One on One with Terry McGraw, Chairman of the Business Roundtable
Thursday, January 24, 2008
|
|
|
|
SUSIE GHARIB: Joining us now with more analysis on that stimulus plan, Harold "Terry" McGraw, chairman of the Business Roundtable, a trade group representing the CEOs of some of America's biggest companies. He is also the chairman and CEO of the McGraw Hill Companies. Hi Terry, nice to see you again.
HAROLD MCGRAW, CHAIRMAN, BUSINESS ROUNDTABLE: Hi, Susie, great to be with you.
GHARIB: Terry, you sent a letter last week to President Bush requesting that he quickly approve a fiscal stimulus plan. Are you satisfied with what he announced today?
McGRAW: Yes, I mean I would like to have seen a couple of other things. I would like to have seen a little bit more focus on the individual. But overall, yes on this one. There's two things that have to happen. And one of the things that we are urging, keep it simple. Keep the plan simple. Don't get so many things in here that it is going to be very hard to get through Congress. And speed, you've got to get this into the system as quickly as you possibly can. The economy has slowed down. It could be slightly negative. It could be slightly positive. But for the first half of this year, it is going to be recession-like so it really doesn't matter what with those numbers it is going to be recession like. And so getting a stimulus bill quickly is what we have got to do.
GHARIB: Now will the $50 billion in tax breaks and other incentives for businesses make a difference? Will it help them?
McGRAW: Yes I mean -- that accelerated depreciation is a good way of doing it. And $50 billion is a very handsome sum in that way (ph), but again, you know, it's going to take longer for businesses to enact and get that money into the system than it is individuals. And therefore getting the tax rebates is the most important part of this.
GHARIB: What are you hearing from your membership, these 160 CEOs of some of the biggest companies in America? In this recession like or recession environment that we are in, what is the impact of that slowing economy on their businesses? What are they telling you?
McGRAW: Well, for sure that you know it is making people rethink. I mean the fourth quarter obviously slowed down tremendously. And whether it be energy prices, the extended housing recession or whether it be the credit crunch, it's got a lot of fear, a lot of uncertainty and a lot of, in some cases panic built in. And therefore people are trying to figure out what the next shoe is, or is that it, are we starting to improve? Not all sectors of the economy are being affected the same way. But as the economy slows down, the best stimulus package we have is monetary policy. It's longer term. And the Fed chairman is doing a terrific job in being able to get that started. And our guess is at 3.5 percent now, that before it's all said and done, we're going to be down about 2.5 percent on the Fed funds rate so we will have more cuts up-front.
GHARIB: Let me direct my question more directly to you and your company of McGraw-Hill. Your company reported today a 31 percent drop in its fourth quarter profits. How is this weak economy, all these issues of fear and uncertainty impacting the decisions that you are making and not making right now?
McGRAW: Well, actually we had a very good year in 2007, Susie. We were up 22.5 percent. The fourth quarter was the effect of the collapse of the U.S. structured finance market, both CDOs, RMBs, the residential mortgage-backed and the commercial mortgage-backed market. And they're going to be soft for a while. And so we have to work our way through that, you know, to get there. First half will be soft. Second half will be a lot better.
GHARIB: A lot of people are concerned about the vulnerability of bond insurers and whether credit rating agencies like Standard & Poor's at your company, are they going to downgrade this debt? What is the assessment from S&P about these bond insurers? What can you tell us now?
McGRAW: Well, those bond insurers are being reviewed right now. And what is going on is that the New York insurance commissioner, the regulator is working with everyone trying to figure out a way of getting more capital back into the system. Right now on MBIA we have a AAA with a stable outlook. Ambac we have a AAA with a negative because we haven't seen capital infusions yet. And so as we see this, we'll be making some announcements fairly shortly.
GHARIB: All right, thank you so much, we appreciate your coming on to the program. My guest tonight Terry McGraw, chairman of the Business Roundtable and chairman of the McGraw-Hill Companies.
