tv Prime Interest RT June 19, 2013 2:29am-3:01am EDT
here's what's in your interest. just last week the lower chamber passed the swaps jurisdiction certainty act they could determine the extent of the c.f.d. seize authority to oversee the global swaps market as the largest component of derivatives trading swaps are mostly over the counter contracts were dealers exchange cash flows of financial instruments including interest rates and securities earlier i spoke with alexis goldstein a former vice president at merrill lynch and bank about the consequences of this bill i first asked how much influence
a special interest and bank lobbyist have in crafting financial regulation. for completely out those of us on the side of financial reform there's about two or three major groups that do that one of them is better markets another is americans for financial reform and then we're going against these multimillion dollar lobbies that all sit inside of the mega banks along with all their other sort of friends and extended family that also advocate on behalf of them. the largest participants who are the big banks they have the most intimate knowledge of the end history but they also have potentially undo and influence do you think it's possible to get effective rulemaking the way that our financial system is set up. i think the odds are definitely not in our favor i think that with strong advocates like gary gensler has been that this c s t c who is a former in decider he used to work at goldman sachs and he sort of had a change of heart he's been a very very effective regulator so i do think that with key people like that there
is a shot but you're right to ask the question because the game is definitely rigged against us and because of the way that money influences politics there is a lot of strong incentive for reg sorry for people in congress to also do the will of the banks we see that in something i wrote about in my articles scott garrett is a representative in the house he received over half a million dollars from wall street and they told him very explicitly to put as much pressure as possible on the c.f.d. see so i don't know without addressing the money in politics issue if we're going to be able to have strong regulations but as long as we have keep people in there like gensler we have a chance for the white house is is basically trying to scam blair as we speak but we'll get back in just a minute but i want to get to the swaps jurisdiction certainty act which passed the house last week expected to curb the c.f.d. sees authority to oversee the six hundred trillion dollar swaps market can you
explain just briefly why this act. so there are two big regulatory agencies that govern derivatives one is the securities and exchange commission the f.c.c. the other is the commodity futures trading commission which is the c f t c they've both issued rules about how swaps which are a form of derivatives should be treated in banks that have overseas presences or in overseas companies that do business in the united states and basically the f.c.c. has rules were pretty weak to see if he sees rules were really strong to see if he also oversees a larger portion of the derivatives market and the swaps certainty act basically says two things first of all that the two agencies have to come together and they have to write a single rule. which is basically a way of saying to the c f t c you need to be weak like the c c's rule is weak and it also says that if a drink this transaction is done in one of the nine largest derivatives markets those rules are considered to be equivalent to the u.s.
so if i do a trade in one then those rules are considered to be equivalent to the u.s. has rules and if there's anything that the financial crisis showed us is that is not true the rules in europe are often much weaker than they are in the united states so this this swaps jurisdiction certainty act is guiding the strong rules the strong guidance i should say that the c.f. t c put forward and how do we govern trades that may not happen entirely within the bounds of the united states but are done by u.s. banks or banks with a presence here again i also want to get back to the c c they also recently released across the border proposal does the f.c.c. proposal have any major loopholes in it that you've seen the biggest difference the biggest problem of the c.s. as you see rule is that they basically have a four factor test that basically says if a country matches one of these four different criteria in a way that is acceptable to us we consider their entire regulatory regime to be equivalent to the u.s. is this the approach to see if he takes as they go rule by rule so if the cross the
cross border rules about example but if there's another rule to put forward that doesn't exactly match a rule in europe they say no the u.s. rule wins which is a much more common sense way to take this approach and so that's why the c.f. to seek guidance is stronger than the us you see rules because they actually look by rule by rule instead of asking for questions and then making some blanket decision. and i'm not entirely certain that this bill will have any actual what solution pass because it's not productive the pass in the senate and according to. who is a former f.c.c. commissioner congress is just using this legislation to send a message that they would like to see f.t.c. . to delay in order to receive harmonization and cross border regular regulation with that a c c u is it possible that this is just simply a delay tactic i think it's both i think that the former commissioner is absolutely
