good evening welcome to capital account i'm lauren lister here in washington d.c. greece tonight is in political chaos after the prime minister tries to put the country's bailout to a public vote european leaders call him to an emergency meeting out the g twenty but are all bets now off and the eurozone debt crisis deal and could this d. rail the global economy for the u.s. could this trigger a banking crisis for banks that have bitten off more of a stake in risky eurozone debt than they can chew and in an era of too big to fail banks this is everyone's problem we know u.s. taxpayers are backing more than fifty trillion dollars of bank of america's

derivatives for example who else has taken big bets with your money we'll talk to no need prince and the federal reserve announced it will not do more stimulus for now they cite slightly better economic growth based on last quarter's performance but when you look at the bigger picture this so-called recovery is lagging far behind our let's get to today's capital account. so just about an hour ago at three thirty european leaders were scheduled to be going into an emergency meeting with greece's prime minister ahead of the g twenty and call on sarkozy merkel the head of the i.m.f. a few others and they are supposed to push for athens to implement its bailout deal

as the only solution to the crisis the problem is this monday the prime minister called to put this to a vote before the people to put that bailout to a referendum he called for this referendum he surprised everyone including his own party now because of another boat scheduled for friday he might not even be prime minister anymore and if you're sitting there and you don't think this matters for you here in the united states think again consider this if greece defaults this could trigger a collapse of other euro zone banks that are exposed to this debt it could cause a run on banks and other debt laden countries as investors pull out u.s. banks have written a lot of insurance on euro zone debt this could trigger a u.s. banking crisis we could see taxpayer bailouts or we could see banks fail we could see a double dip recession or an already looming recession made worse and then some analysts

predict we see greek style protests right here on the streets in the usa you know definitely without a doubt because. the economy would have already gone into recession we would have instead of sixteen percent underemployed percent unemployment we'd have you know twelve fourteen percent unemployment and twenty percent underemployed so. all right let's take it to the top from greece dimitri kovtun as our producer and contributor is here to talk about it he's covered great extensively both on his blog and he was there covering the austerity protests right there in athens months ago so he really knows everything that's going on dimitry first of all how do we go from a deal to suddenly the prime minister of greece maybe not being prime minister anymore at all but he surprised a lot of people with that referendum losing his deputy minister has been driven out of us and he was actually hospitalized. exactly to the stress with actually

but yeah this was happening friday is a confidence vote so the greek parliament is going to vote this is something that we saw in june if you remember there was a confidence vote on the prime minister they're going to vote to see whether they want to maintain him as head of the party or if they want to dissolve the party entirely dissolve the coalition fairly go to new elections in the event that. it's a no and he loses the confidence of the coalition then he said this would step in the deputy could step in and try to leave the coalition or they could just have new elections entirely it's not really clear why he he proceeded to offer this referendum because he didn't have any specific requests he didn't say this is going to the question these are their turn of the just said we're going to go for a friend but no one knows for sure what the question is going to be worst case scenario this is a total disaster for the eurozone debt crisis which could trigger a horrible chain of events like i just said best case scenario this is

a road block big picture how do you see this. i think that the european politicians and politicians in general have been operating of the collective illusion that they have some ability to solve a crisis that they have created through their own cronyism pretty especially in greece the political patronage system that goes back at least thirty years if not more so i think that if anything this is. potentially going to serve as an enlightening moment for the politicians in europe to realize that they can't control. an economy let alone a society re people have been rioting for a reason and the economy in greece is collapsing and the greek government wants to continue to push through measures that are wildly unpopular and people in europe remember and i just came on the european parliament a while back and he called them very dangerous people in the euro zone because they thought they had a right to decide who could who could not have a referendum and i was seeing that again with greece leaving is going to france to

meet with merkel and sarkozy decide whether the people should or should not have a referendum it's a farce it's ridiculous it shows a facade of democracy not just in greece but in the west in general this respect well absolutely i mean it is you see this is something that all western leaders should be heeding because here in the united states you have people like peter orszag saying there should be less democracy when it comes to some decisions you have bailouts that were enacted without a vote without any kind of real democracy going on they were decisions made by treasury secretary by federal reserve chairman does is this a bigger warning for say u.s. politicians yeah i mean it's across the board like i said there's a deficit of democracy in a representational constitutional republic like united states or constitutional republic agrees but the leaders are supposed to listen to the people must both think about what's best for the country and then enact that in greece you have completely in the political establishment in the us because they've still been able to feed their social state if they've been able to print money they've been able to

