How the Private Bankers Are Using the Financial Crisis to Reshape World Government

0:00Well, I don't know about you guys, but I was feeling very chipper this morning, and then I heard Doug French talk about the real estate market. We were both part of the high school seminar, whatever you want to call it, yesterday, like he mentioned, and I just saw him start rattling off those statistics about foreclosures and just suck the life out of those young kids. For those who are curious, Doug is available for birthdays and bar mitzvahs, if you ever want to have him come do that. So let me just acknowledge, I have a bit of a difficult task here. So my topic, if you just think about this, if you just said this to a random person, I'm supposed to talk about how the private bankers are using the financial crisis to reshape world government. Now that's not the kind of thesis that you do if you're trying to get a top spot at Harvard, you want to be appointed out of the Federal Reserve. That's kind of a, it makes you sound like

0:47a nut job. I actually was going to try to come here with a tin foil hat, but I was afraid that I wouldn't get through security at the airport with that. I was thinking maybe I The Mises Institute is a crazy organization, but we're actually pretty moderate. Whenever we run articles, we get emails from people calling us sell-outs. We're afraid to tell the truth on this sort of stuff. So here I'm sort of skirting a fine line, I'm going to try to tell you things that are accurate, but yet also not, you know, let's make it sound like we're a bunch of paranoid conspiracy theorists, but some of this stuff really is sort of crazy, so in terms of, you know, balancing that act, I'm going to first talk about more theoretical things, just give you the theory as to why what's been happening over in Europe in particular, and what central banks have been doing in response, why that's just wrong theoretically, and then after that I'll give you some real world anecdotes just to

1:44To show you where these people are coming from who are very suspicious about what's happening. It seems like certain powerful people are Steering events if you will to benefit them and it's not the average person holding currency or the average taxpayer who's benefiting from all this So the the way to start this is to talk about the European Union and the euro So those were founded by a treaty back in 1992 The E.U., that's when all the groundwork was laid in and then over time they first introduced it in terms of large transactions and then it was phased in so that people with their day-to-day currency in Europe then turned that in and it was replaced with Euros. And when they did that, it wasn't, they didn't know which countries were going to be able to participate so they set out criteria which were called convergence criteria for what a country had to do to be able to join the E.U. or to be able to use the Euro as its currency.

2:37So I'm not going to read all this stuff, but let me just summarize some of these key requirements. So as far as the country's inflation rate, it said that no more than 1.5 percentage points higher than the average of the three best performing, meaning the lowest inflation member states of the EU. So just to translate that, it meant some new state wants to come in and join, then its inflation rate can't be more than 1.5 points higher than the three lowest inflation ones of the currently existing members. As far as the government's finances, they had a rule about the country that wants to come in its deficit. It said that it couldn't exceed 3% of GDP at the end of the preceding fiscal year. So if you ran a deficit that was greater than 3% of your country's output, you weren't eligible to come in.

3:23You said maybe in the future you could, but you had to get your affairs in order first before they'd consider letting you in. As far as the country's overall debt, it couldn't exceed 60% of GDP at the end of the preceding fiscal year. As far as the exchange rate, long-term interest rates, the candidate country's nominal long-term interest rate couldn't be more than two percentage points higher than the three lowest inflation member states. These were a bunch of criteria they had to make sure, and you say, well, why do they have this? Well, because they wanted to make sure they didn't get a very irresponsible country coming in. So now you want to understand, what's the theory behind this? Let me just back up a minute and tell you the theory of why do they have a euro in the first place?

4:08What were they hoping to achieve? Well, a big part of the story is that the people in Europe were sort of looking with envy at the United States. The United States is a very powerful country economically, and they were trying to figure out these technocratic mainstream economists were trying to understand what is it about the U.S. that makes them such an economic powerhouse? How come over the decades, they were consistently, had a better economy, stronger economy than Europe did collectively, and they said one of the things is the US has a unified currency, right, just the dollars over the whole US, over all the states, whereas in Europe, before the Euro, you know, they had each country had its own currency, so why is that a problem? Well, there's lots of things, but for example, suppose there's a company that's based in France, and then it has maybe a factory in Italy, you know, employing Italian workers, and they use machine parts that are produced in Germany

5:01but they sell to the market, to French consumers so you can see there's at least three different currencies going on there, you know, the lira the french franc and the deutsch mark and so when that company is just making projections and figuring out, you know, signing long-term labor contracts with the people what did I say, in Italy and buying the machine parts from Germany and then selling to the French consumers beyond all the other stuff that you need to worry about about just You know, is this going to beat our competitors? Are we pricing appropriately for what the consumers want to pay? Are we paying too much in pension for our workers? Besides all of that stuff that any business has to worry about, they also have to worry about currency movements. And sure, you can hedge yourself and do things like that, but you can just see how that's an extra layer of complexity and uncertainty and just transaction costs.

