tv [untitled] August 14, 2012 4:30pm-5:00pm EDT
or turn it into a solid go. request the gold and silver investors guy. call today eight hundred two five seven gold. good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines on this tuesday august fourteenth two thousand and twelve let's go back in time remember the threats reported about what would happen if wall street wasn't bailed out. the market would drop two or three thousand points the first day another couple thousand the second day and a few members were even told that there would be martial law in america if we voted no. that was years ago but it's hard to forget is the legacy is still with us too big to fail banks standing to take down the economy while taxpayers are expected to shoulder the losses banks rack up a higher than expected tab as with the auto bailouts holdouts car companies really
well getting a slap on the hand for messing up i could go on but we'll talk about all of this with former tarp cop neil barofsky who is out with a new book bailout and while we're on it bloomberg reports russell wason board senior the c.e.o. of the bankrupt firm peregrine financial group was indicted on thirty one counts of making false statements to regulators will ask neil barofsky if sans suicide no confession there are legitimate criminal cases that could be built around executives at major firms too big to fail firms surrounding the financial crisis and its aftermath and i should mention for our futures and commodity trading viewers barofsky prosecuted the c.e.o. and president of russia that's a real hooker there and finally since we're talking being locked up we'll tell you about the apple of the u.s. prison systems turns out they found a captive audience let's get to today's capital account.
all right it's been a few years but i'll tell you on any given day we can see the legacy of the financial crisis and its response from the government in the news it is the legacy taxpayers are still footing the bill for won't street seems to be paying less for its crimes and that is to put it lightly today for example the s.e.c. charged wells fargo's brokerage firm as well as a former v.p. for selling investments tied to mortgage backed securities without fully understanding their complexity or disclosing the risk to investors that's according to a statement from regulators and was fargo agreed to settle the charges now we're glad there was something done ok better than nothing but a fine of six point five million dollars no admission of guilt or denial for that
matter and has six months as spent of the v.p. from securities from that industry sounds like i can slap and a broken record too meanwhile yesterday we found out from the u.s. treasury department the auto industry bailout will cost taxpayers three point four billion dollars more than previously thought treasury now believes this bailout will cost uncle sam just over twenty five billion bucks that's according to reuters and this is not including the costs associated with the they build and false promises tied down hundreds of billions of dollars of taxpayer bailouts doled out through tarp to financial institutions under false pretenses of what that cash could do and what it was supposed to do that's according to the man who was policing it touted of course the programs i'm talking about to the taxpayer with platitudes like this what's really innovative about this is partnering with private investors partnering with the f.d.i.c in the federal reserve to get all the
resources we can to get those things off banks' balance sheets. i was referring to a particular program that i'm very excited to ask our guest about the man i was talking about critical of tarp the way it was dealt with at least is neil barofsky the former special inspector general for tarp and he's author of a fantastic new book he doesn't mince his words i have to say it's bailout an inside account of how washington abandoned main street while rescuing wall street and neil barofsky first as i said right before we started boy am i excited to have you to talk about this book i was telling you it is very refreshing to see fraud uttered more in one page of this book than i've heard on the hill or by wall street exacts for a very long time it seems to be the afterword in washington at least and probably in new york. well yes it's probably right it is one of the frustrations of the recent financial crisis has been the lack of accountability for a lot of the acts and not just the criminal acts but also of civil liability and
the lack of accountability on behalf of the regulators who. fall short of their jobs and i would agree with all of that so i really want to dive right into a part of your book that we found really fascinating and that's why i chose the sound bite i played in my intro because it was a tarp program called p.p.i. p public private investment program sounds an ascent but as you say it was designed by wall street for wall street and what i found so i guess creative about this was that for a financial crisis built on leverage that the so-called solution which was tarp that wall street and our policymakers found a way to use leverage with the programs that were supposed to solve the problem of too much leverage so i guess it's no shocker you say it was designed by wall street because you explain that assessment and why that happened and what impact it had. well this was a program that was announced by secretary tim geithner secretary treasury in february of zero nine and you know the time i was of course responsible fighting
