Just because people aren't eating out as much as they used to doesn't mean they have lost their appetites. Based on the following reports, it appears that a growing number of Americans are developing a taste for do-it-yourself culinary delights:

"Home Cooking on the Rise, Spurred by Economic Downturn" (Kansas City infoZine News)

Washington, D.C. - The unsettled economic outlook is sending Americans into the kitchen, according to a new survey commissioned by the American Institute for Cancer Research (AICR). Forty percent of Americans say they are cooking at home more often as a result of the current economic situation.

In the same survey, Americans report making other changes linked to better health and lower risk for cancer and other chronic diseases. Nearly half of Americans (48 percent) report eating fast food less often than they did before.

Many Americans say the current economic situation has motivated them to eat more vegetables and fruit, consume less red meat and to exercise more than they did in the past.

"We don’t recommend an economic recession as a health-booster," says AICR Registered Dietitian, Alice Bender, "but it appears Americans are looking for ways to take better care of themselves."

"Home Use" (Supermarket News)

Supermarkets posted strong sales in cookware/bakeware during the recession; now the challenge is to keep the cook-at-home momentum going

Value, convenience and product uniqueness are familiar criteria for supermarket buyers scanning the exhibit floor for new products during the final days this week of the 2010 International Housewares Show in Chicago.

This year, however, such buying criteria for housewares takes on added meaning given expectations that consumers' shopping habits may have permanently changed due to the severity of the recession that began in 2007 and its lingering effects.

"It's a Bumper Crop of First-Time Food Gardeners" (The Daily Breeze)

One of the healthiest by-products of the recession has been a nationwide bumper crop of first-time food gardeners.

According to the country's leading seed company, W. Atlee Burpee & Co., there were 7.7 million new gardeners trying their hand at growing vegetables in 2009. They were spurred to action by a desire to save money, as well as health and food safety concerns and possibly the widely publicized White House vegetable garden.

George Ball, Burpee's chairman, predicts that 2010 will be another banner year for homegrown vegetables, due to a renewed interest in gourmet cooking and the introduction of exotic new varieties.

For the second year in a row we are hosting a NCAA bracket competition with Adam Warmer of the Daily Options Report.  This year we are pleased to announce that this year it is occurring under the aegis of StockTwits who have generously donated a nifty prize package for the winners.  To be specific:

1st Place:   a 3 month subscription to a StockTwits premium service of your choice;
2nd Place: signed copies of Brian Shannon and Adam Warner’s books;
3rd Place:  a StockTwits shwag pack.

You can sign up for our pool over at CBS Sports.  You will need a CBS Sports account and the password:  “lenny” to complete the process.  The deadline is, of course, tip-off of the first game on Thursday.

For those with a quantitative bent there are some resources available to help guide your selections.  The two main sources of quantitative rankings for NCAA basket come from Ken Pomeroy and Jeff Sagarin.

Erich Doerr at The Wages of Wins Journal uses both of these models to predict the tournament winner.  In one case Kansas came out on top, in the other Duke won.

Wayne Winston at mathletics uses the Sagarin ratings to compute the odds of winning for each team.  Again Kansas and Duke come out as the two top contenders.

David Letscher has his own prediction model and provided some tips a few years ago in the New York Times on how to avoid the crowds in picking your brackets.

The LRMC Model maintained by a handful of professors at Georgia Tech is also worth a look.  In their model Kansas again comes out the champion.  We found this model in an article by Sarah Lorge Butler at CBS Moneywatch on how to win your bracket competition.

We hope you enjoy the Madness.  That is of course if your national champion doesn’t get knocked out in the first round…

I am in receipt of an email from my gym, urging me to vote for it in the City Paper's annual Best of DC contest.  I like my gym.  But unfortunately, this is not my only consideration.  After all, if my gym gets ranked "Best in DC", presumably more people will join.  Then it will be more crowded.  That will make me worse off.
On the other hand, presumably they'll also have money for fancy new equipment, which would make me better off.  And don't I have an obligation to my fellow citizens of DC?  Don't I want a stronger, healthier America?
My current solution is to vote to one of the gyms that my friends belong to and enthusiastically recommend.  But I'm afraid that then I won't have any friends who will recommend gyms to me. So I'm open to other ideas.

