ok i marinate in this is the room bust and here are some of the stories we're tracking for you today first up what the crack is up with these earthquakes in texas our team of correspondents guy in a teacher can brings us

a full report from texas on the business of fracking and the literal groundbreaking of the fact that it's happening now also big coin has a deal avenue in which to employ its purchasing power we'll tell you all about it coming up and finally we got detroit detroit destroyed the motor city had their share of ups and downs and this week the bankruptcy filing has created more questions than answers for the future of the city anthony randolph of the reason foundation helped us get through the headline letter wall rachel courteous and i paid you a picture of detroit on the stick and this big deal is all coming up and it all starts right now.

kicking off your headlines today fracking now it may be the reason why unusual earthquakes have been hitting northern texas in recent months researchers suggest that injecting fracking water deep into the ground may have caused the three point four magnitude earthquake in dallas this past october artie's gynae teacher can reporting from northern texas tells us more. many residents who moved into this area in texas had no idea there would be fracking wells just steps away from their homes they could know that the area that had hardly had any earthquakes before fracking began would start having several every week they couldn't imagine that there would be a gas well just across the street from their community water supply and that's despite the fact that there are still no conclusive studies on how the facts water supply i spoke with one of the residents here rebecca williamson she said the reason a lot of people prefer not to speak out is that many are involved in the oil and

gas industry one way or another it supports their families but they can hardly ignore tremors every week as she was showing me her home damaged by the constant earthquakes and she says city authorities who came to see the green five conversation with her that the earthquakes cause the cracks but in a special report they wrote there was no direct link just think about it the area around this town of eagle in texas had hardly seen any earthquakes in twenty years as fracking begin so did the earthquakes energy companies when people appear to believe it's just a coincidence but many seismologists say it is not every fracking well uses up to eight million gallons of water mixed with chemicals then to dispose of those millions of gallons of polluted water the wells injected deep underground and the waste water puts a lot of pressure a lot of stress on the seismic faults and causes them to split now seismologists have established that a major earthquake can trigger tremors thousands of miles away from the epicenter

and they say the injection wells could be setting the stage for much stronger earthquakes because seismic faults here are already under a lot of pressure from fracking wastewater of course everybody here knows that fracking is responsible for the gas boom in the u.s. but many here fear that they're going to go bust paying the price for that boom in texas i'm going to check on our team. now the race to drill for oil in the u.s. has created another boom and this time it's in sand which is a key ingredient in fracking now energy companies are expected to use over fifty six billion pounds of sand this year alone and the stock price of publicly traded companies that deal in sand have soared shares of houston based high crush partners have jumped fifty nine percent since it began trading in august of two thousand and twelve while shares of a marilyn bass and company have doubled since going public in two thousand and twelve as well giving it a market value of one point nine billion dollars. in other news this week

j.p. morgan said that its web servers were breached in a cyber attack back in september but that they have since fixed the problem and reported the issue to law enforcement j.p. morgan chase is warning some four hundred sixty five thousand holders of prepaid cash cards issued by the bank that their personal information may have been compromised the cards were issued for corporations to pay employees and for government agencies to issue tax refunds unemployment compensation and other benefits now cyber criminals covet such data because it can be used to open bank accounts of taking credit cards and engage in identity theft. and finally it would be a proper episode of boom bust without a mention of bitcoin here's the latest now big going broom that spread far and wide and this time it's spreading to i phone mobile payment applications true story now one such app called glyphs can be used to transfer digital money on the go and its

developers say it's as easy as sending a text message the mini boom and bitcoin software for smartphones is making it easier for consumers to use the virtual currency in place of cash and this is good for quick transactions like paying for food or splitting a bill because of past a thousand dollars last week and the widening appeal of the digital currency is fueling a rally that has lifted it to record levels. well there you have it as always we'll be tracking these stories and much more in keeping you posted on all the latest. william black spent years working on regulatory policy and fraud prevention as the executive director for the institute for fraud prevention now block also served as

litigation director for the federal home loan bank board and developed the very concept of control fraud he is an expert on white collar crime and public finance and joins me now to discuss what he knows best banks stores bailouts and control fraud welcome mr black how are you today i'm feeling good to be here now mr black can you please start off by explaining what exactly control fraud is and how it works control fraud occurs when the people most typically the c.e.o. that control a seemingly legitimate entity use it as a weapon to defraud so think in the american context and run world places like that or if you have people that are older they remember the savings and loan crisis and charles keating that lincoln savings oh older that scares me when you say saving alone is older that is only the. whole move right on from there were no university professor i deal with they do you know there you go there you go this is

