five years ago when it was illegal and it's illegal today you throw in simultaneously buy and sell orders and tricks the market into either going down or going up and then you know concurrent traits elsewhere to capture that spread to capture the move in the options market for example i used to do as a broker it's standard procedure it's illegal but it's now done on a global scale and it's destabilizing not just a few chumps on the other on the telephone but entire countries the entire globe and stealing. it stacy i don't know why these kids coming up again and again because over and over again they don't the same thing the s.e.c. described layer is placing an order with no intention of having executed an effort to deceive others into paying an artificial price for security now to me that sounds like fraud well there are no criminal charges in this case the firm has.

to pay four million dollars fine that's the cost of doing business of course to pay four million dollars in fines if they make forty million dollars by rigging the market they market should be about price discovery where buyers and sellers show up and as a result of their interaction a price is discovered but today we're in a market where the bankers on wall street pick a price first and then fill in the fake trades to get to that price it's a complete reversal of what we have come to know as a free market capitalism and it's killing people. you mentioned price discovery there is a quote here from daniel m. hawk who is at the securities and exchange commission and he said the f.c.c. will not tolerate any abusive practice that is designed to distort these natural forces of supply and demand price discovery but that's false because as you see it condones these practices there are captured regulator the people around the f.c.c. are routinely implicated in securities fraud they they own. are not as

trustworthy as you can throw them but the fact that they can continue to lie blatantly as they are doing now is a testament to the complete lack of any accountability whatsoever in the system so firms like older brothers are known as direct access for him so they have their they have direct access to the prices on the market to the market itself so they're embedded into that matrix but since july twentieth levon so it's only been as recently as last year the f.c.c. has required directing for these direct access firms to limit risks associated with direct access as granting clients direct access to markets in these so called sub accounts could be used to hide wrong doing look when also explained they have access to the subject or the market making functionality of any specialist function in a market specialist operates as both a broker and

a dealer as move explained it before as a broker they maintain an inventory which means they have a proprietary advantage in buying and selling stocks because they know what's coming down the pike in terms of orders flowing to them if i can't believe that they took this basic flaw in the system this basic way for principals to front run flow of trades and turn it into a multibillion hundred billion dollar of global thieving racket so allowing your clients to access directly into the market is known as naked access so this was illegal after twenty eleven july of two thousand and eleven and yet in march of this year the market making unit of automated trading from get go was fined for going to them fifty thousand dollars for failing to mean proper supervision over it stop buying and selling again hoops we allowed naked access in this case it was an orgy there was like a almost a dozen guys naked accessing the markets they could access just means perm. access

where you're allowed to step in you know it's like saying here's a jewelry store and we're going to let a few people walk in after hours and take all the jewels that they want and not charge him with a crime and no wonder that there is a huge wealth and income gap around the world now one of the people in athens are back on the streets rioting no wonder spain is on fire now one of the social unrest now one of the global insurrection yes you say is responsible for what's going on here around the world so well the f.c.c. doesn't have any sort of responsibility all they have is civil lawsuits they can find somebody and that's it there is no all their role they have is the department of justice that can deem this what it is these are criminal acts they are due for auditing all their participants in the markets the the f.c.c. is there to be the front man for the department of justice with these sort of fines that's all they can do is fine people and the firms being fined can agree to pay

those fines and that's it so the other question i have however is we were told that these fines have been paid for this naked access on this front running and manipulating high frequency trading of markets that it's accounts from abroad they don't really say where they're from it could be some of the various hedge funds that the federal reserve itself runs because we don't know where they were driving these prices were they trying to maintain. a positive spin on the markets so there's another headline relating to this sort of manipulation audacious oligarchies the double flash crash in gold september thirteenth two thousand and twelve so trading was so furious in the december two thousand and twelve gold contract max that the c.m.e. circuit breaker was triggered and halted trading for five seconds so you can see from this chart one second before the halt two thousand contracts treated the price of gold down ten dollars for. seven hundred thirty to seven hundred twenty and so