I am in receipt of an email from my gym, urging me to vote for it in the City Paper's annual Best of DC contest.  I like my gym.  But unfortunately, this is not my only consideration.  After all, if my gym gets ranked "Best in DC", presumably more people will join.  Then it will be more crowded.  That will make me worse off.
On the other hand, presumably they'll also have money for fancy new equipment, which would make me better off.  And don't I have an obligation to my fellow citizens of DC?  Don't I want a stronger, healthier America?
My current solution is to vote to one of the gyms that my friends belong to and enthusiastically recommend.  But I'm afraid that then I won't have any friends who will recommend gyms to me. So I'm open to other ideas.

By L. Randall Wray, a Professor of Economics at the University of Missouri-Kansas City who writes at New Economic Perspectives

Just when you thought that nothing could stink more than Timothy Geithner’s handling of the AIG bailout, a new report details how Geithner’s New York Fed allowed Lehman Brothers to use an accounting gimmick to hide debt. The report, which runs to 2200 pages, was released by Anton Valukas, the court-appointed examiner. It actually makes the AIG bailout look tame by comparison. It is now crystal clear why Geithner’s Treasury as well as Bernanke’s Fed refuse to allow any light to shine on the massive cover-up underway.

Recall that the New York Fed arranged for AIG to pay one hundred cents on the dollar on bad debts to its counterparties—benefiting Goldman Sachs and a handful of other favored Wall Street firms. The purported reason is that Geithner so feared any negative repercussions resulting from debt write-downs that he wanted Uncle Sam to make sure that Wall Street banks could not lose on bad bets. Now we find that Geithner’s NYFed supported Lehman’s efforts to conceal the extent of its problems. Not only did the NYFed fail to blow the whistle on flagrant accounting tricks, it also helped to hide Lehman’s illiquid assets on the Fed’s balance sheet to make its position look better. Note that the NY Fed had increased its supervision to the point that it was going over Lehman’s books daily; further, it continued to take trash off the books of Lehman right up to the bitter end, helping to perpetuate the fraud that was designed to maintain the pretense that Lehman was not massively insolvent.

Geithner told Congress that he has never been a regulator. That is a quite honest assessment of his job performance, although it is completely inaccurate as a description of his duties as President of the NYFed. Apparently, Geithner has never met an accounting gimmick that he does not like, if it appears to improve the reported finances of a Wall Street firm. We will leave to the side his own checkered past as a taxpayer, although one might question the wisdom of appointing someone who is apparently insufficiently skilled to file accurate tax returns to a position as our nation’s chief tax collector. What is far more troubling is that he now heads the Treasury—which means that he is not only responsible for managing two regulatory units (the FDIC and OCC), but also that he has got hold of the government’s purse strings. How many more billions or trillions will he commit to a futile effort to help Wall Street avoid its losses?

Geithner has denied that he played any direct role in the AIG bail-out—a somewhat implausible claim given that he was the President of the NYFed and given that this was a monumental and unprecedented action to funnel government funds to AIG’s counterparties. He may try to deny involvement in the Lehman deals. (Again, this is implausible. Lehman executives claimed they “gave full and complete financial information to government agencies”, and that the government never raised significant objections or directed that Lehman take any corrective action. In fairness, the SEC also overlooked any problems at Lehman. But here is what is so astounding about the gimmicks: Lehman used “Repo 105” to temporarily move liabilities off its balance sheet—essentially pretending to sell them although it promised to immediately buy them back. The abuse was so flagrant that no US law firm would sign off on the practice, fearing that creditors and stockholders would have grounds for lawsuits on the basis that this caused a “material misrepresentation” of Lehman’s financial statements. The court-appointed examiner hired to look into the failure of Lehman found “materially misleading” accounting and “actionable balance sheet manipulation.” (here) But just as Arthur Andersen had signed off on Enron’s scams, Ernst & Young found no problem with Lehman.

In short, this was an Enron-style, go directly to jail and do not pass go, sort of fraud. Lehman’s had been using this trick since 2001. It looked fine to Timmy’s Fed, which extended loans allowing Lehman to flip bad assets onto the Fed’s balance sheet to keep the fraud going.

More generally, this revelation drives home three related points. First, the scandal is on-going and it is huge. President Obama must hold Geithner accountable. He must determine what did Geithner know, and when did he know it. All internal documents and emails related to the AIG bailout and the attempt to keep Lehman afloat need to be released. Further, Obama must ask what has Geithner done to favor his clients on Wall Street? It now looks like even the Fed BOG, not just the NYFed, is involved in the cover-up. It is in the interest of the Obama administration to come clean. It is hard to believe that it does not already have sufficient cause to fire Geithner. In terms of dollar costs to the government, this is surely the biggest scandal in US history. It terms of sheer sleaze does it rank with Watergate? I suppose that depends on whether you believe that political hit lists and spying that had no real impact on the outcome of an election is as bad as a wholesale handing-over of government and the economy to Wall Street.

