tv [untitled] August 7, 2012 1:30pm-2:00pm EDT
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well look if. it's technology innovation all the developments around russia we've got the future covered. this is r.t. top stories now to. have been captured in syria helping the rebels fight against president assad mean one of the new twist in the conflict civil servants are finding themselves a target for simply working for the government. three years behind bars that's the prosecution as the trial of the headline grabbing pussy riot is draws to a close. and two communications satellites are lost in space off to a russian rocket failed to place them into orbit on monday and i'll pose a threat to other satellites as well as the international space station. but to
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bring it up to date for the bout with the news team with morphine half an hour from now. and capital account with the latest news from the world of economics coming from washington in just a couple of moments. good afternoon welcome to capital account i'm laurin lister here in washington these are your headlines for monday august sixth two thousand and twelve knight capital is set to get a four hundred million dollar lifeline from investors to stay afloat after its trading debacle last week caused by a technical glitch reportedly nearly wiped out the company seemingly just like this . sixty second. gone in sixty seconds more like gone in sixty nanoseconds in this day of high frequency trading so what purpose does this kind of speed serve and is there anything keeping a knight capital disaster from happening again will out commodity trading veteran
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and former nymex board member and president david greenberg also look at where regulators are with high frequency trading as a new study meanwhile comes out questioning the true risk of the s.e.c. revolving door we're not convinced by that study but let's see what our guests think plus it's been one year since this standard and poor's credit rating agency tonight has downgraded america's aaa credit rating for the first time in u.s. history. get in that year treasuries have rallied with yields reaching record lows so sorry s. and p. reality working against your call again we'll talk about it let's get to today's capital account.
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so last week the beginning of the week knight capital was the nation's largest provider of retail market making a new york stock exchange and nasdaq listed stocks reportedly only a week later they are surviving because they found investors over the weekend to keep the firm afloat after a trading debacle starting from a computer glitch a computer software glitch that when all was said and done resulted in four hundred million dollars plus in losses for the firm a lot of questions about high frequency trading about what happened in this case and about what is keeping a knight capital type disaster from happening again so to answer all of these questions and look at the big picture too is david greenberger he's president of greenburg capital and he is a veteran in commodities trading he was president of nymex and a board member to he's really been in this space for
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a very long time so he has great insight and we're very excited to have him on capital count for the very first time thank you so much for being on the show david greenberg. are you doing very well so you know let's start because knight capital has investors to keep it from going under reportedly according to reports the capital lifeline includes private equity firms among them is the chicago market maker get co in which a private equity firm general atlantic is a shareholder now you tweeted me saying that general atlantic was involved with nymex as it as an investor at one point so i'm curious what is your take on these firms that have stepped into essential make sure knight capital doesn't go under and what's in it for that why would they want to. well general lennox in general with whatever they do they're very precise and with get go they understand the market the market structure but a lot about the echoes of it trade zone capital so it truly understands the risk
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reward and coming into this deal with the other two firms i think they were they were basically thinking that it's better to save the company than to have just another blow up on wall street which would not only add a lot more regulation but a lot more trouble for them in the future and it should be very interesting to see what they do now that they're in with night they can learn a lot about the structure and what really happens of that's an interesting point because before we get to the big picture i do want to talk more about knight capital and how this happened in the first place because reportedly we've heard computer glitch software installation glitch there was a theory that they accidentally released test software but we really don't know what happened i'm curious if you have any kind of insight or theory into what happened you can tell us what it means that we don't know. well i like to use words like witches but what it really was was a major breakdown within the capital of the entire corporate structure someone had
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to sign off on this software the question was did they force it through on the day that they wanted to prove a point with the stock market put in the new rules knight is already known for saying that will get you the best price even if we use our own liquidity and at nymex when we did new software for what we had at that point was our access system there was rigorous testing there was rigorous sign off process. possibilities that we'd have to look into and for this to happen especially on this day raises a lot of questions was this product forced into the market before it was ready and that's something that can be found out just by going through the records of night and seeing who is the one is finally side off to release this product and i thought that's kind of the very. detailed analysis of this from i also want to play what the c.e.o. said in an interview and get your response to it let's take a listen you can't keep people from doing stupid things whether it is
