tv Breaking the Set RT January 10, 2014 11:30pm-12:01am EST
pleasure to have you with us here on t.v. today i roll researcher. and happy friday i'm aaron aid this is moon boss and these are the stories we're tracking for you today first up president obama nominated stanley fischer to vice chair of the federal reserve will the pragmatic policy maker live up to his reputation will discuss and eve smith the brains behind the extremely popular financial blog naked capitalism dot com joins us live near our new york city studios to talk pre and post financial meltdown. and later on in the show we
introduced a totally totally new segment here on boom bust designed to make you the viewer in the driver's seat you won't want to miss it and it all starts right now. president obama has nominated former bank of israel chief stanley fischer to the position of vice chairman of the federal reserve the u.s. senate confirmed yellen on monday to be the next fed chair woman she is due to take over for ben bernanke when his term ends on january thirty first now fisher is touted as a pragmatic policymaker with extensive crisis experience in the past. held high
level positions at the i.m.f. dealing with economic debate buckles in mexico and asia and fisher successfully navigated israel through the recent financial crisis as head of the bank of israel fisher who has dual israeli u.s. citizenship grew up in a house without running water in what is now zambia while his parents worked as shop keepers at a general store. elsewhere december's bad weather may be to blame for a lower than expected payroll increases the december payroll report came in much weaker than anticipated bringing up new questions about both the strength of the economy and the aggressiveness of the federal reserve stimulus only seventy four thousand workers were hired last month the smallest increase since january two thousand and eleven significantly under the one hundred ninety six thousand jobs that had been anticipated by analysts and finally european bankers are enthusiastic to say the least about hollywood's debaucheries new flick the wolf of wall street
now the film officially opens in new york next week but bankers across the pond just can't wait to get a sneak peek they're rolling out the red carpets for clients by booking entire theaters for private screenings and get this the italian stock exchange is showing the film on the site next week while the after party for the paris premiere was held at the boers the martin scorsese directed film starring leonardo dicaprio chronicles the life of described us stockbroker jordan belfort who made a fortune selling junk bonds before being jailed for defrauding clients now the three hour film depicts a culture of ghastly american greed filled with money cars houses yachts prostitutes orgies alcohol and heavy heavy drug use enjoy europe you're welcome well there you have it as always we'll be tracking these stories and keeping you posted on all the latest.
two thousand and seven marked the beginning of a very difficult period in the global financial system with some of the world's largest banks coming to the brink of collapse now in the case of lehman brothers the institution did in fact collapse and in the aftermath. of lehman's demise our largest financial institutions were bailed out not just here in the us but globally as well however many questions still remain about the methods used to prop up these institutions our guest eve smith author of the book and founder of the very popular financial blog naked capitalism is still on the case she's joining us now and probing into the conspiracies of governments dealing with the too big to fail institutions eve welcome to the show thank you so so so much for being here now i'm going to ask you right off the bat you're a former banker you were with goldman sachs in a lot. of the big boy goldman sachs how did you become one of wall street's leading
critics given the lifestyle that you started out in. well as i like to joke goldman was a was i was on wall street in the days when it was only criminal around the margins . you know after goldman i consulted to the industry for quite a few years in many different capacities and. frankly i when i started the blog i simply was chronicling the progress of what turned out to be the crisis if you simply read the newspapers you could see a big disparity between what was being reported in the u.s. and even what you were reading in the financial times if you knew something about finance and could read a little bit in between the lines but what i was just stunned after the crisis when basically nothing was fixed and the banks couldn't even be bothered to rein it in i mean two thousand and nine they paid themselves two thousand and nine and two thousand and ten after having been rescued by taxpayers they paid themselves higher bonuses i did then they got in two thousand and seven the previous record year it
was just their conduct was just disgraceful and so that was when i really moved into being a full bore critic and it's also i mean it's almost comical given the bonuses situation after like you mentioned now how was the wall street that you knew during your days as a banker different from the world to. well goldman it was explicit in the other firms tended to work this way and having a policy of what they called long term greedy that even though you're not a saint if you go to wall street i mean you're interested in making money the firms really believed that. you needed to offer your clients legitimate products that if you took a little extra you only did it when the client was making money too so if they found out they wouldn't be if they eventually figured it out they would be too annoyed that attitude has changed completely and personally i think one of the big culprits in that is the rise of the derivatives business because in derivatives you can sell people products and they don't really understand how the risks are being
priced i mean the pricing of the risk within the do. it of pricing are extremely opaque and so they are the perfect vehicle for ripping people off and i think that is x. that in that business is actually a significant contributor to the decay and behavior on wall street now i want to ask you do you think that the financier is pitching these derivative you know investment vehicles actually know what they are as well and are they confusing to the people trying to sell them. up to a point yes but i think there's actually something more pernicious at work which is when we talk about these firms you've really got the employees the producers versus the firm themselves and there's now an attitude on wall street which is referred to is i b g y b g i'll be gone you'll be gone that that increasingly traders and trading has become much more important in the total profits of these firms than it was in my day in my day most firms were con of roughly equally balanced over time
