well. technology innovation all the developments around russia we've got this huge earth harbored. welcome back this is all she the headlines demonstrators clashed with police in chicago with at least forty five accidents arrested as nato leaders the strategic plans for afghanistan that i would miss as reported coalition veterans throwing that medals out of the convention center in protest of deadlines as time ticks. also up and running nato secretary general declares interim capability for the controversial european defense shield it now has the ability to should down incoming missiles russia has consistently expressed concerns over that.

russia robs the world ice hockey grandpas their national team crushes slovakia six two passing all the way through this year's world championship without a single defeat. the group of eight industrialized nations expressed hope greece can stay put in the eurozone but experts paint a very different picture of what's happening behind the scenes. right not too big to fail that's the question prompting some lively debate among people who have guests in the latest edition of crosstalk. and you can.

blow in welcome the crosstalk computable crony capitalism this is what critics call america's banking system again the world has witnessed the specter of a major financial institution reporting a tremendous loss for years after new financial regulations were designed to avoid such a debacle do the world's biggest banks still believe they're too big to fail. and . to cross-talk the fate of the world's biggest banks i'm joined by andrew schiff in new york he is an investment consultant for euro pacific capital and author of the book how an economy grows and why it crashes in london we go to sam bowman he's head of research at the adam smith institute and in san francisco we have robert good news that he is co-founder general counsel and policy director for green lining institute all right gentlemen crosstalk rules in effect that means you can jump in anytime on and if i can go to you in new york do the banks still think after the debacle with j.p.

morgan chase that they're still too big to fail i thought we got over that in two thousand and eight two thousand and ten well well well some of the banks are too big to fail and that's that's a creation of crony capitalism which is you're right i don't think it's a creation of capitalism but we have we decided after the compassionate crisis of two thousand and eight that we were not going to let these banks fail because it was in our national interest no i disagree with that at the time but we essentially created a handful of banks that are too big to fail so they so they know. investors know the government knows that when that if they get into trouble they are going to be bailed out j.p. morgan is one of those banks. and i think you know that what they were doing was you know the two billion dollar loss has been reported as far is not that great of a deal in terms of j.p. morgan's balance sheet but i think it's more symbolic that you have these banks losing money and they're backed by taxpayers which is a problem i don't think what they were doing is something that banks should not be

doing i mean banks should be doing it the question is should banks that are have implicit taxpayer subsidies be doing it the answer to that question is probably no although it's not certain exactly what they were doing in terms of the trades i have a problem with banks are too big to fail i think we should have let banks fail i think i think if you have banks that are not too big to fail there's no need for taxpayers to stand behind them and then they can do whatever they want with their money if they will these people are smart people they know the financial markets let them do what they do. these need of light but i mean are you ok andrew and i'd like to go to sam right now can the banks regulate themselves here because with all of the financial regulations that were passed two thousand and eight to the present primarily in two thousand and a lot of them are not very effective they're ignored and because you have the banks policing themselves the regulatory agencies are not doing their job because they're not empowered to do it because everybody benefits in the long run ok so i you know there's no there's no parental there's no gradual because that sam there's no parental control here. i think there's actually five too much parental control i

think the bailout system that we've had since at least the one nine hundred eighty s. and arguably for a lot longer than that has meant that the banks are basically being allowed to run around and they know their parents the government will step in and bail them out if they make a mistake so it encourages reckless behavior we're basically giving them free money in the form of quantitative easing and the low interest rates far far below the real the real natural interest rate level and i think we're basically giving banks a blank check and we're saying the government will step in and protect you the way to do that isn't to say well we're going to be more active and we're going to get involved more because governments always get taken over by big business the only way to fix the problem is to remove the government to go back to the nineteenth century and go back to the history and look at times when we've had a stable banking system that's only been when banks have been like normal businesses been allowed to fail and not being banged up by the taxpayer when they do ok robert how did we get here i didn't we learn anything over the last few years i mean it again you know we could see tremendous losses here and they just know the

of the american taxpayer the fewer the fewer and fewer ones that actually can afford to pay taxes will bail them out peter we've got it here because it's inevitable. the government has never recognized the human nature which is to profit as much as possible so what we have to do is design simple mechanisms to hope to address the matter we have never had unlikes what sam suggests we've never had over any substantial time period as stable banking system my suggestions are very simple to address the problem and it may make unnecessary any vocal rule. and this may be very important because apparently no one understands the vocal rule and vocal himself has indicated that he thinks his rule has been misunderstood and

