That’s a big question here in Asia at the moment, not only because the city recently announced a dismal negative 7.8 percent GDP growth thanks to the financial crisis, but also because its days as Asia’s financial capital may be numbered. There has been all sorts of speculation since the credit crisis began about which financial centers – NYC, London, Frankfurt, Singapore, Tokyo, etc – might drop down in the rankings post recession. What’s ironic is that while Hong Kong was mostly insulated from the banking debacle because its institutions were not as exposed to credit default swaps and all those other funky instruments, it may be amongst the most vulnerable now.

That’s not because of the crisis, but because Chinese officials announced firmly a few weeks back that they would like to see Shanghai become China’s financial center. That’s potentially very bad news for Hong Kong, which is almost entirely economically dependant on financial services, and its role as a gateway for investors into China. Some 60 percent of the market capitalization of the Hong Kong stock exchange and over 70 percent of its daily trading comes off the back of Chinese mainland firms. Most of these are large state run enterprises – the sort that leaders in Beijing could very easily order to re-list in Shanghai.

Hong Kong has adapted before – after all, it went from selling plastic flowers 50 years ago, to higher level manufacturing (eventually outsourced to the mainland when China opened up), to being a global financial capital. And, as a press official from the Hong Kong Stock Exchange told me today, “The fact that Hong Kong has a fully convertible currency (while Shanghai does not), as well as rule of law (also dubious on the mainland) remains a big advantage.” This is true. But with at least some of its old business likely to move to Shanghai and Beijing, the city needs to move beyond trading. Some American business-men I’ve spoken to in recent days see a future for Hong Kong as a provider of consulting services to Chinese businesses – helping less sophisticated enterprises from the mainland figure out how to brand themselves and sell themselves to an international audience as they expand abroad. Others say it will become Asia’s MBA hub.

Either way, it will need to deal with some of the governance problems and issues of vested interests that have plagued it in recent years (critics say Asian tycoons cut unfair deals here, and the city has yet to deal properly with its recent bond scandal). Hong Kong needs to at least keep up the perception that it’s a fairer, better-governed financial capital than Shanghai. Otherwise, as former Chinese premier Zhu Rongji predicted a few years back, it may become Toronto to Shanghai’s New York.

Another One Bites the Dust: Not that it's unexpected, but General Motors will file for bankruptcy next week. The automotive giant will be split into a good bank and a bad bank, er, a good car company and a bad car company. If you have any doubt about where the power lies in these "surgical" bankruptcies, take note: GM's creditors hold onto the crummy assets, while the U.S. government will own nearly three-quarters of the new and improved GM.

Take a Peek at the Fed's Balance Sheet: Sexier words have surely been spoken, but this WSJ interactive graphic is nonetheless immensely helpful in understanding exactly how many risky assets Bernanke's Fed has added to its book.

Shop Till You Drop: Remember those stories about foreigners fleeing Dubai so fast they left their keys in their cars at the airport? Apparently they're leaving behind their unpaid credit card bills as well.

Law of Unintended Consequences, Lesson #3,428: Remember Geithner's plan for the government to partner with private investors and buy up toxic assets, cleansing the banks of their original sin? Yeah, looks like it might never happen, partly because no private investor wants to work with the government.

If you lived in a world where exploding buildings, crashing cars, and robbed banks were regular fixtures of everyday life, which type of insurance system would function best?

Such is the dilemma today over at Ecocomics, where comics nerds and econonerds have been united at long last. The formula: take a comic, find a strip that mentions money, analyze accordingly (and at length). That can take you from 19th century property values to the effect cuts in public sector employment would have on Gotham's mental asylum.

Be forewarned, though. If you spend too much time reading this stuff, you may catch yourself thinking, "why, yes, I bet building repairs do make up more than 90 percent of the economy in the comic book universe," and considering it a semi-rational thought exercise.

(Hat tip to my friend Sam on this one. His handiwork at his day job--also worth a read, but for very different reasons--can be found here, where he ponders why states have been so sluggish in requesting their bailout money. Considering the deadline is July 1, it seems like it'd be high time for them to get on that, no?)

For the last few months, there’s been a lot of talk about how the financial crisis will be an opportunity for strong emerging market companies with good balance sheets to undercut their Western competitors and gain global market share, ultimately building the sort of name brands that are still owned mostly by Western blue chips.

Huawei, China’s most impressive multinational company, is one such candidate. It’s already amongst the world’s top three telecom equipment and service providers, with operations in over 100 countries, and over one billion users all over the world. The company’s campus, out of Shenzhen in the Pearl River Delta, is a Silicon Valley-style marvel, with a gorgeous canteen turning out gourmet food, and beautiful architecture, including the requisite Norman Foster-designed headquarters. English seems to be the de facto language in the hallways. All this may be run of the mill stuff for a Western blue chip, but in China, it really sets them apart. And since a Chinese engineer costs about 1/6 to 1/10th of what an American or German one does, Huawei has no problem out-pricing their US and European competitors.

So, does all this mean that China, led by companies like Huawei, is on the verge of turning out its first real global brands? That’s long been the hope, because creating these kinds of companies is key to moving towards more sustainable growth. But after visiting Huawei’s campus this week, which was indeed impressive, I think China’s not quite there yet. For starters, though the Western press often refers to Huawei as a global brand, it’s not a consumer retail operation – these guys service other businesses, and not very sexy ones at that. Sure, they occasionally put their name on some mobile handsets, but more often than not, they are happy to slap their customers’ brands on products that they make in China. They have no plans to change this anytime soon, because being the tech geeks behind big brands like the UK’s Vodafone makes them a lot of money in the here and now. (For more on the ins and outs of Huawei's business, check out this excellent piece from a few years ago on the company's rise).

The reason Huawei has succeeded is because they capitalize on what China does really, really well – making cheap, good products – and don’t worry too much about snazzy marketing or branding campaigns. They don’t have to, since they are selling mainly to other businesses. As an executive at Huawei told me, there are really only about 500 decision makers in the world that they have to influence. It will take the Chinese a lot longer to figure out how to master the art of the sexy consumer marketing campaign and sell to millions.

That said, Huawei is a model for what China can be in the sense that its workers own 100 percent of the company, enjoy luxurious (by Chinese standards anyway) health benefits and pensions, and work in pleasant and stimulating environments, rather than in low-end sweatshops. In that sense, it already is a banner company.

The Amnesty International annual report that came out today has some sobering revelations about those bearing the brunt of the global recession. That's why NEWSWEEK'S Rebecca Shabad flipped through it and chatted with Amnesty's Secretary General about her findings. Here's a briefing:

Just when you think we might've acquainted ourselves with the bleakest aspects of the recession, Amnesty International is right there to get your palms sweaty again. The group says human rights are going by the wayside these days, as the global economic crisis exacerbates preexisting problems and creates a whole new set of its own. Unsurprisingly, it's all hitting hardest in poverty-stricken places that have long been vulnerable to shifting economic winds--mostly in Africa, Asia, and Latin America--as drops in investment and aid have tipped them over the edge into instability.

Human rights violations have been largely ignored for years--the only surprise/news in the report are two words: "worse" and "recession." But that has serious implications. For one, it's aggravated existing problems among refugee and migrant populations, which are coming up against more and more closed doors. As people struggle to meet basic needs and take to the streets to protest, they find they're subject to the same treatment long afforded to political protesters (needless to say, it's not pleasant). In Tunisia, for example, food protests last year left 2 dead and 600 injured. At the same time, as governments are focusing the bulk of their energies on financial problem they're paying less attention to classic problems: violence against women, torture, and violations in the criminal justice system.

