that her predecessor table first it was the jobs act and now it's money market reform. her in her own predecessor at least being walter had to say this on the subject. i would much prefer to see a proposal be put out by the f.c.c. and by the end i think virtually everyone if not everyone on the upside agrees with the pressure to reform them all tied trillion dollar money market fund industry is the evidence is a key part of the shadow banking system that seized up during the financial panic we'll talk to stim aggressive and more with former o.m.b. director david stockman and a bit finally a little birdie told us the winners added in i.p.o. experts who would payroll that's right cynthia gale or hails from morgan stanley and her seventeen years investment banking experience include work with facebook in linked in investors and facebook love i.p.o. are still reeling in from a disappointing star in mixed earnings results hopes are that twitter will be able

to tap in new revenue streams without drawing user anger all right let's get to what's in your prime minister. david stockman was president reagan's budget director from one nine hundred eighty one to one thousand nine hundred five prior to that he was a member in the u.s. house of representatives and after his time in the public sector he worked on wall street he ended up and private actor equity and as a part of that he became the c.e.o. of collins and aikman which is an auto supplier he has released a new book called the great deformation and where she's highly critical of the a stab. and the federal reserve now some of his his biggest critics including mark

thoma an economics professor at the university of oregon he ordered stockman with the weight not of the day award and of course paul krugman and called the book cranky old man stuff but on a more serious no in two thousand and seven he was indicted on charges of conspiracy securities fraud and obstruction of justice for his work at the auto supply company he faced thirty years in prison with the charges were eventually dropped so now i've got some exclusive and cite from stockton on this case along with his take on the fed's expansive monetary policies you might be interested to hear his side. it was a rogue prosecutor who had no experience in the financial markets she had prosecuted drug cases and murder cases didn't understand that detroit was going through a meltdown i owned an auto supplier layout in my book that it was insanely leveraged i pushed it way too far i was in the bubble like everyone else the company

collapsed but it collapsed due to too much debt due to too much participation in this whole massive leveraged spree that we've had nationwide for the last couple of decades that's not a crime that's basically stupidity mine i paid the price by losing a lot of money and after a couple years demonstrated the justice department that this rogue prosecutor had no clue what she was talking about they withdrew their case and they even allowed four or five people who work for me to withdraw their pleas on the grounds that there's nothing wrong had been done so this is what happens but the larger point is that our whole system is been in a bubble for several decades now everyone gets caught up in it we become bubble deniers that's where washington is today and clearly that's where the fed is and we're heading for the third bubble collapse this century and that is going to be

a real tragedy when it happens well i'm sorry that you had to go through that but i'm happy to see that you've rebounded from it and i do want to touch on some of these bubbles in monetary policy like you're starting to mention now we have here a graph showing the dramatic increase in the monetary base due to the fads and to see enter vention after remains as a result of the lehman bankruptcy fad dramatically increased short term lending at the time the overnight funding markets had virtually shut down closing systemic risk and if one doesn't believe that the fed should step down as you've suggested what do you think would be an alternative solution. well the fed should have allowed the market interest rate to rise that would have forced the last standing gambling houses like goldman and morgan stanley to file for bankruptcy they were totally a liquid totally insolvent that's what the market is supposed to do historically that's how excess leverage excess risk taking has been purged in clans from the

system bernanke he panicked and he increased the balance sheet of the fed in seven weeks by nine hundred billion that's incredible you know that's six seven hundred million dollars an hour for seven weeks straight and that nine hundred billion panicked expansion of the balance sheet to try to flood wall street with cash was equal to the entire balance sheet growth of the fed for its first ninety four years so if that isn't bordering on lunacy i don't know what is the idea that somehow the last standing gambling houses and wall street were going to fail and then this was going to spread is a contagion to the rest of the main street economy is an absolute urban legend i documented in my book the main street banks were not in trouble there wouldn't have been a run on the bank there was no great depression two point zero around the corner that's just. eroni is fears and false scholarship from the one nine hundred thirty

