we'll break it all down for you in more detail and we talked a little bit about the twitter revolution earlier in the show we told you how powerful something simple one hundred forty characters seems so tell me in one hundred forty characters what you want to see on our team that's at least the top enough one word. issues that so much if it is you should be sitting on the market as the syrian civil war crimes on calls for an outside military intervention grow louder and louder while at the same time there is. good afternoon and welcome to capital account i'm lauren lyster 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 develop he-man and the president's view the fed president's view this as

some u.s. lawmakers are working to push back the timeline for it keep part of dog break the bulls 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 if all 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 hague's block he's a former regulator who oversaw the 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 any more well you may be happy to hear this the organization behind the law school admissions tests in the u.s. the else that has seen the largest decline in people taking the task in more than

a decade will debate why let's get to today's capital account. all right let's talk about regulation and regulate tours 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 eradicate 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 dodd frank that supposed to downsize the risk 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 a lot you may recall it's a close 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 know who he is now fittingly this role would restrict what brokerage firms can do with customer money named after of course john course zein 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 t.c. 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 in light of this first 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 they carry guns or the chairman of the c f.t.c. gave for the way this bankruptcy has been handled let's lay that. my knowledge of

this from. once it's a choice broker to their futures commission merchant and there are securities customers at risk the way to go all interaction is. the securities commission and ship can put it into a separate trust. ok now that sounds like a bunch of gobbledygook but basically reportedly gary gensler the chairman is the f.t.c. one along with the way to see if the f.t.c. 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 versus 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 folks claim that this is the only case of segregated accounts that have been stolen in the stash and so everything that's being done is new in the sense that there isn't an existing precedent for how to handle it. but to you as a regulator to that sounds suspicious that in a case weren't customer money what message in missing in segregated accounts and what is as you're saying they said unprecedented then 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 do you suppose they have been a different kind of victim give it a victim of their and the usual rule of course and once people have stolen things

from you and you can again if i the proceeds you got it you can recover them and dash 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 has 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 reporter they've taken drag out longer which means bigger fees for the trustees and other people involved also there is less transparency reportedly and executives 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 it's chapter eleven it's 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 global and you know internal controls so bad that it could allow the largest there. by far of segregated funds in history perhaps the only major one in modern times. they should be gone and instead of resurrected and continuing to see received 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 document by the federal reserve

bank us said that a regulators they held in large part because they didn't believe in regulating or were unwilling to take 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 he so yes he 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. why this place was such a cesspool that he lost enormous amounts of money and being stole enormous amounts of money from its own customers all without its internal controls you know raising any fly could be outside and why by the way the see him

he was actually believed regulator that is a private so regulator so this is a catastrophic failure but the ease. justified it so for a view lesion were. lobel yeah it 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 faith in us and markets in the 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. yeah again the. 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 you know it's fine to have one of these exchanges but it would not have prevented the current crisis it did not prevent an army of 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 work and by the way we are doing exactly the opposite this obscene jobs act that is about to go through with the. bipartisanship is actually the most incredible fraud friendly legislation 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 but 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 structure as they're hurt investors into more nontransparent into 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 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 well may come back william black we will talk more about the fraud that this job back and opened the door to will have more with william black associate professor at the university of missouri kansas city and also still ahead college grads and give the thing the law school route to ride down to right out the down economy will give you our three cents on why the

law may be in a bear market but first your closing market numbers. we just put a picture of me when i was like nine years old i want to tell the truth. i think tess and i am going to get a friend i love rob because he's a planned trip. he was kind of a yesterday. i'm very proud of the world without us you know it's a place. you

know sometimes you see a story and it seems so silly you think you understand it and then it's something else. sure see some other part of it and realize that everything is ok. i'm charging bloggers a big shifts it's. what drives the world the fear mongering used by politicians who makes decisions to break through. who can you trust no one. is you. know with the global machinery see where are we heading state controlled capitalism is called sessions when nobody dares to ask what we do our t. 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 black who is a former regulator he's also associate professor of economics and law at the university of missouri kansas city he oversaw with 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 in zero hedge who has been investigating this he brought up a letter from 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 again sort of on record stating that this c f.c.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 m.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 that there was this criminal yes. simple answer so where is the case is it 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 have a lawyer and so it's very difficult to build

