employers are laying off workers who are really valuable. These are the hardest workers to get rid of.

TO BE NOTED: From Marketplace:

"Why the pace of layoffs has slowed

Last month's unemployment numbers are out, and they're not as bad as some experts expected. But half a million layoffs is still a whole lot of people. John Dimsdale reports.

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A job seeker looks at job listings posted at the East Bay Works One-Stop Career Center in Oakland, Calif. (Justin Sullivan/Getty Images)

More on Jobs, America's Financial Crisis

TEXT OF STORY

KAI RYSSDAL: The actual number was 539,000. That's how many people lost their jobs last month. The way things have been going, not as bad as a lot of experts had been guessing. And this morning's report does give some credibility to the 'hey, things are turning around' school of economic thought.

But the unemployment rate -- the number of people out there actually looking for work -- shot up to 8.9 percent. That's the highest that's number's been since Ronald Reagan's first term. The current occupant of the Oval Office pointed out that at least the rate of loss is slowing. But Marketplace's John Dimsdale reports that a half a million layoffs in one month is still a whole lot of people.

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John Dimsdale: For President Barack Obama fewer layoffs mean the economic gears are slowly beginning to turn. But Econoplay forecaster Gary Rosenberger, who gathers his own statistics by talking to employers on the front lines of the economy, sees evidence of a different sort.

Gary Rosenberger: They're telling us this is not a sign of a turnaround. This is a sign that layoffs have gotten to the point where employers are laying off workers who are really valuable. These are the hardest workers to get rid of.

Which is why the pace of layoffs has slowed. John Challenger at the outplacement firm Challenger Gray and Christmas says companies are doing all they can to avoid letting workers go.

John Challenger: Four-day work weeks, salary freezes. In fact we're seeing some companies cut their wages 10 to 15 percent.

Because they want to be ready when the rebound occurs.

Challenger: If the people aren't there they may not have the operations to provide the quality product or service they need. So companies have to be very careful here not to overshoot the mark.

To take better advantage of furloughed workers, Obama called for allowing them to collect unemployment benefits while going to school or taking part in retraining programs.

Barack Obama: The idea here is to fundamentally change our approach to unemployment in this country, so that it's no longer just a time to look for a new job but is also a time to prepare yourself for a better job.

The president announced a new Web site with education resources for the unemployed, at opportunity.gov.

In Washington, I'm John Dimsdale for Marketplace."

why AIG has paid so much taxpayer money to other banks

TO BE NOTED: From Marketplace:

Collateral calls

Millions of Americans are wondering why AIG has paid so much taxpayer money to other banks. One reason is because AIG has had to honor "collateral calls" — demands made by banks on the insurance contracts it's written. Senior Editor Paddy Hirsch explains.

you need to understand a company's capital structure

TO BE NOTED: From Marketplace:

Capital structure

In stories about the auto companies and the banks, we've been hearing about debt-to-equity swaps and exchanging preferred shares for common stock. To understand how those work, you need to understand a company's capital structure. Senior Editor Paddy Hirsch explains.

I feel a deep sense of obligation, particularly given the responsibility that America bears for this crisis

TO BE NOTED: From Marketplace:

"Geithner: U.S. a big contributor to crisis

Treasury Secretary Timothy Geithner says the U.S. is largely to blame for the world's financial crisis. Steve Henn reports that the U.S. still needs the world's help to clean up the mess.

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Treasury Secretary Timothy Geithner listens to a question during an address before the Economic Club in Washington, D.C. (Win McNamee/Getty Images)

More on America's Financial Crisis

TEXT OF STORY

Kai Ryssdal: With the economy the way it is just having a job is something to be grateful for, but don't you kind of wonder whether Timothy Geithner late at night and all alone quietly asks himself if he'd be better off doing something else. Well, after a speech in Washington this morning, the Treasury secretary was asked that very question.

Tim Geithner: I am... uhhhh. I feel deeply privileged as I said. To have this moment.

Once the laughter died down Geithner kept on going. He said it's the United States that is to blame for the financial mess that the world finds itself in. Marketplace's Steve Henn has more.

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STEVE HENN: Here's how Geithner put it:

Geithner: I feel a deep sense of obligation, particularly given the responsibility that America bears for this crisis, to be part of this effort with this president and this Congress, trying to fix this crisis and get us back to the position where the government of the United States is doing a better job of managing our country's economic fortunes.

In the lead up to the G-20 meetings in Washington this weekend, Gary Hufbauer at the Peterson Institute says that statement is significant.

GARY Hufbauer: It's a very important thing to say. First it is true, as everyone outside the United States recognizes.

And Hufbauer says the U.S. still needs lots of help fixing this mess. Last month G-20 countries promised to pass regulatory reforms and pledged to give the IMF $1.1 trillion for loans to developing countries -- but the heavy lifting -- appropriating that money and passing the new laws hasn't started.

And Hufbauer believes there's an even bigger challenge: our trade deficit.

For years, foreigners haven't wanted to buy what we make, so they've bought our debt instead. That's pushed interest rates down making it easy for consumers to borrow even more. First, that seems like a good thing, leading to low mortgage rates for instance.

GARY HUFBAUER: So it does lead to the good things that you've talked about, and we've kind of gorged on good things.

Now Hufbauer worries if we don't do something to fix our deficits, the temptation to borrow beyond our means will still be there when the economy recovers.

