book stores are naughty french officers are reportedly detained in the heart of the uprising in syria that says humanitarian aid finally gets through to the city of homs off the government forces retake the rebel stronghold that massive protests and rallies across the cuts affecting millions putting a question mark here to brussels for the month thursday. israel faces international criticism over its policy of detainees suspected palestinian militants and definitely i'm about the chance of a trial. by members of the u.s. commodity futures trading commission to be racking their brains over how much protect customers money and look into that issue is coming up next in moralist as capital account stay with us for that here on alt.

good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. and here are your headlines for february twenty ninth two thousand and twelve u.s. regulators are holding roundtable talks today about how to protect customers money to keep it from basically being stolen is of course in the aftermath of the m.f. global collapse we will speak to a lawyer representing eight thousand and the global customers in the bankruptcy he says new u.s. regulations will not stop firms from going the way of m.f. global as long as they can go to the u.k. to take on virtually on limited leverage help tell us how m.f. global was getting around u.s. leverage limits this way similar to a idea in two thousand and eight and why it's going on unchanged and double reserve chief ben bernanke he gave his economic checkup to lawmakers today which meant to reacquaint is with republican presidential hopeful ron paul. something that i think

would be a compromise that we could work along those reviews. but first of all good to see you again because most of. it's always entertaining while in europe eight hundred banks hit the e.c.b. for liquidity the longer term refinancing operation for five hundred thirty billion euro will fill you in on the easy money makers of the central banking regime meanwhile bank of america find yet another way to cash in on taxpayers and j.p. morgan c.e.o. jamie diamond find yet another way to cash in on attention as a drama queen or king i guess soundings gets a friend on regulation wall lashing out at us the u.s. media we'll tell you what we think let's get to today's capital account.

the u.s. commodity futures trading commission is having roundtable talks they won and today they'll go on tomorrow to talk about how to protect customer money in the aftermath of the m.f. global collapse you know remember the eighth largest bankruptcy in the u.s. where they are still looking for a reported one point six billion dollars in missing customer money the firm run by former goldman sachs c.e.o. senator also new jersey governor john corazon well james to les is our guest he's a lawyer representing eight thousand and the global customers in the bankruptcy proceedings pro bono mind you so he tells me and he has told me that any new u.s. regulations won't be very effective as long as firms can just skirt them skirt u.s. regulators by going through the united kingdom where they can take on essentially on limited leverage in the first place this was what m.f.

global was doing this was what she was doing back in two thousand and eight this is what lehman brothers did through its english subsidiary to notice any similarity all of those firms imploded now bear with me because i have to break down a few things so that you can get the most out of my guest breaking down all of this first you need to know that there is reportedly no regulation t. equivalent in the u.k. or reg as it's known so reg t. is the federal reserve board regulation that governs customer cash accounts and the amount of credit their brokerage firms and dealers may extend to customers for the purchase of securities now according to regulation t. you may borrow up to fifty percent of the purchase price of securities they can be purchased on margin this is known as the initial margin where really comes into play in this story is with regard to really hypothecation of collateral first let me explain what hypothecation is this is where

a borrower play just collateral to secure a debt but the bar retains ownership of the collateral but it's controlled by the creditor who has the right to. take it if the borrower defaults so let me give you a really simple example because i think it's a little confusing to explain on t.v. so say this is the borrower this is the bank so the borrower goes to the bank and they borrow money to buy a house they keep the collateral even though they pledge this house as collateral to the bank but the bank doesn't keep it ok the borrower lives in the house and they keep it however if they default on their mortgage the bank can claim the house so that's hypothecation the bank has eye popping the house as collateral now what if this bank pledges this collateral this house that the car was living in as collateral to somebody else that they are borrowing from or to cover trade that sort of thing that is really hypothecation and collateral can be rehired pocket hated again and again that's known as turning so that is really how complication

you need to know it now let's get back to reg. it says and do us a prime broker may read hypothecated assets to the value of one hundred forty percent of the clients liability to the prime broker let me give you an example and by the way big thanks to zero for this example so if a customer has a positive five hundred dollars in securities and other debt deficit of two hundred dollars there's three hundred dollars in net equity the broker dealer can read hypothecate up to two hundred eighty dollars ok for one hundred forty percent of that two hundred dollars in the u.k. however there is no limit no statutory limit on the amount of money they can be right. or broker dealer can really hypothecate all the assets deposited by clients one hundred percent of that five hundred dollars in securities and this is where the plot thickens now let's bring in james catalyst president and co-founder of commodity customer coalition and thank you so much for being on the

