in her view with the by product of banking regulations. some of this was good but the unintended consequences is it's really the middle lens and i think that you're going to see more and more people live outside the system and when. meanwhile are the big banks getting around the key piece of regulation meant to shut them out of the business of posing a systemic risk to the entire economy by speculating with customer money with your money with the protection of you the taxpayer will speak to members of occupy that as these need to break down the holes in the already under attack volcker rule also in the e.u. even though bailout is a naughty word according to an official they too have not created a system to deal with a failing bank with out one i mean a bailout reuters reports the e.u. is struggling to get new financial rules on the books why is the transatlantic making monster so hard just the way meanwhile greece is racing to meet bailout

demands the country is still in trouble that's for sure which has kept the country's credit rating one level above default indicating a default is likely in the near term and we've heard recent calls to postpone the elections to bring in technocratic governments looking at history we can see where interest rates right from being priced by the market to being priced by central bankers are resisting that same thing now with democracy where election decisions are moving from the citizenry to tech nakor thing will explain let's get the creative capital account.

you heard my head lines why is it so hard to tame frankenstein's monster that seems to be the question that keeps coming up watching governments try to rein in the banking system more than three years after the financial crisis in the e.u. according to reuters it takes six hours to draft a single sentence in a one hundred page document as e.u. leaders have strong will to work out the fine print of new financial rules and on this side of the atlantic in the u.s. we've seen this most recently with the fight against the volcker rule now the volcker rule was part of dodd frank it's supposed to ban proprietary trading that's where banks speculate with your money with customer money to make a profit for themselves by taking huge risks while doing it the problem with it is when too big to fail banks do this and something goes wrong and they're highly leveraged they could get wiped out only they won't be out by a doubt will day because they're too big to fail so they'll be bailed out by you and me now wall street is fighting the volcker rule to the nail and you can imagine

why but even without wall street fighting it the five hundred thirty page monstrosity of a bill allows for plenty of loopholes according to critics as you can imagine in five hundred thirty pages now david outlined by the financial activist group occupy the s.e.c. which wrote a three hundred twenty five page letter to the agency in charge of regulating wall street which is what the f.c.c. is now to set this all up one of the loopholes in this volcker rule comes in the form of a market making provision let's remember market making for a second here's lloyd blankfein talking about it when charlie rose asked him if goldman investment advisors had ever bought securities from the firm sold them to clients and then bet against those same securities and no plane finds pregnant pause. i have to explain to you this is this is a problem as a market maker we are making dining and selling a thousand times

a minute. probably that's what it's worth. probably we're just market makers now another one of the provisions has to do with hedge funds the volcker rule supposed to make it so banks can't own had funds let's remember why ok here are some headlines from the financial crisis days b.m.p. perry freezes funds as loan losses royal markets these were their investment funds and here's another one bear stearns hedge funds wiped out so there had to pump more than a billion dollars into those hedge funds and they ended up going bankrupt now the problem of course is there are exceptions to the hedge fund part of the volcker rule we're going to get into all of this here to really break this down alexis goldstein she's a former wall street technology v.p. and member of the occupy the f.c.c. and caitlin klein she's a former derivatives trader also a member of occupy the s.e.c. ladies thank you so much for being here i'm so excited to talk to you about this you guys have done such good work on this issue and i really look forward to

breaking it down thanks for having us absolutely so let's get into this because before we get into dissecting the letter that you guys came up with you are a group of financial professionals former financial professionals lawyers who came together and came up with a three hundred twenty five page letter their response directly to the f.c.c. along with efforts by the nation's largest banks to water down this legislation. first before we break it down just give our audience a synopsis of what you're trying to achieve here. so what we're trying to do is to shine a light on this part of the process where the media usually takes a step back here in the past usually see a big spotlight on the actual drafting of the law and people will pay attention during that phase but some of the most important parts happen when the law becomes a regulation there's this thing called the administrative procedures act that allows the general public to comment on drafts of regulations before they become

final and that's really where the banking lobby tends to dig in and try to water down rules to their liking and so what we were trying to do was to draw attention to that process and also to provide a different voice something that's going to save quite a bit different than what the banking lobby says to try to make the rule stronger rather than weaker quite a bit different so let's get into some of those aspects in the loopholes that you point out we can't obviously dissect the three hundred twenty five pages but there are a couple key loopholes that we want to point out that are really important to feel free to add later in the interview but one is the market making loophole because after the financial crisis we heard this term thrown around a lot we heard lloyd blankfein talking about it in my stead at defending the for defending the kind of trade deals we saw like in like timberwolf which were key examples of banks profiting at the expense of their customers and the economy all during the financial crisis so talk about the market making provision and what the problem is with it and how it allows people to get around the very spirit of the

