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good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for october fifteenth two thousand and twelve finance chiefs the world over are concerned about another global recession the eurozone crisis the u.s. fiscal cliff and a slowdown in major emerging economies and they totally disagree and are bickering about what to do next this is all according to accounts from the i.m.f. gathering over the weekend in the wall street journal and by bloomberg for this bird's eye view it's easy to lose sight of some of the new wants is of the world's economy here to bring us a view from the ground fresh from myanmar is chris mayer and is the c.e.o. of morgan stanley a reformer relative to his too big to fail peers trying to get the bank told a lower risk less complex model well that's how he's been cast by some in the mainstream press but forget about that what about banks that have stuck to

a conservative vanilla banking model even during the boom times surviving despite losing major market share to financial sausage factories how does that work we'll hear about a case study of sorts and fed chief ben bernanke he speaks against the benefits of currency management slimming developing economies who are resisting pressure is on their appreciating currency through this case of do is they say not as i do or is bernie he really this clueless we'll talk about it let's get to today's capital account. so if you look for news on myanmar today you might find reports on thousands of

buddhist monks marching in major cities to protest the opening of an organization of islamic cooperation office you might find a story reporting further back on sectarian tensions running high in a western state of the country after clashes in june between buddhists and muslims which left ninety dead and just place tens of thousands now that's obviously a horrible story but so often what you or i may know of a region if we don't have the opportunity to travel is limited to what we read or what the press is reporting and so much gets missed now our guest today travels the world looking for investment opportunities and economic opportunities in emerging markets and he's pretty excited currently about me and maher so here to talk about why and what lessons we can learn is chris mayer he's managing editor of capital and crisis writer for the daily reckoning and author of the book the world right side up and thank you so much for being back on the show fresh from your recent trip thanks for having me on yes so it's interesting after the i.m.f.

this weekend and there is some concern about the major emerging economies that we hear so much about that have been driving global growth and they've slowed down a little bit and people are figuring out what to do now with the right policy response that there should be one if you believe that sort of thing you know sometimes we lose that we don't hear as much about the emerging markets off the beaten path and one would be myanmar and you were just there and you were pretty excited about it so tell us what's going on there and why you're excited yeah i think the myanmar story is pretty simple really you have an economy of about sixty million people that have been pretty much shut off and isolated from the rest of the world. and so you're starting from such a low base there's tremendous opportunity there for everything from tourism they get about two hundred thousand. visits a year versus say thailand is kids eight or nine million so there's plenty of opportunity for tourism there is they need hotels they need office space it's just . natural resources oil and gas in particular so there's a lot of opportunity there as they just sort of catch up to regional peers ok and i

think it's interesting though like why is it fifteen hundred dollars for a studio and one of the cities that you visited that's what i paid for a studio apartment in one of the nicest areas of san francisco that was beautiful five years ago and yes this is the real estate market has already adjusted very quickly especially in yangon so apartments are very expensive for just the space you get outside of the big. prices and maybe haven't adjusted as much but that's the reason there's just no supply and you have to think about this is a market where there's been no debate virtually no development for fifty years so again a lot of people make the comparison with thailand because this is a market that maybe sixty seventy eighty years ago is comparable to thailand now yes yeah there's a huge gap between between the two so the investment idea is if they just move a little bit towards thailand you get huge expansions in everything i mean there's you know thailand uses forty three times as much fertilizers mean more and there's all kinds of statistics like this you could look at per capita incomes you could

look at you know office space i mean there's one building in thailand that has more office space in the whole city of yangon. apartments in the same way i think there are very many apartments there are very many hotels so this this will happen as the market just ok but we're not there yet ok so where are we in the scale of. development very very very nice very very early very early just i mean this is all happened very recently and they've started to open up so and just for people that might not know the story of myanmar i mean most people probably think of the nobel prize winning opposition leader at the right and with under house arrest for years but it was under military rule really for a matter of one nine hundred sixty two till just very recently so but if you look historically myanmar if you go back to say as late as one. forty one for example they were the fourteenth largest oil producer in the world most people or it was find the largest oil never going to share in the world that is shocking and that

