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On October 30, Sheila Bair heading the FDIC, the main advocate for reducing foreclosures by reducing the mortgage payments is in discussions with Treasury officials for a plan whose details are still being worked out. A key part of it is for the government to assume half of the losses on home loans that are incurred if mortgage companies agree to lower monthly payments for at least 5 years. The cost to the government is about $50 billion that would come from the $700 billion bailout fund. Right now loan companies are reluctant to reduce monthly payments because homeowners might defaul again or the owners of mortgage securities might file law suits. The funds would go to shoulder half of any future losses on default. For example if under a loan modification program 40% redefault and losses on loans are 55%, and $500 billion in loans are modified under the program, the total losses government would bear are $55 billion. This scenario is possible in a deep and prolonged housing and economic slump. This would be a gradual program if mortgage companies or companies with home loans or servicers of loans have to decide if they want to take advantage of this program, and time is critical as the foreclosures are accelerating and thisputs downward pressure on prices....

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Wildfires burn on 1.4 million acres in California as it seeks help from Australia and other places. These fires are the second largest in its history.

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Tesco's decision to exit the U.S. market in Dec. 2012. Tesco's U.S. plan was made after research showing buyers would favor smaller stores than large supermarkets, and more fresh products. Tesco made its entry in the U.S. market in 2007 in Nevada, California and Arizona in areas with new housing projects. When the mortgage crisis hit in 2008, foreclosures and the recession affected these areas where new stores were opened. Some of the ideas were lost in the implementation. The format that worked in Britain failed to takeoff in the U.S. Many stores were located in area where people were used to driving longer distances and could find a larger store with more selection a few minutes away. American buyers preferred to shop for name brands with more selections, Tesco carried more house brands. Experts say Tesco failed to establish a clear proposition to buyers. Tesco faces a loss of 1 billion pounds on the U.S. venture.

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A Wall Street Journal report -after interviews with former TEPCO engineers and executives- throws more light on the failure of power and cooling at certain reactors in Fukushima Daiichi that led to the nuclear meltdown. The difference not grasped at the time turned out to be the critical difference between the reactors where electricity to cool the reactors worked and where the the electricity failed. Of the 10 nuclear reactors at Fukushima, only the 4 with the earlier Mark 1 design failed. These reactors were the earliest reactors installed by G.E. beginning in the 1970's. The Mark 1 reactors were serviced by an American engineering firm called Ebasco. Ebasco designed the reactor buildings really small so that they would be compact and economical. Because of the small size of the reactor buildings the generators providing the electricity supplies to the Mark 1 reactors could not be installed inside the reactor buildings made of fortified concrete and were installed in buildings outside lacking similiar protection. These outhoused generator buildings could not withstand the tsunami, resulting in the loss of power and cooling for these reactors, and leading eventually to the meltdown. The reactors with the Mark II and later designs were installed along with the generators in the same fortified concrete buildings, and these survived the tsunami without disruption in power supplies and cooling. This critical difference was noted by older TEPCO executives who were intervewed, but nothing was done about this because of the added cost of making the major modifications that would be needed. The regulatory system also failed to catch the problems with the original blueprints and design for housing the reactors and generators for cooling reactors. In 2001 the original 30 year operating permit for the Fukushima Daiichi nuclear reactor was renewed, and again in 2011 for another ten year period. Japan's Nuclear and Industrial Safety Agency is part of the industry ministry, and not kept separate and independent from the nuclear industry, a structural flaw. The ministry considered its job to be promoting nuclear power, and increasing nuclear power from 30% in 2010 to 50% of Japan's electricity output. One inspection official says fundamental design and construction of the reactors from a 30-40 year old design were never looked at in safety reviews by regulators approving the extensions. He even goes to the point of saying that the reviews focussed on things like pipes and fittings, missing entirely the safety of the outhouse buildings housing the generators. One of the top TEPCO engineers says this difference stood out like a sore thumb when did a walk through during inspections. He failed to get the support from fellow engineers and Tepco executives for changes that would add to the cost....

