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The slow hunch, serendipity, error, inventive borrowing and the collison between order and chaos. Nancy Koehn looks at two new books on innovation.

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Research figures show corporate insiders are not buying into the rally in the U.S. stock market in Feb. 2012.

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China's state run companies constitute about 45% of China's economy, according to the U.S.-China Economic and Security Commission. This includes banks such as Industrial and Commercial Bank of China, China Petrochemical Corp. or Sinopec Group, and China Mobile.

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Policymakers have alot of mistakes and errors to avoid in the years ahead, things are by no means normal. And the normal of the future after the crisis is going to be one of slow growth, large deficits and high unemployment.

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A congressional oversight panel reported in October 2009 that fewer than 2000 of 500,000 loan modification applications in progressunder the Making Homes Affordable program of the Obama adminsitration had become permanent. When Treasury reports on the program in December 2009 its expected to report that the number of permanentloan modifications are in the tens of thousands out of 650,000 borrowers in the program. Mortgage companies are collecting lucrative fees on long term delinquencies so there is not enough incentive to make permanent loan modifications according to lawers defending homeowners.

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Citigroup remains extraordinarily leveraged, with tangible leverage at 47 times tangible common equity. JP Morgan's is 26 times and Goldman's is 21 times. The government's two preferred shares capital injections of $45 billion does not reinforce the common stock, which fell 20% on the 14 January, 2009, and the discarding of the universal bank structure this week does not adequately address the root problem of problem mortgage related assets and excessive leverage. The government's agreeing to to take a large share of losses on $306 billion of problem assets helps, but with the leverage being so high significant problems remain. So what are the options. Reducing leverage to where J.P. Morgan Chase is would take $35 billion in common equity, something that would make the government the owner of Citibank, as Citibank's market capitalization on January 14, 2009 was $25 billion. The risk of doing this would be that other large bank stocks also fall steeply as the market prices in a similiar outcome. And there are political considerations as giving capital to banks is not popular with so little bank lending to show constituents. The capital needs of Bank of America as it completes the acquisition of Merrill further complicates the picture. But stopgap moves like additional loss sharing agreements will leave Citbank's problems still unresolved. ...

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The loss of state support in the 1980's resulted in the gradual withering of the health care system in China as individuals bore the brunt of health care costs. Hospitals and clinics shifted to pay as you go system, with the emphasis on prescribing treatment that would boost income including costly tests.

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Citigroup is bleeding even as the government has ringfenced $300 billion in bad assets and its not likely to go under. The next step may be to get these bad assets into a bad bank as Bernanke has suggested. Citigroup is now divesting many of the assets like Smith Barney that were hastily put together by Sandy Weil as some kind of financial supermarket. None of the companies with their separate cultures melded together, and managing this was a huge undertaking which never really got off the ground. Now its all coming apart and Citigroup will go back to its core assets.

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Independent audit by the consulting firm Oliver Wyman of 14 Spanish banks.

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With 40% of the unemployment shown as longterm unemployed, U.S. Federal Reserve policies are focussed on bringing down these levels, which pose a risk to the productive capacity in the U.S.

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Ben Inker of Grantham Mayo sees profitability at U.S. companies at a high because of savings in labor costs while consumption has not declined because of government transfer payments and fiscal policy. He sees profits of U.S. companies declining in 2012-2013. This makes the U.S. stocks less likely to perform well in the future, especially the stocks outside of the blue chips which he sees as highly overvalued. A better choice in his view is in Europe and Japan which are undervalued. His funds have 39% in U.S. stocks and most of it in blue chip stocks. His view is that interest rate policy will not have a large effect as the changes will be very gradual, and going from zero percent interest rates to one percent interest rates will not lead to much change in economic activity. From his point of view the largest risk is in shrinking of profits at U.S. companies as the deficit comes down, because today workers are able to maintain consumption because of fiscal policy and companies are able to cut costs. In Europe the austerity cuts are being taken seriously and this will impact profits, so the U.S. will look better in 2012. But value will prevail in the long run as European and Japanese stocks are undervalued and the U.S runup leaves stocks overvalued in terms of future stream of profits....

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Noam Scheiber of NYT provides this illuminating account of how the changes in employment affected Hispanic Americans since 2004. About 500,000 jobs were created in the U.S. construction industry in 2014. Of this 315,000 jobs went to Hispanics with the highest number in California, Florida, Texas and Illinois, which have large Hispanic population. This has enabled Hispanic employment to reach the pre-recession levels in 2015 before this happens for blacks and whites, according to the Economic Report of the President. The drop in immigrants from Mexico crossing the border as economic conditions deteriorated in the U.S. in 2009-2012, and the stricter enforcement, has resulted in native born Americans benefitting most from the jobs created. Hispanics took the biggest hit following the recession in 2009-2012, with a loss of 700,000 jobs for the 3 million Hispanics employed in construction. During the 2004-2007 construction boom Pew Research shows 1.6 million jobs going to immigrants, of which 800,000 went to native born Hispanics, before the collapse in construction in 2009. This time the recovery is benefitting native born Americans most....

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The Economist points out that China's total debt of government, corporate and households has grown by about 100% of GDP since 2008. The 2009 crisis led to rapid increase in debt. It is now about 250% of GDP, according to the Economist. Slower growth of below 7% risks reducing China's ability to service this debt. About half of this debt is owed by state owned companies and property developers. China can use its sovereign reserves to continue supporting bank and state owned companies. Investor's are pricing bank shares to reflect about 10% of this debt as bad debt even though government estimates are much lower. The reserves provided China time to fix the banking system since 2008, yet the debt keeps growing and China has failed to take strong action in the last 6 years. Complacency is a problem, and the incentives for local governments to continue prior practices that increase debt continue. As Krugman and other experts have pointed out at some point the rules of finance will apply to China as they have for other countries that faced a debt crisis- Japan in the late 1980's, South Korea and other Aisan countries in 1997, and the U.S. in 2008. Even without a crisis through deft managemen and use of reserves China risks zombifying the economy as old loans are backed up by new loans, with the further risk of misallocation of capital or poor use of capital. This lowers productivity of capital and hurts development. With poor statistics such as the figure of 1% of debt being bad debt cited here, the problems of complacency can be magnified, as there is less reason for a strong response....

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Besides car sales the data in December 2009-Jan 2010 for a strong recovery in 2010 is ambiguous.