good afternoon and welcome to prime interest i'm harry and boring here in washington d.c. let's get to today's headline. the bernanke the wealth of factors in the bowl sway the big one that because he shiller housing and that beat expectations and is on par with the starkest run since the boom days of two thousand and five the yearly gain of ten point nine percent is the first double digit gain and the year that's according to barron's this is according to our read chairman himself and two dollars five. i guess i don't buy your premise it's a pretty unlikely possibility and we've never had a decline in house prices and a nationwide nationwide basis so what i think is more likely is that house prices will slow maybe stabilize might slow construction spending a bit i don't think it's going to drive the economy too far from its full

employment though so. call us the wee bit skeptical but we'll get into the nuts and bolts of the housing market including fannie and freddie with john pryor of politico in just a bit and exhibit two of the burning of fact our investments and balanced bonds which can meet between both stocks and bonds they had record levels last month previous such records include one nine hundred ninety four and two thousand and four both in the middle of helping both market but also seeing bond offerings that limit protections for the bond buyers so called the covenant light offerings is it time to jump on board the new things your name will see finally watch out c.e.o.'s because the security and exchange commission has a new a software that detects financial reporting fraud the new accounting quality model was recently deployed as spearheaded by as you see chairwoman mary jo white and the cohen force mixed. george kanellos and rest me who are both from devil boys and

plimpton at the white shoe box firm that defends companies accused of accounting fraud among other things and here is what's in your prime interest. now fannie mae and freddie mac. were taken into conservatorship and two thousand and eight when they received over one hundred seventeen billion dollars in taxpayer bailouts now there's been a lot of headlines about fannie and freddie what record profits last quarter further the mortgage giants will pay the u.s.

treasury fifty nine billion dollars in dividends which will put off the debt ceiling debate in congress now some have reported that fannie and freddie's profits were driven by a recovering housing market but according to fat fannie ten q. her net income was primarily driven by record re crediting tax deferred assets to further discuss this i have with me john pryor of politico thanks for having me thanks for joining us so let's talk about this fifty nine billion dollars that fannie and freddie are going to pay to the treasury fifty billion of that is accountable due to deferred tax assets what does this mean what are they and how do they generate so much money right so back in two thousand and eight when these two companies are being taken over by the government they decided to pull in a county maneuver to push out some of the losses they were building up their balance sheets but that the same time they pushed out the taxman if it's that they would take on those losses until at some point whenever there are. accounting gurus

decided they would be profitable enough in the future to cover those losses then they could recognize those benefits in the form of the fifty billion dollars you saw in the last quarter the problem is with fannie and freddie it's hard to know what the future looks like for them because that's entirely up to congress so it's very difficult to sort of to lay out how profitable they will be if you don't know if they'll even be around so in this last quarter they finally decided that with the housing market recovering and as you mentioned the the monetary policies helping them out a little bit with their profits they decided that indeed those new orleans would cover those losses that they set aside not just going forward but also in the in a look back review as well as part of the accounting rules there but they did decide that there are companies finally healthy enough to realize a loss they took the benefit and as the bailout agreement show they will sing that trade to us taxpayers taking these assets off their balance sheet now they're going back on right so is this going to put the company at any type of disadvantage could

this pose as how in the future right well under the bailout agreements that were amended last year and went into effect this year they're required to hold a three billion dollars capital buffer on top of all the profits that they're supposed to sweep to the treasury so all that stuff they are sweeping the treasury is it accounts for three billion dollars capital buffer that they have so they have some cushion there now is that enough going forward we don't really know that sort of the lessons that we learned is that things can go down and they can go down in a hurry especially these days with fannie and freddie and the f.h.a. f.h.a. financing just about every mortgage in this country so of course they have to keep some capital. but you got you touched on this is the second ago are fannie and freddie built on sound footing or is this do you see the easy money policy where it's two things that fannie and freddie are. benefiting from it's the rising home

values that help their profits on their investment portfolios the the m.b.a.'s that they hold the mortgage bonds that they hold in the financing that they're doing but the really big thing again like you mentioned is ben bernanke and the federal reserve keeping interest rates down allowing more homeowners to refinance that is the bulk of their business right now for fannie and freddie and a lot of the profits that are being steered through them to us right now is because of the the easing programs from the fed keeping those interest rates down so you ask if they are on sound footing they're really benefiting a lot from bernanke is up to so when our air starts tightening and it's going to significantly decrease their profits that's something that i'm sure they had to take into account when they were deciding to release that fifty billion dollars to the treasury. you had to really look out across a whole lot of factors there and some early fed meeting showed that they might be

