tv [untitled] December 17, 2013 8:30pm-9:01pm EST
the only difference is if we all turn into them we'll have only ourselves to blame enjoy your neighbor's tax dollars crist's tonight let's talk about that by following me on twitter as the resident. and that does it for now i'm a mirror david have a great night. no there are i marinate this is boom bust and here are the stories we're tracking for
you today first up policy meetings at the federal reserve this week have markets doing some funky stuff will tell you all about it coming right up and why are still nations just simply better than others there in oz and mobile the author of why nations fail sat down with me to talk about this very subject and finally while just basis is nifty little drone delivery gadget had everyone pumped about amazon recently the online retailers german workforce is none too pleased with their employer virtual currencies and i discussed this very issue in today's big deal it's all coming up and it all starts right now.
this week may prove to be an explosive one for the financial markets given the possibility that the fed may finally begin to pull back on its eighty five billion dollar a month bond buying program now central banking officials face a delicate decision at a policy setting meeting this week and with stronger economic figures and a washington budget deal all eyes in the financial world will be on ben bernanke in june the fed heads. set out a three part test for reducing its monthly stimulus based on employment growth and inflation now recent data shows progress on the first two conditions but not the third investors have been trying to gauge the timing of when the central bank may start winding down its market friendly bond purchases with many expecting the fed to announce a taper in march of two thousand and fourteen. now elsewhere just when you heard it all surrounding the n.s.a. snowden spying drama another twist and turn presents itself this time in the form of an i.b.m. shareholder lawsuit which accuses the company of hiding reduced sales in china
a result of leaked information about the n.s.a. spying program now the louisiana sheriffs pension and relief fund sued i.b.m. in new york city federal court last week who sued is based on the assumption that edward snowden's leaked information about the n.s.a. spying on foreign nations and i.b.m.'s complacency with the program led to a loss in profits now the fund says the decline was a result of spook chinese government agencies and businesses who now fear buying equipment from american based companies however there are several logical non snowden explanations for the decline in sales as well now not just i.b.m. but cisco systems and microsoft also saw a pattern of declining sales in china recently along with the fact that the chinese economy is slowing and the government is reducing i t. purchases regardless the suit is allowed to proceed. and finally norway's government says no no to big scandinavia as richest nation has said the currency
does not qualify as money however the norwegian government did rule that big corn is an asset upon which capital gains tax can be charged profits made from big one will fall under the wealth tax while losses can be deducted the european banking authority issued documents last week reminding consumers about the dangers of virtual currency is now according to the be a people using virtual currencies should quote fully understand their specific characteristics the not use real money that they cannot afford to lose the is not alone in its position on virtual currencies here in the u.s. the legalities of decline are still pretty big. well there you have it we'll be tracking all of these stories and keeping you posted on all the latest as usual. what are some nations prosperous while others struggle is a do or culture
a weather geography well not quite now according to research or darren o'dea mogul who co-author of the book why nations fail the key is inclusive versus extracted institutions earlier i spoke with professor r.j. moglen asked him about the role of institutions in creating economic prosperity here's what he had to say. created these categories of extract of institutions to benefit. create. incentives and opportunities for prosperity. sitting framework in which people have secure property rights to have a level playing field in which they can compete for different. different occupations or different businesses on the relatively free floating. trusted to extract of institutions which have been designed so as to exist if some people. at the expense of the wrist one of the common explanations for global inequality is
geography and some places they just have more fertile land more resources natural shipping routes eccentric cetera but in this area as described pretty well in jared diamond's book guns germs and steel why was this theory kind of only valid during key historical periods or is geography is important as important today as it was historically. well. actually our answer to that is a little more more nuanced so first of all you're absolutely right jared diamond's wonderful book guns germs and steel is one of the places where the very innovative theory in which geography is. is emerging as a key determinant of economic prosperity is is that best but there are many other people who have suggested it for the present today they argue some places have disease environments that make it impossible for countries to grow they have a lack of access to see or to rivers or they have their own climate and there is fairly cold calls of evidence some of that based on our work before and some of it
summarized in the why nations fail that shows that this argument is very difficult to maintain if you have countries that have very similar geographies behave very very differently because they have different institutions and you have countries where very prosperous ones become a very poor relatively speaking because there is to keep up with so people who have defended the importance of job or if you have been falling back and said well perhaps we have a sort of divide here perhaps job that he was really important to the fifty eight hundred stop to do a lot of world and in the modern world perhaps institutions become more important well actually in the book we also take that on also so we don't want to say that don't really doesn't matter at all but what we do provide some evidence for is that even if you. just to go back as far as possible to the middle of the group will should do the ancient greece role again it's not joe graphy that's most important
to understand it is the economic and political institutions it's not the job graphic factors that make one place prosper worse than other in fact you have many many places all of them next to each other all of that having the same job will be some of them prosper some of them form complex civilizations some others don't and the difference again is in terms of what sorts of his usual choices they make what sort of radical wishes they picked and now do you highlight the roles of institutions in creating inequality but what shapes the institutions themselves i mean according to karl marx technology itself influences the institutions got ask how does this hold up today. right so. i think marx did a great disservice to to our thinking of these institutional differences by putting a very materialist. gloss on it sort of thinking that technology somehow as minor from heaven comes and determines. society is going to.
