Kyle Bass - Founder, Hayman Capital Hedge Fund HARDtalk

for January. It is now time for HARDtalk. They were very few

investors have realised that the board was heading into financial

turmoil. My guest on HARDtalk saw what was coming and made a fortune

from it. First from America's sub Prime mortgages and then by betting

that Greece would default. He reckons that France and Japan will

have their economies collapse. It is the behaviour of speculators

like him that leave us with the Welcome to HARDtalk. Thank you.

What was it that made you realise in 2006 that we were heading for a

crisis? The 2006 scenario was mostly a US phenomenon. If you took

three steps back and looked at the housing scenario, everyone in the

US realise that we had an enormous housing problem. Alan Greenspan, in

2001, as at .com past was going into full-motion. Greenspan traded

the dot com past for the housing boom. He lowered rates to 1%.

Housing need the US had never gone down in value. He thought that was

the way to come out of the dot com past. When he quits and handed the

reins over, we started looking at the immediate its income sent home

prices. Those two lines have moved in pure a parallel for the better

part of 50 years. It makes logical sense. The affordability scale

stays in check. When Greenspan started, again, trading .com asked

for the housing boom, you saw a must-see of divergence between the

media its home prices. Home prices took off and income has remained

stable. You recognise that this is an overheating market? You describe

it as a fat pits, lower rates, high reward scenario where we're going

to be rides. You saw it as something you could make huge sums

of money on? Yes, I know that sells a lot of books and television when

you talk about nefarious speculators making a lot of money.

It is important to understand that when you worry a fiduciary like me,

and people invest their capital with me, number one I must not lose

money and number two you must make greater risk adjustment returns. We

had a global portfolio in 2006, we find equities and debts all over

the world. These tapes to bets against the bottom Prime of a hedge

funds and it cost me only 1% per year. I thought it was the best a

symmetric head so I had ever seen in my life. If you look at the

funds, we were very long in the fund, we are owned farms all around

the world. This was ahead. This was a very a symmetric heads position.

This is what we're talking about with the sovereign crisis. We have

a large portfolio hour of investments in Europe in Japan.

go through the history in ways that people can understand, you saw the

problem in housing and realise that it would then realise to the banks

and then it would move to the Government. This was debt that was

effectively building. You did some maths that other people had not

done. You worked out the debts cost? As the housing prices in the

US metastasised any mood globally, at the beginning of 2008 and into

2009 every time a highly levelled institution, where they'd be a bank

or financial institution, in the US or Europe or Iceland, the central

government decided to take those bad private assets all bad risk to

the public down would sheet. We decided in mid- 2008 that we were

trying to understand if the world would go through this massive

delivering an debt destruction at that point in time all wet but that

would move on to the government's balance sheets. Every time you saw

a bail-out in 2008, it was moving it to the Government's balance

sheets. We went searching around the world to see how the government

sheets looks like. No-one was doing this. You would be truly looking at

how big debts were and how big revenues were four different

governments? That is correct. What really solidified to our search was

that when Iceland got into trouble, Iceland has 300,000 people, they

only have 20 billion US dollars of GDP, at three banks in Iceland they

had $2 billion worth of assets. When the banks went bad, is

immediately sank the country. At the height of what went on in the

last three or four years, there was no provincial regulator to decide

the enormity of the host banking system. No-one was putting earnings

on the country's banking system. No-one was paying attention. You

you were. You have taken positions against governments that economies

would collapse. In 2006 when you thought the markets were obey he

said and thought to take a bet, how much money had been made on that?

will not discuss particular profitability of our firm. We did

very well for our investors and ourselves because we saw this

coming. We have losses on one side of our portfolio and its gains on

the other. The gains succeeded the losses. It is more important to

talk about the global debts Marryat and what will happen going forward.

In order to understand it, people will be curious as to how it works.

You took a bet against Greek defaulting, 1,000 dollar bets you

could make $700,000 because of Greek defaulting? That was in the

initial status. Back in 2008, when the world's sovereign debt crisis

was not on the radar. The press in the beginning of this crisis,

Greece's sovereign debt traded as if it was a German sovereign debt.

