stories we covered today and a few that we didn't have time to get to check out our web site r.t. dot com slash usa back in a half hour. 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 realize that everything you thought you knew you don't know i'm charged welcome to the big picture.

issues. cretaceous three. four charges three arrangements three. three stooges free. download free blog loaded videos for your media projects a free video dog r t v dot com. good afternoon and welcome to capital account i'm lauren lyster here in new york where we have a very special show planned we decided to take it on the road to take on wall street bull right at the financial feeding trough itself it is thursday july twelfth two thousand and twelve here are your headlines j.p. morgan is set to report earnings tomorrow they're expected to post up five billion dollars london whale trading loss that's more than was originally reported this as a press report comes out showing that regulators at the new york fed they did

a major shake up in the bank during two thousand and eleven that could have caused them to. is this risk now we have plenty of evidence there regulators have failed the question is what to do about it especially as banks appear ready and willing to commit fraud to take risks we'll ask chris whalen senior managing director at tangent capital partners plus you could call it man versus machine we'll take a look at how high frequency trading and computer algorithms have impacted the stock market and the human floor traders have a very special new york stock exchange a word of the day with help from floor traders stephen guilfoyle plus in loose change producer dimitri co phoenix joins me in taking on the walls three fold taken up by the not exactly horns but you'll see let's get to today's capital account.

all right so the new york fed replace virtually all of its examiners in j.p. morgan mid two thousand and eleven there are about forty of them this is according to a report in the new york times from unnamed sources in the government i should mention now on the one hand they took those regulators out because they didn't want them to be too in bed or cozy with management at the same time the ones they put in didn't know a lot about the banks didn't know a whole lot about the operation and that could've led the way all trade to be missed and the rest has been history so we know that there are problems with regulation we have examples of regulators failing but what is the solution because from m.f. global to j.p. morgan to the latest fraud and theft of customer money alleged i should say of peregrine financial group we have plenty of evidence that this will continue and

something needs to happen so i pose that question to our guest here in new york chris whalen he is the co-founder of institutional risk analytics he is the senior managing director of tangent capital partners and author of this book inflated how money and dead built the american dream take a look. all right chris whalen thank you so much for joining us here in new york on your turf well yes indeed welcome home thank you know the last time we spoke it was in d.c. in our studio so now that we are taking our show on the road to new york your stomping grounds anything i need to know peking duck house twenty eight mob street . if there is nothing as far as dealing with the wall street crowd on there they're really who we're reducing the population as we go you're going to probably see wall street shrink to about half of what it was five years ago well said to say we have too much capacity move but wouldn't that be a good thing couldn't you argue this country has been massively overbanked the financial ization of the u.s. economy yes but you know what it all goes back to world war two it all goes back to

the baby boom so even the victors in that conflict end up paying a terrible price because of the distortion caused by the baby boom after the war and to many people too many people they all need assets and also the changes in the u.s. economy the tendency of americans to use debt to replace income when we lost industries or allowed industries to decline the good news is i think we're going to reverse this but it's going to take time it's going to take time and now do you think there was a poll that came out it was a study done by a a law firm a whistleblowing law firm i believe that showed that something like twenty five percent of those surveyed on wall street think that you need to engage and wrongdoing to succeed is that they were going to go up as people lose their jobs well look you can only have fraud in a free society. one mins from doing is another man's ills advocacy so you know i think i take the point in our industry it's always difficult to get people to do

the right thing in banking or trading because they want to make money and regulation attempts to prevent them from doing these bad things but would be better if we had a society where people chose to do the right thing because they were incentivized to do a bull that's a great point so let's get into this because the. p.f.g. best bankruptcy they've now declared chapter seven bankruptcy in chicago two hundred million dollars of customer money missing and a lot of comparisons to m.f. global which i'll get to but first many people that i've talked to many experts analysts saying this is a massive failure of regulators which i guess shouldn't surprise anybody at this point but. is this a massive failure of regulators i mean small auditor or that was it was signing off on the books i mean the regulators had given this firm those green light there were no surprises so what's the answer if they're fat people are always going to commit fraud to get regulators can't catch at the end then what is the solution regulation always fails regulation is