Amid all the misery and destruction, at the heart of the report is a basic argument: open markets haven’t been nearly as reliable a path to open societies as supporters had predicted. Irene Khan, Amnesty's Secretary General, cites China and Russia as prime examples of the false promise. “The tendency for governments has been to see poverty as a financial issue, so they invest in the economy and invest in markets. The idea is, if the economy grows then human rights will be taken care of,” she says. “What we’re saying is, actually, if you look more carefully at these situations, if you look at the problems of indigenous people in Latin America or the problems of migrant workers in China or the people who are evicted from slums in India; it’s not economic growth that's the only issue. Financial investment is important, but alongside that, there has to be investment in freedom.”

No Go on the Opel Deal: Emergency talks between German and American negotiators failed to produce a deal for GM's ailing European branch, despite lasting into the wee hours of the morning. But they did manage to slim down the competition among potential buyers: either Fiat or Magna will get the prize, once everyone can figure out who will foot the bankruptcy bill. (By the way, um, Happy Birthday Germany!)

The Retirement Chronicles: Worried about that 401K? Explore FT's interactive feature on the past, present, and future of pension plans.

Golden Parachutes, Back in Style: The CEO of one Virginia bank that accepted government moneyd has decided to retire early for $1.3 million in consulting fees. He'll be spending his newfound leisure time at the local country club, where his membership dues will be paid by--you guessed it--the bank. So much for TARP regulations.

Petrobras Not Quite Slick Enough: Brazil's giant national oil and gas company is under investigation for allegedly avoiding tax payments and awarding illegal contracts, among other sins. Lula's thoughts on the investigation? "Irresponsible" and "unpatriotic." Let's add "inconvenient" to that list.

There will be plenty of books written about this period of economic history, but perhaps the most interesting will be the one that tackles the Porsche-Volkswagen drama. This story does not get much attention in the United States, but that's a shame. It involves a sexy auto manufacturer that operates more like a hedge fund, exotic international financial trickery, the suicide of a German billionaire, and a European industrialist's decades-long quest for world, er, auto-sector domination.

The story really begins in the 1930s, when automotive engineer Ferdinand Porsche founded the Porsche AG company and--at the request of Adolf Hitler, who wanted to motorize Germany and create a "peoples' car"--designed the first Volkswagen model. Today, the Porsche company remains tightly controlled by Ferdinand's descendants, while Volkswagen has gone on to become one of Europe's largest publicly-traded auto companies.

For the past couple years, Porsche has worked to take over Volkswagen. This is strange because, in terms of volume, Volkswagen is about 50 times larger than Porsche. It is, says BusinessWeek, "truly the case of the goldfish swallowing the whale." 

Or at least trying to. Over time, Porsche bought up about 50 percent of Volkswagen's common stock. Because of arcane laws that give corporate veto power to the government of Lower Saxony, where Volkswagen is headquartered, Porsche needs to own at least 75 percent of the company (or perhaps more, depending on whether the company can successfully change the law) before it can force an acquisition. 

By the end of last year, it looked like Porsche wasn't going to succeed in its quest. Hedge funds and other investors began to bet against Volkswagen stock, expecting that once Porsche gave up its quixotic adventure, the price would plummet. Traders sold VW short -- meaning they borrowed shares for a nominal fee, immediately sold them, then hoped to buy them back at a cheaper price after the reckoning.

Then Porsche revealed its dastardly checkmate: It had secretly amassed enough options to control 75 percent of VW shares. Suddenly, it didn't seem as if there were enough shares to go around. Investors scrambled to buy back the shorted shares they had just sold, worrying that when the music stopped, they'd be left without anything to return to their lenders. The furious activity sent the price of VW stock sky-high -- it briefly became the most valuable company in the world, and on the close of Oct. 27 it was the globe's second-largest company, behind Exxon Mobil but ahead of GE, Microsoft and Walmart.

And Porsche briefly became a hedge fund, and a very good one at that. Last year it earned about a billion euros selling autos, but nearly 5.5 billion euros on its VW stock options. And since finance is often a zero-sum game, that meant many others lost a fortune -- including German billionaire Adolf Merckle, who "lost hundreds of millions of euros when he was caught in a brief but ferocious speculative riptide linked to a campaign by Porsche, the sports car manufacturer, to seize control of Volkswagen," according to the New York Times. Merckle threw himself in front of a train the following week. 

The story gets more byzantine the more you probe its depths. It now looks as if Porsche won't be able to take over Volkswagen, in part because the government of Lower Saxony has succeeded in blocking it, and in part because Porsche's finances aren't quite healthy enough for it to exercise all its options on VW stock. Meanwhile the global auto market has driven off a cliff, Opel and Fiat are trying to become Europe's largest automaker, and Ferdinand Porsche's heirs are sniping at each others' heels.

There are a lot of parallels with the broader global economic woes -- the over-reliance on complicated derivatives, the swift reversal of investor fortunes, the collapse in consumer demand. It could be kindling for the Bonfire of the Vanities of our times. 

Down in southern China, in the Pearl River Delta, the world’s biggest manufacturing hub, everyone is trying to figure out how to move beyond manufacturing (at least, the dirty low-end kind). This region is more dependent on foreign trade than any other; a quarter of Chinese exports come from here, and the majority of them go to the U.S. But those exports have fallen off a cliff in the last year. In some areas, one out of every ten factories has closed. Most of the officials I’ve spoken to are betting that it will take 3 to 5 years for their exports to the US to get back to where they were in 2007. In the meantime, folks are hurting. Pretty bleak stuff.

So the race is now on to come up with a new way to grow. “Growth is China’s religion,” as a Beijing official once told me, and with good reason. In order to keep people from rioting in the streets or overthrowing the autocratic government, they need to maintain between 6-8 percent a year GDP growth – no mean feat in this environment.

One way they are trying to keep that up is by selling to each other. A number of high level government officials were unable to meet up with me this week because they were off hawking their wares in neighboring provinces like Hunan and Sichuan. The vice mayor of Shenzhen, the richest town in this region, told me he’d recently been able to sell nearly $2 billion worth of jewelry, electronics, and other locally made products to other Chinese buyers out West. But the truth is, no matter how buoyant the domestic sales, they can’t make up for the U.S. market anytime soon. The average income in China is about 1/10^th of what it is in America.

The other strategy is to go up-market, trying to do back office call center stuff – the sort of thing India already does – or logistics and higher end manufacturing (producing finished goods rather than just assembling cheap goods). Again, Shenzhen, the slickest of the area cities, has made some progress here, and even has a few budding internet companies. The city is trying to attract more educated workers necessary for this sort of scene. They’re building up-market housing and planned communities designed to look like Portofino, complete with clanging bell tower and terracotta tiled condos (which retail for $30-50K, a small fortune over here).

That also has some gaps. The vice mayor of Shenzhen today told me that his economy was now 60 percent services. But when I drilled down into what services really meant, it included things like printing magazines for Hong Kong publishers – not exactly knowledge work. Craig Simons, an old China hand here reporting a story with me, says he thinks it’s more likely that Shenzhen is still 60 percent manufacturing. The fact that its trade to GDP ratio is a whopping 280 percent would seem to back that up.

Where does that leave the Pearl River – and China? Still dependant on exports, for sure, but also in a much better position to handle the global downturn than during the Asia crisis over ten years ago. Back then, China was a lot poorer. Now, government coffers are full from a decade of rich trade, and officials say the province will continue to grow 8.5 percent this year. It’s a believable story, but only because they’ll be able to pump investment into the area, even if Americans keep their wallets zipped tight. What happens if and when those coffers run dry is another story.

