good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. these are had lied straight from ninth two thousand and twelve is this get another sign too big to fail banks are taking outsized risks with federally insured money take a look. that's right i'm talking about voldemort as in the bad guy from harry potter because this is the newly public nickname of the reporter j.p. morgan trader suspected of moving and rattling credit derivatives markets now on

friday we told you about a muse also known as the london whale so does this mellow prop trading and does it make the case for a product volcker rule in full effect we'll talk about it and u.s. stocks fell today after the s. and p. closed out its worst week of two thousand and twelve last week now media reports are saying it's the reaction to a bad jobs report will back up a look at the big unemployment picture we'll speak to karl denninger of the market ticker and speaking of economic problems. there are only a few things that could to real the u.s. economic recovery that finally seems to be underway and one of the news the debt crisis in europe. really that's just one of the things one of only of those who are us politicians looking for a scapegoat or an excuse oh and the grapes are just the lazy freeloaders who caused the euro zone debt crisis right we have a reality check for the mainstream media let's get to today's capital account.

so u.s. stocks fell today and people are crediting friday's lousy u.s. jobs report for that now it is hard to say exactly what moves markets you can't really attribute it to one thing or another in our view especially when you can have single traders like the so-called london whale making a gigantic splash that rattles markets or as we talked about on friday when you can have firms manipulating them so what do the u.s. unemployment numbers really spell as far as the broader picture and what does the london whale or voldemort as he's also been spell in terms of the outsized big

risk subsidized by the taxpayer that still is being taken on we also have you debt scams to pick apart here to talk about it all as carl denninger he's trader and author of leverage how cheap money will destroy the world we've certainly see it do a lot of damage but continue to be a huge problem nonetheless so first of all i mr denninger thanks for being on the show thank you very much for having me absolutely so let's talk about jobs i know these numbers came out on friday but there really wasn't a chance for everybody to react to them until today now this report was bad ok payrolls were way less than expected they were less than people's pessimistic views including yours which was for one hundred twenty five thousand they came in at one hundred twenty thousand now we see jobs numbers each month mr denninger they are a political football whether somebody wants to say this is a sign the economy is bad or this is a sign that things are improving we see it thrown around every month my question is stepping back do you see this as one bad jobs report or do you see this is

symptomatic of a continued bad structural job situation. i look at it more towards the latter the report itself if you look at the household survey and use the unit just to govern which is what i always run my series on for really wasn't is terrible as what the video portrayed it as worst when they missed on the headline everybody would an ardent a futurist obediently and stay down today is the problem is that the labor participation rate has not moved off the bottom in the last two years and that's the fundamental piece of the economy that passed when proves in order for the fiscal situation of the government and the economy as a whole tree to recover and actually improve on a terrible basis we're not doing anything that will fix this because we still have too much debt over in the economy and that's why the arabs not taking what's so until we saw that we don't have an actual recovery here so uses the debt overhang i want to get to that but i do want to point out what you're talking about which is the labor force participation rate which declined in march and that continues to be

a trend so you think of this as kind of the biggest takeaway not payrolls number and i'm curious what are what about some of these other continued trends that we've seen like the average amount of time people are out of work which is nine months and youth unemployment which is twenty five percent how significant are these other aspects in terms of looking at what could be a structural unemployment problem. we'll feed into the same thing when when you get down to it of course as a patient go ernst the people who are working you know only people who are working pay taxes and so if the government is going to have all of these big society simply programs people have to be working to pay taxes and if they're not in the money's not there or to be able to sundays things are best that's at the end of the day were a big problem is right now along those lines of mohamed el area and the c.e.o. of pimco is writing about the jobs numbers on friday saying you know during a recession people cut and so after that they had to do some hiring to to catch up

but now he's looking at this in terms of future employment how people are thinking about the future and there's a lot of uncertainties about why companies even though they have cash they're not hiring people do you agree with that and do you think it has to do with fiscal uncertainty over what the government will do about the death as you think the debt overhang is the biggest issue i think it's it's essentially all of the issues that we have right now we go the health care law which is increasing dramatically for businesses we don't know whether it's going to stand down it's in the supreme court so we the the fact is with the debt that the government is taking on this is people go to some point to either has to be paid or to salsa and if you pay it it means taxes are going to go up dramatically and if you default to that it means that the stability of the entire economy and monetary system is called into question and neither of those is an environment which you want to be a few months and training people that you have a period of time before you get a payment there will be paying it back as it is

