Reader note: I’m taking the week off for Thanksgiving, so blogging will be light. Back next Monday.

Sewers at capacity, waste poisons waterways (Duhigg, NYT) Fascinating. Yet another example of how society is overgrown. Everywhere you look, there’s another piece of antiquated American infrastructure that is completely unable to handle capacity thrown at it by the modern economy. Sewers, the electric grid, air traffic control systems, the list goes on. But it’s just too expensive to build any of them out: “As much as $400 billion in extra spending is needed over the next decade to fix the nation’s sewer infrastructure, according to estimates by the E.P.A. and the [GAO].” $400 billion. Just for sewers. We don’t, nor will we ever, have the money for that. Not w/o sacrificing all the other stuff we want. Economists are trying to convince you that debt-financed “growth” is the only way to solve our economic problems. They’re wrong. Debt-financed consolidation is the best we can hope for.

Wave of debt payments facing U.S. government (Andrews, NYT) Is the NYT editorial board getting budget conscious? (See again their pitch for fiscal prudence in NY State). This front-pager doesn’t contain much new info, but it articulates clearly the debt problem we face. And they put it next to the article on sewers above. By the way, the quote from Bill Gross is interesting. Out of one side of his mouth he tells the government to borrow to “support asset prices,” out of the other he wants us to stock away nuts for the Winter. Which is it Bill?

Gold reaches $1,174 (kitco) What kills the gold rally? Action from the Federal Reserve to defend the dollar. But we’re getting the opposite. Yesterday St. Louis Fed President Bullard said the Fed should keep its QE program open after it finishes its planned purchase of $1.45 trillion of mortgage securities next March.

Buffalo’s slow-moving Katrina (Carey, Reuters) Route to recovery is a great series from the folks here at Reuters. Detroit gets all the press, but there are plenty of other post-industrial neighborhoods that are suffering.

Wells Fargo underestimating off balance sheet exposures (Whalen, ZeroHedge) If you look at Wells Fargo’s latest 10-Q (page 31), the company has over $2.0 trillion of off-balance sheet assets. But they only plan to consolidate $48 billion worth, according to their most recent estimate. Chris makes the point that, although $1.1 trillion of the OBS assets are “conforming” mortgages (and therefore eligible for government guarantees) it’s not fair for Wells to pretend these mortgages pose zero risk for their balance sheet.

Taking taxpayers for a ride (Niedermayer, NYT) Last week Fritz Henderson said GM would “repay” part of its bailout? LOL!

Existing home sales increase sharply in October (CalculatedRisk)  Plus more interesting charts from CR. Ultra-low rates, government financing and the homebuyer tax credit are successfully reflating the housing bubble….for the moment.

Man trapped in 23-year coma was conscious the whole time (Hall, Daily Mail) Wow. Stephen King has written horror stories using this story line….

Argument against cloning… (imgur)

Squirrel saves baby from dog (picheroic)

The talented Mr. Pang (Maremont, WSJ) Maremont uncovered the long and sordid history of Mr. Pang. The Journal also broke the Norman Hsu story. Both were high-flying con-artists before the Journal got on their case. Great stories.

The 70% discount on Goldman’s $500m gift (Ransom, SmartMoney) Really great work from Diana Ransom. Goldman will get a tax writeoff for much of its “gift.” Other parts of it are actually loans the company expects will be repaid with interest. BTW, people know that Warren Buffett isn’t actually contributing any money, right? He’s just lending his time. Hmmm. What’s he going to do? Get on the phone with a Denny’s franchisee to talk about the stock market?

Congresswoman passes leverage amendment (Grim, HuffPo) It’s hard to keep track of the House Financial Services Committee these days. The amendment would apparently limit leverage to 12x. I’m trying to get my hands on a copy to determine how it defines leverage. And in any case, all of this may be a dead issue. The Congressional Black Caucus canceled a vote on the package Thursday arguing that not enough is being done about unemployment. Ugh. There are lots of problems with the financial reform package, but now it’s looking like we may not get anything signed into law before 2011.