show because i know you're in town for this roundtable and we feel very lucky to get started on this issue thank you for having me yet. so let's start first thank you for bringing this issue to light because i was tweeting about why is the u.k. so much tougher on banks than the u.s. they claw back bonuses they take away knighthood and you said hey you know talk to me when they have some kind of a close line of regulation kiev red sea so you can focus on this and a little case break down how this whole issue comes into play with a two hundred million dollar margin call with j.p. morgan and so basically m.f. global had transferred a substantial portion of assets into its n.s.w. subsidiary so we could take advantage of things like the absence of a righty underscores i n's watch a global u.k. was using about thirty to one leverage on european sovereign debt crisis ok and so then how did that and in the two hundred million margin call and safety margin.

basically in in the fall of last year there were concerns about greece defaulting. basically increased the amount of margin that was required to keep these positions and of course i was utterly in love with it and rather than just reduce the size of his positions he wanted to keep the trades on and for which my. collateral from anywhere that he had the firm to grab it and they grabbed it from customers allegedly allegedly ok let's talk about how publication allows for this now you mentioned they had they had transfer funds to its u.k. subsidiary and from what i understand it's very it looks it's very desirable for u.s. firms to move money to the u.k. into subsidiaries in the u.k. to get around u.s. regulators this is what m.f. global was doing right right and every u.s. point every major u.s.

financial institution is doing is every major u.s. financial institution is shifting their customer money to the u.k. to get around regulation. so you know just how do we know that. i think that's a good question you know the. people who you know of the existence of the existence of the system called the shadow banking system because it's done in the shadows so the way a normal bank works is with fractional reserve whereas if you know you have a hundred dollars you could you know essentially one hundred dollars ten times if you reserve requirement it is ten percent well with the shadow banking system it's all done with own regulated to reduce that are generally off balance sheet and what instead of the u.k. there's no statutory limit on how many times you could cover it up so now thirty to forty one is a pretty common practice for global financial institutions and it none of us regulated. generally none of it shows up. on balance sheets or

i.c.c. thoughtfully and it's very hard for investors and regulators to figure out exactly what's going on right and this is the whole issue that is so much bigger than m.f. global but one thing i noticed a lot of these firms that looks like they got around moving customer money to the u.k. by it looks like they basically put in a fine print and it looks like m.f. global did this it says you know we were there people that had accounts we can use your money for hypothecation per we have bought the cation so is this make the case for m.f. global customers more difficult and does everybody need to be looking at the fine print of whoever they have an account with to make sure their money's not being moved in rehab populated over and over again. quite quite frankly it's my belief that even if there are losses stemming from a loss in the value of securities due to rehabilitation that should not impact customers rights of recovery especially in this case for monies that were

transferred to j.p. morgan chase the more it was the custodian of clients are good phones they were also the primary time for chemical and they were clearing and so the trades. global's you know how strange an operation because of this they had a lot of insight into the activities going on there and when they received. you know several hundred million dollars in transfers that looks like it came out across or more normally they asked of korbel for comfort letter saying will you please sign the saying that we're not actually receiving customer thoughts the reason they did all this is because in two thousand and five there was a provision in the bankruptcy code that was passed providing for the safe harbor which means that if you are a counterparty accepting cash for the action of a margin call you don't have to do any due diligence. you know to ascertain whether

that's a proper transfer or whether it's stolen money whether it's customer money or anything like that but the safe harbor does not apply if you actually know what's going on so your boy jamie diamond who is not a big fan of how much you get paid apparently territory is trying to hide behind this two thousand and five. at least three hundred forty million customer files i've seen some reports and i think i have six hundred million or more of customer funds here and they have a good back and in fact in the in the lehman bankruptcy. he took about seven billion of thoughts that were due to barclays that barclays that. you know put into or bought out the bankruptcy process ok i'm line is a little bit for me though because i understand the issue every have i think asian and firms moving their money to the u.k. to skirt these laws and you have all of these all of this leverage and it creates up with a pretty and that risk how does this unwind balance where i know the way that the

bankruptcy was treated with m.f. global also plays a role in who gets paid you know dissect that for me and break that up for me how does this case where you have a couple different issues here so what we have this is the. makes a blow out or a failure of the firm a lot more likely so if you're thirty to one leverage if you have a move of about three point three percent against you on whatever you're you know you're a margin call ok so you don't have any kind of cushion due to you know the the high amount of leverage you know you can use and have global base of leverage up their entire firm and a large portion of their customer accounts on one trade you know i mean they went all in on this one for a very you know it's going to put a very volatile trade due to. is there going to be a bell is there going to be a foot fault and that creates a lot of volatility and it was european sovereign. so now the reason you know all

