the recession while greece is still the gum on every one shoe our guest has been warning that greece is headed towards default for two years now and for anyone billing this latest greek deal as a solution kung-fu analysts reggie middleton is here to karate job the accounting shenanigans math being the real story. it's. he will set us straight news here to tell us why more than default the word of the day on everyone's mind should be contagion meanwhile in the u.s. uncle sam may be getting ready for a fire sale dumping millions of foreclosed homes many that u.s. taxpayers own sounds like a good investment deal only if you're an individual investor forget about it say thank you to crony capitalism for that one we'll explain and japan and the u.k. are fighting the volcker rule why are foreign governments getting into this fray

over u.s. regulation we'll tell you why it appears j.p. morgan and morgan stanley may be to blame for that let's get to today's capital account. they use executive branch expects the eurozone to suffer a recession this year now the european commission in its latest projections forecast point three percent contraction of course greece is leading the way and that contraction but it now expects countries such as spain and italy to contract to which is different from the last time they put out these forecasts and greece is of course still a huge whyld car despite that so-called debt deal that was reached for its next

bailout now the newest news is greece's parliament approved the bond swap with private bond holders which is of course a key part of the new bailout but some people say forget all this news greece needs more than a haircut it needs a full blown default we hashed out the leaked debt document with rosy assumptions earlier this week but there are more financial shenanigans to lay out our next guest is going to do that he's been saying for years that this crisis won't end until creditors recognize and mark down their losses and for greece that would probably constitute the bulk of their outstanding debt and the last couple of days we've seen people like the folks at fitch ratings finally catch on they just downgraded greece one notch above default but default as bad as it may be for one country is just the beginning it's really the spark reggie middleton says contagion should really be what everyone is focused on right now reggie is entrepreneurially investor he's author of the boom bust blog it's also just an all around bad ass and

he's here to tell us why contagion is what we really need to be looking at before we get to that reggie i do want to talk a little bit about greece and first of course thanks for being here. ok you're welcome yeah so you know we've been critical of the numbers coming out of the troika for example with these very rosy projections of growth for example against some of the realities of what's going on in greece just a couple of examples to throw up there for our viewers here's one showing how greek g.d.p. has completely tanked so there's just one example another one if we could bring up greek bank credit to households that has completely collapsed in the last couple of years and industrial output is another place where we can see that that has just collapsed over the past few years now the numbers really put into perspective raji depression greece is going through which puts into perspective the riots that we've seen there my question to you what's going on and how do you think greece could get

out of a depression with this bailout. well i still don't see how it's a bill out there as of right now the problem if this is of agreed to a seventy four percent n.p.v. here cut net present value and greece is use only status issuance or at least i.m.f. have come to the conclusion that a minimum of anything. under seventy five percent would probably language spec and the. bella table alone calculations actually calculate at seventy four percent and p.v. loss within four to five years they'd have the need to go back to the market. amount that would be prohibitive but you could take the best case scenario the best case scenario gets what it wants suppose it does get what it wants with seventy five percent haircut exactly what do you think all the other nations such as portugal ireland even spain and italy would do when for support strange austerity

measures paying twice the taxes would have the benefits greece gets away with it everybody stands in line and i want no way around this structure ok debt destruction that's an interesting point and i want to get more into contagion and what other countries are going to do but basically are saying this isn't a bailout so is there anything you see that is going to get greece out of this depression as it stands. well as the referencing the charts that you just showed when you have a significant drop in credit to households and corporations those are leading indicators so when you have a significant drop in the lending to. a negative a significant drop in then being in a negative growth rate and then into corporations after the fed corporations will be doing. employment and to do so put then you have the depression area fit so what you're seeing is a precursor to was coming the greece while you haven't seen anything yet so you're saying this is going to get much worse now let's bring up the rosy projections that

we've seen come from e.u. leaders i just want to give our audience a few examples of those we hashed those out earlier this week but if we could bring up a couple of charts from the leaked troika document they show greece growing again in two thousand and fourteen and this contraction flattening out our our audience is looking at that right there as greece returns to growth in two thousand and fourteen and is able to finance its government and pay its creditors in a couple of years to on its own reggie what kind of seriously heavy handed accounting shenanigans are going on to produce these kind of numbers about greece. but simply assumptions you know the saying in the counting garbage in garbage out so you have a model you got the best machine in the world but the fastest car but if stead of putting people. to put baking soda well in the car doesn't travel on my site there are many charts we have i.m.f. and you projections graph from two thousand and seven to present where you have the