What did Timmy know, and when did he know it?

Point number two. Lehman used an innovation, “Repo 105” to hide debt. The whole Greek debt fiasco was caused by Goldman, et. al., who helped hide government debt. Whether legal or illegal, Wall Street has for many years been producing financial instruments designed to mislead shareholders, creditors, and regulators about the true financial position of its clients. Note that Lehman’s counterparties in this fraud included JP Morgan and Citigroup (who actually precipitated Lehman’s final failure when they finally called in their loans). It always takes at least three to tango: the firm that wants to hide debt, the counterparty that temporarily takes it off their books, and the accounting firm that provides the kiss of approval.

Worse, after aiding and abetting such deception, Goldman and other Wall Street institutions then place bets (using another nefarious innovation, credit default swaps) against their clients, wagering that they will not be able to service the debts—which are greater than the market believes them to be. Does that sound something like insider trading? How can regulators permit such actions?

What did Timmy know, and when did he know it?

Third point. To the extent that debt is hidden, financial institution balance sheets present an overly rosy picture—of course, that is the purpose of the financial “innovations”. Enron did it; AIG did it; Lehman did it. What about Bank of America, Citi, JP Morgan, Wells Fargo and Goldman? We now know that the New York Fed subjected Lehman to three wimpy “stress tests”, all of which it failed. Timmy’s Fed then allowed Lehman to construct its own sure-to-pass “stress” test. (We know, of course, that the test was absolutely meaningless because, well, Lehman passed the test and then immediately failed spectacularly. Timmy then let the biggest banks run their own stress tests, which they (surprise, surprise) managed to pass.

What did Timmy know, and when did he know it?

As our all-time favorite Fed Chairman Alan Greenspan liked to put it, “history shows” that when financial institutions pass their own stress tests, they are actually massively insolvent. There is no reason to believe that this time will be different. Mike Konczal reports that there is every reason to believe the biggest banks are hiding huge losses on second liens. These are second mortgages or home equity loans that amount to about $1 trillion of which almost half are held by the top four banks. Since the first principal of a mortgage is paid first, it is likely that much of the second liens are worthless. Yet banks are carrying these on their books at 86 to 87 percent of face value—which was necessary to allow them to pass the stress tests. Konczal shows that at a more reasonable loss rate of 40% to 60%, the four largest banks would have “an extra $150 billion hole in the balance sheet”. I won’t go into the policy conundrum implied for President Obama’s plan for principal reduction to help homeowners (the banks will not allow renegotiation of underwater mortgages because that would force them to recognize losses on the second liens).

Of greater importance is the recognition that all of the big banks are probably insolvent. Another financial crisis is nearly certain to hit in coming months—probably before summer. The belief that together Geithner and Bernanke have resolved the crisis and that they have put the economy on a path to recovery will be exposed as wishful thinking. In the bigger scheme of things, this is only 1931. We have a long way to go before bank assets (and nonbank debts) are written down sufficiently to allow a real recovery. In other words, a Minsky-Fisher debt deflation is still in the cards.

Read it.  On my side, I am still wondering what is Krugman's international social welfare function.

Addendum: Ryan Avent piles on.

By Washington.

Upton Sinclair said:

It is difficult to get a man to understand something, when his salary depends upon his not understanding it.

Bestselling financial writer Michael Lewis is now saying the same thing. In an interview with 60 Minutes, Lewis said:

Wall Street is able to delude itself because it’s paid to delude itself. That’s one of the lessons of this story. People see what they’re incentivized to see. If you pay someone not to see the truth, they won’t see the truth.

As Lewis makes clear, the broken incentive system causes the heads of the Wall Street giants to act in ways which are not only destructive to the economy as a whole and to American jobs, but to the long-term health of their own companies.

If the broken incentive system were fixed, Wall Street big shots could suddenly be able to “see” the destructive effects of fraudulent and risky behavior. That would take politicians getting out of bed with Wall Street for a couple of minutes, which is unlikely, given how warm and cozy it is Unfortunately, that’s probably not politically feasible.

