Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please email your suggestions for Thursday's Top 10 at 10. 
1. (Another) monster bailout - I'm glad I'm not a UK taxpayer. Britain has just pumped another 31.3 billion pounds into Royal Bank of Scotland and Lloyds HBOS, Bloomberg reports.
The Treasury will inject 25.5 billion pounds of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds's 21 billion-pound fundraising. Both banks said they won't pay cash bonuses to workers earning more than 39,000 pounds this year.
2. He's blown it - Warren Buffett has used all his US$24 billion cashpile to buy railway group Burlington Santa Fe in what he called an "all-in wager on the economic future of the United States," Bloomberg reports. I'm beginning to wonder if the old codger has lost it. He is paying 18.2 times forecast earnings...
"It is Warren being Warren, taking advantage of a market that is soft at a time when the possibility for competitive bids is relatively low," said Tom Russo, a partner at Gardner Russo & Gardner, which holds Berkshire shares. "He looks at this as a business that has advantages against other forms of transportation." At $100 a share, Buffett is paying 18.2 times Burlington Northern's estimated 2010 earnings of $5.51, according to the average analyst projection in a Bloomberg survey. That compares with the 13.4 multiple for the Standard & Poor's 500 Index as of yesterday's close.
Rolfe Winkler at Reuters takes a dim view of the deal.
The cash flow characteristics of the business aren't very good. From 1999 to 2009, BNI poured 68% of operating cash flow back into capital expenditures. That's cash flow that doesn't go to shareholders. Nor are the returns fantastic. Because operating a railroad requires so capital, the return on capital employed is only mediocre. And the business is not without risk. High fixed costs mean railroads generate increasing returns during upswings, but decreasing returns during downturns.
3. Even Madoff didn't know - This is a fun fact picked up by Chris Martenson in a transcript of an interrogation of Bernie Madoff. It seems even he didn't understand Credit Default Swaps and neither did anyone else.... HT Gertraud by email.
Madoff noted that the industry is growing incredibly complicated. He gave the example of when his firm put up a credit default swap and didn't know how to do the books. Madoff said he didn't know, and it wasn't in manuals, so he called (withheld) He said he didn't know, but conferenced in another industry person, who told him to put it in his London office books. He said he called Merrill Lynch, Lehman Bros, five firms total, all of which didn't know. He said the NASD had no clue. Madoff stated that today, lots of trades are done off the books because people don't know what to do with them.
4. Gold surge - The gold price hit a record overnight after India bought 200 tonnes of gold from the IMF, Reuters reported.
The deal, which surprised traders who expected China to be the most likely buyer, will relieve the gold market of some uncertainty over how and when the IMF would sell 403.3 tonnes of gold, about one-eighth of its total stock. The deal will increase India's gold holdings to the tenth largest among central banks. It also fuelled speculation that other governments -- including Beijing -- may be ready to diversify their reserves even at near-record gold prices, helping soak up IMF supply that the fund may otherwise be forced to sell on the open market. "Central banks in India and China will be happy to accumulate gold at these levels. I will not be surprised to see even some Southeast Asian banks buying gold," Aaron Smith, Asia head of the $1.65 billion technical trading fund Superfund, told Reuters.
5. Meet the bloggers - Finally the US Treasury has worked out that financial bloggers are influential and has invited a few around for a chat, Yves Smith at Naked Capitalism reveals.
It wasn't obvious what the objective of the meeting was (aside the obvious idea that if they were nice to us we might reciprocate. Unfortunately, some of us are not housebroken). I will give them credit for having the session be almost entirely a Q&A, not much in the way of presentation. One official made some remarks about the state of financial institutions; later another said a few things about regulatory reform. The funniest moment was when, right after the spiel on regulatory reform, Steve Waldman said, "I've read your bill and I think it's terrible."
6. Titanic II - Renowned fund manager Jeremy Grantham from GMO has an interesting take on history repeating (or ryhming as Mark Twain said). HT John Mauldin at The Big Picture.
