1) Last night I started out with the concept of a “housing mismatch.”  Today, with a hat tip to Calculated Risk, I can make my case better.  The low end of the market is humming, as new buyers come in.  Makes sense.  Who get the capital together for a downpayment?  New homebuyers for homes on the lower end.  But homeowners that want to upgrade are stuck, because the buying power of the equity of their current home has deflated.  Thus few upgrading buyers, and they are typically a large part of the housing scene.  Good article — helps point out why this cycle in residential real estate may have prices drop below equilibrium levels.  We are close to equilibrium now, but nowhere near reversing.

2) How should bank solvency be regulated?  If sticking with the existing model, the bank examiners must be more rigorous, and they should consider some stressful scenarios, such as we are experiencing now, or worse.  Perhaps a market-based solution would help, such as that which former Fed Governor Poole has proposed.

His objective is the toobig to fail institutions, but he says that all banks would have to issue subordinated debt.  This would be difficult to implement for small banks. Small issue sizes in the debt market are tough to place, and rolling over 1% each year makes the sizes smaller still. The sub debt would have to be at the operating bank subsidiaries, which are smaller than the holding companies.

I like the idea, though. Maybe a market would develop for small bank sub debt… maybe even funds specializing in it. The yields could be significant, and even protected to some degree, given the need to roll it over to stay operating.

That said, loss incidence might be infrequent, but loss severity and correlation would be high. That’s true of losses on unsecured financial debt generally, but it would be worse with sub debt.

This idea is not new, but it is worth a try. The financial analysis of banks by regulators who have little economic incentive to be right, and hampered by politics has not worked well. It would be replaced by profit-seeking analysts who do have an incentive in the health of the bank in question.

3) Given the fall in global trade, export-driven nations are getting hit hard.  Maybe that can help explain why Treasuries are selling off on the long end — aside from excess supply due to the humongous deficit, there is less need to recycle excess dollars by buying Treasuries.

4) Okay, I was wrong about the Indiana Pension System winning in the short run regarding secured Chrysler debt.  Given the time pressures, the suit was rejected.  Maybe they will win on appeal, but how that works out after the deal is done is messy.

5) GM bondholders have rejected a settlement, and so the company will likely go through chapter 11.  I do not get the large amount of financing that the US government is putting up.  What? Do they want to repeat the losses they will experience through AIG?

6) With the shrinkage in market capitalizations, the number of sell side analysts declines.  No surprise here.  The number of sell side analysts is proportional to the money that can be made by investment banks off of underwriting and trading.  As market capitalizations fall, so do revenues for investment banks.

7) Yesterday, I said that if California defaulted, we would face a constitutional crisis.  I still think that is true.  I ran across Felix’s thoughts on the matter today, though they are one month dated.  The upshot to me is that there are no ways of enforcing payment if a state won’t pay on their municipal debts.  This is a hole in the system, and one that could pinch many in the US, not just Californians.

8 ) Federal Reserve Transparency act of 2009?  Bring it on.  Yea, Ron Paul, one of the few economically literate memebers of Congress.  The Fed gets away with a lot because they aren’t purely private or public.  They use their dual status to hide — when it is more useful to be a government institution, they are that.  Vice versa, when being private allows the avoidance of FOIAs.

9) This is one long article.  How sunk are we regarding peak oil/hydrocarbons?  I have revised my estimates of oil production downward, and will buy more energy related stocks at my next rebalancing.

10) Though I am not a dollar bull, there is no easy replacement for the US Dollar on the global scene.  Euro, too experimental.  Yen, too small.  I have not advocated that the Chinese currency could replace the Dollar (as some have), because their economy would have to become far more open.  They aren’t willing to do that.

11) It’s tough being a corporate director. No, it’s altogether too easy, which leads to complacency.  Consider the situation at the banks, or at the FHLBs.  Years of leverage expansion, where the livin’ was easy, made them lazy, and unwilling to challenge their managements.  No surprise that their reasons for existence are being chalenged now.

12) Though Samuelson misses the point that trust fund exhaustion is not the trouble point, his article is a welcome addition to the discussion.  Time is not on the side of the social insurance programs of the US Government, but as I have stated, that trouble comes when revenues are less than expenses, because the trust funds, invested in Treasuries, are a farce.  The only way the US government can pay off on those is through taxation, borrowing, or inflation.

13) What are implied breakeven levels of inflation implying from TIPS?  That many people fear that inflation will run out of control, given the reckless actions of the Fed and the US Government.