news they go online and read it but we're trying to take those stories that people actually care about and transfer them back to t.v. . you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else you hear or see some other part of it and realize that everything you thought you knew you don't know i'm trying hard work and is a big. good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. these here headlines for may sixteenth two thousand and twelve minutes are out from

the fed's last open market committee meeting which means that everyone is looking for the news about what the fed will do next to manipulate rates the money supply and of course reality as for the consequences jim rickards author of the bestselling book currency wars is here to talk about them and its world that day in the u.k. in a number of other countries it's a campaign demanding an end to developing world debt but how about demanding an end to the developed world debt is that what campaigns should be calling for as the u.s. gears up for another debt ceiling showdown and as more than one point two billion euros out of greek banks at the beginning of this work week alone as the country increasingly crumbles under the weight of its liabilities we'll talk about it and speaking of debt check out who an australian packaging company has reportedly enlisted to collect on their.

i'm serious the hell's angels biker gang bringin all whole new meaning to top done and we'll tell you what we think let's get today's capital account. as the minutes come out revealing several members indicated more accommodative policies could be necessary if the economy slows let's look at what happens when you manipulate reality to begin with where do we begin when we're talking about that when you attempt to devalue your currency to say try to boost your exports

guess what other countries do the same in retaliation you get currency wars something our guest today can tell us a thing or two about and when you try to paper over insolvent banks and national governments as we've seen in europe you are only delaying the inevitable bank runs and capital flight something citizens in greece could tell us a thing or two about and when you push interest rates or push the price of money to zero as the federal reserve has done you force savers to subsidize wall street speculation something j.p. morgan c.e.o. jamie dimon could tell us a thing or two about only if you're j.p. morgan you're not going to talk about that when you say lose two billion dollars trading with depositors money or excuse me hedging as jamie dimon refers to it you know if you're jamie dimon you're going to try to play this off as normal danke business but as our guest you're records asked in a recent op ed what purpose was served no new loans were created no new jobs were

created absolutely nothing of value to society was derived from this trade at best it was a form of gambling for the whale and it's call exe next time they should just go to vegas and skip the drama now he goes further saying that jamie dimon should resign from the bank altogether he is here to talk about it jim rickard senior managing director at tangent capital partners joins us now he's also author of the bestselling book currency wars the making of the next global crisis and we are always so happy and honored when you're in d.c. and where we get graced with your presence so first thanks so much for being on the show today i think you are supposed to be or thanks very much. absolutely we're always so happy to have you so let's start with the bad because after i'm seeing minutes did just come out and at this point it really feels like just a formality for us to see what we already know that they're going to keep rates at zero they're going to ease possibly more if the economy deteriorate and we're not going to be able to know the true credit situation and the economy are there any

surprises for you there are no surprises right there they are going to keep rates they say to two thousand and fourteen they may not be able to raise rates in our lifetime how are they going to get out of this they've they've painted themselves into a corner of the minute they raise rates they're going to tank the stock market they're going to ten times the housing market they're depending on keeping it low enough to get some self-sustaining economic recovery but they're not getting that recovery people are actually drawing the opposite message they're fearful they're saving more you know they've lost the turnover the money is declining now a few weeks ago about through janet yellen laid out the intellectual case for ease she said we've got slack in labor slack in the us to put there's no case of the fed printing money and getting inflation those circumstances that was to me that was the market that they're definitely going to be so it's just a matter of time but there is a new wildcard in the deck which is i think you may see the e.c.b. ease first the e.c.b. has a little bit of room to probably see two twenty five basis point rate cuts coming from the e.c.b. and then the fed will fall on so little surprising because you know the currency

wars the guy who uses the most gets the cheapest currency but now the your the euro is going down even with higher rates because of a systemic fear so if you actually cut rates the euro could rally that's unusual behavior but it could rally because people would have more confidence that's interesting and you think as far as u.s. interest rates zero could be the new normal if you don't see this unwinding well i don't see any way out of it because we're where we're going to get the growth that we need because we're not we have a very hostile business environment we don't have conditions conducive to growth taxes are too hard too much regulatory uncertainty etc so you're just in this indefinite low growth no growth pattern that is not fair. we're even having to have an example which is japan we so you think that we are japan or japan we're japan best case worst case it could things could fall apart well ok those are very good options but let's talk about what effect this is having on the long term if banks and hedge funds are forced to continue to speculate more speculate big girl in