Of course, executive compensation should be linked to performance, in the sense of creating sustainable wealth for shareholders and the economy as a whole. But if the companies and politicians are too spineless to do that, at least ill-gotten gains could be taken away after the fact when executives are found to have committed fraud or driven their companies into the ground.

For example, as I wrote last April:

[William K. Black - the senior regulator during the S&L crisis, and an Associate Professor of Economics and Law at the University of Missouri ] provided the historical background to the PCA [The Prompt Corrective Action Law (PCA)] in a little-noticed essay last month:

… PCA also recognized that failing bankers had perverse incentives to “live large” and cause larger losses to the FDIC and taxpayers. PCA’s answer was to mandate that the regulators stop these abuses by, for example, strictly limiting executive compensation and forbidding payments on subordinated debt.

As I wrote last June:

Because the current incentive for high-level corporate people is to commit fraud. Even if they are caught and go to jail, they’ll be rich when they get out.

Hitting the crooks in the wallet is the only thing which will motivate people not to rip off their shareholders, the taxpayers and the American treasury.

As Paul Volcker says, the incentive systems at financial firms are broken.

Hitting wrongdoers with big fines will help fix them.

***

And Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing the reasons for financial meltdowns:

Financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.

In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer [co-author and himself a leading expert on economic growth] said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.

The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”

If enough people … are hit with [large] fines for fraud, future losses will not be somebody else’s problems, but their own.

That would make the game of financial fraud a lot less profitable, and so undermine much of the motivation of corporate big-wigs to commit fraud. And – given that Black says that massive fraud is what caused the economic crisis – that in turn would save the taxpayers from having to fund many billions in bailouts . . .

The incentives should – of course – be on the front end, so that Wall Street folks are dissuaded from committing fraud in the first place.

At the very least, they should be at the back end, so that any profits made by fraud are recouped and put back in the government coffers.

Of course, some people simply cannot help themselves.

That’s one reason I like James Kwak’s novel approach:

As Kwak writes:

Why not say that all bank compensation above a baseline amount – say, $150,000 in annual salary – has to be paid in toxic assets off the bank’s balance sheet? Instead of getting a check for $10,000, the employee would get $10,000 in toxic assets, at their current book value. . . . That would get the assets off the bank’s balance sheet, and into the hands of the people responsible for putting them there – at the value that they insist they are worth . . . think about the incentives: talented people will flow to the companies that are valuing their assets the most realistically (since inflated valuations translate directly into lower compensation), which will give companies the incentive to be realistic in their valuations.

Of course, there’s an argument that the executives’ base salary should be paid in toxic assets as well. Since these fatcats don’t seem to be motivated to run their companies well so as to save the economy and the people, maybe having their own salaries on the line will motivate them. But if you believe that is too harsh, at least demand that their bonuses be paid in this way.

… Apparently, Credit Suisse is already doing this.

I can't make heads or tails of the various whip counts floating around. Friends who report on politics assure me that Nancy Pelosi still has plenty of leverage to twist arms . . . but what? It doesn't seem all that likely that Ms. Pelosi is going to be in charge after November, so what exactly does she have to hand out to wavering members? And if this thing passes on some controversial procedural maneuver, the Republicans in the Senate will go into full meltdown mode, meaning that there isn't going to be any more legislation to take home to your constituents anyway. (How much pork can you cram into one financial reform bill?) 
Democratic Congressional Campaign Committee money for their campaigns, of course . . . but if you're in a district that hates the health care bill this hardly seems likely to save you. 
Meanwhile, Pelosi and the leadership have to sound 100% absolutely sure of themselves . . . because if there's any question of this thing not passing, their members will stampede for the exits. So their confidence isn't really a sign of anything. On the other hand, the conservatives claiming it's nearly impossible have equal and opposite motives. My sense is that it's at a tipping point--at this point, many of the waverers are simply holding out for more goodies, but if she loses a couple more members, the thing becomes effectively impossible. 
But I have nothing in particular to back that up . . . and as far as I can tell, neither does anyone else. 
So now I'm thinking about another political problem. Assume this passes; what happens afterward? I don't think that many people believe that the answer is "Nothing: the bill becomes law, and we sing happy smurf songs all the way to the longest life expectancy in the Western world!" Even the bill's proponents expect it will need some follow-up work. But what will that follow-up work look like? 
 Worst case scenario for Democrats: a wave of public outrage like the one that followed Cat Care, aka The Medicare Catastrophic Coverage Act of 1988 (and its step-child, the Medicare Catastrophic Coverage Repeal Act of 1989). This strikes me as quite likely, actually. If this passes, yes, you will have AARP support and a wave of positive coverage from 90% liberal media. These things did not save Cat Care from a wave of angry public protest. I mean, really angry. Who knew senior citizens could be that spry?



