good afternoon and welcome to capital account i'm lauren lister here in washington d.c. your headlines for march thirtieth two thousand and twelve we have heard billionaire investor warren buffett naked in this case about taxes in the u.s. . we surely should raise our desire anybody except the very rich i think we should very fortunate rich when you look at the facts it is really about buffett wanting to be taxed more or is this about crony capitalism and his place in the pecking order we'll talk about what we can learn from it what it symbolizes and who this may affect meanwhile the eurozone has boosted its rescue funds finance ministers

agreed to increase their fiscal bailout system by forty percent to seven hundred billion euro and we ask if there is a way to benefit from reading the hallways of central planners is ben bernanke for example a contrarian indicator will discuss meanwhile this week new case schiller numbers told us us howling not so good at least in the sense that average home price drop back to levels last seen in two thousand and three but is housing actually way worse i could that be a good thing let's get to today's capital account. so we've heard billionaire investor warren buffett saying the rich should be taxed

more that he should be taxed more he's made that case very publicly and with much fanfare that he pays seventeen percent a lot more than that in taxes is a lower tax rate than his secretary and not only that there wasn't anybody in the office for the resumption of the pater's or tax rate and i have no tax planning i don't have an i don't have a accountant i don't have actual words i just follow what the u.s. congress told me to do. sounds impressive sounds noble that message has really travelled but our guest today asked if we should slap a warning label on each one of buffett's public pronouncements as well before we get into the matter at hand the one that's so gripping right now let's look back at a little history ok back in two thousand and three for example buffett was warning about the value of the dollar the nation's debt what he said was the u.s. export inc its net worth abroad he wrote an article warning in fact that america's

growing trade deficit is selling the nation out from under us he made his point with a story of the islands of squander ville and thrift ville not hard to figure out which one was the us if you remember this and he wrote that sooner or later this wonder girl government facing ever greater payments to service debt would decide to embrace highly inflationary policies that is issue more squander bucks to dilute the value of each big morning there but fast forward to the two thousand and eight financial crisis and buffett was not worrying about the debt increasing bailouts of the financial system he was in fact advocating for them here he is pushing tarp ok the treasury's plan which hank paulson was pushing this was before it was passed by congress and signed into law by bush but after it had failed in the house the first time warren seemed a little flustered during those free market hours take a listen say for sure i'm in washington sure but i would i would be pretty close to

a plane truck potions just like yours of the government of those those things are good just as of this. and listen to him talking about what made him think this plan would work i believe you could have a good sort of her version of the. i mean he is you know there's a wrong choice we should take the job for the car. they're all just buddies now not only that everything you just heard there but what also happened before tarp was passed buffett invested five billion dollars to save goldman sachs k that was announced in september of two thousand and eight and then he's out there advocating a bailout for the banks after it fails the first time a bailout of banks he now has a stake in and it was more than just goldman sachs after warning about valuing the dollar and racking up deficits ok so now we have some context now let's talk about what warren buffett may really be trying to achieve with his public proclamations

about who should pay higher taxes and more importantly probably how this symbolizes the direction that capitalism indie us has taken and where we are today to help us put all these pieces together eric frye is here he's editor of the daily reckoning he's joins us in l.a. and he has been writing about this so first eric thanks so much for being on the show today it's a pleasure to be here thanks for likewise for me it's always nice to talk to you now buffett is of course an example of someone who really a pit in my eyes is where we are in what you call not only a crony capitalism phase in the u.s. but a post capitalism phase in the u.s. so before we get into all of that let's build this case for buffett because you've done a pretty good job because buffett has really become the poster boy for taxing the rich for paying his fair share along with his rich friends but let's look at how what he has advocated for would actually affect him when it comes to paying higher personal taxes because you argue that it wouldn't really so so how. no it would

make very little impact because he he advocates for the very taxes that he himself doesn't pay or did he pays a very small portion of so if you look at the two thousand and ten tax year he made roughly forty million dollars in direct personal income but in but his share of berkshire's after tax income was about three million dollars so he's not paying personal tax on that three million he's paying personal tax on the forty million and he wants to raise taxes on the personal income and you must raise taxes on dividends which picture doesn't pay and he wants to raise taxes on capital gains which he himself is not paying because it's not selling the shares of berkshire hathaway so be a little like me sitting here saying hey you know here's an idea for tax fairness let's let's tax things that rich people use let's tax golf clubs yachts. you know and ferrari's ok well great i don't play golf i don't have

