Sam Zell, CEO, of Equity Group Investments, a massive private equity firm, was on CNBC yesterday talking about several topics, including:
ways to find value in real estate and the financial crisis in Europe, and U.S. economic slowdown.
Discussing his difficult venture into natural gas.
Why he thinks Occupy Wall Street protesters shouldn’t take over private property. He adds that the real issue behind some of their concerns is not income disparity, it is an education issue.
Strategies for U.S. business innovation in order to compete with global economies and emerging markets AKA China. And opportunities for investing in the emerging markets.
Below are some quotes on regulation, where Zell took a swipe at Obama’s policies:
“When it’s all said and done, it’s very hard for me to see how raising taxes can change anything. Raising taxes may generate more revenue but every time you raise taxes, you create further disincentives. We’ve already got too many disincentives in our system.”
“If we want to generate growth, effectively President Obama should announce that all regulation is being postponed until we have 4.5 percent unemployment, at which point maybe we can afford the kind of gold-plated ideas that are coming out of the regulatory agencies. That’s the reality.”
“We did not need Sarbanes-Oxley if we had enforced the existing regulations. We did not need Dodd-Frank is we had enforced the existing regulations. Effectively, after we have all of those things, how does something like MF Global go broke? They go broke because we have regulators, but they are all sitting in Washington trying to devise how to destroy the economy rather than enforce the rules that have been written.”
“Basically the regulatory agencies to a large extent have scared the hell out of the business community.”
“I think that effectively they can raise taxes by ‘re-jiggering’ the IRS code. In other words, you clean up and simplify the code and effectively, you’ll raise revenue.”
Below are videos on all the above topics and their respective transcript (if available):
just people sense. some final thoughts from our guest hose sam zell. you go there, do you look around? yeah. you kick the tires? oh, yeah. i spend $1200 a year in my airplane. so i go everywhere. i spend a lot, just in the last five days i went around the world. $1200? hours. hours. 1200 hours — i think the emerging markets are doing well. i think that it’s as simple aswhere is the demand? and the emerging markets have pent-up demand that can be satisfied? and so i think they’ve sufferedless from all that’s gone on, and i think they’re going to be less impacted than the conventional wisdom. i think about all the stuff that sam has said today, and i was going to ask him now that the financial crisis just left us with a hangover, a demandhangover that’s going to be hard to get out of the way. it’s not necessarily current policies, and it’s the rogue idea of — but then i realized the way we handled it, in your view, that has added to — i don’t want to that was a there’s lots of things that could be done. obviously i think defusing the regulation time bomb, much more consistency. the president of the united states goes out on monday and says we want exports and on tuesday we sue boeing. it just doesn’t make sense. that’s the number one exporter in the country. doing anything on residential real estate? yeah, i mean, i would have liquidated — i would haveallowed the market to clear and we would have a healthyresidential market today. any worse than it did already?absolutely not. i think when you create all of these false hopes.telephone day there’s another politician that says we’re going to invent in next plan. that’s just another reason why somebody shouldn’t make a somebody shouldn’t make a decision. or the fact that we’re working in a single-family house arena. 10% of the people who haven’t paid are capable of paying.
here’s what i want to talk to you about. there was such a great discussion about — that we just had with all of us that want america to regain the stature that it deserves and that it had. there are moves that help us factor in. now way had become the envy of the world with the six killer apps like technology and property rights, health care advances. and china has downloaded five of them and taken them from us. and ready to pass within the next couple of decades. they stril nill have not downlo property rights. he said that’s the only chance we have to compete with china is they don’t ever get the property rights correct. which is sad. it doesn’t mean that we’re going to get back to doing the innovating and doing what we do great. that means they stumbled. i’m not — what do we need to do? i’m not nowhere near as pessimistic as he suggests. about the west? yeah. i think we have to focus on what is american exceptionalism? american exceptionalism is the fact that we are an immigrant nation. and by definition — risk takers. immigrants are self selecting. my family — my parents’ family was 14 people. the only people left were two. and the other 1 reje2 rejected idea of moving. those are the people that have made our country. and we succeeded when we fed their april tights, when we encouraged them to take risks. when we encouraged them to grow and expand and make this country what it is. you go from there to wealth redistribution, you’re literally creating the opposite environment.