5:49So the theory was other things equal if we could just have one currency for the whole euro area then you know that would put us on an even footing with the United States and maybe then we could compete so that was that's what they were trying to achieve but then you think okay well if surely then if that's the rationale the more the merrier right it wouldn't work to just have everybody in Paris use the same currency right you want you'd want to have a big thing because we just we just said that having it France having its own currency wasn't big enough we wanted to be bigger than just France or bigger than just Germany so then again coming back to Why did they have all these criteria? How come they were being very selective, at least on paper, about which countries they would let in? It was because they weren't stupid. They understood the dangers that if some irresponsible country that historically is a very, let's call it a populist government,

6:40and they have lots of big spending programs, and then when they get into trouble they just run the printing press. I mean, can you imagine? I mean, I know that sounds alien to us. But again, these people are worried about hypotheticals, they're sort of like science fiction writers worrying about aliens here, right? So they were concerned, they said look, especially like Germany, which was very austere and conservative in terms of monetary policy, because they had had such a horrible experience in the interwar period, right? So the Germans had this tradition of the worst thing in the world that you can do to your country is to destroy the currency, that trumps anything else. I don't care how much the unions are complaining, I don't care what the budget deficit is, you do not destroy your currency, because that's just awful, that's unacceptable. So the Germans, more than anyone else, were very concerned, so that's why they insisted on these rigid rules, because again, they didn't want to merge with some irresponsible group, and then based on how, because if you're all subject to the same currency, called the euro here, who determines how many euros get printed?

7:42Who's in charge of that? And the Germans knew, if we join with all these people, we're not going to be the ones necessarily calling the shots ten years down the road. And so we want to make sure there's a system in place where we don't end up bailing out irresponsible governments. Okay, so again, just like with the U.S. Constitution, you can see how well these safeguards worked out in practice, but that was the theory. So now, what's happened, and I don't have that much time, and like I said, I want to get to the juicy anecdotes that would fuel conspiracy theorists in a few minutes, so let me not spend too much time on the boring theory, but again, it is, this is educational. I want to explain this stuff to you, because it's funny. I mean, it's not ha-ha funny, but it's funny in terms of anything that economists could say being funny, is that the way the interventionists have spun this, it's just ludicrous.

8:32So, more than any other currency in the history of civilization, the euro is first of all a fiat currency. It was never linked to anything else, whereas the lira and the deutschmark and so on, you could sort of trace. They were fiat currencies when they were phased out, depending on when you date it, 99 or 2002. But historically, the reason that people used them was because there had been a link to gold or silver a long time ago. It's been a long time, but just like with the dollar right now, it's a fiat currency, but the reason we all use dollars historically is because at one point, you know, it was linked to gold or silver, right? So it's the same thing with these, whereas the euro was completely a creation out of these technocrats' minds, right? This was designed by people, and it's not even just Keynesians here, I mean, this is like a mainstream indictment that it was actually guys like Robert Mundell, if you know him, were some of the people behind this in terms of what was called optimal currency area theory.

9:28Area Theory. So the Euro, if you're going to get mad at technocratic economists for screwing things up, the Euro is clearly the thing that they're most responsible for. So if it worked, that would be a strike against the Austrians and the, you know, fuddy-duddies who believed in gold. And if it didn't work, that should be a strike against the people who believe in fiat currency. So how do guys like Paul Krugman and so forth interpret what's happening? Because clearly it's not working. There's a crisis, there's a Euro crisis that, you These safeguards didn't work. The claims that the euro would make Europe an economic powerhouse and so on, those obviously, those things were wrong. Clearly the dangers of having the ability just to print up money to bail people out, that trumped whatever theoretical things you could do with a simplified model on a piece of paper and draw some charts and diagrams to show you why this is better than gold.

