PBS "The McLaughlin Group"

Subject: High-Frequency Trading; The Affordable Care Act and Assessing the Obama Presidency; Economic Outlook for Millennial Generation

John McLaughlin, Host;
Eleanor Clift, The Daily Beast;
Mort Zuckerman, U.S. News & World Report;
Pat Buchanan, Author and Commentator;
Tom Rogan, The National Review

Time: 11:30 am EDT
Date: Sunday, August 31st, 2014

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JOHN MCLAUGHLIN: Issue One: Flash Boys.

ATTORNEY GENERAL ERIC HOLDER: (From videotape.) I can confirm that we at the United States Department of Justice are investigating this practice to determine whether it violates insider trading laws.

MR. MCLAUGHLIN: High-frequency trading, the computerized buying and selling of stock shares at speeds measured in milliseconds, that one-thousandths of a second, is now under review by the Justice Department and the Securities and Exchange Commission.

High-frequency trading, or HFT, has become controversial since the publication in April of the bestselling "Flash Boys: A Wall Street Revolt" by Michael Lewis. The former Solomon Brothers bond salesman portrays HFT as a two-tiered class system where traders profiteer at the expense of ordinary stock investors.

Here's how it works. Stock exchanges, such as the New York Stock Exchange, sell bulk information about pending buy and sell orders to high-frequency trading firms. These firms use computers and proprietary software or algorithms to analyze that data and calculate the price levels of stocks at such high speeds that they can buy or sell at fractions of a second in advance of the orders placed by other investors, thereby locking in small profits per share.

Multiplied by millions of trades, high-frequency trading is highly lucrative. It now constitutes 50 percent of all stock trades on U.S. exchanges. Is it unfair? Well, those traders with the fastest computers and best software have an advantage over the rest. Is it illegal? Well, it doesn't clearly violate insider trading laws which bar profiting from confidential information. Nor is it wire fraud which hinges on depriving a person of their property, or front running when a broker buys in advance of a client's order, a practice barred by the Financial Industry Regulatory Authority.

High-frequency trading falls into a more familiar category, the technological disruption that is convulsing all aspects of American life and industry, from personal privacy and how we communicate, to data mining of medical records and customer transactions, to driverless cars and drones, many believe.

High-frequency trading. The question is, is it advancing too fast for policymakers and regulators to keep up with it?

Pat Buchanan?

PAT BUCHANAN: John, I don't see this as really that nefarious a thing as our friend Michael Lewis, who I met 20 years ago when he wrote "Liar's Poker." He's really knowledgeable.

What this is are these computers at enormous speeds are fighting against other computers for tiny changes in the market, say if someone sold 10 million shares, and they catch it ahead of time and the computers are battling the computers. And the public, I think, half of them will benefit each time and half of it will lose from each trade that's going on. So I don't see the real malevolence here in this thing, but it's really something that ought to be looked at and I think it's something that ought to be looked at very, very closely.

It is a form of high-speed insider trading by computers against computers.

MR. MCLAUGHLIN: That doesn't sound very fair, does it, Eleanor?

ELEANOR CLIFT: It's gaming the system and it's basically the rich versus the super rich and, you know, the rest of America is on the sidelines. I'm waiting for Elizabeth Warren --

MR. MCLAUGHLIN: Wait a minute, now. Are you knocking --

MS. CLIFT: -- to get on this. (Chuckles.)

MR. MCLAUGHLIN: You're not knocking stock market investment, are you?

MS. CLIFT: No. Investing is fine, but this is people who can locate their servers near Wall Street and there actually is a competition to get as close as you can to Wall Street, I'm told, and it's working on algorithms, it's substituting computer data. You eliminate human judgment. And you know, a certain number of people, you know, play this game. And again, the rest of America is playing by a different set of rules. There is an inherent unfairness about this, I believe. It's beyond the scope of regulators.

As I said, I'm waiting for Elizabeth Warren, who understands banking and finance issues, to get on this. So far she's got too many other things on her plate, she hasn't gotten to this yet.

MR. MCLAUGHLIN: Well, maybe Hillary is advancing her position.

MS. CLIFT: Well, Hillary Clinton is going to have plenty to say about finances and so forth. I don't know that this is at the top of her list either.

