good afternoon to welcome the prime interest i'm perry and boring here in washington d.c. here's the stories that we're tracking today. rolling stones that tell you the way to end on brown vitter the tough new banking bill that was introduced last week he had some harsh words regarding a report that was issued by standard and poor's which is one of the bill's critics tavi wrote the paper essentially hands about forcing banks to retain more capital could lead to world of financial collapse the onset of a new ice age mahmoud's growing to perhaps. however as of yesterday's close climate change futures were not yet pricing in this chilling bods ability. this morning president of the european central bank to mario draghi cut the main refinancing rate to a historic low a half

a percent and he has an open mind on the issue of brains charged for the privilege of holding their money and what you don't go around with helicopter money it was actually the fact is i believe he made no comments on cyber it's. been surprise surprise according to american banker at the pay a bank its c.e.o. is rose eleven percent in two thousand and twelve but it's not just top bankers who are cashing in big dog trader and male dance iger and his he's been known to have a quid pro quo lation ships with brokers accepting off compensations in the form of lavish drug parties abdomens gloves his dirty deals believe it or not have gotten filthy u.s. attorneys ours respecting that dan zeiger and his broker buddies tried to rig up the libel war we'll talk more about the fine line between bankers and gangsters in today's daily duel let's get to what's in your interests.

we're hearing a lot in the news about too big to fail too big to jail and even too big to exist ontological issues aside suffice to say many people are frustrated with the institutions that received taxpayer bailouts and in the same year paid out excessive executive bonuses and spent a hard pill for some families to swallow to have their homes wrongfully foreclosed on by one of these too big to fail financial institutions then receive pennies on the dollar settlements about financial regulators were supposed to be overseeing as

we saw in the independent foreclosure review and the startling testimony united states attorney general eric holder you know that some financial institutions might beat who big to jail and that the justice department has had difficulty in prosecuting some institutions because it would pose a threat to the economy for more onto to fail we turn to prime interest producer justin underhill. this july will mark three years since dodd frank was signed into law a bill designed to end the massive bailout of banks. and big to fail but we're going to end too big to fail this is intended to put an end to the idea that some firms are too big to fail how did we get here today's mega banks grew out of repeated series of mergers and acquisitions over the past two decades exacerbated by the crash of two thousand eight. hundred to law in two thousand and ten so where we. nearly three years later the six largest u.s.

financial institutions issue more than two thirds of all credit cards and over half of all mortgages today they have assets equal to almost two thirds of u.s. g.d.p. that's double the size from a decade ago and now that's created a problem that's almost too big to fail senator elizabeth warren recently confronted federal reserve chairman ben bernanke we've now understood this problem for nearly five years so when are we going to get rid of too big to fail. well some of the as we've been discussing you know some of these rules take time to develop three approaches being developed are breaking up the banks increasing capital requirements and defining a liquidation process but in each approach there's a devil in the details devil number one defining the threshold for too big i think it's very difficult for congress or even regulators to say you know your optimal size is one point five trillion or you should be more than x. percent of g.d.p. or it's arbitrary it's probably going to be

a game of bull but according to brad sherman a senior member of the financial services committee all legislation faces the same challenge every law has to be administered and if the speed limit on the freeway is sixty five and there are cars going seventy that's not a rejection the idea of having the speed limit devil number two defining minimum capital requirements to protect against over leveraging and counter party risk senator sherrod brown and david vitter have introduced legislation to increase bank capital requirements but even these measures may fall short of what's needed to avoid a bailout fifteen percent for these big banks is enough to fifteen percent capital protects them and protects the public however representative brad sherman thinks that even this amount may not be sufficient finally in the event of a failure an orderly liquidation process is designed to go into effect overseen by the f.b.i. see in such an event shareholders would take losses yet defining the trigger for

this process is devil number three so when looking at determining whether a bank is insolvent if there is a quantifiable and consistent way to do that even. unbiased typical yes it is simple leverage ratio is the primary measure of capital strength but these approaches that address too big to fail may be ignoring another problem of too interconnected to fail harvard law professor how scott sees contagion as the major issue here i think our french made it worse because. it's taken away the power of the system to deal with contention and put in place what i call a wing and a pearl which is capital liquidity and resolution which could stop. the approaches of breaking up the banks increasing capital requirements and planning for liquidation have the ability to also address contagion but that will require even more details with more devils in washington just under our. great work things just too big to fail is an issue that is gaining momentum on capitol

hill dodd frank continues to be implemented as we approach this three year anniversary and we're seeing signs that this bill has holes and gaps and to say that the rulemaking process has been telling would be an understatement not only do we not have consensus on what caused the financial crisis much less how to prevent than that there isn't even clarity as to what exactly constitutes too big to fail under section one twenty one of dodd frank regulators can impose restrictions on larger companies at the board considers them to pose a grave threat to the economy but as we saw and house financial services hearing this is that best fuzzy target representative sean duffy question scott alvarez the general counsel of the fed as to what the much of it is for a grave threat and you might be surprised at his response. some of the metrics you're moving metrics we do not have a metric and so you know when you see you're not right and it may depend on many.

