into into d.c. and today we have a very special show for you combining some of the great on air to exit or some of our best recent interviews first stephen called bear 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 for children 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 oh politics let's get to days 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 of all you. 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 just 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 soap 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 frequency just 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 sent 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 in agreement quired required to have their programs tested before they're put in

a 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 could make millions in seconds and so we should they have our 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 out a credit suisse traders forum after the flash crash where all these algorithmic h.s.t. traders were worried they played the obama soundbite 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 and by the way shut out the sky. paterson not only his first book the quantum but the new book dark pools just fine at fantastic reading for anybody who's interested in high frequency traders but 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 why there are 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 know we have problems all the time i mean just the we saw in the stock market where there was a computer glitch that had two hundred some stocks that you mentioned as dhaka that 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 have could have or would have been and we need to do better as regulators and that's why i think the things i've called for lauren 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 just some questions and to follow up with that we recently did see the n.y.s.e. fined for sending data to proprietary speeds faster than the consolidated one 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 sent to the direct feed one hundred twenty milliseconds faster than its consolidated feed and you know milliseconds count and similarly regulators find holden older brother n h s t for the manipulative activity known as cross market layering again next 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

action just right now as it stands always seems so meant for speed actions but it's really a matter of putting the rules in place i mean i am i am 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're the number three cheat a trader by volume if 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 we'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 and 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 savior 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 scenes of the birds. coming to you so. we suspect my suspicion is that 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 or 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 markets and pittman 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 records 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 forwards who don't have a trading experience but i think i do pretty well given what i have and i think you know 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 too there you have it bart chilton commissioner of the c f c i you can get your full interview with him on our

website and still ahead we'll hear from professor dan ariely on why executives on wall street might not feel bad about cheating and 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. are three. for three.

or thirty. you know how sometimes you see a story and it seems so you think you understand it and then you glimpse something else and you hear or see some other part of it and realize everything you thought you knew you don't know i'm tom harpur welcome to the big picture.

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welcome back over the past several decades we've certainly seen 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. well

give you a little example suppose we did the study we asked people to become c.e.o.'s of bank in some game for some people we call it don't bank goal is to maximize shareholder value and so i get it but we didn't do it and then both banks the shareholder value back in the regular bank. as they were not doing very well we give the c.e.o. of the opportunity to do what's called revenue enhancement in the industry and revenue enhancement is a nice way to say screw your customers it's about keeping checks for longer increasing a.t.m. fees all kinds of small groups all kinds of stuff like that. guess what the people who have the local shareholder value will much more like you know why because the heavenly logical justification let's take a look. this is my goal this is low responsibility shareholder value that's what's a lie flat and i think in the same way people in war we have a really is it time creating an ideology of the free market insulation could

only shave a few fractions of a second of free trade every will be fine in taking people who've been. sold so. rudely 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 at one note 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 is disclosure enough because you found some interesting things here so lots of professions are bigger spoke to understand this and try to think about disclosure

academic is why. you know we look at munich for individual mistakes but turns out disposal is much more tricky and you think and here's the story with magic you have two parties the party that gives advice and the party that gets advice is departed and gives advice disclose required gets advice discounts to get votes and we see that happening but what's also interesting is that if you're the party that is disclosing and you discordantly you might they exaggerate you're creating it more. so low i asked the question if this is the part that is closing is the other party the listening party going to discount more or the party that is disclosing is going to exaggerate more right at least in many of the cases we've seen so far digs a generation all for well good disco has 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 they do

think it's important to realize that disclosure is not the panacea it's not going to fix everything again disclosure is like a band-aid and saying let's create a system with better and disclosure i would much rather create a system from the beginning that doesn't have that many billions a year and then just real quickly before we go you mentioned that that punishment is not necessarily get a turn at for a crime when you're doing it when you're down that slippery slope but there's punishment send a message and terms sav the social norms if you're at a wall street c.e.o.'s prosecuted does that send a message to wall street bankers and his firm and others that says hey ok you better be careful could actually people are going to jail for this. year so you know i think it does but i think that probably did their potency of this message last will be a few hours or a few days so think about gary bauer sometime in june garrett barr was sentenced to nine years and prison for insider trading and how many days after 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 office of discussions for a day or two afterwards but once they get that diaries of what could close up behavior is not the long term thinking it's what people around us are doing i mean if you can think about doping in sports and all kinds of other things when we see examples. people around us misbehave this is actually what's called clearly your behavior what you read the fine for us what's acceptable in local perceptible not so much what's legal and even. 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 loose 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 an attempt 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 neil it 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 first 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 debt situation like we have now but i also think is just stupid in general that we've had people come of this show before and say you should just grow up deficits and print as much money as possible until you get the employment rate the unemployment rate down to zero yeah 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 creasing 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 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 fears a madman as ben bernanke is calling up and bernanke. call them over he says you actually thought tim geithner was just you know he was he was that he wasn't a true believer he was just a crony that ben bernanke actually is like a true believing idealogue. you want to know you also said that he thinks the. ego is badly inflated inflated ego i'm going to say one thing these guys have all these toys it's kind of like the military if you give them or get what it's always they're going to use it and they want. if you give them 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. the economy is going to struggle with. the heart. they need to solve these problems creates a stronger fluid. which basically means printing unlimited until they reach the target for inflation. i should also say i see. nothing more accurately the thing is 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 that everyone could be an export or japan can have a weak indefinitely and 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 who can't pay them back so like this it's just all part of this that's 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 there 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 definition 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 with separate 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. within its own 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 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 that this time i think of exhausted the interesting analogy is i just exist just i mean people people food supplements like raisins country armor those are the revolution of supplements like the mind is that we're i think that's something we come up with i don't know i don't love to pick these shots i've never taken one of these charges 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 what i'm sure by the destruction of. what i know why drink that when you have coffee clearly i exhibit that thought process 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. download

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