Millions may have to repay part of stimulus tax credit (Puzzanghera/Hsu, LA Times)

Tim Geithner, mad as hell and not going to take it anymore (Tech Ticker) This quote from Geithner, in response to criticism from a Republican congressman, is just another reason he has to go: “What I can’t take responsibility for is the legacy of the crises you’ve bequeathed this country.” But Geithner bears as much responsibility for the banking crisis as anyone. Recall that he was chief of the NY Fed before he joined the administration. In that role he was supposed to regulate banks. Clearly he wasn’t a very tough regulator if, when the CEO spot at Citigroup opened up two years ago, Geithner was Sandy Weill’s first choice.

The Louisiana Purchase redux (Milbank, WaPo)

Unburied bodies tell the tale of Detroit (Reid, Times Online)

Baby elephant sneezes…

Bill Gross says chase risk! (PIMCO) In his December letter, Gross laments the ultra low yields available to investors. Holding cash is a terrible idea he argues. (Luckily he’s not saying to go far out on the risk curve.) Still, I disagree. While I believe there’s an outside chance of a dollar crisis (highly inflationary…hence the reason many investors have a 5-10% position in gold for insurance), the more likely scenario over the next few years is the one laid out by the SocGen guys: debt deflation. In that case the purchasing power of cash goes up. Looking at the .01% nominal yield on cash equivalents is therefore unfair. The deflation-adjusted yield would be much higher. This is not a reason to try to “inflate away” debt however as that’s not actually a solution. It just gets us closer to the dollar crisis scenario. 90% cash + 10% gold has done very well over the past two years (especially on a risk-adjusted basis!) I guess you can jump back into risky assets if you feel you “need” yield. Of course that’s the mistake so many people made in response to Alan Greenspan’s low rates. How well did that strategy work?

Fed makes capital foremost concern (Torres/McKee, Bloomberg) With the Fed/Treasury actively engaged in reflating the asset bubble (see next link), it’s good to know they’re paying attention to capital levels…

With FHA Help, easy loans in expensive areas (Streitfeld, NYT) Anecdotally this is quite scary. Remember a year ago when the size of “conforming” mortgage loans was raised over $700k? That means FHA is backing much larger home purchases (I’d forgotten this when I linked to that article on Toll calling FHA the new subprime). The scary quote (ht CR) comes from some technology guys who went in on a $900k property having been busted just a year ago: “We’re banking on real estate,” said Mr. Kurland, 24. “Everyone expects prices to keep going up.”

Can the postal service be saved? (Montopoli, CBS)

Asia considers capital controls to stem bubble dangers (Adam, Bloomberg) Low rates in the developed world are putting emerging markets in a dangerous position. With no returns available at home, hot money is again flowing East (and South, to Brazil).

SocGen’s worst-case debt scenario (Murphy, Alphaville) Good sleuthing from Paul. He has a link to the report that Ambrose Evans Pritchard wrote up. Ambrose embellished a bit. Also the report is over a month old. Still, pessimism porn at its finest.

Texas accidentally bans straight marriage (Spak, Newser) HT Felix.

Satan, the great motivator (Fitzgerald, Boston Globe) “A pair of Harvard researchers recently examined 40 years of data from dozens of countries, trying to sort out the economic impact of religious beliefs or practices. They found that religion has a measurable effect on developing economies - and the most powerful influence relates to how strongly people believe in hell.”

College students arrested for not paying tip (Mucha, Philly Inquirer)

Commuter cat star of bus route (BBC)

Nunchuck (imgur)

Rep. DeFazio calls for Geithner and Summers to be fired (YouTube) Geithner has done many other things wrong besides paying out 100% to AIG’s counterparties. Slamming banks together to avoid resolving their balance sheets was another big one. As for Summers, I still don’t understand why he’s so revered at the top of Democratic policy circles. His prior support of the CFMA and Gramm, Leach, Bliley — two of the biggest regulatory blunders of our time — should be enough to disqualify him from his current post.

FHA-backed lending is a train wreck says Toll (Gittelsohn, Bloomberg) Maybe a reader can correct me, but I’m guessing Toll Brothers, because it’s a higher-end builder, doesn’t rely much on FHA-backed lending to move its inventory. Still, it’s interesting that a homebuilder would criticize the government for providing too loose credit. Homebuilders wouldn’t have much of a business without it.