10:21And clearly those abstract theories were wrong, and this was a dangerous thing, so how did Krugman and those guys, how did they spin this? They're saying, oh, well, the crisis right now, you know what the problem is? The problem is not that these other governments ran up huge debts thinking they were going to get bailed out, and that investors were stupidly lending to them at interest rates that would have been applicable to German bonds, but not to Greek bonds or Italian bonds. That's not the issue. For them, Krugman and those guys, they see the problem here is that Greece right now is under a pseudo-gold standard, okay? So it's the gold standard's fault. It's the gold standard's fault that this fiat currency that was never in its history tied to commodity in any way is blowing up in our face. It's the fault of gold. Duh. So, again, just to understand, how could he possibly say that?

11:09Well, here's his logic, he's saying, because what needs to happen, in Krugman's mind, is that the problem is that Greece right now, yeah, sure, they might have had a budget deficit, they were a little bit irresponsible, but the fundamental problem with them right now is that, if you know, they have insufficient aggregate demand, that's always the problem, and they can't inflate it enough because the people in the private sector don't want to spend, the businesses don't want to invest because prospects are terrible, The government can't run bigger deficits right now because of the system that they're in. Their investors around the world are scared about taking on more debt, so their interest rates are spiking. So the only solution would be, if Greece were back on the drachma, its own currency, they could just inflate. And that would solve the problem. In other words, they would pay off their old bonds with inflated currency.

11:57And yeah, that would, in a sense, be a technical default, but not an actual default. and more precisely, it would make Greek exports more competitive, right, because it would devalue the, if they went back and just had their own currency, that their akma would fall against other currencies around the world, so now all of a sudden Greek exports are cheaper and that's how they could boost their export sector and that would solve the unemployment problem, their tax revenues would go up because everybody's working again and then the crisis would pass away. And Krugman points to Iceland, for example, which is a share of of GDP had enormous debts, and he says the reason Iceland right now is doing a lot better than the countries in Europe is that Iceland wasn't part of the Euro system formally.

12:43They did have some Euro-denominated debts, but they just repudiated them, just defaulted on them and let those bankers eat it, and their own currency crashed against other currencies, and so yeah, there was a brief period where they were really in trouble, but now they're doing fine. They hit rock bottom quickly and are growing out of it. So that's the sense in which Krugman is calling Greece right now as being stuck in this rigid straight jacket of a pseudo gold standard because he's saying it's just like in the 30s when according to not just the Keynesians but also the Chicago School monetarists, people like Milton Friedman said this, the problem in the 30s, the reason the Great Depression got so bad is that the classical gold standard was still in force at least among some countries and they couldn't inflate enough because they were afraid that their currencies would fall against the official dollar peg, or sorry, gold peg, and so that's their hands were tied.

13:35So that's the sense in which Krugman is claiming this. So let me just talk now a little bit about the reality there. Of course, well let me just do one more theoretical thing. So just theoretically, does that make sense? Well no, as I said on the one hand, it's crazy to blame something that is the furthest thing Everything from being related to a commodity market-based money, namely the Euro, which was explicitly designed by technocrats and installed, never had a gold peg at all or anything like it. To blame that on the gold standard, I mean, you couldn't make the systems further apart from each other. And beyond that though, they're making it sound as if it's just an incidental little offshoot, but the problem that happened in this system is that a bunch of these member The first states were able to run up their debt and then people were horrified to discover that there wasn't going to be printing to bail them out.

14:29I mean, again, with these convergence criteria, that was the fear all along. It's not like this was some unanticipated danger. I mean, this is exactly what the problem was, or the fear was. Because when you come in, if you're in an irresponsible government like the Greek government historically, People, investors know that they tend not to balance their budgets and that if things get rough they might just default or they might inflate. What do you do as an investor compared to say like the German government's debt? You insist on a higher interest rate. But now, so you say from the point of view of these member states that were thinking of joining the euro area, what was in it for them? Why would they submit to all of these onerous restrictions?