and we differ from that sharply we think that technology is highly and dodginess if you want to understand why the industrial revolution started in the eighteenth century and in britain you have to think about institutions and institutions are of course influenced by economic factors they are of course influenced by you know whether you have an industrial technology but more importantly they are an outcome of a political process they are men made they are choices that we make and many societies that have access to the same technologies that have very similar histories can end up with very different institutional i want to take a look at the us now then while america has been fairly prosperous relative to other nations there is quite a bit of inequality still today you have said that open political systems generate innovation and growth and this sometimes comes with greater inequality it begs the
question how much of the inequality that america experiences today is due to innovation and growth and how much is due to extractive institutions. great question i wish i knew the answer. so but you're absolutely right you've summarized it extremely well which is i think it is. naive to expect this society without the need equality inequality is a feature of every society that humans have created even the most to go to terry and hunter gatherer bands have had their own version of inequality and tendency towards inequality against exacerbated when you have new economic activity that which some people are successful some people aren't and economic inequality debt for within ballance is something we have to live with and it's also consistent with the will that was due to show you who's a markets economic growth the problem comes when it can all making a quality i don't becomes extremely. or when it's translates into inequality of
opportunity to a level playing field that i've mentioned at the beginning is a whole mark of the group of economic institutions becomes that tilt the playing field or most often asleep economic inequality begets political inequality in which people with money become more and more politically influential in the book we tell the story oh venice where this process of economic inequality leading to political inequality destroyed their nascent think rules of institutions and turn venice from one of the most. i've been to a stagnant one so the fear for the united states is that we are in the midst of a similar process and i think the glass is health off empty probably a little bit more than health. you know more empty than full which is you know the full part is that us continues to be very innovative it's still generating a lot of innovation and in some hospital being
a quality is related to beat innovations there is there is a whole. plethora of new technologies dead require skills that are scarce in the labor market day generate a lot of income for the innovators and as a result of that inequality increases as a result of its approach a part of this process of technological change structural change in the u.s. economy you have greater and greater globalization and globalization has brought a lot of inequality to the u.s. economy now i'm not suggesting that all of billionaire quality is something we have to live with some of it could have been dealt with in other ways perhaps by providing more. broad based education and skills building programs so that more americans could benefit from the new technologies and better fiscal redistribution so that we have a better safety net but but there is a natural tendency for inequality from the from the wave of technologies that the world economy has has been experiencing over the last several decades but also.
that was there an author of why nation fail. now coming up why law is the volcker verbiage venerated or vilified alexis goldstein joins us to help render a verdict after the break and who does amazon blame for stealing christmas and if not for grants rachel her safe and i discussed the purchase of the first major strike against the mega retailer in today's big deal and as we head through a quick break here's a look at the today's closing numbers stick around. i
said than done now after three years and many many missed lines the vocal rule finally came to permission last week now lobbyists activists and advocates from both sides are combing through the rule so who exactly are the winners and the losers joining me now alexis goldstein former v.p. of merrill lynch an occupy wall street activist and general know everything wall street. thank you for being here and now i want to start off by asking you under the volcker rule only three percent of the banks total assets can be invested in hedge funds and private equity funds however you see a problem with this and you say it's because of the way that bank employees are paid and they're paid for something that is carried interest can you explain the issue that you have with carried interest so carried interest is basically the way that private equity fund managers get paid in the ideas instead of taking some of their money and investing in the fund as a part of their compensation they actually get to share in the profits of that company so if the company that they're managing does really well they get
a chunk of the issue that i have is there's a little bit of a double standard so in the vocal world that carried interest is not treated as an ownership interest in that three percent limit you mentioned is. how much the banks can invest in these funds but that compensation that carried interest doesn't count toward the three percent limit so it's not seen as ownership for the purposes of the vocal on the other hand if you talk about taxation carried interest is seen as ownership and that's the justification that lots of lobbyist use for why it should be taxed at fifteen percent so basically my point is you don't get to have your cake and eat it too either pay the regular amount of taxes or treat it as ownership for the purposes of the rule you don't have to be able to have it both ways and right now they do carried interest it's ultimately a portion of profits a limited partnership willy nilly shares with a general partner correct this or they would give over to the fund manager now why should a limited partner in a general partner not enjoy the same fifteen percent that's the fifteen percent
