Earlier today, John Mack was interviewed by Fox Business' latest addition Charlie Gasparino, as well as Brian Sullivan. And where we discussed in the prior post how absolutely nothing has changed between the days right before the credit bubble burst in 2006, as exemplified by the Bear Stearns Credit Conference notes, and today, John Mack is living proof that if left on their own, bankers would simply revert to the old failed model, keep getting paid tens of millions per year, and wait until the next taxpayer bailout some time in late 2010, early 2011 (we are now on an accelerated schedule - just as the bounce from the lows has been torrid, so the collapse will be amusingly fast), only to hit restart courtesy of whoever is Fed chairman at that point and do the rinse/repeat cycle one more time. In a nutshell, Mack sees no risk, not a hint of danger on the horizon. In fact, it was nobody's fault. And next time it will be nobody's fault all over again.
On agreeing with Tim Geithner's non-dead body.
SULLIVAN: Is the U.S. at risk of losing its AAA credit rating?
MACK: No, I don't think so. No.
On there being no bubble whatsoever:
SULLIVAN: Companies have refinanced debt, they've issues new debt. We've had months that have been greater than recent years in corporate debt issuance. But somebody is going to have absorb that in about three years. Is there a corporate debt bubble?
MACK: Again, if you look at the liquidity in the market today, it's larger than anything I have ever seen. I think I just saw last week that in money market funds alone, they just ticked slightly below $3 trillion. So you take that much liquidity in the market and then there is liquidity whether it's in CDs, liquidity overseas, sovereign wealth funds, I think the money is out there...I am pretty confident that if you look at corporate balance sheets, they are in good shape. They have the ability to defer some of this debt raising. I think there's huge appetite still for equity, so you can always raise more equity if that is one way of improving the balance sheet to sell more debt.
On the denial of MS losing billions in prop trading and had to spin off its prop trading desk. Also, on why banks desperately need to keep on frontrunning their clients to be profitable:
GASPARINO: Now, where do you think -- so, you obviously don't agree with the Volcker Rule.
MACK: I don't agree. I think -- I think risk management should be handled by requiring specific amounts of capital vis-a-vis with each business you are in. More risky business, prop trading, let's say, you should have more capital behind it.
GASPARINO: Right. I mean, the financial crisis, I believe, was caused -- I mean, people lost money proprietary trading. Morgan Stanley lost money, Goldman Sachs maybe lost some money, but most of it was from the customer side where they were packaging CDOs for customers and they weren't buying it, they were holding it on their books. That said, does this Volcker Rule make it in some way?
MACK: Again, some ways, very broad. I don't think it makes it in the way he has put it forward, but I do think we will end up having higher equity capital requirements to some of our businesses where we take a lot of risk and prop trading would be one of them.
On working out:
GASPARINO: Although, how do you get -- I mean, do government programs actually help tell people to go work out? I mean I've been working out my entire life. I didn't need the federal government telling me that.
MACK: Yes, true. But you're unusual, Charlie, in many ways.
On why blaming God's worker and colleague Blankfein is just plain wrong:
GASPARINO: Does Goldman Sachs deserve to be the poster child for everything wrong with Street?
MACK: Well, again --
GASPARINO: You're happy it's not you guys, I know that.
MACK: Listen, it's topical for the press to put them out the way they do. I don't think they are the right firm, it's an industry issue. And look, we all have done some things or said some things we wish we hadn't of said, and I think that got him kind of catapulted over --
On why the death of US capitalism and its resurrection only at the sacrificial altar of the US middle class is really nobody's fault.
GASPARINO: Was that a failure of federal regulation or state? I mean, there's a controversy whether the New York state insurance commissioner, who is now running for attorney general -- former New York State Insurance Commission Eric Dinallo (ph), now running for New York state attorney general -- whether he kind of dropped the ball. Now, he would come back and say, well, we didn't directly regulate that. But it seems like nobody is like, look, watching the store. Everybody's pointing -- it's like "Reservoir Dogs."
MACK: Right, right.
Well, Charlie, again, everyone had a piece to play in this. I don't think you can point the finger at one regulator, either state or federal, and it's very broad and the whole movement of doing these insurance products was accepted. Now the question is, if we had had an exchange or a clearing house for derivatives, some of this would have been alleviated. But that is just one piece of it. I think we need a fundamental change in our regulatory framework on financial service and it should be part and parcel of it.
With CEO's like this, never willing to acknowledge it really was all their fault, the system will never be changed, let alone fixed. In fact, the only piece of reform that has actually passed since the GSE's collapse after Paulson's bazooka ended up being a water gun, has been the limitation on short sales: gotta keep the Ponzi going after all. With the criminals on TV denying they had anything to do with the final failure of capitalism as Keynesianism enters its terminal stages, why anyone will still participate in this broken market is simply beyond us.