much better right. now would you say that if in the financial sphere accounting accounting itself that's the weapon that one must use in order to engage in control fraud or are there other methods for employment control fraud. though there are many other methods but in finance the weapon of choice is accounting so that. again that's the story of enron and worldcom and the savings and loan crisis and the current crisis all of these were driven by epidemics of accounting fraud and in the current crisis you actually you know to your point you saw three different epidemics each of which individually would have been the most destructive financial fraud epidemic in world history but they all occurred simultaneously in the united states and variance that occurred in many other countries so we had to epidemics of fraud in the loan mortgage loan origination process that means the making of the

loans one was appraisal fraud and the second was liar's loans these were both driven by the lenders and then of course there's no fraud exorcise so once you've created these literally millions of fraudulent loans we're talking over two million fraudulent loans annually by two thousand and six if you're going to sell them to the secondary market and most of them were sold to the secondary market of course you can't say hi i want to sell you a fraudulent loan so when you make your representations and warranties as part of your sale those have to be false as well or to you know go sort of biblical fraud begets fraud now control fraud that at best your term you coined it it's yours all the way and you just mentioned some other countries using this that as well now knowing what we know about control fraud is that this kind of a monster of pretty much every emerging market in which to become developed. yeah

it is a major problem in developing markets and again it comes back to the point about accounting being the weapon of choice and so you often have exceptionally weeks. securities regulation and virtually no real accounting rules and so for example new enterprises new i.p.o.'s initial public offerings involving chinese companies years later when they try to register in the new york stock exchange there have been enormous problems where it turns out that the for years they've been filing false financial statements so yes there are entire countries by the way this we've been talking in the private sector but these control frauds occur in n.g.o.s but they also occur in government indeed sort of the ultimate in control frauds is the kleptocracy where the head of state is looting the country

and of course in those circumstances like equitorial guinea and africa and such you have this the nominal oil wealth anomaly rich elite and desperately poor nations now is there any way to merge into a developed financial nation without going through some form of control fraud because from the way you see it historically it seems the answer might be no and do you have any other ideas no i don't think i think you're quite correct that there is the control fraud to some extent is going to be inevitable in that transition period my point is it isn't just a transition it's become sufficiently large that it causes these financial crises in places like the united states which is nobody considers it a developing nation and it's long past that status just to get good numbers again were by two thousand and six more than forty percent of all the

mortgage loans were what the industry called liars loans and the industry reported that the incidence of fraud in such loans was ninety. my an appraisal fraud surveys showed that ninety percent of appraisers were subject to subjected to extortion to inflate an appraisal if you think about that no honest lender would ever want to inflate the appraisal because that's the protection against loss and the financial crisis inquiry commission report found that the due diligence and a deed that did these secondary market reviewed the secondary market sales found that in forty six percent of the cases the reps and warranties were false costs imagine dealing with a merchant that forty six percent of the stock when you tried to buy an apple they

didn't give you an apple we've all now we only have thirty seconds left but i want to quickly ask you totally changing gears how do you feel about quantitative easing and do you think that the fed is experiencing diminishing returns with its ongoing q.e. program is this fraud. it's not fraud but it probably has very little effect and to the extent it has much of any effect by reducing income by reducing interest rates it is actually probably a slight drag on the recovery but mostly it's no big deal all right thank you so much william black we appreciate your time and i'm sorry we don't have more of it with you but up please come back very soon and was william black associate professor of law and economics at the university of missouri kansas city and author of the best way to rob a bank is to own one great title. coming up motor city musings that's right we're talking to troy obviously anthony randolph the director of economic research for the reason foundation and detroit native sat down with me to discuss the latest on

its bankruptcy troubles from pensions to unions to bondholders to a bust we're going to cover it all and madonna courteous and i continue the destroyed dialogue in today's big deal will take a look at the cities our collection and tell you what masterpieces might be up for grabs in the very near future but as we head to a quick break here's a look at some of today's players the numbers. got a quote for you. it's pretty tough. stay with substory. it's just this guy like me you're about done stead of working for the people most missions the beach. ritual bridegrooms days you.

would rather it were. crosstalk rules in the background and you can jump in anytime you want.

this week to trade became the largest municipal bankruptcy in u.s. history after a federal judge steven rhodes ruled that the insolvent city was eligible to file now this new ruling opens the door for the motor city to cut billions of dollars in payments to city employees for tyreese investors and other creditors earlier i spoke with anthony randolph the director of economic research at the reason foundation about the city's bankruptcy troubles and i started off by asking him if he felt the judge's decision to greenlight detroit's chapter nine bankruptcy filing was the right thing to do. i do the made the right decision clearly detroit is insolvent and so the bondholders claims that they could raise taxes to pay off the stead or even sell things their assets are there are that they would have enough money from those sales to pay off their debt and still continue forward those arguments were spirits and the idea that detroit is an insolvent is crazy for the