mass some of the problems they haven't had the kind of unrest but i certainly expect that you would see that here because again like you said there's bailouts for the banks the basically pick because remember the banks are card bettors also the interest creditors but also there are so the government picks winners and losers and decides who's going to win and who's going to fail and the people who are failing are increasing growing up on the street and rioting and they're testing the political will of the establishment yeah absolutely and i mean you have the whole other issue of banks you have u.s. banks that are exposed to european sovereign debt do you see that as the biggest scariest factor for the united states or do you see it is kind of the bigger picture political themes that this brings up. the scariest thing for me is the uncertainty in the banking system itself what i believe and what we learn from two thousand and eight is that even executives at banks don't have full faith in their own risk novels they don't even trust how safe their own allocation their own

profile is and what their leverage ratios are and how exposed they are to any kind of market turbulence any kind of event like something that would happen in greece so it's not so much that i'm concerned that a group called in of itself would collapse the banking system will collapse the economy but that the banks are so highly leveraged and they're engaged in so many dubious activities with regards to debt and leverage that we are headed to another credit event that two thousand and eight was just. a masking of the problem and it was just papered over and that we're headed back there again and the question is what's going to trigger that and how how it's going to manifest because remember lehman was not just about the the fault of home mortgages owner again it was the freezing of credit markets which some people worry is going to happen now with what's going on in europe that's when you decide that you don't trust your counterpart anymore and you say you know what i need to go i've got to get my money and the assets that i have that i think are worthless i'm going to liquidate them now because of these prices and if they can get a better price later so it causes because a fire sale because they're dumping

a basket causes a d n a disorderly deal leveraging the rest of the break because there's been trying to avoid for such a long period of time and that's the fear in the banks that what would happen if greece defaults that there would be the leveraging of sovereign debt assets and in turn sparking a credit default swaps and all sorts of entanglements and by then they would say well we need a bank we need a bank bailout again because we have a liquidity problem it's not a solvency problem to say it's a liquidity problem because we've got these credit default swaps we've got this that it's value there we've got we're hedged but things are turbulent so we just need the government to step in and print some money now and give us a bridge this gap for us to get us past this and so then much at stake more philosophically is it even right for a government to put economic situations and efficient like guest. a referendum to a public what's in greece actually there's a question as to whether or not it's constitutional from what i understand they need. the majority to even pose a fiscal question based on any kind of fiscal issue. i think is kind of ridiculous

i mean i don't believe in direct democracy for every piece of legislation and said i would work it's not it's not really prudent that this should be posing. these specific questions of the people what they should be doing in there should be listening to what they're saying and offer something to begin with upon that or should have already a solution to the greek people that was coming from the troika on one hand and on the other hand something that was organized and created by the government so that if he's going to go to referendum people already know what the choices are and they can vote right now just saying we're going to referendum and it just sounds nice organized and chaotic well and it's also very confusing my now we've seen protests on the streets time and time again and great that have been very violent and yet austerity measures have still been passed with no regard for what we're seeing on the streets i'm wondering if you think that this is kind of a bigger indication of just how austerity is not really feasible or countries because there are other countries that are facing that i think is an indication of the failure of the current economic model the model that merges governments with

with financial institutions and the kind of crony capitalism that exists where politicians are at the helm in these and they were elected saying we're going to fix we're going to fix the economy or the fed chairman coming out and saying we think g.d.p. growth is pretty good today and so we're not we're going to hold off but if we think it's going to be bad we're going to use credit and this sort of constant manipulation of the market by elites that know what's best and that's not as i think is a broken model and it's not working but yet it still is the model you say it's not working you say it's going to reach a tipping point possibly when this house of cards comes crashing down it was propped up after the two thousand and eight national crisis do you think ultimately that's what we're going to see with this that there is no political solution and something horrible is going to happen like a greek default like paint. failing this course i mean you had you had you showed a clip of ed harrison before it was called critter write downs and it's called phones for a reason because there is so much there there has to be a right down there needs to be a haircut that needs to be liquidated that's that can't be repaid will not be

repaid and. the longer the financial system and the politicians want to try to mask the bigger the problem is going to be but it's already big enough that a default is what we're going to have an economic recession or depression that's going to be larger than anything we thought possible let's say two three four years ago as a result of this constant intervention by the government and you see in the united states politicians saying what happens in the u.s. economy is all dependent on what happens in the euro zone and they're going to have to send a recession but then you have analysts that are saying the u.s. is already headed to recession and this could be an excuse that politicians are using even though yes it absolutely would make it so much worse but you know it and so what you're saying that the u.s. has problems on its own we don't have any more time we'll get more into this with the banks because that is a whole other issue and the united states that we want to get more into after the break but that was dimitri kovtun as giving us everything that we need to know at this point about greece its impact on europe and its impact on.

right here on capitol hill go away you've heard how great the potentially into real the world economy so what exactly does it mean for the u.s. according to my next guest failing banks may be on the horizon but first they're closing stock and. looking to the capital account by more or less for.

