Exclusive: Dick Grasso and Ken Langone on 'Your World'

This is a rush transcript from "Your World With Neil Cavuto," September 30, 2008. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Now, as I said, first on FOX, Dick Grasso and Ken Langone for their first TV interview ever and together here. I'm very happy to say that. Grasso of course the former head of the New York Stock Exchange and the man whose eye-popping pay package created a multi-year legal saga that Grasso only recently ultimately won. Furthermore, he was completely vindicated on every single point.

Next to him, Ken Langone, a former Big Board member who stood by his friend and argued successfully nothing was done in secret and Grasso deserved every penny of that compensation, New York's highest court agreeing on every point.

Video: Watch Part 1 of Neil Cavuto's interview | Part 2

Gentlemen, welcome.

Good to have you.


KEN LANGONE, CO-FOUNDER, HOME DEPOT: Thanks for having us.

CAVUTO: It's like a bad "Sopranos" we have got here, three Italians, and we don't know where we're going here.

GRASSO: Who has got the cannolis?

CAVUTO: I know. I have them. And I'm not sharing them.

Now, Dick, to you first. I was thinking of you in the Big Board days. And you were there at the '87 crash. And a lot of people say, this volatility, what happened yesterday, '87. What do you say?

GRASSO: I say that we have to put aside what happened yesterday in the Congress and go back to basics, Neil.

The American people cannot afford for a solution to this financial crisis to be driven by partisan politics. We have got to look at what is right for the country, both sides of the aisle taking off their jerseys and saying, let's see what the problem is. We have got bad assets on the books of banks. They have got to come off. And they have got to shepherded by the government.

CAVUTO: So, you are for this thing?

GRASSO: I'm for not only what we talked about over the last week or so. I am for extension of insurance from the FDIC to protect small saver accounts. I'm for a...

CAVUTO: So, sort of what Barack Obama and John McCain were advocating?

GRASSO: Both — both senators, Obama and McCain, have said, let's lift the limit from $100,000 up to $250,000. I say, let's lift it unlimited. Let's let above $250,000 be paid for by the depositing institutions and by the savers themselves.

CAVUTO: Well, that would be good for the two of you guys, right?

GRASSO: No reason we could not do that, Neil.

But, importantly, it sends a message of confidence to the American public. They do not have to run to the bank.

CAVUTO: But are you saying, Dick, that this $700 billion package — and you were the king of capitalism — you ran the bastion of capitalism, the New York Stock Exchange — that it needs big government to get back on track?

GRASSO: Neil, there is a difference between free market principles and free-for-all markets. And the latter is what we are experiencing right now.

The credit markets are frozen. The local business has been unable to finance their ongoing operations. I think, in a few weeks, if this continues, corporations will be unable to roll their commercial paper. This is going to wind its way throughout our economy.

I'm the, as you say, the captain of the free market, letting that free market do its just. But government must step in when the free market does fail. And I think that a balanced approach of asset recovery to the government, insurance for the investor, the investor and the depositor at a local bank, and a recognition that we need totally new regulatory apparatus to deal with the instruments...


CAVUTO: You sound like Barack Obama.

GRASSO: No, I'm not. I'm not. I'm apolitical.

CAVUTO: OK. All right.

GRASSO: As you know, I was always a champion that the markets are the markets of the people.

CAVUTO: All right.

Well, Ken, first off, pipe down. Your view of this. I talked to Jack Welch. I talked to Jack Kemp, Warren Buffett. All these guys are saying, we have got to do this thing.

And they're the kings of capitalism. When the market does not go your way, is the feeling that, look, we have got to do this maybe to save it?

LANGONE: Look, let's, first of all, understand this is not a bailout. This is anything but a bailout.

Yesterday, you had a vote down on $700 billion, and the market went down $1.2 trillion. By my math, people, the owners, the investors — that's all of America — lost $500 million. I think that these are good assets. I think it is an issue of time. If we are given the time to liquidate or liquefy these assets, we will do that. But there is a lot of blame to go around.

CAVUTO: But you know what they are going to say, Ken, about that, is Ken Langone, successful capitalist, billionaire, this is a fat cat relief, and that's not fair.

LANGONE: I don't know how I missed this one, but I did.

I have absolutely no horse in this game at all. I'm a stockholder. I own a lot of stocks. The irony of what we're going through right now, if you look at corporate America, corporate America is in good shape. Balance sheets are good. Cash flows are good.

This is — the irony is, here were all the masters of the universe going around advising people on their balance sheets, while their own balance sheets were rotting.

CAVUTO: And you guys would welcome Uncle Sam, not exactly great at balance sheet stuff, coming in and policing?

GRASSO: Neil, step back for a moment, OK?