MR. MCLAUGHLIN: I mean advancing her opponent's position, theoretically, the (moment ?) you're talking about.


MORT ZUCKERMAN: Look, if you look at the history of trading on Wall Street going back decades, OK, there are people who have a technical advantage, which is they're able to get information before the broader market and to trade on it. This just changes the speed of it and changes the availability of this information. I think this is just going to continue.

I don't know how you deal with it. I'm not saying it's fair, but there is no way of making sure that all information is equally distributed, and people are just going to have an advantage, whether it's the trading speeds or what have you. And that's the nature of the market.

MR. MCLAUGHLIN: Tom, Mort is throwing his hands in the air and saying what can you do about it, you can't stop it. Do you believe that?

TOM ROGAN: You can empower the SEC with greater resources to go after investigations. I mean, there's the question about the FBI, for example, whether there are too many people in FBI counterterrorism and not enough in financial crisis.

But I would say one of the advantages to this, to lower-level investors, is the reduction of the spread actually with these super computers with the high-frequency trading is that actually all of us, to some degree, benefit from greater liquidity in the market.

The simple fact, though, is that technology, you know, with capitalism the technology will follow the money trail so it's something we have to grapple with, but let's look at the whole picture. And I do think there are advantages to this. And again, it isn't insider trading so much as it is technology taking advantage of the --

MR. MCLAUGHLIN: So you don't think that flash traders have an advantage over non-flash traders?

MR. BUCHANAN: Yes, they do. They make money on these things, John. But look, the guys up there on Wall Street have always had an advantage. They're getting the information before everybody else and people are out. But now they've got this new, hugely sophisticated computer way of doing it. They now don't get hours ahead of a time or minutes ahead of knowing about their trade, it's in milliseconds. But it's in computers warring against the computers.

MS. CLIFT: Yeah, but there are several investigations and they are looking into whether it violates insider trader rules. I mean, again, it gives certain people a special advantage which is not the American way.

MR. MCLAUGHLIN: OK, hold on. Revelation or rant? High-frequency traders say that their practice benefits market and long-term investors by increasing liquidity and cutting transaction costs. Little of this appears in Lewis' book, however, a shortcoming one reviewer noted, quote, "The lack of counterbalancing voices means that 'Flash Boys' sometimes feels more like a rant than an investigation," unquote.

Question: If flash traders are ripping off ordinary investors, as Lewis says, why are so many ordinary investors flocking to the stock market?


MR. ZUCKERMAN: Well, primarily because they think they're going to make money in the stock market, let's start with that. And if you follow the stock market for the last several years, people have made a lot of money in the stock market.

With all due respect, it is not because of flash traders, it's because of lower interest rates, OK? That has pushed up the market values and I think that's still the fundamental drive. But people look for what's going to happen to stocks based on the fundamental economics and not on this. This is a very small portion of what might be happening. And as Pat was saying, it has been going on forever in the stock market.

MR. MCLAUGHLIN: Have you advantaged yourself by flash trading?

MR. ZUCKERMAN: No, I almost never trade in the stock market. I can't ever have said I've traded in the stock market.

MR. MCLAUGHLIN: Do you trade through any broker?

MR. ZUCKERMAN: I don't trade in the stock market. Never. Never have I invested in the stock market. I do not trade.

MR. MCLAUGHLIN: What is the secret of your success if you're not trading in the stock market?

MR. ZUCKERMAN: Because I have a much longer-term view than milliseconds, OK? That's just the way I've always been in my life. What can I tell you?

MR. MCLAUGHLIN: (Chuckles.) You derive your wealth from real estate.

MR. ZUCKERMAN: Well, from real estate and from other things. But it's always long-term investment, whether it's publishing or real estate or whatever. I've never gone into it short term.

MR. MCLAUGHLIN: You try to discourage people from playing the market.

MR. ZUCKERMAN: I think you have to be very careful. I would rather invest through mutual funds or other people who have greater expertise than the average American going in and picking out stocks.

MR. MCLAUGHLIN: I take it that you play the market a lot. Is that right?