volcker rule. right so you know when they went to cost this law there was this kind of overarching theme marketing is this very important service and it provides liquidity to functioning markets and this is something that really needs to be protected within the banks and the way that they describe it a lot in law you know has all of these quality is a very liquid securities like exchange traded equities or treasuries and the market making is pretty straightforward when it comes to this kind of security is where it becomes a little bit more tricky is as things get less liquid and more structured like over the kind of derivatives and kind of structured products and these things have a really high potential to disguise proprietary trading and require banks that take on a lot of proprietary risk they're also really difficult to monitor and for regulators to come in and say we can tell that you're doing this on behalf of the clients and not for proprietary gain so as they get less and less liquid there's more and more

of an opportunity for these banks to really get in to kind of the murky water with these positions so it turned into a pretty big something that should have been a very kind of straightforward risk free kind of client servicing enterprise so right now banks can basically do under this version of the volcker rule exactly what they were doing before because they can still be market makers. right and there's kind of this ability to say oh i'm making a market and i've created this structure a product that i want to go on the market with but i'm making a market and you know these are not the definitions this is not what it was tendered in the rule it's kind of this extension of the banks trying to say we want to be able to continue doing the business that we were doing so we're going to effect of we call you know structured origination we're going to call that market and it doesn't make a lot of sense and you're getting to this issue of language and so i want to continue this with another term that we hear a lot which is hedging and it's another excuse we've heard from the banks that they're not engaging in proprietary trading they are hedging their risk making

legitimate hedging of their bets this is something you talk about a lot in your letter and you talk about the way they can get around this language can you explain. right so the hedging exemption is is just a giant hole and really the idea of it is you know they're going to taking on risks and any capacity as market makers they need to be able to go and also these risk on the market and that's a reasonable assumption that something we certainly want them to do the problem is the things that they can call the jet and the hedges are any number of trades there's really any kind of risk you can say oh this is a basis risk and that's that's what i'm putting on that's what i'm hedging the potential for them to you know you put on any number of proprietary positions big structure proprietary positions saying no i'm hedging a counterparty risk or you know having a basis risk you know there's really no specificity in terms of what would be a reasonable there's a lot of capacity to actually take on a lot of risk in the capacity of hedging and you know that's never what

a hedge is this something it should always produce risk so you know we think that there's a lot of a lot of room in that for people to really be putting on proprietary positions instead of reducing risk by saying they're just hedging their bets now let's talk about hedge funds because that's another thing that the volcker rule is supposed to keep banks from being and let's talk about the limitation on covered funds as they're referred to in the legislation and this just means that they're covered by that regulation i want to bring up an excerpt from your document super twenty three a about that you say we strongly support the restriction preventing banking entities from extending credit to the covered fund is important to ensure that baking entities are not tempted to bail out a covered fund should it falter now dimitri's going to jump in here to ask a question about that because so we found this is particularly interesting because on the one hand it does a good job of sort of. preventing. or quarantining the

phones the banks may have. connections to by preventing them from growing them out but on the other hand it may not go far enough in terms of preventing the larger fall from offloading. risk and so playing accounting games how do you see super twenty three. is this part of the legislation from working and what do you think about how it could be watered down how can be strengthened. well i should think that super twenty three is quite good it sort of says refer to the federal reserve act section twenty three a but instead of using they can it's affiliate use bank in their coverage fund and it prevents them from extending credit and it prevents them from buying assets from the fund but the problem is there is also an exemption for a prime program which which is the separate exemption that is explicitly allowed so banks that have an ownership interest in a fund can still after as a prime broker and there's no language saying that if they're acting as a prime broker they cannot provide financing to the fund so you can sort of get

around this twenty three a super twenty three is what they refer to it as if you're acting as a prime broker choose a fund that you have an ownership interest and so we do think that super twenty three is really good and strong but we have a big problem with the permit permitted allowance for prime brokerage and one of the things that we suggested in a letter is that prime brokerage should not be allowed to finance. so i'm a bank i shouldn't be allowed to loan money essentially to someone that i'm acting as a prime broker for and just really ensure there are provisions that would essentially allow them to use what they're allowed to do as far as hedge funds and funds in order to proprietary trade kind of a shell. i think our main concern with that is a different exemption so there is an exemption that allows you to hedge a compensation arrangement so if i'm a bank and i have an employee who's acting as an investment advisor to a hedge fund normally you're supposed to not be able to own more than three percent of any one fund but if you have an employee who's acting as an investment adviser