a false hope in the thirty's we went from personal responsibility to regulation this was part of if do yours effort to add france was really bury the democratic party in government to give them political wife remember before the thirty's the democrats were not competitive politically in the united states people think there was always a left wing democratic party in this where there wasn't f.d.r. was the first candidate they had who was competitive so you know what i think you need to do is put more onus on the people who run these businesses to do the right thing and if they do the wrong thing we put them in jail put them in jail right but we shouldn't have federal deposit insurance and frankly we should get rid of most of the regulators because when we tell our people that there is no risk and in fact there still is risk we're doing them a disservice adults a great point with you're saying there should be federal deposit insurance that i think it should be optional because there's no reason why a baby that's privately owned look at look at where i work tangent capital we're all at risk we don't pay big salaries right you can eat what you kill but you're

a professional what if you're just an average person you can't afford to lose your your money if a bank goes on you're going to tell us why we should have safe institutions and safe investments and then we should have those that are a little more risky where people have to take responsibility for going back to the point about peregrine the one difference between that and m.f. global is that we finally got the agency in washington that's responsible to go in the federal court and get a receiver to go after the fraud that's what you need well let's talk about that because you've written about this with m.f. global we know the story with m.f. global we've covered it extensively and i've talked about a lot about it chapter eleven bankruptcy no receiver really. a difficult situation for customers they haven't gotten a lot of their money back it's unclear where they fall in priorities with customers versus the creditors you were talking about the importance of a receivership which was not applied in that case the friend it needed to at the beginning so first explain the importance of a receiver in a case like this and then tell us why it's

a big deal that that there will be one for parenthood well in both the made off case and him afloat will you have a trustee who's running the bankruptcy process he's basically there to recover as much assets for the company as possible but he can't quit for the third parties every time mr pickard in the made off fraud tried to sue j.p. morgan to the big banks he lost in court and that's because he doesn't have that power a receiver on the other hand could look at anything and i think what happened with peregrine was there was an individual who had been involved in fraudulent activities who died a few months ago he had a receiver appointed in his particular case and i think to see if to see finally woke up and realized that fraud was the chief problem here so they went in the federal court said your honor we need a receiver who has the power not of the bankruptcy court but of a real federal judge to go after these third parties that's the key issue. well you're more from chris whalen in the second part of our show but first back by popular demand this.

right time now for word of the day when we break down a financial term or concept for our very smart here but just perhaps maybe not the financial expert in our audience and today it is new york stock exchange given that we are here on it now to help us out with this we're going to talk to an expert that can tell you far more than i can he's been a floor trader here since one thousand nine hundred seventy s. also an economist for marie equity partners and a viewer of the show that's how i met him and he gets economic analysis that i read every day it starts on a six dot com he's still been gilfoyle better known as sargent and he's going to tell us why his little handheld computer is buzzing what are you doing on that things are what you do here we're actually trading that the way we traded for many years but we're trading the way we trade down which is how on a computer is on a computer it's electronic but it still has some of the farmer points that we've

carried over from the orchard market such as power to the point of sale. we still have an opening and closing process which goes reasonable to what sort of burgeoning of the old baltimore could bring this up by reselling pallets and apparel and it's actually prized by the would be the human beings former special about the amount that they watch the stocks throughout the day and if any racial were to have been done like many of the chase competitors they would fall so much attention maybe even shut the stock down and take a look ok now sarge tell us you've been here since one nine hundred eighty seven i know that trading has a really changed how has it changed you do you still call out and was it more like that and now you it's all computerized well you know it was much more of what it can change that's one thousand and six when you change one part we used to race to wrong to the point of sale we used to sit out level for a loud way of paying for a new year and it was that was really more for job. but we're days really i go