a business owner so i don't see any reason to be hiring beyond which you absolutely cost at this point in time in best being reflected in employment or person let me ask you this do you think that the country would be better off if because we've seen politicians have an inability to make decisions carry at any time they're you know comes up with a debt ceiling or are sent you know increase or something like that it's this huge standoff and do you think that the economy would be better served if politicians just made decisions even if they were what businesses didn't want to have them make would that be better for the concentration because it leads to employers knew what they were dealing with. to some degree with this this deficit spending problem has got to get resold and at the end of the day till the government goes there we're not going to go this a ways and that means at this point we have to stop borrowing forty cents of every dollar the government spends one way or another you either have to raise taxes or you have to cut services and there is there is no other way to do this and that's

going to force an economic adjustment along with asset prices into the journal of economic activity and just to confirm you said you do not see a recovery this is not a recovery no absolutely not you can't continue to drink you're so sober if you're drunk you will stop drinking and we're still trying to do it yourself so it's a great analogy you know his drinking a lot of the alcohol or kool-aid or whatever you want to call it is the banks they continue to with the cheap money from the fed my question everybody's looking at this j.p. morgan reported trader this london whale who is suspected to be rattling the credit to relatives market singlehandedly he works in this area j.p. morgan excuse me that and that's the company reserves and it has people debating if this is an example of the outsize risk that banks continue to take subsidized by the taxpayer backed by federally insured using federally insured money rather and that's how you see it according to what i read on your blog can you explain kind of

the how and why. yes initially the only theran way to allow people to speculate in markets is to do with their own capital so if you have money of your own that you were in from working were you sold bonds or you sold stock or whatever you did then you should be able to speculate all you want with that but when you're a commercial bank in today's world it doesn't work that way you can speculate all you want with money to depositors who placed with you which is not supposed to be at risk and then when something goes wrong you get wind of the government say oh there's going to be armageddon tanks in the streets if you don't bail us out and this is exactly what the banks did two thousand and got away with it so now we have the same situation come out and j.p. morgan who's undoubtedly going to say all this is hedging it to be on behalf of something i would like to see them actually crudes that they're hedging some of the risk somewhere and identify what that risk is because we see this kind of movement back and forth all the time and when markets get distorted they have evidence snapping back very violently and someone gets caught on the wrong side of are you

calling for more transparency of value or thing is the solution here. i don't believe that banks should be able to speculate with other people's money or if they want to speculate if they want to be out there in the markets he should have to sell pons he should have to sell stock and use that capital he should not be able to use depositors phones at all they should not be able to socially lend money they don't actually care i call it one dollar capital debts that it leaves a solution to this problem so then do you what about the volcker rule because some people would obviously that would not there's a lot of loopholes in the regulation from what i understand i already but it was supposed to make it so that the big banks that are federally backed cannot that with customer money they can gauge in proprietary trading for the firms books that centrally do you believe that this makes the case that that need to be promptly enacted a little girl isn't going where near enough you're far enough stood glass steagall doesn't go far enough because the banks figured out how to get around it too we

used to have a law that said you could be a thing and speculate in the markets at all you did it best that bank and you had your usual no shareholders and for you to be a commercial break you could speculate as well the banks found out how to get around it know the rules kind of like trying to do questionable light and they're screaming about that as well yeah and as far as blasting a lie from what i understand people that are about that are working to bring light to what's really enough regulation there are tons of loopholes that the banks to get around to telling gaijin this act and so i guess my question is what is the solution because f. regulations don't fix the problems because they don't actually address them because banks lobby them what is the solution to this you have to completely cut this off you can't do it halfway you have to make it is a matter of federal law that to sort of activity can take place and what the banks will say is well then we'll just take all of our business and we'll go to london or whatever and my response to that is if you want to play with george and nitroglycerin please go do it in your house not in block of thirty years they go to

london that's fine i don't care. well. pleased with their yeah i guess it's only fair how far that would spread and how many people that would affect is still up for debate of course but speaking of this bad bank behavior you're writing about this wells fargo case they came out that really is kind of just the latest example of this rampant mortgage abuse where wells fargo there was a ruling in this one case but what it found was that it's representative that wells fargo was routinely misapplying payments on loans improperly charging fees refused to correct past errors even though they were already you know found to be doing the wrong thing does this show that banks this bank in particular is not only on board with institutionalized theft from their customers but also they just have no respect for the law period. i think with the look the courts found was this was not

only slowly did incident that it was taking place in a socially pieces where the bank loans a reader into sort of foreclosure that it was to there being a change in each case that it was not in any way open across the were. they slapped the bank with a huge punitive damage award and that typically doesn't happen in american courts and we should do something really outrageous so the judge found that there was truly already just conduct here and when we come back i want to ask about punitive damage of that size is the kind of punishment that will stop this behavior or if we need something new you talk about a lot on your blog which is prosecutions a rat's you know crimes that are are punished that will be back after a break we'll have more with karl denninger author and traitor and still ahead do not go away the mainstream media us sixty minutes did think piece on the eurozone debt crisis we have a few issues we have a reality check for them still ahead but first me your closing market numbers.

