good afternoon welcome to capital account i'm lauren lyster here in washington to d.c. and today we have a very special show for you combining some of the great on air to exert some of our best recent interviews first stephen called there is the latest to take on high frequency trading the twitter sphere is been abuzz over his segment on the colbert report earlier on our show this week you heard how c a t c commissioner chilton wants more regulations for h f t but today hear what he says to the argument that regulators just need to enforce what's on the books plus author and professor of behavioral economics dan ariely breaks down why executives at wall street firms may feel better about cheating customers if their primary responsibility is to deliver

for shareholders and in loose change the wall street journal reports with elections coming up japan's main opposition leader is stepping up pressure on the good old central bank to ease more and get the country out of deflation and hope politics let's get to day's capital account. so stephen colbert there recently took on high frequency trading on his show this week in a way only he can here's a highlight. in higher frequency trading computers can move millions of shares around in minutes earning a tenth of a penny off each share and that adds up to serious money when they finally take it

down to the wall street coin store. and he's not the only one you may recall see f.t.c. commissioner bart chilton has been out talking about the need for more regulation to address the potential risks. including on our show he was talking about it now the rules he proposes would require that firms register test their software programs he require kill switches and punish those who violate the law by the second he also told us that two thousand and ten flash crash was a wake up call for watchdogs why has it taken regulators so long even since then to get the ball rolling and why not focus on more aggressively and consistently enforcing the regulations already on the books when it comes to high frequency trading we asked really if you look at it high frequency trading has been around since long before the flash crash that was just the first time we really were made aware the public at large of what the consequences of it can be but really it's been growing since the eighty's so why aren't regulators been seemingly late to the

game or in the best case scenario really reactive on this issue i mean now high frequency trading is seventy percent volume. well you mean you said it right there i mean because government is reactive i mean that if the think about what my job is and what i try to bring that's different to government this is just one of the things what it is that we can't be reactive we can't do it that's called tombstone mentality when you wait for a disaster in a narrowing you know circumstance you wait for a plane crash before you put something employees in markets you wait for a flash crash or or even something like hurricane see. andy would shut down some markets we need to be but you need to be looking around the corner and be nimble and quick and that's just for government in general because they are reactive like you say but with high frequencies traders these traders that i called cheetahs because they're so fast fast fast they really have grown exceptionally fast in the last several years as you know the flash crash may sixth two thousand and ten cent

a wake up call that these markets could definitely be roiled big time if we don't watch out so i've called for several things one unbelievably they're not even required these cheetah traders to be registered to they need testing they're not required required to have their programs tested before they're put in the live production environment we also need to have kill switches in case these cheetah programs go feral and finally we need to find these guys if they do something that's wrong if they violate the law by the second. i mean like by the day hundred forty grand by the day by the violation but these guys can make millions in seconds and so we should they are policy and fine by the second also lauren ok i totally hear you let's go into a little bit more of how this works first backing up to five crash was the wake up call i totally hear you but even after the flash crash i know because scott patterson who wrote the book dark pools he looked at this very closely and i interviewed him and he was add

a credit suisse traders for him after the flash crash where all these algorithmic traders were worried they played the obama sound bite where he said i didn't go to washington to help wall street fat cats and they were born each other we have to rein it in or else regulators are going to come down on us and that it's been a year or since that even happened and we've just now seen some efforts with the new york stock exchange finite capital but why didn't we see regulatory efforts sooner it seems like even regulators underperformed wall street's own expectations well it's the same answer as before really a and by the way shut out the sky. paterson not only has his first book the quantz but the new book dark pools just find that fantastic reading for anybody who's interested in high frequency traders it's because government is just reactive and you would have thought that the flash crash would have been enough to instigate some reaction but we've got this monumental dodd frank was there four hundred

different rules that agencies are supposed to do and so i don't think the high frequency traders have received the attention they deserve even though as you note we have problems all the time i mean just like we saw in the stock market where there was a computer glitch that had two hundred some stocks that you mentioned nasdaq of it with the problems with the i.p.o. and facebook and knight capital i mean the list goes on and on and on technology always isn't what it should or could or would have been and we need to do better as regulators and that's why i think the things i've called for a war in are pretty pedestrian but important first steps otherwise these cheetahs and it may end up on the endangered species list yeah well i think a lot of people would want to see that but first i do have some questions to follow up with so we recently did see the n.y.s.e. find first sending data to proprietary feeds faster than the consolidated ones but other exchanges are guilty of this according to nan x. which is a firm that monitors home market data throughout the day for example you mentioned facebook on may eighteenth nasdaq's quote was said to the direct feed one hundred

