they're excoriated all over the press and here for the same article we're just out of time thank you for coming on the show to talk in the studio that was daniel ferrazzi director grassroots political consulting hello. and that's going to do it for now we'll see you right back here in a half hour. good afternoon and welcome to capital account i'm laurin the store here in washington d.c. and here 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 economic activity will pick approach really as these headwinds treat supported by future anyway should have the higher your comedy experience for monetary policy making of will 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. you know the moment we lose through the. deal. with the new and current great credit default swaps will not be paid out pimco as bill gross like 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. type market paralyzing counterparty risk scare or is it about protecting the vested

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 really hypothecation we'll break it down and another eurozone crisis meeting today euro finance ministers of. prove the bailout fund to raise money for greece's bond swap reportedly in brussels for a summit of e.u. leaders but do you ever wonder what policymakers are really doing in their never ending string of debt crisis meetings we'll tell 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 roles i've got them 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 pop no one did it better perhaps longer either than 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 the sub prime crisis and the bus that it was look at this so to 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 damage debt now act there are 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 out 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 there

they are in one thousand nine hundred nine the committee to save the world now time later put 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 social interests of organizations specifically banks and others were such as that they were best capable of protecting their own true holders. but when the pot fast forward a few years past the mantle crisis in greece ben 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 newsday specter 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 the show. and thank you i think you're doing a great job here you know of all the people talking about business something of a vision if you have the happiest and the most incisive program. 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 would be the perfect mate i really got a ph d. in economics but i really appreciate those very kind words coming from you danny let's bring to this topic know 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 has been gone over by the neediest so first layout how you come to

that conclusion that he still highly respected you get 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 i had to take a little quick diversion into a borders bookstore a call of nature and all of that as i was leaving there was that on greenspan himself leaving with me and the two of us work that i think that street together my crew was shocked you know thinking like how does this guy know everybody you know spend actually or to graft a dollar bill for me it turns 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. to a cult run by on rand's who is the author of the fountain head and the author of atlas shrugged who is a believer in no regulation ever who believed in privatizing everything who is actually a free enterprise or whose whose idiology has been adopted almost totally by the tea party and by the right wing political candidates will get your money and support and yet let me getting at is that actually a question i had because and rand's philosophy 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 fad that that interest rate that all doesn't exactly prescribe to that kind of free market capitalism and interpret market the market would set interest rates so

how does that jive with what you're saying about alan greenspan it's just one more contradiction you know in a story that's very tawdry you know called him the undertaker because of the way he dressed as a very dour person always looking around to be 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 governor gramm which who 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 do you blame danny first and foremost in mainstream media for what ends up

being a pretty respectable portrayal of alan greenspan in the end. well you know what's interesting to know first of all 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 also pays its own the media pays its own chiefs like bankers giving them you know big salaries big compensation big bonuses and the like they had then a fly with and they're part of the culture it's a new book out lawrence 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 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 slide to get it mostly first class well and i thought that was one of the really interesting thing that you pointed out was the amount of hair in any media companies that are owned by neutral funds or institutional investors so you think if you have a very good at math and it's pretty fair you think that if directly influence is the way that wall street and it is if it's 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 peeper sins interviewed on the red carpet was none other than the chairman of the disney company the disney company of course own c.b.c. that was presenting you know the the oscars so you know they're all sort of scratching each other's back and so is promoting using media to promote and not be 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 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 they need deep in all of this corruption and all of this thread. what we need today is not a nother bailout we need to jail out you know of the people who are responsible back in the s. and l. days so the s. and l. scandal seventeen hundred bankers or banks went to jail and most non of going to jail now now i know and that's a bit of a change and we talk about daily on the show why fat is and why the political will seems to have if it cared but back here example with something like the oscars i mean i can understand if your view that doesn't seem as a detrimental to me as real issues that they impact the economy or impact you know a lot more things then whatever the offer is entertainment so actually let me ask you about this because we had a guest on yesterday who is the banker only he's an attorney representing eight

thousand m.f. global customers who lost their money or whose money had 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 that you can't have this guy on does that jive with with real stories that you've heard and really examples because i found that 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 that since forced maybe by their bosses and 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 m.f. global's 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 core design or the other executives in the company will be prosecuted yeah i know i know we've talked about that as well so you think that it's not added to rack as well as the example that are get paid but it's maybe a little bit more latent although those examples certainly it seems do occur let's switch gears now because i want to just stick on the theme a big economic policy maker 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 riveted shouldn't be regulated and can be geitner i can remember you know two years ago danny when i went to the hill and 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 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 it doesn't seem like any of that matter what do you attribute that to. well guys who work for greenspan and you know if there's a quote back in two thousand and six telling you know geithner telling greenspan hold much he loves and respects him you know so you know these guys are part of the 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 in other words he seems to be on the east. seems to be on a track to sailing you know sailing portably you know there's another 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 i just i just have thirty seconds but i want to know why you think the public forgets their crimes because you know the media practice is. 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 going 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 that there done that and still ahead we've brought back word of the day and it's here for another round every hypothecation we want to drill at home to make sure you really get how important this topic is and get it down but first closing market numbers. people calling it like you said for free and fair elections.

