From the 2008 letter to shareholders:

Derivatives contracts, in contrast, often go unsettled for years, or even decades, with counterparties building up huge claims against each other. “Paper” assets and liabilities – often hard to quantify – become important parts of financial statements though these items will not be validated for many years. Additionally, a frightening web of mutual dependence develops among huge financial institutions. Receivables and payables by  the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.

Sleeping around, to continue our metaphor, can actually be useful for large derivatives dealers because it assures them government aid if trouble hits. In other words, only companies having problems that can infect the entire neighborhood – I won’t mention names – are certain to become a concern of the state (an outcome, I’m sad to say, that is proper). From this irritating reality comes The First Law of Corporate Survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply won’t do; it’s mindboggling screw-ups that are required.

Harvard’s Benjamin Edelman has issued a fascinating study Who Buys Online Adult Entertainment?

Internet porn was a $2.8 billion market in 2006, but who buys the cow when you can you have the milk for free?

Hypocrites, that’s who.

Subscriptions are slightly more prevalent in states that have enacted conservative legislation on sexuality. In the 27 states where “defense of marriage” amendments have been adopted (making same-sex marriage, and/or civil unions unconstitutional), subscriptions to this adult entertainment service are weakly more prevalent than in other states ( p=0.096). In such states, there were 0.2 more subscribers to this adult web site per thousand broadband households, 11 percent more than in other states….

As shown in Table 4, subscriptions are also more prevalent in states where surveys indicate conservative positions on religion, gender roles, and sexuality. In states where more people agree that “Even today miracles are performed by the power of God” and “I never doubt the existence of God,” there are more subscriptions to this service. Subscriptions are also more prevalent in states where more people agree that “I have old-fashioned values about family and marriage” and “AIDS might be God’s punishment for immoral sexual behavior.”

The state that subscribes the most to Internet porn? Utah

Mark Sunshine:

It is amazing that Geithner’s proposal to “stress test” banks is making news as new policy. After all, regulators were supposed to be doing this all along. After the last banking crisis in the 1980s banking regulators got the authority to anticipate capital shortfalls as well as operational deficiencies. When problems are identified regulators are supposed to mandate corrective action well before a bank is in real trouble. “Prompt corrective action” (or “PCA”) is the regulatory jargon to describe the regulatory authority that has existed for years but apparently not used recently. Geithner’s announcement that regulators are going to “stress test” banks is a nice politically correct way of saying that enforcement of safety and soundness rules is back in style and self regulation is out.

Luo Ping, a director-general at the China Banking Regulatory Commission, in the Financial Times:

“Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

Via Bloomberg:

China entered into an oil-for-loans accord with Brazil yesterday — its third such deal in three days — tapping the nation’s $1.95 trillion foreign-exchange reserves at a time when credit is scarce. In all, the world’s second-largest oil user will get about 600,000 barrels a day, equal to 17 percent of its imports last year, in return for providing $39 billion of loans….

• China agreed on Feb. 17 to provide Russia with $25 billion of loans in return for 300,000 barrels a day of oil for 20 years.
• Venezuela’s Petroleos de Venezuela, known as PDVSA, will provide 200,000 barrels a day to the Asian country to pay down a $4 billion loan from China Development Bank. Venezuela’s oil is “at the service of China,” President Hugo Chavez said Feb. 18.
• Chinese President Hu Jintao visited Saudi Arabia Feb. 10-12. A deal between China Petroleum & Chemical Corp., Asia’s biggest oil processor, and Saudi Aramco is expected.
• Chinalco, the Aluminum Corporation of China, plans to invest $30 billion into Australian mining giant Rio Tinto to back up its initial $11 billion stake made in 2007. Rio Tinto is three times the size of Chinalco.
• China Minmetals placed and the $2.6 billion bid for troubled Australian mining company OZ Minerals. “If China wasn’t there, I don’t know where we would be … what’s the alternative?” said OZ Minerals chief executive Andrew Michelmore.
• In Feburary 2007, Chinalco bought Peru’s Mount Tomorocho, the world’s most productive copper mine.

The history of the future is being written here.