Random Links XXXXVIII

Automatic Debt-for-Equity Swaps: 

Initial:  http://www.interfluidity.com/posts/1241225458.shtml

Follow-up:  http://www.interfluidity.com/posts/1242632171.shtml

A proposal for automatically restructuring a corporate debtor’s obligations.  Devil’s in the details, but I like the concept…. 

Automation & Banking Dark AgesHow computers led to skill loss among bankers. 

Deflation Watch, Wage EditionApparently wage cuts & freezes aren’t isolated incidents.  

Decriminalizing Criminals“45% of misdemeanors that would normally be prosecuted would no longer be reviewed or filed.”

Merck’s Fake Journal: 



Apparently Merck created a fake medical journal IOT promote its own drugs to physicians. 

Lehman & CREHow the former bought into, and eventually was brought down by, the latter. 

Terrorism for DummiesTranslated excerpts from “Al-Qaida’s dumbed-down recruitment manual.”

NYC’s Ancient TsunamiApparently, a couple of millennia ago, a tsunami may have hit what is now NYC. 

Reflections on the Financial Crisis

  • Kubarych makes a good point re. Legacy Loans Program; toxic loans probably are fairly easy to value, and FDIC probably has lots of experience in this regard, since they regularly deal w/ such loans on failed banks’ balance sheets, so both FDIC should be able to properly price the risks of lending against such loans.  I would modify this program slightly, by requiring banks to at least disclose the bids (if not mark their assets using such prices) from failed auctions (i.e., auctions where the bank refuses to sell ‘cuz the bids are too low).  This would promote balance sheet transparency; and, with generous government government-subsidized liquidity, would help kill off the argument that illiquidity or market panic has led to undervaluation of toxic loans. 
  • Disagree re. foreclosure prevention; housing prices won’t stabilize ’till housing is once again affordable, and all the surplus housing is liquidated.  Preventing FC’s hinders this adjustment process; instead, we should be making FC cheaper & easier (along w/ deed-in-lieu & short sales).  And securities are toxic & illiquid not only ‘cuz of uncertainty re. housing prices, but also (per Paul Jackson) because many owners of said securities have marked them at values well above the prices justified by fundamentals.  Such (over)valuations would only be appropriate given the high housing prices & risk tolerance of the housing bubble’s peak; and neither is coming back today.  A bottom in housing prices might make it easier to value toxics, but it won’t unfreeze the market for them unless current holders are willing to realize probable substantial losses at sale. 
  • His proposed capital gains holiday is misguided.  American savings rates need to increase; we can’t rely on foreign capital imports to fund domestic investment forever.  And we need to pay off some of that mound of private-sector debt.  If this means an anemic recovery, so be it. 

Culture & EpistemologyHow one’s culture & upbringing may affect one’s perception of reality. 

Counting Flu Mortality“How do we know how many people die from flu each year?”

Dutch Welfare StateNotable downside:  “A broad social-welfare system works if everyone assumes that everyone else is playing by the same rules. Newcomers, with different ways of life and expectations, threaten it.”  If having the right culture is a sine qua non, then generalization may not be possible.  . 

Lost WorldEvidence that dinosaurs may have survived the Cetaceous extinction event. 

Male Illiteracy:  

“boys trail girls in reading performance at all age levels. The gap at age 9 is 8 points, at age 13 is 8 points, and at age 17 is 11 points. This is not a new trend—boys have been scoring lower than girls on U.S. Department of Education reading tests for more than 30 years.”

Discipline kept me doing the “required reading” in school; but aside from Greco-Roman mythology & science fiction, such reading tended to be more of a chore than a labor of love.  For whatever odd reason, I tended to find Dickens & Shakespeare less appealing than Clancy & Heinlein…. 

Foreign Disenfranchisement: 



Apparently the notion of tyranny of the majority is being rediscovered abroad.  Recall that, for the Founders, such tyranny was viewed as endangering not only free speech & due process, but also “economic” rights such as property & the sanctity of contracts.  Recall also that the Constitution, while republican, was not terribly democratic – only half of the legislature was directly elected; and the rest (along w/ the other two branches) were indirectly selected. 

TARP RepaymentImpermissible absent demonstrated ability to raise debt w/o FDIC guarantees.IMHO, this is a reasonable condition.  TARP can be viewed as (basically) capital forbearance by another name.  Such forbearance shouldn’t be lifted ’till a bank shows it’s once again able to perform financial intermediation w/o governmental support. 

Default & Long Term: 



Screwing bondholders in favor of certain constituencies is not a free lunch.


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