tv [untitled] March 26, 2012 7:30pm-8:00pm EDT
7:30 pm
whatever it is i don't think whatever being in terminologies is terrible knowing that u.s. leaders have a hand in cooking up the greedy and can also leave a bad taste in many emails. r.t. new york all right that's going to do it for now but for more on the stories we cover go to youtube dot com slash r t america or to our web site r t v dot com slash usa. you know sometimes just you a story and it seems so silly you think you understand it and then you've lived something else years you saw the part of it and realized everything you saw you don't know i'm sorry blog is a big issue. good
7:31 pm
afternoon and welcome to capital account i'm lauren mr here in washington d.c. these are your headlines for march twenty sixth two thousand and twelve bernie he speaks then everyone seems to listen in his speech today he warned about the job market and said continued accommodative or easy money policies will be needed to make further progress this has the financial press reading the tea leaves saying more whew we is maybe on the way is it really because as our guest says he'd be really means trust bernanke he took bond and john coors on did he or didn't he knowingly transfer close to two hundred million dollars in customer money from m.f. global to j.p.
7:32 pm
morgan on one occasion before the firm imploded internal e-mails have come out that reportedly point different ways were gars less as he got away with other types of fraud already and you credit derivatives like those he used to bet the firm on europe's debt crisis continue to pose a major risk to markets and does regulation do anything to stop this and the o.e.c.d. predicts by twenty twenty that. ninety five percent of the u.s. population will be obese we'll ask is this deflationary for the global economy and a drag on economic growth let's get to today's outlaw account.
7:33 pm
now today the financial press is mauling over released internal e-mails that say maybe or maybe not diddy didn't need i'm talking about m.f. global c.e.o. the former one john four zein whether he authorized or didn't authorize customer money transferred to j.p. morgan before the firm imploded meanwhile bernanke he is warning about unemployment and the financial industry is wondering whether or not this means more quantitative easing is coming from the central planner in chief but below these headlines and below the surface of the banking system on any given day is this gigantic shadow banking system including the derivatives market of course ninety five percent of all of these trades are in the unregulated over the counter market according to a european commission report and this market because over the counter derivatives market amounts to more hundred more than seven hundred billion dollars these are driven which warren buffett investor has famously called weapons
7:34 pm
of mass financial destruction and it was a credit derivative that john corps i was trading that led to m.f. global imploding now we are lucky that our guest janet have a koli president of have a call the structured finance is an expert in derivatives she's also author of this book the new robber barons how bankers created an international all of archy and she is going to help us understand what issues of this and others like fraud still pose to the financial system so first of all welcome to the show we are so happy to have you here in washington d.c. it's great to be here laura great so before we get into m.f. global or any kind of specifics i'm just wondering more broadly because your bank is about the all the banking all of our we saw of course that greg smith goldman sachs op ed which said that profit is the only motive and you have people in the financial press saying come on this guy is kind of naive obviously profit. the only
7:35 pm
motive i'm wondering if this is more broadly the egos on ball street and if so what lengths are broadly acceptable to go to to achieve these profits well i hope that profit is the motive this is the money business after all there's nothing wrong with making a profit the question is how you make the profit and what are the quality of those earnings and what we saw prior to the financial crisis of the earnings that were being reported were very much putting their institutions at risk what was going on at many of our major financial institutions is what we call control fraud and in a control fraud the employees the host they're like parasites on their own financial institutions so financial institutions that say we were innocent we lost money on their trade they actually are getting it wrong because whether or not you need money isn't the key issue the issue is the quality of those earnings and did your employees and gauge and control for the damage to your own institution so
7:36 pm
far congress and our regulators have decided they're going to look the other way and not investigate what was widespread massive fraud in our financial system and do you think that this parasitic control fraud is the accepted norm within these to get bail firms well it has been in certain areas no you hope that some of this is the cleaned up yet again and again you see things happen like i'm not quite able as an example that sort of appear to minuses a lot of the issues that occurred that led to our financial crisis and the fact that this can happen after the financial crisis after dodd frank after sarbanes oxley just shows you how lax and hypocritical we're being in the united states about financial regulation and the world is watching but yeah the world is watching i've heard so many people said that this is just a royal baby and come. oddities markets let's get into m.f.
