we'll talk about why this is exhibit a for why the volcker rule is needed that said we'll ask if the rule in its current form would have even stopped the london whale marketplace's heidi moore joins us plus we will look at how the federal reserve may be in a blink and incentivizing this kind of risky behavior in too big to fail firms also president obama's mortgage financial fraud task force was touted in his state of the union address but some allege it's been starved of staffing and momentum since then some members of occupy wall street have offered to help but they haven't necessarily been well received we'll talk to two of them let's get to today's capital account. so just yesterday ben bernanke in a speech was talking about how conditions in the banking system have improved significantly over the past few years how banks capital and liquidity positions have really improved how the quality of loans and assets on banks' balance sheets has improved he said it all in his speech we covered it then what do you know after that yesterday the bank that touts itself as having the quot

the come through currency is a bureau within treasury were two of the leading opponents of the volcker rule so treasury secretary geithner the boss of the boss of the o.c.c. hates the bull rule and the fed hates the volcker rule and the reason of course is that both in and of these treasury and the federal reserve are so heavily aligned with the interest of the largest banks in the world the systemically dangerous institutions and then on the flip side of this you have the senate banking committee holding this hearing today and a lot of the media outlets have been previewing that this is where jamie diamond will testify soon you have the chair man who according to the center for responsive politics can thank j.p. morgan as his largest campaign contributor so should we take a hearing like this seriously at all or is it just a dog and pony show well you should take it is possibly serious it's amazing sometimes even in dog and pony shows people. blunder so badly that they hurt themselves tremendously. it is true that. finding out is the leading contributor to both political parties and it's ce

and then they told foreign governments to log the against the volcker rule because of it so there are some shady things that have gone on there are a lot of loopholes that have been put into this rule that has made it a lot more complicated to where pope volcker who inspired the whole thing isn't a fan there should have been a thirty page rule that should've been much smaller and much simpler and of course it was riddled with all these loopholes that banks have lobbied for it to have making it so confusing and making it difficult to. say in the spirit of the original role i want you to obviously played a very vocal role here right i mean if anybody has been a big opponent of the rule it is this man you know and so i do think that it just starts to raise some questions too because a yeah jamie done has been lobbying against it and you start to wonder why because these kinds of practices are going on you know but at the same time j.p. morgan got a lot of applause for being the ones that actually manage their risk well compared to the other banks and so what's not supposed to tell us i t

do you think the volcker rule would have stopped it? >> yes, it only allows drawing up insurance against specific risks. it does not at all allow this market-based risk or portfolio-based risk. the rules must be written in that matter. senator corker is right, if you take the draft rules as currently written, because of the lobbying on wall street, which created a huge loophole, then he'd be right but those rules are inconsistent with the statute as it is written. this is classic example of a large bank saying okay, we're not allowed to be in proprietary trading or hedge fund business so we will hide it, take the same traders and put them in our risk mitigation unit and pretend it's about risk. if this is allowed the firewall designed as the volcker rule that says if you want to be in a hedge fund, don't be in a bank, is meaningless. this is critical as the rules are finalized and hopefully its lesson will be taken to heart and we'll have the stable banking system providing credit to businesses and families that will help for a two or th

>> unfortunately, while the volcker rule is well intended, it's impossible to put it in place. therefore, the reason why it was pushed back for two years is because the regulators could not come up with a well-defined rule, and i don't think that's changed at all. i don't think you can create a volcker rule and, therefore, there may be a lot of conversation about it, but i don't see it happening. >> susie: all right, always nice seeing, you, dick. richard bove, of rockdale securities. >> thank you, susie. >> tom: the drama continues surrounding the bailout of greece's failing economy. fitch ratings today warned the rest of europe, that all countries in the euro-zone could face ratings action if greece leaves the e.u. fitch says if it happens, e.u. countries will be put on watch for a possible downgrade. that warnings comes as greek politicians failed to form a new coalition government. that means they'll have one more chance to form a coalition before elections are called next month. >> tom: this weekend more than 200,000 americans will be cut off from long term unemployment ins