MR. ROGAN: I have a very small portfolio I hope will grow one day. But I do, you know, selling the market and trying. Again, it's the same point that Mort made that you want to take advantage from an economic opportunity. You know, the recession has made depreciation of value and try and get on that before it goes up.

MS. CLIFT: Half of Americans are not invested in the stock market and part of it is because they feel like it's somehow rigged against them. And I think this adds to that perception.

MR. BUCHANAN: It's because they don't have any money to invest. (Laughter.)

MS. CLIFT: That, too.

MR. MCLAUGHLIN: Here's the question: Does high-frequency trading help or harm individual investors?

Pat Buchanan?

MR. BUCHANAN: It's 50/50, John. Every time one trade is made it either goes down and half of the people are happy, it goes up the other half of the people are unhappy.


MS. CLIFT: It's a negative because, again, it benefits a small number of people at the expense of the greater good. These people don't make anything or contribute to society. They're just -- you're just pushing computer buttons.

(Cross talk.)


MR. ROGAN: I think actually in terms of the reduction of the spread, there is an advantage for lower-level investors, and I think that's reflected in why it has support both in regulatory areas and also actually in the stock market.


MR. ZUCKERMAN: Yes, I agree with that. I think it's just inevitable. It's a part of the system of the way we invest in the stock market. It's been going on for years in one form or another. It's going to continue to go on.

MR. MCLAUGHLIN: For anyone other than day traders, the advantage is negligible.

Don't forget "The McLaughlin Group" has its own website and you can watch this program or earlier programs on the web at anytime from anywhere in the world at Could anything be simpler -- -- or more character-building?

Issue Two: Obama's Labor Rates.

(Begin videotaped segment.)

OPRAH WINFREY: What grade would you give yourself for this year?


(End videotaped segment.)

MR. MCLAUGHLIN: President Obama has always had a fairly high estimate of his own job performance. His recent exclusive interview on Air Force One with The Economist magazine is no exception.

Despite presidential ratings averaging an anemic 41 percent and 55 percent disapproval and a two-months-ago poll from Quinnipiac University showing a plurality of Americans rating him as the worst president since World War II, topping George W. Bush, Richard Nixon and Jimmy Carter for that dubious distinction, President Obama thinks he's doing well.

Get this: His Russian reset, he says, worked.

PRESIDENT OBAMA: (From audiotape.) We've had a very productive relationship with President Medvedev. We got a lot of things done that we needed to get done. We have to respond with resolve in what are effectively regional challenges that Russia presents. We have to make sure that they don't escalate where suddenly nuclear weapons are back in the discussion of foreign policy. And as long as we do that, then I think history is on our side.

MR. MCLAUGHLIN: How about the economy with GDP growth mired at 1 percent and the most sluggish recovery in post-war history?

PRESIDENT OBAMA: (From audiotape.) Since I've come into office, there is almost no economic metric by which you couldn't say that the U.S. economy is better and that corporate bottom lines are better -- none.

MR. MCLAUGHLIN: Regarding security in Africa where Libya is aflame, ISIS is on the ascendant and Boko Haram waging war in Nigeria where some 300 kidnapped schoolgirls remain missing, President Obama says this:

PRESIDENT OBAMA: (From audiotape.) A U.S. security presence is always a source of ambivalence everywhere in the world. If we're not there, people think we're neglecting them; if we're there, then they think we're militarizing a region. Right now I think we've got it about right.

MR. MCLAUGHLIN: Question: President Obama gave himself a B+ one year into his presidency. Now at five-and-a-half years, what should he give himself and why?

MR. BUCHANAN: Well, John, I think most people would probably give him a C. He's very far down. But let me say what he said about Russia, John. I think he's basically correct with regard to Russia. There's nothing he can do now once they overthrew that government in Kiev and what happened with Putin grabbing Crimea and the battle over Lugansk and Donetsk. And what he is saying is, look, we've got to manage this problem, we're not going to take it to a situation where we're both back and forth putting intermediate-range nuclear missiles in Europe on either side.

And quite frankly, we can't control that situation. So I don't disagree with the policy he's conducted in Ukraine to avoid a head-on clash, if he can, with Russia again.

MR. MCLAUGHLIN: How much did the Affordable Care Act enhance or diminish President Obama's standing with the people?