order to make money now what point does this become malignant speculation versus the type of healthy speculation that drives investment and are we already there it's already been late and i had no other way of describing this j.p. morgan trader when you look at it they say it's a hedge because it has two sides but just because it has two sides doesn't mean it's a hedge there's really yes there's a kind of trading production that there's a kind of trading called spread trading and that's what j.p. morgan did there are two things there are bonds and then there are indices on the bonds or sometimes there's an index and then there are tranche is of the index which are just components of the same thing in theory they should trade pretty closely together the same thing or close to the same thing sometimes in reality that spread widens and so a trader looks at that says hey this one's cheaper this one's expensive not sure which but i'll sell the expensive one buy the cheap one and wait for the spread to come in it is risky but it's a good way to make money there's only one problem with that sometimes is that a company in the spread goes like that and that's what happened to j.p. morgan so the word got out that this was their trade as very easy for the hedge

funds just to keep pushing it out now what normally happens the language of the expression is puke you have to puke the trays and the times was the official term of the official term is puking you're basically what i'm talking about puking it will never be good at work you know everyone you know it is not a pleasant phenomena but the point is you're you have to get out of the trade you're losing too much money you do it live to fight another day and you pay any price and usually what happens is you want out of money so you have to go the tree chip you morgan is not going to run out of money so they can lose two billion three billion four billion what's their limit of pain well they're the biggest bank in the world and so in theory their limit of pay is really high but it's going to let it go that long he does have to be. put the stockholders will the regulators let him you know kind of carry on that way so so let's say this is far from over how big do you think that loss could get well it could it could easily get to four been so here's the problem they admitted to losing two billion right well to lose two billion on the spread trade you have to have one hundred billion of the trade see

two percentage points is not a big deal on the single security but in the spread of things that are supposed to be close together if you lost two billion that means your notional value the size of the trade is the exact number but sources say it's north of seventy billion could be as much as one hundred billion so another every percentage point move in the spread is another billion dollars out the window and if it were a hedge fund i could care less like bring it on go trade this is going to brought a lot of money but this is deposited money they are backed up by the u.s. taxpayers and you know jamie donna says we're going to take it against her newsworthy earnings coming from from savers every day savers for ripping off the american people four hundred billion dollars a year that they're not getting on their savings relative to normalized interest rates that money the fed is engineering engineering that is a wealth transfer from everyday americans to the banks the least the banks could do is do something productive with the money but they're gambling it's a disgrace so then this brings me to something that actually your colleague chris whalen said to be on the show tomorrow he was writing this if we could bring it up to talk about this malignant speculation which you say is going on more broadly he

says the fact is that the vast expansion of the u.s. money supply over the past three decades makes such financial out alchemy necessary even for too big to fail banks to generate even nominal profits do you agree with that and i think it's responsible for some of the errors these banks that made i view that completely and this is also another malignant byproduct of the fed's zero interest rate policy because when you do a trade like this you have to analyze all the cash flows and all the moving parts so not just valuation but the present value the cash flows and the volatility and the cost of funds when the cost of funds is zero that means the cost of being in the trade the cost of putting up collateral is very low. so that means you do more of it and so this is again another byproduct of the fed's misguided policies they're encouraging this kind of speculation paid to use another messy analogy but it's like drugs you know you get hooked on it you need more and more and more and that's what so two hundred research one hundred billion dollars notional value of a pointless trade just to make a little money so that we all can buy

a new sports car me that's a disgrace it is that it's great here's what you say about it too i want to i want to show our audience what you've written about it we talked about it earlier this week but now we get to have you heard it to explain it you say if jamie dimon had an ounce of decency he would resign now not because his acts were criminal but because he presides over a corrupt institution that extracts wealth from the many and direct it to the few with no value added and not even a nod in the direction of the hardworking american victims of this scam so first of all resign i jamie diamond was the best banker in the business that's what the president thinks well he has he has the first of all the show that he doesn't really understand risk because they are the wisest thing without a good out of control you know he was the best risk manager in the jamie diamond is a type a business process engineer he could run a lot of different companies beside guys as a business business manager he may be the smartest of the best in the business but as a risk manager as a banker he's just another guy and his misled by his subordinates and he's of our