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Half of the 109 economists and housing analysts polled in October 2010 by MacroMarkets LLC, expect home prices to bottom in 2011, and half don't expect home prices to bottom till 2012. Backing this up is growing inventory in many markets. The Wall Street Journal's latest quarterly survey of housing market conditions in 28 major metropolitan areas showed inventories of unsold homes were up in 19 markets at the end of 3rd quarter 2010, compared to the prior year. The largest increases were in California- in Los Angeles, Sacramento and San Diego. Only parts of Texas, and Washington D.C, and some other areas which have shown decent job growth are an exception. In the Realtor's Report, median home price fell 2.4% to $171,700 in September 2010 from a year earlier. This data does not include the suspension of foreclosures due to title defects, which will further dampen prospects of a recovery in housing. This will affect New Jersey, Florida and other "judicial" states, where the banks must complete foreclosures through court. At the current sales pace it would take 10.7 months to sell the 4.04 million home inventory of unsold homes, according to the recent NAR report. Six to eight months is considered normal. This does not reflect the "shadow" inventory of homes in some stage of foreclosure, which is estimated at around 4 million, creating a problem that even current low rates for a fixed rate mortgage of 4.21% cannot solve....

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France's rail strike goes into its second day with large stations such as the Gare de Lyon deserted, stations empty, platforms deserted and millions of travelers unable to get to work. French unions are testing the French government's effort to change the generous benefits granted in a different era for rail and other workers. Workers at SNCF France's rail system can retire in their fifties even as workers now live longer lives, as early as at age 52.  Workers are hired for life. Pensions are given at the highest salaries and housing is subsidized. SNCF is $68 billion in debt. Costs are much higher to run the system than in Germany. The unions are intent on preserving these benefits from a different period.  This issue came up in the election debates about how the pension system can be put on a good basis with proper funding. Macron has taken a firm stand and the centrist parties in parliament see this as a symbolic fight to changing the future of French society and the economy. The reforms will raise age for pensions, and affects only future hires not the current ones. Yet the unions have chosen to fight this.  Everything depends on how the public and commuters see this. One sign of the changes this time compared to successful strikes by unions in the nineties is that the percentage of employees of SNCF declined on the second day from 33 percent to 29 percent. Polls show a small majority of the French sees the strike as unjustified and Macron's popularity ratings going up slightly. The prestige of the labor union CGT and its strategy is also at risk. Macron's view is that overprotected entities in the French system- the "Statutory Society" referring to the Statute of Railway Workers from a different era- block changes in social and economic life that would increase social mobility. This and France's future is being put to the test.   ...

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Andy Grove makes this passionate plea for the dignity of workers in America in 2010. It is worth reading in 2020 what this founder of Intel Corp and pioneering spirit of Silicon Valley has to say. Andy Grove of Intel says there is something seriously wrong when the unemployment rate in the Bay Area is higher than the 9.7% national average for the USA. American companies have added jobs like crazy in Asia, but things are sputtering back home. Hon Hai has 800,000 employees and makes most of the electronic and computer products for American companies. Grove says startups are not the answer, unless they scale up and create jobs the way Intel did starting back in 1968, with a $3 million capital infusion by investors. The move from the first production model to mass production is critical, as companies hire thousands of people. Innovation and scaling up have to go together. He makes his point clearly by pointing out that Apple has 25,000 employees. For every Apple employee there are 10 employees in China working on Apple iMacs, iPods, iPhones. And he adds that the same 10 to 1 relationship applies to other U.S. tech companies. And here Grove asks the tough question by first posing an answer. He says it sounds like- no big deal, we keep the high paying jobs, we keep most of the profits, but what kind of society are we going to have with highly paid professional workers and lots of people unemployed? And he doesn't mention that there are a lot more young people unemployed. He says the US has become very inefficient at creating tech jobs, and it would be a great mistake not to act decisively early on. And adds that the investments in such areas as solar power and electric car batteries have to be made early on to maintain leadership in these areas. Grove faults academics like Alan Blinder and others who say loss of manufacturing jobs and whole industries was no big deal. The U.S. has forgotten the value of manufacturing jobs. He wants to see America focus on jobs and rebuild its industrial base. And less of transferring engineering knowhow and new technologies overseas, technology that can help bring innovation and scaling up of factories at home. In his view individual companies doing their own thing, in a misguided fashion that jobs don't matter, is not the answer to the situation we face. The industrial economies of Asia, China at the present day, have focussed on jobs and technology, and scaled up. Grove reminds readers of the situation in America in 1932, when jobless veterans demonstrating outside the White House in large numbers were dispersed by soldiers with live ammunition and fixed bayonets. This makes him shudder at the very thought of it, and brings back memories of his early years in Hungary, as a young man in 1956. Are we listening? ...

