tv [untitled] December 15, 2011 6:30am-7:00am EST
it's all false now i hear a mosque a this is during a lengthy televised q. and a body with putin suggests placing webcams that every russian polling station to ensure the transparency of the presidential election in march. the u.s. is on the verge of legalizing be indefinite detention of terror suspects without charge or trial it's now up to the senate to approve the bill with the white house and the house of representatives already behind it. rushes as it will offer
financial help to the year is going to help deal with the debt crisis russia and the e.u. are now holding a summit in brussels which also focuses on visa free travel of moscow's recent accession to the world trade organization. those are the headlines up next month claims it takes on how some in the money world gets the topic they can teach it. i am max kaiser this is the kaiser report just when you thought it couldn't get any more bizarre stay sarah burke through. maxim you do your cake you're
eating my cake you fat. tell me more than it's really did because apparently you can have your cake you can eat it too and you can do your friends cake and your other friends gay again some job you don't escape while i'm in it i've got some cake care myself oh ya here you can be eating your cake i'm eating you here no i mean you're here to take over their every i'm also catered my take over and i brought yours so i'm sorry tell the parable tell the boob all i see i see that was really sweet that cake of yours and global on the great wall street re hypothecation scandal mats if anyone thought that you couldn't have your cake and eat it too in the world of finance and there's global shows how you can have your cake eat it eat someone else's cake and then let your clients pick up the bill i love it this this modern finance is really fantastic i can have cake that i
myself have really are propagated through the magic of derivatives trading and then repeat it again even though i just ate it because i just really loathe it to myself through the magic of re re re up obligation and i never have to pay anybody i just keep eating i'll define for everybody. what hypothecation is and what re hypothecation as hypothecation is one a borrower play just collateral to secure a debt i very similar to a mortgage the borrower retains ownership of the collateral but is hypothetically controlled by the creditor who has a right to seize possession of the borrower defaults. now we hypothecation occurs when a banker broker reduces collateral posted by clients to back the brokers own trades and borrowings the practice of re hypothecation runs into the trillions of dollars and it's perfectly legal it is justified by brokers on the basis that it is
a capital efficient way of financing their operations yes well people don't realize that when they sign a new account form or a margin account to be more precise it gives the firm that they're doing business with this ability to hypothecate and re hypothecate yes and that in fact was with the m.f. global clients they did sign a form that allowed and the global to re hypothecate their funds now the problem of roseland in the us it's bankers and brokerages are only allowed to reach high profit one hundred forty percent of their collateral held by their clients in the u.k. however there's no limit there's no stack limit to the amount that they can reach hypothecate so m.f. global through london what can it really hypothecated all these sovereign bonds over and over and over and over yes well when i first heard about this loophole in the u.k. securities law that pop occasioning could happen infinitely in this continuous
mobius strip house of mirrors a fraud my left eye ball pops as you can see i'm practically bleeding out of my eyeball i had such a unbelievable gobsmacked moment no wonder the u.k. is enjoyed this debt to equity our debt to g.d.p. ratio of a thousand percent they simply keep reselling the same slice of cake and then loaning it against a slice of cake and reloading against it in an infinite amount of time and everybody in the u.k. is of course grown by five o'clock in the afternoon because they're busy re hypothecated their securities to infinity they haven't had a work of their life for ten years well some are speculating that the reason why the fed. came in with all the swap lines was actually because of this re hypothecation by two thousand and seven re hypothecation had grown so large that it accounted for half of the activity of the shadow banking system prior to lehman brothers collapse the international monetary fund calculated that u.s.