models that they can dial up to do whatever they want the whole science of are is is a false science anyway most will use alchemy or you know astrology to predict your risk and this is how they evaluate risk which as we've learned with j.p. morgan they change that and then they had this loss that they reported then they were raised it back i said i would say the whole thing shown to begin with but even if you believe it works why what are you doing tweaking the variables to sort of reduce would use the reported losses so it would be more a matter actually when i said his actions were in our criminal that was before the informant just announced a criminal investigation that lets you know innocent so proven guilty let's see how that plays out but it was more to the point that he's responsible for this. buck stops here they have their profit by taxpayers' money they're propped up by serious money their job is the intermediary savings and turn into commercial loans and so i don't mind if you finance a business and the business fails that's normal business for us that's fine but this isn't financing business or creating jobs or building plant equipment or

financing structure this is this is gambling and i don't this is a metaphor there's no other word saying it literally literally and it's about what you have this is two sided trade you think you know you think the spreads going to come and see you make the bet and you lose it's the betting read in on roulette las vegas and it comes up clams up black before we go to break i do you see anything on the table that could get banking back to its original purpose of lending money to finance the economy unfortunately we know how to do this we had glass steagall for sixty five years of one nine hundred thirty three and one thousand nine hundred ninety or sixty six years and it worked extremely well why the congress in ninety nine i thought they were smarter than the old congress i have no idea but we do have models that work but they're not the models in place today and i don't see any change for the for the better doesn't seem to be the political well even the volcker rule which is supposed to be the essence of last evil is gone far from it and the rule that is not even firm yet we're going to come back after the break and have much more with you this is james records we're talking to author and senior

managing director at tangent capital partners also still ahead farmland bringing new meaning to black gold we'll give you our three cents though on the so-called emerging farmland bubble first though your closing market numbers. show is that so much. a lot of people are hearing. is this what is i mean in. american jews being. being the more liberal. there hasn't been a change yet on t.v. . it is to get the maximum political impact possible. before source material is what helps keep journalism honest remop.

we want to present. something else. you know how sometimes you see a story and it seems so you think you understand it and then you glimpse something else you hear or see some other part of it and realized everything you thought you knew you don't know i'm tom harvey welcome to the big picture. of. me is eat eat eat eat eat. eat eat eat eat eat. eat eat meat.

all right let's stick to j.p. morgan because there was a hearing on the hill today the house financial services subcommittee how the hearing on systemically significant financial institutions and of course j.p. morgan was the first thing that they brought up because it's a topical news division or and here is one of the key questions that a lawmaker said this j.p. morgan trading loss raises take a listen. and although it appears that the and seems to be that the. firm had

sufficient capital to absorb the significant loss one of the questions i would ask is why would a less capitalized institution survive a similar loss. so i want to bring our guest back in because from that sound bite kind of a trend that we've heard came up for us so he's jim records the author and he's senior managing director tension capital partners one of the things this kind of made our wheels turn about is something that we often hear from smaller players on wall street that aren't from the too big to fail banks who say that regulation really saddles them with a lot and sometimes crippling whereas the biggest banks they lobby or they're close with the regulators or for whatever reason it doesn't impact them as much do you think that this j.p. morgan trading loss could actually result in a call for more regulation on as she said maybe smaller institutions that don't have as much capital could there be calls for them to have more capital and is that

a necessary maybe this is the law of unintended consequences and when something like this happens right there's a we have to have more capital larger capital cushions well it's easy for j.p. morgan to raise more capital that they have no difficulty doing it for a smaller bank you can be extremely difficult and the smaller bank is not taking the risk that j.p. morgan you don't see this kind of trading in community banks or mid-size banks or even fairly large regional banks you only see it in these very large too big to fail banks which should tell you something they're betting with their money because they know they're too big to fail they know they can't lose and so yes one of the on the tender consequences is a one size fits all approach to capital requirements could disadvantage the small banks and advantage the large guys what a surprise here is what is surprising going to have such a corrupt system yeah a continuation of a trend that we've seen while we're in the oil trade before we move on to europe i do want to ask because you you wrote about this specific trade we talked a little bit about it how does j.p. morgan unwind it. if you're in a hedge fund world you got had you that it's mel blood and now they're out to get

