Tuesday's Top 10 with NZ Mint: 'Leave out capital controls'; One more reason to avoid the TPP; The 'entrepreneurial' Crafars; Zuckerberg meets Eisenberg; Dilbert

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

What a day.

I welcome your additions and comments below, or please send suggestions for tomorrow'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

1. 'Leave out capital controls' - A group of 257 economists has called on the United States to not restrict the use of capital controls in its Trans Pacific Partnership (TPP) agreement with New Zealand.

The group, which includes Harvard Professor Dani Rodrik, Nobel prize winner Joseph Stiglitz and LSE Professor Robert Wade, argues that America should allow other governments to use capital controls under the terms of their Free Trade Agreements.

My view is NZ should avoid the TPP with America because it will be used as a vehicle by lobbyists for US farming, pharmaceutical, software and movie/music firms to block New Zealand exports to America and cripple institutions such as Pharmac.

The TPP will also be used to clamp down on internet freedoms.

Now it turns out a TPP would restrict some of the basic sovereign powers we take for granted, including the ability to regulate our foreign exchange flows and banking system.

Here's the main parts of the letter.

Authoritative research recently published by the National Bureau of Economic Research, the International Monetary Fund, and elsewhere has found that limits on the inflow of short-term capital into developing nations can stem the development of dangerous asset bubbles and currency appreciations and generally grant nations more autonomy in monetary policy-making.

Given the severity of the global financial crisis and its aftermath, nations will need all the possible tools at their disposal to prevent and mitigate financial crises. While capital account regulations are no panacea, this new research points to an emerging consensus that capital management techniques should be included among the “carefully designed macro-prudential measures” supported by G-20 leaders at the Seoul Summit.

Indeed, in recent months, a number of countries, from Thailand to Brazil, have responded to surging hot money flows by adopting various forms of capital regulations. We also write to express our concern that many U.S. free trade agreements and bilateral investment treaties contain provisions that strictly limit the ability of our trading partners to deploy capital controls.

The “capital transfers” provisions of such agreements require governments to permit all transfers relating to a covered investment to be made “freely and without delay into and out of its territory.” Under these agreements, private foreign investors have the power to effectively sue governments in international tribunals over alleged violations of these provisions.  

2. And you can forget about a Tobin Tax - Auckland University Professor Jane Kelsey also points out that the rules around capital controls in the TPP would also stop New Zealand from introducing a financial transactions tax, also often known as a Tobin Tax.

Unrestricted capital flows is a standard requirement of US free trade agreements, with no right even to take emergency measures in a balance of payments emergency, she said. Both the Labour Party and the Greens have been proposing a financial transaction tax that would become impossible to institute under such an agreement.

“Even the International Monetary Fund, once a leading champion of full capital account liberalisation, now says that capital controls have a legitimate role to play in restraining speculative financial flows and maintaining financial instability.”

A number of countries, including Brazil, Indonesia, Taiwan and South Korea have adopted such controls in the past two years. Korea’s measures would have raised conflicts with its FTAs with both the US and the European Union.

3. Crafars money-go-round rejected - Stuff reports the receivers for Crafar Farms have won a High Court case against Hawkes Bay stock financing firm Stock Co  over the unauthorised sale and lease-back of 4,000 heifers owned by Crafar Farms.

This relates to the (ahem) unusual movement of cows off Crafar Farms in the dead of night shortly after the receivership.

The details make for interesting reading.

Allan Crafar was notorious for telling farmers at a Big Herds conference once that he lived by the '4 Ds rule' when it came to deciding whether to expand: 'Don't tell the wife, Don't tell the bank manager, Don't tell the accountant, Just Do it".

Crafar company Plateau Farms sold the 4000 heifers to Stock Co in August 2008 for $3.6 million. Stock Co then leased the cattle back to Nugen Farms - a company owned by Allan Crafar's son Robert, but not within the Crafar Farms group. Money from the sale was used to fund the purchase of a $7.85m 195 hectare property at Norsewood by Nugen, before it too went into receivership in December 2009.

