Here's my Top 10 links from around the Internet at midday in association with NZ Mint.
As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
See all previous Top 10s here.
My must read today is #3 on how US banks are pulling the wool over the eyes of regulators wanting them to hold more capital. CDOs are involved.
1. So why aren't there riots? - It's hard to believe this is happening, but a bunch of home owners in America were kicked out of their homes by banks even though they hadn't missed payments or it wasn't their fault.
They've just received compensation ranging from US$300 to US$5,000.
For losing their home unfairly.
It's as if America's population is asleep. No Wall St executive has been imprisoned yet to account for their role in creating the global financial crisis.
Banks have been bailed out by taxpayers and now the US Federal Reserve is debasing the currency, at least partly to save these banks.
Here's the Salon report. Read it and shake your head. HT DH in yesterday's Top 10.
The Office of the Comptroller of the Currency (OCC) announced Tuesday details of how much money the banks will pay homeowners who were found to be wrongfully foreclosed on, or who suffered financial harm at the hands of the banks. Just as a sampling, individuals who had loan modifications approved by banks but were still foreclosed upon will receive a paltry $300. Six hundred seventy-nine people were faced with foreclosure even though they were never once in default; they will be compensated $5,000.
2. If you're going to do it, make sure everyone does it at the same time - A Tobin Tax on financial transactions makes sense when all countries do the same thing at the same time.
A unilateral Tobin Tax, as attempted by France, will simply trigger an exodus of trading to the next door neighbour.
Here's Ambrose Evans Pritchard pointing to the disastrous experience in France. Although he thinks the Tobin Tax is a 'war on Britain', the current attempts in Europe will only bolster London's status as a Tobin Tax free zone. He also raises the prospect the Tobin Tax being planned by the 'Euro 11' could destabilise the Euro-zone's financial system.
The Tobin Eleven will impose a fee of 0.1pc for trade on shares and bonds, and 0.01pc for derivatives. These rates are far higher than the Swedish tax in 1989 that led to an 85pc crash in bond sales and a 98pc fall in bond futures, before being abandonded.
ICAP market analysts warn that the tax will "undermine prospects for sustainable economic recovery in the eurozone", raise borrowing and hedging costs across the board, make EU companies sitting ducks for takeovers and hobble banks as they grapple with €4 trillion of deleveraging. It does not make Europe safer. It will "increase the vulnerability of the financial system".
The International Capital Market Association says it would devastate the repo market, a vast pawn shop that allows banks to raise funds quickly and easily by pledging assets. It expects transactions to plunge by two-thirds overnight.
3. Those sneaky banks - The New York Times reports how US banks are shuffling assets off their balance sheets to ensure they meet tougher capital rules being imposed by regulars.
Twas ever thus. This sort of behaviour will just fuel the drive to break these monstrosities up and crack down ever harder on their leverage levels.
Banks have been shedding risky assets to show regulators that they are not as vulnerable as they were during the financial crisis. In some cases, however, the assets don’t actually move — the bank just shifts the risk to another institution. This trading sleight of hand has been around Wall Street for a while. But as regulators press for banks to be safer, demand for these maneuvers — known as capital relief trades or regulatory capital trades — has been growing, especially in Europe.
Citigroup, Credit Suisse and UBS have recently completed such trades. Rather than selling the assets, potentially at a loss, the banks transfer a slice of the risk associated with the assets, usually loans. The buyers are typically hedge funds, whose investors are often pensions that manage the life savings of schoolteachers and city workers. The buyers agree to cover a percentage of losses on these assets for a fee, sometimes 15 percent a year or more.
The loans then look less worrisome — at least to the bank and its regulator. As a result, the bank does not need to hold as much capital, potentially improving profitability.
4. How expensive homes drive migration patterns - Here's a useful Forbes article and chart showing the connection between over-valued housing in California and migration rates out of California. There seems to be a connection. This may explain some of the high migration rates of certain age groups and demographics from Auckland to parts of Australia in recent years. HT Brendon.
5. Extend and pretend - Reuters reports that overnight European Union paymasters will give Portugal and Ireland more time to repay their debts. Obviously, austerity is contracting their economies and increasing the relative weight of their debts.
How long will Europe persist with this failed strategy?
