these topics and my guests in tonight's rubble plus as the tea party lost its momentum in my daily take i'll show you how the billionaire funded movement is sitting fast right here in washington d.c. . for tonight's conversations of great minds we sit down with good art thomason good are was originally born in iceland but now resides in nearby maryland he studied at both the university of manchester and harvard university before going on to become a senior staff member with the international monetary fund from one thousand nine hundred sixty one thousand nine hundred currently going are as a financial consultant and with global markets around the world in turmoil and the nation of iceland taking and unique approach to shoring up its economy he could offer us some much needed insight into solutions to get us all out of this mess so without further ado joining me now in our studio in our thomas thank you so much

for being with us. how did the iceland let's let's start with the iceland collapse because i think from reading some of your writings that that that you think that in some ways it's a dress rehearsal for other things and and metal other things what happened in iceland well the iceland this indeed the food. a miniature version of things going on a bigger economy in the utopian union and the united states and the us in the u.s. there was an enormous growth of both loans to find most a base we got it channeled through eyes to the foreign banks european and american . the three big icelandic banks. i think the bottle jump in the one hundred twenty billion dollars was this real estate as collateral or businesses business loans or it's. much of it though most of it was based on this

but it was a very strange business for example the know there was a. very extreme example if this was a male and they nischelle and that was sold one day for five billion something next they. sold will ten billion and then two fifteen million of these are approximate numbers and the. each turn this is between the same parties and they add you know. the value of the asset called the pulpit and raced the sort of book right away the sale also incurred an equal amount of debt well that's because the banks were ready to lend them money for this kind of business then when their bias run into difficulties in. two thousand and eight to refinance their outstanding borrowings the whole. head of

his it came tumbling down the. could not service that and the banks vastly overextended and really taken. risks that could only be justified if they had at the access to cash what were the reserve to loan ratios what how many dollars or kroner is of its own noting how many how many chrono did they have in the bank for every x. that they loaned out or what you know what what was the ratio it's a very good question. when this system collapsed. it's outstanding for them. was twelve times iceland g.d.p. wow so in the united states is a g.d.p. of about fifteen trillion dollars so that would be if our banks had done hundred

eighty trillion hundred eighty trip that's mind boggling so this basic oddly the essence of the icelandic banking saga. they would extend that. there was a better brockman growth of standing their portfolio for do it exploded pretty much in the last couple of years before the collapse and that this almost i think likely prime mania in the united states when the banks set this up prime loan market without any regard to people's capacity to be paid and then the icelandic situation they don't quote it's a prime loans they seem to call it business down gone bad you know but in in the united states many people track the the the banking crisis is that we're back to the deregulation of the banks in the late one nine hundred ninety s. and or that been kind of the pinnacle of them gramley while again cloudy futures modernization act phil gramm two brain children and. and then and then in the

during the bush administration they did they change the reserve requirements from eleven or twelve to one to thirty to wander you know basically made it and and and so it was banks run a while you know they did they just did anything they wanted and they ended up in trouble is that what happened in iceland was a result of deregulation of the banking says yes yes but about so because. to preserve sometimes they don't and then there was a political deal. this party gets to dispose of the bank the other party goes to dispose of the all the political party political parties to their own preferred over a paper. record of the. it's time to work this private physician but. we have changed the term to private friends so

i say shouldn't. and this had. been completed by two thousand and three and. the banks just. really from the get go then went then to. an extreme. loan sort of for. extremely low risk loan operations or all of them financed not the best time expense because there weren't any but they were borrowing through for the bank and others for feeding them the funds to lend it to business people in iceland on the product and to finance a little souls. and. so one would ask what happened to the regulators well they were not basically throughout all these all this time the financial supervisory authority was completely passive. it was understaffed it

