all kinds of ugly
First: Senator Reid and the Democratic caucus are still very angry at Senator Dodd for his filibuster of retroactive immunity for telecommunication company lawbreaking in domestic spying. Some of that is discussed here; more is being discussed here. The Democratic leadership in the Senate - Reid, et al - are largely going to re-run the December process again, to, and I keep restating this, cut off the only functional line of investigation to the mass, warrantless, and illegal spying on Americans by the Bush administration and its allies. (Read here for a previous catch-up post I wrote on this issue; also, here, and here. All semi-recent political posts can be browsed separately here.) This isn't going again yet, except that Senator Dodd needs to get letters of support - see the first link above for where and how.

I was in this fight in December, and before, and I'll be in it again this time. Last time we had 10 Democratic Senators out of 50 standing up for dead old concepts like law, no "independent Democrat," and, of course, no Republicans. Let's see what we get this time - it'll be another filibuster, of course. Oh, and last I heard, Senator Reid continues to honour GOP holds, while ignoring Senator Dodd's. Contemptible.

Now, to economics! That's ugly too.

Minyanville has two articles, covering why the American deflation experience could be worse, not better, than the Japanese "Lost Decade", and why deflationary cycles take so damned long to beat. One of the reasons (of many) is how crazy risk-adverse lenders (and borrowers, both) get. Now, given all that, here's some speculation to throw out into the mix - and this is purest speculation, which is to say 100% bullshit without any indication whatsoever that anything like it would happen.

China has on the order of US$1.4T in "sterilised" reserves. It's set up a sovereign wealth fund to manage some of this, but most of it is, frankly, sitting around not doing anything. What if it buys the first bank to go under, waits as the American economy tanks - let people suffer a bit - then comes in and starts lending at crazy-low rates. Risk-free rates, or nearly so.

How much of the banking sector does the Chinese government end up owning?

If China's hypothetical bank can overcome risk aversion through this method, and jumpstart the American economy after a year or so of severe pain, that'll earn it a lot of friends. Some of these might be political friends. What do you think they might want in return for their investment?

Finally, in the panic section, here's something unpleasant; we've got out first financials jumper, a former mortgage executive. I'd feel sorry for him, but the asshole shot his wife before jumping to his own death, so fuck him. More substantially, over on CNBC, you've got Cramer on Stop Trading (and again on Mad Money, and reportedly also Kass and Kudlow on other shows) talking about how the Federal government needs to nationalise the monoline insurers to avoid a market crash. He's a blowhard and his previous rate-cut solution wouldn't have solved much of anything, and I think he's wrong about the degree of insolvency in the banks and how much good this'll do. (Part of that is that he's underestimating the bank debt by severely underestimating the scale of the derivatives market. You're talking more like $2T or more in derivatives, not $500B.) But he's right about the monoline insurers being insolvent, and that this is very bad. Hello, 1929; sucks to see you!