the circuit breaker was triggered a pause trading for five seconds so now the x. who produced this chart said that for this event this basically means that this order represented a true intent to sell then we should expect additional selling from the balance of that order that triggered the halt when treating resumes however the additional selling did not materialize which leads us to believe the large sell order was meant to disturb any market based on the price of gold and disturbed the markets it did write well the dichotomy here. is that people who talk about gold are considered now by homeland security in other areas of the us as terrorists but people who actually overtly manipulate the price of these markets to circumvent the entire market making mechanism to manipulate prices and they get away with saying we're making a market this is again repeatedly the problem with gold in order to affect the price change like this when you are selling more gold and silver then there is

above ground there's only a billion ounces above ground there's only one hundred sixty thousand tons of bugs around in the case of gold when you so more than that on any given day to move the price down you know one thing is for certain you're counterfeiting securities contracts to manipulate prices that's not considered a terrorist act but if you talk about gold that's considered a terrorist act that's where society collapses that's where society ends up on the scrap heap of history when that kind of to turn in what legal system can exist then people simply revolt and they get rid of the current regime and they start again and this is where we're at today. now now next as i said there they said that they believe that fake order was a little order to disturb any market based on the price of gold now we call that the day after or just soon after that q.e. two affinity was announced so again who are these. people trying to manipulate

perception and the other thing i want to know is that with firms like mannix out there you're saying people who are talking about gold or talking about the manipulation of markets are now deemed suspicious they're not necessarily yet deemed terrorists there's deemed suspicious as suspicious behavior and they should be looked at so we're we're however seeing with the likes of nan x. or all the blogosphere the financial blogosphere like the the moment in the matrix where the cat is walking backwards people are starting to notice that the price of gold and silver have been manipulated that high frequency trading is manipulating markets defrauding other investors in the market they're noticing flash crashes they're noticing all these things are starting to pop up we notice that the holy ground the fake ness around us the artificial price is everything is artificial and the other thing of course that this gold price is is related to is live bor lie more i know you look here's a banker role in setting of life or so this is something again we've talked about

many times of the bankers are fully aware that their manipulating the live more rate to artificially in other words take everything you just about gold take everything in just about stocks and apply it to interest rates global interest rates to live more rates and they use it for the live war right to manipulate labile rates lower you need to have naked contracts in excess of more than a trillion two trillion dollars because this is a three to four trillion dollar a day market is a multi hundred trillion dollar four x. market so you need to be in minute relating trillions of dollars of contracts on a daily basis to manipulate live or down to these artificially low levels which have the effect of putting pensioners out of business i see pensions and there is most give of benefits here's nick clegg the liberal democrat saying pensioners must give up benefits no nick clegg pensioners must revolt against a corrupt bank of england that's stealing all their money with your help mate clay explain why you're out there calling badgers well max if you could hand me the financial times of their side. to point out you say that nick clegg says pensioners

should give up benefits and this is an important thing related to this headline here bankers neeld role in setting of libel or now the positive spin from the financial news has been that mortgage holders benefited from this crime so let's all be happy now when it clegg they're saying pensioners must give up the benefits well these two have minds go to gather bankers pensioners didn't give up their benefits when line bore was manipulated down and their pensions were defrauded. but all the same oh it's so cool bakers not beggars all right ses ever thanks much man that has a report thank you x. last night i interviewed well carlos the forces of san diego dot org about the latest bond fandango out in california stay tuned we'll be back right after the break.

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back to kaiser a part time now to go to san diego and talk with independent investigative

journalist well carlos well runs the website voice of san diego dot org well welcome to the kaiser report. thank you nice to be here your lowest investigation is titled where at borrowing one hundred five million of warcraft one billion poway scores tell us about the deal why did they borrow the money when do they start paying it off and why did it cost billion dollars max this is a deal called a capital appreciation bond it's something that's become very popular in california school districts over the last few years just reeks of struggle to sort of step float with the constant constant reductions in state funding the basically that this works is it's a it's a tax on properties the way it's very very difficult to raise taxes in california so one of the ways that school districts do it is by passing up a bond which they're allowed we allow them to raise money which they can then spend