ought to have told the. banks and. the few people there who were sort of showing talent they cooked taken over by the banks the banks offered them a job and so it was a rocket to on a woman that i know now in the us the reason that the banks were doing the churn in the in the ninja loans the no no income no job loans and all these kinds of things was because every time they made a loan the made a commission and some banks are walked off with a profit in their in their pocket and there's never been an attempt to recover any of those funds from those those bankers or where the people who made the commissions or whatever it's it's all been dumped on us and i guess has there been an attempt to claw back those profits made by the by the icelandic banks there in the time of frenzy no none none at all that is say yes special prosecutor the special in the question should the office force a stop to do precisely that go into the record of the banking crisis and the

banking fiasco and see to the extent the loss were broken to called to account those who would responsible but so far that has been no criminal indictment handed down same here in the united states now there have been watching from afar it appears to be correct me if i'm wrong that there have been two times in in the last year or so in iceland where this this banking crisis being dumped on the icelandic people and there's only what six hundred thousand of them already under a thousand three hundred thousand three hundred have the population of the state of ramadi three hundred thousand people in the country of iceland. that the people didn't really appreciate having all this debt dumped on them and the politicians didn't have the courage to say no to the banks toure's so they said well let's throw it out to the people and twice there were referendums where the people said no we don't want to pay back the banks hers or the. or the vulture bankers who had

bought the banking assets at pennies on the dollar and now are trying to recover them out dollars on the dollar is that is that have a role they just not quite accurate because the referendum that you're talking about concerns the i say of accounts the accounts that they are something national bank loans bank and. opened in london in the netherlands so it was whether they would have the. last year was the british and the dutch of what it is. took it upon themselves to make the deposits of their nationals with this branch of the national bank of iceland. probably one of the banks of course privatized so this was a private private banking affair and. the. the the i say if counts in london a primitive or back but not too bad the loan portfolios the latest estimate now is

that. the assets are being liquidated little by little will suffice to pay off the deposits but this turned into a very major political fear in a stunt the government. that negotiated an agreement with the british on the dots authorities. which was extremely unpopular in iceland and. for the second time in history of the icelandic president. declined to say in the law. passed by the parliament authorizing iceland to crush. on the public. for the purpose first these private that's right and the referendum on the proposed. i think over ninety

percent of people you know against. the government negotiated a second agreement with the dutch and the british and. that went again to the people for customs. and. so. you know the the the really so sure that this but the one of the most shocking aspects of the banking operations during this period is that in two thousand and one the law on. interest rates and then taxation moment there sation and i just enforced changed. to prohibit altogether the practice that developed of linking the loan principal international and the currency to the exchange rate of foreign currencies so if you took a loan for such and such an amount and it is linked to the u.s.

action should of the us dollar depreciation against the dollar. your principal increase is. quoted by this was it leak us. it was a direct violation of the the provision of the law that was passed in two thousand and one and one of the central bank governors was one of a half a dozen folks or who drafted the law but they knew that this was illegal but. they . made a big point of this in my comments on this matter in nice to them that this is an illegal exercise and the banks best be made to shield the responsibility for engaging in these very illegal loans and then when they could on a collapse with the with the banking system in october two thousand and eight people had their. deaths actually almost doubled

because of the exchange with shooting up. it's all illegal and then this is this is something that really stretches the imagination. the supreme court of iceland ruled in taxation for the act of two thousand and one was illegal for the change in taxation and. the government having. great concern for the fed and so well being of the banks. which still has to be tested by those whom court making retroactive changes in the terms of the loans sold out there knows that would a leak only leak to form a change we're now determined to have the from the outset shut down all or sets of interest rates which was a different kind of language different kind of a different kind of association or evaluation and people were very happy when the supreme court ruled this but they were very unhappy when the government turned

around and done some different a completely different good remarkable i want to get into you know how this is so serious the united states the euro the worldwide economy and then the whole concept of macroeconomics over just a moment we'll be back with more conversations with a great minds with economists who are thomas. drives the world the fear mongering used by politicians who makes decisions it's considered breakthrough had thirty been made who can you trust no one who is in view and with a global missionary to see where we had a state controlled capitalism is called saxons when nobody dares to ask we do art see question more.