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writing some imperfect code or buying the wrong stock at the wrong time that's what happens when you have a culture of risk. all right fair enough culture of risk i get that that is that really the issue here david greenberger is this what happens perhaps when you have trading going on in nano seconds by computer algorithm. well it's a little bit of both when he said he was kind of passing the buck to say that they were you know stupid for ramsar stupid risks well that's the ford and the company that needs to vet that out before it happened there are always issues with new software not on the day that you're supposed to roll it out so as far as issues happening with glitches and saying that this is what happens with the wrist yes there are risk analysis that need to be done yes there is risk in trading however as a trader you put your faith in the company in these front ends that these type of situations will not should not and not happen to control the marketplace in
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a safe environment yeah i guess the question for me is we have this market now that is dominated by high frequency trading and by trading done in nanoseconds by computer algorithm what is to keep more knight capital disasters from happening is this just what we're we're looking now to ed the as the nature of our markets today . the markets of. you know when i teach in my lectures i talk about how we did things within a second and long term for me was fifteen second the short term was with and want to do seconds now long term to be actually a nano second but think about it think about the amount of hundreds of thousands of trades that are now done in a nanosecond and the risk that comes along if something goes wrong so no i don't think this is going to be the last time you see this happen it will happen the faster these markets get the more risk there is of its pastor be happening and that the real question is going to have to be oversight not only within the companies
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but within the government looking at these companies and allowing them to do what they do and before we get to regulation i want to touch on something you and i were talking about a little bit before this interview which was what kind of vulnerability this high frequency trading opened up in the markets you were mentioning cyber terrorism. yes i had lunch with a senator a couple months ago and one of the main concerns that nobody seems it's off about is that of of course we don't think that this instance was cyberterrorism right of course and that really comes up is that what if what if a country comes in and taps into our markets are the exchanges or the front ends or the sea is the electronic trading platforms and the government putting enough money in to safeguard our markets you think this shook the markets view and this debility of the markets and the people well they came out with that they messed up that they had a glitch imagine what it would do to the world's markets if someone else tapped in
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and created a problem just as big if not bigger it could be a catastrophe worldwide and are you saying i do want to make sure that i'm not conflating what part of this is this speed and what part of this is the electronic direction things have gone with computer algorithms and what part of this it problem is the and what part of it is the automation are those part and parcel of the same are they separate issues. well they're separate and they're the same the speed along with the algorithms they just play off each other because whenever an out think about an hour algorithm go in the muck they for some reason special with night they knew pretty quickly that they had a problem however it took them an extremely long time to shut the system off where were the circuit breakers where were the stop gap measures and that was the speed of the market and these algorithms that basically are written pretty much all the same way when they pull their orders or when they slam their markets or when they
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start their wars what we call orders in which is putting a tremendous amount of volume in a certain price is a given time anything can happen with these markets and yes you are absolutely right the speed is a definite issue but along with speed and algorithms to ensue you know or as one on the situation can have a blow of a magnet two of ten it could be a very very risky situation ok and just you know from my knowledge for our viewers knowledge what is the value to the normal investor of having high frequency trading or on a macro level looking at markets what is the value for markets of having high frequency trading where people are trying to get ever ever faster to the nanosecond in executing trades. for the retail investor high frequency trading getting into a position really shouldn't make that much of a difference the retail investor should not be worried about an eighth of a penny or quarter of a penny there basically should be in it for a longer term and a penny here or there is going to make a difference where it does hurt the retail investor is that these swings that the
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market has now through the algorithmic programs and through this the high frequency trading is just when when we were younger if you took a twenty dollars stock and it went up to twenty one by the end of the year that was a good trade now what's happening with the retail and with the just the normal investor is that they're putting their money down they're getting massive stock movements and most people can't stomach the swing that these markets are having in back in the day the market could be down but your stock could still be healthy you could still be up markets now are moving in conjunction with each other they're either mostly all down or all up they don't have nothing to do with the market fundamentals of that stock anymore and it's really brain the average investor on a riled a wild ride that they're just not ready for those actually there is no value for it for the average investor and looking at markets is there any there i just have a couple seconds here. well the only value for the markets is now that there are no more market makers on the floor to stop work that we're no more locals on this lot of these markets without the high frequency traders you wouldn't have much of
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a market in on either side right now and that's a problem with itself and that is the direction this has all gone when we get back from a break we're going to talk about what needs to be done or isn't being done at a regulatory level because i know you have strong feelings about that so hang tight right there we will have more with david greenberg president of greenburg capital also still ahead happy one year since the u.s. was downgraded that's right a year ago the s. and p. moved the u.s. from aaa to double a plus we'll give you our two cents on how reality is working against as and b.'s call we'll tell you what we think but first your closing market numbers.
