burnished banks what exactly is the taxpayer own british banks r.b.s. and lloyd's toxic derivatives fraud and zero collateral far more disgusting and dangerous than the horsemeat and yet the british economy collapses due to this disgusting fraud pies sold by the city and the taxpayer shrugs their collective shoulders and says gee these mud pies of austerity sure taste great with a little brown sauce and horsemeat tasting yes max so the news here has been just chock a block with this whole horsemeat story and i've never seen so many people interested in this big story and yet the very same week that we have just say nay horse me in burgers who are pfizer u.k. the very same day you see this headline lloyds in r.b.s. need billions more capital bank of england says britain's bailed out banks need billions of pounds more capitals to shore up their balance sheets and support the economy senior bank of england officials have warned u.k.

regulators have given royal bank of scotland and lloyds banking group until march to begin dealing with a black hole that brooks newmark a tory member of the treasury select committee suggests it could be as large just thirty billion pounds. i think it's a great contrast is that the british people are appalled that these high street stores like tesco are selling the horse to me when they they expect to be getting some other forms of meat but the local banks the lloyds the r.b.s. barclays are feeding them the equivalent in their economy with toxic derivatives and remember for every pound of quantitative easing that mervyn king the bank of england engages in there's a about a pound savings in interest on various interest related products but they lose two pounds on their savings so they're they're there they're guaranteed they're there they're flushing the economy down the toilet here in the u.k.

people and people more concerned about horsemeat in their burgers yes well let's explore this further because we're talking about royal bank of scotland which the taxpayer owns eighty two percent and lloyd's so they are consuming this this is something that is part of the fabric of their existence of their being and yet they don't seem horrified by the toxic ness of this the danger of this of course me is actually healthier than beef so cal me so it's not like that should warrant the extent of the media coverage that it has had lloyds out right lie to people about the nature of their business their fraud their accounting fraud their securities fraud and the malfeasance and fraud committed by the executives but people or giving them a pass but a little horse being the burger seems to be a scandal exactly so here the british population as i said owns eighty two percent of royal bank of scotland the open forty one percent of lloyds bank they don't seem to care what is actually in the banks what in fact it's

a black hole that's you know it's sucking in the economy now when the bank officials were asked before the treasury select committee the bank officials refused to quantify the capital shortfall in evidence to the t.s.a. yesterday but they confirmed it was substantial my. as a member of the bank's financial policy committee said it was a big number well andy haldane the bank's executive director for financial stability agreed it was material so as you see they don't know they say it's substantial it's material and it's a big number right royal bank of scotland will require another massive state bailout which will require more austerity now horsemeat was popular in the u.k. after world war two sparta rationing exercise due to the economy being blasted by the war here you've got a currency war going on our royal bank of scotland has taken a position against the population of britain and as a result in our economy is being flushed down the toilet and people in britain will

be lucky to get course me i predict within eighteen months out right cannibalism will break out in the east side of london and people beating each other to survive well again you know bankers will be banks because there are no laws against their banks to activity i'm talking about the population of britain the population of britain would not have known for example that there was horsemeat in their beef unless the irish had done d.n.a. tests they didn't seem to care until suddenly they were told here they're being told by us that there's nothing there there's a black hole that will suck in your economy and tell you all you have is cannibalism or mud pies and i mean countable as and when people in each other and i'm not talking about the soho definition that would be something else live democrats are involved with. so it gets worse though ok again the taxpayer is out there owning these banks they don't know what's in the

warning came as regulators admitted that the government had overpaid when rescuing the banks in two thousand and eight and that the taxpayer would never make as large a profit from the bailouts as the u.s. if at all asked whether return. for the u.k. taxpayer might match the fifteen percent returns made in the u.s. on their bank bailouts mr course said quote i don't think the u.k. taxpayer will get those returns pressed on whether the taxpayer would make a profit at all he added i don't know again they don't know they don't know the size of the black hole they don't know whether they're going to make a profit they don't know whether any bankers are making bonuses they don't know anything there are not enough them again the phrase black call does not refer again to the population so but let's talk about the drunk through ads here in britain because you know most of the d.n.a. eighty five percent goes back to druids it's not roman it's a bunch of people gathering in circles worshipping stones here in britain that's

