good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for monday june twenty fifth two thousand and twelve well on friday we had a week to save europe now we've got the read a that's according to george soros and he said the upcoming e.u. summit later this week could go like this. to. prove to be a girl and. truly critical. george soros changing the game here remember at the beginning of june he said europe had the reymundo to get it together now just three days will talk about it meanwhile

spain has formally requested its think they allowed cyprus has now requested bailout aid citing spillover from greece grazes new finance minister resigns merkel puts the basha on euro bonds and the central organization of central banks says their money printing buddies may need to give it a rest let they all run out of it all the while bank risk may be growing so what exactly can one more even summit solve will try to answer that and amidst the global debt crises affecting cities and states across the united states one suburb in the state of georgia has adopted a different model of government it has no long term debt no pension obligations look at their privatization of city home let's get to today's capital account.

well what do you know it's your it's not george ours it's monday and george soros is out making headlines with a new proposal on how to fix the eurozone crisis it involves a european fiscal authority in charge of the various e.u. rescue mechanisms that can issue european treasuries and set up a debt reduction fund. and actually buy up the excess stock of that that has accumulated in the hands of because italy and spain and finance it by issuing those. so he has his plan and he says the lack of fiscal agreement of leaders ahead of the e.u.

summit this week could of course proof fatal for the currency union because i don't know maybe it's fatal or maybe he's just pushing his plan but the point is that we've heard it before we've heard it from soros we've heard from various leaders and technocrats that we have a deadline to solve the eurozone crisis or else we were in fact just talking about this on friday and now we have another fresh deadline from another newsmaker soever harrison founder of credit write downs is here to level with us because edward you are not. trying to make these big splashy and of the world unless you adopt my policies headlines you keep a very real so tell us is this really the last three days we have until this make or break moment for the eurozone as george soros would have us believe. but i mean

when you put it to different was you this a one every single one of these there's potential for disaster if they really screw it up and don't do something the patches are but at the same time there are always ways to extend that is a perfect example is a fact the e.c.b. is now lowering its collateral god lines to be able to borrow. and not have to depend upon the ratings agencies because ratings agencies are lower in the. ratings of all the sovereign debt in europe is in the euro zone so you can do stuff like that and keep this whole ball rolling so i don't look at those three and then the whole thing is over i think that you know it's going to continue on like this for a long time yet you put it as extend and pretend measures so when someone like george soros comes out with their own plan is he operating under his own kind of pretend they can't extend do. i'm saying measures that his kind of policy

unofficial policy i think what's happening is that you know what he's saying basically he's making a very stark. in the sense that either you do the right thing now or you know it could be calamity really you can extend and pretend that's the middle route the right thing to do would be what i'm saying you should do and if you don't do that then bad things will happen or in reality this is the route in the middle where you can sort of floods and keep things moving along and we know that middle fudgy area can go on and on and on and just to drive that point home we were talking about this very very thing on friday and how there are always these deadlines that are given for these summits and because on monti he was saying we have a mario monti was saying we have a week to save the eurozone and then if you just look back here are just a few of the headlines over the last ten months since last fall that officials and newspapers have been saying we have forty eight hours or we have ten days are we

have three weeks and yet europe has not exploded yet so let's talk about some of these latest developments and what they mean in the context of this crisis so cyprus has asked for a bailout spain has officially put in its request for a bank bailout which we already knew about so are either of these game changing measures or are super important they're just you know yeah it's part of this whole floods thing and continue along i mean at the end of the day where you want to do what you don't want to get to is what the bank runs that becomes systemic they go in they leapfrog across different places and we haven't seen a real bank run probably since lehman brothers since northern rock excedrin so forth so that's really the that's sort of the endgame that's the thing the disaster that we would see the question is what kind of policy actions would lead. to that kind of disaster and it would have to be something that you know were basically

there was no other people just had no other choice but to lose confidence and in the banks of say spain or italy or whatever it may be they started pulling money out and then the europeans were not going to help out in any way shape or form and then the whole thing sort of spiraled out of control but again even in that scenario there's still the opportunity to stop and to provide liquidity etc so you can continue this for a very long time because right ok and as far as this summit this week we already ahead of it have merkel out putting her foot down saying no to euro bonds we already have the greek government coming out with ideas that it wants to renegotiate its bailout with it but then you have wolfgang schauble us saying no greeks have not done enough they need to uphold their promises and try harder so what exactly is anybody expecting to have happen at this summit leaders to magically change their minds about the things that they've been playing their foot

