This is a rush transcript from "Your World With Neil Cavuto," September 19, 2008. This copy may not be in its final form and may be updated.
NEIL CAVUTO, HOST: Reaction now from one of the titans of the corporate world, the chief executive of News Corporation, and my boss, Rupert Murdoch, who recently told a conference that hard times are good for companies — not all companies, I guess, right?
Good to have you.
RUPERT MURDOCH, CHAIRMAN AND CEO, NEWS CORPORATION: Thank you, Neil.
CAVUTO: What do you make of this?
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MURDOCH: Well, as far as today goes, it is absolutely unprecedented, government-imposed short squeeze, which is of course — they want to have a short in shares to buy them back. I have no doubt a lot of hedge funds have gone broke today or been very badly damaged. That is OK.
But, overall, one has got to go back on this and say, look, this started 15 years ago, with Barney Frank and people pushing Fannie Mae and Freddie Mac to make a lot of bad loans, until they finally had $11 billion — or nearly $11 billion out there. I don't say all bad, but it became a racket.
Then we added to that easy money. There was a lot of irresponsible lending, but also a lot of irresponsible borrowing. People have got to be responsible for themselves.
Then along came the oil squeeze on families. People could not make their payments on their mortgages, which were too high. They borrowed 100 percent, sometimes more than 100 percent, of the value, theoretical value of their homes. There had to be a crash.
CAVUTO: All right, but let me ask you this. You talk about hedge funds that could suffer because of this squeeze on the shorts, in other words, those betting the price of the stock will go down, sometimes without even borrowing the shares.
But this is 10 years almost to the day that Long-Term Credit went down, and — and that fund was rescued. And, if other hedge funds go down, the fear is that whatever we have experienced is just a warmup act.
MURDOCH: I don't think that was — that was rescued by — government action, yes, but not by government money. All the banks had to help in.
CAVUTO: Right, the Federal Reserve and central banks.
MURDOCH: And there is no saying that this is going to cost the taxpayer a lot of money.
What I hear — and it may not be right — we will see on Monday — is, they are going to really organize an auction of all these toxic loans, so people can come in and say, right, I will pay 22 cents on the dollar or 40 cents on the dollar.
And if the government says they're prepared to pay 45, fine. If the government is only prepared to pay 35, it goes on out into the private sector. And you will find whenever the government is left with, in time, they will get rid of it, and the taxpayer will not be on the hook for anything.
CAVUTO: You hope. You hope.
MURDOCH: They went up with the resolution trust fund.
CAVUTO: ... the Resolution Trust Corporation to bail out the S&Ls — 2,000 of them eventually failed, and you did have to set up a bureaucracy for a while.
CAVUTO: Do you worry that...
MURDOCH: But, at the end of the day, the taxpayer did not have a bill to pay.
CAVUTO: But you are not saying this is one where they're not going to have a bill to pay?
MURDOCH: I think that is quite possible.
CAVUTO: Really? All right.
MURDOCH: I mean, a lot of people will have lost money.
MURDOCH: Don't get me wrong, a lot of people, but not the federal government, which is you and I, or the taxpayer.
CAVUTO: What do you think of the message it sends beyond just the financial community, and that is that you will be effectively rewarded for risky behavior, and the more type of this activity, the more rescues, the more people will engage in this sort of behavior?
MURDOCH: Oh, I don't think so. I think the people who have done it will have lost a lot of money and their jobs. You know, some of them may even lose their freedom, from what I hear. But it's — there's no — there has been a lot of money lost.
CAVUTO: Yes, but a lot of them are leaving with big pay packages.
MURDOCH: Not now. They did before. Like, a month ago, they were getting out early, some did. And I thought that was scandalous. I don't think you can go back after it to get them. But there is no one leaving now with big pay packages.
CAVUTO: so, for News Corp. and big media companies, other companies beyond the financial arena, what is the fallout of this going to be? If things stabilize, and they work out the way you say, what will happen?
MURDOCH: Well, I think the financial model will be very different. Banks will be less leveraged. They are going to get back into lending money normally.
You know, we were in a crisis here over the last two weeks, where the banks were so uncertain of themselves, they would not even lend to each other.
CAVUTO: That's right.
MURDOCH: So, how would they lend to you or I or a small businessman? And the whole economy was about to freeze up.