This transcript is automatically generated
Well tomorrow will mark.
Four years since Lehman Brothers collapse and our next guest was an eyewitness to that death spiral as vice president -- you wrote a book about it all called a colossal failure.
Of common sense Larry McDonald.
Joining us now first of all do you think what.
What Bernanke did yesterday implies lack of common -- -- comments that.
Well it really doesn't to complete lack in the sense that.
If you really think about it we have a new hedge fund it's the Federal Reserve what you -- They've accumulated about after this is done about 2.5 trillion dollars of bonds and what -- the -- parts but that is that's really run by academics -- these people haven't taken risk.
In when it when I wrote my book and when you worked on Wall Street you realize that although these are brilliant people have never taken risk.
-- diminishing all this risk in the really different kind of smarts it's a different it's like baseball and that soccer and the taxpayers I think.
Colossal -- at risk were to look back at the -- many years from now we're gonna say this is the day that really put us.
At risk and the risk -- -- how we unwind this how you get rid of this huge portfolio of two and a half trillion dollar cute you know they say it's like a roach motel -- check in.
But they don't check out.
In other words you -- putting this on -- easy.
Getting out of it.
Is just an extremely difficult when you begin to get out and it is that when another Lehman like collapse might come about exactly.
I've been blogging about this moment what's -- Florence -- -- dot com and what's interesting is.
The the -- blonde the -- -- don't get something that the one thing the United States has over all the other bond markets in the world with the deepest and most liquid.
Biggest challenges that because the Fed owns so many bonds that when things do turn around of things ever normalize.
The ten year treasury who could grind up to 2% in the go to four.
Very quickly because our market is becoming less heat less liquid because the treasury and the Fed owns -- -- -- OK so -- one Lehman on the horizon is when the Fed tries to unwind as to would have trillion dollars of bonds.
The secondly -- is overseas in Europe it's definitely in Spain Spain has been if you think -- Ireland Spain.
They're not that their countries that aren't that far away from each other.
In Ireland two years ago did two years ago they did -- stress tests.
And the banks came clean with the losses.
Spain still hasn't -- -- In I think in the next week or so you're gonna see finally -- admit they haven't.
Major banking crisis that needs about horrible total money but 300 billion including the banks in the states and the and the country the to 300 billion dollar bailout.
You know I've been saying for -- -- I don't think they have a banking crisis what Spain has what Greece has what Italy has they don't make things anymore.
They when they became a part of -- -- became so cheap for them to buy everything because they had the Euro as a currency instead of the world currencies.
That they stopped making things they stop growing things they stop doing stuff that actually produce I mean obviously there is still some production but a lot less.
That's what has to change and they're not gonna change by increasing taxes which is what the IMF has been recommending they do.
That that's true when we look back in the United States we're trying to create jobs to the Federal Reserve the whole point QE3.
-- to create jobs but they're facing massive secular changes -- -- fairness for Bernanke he says you you do need fiscal policies in order to create growth in the United States as well and that doesn't include raising taxes if anything to lower tax rate but I think it's like a Tug of -- -- doing all this QE trying to create jobs but over here you have.
Technology leader you announced that the last couple days Best -- That's fine in the Amazon Amazon is crushing Best -- it's costing them jobs technologies costing -- -- the iPad itself that what the -- doing -- computer industry.
Elect and I we -- two computers that we have a computer and an iPad to jobs are being wiped out by -- by technology jobs are being.
The if you look at the secular changes in the mortgage market right they're lowering all these rates -- what the my book -- colossal their common sense.
The mortgage market is a third -- you've gotten enough for that book but go ahead for the mortgage market's broken OK so the securitization market.
They should be focused on fixing that because that's like the blood.
That brings through the veins the capital and other words.
Back in 2006 you head.
It every strip mall the United States had a mortgage broker there was loaning money.
Those don't exist anymore the securitization.
Market is broken so the Fed can lower rates all they want but they're not get in the camp.
That we have to run but how long -- this rally gonna continue days weeks months this rally here there were and I think this is about a week away from roll over because of Europe.
But there but I'm gonna on the plate -- the best there -- Larry -- great to see a thank you for coming if you forgot.
Even -- -- -- three times his book is a colossal failure of common sense --