Jobless benefits to end for 1 million in January (Eckholm, NYT)

Audit the Fed effort under threat in House (Grim, HuffPo)

Cash for caulkers (Leonhardt, NYT)

Costco no longer carrying Coke products (AP)

California faces new $21 billion budget hole (Goldmacher, LA Times) CA lawmakers have more tough decisions to make…

On the shoreline (Boston Globe) The latest from the Globe’s Big Picture blog.

Students unhappy with big tuition hike at UCLA. Education is expensive and CA’s public university students have benefited from state subsidies for years. With CA’s budget in tatters, the free ride is over…

Taxpayers on hook as some bailed out firms prove frail (Tse, WaPo) TARP investments in CIT and United Commercial bank were recently wiped out (= $2.6 billion). AIG and GM have received tens of billions they’ll never be able to pay back. Taxpayers may have purchased a bit of breathing room with TARP, but busted balance sheets will eventually have to be recapitalized anyway, as shareholders are wiped out while certain creditors eat their share of losses.

Bankruptcy rise slows with thaw in lending (Spector/Haywood, WSJ) Great article. The writers emphasize how the supposed “thaw” in lending markets is largely a head fake, that junky companies are being allowed to paper over their problems because the Fed is forcing investors to chase risk.

Unemployment rates by county (americanobserver, ht MW) Seeing maps like this, one understands why Krugman and other liberals are calling for another stimulus jobs bill. The trouble is, the reason we have so much unemployment today is because of all the debt we’re trying to work off from yesterday. Adding more debt doesn’t solve this problem.

After a summer of mixed messages, Roubini is back! (Wiesenthal, BusinessInsider)

GM says it will start paying back taxpayers (Isidore, CNN Money) Taxpayers shouldn’t expect to get much back. The $1 billion payment GM says it will make in December would be about 2% of what we put in…

The Great Wallop (Ferguson/Schularick, NYT) Talking Chimerica.

Chinese bank regulator says low rates inflating asset bubble (Zengerle/Choonsik, Reuters) The Fed maintains there’s no pressure on inflation. Trouble is, they don’t measure inflation the right way. They’re looking at things like the cost of goods and labor in the U.S. They’re ignoring the inflated price of assets, for instance junk debt (see again second link). Greenspan also ignored asset bubbles, choosing instead to focus on the unemployment rate and goods prices. How well did that work out?

DIY glasses for the world’s poor? (Addley, Guardian)

Crocodile attacked and killed by angry hippos (Telegraph) And see below…

Lawyer crashes after life in fast lane (Koppel/Esterl, WSJ) Big Florida ponzi.

Buffett admits: Burlington not cheap (Frye, Bloomberg) Buffett was so eager to deploy his cash that he was willing to overpay for Burlington. What I think may be going on in his head: in a world likely to experience many more bubbles and busts, lots of paper wealth will be wiped out. Not a bad idea to turn cash into tangible assets.

After spending binge, administration says it will focus on deficits (Allen/Vandehei, Politico) Not sure if I believe this. The Senate is already planning a third stimulus dressed up as a “jobs” bill.

Treasury confident Congress will increase debt ceiling (Christie, Bloomberg)

Deeds, not words, on the US dollar (David Merkel) Well said.

The last of the Bluefin Tuna? (Estabrook, Atlantic)

VIDEO: Balloon boy parents plead guilty (Reuters)

How pumpkin pie is really made (imgur)

For geometry lovers…. (best after the 5:00 mark)

3D recreation of Sully’s flight (exosphere3D) Everything you ever wanted to know about the crash in the Hudson. Multiple 3D recreations. Different audio streams.

Fed may cause next globabl crisis says Hong Kong leader (Anstey/Dwyer, Bloomberg) Interesting theory: Japan’s low interest rates through the ’90s inflated the tiger bubble that ended in the 1997 Asian contagion. Now the Fed’s ZIRP is inflating new bubbles throughout Asia. The explosion of bank credit in China isn’t helping…

Did the nation overdose on debt (Pragmatic Capitalist) An interesting and detailed paper from Wells Fargo Securities. Click “full screen” and then the printer icon to print out a copy.

Treasurys mixed after 30-year bond sale (Yousuf, CNN Money) Yesterday’s auction didn’t go well. This isn’t yet a trend, but if it becomes one, my bet is it will add to pressure on the dollar (down) and interest rates (up).

Hedge funds can’t mess up worse than Bob Rubin (Reilly, Bloomberg) The Dodd bill would allow shareholders to nominate directors.