The judge agreed with the argument of KordaMentha lawyer Bruce Stewart QC, that the sale was "outside the ordinary course of business" for Plateau.

"Care needs to be taken to avoid jumping from a description of the Crafars as 'entrepreneurial', to the conclusion that the ordinary course of their substantial dairy farming business automatically included any transaction, however unique or unusual, that Allan Crafar decided one of his companies or his son Robert's company should enter into," said the judge.  

4. You know it's over when the police start burning the records - The Economist's correspondent in Cairo has this evocative report of how he/she knew the protestors had won and the Police had lost: the police started destroying their records.

I KNEW it was truly over when I came home to find a neighbour in a panic. He had smelled a fire nearby. We traced its source soon enough, after climbing to the roof of my building. Smoke drifted from the garden of the villa next door, where workers had recently been digging a peculiarly deep hole, as if for a swimming pool. In a far corner of the garden stood rows of cardboard boxes spilling over with freshly shredded paper, and next to them a smouldering fire. More intriguingly, a group of ordinary looking young men sat on the lawn, next to the hole.

More boxes surrounded them, and from these the men extracted, one by one, what looked like cassette tapes and compact discs. After carefully smashing each of these with hammers, they tossed them into the pit. Down at its bottom another man shovelled wet cement onto the broken bits of plastic. More boxes kept appearing, and their labours continued all afternoon.

The villa, surrounded by high walls, is always silent. Cars, mostly unobtrusive Fiats and Ladas, slip in and out of its automatic security gates at odd hours, and fluorescent light peeps through shuttered windows late in the night. This happens to be an unmarked branch office of one of the Mubarak regime's top security agencies. It seems that someone had given the order to destroy their records. Whatever secrets were on those tapes and in those papers are now gone forever.  

5. Global imbalances returning  - Reuters reports the IMF's head Dominique Strauss-Kahn has warned of imbalances brewing again the global economy.

So what has actually changed in the last 3 years?

The cracks were papered over and America is trying to print its way to freedom, blowing bubbles in commodity prices around the global.

It feels a lot like 2007 again in many parts of the world.  Just look at the oil price.

"The pre-crisis pattern of global imbalances is re-emerging," Dominique Strauss-Kahn said in a speech in Singapore. "Growth in economies with large external deficits, like the U.S., is still being driven by domestic demand. And growth in economies with large external surpluses, like China and Germany, is still being powered by exports," he said.

"As tensions between countries increase, we could see rising protectionism -- of trade and of finance. And as tensions within countries increase, we could see rising social and political instability within nations -- even war."

Rising food and fuel prices in recent months have already hit poorer countries especially hard and are one of the factors behind massive anti-government protests in Egypt and in Tunisia, whose president was ousted last month. Concerns about rising debt in developed countries, meanwhile, have increased in recent months, with Standard & Poor's last week cutting Japan's credit rating and Moody's warning it may place a negative outlook on the United States.

6. What about Saudi Arabia? - James Kunstler is an entertaining bean. Here's his take on what the Egyptian revolution might mean and why Americans and the rest of the developed world should be sweating on the results of this political convulsion in the land of Arabs.

The key to all that is oil, of course, and mainly the oil of Saudi Arabia. King Abdullah there is at least 86 years old and in poor health. Crown Prince Sultan, his successor, isn't much younger. If ever a country was ripe for a political flipping it is this shaky kingdom. Everyone from the White House to Foggy Bottom to Langley, Virginia, is probably messing his/her pants this week wondering how much longer the lid can be kept on that joint.

To return to an earlier theme, what should amaze us now in the unraveling of this region is how remarkable and long the recent era of stability lasted. Meaning, most of all, how reliable those tanker shipments of oil have been moving through the Straits of Hormuz and the Suez Canal to their destinations in the lands of the Crusaders (and their younger kin in the New World).