That's Representative Dan Rostenkowski being attacked at a town-hall meeting with his constituents. Afterwards, he plaintively asked his press officer how long it would be before the media foofaraw  blew over. "Let me put it this way," the flack is said to have replied. "When you die, they will play that clip."

As you can imagine, congress hastened to repeal the thing. But they didn't repeal it all the way; some of the provisions remained.

My nightmare is that they repeal everything except the really popular thing, which is to say the ban on rescission and exclusions for pre-existing conditions. These are basically free, and they're by far the most popular part of the legislation, as far as I can tell.

I'm not exactly a fan of rescission, and to the extent that it is being abused by insurance companies, they deserve whatever regulatory penalties they get. But without rescission, the natural thing to do is to wait until you get sick, and then lie on your insurance application. Like bans on pre-existing conditions, this leads to the classic "insurance death spiral" where the only people who want to buy the insurance are the people who expect to need more care than the cost of the premiums, causing the pool to shrink and the prices to rise.

That's why RomneyCare actually improved premiums briefly, before they resumed their upward march: Massachusetts already had guaranteed issue and community rating, which was pushing premiums sky high. Now that they have RomneyCare . . . well, individual premiums have dropped to only the second most expensive in the country, behind New York, which still has community rating/guaranteed issue, but no mandate.

In other words, while the proponents of ObamaCare are wrong that an individual mandate actually solves all the problems with guaranteed issue and community rating, it does seem to slightly mitigate the disaster.

That seems like the not-unlikely follow up, either from terrified Dems or a brand-spanking new Republican Congress. Would Obama dare veto it? When there's no longer an unpopular Democratic Congress to hide behind? One hopes, for the good of the country. But while so far the president has been enthusiastically urging members to lean into the strike zone and take one for the team, I've seen little indication that he's willing to risk his own job.

I can't make heads or tails of the various whip counts floating around. Friends who report on politics assure me that Nancy Pelosi still has plenty of leverage to twist arms . . . but what? It doesn't seem all that likely that Ms. Pelosi is going to be in charge after November, so what exactly does she have to hand out to wavering members? And if this thing passes on some controversial procedural maneuver, the Republicans in the Senate will go into full meltdown mode, meaning that there isn't going to be any more legislation to take home to your constituents anyway. (How much pork can you cram into one financial reform bill?) 
Democratic Congressional Campaign Committee money for their campaigns, of course . . . but if you're in a district that hates the health care bill this hardly seems likely to save you. 
Meanwhile, Pelosi and the leadership have to sound 100% absolutely sure of themselves . . . because if there's any question of this thing not passing, their members will stampede for the exits. So their confidence isn't really a sign of anything. On the other hand, the conservatives claiming it's nearly impossible have equal and opposite motives. My sense is that it's at a tipping point--at this point, many of the waverers are simply holding out for more goodies, but if she loses a couple more members, the thing becomes effectively impossible. 
But I have nothing in particular to back that up . . . and as far as I can tell, neither does anyone else. 
So now I'm thinking about another political problem. Assume this passes; what happens afterward? I don't think that many people believe that the answer is "Nothing: the bill becomes law, and we sing happy smurf songs all the way to the longest life expectancy in the Western world!" Even the bill's proponents expect it will need some follow-up work. But what will that follow-up work look like? 
 Worst case scenario for Democrats: a wave of public outrage like the one that followed Cat Care, aka The Medicare Catastrophic Coverage Act of 1988 (and its step-child, the Medicare Catastrophic Coverage Repeal Act of 1989). This strikes me as quite likely, actually. If this passes, yes, you will have AARP support and a wave of positive coverage from 90% liberal media. These things did not save Cat Care from a wave of angry public protest. I mean, really angry. Who knew senior citizens could be that spry?

That's Representative Dan Rostenkowski being attacked at a town-hall meeting with his constituents. Afterwards, he plaintively asked his press officer how long it would be before the media foofaraw  blew over. "Let me put it this way," the flack is said to have replied. "When you die, they will play that clip."

As you can imagine, congress hastened to repeal the thing. But they didn't repeal it all the way; some of the provisions remained.