benefit they get together on the same income if they're both putting in some risks when one they are basically in a partnership together why can't the well off and the managers aren't actually putting skin in the game i mean there may be some minimum requirement that they show up a little bit of money but they're generally not putting forward the same amount of capital as the actual company and especially for the purposes of the volcker rule when you have a big bank that has a three percent interest in a hedge fund or a private equity fund most of the time they're not putting you know they can't buy love more than that three percent and of course there are some exceptions which we can get into if you like but it's not really an apples to apples comparison and so i don't really think that they deserve that same preferential taxation because they're not really doing the same thing but it would would it just banks from lending to these funds because funds they're set up to make money whether or not we want them that's what they're designed to do the fifteen percent tax incentive is an incentive for lending is it not well i think it's an incentive for them to invest in private equity companies but i don't know that that's necessarily
something that i would want to advocate for i think that there's a lot of risky gambling that happens there that's part of the reason the volcker rule tries to limit it so it's not like necessarily a small business right these are these are companies that are that are quite wealthy so i. i know that it's in the country's best interest to incentivize it right now are you saying the partnerships in financial services industries that they should be taxed more period and if so how much more should they be taxed you think well i think that carried interest should be taxed at the rate of a regular income of regular salary so whatever that would be for your income bracket and typically these fund managers very deliberately construct their compensation to mostly come in carried interest and pay themselves a very small salary to maximize taxes look they're clever good on them but i just think that there should be a level playing field and warren buffett happens to agree with me and he wrote it up and i believe it was last year saying this is why my secretary make pays more percentage in taxes than i do because of this special treatment and i think it should just be the same across the board. you recently published in one your articles are going to quote from you here the policies procedures and limits mandated by the book rule are mostly left for individual banks to craft on their
own regulators to provide strict guidelines on the way that they should what they should look like now why would lawmakers leave such governing measures in the hands of the banks that they're intended to regulate make sure seems silly i think the short answer is it tends to love you i mean i think this vocal proposal started very simple as a law written by you know senators merkley and levon was several pages long and then as the lobbying got kicked in kicked up they wanted more and more exemptions so it got there in length there and i think that one of the thing arguments that the lobbyist made that unfortunately the regulators said ok that makes sense to us is every desk is different you can't come up with one universal thing that all applied to the equity derivatives desk but also to fixed income you need to let us handle it and it seems like they have agreed with them on that point however that isn't to say that the regulators aren't going to go in if something doesn't look right pointed out you know i think if it if it looks funny hopefully the regulators will call it out but that remains to be seen now i want to move on to shadow
banking there's areas of the shadow banking system but dog frank and the volcker rule do not touch upon all what do you consider the most pervasive problem. in the shadow banking industry today i think there's something called a purchase agreement and i was thinking about it's going to a pawn shop maybe you sell your watch tomorrow you get a loan and maybe you know a week later you go and you buy it back and you pay some interest on that purchase agreement is kind of a fancy version of that instead of selling your gold watch you sell a mortgage backed security and that's a part of the shadow banking system that really hasn't seen a lot of regulation and it's froze up lending in repurchase agreements froze up in the aftermath of lehman failing and these banks couldn't you know basically pay their bills and so that hasn't been solved and so i fear that the next time we have a crisis we're going to see that same sort of problem come up how do you think we begin to fix the problem posed by the shadow banking industry i mean it seems extremely. i don't even know how to begin maybe you have some idea what i think
part of it is bringing it out of the shadows right repo is just one aspect of it another part of shadow banking is money market funds and the reason that's called a shadow bank is because people treat it like a bank account but it's not a bank account because it doesn't enjoy f.d.i.c insurance and so we either need to face facts and say people treat this like a bank account let's make it adhere to some of the rules that banks have to abide by or let's make it more clear to people that money market funds are not bank accounts and this is something that she would bear as advocated for let the you know the and the flow instead of always saying that it's you know one percent you're always going to get a hundred dollars back for every one hundred dollars you put in so i think bringing transparency is maybe a good first step and reforming money market funds is a good first step. to business development companies that are exempt from the book or rule this is the last in your opinion why well i think you can get around the intent of the rule now the intent of the rule says you don't get to gamble anywhere and you don't get to do it through private equity fund up to that three percent or
so and there are some exceptions there too but a business development company is the special kind of company that has to invest seventy percent in things like small businesses but thirty percent can be invest. it however they want including private equity funds the volcker rule says that you can invest up to twenty four percent in a business development company so if you take twenty four percent of thirty percent that seven a half percent that's still more than the three percent limit so it's just seems to me that it could be an end run around the intent of the rule and they could all just pile into these business development companies to get around it alexis your insight and making this concise and digestible for most people would. be back very soon and i'm sure the spoken will develop a lot more. coming back that was alexis goldstein communications director of the other ninety eight percent time now for today's big deal.