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conversation because we all remember or i'm pretty sure most of our audience does the flash crash in two thousand and ten when the dow dropped six hundred points in just five minutes and it kept going down here is a snippet to remind everyone that forgets scott you're there what what is what is the top what happens from here but more people saying now you're down eight hundred . you're earning they're saying when i asked them what the heck is going on down here i don't know there is fear this is capitulation really i mean it is classic capitulation there is fear in this market and it was crazy i remember at first people were wondering is this because of the greek riots going on that was yes austerity riots were going on then too or then it was concerns that maybe there was a fat finger trader who entered billions instead of millions of trades turned out again it was a technical glitch so i'm curious looking back at the flash crash the botched facebook i.p.o. and right capital what the big picture lesson is here that we need to be taking
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let's bring david greenberg back and president of greenburg capital been in this business a long time a long time at nine max so david greenberg looking at the bigger picture of these kind of big incident that happened over the last few years what is the lesson. well the lesson is that anything can happen in these markets you know i have my own theory on the flash crash as as you have to remember when we were trading on the floor and when the people in the stock market trade on the floor there are issues that always came up however you have to look at these algorithm and the high frequency traders the flash crash was just simply there were all offers and no bids because we're being told this is what happens with momentum a trade in and if that happened once it's going to happen again and we all have to be prepared that when a major worldwide event happens you see this market down maybe five hundred thousand points not within the amount of five minutes that it's last on this could happen in a minute and you know with the computers they were the way they are now i mean
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that's concerning so should investors be scared. if investors have to be prepared and you know investing now is riskier for the average retail investor than it ever has been before again let's talk about the market swings you have when we were trading and i'll just give an example we use a loop like this and we would know where a pain level is well now with the high frequency trading that's you have to remember the high frequency traders are trading with other people's money it's not their own money people react differently when you're trading your own money so now the swings are huge swings and the average investor protect themselves in the huge swings way to do that is by stops however more than nine out of ten times are going to get stopped out and the market's going to be right back to where it was so it's making it much much more difficult for the average investor to trade this market little guys getting crushed at a trend we see a lot these days i'm curious to where are regulators and regulation as far as understanding the direction that the marketplace has gone with algorithms and high
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frequency trading. well the regulators are a little late to the party commissioner o'malley had a and he's commissioners you have to see he had a meeting a month or two ago he put together a high frequency advisory committee and he stood up for the new law look i'm sorry the new york to the hospital and basically said listen i'm putting this committee together not to condemn high frequency trading and not to praise it it's the time to learn about it and he said that he needs to know more information are you in a lot of credit for that on the one hand on the other hand it was four years after the flash crash show so to show you how late washington is on action and how backwards they are to have this meeting four years later it's finally stand up and say well i don't know enough about it to make a decision on how we want to regulate it really was more scary than anything i had heard about anything that's happened in the markets recently that reaction is almost more scary than the class crash itself it's like wait
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a regulators aren't even prepared for these kind of incident don't even know really what's going on i mean i guess it shouldn't be surprising at this point but nonetheless it is a little terrifying that said this software glitch that was in least at night had the c.e.o. dialing up mary shapiro the as the see and saying hey can we cancel these trades reportedly she said no and this is a change because after the flash crash people were upset that trades work canceled so why is is superior right first of all and why do you think she made this call this time. well know for a believer you put your money where your mouth is and if you're in the market and you're have people trading that night or any of the other you see and you know it trades a trade and it's very hard to break a trade the only alternative that she could have had was to adjust the hard is and lows of the move which could have been respectable and that could have happened then that would have taken some of the pinch out of the losses however to call law and say that we want to break all trades we messed up when i was on the trading floor if i sold something that i thought i wanted to buy i couldn't run over the
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program so please please please let me out you know it's like a do over and how many companies for people that are your viewers that their company has made a mistake they don't get the second chance and to think that they were above everybody else pretty insulting that is pretty insulting and you're right i mean this is what should happen if a company is in trouble they should be in trouble and have to deal with that they should get a bailout from the government whether it's regulators giving them a pass or the government giving them money but but you are saying on this one as critical as you are regulation regulators they should be or did the right thing right. thing on this one she got it right all right why don't you leave but you got it right the best and the fact that your stock is the problem right so what do you think really needs to change with regulators and i know this is a much broader discussion which we'll have in the future but in terms of something like high frequency trading what do you think they need to do to get up to speed no pun intended and start to attack this issue. well i think they need to first
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understand the problem secondly that i've said in all my lectures and all my speeches that four out of five of the see if you see commissioners have no exchange experience have no trading experience and have no clear inexperience if your viewers go to the website of the see if you see him pull up their bio's they will be shocked to see that these regulators really do not have a background in trading the products that they regulate and so we shift that and we were before both the city of d.c. and the u.s. you see with people who understand the new futures markets the new speed of the stock market and most importantly the derivatives market we are just one step away of another major blow that will probably be bigger than we've ever seen can the u.s. government afford people that understand the things you just talked about because chances are they can make a lot more money on wall street with that expertise right. well you do make a lot more more money on wall street an engineer that now for a dozen algorithms on wall street may make three to four hundred thousand instead
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of fifty thousand somewhere else but we always talk about what our government can afford if you see what they're spending enough on technology for the military or you see what they're spending on so many other areas the question is can they afford not to do this if the regulators first of all you don't need a bigger regulatory body i think you need a smaller e. with torrie body smaller but the right people doing the the jobs they need to do so they can complain all they want that they don't have the funding and as a taxpayer and as a trader and your viewers should want them to pay the people because when they're going after some of the major companies when you have a guy that's making thirty thousand a year trying to beat up on a guy that's making a half a million a year i got pretty good i'll bet i know which side to bet on that one and we know you know how to bet we know you know how to trade i appreciate you for being here we will have a much larger discussion about some of these regulation and regulatory issues when you come to d.c.