between the sales and trading side in the investment banking side but trading has now become dominant these firms and trading is frankly a predatory business i mean you you think of yourselves as running your book against everyone in the market. and to some degree that and that actually include your customers that if your customers are fools it's perfectly ok to take from your customers so that and they take that attitude with them towards the firms themselves that there's you know that trader who is not properly supervised will game his marks and not care that it hurts the institution if he can get it in his bonus this year it's his bonus this year and so you have you have people who have as a whole a very short term personally oriented attitude that's become very powerful and very influential in the cultures of these firms so it's sort of no wonder that the whole business is decay right now which alleged pre-crisis i'm saying alleged but alleged pre-crisis bank of the us do you find most objectionable. which pre-crisis bank
abuse well i am bank oh bank bank of the bank u.b.s. well that's such a target rich category i mean the one hand you've got the whole i would single out sort of three separate things i mean one you've got the whole set of subprime related to be uses you've got and that really and that really extended the problems so many firms and so many aspects were involved in that that you could say subprime but you've got the way that borrowers were preyed upon. you know they were actually literally cases where it's been documented repeatedly where borrowers would be told gee you're getting a thirty rate fixed and they were presented documents for an option air around at closing and they weren't savvy enough to check that what they what the documents they were being given were actually what they were promised and they get suckered into something completely different and of course you've also got you know minority
borrowers been who were qualified for prime being steered into supporting the whole category of abuses with the borrowers then you've got the whole you know investors being sold what they were bonds that were not of the degree that they were promised and investors were sort of fools because they they agreed to deals where they didn't have the normal contractual rights they ceded a significant portion of their contractual rights to sue for those kind of misrepresentations you have to get twenty five percent of the investors together to sue for any kind of abuses under most of the mortgage securitization contracts. but then you've also got one of my pet issues has been the collateralized debt obligations because those are not sufficiently well recognized as the drivers of the crisis we've just been talking about subprime in and of itself we would have had a savings of loan level crisis i mean it would been bad it would been very painful there would have still been banks that went bust but it would not have been a global financial crisis the c.d.o. zz enabled. literally mole. the poles of the really colony borrowers of exposures
to be created to distribute it all over world and it's funny that you mention the wolf of wall street right before in your sort of warm up because the sales techniques that were used for the riskiest pieces of c.e.o.'s were exactly the kind of behavior that you saw in that movie except that was those guys partying on their own do so same kind of extensive use of hookers extensive use a horse was basically used to bribe clients to buy this crap and it was a really crap part of those deals i mean it was a risky astrologist if they had not been able to place those risky traunch is by buying call by buying the cooperation of foolish or complicit clients with drugs whores and very expensive wine those deals would have gotten down to those the sick and these and many of these people were supposedly fiduciary incredible years of actually got fiduciary is accepting broads to buy total dreck i mean to me that just that's just
a sort of stunning example of how bad the behavior was before the crisis was written for hollywood if you will now i want to move on to my next year as general washington and washington would claim that they've been successful in putting a stop to the abusive bank practices that we've seen one example of dodd frank it's often touted as a model of regulatory oversight now do you think dodd frank will be effective. no one of the big reasons i mean it's better than nothing i mean that's not they say it's the biggest reform we've had since the great depression well that's true because we've. seen regulation for the last thirty years i mean that's a two week bar it's not even funny but do you know dodd frank does not solve the too big to fail problem which is one of the major elements of this crisis is you know the banks came out in the u.s. the banks came out of this larger. the strengthening in capital is actually coming out through basel three through dodd frank. the one thing. it's touted
is the supposedly that the that the firms can be resolved in fact anyone who's serious that has looked at this has basically concluded that the dod frank resolution provisions which are called title two don't work because these banks are international and dod frank's reach is only domestic you know you can't resolve international a global farm only with only a domestic regime so you know in many of these derivatives you know the banks pass the books around the world you know the they have counter parties around the world you know so it's just it's just. that to me that in my mind is the big i mean there are not a number of other issues with dodd frank you know did it do some various around the margin that were helpful you know you know yes but it but in terms of really solving the problem you know we have sui have somewhat improve the condition of these firms but you know when you look at these settlements yeah compared to other
much of the the bottom of the biggest story is the banks have been given a huge either gave you i'm so sorry i have to i want a cheap cards i have to ask you to hold that thought i'm being yelled out of my ear to go to break please stick around we have more coming up ok we will return we'll talk housing occupy wall street and much much more than edward harrison joins me later on to debut a brand new segment here on boom bust here's a hint it involves you yes you view it right out there and as we had to a quick break here's a look at some of today's closing numbers the bell. wealthy
british sino to. the time is right for. market why not. find out what's really happening to the global economy with mike stronger or a no holds barred look at the global financial headlines tune into cars a report on our. side. i think. mind. and say. that all the money and i think that actually makes for a politician write the laws. right. here in just two. days.