s. and so we were sold a bill of goods and we ended up basically disabling the free market in the fundamental disciplines that a capitalist financial system requires so you don't think that the entire banking system what a collapse if it had to step in no i lay out in detail that if you look at the main street banks community banks regional banks in the united states at the time they had something like twelve trillion dollars worth of assets less than two hundred billion or two percent consisted of toxic as. says that we're falling in value all the rest of it was basically whole loans of one type or another that probably would have generated some losses over many years but there was no immediate down happening in these banks there wouldn't have been lines you know at the teller window all of this was just

a lot of baloney that was it had told by the panicked man in washington namely bernanke he and a couple of people on the fed and paulson and the goldman i gang running around with their hair on fire on the third floor of the treasury building just one of the great it was i called it a coup d'etat and i use the words vice of lee because effectively that's what it was washington didn't have a clue bush was in the dark the congress was buffaloed in a field people basically did a very terrible thing why i really appreciate your comments on that we recently interviewed she was bear who asked we asked her her solution for resolving the banks during a crisis and this is what she had told us. so i think the only buyable strategy if one of them failed now would be to seize control of the holding company continue to fund the healthy parts of the arms into nickels underneath and but then put all the

the equity and secured debt in receivership available for loss absorption to restrict. how feasible do you think it is that have an orderly liquidation product process that doesn't pose a systemic risk is this solution a too big to fail well i agree with her in as a matter of fact my book to try to explain this history and remember it's an eighty ninety year revisionist history names eighteen villains and eighteen policy heroes and of my eighteen heroes the first one is carter glass who created the fed in not the monster that exists today who created glass steagall and not. kind of wall street gambling houses to develop that we have today and the last hero is sheila bair who tried to stop the most extreme part of the nonsense that was happening in two zero zero eight two zero zero nine and she simply got shoved aside by tim geithner under obama and by paulson under bush because wall street was going to

have its way even though sheila bair knew more about the real status of the banking system as head of f.d.r. i see as a long time practitioner of policy in washington than all the rest of these wall street characters combined and what happens that's why i call it a coup d'etat she is ignored she is told to keep quiet while the interlopers from wall street do the damage that they did. and i would i would agree that she will bear has provided great leadership with her work at the f.b.i. see and i wanted to get your take on the younger generation which is inheriting a very rough economic future and i don't know if may or may not be available to them yet they're paying into them they're inheriting unsustainable amounts of debt including federal debt and personal that there is that over a trillion dollars and now sitting fixed it won't do that and unemployment among young people as high as twenty seven percent you know what would be your advice to

young people who have and are struggling to find in employment well they should be appalled by what their current generation is done we have had a party for the last thirty years when i first was in the reagan white house the debt of the public and private total you know credit market debt of the united states was five trillion it's fifty six trillion today a ten fold increase in thirty years the economy is grown by four times the best we've had a massive leveraged buyout everybody gorged business households. tumors governments and now all the due bills are following the generation that's going to inherit this mess i don't know what i could tell them except they need to start standing up for their own future and throw the bums out who are running the system today they deserve to be thrown out and they don't deserve to be making policy any

longer well on that no i've also heard you say that after seeing bailouts by a republican president that there's really not much hope for free market policy in the governing process so if you are someone that wants to live in a free country which would have to include a free economic society what would your advice to young people when you entertain the idea of going elsewhere. no because i think we're probably the cleanest dirty shirt in the neighborhood europe is far worse they're far over more over the deep end in terms of the unfun debility of their welfare state and the crushing burden it will impose on young people there as as it is here japan is you know on the verge of bankruptcy as a practical matter in the great house of cards and china will come tumbling down in due course so this is

a worldwide problem because the leaders in every country of follow the same money printing borrowing debt fuel economic policies that have give the economy a boost for a while then become addictive and finally become totally debilitating and that's where everything is landing at the current moment. that was david stockman author of the great deformation and former director of the office of management and budget up next i'll talk to our tea party third just seen about the monetary base the money supply and the difference between the tale and then our t.v. producer bob english and i will take a look into the greatest two minutes in store it's the kentucky derby and present our own horse race what we call the banker's cup stating.