oversight of the bailout and we sort of knew something was coming we heard a little some of the details but as we kept pressing within treasury to get some actual mechanics and details they kept putting us off putting us off putting us off and so those details emerged and it turned out it was originally intended to be a trillion dollar program that had that was so riddled with with opportunities in advantages for the giant investment funds the wall street funds that were going to run the program that it was that it was primarily based are lending tremendous amounts of taxpayer money leverage to multiple different government bailout programs that could have left it to be less than one or two percent of actual investor money the rest of it all provided by the taxpayer with very limited upside but all of the downside and there were so many conflicts of interest and opportunities for fraud built into this program that ultimately we had to object to that in its entirety the one good news i could i do get to report the book as far as we're able to really blunt the impact of this although treasury would not listen
to our complaints congress did and eventually even the federal reserve who is part and parcel of this program refused to go along with some of the more insane things the treasury was pushing and were able to stop that money from going out and i want to get into a lot of the themes that you just mentioned there that go through your book about the fat in the treasury and some of their tactics and underhanded tactics but first one of the things that really struck me with your description of this program and what treasury with pushing for various agencies was that this program was for select firms for chosen firms that would that would work with a partnership with the government and there was potential for the chosen fund managers for example to use this program to move markets they could then booth profits for these managers existing books and i'm pretty sure i mean i'm guessing that if you're a retail investor you could a line out to get in on the action with a program like this i'm curious what you think this embodies as far as crony capitalism here in the u.s. in your view. i mean this was really an example of it at its worst you know at the
time we were still dealing with the program we couldn't really understand why treasury was sticking to to a program that gave such opportunities because it literally gave this very small handful of handpicked investment managers a trillion dollars worth of buying power to move markets in in bonds that had been frozen to the market and frozen so the prices were very susceptible to big swings and the whole point of this program was to drive up prices to a certain extent so that these managers could have insane profits in other parts of their business potentially at the expense of the taxpayer if they were to artificially boost up these prices either directly or colluding with one another and it got so bad that i was complaining and working with the federal reserve that a lawyer of the federal reserve bank of new york i would i would commiserate every time i had one of these incredibly frustrating conversations with treasury and he said to me it's as if their mouths are moving
a treasury but it's actually larry fink one of the c.e.o.'s of one of the big over the big that's the house is it's like his words are coming out of their mouth i mean this is someone at the new york fed who's who is offended by by just how how onesided this was and eventually doing an investigation to find out how this program was designed and how these fund managers were there and it turns out that the very managers that were going to get this huge advantage had essentially designed the program for treasury and were vetoing my suggestions to try to protect the taxpayer from fraud wow i wanted i wanted to get in his later but but what do you think is responsible for that you said essentially you felt like these guys at treasury were a mouthpiece for wall street and even some of them that was complaining about that that's it that's a theme in your book that treasury was always trying to undermine you in trying to protect the interests of wall street in your view for example with executive compensation for wall street executives and assorted other things with the fed for example coming around more and kind of being more amenable to what you were