No more too big to fail (Jamie Dimon, WaPo) This op-ed, by the CEO of JP Morgan Chase, is disingenuous in the extreme. In his second sentence he says that his firm should be allowed to fail if some unforeseen event pushes them over the edge. Of course they would have failed last year had the government not stepped in. Still, he goes on to argue that not only do we “need” large financial firms — to support multilateral trade — they should be allowed to grow even larger. Bill Black speaks of executives using a corporate entity as a weapon. Dimon knows his bank’s sheer size makes it unthinkable that the government would ever let it fail. He speaks piously of allowing bank failure, but will make sure his bank remains too large, powerful and interconnected for that to be considered an option.

Still haven’t put all your money in gold? You will when you see this chart! (imgur, Reddit) Clever response to my chart of the day…

Trade gap widens by an unexpectedly large amount (Palmer, Reuters) The falling dollar seems no match for Fed-induced demand.

New rules would restrict overdraft fees on debit cards (Labaton, NYT)

Did Texas kill an innocent man? (Economist)

Trippy Mandelbrot (wikipedia)

French-Irish diplomacy (imgur) I have no idea if this is authentic. But it’s pretty funny. (Click on the image to enlarge)

PSA: Just in case you’re held hostage at gunpoint….

Wall Street faces “live ammo” as Congress aims to unravel banks (Vekshin/Schmidt, Bloomberg) Yves complains that this isn’t enough, that size isn’t the only problem. She’s right, but I think these are good discussions to have. We’ll have to wait to see what’s in theKanjorski amendment, but I like where his head’s at. To Smith’s point, we desperately need to SIMPLIFY banks, not just shrink them. Ironically, today is the 10 year anniversary of theGramm-Leach-Bliley Act, which repealed the last vestiges of Glass-Steagall. Besides GLB, we also need to dump the CFMA….

Have we reached peak gold? (Evans Pritchard, ht frog) Exploration budgets are up, but results have been poor. On the flip side, William Buiter is not a fan of gold. He makes some good points, though Jesse disagrees.

FDIC helps securitization market (Shrivastava, Dow Jones) Interesting,

The dollar is the most crowded long in history (Johnson, Alphaville) A very good point. I like to think of all the paper we’ve shipped overseas as “latent” inflation.

FHA’s cash reserves down sharply (Streitfeld, NYT) It’s capital reserves have dwindled to 0.53% from 3% a year ago. Given the high quantity and poor quality of loans FHA has been making of late — little down, low doc — it’s a good bet they’ll need a bailout.

The looming problem of corporate debt (Marketplace, ht Clusterstock)

Unsolicited principal reduction offer from B of A (CalculatedRisk)

Miracle whip vs. Colbert (imgur) Click to enlarge.

Awesome wheelbarrow race move (Youtube)

Carrie Prejean walks off Larry King (Youtube) Why can’t Larry be this tough with all his guests?

Dog greets owner coming back from war

Mishkin defends bubbles (Yves Smith) Yves tears apart former Fed Governor Frederic Mishkin’s op-ed in FT, for good reason.

Bank told to raise more common equity (8-k filing, ht frog) Hanmi bank in CA was told to raise capital, tangible capital in particular. Hopefully regulators continue in this direction with other banks.

FDIC’s “merit” reviews preceded failures (Sterngold, Bloomberg) At least three U.S. banks failed in the past year after the Federal Deposit Insurance Corp. deemed them healthy enough to qualify for a program that reduced the time examiners spent on reviews by at least 20 percent.

F150 the most common purchase in Clunkers program (Felix)

Dodd proposes bold financial overhaul (Drawbaugh, Reuters) Like the original systemic risk bill in the House, this one would have taxpayers front the cost of resolutions. Sheila Bair and Tim Geithner are on opposite sides of this argument. Geithner says a standing fund for financial resolutions would feed moral hazard. He’s right. Her argument is that financial firms would never pay back taxpayers. She’s also right. To me, this gets to the heart of why relying on resolution authority to solve the TBTF problem isn’t enough. You need to get medieval on these guys, breaking them up and simplifying their biz models so that they don’t pose a systemic risk in the first place.

Schabowski shrugged (Meyer, Slate) The unanswered phone calls and misunderstood memos that helped bring down the Berlin Wall.