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Greg Ip of the WSJ provides this exceptional report offering readers remarkable clarity on what the Republican Tax Law does- its high and low points.  High Points 1. It reduces the corporate tax rate to bring it in line with other advanced industrialized countries. The corporate tax rate in Germany and Japan is 30%, in the UK it is 19%. For 5 years businesses can write off capital equipment immediately instead of depreciating over a couple of years. This could boost investment and growth. 2.  The law takes aim at deductions that led to distortions. It limits the mortgage interest deduction, and caps the deduction for state and local taxes. This removes the incentive to pay more for homes that exacerbated the housing crisis in 2008. The Alternative Minimum Tax is largely removed. The Low Points 1. The biggest drawback is that lawmakers did not properly fund the tax cuts. Of the 10 costliest tax breaks nine were not touched, including employer health insurance, retirement savings, capital gains. Only the state and local taxes deduction was reduced. And a new tax deduction  was created, a 20% tax deduction for small business (proprietors and partnerships) paying taxes on their individual tax returns. Taxes on the wealthy or value added taxes, reducing tax breaks, is how other advanced industrialized countries paid for the corporate tax cuts, but did not happen here. Additional economic growth  to generate added tax revenues is the way Republicans in Congress say this is funded. Yet this is a questionable assumption as Britain reduced the corporate tax rate to 19% without seeing a surge in economic growth, as Greg Ip pointed out in an earlier WSJ article. At best the Joint Committee on Taxation estimates $500 billion over a decade in added revenues from added growth leaving $1 trillion to be added to the deficit. The WhartonPenn Budget Model (WPBM) estimates only $140 to $367 bill from the additional economic growth resulting in added tax revenues. Under this model only 0.03 to 0.08 percent added U.S. economic growth per year is expected from the Republican Tax Cuts. Such a situation would be bad  for the U.S. as the gradual improvement in Debt to GDP ratio to 78% following the financial crisis of 2008 would be sharply reversed taking the ratio to 97% by 2027. An unsustainable trajectory which will require tax increases in a few years and hurt investment in education, health and infrastructure into the future. This is what worries many experts most on both sides of the political spectrum today about what the Republican Congress has pushed through for a legislative "victory." This is why experts believe this is not serious tax reform and will require a new effort after 2019.   ...

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The Public-Private Investment Program of the U.S. Treasury Department has not had a good start. With most banks passing the U.S.government's stress tests and raising $50 billion in the markets, PPIP which was intended to to help resolve the situation of all the toxic securites siting on the bank's books, has gone the way of all the prior efforts to solve this problem. Simply postponed this time hoping that the housing market recovers. With the Rogoff-Reinhardt study showing that it takes about 6 years or longer before housing recovers from such aserious crisis as this one, it would be 2012, before one sees an improvement. See the link to the Business Week analysis that shows housing markets in the USA having some aspect of normalcy in 2012. Yet even this analysis is using an optimistic scenario, because it assumes Moodys Economy.com estimates of economic growth for GDP of 4-5% in 2011- 2012. This assumes the consumer debt that has reached over 100% of GDP will be reversed quickly in 2010, and the the factory capacity utilization currently at 68% and expected to drop further in 2009- with more automobile manufacturing capacity remaining to be scrapped -will recover quickly in 2010-2011. This is unrealistic considering the combination of factors at work. Here Devin Leonard talks to PIMCO chief Bill Gross, who with Warren Buffett and PIMCO CEO Mohammed El-Erian, are key proponents of the PPIP program. Both El-Erian and Warren Buffett say they conceived independently of such a program, in which toxic securties are taken off bank's books with government help. As PIMCO is one of the largest traders of mortgage bonds in the country and has years of successful experience in dealing with mortgage bonds, the New York Fed under Geithner turned to PIMCO for advice in 2008. By this time PIMCO was under ownership of Allianz, a German insurer, which bought PIMCO for $3.3 billion in 2000, with $233 million and a $40 million retention bonus going to Bill Gross. Bill Gross describes how the program would function. PIMCO puts up $500 million, and Treasury matches this with $500 million. Analysts estimate that this partnership would be able to attract as much as $ 4 billion in low interest financing from Treasury and the Fed. Gross says that some of these securities pay as much as 14% interest, and even with a 70% default rate, this partnership could make $250 million a year on the $5 billion partnership, or a 5% return, with PIMCO making a 25% return on its original investment. This isn't exactly pro bono work as Buffett had originally suggested to Bill Gross in the midst of the crisis. But a more fundamental concern is that no one really knows exactly how much of toxic securties the banks have on their books, even though estimates have been made. If this is closer to $1 trillion, PIMCO's expertise and efforts will simply fall short of dealing with a problem of this size, and the window dressing of a problem of this magnitude could only hurt efforts for the eventual resolution of this problem. If housing does not recover as is expected till 2012 at the earliest, and the economy continues to deteriorate in unemployment and factory utilization, then the toxic securities on the bank's balance sheets may pose a bigger problem that will require serious action....