actually plays into something you're writing about what you said this is a case in point as to why we are not on at peak oil and i want you to elaborate on that because sometimes the view that we come from is how are we not at peak oil when you have all of these wars and oil rich countries and you have oil companies digging deeper and deeper and deeper to get oil so so tell us what myanmar teaches us about well i mean more teaches you there are still vast untapped areas where. we will get future oil supplies will mean marsters one to add to the long list of offshore exploration in brazil we've had places open a bottle of africa and you know u.s. oil production is rising now and so myanmar is going to be a big supplier of oil now what's interesting about myanmar also is the geo political consideration because what are there and especially because of the oil and natural gas and particularly already even now i mean more supplies thailand with twenty percent of its natural gas but they look at china for example they get most of the oil comes through the strait of malacca and the problem with that is

that the u.s. seventh fleet patrols and so he's been sort of a strategic contention with the chinese so a way to get around that is to build a pipeline through me and mar which they're doing to go right into china province. so this is this is something that you can look at in terms of the china growth story because this is access to you know the chinese are putting a lot of money there know the chinese never had any sanctions on myanmar so they've continued to invest there the largest investor in the country now thailand is number two koreans are big down there and this is what they're doing they're building a building ports. they're building pipelines are building highways and so all this i think this is exciting stuff in the oil companies come in they're going to have they're going to bring billions of dollars of investment they're going to have bring lots of workers and they're going the housing and there is just going be a lot of money flowing around and since you're starting at such a low base in. have you figured out any investment opportunities for the average joe retail investor they're going to know

a little earlier what do you tell retail investors as well i'm working on some things now but it's not an easy place to invest as a retail investor i'm finding there's the me more stock exchange is very limited and there's a there's a company in singapore called which is already very expensive it is and has already made a big adjustment so there's some private equity stuff that i think will be more interesting funds that are opening up the investing business is so that's what i'll be writing about soon but it's not an it's not an easy place not just a ticker symbol i could send you to buy one that's perfect that's not what the show is about at all this is much more about talking about some of these big picture issues that that end of the story like oil that you're talking about and another one that i found interesting was what this says about currencies because here's a picture of a gold leaf shop where they're making boldly that we have will bring it up in a moment so that's you know kind of interesting anecdotal i know i know they have a history of of gold back in the day however now their currency is the chat i hope i pronounced that right however when you were there you were needing to get your

hands on as many very new clean u.s. dollars to do commerce and so why is that and what does that say how does play into kind of pimco the cleanest dirty shirt yeah this well and mean more they don't have credit cards or your credit cards are practically useless so they go buy everything with cash and we travel throughout the country but hotel airfare in the country all by cash and they only take very clean crisp dollars so. dollars rejected because they had small tears or because they were older because the c.b. in the sea room serial number. so we're constantly sort of shuffling dollars around but they'll take dollars they take dollars fine and chat. also take a chat you know throughout the country of course. and the exchange rate is something like eight hundred to one. hundred. dollars ok so how this plays in i

mean i think the way the interesting thing about me and more to the way they. sort of put their savings into place is mainly they don't use the banks at all i think two or three percent of the population for example uses banks but they buy property they buy gold those are the things that you see i mean is it big enough that there would be any impact on gold prices or no i mean you know i don't think that anyway but maybe down the road they could be big buyers ok interesting and i want to bring up a picture to. the apartments that i didn't get to earlier because you can see kind of what looks like you know more rundown apartments but then it looks like those white buildings that's quite a bit of money has been put into writing those is that kind of an example of some of the development that's going on there yes you know when you that's downtown yangon and again there's. just walking around you see a lot of very old colonial buildings buildings that have been untouched for fifty years so. it's just it's