MS. CLIFT: I just want to follow up on what Pat said. I mean, the president did say that America is still the indispensable nation when it comes to a willingness to expend blood and resources on behalf of certain ideals. But he pointed out we can't do it alone and the world is too complicated to even try to do it alone. So I guess that would be what you might call the Obama doctrine.

And on the Affordable Care Act, he basically said it's messy, but a lot more people have insurance and the rate of inflation of medical care is the lowest that it's been in 50 years. And I do believe that the Affordable Care Act or "Obamacare" is a permanent part of the safety net and will be regarded with the same sort of level of respect that Social Security and Medicare is given in the future.

MR. MCLAUGHLIN: Do you think the Affordable Care Act was frightening in its impact on Obama's character?

MR. ROGAN: I think it certainly galvanized the growing sentiment on the part of large elements of the Republican Party and actually independents as well that the president was more left than perhaps he presented himself.

I think the concern, though, with "Obamacare," and to some degree I would agree with Eleanor, that I think it's going to play out over the longer term, but my concern about it is that issue of supply and demand. That if you are failing to address really significant cost pressures in health care, if you think about the metrics that Americans in terms of outcomes are paying twice what a lot of people around the world are paying, regardless of whether it's socialized or whatever, it's not value for money. And my concern is that "Obamacare" doesn't address those fundamental cost pressures.

You need massive reform to do that. And I suspect that the moral agenda of trying to expand health care has dominated the president's policy and the nation's policy now away from the major structural reforms that are actually needed.

MR. MCLAUGHLIN: The president's line was that people could keep their insurance. Did that damage his poll ratings on trustworthiness and whether he usually tells the truth? He took hits in both categories.

MR. ZUCKERMAN: Yes, and for good reason, in my judgment.

But I want to go to another issue here, which is the growth in the economy. OK, yes, it has grown. It has grown by about 2 percent, 2.1 percent for the last five years, which is the lowest rate of growth coming out of a recession that we've had ever since the Great Depression, OK? And what's more, that only took place not because of the fact that the economic environment was that good, it's because we had a hugely stimulating monetary policy and fiscal policy. We've run up a huge national debt and we have undermined the value of the dollar. And this is, in my judgment, not representing a good economic policy.

There were all kinds of --

MS. CLIFT: Well, we --

MR. ZUCKERMAN: Excuse me -- there were all kinds of things that we could have done and didn't do. He has lost the confidence of the business community and the business world in terms of where it really counts, which is investment in new plant and equipment.

MS. CLIFT: He addresses the --

MR. MCLAUGHLIN: Wait a minute. The national debt is at $16 trillion, pushing 17 trillion (dollars). Is it as bad as it sounds?

MR. ZUCKERMAN: Yes, you're darn right it's as bad as it sounds. It's going to be a burden on this country for generations.

MR. MCLAUGHLIN: But you don't hear much about it, though, do you?

MR. ZUCKERMAN: Well, no, we don't hear much about it because somehow or other it's been taken for granted. But ultimately, it's going to be an issue that is going to affect and restrict what we are going to be able to do as a country for decades.

MS. CLIFT: The debt is higher --

(Cross talk.)

MR. MCLAUGHLIN: But you think it's damaging our relationships around the world, or is it -- you know, are they just taking advantage of us, like China?

MR. ZUCKERMAN: Well, I don't know. I mean, that is where the problem comes in, in a way. We have a situation where we are losing the competitive edge that we had, not totally, but in many, many areas, and part of it's being lost to countries like China because we are not --

MS. CLIFT: The American --

MR. ZUCKERMAN: Excuse me -- we are not investing in capital improvement and in research and development to the extent that we can. And that, in part, is because we have these huge deficits which we are not really devoting to these kinds of issues.

MS. CLIFT: We're not investing in those things because the Republican Congress won't allow us to invest in those things. We have a higher deficit than we had in the mid '80s when Ronald Reagan was in the White House, a much higher deficit. We're paying the same amount of interest because interest rates are so low. We should get every dollar we can from China and we ought to use it to spend on all the things that Mort just cited.

MR. MCLAUGHLIN: OK, hold on, Pat.

