but other than that take a look at the main headlines now wildfires continue to burn in central russia with moscow facing the prospect of more acrid smoke after a rain fall to short rest meanwhile the government has halted grain exports for the next few months just enough to meet domestic and off the farmers and he destroyed many harvests. ten years off the course submarine charges the memorial services are being able bases throughout russia all one hundred eighteen crew were killed when the submarine sank and their families and the pain of the whole system french. quarter has played host to a new nazi case this time about function a german closed label tried to see what left wing group which produced spoofs of its plans which are popular among neo nazis. on next mexico as it takes on

financial fraud and looks at the line between quality and economics. hi i'm max kaiser and this is the kaiser report you know the global problem with banks and finance and markets it's not just a short term phenomenon this problem goes back two hundred years or more because back in the old days of the enlightenment when adam smith was writing wealth of nations he failed to include the limitations of the ecology flash forward to today we've got some massive problems because nobody cost to the ecology along the way the ecology is costing itself for us

let's get more stacy herbert welcome back yes max and along this line of the deflationary collapse everybody is talking about tear one capital tear two capital to require its capital requirements and liquidity but there is one that is tier zero it's tier tara you might want to call it and that is muscovites fully worst in one thousand years death rate doubles alexander for a lot of head of russia's federal weather service says in one thousand years neither we nor our ancestors have observed or recorded anything like this sort of heat and as a result of thirty percent of agricultural lands burning down of course russia has had to suspend exports of all wheat cheer tera capital that's a good phrase i like that in other words this is what the economy is trying to deal with now because nobody cost to the true cost of air water soil the things that

were just taken for granted for hundreds of years suddenly they're running out for the same reason actually it's kind of funny because you can use the phrase liquidity to me. in the same kind of in both realms in the financial markets you have peak credit or credit collapse because there is no liquidity and now in the global ecosystem or ecology you have these fires breaking out all over the world and flooding in the ecological problems because or is a lack of liquidity as things dry out causing all kinds of ecological dislocations yes because of course the entire global financial system is based on contracts but all contracts are absolved with force majeure and that's in the headline traders and consider force made on russia wheat so this is the terra capital always has the final say it always gets first claims on any sort of capital left standing yes there is a little known bank on wall street called forest made sure it's mother nature's

bank and it's calling in the loans billions trillions hundreds of trillions in loans and the earth can't pay those loans and the result is catastrophic eco failure in this case ecological failure in china there's been tens of billions of dollars of damage so far this year from floods and that takes us to this headline beijing billionaire who grew up with matter how c. is no housing bubble. which is seems like a perfect headline for our global communist financial system of ponzi schemes yeah well there clearly is a huge bubble in chinese real estate nobody can see it it always is like this at the top of a bubble nobody saw the top of the dot com bubble or the mortgage bubble they they believe their own reflection in the equity mirror it's a form of financial narcissism yes well this woman jang is in and she's worth two

point two billion dollars says i don't see any bubbles the next few months will be a fantastic time to buy so as to your. tara capital is collapsing all around her and the government has lent out one point four trillion in the last year it's going into this misallocation of capital into crazy ponzi schemes it's the government buying from itself just like in the united states people say who's buying all these u.s. government treasury bonds also the u.s. government does buying all the u.s. government treasury bonds to keep interest rates below one half a percent as a way to perpetuate this enormous pyramid scheme a ponzi scheme that's now met its ultimate match for some asian or the new bank on wall street that's eating everybody's lunch including milton friedman he speak of these very low interest rates and that brings me to the fact that banks are just basically coining money because they're borrowing from us the taxpayer at less than

one percent and then loaning it back to us the taxpayer at three four five percent city bonuses jumped twenty five percent to ten billion pounds this is in the you k. city bonuses are up twenty five percent but i really think this is kind of a distraction where the fight to the big debate becomes about how much bonus they should collect not how much time they should be doing in jail yet they as we had. said recently they need a jail out not a bail out and these bonuses of course are fabricated they're not earning money they don't earn in the classical sense of putting in work hours to collect nene aeration know it's like argentina circa two thousand and two thousand and one is the kleptocracy stealing as much as they possibly can before they run as fast as they can and then of course you know i just talked about this is jail out and how much time bankers should be doing and we're having all sorts of investigations