i.m.f. projections going that way and you have the actual greek g.d.p. . etc going the opposite direction and every mistake they've made for five years straight has been to the optimistic side quarter after quarter so after sixty quarters of optimistic misstates you get the feeling it's not a mistake you know it's done on purpose for the motivate facially doing on purpose you know who knows you could theorize any set of motivations but the reality is whenever the i.m.f. and the e.u. said it's h. and say x y z assume x.y.z. money is one hundred forty basis points so ok that's interesting and you're saying this is hocus pocus very broadly seen with an agenda but let's talk about how this is going to affect things then more broadly because you say that you just gave one example earlier in our interview about how this could affect other countries what they see going on in greece and them saying hey why would we impose austerity if you know greece doesn't have to pay for this but what would be the scenario where

we would see what's happening in greece impact other countries other bond markets other banking systems with kind of a cascading domino a fact that that effect that's very severe what would that look like. ok well i gave you best case and ever best case scenario is everything goes as the troika says they would go assuming reality turns itself on its head within a year and a half ok that's best case scenario ok let's suppose you have a base case scenario where it looks as if greece is going to default or need come back for another haircut in the very near future if that were to happen you're going to have a further. depreciation increase in preservation losses on banks investors the books these losses are going to have to be mark to market sooner or later nobody's telling the truth on a greek exposure and the way investors work is they don't make these investments in cash they're levered which means they borrow money for

a minimum of nine times what they invest in average in the europe will probably be more like thirty to sixty times so imagine i take a million dollars i now borrow sixty one million dollars and i'll buy sixty one million dollars with pads ok i get according to right now i have a seventy four percent loss and sixty one in divestment so that would be roughly. forty five million dollars loss on a one million dollars investment to now do i get one hundred percent wiped out but i have forty four million dollars it's wiping out all the other investments that i made this bankrupt every single bank in greece most of the banks have heavy greek investments and even those who have a relatively small greek investment this will cascade because you have margin calls and they have. asked for capital this is just greece ok like i said portugal ireland italy and spain also got a bit of a part a greece got away with it why can't we get away with it you know again there's no

way around this except for everybody to recognize that the jet has been destroyed value is gone back at the market and start over again but you have a situation where the people on top want to remain on top so if you wipe everybody's capital out. mark everybody market many banks no longer exist you know many of this is going on this is several countries are wiped out and wars on here so in order for them to stay in place they have to create a new set of rules because capitalists it market pricing is not working if you step with the market pricing they are bankrupt so they say we are no longer mark you know bonds to market it doesn't matter what people want to pay for them that's not what they're worth they're worth what our model says they're worth that's the model if that doesn't work then they say well so you what the e.c.b. which put most of these greek bonds doesn't have to take right but everybody else does so you have to citizens you have the e.c.b. and you have everybody else but the problem is if you do that and this time issue bonds again only the very very very very very very very stupid will buy these bonds

ok let's look at the less yeah absolutely and let's talk a little bit more about this oligarchy call all of gargle however you would say that situation that you just can't get out because we've seen just to use the example of greece we've seen recently germany's finance minister wolfgang schauble a say maybe greece should postpone elections maybe we should put in an entire technocratic government like we have in italy you've said we've seen how the banking system has not wanted to take write downs has not wanted to mark to market when it's not convenient for them and we see how democracy is being suspended when it's not convenient for leaders either so where do you think that trend is really going are we going to see a continuation of this tech not prosy and suspension of democracy. well it will continue as long as the populace allows it sooner or later you have a vote if you notice in europe which is prone to war if you look throughout history go back lest you know it's one thousand years and europe wars they go at war with

itself over the last. fifteen or twenty years or so you've had relative peace in europe and that happened to coincide with a significant credit bubble a significant real estate bubble as well as the for implementation of the monetary union and the euro ok this was not reality you know the euro was ill fated put together. it wasn't thought out fully and the credit bubbles able to mask a lot of the faults throughout the euro now that the bubble has popped and now that many of the force of the euro such as having you know forty five forty five she said five indians have come to fruition you have states who are at each other you have states who. have diversified interests vying for multiple goals eventually this is going to come into conflict you know it's right now it's political conflict

which you can see and you can see this economic conflict. when political conflict and economic conflict. then historically from perspective you then have military conflict whether that's going to be the case or not i don't know but i def we would not rule it out out of this is the beginning of an era of peace throughout europe i hope you are not quite as optimistic never mind that's a bad analogy i want to keep this conversation going i want to get to the u.s. banking system we have to go to break really quickly but we will have more with entrepreneurial investor middleton. and still ahead well this story needs no linter to action but nike is taking out a lynch turns policy yes the lintel lecture wall basketball player from harvard is possibly the new face for sales in china i will give you our three cents but first your closing market numbers.