supporters of the volcker rule soundoff. barny frank saying without any help from the government jpmorgan has lost in this one set of transactions five times the amount they claimed financial regulation is costing them. wall street now fires back at the volcker rights. sue herera has a big interview on that one coming up when we check in with her in just a moment and this just in, breaking news right now, the s.e.c. says it is opening an investigation into jpmorgan's whale of a bad trade. mary thompson kicks off our coverage of that $2 billion mistake. mary. >> well, tyler, calling the trading loss is an egregious mistake born of sloppiness and weak oversight, on a call last night, jpmorgan ceo jamie dimon saying losses came from a trade put on by its chief investment officer aimed at protecting the bank from a credit event. >> in hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored. the portfolio has proven to be riskier, more volatile and effect economic hedge than we thoug

pushing for the volcker rule. the volcker rule is not yet written, right? we've heard it's a couple hundred pages. we doept know what's in it. we don't know how it's going to end up looking. is the volcker rule, whatever you understand it to be, a good thing? >> i think the intent is a good thing. i don't think banks that have fdic protection should be trading for their own account. proprietary trading under those types of institutions probably is not a good idea. the problem with the volcker rule is how are you going to write those rules? how are you going to deal with all the complexities of that legislation? and therein lies the problem. >> scott, you're going to write the rules based on what the banks lobbiests tell you to write in there. i hate to be so cynical, but they're going to have a big influence on how that looks if it ever gets done. >> of course. and they probably should. but the problem with writing too many rules, you're going to get another code of the irs, an internal revenue code. and the smartest guys gravitate to that code and find way

and we have to beat the federal reserve which actually opposes the volcker rule so it's a daunting task even with this embarrassing loss there never waste a good crisis and this is if you're in favor of the volcker rule if you're in favor of getting some additional regulations on of the banks so that they don't do things like this then this is a good thing oh yeah but it's not just people that are already in positions of power at the moment that are opposed to that you also have mitt romney who is going to be running for president who wants dodd frank repealed right and i think even preval coral being done as i do think that actually shifts the conversation somehow when it comes to the election i think it has to i mean you mentioned elizabeth warren i think this plays exactly in her wheel house this is this is the thing that she is a pillar of call the strength of the people who just need to rally around a. who's going to be out there in public and running for public office because she was the original director of the consumer financial protection bureau and then of course was was

look forward to more whales london or otherwise no matter how much is spent on dodd frank or the volcker rule and in this twisted world of these big huge too big to fail firms is one consequence of this trading loss unintended or otherwise that j.p. morgan may actually stand to benefit from it while bob english is here he's contributing editor for a zero hedge in economic policy journal dot com and he will make the case first of all it's so nice to have you on the show welcome back to capital account bob. thank you it's very great to be here again well we always love having you and first ok so let's really break this down the ways in which this trading loss perversely could benefit or is benefiting j.p. morgan even though all eyes appear to be focused on them because of the two billion dollar trading loss first this is of course attracted the attention of ratings agencies and moody's will reportedly conclude a review of financial institutions by the end of june some are expecting more downgrades of major banks which can to give an example to viewers who may not know this can impact the cost o

i wanted to start with returning to the basic premise of the volcker rule which is create a firewall between traditional banks, hedge fund-style investing. and in the effort to create that firewall, one of the issues was when banks were holding funds in between making loans, how would they be able to utilize those funds so that they had liquidity for making loans but it was relatively safe? so it's clearly not in the -- in the world proprietary trading or hedge fund investing, if you will. so the basic statute provided for a notion of investing in government bonds as kind of the safe place to put your money. and, but allow the regulators additional flexibility. the draft regulations has the liquidity management proposal, and it's not really clear in the end what would be allowed here, but if we look at jpmorgan, they have 381 billion in funds that were awaiting, if you will, lending out. so in between loans. unlike other institutions that largely put it in government bonds, took half and put it in corporate bonds. that started this sequence of events that led to this $2 billion to $3

morgan has been absolutely completely successful in trashing the volcker rule first it's delayed the volcker rule and second it's made it into a thaw arse where everything counts as a judge even things that lose money instead of offsetting losses get to be treated as hedges so the only chance we have of you know re storing the volcker rule to be something meaningful was frankly this kind of screw up early on by an end of the like j.p. morgan which pretended to be the best so it is the god stand in terms of potentially protecting the nation from loss but we have to be the big banks and we have to be. treasury secretary geithner who actually opposes the volcker rule and we have to beat the federal reserve which actually opposes the volcker rule so it's a daunting task even with this embarrassing loss there never waste a good crisis and this is if you're in favor of the volcker rule if you're in favor of getting some additional regulations on of the banks so that they don't do things like this then this is a good thing oh yeah but it's not just people that are already in positions of po

