now and just today and here's what's on your prime interest. a run on the bank as one of the most threatening mechanisms to ensure banks are adequately financed traditionally we think of bank runs as depositors flocking to the banks to withdraw their funds at the same time pushing the bank into insolvency but as we saw in the most recent financial panic there was a different type of run on the bank and the so-called shadow banking sector earlier i spoke with joseph salerno he's the academic vice president of the lewdly divine mrs institute and professor of economics at pace university i first asked him to

explain what happened in the repo market that had such a significant effect on the entire banking system in. recent run what happened was that short term short term people who loan the short term to the bank not the actual depositors but people who for example who bought the bank's commercial paper thirty day paper repos and so on what they did was that they saw the bank was unstable and they began to sell off the commercial paper that is or not renewed the loans as they came due so that the bank keeping in mind the bank always borrow short and lens long the bank was not able to finance its whole the overall all these long term assets like mortgages and mortgage backed securities and so on so it was very difficult for them to come up with money at that point it was a contagion effect and the depositors began to get worried and they began withdrawing their money. now the federal deposit insurance for the most part does

not cover the shadow banking sector do money market funds have any forms of protection to mitigate ryans on the short term markets other than bailouts. actually they do i mean before this crisis money market funds rarely if ever had a problem with a one or two that broke the book which meant that the value of their shares which they maintain that one dollar per share went down below the. value of a dollar but what happened was that the larger fund that all of these money market funds would usually bail them out so the few times that it actually happened that they they lost some money let's say ten cents on the dollar i think in one case the the owner of the fund was able to make the depositors' or rather the shareholders are coal hole so what protects them is the fact that money market funds do not have

federal deposit insurance and because they do not the positive are very careful about which funds they invest in so the money market funds make sure that they keep their investments very secure they buy government treasury bills and they buy short term commercial paper from very high great corporations so it's competition itself and the fact that the plazas know or used to know they were not going to get bailed out that kept money market fund stable what do you think that of ryan and short term funding markets will be approximate cost to the next major financial panic and how widespread would you expect it to get before the fed with step then. i think you said something about the fed funds market was that was that the initial part of the question. this sort of the short term funding market do you think this will be approximate cause to the next major financial panic. while what i see happening is once again we're beginning to see an asset bubble yes. today. the new it was

reported that. prices of housing went up twelve and a half percent in one month in april throughout the throughout twenty six major cities in the country and some and some cities like san francisco san diego and elsewhere the rise in prices were something like thirty percent over thirty percent so we're beginning to see a bubble in the housing market again which means that these prices may ultimately be unsustainable once these prices began to fall would begin to fall as well as of let's say stock prices which have been falling the then you're going to find that the bank's assets or falling in value would have a problem again so the rising interest rates i think in the long term market now because the mortgage rates are rising. that's a potential cause of the crisis. and let's let's move on just to the federal reserve kind of seems to be that's the central focus here now you said that it

would be better for the fed to be under the control of congress rather than the federal reserve or and why is this. well the argument against what i said was that well you know you can't have congress which is so subject to short term political influences controlling the fed so we have to leave it to the experts quote unquote to control the fed but when you do that what you've done is you allowed a number of bunch of bureaucrats to have independence and to run the fed as they see fit and there is no oversight whatsoever ok obviously having the treasury oversee the congress and treasury oversee the fed is not the perfect solution i prefer a completely nationalized money gold standard but given that we don't have that system that we don't have a gold standard that banks can create money i'd rather see the fed be much more transparent because congress will look into the affairs of the fed will have to be much more careful in their activities i would choose elected politicians all over

your over unelected appointed bureaucrats and any day of the week and how would we get to a world without the fat i mean the fat as the lender of last resort and part of the financial system and how could we wind it down to a see a world without it. it's a very good question and the fed i mean there are many different plans out there about how to get rid of the fed but one is to put it on the on the treasury supervision but one thing you can do is forbid the fed from ever again buying anything in the open market when the fed buys government treasuries or mortgage backed securities it does so by simply in effect printing up the money creating it out of thin air and then writing a check on itself to. say the mortgage. or the or the the treasury bill but in that case the money then gets into circulation ok so and it's spent and