15:14Well, because they were going to get lower interest rates in exchange, that was the whole point, or that was one of the points, and also because they thought it would make it easier for their businesses to reduce transaction costs and do business with other European countries, right? So if you're a government that historically had high interest rates on your debt and you can be good for a few years and satisfy the convergence rules and then get admitted to the Euro area,

16:08I don't want to shock any of you, but believe it or not, the people who designed this system and who were responsible for administering it, they didn't go on national television and say, we screwed up, sorry, we fully apologize, we're going to resign now and let Tom DiLorenzo guide you through this storm. That's not what they said. He was busy talking to Fannie Mae at the time, so he was kind of tied up. Instead, what they said is, we told you guys this would happen, go look at the theory of optimal currency area, and it says just to define that term optimal currency area means if you have a fiat currency geographically or in terms of how many people should be using it right should the whole earth just be using one fiat currency or you know should just one household be you know should every household issue its own currency and and you can see that the households don't work because then effectively we'd be back in barter if everyone had you know if I had a Murphy

17:04piece of paper and you guys had your own individual things I mean that wouldn't We wouldn't even consider that money. That would just be, who knows what it would be, but it wouldn't be money. So, clearly, you can't make it, it's not optimal to have every household issuing its own currency. But again, even just having every city do it also doesn't work because there's so much trade going on among cities. But on the other hand, these guys like Mundell and these other mainstream economists, when they're talking about optimal currency area, they said it's not the whole planet. And so they were coming up with principles or models to say, What, how do we figure that out, at least theoretically? And they said part of what you wanna have be the case is that the region that uses the same currency, ideally there's free labor and capital mobility within that region, right?

17:51Because the idea is, let's say there's a localized problem like in some sector over here where there's high unemployment, and this is connected using the same currency as these people over here. He said, well, it would be good if the workers or the people who are looking for jobs over here can just move over here where the jobs are. And so that way you don't have to have the currency in the whole area adjust because it can't, right? Because if there's high unemployment here, what you want to have happen is have wages go down over here relative to over here. And as you know, if you study mainstream models, wages are sticky and that's a big problem for them, for these modelers. And so they say that that's why it works in the United States, right? Because if there is a bad, there's high unemployment in Florida, those workers can fairly easily move to Montana, or move to other U.S. states, it's not a big deal, there's not all sorts of, you know, taxes on them if they want to change their state of residence, and so that's why it works for the U.S. as a whole country just to have the dollar, because there's mobility within sight. In contrast, in Europe, it's not as easy to move around, and so if there's high unemployment in Greece, it's not as easy for those workers just to go move to Germany,

19:01In Germany, that there's more obstacles, so that's one thing that they say that the people who were skeptics of the Euro from the beginning, not just Austrian free market types, but even mainstream economists, some of them were saying to their credit from the very beginning, this isn't going to work, just look at this textbook theory, optimal currency area, apply it to the conditions in Europe, and you guys are crazy, you're playing with fire, this might blow up in all of our faces. And so that was one of the arguments they said, that the labor and capital mobility weren't there. is there's not a fiscal union so they said what you guys are doing here is you're trying to have the best of both worlds you want to have a currency union and get all the advantages that the US has from the fact that they all use the dollar but you don't want to go you don't want the individual states to surrender their sovereignty right you still want it to be the case that the

19:51Greek government can determine how much it's going to tax its people and how much it's going to spend and you want the same thing for the Italians and the in the Germans and so forth, whereas the United States, yeah it is true the individual states can tax and spend at the state level, but there's also this overarching federal government that's really the lion's share of that stuff, and in particular they're going to say the reason the U.S. is able to handle economic calamities better than Europe is, is that, again go back to that example, if there's a recession that's centered in Florida for example, well then just given the In the nature of federal programs, what ends up happening is the rest of the 49 states are taxed and that money is funneled into Florida through unemployment checks and food stamps and things like that.

20:36So they're saying the U.S. in practice has this system whereby when certain parts of it are hit harder than others in terms of an economic calamity, their fiscal system is set up such that automatically everybody else gets taxed more and that spending gets sent into that region. So they said that's what we need to have in Europe going forward. That's the lesson they drew from this and so you see Back, I think it was in September when the head of the European Central Bank By the way for the for the European people who are watching is I'm gonna butcher all these names I just want to let you know that up front So the the former guy was what Jean-Claude Trichet and then the new guy was I think Mario Draghi So he comes in both of them during this transition Transition, giving statements to the press saying we need to have more integration, we need to have unification in terms of Europe, and what they meant was, it can no longer be the case that the people of Greece determine how much the Greek government taxes and spends, that now that decision has to be subordinated to the greater good, and they even said, I think it was the outgoing guy, said something along the lines, this isn't an exact quote, but I'm not putting words in his mouth, said something like,