It traded at 11% basis point. You could buy a German sovereign debts

and only pay 11 to 15 basis points. They used were grades A symmetric

cages at this time. I appreciate that you don't want to talk about

profitability. You are talking about for a thousand dollar

advancement and getting back $700,000. That order of magnitude

was possible in need 2008. It is not even close to be impossible now.

He made that much money on it though? You must realise that this

was a hedge to our existing books. We always monitor our hedge ratio.

Which not maintain a position in Greece. The a symmetry has been

lost. All of the a symmetry in the world lies in Japan. You predicted

the default of Greece and the problems that the economy was going

to get into. TUC Germany as Denning behind Greece? Would resolve the

problems of Europe? They would need massive debt restructuring. You

know how screwed-up Europe is when you have a German Pope and an

Italian central banker. Debt has grown from 80 trillion dollars to

110 trillion dollars. Wrobel credit debt has grown by 11% while GDP has

grown by 4%. Portugal, Italy, Iceland and Spain and Greece are

all in a state of insolvency. There is no solution for them. The only

solution is to pay the bills. BT's of Arab opinion that these debts

must be written down. If you pull sovereignty, the eurozone

effectively becomes one country, Germany stands behind its other

nature's, to us that there resolve the other problems because of

Germany's earning power? Know. Germany has to faulted twice in the

last 100 years. Germany has 81% sovereign debts. They have not

recapped their banks. The rest of Europe has not recapped their banks.

US banks are three times we caps compared to Europe banks. Let's

assume that Germany goes to doing a Eurobond and takes on, the German

Centre Court has ruled that that is illegal, to resolve the bonds. What

would they do if Greece was bailed out and then they kept spending and

then they went back to Germany and Germany said no we will impose

austerity on you now. Germany is in the exact same situation, a Mexican

stand-off, meaning there is no winner. Germany will always be by

the short hairs every time this scenario comes up. I do not believe

Germany will go Orleans, it will not be too big an effect. Angela

Merkel, the Chancellor, says that Germany army has one goal to bring

about a stabilisation of the eurozone in its current form to

make it more competitive to consolidate budgets. Yes, the

European union will not work unless it has a centralised taxing

authority and every member six seats their sovereignty to be EC

you. Unfortunately, I can't get to those goals because there are so

many mitigating factors that prohibit me from getting there. I

understand the rhetoric, if you were the politicians running this

scenario you would say the same things in public. The bottom line

is that the markets are telling you that it will not work. You have

already mentioned Japan as falling big time? If you just analyse

depend there are a few things that to indisputable. They have the

worst balance problem in the world. Why did a scheme fail in the United

States? More people entering the scheme rather than exciting. There

was more people exiting rather than entering. Japan is the most in a

phobics Society in the Western world. They have lost three-and-a-

half million people in the last four years. They will lose 27

million people in the next 40 years to the population demographics.

They had the worst demographics of the world. They also have

households with savings of 15 trillion dollars. They are second

only to China in reserves. They like their own government bonds and

there are signs in recent times of growth in the economy. First of

four the private assets of the public are more closely 13.2

trillion dollars. This is the first time that the sovereign debts have

succeeded the individual assets. Italy was sacrosanct. They were a

pillar of society up until six months ago. When a ten-year rates

when from 5% to 6% they went from stable to crisis in 100 basis

points. Japan spends 50% of this central government tax revenue on

debt service alone today. Half his interest. If Japan's interest rates

move at all, if they moved 200 basis points, 2%, Japan's debt

You have made your name as somebody who has made a lot of money betting

against governments, that is why you get invited on to a programme

like this, and you can say you are betting against France and Japan.

Japan is going to go down the tubes, guys. Isn't there a danger of a

self-fulfilling prophecy here? That you are going to encourage

something that may be in your interests but is not in a whole

country's interests? By the way none of this is in my interests,

this will happen with or without me. I am a proven predatory, I managed

the retirement money of many companies in the United States and

all over the world. People invest with me for one reason to try to

not lose money and when I invest I own things all over the world and I

hedge them with a symmetric positions. I know it is a great TV

thing to say, this is someone that has profited at others' the mind,

in the mortgage mind marketplace the only thing I profit against was

synthetic CEO managers. It would have happened with or without me.