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russia. to build a new life in russia here. choose your language. because we know if you're going to stay still some of. us choose to get consensus you can. choose the opinions that immigrate to. choose to stories that imply life choose be access to often.

today the unemployment rate dropped from seven point six percent to just seven point five percent and what the federal reserve's dual mandate of maximum employment and price stability had been point continues down this downward trend for the rest of the year it's possible that the fed will slow down its expansion of the monetary base this could enter actually a fact of the money supply as well while for more on monetary base we're going to turn to prime interest producer just seen under home just seen thanks for joining me thanks for having me. well can you explain what is the difference between the monetary base and the money supply because they seem similar it might be confusing please look at them confuse all the time so the monetary base is currency in circulation that's coins and bills as well as reserves held by the banking system and this these are things that the fed can control directly and that's through issuing more bills that's why if you look at a bill close up it says federal reserve note or by digitally creating money

through crediting the reserves of member bank accounts at the fed. but if you look at our bills they have they're called prime interest know exactly. how many measures of money supply are there right so the there's also the money supply which is currency in circulation and so that's similar to the monetary base but it's also savings accounts checking accounts as as well but not reserves of banks which is the key difference and there are several different measures one measures and one which is currency just currency in circulation as well as checking . very liquid and there's two which is one plus savings accounts things that are less liquid and then there's three also which includes two plus things like repose and large time deposits which are a little less liquid and three however has not been calculated by the fed sense two

thousand and six they used to report on it but then they stopped because they determined it to not be useful one and two and three and repros i go we're talking about cars they are one measure about these more than others yes so when people refer to money supply of they often refer to m two and we have a graph here of monetary base versus money supply and as you can see here money supply the monetary base in two thousand and eight drastically increased and two thousand and eight it's tripled. and that tripling has had quite an effect i should note that there are two scales here the monetary base is substantially lower than money supply well the fed controls the monetary base which influences the money supply increasing the monetary base should theoretically increase the money circulating in the economy and you would expect it to be amplified by the banking sector as most money in the economy is created in

dodginess least through credit creation by traditional banks banks can lend in london lend up the monetary base the fed can indirectly influence bank lending by keeping interest rates low which means that banks need to lend more and take on riskier investments to try to maintain their net interest margin but while the base has tripled we have seen the money supply increase substantially but it hasn't increased at the same rate we haven't seen an unprecedented expansion of the money supply which you might have expected when there is you might have expected some sort of amplification we haven't seen the inflation or even hyperinflation that some have expected while the monetary base was increasing. we're just seeing why haven't we seen a more drastic increase in the money supply or one of the reasons that we haven't seen more drastic increase in the money supply is because of interest on excess reserves now this was something that the fed started in two thousand and eight during the crisis and it sounds exactly like what it is the fed started issuing

interest on excess reserves of banks held and that basically meant we saw a spike huge spike up in excess reserves held there and two thousand and eight there are currently one point seven trillion dollars being held accessors that's a huge amount and that's just money sitting there it's not circulating through the economy right now but with that we've seen about a two trillion dollars spent in the monetary base which has meant that it's sort of created a sterilisation effect as well all this is a whole nother topic that we just don't have time again today we're going to save it for next time thank you so much for joining me to explain monetary monetary expansion in the money the money supply thank you so much.

up next the daily you all joining me as our team producer bob english once again a low and we're close in the week with our best tool yet i hope. we have you a big things coming up this weekend tomorrow on saturday is the one hundred thirty ninth running kentucky derby at churchill downs is also known as the greatest two minutes in sports the kentucky derby was first held in eight hundred seventy five but today is expanded to this huge raise over one hundred fifty five thousand people. good to be at the race the winning horse is guaranteed at least one hundred five million dollars but there's a lot more money at stake than just that last year at the derby a hundred and eighty seven million dollars was that on bob can you tell us a little bit more about the bidding process ok you know i'm