a yacht now ferrari so it doesn't affect me whatsoever but it is in the same role if you wanted to really advocate some kind of tax fairness he would advocate the kinds of taxes that you know would affect him things like estate tax things like minimizing deductions for charitable contributions and i kind of stuff and look at me wrong i'm not in favor of any of that i'm i'm just saying that you know to go out and say hey let's let's let's put these taxes on certain people tax i'm not paying is disingenuous yeah and let's go this one step further q could you mention those exclusions and this is a guy who is that out saying hey you know that tax deduction for corporate jets is important you should not touch that i'm you also get a good example of how really there is evidence that he doesn't want to pay more taxes or else why would he have kind of stipulations on money such as the money's given to the gates foundation can you talk a little bit about that. when he when you get to billions of dollars to the bill

and melinda gates foundation in two thousand and six this is a. a series of gifts and one of the stipulations was that the foundation maintain its tax free status so that nothing that he gives that foundation could ever be taxed. you know nothing wrong with that and that no one wants to pay taxes and so it's not it's not really a matter of well gee you know warren is crazy to say this stuff the thing that's that's troubling about it is that this is the manner in which it is and which he presents it you know after he's already accumulated billions of dollars there's this shucks gee whiz golly gosh i wish i wish i had thought of this earlier you know if i thought of that when i was fifty i could have paid billions of dollars that i could tell my rich friends the people his dollars and darn it you know i just didn't think of it yet that's the problem is that it's dishonest yet quite a smart guy to all of a sudden realize this i just want to throw for our viewers to see the difference between of what gets taxed as personal income and what percentage of his income is

from berkshire hathaway if we can throw that up for our viewers what we're talking eric so that they can really say what tax see what tax fairness buffet style is the way that you point it out so now the question becomes we built this great case showing how really but it doesn't want to be taxed more and for all of those reasons you gave so then the question erick why has he become the crusader of this cause what's in it for him. well i i think he is correctly understand that the game has changed a bit in ited states that it is more important for somebody with his capital with somebody somebody with the investments that he has to be what's called a a political entrepreneur as opposed to a traditional investor it's more important to cultivate connections with political power than it is to identify the next winning opportunity and you can you can see

at the end the evidence speaks for itself and look at the kinds of investments that buffett made early his career versus the investments that he made most recently and and what he made investments in goldman sachs and g.e. that were literally on the fly and let me know due diligence and and i i know firsthand we look at these balance sheets these banks in zero seven zero eight they they were extremely opaque they were extremely leveraged there was no way to know what was inside actually inside of goldman sachs balance sheet or lehman brothers balance sheet or a pair of strange balance sheet what you knew is that they were heavily leveraged and and that they were leveraged to assets that that were what are called level to level three opaque not priced in any normal way and so for a guy like buffett that just stroll in there and drop down five billion dollars that's that's not investing that's that's a gaming it you know are easy to pin yeah there where you think he was making

a bet on crony capitalism and he was betting that hank paulson at the treasury would be able to bail out of body thing called in fact for example. well the five billion dollars money i remember when he made that investment my reaction to it was ok we're all we're in a kind of freefall already people know that but he knows that people follow what he does and he knew that the press that would follow would be warren buffett thinks these stocks are cheap enough i'm just going to buy them at the time you remember berkshire hathaway was was not only long or owning tons and tons of financial stocks that were in freefall but he also was short put options on the emerging market indices meaning that as these markets fell he was losing lots and lots of money on a mark to market basis and he was berkshire i think was in. not control spot so the whole idea behind tossing money into goldman sachs was was basically

a signal that you know he thinks it's ok but also that he knew he knew that. hank paulson would have his back and other members of congress who also happen to own berkshire hathaway you know shock shock would also have his back and so you're saying that for example when we saw all of this aide to president of these banks they berkshire hathaway had a stake in to get to know a lot of federal aid persons in target and federal law from the fed federal reserve kind of loan facilities all these different things we can bring up for example how crony capitalism back to wells fargo with all that money going and you're saying hey that's not a coincidence that's where we are today and capitalism. that's exactly correct that that warren buffett had a direct role in in shaping policy both in conversations with the house leadership in zero eight and with hank paulson directly and with and

later with president obama and timothy geithner he has had a direct role in shaping policies that funneled billions of dollars to his companies. you know what i have done the same thing in his position probably i don't know i mean this isn't about who is more moral who's less moral who's what a hypocrite i mean you never know what you will do if you're in that same position you know if you're a member marcos you can have ten thousand she is going to have twenty you know you don't know until you're until you're her so with buffet it's kind of same thing we don't know what we would do in his position it's only but it is illustrative that this capitalist is now spending his time. i don't kerning favor and trying to make sure that the policy favors his companies right as opposed to just doing diligence and investing the old fashioned way so the question becomes where does that leave the rest about then i want you to help us try to answer that after the break we're going to go to break shortly but when we come back we will have more

with eric frye editor of the daily reckoning and still ahead you commented now we'll respond we'll get to your feedback ahead but first your closing market numbers. we just put a picture of me when i was like nine years old on your show live through. i confess and i am a total get of friends that i love rap and hip hop music and pretty much. he was kind of yesterday. i'm very proud of the role that options you as you play.