But you... the hedges that you are talking about you something called

a credit default swap. You take bets. Only in Europe, not in Japan.

But let's look at what you did in Europe because it has caused all

sorts of problems and politicians have got worked up about it and in

various degrees, what is known as naked short selling and short-

selling. You have taken out insurance on something you don't

know him. If insurance is to protect an investor, why should

somebody who does not own that underlying asset be allowed

insurance on it? That is a great question. Does Europe have listed

options markets on all of its equity and equity investments? They

do, don't they? Why are you asking the question? Because the listed

options market allows you to buy options on stocks and index is that

you don't own, which has gone on for decades. You are alluding to

the fact that beers this nefarious marketplace in the debt market

place that is different to something in the equity market

place. If you want to buy a put option on Barclays Bank, you can go

and do it. You have been able to do that for 40 years. But you can't

buy insurance on somebody else's house. The whole point of insurance

is protection. The reason people get exercised about it. Wait a

second... Because this is responsible for exacerbating market

falls and increasing volatility. hear you're possibility so it is

important to understand one thing. -- I hear your hostility. Greece

has $500 billion of one sheet market debt. If you go to the D C C

C website and you understand the CVS marketplace, the net situation

in Greece is $7 billion. $500 billion cash, $7 billion of CBS.

Guess who owns more than half of the $7 billion? The Greek banks.

When you saw Merkel and Sarkozy and you saw Christine Lagarde when she

was the finance minister of France, on the front end of this back in

2010, they were on a warpath about CVS and all of a sudden they stock.

When they realised the majority of the people that owns C D s are bona

fide hedgers, banks and Greece owning Greek CBS. What I have to

say about that is you can't hate the Mirror because you're ugly. All

CVS is a barometer of the relative health of that market place. Let's

move on to what you said to your mother, when your mother said where

should you put your money, you are reported as saying guns and gold's.

Why comes and gold's? As you know it is a euphemism. If you have a

World governments, looking at the US Federal Reserve's balance sheet,

it is very trillion dollars. We have created it out of thin air.

Before the crisis we only had one point a trillion dollars. We only

had about a trillion dollars of equity in the US banking system,

14.5 trillion dollars of access and one trillion dollars of equity. The

ECB's Alan Street, three trillion dollars. We have created six

trillion dollars out of thin air -- balance sheet. Why would you want

to own paper currency? We have only got a few minutes, I just want to

explain. It is why you have bought gold bullion, it is why you have

gold bars sitting in a bowl. Buying gold is just buying a put against

the idiocy of the political cycle. What about the other advice, guns.

Is that because you fear social unrest as a result of what is going

on. I think if you look through history and you understand through

history when debt levels, aggregate debt levels in various countries

Clovelly, get to levels... by the way where we are today is the

largest level of peacetime debt in world history. Typically through

history countries with debts would go to was to get to where they are

today. To the victory goes these files and to the loser does defeat

and default. If we are right about this global disaster coming, it is

likely to at least rupture of the social fabric of the world like

you're seeing throughout the world today. I think it will be a more

dangerous place for the next seven years. It is not the end of the

world it just means it will be less socially cohesive. You are reported

as having bought a very large fort in Texas and having an Arsenal of

weaponry there. Is that because you fear what could happen? No. This is

hyperbole. I bought a share in a Ford in Texas, it is not a fault it

is a ranch, everybody in Texas goes to ranches on the weekend. I

support the troops from both the US and NATO when they get wounded,

that is where I spend my philanthropic capital, giving to

those who have risked their lives for both of our countries. These

reports get all in my opinion built on one another. One other thing you

have been quoted on is the suggestion that actually we're

going through this because it's atonement for past profligacy.

is. You have to realise capitalism without bankruptcy is like

Christianity without help. You have to have atonement for the

ridiculous levels of spending that both the US and Europe have gone

through. When you run 10% fiscal deficit, that does not sound too

bad, but when your government revenues are 16% of GDP, you're my