you can head their compensation by taking even more than that three percent limit and there's no limit on how much you can take it just has to be somehow connected to that compensation arrangement because the language is sufficiently vague and we're concerned that they could basically just completely subvert the intent of the rule and say oh but it's ok because i'm hedging this column for a minute i thought my investment advisor was going to triple. the value of the fund that year so i had to take a fifteen percent ownership interest and so the language is sufficiently vague and it also seems to fly in the face of the law the law said you can hedge positions you can hedge contracts you can hedge things that go in the training account it didn't say you can hedge compensation right ok ladies i want to continue this conversation we have to go to a quick break but we'll be back with more with alexis goldstein and caitlin klein both members of occupied s.e.z. . and still ahead fresh off the bailout approval for more thing more trouble for a great picture downgrade three things right rating the euro group members

recommend changes to the greek constant to say it will give you our three cents on where this could be headed the first their closing market numbers. you just put a picture of me when i was like nine years old on the job a true. confession i am in total get of french that i love rap and hip hop is a latin phrase. is kind of the district. very. little she has played.

you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else and she hears you saw the part of it and realized everything you saw you don't i'm trying to. make. the same. tribes the world the fear mongering you know like politicians who made decisions come to create. a new crust no. you with the global scene where we had a state controlled catholic school. that when nobody dares to ask we do our teen question morning.

welcome back before the break we were talking to members of occupy the f.c.c. who are laying out ways that wall street can get around the volcker rule as it stands to engage in the exact same practices that they were before the financial crisis they got as into the crisis in the first place the exact same kind of practices that the book or rule is supposed to eliminate prohibit get rid of now let's hear what the banks are saying despite all of this about what is wrong with the volcker rule i want to bring back alexis goldstein she is a former wall street technology v.p. member of occupy the f.c.c. obviously as is caitlin klein who's also a former derivatives trader so ladies you know we heard some of your key arguments about what's wrong with this legislation as it stands let's hear what the banks are

saying because they're saying that despite all of these problems and loopholes that this will reduce liquidity which basically means it would increase the natural volatility they're saying big picture this would hurt the entire financial system it would hurt the economy my question to you was why would it reduce liquidity couldn't new companies come in and provide the services that the banks now have a monopoly over. well i think that's a big part of our argument and that's one of the things that we cite in our letter is that there was actually an anti-competitive lawsuit that was filed by a company called interview that was way back in like the late ninety's and they actually tried to make the bond market electronic and they were essentially scepter out of that market and they tried to get that put on to bloomberg and all the dealers allegedly and that united against that and said there's no way you can allow this to happen because this is a very profitable market for us that we want to keep on the phone and so our argument is essentially that that sense that liquidity will dry up does not have legs and is almost laughable because this is such

a highly profitable business for the banks of course they don't want to lose it and people would be thrilled to dive into this market they just haven't been able to because the banks the big bulge bracket firms have a stranglehold on the entire market right and there's also this this extension of of this thought that is applying that somehow the proprietary trading is the most important part for the liquidity we already have an exemption for market making you can continue to do these liquidity providing activities that's in there the idea that somehow they need to proprietary trading or to officially provide liquidity it doesn't seem to really add up so i think it's pretty clear that the banks are trying to take this and say we need to keep this very profitable business for us or it will ruin the economy and this is the only way that they can kind of make those two things be connected to this idea that if liquidity drives it's going to affect individuals bank accounts and it's just such a disingenuous argument to say that these two things are even remotely related and

just taking on this topic for a second because this is a key part of your argument you know we hear a lot about entrepreneurship in the u.s. in silicon valley you have these startups that are very successful you have businesses popping up where there's a demand and then maybe they crush another business amazon coming in to meet that demand and then you know put in bars and noble out of business you do not hear that a lot in the baking sector how could it really benefit by being open up. well i think i think you're right i think sort of in the states we're sort of known for entrepreneurship and there really isn't a whole lot of competition in the financial sector and it's really set up in such a way that small guys don't really have a chance against these big players and they like it that way and so this idea that they're arguing that this will ruin the economy like these guys were just trying to protect their bottom line that's really what it's about at the end of the day so that brings me to this question earlier today on c.n.n. b.c. i saw meredith whitney she's obviously a very well known analyst she was talking about how regulation has gone too far in

the other direction in the sense that we're regulating too much now the middle class is getting squeezed out of the banking system as an unintended consequence is that the problem or is that that regulations are written in a way that benefits the big guys at the expense of the small guys or new entrants that want to get in to thinking of this or the financial sector. so i think that the big banks are really really good at this thing that we call regulatory arbitrage and the idea of that is essentially you have a team of lawyers who have a team of structures they read the rule they read the law and they figure out how do i abide by the rule but get around the intent of the rule and wall street is really good at that and because wall street has so much money they have the firepower and the numbers in order to do that and i think the reason that maybe maybe what meredith whitney is referring to is that smaller and smaller companies don't have armies of lawyers and armies of structures to figure out how to dodge