you know sometimes you see the story and seeing so. you think you understand it and then you glimpse something else here's some other part of it and realized everything you saw you don't know i'm sorry because of the. what drives the world the fear mongering used by politicians who makes decisions to break through get through it. who can you trust no one who hears you view with global reach see where are we heading state controlled capitals school sessions when nobody dares to ask we do our t.v.

question more. all right welcome back before the break we were talking about political entrepreneurism ok the new form of entrepreneurism that someone like warren buffett embodies ok you're not betting on what is this company or that going to do your best none where can i get in that i know that the government's going to bail out and this will be a good investment for me because i'm tied into them ok does whole new crony capitalist world so what if you're not a crony capitalist what do you do well our guest in his latest writing to us was saying hey you know take the other side of those trades is one way he's going to tell us more but first let's look at how this would work with. dealing with the chronic back in two thousand i ben bernanke he was asked about housing and it went like this what is the worst case scenario if in fact we were to see prices

come down substantially across the country but i just don't buy your premise it's a pretty unlikely possibility you've never had a plan to house prices on a nationwide nationwide basis wow so how wrong he was and now you bank housing may no longer be to secure investment it once was so what is the takeaway here eric cry out of her of the daily reckoning maybe able to help us read the tea leaves so erick what is the takeaway from someone like ben bernanke in his statements is there anything we can gain from this. well there's a couple takeaways the first is that it's it's always funny to tweak ben bernanke used nose and i think that was a that's a perfect perfect bad call if you don't get those very often so it's kind of funny that way but the the main takeaway that i think in and it relates to the profit i think most investors are left with a kind of binary choice you you either recognize that big parts of the financial

markets are kind of unfair and rigged. big parts not all of it but they parts or you go to places where where the playing field is a little more level and that would include things like gold silver houses farmland etcetera things that are that still tend to trade on values that cannot be manipulated by by government or were some sort of crony involvement so something that's been fascinating in the last in the last few months i've talked to a lot of a lot of you know successful investors names that you would that you would recognize many of them and almost universally they have said something like. you know i i just don't know about the stock market anymore it's very difficult to invest in policy it's very meaning it's difficult to invest in in an environment in

which fundamentals are so influenced by by government manipulation yeah but the same time a lot of people are saying hey i really really like. gold i really really like houses and you have people like john paulson david when. you can soros even buffett actually about houses and say a lot about houses and these are smart guys so i think i would i would tend to side with them as opposed to mr bernanke you maybe will end up with a burning contrary an index eric maybe that's next the b.'s the i that aside i want to go more into housing i've been writing about it you mentioned just now we just got numbers out earlier this week from case shiller showing that housing prices if we can bring them up are back to two thousand and three levels so this was just the news that we got out earlier this week but then you show that when you look at median home price in terms of per capita disposable income it's actually much worse

and we can bring up those numbers too because we have a chart from you eric and it shows that they're lower than they have been in forty years if we could bring that up eric tells us what is the opportunity here. right well i mean obviously i would start by saying i have i haven't a crystal ball i mean maybe the housing market falls further back and i really have no idea what but what but what i compelling about the housing market is that it is cheap. both in relative terms relative to recent nominal pricing and also in terms of of what it what it would cost an actual person supply meaning in terms of disposable personal income and also very very importantly in terms of what's the monthly payment mortgage rates down here four percent mean that your your monthly payment as a percentage of your income is going to be extremely low and in and if you look at

it on that basis. you know home prices haven't been this cheap in in forty years so . i think that's compelling and at the same time you have a guy like ben bernanke he. you know still printing money yeah and still running a very loose monetary policy and traditionally that kind of monetary policy has been friendly to hard assets like houses probably the hard assets like gold buffett in his most recent annual statement annual letter said that exact thing it with respect to houses that you are in an environment where dollars will lose value and you want to do things to protect to protect your wealth and he would buy two hundred thousand houses if he could. curiously he has no interest in gold but but he sees the same the same picture in a lot of people to two i like air because he's hedging between crony capitalism and also to some of the flipside of that thing you're looking at i also thought it was

