this bubble doesn't and like the last one we'll discuss coming right out and dr steve keen is on the show the heterodox economist sat down with me earlier today to talk about the bee i asked report among other things and today's big deal i'm joined by the host of the big picture here on our team mr hartman tom and i are discussing mergers and monopolies i won't want to miss the moment it all starts right now. prime mortgages those are so few thousand eight but subprime auto loans those those are very in fashion right now now in the five years since the aftermath of the financial crisis all of those to people with tainted credit have risen more than one hundred thirty percent last year roughly one in four new auto loans went to

borrowers with subprime credit that's people with credit scores below six forty now much like the subprime mortgage leading up to the crisis many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies mutual funds and public pension funds this process by design creates a greater demand for these the less than optimal malone's now the silver lining this time around though is that the size of the subprime auto market is a fraction of what the subprime mortgage market was at its peak and its eventual implosion won't have the same consequences as its predecessors however with that said the volume of subprime all of those increases left roughly fifteen percent in only the first quarter of this year to over one hundred forty five billion dollars however this time around lenders insist that the risks aren't as great they claim the lessons from the mortgage crisis pointing out that. historically losses on

securities made up of auto loans have been low even during the crisis and auto loans are very different from home loans a car can be quickly repossessed while a foreclosed home can when it's way through the courts for years and years but in a clear sign of trouble on the horizon auto repossessions have increased nearly seventy eight percent in the first quarter of this year as a result croaked some rating agencies are starting to question the quality of the loans backing the securities and warn of losses that investors could suffer if the bonds start to go bad and if those losses materialize they could affect a wide range of investors from pension funds to insurance companies to mutual funds bottom line subprime is just what it sounds like bolo prime and the good news here if there is any i should mention is that the subprime auto loan trend isn't likely to take as big a bite out of the planet's financial stability as the subprime mortgage trended but let this be a warning if it looks bad smells bad and if the name implies that it is bad it's

probably about. the latest bank of international settlements make a strong case against the current path of monetary policy it basically warns that ultra ultra easy monetary policy can lead to financial instability which could possibly lead to another crisis so i want to hear from heterodox economists dr steve keen to see what he thinks of the b.o.'s report now in january two thousand and thirteen the b. i asked released a paper called the financial cycle and macro economics what have we learnt in which they called for the standard modeling format as g.e. model i asked keen to break down what all this means in layman's terms here's what he had to say. if you will to do. stray models of the current fad in

a in can mainstream economics and these by the way they continue calling each of the models general equilibrium but if you look back to a model in audience sixty there is virtually no resemblance to what they do these days the only thing that is consistent is they continue with the myth that the economy is always either in or very near equilibrium and of evidence to go back to it again the current ones they call dynamics to casting in general they calabria models assume that the connie can be represented by forward looking individual and sometimes they are individuals in there but they're all this capacity to look into the future and they know what they expect that income streams are going to be for the indefinite future and they therefore know what they do with that what they consumption should be to maximize the utility of that consumption strained out of that income stream and then so they're on this not smooth pos towards the future equilibrium a future point of bliss that was first called in the articles from which this stuff

evolved written back in the not in twenty's and then they get new information read some shit they call economists call them shocks that come in from the outside like a shot from the financial sector which of course ninety nine point nine percent the planet regards as part of the economy but they can only carry makes it outside the economy social comes in that changes what your expected future income stream is going to be and you instantly if you're a what they call the freshwater economist or the new classical instantly jump to the new optimal path towards the future or if you're a new kinds you know salt or as paul krugman calls them you gradually get to the new optimum path with a few adjustments of its time and those movements or the how they explain the trite sokal now it is to me absolutely ludicrous that that's what they do because in so doing until it's lost most recent process they know all the existence of banks and money as well as presuming the economy is in complete equilibrium well with that sort of mindset it's no wonder they didn't see this process coming and they also

don't know why it's ended now things that are stand up to be i asked the thing that you know we need a long term holistic perspective than the standard macro economic model of today can offer is that correct. oh yeah i mean what the b. ice of the bill was very strongly influenced by its research director bill watch until his return. from the the i.o.c. is still very active in economic policy around the world but bill was writing papers by stonham and minsky's perspective very much like i was writing out a great big eyes papers and think i could have written this i was quite stunned. that was an awareness of the fact that the economy is driven by its sokal to begin with it's driven by people having euphoric expectations about the future bank state and money integral and that vision is still want to be honest research center is saying we should have a vision like that which sees the economy as the rough and tumble creative driven unstable system we actually live in rather than this mythical world of the conventional near classical columnists now let's fast forward to just this past

