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Newedge Senior Director Larry McDonald on the potential impact of a Greek default on the European, global economy.
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More on the markets where we go from here were joined by tonight's market Napster and that is Larry McDonald he's a former Lehman Brothers vice president current senior director at.
New ads and they're also wrote a book called a colossal failure common sense inside story of the Lehman collapse Larry McDonnell welcome to its -- and and a new high -- -- they're having.
You're an expert He worked at Lehman Brothers during the time the collapse and subsequent financial crisis are there parallels to be drawn.
But what preceded the US financial crisis to what we're watching in Europe right now especially -- this late news about Italy's downgrade.
There's so many this so many similarities because essentially.
When Lehman fell it was like an 800.
80800000.
Pound domino that hit the waters and then.
Really the waves across the world hurt other economies here you have Greece and Italy.
But more interestingly is these are big sovereign countries.
But what's most important in terms of investing.
Is the dangerous part of of effecting the economy today but the words right when Lehman fell the credit markets started to seize up so the commercial Paper market.
Short term lending between companies over the last three or four weeks we've seen the same kind of a warning signs.
-- really the result of what's happening in Greece and in Italy so that's what I'm worried about is that if it affects employment that's that affects our viewers watching this right now.
I Nouriel Roubini noted economist.
Says just.
Let it default let Greece defaults taken out of the Euro what do you think I mean to wanted to -- -- -- market clearing if you will.
Well increases really too big to fail because it's it's and you have to understand that there's two effects really.
-- -- counterparty risk between the different banks around the world that own brief Greek debt.
Italy is even bigger problem because it's.
The of one point nine trillion dollars worth of government bonds outstanding those covered bonds and -- so many different bank balance sheets.
So if you -- Kris go it weakens the entire Euro zone.
Weakens Italy and then it -- all the banks such free have that really kind of waterfall effect and that's of people of and that's what happened after Lehman and that's we don't want.
-- you know you're saying we've got sovereign debt crisis from some of the weaker European sovereigns but we also have a a brewing banking crisis from some of the stronger economies right that are lending to these.
As well as some exposure here in the US -- comments if you will this is an ongoing question because we've been watching.
The sovereign debt crisis in Europe sort of unravel over more than last year now so.
To where we are now comment -- the US exposure.
Well really as an investor.
It's it's really -- bring up the 2008 playbook on the market goes up on euphoria and down and impatient so.
As you see M -- last year and a half -- looks like.
Greece and Italy and Spain looks like the ECB the European and European Central Bank is gonna come together with some type of backstop like we did.
-- Paulson and his team the treasury came together with congress they form the TARP the Troubled Asset Relief Program that put out the fire the US credit crisis.
What the with the markets looking to now in the reason why we're having such violent violent ups and downs.
Is either they get a backstop but He He TARP like facility the backs of the ECB or if they don't if they don't.
It's gonna really hurt the US economy.
And it's interesting because despite our own economic was here in the US because the troubles in Europe are so concerning.
People investors continue to flocking to the perceived security at US government debt again we've been following this for many months now.
But what's gonna happen here in the US when your thoughts on the -- tax in the jobs plan announcement president table -- a Federal Reserve meeting it's so many potential US economic -- so.
Howell all of this complete its -- Well that's that's -- -- Italian and a global lecture tour last year and people wanna compare Lehman to now but the most important thing is as an investor you have to have that 20000 foot.
Sky view.
On global macro view because there's so many things that are affecting the markets today you can understand a company really really deeply.
But there's so many other political factors this political this factors over in Europe He really have to have that view cross the spectrum in terms of the Obama plan you know in terms -- -- tax.
People who worry that's gonna submit -- -- -- for forget about the politics rather not -- mechanism -- the playbook Republican or Democrat trying to it a one thing.
If if you make a million bucks on the sale of a big investment.
You might not.
Take that sale He might.
It's gonna suppressed capital formation because so you see you can you know you -- if pay half content if you live in New York City and then He got to the state federal.
And Citi tech got its -- gonna do about 50%.
So you're not going to sell that asset.
So it's it's potentially will suppress capital formation because if you're a wealthy person might just not sell the asset.
And therefore that could that hurts jobs because -- that their money's not being reinvest that something else traveling thank you -- and unless -- -- thanks a lot stickler.
