innovations all the lives developments around russia we've got the future covered. live from the russian capital our top stories moscow demands an investigation into the latest massacre in syria saying those behind it want to ignite full civil war activists say more than two hundred people were slaughtered in the country but the army and rebels trading blame the security council remains deadlocked over how to stop the bloodshed. overseas funded nonprofit organizations operating in russia are to be classified as foreign agents under a fresh law the state duma has passed the new rule which will mean proper scrutiny for such bodies. and red faces in london olympics organizers are

forced to call in thousands of british troops to plug a massive security gap just days before the flame is lit the emergency deployment comes after a private contracting firm admits they can't provide enough cover despite having been paid hundreds of millions of pounds. bags in the wake of the interbank ingrate rigging scandal in the u.k. cross-talk asks if banks are out of control. and you can. start. with. a low in welcome to cross talk time peter although the library gave you this most

recent financial scandal gives the term bank robbery an entirely new meaning to me to be a lation of whatever it is the largest economic scam in world history and the largest insider trading scandal ever it would appear the global banking system is synonymous with corruption. and. started. to cross-talk the most recent banking scandal i'm joined by william black in kansas city he's an associate professor of economics and law at the university of missouri kansas city and author of the best way to rob a bank is to own one and in london we go to richard wellings he is deputy editorial director at the institute of economic affairs all right gentlemen crosstalk rules in fact that means you can jump in anytime you want ok william and i think go to you first here it looks like the global banking system is one big cartel illegal operations and controlling the global economy would you agree or disagree with that statement. now it's not one big cartel but there are

a series of large cartels and this scandal makes clear that the city of london is controlled by an enormous cartel and it's made a terrible mistake from its own standpoint it is now violated the antitrust laws and while it's been getting away with a slap on the wrist for all of its misdeeds from the banking regulators who do this light touch regulation in the united states there is enormous potential liability under the and i trust laws and this is going to be at the game changer that is going to potentially destroy the crown jewel of the city of london which was like ok richard game changer is this a game changer i wouldn't go as far as and i wouldn't describe the situation as a cult style so there are many many banks involved and it's not clear that a small clique has been able to manipulate the market so huge extends and let's not

forget that markets actually have a chaotic nature and it's not very easy to try to manipulate them and i also think we're guilty of double standards here because governments and central banks are trying to manipulate markets all the time they're trying to rig interest rates they're trying to rig even things like richard in your opinion what do you legalism occurred how is the law been broken. and what case do you mean what was there manipulation. when of course i mean the government makes its own little bit governments are manipulating markets all the time in the. banks to do that and so the banks do it. well yes i mean apparently the banks have been doing it but i'm just saying that some of the governments are also doing it and the magnitude of losses involved in the government's really markets on a much greater basis so when the federal reserve decided to raid interest rates after the recession of two thousand and one decided to flood the market with liquidity the senate with the global crisis we're seeing today and yet all the

attention is on the banks and not so much on governments and central banks and they're a much bigger problem ok what do you think of that william it seems like this is very very serious well. yeah well what serious is the apology is that are coming for this outright fraud so let's begin with it the government of course the central banks are supposed to set short term interest rates that's not rigging and that's not unlawful it is unlawful for cartels to rig raids it is unlawful for cartels to manipulate rates and that is not in fact uncommon in fact adam smith centuries ago said you know seldom to people of business get together even for purposes of divertissement but that it becomes a conspiracy against the public and recent european union investigations have shown

the cartels are widespread and extremely long lasting absent enforcement so the e.u. has now gotten serious about cartel enforcement and of course in the united states it is both a crime to fix prices in this manner but it is also a civil wrong where we allow treble damages in other words three times the damages and this liability is could be sufficient to bend bring down major banks like barclays when we talk about bringing them down richard what do you think of the culture of banking i mean it seems like ever since the economic crisis started it shows that if a culture of corruption and greed greed we can accept corruption do we have to accept. well i think inevitably there's going to be corruption corruption in nearly all large organizations i think the problem here is actually over regulation and in the days before huge government regulation in the nineteenth century reputation was

