to cross out financial regulation i'm joined by arnold kling in washington he's a founder and coeditor of the economics blog econ log and in warsaw we have patrick young he is executive director of d.v. advisors and editor of the gathering storm and imagery and we go to glen while he is an assistant professor of economics at the university of chicago all right gentlemen cross titles and i mean if you can jump in anytime you want to i first i'd like to go to glenn in madrid are you in your co-author erika posner caused a bit of a stir by coming out with a paper titled just recently a proposal for limiting speculation on to rivet is a f t a for financial innovation ok now there was a lot of press about it why now and why do you think new financial instruments should be regulated like drugs. basically every developed country. requires that drugs before they are marketed are tested for safety and efficacy because consumers. we have to heart of a time figuring out on their own with such complex effects that drugs can have whether the drugs are safe and efficacious and also the health conseq

financial system, there would be a real consequence for the financial system and the economy as a whole. i think that's somewhat underappreciated. particularly during the course of this financial crisis, most of the attention has been on the big systemic companies. but -- and clearly from the fdic standpoint and the rest of the regulators, that's going to be an ongoing priority, as i've just talked about. but there really is a need, i think, to pay some attention in effect to the other end of the spectrum for the community banks. the role really is quite important, and i will tell you, we are in addition to the systemic resolution responsibilities, the fdic is making the future of community banks or other major priority over the course of this year in part because the fdic is the lead federal regulator for the majority of community banks in the united states. in fact, we just hosted a conference a couple of weeks ago on the future of community banking. we're now going to be doing a number of things over the course of this year, including a series of round tables with community bankers i

so between that and our financial regulatory sure our financial system is strong, and we've worked particularly lard to make sure to do everything we can to protect our financial system and our economy from anything that might happen in know. so that whole set of tools is still very much available and in place, should there be any new problems in financial markets. then on the monetary side, i've described to you, i don't have any completely new monetary tools, but we have the tools we've used, and our interest rate policies and, you know we can continue to use monetary policy as appropriate as the outlook changes to try to achieve the appropriate recovery, plus still maintain price stability, which is, of course, the other half of the federal rv so we have these two basic sets of tools. we'll have to continue to use them and continue to evaluate where the economy's going and you know, lots oftely other tools, and that's why i was saying earlier that we really need a, an effort across different parts of the government, and indeed, the private sector to do what can be done to get our economy bac

remind you we're talking about the regulation of financial markets . and the p.p.p. still live. ok i'd like to go back to glenn and madrid i read your paper with with enormous interest ok because it seems to me that what has been done since two thousand and eight is certainly not enough and what you advocate and please correct me if i'm not if i'm wrong you're just saying we should go back to an environment of the one nine hundred ninety s. are not advocating a revolution here as advocating going back to what made sense before speculation went wild. yes and not just in the one nine hundred ninety s. but for hundreds of years prior to this in the common law tradition coming out of the united kingdom there's been a doctrine that you can't buy insurance against the life of someone like the present in the united states whose death doesn't affect you negatively you can't just go out there and in buy insurance against things which you have no interest in and effectively what's happened in financial markets is rather than being an opportunity like patrick said before the break for peop

financial fire wall. the european leaders are now reviewing options for how to expand the combined financial capacity of their two funds so they can make it clear to markets that they have the resources available on a scale that is commensurate with the needs they might face were the crisis to intensify in the future. as you know, the imf has played an important role in europe. provided advice on the design of reforms, a framework for public monitoring of progress, and financial support for programs in greece, ireland and portugal. that will financial support has come alongside a much larger amount of financial support from the european nations themselves as is appropriate. it is in the interests of the united states that the imf continues its efforts in europe but the imf's resources cannot substitute for a strong and credible european fire wall. the imf has played a major role in every major post-war financial crisis. while consistently returning to the united states any resources with interest that is

and the european financial systems, global banks. we were quite concerned that if aig went bankrupt that we would not be able to control the crisis any further. fortunately perspective of lender of last resort theory, aig has taken a lot of losses in its financial products division but underlying those losses was the world's largest insurance company sponsorship it had lots and lots of perfectly good assets and as a sell it had collateral which you could offer to the fed to allow us to make a loan to provide the liquidity it needed to stay afloat. and so to prevent the collapse of aig, we used aig assets as collateral, and loaned aig $85 billion. obviously a fairly serious amount of money. later treasury provide additional assistance to keep aig afloat. and, again, while highly controversial it was both we thought legitimate in terms of lender of last resort theory because it was a collateralized loan and the fed has been fully paid back and secondly it was a critical element in the global financial system. over time as i said aig st

