decades in prison we will continue to keep you updated on this case as it develops that's going to do it for now we'll see you right back here and a half hour. good afternoon and welcome to capital account i'm laurin the star here in washington d.c. these are your headlines for thursday june twenty first two thousand and twelve operation twist was announced yesterday and this has revived the conversation about how the fed is the only game in town and now that hurts economic progress this is of course amidst the infighting and incompetence that renders congress impotent on the fiscal

side meanwhile though on that central banking side is this happening. that job. thing. is galab aeration between central bankers forming a kind of voltron force united in a global inflationary attack our guest will make the case and while we're on technology of sorts i guess you could call it the wall street journal reports a bipartisan group of lawmakers have called on regulators to overhaul the i.p.o. process in the wake of the facebook follies but why does this always seem to be the pattern we see officials looking backwards in an attempt to solve the last problem instead of looking forward towards innovation and competition that may help prevent the onset of the next one could the latter tactic be used for example to break up

the monopoly of too big to fail banks bob inglis the zero hedge contributing editor is here with a. a forward looking solution and ever tiring u.s. lawmaker says in an interview he thinks the public has gotten dumber. part of the cattle. should the greeks decide to get out of the go back to the drama. the drama really i only wish that sounded like a freudian slip we'll talk about it let's get to today the capital account. for all the talk in the u.s.

these days of the inability of fiscal policy makers to do pretty much anything and the doom that portends for the fiscal cliff ahead in two thousand and thirteen there is considerably less attention paid to the relative ability of their central banking brethren to work together there is considerably less analysis of what that portends now we've heard reports about central banks around the world standing ready to act and it coordinated effort ahead of greek elections if things went really south and remember back in november to several top central bankers got on the phone and agreed to make it cheaper for financial institutions outside the u.s. to borrow dollars in case of emergency well i will leave it to my guest to explain the possible reasons for this accord but looking ahead does this mean in the face of crisis we'll see central bankers coming together to form of force bigger than the sum of their money printing parts

a volt tron monster to blast massive liquidity together across the globe take a look at the poster there is ben bernanke the mervyn king of the bank of england and that little blue guy mario drug of the european central bank but they are not alone in being so chummy and here to talk about why and where this has us headed is bob english he's contributing editor for a zero hedge an economic policy journal dot com and no he is not a tyler folks i'm going to dispel that rumor right now that popped up after our last interview so bob english welcome back to the show thanks for being here. thank you it's great to be back and hopefully three times a charm three times a charm to be sure so let's start this off just to set this up do you believe that there is a coordination of central bankers in a coordinated effort because also there's a lot of talk of global currency wars

a particularly when you talk about the competitive devaluations of the u.s. and china. i think if you look at the central bankers side since they do have a modicum of independence still there's definitely a degree of cooperation and all you have to do is go back a little bit in history to find out how they were all kind of going to the same school together like our getting now this would be in the one nine hundred seventy s. and eighty's early eighty's when we had a stanley fischer presiding over the economics department or as a top professor at mit and two of his top students were mario draghi and ben bernanke and then later. mervyn king would go on to share an office with ben bernanke so we have through the top guys through the top central western bankers all coming from the same error the same philosophy and kind of under the same tool it's to agree well and to your point in an article in bloomberg talking about how easy that swap deal was done in november with mervyn king getting all these guys on the phone making a quick decision here's what he said if we could bring that up he said the november

thirty plan could be created in announce quickly because quote we trust each other he told reporters the following day in his role as chairman of the bankers group for some that trust has a common source three of the six banks as you point out bob are led by a columnist who studied or taught at the massachusetts institute of technology so there is kind of this mit mafia that you think may explain the chumminess but what do you think are the most compelling examples of their desire and very. just kind of openness to work together. sure what i would distinguish is mit economics department from others especially during that era was they were more interested with a pragmatic approach to quote solving unquote central banks problems in the economic problems rather than spending too much time on theory and so they had

a can do attitude they were willing to invent different different economic you can imagine metric models and employ a novel tools and that's what we've seen during the bernanke administration at the fed where q.e. is now become the norm whereas that was something that when you don't even a thought of just a few years ago it was something relegated to japan. and you mentioned to you at the z.b. some of their programs earlier we spoke well yeah. you know you only have to go back to november early november of two thousand and eleven and a distinguishing point in time was when druggy took over the e.c.b. because trish a his predecessor was kind of a hawk at least in central bankers terms and a really didn't go along with the program so when druggie came in he almost immediately announced these form these packages he lowered capital requirements decrease haircut on the margins for collateral for stuff that the banks were posting so he did

