Stock Market Tumbles at Collapse of Debt Talks

Former UBS chairman Joe Grano on new worries for U.S. economy

This is a rush transcript from "Your World," November 21, 2011. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST OF “YOUR WORLD”: Did the super committee then just knock the stuffing out of the economy as we head toward Turkey Day?

Former UBS chairman Joe Grano, so many other titles we will be showing you on the bottom of the screen, joins us.

What do you think, Joseph?

JOSEPH GRANO JR., FORMER CHAIRMAN, UBS: Well, I think we started to see some indications that the economy was improving.

But this new signal that they cannot get along, you have partisan ideology running this country. We need people in Congress that think like Americans and not like Democrats or Republicans.

CAVUTO: What difference does it make to -- I know where Bernie is going from, from the corporate titans. What about the Wall Street types? Do they just say, look, nothing is going to get done?

GRANO: Markets do not do well and nor do corporations in an environment where there is a lack of confidence and a lack of leadership.

The market goes down 249 points today. The diminution in valve in the market cap of the New York Stock Exchange just lost $400 billion. That really helps the economy. And the corporations who may have been thinking about committing some of that cash get reticent again and pull back.

(CROSSTALK)

CAVUTO: You are one of the best professors of this crazy place -- that we go up and down. And when all is said, on the year stepping back from this, we are barely, what, even, essentially. So, I’m wondering, what is the long-term message?

GRANO: We came from a precipice in 2008 and 2009. We started to stabilize and started to come back again.

Now, this lack of leadership, lack of compromise, lack of governing, they’re governing to make each year look bad rather than solving the problems that America has today. That is not sustainable. We could go back to a double dip recession. Europe, more than likely, will go into a recession in the fourth quarter. And that means...

CAVUTO: And we are not immune from that.

GRANO: We are not immune at all -- 30 percent of S&P earnings are coming...

(CROSSTALK)

CAVUTO: You mentioned S&P. What if we are downgraded again by S&P or for the first time by Moody’s and/or Fitch Investors?

GRANO: Well, AAA, now AA plus, if we go down to AA, a very bad message to the world, relative to Americans’ ability to deal with its own problems.

CAVUTO: But doesn’t the world already know that? Isn’t that sort of like closing the barn after the animals have left?

GRANO: Look, I don’t think so.

CAVUTO: Really?

GRANO: I think given the problems they have vs. what we have, we’re not in as bad shape.

However, we will lose more and more of our influence overseas, and some of these trigger mechanisms we’re talking about based on their inability to get a compromise here, $454 billion of that is coming out of the U.S. military. I don’t know if that is smart. It’s not thought- through.

CAVUTO: What if they -- I guess one of the threats they were raising on the -- Shibani Joshi raised, they might change the automatic triggers or stop them, which obviously would get the rating agencies really ticked off. Right?

GRANO: Well, again, no surprise. Right? Even this recent process, look at the influence of lobbyists. They should have been locked out of the dialogue. The president assigned Simpson-Bowles, a fiscal commission. They don’t listen to any of the recommendations. And those recommendations would have taken our deficit down by $4 trillion between now and the year 2020 on a cumulative basis.

There are solutions for these problems. You need the intestinal will to tell the American public the truth. It is not about a millionaire’s tax or it not about just entitlements. It’s about letting the American public understand the facts and the problem we have and what are the solutions and the sacrifices we all have to make.

CAVUTO: But you don’t think we are there yet?

GRANO: Not even close.

(CROSSTALK)

CAVUTO: ... play out the next year.

GRANO: I blame both parties.

CAVUTO: I know you do.

GRANO: I think we will have very slow -- I would liked to have seen 2 percent GDP growth in 2012 and 2013. And now I will be hopeful to get 1 percent to 1.5 percent based on what I’m seeing here.

And what Marcus had to say is correct. Corporations will hold back until they see a discernible trend, and they see some confidence, and see a will by government to solve our problems. And that is not what any of us seeing. And the American public are going to get more and more frustrated and that is going to hurt the economy as well.

CAVUTO: Joe Grano, thank you very much, I think.

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