On Occupy Wall Street
let’s get more thoughts from our guest host sam zell. so let’s go to it. occupy wall street. please, andrew, what doo you think of occupy wall street? not much. i think that it’s collected a whole bunch of people with very different views. i think that protest is both healthy and critical to the dynamics of our country. at the same time, i don’t see any justification for taking over private property. i don’t see any justification for creating health issues and attracting people would more than anything else want to get on television. if you were the property owner of the park, you would have done — i would sow– what do you make of the larger conversation of economic inee quality inequality of the country. it’s worth asking. and the answer, andrew, is that there has been a significant bifurcation and economic equality in our country. the rich have gotten richer and the poor got poorer. as david brooks said yesterday, the real issue is not income inequality. the real issue is education inequality. the fact that we have tier highly educated, highly mote valted and highly productive and highly reimbursed. then we have an uneducated scenario that’s getting helped. i mean we operate a company that is a $6 billion distributor. we decided to set up a plant in the united states to provide passengers — if we had a live disruption, we can’t fill the plant with workers because — make passengers? to make passengers. you have to be able to fill plan real plans. we have 10% unemployment. i mean we have an education cris crisis. and the fact that we’re not educating our people, the fact that we advocated our education to union rules, i mean, you know, i never figured out — someone said when the students start paying us, then we’ll start representing the students. and if that’s what he’s saying, and if that’s the montra, we have a big problem. i reported down — i’ve been down to zuccotti park. one of the things you hear, they are college educated. they have $30,000 of debt, they don’t have a job and they say the system isn’t working for me. did they maj major in engineering or literary arts? did they take responsibility and say i have to provide for myself? i better have a college education that converts into a real working opportunity. and as far as i’m concerned, i don’t know of too many engineers who are unemployed. i know a lot of ls & a people unemployed who said, gee, college is just another wonderful four years. i can study all this great stuff. the reality is that we’re doing our country and our people a massive disservice by virtue of undereducating and underpreparing them for our society. are we spending too much or too little money on education? when you look at how much we spend relative to other countries, typically as much if not more? not necessarily percentage of gdp. not as a percentage of gdp. but as a cost per student, it’s probably twice or more. but the answer is, you know, how much proof do you need that money isn’t the issue? i believe that the highest subsidy in the country for education is in new jersey. i think it’s something like 10,000 or 12,000 students. and they haven’t produced any terrific results. and, yet, you go into charter schools or other places where you have a focus on education and half of that they produce superior results. so it’s not a question of money much it’s a question prove gres. it’s a question of setting out the golds and setting out the importance of education and saying that’s more important than preserving union rules. that’s more important to the future than almost anything else. just one last follow up. who did you hire to do the fasteners then? or did you move the production out of country? we run one shift to dpa and demand for three shifts to day. that’s incredible. how many jobs do you have own? i don’t remember the numbers. literally we could hire twice as many people — is it that certain americans won’t take certain jobs because they’re too low pay? i don’t think that is as much as they’re not trained. they’re not equipped. and then so we said okay, let’s go to the government and see if they can help us with training. that’s a mistake. we spend billions of dollars on training. total zero. no help whatsoever. okay? and the result is we’re going to have to set up an in house training program and see if we can train people. but that’s the answer that it should always be. instead of going to the government and have them run the wasteful training programs. why didn’t do you that from the beginning? give me back my taxes i paid to provide that training program and i’ll spend it on the company. i mean the answer is that, you know, the government by definition is the most incompetent producer of any kind of services. nobody has ever disputed that. and so limit the government to what it does or has to do, defense, foreign policy, et cetera. you want them to get out of the education business too? absolutely. absolutely. is there any — in other words, the government has massively moved into education over the last 35 years. have the results been more or less in what they were before? i wouldn’t dispute that. but then the question is how do you make that work? you go back to charter schools. there are charter schools all over the country that work. there are catholics that have been operating for 100 years and produced and educated students. you create a system where parents have a choice. the consumer of the product to make a decision and a choice. look, i actually think charter schools are very interesting, not just experiments. that’s such a weak word, interesting. no, i think there is some tremendous charter schools. i don’t think all charter schools are great not like i think all public schools are either. weak public schools don’t fail. this tl was a great piece in the journal. if your local supermarket was run like your local public school — you wouldn’t have any food. you wouldn’t have any food. it’s its only one you go to and you go in and it’s like no way to do the most important thing we do in our life for our children. a government monopoly. and it exists solely for union dues to help elect the right people to perpetuate the same system that they’re in right now. we should have a union person to defend you. i’m not going to make the debate right now.
