billions created daily you can gamble with your money or turn it into solid gold. request the gold and silver investors god. call today eight hundred two hundred seven gold. good afternoon and welcome to capital account and more in the store here in washington d.c. these are your headlines for monday august thirteenth two thousand and twelve as we all know by now mitt romney has anointed paul ryan his running mate for his presidential bid in two thousand and twelve but what does this v.p. choice really mean for free market capitalism and fiscal reform the pillars of mitt romney's electoral platform we'll hear from the marketing karl denninger who has been rather vocal on the matter plus we're seeing plenty of analysis of competing plans to rein in government deficits but do any really do this or do they simply shift costs and fail to address the actual problems we'll take

a look at ryan's budget and remember the time you were helping launder money for it and to do the government had imposed sanctions on and then you got caught and called out by authorities publicly and you were so upset you fired back somehow leaking to the press that your lawyers thought you could sue the reputational damage and you ended up settling charges i'm just going to continue on as usual oh no you don't remember that young because that would never happen to you or i but if you're a big bank not to worry we'll talk about standard chartered banks and the rule of law or lack thereof in this country let's get to today's capital account.

so by now everyone knows paul ryan is mitt romney's v.p. pick for his presidential campaign but what surprise addition to the ticket we've seen courtesy of some media reports and commentators is rand as in the supposedly tax hating capitalism loving libertarian inspiring objectivist philosopher now though paul ryan has publicly distanced himself from rand that's neither here nor there he is a politician after all and so many are dissecting the rand inspiration ryan has cited publicly over the years so we're now on the ticket we thought we should look at how her objectivist anti-socialist idiology has been manifesting in her acolytes so far well looking back at tarp medicare part d. and the iraq war paul ryan obviously voted against subsidizing the banks and the per script drugs of old folks and green lighting a war that added hundreds of billions of dollars to the deficit he purports to want to cut right now wrong he voted yes to all three how's that for socking it to the

government looters and moochers early showed them and his budget which is supposed to reform medicare what impact the program for those fifty five years and older and it wouldn't change for ten years what the government budget is in a horrible condition now why not start now oh as david frum points out these days americans over fifty five vote heavily republican under fifty five lean democratic under thirty's overwhelmingly so what in a healthy dose of politically motivated social welfare there is nothing like it i am a little love it ok well moving on monetary policy wrong and must hate the fed printing all that free money right maybe not behind closed doors as one of the producers right here at our t.c.m. night found in a december two thousand and eight wiki leaks cable and wrote about in a salon post today behind closed doors paul ryan sounds like. a regular keynesian

representative ryan recalled the federal reserve chairman bernanke he was one of the most prominent scholars of the great depression in the one nine hundred thirty s. and that two lessons he had drawn from bernanke his academic work were the negative consequences in this type of crisis of taking liquidity out of the system then acting protectionist measures well that is to raise expansionary of you'll see o'brien what can we say i know this actually reminds me of another so-called rand acolyte we've heard a lot about that's right mr bubbles themselves alan greenspan as the narrative goes alan greenspan was in and on rand disciple and this is why you unleashed wall street's greed pushing deregulation believing the market would regulate itself and when it didn't turn out that way he famously conceded defeat this soundbite is often played i made a mistake in presuming that the sofa interests of organizations specifically banks

and others are such is that they were best capable of protecting their own shareholders. ok we'll find that many other policy makers were on board with deregulation all of greenspan that would never be grouped in the conservative libertarian camp that stands to be inspired by an rand bill clinton anyone look there is conspiring with alan greenspan after signing the repeal of glass steagall the bill repealing it and look there's a whole crew after that bill was signed larry summers to not picture of the derivatives they do really deregulated during that administration and yes in the sixty's greenspan may have touted hard money in pay fors he wrote in the absence of the gold standard there is no way to protect savings from confiscation through inflation there is no safe store of value but when he wanted to head the fed he left behind a legacy of incredibly expansionary monetary policy keeping interest rates too low

for too long helping to inflate a housing bubble and failing to pop a tech bubble so i namor with propping up the markets as central planner in chief that the greenspan put was adopted into the vernacular how is that for a lot of fair what rand. is never going to look my point is not that following on rand is good or bad or anything i am not judging it's not to preclude thoughtful examination of a public servant philosophy let's just not be van bozo by overlooking the evidence is all i'm saying and if a policy maker heads to capitol hill with ideological dreams but check some at the door when he enters the great marble halls of congress to vote or when they go to the fed to lead an act. print money then there actually is an iran lesson here as the author once said or wrote a building has integrity just like