of you when you see it you will know what a grave threat is you can't tell me today what degree of growth is because there's no market for your run you. thought we were. all right so bring some clarity and too big to fail in the dodd frank i spoke with two experts mark levine the former legislative counsel to representative barney frank and he's now the current host of the inside scoop as well as mark calabria who's the director of financial regulation studies at the cato institute. i want to parse this out because i think that some of the fundamental assumptions are do you think too big to fail is an economic issue or you think it's a political issue and quite frankly i don't think getting one company is so big and of course it's also important to remind the option is not necessarily fail we've all probably flown on a bankrupt airline there are ways to take these things in bankruptcy continue to keep them going turn debt holders in the creditor to debt holders in the equity holders to keep these institutions going rather than you know the false choice of bail out or liquidate so my point is that i think too big to fail is fundamentally

the perception by the marketplace on whether you will be assisted by the government so it's a question of whether government officials will step in and protect primarily creditors if that is the case and those institutions are able to borrow at a lower rate they're able to grow and push their competitors out of marketplace because in the financial services world cost of everything that's how you dominate the market so even a difference of twenty basis points can really change the competitive landscape within the marketplace so again you know there is no arm clyde way of proving whether to big to fail is there you know i think looking at the marketplace it suggests to me that market participants do believe these institutions are too big to fail so what would happen in two thousand and eight because that's obviously what big comes from so lehman brothers collapses and suddenly banks won't lend to each other they all have these toxic things called credit derivative swaps and no one seems to know how to value them we know the ratings agencies say they're aaa we also know they're involved with a lot of slicing and dicing of subprime mortgages that are one says are worthless so no one knows which banks they can trust they're afraid to lend to

a bank to another bank because they don't know if they get their money back and a whole credit market seizes up another question that we need to answer and see big to fail really over and at the same. services hearing richard also demand the f.d.i.c acting general counsel he had to say this. to resolve. title one that it provides for a living will so we can try to address these institutions so we can resolve. cannot be we have the total who said there is a law that says to big to fail is over that the i.c. has said it's over as the implicit guarantee really over there was a law on the books for twenty years that so the taxpayer did not stand behind freddie and fannie that didn't quite work out that way either so let's start with two issues one is this sort of dance around taxpayer money or not and so yes title two sets a path where the rest of the industry can bail out institutions creditors now yes that's slightly better than having the taxpayer but i'm fundamentally offended by

thinking that prudently run institutions should have to pay for the mistakes of imprudent institutions and of course if you look at the marketplace again we have there's no ironclad way to fail is there or not but if you look at the funding cost it's pretty clear to me that the largest institutions have some level funded events over other institutions which is how you would really determine to be fields that are not i do want to mention something as well that if you look at funding cost create two thousand and eight those institutions did not have that advantage too big to fail came out of the bailouts and i think the problem with lehman was not that we let lehman fail was that we it look like anything goes in the lesson from lehman is that if you don't have the treasury secretary on your rolodex you're in trouble it's not that one institution should get in trouble because it's keep him on barclays bought all of lehman's north american operations in a week or more bought the rest of their world operations within two weeks or in a couple of small things in there but it was really an ad hoc you still don't know the rules of the game who's going to be out who doesn't know of course creditors are going to shrink away from that but i actually think if you look at the if you go back you know two thousand and eight you know many of the marketplace did not

shut down i disagree with the argument that everything shut down it shut down the anybody who looked like they were in trouble those that were well capitalized for instance insured deposits increased. prices people were not putting money under their pillow talk about that because of the increase because of the photo pozen shirts corporation being crease because this is the tradition that we've had since the one nine hundred thirty s. which does exactly what you seem to complain about and it has institution that. mitigated about the nature i know it's a tough neighborhood. intervention and right because those those cities were not covered by the f.b.i. see that's exactly what that's what dodd frank attempts to do and that's what you complain about what most americans think the f.d.i.c has worked pretty well we have not had a run on the government the f.d.i.c has entirely been paid for by banks and it actually works pretty well they close a bank on a friday night they open up monday morning and if you have a deposit of more than fifty thousand dollars you don't lose anything that made that paradigm i think is something that we need for brokerage firm usually i would say i think the fundamental difference here is i think failures good because i

