good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for monday june eleventh two thousand and twelve a one hundred billion euro bailout for spain's banks that adds to the tab of the already and dead spanish government is what reportedly was agreed upon over the weekend so is this a bloodletting between banks and the state that will end in a blood bath of pain the writing to consume all of europe well that's what i guess the un is very fokus as is the case most feet to the greek economists and what does this seemingly better bailout mean for the terms of ireland greece and portugal the bailouts that those countries have submitted to and when it comes to revolting

against the harsh terms imposed by the euro crowds could upcoming greek elections be the best platform we'll discuss also the nobel prize is about to become a little less of a prize the nobel foundation reportedly has to cut back after a decade of overspending on i guess a nineteen global know it all doesn't come cheap we'll tell you what we think in today's loose change let's get to today's capital again. so when we talk about bailouts or bank recapitalization or rescue plans what usually capture the headlines are dollar amounts the names of various abbreviated

technical vehicles for bailouts be them the f.s.f. or the s.m. there's usually mention of a country's top politicians a technocratic commission or international organization thrown in here or there usually merkel somewhere in there but when you get to the actual data gritty of what's behind titles like a stability facility or a so-called solidarity fund are you really looking at something more like this solution is a channel the workhouses of the victorian era of the dickens novel in their conditions this is all over twist as they were depicted the workhouse which was where the poor had to go for help with food and a bed and they worked for it but life was intended to be so harsh that only the truly profoundly down and out would apply the work was so bad that it would deter anyone who could avoid it from coming and it would punish those who sought help

this was work like breaking stones or breaking bones will surely seems a fitting comparison for bailout programs that impose more loans on countries and harsh austerity on the public begging for scraps only to be met with what optimus might call tough love take a look. yeah don't ask for more when the terms are this bad this is the comparison that young is very focused makes between the workhouses of a dickens novel and these so-called bailout funds he's here to tell us how it works and also how spain is going to fare entering this so-called workhouse also what this means for greece ireland and portugal and their rock crushing plights he's a professor of economics at the university of athens and author of the global minute tar america the true origins of the financial crisis and the future of the

world economy and we are so happy to have him on this show on a day when there is so much news going on in europe in spain and that has major implications for greece so first of all thanks so much for being on the show professor the pleasure is all mine it really is all mine so let's start with this spanish bank bailout because that's what's all over the news and i know you've been writing about it this is a bailout for the banks but the funds are funneled through the sovereign so this increases the debt for spain possibly by as much as twenty percent according to one number i saw in the financial times so my question what does this do to the spanish government's solvency going forward this bank bailout. it simply ensures that the spanish state is insult and this is our love all over again let's not forget that using the island is in the workhouse of the year percent is not

because the state overspent but because its banks went bust and their losses were transferred onto the shoulders of the irish taxpayers and given that ireland could not bring its own money it had to borrow and borrow and borrow or on behalf of banks at some point the solvency of the irish state simply fell through and island had to resort to the workhouse of the of herself this is precisely what's happening now in spain the difference is that the depth of the of the spanish state approach exceeds a trillion years so i'm like four islands that would could be put at the workhouse and forgotten there spain is a thorn on the back side of the uterus on it effectively is going to lead to the disintegration of the eurozone if matters that allowed to proceed the way that they're proceeding while that's a pretty bleak prediction i know when time you said that that spain was too big to bail out again still agree with that. just look at the numbers small them in three

years how much money does the episode have to play with at most two hundred billion yeah the fact that they perceive to be waving around the corner and the guidance these are highly intertwined and i see you have you have your answer so you don't think that there is a way to to salvage spain i want to get a little bit more into the details of this spanish bailout although i know that we don't know yet where the money is coming from exactly but if you look at the bailout funds one of them is the e.s.m. and one of the concerns about this fund the european stability mechanism is that it's considered a senior creditor by european authorities meaning that it has to be paid back first if spain defaults on its debt meaning that investors who buy spanish bonds now risk being behind the e.s.m. a spain can't repay what is this due to spain's ability to borrow. it diminishes it

it increases the yields on the spanish bonds increases the cost. which the spanish government would have to borrow already that course is what it is so complete get them in spain is out of the markets effective now and europe has no plan as to how to refinance spain's private sector debt and public sector that now there's another dimension that this perhaps the most significant which we tend to forget and that is that spain is in the recession so by posing. the fears so stated now which is what is happening already the spanish state is going to load more than ten billion of its budgets very shortly followed by another ten billion that is going to accelerate the recession that is such and we accelerate the capacity of the spanish states to. to go to a sufficient axis you don't find is that itself this is just that it's that deflation of the cycle which is. creating out of control and one thing that i want