ahead nowadays we answered like just what you said there were a bunch of orders we trade for strategically every new trade type of thing that is a strategic play some posts were made to a large amount of orders you want to add to that a certain way and those reasons are like i said strategic maybe maybe a certain algorithm or something like that where we have many choices the can point to the post was preferences and they're really in control now for the let's say for hedge funds and useful was to still want the human touch we also can trade tactically we have a different way with george orders specifically ok as trade them for. ok go ahead no sir what i want to know when we were talking before you said that traders like yourself on the floor are a little like dinosaurs you're going the way of dinosaurs are becoming more extinct why is that i know that computers have replaced a lot of traders well that's true because it's not because there's no need for brokers it's because this is less of a need for so many of them will broker cannot do the job of

a shop i mean in the old days the way you trade i would feel like when i got to be fifteen or eighteen orders situations that i was probably had by then i cannot do hundreds and hundreds maybe thousands of situations if i need to attend and stay well within my capabilities ok how much training goes on here as opposed to what it used to be at what i'm trying to say is how much has it has gone off of the floor now that high frequency trading has really grown and i saw one figure that seventy percent and i was for a few years ago is now done with computer algorithms through high frequency trading not not on the floor of the new york stock exchange with a trader or that's true the the average daily volume overlays probably around three to have billion considering this and securities are securities of that we probably trade quarter of them down here before the seventy five percent trades above the forty two or so other market sectors that trade stocks of the. so a number of electronic stock options so that it's

a very fractured marketplace we still have the dominant share but it's not the eighty five to ninety percent that we want to go on ok what do you think has been the impact on markets of that transition where where more is done by high frequency trading and computer algorithms so i think the market has suffered the very issues so. it was a very transparent market back in the day i mean we were depressed when your quarter sold shares you had to announce who you were working for and give up your bedroom and it was transparent of oil shock probably don't think that guy is doing this for that firm and he's buying them in size or selling them in size and you can pull it in from asia on two flights which is public information is often wrong but we still have information at the point of sale which is one of our core things we can actually sell what points we can actually say hey we can still tell you who's buying and selling here but then again that's always what a five percent of the volume so it's less tangible information that it was was ok and you are an economic analyst you do your market analysis every day and i read so

what's the big story here today well today you know we got past that jobless claims number this morning and it's a little of the flip side because there's a you know the orders have been shut down for the summer yet that's probably going to come and we could see you should have a pop back up we're going to see these chinese rock but you got g.d.p. to write your production tonight retail sales and the like and i think that. given what happens there you might see some changes of policy regarding this going to monetary and crazies down the new york stock exchange floor for you it's kind of a todd between the crash of ninety seven and the day we came back from bottle of hot and we depend a million those days were very very busy part i thank you so much stephen guilfoyle sarge for breaking down the new york stock exchange on word of the day. coming up its capital account versus the wall street bull in loose change plus why is delaware the favorite for against the world on the theory chris whalen will tell us . wealthy british soil the sun. has no time to write for.

market why not. find out what's really happening to the global economy with mike stronger for a no holds barred look at the global financial headlines tune into cars a report on our. news today violence is once again flared up. these are the images the world has been seeing from the streets of canada. giant corporations are on the day.

so before the break you heard chris whalen earlier talk about p.f.g. best bankruptcy how they have a receiver appointed how this is good news possibly for customers compared to bankruptcy such as m.f. global and how this is great that the c a t c the regulator has done this has wised up but is this a precedent or is this at evidence of another try and take a look. do you think that this shows that there's a new precedents for these kind of bankruptcy is where there is malfeasance in that the c.r.t.c. is now pointing a receiver or do you think this is a two tiered system and if there was another firm with a john corazon type at the helm and we know is very politically connected you wouldn't see this kind of like the opposition or fraud or receiver i think that's