On Natural Gas and Arab Winter:
On Europe and the US economy:
this morning. one of the biggest real estate investors on the planet, joining us now on the set is sam zell. over the years, sam, we have — we were able to talk to you when you sold that huge piece of real estate that all these other suckers, basically — i stole it from one guy. a bunch of slackers. i won’t use the word sucker, you did. that’s okay. what year was that? and then i don’t think you ever really went back in full boar, did you? we had you on a few times. it never went to the point where it was that attractive again. i think that this time around was very different than previous periods. real estate market obviously suffered significantly. but as opposed to previous periods, the goal was to get the properties off the balance sheets and banks didn’t exist. in 1991, i wept to a bank and said can i buy three more? every day was costing 7% or whatever the rate was at the time. today, the cost is a quarter of a point or whatever it is. and the net result of which is instead of the banks, as they did in ’91 and ’81 and ’74, they basically cleaned up the balance sheets very quickly, they took the other approach and have basically fed, you know, distressed properties into the market one at a time. and the net effect of which has been we haven’t had either a clearing which cleans up the market or the kind of down ticks and discounts. so you’re saying low interest rates have actually slowed down the real estate recovery, not helped it? well — commercially? there are two different versions. if they had literally gone in and applied the same standards as the currency clerk did in 1990 which is they looked at every loan and they said what’s the payment and what’s the likelihood of getting paid at th then the banks would have been broke. completely broke. instead, the control of currency said if it’s paying and it’s current, it doesn’t matter whether — we’re not going to look at the terminal value. therefore, there were no hits taken by the banks. but at the same time, the banks instead of saying let’s get this property on the market. let’s, you know, force a clearing of the market, instead they have just literally fed assets into the market at a very slow rate. i can’t help but think that there’s a lot of analogies to residential, too, in terms of we really haven’t flushed the toilet there. all the foreclosure mitigation. none of them have been effective. the stimulus bill, okay? they have to rename the stimulus bill, stick your finger in the dike bill. infecti it did nothing other than delay the resolution. the first one. yeah. instead of investing it in the growth of our country, we invested in status quo. and we gave cities and states money to keep people on the — on their — you know, in their jobs even though the state couldn’t afford it. they kicked the can down the road a year and a half. now the states don’t have any more stimulus money and they’re cutting the people. we had big cracken on yesterday. i was listening to him. and he was talking about what gdp would be. but if we extended unemployment claims and we did the payroll tax stuff, it would be, i think he said gdp would be a point and a half or two points higher. it makes me think why don’t we just extend unemployment claims forever and get rid of the payroll tax forever and for the rest of history have 2% higher gdp? the only thing mising from that analysis, and eliminate business. that’s a complication. we just have one big happy federal scenario where we keep passing the money around. that’s greece. that’s exactly what greece is. so the variations that we’re seeing in europe and seeing in greece are very much here. and the question is, can we deal with them? obviously, greece can’t. euro-zone certainly is having problems. but all of this revolves around not wanting to face up to reality. reality is that both the united states and europe and in greece the people have been overpromised and they basically created a retirement environment that will destroy the country, just as it destroyed rome. the scary thing is if you get enough people — andrew — that sort of want to benefit from entitlements and it’s a democracy, if you get up here at 50% number, it’s like kind of hard to elect somebody else. guys, you saw what happened when they announced the referendum in greece. all of a sudden everything went ape. why? because nobody could figure out why the greece people would ever vote for this. right. and same man — you have the same problem here. in other words, we keep increasing the