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Feb. 20, 2009 - Art Bell

02:35:32

Coast to Coast AM with Art Bell - Economic Downturn - Michael J. Panzner - Wall Street Insider

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58:39

michael j panzner

01:17:03

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Speaker	Time	Text
art bell ▲ ● ▼		From the high desert and the great American Southwest, I bid you all good evening, good morning, good afternoon, wherever you may be in the world's time zones.
		Each and every one covered like a blanket by this program, Coast to Coast AM.
		I'm Art Bell, filling in for George Norrey, taking a deserved night off.
		Believe me, as I say many times when I do this program, if you're doing it five nights a week, you need some occasional time off.
		It's really something to do, and I'm damn glad to be here doing it this morning.
		It feels really good, even though the subject material, I'm afraid, is going to be a little heavy.
		And toward that end, I'd really like to warn you, we're going to be talking about some deeply troubling financial and world matters that you may not want your children hearing.
		So we're not talking ghosts and goblins tonight and or the afterlife or any of the many, many myriad of subjects that we tend to cover on this program from time to time because, well, there's no getting around the seriousness of the situation we're in right now, and I'll get into all that in a moment.
		Listen, I'd like to call your attention to the photograph on my webcam.
		For those of you who would like to see it, I took it.
		It's just, I think, two days old.
		So two days ago, this was taken.
		And if you're wondering where it was, it was right behind my house.
		And so we just walked out on kind of a nice sunny day.
		And lo and behold, the mountain was just beautiful behind us.
		That's Mount Charleston, by the way, at 11,900 feet.
		And those are my girls, my beautiful wife, Erin, and of course, Asia.
		Asia, who is coming up on 21 months.
		And she's sort of doing a she's in love with blues clues lately, so it's kind of like must think.
unidentified		That's her must think pose.
art bell ▲ ● ▼		What a total darling she is, and what an amazing, amazing, even at my age, addition to my life it has been.
		So you might take a look at that up at the top of the coastcoastam.com website.
		It says arts webcam.
		Just click on that and it'll give you a pretty good size photo taken two days ago, so it's a good update.
		All the ABs just fine.
		And we are all ABs, Aaron Bell, Asia Bell, Art Bell.
		And of course, the fur-bearing ones are fine.
		My Cadyetti had a little cold, but I took him to the vet a couple days ago, and he's been getting some antibiotics and anti-allergy medicine and whatever it is.
		It seems to be going away.
		So that's good.
		Otherwise, all are fine.
		I want to take a second to incredibly, just absolutely incredibly, it was about 11 years ago, I believe in 1998.
		Some dastardly person went to the University of San Diego at University of California at San Diego and sent off a letter disparaging the Filipino people in my name.
		And that hoax letter has been going around the internet now solidly without any break for 11 years.
		Well, the Manila Times a couple of days ago chose to print that letter attributing it to me along with comments calling me a Nazi and other things, suggesting perhaps I'd be skinned alive.
		It wasn't good.
		And now that's the third newspaper, by the way, not second, but the third newspaper in the Philippines to have printed that damn thing.
		And of course, thank you to George and to the network, who right away got on it, put up the usual.
		I sent them a letter, which I believe you had an opportunity to perhaps see.
		And I reminded them that two other newspapers, or at least one other in their town in Manila, had been forced to apologize and disclaim the whole thing after they read the evidence.
		And so they did it too.
		And so now that's in the past.
		I guess the only good thing is there's not very many major newspapers left there that can print it without checking.
		You know, if they'd gone to Google for two seconds, put in my name in the Philippines, they'd have known it was a hoax and a baloney.
		But they didn't do that.
		And so it got printed again.
		And so thank you all who wrote to them.
		And so hopefully that one's in the past.
		And as I say, there aren't many more papers that can, you know, blow it the same way.
		Okay.
		Tonight, we're going to talk about the economy now and next hour and on through the program.
		My guest next hour is Michael J. Hansner.
		And Mr. Hansner has written a recent book called When Giants Fall.
		And he refers to the United States of America.
		He also wrote another book you may be familiar with called Financial Armageddon.
		Financial Armageddon.
		And so he's coming up next hour, and he's a heavyweight.
		He's worked in New York and London for leading companies like HSBC, Soros Fund, ABN Emo, Dresdner Bank, JPMorgan Chase, and on and on and on.
		You know, this is a guy who knows what he's doing in the markets, you know, trading equities and about banks and such.
		And of course, that's the situation we're in right now.
		Dismal.
		And okay, I've got some comments on it I want to make.
		And then what I'm going to do is open the lines in the balance of the hour.
		I'm going to allow you to make the comments you want to make on this subject.
		I'll make my comments briefly When we get back from a break, and then I'll open the lines for all of you.
		Stay right where you are.
		Well, all right, here we go.
		Now, I want to preface this by saying: look, you know me, I'm just a talking head, folks.
		That's all I am.
		I'm not an expert in anything.
		I'm just a talk show host.
		That's it.
		Just a talk show host.
		And I'm a guy who has spent the last several months.
		My wife could tell you because she has to bear my doing it.
		From the time I get up until late in the afternoon, I'm just scouring the financial channels, trying to get a good grasp or as best I can as what's going on.
		You know, trying to get a feeling of what's really happening out there because it's serious.
		It's very serious.
		And so the following is only the opinion of a talk show host.
		That's all.
		Don't take it to be anymore.
		You can listen to Mr. Pansner next hour, who is an expert, and see what you think.
		But it's my opinion, my collective opinion, that we're headed for a depression.
		And not very far down the road at that, I began thinking that.
	I think in this last fourth quarter, I'm not sure when it really occurred to me, but as I delved into everything I could lay my hands on on the subject, it seemed to me that there was no way to avoid it for the U.S. No way that we could forestall it, which we're surely doing right now.
	And, God, I hope that actually it stops it.
	But it is my opinion that we're headed for a depression.
	Now, let me also add that a depression in this modern day, I don't believe, is going to be a repeat of soup lines.
	There may be some of them, but I don't think it's going to be the general picture that most Americans have of the Great Depression.
	I don't think it's going to be that bad in some ways, because today in America, we have, you know, all kinds of, we have FDIC insurance for as long as that's good.
	We have social programs like Social Security, Social Security Disability.
	We have unemployment insurance.
	We have a lot of things that we didn't have in the Great Depression.
	That said, it'll look different, but I really think it's going to move from a very deep recession into a depression.
	And it would take a very long time for me to explain why I conclude that.
	But I think the amount of debt to be written off is more than we can write off.
	And the amount of debt, if we service it, if we, in other words, print the money needed to cover it, is going to send us into such an inflationary spiral that the net effect at the end of the day, one way or the other, is going to be a depression.
	Therefore, I'm doing what I need to do to protect my girls, my family.
	And I would like to suggest, if you give any weight to what I'm saying to you, that you do the same.
	And in the next hour with our expert, we'll kind of, I'm sure, offer you ways to head in that direction.
	But that's what I'm doing.
	And I think that those of you who, as I said, give weight to what I have to say should begin to do the same thing as best you can.
	Now, that's only, again, it's only my opinion.
	That's all.
	I'm not Senator Dodd.
	I'm not anybody.
	I'm not a heavyweight.
	I'm just a talk show host.
	But, my God, it seems clear to me.
	A couple of very brief headlines.
	What I'd like to do, I'll read the numbers here in a moment.
	I'd like to have you call up and tell me what you think.
	With what time we have in this hour, I'd really like to know those of you who have looked into it, what you've concluded, what you think is going to happen.
	Looks like President Obama, thank God, has put the Knicks on a plan or an idea to tax Americans on the number of miles that they drive instead of a gas tax, but no, the number of miles that you drive every day.
	So bad idea, not going to do it.
	Thank you, President Obama.
	We don't need that kind of big brother stuff.
	And also invoking his own name and his shame policy, name the shamed, President Barack Obama warned the nation's mayors on Friday that he'll call them out if they waste money from his massive economic stimulus plan.
	Said he, the American people are watching, and they need this plan to work.
	Well, you're damn right, we need it to work.
	And then there's this new, this latest, I guess you call it a bailout, right?
	Some denounce Obama's homeowner rescue as unfair.
	Banks got bailed out.
	The automakers, one round, perhaps around two coming.
	So, why not struggling homeowners?
	The question has struck a raw nerve across the country, and I understand why.
	Critics saying the Obama administration's latest housing rescue rewards people who bought homes they couldn't afford.
	Now, in normal times, I would say this idea is crazy as hell, and it still feels crazy as hell.
	These people shouldn't have bought homes in the first place.
	They couldn't afford it.
	Either they signed on the dotted line knowing they were lying, or they didn't know what the hell they were doing, and the person selling them the home, you know, wrote up incomes that were not real, and they should take the wrap.
	Either way, to bail these folks when other people are paying, you know, 90-some odd percent of you are paying your mortgages on time, No problem with all of you.
	But these people who shouldn't have done it in the first place, to bail them out, yikes.
	Now, the only, only defense for this kind of program that one could try and even muster up would be: well, the housing crisis is what kicked us into this spiral of disaster, economic disaster.
	And so it's the only thing that's going to get us out.
	But I'll tell you, in what has been done so far, and those who are in default on their mortgages about to face foreclosure, when somebody has come along and helped them, whoever it be, Fannie Mae, whatever, you know, the government, they end up defaulting anyway, which means, you know, a month or two or six downline, they're defaulting anyway.
	So with everything I know and everything I can think about in my soul, it's wrong.
	It's wrong to be doing it.
	But if it will help us get out of this disaster, then I suppose it's worth a try.
	And that's kind of what, you know, it kind of applies to everything we've done, the stimulus package, the bank bailouts, the car bailouts, all of it.
	In normal times, it's enough to cause you to hurl.
	But we cannot let it all go.
	We cannot let it collapse.
	We have to make our best effort to prevent financial Armageddon.
	And I suppose we're just going to have to cringe and kind of bear with it, I guess, you know, and hope that it works.
	All right, let me give you the numbers very quickly.
	Then I'll take unscreened open line calls.
	And again, I guess I'd like to know, how are you doing?
	Do you still have your job?
	Do you think you're going to keep your job?
	What happens if you lose your job?
	And what is your view, if you've got one, if you've formulated one, on what's going to happen to our economy?
	What are we facing?
	Are we facing a recession that will turn around at the middle of the year or maybe even out as far as the fourth quarter of the year?
	And then what are we going to have?
	Are we going to have a little bit of a sort of a stimulated suckers rally and then down?
	Or will it pull us out of the woods?
	In other words, what do you think?
	West of the Rockies, 800-618-8255.
	East of the Rockies, 800-825-5033.
	First time callers, love you all.
	Area code 818-501-4721.
	The wildcard lines, many of them.
	Area code 818-501-4109.
	Now, it's a little different when I'm doing unscreened open lines.
	Just let them ring and we'll pick it up, you know, and then, of course, there's no charge to you until we do pick it up.
	The international line, if you're outside the country somewhere, and I'd love to hear from Europe.
	It looks to me, by the way, that Europe is in as much or possibly significantly more trouble than we are in.
	So I'd love to hear from Europe and the view there.
	The international number, get hold of the AT ⁇ T international operator and tell her 800-893-0903.
	Again, that's 800-893-0903.
	And I think that includes part of Canada or all of Canada as well.
	And of course, our Canadian neighbors are in this with us.
	In fact, the whole world's in it to one degree or another.
	And there are degrees, by the way.
	It's not as bad everywhere.
	And that's something else we can discuss later this evening.
	So let's jump into the lines and let's see what's going on.
	This would be east of the Rockies.
	No, west of the Rockies.
	You're on the air.
unidentified		Hello, Art.
		Hi.
		This is Nick from Oak Harbor.
art bell ▲ ● ▼		Hi, Nick.
unidentified		And I have a couple of thoughts about what you're pursuing this evening.
		In the first place, I don't think, I think that this depression is going to be worse, much worse than the last one for several reasons.
		Your points were very valid, except that we also didn't have then home equity loans, credit cards.
art bell ▲ ● ▼		That's right.
unidentified		You know what I'm saying?
art bell ▲ ● ▼		Yeah, oh no, Nick, you're absolutely correct.
art bell ▲ ● ▼		We didn't.
unidentified		The main thing I wanted to get to, though, was that it's my opinion that until the policymakers, the decision makers, the bankers, all of those people, even the wealthy people, have to feel the effects of their decisions and their actions as most of the rest of America does, It is not going to work.
unidentified		In other words, if they have.
art bell ▲ ● ▼		Nick, I don't know if you, you know, when Geithner speaks, in general, the market falls.
		When our Fed officials speak, the market falls.
		You know, so when our government, which is the main focus now of all of this, because I mean, they were talking about bank nationalization.
		That was the big topic over the last few days.
		Everybody thought they were about to nationalize the banks.
		Let me tell you, Nick, the banks are effectively already nationalized.
		And I refer to BOA and Citi Bank, for example, the biggest of the banks.
		They've already taken enough money that they're effectively already nationalized.
		But just Chris Dodd talking about the possibility of nationalization for a short time, and the markets tanked a couple hundred points earlier today on their way down big time, and the administration had to come out and say, they didn't rule it out.
		They said, well, we don't think it's a good idea.
unidentified		Yeah, but they didn't, as you said, they didn't rule it out altogether.
art bell ▲ ● ▼		That's right.
unidentified		And as I said, until these people have to appreciate the consequences of their decisions, as most other people do when they've made some kind of a decision or other, I think it's going to be a big problem.
unidentified		I don't think it's going to work.
art bell ▲ ● ▼		What would you do, Nick, at this point?
art bell ▲ ● ▼		If you were The decision maker, what would you do?
unidentified		I wish I had an answer.
		If I did, I'd run for president.
		But in the meantime, I don't either, Nick.
		I don't have all the answers, but I do know that I think that I'll tell you what, if I were a congressman, for example, I would, in fact, go down and live on food stamps and stuff for about six months, not just a month.
		That's not good enough.
		Because they don't have to face decisions that come up maybe not every week or every day or whatever, but I would find out exactly what they're going through.
		And if not, welfare, even some of the lower middle class.
art bell ▲ ● ▼		All right.
		Break coming up, Nick.
		Thanks again, sir.
		Yeah, you take care.
		Well, that's one way, I suppose, for them to understand the consequences of their actions.
		But it doesn't answer the larger question about where we're headed.
		Well, yes, it did, really.
		He said he thinks it's as big.
		There are people who think the globalists have done all this to us, you know, that it's a conspiracy and they want to bring America down.
		And I don't think that.
		I think we've done it to ourselves.
		And if you really look into how all this has come about, a subject we'll be deeply into next hour, I think you'll probably agree, you know, the vault is laid across many layers, from the individual to the banks, the institutions, and the government, the regulators.
		Everybody pretty much played this game together.
		And it's pretty much game over, in my opinion.