true the d.m.f. global case is much bigger and you have the chief fundraiser for barack obama as the leader of the band here if it wasn't someone like corps i think you would have had more of a possibility of perhaps getting receiver appointed but i think the difference with peregrine this is the fraud was so b.s. and you had this character who had been engaged in fraud on his own who was connected with peregrine i think that's why the c.f. to see lawyers said ok fine we need to go ask the court for seaver my hope is that we're going to let people learn about this and understand their rights so that we see in more cases either a creditor or the federal agency that's responsible for regulating these entities immediately go into court if there is fraud and ask for that receivership power because they we can get some things done you know it takes time back in the twenty's and the thirty's it took ten years for the courts the federal government everyone else to realize a fraud was the problem and then receivership became very much in vogue in fact in

many bankruptcies during that period the trustee was also a receiver so he wore both pants and he had the power to act ok so you're saying though that this may take time and we might see the results and the change from some of the things that have happened without any advance upgrades as the listeners on this today don't know this you know a young lawyer who's thirty forty years old who you know came out of law school say twenty years ago doesn't have the experience of lawyers had back in the twenty's and thirty's and they didn't read all the case law they probably just read their textbooks if they went back and actually read the brandeis decisions from that period they would understand. and that if there is fraud you have the right to go to the federal judge who supervises the bankruptcy court and ask them for a receiver very simple right and one thing that you said earlier about deposit insurance i'm curious since you don't think there should be deposit insurance what do you think of there's been some calls in the wake of m.f. global and now p.s.g. to have some kind of similar deposit insurance for people with that have their

money with brokerages to protect customer segregated funds because now we've seen that there is sacrosanct funds go missing in a few cases be taken what do you think of that idea is that a solution or is that just a. business opportunity for a faction well look collective solutions like this i think give the public a false sense of security because they think well this is the wrist the government's ensuring me and by. inference really everybody is collectively insuring one another the f.b.i. sees work reasonably well they cleaned up the mess this time around they paid for everything and the industry should do this but i also think there's a role for bringing market discipline and personal responsibility back into the into the mix you know before the thirty's if you own shares in a bank you have to be willing to put another dollar in for every dollar you invested in the bank it was double liability share so all the shareholders have a bank had an interest in watching the bank and watching the officers and directors very closely i think we need to restore that kind of discipline that's

a great point even if you did though do shareholders have any power in the companies that they invest our is the board even liable to the shareholders know in delaware law the officers and directors of a stock corporation have a duty of care of a corporation they do not have a duty of care of shareholders and i think this cries out for some kind of legislative change either in delaware or in the federal system to maybe give shareholders a lot more power to remove officers and directors and perhaps put greater responsibility and greater penalties. on officers and directors who don't use good judgment because today in under delaware law you could make horrible mistakes cutting a large corporation and you're still not liable personally and explain why delaware is important in delaware law for people viewing that may not now well most u.s. corporations especially the parent companies that are traded on the financial markets or chartered under delaware law so if you end up with

a litigation with them you're most often good either end up in a new york court or in delaware court delaware was set up to protect big companies big owners if you will of capital it's not set up to protect shareholders it's a very old fashioned almost colonial kind of environment the courts they're very closed very clubby so you're not going to get justice for the little people in delaware you know it's so it's so over the next it isn't really it goes back to the hundreds so i think we do need changes here but people have to realize you we did soul time oh they have a duty to shareholders so and so they go right and you have to know that yeah you should know that thanks for telling us that telling our audience that talking about personal responsibility j.p. morgan has its earnings call tomorrow it's slated to the wall street journal reported that they're planning to claw back stock compensation at least from the executives the principals involved in that trading loss and the cia or the london whale loss is that a step forward and kind of instilling

a sense of personal responsibility or is that just kind of change too little too late you know i think it is a good thing that if an employee of a bank screws up they shouldn't get paid for screwing up so in a sense i agree with that you already have this in london and in europe in the wake of the crisis there's almost no bonuses being paid no in the city of london they're just paying people salary because if you do have a problem they can claw it back automatically there's no there's no discussion we'll just take it from you so i think we're going through a period where we. have to rebalance responsibility with compensation because we've gone through twenty thirty years in this country where people were in a big salaries to take a lot of risk and then they'd leave their employer or go work for another bag that they would crash and burn and there were no consequences and chris whalen told us what he wants to ask on the j.p. morgan earnings call tomorrow which he will be on he also gave us his outlook for