the population so many tell them that oh you're r.b.s. your major bank is just totally. this aerated your economy their response is to build a stone circle and wait for the sun to rise and hope and perform a druid in current incantation and hope some god will save us from from a pagan got their pagans pagans don't know mind when all royal bank of scotland financially rapes them that's the point we're making but they don't like to eat horsemeat because according to pagan religion horsemeat is an acceptable. well speaking of mervyn king at the bank the bank of england's governor he said the sad truth is in two thousand and eight the idea of focusing efforts on recapitalizing the banking system was a u.k. idea we got there first but like many u.k. ideas the americans developed it faster matter. and the the idea even though the u.s. banks are getting a return on the balance is is a big overstated because of course they are inflating the currency and causing

massive inflation. as a result the biggest story this past week has been the germany taking their gold back you know this gives you the idea that these so-called returns in the bank bailout are specious at best and nobody's going to make any return dummy's so compared to the u.s. and u.k. in this bank bailout the u.s. forced all major banks to take state money buying this takes about half their book value and is already out of most of its position the u.k. on the other hand paid roughly twice the rate taking positions in just three of the worst affected banks r.b.s. lloyds and. so they spewed money without taking positions and without therefore possibly profiting for the u.k. taxpayer but again lloyds and r.b.s. these are the two big. you know the worst offenders of the black hole ghostwritten of r.b.s. of course you have the right honorable gordon brown one of the m.p.'s from scotland in the house of commons this past week dribbling on about some constituency and

he's the guy who orchestrated this amazing giveaway to terrorism in the city of london well so let's move on to the jewish people of the naked worship and people of the pint of lager in the marmite to hear. him v collapse leaves gift cards bought for christmas worthless company's decision not to honor a gift vouchers problems claim of misselling be one of britain's biggest voucher and gift card retailers typically take sixty percent of its annual sales in the last four months of the year with the busiest trading weeks being those before christmas however any reserves are now likely to be swallowed up by preferred creditors so max. you know has gone bust they're in receivership now. however they were selling gift cards to the very few hours before they collapsed so now the preferred creditors are ahead of the gift card holders who are these preferred creditors max well these include taxpayer backed royal bank of scotland

and lloyds banking group who would have played a leading role in selecting the timing of the administration royal bank of scotland in conjunction with h.m.p. knowingly saul worthless gift cards to the marmite ending poxy druid serum britain no recourse at all speaking of the taxpayer who owns many things in these banks of which they do not even know what the content is of the banks they own they are the consumers and the owners of these banks the same people who are outraged by the who are sunni and ask no questions about what is in their banks here is in the front page of the independent insert taxpayer to pick up bulk of r.b.s. . says five hundred million pound live for fine. that's right the bank while it was owned by the people went out and to show their appreciation to man a massive act of financial terrorism and they said phone good british people pay us

again pay us again paste again we know you worship stones and rocks and you don't know what money is your frickin poxy jackasses just give us all your money and the people here in new york they're like yes yes banks will do whatever you want please please violate our black holes again please well again here this crime of the libel rigging was done post ownership of the bank by the u.k. taxpayer eighty two percent of the bank is owned by the u.k. taxpayer and yet they were committing these libel wreaking a crime against the population here a financial crime against the population here but i have to return to the fact that the population here is very concerned about what is in their meat what is in their beef burger that is just horsemeat is up to thirty percent but there are very very concerned very very outraged tesco shares tumbled this story however. you can't even find that online it doesn't exist it only exists on an insert inside.

small newspaper here in the u.k. that the taxpayers to pick up the fine for the crime committed by royal bank of scotland what is in your banks you should know you own it you are the owners therefore your complicit in the crimes. well stacy ever thanks so much for being on the kaiser report thank you. stay tuned for the second half of the show because last night i spoke to a pulitzer prize winning journalist jesse eisinger about what it is exactly that is inside america's banks. secret lumbered sure to mccurry was able to build a most sophisticated robot which on fortunately doesn't give a darn about anything tunes mission to teach music creation and why it should care