month maybe i asked cause quite a stir thing basically the same thing but this time they said the fed and other central banks just didn't really get it so what this dustup all about in your view well i think to be honest in the bank of england the two organizations in a similar way i think saying we have to think about the world as a creditor of an system the federal reserve and most other central banks around the world still dominated by mainstream thinkers who believe that you can't model the economy unless you use this to on a mix to cast a general equilibrium framework so the bill is basically sending out a wake up call very much like the bank of england did with its statement about the money supply being created by banks creating lines again that's something which anybody working in banking and most ordinary people understand implicitly it's only economists you can't see that it matters now i understand that bill white was the devoted prime in minsky's financial instability hypothesis so can you explain to me

how that's relevant to the b i asked argument against fed policy will the some some of the be actually contradictory a bit get that out there why straight away the part of the argument i've been putting on. i think this reflects the different competing strands and saw that the os itself are in favor of austerity and that's exactly the opposite of the argument that hamann minsky made about the financial costs like on with being through minsky's argument was always that the capitalism is inherently sokal the debt private debt leaves up the sokal and then leaves it down as well and he said if you look at the gist of the private sector you could easily collapse into a total debt deflation what the government needs to do is to spend in the opposite direction so when the private sector has got itself into a debt trap the government spends more spends more than a taxes giving a cash flow to firms that lets them repay that debt and then get out of the socket so you still get a saw you get out of the slump you still have the sokal but you don't have a collapse into a black hole so that that's very relevant to what we've been going through right

now and it's contradicts what's being done by the european union which is actually turned down today into a great depression for the southern european states it supports what the american government did by default when the cross was first hit of massive spending cash for clunkers and all those sorts of things which were simply injecting money into the economy to make up for the fact that the private sector by day leveraging was taking money out of the economy so that's why it's extremely relevant minsky's vision i think is the only one that makes sense and bill why it was a great champion of minsky in the in the face of quite hostile responses from alan greenspan pushing that you shouldn't even listen to bill watch and you shouldn't listen to minsky well we should if we'd actually being intelligent beings who need to learn from what we've been through we would be but icing on models on minsky now the trouble is because we've got through the crossers a largely because of that government rescue they're going back into the old conventional ways of thinking again as a nothing even happened. now my colleague ed harris then has been arguing that

monetary policy is wholly inadequate as a vehicle for cyclical steering of the macro economy now he says that's because it works through a credit channels and by nature it creates this risk of financial instability what's your view on this whole i agree with completely that the fiscal side of the economy is what matters and again this is where we're stuck with the impact of this conventional mainstream economic thinking and going to mix to cast a generally clear equilibrium models only have a role for monetary policy the the the magic wall that's built into those models is the god comment that the federal reserve can work out what the optimal interest rate should be and put the interest right opera twice as fast as inflation is rising when inflation is going up put it down twice as fast as inflation when inflation is falling and that's all you need to make the the the magic carpet ragnarsson smooth and that's the vision that i had now this lift the government sector completely out of it and says that fiscal policy only makes things worse wrong and this is what the empirical experience in american chawner is will my own

expose you know when the script process hits the fiscal stimulus that was pumped in by those countries and of course the american music you know a huge stimulus that's what stopped the crosses getting any with the fiscal policy which is the way the government creates money that's what you need to balance out of the cross'. that was dr steve king head of the school of economics and history and politics of the school of economics history and politics not all three i can spin university in london. we love king but it only has one title one time not for a very quick break but stick around because when we return dr barry eichengreen is on the program dr eichengreen is professor of macro economics and political science at berkeley and he sat down with me to discuss the international monetary system you won't want to miss but he had to say either that in today's big deal tom hartman is sitting down with me to discuss monopolies and mergers all things brand

and remember you can see all sides and featured in today's show on you tube or you tube dot com slash mumbai starkey and on hulu and hulu dot com slash boom and dash but now before we go to break here are some your closing numbers about. the because. it was a. very hard to take a. long. long time that back with that hurt right there no. please.

please. please. the of the. they want to take this cause back to the middle ages a public event. for the database and you know they derive their diligence from the very a very rigid interpretation of if you look at a country like egypt for example sounding off this area high poverty the reason there's hype also the i think is because diligence and calling the boundaries and

the board and that's the kind of suppression if you look at the liberal the state of a country like turkey almost ninety nine percent muslim. economists. led . dramas the truth be ignored. stories others refused to notice. food since changed the world lights never. filled picture of today's blog post prandial and from roads to blue. book to.