. >> woodruff: levin pointed to the need for the new "volcker rule," named after former federal reserve chairman paul volcker. it takes effect in july, and will ban so-called "proprietary trading," effectively barring big banks from trading with their own money. j.p. morgan's dimon insisted yesterday that's not what his bank was doing. in the meantime, it was widely reported that the federal securities and exchange commission has opened an investigation into exactly what did happen. >> brown: and to help flesh out more about this story, we turn first to liz rappaport of "the wall street journal." if a company debt... viewed as more likely to pay off its debt, its debt, you know, the value of these contracts, these derivatives go up or down. so jpmorgan was effectively taking a very large position in securities that would pay off for the bank if the u.s. economy and american corporations got healthier. >> brown: now one of the question, of course here, is whether this trade activity was intended as a form of guarding against risk or actually bets that created even more risk. what is know

i've read comments that you made specifically about the volcker rule. and i know we add clans to talk in advance of this. >> i'm glad somebody read those comments. >> yes, sir, i read them all the time. there's been -- what's happened, i think there's consensus around the fact that prop trade sougt the door. i think that's one of the major contributions that you have made to this debate. what is happening as regulators wres well this and some of the regulators have differing agendas than others, there really are attempts by some to really did away with market making itself. and i think you've had some comments about that. i wonder if in front of this committee you might differentiate between the two and, it's my sense that you had no intentions to do away with the legitimate market making, but prop trading was really the focus of what you were trying to do. >> that is correct. i'm not involved, obviously, in writing the rules. i'm sure it got very complex and maybe an effort to try to identify particular transactions in a way that is difficult be unless

northern trust does not engage in the types of activities the volcker rule intended to prohibit. in fact we heard from chairman volcker earlier, that he thought the proprietary trading rules would only impact maybe six to eight institutions. i wish that were true. specifically, northern trust does not engage in high-risk proprietary trading and investment activities. because of the traditional nature of our core banking business, we anticipated the volcker rule would have little or no impact on our business. the rules as currently proposed will adversely impact traditionally low-risk business activity, that investors rely on for investment management purposes. if not corrected in the roll -- rule-making process, we will be adversely impacted which may impair the exit i'veness of u.s. banks in the business where we are the leaders. today i want to summarize three of the proposed rule that go beyond what the law requires and may significantly impact northern trust and our clients. first, the proposed rule unnecessarily includes a broad range of funds that banking entities will be re

is really how a lot of the market generates profit the was not only will implementation of the volcker rule have no impact on the risk taking and true risk exposures of the largest banks but the reduction in liquidity in many markets in the short run may actually cause the next systemic crisis. i don't know we're going to ask about that with chris whalen senior managing director at tangent capital partners here author of inflated how money and debt built the american dream chris wailing you say the volcker rule could actually cause a systemic risk because these banks are so big so responsible for liquidity. i hear ya i'm sitting here i'm going out come on all i want is these banks to stop trading with depositors money to stop making these bets to stop putting taxpayers on the line so really explain to me why this could be a risk well half of j.p. morgan's profits come from credit or betrothed just like the whale it's a very you're saying here right and remember half of j.p. morgan's business is not funded off deposits it's funded off the bond market ok so the whole complaint about them usin