the priccrisis of 2008-2009 was financial panic. but in a broader financial market setting. in particular as house prices fell in 2006 and 2007 for the reasons i described when house prices falling people who borrowed on a subprime mortgage were not able to make payments, more and more of them would be delinquent or default and impose losses on the financial firms, the investment vehicles they created and also on credit insurers like aig. unfortunately, the securities were so complex and the monitoring of the financial firms of their own risks was not sufficiently strong that there was -- it wasn't just the losses. a very striking fact is that if you took all the subprime mortgages in the united states and put them all together and assumed they were all worthless the total losses to the financial system would be about the size of one bad day in the stock market. they just weren't that big. but what the problem was is that they were distributed throughout different securities and different places and nobody you know where they were and who would bear the losses. there was a l

sector it's a financial pressure next. could be called financial apartheid i like this one because you know apartheid you build a wall between the ghetto and the rest of the people many of people in the ghetto you treat them wrong here with financial apartheid or refine and still rip pression it's all based on interest rates the people on the inside who peddle the credit default swaps for example their interest rates are negative two percent and of course they can just print money all day long and they get themselves huge bonuses and they don't care what happens to all that money because inflation because they themselves are putting money to buy whatever they need to buy no matter what the prices because they're printing all the money those people living in the ghetto the new get out the virtual ghetto to get a high interest rates are paying sixteen seventeen eighteen percent of those people are living of course in the high interest rate get enough people say that well you know if you can pay back your loan you get charged

let's forget about financial innovations. [laughter] we have had enough of financial innovations. [applause] on the question of the federal reserve -- this is a very unusual situation. the federal reserve has done things that were unimaginable a few years ago, a much bigger balance sheet and all sorts of things. but they do not present a technical problem. as the economy grows, they have the capacity to reverse, in an orderly way, what otherwise would be excesses'. the problem will be the everlasting problem of central bankers. do you begin tightening up soon enough when the economy is launching itself on an expansion? it is always unpopular. whoever wants to tighten up all when unemployment is whatever it is. leave it alone. you begin tightening moves however mildly and they're likely not to be widely welcomed in the political environment. that is what central banks have to do so i the -- i think it is such a central bank policy problem. >> one last question -- in my digging around in your work, you are deeply concerned about the state of public administration, those that are tas

now a little less familiar is the main tool of central banks in dealing with financial panics or financialrises. and that tool is the provision of liquidity. so to address financial stability concerns and for reasons i'll explain, one thing that central banks can do is make sure term loans to financial institutions. as i'll explain, providing short-term credit to financial institutions during a period of panic or crisis can help calm the market, can help stabilize those institutions and can help mitigate or bring to an end a financial crisis. so this activity, which is an old one as i'll discuss, is known as the lender of last resort tool. so again if financial markets are disrupt, financial institutions don't have alternative sources of funding, then the central bank stands ready to serve as the lender of last resort, providing liquidity to the system and, thereby, helping to stabilize the financial system. now there's a third tool which the fed has had from the beginning and most central banks have which is financial regulation and supervision. central banks usually play a role in superv

by any financial regulator. an example of this was aig. the insurance regulators looked at the insurance products they sold. the office of thrift supervision look at the thrift, the small banks they own. nobody was really looking carefully at ups cds problem c -- problemds problem that i was describing. also, you had the lehman brothers and bear stearns and merrill lynch. there was no statutory oversight of those firms. they had a voluntary agreement with the sec for oversight but there was not comprehensive oversight of those firms. as i will talk about, another one was the fannie mae and freddie mac which did have regulators. for reasons i will explain, that was inadequate. the regulatory structure have lots of holes in it. there were important firms that proved important that did not have good oversight. there are also, it even though the laws provided for regulation and supervision, it often was that done as well as it should have been. while this was true across a whole range of agencies and parts of the go