and we're back with eve smith noted financial blocher blogger and author of the book and now we've been discussing the wall street to washington nexus in the context of the financial crisis and potential remedies remedies that will hopefully improve the lives of ordinary citizens now even i'd like to continue on the same line of thinking and and i t. economics professor simon johnson he wrote a widely read article in the atlantic during the depths of the financial crisis in may two thousand and nine and in it he wrote quote i want to read you this quote elite business interests played a central role in creating the crisis more alarming and they are now using their influence to prevent to prevent her safely the sort of reforms that are needed the government seems helpless or unwilling to act against them and i want to ask you eve is this the situation that you see you today. absolutely i mean wall street for
many years has been the second biggest donor or lobbyist in washington d.c. and that's of course just the formal lobbying piece of this you know we've also got the revolving door as you know the regulators. being basically underpaid for many years and looking for their exit ticket to be to go to either a wall street firm or someplace in the business look at timothy geitner winding up at warburg pincus. so in any event the the one of the ways you see you know you before the break you talked about dodd frank you know the one hand you have dodd frank which you know at least on paper has made a has made some difference although nowhere near what needs to be accomplished on the other hand you have a whole series of settlements of mortgage abuses which the regulators have an incentive to tout as being very big and serious and the banks have an incentive to tout as being very big and serious playing along with oh how abused we are and how
orrible these indignities are when in fact when you peel back the onion these settlements typically contain a very very large complement of items that the banks the regulators put a cash value on but really the a the cash value is a fraction of what it's thrown in the settlement as being and then be a lot of us for stuff that would have done any house to the basically double dipping that basically they're basically getting credit for sort of ordinary business activity as if it's they were doing something special to make up for bad behavior yes that's. my very next question you know the mega banks they're paying tens of billions of dollars in fines for their their wrongdoings like you said and in the mortgage settlement specifically homeowner relief in the form of write downs it counts as a settlement which just seems bonkers i mean do you think it's fair to tally the number of this way it's just how can they possibly do this no no it doesn't make i mean for all these deals i've been writing consistently that what you should keep
your eye on. is the cash complement that that's the only part of the that is real and that you can count on and for example in the you know like the twenty you know the numbers it was some banks came some pieces came a little bit later but basically the twenty five twenty six billion dollar mortgage settlement the big one they've been multiple mortgage related settlements but there was a very big one that was the forty nine state attorneys general and the federal government did at the beginning of two thousand and twelve that was touted as twenty five to twenty six you know twenty five twenty six billion in fact the cash part of that was five point six billion and that five point six billion over a billion of that was outstanding fees to the treasury fines to the treasury and fed that were rolled into the settlement i mean it was just nonsense you know so everybody's been running around touting these numbers for the settlements that are greatly exaggerated now for them or some of the you know in some of the recent j.p. morgan settlement which has been now they've had some other more recent ones but you get of that you know they are calling one of the recent ones thirteen billion
in fact that was nine billion in cash and nearly half of that was with was with f h f a the regulator for fannie and freddie and those were charges they were they were not going to escape so it was made as if it was a settlement of liability they had anyhow it was made to sound as if it was incremental as it was fines or some other additional punishment when in fact from j.p. morgan's perspective it was just oh just write a check now and get it over with rather than keep having to announce every quarter that we're bleeding from the from these fannie and freddie related charges right now in a bipartisan effort to kind of shine some light on the exact details of the wrongdoing of the banks senators was a bit worn and tom coburn they've gotten together on the truth in settlements act what are they trying to accomplish any of what do you think's going to happen. well i will this bill passed i'm not very optimistic of the very fact that they're
raising this issue at least raises the bar with the media and frankly with the regulators themselves just the fact that warren and coburn are on the case is a very positive step for basically they want there to be a lot more disclosure of the exact nature that i said they want they want there to be what was the cash complement what was a noncash complement what exactly happened with the noncash compound for instance there's a whole separate issue that even of the cash complement of these deals it's not clear it's all been paid the d.o.j. has a huge amount of fines and criminal penalties outstanding as the end of two thousand and twelve so it would force an accounting of all of these things was the money paid what happened exactly in dollars and cents terms with the noncash compound it's how much in tax breaks did they get for this all of that stuff they want to be disclosed in a much more straightforward manner if i can talk with you all day but sadly i am only allowed one more question so i'm going to give it i'm going to give us ok is
