Transcript of Charlie Rose's Interview With

John J. Mack
The Charlie Rose Show
- 13 -
4/7/2010

John Mack:
That global economies, and that's what we live in, the global economic world that we're
in today, cannot be solely managed by the borders of a country. We need to create a
systemic risk manager in this country and we need to coordinate with the rest of the
world. We have to work together, because if you go back -- 25 years ago or 30 years ago,
you could say, well, I remember when I first got in the business in 1968, you know, you
came to work at 9:00 in the morning. You took a two hour lunch. The market closed at
3:30 and you went home. Today you work 24/7. A market is open around the world 24
hours a day. We're involved in all these markets. Those countries are involved in those
markets. So we need to create a regulatory environment and a scheme that helps us
manage that process.

Charlie Rose:
A global --
John Mack:
A global, absolutely.
Charlie Rose:
What would be the institution that could make that?
John Mack:
Well, my guess would be that that's something that central banks and --
Charlie Rose:
The IMF and everybody else, World Bank --
John Mack:
Come to that, sure.

Charlie Rose:
All the central banks have to come out to figure out a way to have a measurement of risk
around the world?

John Mack:
Well, Charlie, it's a measurement of risk. There is also a measurement or policy of how
are we going to regulate risk? How are we going to impose some oversight in the amount
of risk that banks are taking, that credit companies are taking, and what are the dynamics
of that market? I mean look. If you look at the hedge fund market, which has been very
active, and I think long term, has really added a great deal to pension funds and retirees
and state funds, et cetera. That was a 2 trillion market. They act independently of each
other, but at the same point, at some level, there needs to be some type of regulatory
oversight.

Charlie Rose:
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The Charlie Rose Show
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4/7/2010
But we have a crisis, so therefore, if you look backwards, you say if you had a better
regulatory system, and that can be instructive to what we ought to do in the future.

John Mack:
Without question. I'm convinced that people get it. Our regulators understand, and I
think at least in our case being lead by the fed and working with the treasury, there is no
question in my mind, we will come out with a different regulatory system.

Charlie Rose:
But what's more important is people who will be regulated get it, which is what you're
saying, to.

John Mack:
Oh, I think they will get it.
Charlie Rose:
Was the Glass -- was the change in Glass Spiegel a good idea or a bad idea?

John Mack:
Well, it would be easier for me to say it was a bad idea, but the fact of the matter is, look.
We have gone from being basically a U.S. financial industry to a global financial
industry. And I think when you do that, it probably made sense to repeal Glass Spiegel.

Charlie Rose:
Bill Clinton says that, too. He does not regret being in favor of repealing Glass Spiegel.

John Mack:
But let's understand the issue. You can't ask, in a global economy, you can't ask U.S.
banks that you're precluded from the securities business when in other areas of the world,
they're not precluded. So if it were not global, it was just the United States, I would
argue you didn't have to do that. But I think what's lost on -- clearly not the senior group
in leadership, but we are in a global economy. And we have to figure out what is the best
way to ensure that people who are taking risks have regulatory oversight globally.

Charlie Rose:
There is no such thing as decoupling.
John Mack:
Evidently not.
Charlie Rose:
Evidently not. All right. Let me take two ideas that are with us on the front pages of the
paper. One is nationalization.

John Mack:
Right.
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Charlie Rose:
What does that mean to you, nationalization of banks?

John Mack:
Very simple means to me that government takes over the banks. They own it. 100
percent.

Charlie Rose:
There is now talk they'll change preferred stock and say they'll own more than 50 percent
of Citibank.

John Mack:
Right.
Charlie Rose:
That's nationalizing Citibank?
John Mack:
I don't think so.

Charlie Rose:
Okay, but therefore -- that's really the interesting question. If they own a majority of the
stock, but they don't -- nationalization means something in terms of popular conception.
On the other hand, what we're talking here is simple seems to be more like an investment
than a government nationalizing a bank and putting its own people in there and running it
and sitting on the board of directors and making decisions. Am I right or wrong?

John Mack:
I think you're right.
Charlie Rose:
So we shouldn't fear this kind of nationalization? Or not?

John Mack:
Well, again, let me clear -- I'm not in favor of nationalization, because I'm in favor of
having guidelines. I'm in favor of making sure that leverage is kept in the right range.
But I think long term, the right answer is to have these financial institutions get the
support and direction of the government, but let those banks work their ways out of their
problems. I mean if you go and think about what's happened to the market, I guess you
could say that Freddie Mac and Fannie Mae, yes, there was stock in it, but there was a big
piece of that reported to Congress. They've got in a lot of trouble. I'm not saying it's any
one person's fault or any one group's fault. I just think nationalization to me is not the
long-term answer for this.

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Charlie Rose:
What is the short-term answer, though? Is it the short-term answer if in fact you've got to
prevent -- if there's some banks that are too big to fail.

John Mack:
Right.

Charlie Rose:
-- and you've got to pump money into them to recapitalize them so that they do not fail,
whatever you call it, in the short term, it's a good thing.