right this is just meant to send a message to the c. of c. that's why i called it the intimidate the c f t c act in my washington post op ed about this i also think it's a delay tactic wall street is very crafty and they use their sort of messengers in government in clever ways they they do things like said messaging bills like this they go into the regulators and lobby they sue the agencies in court and so it's not just one tactic they take but all of it is meant to delay to water down and basically make it so that there are fewer and fewer rules so that they can just do whatever they want and gary gensler he's insisting. should take it's final on the proposal by july twelfth this is when the current deadline expires you know what happens if this doesn't. i think the problem is if they don't come out with a really strong guidance by july twelfth we might come into a situation where all of the hard work that the c.f. has done on
a whole bunch of other rule makings will be done because all of the rules don't matter if these big banks can just push all of their derivatives overseas and not have to abide by any of these carefully thought out rules so i think that is the real that's the problem that we're facing and i think what we're starting to see is the white house has sort of indicated that they might appoint a new head of the c.f. to see a woman name amanda renter e. and she doesn't have the experience that gensler has she only worked at goldman sachs for a short amount of time and not in a derivatives division and so i think they might be trying to run out the clock dr bring in someone who might be more favorable to wall street so that's the danger we have here right now with the f.c.c. chairman gary gensler he was recently chastised by the. own obvious of inspectors. general for failures related to the handling of the m.f. global failure. now as you said term is up in december do you think he's just a way. a fact of at all it is current position he certainly has some cards to
play and he still has power in his current role but i think that people are trying as much as possible to slow him down to make him as ineffective as they can because they know he is a strong advocate for financial reform i think he has maybe a few cards left that he can throw down on the table this july twelfth deadline is perhaps one of them but time is running out and certainly the white house has not stood behind him if they were really interested in financial reform i think we would see him appointed maybe to assistant treasury secretary but we haven't seen anything like that in fact i think if anything i think the obama administration is on the side of wall street on this one interesting can you also explain how the london whale and a i took advantage of regulatory arbitrage opportunities and overseas jurisdictions do you think that these events would have played out differently if the current regulations. under the currently proposed regulation. sure that's a great question and those are exactly the samples we should be looking at so i g.
imported all of its respect to united states so most of their risky derivatives and credit default swaps were done out of a very small office in london in europe and they were incorporated out of france and so they didn't have to abide by by the u.s. rules even though there weren't that many rules in the first place back then and now there are a lot of really strict rules and so if we allow this to happen again if we don't have strong cross border rules that say listen you can't just as a push all of your derivatives out to london all of the risk that happens in london's will eventually come back to the united states that's what happened in two thousand and eight so they did all of these credit default swaps out of london but it was the u.s. that bailed them out one hundred. cents on the dollar when they needed a bailout and with the london whale trades those were also done out of a london office and it cost j.p. morgan six billion dollars and counting now they didn't require any sort of bailout this time but who's to say that the next time the same thing wouldn't be true and
so this is essentially a way to say let's not have to follow the rules let's do all of our trades in europe let's do have all our trades overseas but if we need money and we need a bailout we're still going to get the backing of the u.s. government right right ok great everyone's on board with that cool right and of course the u.s. taxpayer doesn't like that but wall street is trying to make this sound so complicated that everyone just lets it go through and that you know nobody really puts a spotlight on it so it's an important story to cover so much for weighing in on this this is a lexus goldstein and she's a contributor to the nation thank you for. stay tuned because we talk of fed up monetary policy ahead of tomorrow's big meeting with dana cheese and to taper or not to taper that's the only question then that prime interest producer bob inglis and i will over who will replace her name he has next but chairman now that obama has and as much confirmed he's on the way out.
series is just going to drag the civil war it is now a regional conflict it's red lines multiplying it a very dangerous rate obama's decision to directly members of the song coalition is a step could lead to a greater disaster ok more arms and greater outside intervention bring about peace in this war torn country.
