Random Links XXXII

Why the Dollar Hasn’t Crashed (Yet):

http://blogs.cfr.org/setser/2009/03/04/how-a-us-financial-crises-rebounded-to-benefit-the-dollar-three-pictures/

Not sure how sustainable this is.

Romanticizing Japan’s Past:

http://www.ft.com/cms/s/0/bb19e224-08f0-11de-b8b0-0000779fd2ac.html

Leverage & the Crisis:

http://falkenblog.blogspot.com/2009/03/leverage-and-crisis.html

Granted, leverage needn’t cause crises; but it does make a firm less survivable when one hits.  There’s something to be said for redundancy….

Why TALF May be Overrated (no pun intended):

http://zerohedge.blogspot.com/2009/03/could-talf-be-biggest-disappointment.html

Iceland, After the Fall:

http://www.vanityfair.com/politics/features/2009/04/iceland200904

Critique of the above:  http://nymag.com/daily/intel/2009/03/reality_check_vanity_fairs_fis.html

Mortgage Mods & Vultures:

http://www.portfolio.com/views/blogs/market-movers/2009/03/05/pennymac-mortgage-servicing-hero

http://www.nytimes.com/2009/03/04/business/04penny.html

Quality Immigration:

http://www.nytimes.com/2009/03/03/science/03visa.html

And yet we have no problem importing the unskilled & uneducated, in unlimited quantities, from South of the Border.  Go figure….

Decedents Debt Collection:

http://www.nytimes.com/2009/03/04/business/04dead.html

Interesting.  Good PR, too; I could easily see an article like this going much worse for the company in question….

Oil Glut:

http://www.msnbc.msn.com/id/29495753/

Blue-sky thought:  While oil remains cheap, USG buys up oil en masse, and stores it somewhere (old oil fields?  Purpose-built tanks?).  Then we’ll have an even larger reserve when oil goes back up in price.  Of course, it’d be better if oil went even further down before we did this….

Moral Hazard & AIG:

http://blogs.ft.com/maverecon/2009/03/the-feds-moral-hazard-maximising-strategy/

I sympathize w/ Buiter’s sentiment, but, per Salmon, I fear that haircutting counterparties may have been the greater of evils.  As for Lehman’s downfall, see the next link.

How Lehman’s Collapse Blew up the Financial System:

http://ftalphaville.ft.com/blog/2009/03/12/53515/why-letting-lehman-go-did-crush-the-financial-markets/

Money quote:  “It was thus in context that the decision to allow Lehman to collapse was a failure. A Lehman failure didn’t have to spell disaster– it could, perhaps should, have occurred alongside an announcement of a generalised guarantee on money market funds – as well as a broad commitment from the Fed to extend its liquidity facilities. That such announcements in reality, came a week later was no good.”

Principal Reduction & Default:

http://www.nytimes.com/2009/03/05/opinion/05geanokoplos.html

That negative equity tends to increase the probability of default is unsurprising; at the same time, recall that it is merely a necessary, but not sufficient condition for default – generally, one still needs an income disruption of some kind (e.g., unemployment).  Note also that the strategy of mass principal reductions proposed by Geanokoplos et al may not necessarily be beneficial on net; if enough of the homeowners receiving such reductions are ones who would never have defaulted anyway, then the losses from reducing such homeowners’ principal may exceed the losses from foreclosures (upon other, defaulting homeowners) in the absence of such reductions.  See here for more detail.

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