Meanwhile central banks and markets continue to muddle through, avoiding the necessary debt restructure that crystallises losses for banks, pension funds and ultimately, rich savers.
The strategy is of course to try to create some inflation to make the debt go away 'painlessly'.
Dublin and Lisbon lost access to affordable financing in 2010 and 2011 respectively and took emergency loans from Europe, and extensions to these should make them less of a burden as the countries seek to put their bailouts behind them.
"The intention is very positive to look at the extension of the maturities both for Ireland and for Portugal," Jeroen Dijsselbloem, chairman of the euro zone finance ministers, told a news conference.
Lisbon called the current repayment schedule "impossible" and said it deserved an extension amid a tough austerity drive.
6. Not a good look for KPMG - FT.com reports A KPMG partner in the United States has confessed to passing on insider trading tips to a golfing buddy for Rolex watches and bags of cash. KPMG is also taking some heavy criticism for its role in the HBOS debacle in Britain.
Mr London, the former head of KPMG’s audit practice for the Pacific Southwest, allegedly gave confidential information about clients Herbalife, Skechers , as well as Deckers Outdoor and former clients RSC Holdings and Pacific Capital, to his golf partner Bryan Shaw, a jeweller.
In exchange for the information, he received a $12,000 Rolex Daytona Cosmograph watch, cash in bundles of $10,000, dinners and more than $25,000 in concert tickets, authorities allege. Mr Shaw made more than $1m by trading on the secret information, authorities said.
7. Euro exit or mass migration - Felix Salmon makes some excellent points at Reuters about why Cyprus should exit the euro.
If the troika won’t help Cyprus exit the euro — and there’s absolutely no indication that it will — then “Cypriots really are stuck”. The government would have no recourse, at that point. Individual citizens, on the other hand, could still take advantage of the relatively free labor mobility within the EU, and move to another European country where prospects are brighter. Is that likely?
Even within countries, people in poorer areas (the north of England, the south of Italy, the east of Germany) rarely move en masse to richer areas with greater potential; big movements between countries are rarer still. But the bigger the osmotic gradient between two economies, the greater the flow of human resources into the wealthier nation. And Cyprus has more than its fair share of the most mobile population in Europe: relatively young and well-educated people with good language skills.
If their future is brighter in the UK than it is in Cyprus, they’ll move there. Cyprus can implement capital controls, but it can’t implement emigration controls. Even if it does leave the euro, a lot of its most talented professionals will leave; if it doesn’t, and falls instead into what Greene calls “an endless spiral of austerity and recession”, the brain drain will make Latvia’s look modest. The cost of joining the euro, for Cyprus, will be no less than a hollowing out of its population, along with its economic and demographic future. Let’s hope that it manages to find a way to exit, somehow.
8. Why China might allow its growth to slow - Daniel Drezner writes at Foreign Policy about China's booming shadow finance sector, which prompted a recent sovereign credit downgrade by Fitch, and why China's leaders might allow growth to slow substantially.
One of the great mysteries in comparative political economy is why it's so bloody difficult for countries like Germany, Japan, and China to change their growth models. High-saving export-oriented economies don't change their ways all that much. To be fair, neither do low-saving, high import countries like the United States. This could be a "varieties of capitalism" story, but that seems ... inadequate as an explanation.
Second, it's worth remembering that the conventional wisdom about China's government was that annual growth below eight percent a year would spell trouble for the government. The implicit contract over the past three decades was that the Chinese Communist Party would supply the growth in return for political quiescence. The end of high growth would imply that this social contract is in trouble.
Except that China's growth has been below that rate for the last two years and running. During that time, Beijing has weathered one major political scandal, a raft of minor political scandals, and a leadership transition without a hint of regime collapse. So while China's economy does seem to merit greater attention, I'm not sure that China's political economy will trigger the kinds of instability that have been predicted for so long.
9. Ghost City? - Ordos in China has a reputation as something of a ghost city.
There is another side of the story. HT Leith at Macrobusiness.
A new documentary (trailer below) attempts to provide balance to the view that Ordos is a disaster in waiting, instead portraying a city signs of life and a hopeful and optimistic population. From the Atlantic:
10. Totally Clarke and Dawe on Australia's broadband plans
There's a gap between the node and the house...
The Liberals are planning a bicycle-powered Ultra-Fast Broadband plan...
(Updated with cartoons. Yay)
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