		A lot of people have debated and wondered why America was not mentioned in the Bible or is not mentioned in the Bible.
		And, oh, you know, we're a baby.
		We haven't been around that long compared to civilizations around the world.
		We're a baby.
		And so maybe the answer is because we're not going to be around as a world power that long.
		Your opinions continue right after this.
		By the way, I forgot to mention, Wired Magazine did an interview with me over the last week or so, and then they sent a photographer out from L.A. and took a whole bunch of pictures.
		In fact, we went to, if you see that picture there behind our house, we went out back and took pictures, and it was dark, cold, and there was snow falling.
		And not fortunately at the moments we took the pictures, but out in the background, if they use one of those, you'll be able to see the snow falling very, very close to us.
		It was kind of an interesting photo shoot in a lot of ways.
		That should be out in Wired Magazine the next month or so.
		It could be two months, but they were talking as though it might be in next month's edition.
		So you might watch for that.
		And by the way, if you'd like to email me, it's easyartbell at mindspring.com.
		That's A-R-T-B-E-L-L at MindSpring, M-I-N-D-S-P-R-I-N-G dot com.
		Artbell at mindspring.com, all lowercase.
		Okay, let's go east of the Rockies.
		Good morning.
		You're on the air.
unidentified		Hi, Art.
unidentified		How are you?
art bell ▲ ● ▼		It's good to hear your voice.
		Thank you.
		And you are?
unidentified		I am Terry from Connecticut.
art bell ▲ ● ▼		Terry, okay.
unidentified		East of the Rockies.
		Right.
		When your guest comes on, I've heard there's not too many people who have talked about this.
		I know, I want to say Forbes, Steve Forbes has talked about it.
		Mark to market.
		I'm not quite sure exactly how it works, but there's a few people that said that would make an immediate difference in what's going on with the stock market, especially.
art bell ▲ ● ▼		is that I can't understand because we know that business is the driver of this country why they wouldn't do some type of a tax holiday for our major businesses so instead of I think that basically that means that banks and lending institutions are required to mark, for example, you have a house loan, right?
		Yes.
		Mortgage or something, and they're required to mark that at what the current real market value is.
unidentified		Okay.
art bell ▲ ● ▼		As opposed to what it perhaps was a few months ago.
		So, you know, they want to get rid of.
		I don't know myself whether it would really help.
		There's a lot of controversy about that.
		And we'll ask Michael Panzner about it.
unidentified		That'd be great because, like I said, I've only heard a few people talk about it.
		And if that's an executive order, then I believe the president can just sign an executive order.
		He doesn't have to go through Congress or anything.
		That's just something that he could just throw out there.
		And I've heard a few people say that he just did it for, say, six months just to see what happens.
		And if it doesn't work, then turn around and you can put it right back in again because it is an executive order.
		And then on the second thing is with the taxes, I just don't understand.
		If corporations are what drive this country, then why wouldn't we be trying to help them out the best we can, not by just shoveling money at them, but allowing them to freeing their hands up a little bit so that they can have a better chance of doing what they've got to do?
art bell ▲ ● ▼		Well, you mean through tax policy?
unidentified		Right.
		Say, like some people say a tax holiday or whatever the case will be.
		For instance, I think it's 35% is the tax rate for corporations in the United States comparison to anybody.
		We're the second highest in the world.
		So say if I were to do business in Ireland, if I had a company in Ireland, I'd only be charged like, I think it's 12%.
		So why wouldn't they just drop it to 10% or even completely just drop it to zero?
art bell ▲ ● ▼		You know, that's an idea.
		I mean, it's certainly worth considering.
		I don't know.
		This would be a time when, of course, our government is, you know, doling out money like water.
		And so they really need the money.
		But on the other hand, on a temporary basis, what you're saying might make sense.
unidentified		Right.
		I'm just saying I'm thinking they wouldn't have to dole out so much money.
		For instance, if let's take the car company, for instance.
		If they knew that their taxes were nothing, then would they be borrowing money?
art bell ▲ ● ▼		Right now, I think right now the answer is still they may be a little too far under.
unidentified		But say a lot of corporations that are teetering on the edge.
unidentified		If they know for the next year that they don't have to pay their taxes in some of these major corporations, their tax bills are twice of what the government could loan them anyways.
art bell ▲ ● ▼		Okay.
		Well, okay.
		Thank you very much.
		It's certainly an idea worth considering.
		Whatever would do it is worth considering.
		And that basically is what our government is doing right now.
		Now, they may be making the wrong decisions, and that'll manifest itself in a very ugly way indeed.
		So that's a very good question from Mr. Pansner.
		I think this would be the international line.
		You're on the air.
		Good morning.
unidentified		Hi.
		Hi.
		But I'm not from overseas.
		I'm on first-time caller.
art bell ▲ ● ▼		Oh, you are?
art bell ▲ ● ▼		Okay.
unidentified		I'm sorry.
		I probably didn't put the phone number in right.
		Is that okay, or do you need me to hang up?
art bell ▲ ● ▼		Well, I should slam your hand and hang up, but I won't.
unidentified		Oh, you're awesome.
art bell ▲ ● ▼		So what's up?
unidentified		I'm such a doll.
		Thanks.
		Well, the reason I'm calling is because I think the people who are corrupt in this country are the major corporations, the Main Street that are taking CEOs and paying them salaries that are outrageous.
art bell ▲ ● ▼		Oh, you mean Wall Street?
unidentified		Well, that, Wall Street, banks, major corporations.
unidentified		I used to work for a wireless company who just paid their CEO they let go last year more money than I'll ever see in my lifetime.
art bell ▲ ● ▼		Well, you know, what you're saying is kind of a nice populist issue, and I don't disagree with you.
art bell ▲ ● ▼		I just don't think, you know, such even though, you know, millions of dollars are mentioned for these top CEOs, it's an infinitesimal part of the problem, so small that to change it won't change anything.
unidentified		I know, I know, but artists just.
art bell ▲ ● ▼		But I know, I know, it's a populist issue, and it's, you know, President Obama has certainly slammed them around, and deservedly so, but that's more political than it is helpful.
unidentified		Yeah, this is true.
		Okay.
		Well, thanks for calling, or answering the phone.
art bell ▲ ● ▼		You called me.
		All right.
		Thank you very much.
		You know, it's right.
		I mean, why in the hell do you reward the CEOs and so forth for failure?
		It's idiotic.
		However, in the real world, that's all it is, is a good, oh, we're angry kind of thing.
		And it's a good place, I suppose, to point blame.
		But it's not going to change anything.
		Wildcard line, you are on the air.
		Good morning.
unidentified		Good morning, Art.
art bell ▲ ● ▼		Hi.
art bell ▲ ● ▼		Where are you, sir?
unidentified		I'm in Julian, California, up above San Diego.
art bell ▲ ● ▼		Okay, and your first name?
unidentified		Chris.
art bell ▲ ● ▼		Okay, Chris.
		What do you think about all this?
		Where are we headed?
unidentified		Well, I was going to talk to you about more of an emotional thing.
		This is more of an emotional depression as far as the economy goes.
		You know, the stock market and everything, it's the way people feel about America themselves, which way this is going.
		And you've had Kathleen Elson Fitz on many times, I've heard on your show.
art bell ▲ ● ▼		Yes.
unidentified		And she had predicted this 10 years ago.
art bell ▲ ● ▼		As quite a few had.
art bell ▲ ● ▼		I mean, it wasn't that hard to see coming.
unidentified		Yeah, you're absolutely correct.
		And I had a couple of thoughts really quick.
		I think this thing, I think we might have a rebound, a hope of a rebound 12 to 16 months down the road if this stimulus package gives anybody a little hope and Obama gives, he needs to give them more encouragement.
		But I was going to ask you a question.
		What would you think of if the banks had insurance on all loans mandatory that if somebody lost their house or lost a job or something that some kind of insurance policy, like if you had a fire, would take care of payments and things like that?
art bell ▲ ● ▼		That's an interesting thought.
		The only problem with that is that if, let's say, for example, we'd had, I don't know, an AIG for everybody with a home loan, insuring their mortgage somehow.
		Then it would be the insurance companies going bust, and they'd be carrying the load, and we'd still be in the downward spiral we're in right now.
unidentified		Well, that's correct.
		Yeah, but they'd have to be betting against it.
		It wouldn't happen again.
		I was just kind of thinking in the future.
		And I know Reagan thought of one thing privately.
		He was thinking of backing the dollar back up by something instead of a promissory note.
		He wanted to go back to the gold or silver certificate again.
art bell ▲ ● ▼		Well, you know, people are fleeing to gold right now.
		It's up to $10.
		$1,000 a troy ounce, something like that.
		Very close.
unidentified		I've been investing in gold for 10 years now.
unidentified		But what do you think about the gold being backed by something tangible with a dollar?
art bell ▲ ● ▼		Well, like what if you have something in mind other than gold?
unidentified		Well, copper or some other.
art bell ▲ ● ▼		Okay, I don't mean to laugh, but our economy is too big to do that.
		There's not enough gold.
		There's not enough copper or silver or anything else to...
		Now, maybe there'd be some...
		I don't know what that would be.
unidentified		Well, it was just a thought I was going to throw out there.
unidentified		And thank you for taking my call.
art bell ▲ ● ▼		Thank you for making it, and have a very, very good morning.
		On the first time caller line, you're on the air.
		Turn your radio off, please.
unidentified		You want me to go back to again a little bit?
art bell ▲ ● ▼		Turn your radio off, please.
art bell ▲ ● ▼		There you go.
unidentified		Okay.
art bell ▲ ● ▼		Got to get it all the way off.
		All right.
		Hello?
		I guess not.
		Too bad.
		They waited.
		They tried.
		They turned down the radio, and then they didn't speak.
		West of the Rockies, you're on the air.
		Good morning.
unidentified		Good morning.
		Hi.
		Hi, this is that Belle.
art bell ▲ ● ▼		That would be me.
unidentified		How do you do?
		All right.
		David in Los Angeles.
art bell ▲ ● ▼		Hey, David.
unidentified		And I'm following up with the lady who was complaining about the CEO who's going to make, or who did make more in his bonus than she'll ever see in a lifetime.
		Along those lines, there's the case of Washington Mutual Bank here in California.
		Not long ago, they had hired a president who was paid $14 million.
		$7 million for the first year's work, which amounted to one week that he worked.
		His second week, he took another $7 million for the second year's work and left.
		He worked two weeks, was paid $14 million, and split.
art bell ▲ ● ▼		Okay, well, I know it's a good focus for people's anger.
		There's no question about it.
		But again, as I told the lady who called, it's such a fractional tiny bit of, you know, it's a great place to focus popular anger, and obviously we have to change it, and we are changing it, but it's not going to make any difference to the bigger picture.
unidentified		This happened with Washington Mutual.
		It's happened with all of the mortgage banks.
		There's so much rampant corruption in this country.
		It's appalling.
art bell ▲ ● ▼		Well, you know, I'm not going to disagree with that because I can't.
art bell ▲ ● ▼		But the bigger question now is, where do you think we're headed?
unidentified		Where are we headed?
		Well, I think we're, what, in the sewer headed for the Cesspool myself?
		I'm frightened.
		I'm really concerned about where the country is going.
art bell ▲ ● ▼		Well, it is.
		Listen, I agree with you.
		It is absolutely frightening.
		This whole thing is truly frightening.
		For the first time in my life, I look at my own country and what's going on, and I am frightened.
		I'm really frightened.
		And what I'm trying to do, and what I suggest all of you do, is focus that toward what you can do for your family and your loved ones and those around you.
		And I don't know what those things are.
		It's going to be very individual.
		I have my own specific plans now, which I won't share because they are personal.
		But, you know, it's not going to a good place.
		And trust me, as I say these words, I pray that it is not going to be so.
		I really do.
		And we should all do that.
		If you believe in a higher power, now's the time for an appeal, believe me.
		West of the Rockies, you're on the air.
		Good morning.
unidentified		Yes, I was wanting to speak to Art Bell.
art bell ▲ ● ▼		That's me.
art bell ▲ ● ▼		You're on the air.
unidentified		Oh, thank you, sir.
unidentified		Well, the reason why I'm calling is because of your issue about the economy going in chaos.
art bell ▲ ● ▼		Yes.
unidentified		I believe that it is because of overpopulation and that also overpopulation.
art bell ▲ ● ▼		Yes.
		Why?
		In other words, what is it about overpopulation that has brought us to this point?
unidentified		I think that there is just too many people that are going too fast.
		There's too many people.
		The economy is going too fast.
		I'm sorry, I have a cold, by the way, so I'm tired.
art bell ▲ ● ▼		No, that's quite all right.
unidentified		Okay, that's great.
unidentified		But anyways, yeah, I'm surprised to be talking to you because you're such a great, great person.
art bell ▲ ● ▼		No, no, no.
art bell ▲ ● ▼		This is all I am as a talk show host, sir.
unidentified		Yes, sir.
		Yes, sir.
		I understand.
		It's that and also I'm in shock.
		But anyways.
art bell ▲ ● ▼		I would so meant what?
art bell ▲ ● ▼		Too many mouths to feed, too many people to house, too many whatever.
unidentified		Yeah, eventually everything is going to shut down because it's just going to be too much, too much to handle.
		And people are going to rely on too much.
		All the things that we have are going to be obsolete because we're taking advantage of everything.
		It's called overpopulation.
		It's called overpollution.
		It's called because of things that are happening too fast.
		Things are going too quick.
art bell ▲ ● ▼		All right.
		I think I've got the picture.
		I don't know that I would attribute it to overpopulation.
		Actually, the population in the United States is fairly stable and perhaps even a little on the decline.
		And if you look at, oh, for example, China right now, you're talking about some serious population.
		And they still have GDP that is positive.
		It's not to say they're going to not get in some trouble because obviously their exports aren't being scooped up as they were.
		But, you know, worldwide, I guess, population surely is an issue, but I'm not sure that it is the focus nor the reason for the current financial disaster.
		Wildcard line, you are on the air.
		Good morning.
unidentified		Hi, this is Tommy in Texas.
art bell ▲ ● ▼		Hi, Tommy.
unidentified		Yeah, you know, you've always been right about your predictions, Art.
		And I have to agree with you 100% that I believe that we're heading in this horrible direction.
		And just like when Y2K was around, a bunch of us prepared ourselves.
		And worst case scenario was that we still won because we had saved money and controlled our spending.
art bell ▲ ● ▼		A lot of people criticized people like Gary North, who had a lot to say about Y2K, sir.
		But the truth of the matter is, all of the screeching and screaming about Y2K caused billions of dollars to be spent, which prevented what otherwise would have happened.
		Something people don't realize.
		They all say, oh, you know, we prepared and nothing happened.
		Well, thank God nothing happened.
		I wish we had prepared for the situation we're currently in economically as we prepared for Y2K, and we could be celebrating tonight and saying, ha, ha, ha, ha, look at this.
		It rained.