we just put a picture of the need when i was like nine years old on to tell the truth. i'm a contestant i am an old kind of friends that i love driving hip hop music and for . that he was kind of yesterday. i'm very proud of the all the belgians he has played. you know sometimes you see a story and the seem so. you think you understand it and then you glimpse something

else in here see some other part of it and realize that everything is ok. i'm charging the big picture the sense. of. what drives the world the fear mongering used by politicians who makes decisions. who can you trust no one will is you view it with a global missionary see where are we heading state controlled capitalism is called sasha's when nobody dares to ask why we do our t. question more.

before the break we were talking about some of the outsized risks and abuse is that banks are taking and making exhibit a being j.p. morgan in the london whale trader exam exhibit b. being wells fargo and the latest ruling on their mortgage abuses my question do these punishment that we've seen go far enough we talk a lot about prosecutions on this show i want to ask karl denninger if this latest punitive ruling which gave him no damages that we're pretty happy for wells fargo is an example of a punishment that goes far enough or no dice to get his trainer and author of leverage how cheap money will destroy the world so far before the break we were talking about this wells fargo ruling which was as you said the punitive damages were significant i think with a three point one million i don't remember exactly what they were maybe it was because it was basically ten times the amount of the firm that had been suffered which is starting to get into the. games and that's what you need to do if you're going to deter conduct because you just make someone give back what the chook

justly then it becomes a business decision because they can say well i can go rob this space could you put your claws. but if you make them give. this much now becomes more difficult because i have to get away with it of these things in order for it to make sense. is getting into the range where this starts to look like a detour so that incident that's my question we talk a lot about and i know you've written about the fact that people need to be charged with crimes and prosecuted for things like fraud people need to be punished and maybe these are my words and not yours but. is that still the case do you believe or if punitive damages if the dollars that they have to come up with are enough is that a big effort trying to stop some of these abuses that the banks make. well i'd prefer to see across the queue sions because there's nothing to change someone's opinion with a dish good bad thing faster than the threat of going to prison but see the reality is that in a situation like this the decisions that were made to do this were probably diffuse

i highly doubt there was one person that set around and said i'm going to oppose all these mortgage holders instead what probably happened was that there was a systems you know decision that was made to program machines to do things in a certain way and you know twenty people looked at it all passed on and said ok on you know whatever and so who you jail in a circumstance like that so there are eight image workers to be the right section and that's a good point you bring it's in who is accountable for the things you say where in all of these cases it's you know everybody throws at our hands and says i'm not responsible to to give you a little bit of perspective or a backdrop of crowd don't know if you saw this but a rogue trader in china who cheated investors that on the way to losing ten million pounds in gold what was the sentence for that for her or was that whole different approach i don't know that as far as we would go but it is a little bit of an interesting add data point i'm not leave it there karl thanks so much for being on the show products you author and trader.

so last night sixty minutes tackled europe's debt crisis and there are a few notes we would like to make a reality check if you well let's see how they kick it off. there are only a few things that could derail the u.s. economic recovery that finally seems to be underway and one of them is the debt crisis in europe along with the recession that is now sweeping across the continent . it's so first things first let me unwind about every assumption made and under fifty seconds to just begin to toss to this report so first only a few things that could derail the u.s.

economic recovery how do you choose massive public debt massive private debt high stagnant unemployment the unsustainability of the fee up money system artificially low interest rate zombie banks propped up by the government a government incapable of coming to an agreement on fiscal decisions i mean how do you choose which you could do rail the economic recovery exactly and how exactly do you decide this recovery is well underway as you just heard my last guest say he does not see this is a recovery and if it's well underway why are so many people still unemployed leaving the workforce as we just saw in march why are interest rates being held artificially low at zero percent and why is everyone wondering if a bad jobs report means more money printing down the pipeline with the fed as burning he has hinted at recently and europe's debt crisis being one of the official deemed few things to derail the u.s. economic so-called recovery yes we agree that the eurozone crisis is huge massive

ramifications there for the u.s. economy for sure but this sounds a little like a u.s. politicians talking point ok the ones that are trying to find a scapegoat to possibly avoid confronting the u.s. his own economic problems ok the eurozone debt crisis has been kind of the number one thing that we've heard from treasury secretary timothy geithner he's used this line so was obama's top economic adviser alan krueger let me not nitpick the first fifteen seconds too much but let me just play a little bit about how reeses you're a problem with characterized. in the past it reached down to its account super drawn on pretty simply printed more money or devalued its currency to accommodate the large greek lifestyle. the relaxed grieved greek lifestyle really was is hanging down on all those devalued currency ok if you print money and devalue your currency in the case of greece and the drachma you're just stealing wealth from