let's not forget that we have an apartheid regime right now.

i think. either one is well. whenever the government says there's something safe get ready because their freedom . welcome back so the big question how does what's going on across the pond in europe with greece and the euro zone affect americans well u.s. banks are a great place to start they have reportedly sold a lot of insurance against credit losses to holders of risky euro zone debt that

number went up from eighty billion to five hundred eighteen billion dollars in the first half of the year according to the bank of international settlements that's quite a jump and derivatives positions keep rising for banks for bank of america for example year fifty three trillion dollars worth of them were insured by the f b i see which means taxpayers and bank of america just added more to this something my next guest pointed out in her recent column ten reasons to hate think of america she is nomi prins senior fellow at the think tank demos and author of this book black tuesday and she's in l.a. to talk to us about what exactly is going on with the banks nomi prins thanks so much for being on the show so my first question for you yeah absolutely as i just said you have banks of that have written more of this against euro zone debt even in the first half of the year significantly more you have and that's global that went bankrupt after making huge bets on duros own sovereign debt people have known

that europe is risky my question is what causes c.e.o.'s traders investors to continue to take risks of such enormity. that's a really good question you know i was listening to talk in your last segment about how. this is collusive notion of throwing money at these problems of politicians not necessarily knowing what's going on in their own banking systems and central banks printing to basically keep this dead alive and keep things going and masking is the term masking a lot a lot of problems and that's kind of what happens the mentality at the banks and at these funds is that we're not going to be the last man or company standing if we go in and write protection or we basically sell insurance against the potential of greece or or anyone else defaulting or a particular banking institution in greece or italy or spain or so forth defaulting

that we're going to be able to continue to pass that risk along this global financial loop such that we aren't going to be the ones that are actually out the money and if we do happen to be caught with that that risk ball in our court that a government whether it is in europe or whether is in the united states will print enough money will sound enough alarms to suggest this needs to be done to enable us to gloss over and mask our losses and go on with business as usual it's what's been happening in your it's what has happened here with what started as a prime credit crisis but because of how leveraged and how enormous the risk was in the system from from assets to derivatives and so forth we continue to just push this problem down down the path without solving any of it but just throwing money to gloss over what is continuing to be a ticking time bomb and just psychologically you know sticking to kind of what

you're saying you had john core design who is the chairman of m.f. global saying hey you know he's quoted saying that you're going to let these countries fail you have pointed out in your writing that warren buffett five billion dollar investment in bank of america with. actively better betting that this government won't let it go bust so psychologically even three years after the bailouts and politicians saying we're ending too big to fail is there just a belief that government is going to continue to backstop all of this risk and there's just no fear. well the thing is people like war zone people like buffett people who. are so the top echelons of these financial bets they are the government they go they they they they are having these these meetings back and forth the government and the banking system are really not disconnected entities so you know it's like saying a will the government let the banks fail will know because of the banks tell them what the government did before he looks like it failed and they won't let

themselves fail you know it sounds all very convoluted but that's really what we have we have a system of a financial global economic system that it has such a in twined relationship between the financial firms and the people that run them and the way in which their practices are done and the governments that supposedly are protecting the individuals in the populations of the countries that are really protecting this these banking's banking system and then you have the central banks that are basically flushing the entire thing with money to make it continue to move that's what we have so it's not like you can say oh the government's going to let the banks fail because that would be shooting themselves in their own feet and they're not going to do that which is why buffett bets the bank of america won't fail which is why of course i continued to bet that you know these t.v. wasn't going to let various countries in europe default and it's why you see such mass protests in the streets because people it's a way to say we're getting nothing out of this we're getting absolutely nothing out

of the continued flushing of money into the banking system yeah but where is it leading you could now you do see possibly greece bailing already european leaders failing to have a deal that will make sure that greece avoid default and you do have like and that global going bankrupt so are the bailouts unsustainable. well the thing is with an animal that is kind of at the lower echelon of something like a bank of america or something like a major bank in new york for something like that it's sort of one level below in terms of the sheer mass the sheer volume of assets that it controls that it traded and that's why it was kind of like that example of saying before it might have been holding the ball of risk if the wrong moment or the bigger institutions or looping around and passing it around and so forth and being propped up by the governments and by the central banks in europe and in the fed in the united states so basically his timing was bad. fortune that that is what the bet was bad but the timing was