you to elaborate with that is that on paper people have said that spain's bailout it's not subject to some of the tough conditions that ireland or greece or portugal had to submit with their bailout but you brought up an interesting point which is the austerity that they have already had to submit to and so is this really so much better than the other bailouts or is it more of the same. on paper it is better on paper spain is going to get up to one hundred billion dollars its banks without any new study the measures but in reality that is not so because let's not forget that this is not the first bailout that spain the seat of the last few months the first official bailout there was another one of the arrow which was effectively mr dragging out the sea being found put printing hundreds of billions on behalf of

spain providing it as you could it be to the spanish banks so the spanish banks that borrowed from the e.c.b. at one percent could then lend at that much higher than that if they do the spanish they it was a way of ensuring that spain were to remain liquid the spanish government of course but for the mr draghi to effect that liquidity go vision the spanish banks and therefore in directing financing financing madrid. he exacted from both the room and the three matter very see the use of the measures that were put in place over the last two months so the austerity measures have already been place what has happened now is that instead of simply financing this banished state through. in that it could easily its banks now that this death that this breaks between him and solvents they've been it's all in banks it's clear for all to see the billions of dollars of providing loans in spanish they directly in order to recover dollars

that banks the same banks that were being used up until very recently in order to finance really and the arrow of them this money state now if that sounds complicated it is because it is an extremely emain complication which we have in europe instead of a national plan for getting out of the whole lot to be clear what you're saying which sounds absolutely insane to even average person is that you have the banks propping up the state and also the state propping up and they know that right. well think about it very simply you have two really bad swimmers extremely weak in stormy waters leading on to each other sinking very fast worlds the bottom of the sea this is what we have while your analogy was much better than mine i think that definitely sums it up and paints a vivid picture speaking of bleakness i want to get a little bit more into your work house comparison to really give our viewers an understanding of this so-called stability fund the f.s.f.

which is another one of these bailout funds that is likely to fund the spanish bailout you compare it on on one hand to a c.d.o. which is a collateralized debt obligation which anyone who knows about the two thousand and eight than actual crisis knows and that conjures up how much have they put those can cause but also you you make the comparison to the victorian workhouse for those maybe more historically oriented like we saw an oliver twist i played a clip so how did these comparisons play out to listen ok let's take these two groups one of the time firstly they were caused by when greece for through the cracks in may two thousand and ten. the unit being the union in its wisdom decided to create a bailout fund the of the said. the purpose of which was to convince the markets that we're going to be standing behind these we can members and therefore hoping that it will never be used but as an additional safeguard germany in particular insisted that the f.s.f. would become another guys in full for all countries like especially the in spain

but might think of using it as an alternative to financing themselves in the markets so they want to put it there but they want it at the same time to make it very unattractive so that the large countries like italy and spain will you do use which is a little bit of a contradiction. turning out of the to the to the structure of the f.a.a. . and my analogy of the c.d.o. think about what was this as the your word financial. debt instrument it was a. vital which it was let me look like it like a box which contained. small pieces of other people states including governments companies some prime market mortgages and so on each one of them with its only interstate and its own default all that was packaged together it was so complete get there nobody knew what was inside and were selling like hotcakes until of course that the bottom fell out of the market now the epicenter of both rows in the international money markets you don't provide this bailout funds by issuing its own

bonds those bonds are like studios because they comprise a little piece of that one by germany one by france one by one by the noble and so on each one of them with different default rates each one of them we didn't need it but it's an interesting one of the company that this is security guys and bulk of that you know a small chunk of those percent bonds is spain right so now that spain is appealing to the episode for loons you have these becoming sort of it moves on one side of the equation to the other so the banks the really it can no longer go to the those chunks with the episode ones that are used in order to provide bailout funds to greece portugal and out in spain it's becoming a boat from the epicenter and that has that even vicious dynamic of a domino effect within the intercept bombs just like lehman brothers studios that. interesting comparison this many years after lehman collapsed we'll have to see if

the rest of europe is going to suffer the same fate because when we get back after the break i want to talk to you about what this spanish bailout means what these sinking swimmer's mean for ireland for greece for portugal so we will have much more with yanis varoufakis professor and author after the break also still ahead a mortgage firm has a solution for states hardest hit by the housing crisis in the u.s. and then up until main yaf we'll have the details and latest changes but first your closing market numbers. 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 going to be

