and invested in the derivatives market now the second arm of the volcker rule attempts to put a limit on the size of banks to keep them from becoming too big to fail the volcker rule was proposed by former federal reserve chairman paul volcker he was appointed by president obama to head the economic recovery advisory board and proposed the volcker rule and response to the financial panic of two thousand and eight it was passed into law under the dodd frank act and is currently being implemented by the s d c c f t c o c c and the federal reserve but this has turned into a bit of a drawn out process today the f.c.c. chair why you decide implementation of the volcker rule under extraordinary complex rule making quickly walk you through this process first before regulators publish their joint proposed rules all the way back in october two thousand and eleven there was a four month comment period after that which got extreme pushback from banking groups saying it would be way too costly and that it was just filled it with loopholes even paul volcker criticized the rules saying that they we

chair why it is said implementation of the volcker rule under extraordinary complex rule my. making i'll quickly walk you through this process first before regulators publish their joint proposed rules all the way back and october two thousand and eleven there was a four month comment period after that which got extreme pushback from banking groups saying it would be way too costly and that it was just filled it with loopholes even paul volcker criticized the rules saying that they were too complicated and should be no more than just four pages then the c. f.t.c. who published their proposed rules which were over one hundred pages and during that comment period over seventeen thousand comments were made in july of last year the fed announced the banks have two years to conform with the rules but these rules have yet to be implemented occupied the as the c. filed a suit asking the courts to set a deadline for implementation and they also submitted a comment letter to the f.c.c. having found a number of holes in the rules so before glass steagall was amended and one nine hundre

these issues and dad this week and the meantime i'll be breaking down and neither a legal issue the volcker rule and just a bit and i'll be talking to richard wolffe about dysfunctional detroit in just a minute and speaking of dysfunction or capital markets might have a shining night we'll have to see but there's a new exchange in town the eye and it's expressly designed for large investors who do not want to be gamed by high frequency trading so instead of allowing client computers to sit right next to the exchanges own servers will be in a separate building so instead of a delay of ten millionth of a second the current industry standard the delay will be three hundred fifty million sort of seriously folks this is what trading has come to. and this is what saying you are prime interest. detroit's historic eighteen billion dollars bankruptcy is highlighted issues of inequality the divide in detroit between the city were per capita income is fifteen thousand dollars and the suburbs with some counties averaging income above sixty thousand dollars has fueled speculation over what exactly cause

important reforms of the international monetary system and years later when paul volcker became the chairman of the reserve he used some of those same ideas to make monetary policy much better so in a way shultz's influence extended to periods that you don't think about. >>host: role as your biggest frustration as undersecretary of the treasury? >> in washington and was expecting a different job that was different because 9/11 ochered right after i got there so rather than going to the fancy halls of negotiation of finance i went to baghdad and africa to think about much more difficult problems. they had to put it the new currency of the the the new monetary system in place in iraq. one of the most difficult things i had to do it was frustrating but it was amazing and rewarding and the series worked and we could get the financial system up and running with a lot of cooperation from the iraqis and a combination of frustration but to be the frustration of policy in general is that we had gotten off track it is the most tragic that we had as america had a good set of policies in place

one story he may not have told you which is how paul volcker worked for him at the treasury, and theydid some important reforms of international monetary system. then years later when paul volcker became chairman of the federal reserve, and i write about this in my book, he used some of the same ideas to make monetary policy much better. so in a way schultz's influence extended periods which you don't always think about, and various you don't think about. >> host: what was your biggest restoration as undersecretary of the treasury? >> guest: when i went to washington i was expecting a different job than it turned out to be because 9/11 occurred right after i got there. so rather than going to some fancy halls of negotiations on international finance, i went to kabul, baghdad and in north africa to think about much more difficult problems. we had to put a new currency, a new monetary system in place in iraq. one of the most difficult things i've ever had to do. it was frustrating in a sense would call on ideas and people were not used to that but it's also really amazingly rewarding. i

what does the volcker rule ultimately mean?ility, for return on equity? >> yeah. so the volcker rule is not written yet, and we don't do real prop trading. most of our business is client-driven trading. and we are hoping when the volcker rule is finished, that we continue to do all the things we do. we deal with 16,000 clients around the world. they come to us, great prices, research, execution, and that's good for the investor and the issuer. i want to point out, since i'm on the new york stock exchange floor, that the united states has one of the best economies the world has ever seen and the widest, deepest, most transparent capital markets which were part of the engine that made this country great. so let's make sure we're all done with these rules, that we've still got this. this is outstanding. >> we have the united states senate, okay? senate, 100 of them, one of them very important, elizabeth warren, comes out and says, listen. enough with this. banking should be boring. it's dangerous, high-risk practices. you need to