		It was a rainy day, and we made it through without getting wet.
unidentified		Yes, the wind side is I still have a lot of that from the Y2K, and I still have plenty of money in the account that I've saved for emergencies, living on the Gulf Coast, preparing for hurricanes.
unidentified		And I feel as though I'm probably two steps ahead of everybody else.
art bell ▲ ● ▼		You probably are.
		Good for you.
		If things get really rough, sir, really rough, how do you think the American people will behave?
unidentified		Badly.
		Very badly.
		Just like they normally do when there's a local disaster.
art bell ▲ ● ▼		I had a friend the other day, I won't name him, who went and tried to buy a gun, a Glock.
		And he actually was successful, but they said they had, I forget, thousands and thousands on back order.
		And so across the nation, people are buying guns in a volume they never have previously.
		So I guess they see something coming.
		Good morning.
		I'm Art Bell.
		Trust me when I tell you there's a million topics I'd rather be talking about than this one.
		But things are what they are.
		And we've got a real expert coming on now, somebody who really has been there, done it, centers of power in the world's banking centers.
		Matthew J. Pansner is a 25-year veteran of the global stock, bond, and currency markets.
		During his career, he's worked in New York and London for leading companies, for example, HSBC, Soros Fund, ABN AMRO, Dresner Bank, JPMorgan Chase.
		He is an FT-knowledgeable New York Institute of Finance faculty member specializing in equities, trading, global capital markets, and technical analysis, and is the author of the 2007 book, Financial Armageddon.
		That was written in 2007.
		Now, he's got a new book, a brand new book, which is probably why we were able to get him here this evening, called When Giants Fall, and the giant he speaks of is America.
		And just reading a little bit from the cover of the book here, I only got it today, so you can bet I'm going to be into it tomorrow.
		Once the embodiment of prosperity, the United States now finds itself in a precarious position.
		With its financial system in shambles and global standing on the wane, many believe we are witnessing the end of the American era.
		In When Giants Fall, author Michael Panzner puts the coming age of post-American dominance in perspective and addresses the far-reaching effects it's going to have on our lives, as well as the economic opportunities, that's right, opportunities that will arise from it.
		In a moment, Michael J. Panzner.
		Well, all right, Michael J. Panzner, welcome to Coast to Coast A.M. Thanks for having me.
		It is a real honor to have you, Michael.
		I don't know if you had an opportunity to hear the first hour of the program or not.
michael j panzner ▲ ● ▼		A little bit of it, yeah.
art bell ▲ ● ▼		A little bit.
		Well, You know, as I mentioned in the first hour, I'm just a talk show host.
		That's all I am, talking head.
		But I've spent, oh, God, Michael, virtually every day for months and months and months now watching the financial channels and trying to make sense of what's going on right now.
		And I've concluded we're headed for a depression.
		I think we're headed for a depression, Michael.
		A real depression.
		Now, it's not going to be.
		Perhaps it won't look like the one in the Great Depression.
		There'll be some differences, but a depression nevertheless.
		What do you think?
michael j panzner ▲ ● ▼		Well, chapter 7 of my 2007 book is depression, and chapter 8 is hyperinflation.
michael j panzner ▲ ● ▼		So I guess you could say we're on the same wavelength here.
art bell ▲ ● ▼		I guess we are.
		All right.
		I think for the audience, what we can do or should try to do is to start out by saying, how the hell did we get here?
		Boy, it happened fast, Michael.
		America was so big, and our economy is so giant.
		Our military, well, it still is, but we were just so big for this to happen this quickly astounded me.
		How did we get to this point?
michael j panzner ▲ ● ▼		Well, I have to tell you, even for me, and I certainly saw things unraveling, even for me, it's been astounding.
		I think a lot of it has to do with the way the world got more connected.
		Originally, that was supposed to be a good idea that, you know, you bring everybody into the party and it reduces risk and it and it makes everybody sort of share the pain and share the gain.
		But what they forgot.
art bell ▲ ● ▼		No, go ahead.
michael j panzner ▲ ● ▼		Oh, but what they forgot to sort of take into account is there's this general idea that when you get the kinds of shocks that we've seen recently, the kinds of imbalances that preceded those shocks, and you have this world that's connected very intricately, like a spider web, so to speak, that little vibrations in one part of it end up vibrating across the whole net.
		So all of this sort of benefit of, say, globalization and of getting countries and companies and individuals tied tightly together proved to be sort of the complete opposite once circumstances turn for the worse, which historically, whether you were sort of a doom and gloomer or whether you were just a pure student of history, markets and economies ebb and flow.
		You get downturns, you get upturns, and everyone forgot about the fact that you get downturns.
art bell ▲ ● ▼		Well, of course, in most of our lifetimes, we've been through downturns before.
		We've had recessions, and we've come up and out of the recessions.
		What we're in right now feels unlike anything I've been through in my lifetime, and I guess it is.
		It's not a normal recession, is it?
michael j panzner ▲ ● ▼		No, certainly not.
		I mean, typically, recessions are sort of pauses, if you like, in the general trend of things.
		I think a depression is a real, I guess the word that's used is sort of unraveling, it's deleveraging, it's a wiping away of all the excesses that had built up over time.
		And there were some extraordinary excesses in terms of the total level of debt that existed, something on the order of three and a half times the size of the economy in the U.S. That was the largest number, in fact a record number, but the largest record since the Great Depression era.
		You had this structural imbalance between the U.S. and the rest of the world where we're spending more than we were making.
		We were financing our debts through other countries like China.
		There was tremendous distortions in the investment world.
		People were taking on huge amounts of leverage and making gigantic risky bets across the globe.
		So you had a combination of factors that were sort of the dynamite sitting next to the lit fuse.
		And that lit fuse happened, in my view at least, happened to be a dose of reality, dose of economic reality.
		And also, I guess we reached a sort of tipping point in terms of how much more people could take.
		And unfortunately, history suggests that these kinds of events are long-lasting.
		The financial crises in and of themselves tend to have a more dramatic effect on the economy than a straightforward downturn like we saw maybe in 2001 or 1990.
		But the other side of it is that people were living as though there was no tomorrow.
		Savings rates were historically low.
		Debt levels were extraordinarily high.
		People's sense of what they could afford kind of got lost in translation.
		And in a way, I guess you could say depressions bring reality back to everyone.
art bell ▲ ● ▼		Define in the modern day, if you can, Michael, what you think a depression is going to look like.
michael j panzner ▲ ● ▼		Well, you know, I think that the classic image, well, you know, sort of from an economic view, actually there's a lot of debate about what it really means.
		But in essence, it's an extended period of economic contraction, typically accompanied by deflation.
		In other words, falling prices for different assets, house prices, for example, we've seen that.
		A general, I think the number that people throw around is sort of a 10% shrinking in the size of the economy or in terms of the extent of the economy.
		So that's the sort of one perspective.
		But the other is, I think, a mindset change.
		One of the interesting things about now, as opposed to previous recessions, is that people are changing their attitudes about spending.
		I mean, the sort of religion of consumerism seems to be dying if it's not dead already.
		There's a sort of new frugality even among young people.
		It's no longer the best idea to have the latest and greatest and the most expensive.
		In fact, there's almost a game now to see who can get by by finding the cheapest and Using things for the longest.
		So that mindset change, in my view, is an integral part of it.
		People are changing their attitudes because they expect this to last instead of saying, we'll get through it and then we'll be back to normal.
art bell ▲ ● ▼		Right.
		Why now?
		What was the, was it Lehman?
		If Lehman had not happened, if they had somehow propped up Lehman, where would we be today, do you think?
michael j panzner ▲ ● ▼		It would have been somebody else.
		I mean, the problem is that Lehman, in a sense, it's kind of random who goes.
		You know, the interesting thing that people don't sort of maybe aren't aware of is during the Great Depression, for example, many banks failed.
		But many good banks fail with bad banks.
		There's an element of randomness to it.
		Because of the whole notion of credit, it's very dependent on confidence.
		It's very dependent on who your relationships are, which is, again, there's an element of randomness to that.
		So sometimes if people get the wrong idea about a firm and that idea spreads, and you're in an environment where people are sort of worried and open to such ideas, you can easily destroy a good institution in the kind of time span that Lehman fell as much as you can destroy a bad institution.
		So the depressionary forces aren't really that discriminating.
art bell ▲ ● ▼		Let's look at our two largest banks, Bank of America and Citigroup.
		Is that the case there?
		Are we destroying good institutions because of a stampede of short selling?
		Or what's going on?
		Or is the current market price well deserved and perhaps ought to be even zero right now?
michael j panzner ▲ ● ▼		Well, I think it's the latter.
		I believe short selling actually is a value to the markets.
		And I've been 25 years in markets.
		I've been short.
		I've been long.
		I play both sides.
		And I think there's value.
		But aside from that, the truth is I think some of the experts out there have acknowledged that the administration hasn't and the industry hasn't, and to a certain extent, the media hasn't.
		But the industry is effectively bankrupt.
		Certainly at the upper tier, the sort of large money center, global type banks, there may be some exceptions there or there may be some in better shape.
		But for all practical purposes, our banking system, the largest players, are insolvent.
		So whether people want to acknowledge that, whether we want to play games with Washington adjusting accounting rules and adjusting the extent to which they bail out certain firms and come up with all sorts of sort of magic tricks out of the hat, it doesn't change the reality.
		I mean, these institutions had slivers of capital.
		They had huge risky exposures, plenty of it in the real estate game.
		The fact is that real estate prices have fallen.
		It's made their assets worth less.
		And ultimately, that's like any business.
		Your assets fall to a point where you're essentially worth nothing.
art bell ▲ ● ▼		Are real estate prices going to keep falling?
michael j panzner ▲ ● ▼		Well, one model I like to look at, and again, yes is the answer, but to put it in a context, let's just say that my views, which are certainly at one end of the spectrum, are some view them as perhaps a little over the top.
		But if you look at the sort of last comparable type bubble, which is in Los Angeles in the sort of late 80s, early 90s, if you just overlaid a graph of what happened to house prices out there with the current circumstance, you're really not talking about a low in real estate to 2012 at the earliest.
		I mean, even assuming that there are a complete sort of parallel overlap.
		And this is a sort of mathematical exercise.
		This is not me saying, you know, this is what's going to happen.
		This is saying, well, here's what happened before.
		What do you think?
		And my perspective is that the bubble that we saw here, because of all this sort of fancy stuff that went on in terms of the mortgage lending, between the fraud, the incompetence, and people getting in over their heads, my view is it was a bigger bubble.
		So if anything, 2012 is a sort of minimum, at least from my perspective.
art bell ▲ ● ▼		A lot of people out there talking about recovery, oh, mid-year, third quarter, fourth quarter at the latest.
art bell ▲ ● ▼		I take it you don't see that.
michael j panzner ▲ ● ▼		I don't.
		And unfortunately, and again, you know, people take the point of view that why be negative?
		And clearly my book, my two last books, my first book wasn't negative, by the way, so I haven't always been this way.
		It's really been a recognition of changing forces.
		But I think that one of the problems why we're in the mess we're in now is today, as opposed to having resolved it perhaps a little bit earlier, is because people have been in denial.
		I mean, they've been saying, well, a couple of reasons.
		First of all, that they believe the wizard, the Federal Reserve, so to speak, could solve all problems with easy, cheap money, with plenty of additional credit.
		But they also, in a sense, became overconfident about their sort of capabilities and whether you could beat nature.
		I think part of the problem here is people think, well, winter's coming, but we can stop winter from coming.
		And I think that's the kind of forces that people are trying to sort of turn back.
		I mean, you can't stop winter.
		And in my view, what got us here, decades of excesses, decades of imbalances, you can't just stop them by saying, okay, we're determined and we're going to think positive.
		It doesn't work that way.
art bell ▲ ● ▼		Michael, I saw a YouTube video of a congressman.
		I can't recall his name right now.
		But he was relating what happened in and around September 15th.
		And he said, well, at about 11 o'clock in the morning, the Federal Reserve noticed that about $500 billion had been withdrawn from money market accounts, going God knows where, but going.
		And they opened up the window and started feeding the banks.
		And of course, that, I believe, was the same day they announced $250,000 guarantee for all deposits.
		And had they not done that, it was the view at the time that there would have been, by 2 in the afternoon, $5 trillion withdrawn from those accounts, and it would have been game over, all over.
		Is that accurate?
		Do you think that's accurate?
michael j panzner ▲ ● ▼		Well, I mean, first of all, when a member of Congress speaks, I'm always a little skeptical, no matter what view he's espousing.
		And there has been debate in the bloggers here and in the media, for example, whether he was exaggerating, whether he distorted some of the facts.
		But frankly, if you understand the nature of, say, bank runs that happened in the past, and you understand the degree to which our system is very dependent on confidence.
		And we have a very integrated network.
		People can communicate instantly with the technology we have available.
		And people talk.
		So it's very conceivable.
		I can't say I have first-hand knowledge, but it's extremely conceivable this kind of scenario because you have people who are very prone to hurting and acting in the same way.
		And as they saw to a certain extent, say, you know, with the Bear Stearns debacle, with that episode, is that sometimes the first guy out is the winner.
		So it isn't such a bad theory when someone shouts fire in a theater, for example, to head for the exits and try to get out first.
		The problem is that if everyone acts that way, then it becomes a disaster scenario.
		But in reality, it makes the first guy out usually ends up in the best position.
art bell ▲ ● ▼		Well, there must be something to it because I recall all the guys, government and otherwise, were called into a room.
		The story went, and it was told to them what was going on, and all the oxygen left the room.
		You know, it was really scary stuff.
		And this was apparently during that electronic bank run, if that's what it was.
		So there's probably some truth, if not complete truth, to the whole thing, yes.
michael j panzner ▲ ● ▼		Yeah, and I think you raised the point earlier is that, you know, how is this, perhaps how is this depression, and so to speak, going to be different than the last one?
		And there will be differences.
		I mean, I don't think we're going to see people selling apples on street corners, but I think, you know, the sort of 21st century equivalent of a bank run is the sort of electronic money run that we've seen and the run away from certain institutions in the wholesale money markets, certain brokerage institutions.
		So it's not the small community banks, the people lined up outside the door, waiting to get their money back, but it's the sort of big institutions which effectively can pick up the phone or click into their computer, arrange for a transfer, and boom, the wheels are in motion.
		And they can do this with extraordinary size.
		So there is definitely a sort of a double-edged sword here when you talk about the digital age because of the speed and the size and the efficiency with which people can throw money around.
art bell ▲ ● ▼		Yeah, but where is the safe place to send it?
michael j panzner ▲ ● ▼		Well, I mean, in a sense, it depends on who you are and your perspective.
		Clearly, bigger players have some advantages.
		They also have some disadvantages.
		But that's why we've seen the run on Treasury bills, for example.
		You know, interest rates on three-month Treasury bills are hovering around the zero level, much like they did, you know, 80 years ago.