for the pension ers that claim that the constitution of michigan does not allow for the city to amend pension benefits they seem to have a pretty strong claim the judge ruled that in years past that you go into bankruptcy is like this that you have to be able to break contracts and so he want to head a rule that way i wouldn't be surprised if on appeal that part of the judge's ruling gets reversed but the fact of matter is detroit can go into bankruptcy and should be allowed to go into bankruptcy whether or not it amends pension benefits and that actually leads to my next question now unions and pension funds they had argued that the city should not be eligible like you said for a bankruptcy court protection and the judge ultimately ruled otherwise but in your opinion how specifically does bankruptcy court help detroit. also detroit has eighteen billion dollars in debt is the number it's being thrown around but the biggest part of that general obligation bonds and bonds and that it's money that

it's had to borrow to pay for corruption and failure within its water and sewage treatment plant it does not have enough money to continue to service that debt and provide services for the residents of detroit they have to be able to move forward in bankruptcy and to to wind down some of the debt and take a pretty good chunk of that now a lot of that debt is unsecured and should be able to be pushed away with relative ease some of it they're going to be negotiating with the bondholders and exactly how steep of a haircut the need to take but i think the important thing to understand detroit is the pension component of that there is some three point five billion dollars in unfunded liabilities for its pension. it could do a lot just dealing with the general obligation bonds before it gets to the unfunded liabilities for its pensioners or the health care benefits that's about five point seven billion dollars for the for health care benefits of this country there's now retiree's that city pension holders like you mentioned they're rightfully very concerned that there will be major reductions that are benefits again in your

opinion what is the first thing this year the city should focus on in terms of climbing out of this bankruptcy. i think absolute first thing that they should focus on is giving steve haircuts to the bondholders i think that starting with about five to ten cents on the dollar might be the right way to go one point four billion dollars of the day is unsecured pension obligation bonds money that people loaned to the city in order to pay some of its pension bonds those are on secured those they could probably wipe out one hundred percent but that's just going to deal with the short term issues of detroit the reality is long term if it doesn't deal with its long term unfunded pension obligations detroit's going to wind up back in this position the same thing happened to the city of aleppo california where it went into bankruptcy came out of it by cutting debt raising taxes and didn't deal with pension benefit unfunded pension liabilities in the future it's now back in trouble detroit could probably get out of this in the short term by not dealing with pensions but if it wants long term stability it's got to at least

a man and future benefits it's got to talk to the unions about maybe freezing cost of living adjustments they don't necessarily have to cut into current retiree benefits they may have to but at a minimum they should look at freezing future benefits or at least curbing some future benefits of unfunded liabilities don't put detroit right back where it's at now so you but you do believe that bondholders they should be fully prepared for five to ten cents on the dollar of what they the paper that they held. oh absolutely questioning it when really the bottle they're going to get that the people that really don't want that to happen are the companies that have insured these bonds they are professionals they are so. to kid investors they knew what they were doing going in and they should be more they really if they get ten cents on the dollar i think they'd be lucky i think that anything more than that might be detroit siding a little bit too much of the bondholders in favor of and doing too much of the pensioners now we all know about lending to minutes apologies it comes with a certain degree of risk but should bond investors the held just as liable as

detroit's leaders for of letting the city debt it's been completely out of control . you know the bondholders are going to come in they're going to say look you know we we have a history in front of us and history says that we get paid back for the most part we go into bankruptcy we only we don't get this how could you come along and really give us ninety percent or ninety percent of our money back and i think they should absolutely be held accountable i don't think that that's a viable argument i mean the idea that you would continue to lend money to detroit knowing that its population is swindling knowing that its tax base is dwindling knowing that it's capped itself off with sales taxes knowing that continuing to rails raise property taxes is going to drive more citizens and businesses out of the city that you continue to lend to that city over the past decade and expect to get all of your money back is absolutely ridiculous now how would you gauge the reaction of detroit's unions and their willingness to negotiate. i think it's unfortunate i understand their position they're going to start by not negotiating

because they want to get the most that they can in the minute that they put a deal on the table it's just going to shift even further from there so i kind of get where they're coming from but i don't think that they're being realistic nor do i think that they're treating their actual pensioners and the active members of their retirement funds well because in the future if detroit gets back in the situation and it's not taking a lot of debt and the only place that has to cut is on benefits then the people are going to get hurt aren't the leaders of the unions right now but they are the actual retirees in the future if detroit has is completely on stay. well in terms of being able to pay out its benefits not in five years but in ten fifteen twenty years then it's going to hurt the retirees and the leaders of the unions oh it to the retirees the people that they represent to negotiate in good faith now we're tyreese they were promised literally promised specific benefits and the city now faces kind of a moral conflict in terms of either keeping their promise to the pensioners