down about for a while now you know i mean that's you know you have the soros thing saying this is what you should do then you have the possibility that they're off and do any of that and then the thing in the middle if they do some of it we already know that spain met with italy and france and germany this past weekend and they came out and said pretty much debt you know we jointly support a stimulus of one hundred twenty one hundred thirty billion dollars the e.c.b. said now we're going to lower our collateral rules and therefore you know they're going to start to step in there and buy up spanish and italian debt so already we see that there are at least two different things from both the e.u. leaders and from the e.c.b. that are going to happen so they're going to be able to put something out there and say this is what we're going to do it's not going to be what people want but it's going to something and so they're going to continue this whole cycle in my personal belief about how things are going to. is that going to continue to do this but it's

going to get every closer to the poor ever closer it's going to be italy and spain then next could be france or belgium or austria etc and then they're going to continue to try to paper it over and at some point they face a decision either we stop it because it's getting too close to the core or we let the whole thing collapse well that's a really interesting point because there was an article in a gym german newspaper over the weekend talking about how well the germans are buying swiss property at any price because they just want out of their euro denominated assets they want to escape any kind of threat of a euro collapse and i guess my question from that is is there more of a concern when you have germans losing faith in the euro and concerned about the crisis does that show it's reaching that core we already know the german see the numbers have already been moving up somewhat and we have to remember that germany has eighty two percent debt to g.d.p.

been over the maastricht hurdle a number of times in the last decade they have their banking system is under capital they have already had to build some bags one of their banks may be liquidated one of the londis bank you know they have their own difficulties they're in the midst of what some people think is a property bubble you know there are a lot of different things with germany it's not as if germany can bail out the euro and so you know if we're going to continue down the line where everyone's on you know there's no real sort of joint fiscal authority there's no one who can sort of stop this whole thing then eventually it's going to reach germany as well or no way out for some of these countries that have too large and debt overhangs and their relationship with the euro just seems to not be working but along the lines of you talking about some problems with germany germany has been considered a safe haven in some regards and we've. when investors pay the german government to

hold their money we've seen negative yields in some cases for six month german bond six month treasuries so one point that some simon johnson points out the mit professor about dissolution risk is this he's right to say bloomberg means there's a lot of risk that isn't being priced including in so-called safe haven assets anything denominated in euro's is subject to complex hard to value dissolution risk the credit risk of german sovereign debt maybe on change but what is a german government bond worth if there euro is seriously on the rocks at her what is the answer to that and if there isn't one is that a problem there isn't an answer because you know on the one hand germany can bail out the entire eurozone because they just don't have the financial resources to do that but on the other hand if the euro dissolves then germany basically is on their own and if they are the as bill gross calls it the cleanest dirty shirt then perhaps once they're in the room then everything will be much better for germany

that's the real question i think that you know simon johnson is right there is the dissolution risk you don't know what's going to happen and even so as i said germany already has a under-capitalized banking system they have a high debt to g.d.p. ratio themselves even if they were on their own they would face some serious risks for for investors so in terms of either. your currency depreciation or in terms of inflation and things of that nature so i think that there are a lot of risks that are being put into the euro zone and i think ultimately what's going to happen is that either the eurozone is going to have to do something on a federal level or it's going to dissolve completely and if it does dissolve if in the way we see problems in spain and italy if there's any sort of default then it will definitely ricochet back on. germany and it will be a very negative scenario before we go to break though is dissolution risk something

that u.s. banks are not factoring and not prepared for it's not that they're not factoring in or they're not prepared for but there's nothing you can prepare for how can you prepare i mean this is the sort of little you know right i mean what are you supposed to do if suddenly the eurozone breaks apart italy defaults or spain defaults and then. you know there's a run on the banks there's not a whole lot of preparation that you can do except for maybe by some credit default swaps that the arabs read and so on and cases i want to talk more about this we're going to go to break quickly when we come back we're going to talk more about the threat to u.s. banks that they may not be prepared for we'll have more of edward harrison founder of credit write downs also still ahead we already talked about spain's form over a quest for a bank bailout but we'll take a look at some of the more creative protests spaniards have waged against those banks in loose change but first your closing market numbers.