		And they stay that way for a long time.
		People made the decision that safety was better than return.
unidentified		All right.
art bell ▲ ● ▼		Michael, stay right there.
		That music means we're in a break.
		Michael J. Pansner is my guest.
		Been there, done that in all the large, in many of the large institutions we're talking about tonight.
		Our financial system is in real trouble, and that's the subject.
		Good morning.
		Here, indeed, I am.
		My guest is Michael J. Panzner, and he's worked for some of the biggest institutions in America, in the world, actually, because they are the biggest in the world.
		And we're discussing the state of our economy.
		His book is When Giants Fall.
		And in this case, he's referring to America, primarily, our primary interest, but there are other giants to fall.
		We're going to define a couple of things asked about in the first hour.
		For example, mark-to-market and what is a credit fault swap.
		I think it's important that you understand these things so that you can understand how much or how we got into the fix we're in right now in a moment.
		Once again, Michael J. Panzner.
		Michael, just for educational purposes, can we kind of move through what is marked to market?
		What does that mean?
		And let's start there.
		What does it mean, mark-to-market?
michael j panzner ▲ ● ▼		Well, the general idea is it's a bit like your portfolio.
		If you're an investor, for example, you want to figure out what you're worth.
		You use today's prices, or at least what you think are today's prices, you plug them in, it tells you what you're worth.
		So the sort of contrast, if you like, is in many different parts of financial accounting, people can use alternative methods of valuing assets, the sort of historical cost, for example, or other aspects that aren't so variable.
		And in fact, if you get into the issue, you can see why mark-to-market for all the supposed benefits, the idea was that you would have a better picture on how institutions are doing.
		There were some downsides that were not thought about until the situation we got to right now.
art bell ▲ ● ▼		All right.
		So if I'm understanding correctly, mark-to-market means, for example, let's take a bank.
		It doesn't Have to have any name, just a bank.
		That means that they have to go to their books and mark the various investments and loans they have to current market conditions.
michael j panzner ▲ ● ▼		Is that fair?
		Yeah, the problem is, and one of the problems that continues to sort of hang over the market is that certain of the things that were created, some of the derivative type products, all of the sort of Frankenstein finance offshoots that we saw over the past decade,
		a lot of them don't really have a market or their value can only be assessed by a combination of guesswork, computer models, past price history trends, other markets, but nothing that you can see on a screen.
		It's not like you can sort of ask your broker where a stock is trading.
		Where's Newmont Gold trading?
		You can get a sense of what that's the market.
		With some of the things the banks got involved in, there is effectively no market.
		So the issue has come up is that the banks and now arguably the regulators and the establishment Are letting financial institutions veer away from that somewhat and allowing them to put artificial market prices to create the impression that things are better than they are, that they're worth more than they are, and that they're in better shape than they are.
art bell ▲ ● ▼		All right.
		Well, that was exactly my impression.
		So suspending mark-to-market rules would allow us to sort of lie to ourselves.
michael j panzner ▲ ● ▼		Is that yeah, and the thing is it was great on the way up because house prices were rising, financial, you know, stock prices were rising, bond prices were rising.
		So, what the banks did is they used that sort of increasing value, which was there all the time for everyone to see, and say, you know what, we can get, because our value has gone up, that means we can speculate even more.
		We can borrow even more money, and we can really sort of turbocharge our returns.
		But, you know, like most pyramids, when it goes the other way, then it all sort of is a sort of mirror-opposite image.
		And the problem is that everyone thought it was wonderful on the way up, but now on the way down, they realize that it's not really the kind of scenario you want to see.
art bell ▲ ● ▼		Are we back?
art bell ▲ ● ▼		Can you hear me?
michael j panzner ▲ ● ▼		Sure.
art bell ▲ ● ▼		Okay, we lost your audio, Michael, for a moment.
		So, anyway, a lot of people have suggested that suspending mark-to-market would allow these institutions to, oh, I don't know, write back up the value that they think it - well, I don't know how they would decide, to change the value and not be required to mark to what the market is and sort of lie to ourselves.
		Now, if they were to suspend mark-to-market, it's being argued all over the place, would it help?
michael j panzner ▲ ● ▼		Well, in the past, the banks – there's a term called regulatory policy.
		forbearance, and it basically means, if you want to simplify it, the regulators look the other way until sort of, you know, they have the element of time, you have businesses carry on for some period earning money, and that they slowly eat into the loss and make themselves whole again.
		It's a bit like a breathing space.
		But the problem is now that it's created tremendous problems because people don't know who's really got left holding the old-made card, essentially.
		So they believe everybody has the old-made card, and the whole system's locked up.
		I mean, it's eased somewhat from what we saw, say, in the depths of last quarter.
		But people don't want to commit themselves.
		Banks don't want to lend to each other.
		They're afraid of the companies they do business with, what their real exposure is.
		So it's kind of backfired now because in this idea that they're going to sort of save the system, they've essentially in the process of breaking the system.
unidentified		Okay.
art bell ▲ ● ▼		All right.
		Now, credit default swaps and instruments like CDSs.
		Can you give sort of an explanation that people will understand?
michael j panzner ▲ ● ▼		Sure.
		And in fact, it's one of the topics, derivatives generally, is one of the topics I tackled in financial armagen because people were so uninformed, and it was in the sort of financial industry's interest to keep people uninformed.
		But in simple terms, it's a form of insurance.
		What it is, is people are trading contracts that allow you to decide whether you want to have less or more exposure to whether a company is going to get into trouble credit-wise.
		So if you think a company is going to have problems in future and you buy a credit default swap, if that comes true, whoever sold that credit swap to you, like an insurance company, would have to give you the money to compensate for the losses, say, on their bonds.
		That's normally what the reference is.
		But the loss, the difference between when it was an up-and-going company and when it got into trouble or into default or into bankruptcy.
		So it's just a form of insurance effectively.
		But what it also allowed was people to speculate on whether companies were going to survive, which companies are going to do well and which weren't in terms of their sort of financial position.
		But it brought in all of these speculative elements, hedge funds and the banks, and it created this huge sort of bubble in its own right, this bubbling market that lost touch with the underlying market.
		I mean, I'm sure many of your listeners are familiar with the idea of futures in Chicago, futures on grain prices.
		Well, it's one thing to have a sort of mechanism that helps protect farmers and protect bakers in fluctuations of the price of wheat.
		But when the sort of maniacs are running the asylum, the ones who are purely speculators, who have no interest in what the farmers do and no interest in what the bakers do, then you get a crazy disconnected market.
		And I think that's exactly what we got.
art bell ▲ ● ▼		All right.
		Well, here's an explanation I heard on a show the other day.
		They said a credit default swap, one of them anyway, one type might be, for example, thousands of mortgages.
		Now, you take those thousands of mortgages and you sort of package them together and you sell them as a credit default swap.
		In other words, as you mentioned, a kind of insurance policy, as it were.
		Well, we all know that home prices, you know, have just people are upside down in their homes way upside down.
		So the moment that happened, you have these credit default swaps purchased by maybe some poor slob up in Iceland, let's say.
		And they bought these derivatives, credit default swaps or whatever.
		And when the house prices fell, these triple-A-rated derivatives became not so AAA anymore.
		And, of course, we know what happened to Iceland.
michael j panzner ▲ ● ▼		Well, I mean, there's a little bit of fine-tuning in your explanation.
		What you were describing in terms of packaging loans, for example, was one of the reasons why we had the mortgage boom.
		And these loans were packaged into what were called mortgage-backed securities, which are effectively a form of derivative.
		I mean, there's many different kinds of derivatives.
		Credit default swap is one kind.
		Let me just take a step back.
		I mean, a derivative is any security, essentially, that bets on something else, whose value is based on something else.
		And it's like if you get an option on a piece of property, well, the value of that option changes depending upon what happens to the price of the property.
		So it's really that's what a derivative means in simple terms.
		It's something that is really whose value is determined by something else.
art bell ▲ ● ▼		And who is it, Michael, who determined that these credit volunteer ops or whatever kind of derivative were rated triple A?
art bell ▲ ● ▼		Who sat down and decided that?
michael j panzner ▲ ● ▼		Well, it was an extraordinary combination of corruption and incompetence, I think.
		The problem is that, for example, like many things in life, people became overly dependent on who they thought were the experts.
		In this case, they were the rating agencies like Standard & Poor's and Moody's, for example, that they knew what they were doing.
		They had rated sort of, you know, corporate bonds and municipal bonds and all sorts of instruments and companies through time.
		And I guess they did a reasonably good job.
		job up till sort of a decade or so ago.
		Never a great job, but reasonable.
		But the problem is that they get paid by the issuers.
		That's the inherent flaw.
		So if you're rating, say, IBM's bonds, typically IBM would pay the rating agency for the rating, say, AAA.
		So it creates a conflict of interest.
		What happens with all of these derivative products is that in essence, the sort of investment banks were trying to say, let's put all this junk together.
		And if you put enough junk together and it's really diversified, well, it's not going to be junk anymore.
		It's going to be gold, lead into gold.
		And the fees that they paid the sort of rating agencies were extraordinary relative to the kind of money they were making before.
		So they had a great incentive to be soft.
		And because the market accepted them as a sort of arbiters of last resort, and at the same time, their standards slipped because they were making money hand over fist, you just had this scenario that everyone believed in the house of cards that wasn't real.
art bell ▲ ● ▼		Right.
		Okay.
		Do you have any idea or even want to make a guess at how much money is really sitting in all of these derivatives?
		Do we know?
michael j panzner ▲ ● ▼		Well, there's lots of numbers being thrown around, and there's a sort of subtlety to it all because certain kinds of derivatives, if it all went wrong, you wouldn't necessarily lose the face amount.
		I mean, it's a little bit complicated to get into it on the sort of program here, but the general idea is that in some cases, even though, like a futures contract, if somebody didn't pay for the sort of gold or S ⁇ P futures or corn or whatever it is they agreed to pay, the money that would be lost wouldn't be the value of the entire futures contract.
		It would be more like the difference between where that thing was trading now and the price of the contract.
		So it's smaller than the face amount.
		So there's all sorts of numbers.
		But even on conservative estimates, and I don't buy them, by the way, because I think there's a lot of, again, bad assumptions like most of the stuff that was created during the past two decades.
		You're talking in the trillions of dollars of exposure.
		And in some cases, there's this idea that if you buy something from B and B also buys something from you, that in the end it all kind of washes out.
		Well, my view is if B goes out of business, then you have double the exposure.
		So the market assumes that these things are kind of netted out.
		And my view is you get the kind of crisis that we've been seeing unfolding, and the exposure is a lot higher than people think.
		So it's hard to put a definite number on it, but certainly I think the scale is extraordinary.
art bell ▲ ● ▼		Well, it's so important because that's what we've got to write all that down or handle it in some way or another, and nobody knows how big it is.
		And so that creates this unsure atmosphere, which then quickly moves into panic.
		And when you don't know, markets don't like uncertainty, and they're uncertain about how big our debt, how big our problem really is.
		So how big is it?
		I mean, is it...
michael j panzner ▲ ● ▼		I mean, you hit the nail on the head because it's the same issue with the value, you know, marking to market and using fantasy values.
		If people don't know, their minds run wild, and then the sort of, you know, the sort of lizard brain, the kind that runs for the exits when the fire is shouted, takes over.
		People become emotional.
		They do crazy things.
		And in a sense, when you don't know, you assume the worst.
		And that's the sort of human nature element to all this.
		And arguably, again, it's rational.
		I mean, if you don't know, you better be prepared.
		There's no sense in pretending otherwise.
		So you have this in financial markets that people don't know the size of the derivative market, the exposure, who has it.
		I mean, there are some pretty good guesses, but you don't know.
		And the other thing is that all of this involved the kind of financial alchemy, people playing around with computers, these sort of ex-physics doctorates that moved into Wall Street and thought they were extremely clever and thought they sort of were masters of the universe.
		And in reality, what they did is they said, oh, we can make this so we can break it down and everybody can have a little piece of the risk.
		And what they didn't realize is they created all these other toxic monstrosities as a result.
		So you have this complete misunderstanding of what is out there.
		You have a misunderstanding of who has it.
		And you have this idea that people are hiding the truth.
		That's right.
		You get episodes like the Madoff thing, for example, or the Stanford Financial thing, and then everybody's, you know, they become, they assume the worst case scenario.
art bell ▲ ● ▼		Well, since you mentioned Madoff and Stanford, do you think there are many of these yet ahead of us?
		Now, of course, when I guess the tide goes down, then all of these people who have been doing this kind of thing suddenly are exposed because they can't come up with the money that everybody wants.
		And so we begin discovering them as we are now.
		Are there many more of them out there?
michael j panzner ▲ ● ▼		I think that's absolutely the case.
		Whether they're on the same scale, probably not.
		I mean, I don't know the answer to that.
		I mean, there's something to be said for the fact that because they were fairly large, it was easier to sort of see them come out, you know, come to light sooner because you're just talking about a lot of money and money is tight in many respects.
		But yeah, I mean, but if you look, you know, I think you were referring to the quote from Warren Buffett that when the tide goes out, we see who's naked.
		And in fact, that's the truth.
		And that's what we've had historically when you've had sort of booms end, economic booms and financial crises unfold, it really exposes a lot of rot.
		And, you know, if you think about it, if everybody's making money, they don't really pay a lot of attention to the sort of the small details and the due diligence.
		They just say, you know what, I'm making money, the times are good, let it roll.
		And it's only when the sort of things turn around and they're suddenly feeling pressure and they start to sort of dig more deeply because they're worried about losing money, that's when you find out, you know, all this stuff comes out.
		So a lot of people think frauds happen during the hard times.
		They do, but it's surprising how many people got away with during the good times because it was so easy.
art bell ▲ ● ▼		It was amazing.
		I mean, to imagine something the size of, what, $50 billion, they say, in the Madoff case, that's just incredible.
		And now they're saying that nobody can even find any evidence of actual trades that were ever made.
michael j panzner ▲ ● ▼		It's extraordinary.
		I mean, it's a complete failure by the regulators.
		I mean, complete failure.
		And, I mean, even people who've been around for a while, and I have, say, even under these circumstances, it's extraordinary that he got away with this.
		But, you know, everybody fell down.
		And, you know, the sort of Washington focused so much on playing politics and not protecting the people they were supposed to protect, the individuals, instead of the people they're regulating.
		I mean, it was extraordinary.
art bell ▲ ● ▼		It seems now as though the market is moving not as it normally does, you know, whether a business, the earnings of a business one way or the other.
art bell ▲ ● ▼		Now the market seems to be moving on whatever Washington says today.
michael j panzner ▲ ● ▼		Yeah, I don't exactly say that, call that a vote of confidence.
		Let's put it that way.
		But again, here, another example of sort of unintended consequence.
		Because everybody becomes so dependent, they can't think about getting past it.