three years later nobody has found a single criminal other than bernie made off this next headline however future crimes can be predicted perfectly scientists say scientists say that they have created a new protocol which can determine to one hundred percent accuracy if somebody is going to commit a terrorist act. well that's absurd because anybody who thinks that they can predict future events fails to consider the feedback mechanism is in play when the information that you're acting on feeds back into the president it's the mandelbrot set if you will and it's the at the the root of why markets are unpredictable and talk about it in terms of reflexivity coming out of the mouth of guys like george soros but going back to the story max that there hundred percent perfect accuracy in reading minds of make believe terrorists is just reading guilt and we have covered this wall street journal article which covered a harvard reviewed scientific review that the best bankers are brain damaged and

bankers they make the most profits for any bank so the banks will tend to hire brain damaged bankers and what how are they brain damaged they have no empathy no guilt and this is what this algorithm this protocol from the scientists is measuring your sense of guilt financial terrorists will continue to get away once we move to this protocol which targets and finds guilty people right if you can identify the folks out there who lack empathy who are by definition anti social then you know that they would make good employees of goldman sachs because empathy is the enemy of performance on wall street if you think about what you're doing in terms of consequences for the community at large you wouldn't do the types of things you need to do to keep feeding that christmas bonus well speaking of christmas bonuses we're moving on to crash of twenty fifteen won't wait for regulators to reign on wall street so this is the headline playing on with the

notion that jamie diamond remember when he was speaking to congress he told the story of his daughter asking what happened what is the financial crisis and he told his daughter well financial collapse is something that happens every five or seven years so we're due for another one in two thousand and fifteen however the new regulations being in two. by basil basil three accords there are now totally water down there allowing leverage of thirty three to one which is where lehman brothers was when it collapsed and in fact these rules are not being brought in until twenty eighteen yes obviously the way to stop fraud would be to make the banks increase their reserves but they don't want that to happen because then they again it would jeopardize the model of reserve list banking when every time the u.s. quantitative easing for example ben bernanke is talking about that is to say somehow creating more quote unquote money to ease the economy there's no reserve

backing it up so he's just putting in more debt he's actually exacerbating the problem he's he's trying to solve the debt problem by creating more debt he's like the norman bates of bankers remember psycho when norman bates was in front of the mirror and he dressed up as mother and he was trying to kill himself that's ben bernanke in front of the economy he's trying to kill the the deflation by stabbing himself timothy geithner is quoted in this article speaking last week and why you and he said that delaying the capital rules will make it easier for banks to earn money they use as capital the article calls it regulatory forbearance which is kin to allowing drivers to build up speed before buckling the seatbelt or it's like saying that people who rob liquor stores would do better if liquor stores put less onerous padlocks on the front door that's true if they took away the locks on the front door of the liquor store liquor store thieves would make more money while

street banking thieves are going to make more money if you reduce the hurdle one has to jump to borrow money to speculate and then every time they make a bad smoke you lation they go back and get more free money this brings me to it video and this is from march two thousand and nine and why you started school of business and as jamie diamond speaking to the group of collected students there how many of you represented yourselves or institution or corporation or university took money and moved from something. mork more aggressive to less aggressive or to something more conservative radio has real quick. ok people say what caused the crisis you did. and i'm being completely honest about it individuals acting wisely and we're all acting wise leave this wasn't malfeasance said i want to be more careful so when we wake up in what twenty fifteen all panicked about the next crisis is going to be our fault because jamie dimon has predicted the future and he

says you're going to be the ones that caused the crisis by withdrawing from our banking system well this guy who's going to stop this guy lloyd blankfein jamie diamond i'm in their early alcoa pollen and i mean they're there they're reprehensible oh well you bring up the question who's going to stop these guys and this takes me to a video interview with janet tavakoli on first business and she's asked this about the financial crisis inquiry committee and she says that they're basically covering up for the likes of jamie dimon and lloyd blankfein at goldman sachs and j.p. morgan why aren't we investigating the financial crisis inquiry commission is congress just covering up for all of these officers and basically putting the minimum amount of information to do the minimum amount of disclosure into these reports it's a sham it's a scandal oh it is a sham it is a scam. thanks so much for being on the kaiser report thank you max now when we

come back i am he talking with william k. black the guy who cleaned up the s n l industry in the eighty's how come he's not cleaning up this mess stage in.