a very it's almost like i call the bottom of the east because it's sort of like a frozen in time kind of place but that shows you the time of opportunity the metal work just you still have to do it renovating properties and getting them up to western standards as tourists come in and so do you think there will be opportunities for back to the retail investor will there be opportunities for those folks there is this going to be a case of the big multinationals that get all of the opportunities to go in and pillage this poor country and that's when i think it kind of depends on the sector i think the oil and gas is going to be it's going to be a game for the majors so i don't know that you'll have much chance there but. yeah now that i've finally man is innocent and that because you have sort of in the spotlight that's where all the attention is going to be i think more interesting is the look at some of the small businesses and things so that i can say will mostly be the private side so we'll see fun. well you'll have the opportunity to do that ok and quickly one thing i wanted to circle back on to before we go to break you mentioned sanctions and i think it's interesting you noticed some impact of kind of

a case study on what happens with western sanctions in some places what was it that you found to be the impact looking at a country like me and my well i mean more you know because they don't have because india china and thailand which are all around them did not have those sanctions did not have a big impact as you would think i mean one of the things that struck me about myanmar was that it was not as poor as you would expect or it was and it wasn't like i've traveled to india and there's desperate poverty there you're here you have beggars come up to you on the street and it wasn't the case in yangon you see prosperous shops i mean they're poor but it's not it's a different kind of poverty so i would say at least on the surface they they're better off than the story that you hear at least with. official g.d.p. statistics and things like that ok and you attribute that to the fact that they've still had a normal economic relationship with many of their neighbor actually thailand here in china especially in those two special yeah it's interesting things to know we

will have much more after the break we're switch gears come back to the us talk about some interesting insights here we'll have more chris mayer author and managing editor for capital in crisis in just a minute still ahead bernie he defends his policies at the latest i.m.f. forum in tokyo we'll tell you why developing economies may not approve of the fed chairman's recent actions in tonight's loose change but first your closing market numbers. are sure is the same or. maybe you would like to hear the real story again we're going to be risk getting back into recession just three years out of the previous. growth is slowing and.

download the official. cell phone language stream quality and enjoy your favorite. t.v. is not required to watch on t.v. all you need is your mobile device to watch ati any time of. the for. welcome back so let's switch gears let's come back to the us james gorman is the c.e.o. of morgan stanley and there's been some press recently about his efforts to change

the shape of the firm and bring leverage down low risk we're not very optimistic about too big to fail bank reform where you were interesting to us and compelling is a bank that our guest has been writing about is kind of a case study in conservative vanilla banking it stays that way during the boom despite temptation and is one of the best capitalized banks in the us today so we're genuinely interested not in hearing about morgan stanley but hearing about the third federal savings and loan as a case study of sorts why and how this bank resisted the temptations of financial innovation and lived to tell about it so chris mayer author and managing editor of capital and crisis tell us how did they survive and thrive through this boom with with resisting the temptation of financial in innovation well some of that is they learned say no so they were they didn't get involved in the a lot of the crazy mortgage lending that went on and so it cost them market share in the short term but longer term course they were able to get through the

financial crisis with as much trouble but it is an interesting case study and like you say there's there are other banks like this there are there are dozens and i recommend least a handful of them to my readers but basically these are small banks they've got lots of capital and they stuck to this to the plain vanilla business of just taking deposits and making the simple mortgage loans great right and i want to get more into that but first i want to look at this case study for one more moment because you mentioned that they lost significant market share ok they had a market share of thirty percent in northeastern ohio that declined to eleven percent by i think two thousand and ten or eleven so they lost significant market share this is a publicly traded companies so this is a c.e.o. that has to answer to shareholders and in my experience you know there's a lot of pressure quarterly to deliver so how does a c.e.o. whether that. and be able to stick to his well there's really one very important thing and that is that the management team has a significant stake in the business they can get they can do do that kind of thing