you. thank you. the federal open market committee meeting today meeting began this morning and we are patiently awaiting the fed's press conference tomorrow to hear what bernanke he has to say about when the f o m c a might start to scale back the pace of its bond buying program i earlier spoke with david chase and who is an economic policy advisor and the former congressional liaison at americans for financial reform i
first asked him when will the fed start winding. down as quantitative easing bond buying program. no one knows for sure i think the consensus is that there is a small chance that they may begin to implement the tapering down third quarter more likely fourth quarter but this year this year yes this one is the third quarter first they start starts in july and it's july to september october to december the fourth of july. is small chance more likely fourth quarter but it could easily be two thousand and fourteen sometime well the fed him said and started using the word tapering back in may and we saw the risk markets correct you know right away do you think that the fed has painted itself into a corner by talking down expectations too much did did the fed say too much too
soon i think the market had been. guess exercising benign neglect or maybe some denial for a while because we know we're in this extraordinary situation of accommodation and it's got to end at some point in the fed has been specific in certain regards about conditions under which it would and but this is the more concrete use of the term tapering down i think triggered a reaction possibly an overreaction after. a press conference on the twenty second and now the fed is hinted that tapering will not necessarily be accompanied by an interest rate increase is that every less realistic assumption to make that tapering you know wouldn't result and interest rates i mean i mean with this be the natural response of in the markets ok couple of different issues certainly bond
yields have gone up since that press conference last month by about fifty basis points. so the market is beginning to move the fed is probably not happy about this it wants to remain in control of this very delicate and unprecedented situation remember that first they lowered interest rates to close to zero and then they packed in three programs of quantitative easing they're probably going to start unpacking with q e three and then maybe move to interest rates and at some point with interest rates it's almost inevitable that they will sequence it so yes those are decoupled policies is it not possible that the markets will force the interest rates to rise certain kinds of interest rates will certainly rise and have been rising a little bit as a mention but. the fed wants to try to keep the reins on that process because they don't know for sure whether we have emerged from this recovery
to a sufficient degree that they can they can be less accommodative so the market the market is something that they would like to keep the reins on they don't want market interest rates to get out of hand and getting back to the conference press conference tomorrow what are some of the possible markets in areas that you think playing out well it's ironic i think that the market reacted to certainty think in the sense that it least there was concrete reference to tapering down although it remains enormously uncertain when to what degree that would happen and there are many variables there. so because the market is in favor of this accommodative policy the surge the scenario that would most likely result in a rally would be some suggestion that this is being indefinitely postponed so the
market in some ways is rooting against economic work. it makes sense. but it's more likely to be disappointed. because i think he wants to be communicative i don't think you know he doesn't he hasn't boxed himself in but i do think he wants to be a little bit more concrete about the circumstances under which the tapering down might occur what the indicators with the important indicators are which would be you know inflation growth and unemployment which were changed to december of two thousand and twelve policy they're now looking academic and decatur's to disarm in the reversing you know. i call it was like for unemployment to come down to six point five percent right now it's at seven point six and as soon as the price inflation above two point five you know in this morning the c.p.i. came in at one point four percent you know what are the. implications of the
economic indicator you say well. you've got to take a piece by piece that inflation number is very low. that does not impact the fed to act quickly if the inflation were to move a little bit closer to their past their target rate of two percent then you would see perhaps a little bit more aggressive action in terms of tapering down but at one point four it's almost a non-factor ok and you know it seems that bernanke he has given himself and considerable latitude to interpret these statistics you know possibly waiting several miles in a row to establish a track and you know when it comes to price inflation and they're not even looking at current data they're looking at the f o m c members projection the price inflation and one year into the future here it seems that the fed doesn't have any hard and fast guidelines is it fair to say that bernie has given himself enough leeway to just do whatever you want well. earlier question about whether the fed