you just put a picture of me when i was like nine years old and so if you told the truth. i may confess and i am a total get over friends that i love driving hip hop music and for. that he was kind of the jester day. i'm very proud of the world without you she has played. oh oh oh oh oh. oh oh oh oh. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else you hear see some other part of it and realize everything is ok you don't know

i'm sorry welcome is a big issue. what drives the world the fear mongering used by politicians who makes decisions to break through it's already been made who can you trust no one who is you know view with the global machinery see where we had a state controlled capitalism. school sessions when nobody dares to ask we do our t.v. question more. welcome back we are talking about euro zone contagion because if you're still stuck

on bailouts and default then you have been watching way too much of the mainstream media reggie middleton is here breaking down exactly how this is all going to impact europe and the u.s. again his entrepreneurial investor has a very popular boom bust blog so reggie before the break you were saying in europe hey who knows this could all be leading to war if political and economic solutions are not worked out let's talk about the impact of contagion on the u.s. banking system though because we understand the problems of leverage and the problems of counterparty risk but so far we haven't seen this result in some cataclysmic impact on u.s. banks so i mean who knows are u.s. banks going to stay like japan's banks zombie banks while the rest of the economy cooks or are we going to see some major impact here. but i believe that if the u.s. economy does not start you're going to have the zombies bad situation because the u.s. has basically what the japanese authorities have done when the japanese banks started lending the really the market collapse it was stuck with

a large amount of m.p.'s they suspended mark to market they kicked everything under the rug what they could keep in the rug the stuff in the can they kick that down the road and they basically act like it didn't exist the problem is when you don't clear out the bad assets in the economy they sit there and staying late which is why if you take a look at many of the risk yes in japan they've written or what they've been practically nowhere for twenty one years japanese housing has been declining twenty one years straight japanese commercial real estate has been declining for twenty two years on even a steeper decline many people said you know this is a bottom every year for twenty two twenty three years straight it was inconceivable twenty four years ago but that's what happens when you fail to clear the problem in order for the economy to resume you have to eliminate the bad assets and out of the bad assets you have to admit that they're just like an alcoholic you know if you don't have it you have alcoholism problem you know you can call is a problem right so if you went to the states if u.s.

banks are alcoholics and we want to talk about the liquor of choice being euro zone sovereign debt or credit default swaps do we know what impact the contagion scenarios that you're talking about in the eurozone are going to have on us banks. ok let me be a little more specific the u.s. banks are alcoholics but they're not drunk on sovereign debt they're drunk on easy money ok the easy money is what allowed the sovereign debt to go berserk in the first place now we're stuck because we addicted to the easy money which is what the us alcohol you cannot raise rates ok so the us federal reserve is keeping rates artificially low if things he called for in europe that's not if when things is guaranteed to happen when things hit off in europe you're going to have rates increase simply because nobody wants to pay zero percent on a quick debt that is should be yielding somewhere around two or three hundred percent reason is because it's almost guaranteed to the fore and then that is going

to daisy chain into others. profit states such as portugal ireland and cetera and then those rates are going to the u.s. because many of them lend to the u.s. banks in the u.s. banks lend to the banks in the you wouldn't even nations you know they're linked and they're not separable that's why when the u.s. got in trouble the u.s. banking system got in trouble in two thousand and eight and in two thousand and nine many of the e.u. based banks the european place parents actually came to u.s. treasury and u.s. fed for assistance yeah a lot of those bailout loans went straight to european banks the same thing's going to happen in the reverse scenario when they get in trouble the problem is are you going to have enough we could deal with it i don't know you're already at zero percent interest rates you could dip negative slightly putting just a negative for the next four or five years eventually somebody has to pay the piper yeah actually kick the can down a row every road has a dead end somewhere and we've seen enough problems with zero percent interest rate i can't even imagine

a scenario of negative percent interest rate regimental to know i appreciate you for coming here and laying out how that would actually be a possibility down the road if the u.s. keep kicking the can i appreciate your insight as always that was reggie middleton he is an entrepreneurial entrepreneurial investor he also had the boom bust blog. so we've been talking a lot about the volcker rule so i could not miss this opportunity for a reality check first couple of stories that are out today because the role to remind you is supposed to stop too big to fail banks from proprietary trading using customer money to make its own bets we saw that have calamitous impact in the

financial crisis now yesterday we spent most of the show talking to members of occupy the f.c.c. about the many ways that they can still get around this spirit of the volcker rule by the many loopholes that are in this several hundred page book or rule proposal nonetheless wall street has been lobbying against the rule throughout the entire process influencing what's in it and now some foreign governments have recently been coming coming out against the volcker rule take a look at this editorial in the financial times today because it's a good example so the headline beware the risks of the rush to regulate it's written by george osborne and june zoomie now who are they well they're the finance ministers of britain and japan and what are they saying to highlight a couple of their key concerns both of our governments have expressed concerns about the volcker rule and they talk about the unintended consequences and one that they name is this to give you an example they say there's an exemption for trading and us government securities but not other sovereign so it could reduce liquidity

