called friends of syria meeting amid fears their humanitarian motives may be a cover for another western led military intervention also headlining from r.t. tonight washington's intelligence services reportedly conclude that a rand is not building a nuclear weapon but america's main news outlets refused to drop the empty iranian scaremongering. and less than a fortnight before russians choose a new president the front runners face floods the streets of london we explained why in the show. that saw thirty minutes ahead the news in full between now and then straight to washington d.c. and loyalist it was friday night's capital account. good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. and here are your headlines for february twenty third two thousand and twelve the e.u. catches on that the eurozone is facing a recession while greece is still the gum on everyone 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 ready middleton is here to karate job the accounting shenanigans masking the real story. thanks. it's. the 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 the day'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 ok greece needs more than the haircut it needs a full blown default we hashed out the league 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 then 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 deep thought 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 entrepreneur lee investor he's author of the boom bust blog he'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 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 reggie depression the 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 don't see how it's

a bailout. as of right now the problem is this is of agreed to a seventy four percent n.p.v. here cut net present value and greece is use only statisticians 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 gets away with it everybody

stands in line and i want no way around this is that the 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 the leading indicators so when you have a significant drop in the lending to. a negative a significant drop in the negative growth rate and then into corporations after the fed corporations will reduce employment and we do so put then you have the depression if it so what you're seeing is a precursor to what's 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 have the best machine in the world but the fastest car but if stead of putting people in later when you decide to put baking soda 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 to 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. set a stage 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 up on his 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 and that percivale losses on banks and investors the books these losses are going to have to be mark to market sooner or later nobody's telling the truth on the 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 new york 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 so now do i get one hundred percent wiped out but i have forty four million dollars that swiping 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 investment this will cascade because you have margin calls in india have. asked for capital this is just greece like i said portugal ireland italy and spain also got a bit of the pie 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 and many banks no longer exist you know many of this is because it's several countries are wiped out and wars only asses so in order for them to stay in place they have to create a new set of rules because capitalistic market pricing is not working if you kept with the market pricing they're bankrupt so they say we're no longer mark you know a bonds to market it doesn't matter what people want to pay for them that's not where they're worth their words 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 we have the idea of everybody else but the problem is if you do that and it's time issue bonds again only the very very very very very very very stupid will buy these bonds ok so look we have 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 pipe with 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 four 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 definitely would not rule it out out of this is the beginning of the 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 lynch reduction but nike is taking out a lynch turns policy yes the little lecture will 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.

well. technology innovation all the developments around russia we've got the future covered. the issues that some of you are going to go for you go order them or so because we're going to meet the new boss same as the old boss this could very well describe what has happened in yemen after the one contested presidential election what does the future. 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

a 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 soaring 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 and gays 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 in it 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 the 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 we cure the problem right so if you want to think of 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 u.s.

banks. ok let me be a little more specific the u.s. banks alcoholics but they're not drug on. the drug 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 our the us alcohol you cannot raise rates ok so the us federal reserve is keeping rates artificially low if things go off in europe that's not if when things is guaranteed to happen when things go from 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 the 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 affect 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 two thousand and nine many of the e.u. based banks the european based parents actually came to the u.s. treasury 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 we're already at zero percent interest rates you could dip negative slightly put in 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 even imagine a scenario of negative percent interest rate reggie middleton though i appreciate your 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 i've got 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 a 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 the 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 propose 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 and the seas 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 i want 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 of some protesters what they had to say about germany. ok we don't have that right now but basically we saw 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 dimitri 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 that's only because that's what happened after world war two you know a lot of greek despero one of them with the german a lot of songs came out about the worker up on the father of the past prime

minister he 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 the 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 legit relationship and i just think it's interesting that it's happening and there's so many similarities around 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 is being directed towards germany but i think there's some interesting you know interesting real world analogies to that and no yeah yeah 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 he's 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. shouldn't you sixty six. hundred thirty two. hundred. that's part of a video that he made so i don't know what do you make of this. with our food. if you've been waiting all day to think that i just thought of it now because i know i remember the. oh does this guy is you know he's 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 they're so concerned they're 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 an additional color larger and it is a regular olympia a little pedia ok 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 as i do follow me on twitter at lauren lyster give us feedback at youtube dot com slash capital account and come back tomorrow night.

if. you. top stories from our ten pm moscow time. and sanctions the result so far of the so-called friends of syria meeting amid fears the humanitarian motives may be a cover for another western military intervention.