the customers are involved in this is because they actually took customer money to satisfy margin calls so in the future system. there had not been a shortfall in customer phones are being paid seventy five years. there is a concept of a consideration that it's a curse a it's never been violated there's very strict rules governing this and m.f. global is trying to hide behind in defense of our systems were so bad it was so chaotic that we didn't intend to use customer money it was it was just an accident and they're trying to use that to stay out of jail by that i don't know if you want to i don't either and i want to continue this conversation i want to come back and talk more about how this case will work out in a little bit more about the shadow banking system and we have patient issue has a little dance for t.v. but it is so super important that i cannot stress it enough and i want to continue talking about it so we will have more with president and co-founder of commodity customer coalition. and still ahead if you thought bank of america debit card fees

were a thing of the past think again we'll give you our three cents on how the bank is cashing in on one state's tax returns but first your closing market numbers. will be. funny it's technology innovation it's all the moves developments from around russia we've got those huge earth covered. oh.

thank you. all right we're back with james president and co-founder of the commodity customer coalition he's representing eight thousand people missing their money in m.f. global collapse he also runs a hedge fund so he is telling us all of the problems with regulation that are not likely to get fixed and will allow this to continue and possibly be worse so with this issue we're talking about re hypothecation this is allowed unlimited amounts of reauthorization is called churning it's basically opening the door unlimited leverage it goes on in the u.k. because there is no rule against it why is there no rule against it is my big question in the u.k. it's an absolutely huge moneymaker. for the new it's it's one of the reasons that

london is one of the world's financial centers because then every major financial institution is in danger and spreads. they're really wants what you can do so there's really no incentive to stop because this is the moneymaker right ok i want to bring up was there he says is the cost of it ok they say that m.f. global is essentially an example an equivalent example to a.g. in two thousand and eight of virtually unlimited leverage via the shadow banking system and which there are practically no hard assets backing the infinite layers of debt created above and which when finally unwound will create a cataclysmic cataclysmic collapse of all financial institutions in this is because of this daisy chain of riyadh population of when that line so my question to you i'm a global it's horrible the customers lost money it wasn't too big to fail it didn't bring down the system when it went bankrupt is there another a.i.g. out there and how would you even find it if all of this is off balance and

unregulated. probably i mean i think one of the. goals so to speak of the major financial institutions is to make sure that they take so much risk that if they win they're going to win big but if they lose they are going to lose so badly that they have to be and i mean we've seen this i think it started in this country is leading the collapse of long-term capital management when they were taking the kind of leverage and the prime brokers of l.t.c. and were actually mirroring their trades which is one of the reasons the class was so bad because they you know everybody thought these guys were so smart that the brokers were like me too and that you know the ultimate exposure for the financial system was it was so great now what happened in two thousand and eight was many many many multiples bigger frailties and now one thing that's changed we haven't done anything bad frank is eight hundred fifty pages does nothing to address the

core problem and it's the shadow banking system and so percent interest rates just enable that right of unable to because when you actually have to borrow for leverage their pasts creating a market based restriction on how many times you could live when it's zero you know you can buy the interest rate you've got a. product important product because this is this shadow banking kind of courtesy of the central banking regime i mean the whole system works together to to enable this i mean that's. you know if essentially like a drug i mean banks now you know when do you know it's not really a priority for them anymore i mean they can borrow from the fed window at zero they can take the proceeds from that they can take their customer assets just shift the model london and invest thirty one and i found she derivatives the accordion zero has j.p.

morgan has over five hundred billion and we have publication exposure well. let's talk a little bit more about congress and. if i don't get to this i'm going to i'm going to beat myself up there have been reports some sources told fox news that there may not be a criminal case against it that there was some maybe shoddy accounting but it doesn't look like they can really pin him down on anything my question to you how is it possible that they could not build a criminal case against him so it's not possible if there is political will there's a case here i mean they were transferring. they transferred over three hundred million dollars on october thirty first outside of. the morgan when they knew a bankruptcy filing what wasn't it and they knew there was a shortfall already and they're still sending money out the door and you know i don't know what it is but how could he avoid having it pinned on him i mean shouldn't you is the c.e.o. be responsible. so you're right you should be responsible and you should be accountable but we don't we've forgotten those concepts in this country i mean any