welcome back to the kaiser report lot of people are scratching their head why we do these banks what's going on to we appoint a special commission is there anyone who knows what's going on well fortunately there is somebody in america that does know what's going on who's faced the problems before and who has solved the problems we form. welcome to show let's go to missouri to talk with professor william came black professor black welcome to the kaiser report thank you it's good to be back already now just to remind people of course you were a bank regulator back in the one nine hundred eighty s. when i was working on wall street and you cleaned up the s. and l. crisis and you put one thousand bankers away in jail at least i have the number wrong first professor black whatever happened to sarbanes oxley why are we discussing how much bonuses these bankers should be getting instead of discussing how much time in jail they should be serving sarbanes oxley have next to nothing to

do with creating successful criminal prosecutions it got focused on proceed and ironically it made a fortune for the account big four audit firms that were the heart of the problem talk about the rackets area because you got the accounting agencies the rating agencies the investment banks the the hedge funds they're all operating as a racket is not correct all of them have been deliberately subjected to what we in economics call it gresham's dynamic gresham's dynamic the least ethical gain a competitive advantage and when that happens barkat places become perverse and they drive the ethical out of the marketplace and the people that triumph are the absolute worst folks now this is still liberally engineered for example why move it is come out had a blacklist of appraisers except you got on the blacklist of appraisers if you were

honest right so the least ethically inclined have an advantage in this new economy now if you look at what happened with a argentina circa two thousand two thousand and one there was wholesale looting by the elites they stole the money and they ran away when i hear about these christmas bonuses on wall street. seems to me that basically they're just look it's a wholesale looting it's not reform it's not stimulus it's not anything other than looting would you argue with that conclusion well to tie your questions together sarbanes oxley didn't work because it didn't heal with the fundamental perverse incentives and the fundamental perverse incentives are the ones we've just been discussing one is executive compensation but the other is professional compensation and that's what allows the c.e.o. crooks in the financial industry to suborn all of these entities that are supposed

to be independent that are supposed to be controls and turn them into the most valuable allies of the underlying accounting fraud which is designed to maximize c.e.o. and c.f.o. bonuses and this is why i say american business schools all too often have become prog factories ok off what you're describing there can also be used to describe how a mafia family works they co-opt other people in the society to do their bidding for them and you have a mafia style heart hierarchy but during the one nine hundred eighty eight of course. you only giuliani one after drexel using rico rackets anti racketeering laws if i remember correctly now isn't why can't they bring that back this is obviously racketeering why if they've big why they pussyfooting why don't think go after the racket as a whole the fundamental reason is that the f.b.i.

and the justice department can only big successful if the regulators serve as the sherpas and i mean that in the following two senses the we as the regulators have to be the guy but we also have to do the heavy lifting because we're the only ones that have the resources in the x. . in the industry to be able to make an f.b.i. investigation successful the housing and post had a superb story on this that actually helped generate and that but they finally got the regulators to answer the question how many criminal referrals have you done this decade and the office of the comptroller of the currency which is supposed to regulate national banks and the office of thrift supervision which was supposed to regulate savings and loans the answer was zero we made well over a thousand criminal referrals if you don't investigate you don't find

ok well in cable actor in the s n l crisis of the eighty's how big was your staff my staff was fifty attorneys ok how big is the staff right now going after the problem the justice department has roughly one fifth the staff that the justice department used against the savings and loan crisis and this crisis is somewhere on the order of forty times larger than the savings and loan crisis ok forty times larger now the same as the loan crisis i've been up in the nominal terms or inflation adjusted terms it was something else on the order of six hundred billion now it's less than that and i can give you the figure nine hundred ninety three dollars it was roughly one hundred fifty billion so you're talking about of forty times bigger help me with the math there so you're saying they that we're talking about an amount of we're talking about losses in the six to ten to fifteen trillion range depending on who you believe ok now you say six to ten to

fifteen trillion that's interesting because in an economy like the one in america wal-mart can tell you who's buying a razor ever on a thursday at two thirty in the afternoon with an r.f. id tracking system in advance supply chain management and all kinds of interesting technological innovations but apparently. we don't know whether we're losing six ten or fifteen trillion dollars out of the back door to the banking system do you see a bit of a disconnect there yes exactly that's what we've been emphasizing the death of regulation so what happened in this crisis compared to the savings and loan crisis is there's a cover up in this crisis and if you are deliberately change the accounting rules which was done and if the regulators deliberately don't look hard run these sham stress tests then you don't find remotely the true extent of the losses and if you don't investigate you don't find the losses and you don't find the fraud

