John Mack, director at Glencore and former CEO of Morgan Stanley, joined hosts Stephanie Ruhle and David Westin on Bloomberg TV’s new flagship morning program, Bloomberg <GO>. He spoke about the stability of Glencore amid the global selloff in commodities.  He also discussed why he is bullish on China, 2008 and responsibility for malfeasance at financial firms, and Hillary Clinton’s presidential campaign.

Mack said fund managers shorting shares of Glencore and playing with credit-default swaps were responsible for recent volatility: “You have fund managers who short the stock, play with the CDS; that’s exactly what happened during the crisis.  I mean, that’s fine for them to do that.  That creates a lot of volatility.”

John Mack

 

John Mack On Glencore:

RUHLE: There is one company we have been talking about for weeks that maybe needs a little capital, maybe needs a little credit.  And it’s Glencore.  Obviously the metals and mining company has been on a roller coaster ride.  Volatility in commodities is shaking this company to its core.

You sit on the board of Glencore.  This organization has been the one to watch — the smartest, the sharpest, the best.  Did they get too close to the sun?

JOHN MACK: No.  They are the sharpest and I know all of them.  I’ve never —

RUHLE:  Long term capital on (ph) the sharpest too.

JOHN MACK:  Well, maybe they were too sharp.

RUHLE:  There you go.

JOHN MACK:  Listen, they have real assets.  They have a balance sheet that had too much debt on it.  We went out and raised a rise (ph) offering and brought in $2.5 billion.  We have begun to cut back on some of our mines and shutter them.  You’ve seen what’s happened to the stock in the last few days, how about just come back from where it sold off.

And then you have — you have fund managers who short the stock, play with the CDS; that’s exactly what happened during the crisis.  I mean, that’s fine for them to do that.  That creates a lot of volatility.

RUHLE:  But not real investment.

JOHN MACK:  It’s not real investing, no.

GREELEY:  It’s — let me offer a counterpoint here.  I’m actually looking at Bank of America Merrill Lynch from Alastair Ryan.  We estimate the global financial systems’ gross exposure to Glencore at over $100 billion and believe a significant majority is unsecured.  The recent widening in debt spreads, in the case of the exposures, now coming into investor focus and paid attention now

Now they’re paying attention.  Is that true?  $100 billion mostly unsecured?

JOHN MACK:  I don’t know the exact number.  The real point is are they paying attention?  And the answer is absolutely yes.  What they’ve done in cutting back on some of their mines and closing them.

But the other thing you’ve got to think about is the real reason this has got so much focus is this is the commodity market sold off for dramatically.  China is not the big buyer of copper as it was.  And the other thing is, and this is changing for the industry, not just for Glencore, it looks to me when you own a mine, you feel like the number one thing you need to do is just produce.  Sometimes you ought to cut that back, whether it’s oil or copper or whatever it may be.

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Why John Mack Believes in Glencore’s Future

Mack: Hillary Clinton’s Campaign ‘Having A Hard Time’

Mack: Bullish Long-Term on China Despite ‘Hiccups’

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DAVID WESTIN: Thanks very much, Matt. Still with us Ben Bernanke, former Fed Chair. Now, we’re joined by John Mack.

STEPHANIE RUHLE: John, welcome!

JOHN MACK: Thanks for having me.

WESTIN: Known worldwide by former CEO of Morgan Stanley during the financial crisis of 2008. I think what most impresses me about him, he not only played football for Duke but he was on a scholarship for football to Duke. I mean that’s impressive.

JOHN MACK: I wasn’t very good at either.

(LAUGHTER)

JOHN MACK: Either the scholarship or football.

WESTIN: So I would love to come back to you Ben for a moment and it’s out of the book actually. Monetary versus regulatory functions.

BEN BERNANKE: Mm-hmm.

WESTIN: For the Fed, and you talk, page 92, I noted, you talked about the fact that monetary wasn’t really the approach that needed to be taken when it came to the bubble in mortgages.

BERNANKE: Right.

WESTIN: And you say “In a 2002 speech I’d said that financial regulation and supervision should be the first line of defense against asset price bubbles and other risks to financial stability.” Has that been corrected now? There was a regulatory fail wasn’t there?

BERNANKE: Yes, absolutely.

WESTIN: And has it been corrected? And has it been overcorrected?

BERNANKE: That’s an awful lot to chew on here. So I think the critique of the Fed prior to the crisis I mean a lot of it is focused on monetary policy. People who looked at it carefully generally agree that monetary policy was not the main reason for the housing. One way the Fed was responsible was along with other regulators, it didn’t do enough to prevent the bad mortgage lending. And there’s a lot of reasons for that.

You know, one reason was that there was this very strong political support for sub-prime lending because it was creating home ownership so broadly.

RUHLE: So hold on a minute. I’d love to just back that up.

BERNANKE: Yeah.

RUHLE: A strong political support. So Barney Frank for example who has been so critical of bad bank behavior during the financial crisis, specifically around mortgages. Would you say it was Barney Frank who was promoting this, it’s part of the American Dream, your birthright here to own a home?

BERNANKE: Well, it wasn’t Barney alone. I mean the people, the regulators were saying, you know, we want to take care of predatory lending. We want to get rid of that. But sub-prime lending is positive because it improves home ownership. So it was a goal that a lot of people were pursing. And in doing so, some bad practices were not taken care of.

WESTIN: I think if you look at it it goes well back into the ’90s and the HUD policies and things to really encourage home ownership particularly by lower income people, it was thought of as good.

BERNANKE: And to answer your question, at least those specific things have been addressed pretty significantly. In fact I’ve had a lot of complaints about mortgages being too hard to get now. The other thing that we’ve done, we, the regulators, the country has done, is made the system a lot strong. So capital in the banks is way higher. You know and generally the system is much more resilient than it was.

WESTIN: And, John, I think you’ve said that you thought that there was not enough regulation as well going into the–

JOHN MACK: There’s no question about it. I think Ben has hit it right on the head. It was political, it got out of control. It got too easy. Securitization became almost a machine running securitized products out. And there wasn’t enough oversight and there was a lot of fraud. When everyone’s happy and the market’s going up. I

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