good afternoon and welcome to capital account i'm laurin this year here in washington d.c. and here are your headlines for march first two thousand and twelve federal reserve chief did back on the hill today delivering his report card ben bernanke he talked monetary policy economic forecasts and headwinds the economic there to be will pick approach early as these when street supported by if you knew where he should have the higher your comedy experience for monetary policy thinking of well look at how even the failing marks of central bankers and other economic decision makers get glossed over by the mainstream media ultimately forgotten in the public report card making mr bubbles sound like

a good legacy. the moment. i deal. with. him and her great credit default swaps will not be paid out to him goes bill gross likened it to a flood protection insurance policy that failed to pay out in the event of a flood so is it because decision makers are really worried about another a.i.g. tight market paralyzing counterparty risk scare or is it about protecting the best the interests of c.d.'s and writers this time around and regardless of how you take your leverage we'll delve in delve further into one more way that the shadow banking system gets around capital requirements and liquidity restraints by using something called read hypothecation will break it down and another eurozone crisis meeting today euro finance ministers approves a bailout fund to raise money for greece's bond swap reportedly in brussels before a summit of e.u. leaders but do you ever wonder what policymakers are really doing in the never

ending string of debt crisis meetings we'll fill you when let's get to today's capital account. all right ben bernanke he was on the hill talking monetary policy today so let's talk about bubbles i've got some on set so we can be reminded of how big they can be blown and how. damaging they can be when they all pop now when it comes to making big bubbles and then watching the economy implode when it does no one did it better perhaps for a longer either then alan greenspan during his tenure as chairman of the fed from

one thousand nine hundred seventy two thousand and six so much that he earned the nickname alan bubbles greenspan there's a headline there from the new york times about mr bubbles from two thousand and five one reason well he cut interest rates to one percent in two thousand and three and two thousand and four many credited his easy money policies for creating the housing bubble and he's also credited by critics with contributing to this sub prime crisis and the bus that it was look at this through reportedly packed house in a speech back in two thousand and four when interest rates were still super low he said adjustable rate mortgages might be a better deal for homeowners let's pull out some quotes he said that americans preference for long term fixed rate mortgages means many are paying more than necessary for their homes he said also to if we could pull out the next line of that. despite rising debt levels of bankruptcy filings it appeared american household finances were generally sound and he said that low interest rates and

surging home prices had given consumers flexibility to manage debt now after recommending all of that he went on in the next few years to raise interest rates and that continued for a few years and we saw how that all turned out with the subprime mortgage crisis so after he gave that advice as i said he began raising rates and then the rest is history now continuing on he was also opposed to regulating the then burgeoning derivatives industry along with larry summers back in the late ninety's look where they are in one thousand nine hundred ninety eight committed to save the world now time later for greenspan on a list of twenty five people to blame for the financial crisis and in congressional testimony greenspan revealed his thinking on regulation was flawed. i made a mistake in presuming that the sofa interests of organizations specifically banks and others are such is that they were best capable of protecting their own true

holding. workers but one apart passport a few years passed atlanta a crisis in greece then is invited on to mainstream t.v. to talk about the economy the country's credit downgrade all sorts of things and as our next guest says even in late two thousand and eight you said people in the street were applauding greenspan's presence the media fawning over greenspan's book so what's that all about and who's really to blame is it the media danny schechter author and blogger at news dissected dot net is here to tell us he's also a filmmaker of plunder the crime of our time danny it's really nice to see you thanks for being on their show. and thank you i think you're doing a great job here you know of all the people talking about business on television if you hear the pippi is the most incisive program and you're not a ph d. maybe you're not a ph d. economist makes it possible to do it you know that's a great point that's

a great point you wouldn't be different if they had what i really about a ph d. in economics but i really appreciate those very kind words coming from you danny let's get straight to this topic now that you've been writing about here you wrote a really good blog post about this and you know despite a lot of the reasons why you would imagine that greenspan's image would be tarnished reputation would be tarnished based on a lot of the evidence that i just laid out you make the case that he's still highly respected and have been conned over by the media so first layout how you come to that conclusion that he still highly respected you gave a really good personal anecdote in your in your story i actually i was going down to wall street actually to start filming my movie plunder and have to take a little quick diversion into a borders bookstore a call of nature and all of that and as i was leaving there was that on greenspan himself leaving with me and the two of us walked out into the street together my crew was shocked you know thinking like how does this guy know everybody you know