therefore the quality of the information that we have in this crisis is best lee worse now remember we had over a thousand successful felony prosecutions we had several thousand successful and foresman actions and we had roughly a thousand successful civil actions i think how many facts come out in the course of all of those investigations that give you an incredibly accurate picture of what happened none of that has happened name a really large civil suit by the government against any of the parties that specialized in the non prime lending name a huge enforcement action that actually went to some kind of hearing information was made public it hasn't happened let me ask you something you're saying ten trillion dollars seems around number and losses the federal reserve and barack

obama have thrown quantitative anything and stimulus packages at these losses to tatay get the economy starting again but the economy is rolling over and playing dead again which is to infer that there are more. our losses yet to be disclosed now in came black i know that's a bit of a guessing game because no one's providing accurate information but what is yet to be revealed in this debt born tax is that another ten trillion yet to be revealed in debt there are two different things going on first that there is a really severe recession and that really severe recession has reduced private demand somewhere in the range of six trillion dollars the stimulus bill is of course roughly eight hundred billion dollars you can see that it isn't

remotely going to fill the hole in last demand and yeah actually have to net out of the stimulus bill a two hundred billion dollars reduction in state and local funding now there's a second thing how big are the losses the i.m.f. and the administration originally estimated the losses in the two to two and a half trillion dollar range and we know that the recession and the loss in housing bout but use turned out to be far worse than the initial estimates right and you can see it what losses are being recognized by the banks and it's nowhere near that and we know why because the banks used their political pull to get congress to extort the financial accounting standards board fast b. to change the accounting rules so the banks don't have to recognize the losses unless and until they actually sell the assets so what happened while there is been

a massive increase in delinquencies the there's an enormous lag in foreclosures and even when there's foreclosures that are so enormous lag in selling the assets this is the japanese strategy of covering up the losses and it prevents markets from recovering. that's what i japan had the last decade which is really two us decades so you're saying on the demand side we know there's been a drop in demand and the missing the black hole of debt we know it's been understated we know that they haven't marked to market the value of this debt it's still sitting there on the balance sheet yet to be to be mark to market at some point the the theory and the fed in the treasury is to somehow paper over this problem stand and pretend and to get some hell mary pass something is going to come along to do what you decided you needed to do and there's no crisis

you ring fenced all that debt here they've no none of that ring fencing so all the crux they're still in place they're going to have been known as ring fenced the crux i know you think you're a pessimist but you're actually an optimist it's actually worse. the reason you change gimmick the accounting rules is so that these guys can still pay their bonuses to themselves right so this was a big lesson from the savings along crisis was not to act more ethically but how do we change the law so the next time we do the same fraud we won't get caught is that a fair assessment yet worse than that again because after the savings and loan crisis we passed the proper corrective action law which mandates the closure of these insolvent banks but if we did have this what we told them as a huge achilles hope he'll and that is if you give me the accounting rules you can get make the proper corrective action law and that's what's happened that's the

japanese strategy of covering up we sold bad assets promptly and that allowed markets to recover and what we call clear if you keep a huge overhang of the inventory that everybody knows is out there then markets don't recover our final. one last question what about the possibility of citizen arrest is this a dozen viable possibility you know but citizens can demand that the spokes act against the major frauds they can demand that they clean up the accounting that's just been a complete obscenity to be able to give make the accounting so that you continue to pay yourself massive bonuses for destroying major financial institutions citizens can demand an end to the systemically dangerous institutions these are the best the

eyes roughly twenty of them the treasury says if a single one of them goes they will cause a global crisis we know there are absolutely no economies of scale at that size in fact it's quite the opposite they're far less efficient because they're so gargantuan we know that their political power causes mental problems and we know that they are a ticking time bomb for the world economy so the citizens can demand that those guys the systemically dangerous institutions be shrunk to the point that they no longer threaten a global crisis all right that's all the time for we have this time william k. black thanks so much for being on the kaiser report thank you all right not going to do it for this edition of the kaiser report on thank my guests stacy harbor and william came black down there in kansas city missouri and it was i mean i am please do so at kaiser report at what is it that oh yeah r t t v dot ru

and so next on this is max kaiser saying bio. it.

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