Wilbur Ross was on CNBC yesterday discussing the downgrade of US debt by S&P. He thinks that the downgrade was part of the “democratic process”, however, he was astonished that S&P made a $2 trillion mistake (I myself am baffled).
Below is the video followed by the text transcript:
joining us now is wilbur ross. wilbur, we’ve had you on a couple of times recently. you think s&p would wait to see at least — making a momentous move they would wait until thecommission had done its work to see whether we would make any progress. really did think and do think that would have beenal thing to. all they based the downgrade on is that democracy is a messy process. so the fact that we went through what we went through with the congress, at least they came out in a direction that has some promise of some sort of fiscal stability going forward. that’s what i like best, wilbur.that’s my favorite point about this whole thing. if there had been no show, no acrimony, rubber stamp debt ceiling raise as we saw in the past, s&p would be snoring, slumber, watching it go by. the minute they saw there was a chance for 4 trillion and they weighed in on the 4 trillion number they painted themselves in a concern. now they make it because of apolitical process when if there was no political process theywould still be on the sidelines. we don’t know. it does feel as what they downgraded was democracy rather than anything else. wilbur, if they didn’t that have line or two about the political dimension, would you feel differently about the position that they took? meaning if it was just a math decision and you hadn’t seen the analysis around the political element, how would you feel. remember their math was a little bit flawed too. you did have the tiny error of $2 trillion. so, it’s almost as though theyhad made their mind up independently of the math and i was, frankly, astonished that an agency like s&p would actually have let’s get through the process a $2 trillion error on as big a decision as downgrading the u.s. government. i’m not going to put the $2 trillion math mistake aside but put it aside for a second and think about the gdp ratio issue and would that sell you on the downgrade? well, when you think about it, the ratios aren’t any different today from what they were two weeks ago, two months ago, three months ago. we’ve been heading in this very negative direction for quite a little while. so i think the real question is what was the catalytic event that put them to decide to do the downgrade. you could have downgraded after the stimulus plan ever $800 billion or acrimony of health care. we just had neel kashkari. he said sapp was right to downgrade but he suspects others will downgrade as well. sean egansean egan is other and he says they have downgraded. there’s a tendency for rating agency decisions to converge. so clearly the decision by s&p, whether i agree with it or not, puts some degree of push on to moody’s and on to fitch’s. and you can imagine that everyone one their subscribers will be asking them every moment, your going to do it next? i don’t think the incremental effect of a further downgrade by one of those two to the aa plus would have a really big impact. what i’m more concerned about is we’re probably going to go through another messy political process november-december time frame with this independent commission, and you wonder whether that won’t provoke s&p to do a further downgrade. how do we get to where i’m — you’re all over, the downgrade — how — no, no. how does it happen? how do you know to be on the opposite side of everything? i don’t under. how did it happen this time? you know what i think it is? i think, wilbur, with andrew, the tea party cause this because they wouldn’t allow taxes to be raised for revenue, therefore — i think that’s worse. it’s implied. that’s what is it. just like marron here. we were unable to raise revenuesbecause — not a very good one. the opposite — it’s more that congress never misses an opportunity to miss an opportunity.wilbur, would they have been better off holding off they being s&p be better off holding on any action given the $2 trillion mistake and, furthermore, is it appropriate to use the democratic, the messy democratic process as a reason for downgrading a country? from my perspective, we think you end up with a better long term solution. agree with that. remember, the famous line of winston churchill that the americans usually eventually get it right but only after they have explored all the wrong alternatives. if you have a democratic society you need a give and take process. frankly i think that’s a better reason for an upgrade, that process more than a downgrade. you used sean as your example and then you can just hear — not only that. sean is in a position now where you’re already downgraded. now you get this great debate about getting our house in order. that’s an opportunity to eventually upgrade. s&p is already late. they are downgrading it now when, in fact he’s already down there getting ready to upgrade it. i just can’t believe that i’m carrying water for geithner and the obama administration. you can’t get on the same side. i try. we’ll hold hands after the show. the debt markets aren’t all that worried about the downgrade and you have seen this very odd thing this morning where stocks are getting killed and both gold and treasuries are rallying. it’s not rating agencies who set interest rates it’s markets and at least so far the market doesn’t seem all that troubled by the downgrade. do you own treasury, wilbur?. no. we don’t own anything that highly rated. and the stock market last week wasn’t moving on debt ceiling. so many — to ascribe the market’s movement with what’s happening in europe and everything else and the slowdown and the numbers we’re seeing here not with standing the better jobs numbers we have a lot on your plate. you do. frankly i’m much more worried about the european situation than about the u.s. i mean, it’s fine for the ecb to weigh in and say they are is going to buy some spanish and italian debt. you’re worried about those aaa european countries like france and finland and sweden,germany, belgium. they are aa. i don’t think those are aaa.exactly. thank you, wilbur.
Wilbur Ross spoke recently about his investment in Ireland.
[Background: Canada’s Fairfax Financial Holdings and US buyout firm WL Ross & Co have each taken a 9 per cent stake (for a reported 1.1 billion euro, $1.58 billion) in Bank of Ireland. Deutsche Bank has been managing the takeover deal. Bank of Ireland has $140bn in assets and is the largest bank in Ireland.]
“France wanted them (Ireland) to raise the corporate tax rate as a quid pro quo. They said no. What’s happening is that Ireland is fixing the economy unlike the club-med countries. Ireland is making it work. They had 2% growth in the most recent quarter. So the notion you can’t cut back government spending without destroying the economy is simply wrong at least in their case.
Ireland had set up an entity called NAMA (National Asset Management Agency). Government will continue to have a 20% stake and will have two seats on the board. They will also be the regulator for the bank. Bank of Ireland also has a huge joint venture with the Post office system in the UK. 11,500 Post offices distribute the bank’s products in the UK and it has a branch in Connecticut.
The government desperately wants all these banks re-privatized as quickly as possible. Bank of Ireland is easily the healthiest of the banks. The country of Ireland now has no sovereign debt financing needs until 2013. I wish our country was in as good a shape.”
Below is the video:
Wilbur Ross participates