so one of the things i found is that when you have these financial institutions where the executives are only with options and they don't have a lot personally invested. online they behave very differently than a group that maybe has twenty or thirty percent of the stock and so that group is much more likely to be careful with capital and less and take less gambles so so more of this banks have their executives more of their compensation you know that they and their investment that particular bank long history is the family runs to the current c.e.o. as parents started the great depression so you know that's see examples of the kind of bank i think you will look look for which is the ones that didn't take part in that whole boom and that have these more conservative principles and where the people running them have a stake in the business so that is very interesting because we often talk about how to make bankers accountable and no amount of regulation arguably is going to do

that until there are some people some would argue and i tend to agree until there is personal responsibility you're worried about losing your capital that's the best way you want to have somebody behaving in a prudent manner you make them have their skin in the game yeah so then looking because i mean the last several years we've just seen a huge uptick in bank failures you know going from just a handful two thousand to two thousand and seven that we saw one hundred fifty a year you know now it's down less than that i think it's you know forty something year to date but if there is to be an expansion of the kind of model you're talking about of these kind of small vanilla banks that they stick to that even when they're under pressure with their stock price or shareholders. would there need to be a change and regulation or in the business model to make that more by. do you think it's a complicated question i don't know how you reinvent the banking industry so that they don't make bad loans i think that's part of the business and it's going to

happen but you can i think the best way to make banks safe is that is to make them have more capital. and so this particular bank as a numerous amount of capital compared to what's required any one percent right and you know has a six percent to six wired yeah exactly so there are banks like that where you have significant insider ownership and they have a lot of capital and two things are somewhat related but if i were to reform banking somehow that would be the first way that i would do it is to require the banks to have a lot more capital not be able to leverage up so much and that makes them able to withstand the inevitable waves of bad loans that they're going to me then riddle me this why is it that the big banks that passed bernanke you stress test too much criticism from naysayers that said hey these banks have plenty of risk to the mortgage market bad mortgages litigation and yet they got the green light to raise their dividends but little third federal savings and loan that has done a good job and has been you know very diligent in managing themselves they can't

pay a dividend like that yeah and they're operating and know you right now and that memorandum of understanding and that's kind of a complicated technical thing i don't want to get too much into yeah yeah no that's fine but you know there was a i think that will get lifted and they'll be able to pay their dividends some point but you're right the big banks get away with a lot but what i always tell people is if you think about the federal reserve bank as a banking cartel then a lot of the things they do make more sense i mean the federal reserve exists to help the banks especially the big banks and they're not going to do anything to harm them they can help and here's a pretty good example of that you know that's a pretty different scenario in front of tremendous pressure right now because all the increased regulation has a lot of cost to their business models and so the banks that are able to pay the giant banks and the ones that are against leave the little community banks like. this which before us i think the community banks could be on their own on the road to extinction and we could eventually see a lot of these smaller banks bought out consolidate into larger banks so they can

meet the high costs high cost regulatory environment right so perhaps we are going to see too many more of these third federal savings and loans popping up maybe there are a dying breed really quickly before we go and tell us why you're optimistic about real estate i want to bring up the indicator that's one major reason why that you were writing about if we could bring up that graph it's the spread between the cap rate and ten year treasury yield so what does this tell you about real estate that they that bullish right well for one thing you know borrowing costs are pretty low so you've got low bar and costs and the called the yield of the cap rate that you get for being the owner of the building is here and the boring rates here so that gap is why has it been since two thousand and two really and when you look at two thousand to happen in two thousand and two the index almost tripled from that point so it's really a good time to own real estate now and i know that the low costs barring borrowing

costs that we see are something of what i like to call for smile because yeah federal reserve is doing interest but there's going to let us from some walking up ten year rate i mean i just refinance my mortgage fifteen years at two point seven five so. you know companies that do have to and they're buying commercial real estate and right so it's a forced smile but if you're well capitalized to take advantage of it you can get the last laugh that we got to leave it there today but thanks so much chris mayer author of managing editor for capital in crisis. all right let's wrap up with loose change to make your coffee and joins me in the hot seat to talk about who else he was in tokyo to for the i.m.f.

