Here's my top 10 links from around the Internet at 10 am. I welcome your comments and suggestions for links in the comments below. Nice cartoon from Emerson in the NZHerald first up. 1. FTAlphaville points to a new paper by Nassim Taleb (the Black Swan guy) who points out that the bigger a bank is the more vulnerable it is to a 'black swan' event. There are a lot of mathematical equations to reassure us he is right. 2. CNBC is reporting that Wells Fargo needs more capital too, adding to the likely capital calls by Citigroup and Bank of America in the wake of the stress tests. Who's going to invest the equity in them? The oil sheikhs? No because they're still nursing losses from previous injections. The Singaporeans and Chinese? Ditto. US investors? Ditto. The US government? Now you're talking. The sooner they get the nationalisations out of the way the better. 3. Just in case you were thinking about green shoots, the European Union is now forecasting that unemployment in the Euro-zone economies will reach 11.5% in 2010 and GDP will shrink 4% in 2009. Here's the AP report on Yahoo.
4. Resident US Federal Reserve heretic Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, says in this comment piece in the Financial Times that troubled banks must be allowed to fail. Huzzah!. Someone near power said it! Here's a taste.
I believe there is an alternative method for addressing this crisis that deals more effectively with the issues we currently face while also considering the long-run consequences of those actions: the implementation of a systematic plan to resolve large, problem financial institutions. In recent weeks, I have outlined such a resolution framework for dealing with these large, systemically important institutions. Boiled down to its simplest elements, the plan would require those firms seeking government assistance to make the taxpayer senior to all shareholders, with the government determining the circumstances for managers and directors. These firms would be operated by outside individuals with no conflicts involving either the firm or its competitors. Non-viable institutions would be allowed to fail and be placed into a negotiated conservatorship or a bridge institution, with the bad assets liquidated while the remainder of the firm is operated under new management and re-privatised as soon as is feasible. This plan is similar to what was done in Sweden in the 1990s and in the US with the failure of Continental Illinois in the 1980s. This plan has many advantages, including that management and shareholders bear the costs for their actions before taxpayer funds are committed. This process also is equitable across all firms; is similar to what is currently done with smaller banks; and provides a definitive process that should reduce market uncertainty. These are important reasons to implement this kind of resolution process.
5. Paul Krugman at the New York Times points out that wages are actually falling in the United States. Here's a taste.
Some of the wage cuts, like the givebacks by Chrysler workers, are the price of federal aid. Others, like the tentative agreement on a salary cut here at The Times, are the result of discussions between employers and their union employees. Still others reflect the brute fact of a weak labor market: workers don't dare protest when their wages are cut, because they don't think they can find other jobs. Whatever the specifics, however, falling wages are a symptom of a sick economy. And they're a symptom that can make the economy even sicker.
6. Fiat is looking to take over Germany's Opel from out of the General Motors stable of dead and dying brands and add it to the remnants of Chrysler it is taking out of Chrysler's bankruptcy. The hard-charging boss of Fiat, Sergio Marchionne, (sounds like the guy who made the spaghetti westerns with Clint Eastwood) reckons he can build Europe's second largest car maker, the WSJ reports. He's dreamin'. Big cross-border car companies almost never work. Just ask BMW, which bought Rover in the 1990s and lost billions of euros, and Daimler Benz, which bought Chrysler and lost tens of billions. I predict this will all drag Fiat into bankruptcy too. The big 3 car companies in 10 years time will be Toyota, Ford (if it's lucky) and Renault-Nissan. 7. The Reserve Bank of Australia is expected to leave its key interest rate on hold at 3% at 4.30pm NZ time, Bloomberg reports. 8. The New York Times managed to get hold of Tim Geithner's diary from when he was New York Federal Reserve Governor and have run stories on how cosy he was with bankers. It turns out he was very cosy with journalists too, says Yvette Kantrow at TheDeal.com. HT Felix Salmon at Reuters who points out journos meet with bankers all the time. I'm just jealous. 9. Closer to home, here's a nice piece here from Matt Nolan at TVHE on the reasonably strong 5.3% wage growth announced yesterday. He explains how wages are a very lagging indicator. 10. And this is fun from Tom Scott on Stuff.