To put it pretty starkly, the so-called developed world can't keep its act together more than a week without that steady mainline of Arabian oil, even though it doesn't represent most of the oil traded in the world. The margins are too thin. There's no wiggle room, really, especially for us, in our kingdom of freeways. We lose ten percent of our oil supply and that's all she wrote for business as usual around here. I'll put it even more starkly: we can't afford to let this shit get out of hand for a New York minute.  

7. You know it's bad when - Even the Iraqis are pulling their diplomats and business people out of Cairo because it's too dangerous, AP reports via Yahoo. HT Troy via email.

In a geopolitical shift, even Iraq decided it would evacuate its citizens, sending three planes to Egypt — including the prime minister's plane — to bring home for free those who wish to return. Thousands of Iraqis had once fled to Egypt to escape the violence in their own country.

About 800 Iraqis had left Cairo by Monday afternoon, said Capt. Mohammed al-Moussawi, a crew member for the prime minister's plane. He said the flights would continue until all those who wished to return had done so.

8. You can smell the desperation - Chinese banking authorities are so desperate to slow down lending they are thinking of lifting the capital ratios for two key banks to 14%, Bloomberg reports.

China is tightening oversight of banks, limiting mortgages and raising interest rates to prevent a record $2.7 trillion of credit extended in the past two years from inflating asset bubbles that may saddle lenders with bad loans. Some banks may need to raise additional capital to meet the new requirements, the person said.

“This shows further tightening as the regulator worries about excessive lending,” Xu Guangfu, an analyst at Xiangcai Securities Co. in Shanghai, said by telephone.

“The banking sector’s valuation is already depressed and this may drag it lower. The market will be more concerned about those banks that were lending aggressively.”

9. "I'm telling you so now" - Oliver Wyman consultant Barrie Wilkinson has written a 26 page prediction titled; "The Financial Crisis of 2015: An Avoidable History". As Bloomberg reports, he thinks not much has changed and new bubbles are forming.

This feels about right to me.

“The fundamentals haven’t been addressed at all,” Wilkinson, a London-based partner at consulting firm Oliver Wyman, said in an interview at the Hotel Morosani Schweizerhof. “The things that caused the previous crisis -- loose monetary policy and trade imbalances -- they’re actually bigger now than they were then.”

In the caste system of the World Economic Forum’s annual event in the Swiss ski resort, Wilkinson was at a bottom rung, with an identification badge that denied him access to most sessions and soirees. His message clashed with the optimistic tone of many at the center of the meeting, who were eager to emphasize the progress made after two years of hand-wringing in the wake of the 2008 financial crisis.

Wilkinson’s report, titled “The Financial Crisis of 2015: An Avoidable History,” isn’t so sanguine. The 24-page study describes how banks, unwilling to accept the lower returns on equity, or ROEs, that result from higher capital requirements, may fuel a new bubble by chasing high returns in commodities or emerging markets. Regulators, by focusing their restraints on banks, may drive risk-taking into unregulated funds that also pose danger to the system.

The report urges bank executives and shareholders to accept that returns of the past are unsustainable and that they need to do a better job of monitoring risks, especially in areas that produce unusually high profits.

“Banks need to be less leveraged,” said Wilkinson, 38, who has an engineering degree from the University of Cambridge’s Trinity College and has worked since 1993 at Oliver Wyman, where he focuses on risk management.

“The true test for me of whether they’ve deleveraged is if the industrywide ROEs come down. If they don’t, I’m very suspicious that there are hidden risks in the system.”  

10. Totally irrelevant video  - For fans of The Social Network movie (and I'm one of them) this is an awkward video on Saturday Night Live. Jesse Eisenberg meets Mark Zuckerberg for the first time on live television...

You've got to give this particular billionaire some credit for having a thick skin and a sense of humour.