interesting that you said that this was the reverse but on the bond market and also a bad begets inflation i really appreciate you being on the show and helping us navigate this crony capitalist world which we can both criticize but also to figure out how the heck to navigate that with eric frye editor of the daily reckoning. thank you. all right before we go let me respond to you because it's been a while since we've done for your feedback now we have a chance ok we kicked off the week talking fraud and corruption with derivatives expert janet have a kohli and r.v. roller responded echoing what many people said which was that our country needs people like janet have

a cold you guys love you're ok straight shooter honest expert in the financial markets the problem is the bad system is controlled by power greed guns and assassins who will limit the good people so it's really up to people to take control of their future once again which brings me to the debate we got into in loose change over what this is to rewards and how that applies to kids who cheat on their as they tease now dimitri use the opportunity king is hyperbole here to try to make a broader point take a listen to the entire system is built to reward cheaters why we call people out to cheat we should be encouraged to see as much as no no we use it in a way to get ahead in america to more try to rob and steal. now some of our viewers help point out another angle on this which i should have fired back into mitri but ruth seven four six said i heard bernanke you got fifteen ninety had a sixteen hundred on his s.a.t.'s which is obviously a very good score according to time magazine it's also true and you be mandela well

said so what does that mean having a fifteen nineteen means you can't be a good one thing there we have a big aha good reminder that you can play by the rules be a high achiever in the traditional sense ok do well on your s.a.t.'s presumably the honest way because you're smart in the traditional way and still end up being considered by some to be wrong being people an entire country beyond that too and be rewarded handsomely by society on that note after all of this i caught a story from my colleague churkin ok with some of the most priceless evidence in the form of a sound bite of the uphill battle we face here take a listen i committed a massive securities fraud during the 1980's least and this is out of five hundred million dollars and requires twenty five hundred people to be on employed so i'm part of the big part of the system. that i got yes i feel good that i got caught.

i feel bad that i got caught ok you can not get better than that now to talk about how to save yourself from all of this despite the bad guys seeming to continue to win and not feel bad about what they did only bad that they got caught we had chris mayer on to tell us about the investment opportunities that he found travelling all over the world ok he came back he did brief us he has a new book d.j. alley it's been said lauren i understand you're trying to help us common folk by bringing this guy on to talk about future and vestments but just to step back for a minute and think about it these are all the things that got us into this mess in the first place until there are complete open markets it's just going to go around and around over and over it's all based off this old world pyramid scheme better days are ahead when it's all gone now to our viewer i'm assuming you're referring to some of the issues that we talk about a lot with currencies fractional reserve lending central bank setting of interest

rates and the massive monetization of debt that we've seen i don't know about you go ok i'm not going to wait until better days are maybe ahead based on some ideological ideal that may never come in reality my goal is yet to be critical of problems but also to educate myself and our viewers on how to deal with the current reality in the best possible way it doesn't really matter you can criticize all you want if you're not figuring out how to deal with real life what does it matter and speaking of reality here's how meow the i k l d r views it here i go again and they said do you realize that dimitri and shannon are the producers of the show which means they actually produce the material for lauren to deliver and to that i just wanted to remind all of our viewers that you know kind of resent it because it is really hard work it takes a lot of time to get my hair ready get my makeup on practice reading the prompter

and look like i know. what i'm talking about i mean this is a lot of stuff to take care of her mind you that and on a fun endnote i tweeted wednesday to see if our viewers could spot a guest cameo in our show and right away i got to hand it to red bull there he is a very attentive viewer who said that's easy at the end the first hearing and in case you missed it it's pretty amusing so take a look. i mean if i suppose i respect for me the current accounts are based on our constitution of a. very remarkable way and he knew that everywhere he was in our show even though he wasn't in our show and i'm really impressed our gets caught it and that's where i'll leave you on that happy note because that is our show and thank you so much for tuning in do not forget to follow me on twitter at lauren lyster and give us feedback on the show at youtube dot com slash capital account has clearly we read

it and we respond to some of it to you and be sure to tune in next week we are scheduled to have among our great lineup mark fogger who is need to turn to bear and always entertaining to and from everyone here at capital account thanks so much for watching and have a great night. wealthy british soil the sun. spot on the books because sometimes we don't. like the. markets why not. find out what's really happening to the global economy with mike stronger for a no holds barred look at the global financial headlines tune in to kaiser report

on r.g.p. . is. the. yes. let us go.