Wake Up, Americans!: That's what John Taylor wants to shout from the rooftops, or at least the op-ed page of the Financial Times, in order to get us to pay attention to our soaring national debt. Taylor was an influential economist at the Federal Reserve for many years, and also wrote one of the most widely used macroeconomic textbooks. So when he shouts, we should listen. Unless, of course, he forgets what compound interest is.

GM Bondholders Are People Like You and Me: The publicity people for the GM bondholders found the one bondholder who is not a major bank, hedge fund or institutional investor and got him to pen an op-ed in the Wall Street Journal. 

Born to Regulate: The Washington Post profiles Brooksley Born, the now-famous lawyer who urged the Clinton Administration to regulate over-the-counter derivatives like credit-default swaps.

Board Stiff: Isn't it a little odd that Citigroup and Bank of America shareholders have seen their stock value plunge, but they nonetheless reelected the board of directors at last month's shareholder meetings?

Newsweek biz columnist Dan Gross wonders what the deal is with sovereign wealth funds (SWFs), those enticing, terrifying state-owned investment funds that came into vogue in Asia and Arabia about two years ago. Why enticing? Why terrifying?

The global financial class viewed them with a mix of fear (Oh no! The Arabs and Chinese are going to buy all our strategically important companies!) and optimism (Holy cash cow! A new source of financing and clients for investment banks!). The fact that SWFs operated with all the transparency of a sheet of tinfoil only enhanced their appeal and apparent power. In January 2008, SWFs were the talk of the World Economic Forum at Davos. After all, if the potent economic trends that had made them powers in the first place were to continue, SWFs would only get bigger. (This was another example what I've dubbed "pro forma" disease, the tendency to extrapolate a few years of impressive growth endlessly into the future-i.e., since housing prices doubled in the last five years, they'll do so in the next five.)

Naturally, that didn't go quite as planned. SWFs had money in the same stuff everybody else did, so they're in bad shape like the rest of the finance sector. But does that mean we should write them off entirely? Read the rest here.

As Goes California So Goes the Nation?: Paul Krugman, optimistic as always, worries that it might be so. He points to the shrinking and increasingly extreme ranks of the Republican party to explain why it will be especially difficult for the state to climb out of the fiscal hole--a scenario he can easily foresee playing out at the national level.

Back to the Future: Unemployment may be higher than 8 percent and GDP growth less than 2 percent, Bloomberg is predicting, heralding in a new era of frugality in America. That would be less terrifying if one of their sources hadn't likened it to a scene out of Leave It to Beaver. “Life wasn’t so bad for the Cleavers. They weren’t up to their eyeballs in debt and they weren’t a three-car family with a 5,000-square-foot McMansion.”

Still Free Falling: Home prices are still tumbling and show no sign of stopping, according to new data released today.

Death to Pennies!: Wired writer David Wolman makes the case for a cashless society. The gist: "Physical currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange. Let's dump it."

The Banality of Tiananmen: Two decades after the protests at Tiananmen Square captured the attention of the world, a new generation of college kids is ambivalent about the grievances that drove Chinese students into the streets demanding democracy. But the flame hasn't been completely extinguished; students are economically satisfied, but they have little love for the Party line.

How Do You Solve a Problem Like California?: Nothing stirs a good debate like utter dysfunction. An op-ed writer in the Times thinks we should hold our noses and bail out the defunct Golden State. The WSJ, still celebrating what it sees as a triumph of fiscal conservatism, thinks that would be dumb.

Reaping Foreign Rewards: The Economist is getting a bad vibe from the rising tide of Arab and Chinese farmland purchases in dirt-poor countries, especially considering what just happened as a result of one in Madagascar. So am I.

All Good in the Hood: Europe's big businesses are in trouble, like businesses the world over, but its small businesses seem to be doing just fine by comparison, thank you. So is that all the more reason to help them weather the storm?

Economic statistics might seem a dry topic, but it’s actually full of colorful anecdotes. We hear a lot, for example, about how hard it is to gauge what’s going on in the ever-important Chinese economy because economic reality and the numbers to support it are basically made up by Beijing. Well, not totally made up, but if the government says that China will grow by 8 percent a year, you can safely bet that the national statistics bureau will release figures showing just that in December.

But the same is true to some extent in the U.S. “American economic figures can be just as bad as China’s,” says East-West fellow and economist Christopher McNally, “we’re just not as open about it.” For example, there’s an economic indicator known as “M3” which is a measure of how much debt is being created in the economy. The European Central Bank, ever worried about rising inflation and a new Weimar Republic, still tracks it carefully. But the U.S. Federal Reserve stopped tallying M3 back during the late Greenspan years – a copy of Robert Shiller’s “Irrational Exuberance” goes to the first reader who can guess why.

The same hi-jinks go into inflation figures, which are tweaked by each successive administration to look more attractive. McNally notes that back in the 80s, when the price of oranges (which were included in the inflation tally) went up, government officials neatly solved the problem by substituting apples. Our current inflation tally still pegs the price of a TV to ten-year old models, when everyone is buying more expensive flat screens.

The real difference here is that the Chinese government has the power to tweak not just numbers, but reality. Of the 3,300 individuals in China who are worth more than $60 million, 2,900 have relatives high up in the Communist Party. In China, when the government asks a roomful of bankers who wants to lend money, everyone raises their hands. In the U.S., despite our semi-nationalization of the financial industry, economic reality remains a lot less clear.

My column earlier this week discussed the dangers of the rising federal debt, as envisioned by President Obama's proposed budgets. The numbers, in case you've forgotten them, are staggering. From 2010 to 2019, Obama projects $7.1 trillion of new debt; that's on top of the $1.8 trillion for 2009. By 2019, federal debt would reach 70 percent of Gross Domestic Product, up from 41 percent in 2008. The Congressional Budget Office, with a slightly less optimstic economic forecast than Obama, puts the numbers even higher: $9.3 trillion in new debt from 2010 to 2019 (also on top of 2009's $1.8 trillion); in 2019, the debt to GDP ratio would be 82 percent.

G. William Hoagland, the long-time (1985-2002) Republican staff director of the Senate Budget Committee, sent me a recent paper providing the useful reminder that the growing debt has increasingly global ramifications. According to Hoagland, 53 percent of all Treasury debt is now held by foreign investors and, more surprisingly, 78 percent of the recent increase in debt has been purchased by foreigners (the actual period covered is from 2001 to June of 2008). Hoagland draws two conclusions.

The first involves the burden of debt. "When public debt is held primarily by a country's domestic investors," he notes, "interest payments on that debt essentially [are] a redistribution of income and assets within the domestic economy. However as our debt increasingly is held by foreign investors, then payments on interest and principle involve actual costs to the domestic economy rather than redistribution."

The second--and more important--implication is the potential for a future financial and economic crisis. "If we ever reach a point where our debt level causes those foreign investors to quickly look elsewhere, even their own back yard, then I think the current [financial] crisis will pale by comparison," he writes. Foreigners would stop buying the debt or even sell some of what they have. The dollar's exchange rate might plunge; U.S. interest rates could rise sharply. "I pray we never see that day," says Hoagland. Amen.

Think You See Green Shoots? You're Wrong: Nouriel Roubini, aka Dr. Doom, must have some strange biological or neurochemical processes in place that give him pleasure for undercutting optimists. Of course, he's often right, and he expects the recession to continue through the end of the year.

Asia Needs to Ditch Its Growth Model: Or so says Michael Pettis, finance professort at Peking University (and also regular contributor to Newsweek). China and other export-dependent countries simply can't depend on the West to buy up its cheap socks and stereos any more.