meeting where he fought back against the criticism that came with his latest round of q.e. in the u. s. central bankers and other developing economies you know i know they often complain that the fed's actions are hurting their economies by pushing them pushing their currencies to appreciate but ben bernanke you fought back saying the following he said that in some emerging markets policymakers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth however the perceived benefits of currency management and evidently come with costs including reduced monetary independence and consequent susceptibility to imported inflation in other words he's chastising other countries for doing exactly what he does with monetary policy in the us is this just the kind of thing you can get away with when you're dubbed as the hero by some yeah it's like the same thing you know the guy who's that guy is middle eastern scholar he was a professor at columbia you're

a good muslim bad muslim and you use this phrase others have one man's terrorist is another man's freedom fighter so like ben bernanke is a freedom fighter for america. these emerging market economies is a piece of financial current financial terror and which is where before we use that term to give you props when our credit is right yeah so anyway i think it's a funny thing about about ben bernanke he's he's basically terrorizing the emerging market economies by generating all this liquidity buying up so many assets pumping so much money into the global economy these guys are running around the chinese central bank the brazilians are black and they're printing money to soak up the dollars so they can keep their currencies at a competitive level this can buy their tire industry so let me ask you this do you think ben bernanke he just believes in his heart of hearts like do as i say not. i do and that's appropriate because for whatever reason or do you think he's really clueless and doesn't get the odd hearing me. talk i mean. he definitely

he definitely is yeah i don't think he i mean i guess i think he's just above it all he just doesn't think that the rules apply to him so i don't think i don't think you see that as hypocritical for him but i think if someone else that he'd soon as it were just like is above it that's the kind of comes with we when you're when you have a sense of when you're the hero and you're saving the day you know you can do whatever you want really more all right that's an old magazine cover by the way we just thought it was appropriate let's move on to another financial heavyweight german finance minister wolfgang schauble he emphasized recently that the e.u. should not focus on greece leaving the euro because he thinks that their membership in the e.u. is greece's best interest but is it really or are we seeing a trend where creditors are fighting to reinstate feudalism. it. appears it's big group fired by people. i know. so greece is going to run out of money again in

november it's another deadline with creditors and wolfgang schauble is saying they cannot default so we thought it was a good opportunity to look back a little bit more broadly to debt serfdom because ancient greece is an interesting well i mean for getting into greece feudalism is back the hard core middle ages of feudalism ok if it was a read. it was that there's a great book or you can't remember your corner or that history can do it now it's this book you know no one cares just anyway there's not a point for it is that we're back to feudalism or right and feudalism of that serfdom where you basically the creditor is able to say ok you you don't have the money you'll never have it because it's been so high you're my slaves now yeah and we evolved over the years of bankruptcy laws so that creditors wouldn't have that sort of power over the debt but now we're back to that case in europe in the case of nation space and eventually this in the u.s. bush did it with two thousand and five consumer bankruptcy protection act whatever it was protect anybody it's called the protection act but just to refresh everybody

before we go it basically made it more difficult to declare bankruptcy so that's the whole point yeah well if i could you know so if i'm yeah because even in ancient greece debt slavery was limited to what you're doing by far that's the book a world that only when i came to me there you go go away because we're out of time today if you so much for watching be sure to come back tomorrow and in the meantime you know you can follow me on twitter at warren list or you can like our facebook page right there and give us feedback catch any shows you missed you tube dot com and also on hulu and have a great night. well with. technology in these. all the rest of. russia. wealthy british stock.

market. was really happening to the global economy. headlines. i mean saw. a city in europe the host of the twenty fourteen winter olympics. c. b c it's so true.