Wilbur Ross, WL Ross & Co. chairman & CEO, explains how overexposure to Greece helped create banking problems in Cyprus in an interview with CNBC. Wilbur Ross also called the banking system in Greece artificial, and warned that long term bonds were dangerous. The video along with a computer generated transcript are embedded below:
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back to the top story of the morning. cyprus on the brink of financial disaster. michelle caruso-cabrera joins us again. it’s windy over there. hey, michelle. hey there, joe. the minister of finance came home empty handed from russia last night.they’re working on plan c how they will come up with $5.8 billion to bail out their banks. right now we believe a draft is being put together to submit to the european partners. one includes winding down one of the weakest banks here. protests 100 yards that way. they’re concerned about losing their jobs. they have to come up with with a resolution by monday. it could lead to total financial collapse. because the banks close there’s a terrible cash shortage at this point. gas stations, for example, are only accepting cash because their suppliers are insistingthey pay cash up front. we spent a lot of time this morning with one gas station owner describing the situation for us. he said i used to get two shipments a week. got it on friday. paid at the end of the month. everything was fine. now i collect all my cash, call my supplier, he comes the the next morning, and i pay him up front to resupply every day. he allows visa transactions orcredit card transactions up to 30 euros. he said he’s been in business 60 years an has clients and customers that have been around so long he doesn’t want to disappoint them. our company will bring us fuel only with cash. we try to collect as much cash can so we can bring fuel and not close the station.numerous business owners tell us they’re not getting paidbecause you can’t do any kind of big transactions without thebanks being open, guys. it’s pretty frustrating. they have to come u with something. we hope there’s a vote in parliament today to get this resolved. back to you. michelle, thank you. missing out on on the — it’s okay. basketball. wilbur ross of w.l. ross andcompany. no stranger to banking troubles. he was port of the consortium that turned around the bank of ire land. when it started happening, did it cross your mind? i don’t think we’ll doanything with cyprus. we have been looking at greece. this is a blip on the road in greece. cyprus is not a place we would go into because the banking system is quite artificial with all the money out of russia. total bank assets are nine times as big as the entire gdp of the country. so that just tells you right off the bat how artificial it is. and all that extra cash is what caused the trouble. they had to find a place to put it because it was all purchased money. they bought a lot of greek debt. when greece got into trouble they doubled down. they bet wrong. so that’s what led to this crisis. corzine is not in cyprus, has he? we haven’t seen him around much. so you already knew all thisstuff, r. that little dissertation, you were familiar with everythingthat was already happening there? well, we were a little bitfamiliar with cyprus. because part of our studying about greece, some of our banks have business there. there are quite a few loans. so that might be a little bit from the illiquidity in cyprus.but it is less than one half of 1% of the gdp of europe. total obligations of cyprus are something like 27 billion euros. the numbers just aren’t big enough for anybody other than a few russian oligarks to worry about. when you say this is a blip in the road for greece as an investment, does that mean you’re not investing there or there is a better opportunity because things s up and you get better prices? it may well be we getter a better price as a result of the confusing. right now we’re waiting forthings to settle in in greece. i think we told but this tough tax stuff that the greek government is doing. they hired 1,000 forensicaccountants to go after high rollers and compare their bankremittances to their tax returns. they are probably going to take10 or 20, throw them in jail for a while and rye to see if that will encourage voluntary compliance. to me the big hurdle is can the greek government get greeks to start paying tax. hey, wilbur, would it be difficult for you to paint a really scary scenario that would come from cyprus and the rest of the eu? are you worried it could spread or is it too small? this is the first time agovernment has reneged on the 100,000 euro guaranteed deposit scheme. that’s a little bit scary. because there’s no bank in the whole world, including the ones we’re involved in, that can withstand the real brunt. all banks tend to bother short,lend long. so to the degree it spreads, that could be a serious problem. but as far as i can see it has not led to panic at thedepositors in any of the peripheral conditions. is anything else that we’re not watching imminent in europe that you can tell? do we need to put it back on the front burner? well, i think it needs to stay on the front burner bras of the political risks. you have merkel coming into an election you have uncertainties about the regime in spain. you’ve got problems all over the place politically. so i think where the last year was mainly a risk of banks and economics, to the degree there’s a european risk this year i think it’s more political. we always call you a vulture.in this countrere the markets ve done, is there anything attractive left in the united states for you? well, i would rather share the view that roger had a bit earlier. i think if anything the economy is more likely to accelerate in 2014. so i don’t think things are grotesquely overvalued in terms of equity. where i would be very weary would be bonds. if the 10-year treasury reverts back just to its average yield from 2000 through 2010, do you know how much it will go down? 23%. 23%. that’s a huge risk. so we’ve been advising friends it’s not worth getting a fewextra basis points to take that kind of down side risk for a year or two while bernanke keeps this quantitative easing going. we’re recommending people not be in long-term debt of any kind.instead, we’re urging our companies to borrow as much long-term fixed money as they can. and housing — since the lasttime you’ve been on, we seemed like we were getting just amount more anecdotal evidence and things are starting to pick up. still a long way to go? is that fair? we have a long way to go.but i think the biggest problems are getting out of the way. i think we need to get rid of the free show going on in congress over the budget and all this stuff. assuming that that settles down, i think the only other big risk is some of the states are starting to feel very frisky again in terms of raising taxes. you saw what new york just did. there were a couple others that would allow to us put in more taxes. that could be a thing that would be a slowdown. all right. and the last is what will the obama administration do about shale, gas, and oil. my assumption is they will start granting export licenses. my assumption is they’re not going to put in draconian measures that will interfere with the shale. to me that’s the game changeer. wilbur ross, another edition of your house. you built that big tall building. i’ve used that before. i have to come up with some new stuff. you need a new line, new music. are you doing the the brackets? did you do anything with basketball. you’re tennis. all right. thank you.thanks, joe. thanks, becky. thank you, wilbur.