Fmr. UBS Chairman on Obama Cracking Down on Wall Street

This is a rush transcript from "Your World With Neil Cavuto," September 15, 2009. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Any minute, any hour, any day, the hammer is coming down on Bank of America. New York's attorney general is set to pounce on all of those eye-popping bonuses that the bank doled out to Merrill Lynch executives. It is all kind of water under the bridge for my next guest, Wall Street legend Joseph Grano Jr. creating quite a bit of buzz with his new book, in which he rails against this culture of scapegoating. The former UBS chief makes clear no politician wins, nobody wins deliberately making the other guy, maybe in this case businesses, look bad.

These days, Joe says Wall Streeters need very little help doing that.

But, in that book, "You Can't Predict a Hero," Joe says what Wall Street and Main Street need are just average everyday heroes, positive, can-do, take-charge guys. And he is kicking off that charge first on FOX. I'm delighted and honored for that.

Joe, good to see you.


CAVUTO: First off, on the financial crisis right now...


CAVUTO: ... we have a lot of finger-pointing. The Wall Street guys, your old friends, your current friends, always the bad guys, always the villains. What do you make of that?

GRANO: Well, I think it is endemic in our society, and inappropriately so.

We — we should be focused on solutions. All of this is about postmortems. Who did it? Why did they do it? How did it happen? The anniversary of Lehman, for instance, was very topical yesterday and today.

The issue is...


CAVUTO: We should say the failure the Lehman Brothers. It wasn't rescued.

GRANO: Right.

Who is focusing on solutions? And that is to me what we should be doing, not postmortems.

CAVUTO: Nevertheless, you say that something should have been done to forestall Lehman going down the tube, whether the government acted to force a sale or a merger or a marriage. What did you mean?

GRANO: Well, I think if you can recall that week, first of all...

CAVUTO: Very well, Joseph, very well.

GRANO: ... Dick Fuld felt he had enough capital. And, then, if you listened to Paulson during that week, he said two things. One, he felt that counterparties had ample time to adjust to a Lehman failure, and, secondarily, all the political pressure about the words bailout, Wall Street bailout, it was kind of politically expedient, in my view, to let it happen.


CAVUTO: But it was unavoidable, wasn't it? I read that in a book, and I thought, well, administration at the time could have said, these are not bailouts. They would have said they were bailouts.

I mean, you could dance on the head of a pin all day, right?

GRANO: Look, I'm — I'm quite confident that, if they wanted to save Lehman, they could have. They could have found a buyer and kind of stopped that buyer out.

CAVUTO: But what would that have done? Let's say Lehman were saved and didn't go belly under. Then what?

GRANO: I think we still would have had a financial crisis. I just think it would have been a little bit more orderly.

I think that the tsunami that the Lehman default created probably led to other bailouts. And whether or not — and I don't think anyone will ever know — to what extent we have would have gone into this credit crisis, without question, we had to avert a systemic problem. And that problem was there with or without Lehman.

CAVUTO: All right. And you argue it was the perfect storm — I think those were the words you used — of events...



CAVUTO: ... a confluence of events unlike we have ever seen.


CAVUTO: Are we over it?

GRANO: I don't think so. I think that there are consequences to the debt we have put on U.S. balance sheet. Our deficit is three-and-a-half times this year larger than last. We're probably guaranteeing somewhere around $20 trillion worth of debt. That's...


CAVUTO: So, we're digging a pretty deep hole?

GRANO: Well, a pretty dig hole we have to get out of. And we certainly don't want to legacy go down to the next generation.

CAVUTO: What do we do? You know, I was reading your book, Joe, and I thought, Wall Street is funny beast, right? I mean, no, no government involvement, unless it's to help us, not you.


GRANO: I don't agree with that.

CAVUTO: Well, at the time, they were just saying, well, you've got to rescue. You've got to do something about Lehman. You've got to do something about Bear Stearns. You've got — you know, but, then, when it comes to health care, no, no, no, no health care.

GRANO: Well, look, you know, my view is that, with the health care issue, once you take tort reform off the table, you politicize the event.

What is going on now is a shot of adrenaline to avert a systemic problem that was caused by overconcentration, overleverage, frankly. And some brokerage firms went up to 41 leverage. That never should have been allowed. And they're...