financial institutions and markets? again, i want to thank you for being here today and look forward to hearing your views on these particular issues. >> i yield back. >>> secretary geithner, welcome back to the financial services committee. without objection, your written statement will be made a part of the record. you'll be recognized for five minutes to summarize your testimony. the chair wishes to announce for the benefit of all members that the secretary has a hard stop time of 12:30. please observe the five-minute rule and plan accordingly. mr. secretary, welcome again. you are recognized. >> thank you, congressman. thanks for giving me a chance to come before you today and talk about in particular developments in europe but i'll be happy to answer any questions you have about the united states or the broader global economy. europe is of course a key strategic and economic partner of the united states and we have a huge stake, huge economic stake, huge national security stake in the success of europe's efforts to

financial system, there would be a consequence for the financial system and the economy as a whole. i think it's somewhat under appreciated. and you noerknow, particularly the financial crisis, most of the attention has been on the big systematic companies. but -- and clearly from the fdic's standpoint and the rest of the regulators, that will be an ongoing priority as i just talked about but there's a need to focus on the other end of the spe trum -- spectrum for the community banks. the fdic is making the future of community banks another major priority over the course of the year, in part because the fdic is the led federal regulate later. we just in a conference -- we are going to do a series of rounds tables with the community bankers in each of our regionals ofs we will do a round table with our community banks in other of our regions. i've asked our division of insurance and research to undertake an effort to review the development of the community banks in the u.s. financial system over the past 25 years. to gain a better understanding of sort of what is happening to communi

dodd-frank financial reform mandates that swaps between financial entities, or 90% of the financial transactions could possibly move into the clearinghouses. let me repeat that. if there's a swap between two financial entities, it's supposed to be moved to this clearinghouse. the thought was really that those that are about 9%, 10% of the market and the furthest away from this financial system, they get to choose. and they also represent 94% of the jobs. it's important to note that cop sis temperature with this congressional intent, the cftc has been working rule by rule so that so-called end users don't get swept up into definitions like this clearing definitions or the margin calculations. if we follow congressional intent and allow end users the opportunity to choose rather than being swept up in regulation, they are the enormous benefactors of this transparency, if the financial system has lower risk. investors, consumers and businesses in america benefit for the first time from comprehensive regulation and oversight from the swap dealers themselveses. we've passed three rules to register th

morgan before the firm imploded meanwhile bernanke he is warning about unemployment and the financial industry is wondering whether or not this means more quantitative easing is coming from the central planner in chief but below these headlines and below the surface of the banking system on any given day is this gigantic shadow banking system including the derivatives market of course ninety five percent of all of these trades are in the unregulated over the counter market according to a european commission report and this market because over the counter derivatives market amounts to more hundred more than seven hundred billion dollars these are driven which warren buffett investor has famously called weapons of mass financial destruction and it was a credit derivative that john corps i was trading that led to m.f. global imploding now we are lucky that our guest janet have a koli president of have a call the structured finance is an expert in derivatives she's also author of this book the new robber barons how bankers created an international all of archy and she is going to help us

an insurance product an insurance contract is put in place and in this case is a financial insurance product that gives the market a sense of comfort in terms of the amount of risk if they can employ on the balance sheets of this very these various banks now which are saying is that these credit default swaps that are supposed to be insurance are not in fact insurance at all they don't share anything they're worthless and and now that it's been proven that they're worthless and now that the insurance has been proven faulty this is caused . a need for some extra national credit facility like the e.c.b. and the troika to bail out the banks who sold us faulty insurance which in turn means more austerity suffered by greek people so the greek people are subsidizing the experimentation into a faulty insurance product called part of the fault line which has been proven to be a theory it doesn't exist by masters whom granted them is obviously a terrorist a financial terrorist and the great people are suffering austerity for this experimentation doesn't exist so is it safe to say that there w