		And I think that's an issue to be addressed.
art bell ▲ ● ▼		Okay, and address it, we will.
		We'll talk about that.
		And we'll talk about when we come back, the bailouts.
		Just about every weekend for a while, it was a new bank or a new business or whatever.
		Bailouts, bailouts, bailouts.
		How in the world we got from a time when President Ronald Reagan turned and said, Mr. Garbachov, tear down that wall and we ruled the world to this day.
		When not only do we just barely rule the world, if at all, anymore, but the future looks as though the future doesn't look very bright at the moment, and our financial system appears to be in collapse.
		My guest is Michael J. Penzner.
		He's written a book called When Giants Fall.
		Guess who the giant is?
		We'll be right back.
		Well, let's talk a little bit about stimulation, Michael.
		We've had bailout after bailout after bailout from the banks to the car companies and now to people's individual mortgages.
		It's absolutely crazy out there.
		So I guess I would like your comments on the bailouts, the stimulus, all the rest of it.
		Are we doing the right thing?
michael j panzner ▲ ● ▼		Well, you know, again, we go back to the issue addressed in the last segment that by telling people, giving them a spoonful of medicine to tell them that this is going to stop winter from coming, will it work?
		You know, obviously not.
		And I think that's the element here.
		But what makes it worse is they're creating all these sort of animosities, and this sort of tailors into my view that the world is going to become a little bit or perhaps a lot more unstable, a lot more social issues coming up.
		But the idea is that people who are paying their mortgages, who have been doing all the right things as far as the financial obligations go, are suddenly saying, you know what, we don't want to subsidize those who didn't do the right thing.
		We don't want to use our tax money to bail out those who really didn't adopt the measure of prudence that we did.
		And I think there's a real anger brewing.
		So apart from the fact that I think it's not really going to resolve anything the way they're approaching the problem right now, which certainly involves an element of fantasy.
		I mean, they're not recognizing that these banks are effectively insolvent, or at least the biggest ones are.
		And by not doing that, throwing money at them is essentially just throwing it down the sinkhole.
		But you're also just creating this tremendous anger.
		You're giving people an incentive, people who have been paying their mortgage, for example, say, you know what, I'm going to stop paying because I want some of the government's bailout money.
		I mean, it's extraordinary the kinds of effects that you can have that people don't think through.
		And unfortunately, the only real outcome in my mind at least is that all of this sort of printing press government operations that are taking place ultimately leads to an inflationary environment down the road.
		I mean, you destroy the currency and, you know, so bring on the next set of problems.
art bell ▲ ● ▼		Well, we'll get there.
		And there's moral hazard certainly in this mortgage thing, but it's not that big.
		I mean, is it really going to change anything in the housing market substantially?
michael j panzner ▲ ● ▼		No.
		I mean, the crux of the matter is, obviously, there's some differences.
		Certain markets didn't get as inflated as others.
		But the issue is that house prices were in the bubble.
		They got far removed from reality in terms of what people could afford, what rents were.
		I mean, you know, choose your benchmark.
		So what you're trying to do is support a market that's overpriced and arguably hurt people who still can't afford them.
		I mean, yes, it hurts people who own them, but there's other Americans who can afford them because they got driven up to crazy levels by policies that, you know, really weren't thought through.
		So they're trying to stop this Tidal wave of reality, which is what the housing market is going through right now, bringing supply back down to a normal level, bringing prices back down to a normal level.
		They're trying to pretend that they can sort of hold it up and they can.
art bell ▲ ● ▼		Can they delay it?
michael j panzner ▲ ● ▼		Yeah, I mean, you know, you throw enough money at any problem, you certainly can.
		But again, the problem with delay, think about it, right?
		I mean, and we're seeing that in Washington, excuse me, in Wall Street, and on the other commercial centers around the country, the banks, which should be addressing the problems with their business models, which should be cutting back, which should be rethinking why do we do everything wrong.
		Well, their focus now is how can we tap into the bailout money?
		How can we keep management in the jobs that they're in?
		You know, I think the AP did a study which suggested that for most of these companies that have suffered as a result of the crisis because of their own mistakes, most of them still have the managements in charge.
		I mean, that's absurd.
art bell ▲ ● ▼		Japan had a lost decade.
		They faced something like what we have, or at least a small version of it, and they propped up their banks and they kept propping.
		They had zombie banks for, what, 10 years?
		And so it looks like that's what we're doing.
		But, you know, there's this too big to fail thing.
		Now, if we had done nothing, let's come back to the banks for a moment, and we had let Bank of America, certainly anyway, Citigroup, and then Bank of America perhaps, fail, what would have happened?
michael j panzner ▲ ● ▼		Well, you know, obviously it's always hypothetical.
		I'm not going to sit here and tell you what exactly would have happened because I don't know.
		But I will tell you that the whole concept of too big to fail created a lot of efforts and a lot of policy moves that effectively were self-defeating.
		I mean, we do have a successful model of how to solve the banking problem.
		We saw it in a couple of Scandinavian countries, in Sweden and Norway.
		And what they did is they came in, the government, they had banks, most of the big banks were effectively insolvent.
		So what they did is they wiped out the shareholders, fired the management, closed down the basket cases, guaranteed all the deposits so there would be no run on the banks and the citizens, you know, the ordinary investor savers would feel safe and restructured the industry.
		That would have solved everything.
art bell ▲ ● ▼		They nationalized, right?
art bell ▲ ● ▼		They nationalized.
michael j panzner ▲ ● ▼		Yeah, but the people who were sort of in it to win it, you know, the shareholders and the management, well, you made the bet, you lost, you're out.
		And that's the problem here.
		It's not happening.
art bell ▲ ● ▼		Is there enough shareholder left to allow that to occur?
		Yeah, sure, they can get wiped out.
		We can wipe out shareholders.
		We could nationalize the banks, but it was just mentioned by Dodd, and the market began to tank like crazy.
		America's scared to death of that word, nationalization.
michael j panzner ▲ ● ▼		Well, think about it, right?
		Why did it tank?
		I mean, the financial stocks went down because when you wipe out the shareholders, the value goes from whatever it's trading at in the stock exchange to zero.
		So, I mean, even if people weren't reacting to it, there's a mathematical issue here.
		I mean, when the value, you know, the financial stocks are still a big component, even with all the sell-off we've seen in the past few years, are still a big component of the market.
		So if suddenly people think the biggest financial stocks, the shares are going to be worth zero, well, mathematically the index has to go down.
		Forget, you know, there doesn't have to be any panic.
		It's just a math equation.
		So I think that's the thing you have to sort of separate here is the emotional component and the mathematical reality.
		And in my opinion, yeah, that's going to happen.
		But right now, you're getting the sort of the same effect anyway, except it's being dribbled out over a longer period and making people less and less confident about the future.
art bell ▲ ● ▼		So you feel we should follow the Swedish model.
michael j panzner ▲ ● ▼		Yeah, I mean, the problem is it should have been done earlier on.
		So they've thrown all this money at the problem so far, and essentially that money's gone.
		I mean, you know, some of it got paid out in bonuses, which got people very, very upset.
		But, you know, a lot of it went into a sinkhole.
		So there is a cost involved in biting the bullet, you know, in nationalizing and rationalizing the industry.
		But that's now going to be on top of all the stupid moves before this.
art bell ▲ ● ▼		Okay.
		In the Great Depression, one of the things that the great minds have complained about as a cause was the protectionism that occurred.
		And, you know, the stimulus is big.
		It's a lot of money.
		And there is in it a buy-American provision.
		Now, I don't know what you'd call that, but it seems somewhat protectionist, frankly.
		And I was watching the Canadian Prime Minister and President Obama the other day, and that was mentioned.
		And I noticed the Canadian Prime Minister turned very sharply to President Obama when he was asked about the buy American provision in the stimulus.
		Now, is that the beginning of protectionism despite everybody saying we're not going to do it?
michael j panzner ▲ ● ▼		Absolutely.
		And it makes, you know, part of the problem is that people have been living high on the hog, globally, I mean, you know, countries on this tremendous boom that we've had for a couple of decades.
		And it's kind of a human behavioral thing.
		You know, people are much more upset when you have something and it gets taken away from you than if you never had it at all.
		You know, this sort of old cliché about better to have loved than lost than not to have loved at all.
		Well, I think when it comes to economics, the latter applies.
		So the first reaction is going to be for countries around the world who are feeling pressure, you know, from voters or feeling pressure in terms of the leadership.
		In China, you've got worries over social instability because you suddenly have a lot of people who don't have jobs.
		Those first reaction is to be defensive.
		Let's protect our interests.
		Let's batten down the hatches.
		Let's lock the doors, which effectively that's what protectionism is.
		You know, let's bolt the doors and make sure the enemy can't come in.
		In this case, the enemy is other countries looking to export to your markets.
		And absolutely, protectionism, I talked about it in my last book, in this book, the world that people know, the open borders, the globalization.
		In my view, that's history.
art bell ▲ ● ▼		History.
		Yep.
		So, on the one hand, we say we're going to make sure that we don't relive history, but at the same time, we are, of course, we were becoming protectionist.
		That's amazing.
		There may be no way out of repeating history, I suppose.
		So, you know, our financial system, is it so broken that it's not fixable?
michael j panzner ▲ ● ▼		Well, I think the old model certainly doesn't work.
		You know, broken can mean many things.
		I mean, frankly, one thing I do envisage, and people in America are probably not even seeing it for what it is, is that I think government around the world, governments are going to get more intimately involved in financial systems, partly out of that they have to, but more intimately involved in economies.
		And, you know, the Chinese people sort of made fun of the way they operated with government playing a big role in how things function.
		And same thing in Russia.
		Well, you know, the rest of the world is going to start to look a lot more like those places rather than the other way around.
		But the other side of the coin is that, you know, a lot of the things that made markets work were very dependent on easy money.
		We're very dependent on high risk-taking.
		We're very dependent on a great deal of confidence.
		And in my view, those elements have disappeared and will continue to disappear over time.
art bell ▲ ● ▼		Well, we're not in depression yet, I don't think.
michael j panzner ▲ ● ▼		I think we are, but the IMF acknowledges that we are.
art bell ▲ ● ▼		Okay.
		All right.
		So we're already there, but certainly not by some of the standards set by the Great Depression.
		We're not at 25% unemployment, are we?
michael j panzner ▲ ● ▼		Well, you make a good point there, and in fact, that's been one of the points of the sort of optimists.
		But the reality is that we didn't hit that 25% level until two or three years into the Depression.
		The first year, in fact, the sort of 29-30 period, there was an uptick, but it really exploded sort of two, three, fourth year on when companies suddenly decided, you know what, this isn't a garden variety downturn, and I need to sort of slash and burn quick, or they just see the revenues coming in the door falling off a cliff.
		So that's the thing to bear in mind.
		Everyone says, oh, Great Depression, 25% unemployment.
		Well, we didn't hit that level until three or four years in.
		And if we're just starting, in my mind, we've got plenty of room here on the upside in terms of unemployment.
art bell ▲ ● ▼		Right.
art bell ▲ ● ▼		And you obviously think this is not going to be healed by the fourth quarter or something that's going to go on for years.
michael j panzner ▲ ● ▼		Yeah, maybe the fourth year instead of the fourth quarter.
		But you have all these other issues that are going on at the same time, and you have this sort of government printing press policy.
		I mean, it healed maybe a very, very relative term.
		Let's put it that way.
art bell ▲ ● ▼		Okay.
		Let me try this.
		We had the Great Crash this fall.
		Things sort of went sideways for a while, and it felt a little better as all the bailouts were issued out.
		And here in the last couple of weeks or so, it's begun to look awfully bleak again.
		So I guess my question is, in the Great Depression, there was a second great crash.
		Are we going to have a second great crash?
		And in your view, if so, how far down the line?
michael j panzner ▲ ● ▼		Well, I don't know if you're talking in terms of the markets or the economy or both, but I think there will be multiple lurches down, I guess.
		Whether there'll be crashes per se, I'm not sure.
		But I think on the basis of if you want to talk about the sort of stock market, I think we have much more room on the downside.
		Even if you take the argument that this isn't necessarily a depression, I mean, the kinds of values that we saw, you know, in the late 70s, diflation, we saw during World War II, we saw during the Great Depression itself, all of these were kind of turbulent times.
		And I think most people would agree we're in turbulent times.
		Well, on that basis, the market could easily have from here, and it still wouldn't necessarily be that cheap.
		So that's the thing to put into context, is if you look back at history, whether you're talking inflation, deflation, war, the market gets to an extremely low level in terms of valuation.
		And betting on the turnaround now is a bit of a fool's game.
		But the other side of it clearly is that the economy was structured around a free-spending consumer.
		Well, consumers represented about 70% of the overall economic activity.
		Well, if they get back to more normal levels, you're talking about a huge haircut in terms of spending power.
		If they start saving more, a huge haircut.
		All this money is not coming back to spend on sort of consumer America.
		It's just going away, at least for the foreseeable future.
		So economically, you still have to see a much greater adjustment on the downside.
art bell ▲ ● ▼		Well, obviously, the government intervention, to the degree we've done now, is going to put it off for a while.
		So I guess I'm wondering how long, when might the next downward, significant downward move, occur?
		Are we this year or have we put it off for a year?
		Technicians and support levels would be an interesting topic as well.
		I understand that people don't want to talk about that because we're falling below some very important support levels now.
		Do you believe in that sort of thing?
michael j panzner ▲ ● ▼		You mean the technical aspect?
art bell ▲ ● ▼		Yeah, that's right.
michael j panzner ▲ ● ▼		Well, yeah, I mean, I've always, in fact, perhaps it makes me a little bit more cognizant of the differences between fantasy and reality, but I've always been a market person.
		I've looked at the price tells all sometimes.
		And when many of these financial stocks, for example, Citibank, I think, is somewhere around the $2 level.
		Well, I can tell you, I don't care what management says, what the government says, the stock price tells me that this company is in trouble.
		So I think that technical level, you know, price tells you a lot of, it gives you a lot of information.
		And, you know, it's a psychological aspect.
		I mean, technicals, new price levels, they were very much a driver in bringing people into the boom days of the bull market.
		It's going to have this sort of mirror image rewind effect going down.
art bell ▲ ● ▼		You want to take a stab at a number?
art bell ▲ ● ▼		What is – what's the worst – What's the worst possibility for downside in the Dow, for example, or the S ⁇ P?
michael j panzner ▲ ● ▼		Well, you know, I mean, I guess it depends on timeframe.
		I mean, what is the ultimate low?
		I mean, the problem is, and I talk about this in the new book, I mean, the real problem here is that the S ⁇ P has some interesting characteristics.
		It has a big financial component.
		It also has a big large company, obviously by definition, large company component.
		And I think the environment we're moving into going forward is going to be a big structural shift.
		I think big companies, which have been huge beneficiaries of globalization, they've been able to offshore jobs.
		They've been able to sort of find efficiencies in terms of going to the cheapest market.
