Markets React as Fed Leaves Rates Unchanged

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>>> well, the break news at this hour a showdown. we are watching a major game of clicken play out in the financial markets, and really around the world. good afternoon to you. i am dylan ratigan. it is the private multi-trillion dollar bond investors versus the u.s. government and european central banks. each one betting whether any of these nations can pay off their tens of trillions in debt. the side effects of this game of chicken between the bond margaret and the central banks being felt everywhere, from the u.s. stock markets as they gyrate and swoon to the streets of london, where riots prevail at this hour. at stake, the value of european and american pensions, not to mention all assets and more importantly prospects for western prosperity. investment, job creation, problem-solvi problem-solving. after decades of government and bank manipulation of assets, the chickens are coming home to roost and they are being led in this bond war to that effect. the markets here in the states on the stock market side which really is but the tail of the dog in this battle, closing after the fed today announced it will extent record low interest rates for yet another 24 months. again, the markets, quieter by a lot re toiv has we saw yesterday, but the conversation if anything louder. joining us now, director for equity research iq and author of “bailout nation.” todd harrison, founder of media and author of “the other side of wall street.” a pleasure to see you both again. what is the bet we are seeing play out between the bond investors of the world in europe and here as the central banks and why are the rest of us stuck in the middle of this?

>> part of the bet is that uncle sam and various central banks are the cavalry and will come to the rescue of banks of investors, of speculators, not so much when it comes to mom and pop working and struggling to save, to put their kids through college.

>> why would that bet be a good bet? is it because of the pensions? is it because of the implied threat of the bond default, todd? is there something that — these bonds speculators have mom and pop don’t have to leverage the government and central banks into bailing them out uniquely?

>> speaks to the enormity of this and it’s been cumulative, building in the course of the last ten years. and it’s been skewed by spending margins, the haves versus the have nots. worst for main stream america but most of the media and financial markets are just now waking up to that has everybody sort of experiencing, like waking up to something you thought was a bad dream and finding out it’s not. it’s actually happening. we actually do owe this money, we actually don’t have a lie grade of employment growth or investment, and we do have politicians that do not appear to be having a conversation that goes to solving this. before we get to the politicians, are problems like this solvable? is there precedent in history for this, word war 2? give me a sense, when has this happened before organization a version of it.

>> understand what we’re stuck with. just a marriage to bad ideas. there are ideologists, theories. history shows — yet people stay married to them. and that includes things like, you could have free lunches for as far as the eye can see.

>> i get that. forget the problem. what’s the solution?

>> -following —

>> what’s been used in the past?

>> following the great depression we put in a number of prophylactic rules.

>> preventative rules.

>> okay.

>> separated the investment banks that run into spasms every few years from the main street savings banks.

>> got it.

>> when wall street has one of these regular convulsions it doesn’t spill over. think back to 1987. a huge crash that didn’t affect wall street. once we get rid of the protections —

>> i can use nor analogiesry prof lactics, i’m not going to. why this time it’s different, dangerous words. fdr did not another the derivatives. so many —

>> so many equations happening at the same time.

>> it’s moving so fast. the difficulty, the politician process takes type and the markets move dynamically and with speed. you’re seeing it today in an automated robot factor.

>> we get that.

>> in my opinion, we’ve seen a lot of drugs that mask the symptoms in terms of policy.

>> i get that as well. my question is, have we ever been in a situation like this before? and has anybody ever solved it? for me, i like at 1945. debt restructuring.

>> right.

>> forbearance for germany. the latin-american bond crisis and the brady bonds, restructuring of all that debt.

>> that’s right.

>> i look at the civil war. has we did with all the debt in this country after the civil war, and it’s impossible for these, at least for me, to see how you get around $70 trillion here and 2etens ever millions there that looks like the room after world war ii or the room aftery brady — how do you do this with a debt restructuring?

>> the needle pointed towards war. the manifestation of policy now is societal acrimony, check the box. social unrest, check the box and geopolitical conflict. and what has prevailed, we stop saying we’re democrats or republicans and start saying we’re americans this is just going to fester.

>> look, look at what took place after previous crises in some of the small european countries like finland or sweden. they went through that process. you know, the one thing we —

>> which process? restructuring debt?

>> completely restructuring bad debts from bad banks. we say to general motors, we’re bankrupt? we have a court called the bankruptcy court. as uncle sam is the only one —

>> we’re going to restructure your debt.

>> we’ll be the lender to temporarily but yput you through that.

>> that’s one company. you’re talking about one country.

>> one at a time. i get it. across the board, did it with the brady bonds, with the marsh marshall plan. granted a huge incentive after six years are war. let’s work this out. high question for you guys is, were there to be the finance minister, the presidents, the leaders of the west and the east in a room and they said, listen, we owe a ton of money. no one’s going to pay it back. screwing around with things for decades and we have to make — have to square the system, in order to move forward. is that a real — is that conversation possible, todd?

>> the most rational outcome, but the most realistic? look at the fed meeting today. three descenter on the federal reserve board of the board members that are actually there.