In Washington, I'm Steve Henn for Marketplace."

"By this policy of ‘quantitative easing’ the central bank increases the money supply even when interest rates hit their zero-bound."

A couple of good posts on Quantitative Easing ( Love that name. It sounds like measuring a...well, you get it ). First, via Greg Mankiw:

"A Primer on Quantitative Easing

Quantitative easing from Marketplace on Vimeo."

There is no doubt that buying disturbed assets can be viewed as an investment. However, for me, investing is what Graham, Buffet, Gross, Rogers, and Grant do. In other words, do a lot of research about a particular investment before buying it. When TARP and the Fed do this investing though, it reminds me of buying a grab bag or Japanese Lucky Bag, which always turned out to be a poor investment for me.

Now, via Emre Deliveli's Blog On Economics, from the FT:

"Central banks are worried about falling rather than rising prices. By early next year, it is possible that central banks’ target policy interest rates will all be reduced to their minimum possible level of zero( ZIRP). Does this mean that central banks will then have lost control over monetary policy and be unable to prevent a cumulative debt deflation( NO )?

Many, including Ben Bernanke, US Federal Reserve chairman, point out that central banks can then use further unorthodox tools( NOT GENERALLY NEEDED ) to further loosen monetary policy.

Once interest rates are at zero, the central bank is relieved of the responsibility for draining reserves to stop overnight interest rates falling below the policy target rate.

It loses control over interest rates but gains control of the quantity of reserves and can use this to increase its balance sheet to an almost unlimited extent( PRINTING MONEY ), buying securities( 1 ), matched by increases in both wholesale deposits with commercial banks and commercial bank reserves at the central bank. By this policy of ‘quantitative easing’ the central bank increases the money supply even when interest rates hit their zero-bound.

Here is an illustration. To conduct a quantitative easing, a trader employed by the central bank buys a government bond for £1000 from an investor such as a pension fund. To settle the trade, the pension fund’s cash account with a commercial bank is increased by £1000 from the central bank, and to settle this payment the commercial bank’s reserve with the central bank is in turn increased by £1000, matching the £1000 increase in central bank assets.

But it is doubtful if this particular transaction does much to increase bank credit( WHICH IS THE POINT OF QE ). The commercial bank has more short- term deposits, so monetary aggregates have increased, but it is unlikely to lend this money out, when as now banks have too many short-term liabilities and too many illiquid and undervalued long-term assets.

When quantitative easing was attempted in this way in Japan from 2001 until 2005, the main impact was to increase reserve assets rather than bank credit( NO GOOD ).

The central bank has, though, changed the composition of net public sector debt, broadly defined to include the debt of the central bank. There is less long-term and more short-term debt in the market and long-term interest rates fall somewhat( GOOD ).

The central bank is then likely to lose money, buying bonds at a premium high price and then, when the easing is unwound, selling them at a discounted low price( OK ).

This has economic effects because the loss-making trade subsidises( YES ) long-term borrowing by the private sector. The effect is similar to that achieved when government subsidises long-term borrowing.

Quantitative easing will be much more effective if the central bank uses its balance sheet to buy not government bonds but better quality illiquid and undervalued structured and mortgage-backed securities. This eases bank funding constraints and so directly expands the stock of credit. Moreover, as the economy recovers, credit spreads will fall and so the central bank can make a profit.( SINCE IT'S A SUBSIDY, YOU CAN SAY "WHO CARES WHAT THESE ASSETS ARE GOING TO BE WORTH"? FINE. SAY THAT. )

Quantitative easing will be more powerful still if the central bank takes pure credit spread exposures, using interest rate swaps to remove its exposure to fluctuations in nominal interest rates( A HEDGE ).

It can also conduct equivalent synthetic transactions, purchasing government bonds alongside an interest rate swap and the acquisition of negative net worth credit default swaps. Unlike a private sector participant, as the monopoly supplier of outside money it can always meet margin calls( THIS WAS THE PROBLEM WITH AIG AND OTHER INVESTORS. I'M CALLING IT A "CALLING RUN", WHICH IS SIMILAR TO A BANK RUN. BOTH LEAD TO A FLIGHT TO SAFETY, WHICH IS WHAT WE HAVE ) and so cannot be squeezed out of credit default swap trades.

Finally, to guide expectations( IMPORTANT ), it should set forward targets for credit spreads.

Perhaps the clearest way to present this point is to put the question in another way: what is the most appropriate alternative instrument of monetary policy, during the period when money market interest rates are reduced to their zero floor?

Aggregate bank reserves or money stock are poor choices, since in present circumstances they can increase by huge amounts without impacting credit or expenditure. A better choice is market credit spreads( THIS WOULD BE GOOD ). The Bank of England’s monetary policy committee can use its regular meetings to announce its preferred levels for average market credit spreads( RISK ). Bank monetary operations can enforce this decision.

By setting credit spreads at appropriate levels the bank will put a floor under market values( I AGREE ), restore credit market liquidity and economic activity and make a handsome profit to boot.

A potential problem is the transition back to positive nominal interest rates, but this can be handled by a more permanent but less generous government-backed scheme for systemic credit insurance, such as been proposed by Laurence Kotlikoff and Perry Mehrling and myself on this forum.

Alistair Milne is reader in banking, Cass Business School, City University, London"

I think that these are worth a try.