think here you weeds out the rotten the corrupt and incompetent and i think the attitude that or the standard in our banking system should be that nobody feels is the wrong out of this i don't know you know i say that doesn't go by the people around you do fail the big studio and i said to mr isaacson make arrests how can we let and cities and that's as large as too big to fail fail if it's going to you know it's not to let it fail we can reorganize it like you would do one area that an orderly liquidation process as you know you don't have in order to condition process that's exactly how it went today that's what i pray designed to examine that would do i don't think it'll be ever used because we had an orderly liquidation system for fannie and freddie we didn't use it i spent tens of hours working on writing on capitol hill congressman frank worked with us on it we had a system in place in the summer of two thousand and eight that would have resolved to about a dime of loss of taxpayer did we choose to use it no i think. we'll hear more from mark and mark are i say mark mark on the better bill after the break coming up next

to art's bob and i will get to the daily bill will explore the fine line between banker is. stay with us. wealthy british scientists some. time to try to look for. markets why not come to find out what's really happening to the global economy with mike stronger for

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quality and enjoy your favorites from outside if you're away from your television or it just doesn't do so now with your mobile device you can watch on t.v. any time anyway. senator sherrod brown and david vitter recently introduced a bill that would impose higher capital quire man's on the largest of bangs i asked mark levine if he believes this bill would mitigate systemic risk. absolutely absolutely frankly this is what does break attempted to do it was going in that

direction and then a certain set of scott brown of massachusetts in that brief interim between kennedy and elizabeth warren insisted on exempting all kinds of insurance companies and trust of small banks and basically he drilled holes into the vault and regularities nine thousand pages i knew we still needed this is actually one thing to like about brown bidders it's simple it's eight percent if you're a small bank fifteen percent if you're a large big capital requirement that's a very clear and precise rule it's the kind of thing that i wish frankly dodd frank had been allowed to keep before scott brown ruined it. the way to. go and i would disagree on whether i think scott brown is to blame i think i think it was a lot of problems and i think it's a real testament to brown vitter that actually repeals one of the most offensive provisions of dodd frank which is to extend the safety net to clearing houses brown voter rightly in my opinion strikes language needs to go now i'm going to there's too little capital in banking system it's too complex you know the throws the basel process out the window which needs to be the u.s. should go its own way that is

a disaster process so higher and simpler capital i mean it was ridiculous testing the bottle as you think as this well i mean so unless demand for sovereign oh absolutely but you know the fact is you know all you need to know about basel two is a capital system that tells you that greek debt is zero risk capital sist bound to fail right and we had to walk away from that of course and told you that fannie mae was very little risk too so again to be a joke and it's a good thing the bronner walks away from that and it's a good thing that they're actually kind of copper like equity. for the crisis we were allowed banks were allowed to deferred tax losses that were no way capital using risk weighted assets and that this is where i think there's a mixed bag because you know they set a floor and then they allow some risk weighting i think the risk weights are always inherently political it's not by accident that. way that's that large regulatory burden i actually would say to me the tradeoff should be more capital but simpler capital because if you look during the crisis and what market participants care about they do not care about what your tier one you know we care about how much

common equity do you have that's what the market cares about that's care about that's what the public cares about so that's what we should be measuring not these arbitrary things that the regulators and the banks come up with themselves because this is not the basel process is not transparent it's not even like you know a treaty with the senate ratifies it it's these bank regulators you know like in switzerland sit around with the big banks and they decide what's going to what's going to work i think it's a flawed process and i think it is that basel two to me was one of the top five contributors the financial crisis we want to know difficult because i agree that basel is flawed i like very clear standards i like in the law i like it baking eight percent fifteen percent that's about as clear as you can get and listen to take a liberal like sure brown a conservative like vitter together on a bill that tells you this is a bill that has wide support it should pass something i think it says and we have people across the aisle it is a wake up call to the regulator this so this was mark levine and mark calabria thank you very much for joining me thanks for having me.