Is California Too Big to Fail?: Megan McArdle says no, we should let them go bankrupt, and bankrupt they will go, because "California is completely, totally, irreparably hosed." Blame all those spending initiatives.

Don't Let the Glitter Hypnotize You: Gold bugs say we're in for an era of inflation, and the only safe place to stash your money is in gold. Daniel Indiviglio thinks that's idiotic.

Is this an industry scare tactic to prevent unwanted regulation, or a real threat?

Now Congress is moving to limit the penalties on riskier [credit card] borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”

That's from the New York Times this week. My first reaction was horror. I am lucky enough and thrifty enough to be able to pay off my credit card bills each month, so the idea of subsidizing the more spendthrift within our society struck me as unjust. My second reaction was that this is a head-fake. Note that the first quote in the story, the one above, comes from the head of the ABA, an industry lobbyist. Perhaps this is just good lobbying, an attempt to frighten the nation's diligent bill-payers into calling their representatives and telling them to block credit-card reform.

I'm inclined to believe the latter. Anyone with decent (or even not-so decent) credit knows how competitive the credit-card industry is -- just count up the number of credit card offers in a week's worth of mail circa mid-2007. It'd be hard for the credit card companies to uniformly charge an annual fee. If one company strayed from the herd and offered a no-fee card to high-quality borrowers, customers would flock to it.

But even if the industry's threat is genuine, maybe it wouldn't be such a bad thing if prime borrowers pony up a bit more money. Further down in the article:

People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, said [industry analyst David Robertson], because many have not had to pay an annual fee even as they collect points for air travel and other perks.

“Despite all the terrible things that have been said, you’re making out like a bandit,” he said. “That’s a third of credit card customers, 50 million people who have gotten a great deal.”

He's not entirely right, of course -- credit card companies make money from stores and restaurants every time we swipe our cards, so even prime borrowers that pay bills on time contribute to the bottom line. But if forcing responsible borrowers to pay more seems unfair, asking less fiscally sound households to pay 25 percent interest rates and $40 late fees is equally unfair. The brave new credit card world laid out in the Times article is in some ways indicative of today's zeitgeist, with its focus on decreasing inequality and sharing societal burdens more broadly. Pay attention, Wall Street -- you'll be next.

Capitalism Is Dead; Long Live Capitalism!: We're living through an historic moment, alright, but is it a defining one? FT's Martin Wolf doesn't think so. Part of FT's running series on the future of Capitalism, headquartered here.

The No-Work Jobs of Japan: No money for sheet metal? Build a vegetable garden! Make trinkets! In Japan, that's the way it works, since government subsidies keep companies from laying off workers. I say, where do I sign up? Economists say, this might help explain why Japan's economy just shrunk another 4 percent.

Off With Commons' Head: The expenses scandal roiling Britain's House of Commons claimed its top prize yesterday with the resignation of Michael Martin, the first speaker of the house to get the boot since 1695. Now comes reckoning time for the rest of the MPs. All the juicy details on the hidden perks of the job can be found here, here, and here.

Diamonds, Maybe Not a Russian's Best Friend: The NYT reported last week that Russia is sitting on the biggest stockpile of diamonds. But an industry pro from the US gemological institute thinks the giant cache could be a curse as well as a blessing. In fact, he says, it might turn out that Moscow is getting played by one of its little semi-autonomous provinces.

Too Close for Comfort: Has Treasury gotten too cozy with the  firms it's hired to help value and manage bailout assets? The NYT muses on this as it shines the spotlight on BlackRock, which is managing the rescues of Bear Stearns, AIG, and Citi at the same time that it is advising private clients. They could soon get even more on their plate: Treasury may approve them to buy toxic assets, using taxpayer money.

Consider It Stimulated: It's been 90 days since the stimulus bill package passed, which means it's time for federal agencies to submit their report cards. So far, only 10 of 17 have made their way over to Congress.

Getting Chummy in Sao Paolo: The presidents of China and Brazil are meeting today, strengthening economic ties between the two rising "strategic partners." The powwow caught Hillary Clinton's attention, and with good reason; this spring for the first time, China became Brazil's biggest trading partner, displacing the United States.

The Resilience of Megacities: Richard Florida, a long-time scholar of the modern city, writes that major financial centers like New York and London are well-positioned to bounce back from the crisis. Rather, it's the second- and third-tier centers that are going to have to fight for their survival.

Good News from the Back Channels: Starting in the final months of the Bush administration and continuing through March, China and the US held secret climate change talks to come to an accord on climate change. It's all preliminary, but onlookers think it could provide the foundation for an international agreement at the next UN climate conference  in December.

Last summer’s gas price spike ($4 a gallon and beyond) helped push the U.S. further into recession. So, now that oil prices are starting to move higher, with lots of smart folks predicting another peak in the next year or so, should we worry about higher prices at the pump again?

Fereidun Fesharaki, one of the world’s top energy oracles, says no. (Morgan Stanley's Ruchir Sharma, in a Newsweek International cover story, also thinks oil prices will trend downwards, at least in the long run.) I had a briefing last week with the East-West Center senior fellow, who counts the former Shah of Iran as one of his past clients. He turned me on to a very positive and surprising development that he says will keep gas prices in America low for another ten years: shale gas.

Apparently, we’ve got tons of this stuff in Texas and Florida. It’s a bit tougher to get at than regular natural gas, so experts thought it was going to take a long time to come onto the markets. But lo and behold, last year it started flowing, and can be produced for the relatively low price of $24 a barrel.

What’s the upshot of this? U.S. gas prices, which were already low compared to the rest of the world, can stay low for another decade, even if oil goes to $200. The implications of that are pretty huge. For starters, it helps our energy security in the short term, but it may also mean that it takes us longer to switch to more European-style fuel conserving behavior, which we desperately need to do to wean ourselves off foreign oil over the long haul. It could also stymie the move to renewables—after all, why sink a bunch of money into wind farms and plug-in car grids if gas is (semi) permanently cheap? It will be interesting to see if the Obama administration deals with all of this by raising taxes on oil and gas, which is really the only remaining way to change consumer behavior. In London where I used to live, sky-high petrol taxes mean that gas costs about $9 a gallon. Believe me, at those prices, you think twice about driving a few miles to the mall.

Just in case you missed Jon Meacham chatting up Tim Geithner on Facebook earlier this afternoon, you can watch it in full here. Sadly, they managed to get through the interview with nary a poke or superpoke, but there are plenty of other good--and, you know, legitimate--reasons to tune in.

Singh His Praises: India's Congress Party, headed by economist Manmohan Singh, pulled off a major victory over the weekend. Pundits took it as a mandate for economic reforms, and a surprising win for the ruling party in a country that loves to kick its leaders to the curb after one term. Arvind Subramanian of the Peterson Institute interprets the win through an even broader lens, calling it a vindication of india's "Goldilocks globalization" (not too much foreign investment, and not too little; not too much reliance on exports, and not too little). Everyone agrees it's a good sign for investors in India.

It's All Washington's Fault!: The New York Times Magazine this weekend was all about money, and it's a great read. Highly recommended: this piece by Niall Ferguson, who says that deregulation and financial innovation have gotten a bad rap, and it's really bad regulation (not lack of regulation) that got us into this mess--something to keep in mind in coming months. "The usual response is to introduce a raft of new laws and regulations designed to prevent the crisis from repeating itself...history suggests that many of the new measures will do more harm than good."