spann actually autographed a dollar bill for me it turned out to be a federal reserve note which is what our dollar bills are backed by any particular currency or gold or anything but you know he was supported in the street because he was perceived as sort of a savior of the economy and that man had more positive coverage almost than anybody in his status he was called the maestro because of his alleged brilliance the fact that he was married to an n.b.c. correspondent that he dated barbara walters i'm sure had nothing to do with his popularity in certain elite circles but what is not reported often is his the dell . to a cult run by on rand's who is the author of the fountain head and the author of atlas shrugged who was a believer in no regulation ever who believed in privatizing everything who is actually a free enterprise or who says idiology has been adopted almost totally by the tea

party and by the right wing political candidates will get the money and the support of yeah let me get in there because that's actually a question i had because brands a lot of me and writings are often kind of synonymous with real free market capitalism now being the head of the federal reserve and setting interest rates or even having a bad bit that interest rate that all doesn't exactly prescribe for that kind of free market capitalism in a true free market the market would set interest rates so how does that jibe with what you're saying about alan greenspan it's just one more contradiction you know in a story that's a very tawdry you know hour and called him the undertaker because of the way he dressed the very dour person always lugging around a big briefcase as if he had all the world secrets in it but you know he finally admitted he was wrong not only about regulation but about the degree of fraud in

the market place back in the early two thousand there was another fed gov graham that you know basically was pleading with him to do something about the subprime mortgages and all the fraudulent mortgages that were out there and basically greenspan did nothing he didn't take it seriously and so he actively was complicit in this crime against america's homeowners and the american economy which led to the collapse some years later you claimed any person foremost in mainstream media for what and that being a pretty respectable portrayal of alan greenspan in the end. well you know what's interesting to know first of all is that the mainstream media is part of this whole system first of all stake in billions of dollars in advertising from financial institutions and it you know it it also pays its own the media pays its own chiefs like bankers giving them you know big salaries three compensation big

bonuses and the like they had then a fly with and they're part of the culture there's a new book out lauren called the pirates of manhattan which lists all the investments in media companies by mutual funds in other words wall street actually owns and controls most of the media but they don't disclose it they don't investigate it and they don't reveal it so you have a system here which the media is one wing if you will wall street is another way and the together they fly together. mostly first class well and i thought that with one of the really interesting thing that you pointed out was the amount of shares any media companies that are owned by neutral funds or institutional investors so you think if you have experience in a cafe and it's pretty fair you think that it's directly influence is the way that wall street and it business is covered. well look it's an industry filled with conflicts of interest i don't know if you saw the oscars but one of the peat

persons interviewed on the red carpet was none other than the chairman of the disney company the disney company of course owns a.b.c. that was presenting you know the oscars so you know they're all sort of scratching each other's back and self promoting using media to promote and not being critical not asking the really hard questions until the system collapses and then they point the fingers at others they say well look everyone was doing it everyone was involved in these mortgages therefore no one was doing it therefore no one is responsible and that's that's their line and that's why we've had so few prosecutions of c.e.o.'s that were you know needing deep in all of this corruption and all of this broad. what we need today is not a another bailout we need a jail though you know of the people who are responsible back in the s. and l. days of the s. and l. scandal seventeen hundred bankers or banks third went to jail and most non of gone

to jail now yeah now i know and that's a big change and we talk about daily on the show why had it is and why the political will seem to have if it cared but back here example with something like the oscars i mean i can understand interviewing that doesn't seem as detrimental to me as as real issues that in. fact the economy or impact you know a lot more things than whatever the authors are entertainment so actually let me ask you about this because we had a guest on yesterday who is the bankrupt and he's an attorney and he's representing eight thousand m.f. global customers who lost their money or his money has it turned up yet and he's been very critical of j.p. morgan throughout the process and he's done it mainstream media interview rounds being critical of j.p. morgan throughout the process and he told us that he was told by at least one mainstream media channel that they had received a call from j.p. morgan who said we're going to pull our ads you can't have this guy on does that

jive with with real stories that you've heard in real examples because i thought i found that pretty darn right and shocking. i think it does but you know most people in the media have what i would call a built in radar they know how to push an issue they know where the line is and how not to step over it so a lot of the censorship that takes place is really self-censorship it's inforced maybe by their bosses you really by someone from the outside calling and it's not really done so blatantly but i wouldn't be surprised if it was there was just a report yesterday that there will be no criminal investigation of m.f. global they can't quote find the evidence you know how much a billion dollars has disappeared they can't find a what actually happened to it so it's unlikely that john course zein or the other executives in a company will be prosecuted you know i know we talk about that as well so you think that it's not as direct as the example that our guest gave but it's maybe

