Random Links XXXXV

Cheap Cruise Missile:




Liquidity & Banks: I hesitate to disagree w/ Hempton, but it should be noted that banks can (effectively) recapitalize over time via retention of earnings to cover loan losses (as loan loss reserves, such that the cost of bad loans hits the reserves rather than capital).  If earnings are mostly cash, ISTM that the size of a bank’s cash hoard could indeed be relevant to (and a function of) loan losses, since a bank that foresees large loan losses might preemptively accumulate cash IOT get a head start on recapitalization-via-earnings.

Crumbling Infrastructure: Reports of US infrastructure’s death are apparently somewhat exaggerated.  Though note he only uses one metric to make his case….


Banking Forbearance:




Between TARP’s preferred stock investments & the FDIC guarantees, it seems Obama’s financial rescue plan basically amounts to forbearance – i.e., keeping banks on life support long enough to allow them to recapitalize via retention of earnings.  The key to such a strategy is ensuring that banks don’t abuse the leeway of forbearance to make bad loans (as occurred in the S&L crisis).  With this in mind, I’m actually somewhat encouraged by decreased lending due to tight lending standards, since it suggests that banks aren’t abusing forbearance by making junk loans.  OTOH, I remain concerned re. politicized capital allocation, e.g., Obama housing bailout; Frannie SMP; TARP banks in Chrysler BK; continued demands for increased lending by politicians.

Torture & History: “Conventional wisdom states that recent U.S. authorization of coercive interrogation techniques, and the legal decisions that sanctioned them, constitute a dramatic break with the past. This is false.”

Federalism Amendment: Not entirely sure I care for Sec. 4 – it’s debatable, IMHO, whether a national sales tax is preferable to taxes on income – but the rest seems like a good idea.

South Africa Downfall: “It emerged from apartheid a bright young democracy, but Mandela’s South Africa is today a fading miracle.”

Muni Defaults, Credit Risk, & Reintermediation:



Re. the first Salmon post:  If it’s true that bondholders (& potential CDS issuers, whether monolines or others) lack the time and/or desire to “do their homework” & properly analyze the credit risk associated with various bonds; and if said bondholders & CDS issuers become/remain averse to holding any substantial degree of credit risk; then the demise of securitization & “shadow banking” becomes far more likely, since there will be far less investor demand for the bonds & securities that formerly made such practices possible.  OTOH, we could still see substantial wholesale borrowing by lending institutions (whether banks or others) w/ reputations for sound lending practices.

Moral Self-Regulation: “this study suggests that our perceived level of self-worth effects our moral decisions.  More specifically, it suggests that feelings of negative self-worth can predispose us to acting morally in an effort to fill up the self-worth bank account.  If the account is already full, we might be predisposed to choosing not to act morally, or just not act at all. ”

China, France, & Dollar Trap:  Those who fail to remember history….

Bank Liquidity & Solvency for Dummies:






Marriage Premium:  “Why Do Married Men Make So Much Money?”

Lucifer’s Hammer: Maybe a big rock from outer space didn’t kill the dinosaurs after all….

CDS Quasi-Mea-Cupla

Gaussian Copula

Countercyclical Fiscal Policy Done Right


One Response to “Random Links XXXXV”

  1. Interesting about the DIY cruise missile; I may need to bookmark that for future reference…you know, in case civilization collapses, or some such. On a serious note, it is a little concerning that it would be so easy (relatively, of course) to make an operational home-made cruise missile. Sure, we have the capability to intercept them, but as I recall, the Soviet solution to that wasn’t to make increasingly sophisticated missiles (though they did that, too), but to make _more_ missiles, and design launch platforms to send out waves of missiles simultaneously. With enough missiles in the air, I suspect that even the most sophisticated interception systems would become overloaded. Also, I note that a large conventional payload + reasonable CEP (on the order of less than a mile) would still cause mass destruction, chaos, and death in any major population center, even if the missiles weren’t especially accurate; accurate cruise missiles only matter if you’re trying to _avoid_ civilian casualties. I suspect that a terrorist cell would be far less concerned with this sort of limitation.

    Hell, for that matter, they don’t even need to use _guided_ munitions; send several dozen reasonably long-range unguided rockets with thousand-pound conventional warheads on ballistic trajectories towards a major population center, and I suspect that the results would be adequete for the terrorists’ purposes, i.e. sowing chaos, destruction, death, etc. Great. Now I won’t be able to sleep tonight…

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