CAVUTO: But now you have the president, Joe. He was on Wall Street yesterday. You could hear, like, crickets.

GRANO: I — I understand.

CAVUTO: He didn't get a lot of applause there. And he was like a rock star with union guys today. So, clearly, he's no big fan of these guys, they no big fans of him. Where does this stand?

GRANO: You know, as I say in the book, we have got this new president. He has got an electoral mandate for change. I think he should be supported.

I would like to see him slow down a little bit. He is going too quickly.

CAVUTO: You argue he's just doing too much too fast.

GRANO: Too much too fast. He doesn't have enough money to spend in the way he wants to spend it.


CAVUTO: So, would you have addressed health care?

GRANO: I would, but not with Congress. You are going to be lucky to get a camel instead of a horse, in my view. They are the last people that I would want to address this problem.

CAVUTO: So, when you see a lot of time taken — right now, Congressman Joe Wilson is speaking on floor of the House trying to defend himself — when you see guys like this the subject of more media attention than these issues you are talking about, and we're making a big deal over someone who either says, you know, you're a liar or whatever, we're moving afield from what we have to be doing, right?

GRANO: Well, you know, let's talk about consumer confidence. You turn on the TV, and you have got congressmen and senators beating hell out of this person or that person, whether it was the CEO who came out of retirement to help AIG for a dollar, just totally attacked him personally. If I had been him, I would have put $2 on the table and said, I will double your pay, Senator. You take the job.

And that's the problem here. The problem is, we're...


CAVUTO: So, what do you think of these people judging Joe Wilson, or — or going back on CEOs, or going back on bank guys, or going back on health insurance guys? It is a pretty toxic atmosphere, Joe.

GRANO: No question.

And — and accountability is good, right? But this gentleman that you're talking about, Wilson, he apologized twice. The president accepted his apology. So, what are they — what are they gaining from a censure...


CAVUTO: What did you think of that little outburst that he had?

GRANO: I think it was inappropriate.

CAVUTO: So, you would not have done that?

GRANO: I would not have done that, no.

CAVUTO: All right. But you do insist on a bit of decorum. You were kind of a rough-and-tumble guy on Wall Street, but that people can't be crazy around you, right?

GRANO: Well, people are going to get what they see with me. And I'm going to be very candid.

But I think there's some appropriate way to say things, other than other ways.

CAVUTO: Do you think that — let's assume we get health care. Let's say we get more — better regulations on Wall Street, best-case scenario.

This can all happen again, can't it? These crises, these firestorms, they — they seem to be cyclical.

GRANO: Well, like every 10 years. It was the '87 crash, et cetera, when everyone had portfolio insurance.

CAVUTO: Ninety-seven, Russia, and then Latin America.


GRANO: And they — they forget the lessons. There are no hedges when there is no liquidity. FASB 157 makes no sense...


CAVUTO: Really talking about accounting rules. And now we have no cash. There's no money anywhere.

GRANO: And — and...


CAVUTO: So, what does that mean?

GRANO: Look, if it's — if we have more transparency and we address the issues of leverage and concentration, these things can be avoided.

Speculative excess always...


GRANO: ... trouble.

CAVUTO: But the pendulum is going to go the other way, right?

GRANO: I think it has already started.

CAVUTO: So, we have gone from a relatively laissez-faire, where Congress and the government stayed out of Wall Street life. You argue it could go the other way now.

GRANO: Both the consumer, as well as credit markets, have contracted. And they're not as free and easy as they were.

And I think that the consumer, which constitutes 70 percent of our GDP, I don't think the consumer is coming back to the spending rate of the last 10 years, the last decade, for perhaps two or three years.

I think we have some issues in front of us.

CAVUTO: So, if you're right, the market does squat, the economy doesn't do a heck of a lot more.

GRANO: I think we are going to resume GDP growth, but very slow to moderate, 1 percent to 3 percent.

As the saving rate goes up, and as long as that money stays in savings and doesn't go into consumption, I would argue that probably a 5 percent saving rate costs you one point in GDP.

CAVUTO: Yes. So, we're doing all the things we should be doing, but it's going to cost the economy.


GRANO: It is.

CAVUTO: Joseph Grano Jr., "You Can't Predict a Hero" — very few of them on Capitol Hill right now.

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