banks were receiving four trillion dollars worth of funding by rehab half the cation much of which was sourced from the u.k. with assets being read hypothecated many times over known as cure and the original collateral being used may have been as little as only one trillion dollars a quarter of the financial footprint created three hypothecation well it's incredible stacey is that of course david cameron just got booted out of europe recently because he is incompetent any it but basically his reasoning and what he told the b.b.c. saying what the b.b.c. in turn told the people of britain is that david cameron was safeguarding their financial system what he meant to say or fail to say was that he was safeguarding the ability of the u.k. city of london to engage in this massive and finnick of a series of really hypothecation policies scams that have decimated the balance
sheet of the united kingdom and why that country is debt is that on suicide watch well max what the article says is because a lot a lot of this really hypothecation is off balance sheet and you don't know what the collateral is and you don't know how many times it's been pledged over and over they say what this creates this chains of counterparty risk where multiple re hypothecation borrowers use the same collateral over and over again essentially it is a chain of debt obligations that is only as strong as its weakest link now as you mentioned this is allowed because of the u.k. and the city of london but here in the u.s. where you have these presidential the republican. actual debate happening everybody is focused on this ten thousand dollars bet that mitt romney made rick perry but nobody's talking about the retired prosecution that the threat to the city of london is posing to the entire economy of the u.s. where all of this the rose from just
a big player this kernel of fraud this ring hypothecation scandal and the loophole that david cameron is safeguarding by abandoning his european partners is the kernel that is responsible for the ai g. meltdown the bernie made off scandal the collapse of lehman brothers and now the collapse of m.f. global this all went through the city of london and this cation kernel of mass of infinite fraud so by shutting that down would be the first step the globe needs to take if it wants to get the global economy back on surer footing you need to shut down the city of london before there's going to be any hope of any stability in the global markets so here's where it gets very very scary ok there's hyper hypothecation as well now with weak collateral rules and a level of leverage that would make archimedes tremble firms have been piling into re hypothecation activity with startling abandon a review of filings reveals
a staggering level of activity what may be the world's largest ever credit bubble and the biggest participant is hyper hypothecation max j.p. morgan almost more than half a trillion in reason i prosecution just this year alone right well we know that j.p. morgan off balance sheet has ninety kirlian in derivatives and they say that these derivatives are completely covered through counterparty coverage and through the magic of value at risk accounting what they don't tell you is that they've got trillions of on hedged re hypothecation risk on their balance sheet including massive new. as yourselves in the summer futures contract markets so j.p. morgan as we've been saying on the show really is worth less than zero and one day it will go the way of enron and wake up in the stock prices as a row in light of all of this hyper hypothecation happening by j.p.
morgan blair in the next headline max j.p. morgan chase's jamie diamond strikes back populist anger so to speak here in the united states he was speaking at a goldman sachs sponsored event and he said acting like everyone who's been successful is bad and everyone who is rich is bad i just don't get it so with that though he sounded an awful lot like somebody else from history capone out of poland in one nine hundred twenty seven said i'm going to st petersburg florida tomorrow let a word the citizens of chicago get their liquor the best they can i'm sick of the job it's a thankless one and full of grief i've been spending the best years of my life as a public benefactor oh absolutely jamie diamond has been the drug dealer and liquor provider for a number of years and now he's complaining he said the strung out drunk and socially. op rising that is resulting as the result of his
irresponsibility his flagrant disregard of the law and his transgressions on just about every securities law in ever been written is resulting in him now complaining that. you don't like my blues you don't like my drugs well access the thomson reuters piece pointed out that this really hypothecation which is dwarfs the global economy has been providing all the liquidity but they do know that the liquidity backed by no asset for the us goes back to two thousand and eight when the conversation was this in the liquidity problem or insolvency problem and hank paulson and wall street said well it's a liquidity problem we just need some. term cash to hold us over its own insolvency probably not technically insolvent we now know that they're all insolvent and that they're simply re hypothecate ing the same you know a bag of nuts that they hold in their office drawer to leverage you know multi-trillion dollar loan scams going back and forth and the people who are being
asked to suffer through austerity are being asked to suffer through austerity as a result of pay for all of this that's why there is a global insurrection against banker occupation because of this lack absence of justice we're going to see these same frauds over and over again until the population demands that that happen rather than focusing on whether or not mitt romney's betting ten thousand dollars against rick perry so finally max here all of these fraudsters still in charge of all these banks really high prosecuting and hyper high complicating number of the weak finances share of the economy continues to grow so the number of that week is eight point four percent and this is the financial sector share of gross domestic product in the u.s. it clips is the peak in two thousand and six one thousand nine hundred fifty by comparison the financial sector accounted for just two point eight percent of g.d.p. for a while as the financial cancer kills off pieces of the body it's therefore
a bigger percentage of the body and there's there's no way to fend it off nobody's stopping it i remember steve kean had said that the maximum number that it should be is four percent according to mathematical models according to the model that would encourage actual labor creating actually manufactured goods in a real economy you don't want a banking sector not to be more than four or five percent to be ten twenty or thirty percent in the u.k. if you were to factor in all the industries that are controlled either directly or indirectly by the city of london that's almost fifty percent of the entire g.d.p. of the u.k. is conducted by the hyper hypothecate in frogland colonel that is the city of london under the non reg. elation of the f.s.a. the s.f.o. and david you know numb nuts cameron my final word here is i'm going to eat baldwin's cake here and you'll see you'll see how funny it is to go bankrupt he doesn't realize how easy it is to go bankrupt here he's making fun of american airlines for being bankrupt i'll show you how it happens you see oh how it baldwin
yeah serious drunk. town of alban i'm eating your cake very good stacy herbert well that's an excellent thanks so much for being on the kaiser report thank you max don't go away much more coming your way so stay right there. twenty years ago largest country. to see. what how did. you get the job. where did it take to.