a betting man right and somebody in the office but me that i couldn't relate the betting process to the shadow banking system so that's what i'm going to try and do that ok just stick with me this might take a few leaps of logic but we have the new york racing association and if you want to bet on a horse you can deposit money through your checking account or a credit card and what do they do with that they have to put it somewhere and a lot of times if they want to earn that rate of interest they will have to deposit this money with a big bank that might end up doing the repo with this money or a complex financial track so what do you mean by repo ok every purchase agreement and it's part of the shadow banking network so stick with me here that's when i lend you money and then you give me a collateral and you agree to repurchase it at some later time so basically i hold the collateral and you get the money in the meantime and there is an interesting historical parallel with this in washington d.c. right here with the d.c. metro system and this comes by way of economic policy journal yeah end of march of two thousand and eight used to write for it and the d.c. metro system put money back prepaid prepaid money on deposit with the scandinavian

bank and the scandinavian bank entered into these complex repo transactions with a g when it blew up the d.c. metro system could not get their money back so all i'm saying is if you put money into the betting system like the new york racing association it's very possible that that money is becoming part of the shadow banking system but it is too right that horseracing is the only on line betting only legal online betting i mean there's still some offshore stuff that you can do and you know if you happen to know a bookie that's all done by telephone and words and whatnot but you know i think we have our own horse race that we've been talking here about and we've come up with a couple of name. so we're going to have the bankers. first up is bernanke use last stand ok bernanke use last in now many have compared this smallish but tolerable thoroughbred to the horse that suffered him irrational exuberance a few critical difference between the two bernanke is less standard b.l.s.

has added a number of payrolls to the team recently and has the second most well capitalized racing team ever at least on paper now they've been known to handle each other's team others teams sit and ominously there are rumors that underneath the team stalls at thirty three liberty c. street in new york city lies the biggest cash of tungsten ever assembled now brittany comes from a problem of stallions tracing back to nine hundred thirteen but a curious trait of this line is that they are very slow to react to turns in the race track especially when he eases into the final stretch so don't count him out though because even at seventy one odds he has been known to hyper accelerate into the finish to boot bernanke is a crowd favorite as well coiffed as well coiffed silver mane shimmers and gleams on sunny days all right well that sounds and process of but i have my money on diamondback now diamondback is known as one of the best known representatives of the wall street line thoroughbred but he actually arrived by way of chicago now his

father the daily bell ringer was known as a real skull cracker into the finish diamondback used to go by another name obama's favorite banker but his owner was forced to change his name after a series of stumbles on the track most notably after he blew four billion dollars on the london mayor that dan turned out to be a portly clydesdale diamondback is a well sponsored by his friends in congress and his legs very unstable hold the largest collection of manoora swap derivatives and the world he is generally well tempered but he's easily annoyed when others get in the way he's a fast out of the gate. and if he can keep his rhythm he tends to out run the competition by the sure momentum the crowd loves the bill but at a five to one odds he is the front runner of this race but he say about that i think you have a decent shot but i think we're going to have to let the viewers maybe participate

in this and check out our twitter and facebook page and see who they like the best and then monday we will have our race and it winner will be announced all right so stay with us we'll be back next monday thank you have a great weekend enjoy the derby and thanks for joining me on the day we do bob thank you as always. it was off to the races today as we question the surge in employment statistics and watch the f.c.c. fast track new money market reform. and who can wait for twitter's future for ray and to the public capital market or polling for the x. morgan stanley banker to deliver a twitter i.p.o.

cup final and we also talk with david stockman who warned about systemic risk in the celebrating debt burden and then we broke new ground with prime interest producer justin underhill hitting the monetary base against the broader money supply chain and the final lap we talked of the old warhorses last stand and diamondback things are joining me make sure you come back on monday when we reveal the winner of the banker's raise that's our show for today be sure to follow us on facebook facebook dot com slash prime interest and you can follow me on twitter at perry and artsy all. us here at prime interest i'm parry and boring have a great night. live. live.

live overload. her mother live. the speech. her her her her luck whistlin. closer look a little bit misleading good luck or luck.

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