a little bit more latent although those examples there in that names do occur let's switch gears now because i want to just stick on the theme of being economic policy makers because we talked about alan greenspan but let's talk about it a little bit more broadly because people like larry summers were right there with alan greenspan saying reparative shouldn't be regulated and hippie geitner i can remember you know two years ago danny when i went to the hill and seemed like once a week there was a hearing where lawmakers were saying why shouldn't you be fired on you know being at the head of the new york bad in having the new york bad tell a.i.g. to give counterparty one hundred cents on the dollar and now a few years later doesn't seem like any of that matters what do you attribute that to who geithner worked for greenspan and you know as a quote back in two thousand and six telling you know geithner telling greenspan how much he loves and respects him you know so that you know that these guys are part of a whole gang if you will unfortunately it's a gang that couldn't shoot straight larry summers is now being considered it's been

reported as the next president of the world bank and other words he seems to be on the east. it seems to be on a track to sailing you know sailing portably you know that and other words you screw something up and you get rewarded for it and this is what happened so a lot yeah but then the living in a story really quickly though just i just have thirty seconds but i want to know why you think the public forget their crimes because you know the media practice is amnesia it doesn't offer a context and background it doesn't remind people it doesn't connect the dots as a result people suggest what happened yesterday yeah i think that's a really great point to end on danny schechter thanks so much for being on the show for giving us all your insight on that and the media's role as you are the news dissect there after all that was danny schechter author and blogger and you say spector dot net and still ahead we've brought back the word of the day and it's here for another round of really hypothecation we want to drill at home to make

sure you really get how important this topic is and get it down but first your closing market numbers. of people calling it like you said for free and fair elections. and we're still reporting from the clinton if you can hear behind me loud explosions.

first word that you spring gerard's right right i mean it's like a derivative of actual paper it's a food product essentially. the same much stronger than anything you do by a lot of. thousands of times i'm stronger than any one of the i have therefore you are pushing the.

all right it's time now for word of the day where we break down a fanciful term or concept for our very smart viewer but just maybe not a financial expert and given this headline i want to show it to you m.f. global collapse prompts clash over collateral we want to revisit the issue of collateral and the really high profit cation of it which is key to this story of how and why i am a global collapse i also talked about it yesterday but i really want to hammer it home because it is complicated but we've got to know it's important and it's really hypothecation so what is it let's take a look at the definition it's the practice by banks and brokers of using their own purposes sunni for their own purposes assets that have been posted as collateral by their clients now and best of p. it goes on to explain a little bit more for us that and it's typical example of occasion securities that have been posted with a prime brokerage as collateral by a hedge fund are used by the brokerage to back its own transactions and try. now

publication it notes was a common practice until two thousand and seven became much more wary about it in the wake of the lehman brothers collapse and subsequent credit credit crunch in two thousand and eight and two thousand and nine but some people like our guest yesterday who was exploring and defending clients in this m.f. global case for bankruptcy said that it's still a common practice today i should tell you has a hedge fund and i'll tell you how it works now the investment media explanation went on to explain that in the u.s. regulations like t. say the collateral by broker dealers is limited to one hundred forty percent of the loan amount to a client that's how much they can pocket kate so here is how it would break down for a client if a client has five hundred bucks in securities two hundred dollars is their debt deficit three hundred dollars a net equity then that means that broker can use two hundred eighty bucks of that collateral one hundred forty percent of the two hundred dollars that is owed here's

the clincher though in the u.k. what are the limits there are no limits on real hypothecation none ok they could read hypothecate all of this money that a client has there so all of the collateral rather so what i want to explain what this looks like in a really simple way that everyone can understand how even though in a typical example every hypothecation these are securities that have been posted with a prime brokerage as collateral by a hedge fund i'm going to use a much simpler example a mortgage and a house because it's a lot more relatable for people to understand how this all works so let's say we have a borrower they buy a house they take out money from a bank or something to get it so they take out a mortgage and they post that home that they buy as collateral now they stay in that house but if they default on their mortgage the bank can possess that house because that's the collateral so the bank what are they doing here they hypothecate collateral if we could move it ahead and show what that looks like so it's going to take that even though the borrower stays in it so now guess what this bank can do

it can really. hypothecate that same collateral to someone else to back their own trades or their own positions if we can move ahead so that same collateral but now it's a shadow because there's only one of those houses right so this is a shadow they catered to somebody else well remember i said there are no limits to re hypothecation in the u.k. now this firm can post that collateral to somebody else to borrow more for whatever and it gets free hypothecated again and now collateral gets real hypothecated again and is a vicious vicious cycle ok this allows banks or brokerages to take on virtually on limited leverage while creating liquidity to give you an example by two thousand and seven banks receiving four trillion dollars worth of funding by re how publication had one trillion dollars of collateral in reality backing up ok a lot of money created if it sounds like fractional reserve lending to you which is how banks expand the money supply it should however this allows prime brokers to become