Offshoring Moves Up the Value Chain: Those on both sides of the outsourcing debate, get your tongues ready for arguing: the credit crunch is pushing high-skill jobs in the biotech sector eastward, principally to Singapore, where Genentech and other major firms have set up labs and production facilities.

President Lula, Debt Collector: "When China’s President Hu Jintao visited Brasilia four years ago he left Brazilians expecting $7 billion of Chinese investment. So far, they’ve seen $141.6 million or about 2 cents on the dollar." Brazil's President Lula da Silva arrives in Beijing this week to try to gently remind the Chinese of their promise.

Every good businessperson has a favored statistic about China. I remember meeting the son of a vineyard owner in Napa Valley, who was helping his parents take their modest business global. "Think about it," he told me. "If we sold a bottle of wine to every Chinese millionaire, we'd run out of wine before we ran out of millionaires!"

I haven't kept in touch with the oenophile, so I don't know how his well-laid plans played out, but Dan Gross has been keeping tabs on how some major American brands have been doing in China. His take? "Thanks to macroeconomic upheaval in the U.S. and China, the promise of the China market finally seems to be within reach." In his column this week, he walks you through the three premier exhibits--Citigroup, General Motors, and fast-food-owner YUM Brands--and explains that, even though these companies are now (or are close to) making more money in China than at home, there's still plenty of room for growth in the Middle Kingdom.

(That is, if they can fix their health care system. And their pollution problems. And shore up democratic legitimacy. And survive the collapse of the dollar. And...)

I'm still here in Hawaii for one more day, hearing Asian economic experts talk about the impact of the financial crisis on the region. To me, one really interesting fallout of the crisis is how quickly the Chinese are turning their relative economic power into political power. They are wearing the mantle of regional clout much more comfortably than the Japanese, who still have the world's second largest economy, ever did.

Why is this? Certainly, Japanese ambitions were somewhat constrained by the fallout of WW II, and the continued suspicions around any Japanese attempts to exert too much power in the region. But the fact is that the Chinese see their increased clout in the world as inevitable, a return to their normal Imperial position, rather than some sort of abberation. They have a confidence, even at this early point in their development, that the Japanese still don't have.

You can see this playing out in all sorts of ways, from the French president Sarkozy changing his tune on Tibet, to neighbors like Vietnam, Taiwan, etc. bolstering economic and diplomatic ties (more often than not, Beijing is now the first diplomatic stop for any new leader in the region). This is true even for other economically important countries like South Korea. China recently eclipsed the U.S. as that country's major trading partner.

China is stepping into its new role with aplomb, playing a key role in the G20, taking part in globally strategic events like the anti-piracy exercises off Somalia, and throwing off the old conventional wisdom that's its better for China to mind its own affairs and let the rest of the world take care of theirs. As Wen Jiabo said at Davos this year, "I firmly believe that running our own affairs well is the biggest contribution to entire mankind."

On balance, I think China's new position is going to be good news for the global economy, which desperately needs growth engines aside from the US. But it could lead to conflict, too. Yesterday, I attended a briefing at Pacific Command, where I saw a map of what the U.S. military views as its most likely future conflicts in the Asia-Pacific region. Half of them involved natural resource squabbles with China.

Check us out, huh? Welcome to the brand spankin' new, snazzy, jazzy, redesigned Newsweek.com. It's business as usual content-wise here at the WON blog, but we'd love to know what you think of our new digs. And while you're at it, let us know if there's anything in particular you'd like to see us cover here in the coming days/weeks/months.

Oh No, Not the Cow Palace!: California's governator is threatening to sell off iconic properties to help close the state's $15.4 billion deficit. He's also proposing cuts in education, developmental services, and health care for folks with low income or disabilities. As in, yes, the basic core functions of government.

London Calling: FT's Gillian Tett offers her take on Yankees' economic proclivities after concluding her book tour across these United States. Her conclusions: y'all should back off on Geithner, but keep up the pressure on Wall Street. She's also hearing rumors of even more CDS funny business--a clear sign that the Street still hasn't gotten the memo from the rest of the country that the jig is up.

A Different Kind of American at the Helm: Brazil's Lula da Silva is positioning himself to become the next World Bank chief. If he pulls it off, he would be the first non-U.S. citizen to occupy the post--and the U.S. may very well back his move. But first he's got his eye on India's parliamentary elections, which could produce a fellow BRIC competitor for the job.

Quedando en México: With the collapse of construction and other low-wage jobs in the U.S., Mexicans are choosing not to make the trip over the border. Immigration from Mexico dropped 25 percent last year, though demographics pros expect it to pick up again post-recession.

Tapping a New Indian Industry: In...wait for it...porn! But there's a catch. Babe though she may be, the subcontinent's first big porn sensation is a cartoon.

It's Not Easy Being E: McSweeney's gives voice to the recessionary woes of Scrabble letters.

Today in bizarre byproducts of globalization: black Barbies with blue eyes clad in African wraps. OK, this ain't a post about PPIP or renminbi, but I couldn't resist.

Here's the back story from the photographer, who snapped this shot at a women's conference in Liberia recently. Turns out, they aren't actual Barbies, but $1 plastic dolls from Japan that the designer buys from a discount chain store in Texas, where she lived during Liberia's long civil war. After she dresses them up in lapa garb, most of which is manufactured in China, she sells them in Monrovia for $25, mostly to NGO types. I don't know what exactly all of that says about the interplay of global and local economic forces, but whatever the case, it sure produces nifty products.

By the way, the photographer runs an excellent blog of her own here, in case you're interested in checking out more of her stuff--photos, interviews, etc.

The Dollar Loses Its Groove in China: An op-ed by Nouriel Roubini the New York Times says the dollar may not lose its reserve currency status overnight, but "we can no longer take it for granted," and the renminbi may take its place. Victor Zhikai Gao agrees that the dollar is losing the hearts and minds war in China.

High-Latitude Schadenfreude: Norway is doing just fine in this economy, thank you very much, with a budget surplus, continued growth, and a healthy slush fund to buy up depressed stocks around the world.

A Failure of Markets?: Not so fast, says Poland's former central banker.

The New Yorker Treatment: Nick Paumgarten writes a psalm for Wall Street.

A few words on Realtytrac's new housing and foreclosure data for this month. Interesting snippets from the press release:

• The report shows that one in every 374 U.S. housing units received a foreclosure filing in
  April, shattering records throughout the land.
• Much of April's activity is at the initial stages of foreclosure, suggesting that many lenders are cracking down on delinquent loans that had been delayed by government-imposed and industry-embraced moratoria. [My note: we'll see how those fare when they hit the market later this summer.]
  
• The states with the highest foreclosure rates were Nevada, Florida, California, Arizona, and Idaho. Other states rounding out the top-10 list were Utah, Georgia, Illinois, Colorado and Ohio — although the foreclosure rates in Illinois, Colorado and Ohio were below the national average [emphasis mine].
  

Remember how all politics is local? So is all housing data. Although the foreclosure crisis has wreaked its havoc far and wide, it's worth reminding ourselves of just how local the inciting incidents actually were. The worst offenders of the housing crisis were concentrated in just seven states--seven states! Even the last three states on the top-10 list were pulling their weight in tugging down the national average.

This isn't necessarily great news or awful news, but it is instructive. I just got off the phone with the president of Clear Capital, a firm that tracks housing data for institutional investors, and he told me that smart investors are getting extremely granular in their analyses of housing data these days, going zip code by zip code and even, in extreme cases, block by block in deciding how to handle their troubled assets. If a certain development has seen pickup in the last six months, even while the county or state it's in has slumped, that development will still get attention from hungry investors in the boardrooms of Manhattan.