the financial crisis over or is this recovery just mic growth the economic equivalent of mixed jobs. i'd say where i'd say we're a little in between those two spaces i mean you know one of the bad things that's happened is that we've got a this is more of the equity markets we've now have a move towards less stable market structures you know the equity markets melting down would probably not precipitate a global financial crisis we didn't have that when the dot com bubble melted down but we've got high frequency trading which means that when liquidity goes it goes poof as we could saw with the flash crash you know the big danger now is that we have these enormous institutions are much bigger than they were before the crisis and the regulators are basically prey to deal with them here in any kind of harsh manner i mean even in europe you know the banks here like to whale that that that the. this is tougher but in fact in the europe lots of banks were broken up or some i liquidated you know fortis debts the lead to spank going to basically liquidated
and we've seen nothing like that here now you have i can't thank you enough for taking the time to share your insight and we hope to have you back very soon it's been such a pleasure that was financial blogger and author it's time now for today's big deal and hear from you. talk about force of habit not a big deal they have something much better and much more special for you at harrison is helping me out here he joins me now and we'd like to introduce to you our newest segment of it's a feature here on boom bust that we're calling in the margins it's a weekly rough segment based solely upon viewer feedback so this portion of the show is truly and totally dedicated to you the viewer who knows their stuff and refuses to conform to whatever trending economic group think is permeating the
airwaves at the moment not you you know better you are the ones always keeping us on our toes and with that said it's now your turn to sound off so every friday we're going to address two to four of the most thoughtful comments sent in by you the viewer live right here on air right now so let's do it let's get right to it now our first mention comes via you tube now this comment is in response to monday's show which featured economist and for father of the modern monetary theory warren most learned it comes from math here and he writes the dollar is much more than a tax credit and really feels like paper keynesian dollars or claims checks on goods and services that have yet to be redeemed it's much more complex and he mostly ignores human psychology his view and t. is devoid of real world thought pre-supposition dollars are valued to pay. taxes if the austrian economics is a cult thought process then empty is also
a very astute and a very well stated perspective about muslims position but i want to ask you that what do you think do you think that this is correct i was thinking that you know it goes to the philosophy of economics and the interesting bit is i would have you would have considered me to be more sort of an austrian school type of blogger when i first started blogging if you look back at some of the posts i wrote in two thousand and eight you know i would you would say that's a very austrian view that you have but i think over time that we were in a different regime which is basically about government money feel currency and so. my views changed somewhat more but i think that you know when you look at the dichotomy between war and mozilla in terms of m.m.t. and what he's saying in terms of government's money and its potential benefits and then on the other hand you know money that's backed by something gold or whatever it may be you have a philosophical difference right now further down here and you wrote something
really interesting he wrote quote i find it fascinating that austrian keynesian post keynesian and an empty followers all saw the crisis yet see a far different cause and effect to why and how to fix it now personally i totally totally love this comment because it baffles me as well and i mean when it comes to fixing these things and the discourse that's going on does anyone really know what they're talking about a result is kind of the same thing you were all just spaghetti against the wall scene what sticks now the thing is that you know this isn't. this isn't physics. smart economics there's a certain art to it and you know i think jim grant had an interesting piece in the wall street journal who was reviewing a book that was talking about the great depression irving fischer was a great leading economist in that time and he had some things to say that turned out to be wrong about you know we're at this permanently high plateau. grant's view of the whole thing was basically if they had done with two hundred twenty nine
hundred twenty one none of these bad things would happen instead what they did was they interfered with the market and bad things happen but it means you would you would look at that same situation and come up with a completely different explanation iran must come and i want to get to the next comment relates to an interview with reggie middleton on the subject big quote it comes from hey toure j.s. now peter j. ross writes the technology that spins off of crypto currency will be the next step of the next tech cycle which happens approximately every twenty four years and always support the country out of economic stagnation now and first will the cryptocurrency offshoots pull the country out of economic stagnation and is there really a twenty four secure us like our i need to have took ten seconds go. but i have a lot of big one big calling as a new way a new method to get and trust. love it will correct that's all we have for now but you can see all segments featured in today's show on you tube and you tube dot com slash mumbai started in on facebook we love hearing you from hearing from you to check us out there and also tweet out to us at aaron aid at edward in edward n.h.
one ton a low bay prison that turns a twelve in the military celebrates with an information blackout rights activists on fall a bad news for the admiral march on the white house. your vision as sees a cause in cash and competitors a small country say they're too poor to take part in the flashy new european song contest. also iran the schools and some points in the west as the e.u. praises the progress of nuclear talks and even the white house to censor one from sanctions minded sentences. and. child privacy in the u.k. as a new report finds more than a million british students have given their fingerprints just so they can get in at .