it causes inflation so if you prevent the fed from buying anything ever again you've in effect defanged it ok you remove the power its power to create money. and in that world you're right it would not be a lender of last resort it could not bail out failing financial institutions but then if you if you if you get rid of the fed's lender of last resort and get rid of federal deposit insurance then the banks will be on their own they'll have be very careful like money market funds are about where they invest and for how long a period of time they invest they would no longer be able to borrow short term or even to promise depositors' to give them their money back at any time but then invest in thirty year mortgages so competition the answer your question would force banks to be much more prudent much more responsible. well what about repealing legal tender allies and taxes on gold and silver and what if we disappear these

laws what it does how wind down the fed without necessarily having to abolish it you know that's also or you know an alternative that would do is if you repealed all sorts of excise sales and capital gains taxes on gold and silver and also on foreign currencies then banks who would be willing to create deposits or to lend and or to to allow you to have the posit in terms of. a more stable foreign currency it's like maybe the euro or the swiss franc also people begin to use gold and silver naturally and they will be banks that would go up that would take gold silver deposits ok so in other words without the legal tender laws and all of those taxes you would have competition and currency as we call it other currencies would be able to compete with the fed no so the fed would not be able then to inflate the money supply for too great an extent because it would be fearful that people would begin to reject the dollar and begin to use these alternative currencies so overall

you get much less inflation under that plan ok and why have you here i want to take a moment to talk about the n.s.a. scandal with ad words and this will solve our movement that's starting to emerge. is it possible that whistleblowers could threaten confidence in the u.s. payment system now that it's possible that electronic payments are being tracked by the government. i guess in the sense that it would it would give foreign groups i guess is the argument. an entree or a bigger opportunity to be able to hack into our system maybe but but i really don't don't see that practically happening i don't think the type of information that's no does get has made potentially give to you know to foreign governments and for me. that's a realistic possibility and to touch on competing currencies the future of

currencies seems to be going digital as crypto currency such as big coins are gaining popularity which are partially anonymous too and big points have been used to donate fines to whistleblower protection organizations such as bradley manning's defense we have just about thirty seconds left but do you think it's possible that crypto currencies are helping find whistleblowers that are working towards damaging the stability of the u.s. dollar. i think big point is helping it in this area to what extent i'm not very sure i was just at a conference of poor press conferences in new hampshire and because of being accepted and there were there were various panels talking about bitcoin so i think it's being used as a means of payment i wouldn't quite call it of money yet because nobody really quotes prices or not many people do in the form of bitcoin but i don't think any way you stabilizes. the u.s. defense capabilities or u.s. currency. and that was just of salerno academic vice president of the would we

combine mrs institute and professor of economics at pace university. because the treasury claims as repaid nearly all of its bailout money but prime interest producer justin underhill is around to challenge this. they were ready to do anything for their country. is to love the country more than yourself if you join the military or any other reason. you're probably not going to have a good day they were in the hands of the state now they live remembering that which is impossible to get rid of. the war. but i'll ever good people get hurt. hurt people. silent.

but would prefer not to be sometimes i feel like. i should have died over there. i saw some people who. is cheaper than. on our. it's. a little. a little. low for the.

in two thousand and eight ex goldman sachs c.e.o. hank paulson went before congress and he warned of an imminent collapse of the financial system economic armageddon he basically said if you have a bazooka in your pocket and people know about it you probably won't have to use it well congress did pass the seven hundred billion dollars tarp program and guess what hank paulson used most of it the problem the money went mainly to the big banks and institutions that behaved recklessly and the world financial system into

disarray what paulson promised congress and the american people was something entirely different that the money would be used to help homeowners who were underwater on their mortgages well it's nearly five years later in the tarp money has been repaid nominally that is but that's not the whole story and maybe it's a little bit disingenuous for the treasury to quote spike the football so for more on this we turn to prime interest producer justin underhill justin what's the deal with all these bailouts very well recently the treasury launched a website that detailed in its interactive in a detail the amount of money that's been spent on the bailouts as well as how much has been repaid and it's pretty fun to click around and see the different amounts that have been given out and how much has been returned and as we can see in one of their charts from. the crisis onwards this is tarp payments the treasury has actually recouped a fair amount of its money and there's only about twenty nine billion dollars that's left to go and not bad when you realize that between two thousand and eight