a man and just as seldom and that's a cob ya think does seem valuable as we assess the men who are vying for top leadership positions in the white house this year earlier i spoke with karl denninger author and trader his book is leverage how cheap money will destroy the world and we often talk to karl as a financial analyst but i had to ask him first because he is an active libertarian given one narrative that i've heard that libertarians are happy with this paul ryan pick because they feel libertarian philosophy now has a chance of getting to the white house i asked karl if that's how he feels or if this is just another establishment politician i don't see anything libertarian about paul ryan. is budget is a scam and he's been running this scam for the last two years one of the things that he continues to tell people is that this will solve medicare which is of course the money her problem grill is going to blow the federal budget the problem

is is that even though if you used to see below zero numbers which are usually wildly optimistic they say that medicare spending under paul ryan's budget would actually be higher than what president obama has proposed so i'm not quite sure how paul ryan gets this idea that this is somehow libertarian because the idea that we're going to allow so-called choice for certain people and yet allow everyone to fall back on the system that they have now driving costs ever higher isn't quite exactly what i had in mind when i started thinking about libertarianism. well you know i had a feeling you were going to say that especially judging by what you've been writing about paul ryan's medicare plan now one thing i want to pick out that you just said was that according to c.b.s. to metz paul ryan's plan actually advances medicare costs faster than obama's is that could you quantify that a little bit. the the divergence starts in these so-called years and this is one of the problems that you have with all of these so-called plans and that is that

nobody wants to eat their peas during the years that they're still in office so we put these ten year budget plans together or in the case of ryan is projections go out thirty and forty years and they call for things that have simply never happened in the history of the united states and yet even with those assumptions medicare spending grows at a rate faster than president obama's budget so where he gets his so-called savings is from other parts of the budget and the problem is that what he's looking at is of course though the number that matters which is the percentage of g.d.p. or total output an economy that gets taken up by the government his goal is to get that down to a little under twenty percent the problem is that the projections he uses to do that say that will grow the economy at about five percent every year for the next thirty years with no recessions wow i found that right if not me after that growth plan we're going up from a yeah well there's the problem of course is that's never

happened in the history of the united states and so. we have these crazy assumptions that are baked into his numbers and that's just the beginning of that they get crazier from there but this is one of the problems with budgeting that we have in this country and you can run these kinds of insane projections that are simply never going to happen and then you can claim old get mean i'm so conservative i'm fiscally responsible and of course we're going to we just have to look at what happened during the years when clinton was in office where it was projected that by twenty ten there would be no federal debt at all and of course we saw the actual results of course that and according to one of the popular manifestos paul ryan is this guy who's going to come in and really attack the dad and people are saying oh no i'm worried. about austerity and other people are saying oh great he's going to tackle the debt but it seems like he falls dramatically short of either of those i want to delve

a little bit more into his plan his budget as it applies to medicare because that's something that a lot of people are focused on and i know you spent a lot of time writing about this and i think that you can offer a really unique perspective because as opposed to delving into the what his plan is or isn't that you know starts ten years from now doesn't affect people fifty five years old and older turns into a voucher program that aside does it begin to even deal with one of the main problems with health care in this country that you and i have talked about at length which is health care costs how do you do anything without tackling. that's where the problem lies lauren and and we are not addressing this because to address it means we have to solve two problems medical care in this country has discussed doing cost shifting and anti competitive activities that are embedded within it and those are present as a result of government action as soon as you show up in an emergency room having

a heart attack or some other emergent the condition that requires immediate treatment whether you have any money or not whether you're a american citizen or not the law says that you must be treated whether you have any ability to pay so what ends up happening is that when you come into that same hospital with a routine procedure later on you get to pay the bill for the people who are unable to do so and this extends throughout the medical system in the united states we have the same problem going on with the development of drugs and devices other nations say we will not pay for the development costs of those things we will only pay for the what we consider to be a reasonable cost of reproduction for example for a drug or for a hearts down to whatever have you and as a result the american consumer is forced to pay all of the development costs for everything that are used throughout the world we cannot continue to do this and yet this is the rot that is at the core of the medical cost escalation that we see within the united states from one thousand nine hundred eighty to last year medical

costs have gone up across simply nine point three percent a year to put some numbers on net that's from fifty three billion dollars and this is just the federal government this is not private care fifty three billion dollars in one thousand nine hundred to about eight hundred twenty billion last year at this rate the entire federal budget will be consumed by medical care within twenty to thirty years that cannot happen and yet that is the just what's wrong with the system today and i thought that your thing the essentials you have continuity unsustainable and twenty forty two right. well i know. the mathematical limit is a twenty forty two but of course you can spend anywhere close to one hundred percent of the sort of budget of medical care so it actually breaks from a budget jury perspective and from a federal government funding perspective somewhere between five and ten years well daryn that doesn't get us to twenty fifty when the cvo says that ryan's plan would bring medicare costs thirty five to forty five percent below their current levels

what a shame. i said clarify ryan's proposal is a choice between valid terms and the traditional program for medicare for a karl denninger after the break though still had a tale of two thousand and two institutions standard chartered knight capital we'll talk to karl about what these stories reveal about the rule of law or lack there of that first or closing market numbers.