21:50It can no longer be the case that, you know, Greece can just do whatever it wants. There needs to be a mechanism by which people in Brussels can punish them for doing something that hurts everybody else. Alright, so that's, you know, when you hear those phrases, people talking about integration and union, I mean, that sounds like a great thing. But what they're saying is they want to have a super-national group of technocrats who can then override the individual decisions of these nation-states. Now, when we say all this stuff, it's not like I'm a big fan of democracy at the state level, you know, in terms of the European nation states, right? It's, you know, I've read Hans Hoppe's book on democracy. We're all familiar with the arguments there. But the point is, like Rothbard used to say about the Federal Reserve, when he would say it was unaccountable, and he says something, I'm paraphrasing, The American people get mad enough, they can just throw the bums out and put in some new group who can conceivably fire those people, but with the Federal Reserve, the link there is much more tenuous, and there's a degree of separation where the people running the Fed are even harder for the American people to have any control over, and it's the same thing here.

23:09It's not that I am a big fan of what the Greek government would do based on the elections and voting patterns of its citizens, but at least they have some control. If they're getting completely ripped off and having their tax money sent to some banker in another country, at least they could have an election throw that government out and put in somebody who says, no, we're not going to do that, whereas here they're setting in motion mechanisms where they could nip that in the bud, where they could override that. That's part of what's going on, and like I said, these are statements they made to the press, and I'm just giving you the theoretical background to understand how could they justify that, why would they be able to say, pointing to academic research, that, oh, this is what the science tells us to do, right? So that's where they're coming from. Okay, let me move on now to some more empirical things, or things that actually happened historically.

24:01So part of the problem with this story that all we were trying to do was just look out for what was best for Europe and this problem erupted and no one saw it coming and now what do we do? Well, I guess we should just give up everybody's sovereignty because that's the best thing to do going forward. That's the best way to help these people. To see that story, something a little fishy there, just take the example of Greece. of Greece. It's not the case that the Greek government just shocked everybody and they didn't understand that this was happening. Okay? The people in charge of these super-national organizations, they knew the Greek government was lying to them for a long time. So let me just read to you what happened to this group called Eurostat. So they're like the European statistical agency that compiles these sorts of documents.

24:52So what happened is, when the Greek government, the reports they had been sending in, because remember, Greece was allowed to join, they adopted the Euro and so on, with all of these allegedly stringent requirements about what your deficit had to be and so on, and it turns out that they were just completely lying, that their deficit was much higher than what it should have been to get allowed admission, and this is part of what set the crisis in motion. So this group, Eurostat, they prepared a report, you know, they did a bunch of interviews with Greek officials and then, so here's, you know, they're giving the interview or they're summarizing the report, giving it to policy makers, so let me just read you some excerpts from this, because some of it's a little bit funny, and again, when I say it's funny, I don't mean it's like memoirs of George Carlin, I mean it's as funny as a Eurostat report on the Greek government's financial dealings could possibly be, you know, full of mirth. Okay, so they say, during our March 2010,

25:45methodological visit it became evident that the Greek authorities had reported until then only very small amounts for debt guaranteed by government under repeated calls and not yet assumed by government amounts of around 100 million euro had been reported compared with a correct amount of around 11 billion euro all right that that's not a rounding error all right that's that's kind of a big deal all right so again it for people who don't get what that what so part of what happened is when the Greek government is you know reporting to These Authorities to like, oh yeah, let us start using the euro. They were like putting down their liabilities or reporting them, and so part of it is it wasn't actual cash going out the door, but they were guaranteeing certain types of debt. And the point is they were saying, yeah, we're on the hook for about 100 million euro, and actually, euro stat comes in.

26:31This is actually, after further review, it's more like 11 billion. All right, so that's just one example. Now here's a typical passage of this. Like I said, the whole thing is like 20 pages long, but I was going through it and this is something that was typical. So I'll try to just read you enough so you get the joke. Okay, so they say, again, during the March 2010 methodological visit, Eurostat was informed that the 2009 data in the EDP table 2C da-da-da were derived from a short survey sent to local governments. The table showed a significantly increased surplus of local governments in 2009 compared to any of the previous years included in the EDP notification. Okay, so what Eurostat is saying is that, you know, in 2010, March 2020, we went to the Greek authorities and we said this number seems too optimistic.