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welcome back to the kaiser report i'm max kaiser time now to go to new york and speak with jesse eisinger he's a pulitzer prize winning journalist from pro publica his latest piece is called what's inside america's banks co-written with frank partnoy and published at atlantic dot com jesse welcome to the kaiser report. hi thanks for having me ok so i guess the first question logically would be what's inside america's banks well the answer is that nobody knows it's not just that the average person on the street doesn't understand what's inside the banks doesn't understand the assets or the

true state of the business it's the sophisticates don't know the most sophisticated investors accounting professionals regulators even bankers themselves don't trust the banks and that's a big problem as you can imagine ok so you write about the one of the biggest causes of the problems being a lack of transparency correct so you would advocate more transparency but what about outright fraud. well outright fraud is a big problem we would say that transparency would lead to much less fraud you can't eradicate banking fraud but now we have a fraudulent epidemic in the banks you see their behavior systematically at almost all of the biggest banks regularly violating laws in morals and ethics you see them for closing in appropriately on innocent people you see them manipulating benchmark interest rates like libel or rogue trading aggressive

trading that leads to reckless losses so transparency would get at the causes of much of this because they try to hide their activities through the opacity of their disclosures and their what they're doing is they're hiding the truth from the themselves often so transparency would both help the outside world to understand their fraudulent activities and help protect the bankers themselves from the fraudsters and from their worse inclinations oh us take the case of h.s.b.c. for a second they were caught laundering money for drug cartels and also laundering money for terrorists their defense was that you can't prosecute us because if you do it's the whole system is going to crash so it's gone from too big to fail to too big to prosecute and there they are actually they're now in the game of extortion so again the transparency doesn't seem to change anything because if a bank can hold

a gun to the regulators head and said if you investigate me i'm going to kill you as i just b.c. that that's their implicit statement they threaten to kill regulators a transparency is not going to change that one bit jesse frank and i call for two things and this is the way you have to restore banking confidence in the united states one and in the rest of the world one is transparency of the accounts so that people can really understand the business the other is that big. cars have to go to prison when they commit crimes and right now as you say we have a problem of global impunity for wrongdoing for bankers where they work for unusually sized banks now h.s.b.c. was running a an operation that the united states government deemed to be illegal and individuals made those decisions so i completely agree with you and we write about how the standards need to be changed either legally or prosecutors need to have

a different ad today about prosecuting individual bankers without prosecutions of individual bankers for wrongdoing we can't restore trust and confidence in the system and our banking system will continue to be broken not only a drag on economic growth but also extremely prone and vulnerable to systemic crises getting back to this question about what are in the banks what's inside the banks. presumably the way capitalism works is that somebody in the chain of value has collateral traditionally the collateral is held by banks but what you're saying and what other people are saying is that there is so much opacity there's so much. what are called black box accounting that there is absolutely no way to determine if there is any collateral whatsoever behind much of the hundred chilean dollar

derivatives market or even just the real economy and with moody's and the s. and p. and fitch they're now downgrading sovereign debt the aaa rating of the u.s. debt which is already been downgraded it looks like is going to be downgraded again how does that factor the fact that banks no longer have collateral on their books isn't that part of a growing problem going forward jesse i think that there's a conflation of a couple of issues there's obviously sovereign debt which is a different issue then the inadequacy of either collateral or bank capital now the problem with american accounting and i think that this is also true in international counting with the european and british banks is that you cannot understand either the collateral that they're putting. against trades like derivatives trades we just don't understand or know how much that is or cannot assess independently whether that's adequate or we can't understand the capital

what the store is at the bank that can cushion the losses who will be on the hook for the losses and what frank partnoy and i did was walk through wells fargo wells fargo in the united states is regarded as a stalwart bank an american icon it's also regarded as the simple and most conservative bank but what we demonstrate is that you cannot understand anything about the assets whether they're adequate or whether they're fairly valued their liabilities how much they would. oh or how much cushion there is capital you just cannot understand they provide for numbers you can pick whichever number you choose right there on the the beginning of their accounts to assess what how much capital it is but you can't even understand whether those are accurate or not and that's of course an enormous problem and it's enormous problem because not all bankers banks or bankers are banks toure's not all bankers are fraudulent but they give in to temptation to cut corners if their counts aren't transparent right well this to

touch back on the sovereign debt issue for a second we talk about collateral and the capitalization of banks a sovereign debt with a aaa rating is eligible for a one hundred percent loan margin as that relates to building up the chain of loans that go into the system so if there is sovereign debt being a downgraded your only asset on the books that can be one hundred percent loaned out is now diminished in the ponzi scheme that is the banking system in the u.s. and around the world starts to crumble now you talked about wells fargo far second of course it's a very. stalwart bank and you've got warren buffett is a major shareholder but while fargo and these other banks according to a lot of sophisticated investors they simply read refer to them as black boxes and we've talked about it briefly for a second explore more about what what that term means and how it applies to these banks what we did was we walked through wells fargo's ten k. the n. you report that they file with the securities and exchange commission here in the

