three three. three . good afternoon and welcome to capital account i'm lauren lister here in washington d.c. these are your headlines for march twenty first two thousand and twelve the federal reserve bank of dallas says dog frank did not end too big to fail and says we must downsize the goal he missed and the president's view the president's view this as some u.s. lawmakers are working to push back the timeline for a key part of dogbreath of both will rule the regulators and banks already appear to be hollowing out will look at what cost that comes meanwhile the poor design rule is reportedly gaining momentum this would restrict getting late what brokerage firms can do with customer money now before looking forward what about the

unanswered questions and the accountability questions in the end of global bankruptcy and what we consider best of customer money we'll talk to william black he's a former regulator who oversaw prosecution of bankers for fraud during the s. and l. crisis to find out what it would take to see justice in this case meanwhile do you think we have enough lawyers in the us already we don't need anymore well you may be happy to hear this organization behind the law school admissions test in the u.s. the l's that has seen the largest decline in people taking the test in more than a decade we'll debate why let's get to today's capital account.

all right let's talk about regulation and regulate whores and financial firms and the too big to fail of course now the federal reserve bank of dallas has just released its annual report it says dodd frank did not a radical too big to fail now this is not earth shattering we talk about this a lot but you know nice to hear it from a federal reserve bank now its president calls for the downsizing of the but he admits meanwhile a key piece of job frank that supposed to downsize the rest posed by too big to fail banks one of them the volcker rule looks like it may be delayed if some senators get their way there is paul volcker who it's named after now the volcker rule we've covered it a lot you may recall it's supposed to stop banks from proprietary trading or for betting for the house for themselves and then there's a new rule that's gaining steam according to the wall street journal this is known as the quora zine rule if you watch this show you sure you know who he is now

getting laid this rule would restrict what brokerage firms can do with customer money named after of course. this comes after his firm appeared to use some would say steal customer money kept in segregated accounts to pony up for a trade before the firm went belly up but hold on before we move on from m.f. global before we look forward hello there are still so many an answer questions now one of the firms of regulators the chairman of the c f.t.c. its name is gary gensler he's on the hill this week asking for funding before appropriations subcommittee but what about the job regulators have done with. global that's what we want to hear about to answer some of our most pressing questions we have bill black william black associate professor of economics and law at the university of missouri kansas city he is a former regulator and he was director of litigation during the s. and l.

crisis do you know that. means that means on his watch bankers were prosecuted and locked up so he is going to help us break down these unanswered questions we have and light of this person professor black thank you so much for being on the show and you yeah absolutely so i want to start i want to talk about the regulator one of them at least and the way this bankruptcy has been handled professor black first i want to play the justification gary gensler the chairman of the c f.t.c. gave for the way this bankruptcy has been handled let's play that. my knowledge of this for. you said once it's a joint broker to their futures commission merchants and there are securities customers at risk the way to go into. the securities commission and see if i can put it into a separate trust. ok now that sounds like a bunch of gobbledygook but basically reportedly gary gensler the chairman of the

the f.t.c. one along with the way to see these the excuse me wanted to have this treated as a chapter eleven bankruptcy versus a chapter seven with what's known as a simple liquidation which he mentioned for the brokerage part of the business now i am not a lawyer but the takeaway for us about this is that what this did is this allows creditors and customers to be on equal footing or it's unclear verses prioritizing customers to get their money back now my question for you and a case where so many months customers with money in segregated accounts saw their money go missing and gary gensler according to his testimony knew that segregated accounts were not whole is that unusual to you that he would go along with this. well the commodities so folks claim that this is the only case of segregated accounts that have been stolen in this fashion so everything that's being done

is new in the sense that there isn't an existing precedent for how to handle it. but do you as a regulator does that sound suspicious that in a case worker customer money what message in missing in segregated accounts and what is as you're saying days that unprecedented that you would go along with this being handled in a way that doesn't prioritize those customers to get their money yes you clearly need to prioritize to stokes they have been a different kind of victim give it a victim of their and the usual rule of course is once people have stolen things from you and you can again if by the proceeds you've got them that you can recover them and dashing certainly the overall regulatory approach and it's disturbing if they're going to go in a very different direction so then the question becomes does it let me give you a few other things that i've heard about what makes it different when it's

