The Stash

The good folks at Marginal Revolution have a great running feature in which they flag countercyclical assets--that is, things that become more valuable or sought after when the economy nosedives. Today's countercyclical asset? Sales of Ayn Rand’s “Atlas Shrugged” have almost tripled over the first seven weeks of this year compared with sales for the same period in 2008. This continues a strong trend after bookstore sales reached an all-time annual high in 2008 of about 200,000 copies sold. Huh.

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Shoes, Dropping

Today's Wall Street Journal has an ominous tidbit in its piece on the British government's efforts to prop up the Royal Bank of Scotland: Banks have moved from trying to unravel complex securities backed by subprime-mortgage loans, which ignited the crisis. They now face a broader array of problems resulting from old-fashioned loans to property developers and companies. I've heard similar things this week. One informed source was particularly worried about commercial real estate--where, he said, the losses will be very large and are only just beginning. --Noam Scheiber

The FT has a great piece sorting through how much the banks' mortgage-related assets might be worth. The answer for the particular assets it looked at: not much. The highest-grade stuff came in at about 32 cents on the dollar; the mid-level stuff at about 5 cents. As Paul Krugman points out, people who think the banks can recover without something drastic like nationalization believe the banks are fundamentally solvent, just victims of a short-term market panic.

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Obama And The Left

Chris Hayes has an interesting insight into liberals' relationship with Obama in his column this week: For several years ACORN, CRL and Congressional progressives have pushed for a reform to bankruptcy law that would allow judges to modify mortgage terms on a primary residence. On the campaign trail Obama had signaled support for the proposal, but since becoming president, [ACORN's Austin] King notes, "he's rolled us on this twice. On the first TARP debate, he said we should not include bankruptcy protection. Then on the stimulus, he said we should not include bankruptcy protections.

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Ben Smith spots something in Paul Volcker's testimony before the Joint Economic Committee today that I've heard from people in contact with administration officials: "There is an area that I think is, I don't know, shameful is the word," Paul Volcker said this morning at a Joint Economic Committee hearing. "The secretary of the treasury is sitting there without a deputy, without any undersecretaries, without any, as far as I know, assistant secretaries responsible in substantive areas at a time of very severe crisis.

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Readers of this blog may have been a little confused this morning. On the one hand, I've reported that Congress isn't likely to give the administration another cent for the banks, at least not any time soon. On the other hand, the reports on Obama's budget suggest he's asking for another $250 billion in bank bailout money (and that's a net cost; the gross number is $750 billion).

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First China, which is particularly relevant as Obama announces a $634 billion "reserve fund" for health care reform over the next decade. (Though, in fairness, about half is paid for by tax increases, and the administration is looking for cost savings in Medicare and Medicaid to help cover the rest.) Anyway, Brad Setser has been following purchases of U.S. debt and has picked up something extremely interesting.

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Paul Krugman and Josh Marshall both make a political economy point I'm trying to tease out in my piece for this week. As Krugman puts it: As long as capital injections are seen as a way to bail out the people who got us into this mess (which they are as long as the banks haven’t been put into receivership), the political system won’t, repeat, won’t be willing to come up with enough money to make the system healthy again. Agreed.

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  You may recall that Lindsey Graham has been strongly intimating we should nationalize our banks. Not only that, but he says several other Republican senators are open to it. So why won't Democrats, many of whom feel the same way, at least discuss it with him? Obviously one issue is the enormous complexity, which everyone would like to avoid. But the bigger hold-up is that Democrats just don't trust Graham. The same senior Senate aide I spoke with yesterday told me, "I think they’re betting on failure. I don’t know what his angle is.

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We already knew there was a crisis of confidence about Citigroup. It appears there's also a major crisis of confidence within Citigroup. As the Journal reports in its terrific page one story this morning: The [federal government] scrutiny has Citigroup executives second-guessing everything, right down to the fresh-baked cookies offered at a recent corporate retreat in Armonk, N.Y.

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