retirees as well as providing safety and other basic services to the current residents of the city how does detroit even begin to address this problem. it is it is a moral conundrum and i think the important thing understand is wall you totally understand the moral argument of hey we were promised benefits detroit also has to be able to provide city services no one would expect one hundred percent of all taxes raised in detroit to go just to paying the pension benefits of people who work for the city twenty and ten years ago that you would expect that they would use that money to actually provide services trash and police and fire so you have more claims on both sides it is a very very tense situation i think that maybe the first way to go about it is to means test pension benefits if you have to cut pension benefits you shouldn't be cutting pension benefits of those who are below who are getting pension benefits that are below median income you could start with those who are above the median

income but that's only if you've got to have to do that if you're going to have to start weighing these competing moral claims. that was anthony randolph director of economic research at the reason foundation now it's time for today's big deal. now a madame kurz is as our new as our last guest just confirmed detroit is in pretty bad shape and whether you're a person a company or motor city if you over one hundred billion dollars using one when i talk about eighteen billion dollars you have to start selling some stuff now detroit is looking for a way to set us satisfy its creditors and it's our collection might just be one of those ways now christie's auction house approves some of the works currently on the institute of art and they say the fair market value for the collection could garner

up to eight hundred sixty six million dollars now some of the masterpieces of the museum include works by ben go across to brazil says on you like i didn't reach all of. the first thing is is this the right thing for just for it to do and when i ask this i don't just mean financially and physically is it the responsible thing to do but two hundred million short of a billion dollars which is seventeen billion short of the eighteen billion dollar hole you've found yourself in doesn't seem like that good a fix what do you think well that's exactly what the judge of in the bankruptcy trial said as he kind of pointed against selling our collection he said this is a temporary fix to a much more endemic problem but i think it order to convince me that you shouldn't sell this art you first have to explain to me why having art in your backyard which is a nice thing i don't think you can argue that like having you know picasso a stone's throw away is a bad thing but whether it's a better thing than i don't know keeping services running to citizens to making

sure that you can fulfill obligations to pensions to me those seem like more important things. and in less you can prove to me that the art collection is actually going to help you serve those goals then to me it might make more sense to get rid of it not to burn it certainly not to burn it not to get rid of the art but you move it towards places that are willing to pay premium prices to have it and maybe you know you could do something to make sure it would go to a public museum sort of what you want as a backyard. and you just sit in some rich man's. cigars and i just don't think that conclude that it's necessarily the best thing to have a picasso now i want to also bring this up now this is kind of interesting christie's they outlined some alternatives to basically just auction off the are they give some some different things you can you know now alternatives that came up are one of things they can do first and foremost they can use the art as collateral for loans which is pretty neat to lease out some of the masterpieces to partner

museums kind of like you suggested or put the works in a traveling exhibition and my question to you i mean to me you sound like pretty solid alternatives what they have on the books would you think that this is something that detroit should do oppose to the fire sale style auction that they're definitely not a fire sale right now i don't know if you're selling everything. but i mean these all seem like solid alternatives that could potentially work i've got no problem in kind of taking a look at the cost benefit analysis of them but i think that often people are kind of kneejerk reaction like how do you sell the art how plebian of you without actually thinking that you know people's lives depend on getting services in or a money from the city now we're running out of time but i really want to ask you this the other alternative that they brought up was to have someone buy the art and then permanently put it on loan back to detroit as he would have to do. i mean you

know and this is a beautiful thing the question what should be responsible for buying all the heart and have you know we have my vote. my vote isaiah thomas i feel like i do and there's probably are there any other people in detroit who can do that i don't know i don't know if i don't i mean i'm sure if you didn't say must i feel like if he's the one right now he's no going to try but he's on your seo fantasies on my c.v. that he would immediately be like ilan must could do it if you put all the paintings on the hyperloop and i remember the line you are going at the dignified way to get to work. love it to decide way to get to the museum you could hyperloop tell everybody you are interested i love it i love you that's all we had over now but you can see all segments featured in today's show on youtube at youtube dot com slash boom bust r.t. we also love hearing from you so please check out our facebook page at facebook dot com slash face such a boom bust our t. sorry but i wonder if ramos they are both thanks for watching c.n.n. stand by.

i'm. a sight. i'm sick. mind. i'm a writer. and i'm actually fixed politician last . night. just to.

president obama's trustworthiness is called into question declining poll numbers show that americans don't have faith in their leader in chief just how far down as you fall and can we improve his image before it's too late frank luntz gives us the latest on obama's unpopularity plus p.r. strategist howard bragman and political commentator tanya acker on what the president means to do now to regain the confidence of the american people it's all next on politicking with larry. welcome to this way.