easing a little bit this summer and later in the sober there's talk of tapering off a little bit i'm sure those accountants took into effect that policy choice because it has such a big impact on their profits and i think the government has taken to a lot of. circumstances as to future policies afghanistan friday for now the terms of the bailouts stated that increase profits will trigger higher dividends so how much of the fifty nine billion dollars is due to higher dividend payments are how much of it how much will they have paid if they don't see a profit so the the fifty nine billion dollars fifty point and it just about is from the deferred tax assets they set aside the accounting gimmick that they pulled on top of that was the actual profits that the company made was around nine billion dollars as one of the it was the most profitable quarter in the company's history

so it's a little bit of both the real housing recovery is really helping them and it's really helped them push a lot of a lot of that money to us the taxpayer so of all the money they're paying fifty nine billion only nine of it is actual profits. to this accounting tool used was this intended to make headlines are we starting to see the possibility of freddie going back to the private sector again that's not really in the cards policy wise at the moment a lot of hedge funds and a lot of private equity people are buying up fannie and freddie shares right now thinking early telling people that they think that that could be in the cards that if. dividend payments. are paying the treasury if that ever overcomes the amount that they were sent to prop them up then maybe the becomes an option for the government to actually spin them off recapitalize fannie and freddie for the housing finance system in the future without fannie and freddie are required to cut

their investment portfolios by fifteen percent per year now if the companies do go private again could this hurt the company well those that wind down is more in their investment portfolio it's the private mortgage bonds the whole so mortgages that they've built up and their portfolios to help finance the entire mortgage market leading up to the crisis. so they could they still can buy and package mortgages into bonds and sell them to the private market i think that part of the bailout procedure. stipulations is more to just keep them centered on what they are supposed to do which is finance home loans for people. not so much get into the wall street game of buying and selling private mortgage bonds and trying to trade on that market ok and now these are men says they also are big coincide with the debt ceiling debate that we're going to see is kind of putting that debate off in congress for a couple of weeks. do you think that this was

a determining factor so maybe this is a conspiracy or fannie or freddie it's a strange company instead they're supposed to be private but they're completely controlled by the government so you can certainly use a point out and say you know yes there are politics involved there but both fannie and freddie c.e.o.'s and treasury officials have told us this is one hundred percent a call for fannie and freddie people to make that they had no say no political story in this at all that's what they've said publicly what goes on behind the scenes though with fannie and freddie is always it's always the subject of an interesting conversation you know what do you think that the federal government has influence over fannie and freddie as their majority shareholder that's the question that's really the question that got us into this position in the first place does the government have too much of a sway on what fannie and freddie does. they can't really be tools for

policy that didn't work out in the past and i think a lot of concerns right now as we go forward as they become. companies to either spin off into the private market or to wind down and for something to be put into their place the question becomes is it healthy to have this much influence over the mortgage and housing markets it certainly got into trouble before in a lot of. or really effort to figure out a way. to not repeat that again but also the question into a bill that was introduced in the senate to jumpstart g.s.t. reform which would. prohibit the administration from selling their shares without congress' approval so we're seeing congress saying they can't get rid of their shares unless congress approves it i said is that kind of agree with what you just said of having influence and right it's something that it's enough to spur that bill and the fear is enough to force senator bob corker and strange team of senators there before one of the most was born just as we co-sponsored

a bill. and there's news recently that there's movement in the senate and the house for keeping track of an effort to reform them to wind them down and replace them with something you don't want the administration convoluting the situation there by having to deal with private companies what they are afraid of is that we somehow relinquish our complete control of fannie and freddie and if you start to wind them off toward private investors that might complicate the issue an already complicated task right. so congress is always struggling with power between anywhere they sure revenue. so it's huge amounts of debt. so thank you very much. for having me. and stay tuned because up next prime interest producer bob inglis and have you security expert as answer no place on the importance of. then bob and i are going to do all over the recent shutdown of another crypto currency exchange

money laundering even a crime stick around the. mirror image of the rock story. twenty j c trip through the country. after the war. for peace.