well go back to conversations of great minds i'm speaking with financial consultant and former i.m.f. senior staff are going are thomas. what are you what are the fundamentally wrong assumptions large economic assumptions about how economies work and how currencies work and nations work relative to each other that we have as a as a developed world anyway been operating under over the last decades or maybe even centuries that we need to understand. perhaps in light and by these kinds of

disasters and change going forward well the fundamental header of all manged then economics is the hypothesis of bones but it's an important tool in its foundations of economic analysis the market system of the world what are called systems and they put in. motion. this idea from newtonian physics where the law we have where the you know the physical universe. is. a staple of the solar system the problem of planets. orbits around the sun and so on the moon not on the earth. this idea. of the physics of course relate to a natural system nature has put these things or change them like this. system which

is the monetary system. will certainly not. come into the same kind of rigorous law. and for the last fifty years. the mainstream monitor activity has basically been predicated on the assumption that by engaging in monetary transactions. that the times are since both parties are doing the sensible thing they know the market. priorities economic priorities the value of the transaction and so if two people who both comments that they are making good transactions meet in the marketplace and make a deal there's nothing the government should do to interfere with that because it will simply upset the great thing that it's their assumption this this is the organ that alan greenspan made for the us not involving itself and in derivatives markets

about precisely parties and current parties were fully informed and they're a consenting adults well absolutely and alan greenspan also confessed in testimony before congress congressional committee october twenty three two thousand and eight that he had been shocked by the fact that things went haywire he said football in forty years. what i thought was fairly sound. assuming that this was so. great in that market participants would not get themselves into a pickle and the chairman of the committee said are you telling me mr greenspan. wrong. and these are yes precisely the the you know when you have this when you have this assumption it is better went in with this attitude toward i.q. lation this is a less of fear and. no less. smith

said. nations that of course. paper bunny have to be regulated. this question has been sold to the winds by mainstream economists mainstream monetary economists by the washington consensus. and ok that's one and perhaps the austrian school. well i'm not much into the. that it's associated problem here and it is the notion that. money money is productive now to that point if if i could just. you've written about how we've historically thought you know there's labor there's raw materials. and then there's money and that all three of those played a role but that in fact money isn't the same as these two things let me show you

a graph of the united states economy and if we could bring it up on the screen here in one of these greens yet here it is right here the blue line is manufacturing the red line is the financial services industry money moving around inside our economy now represents twenty one percent of our economy whereas just a few decades ago it was in significant it was basically bankers were just bankers and meanwhile manufacturing has collapsed it's fallen off the earth in the united states and and. i don't think that there is a lot of people here in washington d.c. who are running around with their hair on fire worried about this and it seems to me like if you're right that money is just a medium of exchange and or i want to put words in your mouth what money is but but that that money isn't that important piece that it's in labor itself and in that itself then by turning our economy into you know fully a fifth of our economy into something that is purely

a function of money that that's the product that it makes the product that it consumes that work committing some kind of insane rack or economic act. very very demonstration of the complete difference between money and real wealth is the fact that the you know just recently the u.s. fit. the program of. buying six hundred billion dollars worth of bones with money that it simply you know created by you know writing checks on itself so here's six hundred billion dollars created. out of the blue. fin there then there is the norwegian oil. i understand this of the order of five hundred billion dollars so after many years of exploiting their natural resource. you know resources into the large sector know each other build the. forefront that

is less than the amount of money that the federal reserve. created just like that well now. this house. they just had a good technical but the it's very important to understand that. the. money in the arctic cannot earn interest with. a corresponding debt being created in the economy. this is very technical but let me just repeat it it's the when when money is loaned money is created and that creation of money creates a death basically yes has to be real and if it if that there is to pay ten percent interest you cannot repay the loan plus the interest out of the money that you got out of this instance right so. there must be a second round of the death creation to cover your interest now all this gets lost