27:20You're saying all these local governments had this big surplus. Where'd you get that number from? Alright, and that's what they were trying to figure out because the number was way too big compared to the historical reports of that same number. Eurostat expressed its concerns about this figure, particularly as in the past it had observed downward revisions to the local government surplus in successive EDP notifications. Okay, so they're saying not only is this a big number, but in the past you always give us a big number and then later you revise it down. So are you sure this number's right? Where'd this come from? So a month later they go back to get the answer. During the April 2010 survey round, Eurostat was informed by the Greek authorities that while the information for these years was based on the results of the census, data for 08 and 09 were calculated by using indices on the basis of information derived from the short survey.

28:08It was also mentioned that this information was provisional as most of the municipalities were not able to provide finalized information earlier than in October. Oh, okay, so they didn't have the data, so they used the earlier. Okay, but when were those surveys done? Concerning the data for municipal enterprises, Eurostat was informed that the reported data were based on an old survey conducted in 2002. And again, for those of you who have been dozing off for a look at your BlackBerry, the point is this was in numbers that were reported in 09 for the previous year in Eurostats Raising Eyebrows and they said, oh yeah, that was actually based on something that was done in 2002, okay? And again, these numbers were well above historical trend and helped minimize how bad things looked as they were saying, oh we got these local surpluses. And the people in 2002 knew that that was gonna be necessary six years later.

28:58Okay, as far as the people who like to bring up Goldman Sachs and everything, Any of these scandals, golden sex is always there on the scene. Wherever there's corruption, we'll be there. So here, what they did, let me just see how we're doing on time, okay. They, what happened here, and this was, you know, the press picked up on this, so there's all sorts of things that the Greek government was doing to minimize how bad its books were. Okay, but the point is, they never satisfied these convergence criteria, they never should have been allowed into it, and that's what I'm saying that this wasn't just some honest mistake I mean the people who were administering this system knew full well that they were going to come in and then we can talk later about well why would they do that why would they let these people come in if they were violating the rules but clearly people you know shady stuff is going on I think they were just surprised at how shady it was when the when the true facts came like but one of the things so this was by no means the only thing but one of the things one of the tricks was that Goldman Sachs in when was this I think it was in 2001 I'm not sure about

30:00about that. They came in and they let the Greek government engage in a currency swap, and what happened is that it was basically, economically speaking, it was like a loan of 2.8 billion euros at the time, but that didn't get reported, so what happened is Goldman allowed the Greek government to basically get a loan from foreign banks of 2.8 billion dollars without having to report any of that in terms of their liabilities And the way they did that was because the rules for reporting to Eurostat at the time, financial derivatives weren't, you didn't have to report that stuff. And the reason, there was a rationale for that, because normally, if you're just going to hedge yourself, you know, you're engaging in foreign transactions, you're just doing a currency swap, at the moment that you enter the arrangement where, like, you know, you're promising to give euros against dollars down the road or whatever the thing is, where the details are, You use the futures markets and so on to make it have a net value of zero

31:04as the moment when you enter into it, right? So the market value of that thing is zero. Now, if it moves against you down the road, then, you know, it can go against you or it can move in your favor. But the point is the moment of entering into it, if you're using the appropriate market forecasts and so on in the futures markets, it doesn't have a net market value. So that's why you wouldn't report that as a liability. So how was it that Goldman allowed them to effectively get a loan of $2.8 billion is because they put in a bogus exchange rate. So they let the Greek government promise to give one currency in the future in exchange for another one, when at the time that they agreed to that, they were on the hook for $2.8 billion if things turned out the way everyone thought they would turn out. So that was the loophole they used. That's just one example.

31:49and then just to finish that they let's see so then in August of 2000 so at the time it allowed the Greek government to push back that obligation to the year 2019 then was things started getting uncomfortable they want a little bit more wiggle room so in August of 2005 an interest rate swap contract was restructured pushing the maturity from 2019 back to 2037 all right and then also Goldman, God bless them, sold its rights and obligations to the National Bank of Greece for the then market value of the swap and then it was estimated that Goldman earned about $300 million from the deal. So that's why a lot of people at the time were outraged at Goldman Sachs because they were saying Goldman knew it was helping the Greek authorities evade the requirements for being part of the Eurozone and yet Goldman was just serving its client and earning $300 million.