at the big point conference in san jose california preventers producer bob inglis sat down with technology entrepreneur andreas answer no lies and bob asked him how his background and banking technology and security and phones is the way he sees big koreans fitting into our modern pavement payment system and here is their conversation i think it's very easy when like all of us we've grown up with a culture of money that has certain characteristics and this culture of money is thousands of years old we understand money to work in a certain way but a lot of the things that we assume are fundamental to money really aren't there fundamental to this particular type of money that we have so our use of money reflects some of the constraints of the underlying currency once you truly understand because you realize that some of those constraints go away and when they go away it opens the door to incredible new innovation completely new ways of

thinking about transactions thinking about interactions between people thinking about value trust reputation what is the currency etc and that really led me to to grasp not only the bitcoin a special but that it will literally change the world just like the last five appear phonies now at the previous appear finney's i was too young and so when i was asked telling people this will change the world about the internet or modems or computers no one people don't believe you they still don't believe me what i say about about it but i know i'm right and it will change the world and in ways we can't even begin to imagine that well you talked about trust between people and with bitcoins. a lot of times we're talking about relatively small transactions but there's really no upper limit on the type or the size of transactions that can be had with this new currency would you like to tell us what is are there any physical limits on how how much could be transferred between say banks and organizations

could be used for international transfers well that's really interesting because it goes back to the aside dia that there are some fundamental constraints in our previous monetary and payment systems and what you have is you have for small payments you have a complete payment network just for small payments and then for very very large payments you have networks like swift for example that handle interbank fund transfer. but essentially for each type of payment you have a completely separate network vertically integrated network now this is very similar to the pre internet age when you had one network just for phone one network just for video and t.v. channels want to work for information and sending pages through facts etc etc and then the internet brought them all together what what's really incredible about bitcoin is that it's the same system all the way from not just micro transactions but what you could call femto transactions nano transactions millionth of a penny all the way up to billions possibly trillions of dollars femto to get

a transactions is all encompassing by a single network and there's no difference as far as the network is concerned in how much you're transferred and that's completely revolutionary in this kind of like the internet itself i think there was an article that really changed my life called rise of the stupid network and it described the internet as a barbell where you had weights on each side that were doing the computing power and then the middle was dumb it really doesn't matter what information is is going back and forth do you see that as a parallel to the coins absolutely because when is the. payment systems or of currencies and you really have to understand that bitcoin is not a currency or it rather it's not to. the currency it's an application programming interface it's a protocol and the current c. and just like t.c.p. ip what it allows is applications that can be built on top of it is a foundational network in itself is neutral and neutral doesn't mean a lack of principles neutrality is itself a principle and in fact is the most powerful principle of bitcoin because it's

neutral both to senders and recipients their size doesn't matter i could do a transaction just like wells fargo could do a transaction. that neutrality plus the neutrality to the amounts really makes this network completely neutral to payment systems and gives it all its power well we've seen a rise in the us with various internet regulation bills that have tried to create a multi-tiered internet kind of take out the stupid the stupid part in the middle and make it more of a centralized processing system is it possible that this will ever happen to bitcoins well it's not being very successful on the internet ether because at the end of the day distributed systems window with centralized systems centralized systems don't scale distributed regulation works better than centralized regulation and i will not withstanding that bill but the central central governments are still trying times regulate as much as they can it is possible that they'll actually they

will get some of this regulation through will and fact that's why neutrality is the cherice principle both on the internet and the internet can be the greatest liberator of humanity and you know they're ringing the bell of freedom opera listening humanity or it could be the most horrible dystopian totalitarian nightmare bitcoin could conceivably go either way it could get co-opted. make it could get co-opted and it could be used for nefarious purposes it could people could attempt to centralize it however both networks both the internet and point are resistant to that because they offer more value when they're spread out. well let's get into the regulatory aspects in the banking system or we have what are known as know your customer laws which deal with money laundering and we've seen recently get into a bit of trouble would you like to tell us a little bit about how some of these smaller up starts are facing these huge regulatory headwinds. really the issue here is

a matter of maturity and size the regulations are designed to reflect the underlying reality of our monetary and currency system and in our existing monitor and currency system. designed to be essentially biased or skewed towards big players you can't connect to the visa network as a back end processor unless you're big and trusted and properly vetted you can't connect to the federal reserve and access its resources unless you're big and so the regulations of the zine to only work for big organisations breaks that down a bit which means that some of the early entrance in the big environment have been smaller organizations now that's great i mean we want it to spur financial innovation at a smaller level but there's a cost there too but there's a cost there and when you go head into regulations that would design for big companies you look just knowing what the regulations are is a multi-billion dollar per year exercise so there's federal regulations a whole bunch of them federal regulators a whole bunch of them state local global regulations interbank regulations and of