can be are still reporting from the winter and you can hear behind the loud explosions. efforts for just burning gerard's right right i mean it's like a derivative of actual pepper it's a food product essentially. it's much stronger than anything you you buy or absolutely thousands of times i'm stronger than any one of the multiple you were pulled from 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 euro but just maybe not the financial expert and given this headline i want to show it to you m.f. global collapse problems clash over collateral we want to revisit the issue of collateral and the really hypothecation of it which is key to this story of how and why in a global collapse i also talked about it yesterday but i really want to hammer it

home because it is complicated but we got to know it it's important and it's really hypothecation so what is it let's take a look at the definition it's a practice by banks and brokers of using their own purposes suit me for their own purposes assets that have been posted as collateral by their clients now and vested p. it goes on to explain a little bit more for us that and it's typical example of hypothecation securities that had been posted with a prime brokerage as collateral by a hedge funds are used by the brokerage to back its own transactions and trade. now while have 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 crunch and two thousand and eight and two thousand and nine but some people like our guest yesterday who was exploring and defending science in this and the global case for bankruptcy said that it's still a common practice today i should tell you has a hedge fund i'll tell you how it works now the investor pedia explanation went on

to explain it in the u.s. regulations like reg t. say that collateral got a broker dealers is limited to one hundred forty percent of the loan amount to a client that's how much they can read hypothecate 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 the 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 re 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 soo curies 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 a collateral so the bank what are they doing here they hypothecate back collateral if we could move it ahead and show what that looks like so it's going to take that even though the cars stays at it so now guess what this bank can do it can read. hypothecate that same collateral to someone else to back their own trades or their own positions if we could move ahead so that same class but now it's a shadow because there's only one of those houses right so this is a shadow it's december he else well remember i said there are no limits to real 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 we have pocketed it

again and it 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 rehired but they cation had one trillion dollars of collateral in reality backing up ok that's a lot of money created it sounds like fractional reserve lending to you which is how banks expand in money supply it should however this allows prime brokers to become defacto banks but completely unregulated now because we hypothecation is reportedly so super profitable for prime brokers many agreements provide for us clients assets to be transferred to the u.k. subsidiary to get around us regulations now this was an m.f. global's customer agreement for customers trading in cash bodies futures and a bunch of other options and futures it said that they pledged to. here by loan or

pledge to grant the global the right excuse me in accordance with the clickable law to borrow pledge read pledge transfer hypothecate really hypothecate loan or invest any of the collateral so there you can see how this was going on and global in 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 and now you understand why for example at thomson reuters and. alice and up with this considering that reid hypothecation may have increased the financial flows of euro zone bonds by at least four fold that 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 because being us in the newsroom and shannon dano in the control room to end on some stories that we caught our eyes so politicians we know they don't talk shop all the time hot mike scott this conversation maybe you remember between john boehner and joe biden before last year's state of the union address. right. now the only reason we have your center of. the world with your point. there's no talking around off so now we have reported on all of these meetings all of these eurozone debt meetings there is another meeting every day it feels like well now we can welcome some insight into what they're actually doing a german finance minister. was caught playing sudoku during

a parliamentary debate on greece so i'm going to 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 who seems to be acting in the national interest he says we're taking a german line which is i think is fair and he's he's going to really hard work is we're doing a good job and you know what if these guys are smart of bush of those who if even a fraction of which are enough i would be shocked so you know i don't blame him because these meetings are a bunch of you know what my case of the what i hear but i only said larry being a smart go look at the c.n.n. center blackberry see this is this is her multitasking how would you like to don't you understand i don't think you could really hear well that's that's good that's one for. these as far as looking for a glass or saying i cannot believe that you're taking his side ok this idea that

the demise of bureaucratic inefficiency where he he's like the he's like the wrong swanson from parks and recreation he's in the system of the hates and the guys who are going to hate him and he's got all the power so he can just sit back and place it ok because at the end of the day jeremy 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 five. the group conducted the survey asking about four thousand executives directors and security analysts the ten companies they admired most so this really shows a disconnect 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 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. cry he said please give me on this list because my ego can't handle he said i'm going to pull my advertising if we don't make that lead right i heard. ok let's move on because we want to get to this story before we go so wall street's average cash bonuses this acted to fall to only one hundred twenty one thousand dollars. and now there's a smaller bonus tax across the financial services industry is making it difficult to maintain the lifestyles that wall street workers expect people like andrew shift and peter schiff who were interviewed her for about how much they pay in income tax are upset about it take a listen. i know i you know i make a decent salary and i get taxed close to fifty percent of what i make would per cent of your income taxes ten percent i 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 lives i don't think that's from that article that some of these friends they think group leadership because they do pay high taxes i expect they're not like these wall to wall street executives who get to carry interest over all their bonuses and they don't have access to a discount window that are too big to fail so i don't think that's a cure for think andrew peterson and i'm going to take a slightly aerial conspiratorial stance and say that this article was just show that one percenters actually pay a lot of taxes and have a problem jim their life is 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 as more and lester give us feedback at youtube dot com slash capital account and from everyone here thanks so much for watching and have a date me. led

mission for illegal immigrants a fleet street legal terms for charge a pretty low maintenance free slippery still tight friesland old city block you know split video for your media projects a free media god to hard teach dot com. if . any is easy to please. please please please please please.