defacto banks but completely unregulated now because we have not the cation is reported these so super profitable for prime brokers then the agreements provide for us clients assets to be transferred to the u.k. subsidiary to get around us regulations now this was an end of global customer agreement for customers trading in cash commodities futures and a bunch of other options and futures it said that they pledged to be here by loan or pledge to grant the global the right excuse me in accordance with the clickable law to borrow pledge pledge transfer hypothecate re ipod take a loan or invest any of the collateral so there you can see how this was going on at m.f. global and allowing them to lever in the u.k. through their subsidiary which they did so given all of what we just talked about and the additional leverage and temporary liquidity they can be created through this shadow banking process now you understand why for example at thomson reuters

and. analysis and up with this considering that real hypothecation may have increased the financial footprint of euro zone bonds by a least four fold then a euro zone sovereign default could be apocalyptic and now you know what real hypothecation is. all right before we go let's bring in dimitri beingness in the newsroom and shannon donahoe in the control room to end on a story that we caught our eyes so politicians we know they don't talk shop all the time a hot mike scott this conversation maybe you remember between john boehner and joe

biden before last year's state of the union address. so. the only reason we're here for the summer. for the one with the point. there's talk around so now we have reported on all of these needing all of these euro zone get meetings there is another meeting every day appeals like well now we can welcome some insight into what they're actually doing a german finance minister wolfgang schauble was caught playing sudoku during a parliamentary debate on greens so on the open the floor comments how how prevalent do you think this is is this what everybody is doing is this why the greek talks are so long when they go on the phone him he's actually been one of the few leaders in this in the euro zone crisis who seems to be who seems to be acting in the national interest he says to be taking a german line which is i think is fair and he's he's going to really hard work has

been doing a good job and you know what if these guys are smart of voice of those who if even a fraction of which are enough i would be shocked so you know i don't blame because these meetings are a bunch of you know what i can say the word on air but i only said laurie knowingness more go look at shannon's on her blackberry see this is this is her multitasking how if you like it don't you. think you don't get rid of it well that's that's good that's my point. she's as smart as looking for a glass or think i cannot believe that you're taking a side ok if i did that then i says bureaucratic inefficiency or he he's like the he's like the the ron swanson from partial regression he's in the system to hates it but that for many it got all the power so he can just sit back and place a joke because at the end of the day journey is going to call the shots anyway let's move on ok fortune magazine has come out with its list of the world's most admired companies and can you guess who's on it ok well they are really close friends j.p. morgan chase tops the mega banks category but it's twenty two on the list thirty

nine is goldman sachs and wells fargo is number forty. the group conducted the survey asking about four thousand executives directors and security analysts the ten companies they admired most so this really shows that yes connect because there was another reputational study that showed that some of the biggest guys on wall street have a reputation that amounts to the same level and wrong before it collapses so this is really the divide and rapists and child pornographers people like i heard actually jamie dimon called fortune magazine and cried on the phone to our cry he said please give me on this list because my ego can't handle that i'm going to pull my advertising if we don't make. ok let's move on because we want to get to this story before we go to wall street's average cash bonuses a suspected to fall to only one hundred twenty one thousand dollars. and now that the smaller bonus checks across the financial services industry is making it difficult to maintain the lifestyle that wall street workers expect people like

andrew shift and peter schiff who were interviewed before about how much they pay in income tax are upset about it take a listen. i know i make a decent salary and i get taxed close to fifty percent of what i make what percent of your income you pay in taxes ten percent how would you like to pay fifty percent like me i would really so andrew shift and a lot of others really quickly but we don't have a lot of time but they were saying that the cuts to their pay the cuts to their bonuses on wall street have really impeded their life i don't think that's that article that's only used for the group peter schiff because they do pay high taxes i expect they're not like these wall to wall street executives because they carry interest over all their bonuses and they don't have access to this kind of window there are too big to fail so i don't think i can further think andrew peterson and i'm going to take a slightly his burial conspiratorial stance and say that this article was just show that one percenters actually pay a lot of taxes and have a problem with their lives hell and he's lying when you hear the president calling

for higher taxes on people that make that much money that's all we have time for thank you so much for tuning and you can feel free to follow me on twitter at more unless there give us feedback at youtube dot com slash capital account and from everyone here thanks so much for watching and have a date me. you know sometimes you see a story and it seems so for sleep you think you understand it and then you glimpse

something else and you hear or see some other part of it and realize everything you thought you knew. welcome to the big picture. more news today violence is once again flared up.