kaiser welcome back to the kaiser report time now to go to new york talk with regimentals of boom bust blog dot com where you can find their clues of and a valuable for runs an analysis reggie welcome back to the kaiser report thank you so all right reggie two months ago here on the kaiser report you were in the audience about german debt you were right where you expect german debt to trade going forward it's a two fold story right now german debt is a flight to quality trade apparently and. everybody who is concerned about. more profit. monetary union and the e.u. . are basically running to the german bonds i think from personal opinion and also from the outside looking in that they're feeling to take a realistic look at the situation germany is an export nation
a strong economy but primarily export economy to export to the same nations who everybody is running away from so germany may be the best of a lot but a lot that's in the same situation think of a roach motel. in a state in which motels everybody else they just have to pay and so if s. and p. downgrade german and french debt is the eurozone finished the downgrades in my opinion or at the consternation of the european political officials but much of that there should have been double and triple a rated anyway i noticed problems starting in two thousand and nine the problems were explicit in two thousand and ten and they were getting worse yet they were carrying strong investment grade ratings. you know the ratings agencies. are the firehose looking to put a far out of the house they always get their head of complaining about the downgrades what investors should be doing is complaining about whether downgrades
are coming in such a timely fashion after the fact all right now you talk about germany having the penthouse suite at the rushlight tell let's talk about america for a second now american banks have been writing credit default swaps on european sovereign debt will they be able to cover these insurance products if the european nations default it all depends if they can go a lot of having the before being to credit default. as you may know a lot of the stakeholders are trying to say that a default will not be a default because it will be quote unquote voluntary loss of your money which. it makes no sense who voluntary. loses their money so they can wiggle out of credit default invent the us base may survive i may survive and possibly force because they took those c.d.'s premiums and we had to pay out so i didn't pay for insurance never having to pay for a loss as for that coming from wishing it happening it seems like
a long shot you know at the very least you would have litigation for years one very interesting. point of this article that was written by a published by rudy reuters when they examined m.f. global and m.f. global fall in a nutshell m.f. global was using excessive leverage stemming from cation to happen occasionally securities basically they took client securities and used it as collateral against their own very risky bets against european debt. these bets were all multiples of the equity and of course as soon as things started going to get to them they were getting margin calls the whole policy collapsed and one point two billion dollars and counting money has been missing this level of leverage is totally out of balance sheet ok not visible available to investors and is not endemic to just. brothers did it goldman sachs is doing it j.p. morgan is doing it and they're doing it with more than two or three dollars of i'm
not mistaken the exposure to goldman sachs is about fifty one billion twenty seven fifty one billion j.p. morgan is doing it to the chairman of seven hundred billion over one hundred billion this level of leverage combined with the fact that you have c.d.'s that may have a claim i mean i have a crane combined with the fact that the underlying collateral behind the bets or the decreasing significantly greece is trading at an average of about twenty seven cents on a dollar and that means that you have a ponzi house of cards that if you collapse is a good take several systems down not just european banks but it's been a drag on the banks with it so i'm curious to see what happened but i think that there's going to be a major reset of the system from a financial and city perspective. the only problem is when you know you can time it but i don't feel we're out of it because we have lots of debt you have lots of risk very very little negative equity and we rode through income and revenue because the measures and the grabbing economies and this is across europe the u.s.