NASA on crusade to debunk 2012 apocalypse myths (AFP)

Miss England gives up crown over brawl reports (Holden, Reuters) Eat your heart out Carrie Prejean.

Subway stops inches before woman on tracks (Break)

(Click to enlarge…)

The economics of trust (Harford, Forbes) A great article. I’ve argued that markets need rules because without them the division of labor breaks down.

Big bank break up idea gains ground in Congress (Drawbaugh, Reuters) Senator Sanders just introduced a bill to do that. As noted earlier, Kanjorski is working on amendment to do same.

Treasury to block sale of Fannie Mae tax credits to Goldman (Reuters)

Hedge fund giant surfaces in insider trading probe (Pulliam, WSJ) Steve Cohen’s SAC Capital is now under the microscope.

Einhorn: first let’s kill all CDS (NakedCapitalsim) The post refers to comments from Einhorn’s speech at VIC, but expands on it nicely, arguing among other things, that these financial weapons of mass destruction probably can’t be made safe no matter how aggressively you regulate them…

Michael Jackson’s father seeks allowance from dead son’s estate (BBC) His expenses are $20k per month, but he only gets $1700 from Social Security.

Why doesn’t exercise lead to weight loss? (Reynolds, NYT)

A symbol of the resilience of all indigenous people (TED) A great video, but the best tidbit begins at the 19:00 minute mark…

Jim Chanos, famed short-seller, not a fan of munis (Sullivan, Barron’s)

Fannie asks for another $15 billion (press release) That brings the company’s total draw on Treasury to $59.9 billion. Here’s the paragraph that scares me: “Total nonperforming loans in our guaranty book of business were $198.3 billion, compared with $171.0 billion on June 30, 2009, and $119.2 billion on December 31, 2008. The carrying value of our foreclosed properties was $7.3 billion, compared with $6.2 billion on June 30, 2009, and $6.6 billion on December 31, 2008.” Why is the value of nonperforming loans growing so much faster than foreclosures? If Fannie’s not going to foreclose, then why bother paying the mortgage?

Fannie owed $15.8 billion by Lehman (Fannie 10-q) see page 103.

With tax break, a bigger carbon footprint (Glaeser, Boston Globe) “The real problem with the [home buyer tax] credit is that it continues the long-standing federal push toward far-flung McMansions and away from dense, apartment living.” It’s not just about carbon consumption. It’s about encouraging the expansion of a footprint that our incomes can no longer support.

Goodbye to reforms of 2002 (Norris, NYT) Floyd chimes in on Sarbox.

Pre-retirees in denial on savings (CalculatedRisk) Future generations (including mine) will look back in wonder at the 20-year retirements that were typical through the 80s/90s/00s.

950th time is the charm for learner driver (Couzens, Sky News, ht Troy M) Is this multiple choice? Surely a monkey filling ovals at random would have managed the necessary 60% at some point. Nevermind that the questions can’t change all that often. A regular should figure out the right answers by a simple process of elimination…

Student stuns Iran by criticizing Ayatollah Khamenei to his face (Faramarzi, AP)

Anne Frank offends Hezbollah (Yazbeck, AFP) “Anne Frank’s diary has been censored out of a school textbook in Lebanon following a campaign by the militant group Hezbollah claiming the classic work promotes Zionism.”

Women’s college soccer? Or UFC? (ESPN) How did this girl not get red carded?

You know you’re a redneck when …. (imgur) Click to zoom in.

Fight over blog comments hits NH high court (NHPR, ht AK) Aaron Krowne is fighting the good fight for bloggers everywhere.

FHA delays release of financial audit (ElBoghdady, WaPo) The dog ate my homework…

Wells Fargo defers reckoning on troubled mortgage balances (Eckblad, DJ) Wells’ book of option ARMs threatens to blow up in the next few years as the loans recast, forcing borrowers to start paying down principal, not just making a minimum payment as they might on a credit card. Turning them into 6-10 year interst only loans pushes back the pain for the borrower…extend and pretend. The example used in the article notes that as part of the modification, this borrower gets a $100k reduction in principal owed. That’s not nothing. Writing down principal reduces the borrowers leverage, and it means the bank is taking a loss on part of the loan balance. Call it a silver lining.

