A Conversation with Wall Street Legend & U.S. Commerce Secretary Wilbur Ross

there is no such thing as true free trade in the world as we know it we don't have a something like 800 billion a year deficit with China as an accident Trump announced Mr President I don't mean to interrupt you but we just launched 52 missiles into Syria G who had been speaking through interpreter the entire evening said in perfect English repeat please bullies are only bullies if you don't hit back at them CEO and [Music] coer we had an event with Wilber Ross who was the Secretary of Commerce under President Trump he's just out with a new book risk and returns Wilber was one of the most important industrial and financial leaders he helped turn around over $400 billion doll of bankrupt companies saving jobs and industries as diverse as textiles and steel and all sorts of American manufacturing a lot this tied to extraordinarily important trade issues under President Trump he was involved in high stakes negotiation with some of the most powerful leaders in the world he's really at the Forefront of understanding United States trade Dynamics and other issues of the economy with other countries excited for you to meet him great to be here Arina Hall really honored to have secretary Ross with us uh secretary Ross you were the chairman and CEO of WL rossen co uh US Secretary of Commerce he's also the author of a new book risks and returns creating success in business and life I want to start by asking a little bit about your background in finance I think back when Fortune was was run by San people they called you the king of bankruptcy restructure more than $400 billion do with assets and and what that me means is you went into Industries like steel and coal and textiles and you helped kind of resurrect these things and and obviously went on to work on that for America as well but how are you so successful in restructuring so many of these assets what's the background there well you'd be surprised at how similar all of the companies that went bad are generally it's a result of either overexpansion Andor under capitalization unlike tech companies the old old economy companies tend to be very balance sheet heavy and therefore they often tend to be a little leverage heavy but the most important thing is once they've been under siege for a little while they develop what I call a losers mentality you'll ask them well what what's gone wrong with your business and they'll always say oh it's the union or it's the lawyers or it's the politicians or it's something else it's inflation they never talk about anything that's within their control that they could do something about fixing and to me that's a Telltale sign that the guy who is headed for real trouble because there a lot of things you can't fix but if you don't focus on the ones you can fix you're going to be lost when you're dealing with a lot of these bankruptcies and these old Industries obviously people are blaming outside forces as opposed to themselves means they're not as good of a leader uh but but were there also outside forces that caused a lot of these big grumpies in some ways over time was were there things with competition with China were there different rules we should have had in place well one of the fundamental causes and in fact what got me really going on distress Securities was Mike milen Mike is now a pretty good friend but when he was inventing deliberately junk bonds at Drexel burnam alumar you knew putting at that much highly leveraged debt would result in many more bankruptcies than before and what Mike had been doing since he was basically advocate for the issuer not so much for the security holder he would go to one Bond holder at a time kind of pick them off and gradually build up a consensus we had a little different idea our idea was get the bond holders together or in some cases the equity ban them together go to the company and Mike and say you have to pay our advisor fees but we're going to negotiate as a group not get picked off one by one that proved to be a very useful idea to them and I'm pretty sure it helped their recoveries so it's interesting because a lot of people have lotted the lbo that what Mike milin did because it brings more Capital to markets but you're saying his incentives were to get people to take risks that were too large sometimes would actually caused a lot of problem it has to be both I mean when you're creating highly levered situations like Federated Department Stores was one of the ones that we did a uh shopping center owner called Campo from Canada made a hostile bid for Federated took it over paid something like $ billion doar for it 9 7% of which was debt Finance so we had wow basically nothing in it then 18 months later it proved there was a little recession and that was the end of that was that sometimes good for a business though if you because you don't you might not be involved until until that happens then you get to step in and fix it right right yeah but on on balance I think high yield bonds were a good idea uh and a useful idea and had a very stimulatory effect on the economy but anytime you put a lot of Leverage on things you know they're going to be some that don't make it don't make the cut whether it's for external reasons or just they made some kind of a mistake so I'm not against high yield bonds I think they were a wonderful Innovation Strangely I ended up doing the bankruptcy of Drexel but there was a the a lot of other people started getting into high yield jaxel went from 70% market share to 40% went from being the most profitable firm on Wall Street to being bused so it was a little strange in effect my patron saint who helped me create my whole business we were now technically on the other side uh of him but we we're big supporters now of the milk and Institute so he forgives me for the sin of of having bit done their Bank he has a lot he does a lot of important