Who really lost that $1.3 trillion yesterday? It was not just people on Wall Street. It was people on Main Street.

CAVUTO: I know that, Dick, but it was a knee-jerk reaction and a very painful reaction to the perception that something Wall Street needed, it didn't get. And all I'm asking is, is that undo faith in the government to turn things around?

LANGONE: Look, Neil, Neil, you have got to realize there is plenty of blame to go around. There is Congress badgering the bank industry to make loans, and then coming back and saying, why did you loan those people the money? They can't pay it.

There was the accounting profession. This mark-to-market accounting, it is nuts. There was doing away with regulations that we had adjusted to and made sense, like the uptick and shorting. You didn't have to all these short rules last week. Just reinstate the uptick rule.

CAVUTO: But do you guys really think that you go through — and we only had the broadest of details on this $700 billion package — you implement that, and problems go away? Because look what we did with AIG, look what we did with Freddie and Fannie, look what we did with countless other cases, pouring money into the banking system. We got a knee-jerk, sort of nicotine-like reaction. Nicotine wears off. And we start selling again.

GRASSO: I don't think anyone, anyone who has studied this problem believes it's going to go away the day a legislative initiative is signed, Neil.

I think what that will mark is the end of the beginning of this problem. We have got to step back. There is lots more the government has to do. There is lots more the private sector has to do.

CAVUTO: But listen to what you just said, Dick. That is scary, coming from you.

GRASSO: No. I think it's...


CAVUTO: There is lots more the government has to do.

GRASSO: Right.

CAVUTO: I can understand the need to re-regulate, and all that. But doesn't it scare you at any level now that you're not letting market forces work this out, that you want the government to do that?

GRASSO: Well, traditionally, my answer would be yes.

But, in the context of the problem we face today, Neil, realize, much of the product that got us into this difficulty was totally unregulated.

CAVUTO: Right.

GRASSO: The credit defaults swaps market has no regulator.

CAVUTO: That's true.

GRASSO: A lot of the toxic instruments that put us into this position sit in unregulated subsidiaries of holding companies.

CAVUTO: Well, what about fearing what you ask for?

Ken, in your case, now you are saying that this laissez-faire approach we have had to the markets and the way they run things, that is over, that, because of a few crooks, the vast majority can't be trusted.


CAVUTO: Just argue my premise.


LANGONE: I think crooks is way too strong.


LANGONE: I think they're stupid.

CAVUTO: All right, stupid.


CAVUTO: The bottom line is now that we have set a precedent for the government to come in. This is like Sarbanes-Oxley on steroids.

LANGONE: May I tell you something selfishly?


LANGONE: I think we are being confronted with one of the best buying opportunities we have ever seen. And people that have solid financial statements, people that have the capacity to participate ought to want the market to go down, because the opportunities are going to be there. And they will be able to do it.


CAVUTO: Would these buying opportunities exist, Ken, if we did not get this thing passed ever?

LANGONE: Yes. Yes.

Look, let me say this to you. Maybe I am cockeyed. America is a powerful country. America is a great country. We have enormous resiliency. Any time we have had our back to the wall, we have come out a winner. This is no exception. We will get through this. We're in a global economy. The rest of the world has the same problems we do right now. We got there a little earlier. But you have got to go back and you have got to say, how did it happen?

One of the basic causes is, when Wall Street went public, when Wall Street went public, Dick, all of a sudden, it is not their money. When I ran this little firm R.W. Pressprich, we used to have position meetings every Thursday night. And we would say, sell that. Cut back on that. Do this. Don't do that.

It was our money. If we lost, we lost our money. What happened was, it was a convergence of a lot of things at one time, going public, doing away with the short — the uptick rule, doing away with Glass-Steagall.

And guess what? Look at the money that was being made, all on paper. We now know it was all on paper.

CAVUTO: But you're going to replace stuff that was thrown out with new stuff coming that could be just as damaging, right?

GRASSO: Well, I think it is important to recognize that a lot of the products that created the problem we now face were never subject to regulatory oversight.

And when in the history of our markets have we allowed such a proliferation of instruments of risk transference to go unregulated, Neil? That is my point. It is not about re-regulating the marketplace. It's about regulating a marketplace that has, if you will, overarched the regulatory framework that was put in place 70 years ago.

And if you look to someone who really does not have a horse in this race — put aside both sides of the aisle, put aside capitalists — look to someone like Chairman Bernanke, OK, who really is the chairman of the Fed and should not be in the middle of this, but has opined, has opined his support for a government initiative, spent his doctoral thesis on the Great Depression.

And when he says to the Congress and to the American people, we must take action to avert a return to the types of economic times we saw post the crash in '29, let's pay attention.