32:45Now, at the end of that report, that Eurostat report, just to summarize, so it's this thing, the other stuff I mentioned, and a host of other things that aren't as funny, what's the big ticket result? Based on the information that Eurostat compiled in the few months when they kept interviewing them, in 2009, based on what the Greek government originally said its debt was compared to now what Eurostat thought the more accurate figure was, they thought the government was understating $24.6 Billion Euros, 10.5% of Greek GDP

33:43And that just shows that the system is crazy if it's that vulnerable to some government lying or you can say that they Yeah, they kind of knew that this was going on and they didn't really care. So why wouldn't they care? Why would they let them lie with impunity and so forth because I mean if anybody is bothered by lying It's people in government, you know, I mean, they just they really just take offense at that kind of stuff a dishonesty per se but if you start thinking well, no because You know these what happens there is Because banks make loans to governments, and then if they think that, oh, if trouble arises, they're going to get bailed out by the ECB, for example, or the taxpayers in stronger countries like Germany and so forth, well, then it's okay. You know, you want to, just like what happened here in the mortgage crisis, you know, some people say, well, that doesn't make any sense.

34:32Why would all these banks make these terrible loans? I mean, how could they have been so dumb as to, yeah, we know that they're not moral, Well, why are they that stupid, too? And then when you look at the incentives and realize, well, that no, actually, a lot of these people didn't suffer, you know, they made these loans to people they knew couldn't pay them off, because they got them off the books and earned their commission and so on, and they weren't the ones left holding the bag. It's the same thing here, where the people, you know, lending this amount of money to the Greek authorities and so forth, they knew full well that they weren't as shipshape as they were maintaining, but they thought ultimately, no, it's fine, because they're not going to let the euro collapse.

35:39not just an honest mistake, you have to look at the incentives that people were facing. Okay, let's move on now in the last few minutes I have here. So as far as things that are just a little bit funny, one other thing before I get into the three leaders here, so I was talking to, some of you may know this guy Robert Wenzel about this stuff, and he's a financial blogger, economicpolicyjournal.com is where I go, And I want to find someone who's more conspiracy-minded than I am, that's where I go. And I was talking to him about this stuff, and I always imagine that when we're talking on the phone, the FBI is listening, and they're like, no, that's not what we're doing, guys. Oh, you're getting warm with that one, yeah, that's good. So part of what you know right now, what's happening is the US authorities, in conjunction with other governments, are putting the screws on the Iranian central bank, and so they're

36:34and other central banks around the world. If you have any dealings with Iran in terms of their oil exports, we're gonna penalize you. So again, just in terms of political economy, put aside all the stuff about business cycle theory and inflation and all that. Just one reason why having a bunch of central banks is a bad idea is that it makes it more likely we're gonna go to war because then now all these transactions are funneled through these few big organizations and so now it gives whoever's running the show at the time, you know, the dominant military power, it's easier for it to lean on everybody else. Whereas it would be kind of hard to tell each individual commercial bank around the world, if we catch you dealing with this guy, you know, we're going to sanction you. That would be harder to police than to just look at, you know, a handful of central banks around the world and say, if we ever catch anything going through you dealing with this rogue group, then we're going to sanction your whole operation.

37:26So that's just, you know, one other illustration. Okay, but the few minutes I have left, let me just show you why these, some people, when they look at what's happening in Europe, they will say that, oh yeah, it's the bankers are, you know, clean in house and they're installing people that are going to serve them. So here, all I'm going to do is just read you things from, you know, Wikipedia or mainstream news articles. This doesn't prove that there's anything untoward going on, but it does, there does seem to be a pattern. Okay, so three countries that obviously were in trouble, Spain, Greece, and Italy, so let me just quickly explain, and they all recently had their heads of government replaced with somebody else, and just the pattern seems to be that the people that were put in position are probably not the worst mortal enemies of Goldman Sachs, so let me just explain some of this. So in Spain, and again, for foreign viewers, I'm just gonna butcher these names, I apologize. So it's Jose Luis Rodriguez,

38:26Lewis Zapatero, his party got crushed in the elections of the previous Spanish Prime Minister, so he resigned on December 21st, just a few weeks ago. He was replaced by Mariano, I don't know if it's Rajoy or Rajoy, I don't know if it's a silent J, I'm sorry. So this guy, now he actually isn't an economist himself, but he named his Minister of Economy as Luis D. Guindos, and this guy has a PhD in economics from a university in Madrid, Between 2006 and 2008, he was the CEO of Lehman Brothers for Spain and Portugal, and in 2009, he worked as senior partner at PricewaterhouseCoopers. So he's probably not the poster child of Occupy Wall Street, this guy. But what do you expect, Bob? There's a financial crisis. Of course, the incoming prime minister of Spain is going to appoint a guy who knows the financial markets.