a number of novel methods of his own to address the problems over there and they did have an effect although it took a few weeks to maybe a couple of months and i should also mention that on the mit mafia i know you brought to my attention a few other folks i just want our audience to know papademos who people remember stepped in as the technocrat in greece and also larry summers we all know him moving on though as far as global cooperation or discord are you saying then that everybody is kind of singing coombe i can honestly speaking and we are seeing economic warfare or is it just taking place in a different arena. well there's definite discord on the fiscal side and we're seeing some blowback here in the us for instance a d.o.j. the department of justice here is investigating l c h clear net and who are they they're the biggest clear of interest where it swaps and other derivatives in europe and their biggest competitor is a c.m.e. group here in the u.s. and together they almost split down the middle the seven hundred trillion dollar

notional that zero point seven quadrillion dollars. global derivatives business so there is a bit of an attack on the fiscal side and we also see that between merkel and the people at the e.c.b. and even in greece so there is that element there but i would say on the central banker front they're more or less united ok and with for example just to kick the tires a little bit on what you're talking about how would that d.o.j. probe of the l c h how would that possibly benefit the united states. will it protects the interests of the c m e group and there had germany over dollar based interest rate swaps and like i said the other derivatives. and basically it's it's about protecting entrenched interests so that's about it and then what about how does this relate to the failed merger if you believe there is any any correlation between the new york stock exchange euro next and deutsche borse earlier this year

that ten billion dollar deal that the e.u. blocked in february. well that was an interesting deal because it looked like it was also systems go for a for almost down to the wire and then at the last minute it was next in brussels so maybe this is some kind of payback i don't know i could jump to that conclusion but but there is definitely a failed merger there was detrimental to the u.s. interest and on the competition front you say that there's going to be some new competition from the east that could rival the west well how does that factor in with global markets. definitely we've seen in hong kong they're building up their markets in a similar fashion to what we have in the u.s. but at a much more rapid pace almost at the same pace you could draw an analogy between how fast china industrialized and what they're doing now with their financial markets so they're building an exchange system in hong kong which. h.k. mix and they're having their own clearing to a degree but they're also employing l c h clear in the west so there's an axis

being drawn from hong kong to london to new york that's combining the the two hemispheres of earth and they're going to give singapore in tokyo a run for their money so here is the new economic geo political landscape that you're saying factors and possibly more than this central banking currency wars but on that note should we be very concerned that these top global central bankers are all so ready to act together i mean what could this voltron force speak a bubble of in the face of a crisis. well we saw a hint of the before when they acted in two thousand and nine and again in two thousand and ten we saw rampant price inflation and we saw food riots in countries and that's that's a very scary thing for governments which they should be afraid of so i think the governments might try to intervene if things get out of hand but the problem is there are always too late in these instances the damage is often already done by

means of money printing and price inflation by the time anybody desires to do anything about it so be very very wary of this this chummy business between these guys perhaps scarier than the currency wars but did you want to add something. no good because i want to stick to something that a central banker said while we're on this conversation mervyn king bank of england because this gets us into our next topic which is what we think what you think i should say because this is your thesis going forward looking at the global banking system particularly the payment system of the future let's go back to two thousand and ten though to something that mervyn king said i want to bring that up for our viewers he said in a speech in new york when he's talking about reform and possibilities for reform that a more fundamental example would be to divorce the payment system from risky lending activity that is to prevent fractional reserve banking eliminating fractional reserve banking explicitly recognizes that the pretense that risk free deposits can

be supported by risky assets is alchemy so bob english bring me full circle what what about what mervyn king said back in two thousand and ten has you all riled up that and is thinking about what kind of revolution we're going to see in the future. well first is that not shocking or what he's talking about getting rid of fractional reserve banking at least on the payment side he's talking about alchemy with regard to what's going on and this is the head central bank of the world at least he's chairman of the group of governors at the b.s. so it's a very big deal for him to be throwing this out there even if it's just a smaller part of a single speech and i'd like to add a little bit of background is this isn't a novel idea of divorcing that currency. it goes back to irving fisher in the one nine hundred thirty s. it was resurrected by milton friedman in the one nine hundred sixty s. or seventy's and it's been brought current today so there is a little bit of history there aha and as far as what that history means for the