u.s. it's the document that's supposed to tell you what their business is about and if you read it for a company like wal-mart or mcdonald's you'll sensually understand what their business is and how they make money you simply cannot do that for a big bank and we demonstrate that with wells fargo wells fargo has two point eight trillion dollars of exposure to derivatives you have no idea how much exposure that really is why they're hedging is appropriate whether they're collab. world that they're offsetting or receiving from counter parties is adequate you simply cannot know anything about that they have about one point five trillion dollars worth of exposure to off balance sheet vehicles we remember off balance sheet vehicles when they were called special purpose entities and were related to enron and enron's collapse the accounting is similar now for the biggest banks they're now morphed into a new euphemism called variable interest entities they have interests in off balance

sheet vehicles all around the globe and the question is how much and what is their true exposure and how much control they have over that and the answer is no outsider can tell so there are a variety of black boxes at the banks both in their trading operations in their loans you can't really understand what their reserves are for their loans they don't adequately disclose that either so you simply don't know you can throw up your hands and say i trust management or i don't trust management but that's about the extent of it and i don't understand in fact how you could even trust management knowing that you can't trust the numbers that management presents. ok jesse i want to digress a little bit and take this up a level to more of a macroeconomic view of what's going on here because as you describe wells fargo and these other banks with a special purpose entity accounting gaging an enron like accounting putting hundreds of billions of the trillions of dollars off the balance sheet in the

shadow banking system a place that's completely unregulated you've got a central bank in america the federal reserve that seems complicit in all this by keeping interest rates artificially low and then you've got economists like paul krugman saying well those rates need to be low because we don't see any inflation my question is isn't the off balance sheet cash that's being hidden out of view from regulators where the inflation is and when this thing blows up as enron did and as well as well and these bankers will want that task come rushing back into the system and then that's the inflation but by then it'll be too late prices will skyrocket your thoughts. max you're a little bit out of my depth i'm not a macro economists so i i i understand that argument i've heard that many times there's a view in the hedge fund world especially that this is happening i do think that there's a problem with the federal reserve's low interest rate policy that it's affecting

asset inflation it's without really transmitting into the real economy i think the problem with monetary policy as it exists in the united states is that the banking system is broken and so the transmission mechanism is working well we can see this in the mortgage market where what happened was in order to save the system we did two things in this country we allowed big banks to buy the failing banks like j.p. morgan buying bear stearns and then we sort of put the ailing banks on life support without making them write down their bad assets so we allowed bank of america and citigroup to see. or limp along and what that is done is created a broken mortgage market now where j.p. morgan and wells fargo are making gouging price gouging profits they are profiteering in the mortgage market even though rates seem low they're not adequately low they're not low enough in the federal reserve is very frustrated so

we have this broken banking system and that means monetary policies and or ok let's circle back to what you've been writing about recently stepped away from the macroeconomic issues for a second let's talk about the real estate market here because they had strong community which is and down with virtually unlimited credit lines at near zero percent interest rates were instrumental in the collapse of the sub prime market making bets against the housing market and making bets against the american economy now from what you're saying if i hear you correctly they've taken the other side of the trade and they've they're totally distorting the market by flooding it with cash again from the cheap money and low interest rates and they're causing these pockets of strength in vegas and florida but it's not sustainable because it's not reflective of any real economic growth is that correct no i think we have modest economic growth in this country i don't see the speculation nearly as acute as it was in sort of two thousand and five two thousand and six we're just from any

measure that i can tell we're not yet in a bubble now we could be heading that way because we didn't really learn our lessons from the financial crisis as surprising is that is we didn't really cause any banker or hedge fund manager for that matter to have second thoughts about wild speculation so i agree that there's been a moral hazard here i don't think there's a bubble today that you can identify very easily and i don't believe that bonds are that although i've heard from managers talk about that so right now we don't have a bubble but we have created the conditions to create another one and another crisis real incomes are down and the biggest buyer out. in america are hedge funds those are the facts on the ground i think it looks kind of bubbly to me but just the route of time thanks so much for being on the kaiser report. thank you so much for having me that's all the time we have for this edition of the kaiser report with me max kaiser and stacy herbert all of my guests jesse eisinger of pro publica

if you'd like to contact us please tweet us because a reported facebook dot com forward slash kaiser report and so next time ask guys are saying bio. there are twelve cities in the united states in which half of the people with hiv aids lives within a year of a diagnosis of. over sixty two percent and. this is a problem that frankly is substantially preventable it was like the big elephant in

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