		They've been able to use their size for economies of scale.
		All of these things are going to change in the kind of world I see.
		And as a result, stock prices, well, the floor is the limit, I guess.
art bell ▲ ● ▼		The floor is the limit?
art bell ▲ ● ▼		The floor is the limit?
michael j panzner ▲ ● ▼		Well, there's good support at zero is an old cynical market expression.
michael j panzner ▲ ● ▼		But I think you could see sort of levels on the Dow that are 75% off current levels.
art bell ▲ ● ▼		Oh, my God.
		All right.
		Michael, hold it right there.
		Michael J. Panzner is my guest.
		We'll be right back.
		The future won't last.
		It'll soon be your tomorrows.
		Well, tomorrow is today, and we're in big, big trouble.
		My guest is Michael J. Panzner, and he's written a book called When Giants Fall.
		That's the latest book.
		First book, Financial Armageddon, in 2007.
		And in a moment, we will continue to chat a little bit about best and worst scenarios ahead.
		Well, all right.
		Whether you love them or hate them, the bailouts have occurred and will, I guess, continue to occur.
		There's going to be another tranche going to the banks soon, I think.
		And, you know, the first tranche went, and then the market price went up on the two big banks.
		And now, of course, it's fallen to pretty desperate levels again and fairly quickly.
		Will another tranche will it do the job, Michael, or are big banks headed for nationalization?
michael j panzner ▲ ● ▼		I think that would be the ultimate outcome.
		We're just, in essence, we're just, I guess you could say we're buying time.
		In my view, buying time is not a good thing under these circumstances because it's creating tremendous uncertainty and it's giving people false hope.
		You know, people are holding on because they believe the government's story and they believe that Wall Street's line that things are okay or things are sort of in better shape than everyone claims.
		But the truth is, because they're not being realistic, they're just actually causing a lot more pain for, for example, for shareholders, people who have investments, bank investments in their 401ks and the like.
		So among many other things, the failure to address reality ends up hurting people who didn't do anything wrong.
art bell ▲ ● ▼		Okay.
art bell ▲ ● ▼		So from where we are now, whether we like it or hate it, with all the bailouts and the current financial condition, looking right across the board at the markets and the housing situation, all of it, from this point on, what do you think is the best case scenario?
michael j panzner ▲ ● ▼		Well, the best case scenario is that there is a, I mean, sometimes you get an element of technology or innovation which may make a huge difference in the way that the economy functions.
		I think there's a possibility that people do come together in a sense that they did, at least in some respects during the Great Depression, that they band together and figure out a way that, you know, let's rally around and get to it.
		I think we could have a, I guess arguably, I don't see this outcome, but a muddle-through type of scenario where for all the problems that Japan had with its lost decade, it didn't quite fall off the edge of the earth.
		Economically, it still had an export market.
		It still had some measure of activity, and it wasn't quite the kind of depression scenario.
		But the truth is, is that there's a lot of negatives right now that essentially make the worst-case scenario more likely.
art bell ▲ ● ▼		It's really hard to find any good news out there at all.
art bell ▲ ● ▼		So the worst case scenario then is...
michael j panzner ▲ ● ▼		First of all, the entire world is suffering an economic downturn right now.
		So that creates all sorts of other pressures, social pressures, political pressures, geopolitical pressures.
		For example, the U.S. is very dependent on the kindness of foreigners when it comes to financing these huge deficits that we have.
		If foreigners say, you know what, we need the money for our own people because our economy is down the tubes, that's going to create tremendous problems here in terms of interest rates.
		We could see them skyrocket because you have all this debt being raised to sort of fund the stimulus and the bailouts, et cetera, and you'll have essentially difficulties in finding people to invest in it.
		So that's another potential outcome.
		The whole structure of American society, And the retailing sector, for example, was built on the basis that people would carry on with the behavior that they had for several decades.
		Well, if that's not the case, then you could see a complete wipeout of the retailing sector.
		And there's other issues, equally important issues, that are not so much on the radar today or in the immediate future, but are going to be certainly a growing concern over the course of the next decade, many of them related to resources, food, water, energy.
		That's, in my view, going to compound matters even further.
art bell ▲ ● ▼		So the worst case scenario for the United States?
michael j panzner ▲ ● ▼		Well, the worst case scenario is that we have the equivalent of another civil war, that parts of the country break up.
		We have Lebanon emerge in Mexico, which is what many strategic analysts are predicting because of the narco-terrorism and the fact that their economy is imploding and their oil revenue is vanishing.
		So we essentially have a conflict situation in our southern border.
		We have a tremendous social strife going back to what we saw, you know, making the 60s look like a piece of cake.
		I mean, I can give you a whole litany of things that are easily projectable and certainly reasonable if you look at history.
art bell ▲ ● ▼		I'm not sure I want you to do that.
michael j panzner ▲ ● ▼		I figured that, yeah.
art bell ▲ ● ▼		All right.
		Now, let's get to the dollar.
		We are printing and printing and printing.
		Now, at the moment, interestingly, it's kind of a puzzle to me.
		The dollar is strong, I guess, relatively strong.
		It has not yet started to fall apart.
		And that's kind of interesting to me.
		In other words, I guess the United States is still, at this moment at least, kind of thought as a safe haven, right?
michael j panzner ▲ ● ▼		Well, let me just answer that question.
		One of the things, and this is a pat on the back, but one of the things I actually predicted in Financial Armageddon that contrary to expectations, once the sort of initial credit bubble burst, once the sort of crisis phase unfolded, the first response for the dollar would be a rally.
		Most of the sort of, if you like, doom and gloomers or bearers, I mean, I don't want to put myself in the camp because it was a reasoned analysis, but many of them were saying, you know, the dollar is going to immediately go to zero.
		But there's a number of reasons.
		I mean, you're right, the safe haven issue.
		There's also the relative economic performance.
		I mean, Europe is as much a basket case as the U.S. right now in terms of their economy.
art bell ▲ ● ▼		That was my next question.
art bell ▲ ● ▼		Some people are saying Europe may be in worse shape than we are.
michael j panzner ▲ ● ▼		Well, you know, there are certainly differences.
		I mean, I don't know about that in terms of the dollar.
		I mean, there's other issues that we can get into in terms of the dollar itself.
		But yeah, arguably, yes.
		And in fact, one of my predictions in the book When Giants Fall is that we will see, A, the breakup of the European Monetary Union, which includes the Euro, and B, we may see a Europe that becomes very strife-torn.
		And this whole idea of a unified European market could be a sort of relic of history.
		So, yeah, but I think it's a relative equation.
		I mean, the rest of the world's doing particularly badly right now.
		They're kind of playing catch-up with the U.S. And in a sense, the dollar is benefiting from that.
		It's also benefiting from the fact that there was this huge amount of dollar debt created during the sort of credit expansion of the past couple of decades.
		And what happens now, bankers are calling in loans.
		What people need to do is they need to come up with dollars to pay up those loans.
		So there's a kind of a temporary shortage of dollars.
		It's technical.
		I don't call it anything other than technical, but a demand for dollars.
		The banks say, you know, we want to call in the loan, or we're worried about your ability to repay it, so give us back our money.
		And since you borrowed the money in dollars, we want back our dollars.
		So all of these issues are coming together to boost the dollar.
		And in fact, I wouldn't be surprised to see a continued rally for several months.
		But ultimately, the fundamentals of the dollar are horrendous.
art bell ▲ ● ▼		So you would guess only a matter of months that it it's going to stay at high support levels?
art bell ▲ ● ▼		Would you think that by the end of the year some of these countries that have been kind to us and paying our debt are going to see their own troubles and stop supporting us?
michael j panzner ▲ ● ▼		Yeah, I mean, it's hard to pinpoint the exact day, and I certainly but we we're we're sort of in the phase now where everybody's uh you know up a creek without a paddle, so they're all kind of responding reactively.
		But the next step is going to be, you know what, we've got to solve this problem and we've got to figure out how to do it.
		And the obvious answer for those who have more dollars than they really need, which is the case for, say, you know, China and Japan arguably, is to sort of sell some of those and use it to benefit their own populations.
art bell ▲ ● ▼		Sure.
		Looking around the world, as I mentioned, it looks like Europe's in big trouble.
		It looks like Western Europe invested a lot in the rebuilding of Eastern Europe, and that seems to be some of the source of their problems.
		And perhaps they're intertwined with our banking system, and that's taken them down as well.
		I'm not sure.
		So I don't know that much about Europe, but it does look like they're in big trouble, yes?
michael j panzner ▲ ● ▼		Yeah, I mean, I was just at a conference, and there was a very interesting analysis.
		But the essence of it was that the Eastern European crisis that this individual saw unfolding would make the Asian crisis in 1997, which was fairly dramatic for Asia, it unsettled the sort of West to some extent, but it was kind of localized, but make the Asian crisis of 97 look like a cakewalk.
		I mean, there's extraordinary amounts of borrowed money.
		Money was borrowed in countries, Eastern Europe countries.
		I think Hungary comes to mind.
		A lot of that was borrowed in other currencies other than their own, dollars and Swiss francs and et cetera.
		And these people have no chance of repaying those loans based upon what's been happening with their own currencies, which are falling through the floor.
		So you're just creating this tremendous pressures in this whole section of that part of the continent that are potentially devastating.
art bell ▲ ● ▼		All right, let's turn to Asia for a moment.
		I wonder how Asia is faring so far.
		Everybody looks at China.
		Of course, Japan and South Korea, the industrial giants there seem as though they're in some trouble.
		So when you look at Asia, what do you see?
michael j panzner ▲ ● ▼		Well, most people, you know, there's a couple of things here.
		First of all, it wasn't even on the radar that China could have a sort of slowdown where we actually see negative GDP.
		Well, GDP being the sort of measure of economic activity in the country.
		People were talking about a recession in China being a sort of 5% GDP, which for the U.S. would be a great number these days.
		But in fact, they're talking about it falling off a cliff.
		And the problem is that it's not just China.
		I mean, China has been the sort of locus of activity in Asia.
		And, you know, Taiwan output there and production is falling off a cliff.
		They were obviously a big trading partner with China as well as the rest of the world.
		We're seeing similar developments in the whole region.
		I mean, everybody, it was very much a symbiotic relationship between China and its neighbors in that part of the world.
		And all of the bulls once argued, well, you know, that's one reason why Asia is going to keep powering ahead even if the U.S. goes down the tubes.
		Well, the reality is that Asia is very dependent on China and China is very dependent on the U.S. And now the chain is essentially breaking down.
art bell ▲ ● ▼		Take it down to a personal level for my listeners.
art bell ▲ ● ▼		What can people do to attempt to protect themselves the best they can?
michael j panzner ▲ ● ▼		Well, clearly it depends somewhat on your circumstances and where you're located.
		I mean, there's many issues here.
		I think lifestyle and attitude adjustment are top of the list.
		I mean, the first thing you have to do is accept the reality that this is not some short-term blip.
		I mean, this is the new normal is a term that I've heard before, and I think certainly applies.
		You know, the world is not going to be expanding like we saw before.
		Under those circumstances, I mean, the obvious things are to sort of pay down debt, to live within your means, to adjust your spending habits, to reevaluate your relationships.
		But then if you want to go beyond that to sort of investments, well, it becomes a little bit of a tricky thing because I think in the short run, there's still going to be some pressures related to the economic downturn and deflation where people are selling things because they've got too much debt and it tends to press prices of assets.
		But longer term, in one of the bull cases I make, and I think it will be perhaps one of the few investment options, but potentially a profitable one, is precious metals.
		I think in the kind of scenario I see where people are losing faith in currency but are also scared about a changing geopolitical reality, there's going to be a flight to traditional havens.
		And in my mind, gold and silver and platinum, you know, as a group are going to be a place to hide.
art bell ▲ ● ▼		It's already underway.
art bell ▲ ● ▼		Gold's, what, now, up near 1,000 somewhere, isn't it?
michael j panzner ▲ ● ▼		Yeah, yeah.
		And, you know, to be honest, I'm a little concerned that you could find some people selling gold, you know, speculators who sort of took on all the leverage to buy them in the short run.
		So maybe you can get it cheaper.
		But long run, it's a five or a ten bagger at least.
art bell ▲ ● ▼		So one way to take advantage of the current situation is to dive into gold or into precious metals, in your opinion.
michael j panzner ▲ ● ▼		Yes.
		But, you know, it's got to be part of a broader thing.
		I mean, the truth is, is that, and again, I talk about it in When Giants Fall, is certain parts of the country are going to become unlivable.
art bell ▲ ● ▼		Unlivable.
michael j panzner ▲ ● ▼		Yeah.
		I mean, because of, for example, water Issues and because of the changing energy picture and because of the housing market bust, I mean, it's going to leave ghost towns in certain suburban areas.
		I think there's going to be, as a matter of survival, so to speak, and I don't mean living in caves, I just mean this sort of euphemistically, but of moving towards areas where people are going.
		And that's probably going to be smaller towns.
		It's going to be small to mid-sized cities and away from the suburban wastelands, which I think are going to be dotting the landscape.
art bell ▲ ● ▼		Suburban wastelands.
art bell ▲ ● ▼		In other words, in order to get products and services to people, they're going to have to leave these comfortable suburbs and go back to the masses in the cities.
michael j panzner ▲ ● ▼		Yeah, people will have to be more come together and localize is the term that I use, and others certainly came up with it before me.
		But we're going back to a sort of more localized world because of these various economic pressures, but as well as resource pressures, as well as, you know, people are used to the sort of infrastructure working, roads working.
		You know, there's all this talk about stimulus fixing that.
		But in truth, the amount of money and the state of disrepair of water systems and sewage systems and electrical grids and all of this, I mean, it's at a point of criticality in many cases.
		And, you know, you may find that you have to go somewhere by virtue of the fact that it has clean running water because you can't get it in other pl places because the water treatment plans are breaking down.
art bell ▲ ● ▼		God, that's pretty dire.
		Michael, the American people have had it pretty good for a long, long time.
		If things get, as you're suggesting they may get, wastelands in the suburbs, that kind of thing.
		You remember the old rat experiment where you put a bunch of rats together and they sort of eat each other alive.
		If things really, really get as rough as you're suggesting, what sort of social difficulties do you envision as possible?
michael j panzner ▲ ● ▼		Well, my single biggest fear is another world war.
		And I actually believe that the risks of that happening over the next decade are fairly high.
		I mean, nobody likes war.
		I mean, but war is a natural offshoot of building, you know, first of all, resource constraints, you know, people eating each other.
		You do that because you essentially run out of what you need.
		But I think the kinds of pressures that will build up will create a lot of social unrest, and it will create a lot of geopolitical unrest, or I guess instability is probably a better term.
		But there's going to be reasons for countries to take it upon themselves to get in fights with other countries.
		And then, you know, meanwhile, you've got all these other operators coming in, terrorists, et cetera.