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which you promised to do to have that talk so i appreciate you for being here today so do i david greenberg president of greenburg capital. all right let's wrap up with loose change because we have to say happy birthday to the u.s. debt downgrade as we discussed yesterday marked the one year anniversary of the downgrade heard round the world. credit rating at agency standard and poor's has decided to downgrade america's credit rating america's aaa credit credit rating they've downgraded it pull out from the debt crisis. it was a really big deal only in the year since then because of
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a combination of things the us has been a safe haven and treasuries have rallied and yields have reached record lows again and again so dimitri what is the real takeaway here for you the rating agencies are run by it is well that's what i think is so funny about this because i remember at the time one of the major analyses was hey as in p. got so much wrong at the head of the financial crisis just to give one example and so this was them taking a stand and being tough so that they would be on the right side of things and then their call worked against the again while they were the rubber stamp of the private sector leveraging up. during the housing boom and then when that went bust there was this private sector view leveraging and everyone was flocking to treasures not because uncle sam's finances are in order there's a disaster but people were looking for somewhere just to be safe and they knew that even if there was zero return negative return on inflation and this they get their money back if they put in treasuries so that so that the world market skating
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factors then we can have a market for the u.s. a lot further down the line i mean the cleanest dirty shirt issue tomorrow moment larry and i think that's why that's why we focus on price on the price mechanism here because ultimately markets are going to price in risk better than any rating agency or any government or any wiseguy economist yeah they can't do that today with all the meddling from central banks and trading and i was a group thing very good interview very informative he was great i know so we'll stay on that but for now let's move on to now nasa is rover curiosity landed on mars early this morning here is the reaction from the nasa jet propulsion laboratory control room in my home state of california. shopping for receiving a. k. . yeah. ok's and they were really excited i don't want to take anything away because they're excited because they have jobs that it's i doubt that is cutting
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them but i'm sorry i'm not excited by this two point six billion dollars the come this country is broke right now and i really don't think that space exploration should be where it is putting any money i don't care if it weighs two point six billion dollars on other things but going to mars just should not be one of them you realize lauren that there was a secret hidden agenda and that's what we have captured here i don't know artists can see but but there was an agenda at the five not just. life but specifically to find bank banker life and they were they wanted to see their bankers on more because they wanted to know if it could be kind of a new frontier a new place for pioneers to go and live and apparently were bankers there are there are and they don't know if they're ready to if there weren't any girls there none of they wanted to make sure there weren't but apparently the curiosity found a very curious situation with the bankers who apparently even ex's restrooms. have a user of interest rates and then bankers i don't know if there was so it's true it
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really was a waste of money because clearly no one that would be able to have that mars if there are a million bankers there to me when we can have it more because of these alien bankers so we know we've to steer clear from ours and you know that we know where marty got the money to fund his laser beams yeah but on a serious note i just i do you agree with me are you with me that exploration and discovery should not really be the name of the game that it's not something you need to discover the limits to your spending and where it is and i think also but i think also there's another point which is how much money should we be spending on space exploration versus how much money should be spending on fixing the problems on our planet but that's also like a bigger thing and that's not even counting our shtick and you taught me that let's get out there were let's say down to earth here city california and with that that's all we have time for so thank you so much for watching and be sure to come back tomorrow and in the meantime you can follow me on twitter and more and lyster give us feedback get you to. dot com slash capital account catch us on hulu and h d and have a great night. well
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