on facilities and and stuff they're not allowed to spend money on people so what the power the school district it was to come up with this capital appreciation bond which is essentially is a deal where they don't have to pay anything at all on the loan for the first twenty years and then they pay over the following twenty years right up until sort of quarter years from now they've built they'll make the payment on their loan so it's a very very long term loan the basic idea behind it is that the property values going to go up so much in the community that twenty years from now or thirty years from now they'll be getting a lot more money in taxes not be able to afford the payments on this loan right it sounds like the plot from a show that is affan you see in high school productions the music man aware of plum plan man shows up and down any cells the score and everyone there and the marching band which turns out to be a good friday which bank under

a rock the bar from the score a district took that meaning with the banker who was advised thing this school district for the sham as always with with california schools there's also. of people who are part and parcel of this deal so you've got the very core of it you've got the school gone so the school boards who are the elected board are representatives of the school district along with along with their stuff along with the school district stuff so you have some facilities managers you have a superintendent who is like the c.e.o. of the school district you know these guys have been advised by. by a company called the delinquent group which is a financial consultant that has actually put together some other deals like this around the state and another group called california financial services those are the two financial consultants and then the underwrites of the sort of the investor on the deal is is a company called stoneham young don't know very much about them haven't spent much time there one of these sort of big wall street banks they're kind of the mechanism

by which this is done that this is all done sort of by the underwriter and and so so who put together this that was kind of a combination of the consultants kind of going to the school board and saying this is what you can do this is your different options and then the school boards it should be set in a public meeting probably of which there was they were doing no members of the public but add a bit meeting they put together and voted on this ball on this pond and approved it right now well carlos you've written an update on this a car what's really exotic about. million extra cash tell us about the front cash payment where that money went how districts are able to circumvent the strict dollar borrowing limits set by voters when a school district sells bonds to investors they have a base to those funds so let's say i'm going to sell you you're an investor i was school district i'm going to sell you one hundred million dollars worth of parts you pay me in theory you give me one hundred million dollars at some point in the

future those bonds mature and i pay back the value of those bonds that's how these cap appreciation bonds work that there's no kind of ongoing interest rate it's like you buy something off me four hundred me. dollars and in forty years i'll give you a billion dollars up until that point of no give you anything we're up early to with their deals was to also say look in addition to the hundred million dollars that you're giving us we also want some extra we want you to give us another kind of ten million bucks on the side and that extra money is called premium it's called getting a premium on your bonds well that money's not free right the investors not going to give you more money for nothing so the way that it's payback is that powell agreed to pay more in trast over the life of its sponsors agreed to pay a higher amount back when those bonds mature and they come due so the problem with all of this is that when california school districts are approved by the voters to borrow money to sell bonds voted to approve

a dollar amount they say look we will vote it's a proposition it's on the ballot voters come out and quit and there pose the question will you allow this school district to borrow one hundred million dollars and they either vote yes or they vote no if they vote yes then the school district can borrow the money but they're not voting for the school district a hundred million dollars plus another ten million dollars in premium so that that's where the legality problem comes in and in fact the california attorney general motors' a letter to paris saying you're not allowed to do this you're not allowed to get extra money on top of the deal that you're doing if you do that it will be illegal and what's so unusual about how is that they said we're going to go ahead and do it anyway. this type of abuse by financial sharpies you know picking on the local roads i mean we see this all over america town after town minister pouty after municipality what or how many times does the local communities are being

pulled by these financial intermediaries who are selling them a bag of worms is there no discussion at all in the community or is it is it a financial illiteracy problem is it a desperation problem is a complete no communication at all intercommunal nobody reads mad maybe it is actually a rolling stone pieces nobody reads the national press how can they how can towns like this continue to be victimized over and over again well let me let me just play devil's advocate for a second because i mentioned earlier that the way that these bombs are supposed to work is that if you go to think about this so right now how it homeowners how many in this district get charged a fifty five dollar fee every year for every hundred thousand dollars that their home is worth so if their home is worth three hundred thousand dollars then they'll be paying one hundred sixty five dollars to pay off these bonds the i did behind this the concept behind this cap appreciation bonds is that three hundred thousand

