Changing how we think about greed
>>> we've been talking a lot about the new book greedy bastards. and maybe we've given you the impression that greed is a bad thing. or that -- but there are ways to structure the natural human tendency to acquire things into a greed that could actually be good for america where you can only make money by actually solving a problem. it's about bringing out the long term greed in every american and explicitly those who invest money. they should only be able to make more of it if they're aligned in their interests of those they're investing with. how do you do that? we have eliot spitzer breaking it down.
>> congratulations on the book. it is spectacular. buy it.
>> that's validation. you were attorney general in the state.
>> here's what we said off the record. before ag, i prosecuted tommy gambino. the similarities and parallels between the way organized crime would squeeze money out of the sector and to a certain extent what wall street has become, there's more there than just sort of a metaphor for the moment on tv. each has figured out how do you use leverage, how do you organize if a way to eliminate competition. because the mob was at its most powerful when it become a monopolist. conflicts of interest, they squeeze all the money out. even though it doesn't as you just said doesn't serve their krint or the public at large. parallels there that really should be developed.
>> obviously as long as you and i keep showing up to work, we can extend that conversation.
>> that's right.
>> i want to read just two paragraphs from the conclusion of the banking chapter of greedy bastards which is basically my assertion of how you align those interests and get both your assessment and whether this is actually happening. the financial markets need regulation the way a nuclear power plant need as cooling agent for its radioactive fuel records. if safety rules ren forced, the result are be clean abundant energy. but if the cooling process is neglected, there could an meltdown. similarly, capital requirements having money required from the bank are the cooling agent of risk taking in the economy. and just as nuclear fuel will always be reactive, people will always have a tendency to be greedy. we need to enforce rules to balance natural greed so that greed can create risk taking and competition, not short term extraction. fair assessment?
>> it takes brilliant metaphor. i've always said a football game without referees become mayhem and a mob. people appreciate a nuclear power plant without coolant. so i think your metaphor is exactly right. you and i and this is a point that i think bears repetition, we are capitalists. we believe in capitalism, competition, and people trying to get rich. that's good. it's a question as you say of having the coolant, the referees, the rules to make sure it is done the right way.
>> and the right way very simply is if you want to buy something, should you have money to purchase it. you if you want to lend will money should actually have money that you can lend. fair?
>> i always say the three letters you have to understand to understand wall street is opm. other people's hone. as long as it's merely a mechanism to play with other people's money or where they're doing -- the whole issue of extending mortgages without skin in the game so that you take enormous risk because somebody else is bearing the burden and you only get the up side, then you get an imbalance and crisis. nuclear healmeltdown.
>> have we done anything since 2008 to restore the water in the reactor to -- because the other side of the nuclear meltdown metaphor is a properly cooled reactor where you have everybody working together, investors, entrepreneurs, student, educational universities, advising, teaching people like me and down the line that you're in a situation where everybody is aligned and you're going in that direction and you get that with capital requirements . are we doing that?
>> we're beginning to take very tiny steps in the right direction. that's why your book is so good because it really sprains tdescribes the framework. basel iii, yeah, it's better.
>> basel iii is the standard that international banks use for capital.
>> interestingly, most of the good stuff has come from overseas. the europeans -- the last thing you want to be is a european these days. but putting that aside, the european banking structure is going through a fundamental restructuring. england, they're actually proposing to go back to a pre- glass steagall era where you you take out the investment banking and commercial banking which would be an important real manifestation of the volcker rule done right.
>> so putting the water back in the reactor so they can create clean abundant energy. another part of that is we've created fuel rods, if you will, that are the swaps market that are very toxic fuel rods. specifically everything else in the world, stocks, bonds, commodity, oils, is traded on an exchange and yet we have a $708 trillion swaps market which is the credit insurance market that is the only market in the world that is not traded on an exchange.
>> people make a ton of money will.
>> politicians keep a secret $700 trillion -- the president has authorized will ththis.
>> this is the cesspool that has driven so much of what is corrupt out there. and you have asked the most critical question which is what purpose does it serve. most of the other markets you talked about are there to create capital raising function. so much of the swap market, the credit markets , now are revolving around these arcane products that don't do anything other than permit people to bet in a casino without having any real social utility . and so you ask the yes why are we even supporting it. and what wouldn't we do better just to eliminate it.
>> i asked dick, he used to run the new york stock exchange . he knows about securities, how to create marketplaces for securities. and i said, dick, how do we deal with the swaps. this is crazy. i still am stuck on the fact that you really believe the only reason the swap market exists is that they're paying off the government. but you're right.
>> let me add a footnote. some part is hugely important, but not the size you're talking about. a lot of it is just gambling on other people's houses.
>> and your friend and mine in richard grasso makes the point that we can distinguish between mission critical swaps that are facilitating energy, food, other mission critical things, and things that are not. and he says i believe regulators should require the product being swaps to be registered with a central clearing agency like an exchange or perhaps central bank . and thus able to be monitored globally to prevent contracts being written in excess of the debt obligations they're designed to insure. he goes on to say this is easily accomplished by regulators and treasury issuing a rule adopt pid nonu.s. counter parties. this is the most interesting part. he says any contracts there in that second category, nonmission critical, nonreal basically, any contracts written outside of these requirements would be deemed null and void by regulators as simply online gaming . is that online gaming ?
>> it seems to me it is. and this issue has been addressed by state regulators who in the past before it suddenly exploded, they said what are these products and do they -- should they be prohibited. it's not a crazy thought. i think dick is on to something. he and i have had our battles in the past, but i think here he is exactly right. what he's really saying is if these products don't serve a purpose, get rid of them.
>> what do you think of the chances would he get eliot spitzer and dick grasso together?
>> 100%.
>> hanelliott, thanks so much. for more ways how we can encourage the right kind of greed, head to greedy bass bastards.com. and if you haven't gotten a copy yet, be sure to pick one up