on whether the volcker rule can ever succeed. how do we know the difference between investments for the bank's portfolio, between hedging operations for the bank's portfolio. this after all was a hedge against the bank's portfolio. and then they hedged the hedge, or whether it's a hedge against customer portfolios? it boggles the mind, peter. and fortunately, as dick bove said, yeah, this is a highly capitalized bank. not all of them are. that's what worries me. >> larry, you were wrong. the law does specifically permit banks to hedge. in fact, that's a very important thing. they should be allowed to hedge. hedges reduce their risks. it doesn't matter what funds they're using. i do agree with dick bove. they didn't use taxpayer funds. they didn't use insured funds. but they were allowed to do these trades for hedging purposes under the dodd/frank act, and under the volcker rule. the problem, however, is this. and that is that it is very difficult to tell whether a trade is a hedge or a trade is a proprietary trade. and for that r

if you start looking at the volcker rule and the fact they have to draw lines and say does this countean they don't have to have rules -- >> that is so difficult to figure out. how would you classify what happened? >> i don't have the details but if you're taking a $100 billion position and you're loses $4 billion from a fluctuation in the marketplace that has no obvious ties to your client's -- >> it was $2 billion which is a 2% move in the portfolio. >> it's a $2 billion loss. >> it could be more. they're going to have a hard time because now the hedge funds on the other side, look, everybody's out and they're going to have a really hard time unwinding this so they're likely to lose more. if they're saying they're hedging this -- i don't understand it myself. >> my point is you can't just rely on the person doing it, that they say it was hedging. the bank regulations exist for a reason. according to the "new york times," the regulators were swarming around this, why is there a $100 billion position, what are you doing here? >> the regulators got there before the media pointed this o

the volcker rule is still being formulated. it's a complicated thing. part of the problem, frankly, is that the republicans, while they have plenty of money to spend on international military adventures that haven't worked out well have reduced the funding that we've asked for for the agency that's supposed to regulate derivatives and we're talking about an additional $100 million. they'll spend billions in afghanistan and iraqi police effort that they now want to get rid of, so the fact is that the cftc has been slowed down to do that. i hope that the final rule will prevent this. there are other factors in the rule that are going forward. years ago what happened was agencies, entities like jpmorganchase made bets on derivatives and then couldn't pay for it. we now have rules that say you can't get yourself in that position. let me give you one specific example. this was done by jpmorgan's london affiliate. the republicans in the house are trying to build a build-through, which we're trying to stop, which incredibly says if american institutions' forei

question we'll ask and all the reaction to the trading loss is reigniting regulation talk what the volcker rule what reinstating glass steagall even go far enough to curb systemic bank risk or is about something bigger karl denninger denninger joins us he'll explain his one dollar of capital solution and in the eurozone greece cannot form a government the country is headed back to elections the one where public though is capturing headlines meanwhile lightning is striking in the core literally olanda is sworn in as french president and jets off to meet with merkel and germany for the first time today but his plane is struck by lightning reportedly in route sending him back to paris to try again when asked if there is a greater risk than ever before of this. thirty second to climb out. because there's nothing we could do but. we're talking about a core meltdown in germany and france we'll explain let's get to today's capital account. so j.p. morgan shareholder meeting went on today in the midst of whale gate and the wall street journal reported the d.o.j. and f.b.i. have begun a criminal probe s

he told me this afternoon that the jpmorgan trades were clearly in violation of the volcker rule, andt people like jamie dimon lobbying regulators to weaken the rules even before it takes effect later this year. here's carl levin. >> mr. dimon has argued that the activities which occur outside of the united states should not be subject to dodd/frank or to the volcker rule. this was a lond activity. but, boy, that's a huge loophole as well. so he's fighting for two or three loopholes and just this little bit of language. and we hope that the regulators will not give him any of the ones he's fighting for, because it would undermine the very purpose of dodd/frank. >> senator eleven also criticized republican presidential nominee, mitt romney, who has called for the repeal of dodd/frank. romney said today he favors instead common sense regulation. but carl levin said dodd frank is the only common sense regulation now on the books, and it's urgently needed so americans don't have to bail out banks one more time. >> we don't ever want to bail out banks again. we never should have to bail ou