had boxed itself him in. has not and when it looks at these indicators it's looking at projections and consensus projections so. one of the things that's going to be interesting to see at this press conference are the forecasts that the fed is going to make with regard to each of these indicators. and that what the economic policy adviser. and former congressional liaison with americans for financial reform. it's time for the daily deal with bob inglis did you bring your crystal ball today now we're going to look at the future i saw here. well what some are as
a big fed announcement and considering that obama has acknowledged and his days are numbered we're going to play a little game you're ready i'm ready it's call that who is the next fed chairman or a chairwoman when. our candidates are stanley fischer and janet yellen and. so let's get started with stanley fischer let's get started he is currently the head of the bank of israel he was once a p.h.d. advisor at m.i.t. he worked at the world bank and the i.m.f. but was not able when he was not able to take that position at the am that because of an age restriction he was too old yes and he actually has a pretty interesting background he was born in zambia. to rhodesia and then he spent some of his teenage years in zimbabwe so how appropriate for a central banker who was known to be friends. i don't know if that's fair but anyway he has a very great great academic record he was at mit as we talked about many times and
there is that mit connection he was born. he's ph d. supervisor along with some other people and a lot of these people who are influencing or central bank decisions or you know i don't know i think it would be really unusual to have a central banker from another country and then come into the united states and had our bank but how we got to be the central banker and in israel was extremely and you're saying he moves there in two thousand and five he was approached to be the governor even though he had basically just become a citizen and so you know it's kind of weird that he has such a powerful position without actually living in the country for a considerable amount of time true enough and some speculate of course that he might come back to the u.s. and live out his days as chairman of the federal reserve so we'll have to see there . the retirement so of next is janet yellen she's the current vice chair of the board of governors of the federal reserve system she first worked for the fed and nine hundred seventy seven she is known in academic circles she's closely
allied to chairman bernanke he and yet she's very close to chairman bernanke and some people have accused her of just being a spokesman for him she's authored a number of very influential you can only papers and it seems like she's been able to go out on her own i think they just think alike so she would be the natural successor to burn and i think i think one thing that could be against her is she also served on president bill clinton's council of economic advisers so she has a little bit of political history there right and the chairman should be nonpartisan ok so i don't know how that might play out i studied her for a while i don't think she's too partisan i think if we want more of the same in other words if we want more bernanke you she's probably the logical person that we're going to go to but the question is are we going to go there and what will the president want exactly and bernanke you've been very helpful to him he has he's done him some favors and i think we have one more person to go to we have timothy
geithner we know him best as our recent departed treasury secretary. but he was also head of the new york fed in late two thousand and eight and in the midst of the financial crisis when he was officially nominated to be the treasury secretary he has you read cues how to sell a lot of important decisions i don't know maybe he's already talked about an absentee landlord already been through why he hasn't what is it currently unemployed i'm not sure exactly what he's doing i will say there is an interesting story about him that goes back to his father peter geithner worked for the ford foundation and he was working on these micro financing projects in indonesia under him was one and. it was. it's obama's mother so it's almost like i don't know if. mr geithner and obama himself were playing totally winks as a children but it is documented that their parents actually met on at least one occasion so well i don't know if i could make him the fed chairman i think we've seen enough of him so here's your guess. can we can we roll our guests here or my
guess i think it's permit the frog i don't know permit the frog i don't think it makes a difference because. and i'm going to pay janet yellen i think like you said she has she's it will fall over an inky and. and that's a right so thanks for weighing in and you can follow us on facebook at facebook dot com slash prime interest you can follow blogs at english p.-i and you can follow me at perry and r t on twitter thanks for joining us you.
know it was a serendipitous day here at prime interest first we were pleasantly surprised to hear obama hint at our beloved chairman's imminent departure but not that super mario draghi was prepared to push the e.c.b. supercar pedal as far to the metal as its central banker cohorts and alexis goldstein revealed the big banks are using their big might to get the regulatory scales in their favor and they mad was chasing the fed right into tomorrow's announcement we finally caught up to our soon to be chairman only to find out his replacement might just be more of the same oh well thanks so much for serendipity thanks for watching come back tomorrow i'm terry and boring this is prime interest of actually a. little
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