misused specifically allow no bank pav the posits that are fairly ensured of war than two hundred billion dollars this would cut down the size immediately of citi b. of a j.p. morgan and chase two i would bar any bank that takes deposits from being an investment bank three i would set a salary cap. in effect which is if you earn more than five times the u.s. president's compensation or two million a year from any form at the company it's subject to being clawed back for five years ok all right those those are the rules those are a lot of rules probably and do they have to let me jump to you is this feeling

a little we don't need ok go ahead because you know i think you see these i mean or is it you know that you know as a practical know because there's an actual institutions or big lobbyist they just buy everybody they buy all of congress who knows they probably buy the president too and they're never going to get there we had we had given look we didn't we did have a stable big system in this country for hundreds of years i mean i would say are up until you know for the investment of our history you know certainly banks failed banks fail all the time but the system itself went on and i think the market has all the all the tools it needs to self regulate banks we could do that without the federal deposit insurance i think the f.d.i.c in the one nine hundred thirty s. added to this government backing of banks and i don't think that's necessary i think i think the market can sort that out and now we actually have tomorrow morning ringfence so andrew is the markets then a good job to date and i'm talking about two thousand and eight to the present have they done a good job. like in the old world well again this wasn't only the market and the market didn't create the catastrophe two thousand and eight that was really

a function of government policy that was a reflection of interest rate policy being the government set interest rates far too low and created a speculative bubble and that it mandated through policy prescriptions that banks make loans to to borrowers who couldn't afford to pay back those loans that was government policy i mean the banks were largely playing a dead hand that was dealt to them and they were trying to maximize their profits under those distorted rules which is which is what anybody would do and i don't think the banks are obviously got some guilt in their hand but there's a lot of guilt that's in washington and that's only increase in the last few years now you've got company like j.p. morgan that knows it's too big to fail and furthermore one of things that's going on the reason why they lost money and with these the london trades in these in these faults wops is they're trying to make money by selling insurance on credit default because there's one of the few ways they can actually make money today they can trade for proprietary interest rates are so low that there's no profit there so the only way they can make profit is by selling insurance on their own kind of low

risk assets which normally makes money you know in this case they made some bad bets and went wrong and they lost two billion which is big money for just about everybody but it's not big money for j.p. morgan now this wouldn't be a problem at all j.p. morgan was a bank that didn't have taxpayer backing and i don't think they should have taxpayer backing so and if they didn't have it investors would investors would punish morgan they would sell their bonds they would sell their shares and the market which started out ok and i'm going to say you not get a sam in london here i mean and you just said they made a bad bet well that's exactly what it is isn't it it's just kind of gambling out there i mean if it's the only way you're going to make money and the more you look at this case you know there's more dooby it is you said that ok and you said that we'll go back to it sam what about you i mean again you know we have we have an environment where we need a banking system but we need this kind of banking system. we don't need the banking system that's the trend that's depended on state bailouts absolutely not and i

think one of the big problems that we've had since two thousand and eight in terms of the global economy especially here in europe is the zombie banks that are repairing their balance sheets thanks to quantitative easing and government money they're not lending out and the reason for that is they haven't been allowed to fail the market hasn't been allowed to clear and to go back to what robert was saying earlier we do need a rule in banking the rule should be profit and loss that's really the only rule you need in the rest of capitalism it really should be the only rule you need in banking bringing in all these after extra rules is likely to make something go wrong let me just give you a quick example of that a couple of years ago all of the governments of the world got together and said we need to big banking safer so they made all of the banks take on more safe capital they set up special rules it's called the base of the courts unfortunately the capital that they made the banks take on was government debt which everybody thought was going to be safe for ever and now we only have to look at greece and the rest of the eurozone to find out what happens when banks take on government debt these kind of things go wrong and the more government gets involved the higher the stakes are we just need to let the banks fail that's the rule we need ok robert where do you come in and not because it seems to me go ahead ok

a man who ok fine but robert what about what about you i mean again we have these tremendous losses here and we don't see a lot of political will in reforming this because we're looking at a revolving door of the fed we're looking at politicians we're looking at the banks they're all friends they all know each other it really is cronyism i don't think there's any question about it the obama administration even though it may attack the banking industry actually is its biggest friend it will not impose mandatory rules and it will not impose simbo comprehensive rules the vocal rule is a good example mr volcker sent to the president a very simple very clear three page letter laying out what the rules should do. now subsequent to that the federal reserve the f.t. i.c.