a chapter eleven bankruptcy reportedly they can drag out longer which means bigger fees for the trustees and other people involved also there is less transparency reportedly an executive can continue to run the company do you see any of these as being reasons why people involved would have wanted this to be treated as a chapter eleven bankruptcy. oh well in chapter eleven is always much more friendly to the managers in charge and there's no real basis of global doesn't have anything to offer from a reorganization which is what a chapter eleven is as opposed to. a liquidation which is what a chapter seven years so m.f. global and you know internal controls so bad that it could allow the largest there. by bar of segregated funds in history perhaps the only major one in modern times. they should be gone instead of resurrected and

continuing to receive significant salaries for places that destroyed wealth so i guess the question to follow up on that is i know you don't have a crystal ball but just having been on the inside and with your knowledge of this industry is there any kind of vested interests that could see that it was handled in this way in a way that benefits the executives that stay in this company that is a carcass and could even end up getting bonuses well to put the two stories together that you've discussed this extraordinary documentary by the federal reserve bank was. that a regulators failed in large part because they didn't believe in regulating or were unwilling to take on the largest most powerful folks and of course the former head of goldman sachs is

a classic example of the people who were treated with kid gloves by the regulators and so if it means that c.s.e. should be showing there is a new sheriff in town and one of the ways to do that was to get rid of all of the senior managers and get to the bottom of the. why this place was such a source will it be lost in normal amounts of money and stole enormous amounts of money from its own customers all without its internal controls you know raising any fly to the outside and why by the way the see him he was to actually believe the regulator that is a private so regulator so this is a catastrophic failure of the c m e's bad testified that so regulation worked. at lobel yeah didn't work too flawlessly and i

don't think you would especially think so if you're one of the customers still missing money professor black you had on that one thing which is that this is much broader reaching in the sense that a lot of people that i speak to say this is roiled pay and us markets in a commodity markets now one of the kind of the mainstays of dodd frank one of the big things that attempts to tackle these regulations is to make over the counter derivatives more transparent to get these trades to go through a clearing house have a central clearing party now m.f. global's brokerage unit ran its trades through a futures exchange this is supposed to mitigate risk obviously in this case it did not do you think that this could end up benefiting too big to fail banks who to my understanding kind of own this over the counter derivatives space do you think it could benefit them because people are going to see less benefit in extend an exchange which is more expensive and more benefit and just doing it over the

counter which is cheaper. again the dallas document says that one of the problems is when you create the illusion of protection but there's no real protection there so i'm justifying in front of the senate years ago that it was fine to have one of these exchanges but it would not have prevented the current crisis it did not prevent m.f. global it will not prevent the future crises so we cannot put our reliance in the kinds of ephemeral reforms we have to go back to older things that actually worked and by the way we are doing exactly the opposite to this obscene jobs act that is about to go through with. bipartisanship is actually the most incredible fraud friendly

legislature in u.s. history and it will produce an epidemic of accounting and securities fraud and you know you wrote a very powerful letter about that that i want to bring up when we come back after the break quickly before we do go to break and i just i just have a net here but i'm curious because you're saying that you think that perhaps this could lead to unintended consequences based on the fact that these regulations are not work in a way that they're supposed to we brought up the exchanges versus the over the counter derivatives do you think that there it's possible that there's been a purposeful weakening of the regulatory or exchange structures to hurt investors and to more nontransparent and to the over the counter industry which would result in more fees for the too big to fail banks. there's been a concerted effort to create the illusion of progress on things that they knew not only would not. then the systemically dangerous institutions from causing the next

crisis but actually would help them profit and that is cynical and that is continuing. basically every day and that is a very powerful statement coming from someone who has a regulated industry sent bankers to jail and when we come back william black we will talk more about the fraud at this job that could open the door to we'll have more with william black associate professor at the university of missouri kansas city and also still ahead college grads and getting the law school roots to ride down to right out the down economy will give you our three cents on why the law making it a bear market but first your closing market numbers. we

just put a picture of you need when i was like nine years old on to tell the truth. i think i am going to get a friend i love rap and hip hop is excellent and. it was kind of a yesterday. i'm very proud of the world without you it's place. you know sometimes you see a story and it seems so silly you think you understand it and then you glimpse something. if you're see some other part of it and realize that everything is ok. i'm charging the is a big issue the sense