Whoever came up with that locavore credo--think globally, act locally--was more prescient than he/she probably knew.

Where Are Argentina's Coins?: This is for sure the strangest story of the week. Argentina is facing a mysterious coin shortage. Some small convenience stores would rather turn down business than give out change. Buying coins can require as much as a seven percent premium over face value, and markets owned by Chinese immigrants have banded together to issue their own currency.

America's AAA Rating Is At Risk: The U.S. has had the rating since 1917, but now Moody's is threatening to cut it. (How un-American.) I wonder, though, if anyone would care? Everyone knows the U.S. is the most financially reckless borrower in the world at the moment, but other countries still give us money hand-over-fist.

Are the Saudis Recession-Proof?: Perhaps not so much as we think.

Big Ships, Little Business: File it under fascinating: Near Singapore, "one of the largest fleets of ships ever gathered idles just outside one of the world’s busiest ports, marooned by the receding tide of global trade...Hundreds of cargo ships — some up to 300,000 tons, with many weighing more than the entire 130-ship Spanish Armada — seem to perch on top of the water rather than in it, their red rudders and bulbous noses, submerged when the vessels are loaded, sticking a dozen feet out of the water."

I am loving this Churchill quote from a Seeking Alpha post:

Americans will always do the right thing, after they have exhausted all the alternatives

Here's hoping he had more insight into American habits than, say, this guy.

But seriously, while not nearly as fabulous as its kicker quote, the rest of the post is a decent read in its own right. Granted, the take-away is nothing new, if you subscribe to today's conventional wisdom of cautious optimism. That, of course, would be that things are not going to be hunky dory for a good long while, but we'll all probably figure this out without having to resort to a hunter-gatherer model of existence. Point taken. But here's some interesting stuff worth noting: take a look at the GDP graph near the bottom. The U.S. still accounts for nearly a quarter of global GDP, more than Japan, China, and Germany combined (numbers 2, 3, and 4, respectively, on the economic big dog list). To be sure, that tells us more about the status quo than the future, and anyone who hasn't been living under a rock this year knows those are two very different things. But look how Mr. Scott ties those numbers in with info on decoupling just below. The supposed up-and-comers are still too dependent on America's spring-break-style consumption habits to drastically change that breakdown.

I hate to cheerlead. Complacency is the last thing Americans need right now, especially since the overall point of the post is that the green shoots talk is premature at best. But for frayed American nerves, the numbers should have a calming effect. Amid the past year's constant chatter about rising Asian tigers and disgraced blue-eyed bankers, they're useful reminders that the rising rest still has a heck of a climb ahead of it. Team America may yet prove good old Winston right.

Welcome to Shangkong: A year or two ago, New York and London battled each other to be crowned seat of global finance. But, writing in the Financial Times, Yale professor (and regular Newsweek International contributor) Jeffrey Garten argues that, "once the global recovery begins, New York and London might be vying less with one another than with a new competitor in the form of a partnership between Hong Kong and Shanghai – call it 'Shangkong' – a highly consequential shift of financial gravity to the east."

We Prefer Netflix, Anyway: You've heard of zombie banks, so how about a zombie video company? Blockbuster Inc. is being kept alive by a generous credit line from JP Morgan, even though the company has only made money once since 1997.

Speaking of Zombies: James Surowiecki at the New Yorker casts doubt on the whole zombie bank idea. Invoking Japan's "lost decade" is an easy but inaccurate way to frighten people about the direness of our current predicament, he says.

Communists Can't Outspend Capitalists: A lengthy but highly informative status report on the Chinese economy, courtesy of Bloomberg (the company, not the mayor).

Everybody is talking about last weekend's Saturday Night Live skit with Justin Timberlake and Andy Samberg singing "Motherlover," but for you econophiles out there, you might want to skip the pop-comic songfest in favor of the "Geithner Cold Open."

"Initially, my department had planned to give each bank a numerical grade of one to 100. But then we decided that might unfairly stigmatize banks who scored low on the test because they followed reckless lending practices or were otherwise not good at banking. So we changed to a simple pass/fail system...Eventually, at the banks' suggestion, we went with a pass/pass system."

There's Something About Boise: We journalists are always on the hunt for nice, neat microcosms of broad trends and big ideas. The NYT's Peter Goodman thinks he found his in Boise, Idaho, a town that may be poised to blossom if (when...?) this whole economic recovery thing works out.

Weird Fishes: For reasons known only to him, the FT's Wolfgang Munchau has apparently seen fit to compare the European Commission to a rotting fish emitting a rather unpleasant odor. I'm not sure that was quite was his colleague had in mind when she laid out the merits of studying finance through the animal kingdom.

Ideas, So Hot Right Now: If downturns tend to produce waves of new ideas, and we have survived the free fall stage of this downturn, then it's as good a time as any to start speculating about what the next earth-shattering thing on the horizon might be. Tasty food for thought from some big names in the thinking biz.

The First Rule of Planet Money Is You Do Not Talk About Planet Money: Adam Davidson got Elizabeth Warren pretty riled up during their interview last week--but not nearly as riled up as he got his listeners, who lambasted him on the blog all weekend for being way out of line. Score one for new media; listeners got an apology out of him. Score two for Warren, whose take on the economy was clearly more popular.

Pretty much every bit of economic data that comes across my desk these days seems to back up the idea that we're very quickly headed for the Asian century. As I've blogged previously, global capital flows are falling off a cliff -- net private capital flows to developing countries, for example, will soon be negative -- a more than $700 billion drop since 2007. While Asian nations haven't been immune to this, they've been much less affected than Latin America or Emerging Europe, for example. Investors are steering what little money they have to Asia -- net portfolio investment into the region is running at a pace not seen in five years. It seems clear that Asia will recover from the recession faster than either the US or Europe, and that it will continue to leave other emerging markets in the dust, too. Korea returned to quarterly growth earlier this year, and there are positive signs in Japan, Malaysia and China, too.

I'm betting that as the region recovers, it will continue to economically align itself with China, rather than the US. America has been a major export market for Asian nations, in many cases the largest. But China is big, too, and it's interesting that the countries that are seeing the biggest fall-off in things like trade are countries like India, that depend more on the US, rather than on China.

I'm leaving for a reporting trip to Japan and China on Sunday -- more to come.

Stress-Free Friday: A stress test wrap-up from the NYT.

On Your Marx...: Venezuela's Hugo Chavez responds to the recession by nationalizing the docks and boats owned by oil-services companies like Halliburton and Schlumberger.

Gold Bugs Beware: All the bears are screaming "Buy gold!" to hedge against inflation, but check this interactive graphic on the history of gold prices first. It is, as the FT says, an "unstable metal," highly susceptible to political events.

Auto Anarchy: Why is there so much drama in the auto business these days? As Der Spiegel reports, Porsche tried and failed to take over Volkswagen, a company 15 times its size. The two will merge instead.

Money TV: The strange, trader-friendly journalism of CNBC: "In February, Power Lunch, the midday show, booked two of the canniest thinkers to emerge in the crisis, Nassim Nicholas Taleb, the options trader and Black Swan author, and the economist Nouriel Roubini—only to find the two men stubbornly averse to saying anything that might risk making viewers any money."

The Government's Go-To Guy: Ever wonder how the government is valuing all those hard-to-value toxic, ahem, troubled, er, legacy assets? Answer: BlackRock.

