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Links: 2009-02-04

Bloomberg set to cut foreign-language channels – Telegraph Paterson Leaks Intended to Smear Kennedy — Political Wire Russia’s debt rating downgraded by Fitch – National 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 […]

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GE Capital’s looming time bomb

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.

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S.E.C. complicit in Madoff fraud, whistleblower says

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.

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Canada is furious about U.S. protectonism

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.

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Deregulation efforts from the late 1990s were blocked

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.

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Was repealing Glass-Steagall the cause for the present Depression?

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.

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Where is the outrage?

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.

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Do BRICs (and Germans) Eat PIGS?

Do BRICs (and Germans) Eat PIGS?

When the euro was introduced about ten years ago, the pessimists didn’t give it much chance of reaching its tenth anniversary. The euro, or so the argument went, was doomed from the outset because of the wide spread in economic performance and discipline amongst the member countries. At one end you had, and still have, the highly disciplined, but also […]

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Goldman says fund managers expect deflation

Goldman Sachs London conducted a poll of fund managers today that had interesting results. The poll demonstrated that fund managers are expecting deflation more than inflation and that they expect the U.S. or Asia to escape the downturn first (and certainly not Europe or the UK). I imagine that funds are positioned accordingly.

Here are the poll results:

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Links: 2009-02-03

Twitter, Communication, and My Intermittent Inner Luddite – naked capitalism (Yves Smith doesn’t like the always on culture. Neither do I. I use all the new media but I have similar misgivings about them) Fin24.com – SA house prices still falling FT.com – China to go on European spending spree Dublin ‘worst value’ in Europe for property investment – Independent.ie […]

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California starts issuing IOUs as bankruptcy nears

I just picked up two reports on California’s desperate situation. California, whose legislature and Governor have been hold up in around the clock negotiations, is now issuing IOU’s instead of cash. They have also been downgraded by Moody’s credit rating agency. The first story came from the well-known political site Monsters & Critics. And it demonstrates that California is on the verge of bankruptcy:

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Why are the Swiss now issuing debt in U.S. Dollars?

What are the Swiss doing selling dollars? I don’t have an answer to this question. But, I thought I would posit it because a reader tipped me off to a development via the Blog Alea:

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