richard kerr is the issue joins me now to talk about striking picket lines etc now we want to deliver by wednesday december twenty fifth well not so fast hundreds of workers at amazon and germany have walked off the job in an effort to pressure the e-commerce leader to settle on a wage disagreement now these are the first strikes against amazon anywhere in the world and today the strikers plan to rally outside amazon's seattle headquarters a top amazon executive in germany said the workers were mostly unskilled and had been unemployed for a long time implying they should be grateful to work at amazon original i'd turn to you in a down economy when employers have so much power like amazon does do workers have much leverage when they go on strike in a place like germany they have significantly more leverage than they do in the united states and that has to do with germany's labor laws which are regarded as
significantly stronger and more in favor of employees in the united states ok now according to reports in the german media amazon is accusing strikers of. quote this quote from german media not us trying to steal first to know who their area grinch like to the timing of his joke trying to give workers an overhand other than the labor laws so that all good it could go both ways i think i mean clearly amazon in germany has a very strong need to get all of those packages done on time and get them to people by the time that santa supposed to bring them at the same time so clearly they have a need for these workers but at the same time if people who are customers that amazon and who enjoy the services they provide feel like they're being screwed over by not because of management but because of the workers this could turn public sentiment against them so it really depends on how customers take it you know agrees with the customers choose to side with here who the customers decide is the group right now with your dollars or with your euro and with their euro with your
euro now to them a dozen different from other retailers because of their online presence and it being so massive so this is something that we talked about on friday a little bit with a lot of malls trying to actually employ delivery and what amazon has a huge advantage that a lot of these other companies don't is that they don't have real estate right so they don't have the storefront the only real estate they have is digital so they can put that money in to improve customer service they could put it into improved wages and conditions for their employees if they think that that's what's going to be helpful and some of the some of the reports about warehouses particularly in the united states for amazon employees don't seem great that can redeem a miserable do for very. little help or gone awry you know the the the people working as elves in the amazon workshop don't seem to have a very good in terms of working conditions. yet so i think the fact that they have that additional money that isn't being used for physical relooking where exactly is
could be a huge advantage why not let us trickle down if you will now there seems to be a bit of a backlash of these companies when they get to a certain size and it's a tipping point if you will and has. amazon hit that tipping point in terms of public sympathy and whether or not people are. going to know about all of the crazy things we've heard about amazon in the news recently right i mean from a nifty little drone gregory drone you know very well do that five years away from ever potentially seeing this guys having nothing to do with f.a.a. regulation i think wait some people go who cool but most people just roll their eyes i mean amazon is a huge company as you said and they and i think that they have a huge following but in the same way as the bill larger you are the more likely you are to garner kind of consternation from people no longer getting a lot of attention at work should we expect to see do you think we should expect to see more strikes from amazon from amazon workers yes we'll continue to see them as same way wal-mart warehouse workers kind of continued to gain attention and gain solidarity with one another i think that can happen with amazon too and what i also
think that warehouse workers from amazon and wal-mart and all these other places might united together there haven't you heard of her first marriage of hers is predicting the future as always and i love it at all for now you can see all segments featured in today's show on you tube or you tube dot com slash boom bust our team we also love hearing from you so please check out our facebook page at facebook dot com slash boom bust our team from all of us here boom bust thank you for watching we'll see you next time bye bye
with mike stronger for a no holds barred look at the global financial headlines tune in to conjure reports on our. own larry king now long island medium to receive the butyl that suffered from anxieties for many years and what i learned was that it was fair trying to communicate with me she's in studio and shadowing the bed and we'll close to her yes because he told me that you with a son that he never had she says you know still not make me feel sick he looks i'm very spooky right now that is a spot on all next on larry king now. welcome to larry king now where terrorists are computer all the internationally renowned medium her show long island medium is currently in its fourth season.