these regulations so there's sort of an unfair fight but but wall street sort of says lobby to make the volcker rule more complex and now they're complaining that the volcker rule is too complex but it's complex because of a lobby that so hard to make it complex and so i guess i see where she's saying in the sense that small businesses don't have that much of a chance against regulation because they can't engineer their way around it but wall street can and they've been doing it for a really long time and we're almost out of time but that brings me to one final question i have to ask because you ladies pored over the five hundred thirty page bill read everything the line of it it's a bloated bill by every account how many pages put it afford to lose how long should this bill be. just it's not a bill it's the it's the regulators rightly so that it was dodd frank right i have i don't know how they do it and twenty pages or less easily twenty pages or less well that's a good note to end on ladies i really appreciate you being here on the show to break this all down for us at such an important issue to you guys have been doing

amazing work on that was alexis goldstein and kaitlyn climb both members of occupy the the f. . all right before we go let's break things down with our own team now going to bring in dimitri kovtun as our producer here in the studio and shannon donahoe in the control room to talk about this so we know greece is not in the clear there are still racing to make reforms and there was fresh bad news today of a downgrade. according to the ratings the position that pitches give us a few rating indicates the quote i hold hard to fault risk i really encourage it and they'll share here as you know any possibility to see ratings the signal

a minute the polls are right so there is that you have the euro group in this context you want greek authorities to introduce over the next couple of months and the greek legal framework provision ensuring that priority for getting paid is granted to debt servicing payment that their creditors get paid before anybody else we've heard enjoyably talk about how greece should postpone its elections perhaps and maybe a technocratic government needs to be imposed we heard that recently dimitri has an interesting idea about where this could be headed and why so so this is this this could might sound like improbable but if you think about it one hundred years ago in the u.s. we took away markets determining interest rates and we did several banks and people just got control of that idea and i people just think it's crazy that the market with the terms of the interest rate that it would price it it's normal you know the normal people think and that's crazy the market said the interest rate that's crazy

not our gas. mainstream conventional wisdom so all these years we've also been used to the idea that the markets or individuals price elections through their votes but now we've got technocrats in greece we have a technocrat in greece have a technocrat in italy and this is federal elections and i think there's a legitimate possibility this is a legitimate risk that we could see these technocratic administrations just continue to roll over and roll over because the longer you don't have elections and the longer you keep records of players like in greece the more difficult becomes to return to elections because politicians become increasingly scared because as we see in greece the polls show that the electorate is becoming radicalized so that the longer you keep them out of the electoral process the more likely it is that with me through riyadh they're going to vote oh of the centrists out and they're going to put in the most radical parties like in greece where we. we've heard the gas talk about it now bar right great party that now has enough support that it could get into parliament so what we're seeing here is saying that this could be a new normal where central banking technology or c.

is that became the accepted norm we now see democratic functions become accepted as tech nakor c. and it technocratic function because the same exact argument is made in the banking sector which is we give the markets great until the market fails and we have to step in i think over same thing is being used in saying that in the marker see the market that is too volatile let's suspend the markers for now just to volatile it great until we need to do something that the people don't want to just say oh. yeah we could point jan you want to throw anything in there. ok streets of egypt is greece all right that's true so let's move on to this because i know this is a story that you will want to say something about we've got to have time for that so a new study has named the most corrupt city in the u.s. can you guess what it is here's a hint. to load.

the old. he didn't sound as good as you know i'm usually a little more weird by his tunes but obama's hometown where one year ago today former white house chief of staff rahm emanuel was elected mayor of chicago is the . city a study university of illinois says it cost five hundred million dollars to the city corruption essentially a corruption tax on citizens who first said that greece is not analogous to the u.s. just look at chicago. just as. you come from an area close there what do you think or what your opinion of chicago all of course this isn't chicago specific but if you look at how many governors the state of illinois has in jail which most of them came from the chicago regime the regime of the congo regime i think it pretty much i mean i think it can compare to greece maybe in the future when i want. to talk through the lens. there you have it not anything

and i know word only of the final words that she's doing which the crowd was. prepared for a. car we have a global having a chicago out on a merc well i'll tell you the city cannot afford a corruption tax and knows that he can't anymore now that they have or could or should but a levy on that now because that's all we have time for thanks so much for tuning in feel free to follow me on twitter at lauren lyster to give us feedback on the show at youtube dot com slash capital account i'm lauren lester and from everyone here thank you so much for watching and have a great. read .

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come. on the registry now in the palm of your. mug. today violence is once again flared up. these are the images from golden. streets of canada. showing confirmations of. the be. above. yet another sad day for u.s. relations with afghanistan after protests across the country turned deadly all of this in response to the burning of a peron at a nato military base we'll tell you why the.