in the you know pick people things but ultimately when it comes down to it. the interest and profit. that is used to you know keep things running in the economy must depend on newly created that what you're describing is a children's game of musical chairs you know that is it is on a chair is taken off and somebody is stuck so when the music stops yes and when the music stops in two thousand and eight and somebody gets stuck it seems what do we do i mean how do we change this is this a flawed system do we just reboot it it's should we have a world currency should we go to should nations tighten themselves up and and have you know more diversity in currency should the euro be blotto and what do we do i think. put it very very clear and he said that comes a point when credit attending alone burdens overwhelm the capacity of the economy

to service that debt the only technical solution that is feasible is one that probably remember to be implemented but it is to cut down the debt write it off. and he says this technique on the problem technically much solution when it is present that then debate those who have interest in keeping you know things such they are wrapped themselves in the month. and say piece of publications should the best be on or are you are you calling this and this is not the republican debate about how big the u.s. and the federal debt is this we're talking about the monetary system here how money is created and how this works are you essentially calling for a jubilee. well i am afraid that you believe this. cannot be like it won't be done because that are too powerful interests involved in this that you're saying that would be the solution when i. had

a little to say it of them they say have long been certain or order appreciated that the b.b. will ultimately run into a stone wall with. that there. is a solution show has been to the less. you know less. well placed individual so i associate the. you know this is the austerity programs that are imposed to make the fort for. us yes and. it is getting us nowhere it is getting us nowhere we are cutting down the economy through. in a with. through through started the programs we are cutting down meant for the very first system we could have done health education and so on as any country in the history of the modern world ever cut its way to prosperity. i think they're doing an experiment now to see if the us the utopian of

a utopia might be the first to prove no oil and several of the of the red states here in the united states are doing this they're laying off government employees they're cutting cutting cutting we have other states that are that are hiring people you know that are raising taxes this reduces. you know purchasing power from the economy and the purchasing power what is what keeps the wheels of industry going so are you suggesting that the u.s. economy or the world economy you said this you talked about this this brick wall or concrete wall that there would come into. that we're headed for that right now full speed we still are yes there has been no change yes no change when when do you have to anticipate living you know ask you to look into a crystal ball what what how do you see this playing out where and on what timeline i think of it be a very messy process there would be a problem here and a problem there we have seen it playing out in new york now where they have taken steps one after another and they basically have enough to identified the problem

and if you haven't identified the bun after the problem and you cannot do the monetary economics when you cannot identify your problem you kind of design a solution. for it you must know what you're talking about they don't feel they are . taking the easy way to go the line of least resistance and trying to or hoping praying that something will work that they had their solution seems to be less just make the banks whole and everything will be wonderful and we'll go back to it to a bankrupt driven bubble economy you know we'll have a you have a debt crisis burton system with death and the solution cannot be to add more debt to it which is what you know is being done no and austerity measures add more debt because they grind to a halt or they slow down economic activity yes this fast which is which is it makes perfect sense is the opposite of what we're hearing in the in the minute or so that we have left what advice would you give americans about what direction we should go

. to at all america leading public in the best in the world and america has to take that leap within the international monetary fund. to. basically. do a technical study. hope that if we get into this mess what should we do on the technical basis now that a political question that a private interest constrains when left but if you do not pay attention to the technical aspects nothing will work oh another was let's understand let's understand this yes what is one of both of you know we can then hung that going to tell us thanks so much for being with us it was my pleasure are you with you to watch this conversation again as well as other conversations of the great minds go to our website at conversations with great minds dot com. coming up my panel of

experts political commentators will join me for this week's big picture rubble. drives the world the fear mongering used by politicians who makes decisions to break through that sort of to be made who can you trust no one who is in view with a global mission that would see where we had a state controlled capitalism is called saxons when nobody dares to ask we do our duty question more.