bad but that doesn't mean the bailouts will continue throughout europe and that bailouts will continue throughout the united states they're just not always called bailouts and we have a federal reserve system that's fifty flushing zero percent money into the banking system in order to enable them to have enough cash to do whatever else else it is they do without having to pay interest on it you know so we're continuing to subsidize this flood system in every so often yes there are there are components in it there are smaller actors that they will go bust that will go bankrupt but the bigger players in the system itself continues to feed itself where does that go i mean alternately gets worse we're at a stage right now where we saw the bailouts here that started in the fall of two thousand and eight that continued into two thousand and nine we have an economy that is nowhere near back on its feet and continues to decline every day we're seeing the same thing in europe and we have the same conversations happen between politicians and the major banks in the major central banks which is just continue

to bail out print money and everything will be fine in the future even though we don't address anything that's at the regular normal economic level or create a better system and speaking of addressing this system something like god frank was supposed to at least address some of this risk and one thing that comes to mind is the deals to move the derivatives into feedback parts of the bank like we've seen with bank of america they had fifty three trillion dollars made year they added to that or wanted to which was just you know released recently so what is the point of dog training. but there is no point that frank is completely useless in terms of reducing risk in the system or changing the structure of a banking period with all the fighting all the infighting everything is going on in washington between both parties to horse trade and say well you're probably can say it's too much regulations democrats say it's good it doesn't merit fact is it isn't changing the overall structure of of banking and that example of bank of america basically taking the risk of mostly what was its bad acquisition of merrill lynch

which was something that was supported by the treasury department and the federal reserve and the new york federal reserve when it happened in the fall of two thousand and eight so now they're stuck with all these derivatives that are there are like leaking and bleeding value and there are investors in those the rivers their partners are saying wait put it in the part of the bank that's safer and the part of the bank that's safer is the part with the deposits in the individual loans and everything else and because we did not get to a situation in our legislative process and regulatory process where we divided those two things out so that could not happen you could not take the risk of a really bad bed under if it is in a really bad acquisition into your customer poor folio because we didn't allow that legislation to pass or even talk about it in any reasonable meaningful way this is a situation that we have we have bank of america bigger than it was before the bailout bigger than it was before the merger with merrill lynch and more risky than

it ever was with its risk contain its deposit to a level that if it really were to fail if those the rivers really were to leak of bank of america really were to be downgraded another few notches and have to pony up capital and collateral and margin to sustain those derivatives we would be seeing a multi-trillion dollar failure and that just just one day and then you know that has knock on effects of all the banks because they all deal with each other and quickly do you think that we're going to see that because some are predicting that there will be time kind of a banking crisis that comes out of this euro zone crisis. i think we're in a slowly evolving crisis we may not see that moment but the thing is we are we're getting closer closer to the moment the risk is growing the fear is growing the lack of confidence in the banking system is going to losses are growing and so it's like there's not necessarily one client where there's going to be a day we will look back at this moment a few years from now and see how much better it was than where we will be a few years from now and do you see because you've written about bank of america

ten reasons why people should hate them do you see that as being the worst stock or is that just one example. that's one example it's currently bad because it just defied all that you know all potential of ever being a glass steagall act of ever being a division between the major risk in an institution in the deposit or side by getting the fed feds approval in the fed was was an enabler and a colluder and part of this to move those securities of those there is into that and that's also right now they are looking at a really risky poor folio commingled with their deposit for a feller that makes them really bad right now but i'm sure if we take a look at any of the other banks that they're looking at doing the same sorts of things because they really do tons of copy each other bank of america tended to be worse simply because they got merrill lynch and its acquisition of merrill lynch was never transparent and never understood it was losing value even as the ink on the deal of the federal reserve treasury department and bank of america was drying so in that respect it is the riskiest most scary bank right now right now as you

said nomi prins thanks so much for being on the show the problem is so much larger and has to do with this fifth down i was no mean print in l.a. . all right before we go a quick reality check because the fed today its cut support asked for economic growth and it's raised its forecast on unemployment but it came out and said it will not do more to stimulate growth because the economy has strengthened and it touted the third quarter g.d.p. that recently came out as proof. the grossest rates and during the search order reflecting a quarter reversals of temporary factors that had weighed on growth for earlier in the year ok really quick reality check for people that are excited about last quarter's growth which came which came in at two point five percent and may have

been a lot better than it was last quarter but real g.d.p. is barely above its pre-recession peak at the end of two thousand and seven and in other recessions we've been it ten percent some to think about that's all for tonight show my. question is that so much i know there's a huge decision on the market as tunisia so does the rest of the arab world tunisia successfully holds the first election of the arab spring with an islamic party.

a very warm welcome to you this is your news today protesters on the. street they have. essentially it's a good chance to try to get the status of the human experiment. to see this rock music which it goes to trial local economy and it's all changed things as financial tips. to maintain confidence in the markets and. want to be seen trade imbalances recession look b.p. nations close to collapsing the subprime loans close. some fail circulates again feeling like things the u.s. crash. team is likely to listen to and street. names.