		They're all going to play on the changing scenario.
art bell ▲ ● ▼		All right.
		Hold it right there, Michael.
		When we come back, I'm going to open the line so you can start dialing now.
		Michael J. Panzer is my guest.
		And I guess what we're talking about is kind of like his first book, Financial Armageddon.
		Good morning, everybody.
		We're in deep trouble.
		We're not talking this morning to a crazed conspiratorial survivalist.
		We're talking to a man who knows.
		Well, he's Michael J. Panzner.
		He's written a book that I think you ought to go pick up called When Giants Fall.
		He's a 25-year veteran of the global stock, bond, and currency markets.
		During his career, he's worked in New York and London.
		Leading companies like HSBC, the Soros Fund, ABN Emeral, Dresner Bank, JP Morgan, Chase, and so forth and so on.
		In other words, we're dealing with a very mainstream guy who's saying things that sound like some of the former people I spoke about.
		Pretty scary.
		Really scary.
		And in a moment, we'll turn to all of you.
		In just a moment, we're going to go to the phones.
		Not very long ago, the catchphrase was one world order, one world government, one world everything.
		Michael, the future doesn't look like a one-world government.
		It doesn't look like world order.
		It looks like world disorder, doesn't it?
michael j panzner ▲ ● ▼		Exactly.
		In fact, when I originally thought about this book, I had this idea for a title, and it was Splintered States.
		And it was the idea being that not only would you have literal states or governments or countries splintered into pieces, but you really have a whole mindset that's splintered into smaller and smaller parts.
		And really the kind of mirror image opposite of what we've had over the past several decades in the post-war era in particular.
art bell ▲ ● ▼		Where do you see America in the future world?
art bell ▲ ● ▼		If you look, oh, I don't know, 10 or 20 years downline from where we are right now, depending on how things work out, where does America fit in?
michael j panzner ▲ ● ▼		Well, I mean, the central thesis of the book now, but really it started with the sort of economic destruction that the U.S., in many respects, brought upon itself, is that the superpower that we all thought we knew in terms of the United States, it's in its kind of last leg stage, in my opinion at least.
		There's all sorts of signs, there's all sorts of evidence if you want to look at the sort of economic circumstances, or even if you want to look at the military circumstances, which is the idea that people keep holding up.
		And I go through the sort of points, but the truth is that if you go back in history, great powers come and go.
		There's never been an instance where that hasn't happened.
		Certainly in the case of the ancient empires, they could last hundreds of years.
		I Think like many things in life, these cycles have speeded up.
		And I think in the case of the United States, we've had this sort of golden year period.
		We've seen the peak, and now we're into the sort of ski slope move downward in terms of its sort of strength and standing in the world.
		And clearly, look at, you know, talk about the sort of military aspects, people make reference to what was the sort of road to ruin for past empires.
		Well, one of them was overstretched, this idea that you could have this presence around the globe or around the world that you considered your globe at the time.
		And that essentially broke Great Britain, broke the United Kingdom, this idea.
		And I think we're seeing it similar now.
		I mean, the U.S. spends as much as the rest of the world combined on defense.
		It's an extraordinary amount of money.
		And it's not sustainable, especially in the circumstances that we're in now.
		And ultimately, I think it's played a part in bringing us to this point.
art bell ▲ ● ▼		All right.
		Michael, to the phones we go.
		Michael, it's Todd in Ohio.
		Good morning, Todd.
		You're on the air.
unidentified		Good morning.
michael j panzner ▲ ● ▼		Good morning.
unidentified		The United States has been torpedoed, and it looks like it started in 1913 with the Federal Reserve.
		They have been nothing but a parasite on the American people.
		It really looks like they have been a major disaster for the American people.
		And we're finding that out now as we look further and further at what this organization, what little we do know about this organization.
		But there's a lot of fear out there.
		There's a lot of fear that's created because money is made, gentlemen, when downturns happen.
		There are elements in society that are prepared for downturns and they make fortunes when downturns occur.
		Pardon me.
art bell ▲ ● ▼		All right.
		Well, that's, I guess, fair comment.
		And there will be people who make fortunes in this downturn or a worse name for it, perhaps.
		Is that right, Michael?
michael j panzner ▲ ● ▼		Well, of course.
		And obviously the biggest thing, and I think the caller made that point, was an element of preparation, an element of actually not sitting there and hoping it wouldn't happen or not sitting there and essentially assuming that things will somehow work out,
		but in fact, anticipating them, taking steps, planning, and really ordering your affairs in such a way that they not only don't get hurt, but they actually benefit from the kinds of changes that you see.
		So I think he makes a good point, but at the heart of it is this idea that, look, the only way you're going to be able to do it is if you actually accept that it's coming.
		And I think that's the problem for a lot of people.
art bell ▲ ● ▼		Michael, I watch Fox Business quite a bit, and they've done an interesting thing.
		They tried to get information from the Fed on what kind of prices they paid, for example, when they injected all this money and what kind of collateral they got for it.
		Now, they filed a lawsuit, and apparently they've won that lawsuit, and the Fed within 30 days is going to have to reveal all of that information.
		I wonder how shocked we're going to be when they do.
michael j panzner ▲ ● ▼		Well, let's put it this way.
		I have a funny feeling it's going to be revealed in such a way that it's going to be difficult for people to get to the bottom of very quickly.
		But certainly over time, there will be this understanding.
		And it's going to add to the sort of general rage, I think, that bailing out our friends in Wall Street.
		That is, you know, I'm from Wall Street, but, you know, I think there's a lot of people who have lost sight of reality, lost sight of, you know, their sort of whole purpose in life, and have really not got the message that you can't keep screwing people over, to use a colloquial term there, but you can't keep doing that to people, especially now when everybody's hurting.
		So I think it's going to sort of add to that sense of what happened to our government and whether it was ever ours to begin with is questionable, obviously.
		But why are we at this point and why are we throwing our money at them?
art bell ▲ ● ▼		Just what we need, more uncertainty.
		James in Calgary, Alberta.
		You're on the air with Michael.
unidentified		Oh, Art.
		Thank you for taking my call.
		The single greatest scourge on this earth is the Federal Reserve right now.
		The best guest you've ever had on your show is Alex Jones.
		I don't know if you've interviewed him personally, but I did hear him the other night for three hours on George Norrie's show.
		He is bang on when he talks about the central bankers, the Federal Reserve system.
		And I really wonder why your guest tiptoed around the last caller.
		He never even mentioned Federal Reserve.
		These are the people that have caused this.
		It's all by design.
		And I don't know, Ark, you have really something like I called you a couple of years ago, and I did mention to you about 9-11.
		It was when I first learned about the Twin Towers and the World Trade Center coming down.
		And the, you know, the government-sponsored terror.
		It was a government-sponsored event.
		It was all planned.
		And from that came the military-industrial complex, which has taken over the country.
		And I just don't understand how come you don't address the real issues like the Federal Reserve System bringing down the country out of the world.
art bell ▲ ● ▼		On 9-11, I flatly disagree with you.
		He's one of those conspiratorial fellows who feels that the United States brought its own buildings down, placed charges in just the right place, and all the rest of that.
		I just want to leave it alone.
		And Sorry, I don't agree with you at all.
michael j panzner ▲ ● ▼		But actually, I would like to address the Federal Reserve issue.
		Please do.
		I mean, I haven't really pounded away at it, but in fact, in Financial Armageddon, I ascribed a great deal of blame to them and their easy money policies, the sort of greenspan era.
		And not only that, I predicted that just like the predecessors to the Federal Reserve, the First Bank of the United States and the Second Bank of the United States, which most people are not really aware of, they ultimately went out of business.
		The Federal Reserve will ultimately go out of business when people realize that it hasn't done anything that it was supposed to and, in fact, really gummed up the works.
		And in fact, the Kohler makes a good point.
		Since the formation of the Federal Reserve, which arguably was supposed to provide stability, the value of the dollar has declined something on the order of last time I saw it, something on the order of sort of 90% or something.
		So that's not quite my idea of stability.
		So I don't disagree with the Kohler, and certainly I think the Federal Reserve, as we know it, is history, and whether there will even be a central bank at some point in the future, I am not sure.
art bell ▲ ● ▼		Oh, my God.
		Right now, the Fed, of course, is pumping all this money out, printing all this money.
		So what happens if we get downline a few years and we enter the hyper-inflationary phase that we all know would be coming?
		Are they going to be able to do they have an exit strategy for beginning to claw this money back?
michael j panzner ▲ ● ▼		Sure.
		No, that's the argument.
		The people who are advocating the sort of big stimulus plans and the big aggressive money printing efforts are saying that once things start to turn around, the Fed can kind of reverse course and sop it all up, and the government can reverse course in terms of its spending, and everybody can sort of cushion the blow once the economy is up and running again.
		The problem is it's a bit like letting the sort of opening the Pandora's box.
		Once people get a mindset that the government has lost, there's been a loss of confidence in the government, that it's following policies that have, in the past, for other governments, ultimately led to their ruin and led to the ruin of the currency and created all sorts of havoc.
		Once people get that mindset and that inflationary mindset, you know, like we used to see regularly in South America and certainly like we've seen in great hyperinflationary episodes like in Zimbabwe most recently and the classic one is Weimar, Germany.
		But it's virtually impossible to change.
		It becomes a self-feeding kind of mentality is that the more people think that inflation is a problem, the more they act in a way that makes inflation worse.
		So it doesn't really matter what authorities do to a certain extent.
		It essentially has to go until it flames out or the government is brought down or some kind of tremendous crisis really just stops it in its tracks.
		And if you look at past episodes, it's a bit like getting the snowball rolling down the hill and figuring that, you know, when it gets big enough, you can just stand in front of it.
		And all of a sudden, it just starts, it gets to a big enough size and a big enough momentum that it's unstoppable.
art bell ▲ ● ▼		Michael, there are a lot of people who suggest that we should have just, we never should have done anything that we're doing now.
		None of these bailouts.
		We should have let everything that's going to fail fail.
		Now, I don't even know if I agree with that.
		I can see that if we had allowed the big banks to fail, just sort of hands-off everything, let the system take care of it, if it was to be taken care of at all.
		Then the Armageddon part of this would have already occurred.
		We'd be in it right now.
		Can you comment on that?
michael j panzner ▲ ● ▼		Yeah, I mean, look, one way or another, the pain is coming.
		I mean, there's been a period, a tremendous and very dramatic buildup of excesses and imbalances and risky behavior.
		So the question I think you're asking is, is there a way to make the pain better?
		Well, I think there is.
		I mean, I think you can let institutions fail.
		But again, we have the Swedish model, which we talked about in an earlier segment.
		We have this idea that they can actually protect the people who are innocent bystanders.
		Maybe they need to go to a general-wide, again, it has its own risk, of course, but a system-wide protection of deposits under certain circumstances.
		Or just adopt policies that social safety nets, when people lose their jobs because companies that did stupid things during the bubble years of going out of business, that there's a better way to help them get through it in terms of training or unemployment, assistance with health care.
		I mean, there are some things that you can do to sort of mitigate the pain somewhat.
		They all have their own risks.
		You know, you have this fears about socialism, which is certainly a valid one.
		But to essentially delay things and pretend you can do away with the pain, it's pointless.
		It's not going to work.
		The pain's coming.
		Whether it's going to be long-drawn-out, Japanese-type pain, or you're going to take it up front.
		But, you know, obviously we live in a system, a democratic system, where people get voted into office.
		So it's not generally a good thing to let people suffer.
		I mean, people do whatever they can to avoid that.
		Unfortunately, that doesn't work in real life, in terms of individual relationships, and it doesn't work in terms of government.
unidentified		Okay.
art bell ▲ ● ▼		Dan in West Palm Beach, Florida.
		You're on with Michael.
		Good morning.
unidentified		Good morning, Art.
		I like your show.
		Mike, a couple questions for you.
		Understanding that the current mortgage crisis is in the residential sector, my question to you on one of them is, which do you think is going to be worse?
		The future is in the commercial mortgages, such as malls shutting down and going vacant, or the credit cards that people are becoming defaulting in also?
		The other thing I was going to ask you about is, if you have heard anything about what George Bush was trying to do with a thing called the Amero dollar, which is a mere currency between Mexico, Canada, and the U.S. Okay.
michael j panzner ▲ ● ▼		Okay.
		In answer to the first one, I think the argument there, which is going to be worse, is a bit saying, would you rather get stabbed in the head with a knife or shot in the heart with a gun?
		I mean, both are bad.
		I'm not sure which I'd really prefer.
		In fact, I'd rather prefer neither.
		But in truth, I think the commercial real estate market will certainly be the one going forward that has a greater share of the pain because we've already had a lot of the pain on the sort of consumer-related debt.
		I mean, there's plenty more to come, but I think we're sort of in the next wave, and the next wave, to me at least, is commercial.
art bell ▲ ● ▼		So that's the next shoe to fall.
michael j panzner ▲ ● ▼		Yeah.
		I mean, I don't want to sit here, you know, but in a way, it's all happening at once.
		It's a long, drawn-out cycle.
		But if you're talking about where the sort of inflection points are right now, I think it's probably going to be on the commercial side.
		I think especially with banks being their backs against the wall, I think there's going to be this notion that they have to sort of do something now, and they can't do it because of political pressures.
		They can't really do it with people who have mortgages, so they're going to just nail the commercial side of things.
		So there's different incentives there.
		In terms of the second one, well, you know, I'm aware of the stories.
		I think there are certainly interests that would want, if you like, this sort of, I can't remember, kind of a New World Order thinking of a unified North America.
		Again, it goes against the grain of my belief of how things are going to play out.
		I don't see convergence.
		I don't see people coming together.
		I see people pulling apart.
		And currency unions are essentially go against the grain of that.
		And again, I talked earlier about the European Union, the Euro.
		I think the Euro is going to break apart.
		And I think you're going to see us go back to the sort of individual currencies.
		And I think even here in the U.S., I mean, once the dollar starts to lose faith, you'll find people using local forms of exchange.
art bell ▲ ● ▼		Different monies, Frank's money.
		All right.
		Michael, hold it right there.
		We'll be right back.
		Good morning, everybody.
		My guest is Michael J. Panzner.
		His book, latest book, When Giants Fall.
		Something you're going to want to look into nearly right away.
		I suggest you go up to Amazon, order it, and read.
		We'll be right back.
		Going back to the phones in just a second.
		Michael, why didn't more people see this coming?
unidentified		Or did they?
art bell ▲ ● ▼		And just was it the kind of deal where a lot of people obviously saw it coming and they just didn't want to look?
michael j panzner ▲ ● ▼		Well, there's a lot of, you know, actually, I had that same debate, and that's one of those things to me is I'm not totally sure.
		I think certainly the average man in the street wasn't getting the right information.
		They were getting a lot of spin.
		They were getting a lot of sort of hopeful messages that were meant to sell them.
		I mean, Wall Street's a big selling machine, so certainly that played a role.