and the o.c. c. all got together and wrote a two hundred ninety eight page commentary on the matter and raise about five hundred questions making it extremely complex that's why i go back to something that's in between sam's view and andrew view which is limit the government's the positive insurance which would eliminate the preference given to the banks too big to fail create a lot more competition by this the united states once had forty of fifty banks that were competing in different areas of the nation today we have four of five gentlemen i'm going to jump in here we're going to have to go to a short break and after that your pick will continue what discussion on reforming bad behavior on wall street state parties.

can. wealthy british. markets. come to. find out what's really happening to the global economy with max concert for a no holds barred look at the global financial headlines tune into a report on our. mission to free cretaceous free

zones for charges free arrangement free. free stews free. download free broadcast quality video for your media projects a free media party dot com you. can . still. welcome back across town by people about your mind you were talking about banks regulating banks. and i'd like to go back to you i mean looking at the presidential campaign when it when we look at republicans versus obama a lot of people are very disenchanted with obama because of the financial regulations but on wall street since two thousand and eight and then the

republicans are saying there's been too much and a lot of critics who say there's not nearly enough i mean it's you have wildly different interpretations about how wall street should be regulated to no government oversight to banks looking at after banks i mean can we find a kind of an equal good principle in the middle where taxpayers are protected and i have nothing against banks making a profit as long as it's in a healthy economy. well first of all you know i don't work for a bank i work for a financial firm the united states and i can tell you and i can probably speak for the banks we are a very very heavily regulated the regulation is actually over the top you can you can almost make a case that we're more of a of a non-paid intelligence gathering unit of the federal government then we are a private sector for profit institution that being said there's a lot of regulation there there could be i don't think i think there should not be as much regulation and clearly what you've got here is you've got

a couple of banks you mentioned earlier how many fewer banks there are now than there were in the past and that's because these bigger banks have had huge there's huge barriers to entry if you want to get into the banking business the red tape and you have to jump through and the regulation you deal with essentially means makes it impossible so we have these institutions up in the top that are that are that are totally ensconced in our economy and yes they're the best friends that washington has and yes they donate lavishly to political campaigns and yes they expect favors in return for that and they do get protection and in return they do the bidding of the federal government and they are in bed together i think it's a shame of vibrant free banking system very important to an economy and certainly one that's less regulated would be able to be more efficient take more serve the market better yes you have bank failures but the failure is that what happened because of reckless reckless behavior on what by banks would be punished at the source the people that did that would go out of business and the market would move on unfortunately we've created

a situation through this crony capitalism where that's not the case so what we do get is a japan style zombie banking system in which the banks are in feeble the more abundant essentially turn into the utilities of the federal government to execute them on a monetary policy and that doesn't serve the interest of capital and very well ok well if we get to scoot away from regulation robert in san francisco to jump in go right ahead peter. yes i want to make a comment on the regulations i think we're missing the point here it's not the regulation that is the problem it's the inability to to kill eight and enforce the regulations ok a former u.s. president teddy roosevelt said speak softly and carry a big stick the obama administration unfortunately has spoken sometimes very loudly but it has a weak stick almost everything in the regulatory system is quasar

voluntary it would be much better to have a few parameters but they are strictly enforced. just jamie diamond is a perfect example ok sam go ahead in london jump in go ahead yes the the rule that you need the regulation that you need is banks want me to make money now this j.p. morgan loss is probably going to be more effective than all right all the regulation we have because banks want to make money they don't want to lose two billion the way you make a bank stock responsibly is show them what happens when you lose money so then what happens to bad banks don't lend on more regulation don't think that you can plan markets because it never works just make that banks go out of business that's the regulation you need robert you want to reply to that go ahead well i don't have any dispute would sam's position that if a bank makes major mistakes it should be allowed to fail but jamie diamond is

a perfect example of what's wrong with this system you have a leader who is truly a leader he is highly intelligent probably among the most knowledgeable in the banking industry in the last fifty years and he's not an overly greedy individual either and yet. the parity for all banks is to make money and that is a good imperative we should understand that therefore and likely but affectively regulated ok and i think the biggest problem has been that we haven't had a secretary of the treasury who's understood that ok well it would be nice to have a secretary that doesn't work for goldman sachs in my opinion if and if i can go back to you i mean what's wrong with asking for more transparency accountability and oversight i mean we can call it regulation but just more transparency in what