what drives the world the fear mongering used by politicians who makes decisions to break through that sort of to be made who can you trust no one who is you who with the global machinery see where are we heading state controlled capitalism is called sessions when nobody dares to ask we do our t.v. question more.

welcome back standard chartered is trying to reach an early settlement over charges that had two hundred fifty billion dollars of transactions tied to iran that's according to reuters so with this news it seems similar it would appear to other banks who have quietly settled similar accusations such as barclays credit suisse and j.p. morgan so i talk to our guest about the rule of law or lack thereof in this country because i'm pretty sure if we were doing these things as individual people we might be arrested but first i did want to touch on paul ryan's plan to cut medicaid we didn't get to that before the break but for medicaid cuts are much more dramatic in his plan than for medicare and it turns it into block grants for states so i ask

all denninger trader and author of leverage if this is just caution and that impact take a listen. the problem with block grants is that moving money around from one part or another doesn't change how much gets spent always changes whose budget it blows up so is the real problem with our shifting is that again if i can source you to pay somebody else's bill then at the end of the day that other person who gets the services for free has no incentive to be conservative was what they used it as a result cost continue to ramp and we don't get any kind of economy driven by people's actual ability we had a working system that was quite successful here in this country for a long time were those people who were indigent they had no money and no resources or no insurance or taking care of by charity and it did not provide equal outcomes for everybody but that is a goal that cannot be achieved without destroying the finances of the country i

mean that's a pretty bleak assessment i do i do understand where you're coming from the it is an interesting discussion that will continue to be had we are talking about the cautious thing does remind me a little of what we've seen with spain where suddenly all the regions need bailouts and now it's because lo and behold a while back the federal government pushed a lot of these social services cost to the states guess what they still can't afford them so it comes back again to the federal government it's an interesting discussion let's switch gears because i want to talk about another big issue right now that you've been writing about and talking about and that has to do with that the tale of two institutions i guess you could call it so you have the knight capital story and you have the standard chartered story i want to get into both separately first because because they really reflect two different things so with knight capital you have a firm that because of a massive blunder could have gone bankrupt and they secured financing at the end of the day but before they did that it was precarious they called mary shapiro the f.c.c. and said hey can you help us can you cancel trade she said no way is this an example

of the right thing this firm had to deal with it in the private sector without the help of the government. this is what's supposed to happen you know it's most unfortunate if you're shareholder capital because you've seen your value largely destroyed but this is what is supposed to occur when companies do stupid things and we have seen throughout history that actually good because what knight capital daws has is a function in the market is matching orders from buyers and sellers and so there are their entire purpose in life is to try to find nickels to pick up in front of a steamroller well the more aggressive you can get with your ability to try to make money doing this the more risk you take in this case it appears that they loaded a piece of software that was defective onto their computer systems and instead of making a penny every time they did a trade they started giving away dollars. very soon they gave away all the dollars . yeah right in forty million dollars worth. yet you know forty million dollars

seems to have just kind of walked out the door but it wasn't due to anybody's criminal activity it wasn't due to anything that was was group good other than by their own hand if i want to stand on a street corner and hand out hundred dollar bills i don't know that i have any right to complain once i find out that i'm broke yeah ok so there is there is one example of a tale of an institution where for once we have an example of kind of the right thing happening now let's talk about the flip side of this tale of another institution let's talk about standard chartered and this case is really blown up in the news although many firms have settled with the u.s. government over similar charges this one we had a new york regulator that was very loud about allegations of money laundering for iran because the united states has sanctions against iran and standard charter allegedly was doing this through their new york office now i don't want to make any kind of value assessment on the u.s. as policies toward iran everybody will have their different opinions about that what i want to talk about is the fact of the matter is that in