work so after restructuring hundreds of billions of dollars of companies All Over America you went to Washington as Commerce Secretary and you took on a similar mission in some ways you were standing up for us businesses and workers in some of the most important trade negotiations in decades so why did you go to DC you've obviously made enough money you could be on a yacht why was it important to go serve that way well a couple of things you can argue that the US government is the most overleveraged and undermanaged situation that we have especially then it was um so that that was part of the Allure but the other part was I was one of the first Wall Street people to endorse Trump I felt uh I had done for the bond holders the bankruptcy of the Trump Taj m Casino in Atlantic City that was a very weird story maril Lynch and Bear Sterns underwrote an $800 million mortgage bond for a company that was a startup Trump had a couple million dollars in it and that was about about it well it never paid one coupon as you know the coupons were every six months never paid one so naturally the bond holders were a little cross with him over that exercise so yet you still chose to work with him after that yeah and and the interesting thing is when the bonds collapsed Carl ion who's a good friend of ours became the largest Bond holder so the two of us were quite adversarial in a very public way to Trump then but interestingly both of us turned out to support him later on because when you run into someone under those adverse circumstances you really learn what they're made of and we decided that he was a very real phenomenon very real person and then the second reason we supported him I felt of all the candidates back then both Republican and Democrat he was the only one who understood the horrible distress situation in which middle class America found itself and was finally recognizing it and was meant to do was determined to do something about it so I I felt that he would be the right choice and I think he was the right choice so so so in in your book you sh you share some vignettes about working with Trump and some really high stakes meetings with xiin ping with Angela Merkel can you tell us about a favorite story yeah well one of my favorite stories is about President X from China I knew China pretty well because over the years we had 18 different factories making different things at different companies in China so I I was in China 80 times before the Trump campaign I and I also got money from the the various funds in China so I felt I understood it pretty well anyhow so the first big state visit was president president G with a 100 person delegation to marago marago is in Palm Beach it's the old Margaret Maryweather post estate when she died she left it to the state department they didn't want to keep it because the upkeep was too much so Trump finally bought it and so here we are in this very very luxurious setting a meeting with x the meeting was meeting was a dinner meeting and it was scheduled to begin at 6:30 about 3:00 that afternoon I get a call at my house in Palm Beach I was a member of the National Security Council in addition to commer any so got a call we had an emergency National Security Council meeting at 4:00 naturally they wouldn't say over an open phone what it was about so we got there and if you look in the pictures in the book you'll see this little tiny crowded room with Trump manuch and myself and bunch of small bunch of people and that's where we decided to launch the 52 missiles into Syria to retaliate for them attacking an American base in the mid East and he we decided to do it at 7:15 that evening that would be the we hours of the morning in the midd East because they're around 7 hours ahead but it would also be right smack in the middle of dinner with X so was kind of an almost after dinner treat for him and um so X who had been meanwhile monopolizing the whole conversation with his version of the history of China going way back to when our and ancestors in Europe were running around in lawn Claws and China was a very wealthy and very well-educated country and he had just about gotten into World War II he had gone through the abuse they took from the colonial Powers just getting into the Japanese invasion and and an aid came to Trump with a little note well I knew what the little note was going to say that we had launched the missiles so Trump announced Mr President I don't mean to interrupt you but there's something that your intelligence will soon pick up but I wanted you to hear it from me we just launched 52 missiles into Syria G who had been speaking through interpreter the entire evening said imperfect English repeat please so Trump repeated it and then his translator translated it he thought about it for a minute then he said back through the translator Mr President you certainly had a busy afternoon and that was the only comment he ever made he picked right up in his history lesson right to the sentence where he had left off that told me several things number one what Trump's message was both to the uh ran and their surrogates and to China push me too far and I'll come back at you in a very heavy-handed way and I believe that even though it didn't make G blink he took the message and I think it's a big part of the reason that single event big part of the reason we didn't have much Warfare during Trump's whole Administration think about it it's nothing like what we have now and the problem now is however well intentioned they are their responses are too weak yeah people are definitely seem like they're more afraid to to mess with President Trump yeah and and I learned as a little kid I was still am pretty scrawny so I was a perfect Target for bullies but bullies are only bullies if you don't hit back at them once you H back they stop being bullies that's something this Administration I fear has yet to learn so looking back I'm curious on the on