>> the financial -- >> industry. >> the financial sector, yeah. but the point is our government is designed fundamentally to be dumb, but to listen. in other words, no one is elected to the government because of their personal expertise in the various issues that they're going to have to deal with. we have a system that is designed to listen. >> but if money gets you greater access -- >> but unfortunately the talk of what you're listening to gets distorted by the money issue. they're not randomly listening to the population at large. they're listening to people who have a strong voice, because they're strong contributors and so forth and so on. >> i think you've taken us to a very fundamental issues that's roiling the country at the moment. and it is that this is an -- democracy is no longer a level playing field or even approximately a level playing field. the big institutions have so much money that they can flood into the system. there's one study i saw just the other day that reports the number of people lobbying today on behalf of the financi

financial institution and u.s. businesses as well as foreign governments as we look at the comments. but i don't think there is that risk, but if there is, we'll address it. >> how do you address the wall street journal's comments when you say it could compare similar bonds, and youing a knowledge that in some fashion? >> no, i don't. i don't think there is that risk. the way the law is structured, there's a set of safeguards to from firms taking risks with a sifty net finance proprietary trading activities. the law is also designed to protect market making and hedging. so the exemptions the law requires us to design exemptions for those activities for good reasons. but when you design exemptions, you have to be sure they don't swallow the rule. >> but let's go back to the financial services sector. if we're saying that they're going to be under the guidelines requirement to the voca rule and all the other countries are saying we're not going to do that because that would put us at a disadvantage. so we have to ack

punch old so-called financial diplomacy or international financial relationship so there's really are sort of financial thrillers there's articles devoted to international. assistance. but there really is a financial relationship with the former republic of the soviet union. big article devoted to rush through interest shared with the international financial institutions world bank. i.m.f. all the liberal development banks and my beloved story. the. g. twenty g. eight different other economic potential collapse it isn't easy and you know we're all tell me about the g. twenty you personally took part in the g. twenty meeting or finance ministers in mexico right so will the g. twenty summit that we're there that will take place soon will it take some important steps in reforming world financial institutions later this year. you see each year. it's just happened each year g twenty. discuss a number of police was more important one but a man a number of issues all with one is the most important for these year the most important issue is the increase in the financial capacity of the intern

financial system over the past 25 years.to gain a better understanding of sort of what is happening to community bank over that. couple what has been the problems in the business models have been successful. as far as i know, it is the first of its kind that's been done which somewhat surprised me. russo said he had community banks of the rezulin. so it actually seemed like a useful gap for the fdic to try to sell and i think we'll learn from lessons that will be useful to point the way forward for community banks. i've also asked activision of risk management supervision and division of depositor consumer protection to take a look at the way we do both rule-making and examinations of risk management and compliance for community banks. to see if there are ways in the margin that can do them simpler and more effectively and make our jobs easier and big jobs easier while maintaining our supervisory standards. that's really going to be a major priority over the course of this year. we hope by the end of this year we'll pulitzer

and these are the tragic legacies of that financial crisis. in addition to these legacies we still face a dangerous and uncertain world as the recent rise in oil prices demonstrates. americans of course can now feel the effects of higher gas prices. there's no quick and easy fix to that problem. but it re-enforces the importance of more progress to develop additional sources of energy on all fronts. if you look at that expansion in historic comparison, this recovery is fasterhaeshat follo last two recessions. but it's somewhat slower than previous recoveries from very deep recessions. what explains this? what accounts for this? recoveries that followed financial crises are slower and more protracted as famously written. they are slower and longer and harder because the causes of financial crises typically a large rise in borrowing by house holds and the financial sector and too much investment in real estate those act to hold down growth as they are unwound as people bring down their debt burdens and raise their savings rate they spend less. a

next math and stacey on bail some of the secrets world financier's would rather you didn't know it's all in the cards report coming up next. best times are this is because the report magic circles inner sanctums and of course curses stacy herbert tell me more max the topic of conversation stay with be j.p. morgan the credit card for the one percent of the one percent the ticker so you see this number here one thousand the estimated value in dollars of the materials in a d.p. morgan palladium card if you happen to have an extra twenty five million dollars that you were willing to let j.p. morgan chase manage for you there's at least one perk you can expect to receive that you won't find anywhere else that j.p. morgan palladium card apparently it's been around for three years max and there's only a couple thousand people who have this the card itself is actually made with palladium and twenty three carat gold reportedly putting its cost of materials alone about it one thousand right while the car allows for the users when they go to an a.t.m. machine or they use it as purchases that th