. of. what drives the world the fear mongering used by politicians who makes decisions. who can you trust no one will is your own deal with the global machinery to see where are we heading state controlled capitalism is called satchels when nobody dares to ask we do our t.v. question more. welcome back before the break we were talking about m.f. global and regulations that maybe are supposed to give the illusion of regulations when in fact they are not cracking down on the problem they are allowing it to

continue possibly get worse i want to bring back our guest william k. black who is a former regulator he's also associate professor of economics and law at the university of missouri kansas city he oversees was the director of litigation during the savings and loan crisis so he is the expert on this and how it's done if you want some justice in these cases professor black i want to bring you back in because just to stick on the global case for a little longer one of our friends and wish bob at zero hedge who has been investigating this he brought up a letter from an m.f. global customer that had some choice questions for gary gensler and one that i want to pose to you because i think it's a really good question as you're someone who has overseen prosecution of people in the financial services so guns are on record stating that this c f.t.c. rules require the segregation of customer funds at all times every man a second ok so there's that the amount missing from customer funds one point six

billion dollars represents a quarter of the entire balance of customer funds at m.f. global and exceeds the total net worth of an f. prior to bankruptcy so it doesn't seem like this is a simple clerical error so is this clearing evidence in your mind of a criminal violation of c f.t.c. rules you've said theft so is this criminal yes. simple answer so where is the case is that just too tough one thing that an attorney told us is that white collar crime is very difficult because of attorney client privilege and these financial firms everything they do is heavily lawyers so it's very difficult to build a case is that the problem. well there is a fraud crime exception to attorney client privilege and as regulators and prosecutors and people bringing civil suits we use that very aggressively against the frauds and it's not being done i mean not much of anything but rest of it is being done in against the major financial frauds other than in in insider

trading or there actually have been some successful prosecutions but otherwise you can commit these fraud so far with impunity under both the bush and obama administrations and again to pick up the dallas document which is extraordinary and by the way i taught a class minutes before starting this interview on the new dallas document they say that and this is an extraordinary admission for them that. market structures can become perverse and then breed becomes mo level and and it produces widespread disasters and catastrophes for the system well it also produces widespread fraud and this is what we as white collar criminality has and financial regulators have been trying to explain to people that only the

regulators can serve as the key regulatory cops on the beat to restrain things fraud and the regulators have been either taken off or replaced by people who don't believe in regulation another point by the way that the gallus documents said and the regulators simply refused to enforce the regulations because of course they didn't believe in regulation that's why they were chosen as leaders that's a great interesting point so then professor black already see this going because that's where money is messing in the case of m.f. global it seems like it's been papered over and. and there's not this huge call for heads to roll except for you know people that have been affected and people like us on this show were like this is not right and there's this mentality and i kind of you know alluded to it with the chorus line rule that they're proposing to look forward don't look back don't go back to what went wrong let's just look forward so where do you see this going. oh imagine that we took this response to

a plane crash a plane crash and we said you know we don't want to be backward looking or pointing fingers so we'll just hope the future planes don't crash and we won't bother to find out why the plane crashed bad be insane right every one you debt as insane the reason that airplane travel is so unbelievably safe and improving despite some pretty perverse private incentives to skimp on making an is precisely because we do take it seriously we do hold people accountable we do find the facts so they really have to die facts if you don't look you don't find is the first mantra of investigation a sophisticated frauds and then of course when you do find things and we have found millions of fraudulent mortgage sales originations and hundreds

of thousands of x. . foreclosure fraud and nobody a leak out of wall street leading the mortgage origination fraud has even been investigated much less indicted much less prosecuted and jailed and the proof is in the putting what ever they say what congress and the administration are actually doing as we speak is trying to push forward and act the jobs act yeah everybody involved in that knows anything about fraud the securities and exchange commission a commodity futures trading commission but the state securities regulators the cow profession everybody that knows about fraud has said this bill is coke lapis it's not bad it is unbelievable it is the wish list of every for. friendly practice in the world clue to the other end of bill and we have congress