present i want to hold you right there we're going to go to a quick break and then you are going to spell it all out for our viewers we will have more with bob inglis contributing editor for zero hedge and economic policy journal dot com you are not going to want to miss it also still ahead a out retiring politician can say the darndest things when he's not worried about your votes but so can sitting congressmen and women we will have our very favorite slip ups from recent financial hearings as proof in loose change but first their closing market number. there hasn't been anything yet. it is to get

the maximum political. the material is. journalism. we want to present. something on. the side. to

to . welcome back before the break our guest was just getting us into these calls this history surrounding the idea of divorcing the payment system that customers used to pay for whatever from the risky lending portion of banks or financial institutions so to bring us

a little further forward let's really quickly before we get back to bob look at a couple of graphs of trends in why people are a bank and how they do want to pay for things so first let's look at how people want to use their mobile phones and this is from federal reserve research if we can bring that up because twenty five percent of people want to use it i want to point out to buy things at the point of sale so twenty five percent of people want to use their phone to pay for things and now let's look at why people don't have checking savings or money market accounts why they are bank unbanked as some like to call it well hey twenty four percent the greatest portion they don't like dealing with banks for good reason i mean we talk about every day on the show why you might not want to so let's bring bob inglis back in to talk about where he thinks this is heading he's contributing editor for zero hedge an economic policy journal dot com so bob before the break you laid out the history i laid out some of the current statistics about what people want what do you think this means as far as what you

call a possibly a global payment revolution. well first we have to look at what are the stumbling blocks what are the impediments to achieving more competitiveness within the retail banking sector and that has to do with all these these legacy constraints in the law itself that have guided financial institutions in the regulations there of rules promulgated by the federal reserve the f.d.i.c the o.c.c. all these alphabet soup alphabet soup of regulators. and they are kind of guarding the hen house right now so if there is another financial panic which i think we will have within the next few years. i think there is the opportunity to let the to let the retail banking sector be taken over somewhat by the tech field and become a lot more competitive and what we need to happen in order for this to happen would it be predicated on a crisis i think so because you need to remove these legal barriers to entry how do

we get dodd frank as monstrous as it was it took the financial panic of two thousand and eight so it's going to take another calamity in order to get this through but in the end it's also going to provide a number of benefits for the average consumer ok like what and who would come in to . take advantage of this this new landscape this new regulatory framework this new ability to. having a payment system. all we have to look at is who's already there apple has a near field communication built into its next i phone model probably we have google wallet which is debuted in september two thousand and eleven we have we have prepaid cards which are enjoying special exemptions from federal reserve regulations since last october two thousand and eleven so there are already players entering the field here and it's going to develop we're going to have a lot of smaller players as well enter the field so in the big picture when you

walk into a retail banking establishment in a few years it's probably not going to look like your average wells fargo or bank of america that you're looking at today it's going to be more like a check cashing us a story we're going to provide a lot more services they're going to be more customer service oriented in general your payments are going to clear a lot more quickly there's no reason why a c.-h. payment should take two to three days to clear when they could easily take two to three seconds to clear if for somebody like google apple and cisco got together and redesigned the payment system well and when you walk into these new banks these new retail banks who are you going to be banking with is it going to be bank of america j.p. morgan chase or is it going to be google apple or someone else what does this mean i guess a bigger question for too big to fail banks. well it's impossible to know for sure the too big to fail banks are already sponsoring initiatives to make sure that they have their hooks in this new system it all depends on the popular blowback and the two big to fail banks people like jamie dimon whose name is now

a household name he doesn't want that they're going to have a lot of problems convincing the public that they should be involved in any way shape or form in this new system but they might they might get in there and what we might have is somebody like wal-mart come along and provide the brick and mortars establishment and then partner with some of these larger tech companies to form a new banking paradigm a new banking paradigm what would it take legislatively and reg with regard to regulation that would need to change be repealed or be added in order for this to happen. well i did mention the bank holding company that's a major barrier to entry for non-bank financial institutions so part of that would need to be repealed the federal reserve probably would at least its authority to regulate banks would need to be severely curtailed and it's quite possible that in the next crisis we end up with a nationalized or a watered down fed or even the elimination of the fed altogether that's not out of the question do you think that this would be