MS. CLIFT: But this president's record on the economy is not nearly as dismal as Mort just outlined.

MR. MCLAUGHLIN: OK, political potshots. President Obama also used The Economist interview to take swipes at Republicans, the tea party, people he dubbed climate change denialists. And get this, in a moment of candor, echoed what he told Joe the Plumber in 2008 about spreading the wealth around.

PRESIDENT OBAMA: (From audiotape.) My obsession since I came into office and will continue to be my obsession until I leave office and afterwards is the broader trend of an increasingly bifurcated economy where those at the top are getting a larger and larger share of GDP, increased productivity, corporate profits and middle-class and working-class families are stuck. This, to me, is the big challenge. How do we preserve the incredibly dynamism of the capitalist system while making sure that the distribution of wealth and incomes and goods and services in that system is broadly based, is widely spread?

MR. MCLAUGHLIN: Question: Using the terms "conservative" and "liberal," President Obama falls into the liberal category, but is he really more of a socialist at heart? I ask you, Pat.

MR. BUCHANAN: Well, what he said to Joe the Plumber was socialist. But what he said in this interview I don't disagree with. What he said is I don't mind people having their planes and all their huge dividends and the rest of.

MR. MCLAUGHLIN: You mean like Mort?

MR. BUCHANAN: Like Mort. But he said what I am deeply concerned about is middle America and these people are stagnated, it's not growing and that's not only not fair, it's unhealthy for the society. And Mort can have his plane.

MS. CLIFT: Right. He makes the point that his policies are not punitive. If people have their house in the Hamptons and their private plane --

MR. MCLAUGHLIN: Just like Mort. (Laughter.)

MS. CLIFT: Go ahead and enjoy it! But you know, the rest of the folks who work hard actually have a chance at the American dream as well. And financial inequity is going to be --

(Cross talk.)

I want to finish. Financial inequity is going to be the biggest issue in the '216 campaign. He's right on that.

MR. MCLAUGHLIN: Thank you for that.

MR. ZUCKERMAN: No. But the question is, where does the money that we spend go to? For example, I would have spent a lot more money on education, I would have done something to revolutionize health care and really put all of my efforts in that because he could have reduced the costs of health care, increased the investment in education and you would have dramatically changed the distribution of wealth. On that point I agree with him.

MS. CLIFT: And how many votes would you have gotten for that?

MR. MCLAUGHLIN: Issue Three: Boomer Then; Millennials Now.

JASON FURMAN, Chairman, Council of Economic Advisers: (From videotape.) In the past few months there's been no shortage of public concern over the opportunities for America's millennial generation of young adults, be it their prospects for school, job, house or life partner in the aftermath of the great recession. Such attention is certainly well merited. The great recession was felt acutely across the American population, but perhaps more so for our youths.

MR. MCLAUGHLIN: So says Jason Furman, chairman of the Council of Economic Advisers who keeps President Barack Obama informed. Mr. Furman is speaking about America's millennial generation, those between the ages of 18 and 34 who are larger in number than the baby boomers and someday will make up 50 percent of the workforce, that's of course if the millennials can find jobs.

These tech-savvy, social-media-tuned-in, health-conscious youngsters have plenty of reasons to worry. They are earning less than previous generations and, hence, stalling off marriages or buying homes. The unemployment rate for millennials is higher than the national average. In July, the unemployment rate was at 6.2 percent; for millennials, July's unemployment rate was 8.8 percent, 2.6 percent higher than the national rate.

During the great recession when unemployment peaked at 8 percent for those over 34, for millennials it peaked at 14 percent.

In addition to the higher youth unemployment situation, there is the level of student debt, 1.2 trillion (dollars) in early 2014, more than double what it was in 2005, with about 11 percent of those loans considered seriously delinquent. What happens when you are young and unemployed and in debt? You move back home.

So in 2013 last year, nearly one out of every three young adults 18 to 34-year olds were living with parents, up from one of every four in 2005 eight years earlier.

Question: Are the millennials, like you, Tom, at risk of becoming a lost generation?