natural gas and energy you can catch all of that in a web exclusive on our you tube channel. our welcome to a very special loose change we are at the wall street gold i'm here with the meanings of the b. and we're taking the bull by the morning here on wall street it's not about the interim up. here on wall street i have to say dimitri the thing that i noticed is that extracting well has done pretty well for for new york you would never know lot of parts of the country are experiencing a recession and the beautiful parks behind me and lots of tourists or

a sever they don't appear to be american but they're tourists nonetheless of other parts of the country not not. not not so not good at what one of them is detroit it's kind of the poster child for for the good of the downfall of manufacturing and the recession and we saw a story of that actually someone has an innovative plan they're crowdfunding to turn some of the most hard hit areas into a theme park but not just any theme park this is a zombie theme park the question that comes to my mind is i don't know is this in competition from the zombie banks now we're going to zombie theme parks in detroit we have this kind of to cause a dichotomy of a zombie institutions the support of the problem happens when you introduce a malignant strain of competition. so the four used to be a manufacturing hub that wall street took over with these complex financial products but all this broad message board says we can't compete without a business we're going to pieces we're going to go we're going to one up these are

the parents we're going to are see some people are going to actually turn detroit into a zombie. unless something hard to give post zombie banks a hot hot hot summer behind the zombie apocalypse i mean i think this is a brilliant move on to towards part of their mayor they will know it's not their mayor the difference is they weren't on the banks have been propped up by the federal reserve the u.s. government at this time i believe was trying to get funded through crowd funding so by way different ways of upgrading zombie institutions but you know what dimitri it's getting a little crowded over here there's a lot of trying to take photos maybe we should go to an area that would be so lightly more bare and have a little bit more space than i think what it's all centered up wall street it might dare i say be more represented and oh right the side of wall street we cover at least right there because wall street there's one thing maybe our car is plenty of those right there. that is for sure but i don't know if regulators do dimitry there's a story in the wall street journal that regulators u.s.

regulators are rushing to file lawsuits they're running out of time to go out or go out there fraud and other allegations that occurred during the financial crisis there's a five year statute of limitations so there are hurrying to file lawsuits do you buy that that regulators are really rushing or do you think it that they don't have enough of what wall street does they don't have a though they got none of those regulators. right is the same thing it's like we heard on the global the conic final days i mean there's always this this thing where there are there are tripping over themselves or they're about trying to do right but but they but they have a hard drive right that is all the time to stop crime so you know i would say regulators guys as you see wherever come down to wall street do an annexation if you and i mean a what's a quote there's a catch phrase should yes then annexation of wall st paul and you guys should start carrying a few because we're trouble guys have all such steam rolling all through it all

right well that would be a little bit more symbolic. of this stance towards wall street actually something was done that symbolically changed this symbol that is the wall street should turn the bull around on wall street stick to our camera right about all of that but i think that we're about out of time maybe we can go blow your idea to some regulators or someone else read exactly because we are here but for now dimitri it's been fun talking to you and part of the wall street ball in our very special leave the new york loose jay. and that's all we have time for today thanks so much for watching and don't forget to come back tomorrow we will still be in new york we have a special sit down interview with jim grant editor of grant's interest rate observer and in the meantime you can follow me on twitter out lauren lyster you can give us feedback watching anything you missed catch that was exclusive at youtube dot com flash capital account watch is in h.d. on hulu and have

a great night. 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 realize that everything you thought you knew you don't know i'm tom harpur welcome to the big picture. there hasn't been anything good on t.v. . it is to get the maximum political impact. the fool source material is worth soaps journalism honest we.