Top 10 at 10: Goldman's social ostracism; Why Sam Morgan wants a capital gains tax; Renting vs Buying; Dilbert

Here are my Top 10 links from around the Internet at 10 past 4pm. I welcome your additions and comments below or please send suggestion for Monday’s Top 10 at 10. We have greatly improved our rate of doing nothing...

1. Must read - This Bloomberg column from Michael 'The Big Short' Lewis is a must read, I think. It encapsulates Goldman Sach's story and its challenges perfectly. Lewis is a rare commentator. He absolutely knows what went on because he used to work on a bond desk and is saying the unsayable: something fundamental needs to change. HT Kevin and Andrew via email.

Among the many likely consequences of the SEC’s decision to sue Goldman Sachs for fraud is a social upheaval in the bond markets. Indeed, the social effects of the SEC’s action will almost certainly be greater than the narrow legal ones. Just as there was a time when people could smoke on airplanes, or drive drunk without guilt, there was a time when a Wall Street bond trader could work with a short seller to create a bond to fail, trick and bribe the ratings companies into blessing the bond, then sell the bond to a slow-witted German without having to worry if anyone would ever know, or care, what he’d just done. That just changed.

2. 'Why we need a capital gains tax' - Sam Morgan's comments reported earlier this week about not paying personal income tax (because he gives away his NZ$25 million of annual income) caused a stir. HT @samatwgtn via Twitter Sam has responded in detail on his own blog here. His views on tax reform are similar (although not identical) to his father's views about an annual tax on capital (the big Kahuna). Sam Morgan argues for a tax on capital gains on all assets (not just property) in his own words on his own Posterous blog here.

While I don't like the idea of paying tax on the sale of property where you didn't make a gain, which is what stamp duty can do, I do think a tax on any gain for a property that is not your primary residence is both fair and necessary. And if you are going to do it with property, then you need to do it broadly across all asset classes. Otherwise I'd just have a company owning property, or some shares in a company that owned property. Our tax policy further incentivises people, through LAQC's, to own a rental property or two, which can be run at a loss and losses deducted from personal taxable income. You can't offset the losses from other investments against your income. Madness. I don't have answers to all of this stuff, but think that New Zealander's over-investment in real estate is harmful for our economy and does not help with the creation of a stronger economy.

3. 'They woz right' - Berkeley economics professor Barry Eichengreen has gone against the grain in America and argued the Chinese are right to gradually appreciate the renminbi rather than conduct an immediate large revaluation of say 20%.

Evidence that the US recovery will be sustained is mounting. As always, there is no guarantee. But the latest data on sales of light vehicles, as well as the Institute of Supply Management’s manufacturing index and the Bureau of Labor Statistics employment report, all point in this direction. Because the increase in US spending on Chinese exports will be gradual, it also is appropriate for the adjustment in the renminbi-dollar exchange rate to be gradual. If China recklessly revalued its exchange rate by 20%, as certain foreigners recommend, the result could be a sharp fall in spending on its goods, which would undermine growth. Moreover, gradual adjustment in the bilateral exchange rate is needed to prevent global imbalances from blowing out. US growth will be driven by the recovery of investment, which fell precipitously during the crisis. But, as investment now rises relative to saving, there is a danger that the US current-account deficit, which fell from 6% of GDP in 2006 to barely 2.5% of GDP last year, will widen again. Renminbi appreciation that switches Chinese spending toward foreign goods, including US exports, will work against this tendency. By giving American firms more earnings, it will increase corporate savings in the US. And it will reconcile recovery in the US with the need to prevent global imbalances from again threatening financial stability. Chinese officials have been on the receiving end of a lot of gratuitous advice. They have been wise to disregard it. In managing their exchange rate, they have gotten it exactly right.

4. Obama speaks (but is doing little) - Barack gave another big (teleprompted) speech overnight where he spoke out against lobbyists trying to halt his financial reforms. A close look at the speech and his reforms, however, shows they are cementing in the 'Too Big to Fail' policies and have done little to re-regulate investment banks. One sign of his weakness was that Wall St rallied after the speech on relief he isn't doing much. Here's the Bloomberg version.

Peter Solomon, founder of investment bank Peter J. Solomon Co. and a former vice chairman of Lehman Brothers Holdings Inc., said the financial industry will adapt to changes in regulation. “Wall Street is smarter than any regulation or laws, and they’ll figure out how to make profits,” he said after the speech. He called the main regulatory legislation “a very constructive bill.”