the dodd frank bill that i've been advocating before on your show that's great let's talk about the volcker rule what about it ok i happen to agree that if. we're going to have a federally subsidized banking industry the way we have with the banks ok there's should be limitations on that i don't think we should have been the first place but tell me what's your view on the volcker rule we need the base of the vocal rules and it's not because you want to gamble gamble on your own money don't gamble using taxpayer subsidized money don't gamble on customer accounts that's the problem but of course i did it course i just paid his own funds he's a multi-millionaire if you just. maybe not that would have been ok the problem is when he took the segregated customer accounts which are protected by institutions like the f.d.i.c or in this case. itself well ok let me switch to another earlier today former white house chief of staff erskine bowles talked about reforming the tax code and here is what happened. we can bring down the corporate tax rate the corporations will have more money available to inv

go back to volcker, inflation was really high. he felt he had to take steps to reduce inflation at the cost of higher unemployment. in fact i think alan has made this point many years ago. to start the protest of fed chiefs, they're always balancing unemployment and inflation. >> charlie: is that what you always said, alan? >> yes. but i'd like to just, a nuance of difference with mark. they have behaved that way for quite a long time. even volcker the great player of the inflation dragon saw things were getting bad and i eased up in 192 but here's the thing. i think ben bernanke is the the first fed chairman to be four square and just state explicitly, "i'm doing this to bring the unemployment rate down." "i'm not going to stop doing this until the unemployment rate is is down." you don't hear that from fed chairmen in the past. >> charlie: do you agree that 6.5. is where it ought to be pegged? >> i think you could argue for a little bit lower number. this is the key thing. it's not a triggering for an automatic change in policy.

visor, paul volcker.top wall street from melting down using balance sheet to trade stocks, bonds. put in a rule that would stop that. that rule has not been implemented. we should point out paul volcker said he thought it would be implemented by the end of the summer. what we're hearing from regulators in washington, they're telling the fox business network the volcker rule will probably not be implemented to the end of the year at earliest. that gives you indication how screwed up and dysfunctional this law is. i will tell you one other thing. i ran into chris dodd not too long ago in white house correspondents dinner. give you insight he didn't know what he is doing. the canadian, we modeled regulatory structure after the canadian system. it works well in canada where the banks are bigger. guess what? the banks are not bigger. adam: chris dodd got preferential treatment from mows mows around pretended he didn't know the difference. >> it is interesting question whether it will be written as introduced.

you go back thirty years what happened well you had ronald reagan was in office and you had paul volcker as fed chairman and to rectify the excesses in the economy that came through the stagflation of the seventy's when the oil embargo was in place prices are skyrocketing but the economy was shrinking volcker raised rates and i believe the short term rates got up to fourteen or fifteen percent lot of people don't remember that and then inflation was wiped out i believe was a frank raise at the time under one of the presidents and then you had this long secular downtrend in rates with the occasional bump it of course in one thousand nine hundred four was another blonde sell off with a rise in rates along the way but what you're saying karl denninger is that on a secular basis we've gone from a thirty year bull market in bonds now entering into a protracted at least ten to fifteen year period of rising interest rates is that a fair characterization. yeah there's only two possibilities max you can either have the bond market that flattens out and essentially doesn't move at all in terms of

afford to keep on printing the dollars and locking up people people and interest rates because a paul volcker went down for the next thirty years so they could afford to keep on rolling over debt to locking up people and and part of the way these were sold to local communities across america is that these are jobs for you you know tending these the gulags and in keeping these prisoners in prison that drug prohibition in america is ending pot will be legalized decriminalized so all those people going into prison that make corrections governmental money will not be going to prison because net net as anonymous analytics points out the economics does not support that model for the states or for the federal government so it's going to be a huge shift and to capture that shift sell your stock in this company are so sure if enough hedge funds sell short they can force the price down to zero that's what happened two hundred lifesciences remember hedge funds attacked huntington life sciences the animal cruelty company down to zero you can do the same thing with corrections core of america because they

you go back thirty years what happened well you had ronald reagan was in office and you had paul volcker as fed chairman and to rectify the excesses in the economy that came through the stagflation of the seventy's when the oil embargo was in place prices are skyrocketing but the economy was shrinking volcker raised rates and i believe the short term rates got up to fourteen or fifteen percent lot of people don't remember that and then inflation was wiped out i believe was a frank raise at the time under one of the presidents and then you had this long secular downtrend in rates with the occasional bump in of course in one thousand nine hundred four was another blonde sell off with a rise in rates along the way but what you're saying karl denninger is that on a secular basis we've gone from a thirty year bull market in bonds now answering into a protracted at least ten to fifteen year period of rising interest rates is that a fair characterization. yeah there's only two possibilities max you can either have the bond market that flattens out and essentially doesn't move at all in terms of