the Trump Administration overall are there are there other themes you think he got right and what were some of the missed opportunities were there a couple things you wish you could have done differently okay yeah there were lots of other things we got right first of all understanding that there is no such thing as true free trade in the world as we know it it's a nice theory that every country will just manufacture and even export the things that they're the best at will import everything else and life goes on merrily the problem with that is in between you have human beings and the human beings are always trying to advance their own countes economic interests so you get into all sorts of protective mechanisms and as a result it's a fantasy to think we we don't have a something like 800 billion dollar a year deficit with China as an accident it's it it's partly mistakes we made particularly letting them into the World Trade Organization without having any proper enforcement mechanism President Clinton operated under the assumption that if they were admitted to the WTO they would abide by the rules well it turned out they didn't but there was nothing we could do and we compounded it by the Congress passing nprs normal trade relations and what that gave China was exemption from the annual review by our Congress so it took away one of the few protective powers that we would have had so the combination of those things and the WTO rules uh is what led to the Boom in China if you do a chart of GDP of China look at the 20 years before WTO they made a little progress but nothing particularly outstanding suddenly WTO they take off like a rocket ship and it was partly trade driven because they had big surpluses and partly capital investment driven since then we have invested inadvertently $1 trillion in China in net exports from them to us and there's been another something like 10 trillion of foreign direct investment into businesses in China so that's $2 trillion that China gained as a very direct result of actions we took and the WTO took and now that we part of the reason they're having the troubles they're having are the measures we put in in the Trump Administration the other part of it and the other thing I'm very proud of is regulatory relief the uh administrations before us seem to have two theories one is uh if it doesn't move tax it then if it does move regulate and so they were very stiff on regulation and a lot of the regulation wasn't even truly enacted by the Congress it was just overbearing by the enforcers the people in the field we were in the oil business for a while and we one day I get a call from our guy in New Mexico and he said you won't believe this but they're now insisting that I get a permit to put a portapotty on a wellsite I said a portapotty mean it's not even an invasive unit what is this all about there is no such law tell them to go to hell and he said yeah that's fine but then when I do go back to them for a permit that I do need you can imagine what they'll do to me so it was not just the fact of more and more regulation but it gave all the leftwing people out in the enforcement area encouragement go after them go after them Trump put in a rule for every new regulation any Cabinet member wanted to enact you had to cancel two of at least equal magnitude well we actually overall cancelled eight for every new one that we put in and as time went on I got more compliment from business people for the regulatory relief than for the tax relief because think about it business can adjust to Good News it can adjust to bad news but uncertainty is a paralyzing thing for business and when you never know what new rule is going to come in but you're pretty sure they're after your industry like oil and gas or coal or even Steel then it paralyzes decision it postpones decision making the other thing with the regulations one of the mining companies Rio Tinto a very good mining company spent 10 years trying to get the permitting necessary for a huge open pit copper mine in Arizona it would have been the world's largest copper mine they had spent $400 million and still didn't have the permits that they needed well that's got to be abusive and this was not even an underground mine where you could make some different arguments a big open pit mine right at the surface the Indian tribes that were in that area were all supportive of it because it was more important to them to get jobs than this and it wasn't a historic site for the na Native Americans anyway but that kind of thing is a terrible abuse were you able to fix that and can help them open it up or was it impossible by the time you guys like were were their minds like that you guys open well what the problem with the over regulation every time there's a regulatory decision to be made somebody can bring litigation in the courts so it takes a lot of time to get the regulatory decision made but then they can tie you up in courts with appeals and everything for years so it it's it's like a mous trap once you're in it you just can't get back out um so those were the things that were really retarding in our viiew the economy and that's what we started getting rid of so our our Mantra was get rid of unfair overseas competition as best you can and an hour our case in Commerce we're responsible not just for inbound traffic but for export controls so we were the first ones to put a lot of controls on the exportation to certain sanctioned Chinese companies of militarily sensitive products we call them dual use products because a lot of them had some commercial use but also could be military use and given that it's written into the law in China that even private companies must cooperate with the government and must share everything with them so even if it's technically a private company it's not really um they have in each company and nowadays G has put in even more what they call a party secretary seemingly in innocuous