"I can imagine the company representatives on the Titanic II design committee repeatedly pointing out that the Titanic I tragedy was a black swan event: utterly unpredictable and completely, emphatically, not caused by any failures of the ship's construction, of the company's policy, or of the captain's competence. "No one could have seen this coming," would have been their constant refrain. Their response would have been to spend their time pushing for more and improved lifeboats. In itself this is a good idea, and that is the trap: by working to mitigate the pain of the next catastrophe, we allow ourselves to downplay the real causes of the disaster and thereby invite another one. And so it is today with our efforts to redesign the financial system in order to reduce the number and severity of future crises."
7. Gloomdoomboom - My hero. Marc Faber has a fresh newsletter in which he wonders why investors are so keen on bonds.
Since we had in 2008 the third best annual return (41%) in the last 35 years and since each time high returns were followed by negative returns I would be "” regardless of the economic outlook "” very reluctant to invest in long term government and also in corporate bonds. In fact, on a further deterioration in economic activity and amidst severe deflationary pressures (as postulated by the deflationists) I would be even more negative about US government bonds than under an economic recovery scenario. Why? Because further economic weakness (inevitable in my opinion) will lead to further fiscal stimulus packages and necessitate further money printing.
8. Rebalancing? - Beijing professor Michael Pettis is a close observer of what is really happening in China and his blogs (although a bit rambley) are well worth reading. In this one he questions just how much rebalancing from exports to consumption is really happening in China. He remains worried about protectionism.
The refusal of Asian central banks to permit the needed appreciation of their currencies against the dollar may end up having the same impact on the adjustment process of the overvalued currencies. The 1930s seemed to show, according to the authors, that when their currencies could not adjust, countries became protectionist. So if the overvalued dollar cannot adjust except against the euro, and if the already overvalued euro has to bear the brunt of any further adjustment, will American and European politicians be forced into the "second-best" option of trade protection? No prizes for guessing what I think.
9. Japanese template - Peter Tasker points out at FT.com that China is following a late 1980s style Japanese template of blowing up asset bubbles to unsustainable levels.
In reality, 1980s Japan was never going to be terminally damaged by weakness in export markets. Its current account surplus and strong fiscal position provided the macro policy leeway to make any slowdown strictly temporary. The Bank of Japan duly put the pedal to the metal and the recently deregulated banks went on a patriotic lending spree. High-end consumption boomed, but the real action was in the asset markets and capital investment, which soared as a proportion of GDP. Sound familiar? It should, because the same dynamic is evident today in China and some other emerging economies. What is truly scary is that the current frothiness of emerging markets, centred around China, may be only a foretaste of what is to come. For most of the 1980s, Japan, like China today, had used government direction of bank credit ("window guidance") to overlay monetary policy. It was the combination of banking deregulation and the G7-sanctioned surge in the yen that ushered in the final manic stage of the Japanese bubble. At its peak, the grounds of the Imperial Palace in Tokyo had a greater theoretical value than the entire state of California. By then there was no way out "“ asset market collapse and financial system wipe-out were baked in the cake. If China continues to follow the Japanese template, the end of the dollar peg will be the trigger event, setting off a Godzilla-sized credit binge. Why would China's rulers embark on a such a disastrous course? Because the alternative "“ unleashing deflationary forces stored up over years of mercantilist policies "“ would be too painful to contemplate. That was the choice made by Japanese policymakers, who had a hundred years' experience of managing a quasi-capitalist economy. This time a denouement would be one of the biggest bubbles in history, probably in scale and certainly in number of people involved. Could China weather the subsequent financial turmoil as stoically as Japan? It seems unlikely; at the least, its ascent to global hegemony would suffer a brutal interruption.
10. American lessons - Eric Crampton points Bill English in the direction of the results of Clinton's welfare reforms in the mid 1990s.
What have been the results? Large reductions in welfare caseloads, with the vast majority of welfare leavers transitioning into work. Illegitimacy rates dropped. The poverty rate among children with single mothers dropped substantially. The Index of Child and Youth Well-Being showed marked improvement.
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