course every other country it would be easy if you could start in one state and then gradually learn and expand to the nation and then learn and expand to the world but the moment you start on bitcoin you're global from day one we had a chance to talk earlier and our audience is probably familiar with graeme which bliley but in a different different context than you had brought up and just by way of background we had glass steagall institute of the one nine hundred thirty s. which said a wall between investment banking and retail banking now was in effect until one thousand nine hundred nine could we have it back please it was working a lot a lot of people want it back but there is another aspect of this that directly influences big coins and what isn't so great wiley actually established regulatory requirements for the protection of personally identifiable financial information essentially the social security number the account number the address the routing number the information that identifies your account has to be protected from disclosure and so it mandates encryption it mandates accounts process controls

a whole framework of security mechanisms to ensure that banks don't lose your information then you don't end up being victimized here's the problem this. and head on into the k y c the know your customer regulations because to know your customer you have to collect information on them and then grimly quietly says you can't lose that information or disclose it and that's where the cost outs ramping up so if you're a small business trying to do exchanges or banks you're going to come right into this conundrum and have to spend a lot of money just figuring out how to do it right. that was andreas answered noble as technology entrepreneur and internet security expert.

and joining me now is bob inglis great to be here again and i hope everybody caught miniature spider-man just passing through the background of the last interview about twenty one minutes into the show i thought i was making and i said all right so big day for the u.s. treasury because they use their powers under section three eleven of the usa patriot act today for the first time a liberty reserve a digital currency exchange similar to coins similar to big point but not coins and if. they have been named a financial institution of primary money laundering concern for an alleged six billion dollar money laundering scheme yes i have to ask one question should money laundering even be a crime i mean when i was growing up when we were growing up it was at least until nine hundred eighty six and that's when the money laundering control act was passed and all of a sudden just trying to conceal the source of passing money from one person to the other whether or not you're actually committing another crime became

a crime itself it is clearly illegal to hide money from the government well it's yes it is clearly illegal because we have these laws in the book i'm asking should there be these laws not that i'm pro money laundering but i'm more anti money laundering nuanced anti anti money laundering tax avoidance yes you can avoid taxes and whatever but that's not really the point but it gets into you know on a relative basis what are these guys doing that h.s.b.c. and what cobia didn't do a little bit bigger i think we have a graph that we can hold. that shows the relative size of what's going on here and we have h.s.b.c. six hundred eighty billion dollars what cobia three hundred seventy eight billion dollars in liberty reserve six billion dollars so maybe they were committing crimes but we haven't really seen anything else going on here right well liberty reserve is being charged with one of the largest online money laundering crimes in history six billion dollars as you solve and they can be very different from what you just

b.c. and look over have done in the past it looks it looks like i'll tell you what happened with what koby there was these mexican drug cartels and they were using these cash transfer stations to basically sun money all over the world but mainly in the u.s. and it took a whistleblower in the u.k. who was fired for bringing it to the a touch of the authorities and were not for him the story would never have come out so a lot of people aren't even familiar with the cobia aspect because it happened in the midst of the financial panic in two thousand and eight but it was just about as big as anything we've seen in the modern era here going back to h.s.b.c. them so well there have been several rests the founder of the company. says tonight vladimir cads was arrested in brooklyn and there was the two co-founders were found in spain they've been detained there's a few more closer each other being detained they are going to be actually dieted these are serious punishments i mean what haven't you just be seeing. basically

nine million in cash of the cobia president six point six million in stock options and cash to the h.s.b.c. c.e.o. could go on. thanks. so it's been a record. breaking day here on prime interest and the amount of money pouring into the fed subsidized markets that is and in the amount of whole loose unaided money paid back to taxpayers from mrs fannie mae so her tax gimmicks and not to sound like a broken record but looks like they're here to stay just not there liberty reserve editor well that's all i have thanks for watching it and come back tomorrow and you can follow me and primaries on facebook at facebook dot com slash prime interest

and from everyone our prime interest i'm perry and boring have a great. old . technology innovation all the latest developments from around russia we've got the future of coverage. if you're. going to take three. or three. three. three. three. three blog video for your media project free media oh god our t.v. dot com. potentially deadly blizzard taking aim for the northeast it's expected to

hit starting in a few hours from. coverage of the storm. but what we're watching is the very heavy snow moving into boston proper earlier today it was very sticky you can see it start to become much more powdery down here the bottom line there's still a lot of snow out here a good place for snowball fight. heating it is been a pretty incredible day there and even record snowfall throughout what's been like bilbies luxury driving lessons some emergency vehicles are exceptions. download the official ati application to yourself choose your language stream quality and enjoy your favorites from alzheimer's if you're away from your television well it just doesn't matter how would your mobile device if you could

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