When you visit MaxKeiser.com you know you’re in for a treat with one look at his banner, “Finance. Markets. Scandal.”! There are many, many scandals in our world of economics and finance. A former Wall Street trader himself, Max has turned to TV, radio and the Internet as he provides analysis and insight. He has two weekly shows, “The Keiser Report” and “On The Edge With Max Keiser”. He knows how the markets work and has graciously agreed to share with us his views.. I spoke with him as he enjoyed a pleasant afternoon at a Paris cafe.
Andy Zarowny (AZ): Hi Max, this is Andy Zarowny from RightPundits. How are you today?
Max Keiser (MK): Good Man, what’s happening?
AZ: Actually, I was just reading a fun report from the Bank of International Settlements. Hah-hah-hah!
MK: Oh yeah, (chuckle) The Godfather. You reading how to collateralize debt obligations?
AZ: No, this is a good one. Working Report 300. The short of it is that by 2040, the U.S. sovereign debt levels will be 400% of GDP.
MK: Ah, that’s nothing, man! Ben Bernanke says he’s going to move to a new, reserve-less banking model. He doesn’t think that the Fed, the central banks, should have any reserves at all! So you can have a 4000% debt to GDP, because the money will all be virtual. It’s virtual economics.
AZ: Well, we all like virtual economics, don’t we?
MK: Yes, it’s without virtue! (chuckle) That is the irony of it. By the way, I just received some video of a major Hollywood player who admits to manipulating the markets on HSX/Cantor’s virtual market which I’ll be airing on my TV show next week.
AZ: Great! Let’s start off with that. The MPAA is now starting to fight against the two or three virtual box office markets. For those unfamiliar with virtual markets, could you give a brief explanation?
MK: Well, you’ve got two organizations here to take a look at. One is the CFTC, the Commodities Futures Trading Commission and you have the MPAA, the Motion Picture Association of America and then you have Cantor-Fitzgerald. The MPAA is concerned. They’ve woken up to the fact that this market, this box-office futures market, which Cantor has launched using my intellectual property, my ideas and my technology, is going to be an insider-trader’s paradise. And it’s going to threaten the Hollywood movie making industry in a way that, say, Enron threatened the energy trading industry. Or the way Goldman Sachs and JP Morgan threatens the investment banking industry by manipulating markets and trading on inside information.
Up until now, Hollywood has been a closed-shop. It’s an oligarchy. The last bastion of non-competitive industry in America. It’s all controlled by the major studios and it’s all controlled very, very tightly. And now these are the barbarians who are going to crash through the gates and bust it wide open with this futures trading. And they’re going to torch it! They’re going to commit financial arson just as they have to Wall Street, the housing market, the Dot-Com bubble, Long Term Capital Management, Greece, Latvia. Where ever they go, they torch the market and profit off of it. So the MPAA has woken up and are very concerned and are now trying to push back and not have these things launched.
AZ: OK! Now, in your opinion, what is the most important story about the financial crisis that the Media is NOT telling us right now?
MK: I think it’s this story, because it will fundamentally change the entertainment industry and fundamentally change the economics in America. Because if this goes through, you’re going to have a combination of insatiable celebrity culture meets the fraud of Wall Street. The result will be a monster! I think of Cantor-Fitzgerald as the monster that arose from the 9/11 rubble. Like Godzilla arose from the nuclear attacks in the Godzilla movies. From the 9/11 rubble rose Cantor-zilla! And they’re bringing forth this bastardized version of my invention, a monster, that will devastate the entertainment industry.
AZ: What are the implications for other industries?
MK: Well, then you get back to the CFTC. Just last week they were caught in massive market rigging of the silver futures industry, the London Bullion Market Association and the COMEX. A whistle blower came forward and presented incontrovertible evidence of market rigging and the CFTC was caught with their pants down on that one. Gary Gensler, who is the chairman of the CFTC (an Obama appointee), hasn’t taken any action yet, even though the evidence is clear. The CFTC is the one who brought us the Commodities Futures Modernization Act that opened the door to the kind of leveraging which led us to the shenanigans of that decade that crashed the economy. Gary Gensler is a former Goldman Sachs guy, so he’s already suspect from the get-go. So, once again, the CFTC has introduced products that have highly destabilized the industry. The arguments that these products will help in the risk-management of the industry are bogus. These contracts are never used in risk-management, they are only used to increase risk. Or transfer the risk from the players and the banks to the retail investors and the citizens, visa-vie through bailouts.
AZ: Now, isn’t the CFTC supposed to be the watchdog that protects us citizens from these sorts of manipulations?
MK: NO! The CFTC or the SEC or the FSA are all in the pockets of the hedge funds on Wall Street or the bankers. They are not independent. Gary Gensler is a former Goldman Sachs guy who is basically a front man for Goldman Sachs, the Wall Street shysters and the hedge fund crooks. The evidence is clear.
AZ: Now the Congress is starting to craft legislation for a consumer financial product agency to protect us from bad investment devices. What do you think of that? Will it really make any difference?
MK: No! They won’t follow through on anything. Sarbanes-Oxley was supposed to be in effect after the Enron blow-up. The banks just found a way to go around it. Whatever regulations they come up with, the banks will go around it. Ultimately, it goes back to the responsibilities of the Federal Reserve banks. If the cost of money were higher, then it would be harder for the Fraudsters on Wall Street to concocted their market-manipulating schemes. But since the cost of Fed Funds are so cheap, and since the government will bailout any mistakes, then there is no incentive NOT to behave in a crooked manner. They have a fancy word for it, MORAL HAZARD. It’s all moral hazard, the entire economy trades on moral hazard. There’s nothing left but moral hazard.
AZ: Is there anything at all that the current Obama administration is currently doing that you think is correct in addressing the financial problems?
MK: In the area of markets and finance? No, nothing at all!
AZ: Is there anything that they are doing which is blatantly bad?
MK: Yeah, they’re continuing with Tim Geithner and Larry Summers, the architects of the previous administrations’ financial chicanery. And continuing to keep Paul Volcker on the sidelines.
AZ: And Robert Rubin, too.
MK: Right! The same guys who have been manipulating the system for 25 years are still very much in control and Obama has done absolutely nothing to reform the system. And the health care reform, of course, is a joke, because all it does is guarantees profits for the health care industry and the insurance industry. As people are now finding out, its not really increasing the coverage of the people in the United States in any cost-efficient manner. In fact, the aggregate cost of health care, this will be clear in a year or two, will actually be higher than it’s ever been. The percentage to GDP next year will be higher than it’s ever been. If you don’t reform the banking system, and the banking system is the mother-ship of the health care industry, then there’s no way to really reform health care. You cannot reform anything until you reform banking.
AZ: So the macro-solution in your opinion is to first reform the banking system?
MK: The banking system is the mother-ship of the whole economy. Obviously it’s the source of the raw commodity of the economy which is the flow of money. If you do not reform the flow of money in the economy, then there is no way to reform any sub-set of the economy.
End of Part 1. Tomorrow, in Part 2, Max will share his ideas on how to reform our crumbling financial system, as well as how to survive it’s collapse should the reforms our leaders enact fail…, and you KNOW THEY WILL!