what 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 you know view with a global machinery to see where we had a state controlled capitalism is called sasha's when nobody dares to ask we do our tea 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 realized everything you thought you knew you don't know i'm too. is a big. story

with a. little luck and they alone until they all 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 just 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. . welcome back before the break we were talking about the eurozone crisis and the rest to us thanks the dissolution risk the risk of what happens when the euro no

longer is and there's all of these contracts that need to be settled without the euro that they're denominated in and this isn't just a simple contract between me and sam i guess edward these can be complex derivatives contracts and that's where things get really hairy so i want to bring edward harrison founder of credit write downs back in to press him a little more on this because before the break you were saying you know what can banks do about this to prepare for this kind of dissolution risk what about more capital what about not paying out dividends well you know at the break we were talking about that and you know the narrative that's been going on in the united states has basically been you know we've done such a great job. that when the sustainable recovery these banks will walk there's no problems whatsoever we're on the road to prosperity etc and if that's the narrative that you're trying to spin the absolutely no way then you can say that we're going to stop paying dividends now we're going to recap

a lot of these banks because that would be sending the wrong signal that would be telling people in fact the narrative that you created is false and i believe that that narrative this false i believe that when the united states has another recession all of the under capitalization will become apparent all of the dodgy assets that are being carried on bank balance sheets will suddenly be crystallised as losses and people will see that there are still real problems in the u.s. banking system so you're saying banks are ill prepared but there isn't the political will to prepare them more for the kind of risk we could see from the eurozone for example because there is this whole political rhetoric out there that the u.s. is on the up and not that it's recovering that banks are getting better by downgrades we just look at jamie done in j.p. morgan chase for example the narrative used to be that j.p. morgan. this was a really well run organization and jamie dunn was a great risk manager then they had this whole will trade and suddenly everyone said

wait a minute maybe that narrative is not true the reality of course we know is that these net these these these accounting gains that these banks have been making are based on on the provisioning that is on lowering their loan loss provisions and the question is is is this a prudent thing to do at this point in the cycle are we moving towards a recession and if we are lowering their provisions then we're going to see it going forward so it's that sort of thing i mean the narrative in the banking sector is the world and therefore we should pay more dividends so it's not just the political in there but it's also the you know the sort of psychological game that's being played well and i ben bernanke he cites his stress test that the fed gave to the banks but these are all based on whatever stressful scenarios the central bankers came up with which may or may not be based on what would really happen but let's move on to the bigger central bank picture because the b. i as kind of the central bank authority of all central banks or central bank

organization the general manager came out at their annual meeting and said hey stop the printing presses there may be some unintended consequences from all of these unprecedented measures that everyone's been taking during these financially stressful times so is this kind of alarming when central bankers are saying warning about the excessive easing even by central banking standards who you know it's interesting because paul krugman came out and he was saying that he doesn't believe anything the b.s.s. to say of course the that they don't want sprinting until the printing press is just i don't know explode. and so he's completely against that but the reality is that the b.o.'s especially under the canadian who used to william white used to. the head of the b i assist chief economist. they were very prescient in terms of explaining where the problems live and why we potentially could be having

a. credit crisis and so i think that we should listen to sort of the things that they have to say the reality of course is this given the institutional arrangement in europe that is that there's no lender of last resort that really can step in and there's no fiscal sort of there's no supra national fiscal board as you have in the united states where the central governments there what else can you do what are they supposed to do in europe if spain runs into problems or italy runs into problems i mean that's the reality we think the euro is flawed in the way that it's constructed and now the chickens are coming home to roost they don't have a plan and where big trouble the e.c.b. the expansion of collateral in terms of what they will accept i mean isn't this just another effort though that they can do in order to change trash into cash and