a country that standard charter is operating and doing these things allegedly the law is that you can't do that you can't launder money for ron. according to u.s. law now karl if i did this if i was funneling money to you ron i would be locked up so fast i wouldn't even be able to say goodbye to my staff ok i would be gone who knows maybe i'll be shipped off to get mail i don't know what the policy is there currently but there's a standard chartered you get to settle and you get to have the gall to say hey you know what this regulator is out of line coming out with this other regulators from the federal level will come out and say the same thing people the media will say whoa this regulator is going rogue karo is the law different i'm missing something here. no i think you got it right the the real call here isn't just that they allegedly violated the law in laundered these transactions is that the allegation and in the real nine her bungalow in the room here is that essentially

all of the allegations in the complaint are that they intentionally stripped identifying information off the transactions so this is not a situation where they averted their eyes and some bad guy was a running through of money or you know money for terrorists or you know whatever the situation is this is much much more complex than that because what the the regulator is alleging is that the bank intentionally removed the identifying information so as to essentially smuggle the money so this is akin to getting in packages u.p.s. that has a bomb painted on the outside of it and you see this package it says bomb and it's addressed to the white house well obviously you're not going to deliver that right so instead you get out the spray paint and you spray it with. that you look at the plate and that's essentially what's being alleged here is that the bank

intentionally obscured the information that made it possible for regulators who monitor these things to see that something funny was going on and didn't deserved investigation well the whole point of criminal law here is is one of intent you have to have intent a criminal mind and when you can show that somebody has been intentionally altering information to hide things that's a big problem and i and frankly i have a real issue with the way our government has handled this at a federal level over the years because we have seen hand slap kinds of penalties for barclays as well as other banks that have been caught doing the exact same thing and apparently swift which is the network this. you're. identifying going to shorten distribution of all of these transfers and they were literally taking the identifying information all yeah so we have some signs of hope with the

knight capital story and a lot of signs still of some problems with regulation of the banks and the financial system i do want to address one more issue before we go which is one of the issues that arises from high frequency trading because although knight capital might be good to go they've got their money there are a lot of issues with high frequency trading that this case really brought to the headlines again and first i want to look at the growth because we have this great visual that i think you posted a first on felix salmon site so people can see how high frequency trading has really grown over the years it's become a larger and larger portion of the volume in the in the u.s. equity markets on any given day it's just gotten pretty out of control so i just want to know if you have any concept of how to deal with these problems are what can be done to minimize the potential fallout conned by firms like knight capital in this high frequency trading business. well there's two things that we could do that graph by the where we've originally sources from man actually actually is an organization that has done tremendous work on trying to analyze and understand this

stuff. what we need to look get used to full first is that the entire purpose of an exchange of any market is price discovery and the securities act of one nine hundred thirty four says that is against the law to put an order into the system on any exchange for any purpose other than to buy or sell that security so if your intention is to manipulate the price no matter how you do it no matter what device you use it's illegal so if you are putting mortars into the system for a purpose other than to transact in at security your breaking the law we don't enforce that and one of the ways that we could easily enforce it is to force these orders to be valid for a period of time that makes them exposed to everybody in the market so if we were to for example say that any order that is placed into the market is valid either until it executes or until two seconds go by now that you can't cancel it for two

seconds. then you could not do the kinds of things that we're seeing with high frequency trading as a means of trying to bait people into doing things in other words you would only have to place orders if you actually wanted them to fill but that's what the market is supposed to be and that's what the law says you're supposed to do and so that's one solution the bigger question i have with regards to high frequency trading and specifically related tonight is that it has been reported that their position was largest seven billion dollars during the day the firm didn't have capital or margin credit lines of seven billion dollars now i trade all day long for my own account that's what all screens are that it will hind me and i cannot place orders into the system that exceed the amount. margin that i have available to me as a trader apparently this restriction doesn't apply if you happen to be a company like knight capital it probably also doesn't apply if you happen to be

something like say goldman sachs with a highly entertaining business i have mentioned continue on. and here's the problem at the end of the day how do you get yourself into a negative equity position like this how do you take on seven billion dollars worth of position if you can't clear seven billion dollars worth of trades i'm not allowed to do it as an individual sitting at my desk i don't see any reason why any other financial institution should be in a different position. a retail trader can do it why should have for our vets what karl denninger calls one dollar of capital that's his plan you just heard it he's author and trader and that is our show for today it's all we have time for thanks so much for watching and be sure to come back tomorrow because on this show is neil barofsky he wrote bailout you may remember he was the special inspector general for tarp in the meantime you can follow me on twitter at warren lister give us feedback on the show any you missed i you tube dot com slash capital accounts you can watch

us in h.d. on hulu and from everyone here in the meantime have a great night and. those stories are here. for going global and. viral. load you. choose your place. take your stuff and. make your statement. with the words. if you plug the street. wealthy british films on.

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