and asia with china being you know the number a prime example right now keeping on the m.f. global story i don't know if you saw this news or not but it turns out that there is a regulatory loophole in london in the city of london that allows for this cation scandal takes on a new dimension because in the united states the level of the cage to react. can run at one hundred forty percent. if you've got those government securities that you're lending again store margin against however in the u.k. that number is infinite there is no top there is no ceiling to the amount of real lending are really out propagating you can do it goes on infinitely and for this reason and have global they're a key component of their firm ran through london as did lehman brothers. as did bernie madoff why doesn't somebody wake up and turn this loophole shut it
down in london because clearly at the root of the entire global meltdown your thoughts i take a look at the from is that you mention in the. lobbying dollars where everybody has a constituency ok and i think all of the in the layperson assumes that there are or they or their representatives because that you would see that may be the case if you look at it the marketing material of certain elected or appointed representatives but in reality that's not the case you know you because the people who have power you know where there's a power by vote or by economic means so in other words one day. david cameron talks about safeguarding the city of london what he's talking about is safeguarding this incredible loophole of fraud that is really at the genesis of the global collapse is what he's safeguarding but now surely before lobel went bust regimental tin they
were granted primary dealer status can you tell us what that means exactly primary dealer what that gives them in terms of privileges is interesting and primary dealer. bank financial and city there has been blessed by the federal reserve in the us government to be able to broker or buy sell and. u.s. government debt on a first come basis they basically act as a go between between the government and buyers in order to do that i think there's only i can remember they may be between twelve and seventeen primary dealers i forget the exact number but in order to get this debt is you have to be vetted by the government. one of the reasons of course would be that you have to be credible you have to have the financial stability and strength to do that they were just doing primary deal status what between one to three months before they went bankrupt which begs the question exactly how thorough did the federal reserve m.f.
global or better question is what they've written for them for risk management or financial stability and even if you give the federal reserve a pass. overseen by the sea of c.m.e. so with this extreme vetting process of the most powerful regulatory front entrance fees in the world. and of course we're going to pass in collapse between want a few months later you know their track record is one hundred percent. inverse to what you consider a credible gosh i hope they hope the white house does a better job vetting their secret service agents or they've got some trouble the white house now let's. so your thoughts you know the there are reports of fraud you know reverse wire transfers all kinds of fraud. middleton are you telling people. about their own brokerage accounts that you know some pundits some firm managers some money managers are actually pulling out of
funds from brokers that they just don't see it as being a safe place anymore your thoughts is it safe to keep their phones in a broker anymore you have significant risk that a lot of people didn't anticipate before i just you know whole university which is i think one of the only private law universities in the jersey came up with a report read the basic review the review of lehman brothers collapse from two thousand and eight and their conclusions was that despite the fact that there was. rajan actions. back taking risk management measures to make those operations less risky many were despite the fact it was evident their business collapsing didn't break or violate mandates laws or regulations to justify a step on a risk you know. tells you how much risk you take him you put your money in the brokerage account what happens to m.f. global is essentially what happens to what can happen to any other bank my
grandmother is always tell me you know but there's never one roach if you see a roach the other roaches there you know you haven't come across it so. goldman is currently doing if you take a look at my web site you see where goldman sachs has reduced their derivative exposure and increased this over that exposure at the same time that the little bubble was you know had popped finish popping and these are going to bubble is expanding so they did exactly what they should have done at the exact wrong time and if you also look at the reuters report you see that they have significant leverage off balance sheet and almost untraceable hypothecation and we have other asian every pledging and this is off balance so if you look at this amount of leverage you look at the amount of risk taking you look at the timing which is basically awful. i just couldn't feel safe when he said the best way to do it is to split your money is around several accounts but you just don't have
a lot according to the whole report that creates a consequence for wrongdoing so exactly sound other words people say is my money safe in a brokerage account the brokerage ok i will say even though we've lost all those customer money we didn't break any laws i think that. if they don't think they think stealing money is a good idea then if you keep your money at that at a brokerage account then you deserve what you get now finally regimental didn't you . always been ahead of the rating agencies really identifying true state of risk and what the next big risk coming down the pike is you were very early and very right on the whole housing collapse so tell us give us a preview what the next big sector or stock or commodity that you see that you're telling your people to follow you is going to be the next big risk spot i think the next big risk is the last big risk that nobody paid attention to because
a risk with the banks is excessive you know the amount of leverage at the instituting with the minimum equity and the lack of any real discipline is outrageous and despite that you know people still bidding on stocks you know people still putting bids on the as they have a very gloomy future i think that the banking industry should be mark to market in general ok when you have strong banks that can trade but it's very difficult to say x. y. z. bank is strong when it is highly leveraged into banks that are three seconds from going up and being held up only by. from the european central bank or the fed it's cetera and the problem with the banking system grew global banking system it's so highly interconnected you know it's only is only as strong as its weakest link and if you think it's ready to pop momentarily all right reggie middleton right of time thanks for being on the kaiser report you're very welcome look forward to coming back. going to do it for this edition of the kaiser report with