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With 57% of Italy's sovereign debt owned by Italians, a lot depends on Italians continuing to invest in Italian government bonds. With the higher interest rates on the bonds Italians have one more reason to continue to do so.

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How Sweden in 1992 and is Finance Minister Lundgren faced a similar crisis in its banking system after a housing bubble in that country collapsed. At that time the way Sweden approached it set aside 65 billion kronor or $11.7 billion dollars then or $18.3 billion in today's dollars, 4% of its gross domestic product, for rescuing failing banks. The US plan for $700 billion is roughly 5% of gross domestic product. But the way Sweden did it it extracted full price from shareholders and rescue was arrranged only after the Swedish government got a big equity share in the banks that were rescued. Lundgren is concerned that the US plan does not provide for the US government to take big equity stakes in the banks that receive government money. By selling off these shares in better times the government of Sweden has recovered most of the money depending on how its calculated. However the US government has taken big ownership stakes in Fannie, Freddie, and in AIG. And the plan is not yet spelled out. In terms of its size its similar to the Swedish plan an in this sense its similar, a big government effort to take a decisive and complete approach to the problem. In the short run this may create problems for the dollar according to currency experts like John Taylor, but some experts like currency strategist at Deutsche Bank think that in the longer term this rescue plan hel[ps American macroeconomic fundamentals and in doing so will help the dollar. Another factor is the European economy and as Europe also faces some problems of its own, from a housing bubble standpoint Britain, Ireland and Spain fall in the same boat as the Americans, and Germany may also have some bad loan problems of its own, so the macroeconomic fundamentals may weaken in Europe over time and this might also favor the dollar vs the euro in the longer term. ...

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Zombrun describes the effect of low interest rates on savings for the bottom half of households in the U.S., the pressure to invest in stocks without the skills and experience of the better educated part of households in the top 20% of households by wealth and income. This resulted in a negative effect, a depletion of savings compared to an increase under a higher interest rates scenario with less pressure to take risks in a volatile stock market. This is the direct cost of the crises in stock and financial markets of 2000 caused by a internet bubble, and the larger crisis of 2008-2009 caused by the bubble in mortgages and housing. The secondary effects of the mortgage price bubble and faulty mortgage securities was in the millions of homeowners who went into foreclosure in 2009-2013, which further depleted wealth and savings of households in the bottom half lacking the experience and skills to navigate this type of housing market. The failure of the Obama administration to stem the foreclosures with practical steps which would have helped not hurt the banking sector, as suggested by FDIC's Sheila Bair and Harvard economist Martin Feldstein in many WSJ op-eds in 2010-2012, added to the erosion of savings and wealth of the bottom half. Minorities in particular were hit hard. A third effect is of communities across America that are feeling the effects of job migration to emerging markets such as China that has been underway as part of the globalization of the last three decades. A fourth effect in the rising cost of education, particularly since 2000, has reduced the opportunities for struggling working class people to enter the middle class and enjoy the higher incomes in precisely the very period when the divergence of incomes between less educated, less killed people and the more educated and better skilled people was taking place. The last two effects were neutral as part of the overall process of emergence of a globalized economy with a premium on more skills and education, requiring action by the government, universities and business for a concerted effort to mitigate in some places the negative effects and enhance in other places the positive effects. The first two effects were man made crises which required managing in constructive and positive ways for the entire American people, taking risks where necessary such as fears about the financial system if foreclosures did not go through. The risks of a long period of extremely low interest rates for savers and the middle as well as working class were poorly understood by the Fed since 2000. A similiar crisis is being faced in Europe with extremely low interest rates. Janet Yellen was only doing the honest thing by acknowledging how far and how different the situation is now compared to the period of three decades following 1945- a question not just of values cherished in America, also of the need for societies to advance through creation of wealth across all sectors of society or regress, as described by Smith in the Wealth of Nations....