we really have not restructured our financial system. the big banks that existed then that were too big to fail are even bigger now. the top six banks then had $7 trillion of assets, now they have $9 trillion or $10 trillion. rather than go to the fundamentals which have been totally neglected, we've simply kind of papered over the current system and continued the game of having the federal reserve and the treasury if necessary prop up all of this leverage and speculation, which isn't helping the economy. and when we talk about zero interest rates. that's not helping main street. our problem in this economy is not our interest rates are too high. the zero interest rates are just more fuel for leverage speculation for what's called the carry trade and that is causing windfall benefits to the few, but it's leaving the fundamental problems of our economy in worse shape than they've ever been. >> no one i know has a better understanding of the see-saw tension in our history between democracy and capitalism. capitalism, you accumulate wealth

system or financial institutions. the legislation as first obama administration included a requirement that a plain vanilla product be offered, side by side with any other -- any other product offered by a financial institution. and that was shot down. it -- there were gales of protest. and the law was -- there was a sentence or two placed in the law that there was no requirement to be given to any financial product. so it is only your authority then to prohibit unfair practices, right? you are not allowed to require any financial institution to offer a product that might be unprofitable for them? >> well, one of the mandates in the law is that we're supposed to promote innovation in financial services which means, you know, let 1,000 flowers bloom, as long as they're not beyond the pale of exploiting or treating their customers unfairly or being deceptive. we do want there to be innovation and vigorous competition in the financial realm. there will be times when an array of choices is better for consumers. there may

and on the financial system. again, research has pointed out that historically recoveries following financial crisis tend to be slower than they otherwise would be. so with housing problems still being important, as you noted, and as financial conditions, including some of the stresses coming from europe still being dragged to some extent on economic activity, we've had a slower recovery than we otherwise would have anticipated. we have had now growth since mid 2009 and unemployment has come down. but of course, not -- the growth is not as strong and the improvement in the unemployment rate is not as we would like. >> u.s. consumers are deleveraging to reduce high debt levels. credit is still tight for u.s. companies and households, and fiscal policy has begun to tighten. as we consider economic growth in the near and long-term, should congress enact drastic spending cuts and balance the budget this year or would a plan to curb deficits and address structural issues over a longer time horizon make more sense econ

that financial innovation has ever helped in a colony anywhere nobody has been able to give them any evidence i am here showing you that there is no evidence that it has done anything but destroy economies it's destroyed this town of casino italy it's destroyed three hundred all their money supply now we're going to move on to greece default swaps don't have to pay is the default insurance on greek debt won't be paid out the international swaps and derivatives association said after it was asked to rule whether part of the nation's one hundred seventy billion dollar bailout was a credit event ok we all know that greece apparently did not default but guess who sat on is does the terminations committee. morgan chase. so interesting i thought they took risk in providing the market making function in this credit default swap market you know they don't take any risk they just get the reward but that's their definition of capitalism as we went. we keep all the reward and take all the risk we get all the money you get enough and that's like up close and of course less realism so finally her

sharp increase in financial stress in the financial markets. stock market plunged. we've been talking about the first decline there where it says, 2000, the 2001 recession, that was the very large decline in tech stocks but notice the decline in the stock market in the more recent recession was even bigger than the one in 2000, 2001. here's home construction. you see the very sharp decline there. home construction fell before the recession because of course it was a trigger before the crisis. looking to the right you see it really hasn't begun to recover. finally unemployment rose very sharply, peaked around 10% and is currently fallen down to about 8.3%. >> those remarks last week from federal reserve chair ben bernanke teaching a class at george washington university. live coverage now of his third class, today focusing on the 2008 financial crisis and the great recession. he is being introduced right now. >> chairman bernanke? [applause] >> hello. welcome back. so, professor ford says today we want to talk about the federal reserve's response to the financial cri

are they worried about financial exploitation? what do they need? and the message was loud and clear, yes, they see it as a problem. almost all of them recognized it. some of them have protocols but their protocols were all over the map. they overwhelmingly said we need training on 0 diminished capacity. it should be mandatory but our firms don't require it. so i think it's interesting that there's a recognition but yet we don't have the tools yet and we're going to all have to start working together to create them. >> one of the scams you mentioned was the lottery scam. jeff steger in my office has done some work in lottery schemes as have others. can you talk about what a lottery scam is and a focus on how the scammers used some of their vulnerabilities that both betsy and naomi talked with about, have they use that had to their advantage to steal money? >> sure. as a prosecutor with the cons e consumer protection branch, we're currently participating in a number of investigations involving lottery scams that are emanating from jamaica and preying

