U.S. initial jobless claims soared to yet another 26-year high, registering 626,000 for the week ending January 31st. The continuing claims number was equally dreadful, hitting an all-time high of 4.79 million.

We are barely two weeks into Barack Obama’s tenure and reports are surfacing everywhere that his “team of rivals” is at each other’s throat. President Obama had said just after the election that he was looking to pull together the best and the brightest. However, this strategy comes with a cost as the outsized egos assembled in his team are starting to jockey for political position.

A well-informed reader alerted me to the latest and most depressing story, which involves former Harvard President and Treasury Secretary Larry Summers shunting aside legendary ex-Fed Chairman Paul Volcker. Summers is trying to exclude Volcker, who is legendary for righting the U.S. economy after the stagflation of the 1970s. If he succeeds in sidelining Volcker, we will be the worse for it.

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Bloomberg set to cut foreign-language channels – Telegraph
Paterson Leaks Intended to Smear Kennedy — Political Wire
Russia’s debt rating downgraded by Fitch – Financial Post
Martin Wolf – Why Davos Man is waiting for Obama to save him – FT.com
Buffett Cancels Event With Biographer – NYTimes.com
US decline and the rise of emerging markets – Columns – livemint.com
MarketBeat [...]

I do not think General Electric is AAA company — far from it. Their finance arm GE Capital is at the center of the private equity and asset-backed security time bombs that have yet to explode. And this makes the cash flow expected from GE Capital vulnerable because they are under-reserving. Translation: their financial results are artificially goosed by not reserving for likely losses.

In previous posts I have argued that GE must cut its dividend and that it will lose its AAA credit rating, despite an investment by Warren Buffett. The following video which focuses on the under-reserving at General Electric demonstrates why.

Harry Markopolos is a fraud examiner who once worked as a fund manager. He knows fraud when he sees it and he saw it as plain as day with Bernard Madoff, who ran the largest Ponzi scheme in history. In fact, he tipped off the regulators at the Securities and Exchange Commission multiple times, dating back to 2000. The response? Nothing. The S.E.C. was asleep at the wheel, demonstrating yet again that the deregulatory mindset in Washington allowed the financial services industry to create all kinds of mischief.

The “Buy American” clause stuck onto the stimulus bill wending its way through Congress is a pernicious piece of legislation because it has engendered a ferocious response from trading partners, not the least of which is Canada.

Below is a Wall Street Journal video clip discussing this piece of legislation and the Canadian reaction to it. In addition, the video rightly claims that the bailouts now being conducted for financial services industries around the world are subsidies that are equally protectionist. None of this bodes well for the global economy.

There is a lot of anecdotal fodder in support of my last post tagging deregulation as a root cause for the build up of excesses in the financial services industry. Let me give you one example from 1998.

There is a view making the rounds now that repealing the Glass-Steagall Act of 1933 is the root cause for all of the excesses we have experienced — and by extension for the present economic Depression. Glass-Steagall was enacted in 1933 in the first Great Depression in order to prevent many of the abuses we have witnessed in the past 10 years by separating commercial banking from investment banking and securities firms. The logic here is that conflicts of interest were held in check before the Depression-era Glass-Steagall Act was repealed by the Graham-Leach-Biley Act of 1999. After Graham-Leach-Biley, the financial sector ran amok, leveraged up and generally went into irrational exuberance mode. The financial sector now lies in tatters and another global Depression has begun. Therefore, we need to re-institute Glass-Steagall, lest we suffer another Depression in the future.

I don’t buy this line of argument for a second.

UPDATE: 12 Jan 2010: I am re-publishing this for the third time because of the situation at AIG.

The question that Tim Iacono asked on his site a year ago in the post “Why aren’t Americans rioting?” is based on an article from Alternet. I am still scratching my head on this one. There is a deep sense of apathy in the United States regarding the massive economic implosion that remains ever more stunning with each passing day.

Last year, I said “Just yesterday, a reader sent me the following list of civil unrest due to the credit crisis and Depression. The United States is nowhere on this list.” The same is true again today.

Niels Jensen from Absolute Return Partners based in London sent me the following insightful analysis regarding the Euro, the possibility of Eurozone default, the possibility of a Eurozone bust-up and all things European. As Niels is snowed in under 8 inches of snow in wintery London, he obviously has had the opportunity to craft a piece of brilliance.