everything for banks and the problem is banks have become more and more regulated in financial services as a whole then people for example lending their deposits to banks instead of going to the most conservative banks they've just assume that everything's tightly regulated so it's going to be safe so we've lost that relationship between safe banking reputation and conservatism and i think that's actually at the root of the problem well richard if i go back to william it seems that that's the great debate here i mean over regulation or under regulation most people think the banks have been under regulated that's why this happened. i don't think it's a great debate anymore even alan greenspan who was the leading proponent of what my colleague just stated has said oh i got that completely wrong i thought that these markets would regulate themselves because of concern for reputation i thought there was private market discipline and by the way there's nothing regulated about libel

or this is something that the british bankers association created for their own purposes and now we know gimmick for their own purposes so no back in the day in the eight hundred was not some wonderful time in banking you had is the leading cause of bank failure in that era insider fraud at the most senior level of the banks and led to periodic great depressions with much more frequency of the one we see in the modern era so the idea that this is some kind of golden age back during imperialism and colonialism is again bad history you know we've had economic should if there's so much regulation why was why didn't the regulators pick up on this this is the manipulation of our i mean i didn't want to there's overregulation. well apparently they mean there were there were rumors for several years and apparently they the regulators where informed

that something dodgy was going on so i mean that's really a question for them but i i think actually makes the point that the idea that regulators and politicians should be entrusted with these issues is a fallacy because they're they're flawed as well they're equally prone to corruption they simply can't regulate predict what's going to happen within the financial sector and create instructions for every single circumstance i think we're really sticking with the basic law and i think probably basically well for example through the civil courts will be sufficient already in a lot of ways just make it sound like the politicians are corrupt the regulators are corrupt and the banks are corrupt they're all corrupt right. now i'm not saying that every every single person is corrupt whether we do know that when you have a lot of regulation it creates incentives for crony capitalism so the banks have a huge incentive to get very close to the regulators and very close to the politicians who decide on the law and this is what we don't want in those situations you end up with the banks actually making a lot of their money by affecting regulation in their own favor and you've got

these very close relationships as we actually saw during the financial crisis with cosy chats about which bank was going to take over which struggling mortgage bank and so on and when you make just a revolving door isn't it the regulators in the bankers you know they just keep trading places and they watch each other's back. not necessarily not necessarily it's been very different in other eras people like me who were financial regulators never cashed in and there's a very extensive literature on the fact that we were quite successful so let me go to his basic premise first it's false analytically this was a period of massive deregulation and in particular the supervision of the famous light touch in the united kingdom and it led to a complete disaster so this was a move towards regulation that prompted a crisis is exactly the opposite and that makes sense even under classical

economics so if you go back to classical economics back in his eight hundred hundreds of the that he thinks was the golden age adam smith and others were saying we need the government to enforce a rule of law why because otherwise cheaters will prosper and if you prosper through fraud then markets become perverse what's called it we call gresham's dynamic in economics and criminology and that means that bad ethics drives good ethics out of the marketplace so even on rand said it was a critical role of the government to fight fraud ok william i'm sorry richard if i go to you i mean what do governments doing to stop this type of thing because it seems like you know in the early to thousands all this deregulation happened then we have the financial crash and now we have the same people still in place ok why don't some of these people go to prison. well i mean just to come back to william's

point i think that was rather simplifying the history of regulation so at least in britain what we had before the 1980's was really it's largely a system of private regulation all based under the rule of law and contract law and so well and civil liabilities are but then moved to a system of state regulation and i think that's where a lot of the problems lie so i wouldn't characterize the recent years as deregulation and if anyone actually believes that the financial sector is under regulated to visit some of the websites of the regulators such as the financial services authority and just look at the unbelievable complexity of the regulations there and the banks now have tens of thousands of staff who are working on regulators compliance and it's a huge competitive disadvantage for the city of london if you will what do you think about that william i mean you know it's incumbent upon the government to enforce the law but if you have so many bankers and politicians in bed with each other then all this regulation is just on paper well if you

appoint people that have the viewpoint that you've just heard expressed from the city of london as the chief regulators they will not regulate and they will not supervise they will do a light touch as they officially called it and as british inquest and irish inquest have said destroyed all affective regulation so it's exactly the opposite and now we have this binning story that has no basis in reality i let me jump in here gentlemen we're going to go to a short break and after that short break we'll continue our discussion on a recent. day with our.