keep muddling through it way that's not sustainable but a crisis now and so eventually you know i think the thinking behind all of these measures is that if we just buy enough time and we muddle through long enough then we can sort of social laws the losses all of the losses that we're actually that are actually there right now sitting on these banks balance sheets that we can actually socialize those over a longer period of time no one will see you know through all of the negative real interest rates that are going on except that in fact that's what we've been doing for the past five ten years what happens socializing losses same theme different day no matter what continent you're on what crisis you're talking about edward i appreciate you being here to explain this all to us and to break us free from the crazy headlines of three days or one week or whatever the boy who cried wolf at these important thematic bigger picture issues that are important to understand

things that we're going to ever hear and founder of credit write down. all right let's wrap up with loose change dimitri shannon and here is an interesting story we know cities across the u.s. are debt strapped they're looking for ways to save money or trim budgets or get out of debt should they look to sandy springs ok this is a georgia suburb that has operated from inception with a model it calls the model take a look. the city has only a handful of employees on its payroll it's outsourced virtually every other aspect

of the government to private companies. so essentially it has a few employees on the public payroll but everything else all the other city functions are run by private corporations so if you need a business license you actually go through a company in england and nine eleven dispatch is headquartered in new jersey so this is really interesting do you think that this is something that that could be adopted in an era when we see so many problems with the burden of public pensions that are unsustainable and all these debt things i love these i love these i don't know about them eleven thing i don't know about the nine eleven calls but like for example most of the private the d.m.v. every single person in this country hates the d.m.v. there isn't a single person that says that the d.m.v. can't be can't can't be better that it's perfect is it is ok. let's drop our private as the d.m.v. as agree with it in the springs and really i don't really care that i want to do that i mean the way. that you're really driving those he represents in america

represents the ultimate failure of bureaucracy but the problem is that it's not like privatization is a. miracle cure are we've seen situations where privatization ends up being super expensive like shannon and the meters in chicago. it ended up being a little more expensive a lot more expensive. although the president's wrong thing was fifty million dollar bill for most of the way going the thing with the proposition meters is what was wrong about that is that the city lost the revenue that it went but they sold off this revenue right because they wanted the dead or whatever what was wrong with ok private companies managing the meters i don't know what's wrong with the issue of my thing is private private companies manage to manage ploys manner and there is a more efficient and effective way and the envy is the perfect example that everyone goes to be wants to break and pull their hair out if i wasn't working i get a minute now i don't know what i love when i love my license expired because i don't

know my own mind suspend is because i think of the do it so you go that's too much information we should just move on because we're going to try and get the city manager to talk about this whole model so until then let's talk about spain we know that they formally requested a bank bailout we already spoke about that but spaniards have been involved in some very creative protests in banks since the economic crisis hit here is just one example. so they go in flamenco they protest in dance spanish banks i think that's pretty cool their slogan is body versus capital yeah you know they're using body language to convey their message you know i'm sorry but i think it's you know. i

mean this is a joke ok these guys i mean if they really are trying to believe i think it is running attention i mean there's no way this is if this was going to if this is the result if this is what happens the punishment for bad behavior for a banker then why would you do more and more about. these women go dancing i don't get it that's a good sorry guys i like spaniards i don't get this one i don't go i don't go yeah you guys ok let's go let's quickly move on because we do want to get to this a federal judge's crackdown on wall street doublespeak so speaking of bankers it a lawsuit accusing goldman sachs of misleading investors the judge compared goldman's defense arguments to this a world where pleasure. where language in history have been systematically destroyed. and we're living people simply advantage. who that's george orwell's one thousand nine hundred eighty four where words from authority are the exact opposite of what they mean so in the case of

bankers loss is profit freedom is debt gambling is had jane vats that is that the pit of my eyes a see that's the if you look it's like my god said the movie was a movie with. syriana he's like he's like with that he's like if you look at if you look at if you look at a live long enough to turn into an asset these bankers man you know a loss of profit that is freedom and gambling as i am hearing whatever they want when i want yeah yeah and the judge has set him up was a little write it i now am surprised that you're not more incensed largely angry at this this family was his double speak you know what or well you don't need or use brokers used to be divers in the house always wins demeter i am upset i just have to wrap the show so we got to go book out now for tomorrow thanks for watching and please come back and in the meantime you can always follow me on twitter at lauren lyster give us feedback on the show at youtube dot com slash capital account you

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