position well at the state owned Enterprises especially but even a lot of private ones the party secretary appointed by the Communist party is the most powerful person in the company so it's he's not under all the regulatory supervision because they just party secretary but they really control a lot of the businesses so M Mr secretary there's a lot of amazing work you guys did with China and the regulatory state is there something you wish you had done differently were more bold about administration had done differently um yeah there was uh it took us too long to understand what you had to do to fix things most of most of all of us who were in the cabinet and most of the people in the White House had never been in federal government before well it's a very complicated creature you know it's the L obviously the largest employer in the country and the voters in Washington DC Vote about 94% leftwing so you can imagine how hospitable they were to our Administration so it took us about a year to figure out what was going on and how you could fix it if we had acted a little more rashly a little faster not made sure that we truly understood how it worked and just go a little more adventurous we would have accomplished a lot more because that'll be another year of reforms another year of tax roll back another year of regulatory roll back so that's the thing I regret the most I love that we got be more more more bold basically and go go faster sooner even if it's not perfect yeah that's great let's talk a little bit about your upbringing uh you you were a self-described bookworm you were served in the ROTC like what were your most important character shaping lessons from your child out it well my very first job proved to be a very weird and negative exposure to capitalism I was 17 years old had just gotten my driver's license in New Jersey I got hired as a car Parker at Mammoth Park Jockey Club big racetrack near the seashore in New Jersey first day uh the 20 of us kids were there the lot boss Louis the lot boss who is the teamster leader uh Teamsters naturally organize the car Parkers because after all they dealt with something that moved and so so anyhow so Louis the lot Bo says couple of things you guys have got to understand number one there will be accidents when you're trying to get the cars especially back at at the end of the race because everybody's very impatient to get home so there will be accidents now if you can make it that the customer whose car was damaged doesn't realize until after he leaves the truck's premises they don't have to pay for the damage and you won't get set down but if they do notice it before they leave you're going it's going to cost you a week's work and if it happens twice it's going to cost you your job so he was first of all telling us how to defraud the very customers that the track had then it got worse he said as you know all you're getting is minimum wage but there's a way you can earn more and that's to buy a concession for me said concession what is this concession well a lot of people would leave a child Andor an animal locked in the car for 6 or8 hours while they were at a racetrack so we would charge them $2 to park it under a tree so that at least the people would or the animal would be a little bit more comfortable and then there were other concessions washing the car would could charge them $2.50 so it was a whole bunch of little things like that needless to say none of the money went to the track it was just divided between the kids and Louis the lot boss but one kid very scraggly guy from Brooklyn said I'm not going to buy a concession I don't need you to invent a concession I'm going to make my own concession you thought what what is this going to be and his concession was this you would be say the first car that he parked he would say to you sir I know who's going to win the first race and he would tell you the number one horse then he'd tell the next guy the number two horse the next one the number three so he would have a certain number of winners of the first race and then when they came back to him to ask who was going to win the second race now he charged them $10 a shot and the very few who also won the first two when they came back for the 30 charge them $25 so he became a very wealthy kid in no time at all and Louis the lot boss was so astonished at the aggressiveness of this kid that he didn't even take a cut of it I guess he figured the kid was Mafia or something but anyway so that was my introduction to working for a big company sounds like the kid probably became a h gave me a very bad idea my next job was a very different one between uh next real job between Yale and Harvard Business School I went I was a trainee at the old JP Morgan and that's where I learned about corporate culture Morgan was at the time just entering into a so-called merger of equals with guaranteed trust guarantee was a much bigger bank but Morgan had really all the big clients but their balance sheet wasn't big enough so they did a merg of equals that really amounted to Morgan taking over guaranteed trust I was the first trainee that they sent to the old guaranteed trust department so I'm going up in the elevator with the young secretary from Morgan and in those days the Morgan secretaries were all from the seven sister schools they all wore little white cashmere sweaters with little pearls and they were very very elegantly done carrying a Wall Street Journal as well so one of the guarantee girls who was going up on the elevator turned to the Morgan girl and said well Deary how do you think you're going to like it working up here at 140 Broadway the Morgan girl without missing a beat said how would you feel if you were working at Tiffany's and you got transferred to wward silence all the way up in the elephant wow that's that's that's status and you know your your sports was Marksmanship is that true I think you set a record in the a 