level of entitlements and we’re slowly moving the number — who is going to vote against them if you’re getting entitlements? except, it’s not exactly an ever flowing fountain. what we learned from all this is the analogy of you have a big sore with a band-aid on it. if you like really go slow as you’re pulling it off, it’s going to hurt like for days. the question is what is the pain to snap? and does it start bleeding? more important, what is the pain of not snapping? i think that pain is probably a lot greater than what we’re suffering right now. probably would extend this to getting our fiscal house in order. we still have — we just said — i was talking to steve the other day. he thinks that the — liesman — that the worries about the deficit and these unfunded liabilities that we have which we all are hearing about now with the super committee and simpson bowles, he thinks those are manageable some time in the future. and that the economy is so weak right now that you don’t necessarily just want to — even simpson bowles is about managing the future. a lot of that is so back loaded because — even that. but with 9% unemployment, some people say if you take everyone into account it’s over 15% that that’s not the time to be cutting back on government spending or — we said it a million times. you agree. reform medicare and i’ll give you 20,000 canesian bridges in the short term. would you get behind a simpson-bowles program? simpson-bowles is one of a number of options. clearly, you have to extend the retirement age. we have to reduce levels of entitlement. we’re basically running a country that can’t — you know, 40 cents out of every dollar we spend we’re borrowing. that’s a prescription for disaster. and the idea that everybody isn’t scared to death about this scares me. the two choices we have, final flly figured it out. if you want to cut spending and raise taxes, both of those we talked about this earlier this week. if you cut — if you raise taxes and cut spending, both of those are — neither one are good for the economy. but so let’s just pick one. i mean that’s where the country is divided right now. if you pick just cutting spending, people are going to say you need to tax rich people. but if you just raise taxes, you’re not getting anywhere, are you? can you get behind both? no. but can you get behind doing both? i think that — this is my best guess — i think that effectively they can raise taxes by rejiggering the irs code. in other words, in effect, you clean up and simplify the code and effectively you’ll raise revenues. the infeeffective rate will higher? right. when it’s all said and done, it’s very hard for me to see how raising taxes achieves anything. because raising taxes may generate more revenue. but every time you raise taxes, you create further disincentives. and we already got many, too many disincentives in our system. if we want to generate growth, infectively president obama should announce that all regulation sh being postponed until we have 4.5% unemployment. at which point maybe we can afford the kind of gold plated ideas that are coming out of the regulatory agencies. and, you know, that’s the reality. basically, the regulatory agencies to a large extent have scared the hell out of the business community. they don’t know what’s going to happen next. you had this mf global catastrophe. how come dodd-frank didn’t stop that? or sarbanes oxly. because the answer is that if you don’t enforce the regulations that you have, we did not need sarbanes oxly if we had enforced the existing regulations. we did not need dodd-frank if we enforced the existing regulations. and effectively, after we have all of those things, how does something like mf global go broke? they go broke because we have regulators but they’re all sitting in washington trying to devise how to destroy the economy rather than enforce the ones that are written. you you know, the book we have. you would love this. was this in your book? have you ever heard of inhypocrisy. how do you spell that? obama? a system of government where the least capable to lead are elected by the least capable of producing. and where the members of society least likely to sustain themselves or succeed are rewarded with goods and services paid for by the confiscated wealth of the diminishing numbers of producers. that sounds like it was written by wall street. that is a good word. do you like it? i love the word. and someone sent it in. and then i googled it to see — i thought the guy made it up. but it’s a dictionary word. it’s a little redundant