and today almost four hundred more than four hundred billion dollars was dispersed between this time and the spending includes a id and autos lending and bank credit market spending and homeowner bailouts a. aide and i want to highlight here is the amount of money that was spent on homeowner aid and keep in mind that this is one of the key reasons that the tarp was approved by congress first we have the amount of money that was the treasury had set aside for banks bail out a lot about two hundred fifty billion dollars to be spent on banks and what they actually disbursed was about two hundred forty five billion dollars close pretty close amount but on the other hand we have when we look at the amount that was spent on homeowner aid and housing programs such as which was the home affordable modification program fifty eight fifty billion dollars was initially set for that but only thirty billion dollars was actually set aside and then we when we go to what was actually dispersed you can see it was only eight billion dollars in other

words only two percent of the money for the entire bailout program was spent on homeowners and in addition to this it's important to remember that the amount of money actually spent by the treasury on bailouts is dwarfed by the amount the government committed to spend so this was a tarp tarp spending and this is the amount that was spent or committed by the government and that's a more than twelve trillion dollars according to the new york times and this gets calculated by the cost of the bailouts in this includes things like money market funds and what they were using for the cash market all the backstopping that they did and the treasury has indeed been repaid a lot of the money but we haven't seen this also solidified the status of too big to fail with all these these payments and if you believe the bloomberg reports that get a subsidy of eighty three billion dollars

a year because of lower borrowing costs then that's due to their status as too big to fail then there's a lot of costs for the taxpayer that haven't been accounted for there certainly are and let's talk about those subsidies i mean what we saw with the for natural. and it was the federal reserve stepped in and they back stopped everything we've had for years no mirrors or parades and guess what we have all these zombie banks that have just been postponing the problem and i could make the argument that this is actually cost people a lot of money so that we haven't really fully realize the cost of this problem i think that's absolutely correct and even neil barofsky mentioned he his calculation it was twenty three billion dollars. twenty three trillion dollars ten trillion dollars more than even the new york times yes so the new york times they had calculated twelve truly am but he calculated twenty three trillion and that's because of certain backstopping he basically included everything under the sun every single commitment the government made even if there was collateral backing that so it was

a much broader measure of how much the government had actually committed to these things sort of thing and of course he was the special inspector general of tarp and he resigned in march of two thousand and eleven because he was so disgusted with the process and i think we have a quote we can pull it from him the treasury is biting the football and it detracts from the massive moral hazard created because it makes the government's backstop explicit and incentivizing the exact same types of behavior that led to the last crisis and will almost certainly cause the next pretty dire that's pretty dire but you know we've seen this happen time and time again and you know this behavior it's even still going on now it's moral hazard as moral hazard but if so it's going on even with with the ham program something that i brought up before and actually. they extended the hand program by two years and this was originally supposed to help obama said it was supposed to help three to four billion home excuse me three to four million homeowners and it only helped what three or four and hopefully that helps about

a million ok but so way short of expectations this is something we've seen time and time again but as this is going on we've also seen the fact there's court cases now from x. think of america employees saying that there are are there. problems with the ham program and that they were intentionally misled people that were issuing they intentionally misled mortgage or owners and tried to get them to pay more money so it's certainly very discouraging on that front and just in thank you so much for sharing this with us thank you so much. this time for the daily deal with bob you're looking to get hitched now ok well some people can today know all right section three of doma has been overturned by

the supreme court of marriage or is a big win for gay rights activists certainly section two is still held mean that the states still have the choice to authorize same sex marriage is as of now there are twelve states and the district of columbia that permit same sex marriage so what about the economics of it why there is definitely a lot of money in this industry yes some have estimated that the wedding industry is as much as seventy billion dollars and if you factor that into the actual nominal cost that we could have now that could be spent with i guess a marriage that could be a lot bigger and if you're into cannes you in aggregate demand spending is good for the economy so i think ben bernanke is happy today you're always the one to bring up the make everything about money and finance and economics centric what can i say well i think what's most interesting about this case is it's really a taxing case because now the states that recognize same sex marriage this means that the federal government has to recognize it for tax purposes which could be

more then what's in the marriage industry well it looks like in certain states people are going to be ending up paying more taxes but with the federal government people actually might be. paying fewer taxes so i think of people have the option of paying fewer taxes that's a good thing yes that's true but this also means they could add to our debt and our deficit because they'll be getting less tax receive people filing jointly. well i know that's a great idea yes it will happen is that political you know they're really viable i don't think so they're really not today's now with a two year terms in the house unfortunately. moving on the i.r.s. there's been another audit there they found additional misuse of taxpayer funds and i don't believe absolutely the i.r.s. has been under intense scrutiny after it was found that agents were targeting conservative groups that are applying for tax exempt status the audit of the arguer