the largest financial stitutions, and capital market trends. these woffices are ensuring tha items that could, without the sun light of disclosure, turn into bad trends or dangerous practices. the disclosure teemps have been pro active in targeting issues which have potentially significant consequences, they have prompted companies to provide credit kaly information about the potential financial impact of cash from overseas. they have raised questions about whether companies are properly disclosing their litigation c contingencies and have stepped up scrutiny of relating disclosure. they are issuing guidance where possible before inadequate or outdated disz closure practices harm investors. the staff issued guidance the way that financial services firms should disclose risk to foreign debt, helping to provide investors with adequate financial information, even as that situation remains very fluid. and the staff issued guidance issuing company's obligations to risk cybersecurity and attacks, clearly a growing concern of investors. in reviewing t

but they have to do things to cool the financial pressures, make sure the supporting overall growth in demand, alongside these reforms to help make their economies work a little bit over the long run and it's going to take years and years. >> will barack obama's administration allow us to increase the number of student visas from these european countries to come to the united states and see the way that we are handling this financial crisis? which has been very, very hard for us. i think that education seems to be the solution that works for us as i believe would work for the european countries. >> good question, i'd be happy to ask somebody to respond to the specific impact of those visa policies on that objective. but it makes sense. >> the time of the gentleman -- >> i just want to note -- and i appreciate the efficient way you've run this hearing. with the secretary's time thing, i want to let everybody know here on the democratic side will be accommodated. and please recognize those who have stayed here, and i want to advise the members who are here, i believe we have five more me

unemployed is bad enough unbanked can be worse so thirty million americans have no access to the financial system they don't have a bank account and this article is pointing out that five point seven percent of san francisco households lack conventional accounts according to a two thousand and nine survey by the federal deposit insurance corporation very first too as the on banks lacking a bank account imposes limitations on a person's financial options says greg cato policy and legislative manager of the office of the treasurer a tax collector in san francisco he points out that you know the fees for a check cashing at these alternative methods like the check cashing locations payday lenders they could cost up to a thousand dollars a year and also in post four hundred twenty five percent interest rates on loans right this is like segregation this is like colored to the back of the bus unbanked to the back of the bus and back to pay thousand dollars in fees and you pay four hundred twenty percent on interest on your payday loans and this is segregation this is a financial apartheid if you'

financials. consumer discretionary and u.s.ecovery that may not sustain itself. >> tech taking off in the first quarter. players have the playbook. plus insiders at apple raising a red flag for shareholders. more halftime report after the break. ♪ ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere ♪ i can go anywhere today la a la la ♪ [ male announcer ] dow solutions help millions of people by helping to make gluten free bread that doesn't taste gluten free. together, the elements of science and the human element can solve anything. solutionism. the new optimism. omnipotent of opportunity. you know how to mix business... with business. and you...rent from national. because only national lets you choose any car in the aisle. and go. you can even take a full-size or above. and still pay the mid-size price. i could get used to this. [ male announcer ] yes, you could business pro. yes, you could. go national. go like a >>> welcome back. let's check on three of the top trades we're watching. express scripts saying ac

the otc of the market has long presented a risk to the financial system. in october of 1993, i addressed the symposium for the foundation of research and international banking and finance of the potential problems. nothing wil the market more abruptly than the financial crisis that is perceived to be caused by unregulated activity in those markets. back then, of course, the notion al value of interest rate and swaps was $4.7 trillion which seemed like an extraordinary figure. i was concerned this useful innovation might present significant risk for various reasons, including the derivatives market, weak or nonexistent settlements and the transactions among a number of small institutions. while concerns, in 2000, congress excluded most from regulation. by mid 2008, as the repercussions of the markets collapsed were echoing throughout the financial system, the notion of the market had increased from the extraordinary $4.7 trillion to more than $700 trillion. title seven of dodd-frank challenges the market that are under scored by the events of 2008 by bringi