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About $50 billion of the $170 billion in government money that went to AIG has gone to counterparties that bought credit default swaps from AIG, couterparties like Goldman Sachs, Merrill, Societe Generale, and Calyon another French bank. The Fed has resisted disclosure of these names. If the Fed had not done this insurance experts say some of these banks would have taken hits on their capital cushions, which they keep as reserve against such losses. And they say these banks would have been stretched if that happened. These counterparties were made whole against these losses. Critics ask why these counterparties should not have been compensated with a discount, so that they bore some risk and took a small haircut. But it appears that with the banks in a fragile condition the Fed decided to take this step.

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AIG CEO's own account of what happened at AIG and the bonuses.

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Share of mortgages at least 30 days past due declined to 6.39% in the 4th quarter 2013, down from 7.09% a year ago, according to the Mortgage Bankers Association. Foreclosure inventory declined to 2.9% for 4th quarter 2013. Three fourths of the troubled loans are from the period before 2007. The improved economic situation and lower unemployment has helped. Also helping is the increase in prices, with home prices up 8.4% in Dec. 2013 over the prior year, according to Black Knight Financial Services. The price increase has reduced the number of homes "under water"- owing more than the homes are worth- from 19% in Jan 2013 to 11.4% in October, according to Black Knight. Banks have also tightened their lending practices. The progress is uneven with California and Arizona, some of the worst hit states doing better in 2013. Judicial states such as New York and Florida, where courts have to approve foreclosure by banks, are making gradual improvement. About 1.5% of California homes were in foreclosure by the end of 2013, compared to 8.5% in Florida, according to MBA. In 2014 price improvements are expected to slow, and the 10% of homes in various stages of delinquency or foreclosure still remain as a hangover from the housing crisis that slows U.S. economic recovery....

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Shiller says the underlying problems in the economy such as the sociological factors that led to overoptimism about real estate prices and the dot com stocks play out over many years. They are lost in the headlines about the Fed or some short term developments that get cited along with the bad economic news about unemployment. Yet these underlying factors such as the bubble phenomena in housing are what makes these problems so intractable. The bubble in home prices caused a 131 percent rise in home prices in the period 1997-2005, 85% in inflation adjusted terms, according to the Case-Shiller National Home Price Index. The long term expectations of price increases well into the indefinite future lag the price decreases as the bubble bursts, even as the expectations decrease. For 2012 the Case-Shiller survey shows expectations are for a 1% increase in prices. With the increase in the personal savings rate from about 1% in 2005 to about 5% today, Shiller says consumer spending will not support a strong recovery....

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Reinhart and Rogoff, 2 eminent economists who worked together on a book on financial crises since 1300, think that the current crisis has much deeeper to go, and the slight recovery in financial markets does not suggest that the imbalances in the economy are corrected. They point to economic weakness as a mechanism by which these imbalances are corrected. For example the economic weakness may be corrected by the weakening dollar resulting in accelerating exports from the U.S. The 1987 crisis had overvalued stock markets relative to earnings as an imbalance, and the 1998 LTCM crisis excessive hedge fund borrowing. Once these underlying imbalances were corrected the economic recovery was back on track. But the Fed's bailout of Bear Stearns has only put the financial markets on a safer footing. It has done little to correct the basic imbalances in the economy of over indebted consumers, and of lost wealth in housing, at the very moment that there is restricted access to credit. The financial market crisis only opened up the weakness from the extremely high leveraging used by the investment firms something like 1:30 by firms from M. Lynch to Goldman Sachs. The Fed's actions gave them time to shore up their finances and recover and the interest rate cuts and government checks help the economy, but not significantly enough to promote investment or increase consumption. The government checks would be used experts estimate for paying down debt and in this way it helps indebtedness a little, but does little to support consumption or promote investment, This the Fed's action also fails to do. The economy contracts and exports help the economy in recovering. The contraction itself say these economists is a necessary mechanism to make the adjustment in every crisis, until something else like exports helps create a recovery. Take December 1997, the Korean crisis. In this crisis the Korean companies invested heavily and were overextended , they borrowed heavily from the banks which in turn borrowed from overseas in dollars. When the Korean currency hit a record low against the dollar it became difficult for Korean companies to pay the increased cost of the dollar loans and many companies failed. As investment was slashed unemployment went up from 3% to 7.9%. Ted Truman, who worked on the Korean rescue effort as a Fed official, is now a scholar at the Peterson Institute of International Economics. He sees as similar to the overexpansion of housing and consumption in the U.S., the overexpansion and excessive borrowing in Korea's corporate sector in the years preceding 1997. After the rescue in Jan 1998, the Korean currency recovered by rising 63% in that year. Did this mean the crisis was over, just as the Bear Stearns bailout leads to gradually settling markets this year? During 1998 the Korean economy sank into a deep recession, the economy shrank 6% in 1998 when it was used to growing at 8%. Nouriel Roubini, another economist, who heads RGE Monitor, a financial and economic forecasting service, sees it this way. First, the mortgage loan imbalances are set into correction mode mechanism, then second, the economy contracts from housing and consumer debt going in reverse mode, then the third effects come into place as this feeds back into the financial system in the form of defaults on industrial loans, municipal bonds, and consumer credit. Additional sequences are in finacial system distress and government and Fed response to set the corrective mechanisms in place, but to also reduce the distress to the financial system and ensure that it is safe. We are where the first effects have ocurred, but before the second and third effects which should take place sometime in 2008 and 2009. The importance of understanding this cannot be overstated for business, planners, and investors because conducting business in this environment or planning or investing will require special skills and temperament which are different from the skills and temperament required in the expansion mode if one is to produce good results....

