whereas if guaranteed companies go into receivership after the scheme expires then investors could lose a high percentage of their money.

Former Chris Lee customers complain The Sunday Star Times' Rob Stock also has an interesting piece on a Southland couple Clare and John Lindsay, who say they were poorly advised by Kapiti Coast broker and prominent commentator Chris Lee. The SST cites an opinion by Spicers Financial Planner Jeff Matthews criticising the portfolio suggested for the Lindsays by Lee. Here's a taste. Again, well worth a read.

In an assessment paid for by the Lindsays in a bid to get Lee to compensate them for losses, Matthews said: "It is pretty obvious you have a poorly constructed portfolio, which has exposed you to considerable capital loss from investments that should be considered safe. "A well-constructed bond portfolio should give investors peace of mind and a regular income, and you have neither." And peace of mind is what the Lindsays say they were after, saying they told Lee when they first contacted him back in 2005 that they considered themselves conservative investors, though they have no written proof of that, and Lee says he does not keep records of clients' risk profiles. But the Lindsays have been left holding virtually worthless Babcock & Brown subordinated notes, as well as capital notes in St Laurence (in moratorium), debentures in Dorchester Finance (in moratorium), Hanover Capital preference shares (in moratorium), debentures in North South Finance (in moratorium) and two tranches of debentures in Strategic Finance (in moratorium).