The resurrection of Wall Street is at hand. That isn’t quite the intended message of the results of today’s stress tests, but it’s pretty likely to be the bottom line. Led by Citigroup and Bank of America, the 19 big banks that got us into much of this trouble will, by government-orchestrated means, receive the tens of billions of dollars in additional capital they need. But that’s mainly for another rainy day (as opposed to another perfect storm). “All the banks are solvent,” Federal Reserve Chairman Ben Bernanke said today, declaring he was “very pleased with the results.”

All of which means that whatever opportunity once might have existed for fundamental change in the financial system – with its giant institutions privately trading derivatives with each other globally --is probably slipping away. Oh, the reigning authorities won’t quite say that. There is going to be all sorts of new regulatory oversight, new capital requirements, reduced leverage rules, and such. But basically you’re going to have a lot of the same banks (minus Bear Stearns, Lehman and some 1,500 hedge funds that are no more) trading the same kind of stuff.

It’s not that Barack Obama isn’t aware of what’s at stake. That’s very likely why on April 27, the president gathered in some of his chief outside economic critics —including two of the most vociferous, Nobelists Joseph Stiglitz and Paul Krugman—for a secretive dinner in the old family dining room of the White House. Also in attendance: Paul Volcker, who has one foot in and one foot out of the administration as the head of Obama’s largely cosmetic economic recovery board; Princeton economist and former Fed vice chairman Alan Blinder; Columbia’s Jeff Sachs; and Harvard’s Ken Rogoff. Representing the home team, as it were: Obama’s chief economic adviser Larry Summers, Treasury Secretary Tim Geithner and Chief of Staff Rahm Emanuel. Why did Obama hold the meeting? “I think he wanted to hear the [opposing] arguments right in front of him,” says Blinder. “All I can say is if the president of the United States devotes that much personal time, and it was about two-hour dinner, he must want to hear what people outside the administration are saying and hear what his own people say in rebuttal to that. Why would you do that if you aren’t at least turning over your mind what to do next?”

But after Krugman and Stiglitz made their now-familiar case for nationalizing the banks and forcing other dramatic changes, Obama gave no indication he was changing his policies, Blinder added.

On Capitol Hill, meanwhile, there is a movement afoot to create a “financial markets commission” that will look into the causes of the financial crisis. The hope among its sponsors is that it will carry the weight of the famous Pecora Commission, which led to Glass-Steagall and other reforms in the early ‘30s. But in today’s environment, it’s just as likely to get bogged down in partisan bickering. And while it’s doing that, Wall Street will be off and running again.

“Too big to fail” could soon become “too powerful to change.”

Drumroll, Please: The long-awaited stress test results are out this afternoon, though we already have a pretty good idea of what they'll be. In the runup, Tim Geithner is hitting the streets for a publicity tour, stops of which you can see here and here. Also, you can play with a nifty stress test interactive here.

SEC Takedown: So you thought we might see some regulatory reform come out of this financial maelstrom? Don't hold your breath, says the WSJ's David Weidner, though that's not for lack of need. He describes the commission as a "rancid" tool of the industry.

Forget Paris: The Obama team is proposing $17 billion in cuts to its awe-inspiring $3.55 trillion budget. It's a drop in the bucket relative to overall spending--but hey, so were earmarks, and that didn't stop certain members of Congress from working themselves into a tizzy about them. A favorite example of what's getting the boot: an attache for the Department of Education in Paris, who currently costs the agency $632,000 a year.

Now You See It, Now You Don't: Hey, remember those $15 billion the US government gave to GM? $10.2 billion of it, now history. GM posted a $6 billion loss in the first quarter, bringing its total losses since 2004 to a staggering $88 billion. They'll file for bankruptcy by June if they can't work out deals with bondholders and the UAW.

Levantine doomsayer Nassim Nicholas Taleb, author of "The Black Swan," has been everywhere lately, appearing on a Planet Money podcast last week and then this morning at the New Yorker Summit. (He also co-authored a new research paper.) The upshot of his latest message is extreme: ban debt.

Taleb claims that debt is a risk-enabler. Remember how your financially savvy mother always warned you that bonds are safer than stocks? Well, to Taleb, that's a problem. If I buy a bond, I act as if I'm certain to get that money back, and might continue loaning money elsewhere. When one of those bets (shocker!) fails on me, I have to call in my other loans, and thus trigger a system-wide panic.

Equities (a.k.a. stocks) are, on the other hand, inherently risky; they entitle you to a piece of the profits, but also expose you to business downturns. As Taleb sees it, equity-holders are a lot more cautious about where they put their money.

His proof? The dotcom boom-and-bust was very much equities-driven, and resulted in a mild recession; investors absorbed their losses and moved on. The housing boom-and-bust was debt-led and has, of course, led to a systemwide meltdown. He says:

We have to be a lot more careful going forward, because we have globalization, the internet, and operational efficiency — which cannot accommodate debt.

In other words, today's crisis is the result of a) over-leverage and b) "disappearing slack," as Paul Kedrosky puts it. "We live in a world with less slack than ever, whether you're thinking in epidemiological or financial terms (and they are analogous), and that has immense consequences for runs, of whatever variety."

In 2005, The New York Times ran a now-infamous article about the benefits of a slack-free world:

It had been a busy day for Georgia businesses, and FedEx's regular nightly flights from Atlanta to the company's Memphis hub were overbooked with packages. So the local crew made a call to a sprawling, low-slung room here at headquarters, where people hunch over computer screens showing weather maps and flight plans, and asked for help from the five empty FedEx jets that roam over the United States every night.

The recent birth of that small fleet, at a multimillion-dollar price tag, explains a lot about how the nation's economy has become so much more resilient. Think of it as the FedEx economy, a system that constantly recalibrates itself to cope with surprises.

The United States has endured an almost biblical series of calamities in recent years - wars, hurricanes, financial scandals, soaring oil prices and rising interest rates - but the economy keeps chugging along at an annual growth rate of roughly 3 percent.

It has been able to do so with the help of technology that allows businesses to react ever more quickly to changes.

The question I would pose to Taleb and Kedrosky is, at what point does interconnectedness switch from diluting negative shocks, as it clearly is capable of doing, and instead augmenting them? 

In a new song, Merle Hazard and his singing partner Bretton Wood ask:

Inflation or deflation?

Tell me, if you can

Will we become Zimbabwe?

Or will we be Japan?

Watch the whole thing:

(Hat tip: Calculated Risk)

Taxes are going up in most parts of the world as governments struggle to pay for the financial crisis, but one place they are going down is in French restaurants. Sales tax on restaurants and cafes from Paris to Cannes will be falling from 19.6 percent to 5.5 percent as of July 1st, thanks to a new national VAT cut. 

It's only appropriate that the French, who still spend more time eating and sleeping than any other country (check out stats on that from the OECD's new Society at a Glance survey), would consider encouraging more frequent trips to restaurants as a key part of their national stimulus efforts. Bistros and cafes in particular have been hit hard since the downturn last year, with 3,000 plus closing their doors in 2008 (a new ban on smoking didn't help matters).

Economy minister Christine Lagarde is also hoping that the cut will allow France to "conserve and improve its culinary reputation," and indeed, restaurant owners have promised to go on a hiring spree to improve service. Unfortunately the new tax cut won't apply to alcohol (government ministers don't want to encourage those still unemployed to cry in their bordeaux). But it will make the average cafe meal a whole lot cheaper for lots of summer tourists -- just remember not to order any Freedom Fries.

Please, Sir, May I Have Some More: The latest leak ahead of tomorrow's stress test results has Bank of America needing an extra $34 billion in bailout money. How's the government doing on those bailout coffers, you might ask? ProPublica, diligently tracking every penny, has the scoop.

