CNBC - Dealing with the Ceiling - CEOs Ducking for Cover
Wednesday, 27 Jul 11 | 02:15 PM ET
Drew Greenblatt, Marlin Steel Wire president and John Allison, former BB&T chairman & CEO, discuss the uncertainty in Washington right now and the trend of companies hoarding cash.
Debt CEO Cop-Out
Wednesday, July 27, 2011
CNBC: >> We've dug into the data and the 10 biggest market cap companies in America have a
stunning $335 billion in cash and cash equivalents on their balance sheets - wow.
If that cash hoard was an economy, it would be the slightly larger than the
entire output of Thailand and just slightly smaller than the economy of S. Africa.
So, are CEOs simply using the cover of the debt ceiling debate to do more with less
or is a real over-hang?
John Allison, former BB&T Chairman and CEO and
Drew Greenblatt, President of Marlin Steel both join us.
John, you ran a major corporation. Companies in America are sitting on huge
amounts of cash but they're moaning and groaning about D.C. Is it just an
excuse not to hire or expand?
JOHN ALLISON >> Good afternoon, and I think not. I think CEOs are concerned about
uncertainty just like their clients are, like their customers are.
They're not worried about the debt ceiling anywhere near as much as the fact
that they know we've got a huge deficit. They know that spending needs to be cut
and they are worried that we're going to face a major increase in taxes.
That creates uncertainty and whenever people are uncertain, they get more conservative.
In addition, I think one thing that people need to realize is the lack of job
creation is not primarily in large businesses, it's in small businesses.
It's businesses that have 5, 10 15 employees and a lot of that's related to
the construction industry and a lot of it is related to raising the minimum wage
40% in the face of a recession.
MANDY DRURY: >> Drew, you're President of Marlin Steel Wire, what do you think in light
of all of this? What are you doing?
DREW GREENBLATT >> At Marlin we're bullish, however, it is a cloud of uncertainty that's
unnecessary. I think the politicians in Washington, DC are playing with fire.
It's time for them to get serious, to cut a deal, cut the deficit, let's reduce the debt
and let's move on. Washington cannot be the front page of every newspaper
week after week.
MANDY DRURY: >> Are you holding off on making decisions as a result of the scrambling
and the squabbling in Washington? Are you actually physically saying
let's not hire until we find out how this turns out?
DREW GREENBLATT >> No. We happen to have a very nice backlog and our backlog's increasing and
we are getting a lot of good orders, so we're listening to our market.
However, I think it could be better. I think if we didn't have this
Kabuki dance going on in D.C. and we had nice certainty, clear open seas, then
I think that more people would be embolden to do aggressive things. I think there's
2 trillion dollars sitting on the balance sheets of these big companies.
CNBC: >> Hey John, it's like before the debt ceiling was out there, we're asking
the question, who's going to spend cash and when are they going to spend it?
It really gets back to the economy. I keep hearing this and it makes sense on
one level, especially when we talk about small companies, but come on, there's
politics going on here beyond the economy. If the economy was really doing great
and the debt ceiling thing was coming up, would we be having this discussion
right now?
JOHN ALLISON >> No, but I think that the economy is not doing great because of all the
uncertainty.
CNBC: >> But the uncertainty has nothing to do, the uncertainty you're talking about
as it relates to the debt ceiling, that's the past few weeks. We weren't talking
about that six months ago.
CNBC: >> But six months ago we were talking about health care reform. There's always \
something, but the last two years has been exceptional for huge new regulations
coming down the pike.
JOHN ALLISON >> No question about it, plus the regulatory environment is the worst in
my 40 year career. We don't have rule of law in the United States, we have rule
of regulators and the regulators are swarming over every business in America.
This is a very difficult time to be in business and that's making businesses
very cautious. If we had a different set of political leadership, if we had a
plan to deal with the deficit, if we had a plan to get government spending
under control, it would make a huge difference to business confidence and
in the willingness of people to invest.
MANDY DRURY: >> Drew, can I ask you, if we do get a deal, do you believe that taxes
and spiraling costs are going to go up for both businesses and consumers?
DREW GREENBLATT >> Well, I'm hoping that the deal is going to mean that the government burden
is less taxing on the society. We can't pay any more. Our taxes are already
double what it is in Canada. They can't go up, it has to come down, that
means we have to spend less. We have a spending problem. We don't have a
taxing problem. The problem is the people are taxed too much but we're also
spending far too much. We have to get this into alignment. Every month,
every family in America balances their budget. Every state balances their budget.
The federal government's got to get their act together. It's time they balance their budget.
CNBC: >> John, quick bottom-line; those ten companies have 5 times as much
cash as the President's talking about raising by raising taxes on the top
2%. In other words, it's a lot of money. Do they have some kind of an
obligation to the American economy to start spending, investing and growing
instead of sitting on it like Uncle Scrooge in a vault?
JOHN ALLISON >> I think they have an obligation to run their businesses effectively.
create high-quality products, create good jobs when they see those investment
opportunities. But they have an obligation not to waste money, not to make
irrational investments, not to destroy wealth. They need to have a macroeconomic
environment that gives them comfort that they're not taking irrational risks
that will be destructive for both the economy and their businesses.
MANDY DRURY: >> John and Drew, thank you so much for giving your perspective
on this very interesting topic.
