Rupert Murdoch Reacts to Government Rescue of Big Banks

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.

(LAUGHTER)

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.

(CROSSTALK)

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.

MURDOCH: Absolutely.

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.

CAVUTO: Right.

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.

And I think what they have done — I'm a bit like Senator Kyl. On principle, you don't like it. You choke on a it a bit, but it had to be done. And I think — I think Secretary Paulson has done a fantastically good job. Now we have got to get it through the Congress, and that is going to be the nightmare. If we're going to have people like Senator Schumer trying to guarantee bad loans to people who should never have made them, and other senators adding their — we will be here for weeks, and nothing will be solved, except maybe lay the groundwork for another crash in another 10 years times.

CAVUTO: All right, but you think we are through the worst of it?

MURDOCH: If this plan by Paulson comes up and gets passed quickly — I don't see why it even needs a whole week.

You know, we have got to get these banks going back into normal business, not this fancy stuff done in the backrooms, where people are getting fast, huge bonuses for thinking up different ways of trading various instruments, which I don't pretend to understand. But the result was...

CAVUTO: You never bought any mortgage-backed securities?

MURDOCH: No, I did not.

(LAUGHTER)

MURDOCH: I don't have any shares or anything.

The banks, though — there are a lot of banks still leveraged 25, 30 times. That has got to come down. They have got to — the banks are going to shrink.

And then there is a big question. Do the pure investment banks, like Morgan Stanley, Goldman Sachs, is that going to be a viable model in the future? Or are they going to have be...

CAVUTO: Well, we are down to only two right now.

MURDOCH: Yes.

CAVUTO: Right.

MURDOCH: And are they going to have to merge or link in with big, sound banks?

CAVUTO: Nevertheless, this whole situation, Mr. Murdoch, has the candidates enraged. You know, the populist talk out of both camps is remarkable.

Sarah Palin had said, the running mate for John McCain, that you have to prevent rewarding crooks. I am paraphrasing here. And her — she ran on against the corporate shenanigans. And it sounded really much like a Democratic ticket.

And that is the rage right now. What do you think of that?

(CROSSTALK)

CAVUTO: And what do you think of the populist message, for example, that Republicans are waging?

MURDOCH: I think they have been sending out different signals, but I think what she says is right.

Clearly, there has to be some more regulation, but we have to be careful what that is. It could make things a lot worse. The more you get the politicians in that don't know the first thing about banking, even less than me, and God knows what might come out of it.

But I think her sort of commonsense approach to it is absolutely right. But, you know, we talk about moral hazard and losing money. People have lost billions and billions of dollars. Hundreds of billions of dollars have been lost by shareholders, by employees. All these big bonuses that we have seen in the last few years, they are all going to be gone.

Things — things are going to change very radically in the future, and I think for the better.

CAVUTO: All right.

In the meantime, your New York Post, very early on, endorsed the McCain/Palin ticket. Since that endorsement, we have heard a lot of this populist talk. We have heard a lot of this corporate railing, which, again, seems to resonate in the polls. Do you regret that?

MURDOCH: Not in the least.

I am very worried. I like Senator Obama very much. I have met him. He is a very intelligent man. But his policy of anti-globalization, protectionism, is going to be — and card checks — are going to do two or three things. It's going to give us a lot of inflation. They're going to ruin our relationships with the rest of the world. And they are going to slow down the rest of the world, too. And they're going to make people frightened to add to employment.

You are going to find companies leaving this country if it's — if you put a protectionist wall around it. You're going to get — his policy is really very, very naive, old-fashioned, 1960s...

(CROSSTALK)

CAVUTO: But, if he became president, and we had more Democrats elected in the Senate and the House, for News Corporation, given your — your views you just stated, are you worried that you would have a chilly relationship with the White House, with Congress?

MURDOCH: We always have chilly relationships with politicians. That's our job.

You know, if you're in the media, you want to keep your distance. And we make judgments. We make enemies. We make friends. But, no, we keep our distance from the politics. And, no, we are not worried about that. I have a perfectly good, friendly dialogue with Senator Obama, as I do with Senator McCain. I am not faintly close to either of them.

CAVUTO: OK.

A couple of parochial business issues, if you don't mind my addressing, sir. One is that Jeff Immelt of GE has said again that he is not remotely interested in selling NBC, that the network is fine, it is a profit center, that it's doing more than OK.

Do you believe that?

MURDOCH: Well, I take his word for it.

I can assure you, it's not doing as well as it used to do, not only because of its prime-time ratings, but because of its local stations. I know, as far as we are concerned — and we compete with them — that whole local station market is performing very badly at the moment. Anything that depends on consumer advertising is having a tight squeeze on it.

The newspaper industry across this country is in real crisis.

CAVUTO: But, given the fact that he had a successful Olympics, and it was highly rated...

MURDOCH: I don't think they made much money.

CAVUTO: Really? OK. There is all...

MURDOCH: It was good for them.

CAVUTO: Right, as Olympics are.

But do you think that, if there were a temptation for him to sell NBC in pieces, you know, the cable component, or whatever, the Internet component, would you ever be interested?

MURDOCH: Not — well, we would not be allowed to have NBC. So, no, that's not — well, actually, I think, legally, we would, but we wouldn't be allowed to..

(CROSSTALK)

MURDOCH: ... stations.

CAVUTO: Well, the cable channels, right?

MURDOCH: The cable channels, you have got to look at each one separately. Some of them are good. Some of them are mature.

(CROSSTALK)

CAVUTO: What's good to you?

MURDOCH: Well, look, take USA Network. It's a mature channel. It makes a lot of money. But why pay a high multiple for that when you can't work out how you can double its profit every five years?

We like — we like startups, like FOX News.

CAVUTO: And FOX Business.

MURDOCH: And FOX Business, indeed, which FOX News is now one of our most valuable assets in the whole of News Corporation. And we started it when everyone thought I was nuts and drove our share prices..

CAVUTO: As they did with FOX Business, too.

MURDOCH: And with FOX Business.

CAVUTO: All right.

(CROSSTALK)

MURDOCH: We have still got to get there. It will take another couple of years with FOX Business. But, under your leadership, I am confident it will do it.

CAVUTO: I just read a prompter. That is Kevin Magee and his gang.

(CROSSTALK)

CAVUTO: But let me ask you this, your sense of the — kind of where the corporate world is going.

There is a sense that a lot of executives feel that there is going to be, regardless of who gets in office, more regulation, more rules, higher taxes, and especially with the fear of building deficits, it is going to come out of guys like you, and it is going to make it difficult for you to grow. And, again, this is either ticket getting in there.

What do you think?

MURDOCH: Well, look, too much regulations, if they are unwise, definitely limit business. We have seen it in Europe.

Europe has got layers of government everywhere. And what have you got? Zero growth. We are a much more open, innovative, adaptive sort of society here. And we want to keep it that way.

Now, obviously, we have got to have laws. We have got to have honesty. We have got to have transparency. And we can do a lot more in that regard here. In fact, we should keep politicians out of it a little bit.

They talk about higher taxes. If they just cut out a lot of the loopholes for some of the rich — and, you know, we were very close to it a few months ago, when, suddenly, the Democrats, who were going to do it, announced did not have time for a couple of years.

Why? Because the people enjoying those loopholes are some of the biggest givers to the Democratic Party. There's a lot of things wrong with the system here. But we can — time, hopefully, will show improvements.

CAVUTO: Mr. Murdoch, a real pleasure. Thank you very much for stopping by. Always good seeing you.

This is your shop. So, take a look around. See if it looks OK.

MURDOCH: Thank you, Neil.

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