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The euro moves closer to a fiscal union. See the interview with French finance minister Lagarde. This mean conditionalities to loans made to member countries in financial crisis. The Journal editorial asks how readily will the Irish or Spanish people accept conditions, reforms and tax increases set by German and French leaders. EU leaders have decided that the recent change does not require approval in eurozone countries. The option of debt restructuring with longer debt repayment terms and haircuts for investors, with German and French banks accepting losses.

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Richard Haas, President of the Council on Foreign Relations, points to the need to reallocate the resources that are tied down in Afghanistan, to other needs in the area of national security. This especially true he says, considering the limited US interests in Afghanistan and the other threats in national security that the US needs to address around the world. He points to the grave threat to national security arising from the US deficit and the country's finances, with the $125 billion allocated to Afghanistan being a significant contributor to this. Savings in Afghanistan can be used to strengthen defense needs in other areas such as North Korea and Iran , modernization, and for reducing the deficit. He sees the resources spent in Afghnistan being a strategic distraction when other threats are building with nuclear developments in Iran and N. Korea. He cites the intelligence findings that the situation in Afghanistan will not improve with the Taliban connections in Pakistan, and the lack of a good partner in the government there. As for Pakistan, Haas says that the situation there is not to be understood through Afghanistan. The threats there are not external, they come from deep divisions within Pakistani society, and poor governance for most of the period since independence in 1947. The US should scale down to counter terrorism operations with a smaller force closer to the troops before the surge of 30,000, and not engage in the state-building that it is currently doing. On the efforts by Gen. Petraeus to get more resources, Haas says Petraeus is looking at the situation from the area of operations in Afghanistan, whereas the President has a different role. The President has to address all the challenges the US is facing now and will face in the near and medium term future, and he has to do this with the limited resources available for national security....

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James Grant reviews the book by University of Chicago Professor Bernard Harcourt, "The Illusion of Free Markets." Harcourt points out that free-range capitalism, with no controls or rules, is a myth. Harcourt says that the state is present in all markets. There is no free enterprise, only the fable. It is the government that grants a charter to the Chicago Board of Trade, the government lays down the rules for a futures contract, and the government protects the property interests of wheat wholesalers. Grant says that the "illusion" of free markets may just be the American people's collective aspiration to less government and more individual liberty.

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Lehman used transactions called "window dressing" as a way to show that it was burdened with less debt than a correct accounting would show. This was done through Repo 105 transactions where the bank used repurchase agreements or repos- a form of short term borrowing that lets banks take on more trading risks. Lehman lowered the repo debt at the end of each fiscal quarter. The bankruptcy examiner's report shows that Lehman moved about $50 billion in assets off its balance sheet. Lehman labeled these transactions as securities sales instead of loans, to show investors that it was actually in better shape financially than it was in reality. This was done on a quarterly basis in 2007 and 2008, according to the bankruptcy examiner's report. The New York State Attoney General's office is investigating this and the role of the auditor Ernst and Young in approving this practice, which goes back to 2001.

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Test drive of a Nissan Leaf in a Michigan winter. The cold weather significantly cuts into the car battery's capacity. The heater alone can take up 25% of the energy. This Leaf had 91 miles of driving range on its readout. Nissan says the car has a 100 mile range. The EPA required Nissan to state the range as 73 miles. In wintry weather in cold weather states the range can be much less. For this reason Nissan is first introducing the Leaf in warm weather states such as California and states in the southern US.

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The maximum that can be paid out to executives in upfront cash for bonuses is 20% under the rules set by the European Union starting in 2011. And the amount of time that at least 40% of an EU banker's bonus must be deferred is 3-5 years. The US has not set up similiar rules restricting up front cash bonuses to prevent executives from taking excessive risks. During the 2008 financial many banking executives collected huge bonuses by taking excessive risks, even though the banks suffered huge losses after the departure of the executives. Now the SEC, the Federal Reserve and other government agencies in the US are reviewing the rules. Projected pace of Wall Street profits in 2010 are 28.7 billion for 2010, and the fear is for a repeat of the situation in 2008 as the US has no rules similiar to the EU. Britain's Financial Services Authority passed similar restrictions recently. The Dodd-Frank legislation for financial reforms requires the pay related regulations to be set by April 2011. That legislation specifically prohibits any bonus plan that "encourages inappropriate risks" at financial firms with more than $1 billion in assets. The view of the European Union's financial services commissioner, Michael Barnier, is that not enough has ben done in this area in the US, and doing nothing is to ignore the right lessons from the financial crisis....

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David Carr writes about the movie "The Company Men," and how it should be a must see for American business. He says the movie uses the plot of a couple of rich guys losing their jobs, to ask one of the big questions for today: How is it that corporate profits and unemployment can be so high at the same time. And companies have a large amount of cash raised in capital markets at the same time that only a fraction of that is being invested to create new jobs.

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Rising bond yields for the bonds of Germany, USA and Spain are seen for 2011. The absence of solutions for deficit reduction after the passing of Bush tax cuts in the US, and the debt crisis in Europe, create a situation with the potential for sovereign shocks in 2011.