My nightmare is that they repeal everything except the really popular thing, which is to say the ban on rescission and exclusions for pre-existing conditions. These are basically free, and they're by far the most popular part of the legislation, as far as I can tell.

I'm not exactly a fan of rescission, and to the extent that it is being abused by insurance companies, they deserve whatever regulatory penalties they get. But without rescission, the natural thing to do is to wait until you get sick, and then lie on your insurance application. Like bans on pre-existing conditions, this leads to the classic "insurance death spiral" where the only people who want to buy the insurance are the people who expect to need more care than the cost of the premiums, causing the pool to shrink and the prices to rise.

That's why RomneyCare actually improved premiums briefly, before they resumed their upward march: Massachusetts already had guaranteed issue and community rating, which was pushing premiums sky high. Now that they have RomneyCare . . . well, individual premiums have dropped to only the second most expensive in the country, behind New York, which still has community rating/guaranteed issue, but no mandate.

In other words, while the proponents of ObamaCare are wrong that an individual mandate actually solves all the problems with guaranteed issue and community rating, it does seem to slightly mitigate the disaster.

That seems like the not-unlikely follow up, either from terrified Dems or a brand-spanking new Republican Congress. Would Obama dare veto it? When there's no longer an unpopular Democratic Congress to hide behind? One hopes, for the good of the country. But while so far the president has been enthusiastically urging members to lean into the strike zone and take one for the team, I've seen little indication that he's willing to risk his own job.

1. Via Michelle Dawson, a paper with 54 co-authors.

2. Photo of a bird's stomach.

3. Excellent interview with Magnus Carlsen.

4. Good analysis of where the Euro is headed.

5. Measures of income and inequality should adjust for health insurance benefits.

6. Hate mail from third graders; can you guess the topic?

7. Why do gang wars last so long?

“Enjoy the tape and the easy money, but know it will end extremely bad for most.”  (Howard Lindzon)

Performance by month for options expiration week.  (Quantifiable Edges)

The big hedge funds don’t always win.  Today’s example, Boston Scientific (BSX).  (The Reformed Broker also MarketBeat)

Apple (AAPL) holders be wary when “market cap bigger than” stories come out.  (Infectious Greed)

“Seems to us that if Bill Gates is as smart as Warren Buffett thinks, and if Bill Gates really wants to see his legacy survive, he should buy Steve Ballmer an iPad.”  (Jeff Matthews)

Does a momentum strategy work with style ETFs?  (CXO Advisory Group)

What are the most common mistakes that traders make?  (TraderFeed)

Prime brokers are demanding more collateral from their clients.  (Bloomberg)

Charles Davi, “Therefore, by looking to the fees that protection sellers demand in the CDS market, we can get an overall, market-based sense of the creditworthiness of a particular issuer.” (Atlantic Business)

On the need for a dynamic approach to financial market regulation to avoid market fragility.  (Rajiv Sethi)

Mixed news on the economic indicator front.  (Calculated Risk, Carpe Diem)

The challenges ahead for world oil production are many.  (Econbrowser)

What happens if America’s credit rating is downgraded?  (Economix)

Economists still can’t agree on what caused (and exacerbated) the “single most important economic event in recent memory.”  (Economist’s View)

If the net-net-net returns on stocks is just over 1% what does that mean for 401(k) plans?  (Curious Capitalist)

Michael Lewis discusses the financial crisis on 60 Minutes.  (CBS News)

A look at three “character driven narratives” on the role of CDS in the credit crisis.  (Economic Principals)

More on Michael Lewis’ new book The Big Short.  (The Big Money, DealBook)

Is Skype aiming for an IPO in 2010?  (DealBook)

What are you waiting for?  Become a fan of Abnormal Returns on Facebook.

Economist and New York Times columnist Paul Krugman has claimed there's little reason to be concerned about trillion-dollar deficits and a parabolic run-up in the amount of money our government is borrowing.

As I explained in "Economists: Wrong Again," that notion is utterly ridiculous. In fact, recent developments in Greece and elsewhere make it clear that reckless government spending and borrowing can have serious consequences.

Now, in his latest commentary, Krugman says we shouldn't fear the prospect that China might dump some or all of its holdings of U.S. government bonds.

In answer to the question of whether such a development might cause yields to soar, the Princeton professor writes:

Long-term rates might rise slightly, but they’re mainly determined by market expectations of future short-term rates.

Huh?