military officer worth his salt knows that you can delegate responsibility but you can never delegate accountability those rules don't apply in our national system is it important for example is obama's biggest fundraiser yeah i mean he personally contributed seventy thousand to this real action campaign and bono another four hundred thirty thousand obama gave back to seventy but he kept the four hundred thirty so one of the things we're doing the c c c is we're asking obama to donate their four hundred thirty thousand dollars to the legal defense fund for clients who were our property and real quickly you mentioned in a great day why the heck is j.p. morgan and all have it having its hand in all of these pots is this the result of having no glass steagall equivalent that's right and i mean the repeal of glass steagall is an example of the revolving door between wall street in washington you know bob rubin you know come over a strike or treasury secretary. led the charge to get glass to go or move in the one over the city where he made over one hundred million dollars that it was

basically super i mean as a reward. i mean class the goal should exist i mean banks their public policy is to hold the positives and to make loans and if they're going to do that then you could somewhat justify the bailouts of keeping banks you know because he's a functioning economy needs a banking system yeah but if if they're going to sit there on borrowed zero percent from the they're going to make loans a very limited circumstances and they're just going to act like a giant hedge fund with customers money where the customers don't share in the upside and go to london and go thirty one leverage you know why are we propping them up before we go broke with this yes or no answer are your customers going to get their money back i think they are right they will damn right there well thank you for being on our show to explain why they should and why there should be a criminal case against and why you should be very afraid about the shadow banking system that was president co-founder of commodity customer coalition.

all right before we go let's lighten it up a little bit something a little lighter than your money being pocket catered over and over and over again creating unlimited leverage and destruction or the potential for it's there in let's bring in dimitri kofi anna in the can in you know on the floor here in the studio in china donahoe in the control room to talk about these stories which are actually incendiary on a different level so you cannot think of america debit fees were annoying and a thing of the past because people were so up in arms about them will think again if you are getting a tax return in south carolina because unless you state specifically that you want your tax return by check or direct deposit you get a b.

of a credit card attached with these setbacks to fifty for the withdrawal dates you're not old buddy is it five dollars if you have to replace it more than wounds ten dollars for taking out cash more than once dollars to close your account we told you ok i evidently the state is doing this to save money this is the bank of america gets to cash in on people's hearts are money that they get back in their tax return this is absurd why don't they give this to a community bank let's bring. because they do this is. all. morgan get some money off. early america was third on the list of very extreme money from the from the feds would go to facilities during two thousand sort of the point there were twenty billion dollars a day on average so it's absurd meme we talk about all the time these guys run a feudal system or kleptocrats all right you want to kind of quarrel but they can

figure out how much i mean it's crazy i just think it's very incendiary how it just it there is no stopping them on any level they have creeped crept into every single aspect of lives to where they can even despite all of the and against them despite all of that and a banker sentiment they can still cash in on just average people's tax returns but i dollars here ten dollars there you know whatever fees to the merchants that you're using i'm at changi if you want to add anything go to a credit union and read your tax forms very carefully i think that i think the real lesson to be learned here is read the fine print everywhere you look because that's where they're going to screw you let's move on to another banker jamie diamond is once again cashing in on attention being a drama queen i don't like this i'm on it you see what you just did hello dolly what did you do. with his gum while i was singing he can't do very well i'm

singing. ok meantime remind us of that character because he just seems like such a drama queen ok this he's of course the c.e.o. j.p. morgan anybody watching the show knows that he was quoted as saying this in the financial times if a company's investor day he said all be damned if we don't have a record profits for the next year or two when he was talking about regulation so now he's not worried about regulation even though he's been bitching about it time and time again that we've seen in the past and then he went on to criticize some of the members in an audience aka the media saying worse than that you don't even make any money i mean this guy really has no shame or humility where do you get off. your he cries of brooches whenever it is and doesn't go his way and then when things are going well for him he goes about it throws a write your face look you know what they are required to do pretty onerous i don't care who's still one of the big biggest what if i give. young people like i didn't

have to yeah you know i got here in fact early what suckers who lurk in the work he just has a real politic it all is garbage and. that's where they are at this point like you know what we are one of the crew where you can steal money out of a customer that's what we're going to do because that's where the thing that comes to mind there was a report that evidently the number of psychopaths in the financial services in wall street one out of ten are right here whereas one percent of the general population are psychopaths so i say i'm sorry but i feel like all of the evidence points in fact it came time to psycho social and shows lloyd blankfein is still junk or zine and they're all social and this is just a rock ok and we're out of time then you good fellas that's all we have time for thank you so much for watching feel free to follow me on twitter at lauren lyster give us feedback on the show at youtube dot com slash capital account and everyone

here at the show thank you for watching you have a great night.