suggesting why do you think that was why do you feel like treasury was so imbedded in the way to put it that way with wall street but you but the fact even wasn't to that extent. yeah i should say to that extent i mean the fed as of yet really captured its institution as well to the interests of wall street it's just the treasury gone off the deep end on this particular program that it defended even the feds and they helped put a stop to it look there's a number of reasons but what i saw over and over again and i have to say coming from new york is a federal prosecutor i was shocked to see the level of control ideological control that the wall street institutions had over treasury and the officials in the in the bush administration then again in the obama administration and i view i think part of it is a result of the revolving door so many people are we're dealing with came from the same banks that of course helped drive us into the financial crisis you know banks like goldman sachs merrill lynch bear stearns and they brought that wall street ideology with them and even those who didn't he didn't come from those banks had so
surrounded themselves with these individuals that they started to adopt this this way of thinking and i heard it over and over again whenever i would push for important protection i would hear that we didn't need to worry about it that i was sort of out of my mind because we could just trust the banks not to risk their reputations by gauging in interest that conduct i mean it was as if they had ignored all the lead up to the financial crisis but that mindset is very much there and it's still alive and well today and it's one of the problems of our regulatory structure is that as a result you have these interests that are looking out not for the people they're supposed to be serving the taxpayer but against serving the interests of these large banks and speaking of not changing their thinking and ignoring the financial crisis that just happened you paint a really interesting scene that stuck out to me to where you're talking to william dudley at the new york fed and you're asking him how he's going to protect against fraud in the talf program another tarp program and he says well we're going to trust the ratings agencies to rate the aaa rated bond and we're going to trust that
and we're going to trust our economic models and we're going to trust investors to do diligence so in essence all of the things that led to the financial crisis and i don't know if he wasn't saying that or he didn't want to see that i don't know new york that came around with a lot of your recommendations on that for example in terms of enforcing compliance but i'm curious do you think that that's still the attitude with regulators at the top that they can't see what's going wrong and correct or they don't want to. i mean absolutely they saw all the problems that led to the financial crisis and they started designing programs that not only replicated all of the broken factors but added as an accelerant you know huge amounts of government guarantees and when i pressed dudley his response was that he didn't think the rating agencies would embarrass themselves again with those were the words the exact words that he used and this continues to be a major problem this sort of presumption of goodness of soft touch regulation that they can trust the banks not to operate by their obvious incentives to seek profit
at all costs but out of some sort of public it's minded interest and this was characteristic of so many of the tarp programs and it's a real problem because these answers. have such an advantage because of their incredible size and have the ability to really flout the rules that are supposed to rein them in yeah and there's so much more i want to talk to you but we're going to go to break quickly we'll come back in one minute we'll have more with neil barofsky author of bailout and former special and jack inspector general kind of a tongue twister for tarp still i had the treasury. says it was quite a barrier to him doing his job was an advantage to the guy here but timothy geithner is response to some of barofsky claims the first your closing market numbers.
what drives the world the fear mongering used by politicians who makes decisions to break through it's already been made who can you trust no one who is in view with the global machinery see where are we heading state controlled capitalism is called sasha's when nobody dares to ask we do our t.v. question more.
bentley farkas he is the former chairman of t.v. w a private mortgage lender regulators a charging him with fraud and about a one point nine billion dollars scheme that eventually led to the downfall of colonial bank corp. but he describes in his book how even though he had builder agents had built an airtight case d.o.j. was pushing back they didn't want to pursue it and they continued to as the prosecutors continued to push back hard their timidity was frustrating i think that they just didn't have the confidence that comes from prosecuting a series of complex high profile cases and mr brodsky who had been a prosecutor in the southern district of new york a very well known district obviously said his prosecutor friends from that district called the office were shocked that the d.o.j. was not wanting to pursue this and so i have some questions about what this means for our expectations of the d.o.j. let's bring back in neil barofsky and mr brodsky is this wimpy d.o.j. that you paint in your book the d.o.j.