deliberately screwing up the congressional rules preventing hearings because they know that this could never be exposed to real discussion by experts and pass there is a saying that goes all the way back to the bible all goes to do with evil hate or the like and that's what you saw in a global that you saw in this crisis and that's what you saw in the savings and loan crisis and they are trying to push us into an area where the light never interest again professor black we're going to have to leave it there we're out of time but what a powerful no to end on and just for our viewers that jobs act is being pushed through congress under the guise of a john starr our small businesses act when really it opens the door for much larger companies to get out of disclosures and audits that are considered canvasser protections i appreciate you coming on the show that was william black associate

professor at the university of missouri kansas city also a former u.s. regulator. all right before we go let's end on the loose change to round it out with dimitri and shannon so what do you know this isn't surprising that washington d.c. has the highest concentration of lawyers thirteen hundred fifty six per cent more a lawyers per capita than even new york but that number could be falling seems like college grads are not going to go once track any longer. this is that they are going to tell all of you i'm going to make a single. feel comfortable using legal jargon in everyday life. i have checked.

all right so the organization behind else the admissions test to law school said the number of tests given this year dropped by more than sixteen percent the biggest decline in a decade i think and it has two years it's dropped nearly twenty five percent so our law school. attendees those that want to go is law school in a bear market and why would spit in a bear market for a long converse is actually the opposite the flip side of the whistle blower bull market we've been talking about because if you didn't if you you wouldn't have a bull market in whistleblowing if the legal system wasn't so the secular bear market ok it's not doing its job it's a deep freeze but the i think it in a bear market because it's saturated with attorneys it doesn't need anymore there are jobs available for attorneys and students everybody i talk to not agro but a lot they come out a law school they become a lawyer they hate it but they're stuck because they are in so much debt that they can't do anything else well that's that there's that side of it but also why aren't

why are any of these attorneys actually going to even do pro bono work to expose some of the fraud that we're seeing on wall street and we have we've had some on this show but the reality is that the legal profession who says the economic aspect is also dying because the law is dying in this country or you know it is getting on now prosecute it or it's getting outsourced chan and you were talking about some anecdotal evidence of that i think it's just laying the inevitable of getting it but to dimitris point. because there's so heavily and they can't do work all right blanket statements there are people that are doing pro bono work there are going to be my point is they're in there because of these too big to fail mafia heads who are putting the entire country in that so if you're going to be that one . why are you going to sit there and take it which is what these guys are doing and they're just leaving the workforce and they're not saying it they're not going to law school. guys right he's going to like forget it i'm going to get involved and

they're too big to fail i mean we have sources that have told us they have a stranglehold over attorneys it was hard to get a bankruptcy attorney and in the wake of m.f. global because if you begin to lock down on moving on let's talk about some more officials in charge of the economy because timothy geithner and bernanke eat both appeared at a house committee hearing today on the european debt crisis earlier. my goodness you can just predict what the chairman of the federal reserve would have to say but just in case you can't listen. although progress has been made more needs to be done secretary geithner discuss some of these issues further strengthening of the european banking system an expansion of financial backstop so far walls to guard against contagion in sovereign debt markets. european leaders european central banks they need to do more they need to pump more money into the economy they have already turned more than a trillion dollars of trash to cash in the case of l.t.

arrows so come on line is this talking point going to cease to be relevant to lawmakers or anybody listening well that's the strategy i mean that's how you consolidate power it's the only dialectic it's time you have a crisis you don't wear out imagery that's true galeon dialectic it's a crisis reaction solution right and these guys are always saying we're looking forward here's the solution here's another solution or this more power give me more power give me more power don't look back and look at all the criminality which is what i was against more and more of you lucian's first let's prosecute people who the regulations or laws that we have in the books right now so i mean you know we don't look back at my balance sheet just look laura did all the opportunity for printing i mean there is you can you want to add anything a final note to end on i don't necessarily want to tell ben bernanke you to mind his own business because that might have ramifications for us who are here but he sounds kind of elitist oh you mean because washington brought the cliff good let it happen i'm sick of this place well we'll leave it at that scares you or any of the

lawyers anyway here we have time for thanks so much for tuning in don't forget to follow me on twitter at lauren lister give us feedback on the show at youtube dot com slash capital account everyone here thank you so much for watching come back tomorrow and have a great night. for sure is that so much and there's a huge music history on the market as the syrian civil war grinds on calls for an outside military intervention grows louder and louder well at the same time there is. more news today violence is once again flared up the film these are the images the world has been seeing from the streets of canada. china operations are the day.

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