Does that mean near-term supply-and-demand fundamentals have little to do with the level of long-term rates? Or that emotions and behavioral factors like herding don't play a role in determining bond prices. Or that worries about our government's abilities to manage its finances and uncertainty about future policies doesn't affect the appetite for long-term Treasurys?

But that's not all. Krugman then adds:

The Fed could offset any interest-rate impact of a Chinese pullback by expanding its own purchases of long-term bonds

So, all we have to do is print more money and there won't be any problems?

Hmmm.

Just how out-of-touch with reality can a Nobel prize-winning economist be?

1. More on Israel's new "no-give, no-take" organ donation system.

...Robby Berman, founder and director of the Halachic Organ Donor Society, a Jewish organization based in New York, said ultra-Orthodox Jews can't have it both ways.... "Every Jew has a right to be against an organ donation, but then you can't come and say 'give me an organ.''

2. Are birds shrinking due to climate change?  At last, the climate change and evolution deniers can unite.

3. Not from the Onion: Apple: Free iPad With Every Replacement Battery.

4. Chinese airports at nowhere:

"...when the $57-million airport opened in late 2007. Local officials were so confident that tourists would flock to this beautiful, mountainous county in southwestern China that they made the terminal big enough to accommodate 220,000 passengers annually...A grand total of 151 people flew in and out of Libo last year."

Addendums

5. Inhalable chocolate and coffee.

6.  Matt Ygelsias, world's most underpayed blogger?

Hat tips to Daniel Lippman and Dave Undis.

...if you think "black swans" are something to worry about, how about a black penguin?

"All-Black Penguin Is One-in-a-Zillion" (CBS)

Mutated Bird Spotted During National Geographic Journey to Antarctica

How big is a zillion? It's "an extremely large, indeterminate number," according to Dictionary.com.

And how rare is an all-black penguin, rather than the black-and-white tuxedo-like colorings on most of the adorable, big, wabbly birds?

It's a one-in-a-zillion mutation, scientists say.

On a recent trip for National Geographic Traveler magazine to the continent that is the world's southern tip -- Antarctica -- Contributing Editor Andrew Evans spotted one and got pictures and video of it.

Watch CBS News Videos Online

Pass a law stating that the Foreign Corrupt Practices Act does not apply to dealings in Haiti.

As it stands right now, U.S. businesses are unwilling to take on this legal risk and the result is similar to an embargo.  You can't do business in Haiti without paying bribes.

Along these lines, I found this article of interest.  Excerpt:

An American entrepreneur who does business in the Caribbean recently explained the Haitian landscape to me this way: "We did not bother with Haiti as the Foreign Corrupt Practices Act precludes legitimate U.S. entities from entering the Haitian market. Haiti is pure pay to play. The benefit of competitive submarine cables would be transformative for the Haitians. Instead, they were stuck with Clinton cronies taxing the poor."

Here is the reader request:

A friend remarked that on his trip to Cuba, the inclusion of modern buses imported from China had started to erode the charm of the vintage car culture we associate with the island. This is one factor, among many (including the possibility of the embargo being stopped), that made her travel to the island before it changed too much.

What other countries (or cities) are undergoing signficant change and will be presumably very different in a few years from now? Which ones would you travel to if you had the chance now before they underwent that change?

Here is my list of places to visit in a hurry:

1. Cuba

2. Bali, Laos, and Cambodia, which are all losing traditional culture.

3. Any wildlife or game reserve.

4. Yemen (maybe too late already?)

5. Tibet and possibly Bhutan

I can't bring myself to put North Korea on that list.

Here is my list of places which will only get better to visit:

1. China (air pollution will diminish, reading MR might become easier)

2. India (pollution will diminish, sanitation will improve)

3. Greece (someday will be cheaper)

4. Canada, New Zealand, and Australia: they don't have much old stuff anyway and what they do have will be preserved.  The U.S., in contrast, was interesting in the 1950s (or the 1920s) in a way these places were not and many aspects of that period are being lost. 

What suggestions do you have?  Iraq definitely belongs to one list or the other, we just don't know which.

A reader wrote to tell me his firm had been shown transactions at the end of 2007 from an investment bank (not Lehman) that he was confident were to tart up its balance sheet. This confirms the hardly shocking idea that window dressing was not limited to Lehman:

Around Dec 2007 bank I work for was approached by XXX to transact a total return swap transaction. The underlying for the TRS would be a large portfolio of ABSes (and CDO tranches – name your toxic stuff, it was there). The deal was offered as “You do TRS with us, we sell you the portfolio and at the end of the deal we buy the portfolio back, no risk, hey?”. It was very clear to me that this was a balance-sheet dressing exercise, as they were very keen to do the transaction before their reporting date.