that we've been relying on to investigate prosecute and charge higher profile wall street executives at too big to fail firms for crimes in connection with the financial crisis. guide not just in that case but in a number of cases i saw a real lack of sophistication in a lot of the prosecutor's offices around the country when it came to complex accounting fraud cases and you know those cases are different from other types of white collar cases they require a level of expertise and experience and you know part of what i saw as a prosecutor was there is a huge shift in white collar law enforcement resources particularly the f.b.i. after nine eleven away from some complex accounting fraud over to counter terrorism investigations and i think that has created something of an experience gap which i saw all unfortunately time and time again and i think it does impact why we've seen fewer cases will you just touch on something that there aren't something in your book where you said that you got so sick of hearing in washington the argument about reputational risk the banks will do the right thing because of their reputation arrest similarly what i've been sick of hearing and we have is this
excuse for not prosecuting high level officials on wall street when there is ample evidence that there could be cases i'm not a lawyer of course but but from a lot of people i've talked to and one thing that we always hear is these cases are too tough and you're talking about this that this is a good experience it requires but you did this you did this with refco you put away the president and the c.e.o. that's a firm that i'm sure a lot of our viewers probably did business with and know very well or knew him back then i should say because it's defunct who neil barofsky you were a prosecutor who could you build a criminal case for in terms of crimes at major firms too big to fail firms we've heard a litany of examples where there could be the goldman sachs abacus deal timberwolf lehman where they were evidently using what was it five to book billions of dollars in phony sales according to an independent examiner that found actionable claims against them we have the library scandal we have john corazon which of is of course m.f. global but i mean he he was a goldman sachs c.e.o. and kind of. fallout i guess you could say in the years after the financial crisis
who could you build a case against. you know i think the investigation is the most recent and unfortunately i think given how much time has elapsed since the since the actions of the financial crisis perhaps best opportunity to start putting people in handcuffs i mean this is been so this is the facts that we already know are some of the most you know blatant attempts to manipulate one of the world's most important interest rates in the world and the conduct seems pretty clear and it seems like it does lead its way up the ladder so i certainly hope to see some movement in those cases but it's also hard to get too excited too optimistic given the formants we've seen today do you think as a prosecutor that there could be criminal charges related to libel manipulation that you could build for c.e.o.'s of firms that were found to have traders manipulating it. you know that's a real question of how they approach these cases you know the conduct so far we haven't seen that type of direct evidence that would give you the confidence to
bring a charge that you could prove beyond a reasonable doubt but there certainly are suggestions that might be there and of course what they need to do though is you need to start charging people you need to start putting people in cops and pressuring them to flip up to their bosses that's how you get the big fish at these companies you have to start somewhere that hopefully will see that soon start with the mid-level executives and work your way up the ladder and find out if this is something that was being known about and approved at the highest of levels and that really goes to so many of these cases whether it's robo signing we saw in the aftermath of the crisis as well you've got to start somewhere and we haven't seen that action yet even though years and years have gone by why do you think we don't see wiretapping in a kind of methods that i always hear guys using from from your old stomping grounds at the office. i think we're having to be difficult right now because you have to be ongoing cases and with these are historical transactions and it does appear although i think the library is actually you actually raise
a really good point because apparently the new york fed was on full notice by april two thousand and eight that this was going on barclays that if it centrally confessed they were doing so and did nothing with that information didn't alert department of justice and we know that can that that behavior continued on for another year yes that actually would have been a really great opportunity but of course the new york fed just sat on the information it didn't share it which is part of the problems with the problems i talk about in the book is just how capture these regulatory solutions have become to the interest of washer where they're too busy enabling fraud that rather than referring and getting it prosecuted and what do you think is the antidote to that because regulatory capture comes up a lot of your book as you said you have a tale from neel kashkari where he's saying hey there are afraid of you neil barofsky because they're used to going in having beers with their regulators and you don't play that game what is the antidote to that and the revolving door which you talk a lot about. it's two things we need to do one we've got to get rid of the corrupting influence that comes from these banks these mega banks that are too big to fail by breaking them up and then second we have to we imagine our regulatory system right
now that the incentives for so many regulators are not to do their jobs to protect the american people but to go along and get along i talked about in the book out one very senior treasury official took me aside in two thousand and ten and told me point blank that because my tone my harsh tone of my criticisms of wall street and of washington that i was doing a real disservice and harm to my family and my ability to earn a living in the future but that if i changed my tone and became more positive and upbeat well then great things could happen to me a job of wall street or maybe even a judgeship from the obama administration and that captures the problems that face so many of our regulators the economic incentives the individual incentives because it's all about individual incentives more often not to push back and not to be aggressive but instead to get in line and hope for the future payoff yeah and you know one of the things that you talk about and you you lay out a lot of good points timothy geitner you are not a fan of to say the least at least not judging by your book but here he is