The Fortunes of Lowlife Grave Dancers: What's to become of ailing small banks in America's ailing small towns? The private equity kings of New York see big profits on the horizon, but the Fed is resistant to letting them completely take over the recession's biggest potential prizes.

All Real Estate Is Local: New data from Zillow.com shows some bright spots amid more bad housing news. The upshot: real estate values in some metro areas are actually rising this year, but the national picture shows that the bottom will be both long and a long way off. (Chart is interesting, and worth the click).

Downers from the Fed: Real Time Economics brings us doom and gloom from the Fed's senior loan officers, who expect credit quality for "all types of loans" to deteriorate this year. It's a cruel about-face, since RTE just posted this optimistic list last week.

Some Economic Sweet Nothings, Please: The Onion declares it so! America is ready to be lied to about the economy again.

Back to the Bailouts: Bits are already starting to leak out about the results of the bank stress tests, set to be released Thursday. The early word: 10 of the 19 will need more capital, but the problems aren't as bad as some have said. The naysayers are standing by their analyses.

Happy Days Are Here Again: With the flowers of May also comes the end of the Great Recession, according to two Forbes columnists.

Playing the Sunshine State Bottom Game: The NYT thinks we might be seeing signs of a bottom in Sacramento's hard-hit housing market. Well, sort of. Ample wiggle room earns this one a meh. (And since I just got back from a reporting trip to the area south of there, I will have more to say on that front soon).

So Much for Tree Huggers: The Mafia has moved into the green economy. It was only a matter of time.

Three Cheers for Entrepreneurship: Remember the Iraq War Most Wanted playing cards? There is now a Financial Crisis Most Wanted edition, made up of 52 CEOs, politicians, millionaires, fraudsters, gamblers, and liars.

Obama declared war on corporate tax evaders today, unveiling a plan that will make it harder for companies to hide money offshore indefinitely and, in so doing, raise an extra $103.1 billion over 10 years (according to the Administration's math, at least). (For background, check here.)

The response from corporate America was predictable. The chief economist at the U.S. Chamber of Commerce summed up the sentiment: By raising taxes on Big Business, “you limit the ability of U.S. companies to compete, you impede growth in the U.S. economy, and you cause the loss of jobs — both at the companies directly impacted and companies in their supply chains.”

No one likes higher taxes, and corporate America holds no monopoly in arguing that higher taxes hurt the country's growth prospects. But corporate America has been a particularly large beneficiary of such arguments: the Administration calculates that U.S. multinationals paid just $16 billion in taxes on $700 billion in foreign earnings in 2004, an effective tax rate of just 2.3 percent.

What corporate spokespersons are all too happy to forget in arguing against higher taxes is the extreme tax arbitrage utilized by their companies. A GAO report to Congress earlier this year found that of America's 100 largest corporations, 83 had units in tax havens like Switzerland and the Cayman Islands. This number includes such paragons of corporate excellence as AIG, which had 88 subsidiaries in tax havens, including two in Bahrain and five in the Bahamas. If anyone thinks this is because AIG has a healthy business in underwriting Bahamanian life insurance, I'll make you a great offer on a timeshare in Detroit.

The argument against taxing corporations more is that it will damage their international competitiveness, and we'll lose jobs and business to overseas firms. Color me skeptical. Of the $103.1 billion raised by cutting down on tax arbitrage, $74.5 billion will go to making a permanent tax credit for companies that invest in R&D in the U.S. That hardly sounds like a plan that will damage U.S. growth prospects.   

One does not want to be disrespectful of the dead, and Jack Kemp was an admirable man in many ways. If the Republican Party had only followed his advice about reaching out to the inner cities and underclass—and ignored his happy talk about supply-side economics—the GOP might not be in nearly the fix it is today. Unfortunately the opposite happened. Kemp, a consummate professional as a football player, was a classic case of an amateur econo-cultist whose understanding never reached quite deep enough. In mid-life, when he decided to switch from sports to politics, Kemp became enamored of simplistic free-market ideas, in particular a toxic combination of Arthur Laffer and Ayn Rand. He then sold another gifted amateur, Ronald Reagan, on the idea that drastic tax cuts would so stimulate the economy that the ensuing growth would more than make up for the loss in revenues. In pushing this idea, Kemp proved to be as effective a quarterback in Washington politics as he had been one on the gridiron, and the results are now economic history—much of it bad, though the tax cuts did help give the Reagan economy a jolt. Kemp was such an economic purist—i.e., amateur—that he argued with Reagan himself a number of times when the president decided that perhaps he’d cut taxes enough.

The Oracle Speaks: The annual Berkshire Hathaway shareholder meeting featured lots of words of wisdom from the Sage of Omaha. Buffett said financiers' greed and stupidity contributed to the crisis and he criticized the bank stress tests. Newspapers face "unending losses," he said, while his partner, Charlie Munger, praised Google's "moat." Both spent a lot of time defending their company's dismal year.

A European Supergroup That's Not ABBA: According to the Financial Times, Fiat is planning to combine its own automotive division with Chrysler and GM to form a new publicly traded European company. If the plan, which is expected to be announced today, is successful, it will "create a company with about €80bn ($106bn) of revenues and sales of 6m-7m vehicles a year – second to Toyota, more than Renault/Nissan or Ford Motor, or GM itself, and roughly as many as Volkswagen."

Should Starbucks Become a Bank?: John Gapper thinks the idea makes sense.

Up, Up and Away for Emerging-Market Stocks?: Acclaimed international investor Mark Mobius says we're at a low and that, while gloomy news may hold down prices for a few months longer, he expects a rally by year's end. Related: Asian stocks today hit their highest level since mid-October.

Patents as the New Credit Default Swaps: Andy Grove, the former CEO of chip giant Intel, says today's patent system suffers from a lot of the same problems as the financial system of 2008. 

• Little-known Chuck Norris Fact: Chuck Norris does not mark to market. The market marks to Chuck.

• More: Chuck Norris does not go bankrupt. Chuck Norris ruptures banks.

• Source of hedge fund survivorship bias?: Funds that pay Chuck Norris 2 and 20 survive; others don’t.

• Private equity: Chuck Norris does not believe in leverage. Chuck Norris believes in crowbars.

• Investment banking: No-one defers Chuck Norris’s compensation.

• Capital structure: No-one subordinates Chuck Norris. All his equity is preferred.  

• If Chuck Norris devised the bank stress tests, not even the Treasury Department would survive.

Another One Bites the Dust: The federal government put Chrysler into bankruptcy protection yesterday, and the New York Times argues that "if the process is prolonged, the costs and complexity would likely ensure that the company would never emerge from bankruptcy proceedings." Obama blamed "a small group of speculators" who "were hoping that everybody else would make sacrifices and they would have to make none,” he said. (John Gapper defends the hedge funds and "speculators" here.) The new, post-bankruptcy Chrysler will be linked with Fiat and majority-owned by the workers' union and their pension plan. (If that sounds odd, that's because it is.)

Mon Dieu: What's a French citizen to do when an economic crisis strikes? Protest it! Hundreds of May Day marches are planned, and turnout is expected to be high.

Dept. of Unintended Consequences: Some 13 countries worldwide have guaranteed about $400 billion in financial company bonds in order to prop up their banking sectors. This has made borrowing extraordinarily costly for the World Bank, which lacks such guarantees but is a AAA-rated borrower. 

A More Sober "Woodstock for Capitalists": Warren Buffett gathers with his acolytes in Omaha this weekend, and is sure to face tough questions after Berkshire Hathaway reported its worst annual earnings ever. 

Who's Who of Financial Bloggers: If the financial blogosphere were high school (and sometimes it kind of feels that way), where would you sit?