you who with the global machinery see where we had a state controlled capitalism is called sessions when nobody dares to ask why we do our t.v. question more. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else and you sure see some other part of it and realize that everything is ok. i'm charging bloggers a big picture. here which i. love and they alone are still you know get the real headlines with none of them are the problem with the mainstream media today is that they're completely disconnected from the viewers and what actually matters to those viewers and so

that's why young people don't watch t.v. anymore if they want news they go online and read it but we're trying to take those stories that people actually care about and transfer them back to t.v. . so before the break our guest was talking about l.t.r. owes the e.c.b. three year one per cent loans meant to shore up banks and i just want to point out something to our viewers that's important to remember because while the e.c.b. and governments try to redirect money to insolvent banks in certain countries it's important to remember that the money is moving with in the eurozone banking system to which affects the dynamics of what this chart essentially shows is capital moving out of the banking system in italy and spain and at the same time deposits

are going into two surplus companies in this case germany and the netherlands so this all compounds the problem so it's just another element of this to consider as we talk about the broader implications of just this latest news for the broader euro zone yanis varoufakis professor of economics at the university of athens and author of the book you see here the global minute america the true origins of the financial crisis and the future of the world economy is here telling us everything we need to know about just how bleak this is so we talked about spain before the break i want to ask you you said on paper yes spain looks like it's a better situation better conditions for this bailout but in reality it's not that different than what we've seen with other countries so the question becomes should ireland greece portugal should those countries try to negotiate the terms of their bailouts or are they is spain submitting to the same thing they did. when he did

shoot in the good beef over every european should reject the kind of policies being pursued in the name of europe because every utopian stems will be new women's. everyone from the been in all the way up to finland and from ireland all the way down south east towards greece is going to suffer there may be some beneficiaries at the moment let's not forget that germany's borrowing costs are almost zero these days and also there is a cut of the flight as you said into germany from which german banks are benefiting but the it takes a completely foolish disposition to think that these benefits are sustainable for a country like germany and once spain becomes a lost cause like greece ireland for example it would be absolutely impossible to maintain the euro zone and when that happens the breakup of the euro will mean that

countries like germany if we use its export markets in particular china if it has to reconstitute stage market invited and then suddenly all the monies that are being owed to the central bank of germany by you all that the sense of banks and that is what but diagram of course sharing is never going to be declared to the biggest bank we're talking about a complete other implosion of the whole continent and as far as this sounds horrible as far as revolting against that implosion against the e.u. against troika bailout terms you've written about the iris referendum this was a chance for irish voters to reject the e.u. fiscal treaty and they didn't you use your view was that they were blackmailed because they were told if they voted no the money from the troika would cease they would be cut off so now we're looking to greek elections there on june seventeenth in your view is this the chance to send the right message to brussels and what to that message to look like as far as the election results in your view. well indeed

the irish people where black means they were told that forget about the fiscal pact the fiscal pact that we are voting for or against. is nonsense that we all know about that but if we say that no then ireland is cutting itself off is some funding in the future and it's not a hard job in dublin and in cork to fix european policy let the germans the french do it we should simply play the role of model prisoners and continue to be funded so that you know island that's not fall through the cracks likely grace that now this same strategy is being pursued as we speak the good people who are going to the polls and sunday have been told that unless you vote for barbie's that will. adopt the model prisoner strategy and in particular the conservative part of the new democracy and this was in spite of the apostle and if you vote in a party which is recommending. it existence to the policies that are being

pursued at the moment then effectively greece is going to be thrown out of the euro all sorts of things will happen this is precisely the outage scenario what would it take for this scenario to break down take the greek people on sunday voting for a party like series or the radical left part of the or at least not to vote for the bottle bailout terms and conditions parties which are effectively asking of greece to do something that it is not possible to do and that is stick to the terms of condition of its bailout which neither we as greeks nor of god and his angels if he and they were to descend on athens and form a government could possibly stick stick to it because the only just a manageable and just a follow up we just haven't met but i do want to ask you this because you are great this is your country my question to you know after the election faced here is that

does get the most votes what is it about this party the gives you hope that it would not end up selling out greece like some other politicians are your plan. welcome trust any politicians have to tell you that but the only reason why i'm. giving them my vote of confidence we've come to this consequence is because they're saying the right thing they're saying that the only way greece can stay in the euro and the kids should stick to you because you will be able to get out. says note that them if you want to go and conditions of being placed on it but spain. portugal among them and it's the only part you know that says that so they will have my vote even though. i will manage to vote for them for going to the rest of the. electorate i mean first i know you haven't been too enthusiastic about that vague manifesto but i every day of being on the show and laying this all out for us thanks so much that was the honest fair fox professor and author.