7:37 pm
global a little bit more because what i'm interested in do you believe that these trades really got out of control and so john course i won't freak out. or do you think that we're watching longer john cores i knew about the volatility of these trades and it evidently customer funds would have to be reached and well you know i think he absolutely did know that he had a problem with those transactions but if i can look at the size of that transaction in their march two thousand and eleven report people keep saying it's a six billion dollar transaction actually that's not correct it was eleven billion plus he was long some of the weaker european credits and short credits like france now they didn't give the size of each individual position but that said given what he was long and given what he was short as stated in the march report at least when you look at what was happening during two thousand and eleven i believe that there
7:38 pm
were several days in two thousand and eleven when m.f. global was in a negative equity position and that should be investigated now you'll notice that course i went before his board long before the bankruptcy is a risk manager expressed concerns the he gave the board pushback he said if you're going to fight me on this i'll leave and they should have said promise you know instead the board caved because i think the board perhaps didn't understand what was really going on with those transactions and what i want to ask you you said that that was in their ten-k. that regulators had information about this risk so why was that overlooked is this just too difficult position for regulators to understand or the now was a combination of things lauren and i'm glad you asked that question because once again you have our accounting board fayaz allowing john corps to characterize what was in substance a total return swap to mature. which is
7:39 pm
a type of credit derivative it's a type of funding includes the type of credit derivative. they allowed to characterize that as something that sounded more benign a reposed to maturity transaction well know what we know is off balance sheet with this transaction was an off balance sheet transaction had he called it a total return to maturity i think that would have raised more red flags with the board would would have raised more red flags with regulators but even so had they really understood the transaction they would have understood it had all the risks of a total return to maturity it ahead of the mark to market risk the price risk as those securities fluctuated in value and the position was too big given the amount of capital that m.f. global had now knowing that going into the. into finra asking for more capital where you're likely going to get a downgrade if you can't come up with more capital course and didn't scale back
7:40 pm
that position and he really needed to scale back that position instead he knew he was having this capital. it was downgraded instead of closing it down and saying actually we're in bankruptcy he was trying to sell him and in trying to sell it they dipped into customer money well i'm here to say he's saying he didn't understand his cash position and he didn't understand that he was running out of money and i have to say oh that's. yeah we don't keep track of the trades anymore with a feather quill in ink we actually design others and the thing about computers the wonderful thing about computers is that you can use them for something besides e-mail you can actually use them to instantly track transactions and instantly calculate your positions when you know them together i can tell you in any given time how much cash i have and i have a segregated account for clients it's not kind of a microcosm but just to give you an example i mean you what you can always know what your own cash position is and certainly. given the amount of cash that went
7:41 pm
out the door that one transaction that was two hundred million but it was around thirteen percent of his june two thousand and eleven worth come on you can't tell me he wasn't asking questions about where that money was coming from and that he didn't know that and the global wouldn't have the wherewithal that was his trade he took ownership of that large transaction and one thing that you point out to say on risk is that junk or design signed off saying internal controls were adequate and one of the things you point out is that sarbanes oxley was meant to assure americans that officers would be held responsible first signing off on these kind of documents and should be held accountable so what is accountability look like is it finds is it a criminal case what is it in this case i would like it to be jail time. soon anshul pros are looking at this and they are just laughing because it just shows you the degree of financial literacy in congress when they can't even properly question john. and you know get a straight answer out of the guy and you know none of us believes that john corazon
7:42 pm
is innocent of middle few cents here nobody who's competent or who is a financial professional so you mentioned congress but i want to stick on regulators for one more moment because it seems like with this example you gave us our brains oxley it seems like you have a disaster like enron and then you have an effort to regulate so that it doesn't happen again like with sarbanes oxley and then you have the same practices they continue and post enron go unpunished so my question for you what is the point of regulation f. they're not enforced is it just person oh yes it is for show it looks as if the regulators are there to protect the bad guys we didn't hold c.e.o.'s of our major banks accountable for accounting statements that they signed off on in two thousand and seven that were false and these are c.e.o.'s of large. too big to fail institutions that's correct h.s.b.c. took a six billion dollars right tone. for the fourth quarter of two thousand and six
7:43 pm
they took it right on and really two thousand and seven are being sort writing down there are some prime positions and you have to ask why not when people like me were saying that they're basically mis marking their books they're pumping the regulators and they were they accelerated their securitization activity to dump this trash on investors in two thousand and seven throughout two thousand and seven virtually every deal we came to market in two thousand and seven had elements of fraud in them well you know we just have a minute before we go to break but you mentioned the illiteracy of congress i want to ask you about the mainstream press because i notice you've been critical of wall street journal for that vaporized m.f. global story and fox business news for suggesting that this was just like accounting you know oversight or just messed up bookkeeping or something you know this particular yeah and i want to know do you think that the mainstream press is just not well enough informed or do you think that they're telling some kind of line for that i don't know it looks as if congress has been bought off in the form
7:44 pm
of campaign contributions not all of them but many just seem to be dodging the issue and protecting people that they should be regulating they are not protecting public interest here when you look at mainstream media i have to wonder whether they're accepting payola or they're hoping for a job within the financial system and so they don't want to clear their chances of a job and they're basically throwing marshmallows at these guys they aren't doing investigative journalism it's a good thing i don't want a job with those guys. we're going to go there very vocal you back with so much more with janet have a call the president and have a call the structured finance and still ahead look right there not a bird or a plane it's a taco copter yes that's a drone that will deliver tacos your g.p.s. coordinates look at your three cents on live pesky regulation government grounding is getting in the way of this innovation but first your closing market numbers.