him well that's the thing they're still in the trade now and say another hedge fund or a smaller bank might have had to get out of it because they can't take the pain that j.p. morgan can take a lot of pain they could lose four five six billion i'm not predicting they will i'm just saying they could and you know as the congress person said you know they can absorb it against their capital base of course i question the whole premise because their capital comes from the taxpayers in the form of subsidies believe that aside they could lose a lot more money but they're still in the trade they're betting that eventually things will calm down things will come back to normal will make a lot of this money back as the spreads compress but there's no assurance that will happen there's no assurance that they can see it doesn't cost that much money to push the spreads out because. part of the reason j.p. morgan fell into this trap so you sell something and you're going to make money if it goes down in price well how do you make a good price sell some more in those they can't they became the market j.p. morgan was the market and the more they sold the more money they made because they were forcing the market down selling their own position but at some point you're in

for one hundred billion dollars and then the market turns on you just like a trap to rad and now you're stuck and now you can't get out because there's no appetite for two hundred billion that's the other problem if you do this in bonds there are two hundred billion of these bonds but if you do it in derivatives there's no limit on the size of the trade because you just fill in the blank on the swap agreement so it's one more reason why derivatives are poison because you can create unlimited open interest which means on one with the losses do you think that any edge of evidence regulation could change that was done there's no one pending really i mean we we have pretty strict tourist regulation up to the year two thousand the congress repealed it and it's just in the enron the citibank panic of two thousand and eight and j.p. morgan will ever sense that this is part of the problem with the rivers so this is so print there were a trillion dollars for the subprime so even with twenty percent defaults it's only two hundred billion of wasis we can absorb that the problem is there were six trillion of derivatives. so the total loss was six times bigger derivatives are the

called for a time and time again they should be banned they serve no purpose getting they should be banned altogether exchange traded futures i'm ok with exchange traded futures chicago style been around since the eight hundred fifty s. you put up initial margin and that's fine but these o.t.c. where you know you make up your own margin rules or nontransparent they're really designed to rip the customer's eyes out because the customers can't see the bid offer so that's why the banks like them they get it make a lot of feet exactly make a lot of money that's exactly the bank that is arguably having a hard time raising capital you say j.p. morgan would never have a problem right banks that are greek banks yes jim records they have lost one point two billion euro have fled from greek banks just in the last two days right that seems crazy is this what a bank run looks like it does but there's an important footnote here when i was just starting out the banking business had the privilege of number of conversations with one of the wrist and it was one of the great passed away unfortunately at one of the great legendary bankers of the twentieth century and in the early eighty's i was concerned that it was the arabs at the time it was always somebody else the chinese that the arabs are going to pull all their money out of the u.s.

banking system and leave the banking system high and dry and he looked at me he said what you have to understand is that it's a closed circuit the arabs could pull the money out but they're just going to give it to the swiss and the swiss are going to give it back to us some less troubled by this because when these people pull their money out of the greek banks they're going to put it somewhere they might put it with a swiss bank or an italian bank or some other washer bank and then those banks will lend it back to the greek banks so what what's critical is not what the consumers do but the inner bank lending system that's the kind of the beating heart as long as that liquid these there the system will hang together and the e.c.b. is providing the liquidity so i'm less troubled by that than a lot of people what if they see pulls the plug on the entire thing you know thing that happened you know i'm very very bullish on the euro they my view of the euro system is going to hang together no members are going to be kicked out you know members are going to quit they will add members over time maybe hungry maybe ice and others and their number reasons. saying this number one it has never been an