a cashless society that were moving towards. a capitalist society cash let's say but that's an interesting way that you read this. cashless i would be more capital and. yes the march towards a cashless society does mean more surveillance more opportunities for the state to encroach on individual liberties and it's a tradeoff that people are going to be forced with and it's a typical carrot and stick situation is the carrot greater than the stick and in this case who knows but it would probably be a market change from what we've gotten already with dodd frank involved where we end up with new power centers with all these greatly enhanced powers in a system that's just as ineffective as it was before oh so you're not this isn't a positive change net positive in your mind. i can't say for sure but it least i don't think it has a high probability of being negative so let me let me put it that way ok and do you

think it would at least give us the greatest likelihood of undoing the monopolistic banking power of the too big to fail institutions. i think it would break their stranglehold on the retail banking sector i think they maintain control over the investment side go back to the theoretical divorce currency system for a one k. or institutional banking is still going to be handled by bank of america j.p. morgan it's really the average person's experience with the banks that is probably going to change the most the retail experience maybe not so many five dollars debit card fees are going to be passed down because of banking regulation that the banks pass on i appreciate you for being a being here bob and spelling this all out for us it's a really interesting forward looking statement from you that was bob inglis contributing editor for a zero hedge and economic policy journal dot com. all

right let's wrap up with loose change i have dimitri here sorry folks shannon's on our way to vacation with my girls going off they're going to carry the weight of two i can do ok when i see the heavy lifting with this story a florida man has been arrested for renting out vacant foreclosed homes that he doesn't own take a look. deputies say via rented her this golden gate home he told me that i needed to pay the last time. and security but as it was she says livia sold her security her american dream and her money and so live the edges advertise the vacant foreclosed properties on handwritten signs at gas stations and just rented out foreclosed homes that were sitting there was a problem the problem is it's criminal these homes are vacant we've got

we've got burgeoning oversupply in this country right the banks pumped up this market now we've got all these houses sitting around ok collecting dust driving down property values of adjacent homes ok this guy comes in here he actually finds a willing renter and he has a home and he makes that he makes a mark of this guy's a market maker he should be exempt under market making provisions this at least is actually contributing to some sort of of economic value the guys creating value bring the other people there's got to do more than any back if there's going to all of wall street objectives should be behind bars why is the thought of this guy go we have a but we know how that works out chances are he's behind bars and no wall street executive is ever going to be but should the banks be hiring someone like this to kind of with just under the table be doing this be renting out homes and and keep on the theory of the table that they need that so then they don't have to take like the mark to market losses on their books or whatever because all this comes back to

the phony accounting games write the book bottom line is that people that can't find a home in america when you know all those oversupply ok these there should be a price mechanism that gives the maximum amount of coverage in other words there should be a market that works and functions should not have this much supply out there and this much demand and no price that actually meets those two but the banks are being accounting games because they don't want to take losses take some losses guys i'm sorry you guys messed up take some losses yet are going to have doubts and then go yeah our friend who was renting out the house is taking some losses probably in and jail as a result of his. little entree into capitalism let's move on because there is a new york congressman who is stepping down gary ackerman at the end of the second session of the one hundred twelfth congress and in an exit interview with bloomberg business week he spoke very candidly about some problems he sees with the american public here's what he said he said the public is to blame as well for some of these problems in the country i think the people have gotten dumber i don't know that i

would have said that out loud pre my announcement that i was going to be leaving but he'll say it afterwards but this just gave us the opportunity to reflect because there have been so many hearings on financial matters in the last few weeks that we've been watching and hot meat cattle listen to some lawmakers should the greeks decide to get out of the go back to the drama to some people the grease situation is a you spent two months. you didn't. you retired early how does this hedging in waging. any different than protecting yourself but that was him in the end by the way he was going to head to my word got away. and would you wish to wash your brain i mean yeah the people are stupid i'll give him that but but you. saw the politicians where do they come from they come the people and these guys are

a bigger interest in the average joe all right well and the truth of even the actual capital washington has the highest lifestyle for the intelligence level ok the people here are really just checked out but they're not allowed to talk and run a campaign so they get here and then you have to go very hard to me tree i'm here but i want to and we're going to are does this mean that your intellect is subpar compared to the rest of the country no i don't think so i think i'm right down the middle of all right we're going to we'll leave the audience to decide if that's all we have time for thanks so much for watching and please come back tomorrow. and in the meantime you can follow me on twitter at lauren lyster give us feedback on the show in you tube dot com slash capital accounts watch this aids day on hulu at hulu dot com slash capital dash accounts and have a great day. if

you.