let's wrap up with loose change let's come back to the united states we've been over on the other side of the atlantic not that you can really separate them because what happens there affects us here but let's talk about the u.s. situation let's talk about the mortgage crisis first let's back up because when you usually hear about eminent domain stories the narrative usually involves a battle usually goes a little something like this the town argues they're offering more than is required by law to those who choose to relocate the township is right in with thirty five thousand dollars over the value but the problem is at this point the value of these

half demolished homes is close to zero. who eminent domain in a world where we witnessed a housing crisis will listen to this now a mortgage firm wants local politicians in california to use eminent domain to solve the housing crisis reuters reports that the move would keep cash strapped residents in their home by condemning their mortgages instead of their houses and the mortgage for and would use private money to fund the public condemnations of underwater mortgages it sounds like mumbo jumbo the bigger picture that i take away from with this is how crazy this is gotten and then it domain is used as a gauge to indicate how much a country values its citizens freedoms and the fact that it's being used in this way that seems like such overstepping such a derivative of eminent domain to me seems really alarming i mean i agree with it's not supposed to be used for this certainly but i think it's what i think is crazy about this is that it isn't even that this is being used to correct the problem

that started with the market this is going to correct the problem that was created by the government trying to correct the problem so it's like all these problems that are perpetuated one over the other if they had if this goes all back to the fact that. you could go as far back to the credit boom but the point is banks have assets on their books that are they need to be marked down you need the falls to happen you need bankruptcies all these things and nothing's be allowed to happen other reach into the pocket for eminent domain to try and solve this problem i just find it ridiculous really absurd and where do you draw the line even if it was well intentioned i mean i just don't think you can i mean i don't mean as opposed to be there to create economies of scale you need for some reason if the larger society benefits by have by running a highway through some you know some farmland confiscate the farm then you give it over but this is just crazy but i agree so we agree so let's move on back in two thousand and nine some argued it was too soon for president obama to win the nobel prize because we know hope and change is worked out but it seems he may have won

the prize and it's money just in time. when president obama won his nobel peace prize last october he promised to donate the one point four million dollars in prize money to charity today the white house released a list of those charities ten of them and all. of those charities windfall that no others will get from the nobel prize because the nobel foundation now says the money that it awards will fall to one point one two million dollars they have to cut back i think by a fifth because of years of overspending so i guess it's a little expensive to anoint the elite chosen few who get to just kind of really persuade the conventional wisdom just by saying something because they have a nobel prize i buy the i buy by the fall don't listen anyone with a nobel prize i don't want to hear it because it's a it's annoying to ignore trolls so i don't want to know anything about you know should we auction off these titles because there are people out there be willing to

buy you know his nobel much better you know raise some think that's a good yeah i can what do you think like more in buffett's lines it could be the nobel prize because warren buffett last month for three point five million we found out now the money goes to charity anyway because that lunch money goes to charity too are you going to hear of warren buffett young i like that idea i mean he's going to be all he options off is his dinner going buffet i'd rather i mean if i'm going to pay that much money i do have a nobel prize who could be like nobel laureate dmitri you can see this yeah all right i like the some of the yeah i mean are you sure what do you think of a. nobel prize laureate dmitri kind of you know sort of the sending snarky i asked a joke you know what you're save by the clock because we're at a time when my own. about political capital anyway then i think we're on to something let us know what you think and that's all we have time for thanks so much for watching our show be sure to come back tomorrow and see another one and in the meantime you can also follow me on twitter at lauren lyster you can give us

feedback on the show or catch any you missed and also this is that a youtube die. flash capital account and you can see it then h.d. on hulu and will alone at hulu dot com flash kept on that account had a great. culture is that so much i'm afraid we're going to make you need to get a lot of people in your unit but look it was the era of the greenback finally coming to an end with china and japan now trading with each other in their own currencies is the international monetary and. there hasn't been anything good on t.v. . it is to get the maximum political impact. before source material is what helps keep journalism honest really.

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