the volcker rule is it was a 21st century version of glass steagall.s going to be regulatory rules that drew that church/state separation between the risky stuff and insured stuff and it's a year later from when we should have the volcker rule and we do not have it. what to you make of that? >> in fact, i'm going to push the point further. you remember when the crash occurred what we all talked about is that one of the problems we had that created too big to fail was too much concentration of the top. the big institutions were just too big and too concentrated. well, here's what's happened. the big four financial institutions are 30% bigger than they were 5 years ago. and so the big have gotten bigger. and what that means is we just have to add another tool to the toolbox. none of this, well, you know, we'll try to find our ways. we should. we should. do what we can to bring down risk in the system, but glass steagall is one way to do that, and we should do it. >> very quickly, senator, jack lew, who's now in treasury, heading up treasury. his confirma

the dodd frank bill that i've been advocating before on your show that's great let's talk about the volcker rule what about it ok i happen to agree that if you're going to have a federally subsidized banking industry the way we have with the banks ok there's should be limitations on that i don't think we should have been the first place but tell me what's your view on the volcker rule we need the poker world basically local rules and it's not because you want to gamble gamble on your own money don't gamble using taxpayer subsidized money don't gamble on customer accounts that's the problem but of course i did it cause i just bet his own funds he's a multimillionaire if he just. maybe not that would have been ok the problem is when he took the segregated customer accounts which are protected by institutions like the f.b.i. cia or in this case. itself well ok let me switch to another earlier today former white house chief of staff erskine bowles talked about reforming the tax code and here is what happened. we can bring down the corporate tax rate the corporations will have more money availab

his name was paul volcker. i was in the reagan white house when volcker was slaying inflation. i'm just trying to figure out what he would stand for because he has different opinions between the clinton years and the obama years. >> yes. and i think that he will lean towards that leadership. my guess would be that he would lean towards what obama would put him in that position for. but i think that appointment would be very controversial in the market if not among other members of the fomc. i recognize that you say that there have been other prickley leaders at the federal reserve, but certainly larry can be opinionated, he can be very strong willed. in a collegial environment, such as the fed, when you've not come up within that environment, i question whether or not that's the appropriate environment, not to mention the market reaction to that level of uncertainty. >> it might be pretty positive. i'm not taking a position one way or the other, it's way too soon for that. i'm just interested particularly in larry summers and the dollar because the dollar was really strong duri

the volcker rule which we were glad to help enact into law and i believe will be enacted in very toughorm, will be a great protection. so yeah, you got to be careful about this, but as of now i see no evidence that the people who had worked in the financial industry are being weak. i did notice recently "the new york times" front page of the business section saying, boy, mary jo white's getting tough. that's a good thing. >> by the way, alex, just to add to that, you take people like neal womin, they provided great leadership and source of information and support as we worked through all of this. there are very good people there. tim geithner i think did a good job in many, many ways. i know he's received a lot of criticism but again without their help and support as we did out of the white house, this would have been very difficult to do. so i endorse what barney's just said. think it is more testing how people do in the jobs they have, whether or not where they've come from necessarily. but again i'd emphasize the important point of reaching out just beyond that sector when you are t

so obviously with this, as with basel iii and volcker and everything else we go out for comment but i think you also can see in the proposal that it's a very strong sense in the agencies that the 3% ratio was just inadequate and that's why we made a proposal for something more. >> what do you make of arguments of banks covered by this, the largest financial institutions, because it will limit the flow of credit and liquidity and, taking into account, going too far to regulate banks without taking into account the impact on the economy and on the accessibility of credit for the banks, do you think there's a legitimate argument there this particular leverage ratio change could be damaging to the economy in some way? >> we'll be interested as always in people's comments, comments from all directions and people can make observations that they think are salient with respect to the impact on the economy. i guess i would say more generally that there are at least two considerations here. one in the first instance we do have to look, getting back to your first question, we do have to look at

covering these issues and this week and the meantime i'll be breaking down and other legal issue the volcker rule and just a bit and i'll be talking to richard wolffe about dysfunctional detroit in just a minute and speaking of dysfunction or capital markets might have a shining night we'll have to see but there's a new exchange in town. and it's expressly designed for large investors who do not want to be gamed by high frequency trading so instead of allowing client computers to sit right next to the extreme his own servers will be in a separate building so instead of the delay of ten million so the spike in the current industry standard the delay will be three hundred fifty million sort of seriously folks this is what trading has come to. and this is what's in your prime interest. detroit's historic eighteen billion dollars bankruptcy has highlighted issues of inequality the divide in detroit between the city were per capita income is fifteen thousand dollars and the suburbs with some counties averaging income above sixty thousand dollars has fueled specular.