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welcome back to cross talk i'm about to mind you were talking about corruption in the banking system. you know richard do you think that the law should be a lot more stringent i mean if i defraud the bank i go to jail but when banks to fraud customers they get bonuses. well the problem is often some of these complex regulator rules there are legal gray area i don't think we should overreact here and what we don't want. business people of people in the financials richard i mean how do you what do you may not be able to react to it ok i mean you know well the

only way to say i don't really want to seeing out it looks like a lot of money was stolen from customers billions and billions of dollars well you know realises this is an awful scandal. but we don't want to overreact in terms of making the case where very complex regulations of an executive break some obscure regulation the end that getting sent to prison for years and years which is often happening in america at the moment and there's a real problem we need to make the case where entrepreneurs can feel free to actually get on with their jobs and innovate and make money we don't want to have a business climate where they feel they're going to get in trouble with the regulations for breaking some obscure regulation and then get and getting sent to prison i think that would be absolutely disastrous for western capitalism what do you think about that william a pheasant found very entrepreneurial to me all of this ok it sounds like a cartel. well it sounds like facts are just be made up right there is not a single wall street banker who has gone to jail as

a result of this crisis so we have the made up scandal but that's not what caused the crisis and we have the insider trading scandal roger not them but that didn't what isn't what caused the crisis so. we have this myth being propounded by someone. let's here's the truth we had the worst of all worlds yes there were a number of rules and none of them were enforced right so that's bad for honest spanx to have a whole bunch of rules and it's terrible for honest banks when you don't crack down on the cheats because if you don't the cheats win and then market forces cause immense paying to the honest entrepreneurs and this goes again all the way back to the classical economists in the united kingdom so now we have this and even as i said i know rand said we should enforce the war rules against fraud now we've

become so radical that we had greenspan saying fraud could not exist in financial markets well shock in fact fraud became in demick in financial markets because this last crisis in america alone in the household sector alone there was a eleven trillion dollar loss of wealth. so you know by definition of course you shouldn't overreact because over reaction by definition is a bad thing but our problem is enormous under reaction to the fraud and because people have gotten away with the fraud they have continued to commit it at the most elite levels and if the city of london the loses its prominence it's going to be b. because of fraudulent british bankers and american bankers and it's going to be

because they appointed regulatory leaders who were anti regulators who believe that their role is to adopt the philosophy that you're hearing from my colleague and to sit back and let the fraudsters prevail richard isn't it if i can go ahead jump in this is crosstalk go right ahead yeah if i can come in there i mean i mean cause frauds obviously can slow already and there are existing laws perfectly capable of coping with this on the show we're going to see a lot of civil action against in the particular libel case we've been talking about and the idea that no business people go to prison in america i wasn't talking about the specific cases same in general if we move to a situation where some business people feel threats in that are going to be sent to prison for breaking some obscure rule this is extremely dangerous for the western way of life and could really damage our economy i think really really was a talkie something i didn't actually say ok i mean but richard still the same time i mean it you know if you can you run a red light you know you get

a ticket for it but i mean if you defraud the public billions and billions of dollars you walk away free smelling like a rose. that's true well their day than those going to happen i think we probably will see criminal action against some of the people involved and also certainly see a lot of people taking civil cases out against the people who try to beat the market of course is probably a lot wider than where you are we know the moment i mean this is just the tip of the iceberg so many different organizations are involved this possible collusion with the british regulator health or ities of various of those so of course there will be civil actions richard if i can stay with you do you think a few people should go to prison to send a message that this is intolerable behavior no i don't think i think sending a message is exactly the wrong way to treat the rule of law the rules need to be rolled through a model name broke the law they broke the law yes the law is about knowing in advance what the punishment is going to be that's absolutely essential to the rule of law if you start making laws which are already in political then we are in very