		But even on Wall Street, I think it was a case of originally people may have had their doubts, but sometimes they just went in and, you know what, they said, I'm going to keep dancing as long as the music's playing.
		And in essence, everybody thought they could sort of get off the train before it crashed into the wall and not realizing that that was going to be sort of very difficult to do.
		But yeah, I think ultimately it was a combination, people deluding themselves, people deluding others, and throw into the mix some people who were just outright fraudulent.
art bell ▲ ● ▼		Okay.
		All right.
		To Michael in Florida, you're on with Michael.
unidentified		Hello.
unidentified		Hello, Arthur.
art bell ▲ ● ▼		I'm sorry, Larry.
art bell ▲ ● ▼		You're Larry, right?
unidentified		Yeah.
art bell ▲ ● ▼		Okay, I have Michael on the mind.
unidentified		Go ahead.
		Yeah.
		Okay.
		First of all, pleasure to speak with you.
		I really like the show tonight.
		My question for Michael is, well, I have an observation.
		I don't really think these bailouts are going to do that much for America.
		As far as when the government gave the bailout to General Motors, the next thing they did was pack up solder manufacturing and move to Brazil.
		If they move out to Brazil, how's that supposed to help America?
michael j panzner ▲ ● ▼		I think you make a great point.
		And in fact, I think there's a lot of people who are expressing the same feelings that you are.
		What's the point of all this?
		I mean, why are we throwing money at these firms that not only screw things up to begin with and haven't really been looking after the interests of arguably their workers, but Americans?
		And now it's almost like in your face.
		I mean, they're taking the money and doing things that are not benefiting.
		There's no quid pro quo.
		There's no say, you know, I'm do something back for you because you did something for me.
		And I think that is going to add to the sort of general anger among the population.
art bell ▲ ● ▼		Do you think the car comp what do you think the government will do with the car companies?
		They've got these reorganizational plans and so forth and so on, and we've got to decide whether to shovel more money in their direction and prolong, I suppose, the inevitable from your point of view.
		What's coming?
unidentified		More money?
michael j panzner ▲ ● ▼		Well, I mean, the problem is if you give money without requiring change, it's a recipe for disaster.
		I mean, look, there is an economic argument to be made for trying to do something about the industry because if all these people end up unemployed, you're still going to be shelling out cash for unemployment benefits, for other kind of social safety net type services.
		So, I mean, you could actually make an argument that some kind of a package would be a worthwhile economic trade-off.
		But the point is that all of this seems to be coming without any strings attached.
		I mean, there's nobody paying the price for the mistakes that went by, and nobody is actually saying, okay, you know, like you would do in the case with your own banker.
		I mean, your banker might decide, okay, I'll give you some more money, but here's what you're going to do.
		You're going to cut people.
		You're going to change your model around.
		You're going to do things more efficiently.
		You're going to get rid of all the stuff that wasn't working.
		And you're going to figure out how you're going to be a viable business going forward.
		I mean, government's not doing that.
		I mean, it's just this idea of just giving money to people and encouraging them to keep doing what they've been doing before is just, it doesn't work.
		I mean, it hasn't worked and it doesn't work.
art bell ▲ ● ▼		How's the president doing, in your view?
		He's not exactly been a cheerleader for the economy to the point where Jimmy Carter the other day made a comment about it that it should be, I guess, out there cheerleading more for the economy.
		What are your comments?
michael j panzner ▲ ● ▼		Well, I mean, the problem is that I think all of the things that people thought were pluses, in particular the idea of him being a sort of fresh face and a man who kind of is at least was perceived as something of a straight shooter, now they're all sort of finding that that's not necessarily a good thing.
		There's a sort of dark cloud behind the silver lining, so to speak.
		And, you know, one of the problems I think he's had, and I can't read his mind, but there was a lot of pressure on when he got elected, the fact that he was inexperienced.
		So perhaps he's overcompensated by picking people who are very experienced in some cases, but in fact are kind of entrenched in the old ways of doing things.
		So his insecurity, perhaps, about being a new kid on the block, at least politically, may have caused him to make some mistakes.
		And I don't know if that's the answer, but that could kind of explain some of the stuff that's going on right now.
		But what he should have done is reach out and said, you know what, I need to get really smart people who aren't part of the system that got us here.
art bell ▲ ● ▼		Was Geithner a mistake in that category?
michael j panzner ▲ ● ▼		I think so.
		And it's unfortunate.
		And I don't know what his intentions are, whether he genuinely means well in terms of the industry that if it melts down, that it causes complete chaos, or whether he's in bed with the industry.
		I don't know the answer to that.
		But either way, I think this softness towards the industry that got us here and this softness towards not forcing change, not sort of making these people clean up the mess now is a mistake.
art bell ▲ ● ▼		Geithner came out and everybody expected specific, detailed plan, something that would, I don't know, reinstill some confidence in Wall Street, for example.
		And of course that didn't happen.
		He came out and it was very, very general and kind of like, you know, we'll meet it as we see it.
		I don't know.
		It was just nonspecific and there was great disappointment about that.
		Is he going to have to come out and correct that now?
		Is there no way to be specific?
michael j panzner ▲ ● ▼		Well, part of the problem apparently is that he doesn't really have a sort of permanent staff yet.
		I mean, there's still, you know, we've only just had the inauguration a relatively short period of time ago.
		So I think that's one issue.
		But, you know, the other issue is, and again, this is, I think will probably come back to haunt Obama's himself, is that people have high expectations.
		They all came in and said, you know, we've got a new group in town.
		We're tired of the way the sort of past two terms went, the past eight years or so.
art bell ▲ ● ▼		Sure.
michael j panzner ▲ ● ▼		We've got a new group.
		And this group's going to do something great.
		And, you know, there's something about managing expectations.
		Personally, I wouldn't necessarily have wanted to come in under those circumstances.
		So I think that's also the problem.
art bell ▲ ● ▼		Well, sure.
		You've got to feel sorry for what he's been handed.
		In Nevada, Matt, you're on with Michael.
		Good morning.
unidentified		Good morning, Art.
		Mike, good show.
		I appreciate you having this subject this morning, as a matter of fact.
michael j panzner ▲ ● ▼		Thank you.
unidentified		I have one question for Mike.
		It looks right now that pretty soon here, most sane people are going to be diving out of the stock market like rats off a burning ship, and they're going to be going into safe havens of gold.
		I've been reading some stuff here that there is a possibility when hyperinflation does hit that gold may spike up to as much as $6,500 an ounce.
		What's the possibility that once this starts getting underway, they start diving out, start realizing that there's something really wrong here and the government decides to outlaw private ownership of gold like they did back in the 1930s and FDR's administration?
michael j panzner ▲ ● ▼		I think that's a real risk.
		In fact, I think confiscation, I mean, governments are prone to do anything when their backs are against the wall.
		You know, one of the interesting things I talk about in the book is the fact that I think there's a big difference, for example, between owning, say, gold, you know, the resource itself, and owning the companies, the shares of the companies that produce them.
		Because the other problem you're going to have is if companies, the big producers, have mines in volatile regions or even in non-volatile regions and governments come in and say, you know what, that's ours now, and we're taking it.
		And not only are we not going to nationalize it, we're just going to expropriate it, which means we don't give you any money, we just take it.
		And I think that's, you know, they kind of classify that as resource nationalism.
		You see it in Latin America right now in certain countries like Bolivia and Venezuela, et cetera.
		I think that is, again, a real risk.
		And that's one argument I could make that recently the gold shares and the gold price of the metal itself have diverged.
		It's quite conceivable that they could continue to diverge because of this great risk, which I think will grow in the kind of environment I expect.
art bell ▲ ● ▼		Caller?
unidentified		Yeah.
		I appreciate the answer.
		I was kind of concerned about this myself because here in Nevada, just over recent years here, earlier in the turn of the decade here, we had a couple mines closed down, a couple gold mines.
		One's kind of cut and the other one, I think, rawhide's already out.
		And I was wondering, is it too late for anybody to get into gold now?
michael j panzner ▲ ● ▼		Well, I mean, look, my background is in markets.
		I'm a trader.
		I think that there's a risk here that gold's a little overheated in the short run, that there is pressures that we could see liquidations.
		If the commercial banks get into some serious trouble, you may find that some speculators also get into trouble, and that sort of hurts the ability of those people to hold things, and maybe they're forced sellers.
		So I could see a scenario where we could see the price come under pressure in the short run.
		But longer term, I think it was the number you said suggested was 6,500.
		Well, that could just be a midway stopping point.
		If you really get a complete breakdown, and look, this is a realistic possibility that this protectionism and currency devaluations, if people devalue the dollar further, then other countries say, you know what, we're losing out, so we're going to devalue our currency.
		And all of a sudden, all the paper currencies around the world, people are saying, you know, this is, I don't want to hold any of this stuff.
		So you're going to have a lot of people crowding into the same trade.
		And that could, you know, the sky's a limit in theory.
art bell ▲ ● ▼		Mike in Birmingham, Alabama.
		Good morning.
		You're on with Michael Pansner.
unidentified		How you doing, Art?
		It's good to hear your voice again.
		You're like a family member that you only get to talk to every once in a while.
		It's good to hear you.
		Thank you.
		I'm really enjoying the show tonight.
		Let me compliment you on being cutting edge and avant-garde with this topic.
		Thank you.
		I called in on New Year's.
		I was number 54, and my prediction was the breakup of the United States.
		I live in a southern state.
		We down here are well organized, unlike other parts of the country.
		We were really upset with the presidential election.
		Our states all went huckabee in the primaries.
		We're very conservative.
		And our views down here right now are that foolish management of certain other parts of the country have gotten us into this situation.
		Here we go.
		And California for one, New York, the Northeast for another.
		And we're really upset down here that we're going to have to pay for foolish behavior of people in other parts of the country.
		Some of the precipitant events that are really making us angry are illegal immigration, immorality, i.e.
		the abortion issue and all of that.
		We don't go for that down here at all.
		And a lot of people in the southern states, of course, what I suggested in the prediction show, minus Virginia, Florida, and Texas, the other one, the rest of the states as a block, we really do not want to subsidize what we view as foolish behavior, immoral behavior of other parts of the country.
		We can feed ourselves down here.
		We can provide ourselves with fresh water down here.
		And if we did that type of a situation, we're not going to let the rest of the country come into our states.
		And we have a martial attitude down here where we will defend it.
		And it's getting to the point where, even in the local radio stations, where this is going to be an option for us.
		Now, my question to Mike is, do you see, what do you see as a precipitant event?
		What I see it being is the assault on the Bill of Rights.
		We in the South are very egalitarian, very jealous of the Bill of Rights.
		And not necessarily the Second Amendment, but there's an attack on the First Amendment going on right now that is getting people fired up down here because we see it as if the First Amendment is taken from us, the Second Amendment is soon to follow.
art bell ▲ ● ▼		Well, I don't think, Culler, that we're kind of short on time here.
		You know, there was talk about the Fairness Doctrine, and I'm sure that's what you're speaking about.
		I don't think that's going to happen.
		But my God, listening to that man feeds, Michael, right into exactly what you said about an ultimate breakup of the United States.
michael j panzner ▲ ● ▼		Yeah, I mean, look, I want to emphasize, I don't want any of this to happen, okay?
		I just want to clarify that.
		It's just where I see the data leading.
		But the point is you have to go beyond the sort of past, and you have to really look at history, and you have to look at, you know, what keeps people together.
		And one of the things that keeps people together is good economic circumstances.
		What also keeps them together is a common mission.
		Right now you have people really, both of those are negative, and a lot of people in different parts of the country are saying, you know what, the rest of the country isn't looking after my interests.
		So it's not that big a step to go from that point and say, you know what, what do I need the rest of those guys for?
		We just want our own, to do our own thing.
		And I just don't see it as out of the realm of possibilities.
unidentified		God.
art bell ▲ ● ▼		It's all happening so quickly.
		It's so quickly, Michael.
		It's very sad.
		All right.
		To Laporte, Texas.
		And Bill, you're on with Michael.
		Good morning.
unidentified		Good morning, Mr. Bill.
unidentified		It's a pleasure to speak to you.
art bell ▲ ● ▼		Thank you.
unidentified		And Michael, I've got a quick question.
		I'll give you a quick background.
		I'm 52 years old.
		I worked 25 years in a local refinery, made great money.
		10 years ago, I could afford to have sold my house and went anywhere.
		Last 10 years, my wife's become very sick.
		She's an amputee.
		She's blind.
		I'm medically retired from where I'm at, and I'm stuck here.
		I mean, it's a nice place and all that, but with Hurricane Ike and if things get a lot of civil unrest, it could get pretty bad pretty quickly.
		My question to you is, my retirement account that I had, it's basically been cut in half.
		Would you recommend me possibly pulling all that money out and holding on to it and dealing with it myself or keeping it in there and hoping this will all turn around in the short term?
michael j panzner ▲ ● ▼		Well, there's always that prospect.
		Look, I mean, one of the things, one of the worst bear markets we ever had in this stock market was during the Great Depression, where stocks lost 90% of their value from the sort of peak to trough.
		But within that timeframe, you had sort of seven or eight double-digit rallies.
		I mean, nothing goes in the straight line when it comes to markets.
		There's all sorts of reasons why.
		So it's entirely conceivable that we could see a bounce.
		Personally, I think the fact that we couldn't bounce over the past couple of months was a pretty ominous sign.
		You know, we had a new administration.
		We have money being thrown at the market.
		And whether you think it's right or wrong, it often seeps into the investment markets.
		We've had a sense that people thought we could move ahead.
		We've had a lot of bad news sort of already in.
		And all of that, and yet we still haven't been able to rally.
		And the trader in me says, you know what, I thought we might bounce, but I'm not so sure anymore.
		And I think that's my perspective, that if we get a bounce, it's probably going to be from lower levels.
		So if your perspective is timing, I suppose I'd have to say sooner rather than later, but you know, my guess is as good as anyone's.
art bell ▲ ● ▼		So if we got a bounce, you'd be selling into it.
unidentified		Yes.
art bell ▲ ● ▼		Well, it's been incredibly informative having you on the program, Michael.
		We're actually out of time.
		But, God, it's been scary.
		Really scary.
		But you haven't said anything that I haven't thought myself, and I think this is something we needed to do.
		So I want to thank you for being here.
michael j panzner ▲ ● ▼		Well, thanks for having me.
michael j panzner ▲ ● ▼		It really was an interesting show for me as well.
art bell ▲ ● ▼		All right.
		When giants fall, I hope you sell zillions.
		Take care, my friend.
michael j panzner ▲ ● ▼		All right.
michael j panzner ▲ ● ▼		Thanks very much.
art bell ▲ ● ▼		Good night.
		And for everybody else, it has been my honor to be here.
		I felt it important to be here, important to do this program this morning.
		So from the high desert and the great American Southwest, I'm Art Bell.

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