39:12That's not a big... Okay, fair enough. Greece. The previous prime minister was George Papandreou. He resigned on November 11th, just a couple months ago. He was replaced by Lucas Papademos. Now Papademos himself is the economist. So here I'm talking about the new Greek prime minister. I'm not talking about somebody he appointed. I'm talking about this is the prime minister now, the guy who's running the show. He has a doctorate in economics from MIT. He taught economics at Columbia from 75 to 84, and then it was the University of Athens. He has served as senior economist at the Federal Bank of Boston. He joined the Bank of Greece in 85 as a chief economist, let's see, he was involved at that time with Greece's transition from the drachma to the euro, after leaving the Bank of Greece in 2002, he became vice president to Doisenberg and then Trichet at the European Central Bank, and he's just a little bone to the real conspiracy theorists, he was also

40:07a member of the Trilateral Commission, those people like that kind of stuff, okay. And then my favorite one is what happened in Italy, so there the previous Prime Minister The winner was of course, Silvio Berlusconi, who, you know, big media mogul, billionaire and so forth, also apparently has a weakness for the ladies. He resigned on November 16th. Okay, so you see how this all boom, boom, boom. These were all within like about a month of each other that these three heads of state are out and these new people are put in. So who did he get replaced by? And again, here I'm talking about the new, the Prime Minister. I'm not talking about, you know, the person he appointed. This is the person. by Mario Monte, who got his degree in economics from Yale University, he taught at the University of Turin, and then he's been the president since so forth, okay, he was appointed in 94 the European Commission, in a capacity as a European Commissioner from 95, he was responsible for the internal market, financial service and financial integration, customs and taxation, this is from Wikipedia, his work with the Commission has earned him the nickname Super Mario from his colleagues and from the press, so that's good that, you know, there might be inflation

41:11and so on, but at least if Europe ever gets overrun by Koopa Troopers, he's going to be able to save them. For the older people, that's a game I had to play with my seven-year-old over break. Got a lot of Super Mario jokes, but I'll restrain myself. Okay, in December of – so again, this guy, he's actually an economist. It's not like he dabbled. I mean, his job was an economist, okay? In December of 2009, he became a member of what's called the Future of Europe. In this forum, he advocated an economic government for Europe and a European monetary fund. Fund, he also supported a new European deal that sounds like it's a good time with a better coordination between social and economic issues in Europe. Let's see in 2010 Monte was asked by the Commission president to produce a report on the future of the single market proposing further measures towards the completion of the EU single market and then here's the last paragraph I'll read

42:02you guys. In November of 2011 Monte was appointed as a lifetime senator by the The Italian President Napolitano, Monti was seen as a favorite to replace Berlusconi to lead a new unity government on the 12th of November following Berlusconi's resignation, Napolitano invited this new guy Monti to form a new government, Monti accepted the offer and held talks with the leaders of Italy's political parties saying that he wanted to form a government that would remain in office until the next scheduled elections in 2013 and then on the 16th of November, Monti unveiled a, and this is how Wikipedia describes it, Monti unveiled a technocratic cabinet and was a ... officially sworn in as the Prime Minister of Italy, he also appointed himself as Minister of Economy and Finance. So you can see here where these people are coming from and why the title of this talk I think is quite accurate, that these three heads of state in rapid succession within about five weeks of each other are all gone and they're replaced by people,

43:00at least two of them, it's not like the voters in those countries had any influence at all, It's not even like they voted for a party that said, oh yeah, we're going to put this guy in there. With this guy, Monti, the Italian people, you know, not until 2013 do they even have a chance to go to a general election and, you know, endorse his party or not. This is, he was just put in there, and like I said, two of these guys are actually PhD economists who have worked in this area, and if you go look at their history, they've worked in and out of financial circles with integration and so forth. So, it certainly does not look like the people, you know, these big worldwide international investment banks are going to be the ones taking the hit from this crisis. It looks like it's going to be the taxpayers and the people holding currency.

43:46With that happy note, I'll turn it back over to Doug. Thanks everybody.