7:45 pm
just put a picture of me when i was like nine years old like the tell the truth. i confess i am a total get over friends that i love driving hip hop is that why you prefer. that is kind of the jester day. i'm very proud of the all the belgian she has played. the game. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something
7:46 pm
else and she hears you some other part of it and realize that everything is ok you don't know i'm sorry welcome is a big issue. what drives the world the fear mongering used by politicians who makes decisions. made who can you trust no one who is in view with the global machinery see where are we heading state controlled capitalism is called sessions when nobody dares to ask we do our t. question more. welcome back before the break we were talking about global and how much is
7:47 pm
a recall in with anybody of the suggest that there was a fraud or that this shouldn't be punished in some very serious way now i want to talk more broadly about the main issue here isn't because from our funds but why this firm imploded what the trade was it was a credit derivative and i want to speak a little bit more broadly about them with a woman who is an expert on derivatives janet have a colleague president of capital the structured finance and one thing i want to ask because of course the trade wars i was betting on europe with was a credit derivative what i want to know you point out something really important i think which is that credit derivatives are primarily used for leverage and c.d.'s would be an example of a derivative and it sounds like from what i've read of your work if you're actually had been with c.d.s. it's kind of a pain it's bars that contract language and the pricing and all of that but it's very popular for leverage so can you explain why speculators love this well you
7:48 pm
don't have to put much money upfront in order to earn a tremendous amount of upside that let's say that you have a security coming and are like subprime securities came in they were one hundred cents on the dollar since her fixed incomes securities when they come a hundred cents on the dollar and when they're riddled with fraud it was only going to go down in value fast but one thing first came to market you could buy credits for protection on those securities very inexpensively so you put almost no money up front and then you could make millions or in the case of john paulson billions by putting a very little money up front if you looked at the securities and you knew they were going to do nothing but. employment once the deterioration became obvious to the general public what risk did they still pose today and also i'm curious how if they allowed banks to hide risk and also how have they benefited big banks in term. fees
7:49 pm
well they you can put in a lot of hidden fees with this that's why it's also very popular but you know derivatives and it pains me to see what has happened in the market because the riverdance were originally developed as hedging instruments however now they're primarily used for speculation that gary gensler the head of the c f t c say that most of the people in the market are not customers but rather their financial institutions or others and basically he's saying that most of the people who are now in the commodities market commodities futures the kind of derivative or speculators i would say the same thing is true in the credit derivatives market and people say well we can't get rid of credit derivatives because it's such wonderful hedging instruments and if they go can you get rid of the speculators please because what you are seeing are a lot of distortions in the market and the size of the market is mainly driven by speculation now it's not just as you see it in currency derivatives in commodities
7:50 pm
after the financial crisis j.p. morgan made a huge bet in coal they lost money. one point they basically were the coal market you know coal isn't a strategic commodity but when you look at the commodity market as a whole being down and by speculators there is a strategic risk to the health of the united states to the health of the commodities markets and yet we're really not doing anything effective about it until well dodd frank change any of this you know. it's not addressing the key issues that are the real threats to the u.s. economy and it's more than just having the laws on the books we didn't enforce the laws that we already had on the books clearly and so is it sounds like the only way that you're saying to tackle this whole derivatives market and the risk is to get rid of speculation or to punish malfeasance i think if you start there if you basically go after people who have committed fraud and you aggressively go. after that you go
7:51 pm
a long way to start cleaning this up and then when people do speculate are going to have the wherewithal to back up their transactions instead of trying to sweep it all under the rug and get the government to bail them out or hide things in special vehicles or you know use structured finance in the most malevolent malicious way possible to cover their own reruns which you know they can do all do because there's really no there is no it would punishment be criminal prosecution yes absolutely no people should be doing jail time we should be seeing thousands of felony and and just before we go because we're talking about fraud and you have been vocal about the jobs act you signed onto a letter with bill blacks and this is literally a wish list of fraud for people that want to commit it did pass in the senate last week with a little tweak to the crowd funding part of it will go back to the house and it's presumably going to be ending up on president obama's desk and signed by the way that it looks this it you said you have a definite example of how this opens the door to fraud yes if you want to create jobs you creating a lot of jobs for people who want to turn to
7:52 pm