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The failure of the economics profession to produce any red flags for this economic crisis, and the failure of economists to come to any consensus on what works to come out of this crisis, along with the huge confidence with which the economics profession displayed as the economy sailed along in most of the post war years, is one of the very noticeable things as one reflects on what has happened. Journalists like Peter Coy at BW who wrote this report followed the housing market for BW and raised red flags long before the crisis hit, just by looking at the facts. So its clear that looking at the facts through the lens of a particular theory of economics, or the lens of some ideological bias, or the lens of triumphalism, can handicap economists. There are economists who believe in the stimulus, and economists who don't believe in a stimulus, and others who think the economy reaches equilibrium of itself if left alone, and economists who believe in tax cuts. Were it not for the fact that the risks in a time like this are really great in depending on one or the other for advice if things don't work out the way they think, this would not be such a big issue. But a lot hangs inthe balance. Which is why decisions are based on what is actually happening on the ground, and by getting a good sense of that, and a grasp of real conditions, and getting agood sense of what will work in that particular situation, and not just hoping that things will work out according to some theory or conviction in the mind. And those who execute or manage the economy instead of teaching a class, have to be aware of the great responsibility for the lives of millions of people here and in poor countries around the globe, whose lives and the lives of their children, nutrition, health and education depend on their decisions, not just when they are in office but years after they have left. And for this reason exercize needed caution....

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A discussion on the drying up of capital available to the financial institutions for deleveraging, and the way deveraging puts even more pressure on home prices and lower consumer spending also puts pressure on housing prices by delaying a housing recovery. And the pros and cons of letting Lehman Brothers fail. Sovereign wealth funds are losing money on their investments as stock prices of these firms fall, and their investments are worth much less, resulting in criticism at home. Korean economy has problems of its own so regulators in Korea were not eager to support state owned Korea Development Bank taking a large stake in Lehman. When Mr Fuld, Lehman's CEO stood out for a better deal they may have flagged their concerns to KDB negotiators. And middle eastern sovereign funds are looking for better opportunities in other parts of the world like India, Asia or closer to home. Private Equity funds which have about $450 billion are not able to increase stakes above 25% because of regulations that make them bank holding companies subject to regulators when they go above that limit. Private equity funds like Blackstone and Carlyle are asking for these restrictions to be lifted to be able to invest more in capital starved financial institutions. Meanwhile with share prices plummeting with Lehman losing 90% of its share price it will be harder to raise capital. Merrill lost 17% of its share price in one day so it affects other institutions. Regarding the pros and cons of letting a firm fail the Fed's and Treasury's fear is that markets today are bound together by complex financial instrments like credit default swaps and certain money market instruments that firms and regulators have limited experience handling in a crisis and the concern is that letting a firm fail might have ripple effects. Regulators are addressing the clearing and settling of these instruments but still need time to finish. And there is no formal procedure for disposing off the assets of an investment bank if it fails. And behind all this is the realization as Lawrence Meyer, a former Fed governor, who is vice Chairman of Macroeconomic Advisors LLC puts it : "There's no trend of improvement. It's not improving even slowly." ...