dollars house in twenty thirty forty years could be worth a lot more money might be worth a million bucks right so that and that fifty five dollars per hundred grand is going to double or triple or quadruple that's the concept behind this and i think it's important to remember that that might happen right we said extraordinary growth in home values assessed values in california i mean the point is that nobody knows that it's going to happen so i think when we talk about the issues with this and the problem with with it and frankly the scandal with it is not so much that it's absolutely guaranteed to be a complete nightmare because it's not it's just that it has to a whole sorts of things have to fall into place the assessed value has to grow. we have to see inflation if one of these things happened this could turn out to be the best deal in history but it it might not and it probably won't i think it's fair to say so when we talk about you asked about you know school districts being taken advantage of and everything else and i think that comes down to

a couple of fundamental things school boards that run these school districts are not financial experts they are politicians and frankly they're on the bottom rung of the political ladder nobody or very few people really except for a live very big school districts in california very few people pay attention to the school board elections it's not a particularly difficult election to win and and frankly you often end up with people who aren't you know the ground it is still the most financially adept in this case i think you have a group of people in that school board who are a mixture of people some of them are very very smart and think that this is a good gamble to take and others are perhaps not as as as sophisticated when it comes to finances the candidates are that is that these guys are supposed to have stuff right they're supposed to have financial staff who are very adept at dealing with finances and the difficulty is when the politics and the stuff clash so you

have there is you have a school board that promised voters we're not going to increase your taxes and that was a political promise and they then went to the finance people said how do we do this how do we borrow money without increasing taxes the financial people when it got consultants put together a deal where exactly that can happen the problem is that any way you can borrow money without raising taxes is if you leverage out the future and you essentially place the burden on future taxpayers so it's it's it's a clash of of politics and common sense a big and and it just goes to show i think one of the fundamental problems of sort of allowing everybody to be elected in in every rung of the government in california or across the united states so work our third. oh over there at the sammy voice of san diego that aura clearly. people are aware of what's going on here in is there any kind of because you know the point is this let me break it down to you the counter party for this trade is making

a massive bet against your community and house prices and they're rooting to see you guys fail that's the way capitalism works in america today the chances of you making money on this are exactly goose egg you guys are going to be basically taken to the cleaners and there's no two ways about it so you say there's no choice in the matter but contracts we know when it comes to people who are being victimized by these contracts and we can't break the contract but when it's hank paulson talking in front of congress when they need to break a contract for goldman sachs then of course it's perfectly ok to break a contract you know let me get your final opinion here what do you think about this two tiered justice system in america where the too big to fail banks can break contracts of well in the interest of of patriotism but the people like yourselves in san diego who are getting absolutely screwed by terrible deal sold to them by charlatans they can't break a contract where the mothers to tear justice system do you think that'll last much

longer or do you think they'll be some kind of return to justice in the in america i think about it i think people on only answer you're absolutely you know. desperately angry about it but i mean i think it's really we spoke come too far in this is nobody's going to take responsibility for things and you know there's a certain portion of that of our society of essentially becoming above the law right i mean that's that's what we're looking at here what i wanted to say about this deal you do and this is going to sound like i'm sort of excusing these guys then very much not because what i would i would like to see sort of the blame placed on it is not serve much the financial institutions of this together but rather the public. officials that allowed it to happen right business this people banks whether we like it or not banks are in the business of making money for their clients that's what they do and we can argue for hours about whether it's ok for them to do that on the backs of the public but at the end of the day they're going

to do it on the backs of somebody in every financial transaction there's a winner and there's a loser the public officials the star who instead of get paid to do them out of money and under certain other crises these guys are responsible for making sure that bad irresponsible deals don't get made and that they don't get taken advantage of by people who are in the business of making money for themselves and for their currents so really who do we blame do we blame the guy who selling the pig in the back or do we blame the people who are too stupid or too shortsighted to look inside the bag and see if there's a paper that right ok well what rick out of out of time but clearly what we know from experience is that these public officials are on the payroll of the bank this time next year the scandal will be that they took bribes from the bank and that's why they decided this horrible deal and your community is going to be in a horrible shape but that's that there's no rule of law but it doesn't seem like

there's any problem with that but all right well carlos thanks thanks for being on the kaiser report out of time all right no staci all right and that's going to do it for this edition of the kaiser report with me max kaiser and stacey herbert and thank my guests well carlos is going to send an email please do so at kaiser report at r t t v dot are you and i stand back together saying by our. money. you.

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