Here is one analysis:

Companies combining deductions proposed by Obama for equipment with deductions for borrowing costs would get benefits — including refunds or credits against future taxes – – that exceed the additional income they get from new capital spending, according to a 2005 report by the Congressional Budget Office. For every $1 of additional income from new capital spending, companies may be able to get benefits worth almost $1.88, according to the budget office report.

“The combination of free deductibility of interest to make a marginal investment, combined with accelerated depreciation, would lead to negative tax rates on that new investment,” Kleinbard said.

Is that a good idea?  Here is one commentator:

“It’s an invitation to arbitrage,” said Kleinbard, who now teaches tax law at the University of Southern California in Los Angeles. “You’re putting businesses in the same economic position as if you were inviting them to borrow money to buy tax-exempt bonds.”

Many smart people say we should.  It seems increasingly clear that we must.  For how long can the government prop them up?  Are we never to have a private market in mortgages again?

Yet what happens if we let them fall?  Arguably many banks would once again be "under water."  Enthusiasm for another set of bailouts is weak, to say the least.  Our government would end up nationalizing these banks and it still would be on the hook for their debts.  The blow to confidence would be a major one, especially if along the way we saw a recreation of a Lehman or Bear Stearns or A.I.G. episode.

I increasingly believe there is no easy way out of this dilemma and it is a major reason why the U.S. economy remains stuck.  Housing prices must fall, yet…housing prices must not fall.

Here is a very good Dave Leonhardt piece on two different views of housing.  It's where to go, if you are looking for the case for optimism.  I am more pessimistic than David because I see the private sector interest in mortgage securities as remaining quite weak, which suggests the market knows which way prices have to move.

In markets, speculators, unable to bet on a yuan pegged to the U.S. dollar, use the currencies of China's main trading partners instead.  That has helped make the Australian dollar the fifth-most-traded currency in the world — after the U.S. dollar, the yen, the pound, and the euro — even though Australia is the 18th largest economy.

The full story, on the China-Australia, relationship is here, in the new, revamped, and excellent Bloomberg BusinessWeek.

There is an alternative, more behavioral hypothesis for the fragility of the securitization market that does not rely on a predominance of short-term debt financing. This alternative hypothesis begins with the observation that a large proportion of ABS tranches–both in the traditional and subprime sectors–were rated AAA. The AAA rating may have encouraged investors such as pension funds or insurance companies to think of these securities as essentially riskless, and therefore to treat them as being equivalent to Treasury bonds when constructing their portfolios. When the problems in the subprime area became apparent, this premise was utterly destroyed, and investors who were determined to allocate a fraction of their portfolios to safe assets realized that they had to dump their holdings of AAA-rated ABS, and buy actual Treasuries instead. Thus instead of a short-term-debt-driven bank run, we have what might be called a widespread buyer’s strike. In this account, the mechanism of contagion from the subprime market to the traditional consumer ABS market is that the failures of the rating agencies with respect to subprime called into question their credibility more generally, so that any AAA-rated tranche of an ABS, be it linked to subprime or credit cards, was no longer considered to be a virtually riskless asset.

The full essay is here, interesting throughout, via David Warsh's very good column.  Stein also makes the simple yet neglected point that higher capital requirements may simply shift more financial activity into the less regulated shadow banking sector.

There should be a betting market in how many of these projects actually end up being finished within, say, the next thirty years:  

But the biggest question mark hovering over the future of high-speed rail in the United States is funding. The $8 billion allocated in the stimulus package is not nearly enough, particularly because it is spread across a range of projects around the country. California’s new system alone could cost $40 billion. State governments will shoulder a substantial share of the costs, and they are grappling with budget deficits.

These days, many states are cutting or limiting spending on K-12 education.  You can argue "State and local taxes should be higher" (I don't agree), or "We should make drivers bear the full social costs of auto transport" (I do agree), but as they say "You've got to go to war with the army you've got."  So far the HSR expenditures are looking like a big white elephant.  It's very important to have a theory of public choice which consists of more than simply criticizing the politicians, parties, and voters you do not agree with.

The full story is here.

Here is an anonymous commentator over at Andrew Sullivan, via Conor Friedersdorf guest-blogging:

1. Business is much more about being organized and managing people than it is about ideas. Past a certain scale, ideas don't seem to matter much (unless you are a once-in-a-lifetime Steve Jobs type visionary). You and your competitors all have a basic concept of what to do. The areas that seem to offer the most scope for creativity are actually the areas where not enough data exists to formulate good ideas, and random guesses are worth as much as multi-million-dollar consultant reports. Much of the time spent discussing "ideas" in a business context is actually time spent slowly maneuvering large groups of managers into a compatible mind-space so that they can work together effectively – the results of the discussion in terms of ideas is worth nothing, whereas the result in terms of bonding, organizing, and motivating can be very valuable.

The post is interesting throughout.