CAVUTO: I understand. I understand.

And I admire the heck out of both of you, but you, for example, said things are freezing up. And I get — just because I know you're a numbers junkie when you were running the Big Board. I get every week the Federal Reserve reports on lending, Dick. And it is for commercial lending, residential lending, all types of lending. And it is up. It is at $7.25 trillion. It is slowing. The rate is dramatically slowing. You're quite right.

And, for the right folks, that lending is still existing. For marginal folks, it is going to away. It's freezing up. But it has not stopped. I think Paulson has put this fear of God in people.

GRASSO: Well, I would ask you to — when we finish the show tonight, walk across the street to that nail parlor operator and ask he or she, is your credit line as large today as it was a month ago? Is credit availability plentiful as it was...


CAVUTO: But doesn't that happen during a slowdown?

GRASSO: Neil, it happens during a slowdown, but, more importantly, it contracts during a paralysis. And that is what we face now.

CAVUTO: All right, guys, can you hang on? We want to pay our bills here.

It's an incredible tag team, Ken Langone and Dick Grasso.

More after this.


CAVUTO: All right, rarely, if ever, do you see these two gentlemen together on television, but there they are, Dick Grasso, the former head of the New York Stock Exchange, and Ken Langone, billionaire, co-founder, of course, of Home Depot.

Ken, let me ask you about the political climate right now calls for regulation. It calls for more activity of this type, and that free markets fell apart. Republicans were all for free markets, not good for Republicans. What do you say?

LANGONE: Well, I wish we were not going through it right now, as a Republican. But we are.

I think how we handle it and how we address it can put us in a good position. But we have got to be forceful. We have got to be forthright. We have got to recognize, as I said, there's many sins to be shared by many people. But the reality is, we can't lose sight of the fact this is a magnificent country. This is a strong country. This is a country that gets the job done. And we will do it now.

We're — unfortunately, this is hitting us in the middle of a political season in heat.

CAVUTO: But it is a political season that sort of has a bulls-eye on successful guys like yourselves, and, in a populist campaign, almost vilifies the rich. Does that bug you?

LANGONE: Of course it does. I worked hard to get where I am. And I started with nothing. Sure it bothers me.

CAVUTO: And you were a clerk.

GRASSO: I was a clerk at 81 bucks a week, and thought I had found the great America people had only written about.

I think it's important, Neil, to remember, you know, the average American is looking at what is happening today, and they're saying, what is the connectivity to me? That connectivity, whether you are a police officer, or a firefighter, a teacher, a carpenter, or someone on Wall Street, is that the nucleus of America's great economy is the ability to raise capital, channel it to new businesses, create jobs, and raise standards of living.

CAVUTO: But, before you get to that, if the new trend is going to be to vilify success, to tax success, to raise capital gains taxes, to raise upper-income taxes, and that is a popular wave, what do you make of that?

GRASSO: I think, when you talk to the person on the street, and you translate all that is happening, they begin to say, wait a minute. I want to be like Ken Langone. I want to take a small amount of capital and create this magnificent enterprise, Home Depot, which employs 400,000 people.

CAVUTO: I want to be like Ken just to get into any restaurant.


CAVUTO: He just walks in and it's a — they kick a family out of the table.

LANGONE: You know, you know...

GRASSO: Provided it's not an Italian restaurant.

CAVUTO: Right. Right.

LANGONE: You know, the thing I think that we have to keep sight of is, don't throw the baby out with the bathwater.

CAVUTO: Well, they're do that.

LANGONE: Well, we may.

But, for example — and, you know, I think we have all got to throw some chips on the table. We ought to look at Social Security. We ought to ask ourselves the question, is there inherently something wrong with Social Security that a man like me is eligible for Social Security? There's something wrong with the system.

Maybe we — the notion...


CAVUTO: But Barack Obama says, anyone over $250,000 is rich.

What do you think of that as the threshold for...


GRASSO: Well, ask that person earning $250,000 who has got four kids headed to college, OK, whose, in essence, college tuition bill will consume more than that $250,000 yields.

I will tell you one thing that has always been a pet project of mine. I would like to know why college tuition in this country is not tax- deductible for people earning less than $250,000. It is unfair that we say to a cop or a fireman, you can't send your child to NYU, and we say to Ken Langone, you can.

CAVUTO: Real quickly, guys, are we going into a recession?


LANGONE: We are probably in it right now.

CAVUTO: What do you say?

GRASSO: Textbook definition, yes. Don't bet against America.

CAVUTO: There you go. All right.

By the way, you can see this interview again on FOX Business Network. Getting a lot of interviews of people who want to see it, wanted to know about it, on FOX Business.


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