John Mack:
Well, it's a good thing, and it's a better thing when the government puts money into it and
when these things are turned around, that the government ends up getting their money
back plus some profit which goes back to the taxpayers. And I believe that will happen
and can happen.

Charlie Rose:
There is also the question of executive compensation. I'm sure when you went down
with all these other CEOs before the Congress you heard --

John Mack:
Sure.
Charlie Rose:
-- a lot about that.

John Mack:
Well, Charlie, we did. And look, as I said to Chairman Frank's committee, and others
said it for one year, I did not take a cash compensation since I've been at Morgan
Stanley. My first year, I took equity. My next year, I did not take a bonus, nor did I take
a bonus this past year.

Charlie Rose:
So in 2007 or 2008, did you not take a bonus.
John Mack:
Yeah, well, look, we are big believers in paying for performance. And if you look at our
stock price, I don't think anyone could say that John Mack performed very well. And as a
result, I didn't get a bonus. Now after having said that, we were profitable in '08. We
were profitable in '07, but not to the extent and level I thought we should be. So to me,
executive comp is something without question that's gotten out of hand. And we need to
fix it. And I think that's happening. Again, you know, I don't blame people -- you and I
grew up in North Carolina. People in home towns that you grow up in, or my town of
boresland [spelled phonetically], North Carolina.

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John Mack:
Yeah. They would just shake their heads about this. They don't understand it. I think we
are --

Charlie Rose:
They don't understand how much money is being made --
John Mack:
Absolutely.

Charlie Rose:
-- and why their taxpayers' money is going to rescue people who are making that amount
of money and seem to have created the problem.

John Mack:
Well, I'll agree with part of that. We will take responsibility for some piece of the
problem. But I don't think you can lay this just on the banks and the investment banks.
It's much deeper than that. We are a country of consumers. We don't have a savings rate.
Probably [unintelligible] have savings. Now that you see that the saving pool has been in
someone's home, and that's been taken down by 25 or 30 percent, it's created tremendous
distress on families and on individuals. But that idea of bar rowing and using your credit
cards and buying a house which you couldn't afford and having a mortgage bank sell you
a deal you really didn't understand, it's very complicated. So the blame goes very
broadly. But clearly, Wall Street, the banks, clearly we were part of that. And we were
involved without question. And we'll take that.

Charlie Rose:
You mentioned the wake-up call. I mean, this has been a real wake-up call.
John Mack:
Right.
Charlie Rose:
And you mentioned the fact that in China and in Japan, their savings rate's very high.
Their consumption rate is much lower. Here, our consumption rate is very high. Our
savings low. Do you expect a reality of this will be the US saving rate will go up? Will
the wake-up call us there?

John Mack:
Well, Charlie, clearly in the short run, it will. I mean savings rates are going up now.
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Charlie Rose:
Right.

John Mack:
People are scared, as they show be, and they're saving money. There's no doubt about
that. I think if you look at pieces of the stimulus package, on the tax credits, some of the
other programs to get money into consumer savers hands, there's no question that some of
that will be saved. All is not going to go into the market to buy whatever people buy.

Charlie Rose:
Let me come back to the conversation and this idea. Some argue that you can go too far
on restricting compensation in terms of injecting capital or part of the TARP assets,
whatever the modus is of doing it. This is from the New York Times on Sunday. "The
big brains in banking just aren't feeling the love. Up and down Wall Street, financial
types are grumbling that their industry's highest high flyers are getting their pay cap.
Many Wall Streeters say this would be disastrous. The sharpest financial minds will up
and quit, the argument goes, and take their smarts with them at the very moment they're
needed to reengineer their companies and restart the economy. But is this brain drain real
or merely a bit of self-justification and would it really matter much anyway? What say
you?

John Mack:
Charlie, I think at the most senior levels someone like myself or my precedents, I have no
issue with any kind of restraints on compensation. And as I said to Chairman Frank, you
know I work for nothing. I love what I do. It turns me on. It's exciting. I work with a
great group of people. But if you go down for the most senior people and you are a 41-
year-old or a 38-year-old commodity trader who made $100 million or $70 million for
your firm trading oil commodities and all the sudden you're going to be capped, there are
people who will hire you. And one of the things that --
Charlie Rose:
So you see this every day, people that can go, walk out the door and make a ton more
money in this environment.

John Mack:
I had a hedge fund manager tell me last week, "I can hire anyone on Wall Street from you
guys." I've talked to some of my competitors at other firms, that U.S. firms are an easy
target, not just for asset managers, not just for foreign banks, I mean, Joe Ackerman was
on the front page of either the Journal or the Financial Times saying if they do this, we
will be able to recruit any talent we want. And I think the best way for the government to
get the tarp money back, one way is do not tie our hands and let us lose talent. Now
others say, well, there's so much talent in the system it will come right up and there's no
big deal. Well, there is a big deal. There's no question that talented people will be able to
go to other firms either national firms that are not controlled by a tarp or international
firms like Deutsche [spelled phonetically] Bank, what Ackerman said, and get jobs at
multiples of what they made. We have an offer in one of my areas, I'm in the commodity

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