>> absolutely.

>> we saw with the debt ceiling. we exported the financial crisis. rest of the world is looking at the dollar down 40% in the last ten years and saying why us? why are we taking os taurty measures, we take the bitter pill and you can’t agree on policy? no wonder the rest of the world is looking at us in that way and it’s up to us to turn around and show what we’re made of.

>> to add to that, we will eventually get to the point cooler heads prevail, everyone gets in a room and works something out. i fear that’s going to take place at much, much worse economic levels. just look at what’s going on in greece and what’s going on in london with the crowds rioting, buildings burning, cars overturned. here we don’t get that unless a team loses a hockey game. the american public hasn’t reached the point where they’re ready to riot in the streets and nothing’s going to change until that happens.

>> can i show you the optimistic side? i’ve been cautious for some time now. we talked in 2008 about how the crisis was manifesting from the financial to the economic to the social sphere knop now argue infected the political sphere as well. i’ve been bearing for some time because i felt we had to go through it to get through it. one could argue the fact we’re going through it now and i think that this is going to come in a second wave. the financial crisis was the first wave. i think the sovereign sequel will be the next wave. coming through that, if we can hold it together i think we can there’s going to be generational opportunities but we’re talking two to three years out from now if we’re lucky.

>> the rubber, where the rubber meets the road in this instance is in the white house.

>> uh-huh.

>> at the head of the treasury department. at the head of the american central bank. and among the ceo suites of the currently aaa rated financial institutions and i guess the question i would posit to the two of you is of the board rooms at the big banks, treasury department, federal reserve and the white house, does anybody have any understanding, because my experience has been there’s absolute total ignorance to even a willingness to have this conversation, to, can either of you report a conversation that goes to the threat of war, the reality of the risk of this level of perpetuated unfairness and distortion in any society going back to rome, and until you square the system either through debt restructuring or some more violent means, it will fester. in other words, you have to go through it, as you were just saying? does the president get this?

>> i don’t know if he gets this. my instinct says he doesn’t, but — and the evidence of that is the people he put in charge of the treasury, of the rest of the system. you know, when there’s an accident or an error in a hospital, and they send in the team of surgeons to fix it, they don’t send the guy who screwed it up in the first place. they bring in someone’s who’s objective and can say, oh, this cut shouldn’t have been made and they fix it. the team we have is tim geithner who is he have had the new york fed. certainly a player in sending everything going where it was. larry somers under bill clinton.

>> unleashed the beast.

>> commodity accusation act, released derivatives he signed off on. might have been a republican proposal but a democratic president and treasury secretary said, yeah, this doesn’t look too bad and the same with the repeal of the last eagle. putting wall street and main street banks together a government proposal, democratic president and treasury secretary saying, this is okay. so forget whether or not they get it, the guy whose caused this are returning the show. how are they ever going to fix it?

>> to be fair i agree, somebody trading derivatives 20 year, the complexity of this, look back to the financial crisis. the people, cooking the brew, the ones that ultimately got poisoned the most. the lens of culpability go to consumers overend tending —

>> my question is, does the president get this conversation?

>> i think — well eeshgs think he’s a smart guy. i think he has to get it. ultimately he’s going to get it but i think the economic condition right now is moving so quickly that it’s tough to put your finger on it. i know i stare at the markets all day. it’s moving that fast. they have to get in front of it. i don’t think —

>> how do you get in front? how does one — if you have a root problem, you have lied and misrepresented the overall structure. there’s misaligned interest in the banking system, in the trade agreements, in the tax code, that have been extracting money from a country for decades. and then that has now covered up through money printing and all the rest of the nonsense. how does the need to acknowledge the existence of the base problem, which is the extraction.

>> uh-huh.

>> have anything to do with your ability to keep up with the markets today?

>> because —

>> why, in other words, why am i less able to understand that my nation is being extracted systematically by multimillion — millions of multivariable mathematical equations happening constantly every day to my country, why do i have to stay on the edge of my bloomberg terminal monitor edge to understand at the root of my problems and until i deal with the root of my problems is that basic extraction?

>> okay. in order to understand where we are we have to appreciate how we got here. it you’re asking why i have to —

>> i’m saying, i got to wrap it up. i would be loathe to excuse the president, his trite say i don’t know what’s going on because the stock market’s crazy, when the price of the stock market is immaterial to understanding that america is suffering from a vampireic extraction of wealth driven by the tax code, banking policy and trade and whoever the president is has to acknowledge that and reconcile that before we can move forward quickly.

>> this all comes back to we used to be a democracy, we’re out in a corporateocracy, and the corporations —

>> invested facilitated by the politicians.

>> the court is giving them permission to do. so a radical change–

>> right. and it’s a shame we’re left to discuss it at 4:00 in the afternoon on msnbc, these type of conversations should be had in place where is there is a lot more influence over what happens next. i appreciate both of you joining me. joining me for a this conversation. so that all of us can better benefit from an understanding. thank you, todd and barry.