OK, to some degree I'm still catching up with late last week:

• Bill Gross has a piece out in the FT asking the obvious question:

  How could Ambac, through the magic of its triple-A rating, with equity capital of less than $5bn, insure the debt of the state of California, the world’s sixth-largest economy? How could an investor in California’s municipal bonds be comforted by a company that during a potential liquidity crisis might find the capital markets closed to it, versus the nation’s largest state with its obvious ongoing taxing authority? Apply the same logic to the gargantuan size of the asset-backed market it has insured in recent years – subprimes and CDOs in the trillions of dollars – and you must come to the same logical conclusion: this is absurd. It is as if Barney Fife, television’s Sheriff of Mayberry in The Andy Griffith Show, promised to bring law and order to the entire country.

• Mish's endorsement of Obama is, to me, yet another example of how broad his appeal can be, especially as people's "first choice" candidates are dropping out. It's also an example of how the war now cuts across lines, and war opposition has come to include those fiscal conservatives who just don't think it's an effective use of our dollars:

  The public is sick of this war for economic reasons. Polls show the single most important thing we can do economically is leave Iraq. That's all you need to know. There are plenty of reason to vote against Obama. I for one, will not like many of the programs he will support.

  But there is one powerful reason to vote for him. That one reason is enough.

  Obama is smart enough to understand you cannot bomb enemies into an attitude change and it is a waste of money to even try.

• Barry explores previous global financial crises in two pieces published over the weekend. The second one, looking at Norway in the late 80s was quite interesting but both were quite informative.
  

  Norwegian Hangover Cure
  

  • Private solutions were explored before the government intervened.
  
  
  • Share capital was written down to zero before committing public funds.
  
  
  • The government acted swiftly to limit contagion, but did not provide a blanket guarantee.
  
  
  • Liquidity support was given to illiquid, but solvent institutions.
  
  
  • The government did not use an asset management company.

  This is a rather intriguing guide to resolving the current sub-prime debacle. Note that the Norwegians avoided any moral hazard, refused to bail out speculators...

  ...The alternative leads us to a situation where grossly speculative profits remain private, but systemic risk is public. This would be a wholly unsatisfactory conclusion.