the volcker rule today, the vote goes on today, so you have this issue, nobody knows really was this a proprietary trade, was it a hedge willing strategy. this is what volcker was all about. here's what carl levin had to say about this trade. the enormous loss is just the latest evidence that what banks call hedges are often risky bets that so-called too big to fail banks have no business making. today's announcement is a stark reminder of the need for regulators to establish tough effective standards, implement bank to protect taxpayers from having to cover such high risk bets. let's take a look at the shares of jpn which are falling sharply on that news after hours. of course the big issue is there's always been a little bit of a bump for jp over everybody else because it's jp. and jamie is supposed to be will. >> but does carl levin immediately have to conflate in doctor taxpayer covering losses? >> this is not a situation of too big to pail. the bank covered its own losses. >> so what is carl levin talking about? >> there's a couple issues here. you're right in that this is a comp

dimon is prematt newer in saying it wouldn't violate the volcker rule. e nature of the trade and the nature of the rule. this is going to be an argument for tighter rule. he said, just because we are stupid, jamie dimon isn't stupid. he is a very able guy with a very well-run bank. that's precisely the point. when one of the best run-ins stugss presided over by very intelligent people can make a mistake of this sort, that's a sign of why you need regulation. that's a sign of why you need a safety net. i think this is an argument for the volcker rule. >> some would say, can you regulate greed combined with stupidity? >> yes. you can regulate in this sense. you can, in the first place say, we don't want you to get so over your head that you are not going to be able to pay what you owe other people. the old story is, if somebody owes you -- if you owe somebody $1,000, he can tell you what to do. if you owe him $100 million, he has to worry about you. we do have rules that say we don't want you to get indebted to the point where they are years ago where we ar

you think the volcker rule then will be implemented this year? a lot of people debating whether or not we're going to see that which of course prohibits the banks from trading for their own account, the proprietary trading. >> i do think it will get enacted. i don't know exactly the precise form that it will take. >> let me switch gears to ask you about the markets an europe because once again europe seems to be front and center after the elections in france and greece sent of course the antiausterity candidates into the position of power. how do you think this chapter plays out here. >> probably not well. problems that you got in europe are really endemic and feels like they're a bit on a treadmill so they "solve it" and declare it to never be addressed again and then three to six months later here it is back. whether it's back in greece or in spain or next in portugal or wherever. i think given the structure of the eurozone as it is, they will have a hard time getting out for it. for the most part that's only bad news for the u.s. economy. it i

the volcker rule today, the vote goes on today, so you have this issue, nobody knows really was this a proprietary trade, was it a hedge willing strategy. this is what volcker was all about. here's what carl levin had to say about this trade. the enormous loss is just the latest evidence that what banks call hedges are often risky bets that so-called too big to fail banks have no business making. today's announcement is a stark reminder of the need for regulators to establish tough effective standards, implement

we don't have the completed volcker rule done. byists are getting in there we need a simple set of rules. you can't play by the same set of rules if no one knows what they are. as the public demonstrated, still has not come back into the markets with the level of confidence we want. they are not reinvesting because they have a sense it's not just a casino, it's a rigged casino and there are people with more information than they do and people engaged in transactions they don't understand. >> when we talk about the future for regulation, is it a rosy picture? you would think this would lead to more public outcry. we were talking about public support for financial regulation. it's 50/50. you have candidates running for president saying we need to repeal regulation. there was a "daily news" op-ed that ran in april talking about your task force saying it was understaffed. there weren't enough resources. are you bullish that we can cure the systemic problems? >> there has been a lot of good propaganda over the last 20 years saying regul

under the existing volcker rule if it were to be implemented this activity would have been they wouldhis was a hedge and that active would have been exempted. it tells you how ridiculous the controller rule-- >> eliot: the banks have lobbied so extensively. >> right. >> eliot: the announcement of depository functions was clear. >> although, there is a silver lining here which is the volcker rule has not actually been nailed down exactly yet. the sec still has room to look at what happened here and to say, you know what, we have to crackdown on the bank's ability to do these kinds of trade. >> eliot: let me take their side to flesh this out. this is only $2 billion. we can absorb it. we have a big enough balance sheet, why is everybody so upset? how do you respond about that? >> it's risk management, it's not about $2 billion. it's about saying that if jp morgan, who who is the meant to be the best risk management house in the business, and jamie dimon is completely hand on at the bank can suddenly wake up one morning and find himself $2 billion in the red, that means that no bank has