people are doing i mean if we look at what's been going on i go ahead. i know again i don't work for a bank i can't speak for them i work for a brokerage firm in the united states and let me tell you transparency oversight we got plenty of it we i don't know we can handle anymore it's extremely transparent oversight and we're a small institution i can imagine it's even greater the large institutions. i feel for that but i don't feel that makes is a very well paid people but when you think about you know the position they're in right now i mean the government right now is buying up the vast majority of treasury bonds and other other high priced low risk securities so now the banks have to make money by buying treasuries yielding one and two percent there's not a very vibrant market right now for. other types of assets because the because the . economy still put perceives high risk as you can imagine there is so they can't make any money but at the same time there is there is significant to three percent

inflation which is created by the federal reserve so now if the banks just want to maintain their purchasing power base gotta take risk and they try to take it in a smart way in this case the selling credit default swaps but the markets are unpredictable the markets even a guy like jamie diamond who's i'm sure very very smart and knows the markets can't predict the black swan event whatever the whatever it may be that will create a two billion dollars loss so you know that happens but you know let exact let the markets punish the losers no want to j.p. morgan wanted to lose two billion dollars it happened and you know fortunately the probably get through it of course that is doesn't mean there couldn't be a larger lost in which they have to turn to the government and unfortunately those those kids are well greased at this point. does it bother you that a banking system in today's global economy the banks seem to be doing more or less ok ok sometimes there's a big mistake but you know in the scheme of things since two thousand and eight the banks have done really well on the back up to where they were before the bonuses

are being paid and we have very high unemployment we have very low growth you know there's something out of whack here. i agree and i think they're actually all connected by bonuses i think well what do you think is going to happen when you say to a banker there's nothing nothing will happen to you if you make a mistake that you've infinite profits and hey here's two hundred billion dollars of quantitative easing money i think it's not hugely surprising that bank bonuses are the way they are right now but especially in europe where really grasping around for growth we're really desperate for growth over here and the banks to start lending there isn't this new blood into the economy the reason for that the reason for that is because the zombie banks are still stumbling on and because the banking sector is so uncompetitive and if you think of the banking sector in a country like britain where you maybe have room for five or six large high street banks if you stop the largest ones like r.b.s. from going out of business it means there is no room for new entrants and it basically says unlike almost every other area of the economy where if you're good enough you'll be able to throw away the top player in the buy things that are good

don't bother don't even bother playing because we're never going to let you beat the beat the big guys and i think when you say that then it's no surprise that we're stumbling around no percent growth in britain and even worse in the rest of the eurozone ok robert if i can go to you know i like apple things i have an apple phone but you know if the apple phone disappeared from the universe the world would get by ok but if a banking system disappears when we're all going to be in trouble my point is is that the banking system is a social service for everyone to make the economy work ok they should be held to a higher bar i agree i believe banks have a fight do sherry relationship unfortunately the government doesn't think so and banks don't want that the banking system should be held to the same high standard that we try to hold lawyers to and their clients that is if i do cherie

duty to do the very best for them. occasionally there's a simple rule that helps in this in one thousand nine hundred seventy seven then senator proxmire produce what is known as the community reinvestment act requiring banks in one simple paragraph to do more for the communities to be examined on that and that is worked what has that worked is when we have three hundred pages of rules and where every incentive is is to game the system ok i reply to that yeah go right ahead sam please do i'm absolutely i mean i'm stunned to hear somebody praising the community reinvestment act i think that was one of the big reasons for the two thousand and eight crash you know along with the federal reserve artificially low in rates of interest rates the community reinvestment act basically rewarded banks for lending to subprime mortgage buyers

you basically cooked the system so banks were lending to the worst piece there that that is and that it's one of the it's one of the biggest the biggest kripke ailsa's we've had in the bank in fact in history in recent years robert i believe anybody is prayer is promoting the relation well reply in san francisco samaras sure sam is from london and he's been reading the reactionary republican mantra on this matter the community reinvestment act had nothing to do with predatory lending nothing to do with it however it is true that big banks like countrywide game theirs. and claimed that these predatory loans were eligible for the current we're almost out of time i want to give you the last word to educate you and to help me what do the banks need to do for us to like them again you've got twenty seconds. well i mean i mean you mentioned for apple i

mean everyone likes apple but apple the sales it doesn't bring the rest of the economy down to i mean that's something that i think you know the only reason that's the true about banks of the because the federal government got in got in bed with banks first of the federal reserve back second with the f.b.i. see the one hundred thirty s. and lastly with this. range of regulation the last few years and now we have essentially nationalize the banks. actually on the floor of the room so out of time gentlemen many thanks to my guest today in new york london and in san francisco thanks to our viewers for watching us here are to see you next time and remember rostock rules. and you. start. to. see syphilitic. used to be leaving a legacy of atrocities. to. see.