File under amazing things you can see in NYC.  Click the picture to go Neither More Nor Less and see the entire set.

From Naked Capitalism,

The idea of a US partial default is far from a loony line of conversation; we did it less than 40 years ago.

So Goldman lends money to its employees (who are being caught by capital calls in funds they are invested in) who then give the money back to Goldman?  Does that rhyme with Ponzi?

Goldman … is offering to lend money to more than 1,000 employees who have been squeezed by the financial crisis. The loans, offered via e-mail last week, could range from a few thousand dollars to hundreds of thousands.

[...]

It is unclear how many Goldman bankers and traders will take up the bank’s offer. The funds periodically require investors to add more money, and late last year, Goldman’s most senior management and board began to realize some employees might have trouble living up to this obligation after receiving low bonuses, according to a person briefed on the situation.

Employees in the funds are contractually obligated to meet requests for more capital. Several funds have such capital calls scheduled for April. Employees who fail to make the payments risk losing their jobs, according to a person familiar with the situation.

Via NYT.

This, in addition to the fall of the dollar this week, could have some impact on the Fed’s planned $100 billion sale of cash-management bills.  From the WSJ,

Foreigners sold a net $60.9 billion in long-dated U.S. securities in January, after buying $24.3 billion in December. Including changes in banks’ dollar holdings, short-term securities and nonmarket transactions, net foreign capital outflows totaled a record $148.9 billion in January, compared with $86.2 billion in inflows in the previous month.

Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp., said the big outflows are a concern and could represent a trend away from the flight to quality that has boosted purchases in U.S. assets in recent months.

“This was a truly awful report, throwing into question the funding of the U.S. current-account deficit,” he said in a statement.

This might be where the rubber meets the road, so to speak.

Perhaps just a comment, perhaps there is more to it?  Even after the Secretary of State became a bond saleswoman for a day.  From the AP,

China’s premier expressed concern Friday about its massive holdings of Treasuries and other U.S. debt, appealing to Washington to safeguard their value, and said Beijing is ready to expand its stimulus if the economy worsens.

From Vanity Fair, a classic, textbook definition of  the “Narrative Fallacy” from the Black Swan by Nassim Taleb, and how it leads to people not recognizing the real reason behind an event.

Icelanders—or at any rate Icelandic men—had their own explanations for why, when they leapt into global finance, they broke world records: the natural superiority of Icelanders. Because they were small and isolated it had taken 1,100 years for them—and the world—to understand and exploit their natural gifts, but now that the world was flat and money flowed freely, unfair disadvantages had vanished. Iceland’s president, Olafur Ragnar Grimsson, gave speeches abroad in which he explained why Icelanders were banking prodigies. “Our heritage and training, our culture and home market, have provided a valuable advantage,” he said, then went on to list nine of these advantages, ending with how unthreatening to others Icelanders are. There were many, many expressions of this same sentiment, most of them in Icelandic. “There were research projects at the university to explain why the Icelandic business model was superior,” says Gylfi Zoega, chairman of the economics department. “It was all about our informal channels of communication and ability to make quick decisions and so forth.”

Truly classic.

Russia is not a big enough player for this to make a marked difference, but this is what happens when your financing become a foreign policy issue.

Russia banned investment of its $83.7 billion National Wealth Fund in bonds issued by foreign government agencies such as Fannie Mae and Freddie Mac, the Finance Ministry said on Thursday.

The ministry said earlier on Thursday it had also banned investment of its $136.3 billion Reserve Fund in foreign government agencies’ bonds.

A categorization of the Icelandic banking system,

You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets.

From Vanity Fair.

In other words, from Tony Shearer,

“They were very different,” he told the House of Commons committee. “They ran their business in a very strange way. Everyone there was incredibly young. They were all from the same community in Reykjavík. And they had no idea what they were doing.”

Was doing some research on average compensation last week and came across this interesting bit of information.  This information is from the Employer Costs for Employee Compensation Summary put out by the Bureau of Labor Statistics.

In September 2008, private industry employer compensation costs averaged $27.07 per hour worked.

In September 2008, employer costs in state and local governments averaged $39.18 per hour worked.

On the face of it, I never thought there would be a differential between the two, never mind that much of one.  Kinda yikes.

A bit old, but I have been busy.  Paths to Repudiation.

As readers of this blog and my newsletter are aware, I have laid out the case whereby the United States eventually repudiates its public debt. The means by which this happens is unclear. There are several paths to the same place however, and it’s not necessary to choose only one method of ultimate default. All the usual methods will do, and I am now confident we’ll witness most of them in the next five years.

A short read where he lists a couple of plausible scenarios.