When I pointed it to our legal dept., they said that since they are doing legal thing, it’s all OK. In the end we turned the transaction down anyway (and, in line with my suspicions about the reason once the reporting date passed they enthusiasm for the transaction evaporated).

Our salesperson could not understand that this was a credit product on XXX, and that just because transaction like this might have priced at 10bp over Libor two years ago, with XXX CDS spreads in their hundreds pricing it at 30bp was NOT a good price.

In general, some credit intermediation trades that some of the large players tried to suck other banks into were unbelievable.

It was also really interesting from the incentives perspective – sometimes it was clear that the transaction people were trying to shove around in the market was a potential time-bomb, but sales people still wanted to do it as the processes they had to follow, and criteria for their performance were by then obsolete and easily gameable.

For example some of the counterparties were still ranked as good/excellent credit risk in the systems, even though they were on the verge of going under, so computed return on equity on the transaction was all of sudden huge, and the computed risk small. Of course, the reality was quite opposite, but when was the last time a reality check stopped a determined sales person? And if the counterparty got downgraded afterwards, they could still say “yeah, but when I did the deal, it was OK… And if I could predict the future, I’d be a trader, not a salesperson.”

1. Baba Yaga Laid an Egg, by Dubravka Ugresic.  These interrelated stories, which concern the aging of women, are so far my favorite fiction of the year.  This was from a Bookslut recommendation; here is one review.

2. Ender's Shadow, by Orson Scott Card.  Not as good as Ender's Game and the trilogy, but still worth reading if you have an interest in the series.

3. Stieg Larsson, The Girl with the Dragon Tattoo.  Some parts of this story are very good, but overall I felt manipulated by the author and I was glad when it was over.  I prefer Henning Mankell.

4. Mikhail Lermontov, A Hero of Our Time.  This new translation is a big improvement on the old and thus a chance to rediscover a classic of Russian literature.

5. The Genius in All of Us: Why Everything You've Been Told About Genetics, Talent, and IQ is Wrong, by David Shenk.  There's nothing new in here, plus not everybody can be a genius.

To Arctic Animals, Time of Day Really Doesn’t Matter Science Daily (hat tip reader John M)

Psychopaths’ brains wired to seek rewards, no matter the consequences PhysOrg. So that means the only answer is to put them in jail?

Goldman Sachs derivative liability = 33,823% of assets The Bankwatch (hat tip reader Steve L). Yo!

Taking On China Paul Krugman, New York Times

He’ll Go Free Charles Gasparino, The Daily Beast. (hat tip reader Crocodile Chuck) Gasparino was dead wrong on Lehman v. his critics. Let’s hope his take on Fuld is another counterindicator.

Further Lehmans revelations blocked by Barclays Times Online

Rating agency warns on US public finances Financial Times. Notice how analysts quoted in the piece shrugged it off.

Record numbers contact debt charity Telegraph

Planet Money Podcast, Auto Lenders, and an Amazing GOP Machine Mike Konczal

Lagarde criticises Berlin policy Financial Times

Antidote du jour. I honestly do not know how this story ended, but with so many people there, I assume the horse got rescued eventually:

By Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute

This 2009 analysis by UBS, presented in FT Alphaville, debunks a central tenet of the deficit terrorist camp:

If the deficit terrorists were correct, there should be a much more defined population of the northeast quadrant of the graph attached and discussed in the link. Increases in public debt/GDP ratios should, under the logic of deficit terrorists like Pete Peterson, be associated with observations of escalating inflation. There should be a well defined cloud of historical observations moving up and to the right from the origin of this graph. No such thing to be observed.

Of course, one must be careful with this UBS analysis, since neither do they find a cloud of observations moving definitively in the southwest corner, as many of us might expect from fiscal retrenchment sucking cash flow out of, and reducing the net worth and net financial assets held by the private sector. Public debt to GDP ratios can obviously fall because the denominator is growing more quickly than the numerator, so again, this is a crude display at best, but I know from experience these do tend to become touchstones of market lore.

It also commits the heresy of assuming bond investors can en masse “require” an inflation premium without reducing the value of their existing holdings, a paradox Keynes used to critique Fisher’s interest rate theory which Jan Kregel has highlighted in some of his work, but still remains largely ignored by many.