a case is that the problem. well there is a fraud of prime 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 an insider trading where they're 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 gallus document which is extraordinary by the way i taught a class minutes before starting this interview on the new dallas document base a that and this is an extraordinary admission for them that. market structures can

become perverse and then three becomes mo level and and it produces widespread disasters of 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 a key regulatory cops on the beat true restraint is 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 that the regulators simply refused to enforce the regulations because of course they didn't believe in regulation that's right they were chosen as leaders that's a great an interesting point so then professor black already see this going because customer money is nesting in a place that 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 who are 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. well i'm imagining 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 don't bother to find out why the plane crashed that 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 maintenance and sense is precisely because we do take it seriously we do hold people accountable we do find the facts

so they really have to find facts if you don't look you don't find it's the first mantra of investigation of 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. . zero foreclosure fraud and nobody elite 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 whatever they say what congress and the administration are actually doing as we speak is trying to push forward and act the jobs act that everybody involved in it knows anything about fraud and securities and exchange commission

a quote of the future trading commission the state securities regulators the cow any profession everybody that knows about fraud has said this bill is coke lattice it's not bad it is unbelievable it is the wish list of every three. 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 chaos there is a saying that goes all the way back to the bible all those that do with evil hated the light and that's what you saw little that you saw in this crisis 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 interested you professor black we're going to have to leave

it there we're out of time but what a powerful no to end on it just for our viewers that jobs act is being pushed through congress under the guise of a jump start 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 let me i know this isn't surprising but 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 the eloquence track any longer. missions that say i'm going to tell all of you i'm going to make a single voice i 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 passed two years it's dropped nearly twenty five percent so our last pool. attendees those that want to go is law school in a bear market and though it's been a very long time this is actually the opposite the flip side of the whistleblower bull market we've been talking about because if you didn't you wouldn't have a bull market in whistleblowing if the legal system was in the secular bear market

ok it's not doing its job it's a deep freeze but see i think it's in a bear market because it's saturated with attorneys it doesn't need any more there are jobs available for attorneys and students everybody i talk to not everyone but a lot they come out of 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 the that side of it but also why aren't why are any of these attorneys actually going 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 he says the economic output is also dying because the law is dying in this country or no one's 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 to jimmy choo's point just. because they're so ugly 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

very that because of these too big to fail mafia heads who are putting the entire country so if you're going to be a. why are you going to sit there and take it which is what these guys are doing they're just leaving the workforce well you're not thinking if they're not going to law school. right he's going to really 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 attorney and it was hard to get a bankruptcy attorney and in the wake of m.f. global because they too big to fail is had a lockdown on them moving on let's talk about so more officials in charge of the economy because timothy geithner and ben bernanke 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 backstops or firewalls 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've already turned more than a trillion dollars of trash to cash in the case of l.t.r. rose so come on when is this talking point going to cease to be relevant to lawmakers or anybody listening well that's or strategy i mean that's how you consolidate power it's the ideal you guy like that each time you have a crisis you don't wear out in the tree that's true big alien dialect it's a crisis reaction solution right and these guys are always saying we're going to forward here's the solution is not the solution or it is any more power here read more power give more power don't go back and look at all the criminality which is what i'm always against more and more of your notions first let's prosecute people with 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 forward into all the opportunity

for printing i mean if there is you've heard me anyone anything a final note to end on and don't necessarily want to tell ben bernanke you to mind his own business because that might have ramifications for the story here but he sounds going to believe it or you meet his wife and we've got the cliff good let it happen i'm sick of this place. well leave it at that school you're doing it lawyers anyway here that's all we have time for thanks so much for tuning and don't forget to follow me on twitter at lauren lyster and give us feedback on the show at youtube dot com slash capital account for everyone here thank you so much for watching come back tomorrow and average night.

wealthy british style. is not on. the market finiteness come to find out what's really happening to the global economy with monks cause or for a no holds barred look at the global financial headlines tune into cars a report on our t.v. . download the official on seattle acacias on the phone on called touch from the choose ops to. john t. life.