welcome back to the show now in the midst of increased risk in the markets both from increasing tensions in ukraine and the real ignition the conflict in gaza financial markets might become destabilized and lead to larger global economic consequences earlier i spoke to dr barry eichengreen professor of macro economics and political science at the university of california berkeley about the role the federal reserve plays in maintaining financial stability we discussed capital controls the eurozone and debt for equity swaps but i first started the conversation by asking him what else needs to happen before china adopts a more important role in the international monetary system here's what he had to say. i think what has to happen is that people have to gain confidence in a. converted billet in the speed billet of china's currency i think there are real questions about chinese growth going forward there are questions about

what problems may be lurking in the shadow banking system in china those problems have to be cleaned up over time china will have to move toward a more flexible exchange rate so it can open its financial markets to the rest of the world and it will have to do institutional reform like making its central bank the people's bank of china independent from politics so that investors are confident about a political nature of chinese monetary policy. you know former fed official jeremy stein is intimately associated with the view that monetary policy could change due to concerns about financial stability so do you believe some troll banks should be any less aggressive in pursuit of full employment when financial stability concerns are so high. we learned from the financial crisis that the greenspan doctrine that you ignore financial and financial problems potential

financial instability bubbles and concentrate on cleaning up after the fact simply doesn't work that the costs of cleaning up are too high so i think central banks have to worry about financial instability and bubbles before the fact and they have to do something about it the question is what to do. i think the worst of the available alternatives is to raise interest rates prematurely and stifle economic recovery and growth better is to use regulatory instruments to do what the . new zealand authorities did for example in clamping down on frothiness in the housing market by raising the regulatory loan to value ratios so janet yellen chair yellen last week pushed back against the idea

that the fed should raise interest rates now because financial markets are frothy and i agree with her what the fed should be doing is putting on its hat as regulator and clamping down on on excesses in financial markets using regulatory instruments so one of the further any eventual bank's best tools as a regulator in promoting financial stability. well central banks can adjust capital requirements for banks the own funds that banks have to hold they can adjust liquidity requirements for banks. the amount of liquid funds banks have to hold they can address problems in particular markets housing like i mentioned a moment ago by adjusting rate regulations there i think those are much more subtle and nuanced instruments them simply raising interest rates which is like

crying to break an egg on top of a glass table with a sledgehammer. yet never easy now oh you know what i want to ask you on the financial stability front iceland is removing the capital controls that implemented during the crisis and these controls have been very very helpful for the countries there do you think capital controls will play a larger role in the future in promoting financial stability yes or no well i think they will be part of the regulators toolkit going forward so brazil is another example of a country that without a financial crisis. has tightened and loosened its capital controls in response to surges and then. inflows and outflows of capital i think it is and it's a better example than iceland which had no choice but to slap on controls in

response to a major banking and financial crisis but countries like brazil have shown us it can be done and i think it well. that's positive and something to look forward to and a lot of unpleasant times i want to ask you the eurozone crisis has died down but what needs to happen on the monetary front and elsewhere to ensure that the crisis does not return. well the eurozone crisis is now i think in the chronic phase rather than the acute phase the specter of the eurozone collapse is off the table but i think turbulence can be back and will be back in the future. deaths where they are unsustainable need to be restructured banks where they are under capitalized need to be forced to raise new capital there has been lip service about doing that in europe but remarkably little action so far most important i

think is to get economic growth going again and to sustain that growth europe can grow out of its problems growth heals a lot of wounds it can solidify political support for the european project so to get growth going i think there has to be more support from the e.c.b. which has signalled that it's prepared to do a little bit more i think it needs to do a lot more quantitative easing. a lot of the united states in other words. the europeans are relaxing their austerity measures a little bit i think that will work if they clear away their inherited debt overhangs and other than in greece where there was a debt restructuring that has yet to be done so basically you think is that ken rogoff does that further restructuring in the eurozone as inevitable but basically

one death for equities swap the one way to conduct that restructuring in your opinion. i think debt for equity swaps are ideally suited for european countries like greece and portugal where there is a lot of public property that needs to be privatized and a lot of public debt that can be converted into claims on those ports and. airport certain and other. public lands and the like so i've been arguing for that for some time now in greece it what was done in two thousand and twelve was simple plain vanilla debt swap old bonds for new bonds better than nothing but i think that for equity swaps would be a more creative way and more effective way to proceed. that was dr barry eichengreen professor of macro economics and political science at the university of

california berkeley time now for today's big deal. big deal time of the wonderful mr tom hartman joining us that very excited to have your tom thank you host of the big picture here on r.t. and today we are discussing mergers and monopolies of telecom and what that means for net neutrality now to megamergers are currently under review the first is between comcast and time warner cable and the other is between eighteen t. and direc t.v. now time reports that a senate hearing last week quote comcast in eighteen to you argued that massive consolidation in the telecom industry is good for consumers and good for innovation and good for the free market they warn that if the government does not allow the mergers to go through incumbent telecom companies would no longer be able to invest in basic internet infrastructure leaving consumers to pay more for fewer internet