dangerous territory already in dangerous territory william isn't it time to end universal banks break them up. oh there was time never to have them look these systemically dangerous institutions this should be something that conservatives and progressives and moderates can all agree on right they make efficient markets they make honest markets non crony capitalism impossible they have an implicit guarantee from the national government right and you can say whatever you want but that implicit guarantee will exist because nobody is going to let them fail catastrophic leigh because they fear what it's going to do to the world economy and so the very conservative authors of the guaranteed to fail have said that when these systemically dangerous institutions compete with anyone else it's like bringing a gun to

a knife fight and that means they also have enormous political power and as my colleague has said the ability often to manipulate regulators so we shouldn't allow them to exist there also by the way her laces slee inefficient so give them five years to shrink down to a level where they no longer pose a systemic risk they can no longer be treated as too big to fail and that would be a good thing under any ideological viewpoint and certainly under any economic viewpoint richard what do you think about that end of universal banks like we have today well i house them simply with i don't think government regulators a politician should decide to stretch for the banking industry i don't think they have the knowledge to do so and i have perverse incentives to starting to ferry and being affected disproportionately by special interests what i would say is don't buy all the banks out don't buy them out directly don't buy them out in directly through quantitative easing and various various other ministries savation

interventions i'd rather see an end to the central bank human and free buying private currencies competed and i think this would really destroy because its allies crony capitalist banking industry will have to. william what do you think about that. i think that that is a recipe for disaster again so let's go through it you now have a real test being run in europe of what happens when you go away from sovereign currencies and go instead to a currency that where the nation isn't the issuer and the results are disastrous in the eurozone so that's not a good idea to say that the government shouldn't specify the shrinkage i agree with that in other words all we have to tell them is within five years you will be shrunk to below fifty billion dollars in assets and you can adjust that for

inflation in terms of saying well we're going to let's wait for the markets to do that markets will not do that markets given the implicit subsidy will make these institutions ever bigger and will create the crony capitalism political power that i think both of us fear and decry and you know so is the current strategy you can't say credibly i won't bail out the too big to fail institutions because every time it comes to the test they actually get bailed out because no senior official wants the next great depression to has hit have his name written on it as the guy who sat by while j.p. morgan failed and pushed the world into great depression acts richard financially it's the ultimate ultimate moral hazard isn't into ok too big to fail

and when wall street loves that ok they really do. no i mean moral hazard is an enormous problem and i think the regulations part of that so obviously if people think banks are regulated and they're perfectly safe then they won't choose to deposit their money or trade with banks and if you look in a history of barclays actually founded by quakers and part of the attraction of the bank was that it was highly trustworthy because of the religious affiliation of. owners but going back to william i mean the year zero which is what i was advocating at all this if there was one currency that was a highly politicized centralized construct it's the euro what i'm actually talking he's getting government completely out of banking completely out of currencies and moving to a completely voluntary private system so richard do you believe banks can regulate themselves yes i mean like you think they can do that

we have collusion. but i'm talking about a situation where they wouldn't be bailed out by the government either implicitly or explicitly i mean we've seen them self regulation of past there was highly successful for example with the london stock market and there are plenty of other examples and if you don't behave properly under a self regulation environment you get booted out of the club but unfortunately we have moved to stay regulated admin's when everybody in the club is corrupt. well then you have the important thing there is to avoid barriers to entry so that you can have competing markets and the danger now is if we overregulate the london markets all the trade will move offshore to countries where corruption is absolutely right and we could say it's rife here it is this is on a different scale in some of these other jurisdictions and where the rule of law is completely absent and there's a real danger here that overreaction and overregulation will be proved to be counterproductive will end up with much riskier and much more corrupt financial markets william you'll give you the last word could it get can it get more corrupt

. we ran a real world test we ran a real world test where was the epicenter of the crisis was it in the most regulated banking sector in america not at all it was in the end i thank you we got your point we're running out of time gentlemen both thank you very very much many thanks to my guest today in kansas city and in london and thanks to our viewers for watching us here are going to see you next time and remember cross talk rule. and if you. want to.

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