Lunchtime Links 3-9

March 9, 2010

Treasury getting more comfortable with principal write-downs, sort of (Nasiripour, HuffPo) Principal writedowns are the only sure-fire way to slow foreclosures, but that means hitting banks’ capital big time. Consider, for instance, that three-quarters of the ~$1 trillion of second-lien mortgages in the U.S. are on commercial bank balance sheets. Writing down principal to some level that again gives folks equity in their home would wipe out a meaningful share of these second-liens. Many banks may not have the capital to withstand that. And if folks think principal writedowns will become official policy, suddenly many will just stop paying their mortgage. These are big reasons this is so controversial inside the administration. Nasiripour has done a great job outing that controversy…

Must Read — Finance: An exposed position (FT)

Strategic defaults on homes on the rise (Said, SF Chronicle….ht PK)

Dumping “dirt bonds” (Hart, Bloomberg) No sense waiting for a housing rebound that may not come till “the early 2030s.”

PDF — The Buffett short thesis (Raj Rajagopal) A Cornell MBA student forwards this presentation of his short thesis on Berkshire Hathaway. Good piece, though it lacks a catalyst. Buffett seems to be in very good health and is as active on the media circuit as ever. For me the short thesis is wrapped up in the fact that Buffett has totally flipped his investing style, focusing on capital intensive, lower-return businesses. I hope to have more on this later this week.

Brazil slaps trade sanctions on U.S. over cotton dispute (BBC)

China says committed to U.S. debt, wary on gold (Chiang/Wheatley, Reuters)

Video — MIT Prof on personalized solar energy (Vimeo, ht Reddit) Can a new process to split hydrogen and oxygen solve the world’s energy needs?

To kill or not to kill Shamu (Esterl, WSJ) Actually, euthanasia appears to be out of the question, even after SeaWorld’s biggest Orca was involved in perhaps his third death. Killer whales are very big business….

Betty White to do SNL (CNN) Prayers…answered.

Baby hippo…


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A solution to the housing crisis? It’s so easy, it’s trivial.

Quantitative easing to the people! Money financed tax cuts all around, with government checks to everyone else who can fog a mirror.

Not in an out-of-hand, mind you, but just enough to give underwater homeowners and underwater governments a little boost. Also, with sticky wages, lots of folks are being paid at boom levels even after deflation has taken place.

Without that, we face an almost certain Japan-like scenario. There was massive inflation in the mid 2000s, if you include houses, which the CPI does not. Now we’ve had deflation (that also doesn’t show up in CPI) which leaves behind mountains of stranded debt.

Consumers don’t want to be levered anymore. They have had enough of that. They want to get out of debt and then live debt free, with the money in their bank accounts. There isn’t enough base money in the world for that to happen and rather than create more base money, the fed keeps trying to lever.

I suppose this will be clear to policymakers soon enough. Or if they already know, it means they are completely in the thrall of banks.

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