found one hundred million dollars in credit card purchases some are legitimate work quite questionable such as purchases for diet pills romance novels online pornography and a popcorn. popcorn machine i understand that's legitimate everything else we're going to scratch my head i don't know how i. love one in order to break room here. but these aren't the only items of the government has acquired over the years of the g.s.a. is auctioning off several very interesting items the first one is the breakwater of white house for thirty one thousand dollars maybe they're trying to shine a light on government misuse. all the corruption maybe we can get drunk or maybe we can get the department of justice to actually focus on putting these two big people in jail for every novel idea but i think they should be using the white house to find misuse funds first ok well government spending back to your point earlier well

i'm all for that but let's back up they're selling this so how are they going to say this is going to go to the private sector no. unless another government agency acquires it ok or a government contractor maybe probably pretty water looks like it's off fair game you can also bid on the columbia falls of radar site starting at one hundred five thousand dollars what would you use this for a bob if you were going to buy a well what's on my radar i'm looking at what's going to be happening in the near monetary future interest rates are always on my radar and i'm expecting them to rise now they're already are rising but i think they're going to go up by a substantial amount and this is going to force bernanke into a corner and we'll see how that plays out this is a former air force marines and main it was military aircraft i think the best use of this radar would be to detect government agents who are spying on american citizens and targeting groups that are applying for tax exempt status. give you this one i think therefore give that. there you go and finally you can bid on

a seventy four foot landing craft starting at ninety thousand dollars so here we go this is something that the fed needs because bernanke is looking for an easy soft landing with his cue we've purchased and i don't know if he's going to get that but that's what he's hoping for i mean he has to wind down this eighty five billion dollars bond that's per month on purchasing program and how is he going to do that in a way that doesn't disrupt the markets that doesn't force up short term interest rates . in a volatile fashion he's not going to do it he's leaving oh that's right. maybe he can buy the land for his retirement so it's good you can even buy a landing craft in the government it's news to me you would think that the government would at least strip it down and use the metal for their next shepherd next whatever project they're making that would be a good use of recycling you would think but with all government contractors and department of it's not going to happen what are you going to do well thanks for joining bob you can follow us on facebook at facebook dot com you can follow bob on

twitter. and you can follow me perry n r t. bob thanks for coming over to. and it has been a disingenuous day here at prime interest on our part of course just the stories we've covered we found it unfortunate that certain fed officials are crying wolf over dodd frank too big to fail failure is one their mandate inherently protects the status quo ante and the feds are going after steve cohen on the set of known theory of justice watch out stevie and remember the actually gotten mark on it about obstruction of justice and we talked with dose of salerno the question that

the viability of the and tired global banking system and just seen it revealed just how the pup like dogs bait and switch by the tard. finally bob and i wondered what uncle sam is doing so i'm not trying to get a story about the hire as i'm buying popcorn machines and romance novel that's all we have today i'm perry i'm boring and come back tomorrow want to find out what's and your prime interest. they use the perfect material it's a lie you make just a small change and you get a totally different result than what are pretty top know the of. the goldfish is

a little complicated. geometry we still play monkey you know the incisional and there's a good. it's very intricate work where my life has changed one hundred percent. from the field operating table here more than just a very small table as long as i had a flashlight and a working battery and i had a good enough environment to work it. was among them along with some other terrorist leaders. she was if he's reminiscing about the past he's looking at you at the same time he's somewhere else. and when i watch this. it doesn't feel like me at all and. it's someone totally different someone i don't know. we speak your language.

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good bill. it's. part of a very. wealthy british style. that's not on the. market why not. find out what's really happening to the global economy with mike's cancer for a no holds barred look at the global financial headlines tune into kinds or reports . of.

ecuador says it can grant asylum to the one on the run whistleblower edward snowden while he's not in soil the n.s.a. leaker remains holed up at a moscow airport. and on the heels of snowden's revelations about britain's huge phone and online tapping it turns out the u.k. police are secretly monitoring social networks on a daily basis. and egyptian military is bracing itself for mass rallies with the opposition preparing to take to the streets to van its anger at president morsi who is about to mark his first year in the top job.