and it's time for the daily do a lot joining me. there and great to be here for the three of dual. so bankers. or gangster if you are not disgusted and nuff about all the issues that are surrounding too big to fail i know it's frustrating but i have the cake topper for you and as i mentioned earlier the american banker reported that the c.e.o. median pay among bankers increase levon percent in two thousand and twelve some of these bankers walk a fine line between crooked and legitimate and that the same time we have our favorite hip hop artists who get a bad rap for making their fortunes catering to these underground economies so what

we're going to do we're going to play a little game we're going to juxtapose our favorite financer isn't hip hop artist and then we're going to let the control room decide if we've got ourselves a banker or a gangster all right you ready i'm ready thank you all right let's go so first we have dr dre while we're still waiting for this rapper his next album detox we haven't forgotten about dres a drunk driving charge in one thousand nine hundred four or the time he broke a guy's jaw outside his girlfriend's aus and went to jail for ninety days the doctor has come a long ways and you way there's clearly a savvy entrepreneur that understands his audience he's now the c.e.o. of beats electronics you act in one hundred ten million pretax dollars last year he was on the forbes cash kings list number one by selling beats by dre headphones. we have ourselves a banker ok you said you said dr drew has been to jail because this is going to

make things that. this is going to make things very easy bankers by definition do not go to jail so we're going to have to set aside here for the sake of this suspend disbelief i think dr drew is a pure business man he showed his gangster credentials a long time ago and i'm going to have to go with. i'm going to say gangster. he was a member of n.w.a. i think i think about i would make him a gangster but what do you what do you take. all right so you get that one moving along we'd be remiss if we didn't include the leader of america's most famous bank that's right the figurehead and jamie dimon of j.p. morgan chase is in our crosshairs now he was certainly never a hero of the public but he skated through the financial crisis relatively unscathed in fact he picked a bear stearns and washington mutual on the cheap but the fickle press politicians would turn against him as mortgage servicing problems and

a large london trader who in his fortress balance sheet so your thoughts and jamie he is definitely a gangster ok. and the reason why well he came to capitol hill he warrants presidential he's obviously you know bending there evolving or you know made his rounds on the i think. the way he just has washington that it's. ok i'm going to have to agree with you here because he made his way through the old chicago route i think through chase bank and everything he does is a little bit shady but he's like i said he's been able to come across as reputable until recently and he's had a host of problems and i think people are finally catching on to his gangster side so i'm going to guess.

all right next we have diddy combs he is the c.e.o. and founder of bad boy the worldwide entertainment group and c.n.n. and time magazine named him one of the most business men in the world he made about forty five million dollars last year so has adventure with vodka has made him a net worth of five hundred eighty million dollars but he wouldn't be on our list without a few arrests in one thousand nine hundred ninety five he was chillin with his girlfriend j. lo they forgot about. that he was arrested for weapons violations and then again in two thousand and one he was arrested for driving on a suspended license he was driving a scooter ensoul i don't know how if you've ever been to south beach but scooter violations are taking very seriously there seriously this guy has been a businessman from day one and yes he's had gangster rappers working for him but i think at the end of the day he's one of the most fabulously wealthy persons and i'm going to say he's

a banker i'm going to say gangster he has weapons violations he drove a scooter on south. i think i think ok. right they got this one man moving on lloyd blankfein head of goldman sachs the so-called vampire squid so what you want to about him but he has the midas touch when it comes to keeping us from afloat he got the fed to convert what was an investment banking broker into a bank holding company in two thousand and eight and voila instant access to the quiddity for goldman around the same time he got warren buffett to pony up five billion dollars right before his old goldman buddy hank paulson convince congress to ram through the seven hundred billion dollar tarp boondoggle lloyd blankfein your thoughts. banker he's got a lot of money ok i would say anybody at the too big to fail level is going to be doing bankers work except he said he was doing god's work and i just think there's

too much of a juxtaposition there or i'm going to say he is a gangster all right. but he thinks. are pretty much of a nerd. ok all right next up we have snoop dog our snoop lion i don't even know what he is anymore he's been in jail several times for drug dealing. and ninety three he was charged with access to a murder or accessory to a murder excuse me six he was banned from the u.k. we're giving him this huge bite at the airport he's now renamed itself the stupid you've sold over thirty million albums a room where you where you are i'm going to say good for looks thank so for life. i received he's a gangster. eggs are. and that's bankers and gangsters things

like you. in a day of contrasts here at prime interest mario draghi over at the e.c.b. is that not like give us counterpart when it comes to dropping money from helicopters more bank capital equals a new ice age that was the absurd picture matt t.v. painted after reading a more absurd as and. then the two marx made their mark debating dodd framed in an interview that we were to market at par and too big to fail or as he makes a nail hopefully we nailed that one and finally we put the head vampire squid again

the newly christened lion and judge them on their street wall street and otherwise thanks for watching and make sure you come back tomorrow and be sure to follow us on facebook at facebook dot com slash prime interest from everyone here at prime and i'm perry and boring have a great night. to teach. welcome to tijuana air you can feel at home.

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