and t.v. options so tom what do you think about this argument of consolidation is it is it good for consumers and good for innovation or is this just kind of a cyclical argument here that argument is the exact opposite i mean it's just it's it's just a fundamental blatant lie if if you live in canada right now whether you have a piece of copper coming in your house is telephone wires with you have a cable coming in your house for the a fiber coming in your house you can choose from one hundred different companies to be there and service providers because because they you know the consolidations were not allowed and and these companies can all compete you know they get that whoever has the pipe has to run it out to the right areas competitors we've chosen not to do that the united states this is a thirty four year trend ever since in eighty two reagan stopped in force in the sherman act and our companies have just gotten bigger and bigger and bigger and in the process they've crowded out in semblance of calm. it's sad to think that there's absolutely no efficiencies to be gained in all these mergers you know that

all this kind of integration that you see there's nothing to gain from it or there's prompt profound efficiency for the company there's profound efficiency for the c.e.o.'s and a moderate efficiency for the stockholders but the question you have to ask is why do we allow business why do we have business in the united states why did we start the laws in the first place to give people who live in a limited liability if they incorporate all these other things the reason why is because presumably that behavior is going to good for society it's going to be good for our country and back in one thousand nine hundred one we you know senator sherman for a while said hey wait a minute you know what john rockefeller is doing what in oil what the what carnegie is doing in steel these guys create these giant trusts these you know this is not good for the society for it's not good for america they passed the sherman antitrust law and we now we've had a thirty four year of experiment of going back to the eight hundred seventy s. the eight hundred eighty s. to see well gee how does that work and guess what we're really living in the gilded age perhaps the sherman antitrust law was so bad the first time around yeah now

bloomberg reports that jeff at bukit the c.e.o. of time warner cable would reap upwards of seventy nine million dollars if there was any change in control of time warner cable so is that if he isn't necessarily you know disinterested in this whole merger he's going to get a huge payout so what's your take on incentives they seem the heads of these companies i mean they seem structured as though yeah take the company let's merge that i'd like to think to make eighty million this year well yeah they always are and once again the big winners and in mega-mergers are the banks that are doing them raise typically that they're done huge debt which in over the long run hurts the stockholders and the c.e.o.'s. i hate to go back to reagan so frequently but it prior to eighty four i think it was thirty five it was against the law to compensate c.e.o.'s of anything other than a paycheck which was subject to full regular income tax and the and because everybody understood that a c.e.o. is responsible to. community to the stockholders to the company itself is an institution right and to the employees there are four constituencies in addition to

himself. the theory that was put forward by steve forbes and others like him was that the c.e.o.'s really should just be representing the stockholders so let's make it so that they can be paid with stuff and it'll cause them to behave in a way that only works for stockholders which we've been seeing now for thirty years and it's and it doesn't even work well for stockholders only works well for short term stockholders it works for gamblers it's a failed experiment so you don't need consolidation has been getting more and more prominent we've seen more of it in recent years do you think that there's no turning back we're only going to see bear conglomerates now we only have thirty seconds but i must take until or unless the economy really genuinely crashes i really you know i think that what we're creating is this giant tower that's getting heavier and heavier at the top and. i expect a really significant crash i think coming out of that will go will say well what's worked in the past and right now senator sherman wasn't so crazy twenty sixteen like your book kind of checking out the great book by the way tom thank you as

always that's all for now and we love hearing from you here on boom bust and please check out our facebook page facebook dot com flashman best our teeth and please tweet out us at any rate at tom hartman from all of us here at the bus thank you for watching with you next time bright. we profit very large very attractive and now very globally recognized source of oil for the world looking into the future the world's cheapest and best petroleum deposits have been going down we have to use more energy to get this energy industries grow like a cancer base where it's ten kilometers where. this whole area is slated for the plane of charging for water that's our wild life saver thing

that's or fishery we can't stop this is the end game when it takes two tons of sand to make one barrel of oil you know here at the bottom line and that's where a. chill ourselves. you shall know where you.

come. in fish farms waters. you have the palm of me because. i saw you spread all over nobody is the most toxic food you have in the whole. process drama zones in the fischel inquiry furthermore tells restrictions.

really. inside the feeling. this is r.t. international this ukrainian warplanes reportedly paul the town near the crash site of the lazy and passenger jet despite the president's ban on his still it takes. time to government forces have now handed over the flight data recorders to the officials probing the crash while the train carrying the bodies of flight m.h. seven teams victims now reaches harkov completing the first stage of its journey. russia's defense ministry presents radar evidence that a ukrainian fights a jet was in the nearby airspace at the time of the disaster and circled the crash site. and western media and know who's blame to.