in non-u.s. sovereign markets making it more difficult costlier and riskier for countries to issue and distribute debt so that's just one of their argument about that argument itself now in the financial times paul volcker earlier this month wrote an editorial saying it's. basically a joke that banks in europe japan and canada should be able to pick up the slack but what i want to focus on is why have these foreign governments joined us banks in the fight against the volcker rule why now why are we seeing this well take a look at these revolutions revelations from bloomberg u.s. banks pushed regulators to widen proposed restrictions on trading and hedge fund ownership by foreign firms that's in the volcker rule then encouraged governments around the world to complain about the rules breach so they were affecting the regulation so that they could go to foreign governments and say hey complain about this it's going to hurt you so bloomberg cites several sources who say that last

year banks including j.p. morgan and morgan stanley lobbied the fed lobbied regulators to apply the volcker rule regulation more broadly to companies based outside the u.s. then banks and their lobbyists use that information to get foreign governments on their team fighting the volcker rule they set papers to washington embassies of foreign governments they met with foreign officials warning them that their sovereign debt crisis would suffer if these regulations were applied so there was a huge reality check when you see these complaints from foreign governments about the volcker rule. all right before we go let's hash out a few of these stories that caught our eye on to bring in dimitri kofi as our

producer and shannon donahoe in the control room to talk about something that really drew my attention because we've seen so many of these images coming out of greece recently showing divisions between germany and greece coming up again you had angela merkel dressed in a nazi uniform in a greek tabloid i think we have a picture of that you can see it right there she's up in the corner and here is this video that we played others played it to some protesters what they had to say about germany. ok we don't have that right now but basically we are protesters burning a german flag we saw them holding up a nazi flag saying all the nazis must leave despite this a new report out today says hey maybe greeks are thinking if you can't beat em join em athens news is reporting they've seen a twenty percent uptick in young greeks looking to learn german to have a better chance in the job market to make sure i am very curious your reaction to that we've seen so many the divisions but now we see greeks that are just basically

lining up it looks like to learn german and that's only because that's what happened after world war two you know a lot of greek despero a lot of them with the german a lot of songs came out about the worker up on the father of the past prime minister who famously said we don't want to be the winners of europe there was a lot of nationalism about greece's position as kind of a blue collar workers of europe so i think it's kind of interesting that this is kind of happening all over again and kind of a love hate relationship and i just think it's interesting that it's happening and there's so many similarities right germany was the aggressor in world war two obviously it's not the exact same thing i don't really see germany as the aggressor but a lot of ours is being directed towards germany but i think there's some interesting you know interesting real world analogies to that and no yeah yeah shannon you want to add anything before we move on. i mean major has also great stuff really understanding on law i can't i can't get anything. right well then we'll move on to something that we all have something to do ok we've all heard of linsanity by now of course is the new york knicks taiwanese american superstar now

a new report coming out that nike is hoping to cash in on the popularity of him in a market that's responsible for two point three billion dollars of their sales over the last four quarters it's growing and it's china now if you think that's racial profiling well guess who's cashed in on it to take a look at this video from the harvard grad showing hey maybe he's ok with it. trip to the six thousand six. hundred thirty two. hundred. that's part of a video that he made so i don't know what do you make of the hulu special i would like to go on if you've been waiting all day to say that i just thought of it i don't remember the. oh does this guy is you know is pretty popular is what i think is funny is these taiwanese american and and they're using him to increase sales in

china but china has a you know not a very friendly geopolitical relationship with taiwan there so concerns there go shannon i'm studying these three sheets of lin quotes that i have here and i'm just going to read some of my favorites so we have he's in love. where the bishop butler our director and it is a regular line of pedia a little pedia ok yeah i like it and we're going to end on that shannon with that little note of brilliance because our show is over that's all we have time for but hopefully you'll enjoy it all right is that do follow me on twitter at lauren lyster going to be back at you tube dot com slash capital account and come back tomorrow night.

we'll go to the. piece of pizza the looking glass at what will be the homes of the future where the walls might just be smarter than the residents every day trash or takes you from the elements outside and the whole system works to see you on monday to shine the spotlight on the latest building projects all around russia technology i'm doing here on r.g.p. please go listen.

he. later private first class bradley manning finally gets his day in court. with president obama and the mainstream media already having a rolling.