MR. ROGAN: There's a risk. I think the core concerns, at least on my part, are things like -- look at "Obamacare" for example. The cost increases that we've seen as younger Americans from that I think are unfair. But more than that, the big issue is the debt. When you look 2018 onwards, the deficit goes up again. We haven't had reforms to bring down the national spending. And I mean that really in structural terms. You know, we need to see Medicare reform, we need to see Social Security reform, because otherwise my generation will go bankrupt under -- and also, what I think is the social problem of having older Americans against younger Americans, both calling for different types of government. One side taxes to protect spending on them, and the other side saying lower taxes for reform.

It's a big issue. Obviously, there are benefits to being a younger American in this era. Technology, as noted in this segment, is a big advantage and medical, you know, advances. So it's a mixed bag. But there are issues for my generation. And I think increasingly you're seeing people raising those.

MR. MCLAUGHLIN: What's inhibiting the reforms? Be quick.

MR. ROGAN: I think that you have lobbying groups. I think the Democratic Party is significantly owned by AARP, for example, so they don't want to introduce reform.

MR. MCLAUGHLIN: Now, wait and minute, wait a minute, you're one sacred ground there with AARP, American Association for Retired People, right? (Laughter.)

MR. BUCHANAN: John, look, one of problems of millennials is America is in a state of decline itself. It's been thrown into competition with the world. And there are all kinds of bright, young, talented, hungry folks abroad and those folks are competitive with the millennials and they're doing very well.


MS. CLIFT: I the millennials are redefining how we live. It's the sharing economy. They're not running out and buying cars, they're riding bikes and using public transportation. And they're very community minded. I think it's a great generation.

What they ought to do is allow Elizabeth Warren to renegotiate --

MR. MCLAUGHLIN: Oh, here we go.

MS. CLIFT: -- the interest rates on those loans. Why should you be able to renegotiate the interest rate on your home mortgage, but you can't do it on your student loan?

MR. MCLAUGHLIN: Do you feel more inclined to back Elizabeth Warren now for president of the United States?

MR. ZUCKERMAN: Look, I think she is a very talented and imaginative officer in the Senate. I do not think she should be president because I don't think her approaches to the economy would work.

MR. MCLAUGHLIN: What are your own reflections on the issue of this segment?

MR. ZUCKERMAN: No, my own feeling is that's exactly -- what you are seeing is a reflection that falls frankly on this generation, the millennials, of a very weak economy that has been going on for a very long time and looks like it's going to continue. That is what limits the economic future of this generation, particularly when they're going into the labor force for the first time, and that is really a critical issue.

MR. MCLAUGHLIN: And the reach of that situation is more far reaching, so to speak --


MR. MCLAUGHLIN: -- than we have hitherto thought.

(Cross talk.)

MR. ZUCKERMAN: They're starting out, and their start is going to be a much weaker start than my generation and your generation.

MS. CLIFT: Yeah, but they're resilient and they're smart.

MR. MCLAUGHLIN: Out of time.

Predictions, Pat?

MR. BUCHANAN: German economy flat, EU economy flat, the Japan is contracting, consumer sales are flat, I think we're headed into a recession, John.


MS. CLIFT: No, Pat, no recession, forget that.

MR. MCLAUGHLIN: Is that a prediction?

MS. CLIFT: (Chuckles.) No. Well, I had --

MR. MCLAUGHLIN: Quickly, quickly.

MS. CLIFT: I had to disagree. The Ex-Im Bank will be reauthorized.

MR. MCLAUGHLIN: Excellent.


MR. ROGAN: I'm going long term: Chris Christie, Republican nominee 2016.


MR. ROGAN: Against Clinton, I think so.


MR. ZUCKERMAN: We won't have a recession in the sense of a contraction of the economy, but we will have very low growth for the next several years, which is just as damaging.

MR. MCLAUGHLIN: Well, I've got a lot of seconds here. The North Atlantic Treaty Organization meets in Wales in September. I predict that the NATO agenda will be dominated by this year's events in Ukraine. They have spiraled from a political crisis and the annexation of Crimea to warfare. NATO will propose higher defense spending in doctrines and training, confirming what many NATO members perceive -- more time -- as a new threat posed by Russia.

And I think I'm speaking for the members of this panel, but even if I'm not, we wish you a joyful Labor Day weekend with a minimum of labor.