5.  End game near - Ambrose Evans Pritchard from the Telegraph tells the Greek debacle story best. HT Andrew Wilson.

With contagion spreading across Southern Europe, spreads on 10-year Greek bonds exploded to almost 600 basis points over German Bunds in panic trading, pushing borrowing costs close to 9pc. Rates on two-year debt rose to 10.6pc in a market gone mad. “It is clear that the Greek situation is a very serious one,” said Dominique Strauss-Kahn, head of the International Monetary Fund. “There is no silver bullet to solve it in an easy manner.” Credit default swaps (CDS) on Portuguese debt surged 50 basis points in a matter of hours to an all-time high of 270. Markit said the CDS on Spain reached a fresh record of 175, and Ireland jumped to 162, with jitters reaching Hungary, Bulgaria, Romania, Russia and even Argentina. “This is now a real test of EU leadership,” said Julian Callow, of Barclays Capital. “Europe needs to act very fast to ring-fence Greece to prevent contagion. There has never been a default in Western Europe since World War Two and the whole financial system is depending on the assumption that it cannot be allowed to happen. There may need to be some sort of 'Brady bonds’ or 'Barroso bonds’,” he said, referring to the solution for Latin American debt in the 1980s.

Here's the scariest bit. The banks are getting ready to take a quarter of a trillion euros 135 billion euros in losses. That is Lehman on speed.

Goldman Sachs said it is expecting Greece to offer some sort of “voluntary debt-restructuring” to creditors over coming months. Erik Nielsen, the bank’s Europe economist, said the rescue formula may evolve into a mixture of loans and debt forgiveness in order to give Greece “a much longer breathing space”. Any move is likely to be friendly. “I don’t think we are going to cross into the territory of forced debt restructuring,” he said. It is understood that EU officials are exploring formulae that would avoid triggering CDS default contracts, which could cause big losses for European banks that issued the derivatives. City bankers are bracing for a possible haircut of up to 50pc on €270bn (£235bn) of Greek sovereign debt, hoping that any losses will be split between creditors and some sort of EU resolution fund.

6. Oh, and by the way... - Fitch is warning Japan's sovereign debt is rising to ominously high levels as the workforce shrinks and deflation grinds deeper. Again it's Ambrose at the Torygraph. HT Andrew Wilson

Tokyo has until now been able to borrow at ultra-low rates of around 1.30pc for 10-year bonds, drawing on a huge captive savings pool from its own citizens. While this reduces the risk of a "temporary liquidity problem" – or `sudden death' in ratings parlance – as foreigners cut off funding, it does not protect Japan from deeper forces at work. "The slow but steady drop in the domestic savings rate could eventually undercut [Japan's] ability to fund itself locally at nominal yields and makes it more vulnerable to interest rate and refinancing risks," he said. Even at the current low rates – 0.16pc for two years, and 0.49pc for five years – interest payments already match 10pc of tax revenues. This is twice the average for OECD rich states. A sharp jump in yields would be ugly.

7. Rent vs Buy - Check out this excellent Renting vs Buying calculator in the New York Times. 8. Still not worth it - Here's what Felix Salmon at Reuters thinks about the renting vs buying debate in the United States.

It’s hard to imagine a world where rents and house prices never go up — but we might well be entering just such a world. I rehearsed many of the arguments a couple of weeks ago, and I shan’t repeat them here — interest rates are low and rising; the government is artificially propping up the market; prices need to continue to fall just to revert to their long-term mean. My feeling is that house prices are going to fall in real terms — that they won’t keep pace with inflation — for the best part of this decade. And in that environment, buying a house is really not that smart, especially given the opportunity costs associated with doing so.

9. Ring your senator... - Simon Johnson from The Baseline Scenario has consistently been the best informed and least captured of the commentators on the 'Too Big to Fail' issue and whether any US legislation fixes it. Here's what he thinks of Obama's speech -- not much.

Call your Senator, call Senator Harry Reid (Senate majority leader), and call the White House.  Tell them that you support the Brown-Kaufman SAFE banking act (unveiled yesterday) – as an amendment that would greatly strengthen the Dodd bill by capping the size and leverage of our biggest banks.  Politely ask the people who answer the phone to make certain that this amendment gets an “up or down vote” in the Senate. The Brown-Kaufman act is our best near-term chance to reduce the size of Wall Street megabanks that are too big to fail and that threaten our economy.   (If you don’t understand why this is important, read 13 Bankers; quickly – this could all be over by this time next week.)

10. Totally irrelevant video - Thou shalt always.... a song... by Scroobius Pip HT Felix Salmon 11. Totally humorous article on the Chinese century.