Tuesday's Top 10 with NZ Mint: Covered bonds help Australasian banks import low European rates; How the US FTA failed for Australia; 'Don't Panic, Captain Mainwaring!'; Dilbert

Here are my Top 10 links from around the Internet at 10 to 8 pm, brought to you in association with New Zealand Mint for your reading pleasure.

I welcome your additions and comments below, or please send suggestions for Wednesday's Top 10 at 10 via email to bernard.hickey@interest.co.nz.

I'll pop any surplus suggestions I get into the comment stream.

Dilbert made me laugh so, so hard tonight.

1.No wonder the banks love them - Bloomberg reports that Australia's big four banks may cut their borrowing costs by more than 40% by using covered bonds issued into Europe, which have been given the tick by the Australian government this week and are already approved here.

Isn't this just another way for very low interest rates in Europe to be imported into Australia and New Zealand? Wasn't this one of the problems from 2002 to 2007 when our banks imported cheap capital.

And are regular term depositers being compensated for being shunted down the queue of priority?

Will the banks pass on the savings?

I wonder too how much of this cheap money will be shuffled through to the usual suspects in the housing market, rather than simply refinancing short term foreign borrowings.

Aren't we supposed to be be breaking our addiction to cheap foreign debt?

Here's Gareth's piece today on how BNZ is paying out just 3.125% for its seven year covered bond issue into Europe.

And the detail from the Bloomberg story.

Westpac Banking Corp., Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd. may be able to issue three-year covered bonds priced to yield about 50 basis points more than the bank bill swap rate, less than the 85 basis-point spread on senior debt, according to Royal Bank of Scotland Group Plc. Moody’s Investors Service estimates savings of 20 percent.

Covered bonds are “essential weapons as banks look for cheaper and more diversified sources of funding,” John Manning, a credit analyst at RBS in Sydney, said in a telephone interview.

Even when global credit markets seized up, European banks “had good access to covered bond markets and were able to access the funding they required at quite commercially acceptable rates,” he said.

2. Today's must read - I'm reading Umair Haque a lot lately. He's striking a nerve. Click through and have a read. He's onto something.

Nothing characterizes industrial age business like the Five P's. Business is Pedestrian (in its vanishing smallness of ambition), Predictable (in its furious obsession with the trivial), Predatory (in it's hyperaggressive selfishness), Pompous (in its unvarnished self-importance), and Pointless (in its lack of usefulness to people and society).

What it really excels at is pumping out inauthentic, unsustainable, illusory value--instead of the real thing.

3. Hi ho Silver, Away! - JP Morgan looks like it has cut its large short position in the silver market, FT.com reports HT Troy.

JPMorgan has quietly reduced a large position in the US silver futures market which had been at the centre of a controversy about its impact on global prices for the precious metal. The decision by JPMorgan was an attempt to deflect public criticism of the bank’s dealings in silver, a person familiar with the matter said.

The person added that the bank’s position in silver would from now on be “materially smaller” than in the past.  

4. Not such a good deal - Australia's Productivity Commission has found in a big report that Australia's Free Trade Agreement with the United States hasn't actually benefited Australia. It has actually cost A$700 million, The Age reports.

So why are we trying to get one with America?

The provisions have saddled Australia with copyright obligations ''even higher than in the US … because we matched their higher level of copyright protection but have maintained our lower level of copyright users' rights'', the report says.

The net present value of the extra copyright costs imposed by the provisions agreed to by the Howard government when it signed a US-Australia agreement might amount to $700 million. ''And this is a pure transfer overseas, and hence pure cost to Australia,'' the report says.  

5. This doesn't make sense - New Zealand has a current account deficit. We import too much and don't export enough.

So why would a government owned rail company choose to buy 300 wagons for NZ$29 million from a Chinese manufacturer? The ODT has the story.  We need to be much more nationalistic about this. HT Rob via email.

Dunedin's Hillside Workshops has missed out on a contract to build 300 wagons for KiwiRail because its bid was 25% more expensive than a Chinese rival.

KiwiRail Chief Executive Jim Quinn said it had considered nine bids to build the wagons, including one from its own Hillside Workshops, before opting for China CNR Corporation (CNR).

"The bids were evaluated on a range of financial and non-financial considerations. Hillside emerged as the third best bid but unfortunately not close enough to the CNR bid to justify a local build."

6. Can Australia keep borrowing its way to prosperity?- Steve Keen has an excellent piece here at Business Spectator arguing Australia can't keep borrowing its way to prosperity. He reckons Australia avoided a bad recession by ramping up borrowing in 2009.

But eventually the gravity of too much debt will hit the lucky country too.

We got out of the crisis before we really got into it by reversing the private sector’s trend to deleveraging, and encouraging borrowing once more.hen the Australian economy has hit the skids in the past, the recoveries that ensued – in 1975, 1983 and 1993 – were all accompanied by increases in borrowing.

Credit growth boosts investment and job creation, and everyone's happy. Happiness of the debt-financed kind will be short-lived in 2011, because we’re already past the peak level of debt that we’ve ever had, or are likely to have. So I expect Australia to resume deleveraging during 2011, leading to recession-like conditions in sectors that are not major beneficiaries of the China Boom.

We are already seeing the first casualty – retailers are discounting well before Christmas, rather than after it, and the “unexpected” drop in retail sales last month is something I expected to see when the First Home Vendors Boost wore off.

Retailers’ pain will only increase through 2011. My advices to the optimists is to take their eyes of China for a few minutes and take a good hard look at the direction credit aggregate data is moving – it's down, and unfortunately that's where two thirds of the Australia’s “three-speed economy” will move next year.  

7. The Motherland of all bubbles - Here's a great chart from Seeking Alpha showing how out of whack Chinese property prices are.

Seeking Alpha also points out a reason why the various centralised attempts to cool things down might not work. HT Hugh via email.

A recent report from HSBC pointed out that China’s central government tried to cool speculation this past spring by introducing tighter controls on real estate purchases.

“Not a single city has rolled out the much expected property tax.

Vested interests have also blunted Beijing’s repeated calls for consolidation in the country’s iron and steel industry.” Local authorities have a great deal of power in China, and tighter controls won’t work if they aren’t implemented.  

8. Australia is different - It does not have a housing bubble. It is different because it is 'gurt by sea'.

Here's the latest robo-animation. It's going mainstream now.

9. Totally Merry Christmas Video - HT Justin Brown via Twitter.

10. Totally not panicking video - Corporate Jones has it all under control. John Key does too.