responding to your criticism that he was too friendly to the banks is it gets to this issue of the revolving door he says that doesn't apply to him take a listen to you until you find the but i find it deeply offensive it's the no it's the result of urbanists. significantly a lot of people thought and wrote in publications of record that i spent my life in goldman sachs. he says that's not true i was in public service there's no revolving door here nothing to see how do you respond to that argument cause it's actually one that jackie collins made in her new york times piece which some said was essentially a hip piece of you but how do you react to that and i don't want to sound like a timothy geithner apologist i just want to ask. no no absolutely and having read the book you know that this is all part of the playbook i mean every one of the things that you said some ways i should have subtitle my book a user's guide on how to know how washington is deceiving you because this is right out of what they've always done the first to start with the fake outrage at sort of a running gag in the book the treasury officials or always deeply are personally
offended whenever somebody suggests that they did something untoward that it's arresting a straw man here it's this he's really suggesting that i said that he worked at goldman sachs which is something i never did in fact i actually remember correcting a congressman once who suggested that i look at a regulatory capture doesn't it just doesn't come from having worked in wall street you look at the people that tim geithner surrounded himself at the new york fed and when he got to the treasury department all of them have that ideology in those interests and when you scream into that echo chamber that's what you hear back and i think for geithner what was what really came alive to me is when i had a confrontation with him in zero nine and much like the bankers themselves and all the bankers who work the treasury he wouldn't listen to any discussion they were talking about having the banks report on how they were using tarp funds you know all we could do is repeat the talking points that that i heard so many times in the financial institutions themselves about how it would be possible and it's this sense that if you haven't worked at a bank you really aren't worthwhile of having an opinion that you're stupid as i
was told that your political you have alter your motives so i think that's all part of it yeah and speaking of politics i do want to ask is one of the acts the expectations you had in your story in your book was that things would get better once the bush administration left that they had to be better under the obama administration but then the administration comes then and you found that was not the case looking to two thousand and twelve now that we know paul ryan has been chosen for mitt romney's running mate do you think there would be any material difference in the way wall street is treated and the financial system is handled in an obama administration next time around or a romney administration and i should warn our viewers of the spoiler alert you are a democrat from what i understand. yes you know i've been a lifelong democrat i contributed to about his campaign in two thousand and eight and look on this core issue of the naval and of the too big to fail institutions there's almost no gap between the two nobody's coming out and advocating for what
we need to do which is to break up the bags and break their stranglehold on our economy and on our government now look i mean it seems like the romney ryan team wants to go back to two thousand and eight and even the modest reforms that we had in dodd frank in two thousand and ten and get rid of them and not replace them with anything which would be even worse than what we have but the difference between even worse and what we have isn't all that material from the idea of are we on the path towards another financial crisis and have we address the real problems that led to the crisis in two thousand and eight and the answer there is no so i would say between the two of them there's unfortunately not a lot of light between their positions when it comes down to that very very core issue of what are we going to do about too big to fail banks oh i had a i had a feel you were going to say that i was hoping it could be different but anyway really quick before we go i just have a minute i just have to ask ben lothian is the regulator we keep hearing about now he's a buddy of yours from the office you said so in your book i know that you said that you think better of regulators are going after him for doing his job and making them look stupid but do you think we could see more of this coming out of the new
york prosecutor's office going after banks and executives at big banks or high profile crimes despite whatever the federal regulators are doing what do you think prediction. but look i think i think at last you put out a marker and you know again they have a limited ability as new york state banking authority they don't have criminal jurisdiction but i think he's got to get tough and do what he can what he can and his very limited perch outside of that unfortunately i haven't seen much movement and that is a depressing reality but one that is so important to keep talking about with people who understand it and know like you so thank you so much neil barofsky it is a pleasure i could have asked you a million more questions instead i'll just i don't i read your book thanks to you thought there and special former and special inspector general for tarp. and that's it for our show today thank you so much for watching though and make sure to come back tomorrow and in the meantime you know you can follow me on twitter and give us feedback on the show and you missed that you tube dot com slash capital account you
can see as an h d on hulu you can come back tomorrow or we'll have richard duncan who has never been on the show and you will not want to miss in the meantime have a great night. wealthy british style. time to. market why not. find out what's really happening to the global economy with mike stronger on no holds barred look at the global financial headlines tune in to kaiser report on our.