economic project it's always been a political project in the politics of it having changed this is a way for germany to basically take over europe and reshape the european economy on the german model without firing a shot something germany's always wanted the key is to lower you know labor not german domination in germany german domination via an economic model imposed on the periphery but what spain and portugal and greece and others really have to do is get their unit labor costs down and so you know paul krugman every ever being he said you know quit the euro go back to your old currency the drop by cheap in your currency and that will lower you know labor costs well that's one way to do it with all kinds of unpleasant side effects and unintended consequences but the other way to do it is to stay in the euro and just slow your you know labor costs inside the euro it is deflationary i think the big news is that until recently germany was going to put all the burden of adjustment on the peripheral countries they had to come all the way down now we're going to see is those countries going to lower the cost for germany is going to allow its course to go up

a little more germany's going to tolerate more inflation than people realize we all know the history of germany and inflation right granted they're going to tolerate more of it in kind of meet the periphery halfway that's a big deal very why do you think that will happen because germany's abscessed with inflation but remember it's european wide and so if you just look at germany they wouldn't want the inflation but if you have two or three or four percent deflation in spain then on a weighted basis you need two or three percent inflation in germany to make the european average come out around two percent so the more deflation of the periphery the more inflation germany can tolerate on on the system my base is it comes out ok and that's germany's air cover to do this and with the e.c.b. rate cuts i talked about earlier chinese capital lower unit labor costs you know the fifty year old doesn't want to work for less so throw molotov cocktail but the but the but the twenty five year olds who never had a job for let's take the job exactly so there is a. solutions are interesting predictions it's really nice to talk to you as it

always is that was jim rickards author and senior managing director at tangent capital partners. thanks. before we go let's wrap up a little loose change dimitri shannon we talk about farmland a lot the real estate bubble may have burst home prices are dropping continued trend but could we see a bubble forming in a different type of lead. for thirty years just has been in the farm equipment and limb business and business is booming there's been no better time in our history to sell a farm than today so yes there has been never a better time to sell

a farm according to the financial times for the first time since the kansas fed started tracking the ups and downs of farm land prices in the late seventy's the cost have grown twenty percent in two years same story and other places so this has people asking if this is an emerging farm bubble i don't know jim rogers says no but you think well it's possible the point is that no one really knows and he said is there a better time but maybe five years from now there will never been a better time and no one really knows and because the fed is there to exacerbate bubbles and to make it more difficult for people to actually understand this and distort prices that's what effectively a price bubble is it's a distortion of prices it's an expansion of prices beyond what they should be and at this location. this misallocation of capital so no one actually knows and i think that the biggest reason the farm prices have been rising is because again we don't have some money interesting can you add the thing before we move on learn to you you said that you were preparing your farm i'm wondering if you're adding to this bubble here i can't afford a farm and that is for sure as the gentleman in the report that we didn't show but

he was calling dirt black gold because it can make you rich anyway it will be making me right any time soon let's move on australia's victorian government strapped a policy last year requiring all debt collectors to be licensed so what do you know it seems the local hells angels motorcycle club has now entered the debt collector industry by working with an australian packaging and recycling company who's allegedly contracted them let's take a look. claims police intelligence has recorded links between the multi-billion dollar business and the hells angels blacky gang busy reportedly. gang of retiring up to ensure they are available whenever necessary to collect bad days. tough times the very literally hells angels are debt collectors in australia through the stranger than fiction i don't know what's worse those people that call you over and over and over again in the us or if you just had a motorcycle if this isn't your of them but now it's terrifying. but you can see

that the bankers are taking it a step further we've seen private contractors take over the role of the military in war zones and bankers or for you why not you know recruit yeah gangs right and just take this over me already bankers act like the mafia all right there is going to go a step further and actually contract the mafia and gangs to go and break legs if they don't get their annual monthly whatever interest payment. is pretty ugly and violent yeah especially if you've got hell's angels guys coming with motorcycle and at your door are going to be your shotguns can anyone anything i kind of like it as a problem solving service. really wow now if i had totally what's up your coney and shannon are going to drop the hammer on these poor devil that be there oh all right. ok that's all we have time for thank you so much for watching and

make sure to come back tomorrow also in the meantime you can follow me on twitter or in the spirit give us feedback on the show or catch any that you missed at youtube dot com slash capital account for everyone here at the show thank you so much for watching and have a great night. for sure is that so much. a lot of people are curious. is this what is i mean. she american jews may indeed. more liberal.