twenty milliseconds faster than its consolidated feed and you know milliseconds callen and similarly regulators find holden holder brothers an h o t firm for the manipulative activity known as cross market layering again identified many other instances of this occurring in the market so you're calling for more regulation and enforcement per second but why have we not seen more enforcement actions just right now as it stands we seem some and forestry the actions but it's really a matter of putting the rules in place i mean i am i have much to catch the bad guys don't get me wrong and we don't catch enough of them and when we catch them we don't find them enough so i'm with you one hundred percent but i'd rather stop the thing. before they take place i mean i rather just ensure that we know who people are so for example when i talk about they're not even required to register the largest cheat a traitor is is a cheat a trading firm in prague czechoslovakia they were the number three cheat a traitor by volume they were at the chicago mercantile exchange number three and

we could get their books and records if we thought they did something untoward i mean they're from chuckle slovakia they're going to you know they're going to flip us the boat may could care less what we want so we need them to be registered that allows access to their books and records and then again as i say we need to kill switches and then we need to find these guys by the second when they do something that's against the law ok now that just to get to my point though of enforcement of what is on the books because many people i talk to say we just need to enforce what's on the books as they say it actually works here and here is air con satre of next talking about the changes he noticed after the n.y.s.e. enforcement and after night capital called mary shapiro to cancel their trade and she said no take a listen. we have seen significant use of the birds. in responding to you so. we suspect my suspicion is the reason the scenes of these troops. it's because. they're not. going to war so

he says he actually has seen a visible decline in manipulative activities literally after these enforcement actions came through that was that stood out to them and they look at these markets twenty four hours a day all the time so the question is why we have to regulate more rather than move to just enforce more isn't actual enforcement what instills confidence and get these guys out of the market they're doing the wrong thing. if you can get it again remember what i said about manipulation you got to show intent so that's a tough hurdle to some of these things you're talking about of course the stock exchange or nasdaq you know bets the securities exchange commission not the commodity futures trading commission you asked if we were investigating a shift to use the answers yeah but i can't tell you much more than that so i'm not saying that there's not anything going on in fact there is but i can't give you any specifics about individual cases ok and just and the question i do want to just get

to one more time if the regulations on the books aren't being fully enforced or even evenly and forest effectively right now why would you introduce more why would the market or market participants believe that any new proposal whether it's a kill switch or enforcement by the second will actually be enforced you mentioned the resource constraints the lawsuit so why would anybody have confidence this would work. think your premise of your question is correct i think that they are avoiding the law and violating the law except for in some circumstances that may come up that we may be talking about in the future but i don't think they're willing to lay out their minute manipulating the here's what happens lawrence you see these guys these cheetah traders they have an influence which is disproportionate to their size so even though they make a little market move they make it so fast that they can create volatility that because other people see it as a hurting mentality they say oh i'm going to do that trade to and so you see lots of volatility in market and speedman markets and people complain about that that

doesn't mean that it is a legal that's what the things that i'm calling for we need to make it illegal we need to look at their books and record we need to require the testing so i'm not suggesting that there haven't been h f t moves that have gotten around certain laws i don't know of any specifically i see a lot of people that complain about it but when i look at what the law is and what's been done there's nothing that we've come that's come up so far that we've talked about publicly although i will say that for the future from what i understand four out of the five commissioners on the stand to see don't actually have trading clearing our exchange experience this may surprise some people given the complexity of today's markets especially do you believe this is a handicap at all for the staff to see or are something that should change. i mean i think that we are i would be one of those for us who don't have a trading experience but i think i do pretty well given what i have and i think for example my goal is look out for the little guy look out for average people and so i'm not sure that i want somebody that i'd want five commissioners who are all

about wall street that's i don't think the way to go so i think we have a diverse group we all bring our own things our own different experiences and skill sets to the commission and i think by and large we do pretty well are there is always room for new blood and i hope that happens to there you have it bart shelton commissioner of the c f t c i you can catch our full interview with him on our website. right and still ahead we'll hear from professor dan ariely on why executives on wall street might not feel bad about cheating their customers and in loose change will spend a few minutes on the fed's most recent minutes we'll discuss later in the show the first your closing market numbers.

money and technology innovation all the moves developments around russia we've got the huge earth covered. resistance is not of politics but a culture. this could. all its own.