for a second because for thirty years the trend of interest rates was down ever sence the volcker days back in the race. in years when they came in and they got rid of they are they managed to get that fifteen percent ten year rate down it's been going down for thirty years it appears as though in the last six months interest rates of hit a secular bottom and we're now entering into a secular move higher interest rates do agree with that number one and number two doesn't that mean that any hope of tapering is is not really the issue so much as what is the fed going to do in the face of a secular bear market and bonds that there's not really that they've lost control wall because i'm saying they don't have an option to taper or not taper they have a major catastrophe brewing what are your thoughts. well they they're pretty smart people and so they know that they have created a bunch of bubbles and they're worried about them they're worried about the banking system blowing up there representing the banking system and they don't want to blow up again so they're i think they're they're rea

modifications who then they proceeded to take out of those homes and you might have heard of the volcker rule that says banks cannot gamble with customer money lloyd blankfein said his goldman sachs doing this but guess what he did it we just learned that the firm found a loophole to keep doing it anyway over a billion dollars worth we'll learn how this is possible and how it might add we talked to part naylor a public citizen finally we have eliot spitzer who resigned in disgrace in two thousand and eight just as applied anshul panic was heating up well he's back and he's looking to oversee new york one hundred forty billion dollars city pension plan he won't be able to bring charges or things cool right so. find out what's in your prime interest.

modifications who then they proceeded to take out of those homes and you might have heard of the volcker rule that says banks cannot gamble with customer money lloyd blankfein said his goldman sachs doing this but guess what he did it we just learned that the firm found a loophole to keep doing it anyway over a billion dollars worth learned.

limit on derivatives but unfortunately we're not going to have any realistic expectation even if volcker rule comes into effect even if we have a reincarnation of glass steagall almost a federal reserve stops printing and giving away this free money to the banks because there's too much money at stake to really have any real reform because the people who are instituting these reforms supposedly are the ones who are regulating who are the ones who are writing the rules like j.p. morgan well we could go through a long list of what's wrong with the fed but i don't think the fed is the problem here really what we're talking about with glass steagall is separating gambling banking investment banking from checkbook banking old fashioned commercial banking you know if you have a checkbook have a savings account if your mortgage with the bank and from nine hundred thirty from the founding of the republic until nine hundred thirty five we never went more than fifteen years without a major national banking haneke in one thousand thirty five we put into place glass steagall which said you have to c

limit on derivatives but unfortunately we're not going to have any realistic expectation even if the volcker rule comes into effect even if we have a reincarnation of glass steagall almost a federal reserve stops printing and giving away this free money to the banks because there's too much money at stake to really have any real reform because the people who are instituting these reforms supposedly are the ones who are regulating who are the ones who are writing the rules like j.p. morgan well we could go through a long list of what's wrong with the fed but i don't think the fed is the problem here really what we're talking about with glass steagall is separating gambling banking investment banking from checkbook banking old fashioned commercial banking you know if you have a checkbook you have a savings account if your mortgage with the bank and from nine hundred thirty from the founding of the republic until nine hundred thirty five we never went more than fifteen years without a major national banking anik in one thousand thirty five we put into place glass steagall which said you have to

modifications who then they proceeded to take out of those homes and you might have heard of the volcker rule that says banks cannot gamble with customer money lloyd blankfein said his goldman sachs doing this but guess what he did it we just learned that the firm found a loophole to keep doing it anyway over a billion dollars worth we'll learn how this is possible and how it might add we talked to part naylor a public citizen finally we have eliot spitzer who resigned in disgrace in two thousand and eight just as applied anshul panic was heating up well he's back and he's looking to oversee new york one hundred forty billion dollars city pension plan he won't be able to bring charges or things cool dry so. find out what's in your prime interest. you might remember that elementary school lesson how a bill becomes a law the law or statue. it isn't acted by congress it's usually somewhat vague by design but what happens after it's passed it's up to government regulators to make specific rules or regulations to implement the law this rule making process goes on usually with the help of the

as you know and as we discussed earlier today, under the leadership of the chairman paul volcker, the federal reserve in 1979 fundamentally change its approach to ensuring the stability. is changed involved an important read thinking on the part of policymakers. by the end of the 1970s federal reserve officials increasingly accepted the view that inflation is a monetary phenomenon, at least in the medium and longer term it became more alert to the risks of optimism about the economy's potential output and have a place renewed emphasis on the distinction between real and that is placing adjusted, and nominal interest rates. the change in policy framework was initially tied to a change in operating procedures that put greater focus on growth and bank reserves, but the critical change, the willingness to respond more vigorously to inflation endured even after the federal reserve resumed the traditional use of the federal funds rate as its policy instrument. the new regime also reflected an improved understanding of the importance of providing a firm anchor secured by the credibility of t