Mirabile Dictu! Goldman lost money one day last quarter (Yves Smith) In its quarterly filing with regulators, Goldman published a “frequency distribution” for daily profits. That’s a fancy way of describing the average amount of money it made each day last quarter. Out of 65 trading days, only once did it lose money. And a pittance at that. (Alphaville published the chart yesterday.)

FDIC reduces risk-weight to 0% on TLGP-backed debt (FDIC) Yuck, that sounds complicated. Say you’re a bank, and you hold GMAC bonds that were sold with an FDIC guarantee. Normally when you have a bond on your balance sheet (an asset) you have to carry capital against it just in case the bond’s value declines. But for regulatory capital purposes, FDIC-backed debt is now the functional equivalent of Treasuries. “Risk-free” as it were. This will allow banks to hold more TLGP-backed debt on their balance sheet.

Goldman benefits from debt gold mine (Eavis, WSJ) Speaking of cheap funding, the average interest rate on Goldman’s long-term debt is down to 0.92% from 3.53% a year ago. Eavis notes this is due to clever hedging. Pretty easy to make money as a bank when your cost of funds is close to zero. Helps to have the implicit backing of the government.

Bald bears baffle zookeepers (Daily Mail) This must be what Cerberus looks like…with two more heads I guess.

Dutch smoke less pot than other Europeans (The Australian) Who’d a thunk it.

Squirrel deterrent (photobucket)

African Gothic…

BofA’s counsel had no legal authority in Merrill deal (DeCambre/Wilner/Whitehouse, NY Post)

Congress agrees to keep homebuyer tax credit (NYT)

Fitch downgrades Ireland (Kennedy, Marketwatch)

Berkshire may lose AAA rating from S&P on Burlington deal (Frye, Bloomberg)

The deferred tax asset disaster (Tracy Alloway, Alphaville) A very helpful reminder from Tracy about DTAs. Banks still count these as capital (and yes, it’s included in TCE) even though, in a stressed situation, they don’t provide any cushion whatsoever to absorb losses.

In Somalia, cheap mobile calls help more young couples elope (Skeikh, Retuers) Stick with the article to the second page in order to get the gist.

Zimbabwe plane veers off runway after colliding with warthog (David Smith, BBC)

Film-makers want government money (Schweizer, Bloomberg)

The viper logo upside down is daffy duck (imgur)

Hilarious….the “action” shots in the middle are the best

It’s Japan we should be worrying about, not America (Evans-Pritchard) There’s no pretty way to de-lever…

Buffett splits “B” shares 50:1 (Jonathan Stempel/Lilla Zuill, Reuters) This will put shares in reach of regular folks. Look for index funds to load up. Oh and by the way, this should make it easier to short Buffett too…

Santelli vs. Liesman (CNBC) Santelli has a penchant for getting worked up, but how can you blame him when he’s talking to Liesman, who seems so worried about losing access to top policy-makers, he never takes a contrary position?

Here comes the “second stimulus” (Pimm Foxx/Mark Drajen, Bloomberg) It won’t be the last. Economists of all stripes are convinced that we have to stimulate as long as unemployment is high. But none of their models account for debt, so this will all end badly…

Economists reach for new paradigm (WSJ) Speaking of not accounting for debt in their models…Good article…but no mention of Minsky? There were plenty who read him years ago and were appropriately positioned to avoid the crash…)

Cell phone users miss the obvious, like a unicycling clown (Kie Relyea, Bellingham Herald)

Kitty doing math (Reddit)

How come the monkey gets top billing? (The coolest part is just past the three minute mark)

CIT files for bankruptcy (Wilchins/Comlay, Reuters) The $2.3 billion they got from TARP? It’s gone. We’ve known that for a while….another dagger in the heart of the we-made-money-on-TARP argument…

Senate health bill won’t reduce health costs as % of the economy (PGPF)

Can Citigroup carry its own weight? (Martin/Morgenson, NYT) “Over the past 80 years, the United States government has engineered not one, not two, not three, but at least four rescues of the institution now known as Citigroup.”

Aussie dollar channeling Yuan shows increased trading in China (Zachariah/Goodman, Bloomberg) The Aussie currency is in good shape thanks to strong demand for the country’s national resources. Look for another rate increase there today.

PA judge accepted millions in kickbacks to send juveniles to private jails (AP)