a life of crime but i was contacted by a fellow who was trying to raise private equity and he did something illegal he basically was advertising it on airlines the same fellow ended up later involved in some sort of insurance fraud you know these are good people who try to fly off the rules and who are eagerly trying to advertise their shares those are the people who are going to be first in on this so be advertising bogus shares they don't have to provide accounting statements they don't have to be accountable to investors this is a formula for disaster i've never seen anything like this and in addition it's going to allow people to basically write research reports touting stocks when did we get into trouble with their before with world com or other issues. you know when i look at this i just look at it and say what were they thinking this isn't helping small people compete against investment banks this is enabling people who want to commit fraud. basically have their way with the general public and and this was touted as
7:53 pm
a great you know bipartisan move the person i can remember it being one and i as long as i've been doing this show it's insane i appreciate you so much for being here and for telling us all of this very insightful information this is great that was janet have a call the president of the police tortured by and thank you. all right let's wrap up now with a little loose change to end your day the organization for economic cooperation and development is predicting that by the year two thousand and twenty and this is a dire prediction folks seventy five per cent of the u.s. population will be obese now this is the financial show so we ask can this present
7:54 pm
certain business opportunities for companies to profit well jim cramer thinks so. oh the city is the equivalent of at that point it was india was the theme and i see where we're going here stock picker has a bunch of obesity stands out to me something that as the market comes down this trip i completely agree i couldn't agree more dimitri what do you think but i think this is capitalism eating itself because you see where we see this as an economic opportunity saying this is a great opportunity to invest in in firms that could profit from america's obesity but obesity itself so this is the pursuit of individual gain it is all firms but it still has a drag on economic growth and it is the flame because if you've got all these obese people it becomes harder for to the rich drop if you're obese ok and it becomes harder harder to actually do anything with all of that or eat so how would that not be inflationary for food or other products all right it would cater towards the
7:55 pm
seventy five per cent. that is fact. you make a good point about that but i'm saying that overall this is just a sort of be foolish or a headwind that the fed has been really scared about i think if anything about bernanke you should be worried about it's about these obesity rates should be more concerned about that than even that because this is a three way that's going to be crashing on our shores in eight years ok according to this report ok you mention the threat of obese people in deflation i still think that i've bigger threat seventy five per cent of the u.s. population that can do more damage is the few percentage that are the c.e.o. is it too big to fail banks and the concentration of of those folks and they're quite skinny they don't pose the same breath or i mean are there much greater i have to agree with you that there is a there is a core there is a corollary there they're scaling but they're too big to fail metaphorically these
7:56 pm
people are so big that they're going to cause the economy to fail so i think there's kind of a combination there so i would kind of agree he doesn't need to do that then you're too big to fail can't have them fail or the economy is going to implode so people will begin to get. all right moving on speaking of businesses that are trying to profit off of this trend in obesity and. i think we have a sound. talk over these tacos previews show me real nacho cheese three days in a c.c. none of which were anywhere near home this year so job is friends with you to sixty five. well instead of having to drive to get tacos what about having them delivered a silicon valley start up thinks that is the way of the future they want to develop a taco copter tacos delivered by drone you submit an order on your smartphone and it just drops that's hawke oh right now unfortunately the law is being blocked
7:57 pm
by the us government because according to f.a.a. regulations you're not allowed to fly drones for commercial purposes so is this regulation getting in the way of american innovation their book i agree with you right getting in the way but this is sort of the bigger problem see the regulations the government has a regular problem that it creates all too as a result of corn subsidies ok if you didn't record something you would have all these obese people body tacos flown into their mouths all right that's we would need these crazy helicopters to actually feed. so this boils down to farmers and the farm lobby and the subsidies that they have achieved that's right and taco bell is probably subsidizing the government wants these drones because they know that in the future they want to make their market share has been a case how come the corporate power hasn't been able to over rule the f.a.a. restrictions and been able to get some leeway for their next big corporate venture because this is a small company this is a small innovation what the f.a.a. brought this know that yes the f.a.a. a lot of muslims have a lot of why a commercial drone i think that this is
7:58 pm
a much better use of drones than the u.s. government's current use which is killing people were not what war with the u.s. using drones the bomb people. were in like. the middle east where they're using drones the bomb people talk your bombing people's mouths or making people obese and you're going to cause a deflationary wave in class. this is the order of the u.s. account at their own desire and will to meet your supposed to be able to choose and have liberty and individual freedom in capitalism you argue for that every day with all the talk of the room if i was very very committed to that bit more though if i were going to do leave it there thanks so much for tuning in and these are to go to our website and tune in to our web exclusive joe wise and paul and mike said lot thought a little bit of a tete a tete on the blogosphere over ben bernanke and the gold standard and they were on our show and they do get out of here with me it will be up online and don't forget to follow me on twitter at lauren lyster also give us feedback at youtube dot com
7:59 pm
23 Views
Uploaded by TV Archive on