within the country from the private sector and transferring it to the public sector ok bondholders are compensated because they get higher interest rates but everyone else in the private sector has less purchasing power and experiences price inflation that's not exactly a subsidy for those relaxed deadbeat greeks you saw there it's actually hard working greeks subsidizing the work of raese greats and it's all within greece i should note this is unlike in the u.s. where the fed prints money and the rest of the world subsidizes the u.s. because the u.s. dollar is the global reserve currency ok when countries investors all over the world hold u.s. dollars these countries all dollar holders including of course the u.s. private sector or all subsidizing the u.s. public sector when it prints money just wanted to point that out so look i love sixty minutes i really really do and i do have to give them props for interviewing greek economists yun is very obvious who has been

a guest on this show on more than one occasion but for a really over simplified version of the eurozone crisis that really too closely repeats what we see as establishment talking points this is a huge cause of the hackneyed old adage we've heard a million times don't believe everything you see on t.v. especially don't believe everything you see on mainstream t.v. and that is a reality check. let's wrap it up with loose change shannon's out to me trees and i have to say i love your tie you're most of your long on this high let's talk about this maybe that is enough to help you from needing to get into the kind of scam are about to talk

about so maybe you've heard local news reports in the us where teachers get busted for trading sex for good grades here is an example according to the arrest warrants police say for better grades by this fuel in exchange for search will x. sticking to the classroom a trio of business students at germany's university of mannheim have created a new company it's called it references the first letters of the german word for a library and according to the german newspaper der spiegel they have a business model that involves providing sex to female students so that they can get better grades according to the concept there's posters all over campus that say good grades through good sex female students who are stressed about classes in the mood to have some relief they contact the guys by email going to shows if all goes well it ends in sex this is ridiculous i really doubt they're going to get

a huge demand or a lot of customers i think it makes perfect sense and i mean this is systems of dealing with time we know that nothing alleviate stress but an orgasm and today in america everyone takes barbiturates and things like xanax to sort of pull party he was living was sure this is what god intended that's why that's what he gave out of leaves from their beginnings he knew that i was under a lot of stress there's just me this is just this is the reverse ok this is a business model trying to capitalize on all guys would lie which is to get laid in college ok but the problem is any woman who is. alive and kickin has known for a long time that it is not difficult to find male counterparts to partake in that so why would they need some business for them to e-mail some guys and make that happen one of those comments a lot of the stuff that i've hear from women in colleges is the truth in this country that's right in this russell crowe's even harder to retrieve those that are

here so maybe you know they got bigger than the figured out of germany and understand it like it was grades good sex nothing could. plaster it harder than a good strong orgasm. let's see how far this gets i predicted not very far let's move on because this is something that didn't get very far in the us once people figured out what was then a pink slime there was a huge huge outrage over it now the company has declared bankruptcy will now there is an outrage over another additive that the u.s. uses in its meat but this outrage is actually not in the u.s. take a look thousands of tony's farmers can hear it out so deliciously cheery in typee recently science what are you of the dangers of you was before you continue to lead his team has he dropped back to the. so wracked hope of man is this additive in meat it's a chemical that supposed to help animals grow and taiwan is lifted a ban on beef imports that contain residues of it it's been hotly debated in taiwan

it's closely tied to the resumption of trade talks with the you asked in lifting dishpan so this is a chemical that the u.s. is ok with so we're twenty seven countries but one hundred outlaw at the european union in china there are a few others too so i think this is really interesting because the united states is one of those places where i am appalled by what is allowed to be in food and here is the global ramifications of it where you have people protesting in another country saying we don't want your important route you're just gusting eli lilly manufacturing chemicals oldham parts will agree with them i think it should stand their ground i remember there was a case of the u.s. wouldn't allow for reading these chapters of call because they're like you can't just push and his employer or of the vietnam war so whatever catfish but not the u.s. is poisoning your beef and pollution with it and they want to explore the world and i want to we're going to poison people one little circle for a movie can help us so we have the poison buttes here yet and we're out of time but if this is the this is this is poison is not because of war it's poison because of

the word on purpose yeah so that's actually that's all we have time for thanks so much for watching our show don't forget to follow me on twitter out lauren lyster give us feedback at youtube dot com slash capital account for everyone here thank you so much for watching him back tomorrow and have a great night. for sure is that she much to me when you see these people are furious at times finally when we should value would take measurements for indices such as g.d.p. of the government. wealthy british.

market dynamics. find out what's really happening to the global economy with much stronger for a no holds barred look at the global financial headlines two kinds a report on r.g.p. . downloads the official policy outlook a shift your phone on called touch from the i q sampson. jaunty life on the go. video on demand keys mindful of costs and r.s.s. feeds now in the palm of your. question. call . the commission free to critique should free transport charges three coming from and three kids three stooges three.