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welcome back over the past several decades we're certainly seeing companies shift their focus from prioritizing long term growth to the idea of maximizing shareholder value now this approach not surprisingly has led to increased attention

to short term goals which has not only arguably her employees and taxpayers but may also be at odds with the company's long term objectives earlier we talked to behavioral economist dan ariely about the psychology behind increasing shareholder value and how this might be an additional motivation for wall street fraud we'll give you a little example suppose we did the study we asked people to become c.e.o.'s of bank in some game and for some people we call it don't bend goal is to let civilized shareholder value and so i get it but we didn't do it and don't both banks the shareholder value back in the regular bank didn't do god's will and as they were not doing very well we give the c.e.o. it up would you not get to do what's called revenue enhancement in the industry and revenue enhancement is a nice way to say screw your custom. but keeping checks for longer increasing a.t.m. fees all kinds of small groups all kinds of stuff like that guess what people who

have the local shareholder value will much more like you know why because they have been a logical just mistaken look. this is like gold this is low responsibility shareholder value that's what's a low flat and i think in descending way people in wars we have a really is it time creating an ideology of the free market insulation who can only shave a few fractions of a second of free trade and we will be fine in taking people who've been. you know so so. groovy this ideology i think might not be the ideal solution for regulating the market so yeah i hear you and real quickly before we go out why not on on conflict of interest it's interesting you talk also about these issues in academia where you have professors who are maybe writing papers and and not disclosing that they have received money from from research organizations or organizations that may benefit from those papers and this is something that charles

ferguson discussed an inside job and actually it's one of the things that changed after the movie where professors and schools adopting policies towards more disclosure however it's disclosure anough because you found some interesting things here so lots of professions are bigger spoke you understand this in charge you think about disclosure academic is one of you know we look at new. mistakes but turns out disclosure is much more tricky than you think and here's the story we merge you have two parties departed it gives advice and the party that gets advice is departed gives advice disclose acquired gets advice discovered still gives us and we see that happening but what's also interesting is that this your deposit is disclosing and you disclose you what they exaggerate you appreciate more. so lowers the question if this is the part of disclosing is the other quality of the listening party going to disclose more or the part of the disclosing is going to

exaggerate more i think least in many of the cases we've seen so far they exist duration all for well good disco that's a different day who advises your financial advisor and they know i have to disclose now i also exaggerate my opinion and that the net benefit disclosure is not helpful no i don't think it means we should not have every disclosure and so on but i do think it's important to realize that disclosure is not the privacy of it's not going to fix everything a good explosion is like a band-aid and saying let's create a system with. i would much rather. he doesn't have that. yet and then just real quickly before we go you mentioned that punishment is not necessarily going to turn for a crime when you're doing it when you're down that slippery slope but does punishment send a message in terms of the social norms if you're if a wall street c.e.o.'s prosecuted does that send a message to wall street bankers his firm and others that says hey ok you better be

careful because actually people are going to jail for this. yes so you know i think it does but i think it probably did a poll to see if the its message last will be a few hours or a few days so i think about gary bauer something i mean by i was sentenced to nine years in prison for insider trading and how many days i'll do that do you think there was a reduction in insider trading i suspect it was very short lived you know it's not in people's mind so you had an example of that happening and maybe it was the officer who wrote discussion sort of deal to us the word but once they get that does alter what could close up behavior is not that oh. it's what people around us so doing i mean you could think about doping in sports and all kinds of other things when we see examples of people around us misbehave debts actually what's called trolling or behavior that once we define for us what's acceptable and not

acceptable and not so much what's legal or illegal and again you can see more with dan ariely on our website the full interview where he dove into crime and punishment for financial crimes that's on line. all right let's wrap up with latest change we did get fed minutes out this week and obviously there's always so much to opine over afterward so let's start with this and attempts to be more quote unquote transparent the fed is working towards tying their economic outlook to the current employment rate a move that not everyone seems to be fond of. i think it's a mistake to tie our our our monetary policy to nearly to the mast of the change in

the unemployment rate i think there's a broader array of considerations that we have to think about. i agree. will say though that this will allow the public to have a better understanding of the moves that the fed makes. dmitri. tying it to the unemployment rate yeah it's a dumb idea i've said that before it doesn't it doesn't actually accomplish anything why is that because what are you going to do are you going to burst of all we've seen that monetary policy doesn't actually lower unemployment it's a broken model is when you reach the point of origin like we have now but also that is just stupid in general that we've had people come of this show before and say you just grow up deficits and print as much money as possible until you get the employment rate the unemployment rate down to zero yeah but both it's ineffective to actually do it accomplish it through monetary policy and also doing it if you could be effective is ineffective in itself because you're focusing on just putting

people to work. capacity or filling up capacity as opposed to allowing the economy to readjust to a recession yeah i hear you also i think it's interesting these fed minutes there was a lot of a juicy stuff and you know we found out that after operation twist they're probably going to want to do more they're going to continue with something with some buying of. instruments what dawned on me was remember when we're talking about if bernanke is going to go out and plays the thunder before his term is over. i just wonder if this is a little foreshadowing of what possibly is a madman as ben bernanke is called. call them or he says you actually think he thought tim geithner was just you know he was that he wasn't a true believer he was just a crony that ben bernanke you actually is like a true believing idealogue he. also said that he thinks the. ego is badly inflated the inflated ego. of one thing these guys have all these toys it's

kind of like the military if you give them a mortgage why it's always there to want to use it and they want. if you give them like an aerial drone in a. carbon a we know from recent stories dealing with military men they just can't help themselves let's move on the u.s. isn't the only country that's in an election year japan is about to hold their general elections as well the liberal democratic party has nominated former prime minister shinzo it for the job again here's a clip of him explaining how he wants to improve japan's economy. or economy going to struggling with. the heart. of these problems creates a stronger flu in japan. which basically means printing unlimited until they reach the target for inflation. i should also say i see. a. thing it's also really leaving aside some of the other issues with monetary policy

it's really also stupid to want to say well we have to bring a stronger part of japan and everyone could be an export or japan can we indefinitely and then export forever and have a trade surplus forever someone else is going to be buying those goods and eventually we're going to have to do with china did which is you finance the people that you're selling to eventually you're going to like to have assets that are worthless because you've got bonds of people that can't pay them back so like it's just all part of this that's archer going to war yeah. this is not completely related but what struck me is monetary policy was being discussed at their debate we don't have any of that in the u.s. i give him kudos for even addressing these issues and they're and they're i don't know much about me so i don't know what they were so i mean i don't know how much the japanese people nor care about monetary policy if they do care more about the u.s. i'd like to see how much because in the u.s. people don't understand monetary policy. and they were limited i mean nobody brought it up except for ron paul who was out by the time but also people were

really watching the contentious debate and also what about the fact that these guys are just doing the same thing over and over and over again that's the definition of crazy. with an excellent sanity really quickly before we go let's do one more story that really does dovetail with insanity because i think these drinks may cause a little bit americans love energy drinks but could they actually kill you. five hour energy has been cited in ninety incident reports with the f.d.a. including thirty that involved serious or life threatening injuries such as heart attacks convulsions and in one case a spontaneous abortion. why. the need for speed are is this related to interest rates and it's killing people you know what i mean that's really the only thing i could come up with that just sounds like it would come out of your mouth and i don't. have to do it this time i think of exhausted the interesting analogy is i just exist just i mean people people think supplements like crazy in this country are more those are the revolution of supplements like

the mind is there was i think was yes but it's something we come up with i don't know i don't love people think these shots i've never taken one of these fibers or cannot be good for i just can't believe they're legal i mean i just it's it's crazy to me i'm not surprised that there are might be major repercussions from drinking i don't know why do we buy this crap just why why i know why drink that when you have coffee clearly i exhibit one of. those for us so we'll leave it there and go have one because that's all we have time for thank you so much for watching be sure to come back on monday and in the meantime you can follow me on twitter at lauren lyster you can like our facebook page and there is the address and you can watch any show you missed including the rest of the interviews you saw tonight at youtube dot com slash capital account you can catch our show in h.d. on hulu and you can have yourself a fantastic weekend. this

is to go to paula. thanks but our culture. is couldn't. its own. cultures of resistance on our team. mornings today volunteers once again flared up. and these are the images the world has been seeing from the streets of canada. trying to corporations or on the day.

of the men to nothing is ever an influence.