100 meter small board in the Olympic trials yeah um I had as I had mentioned when I was a kid I wasn't very good at baseball or basketball or football or things but when I was 10 years old my paternal grandfather took me to a recreation hall that had bowling alley he was an expert bowler and they also had a shooting gallery well I wasn't too interested in bowling ball was too damn heavy for me so but I was interested in shooting and turned out I had an aptitude for it so by the time I was 14 I won the New Jersey state championship and when I was 16 I set the US record over the Olympic smallo rifle course but that was also a strange learning experience by then Winchester was my sponsor and and they were trying to encourage me take a year off from school get ready for the Olympics because they figured with another year or so of just doing that and nothing else it make it to be pretty good so they gave me a spotter when you're shooting Outdoors particularly with 22s which are not the most powerful kind of cartridge there's always wind and the wind keeps varying so they give you two Targets a real Target and a practice Target where you can check the wind adjust your sight to adjust for it well that makes a lot of Demand on you to make sure you're counting the right number of rounds so Winchester gave me a guy who job was to spot and make sure I fired the right number well when they announced the scores and they said to my great pleasure that it was a new National Record it seemed like the score score in prone the simplest thing cuz you're lying on the ground seemed like the score in prone was nine or 10 points to low so Winchester paid the protest fee and we checked and it turned out he had overcounted the shots I had fired so I only fired one fewer shots than I should have and still broke the record but it taught me a big lesson you can delegate Authority and in fact you need to or you can't build anything but you ultimately can't delegate the final responsibility because my responsibility to fire the right number of shots and while it was nice to have him there I should not just have relied on him so that made me into kind of a micromanager going forward where I believe in delegation but I also believe we got to closely Monitor and closely supervise the people because usually as the CEO you can perform any of the tasks better than your next subordinate but if you don't get over that then let them make some mistakes and then correct them you can't grow the business because they're only 24 hours in a day anyway so it taught some good lessons and that's really what the book is about is deriving lessons from Individual strange personal experiences that I've had over the years and what's most gratifying to me the book isn't out yet it comes out September 10th but Yale School of Management is taking 500 books one for each faculty and one stre student uh Harvard undergraduate now has a course in entrepreneurship and they took 250 books for their seminar and NYU has a class in distress and they took a hundred books for that class so that really to me is the most heartwarming thing because well it's not a book just for young people that was part of my big motivation in wanting to do it well that's that's a great leadership lesson as well I love how you come back to how the leader needs to figure out what they could have done better versus blaming other people that's that's that's a real sign of leadership I have two more questions for you one on politics let's talk a little more politics right now I think you consider yourself a moderate Republican who serve under Donald Trump but years ago you were the treasurer of the New York state democratic committee did did your views evolve did the parties change was it some of both yeah some of some of both uh I grew up in Hudson County New Jersey which is one of the most heavily Democratic counties uh in the country and in those days it was ruled by a man called Frank heg he was the mayor of Jersey City he controlled New Jersey and some people think controlled the whole Democratic party and my mother had been a democratic County committee woman for 50 years my father was a local elected official so Democratic politics and I worked on the campaigns so that was the only thing I knew so when I got to New York I naturally started helping Democratic candidates and then a catalytic event occurred I had raised was pretty good at raising money so the made me the treasur of the democratic State Committee in New York and then the election a different group of the Democrats elected the winning candidate so the new chair of the state committee who had been the chair in Bronx before very heavy Party politics guy uh became the chair and he said well do you want to stay on as Treasurer and I said well let me understand what you visualize this as being and he said oh we'll raise a lot of money what you'll do is you'll call each of the insurance company heads and charge them $50,000 to have a oneon-one lunch with the insurance commissioner then you call the head of each of the banks you charge them 50,000 to have lunch with the banking commission I said I don't think that's quite for me and so I I stepped down sounds like how Gary Gensler works today at the SEC yeah yeah two years later he went to jail not not for those particular things for something else but anyway so that was the start of the change but the other thing I had been very friendly with Pat Mahan and I think Pat was one of the few Geniuses really to be in federal elected office and if I don't know if you've ever seen but he wrote a little book 30 40 Maybe by now 50 years ago saying that ethnic Warfare was going to be the next major problem for the whole world so he was quite a a Visionary back then but he was about the last of the ones that I like the the welfare thing got out of hand everything got out of hand it was famous for talking about the problems in the black family very controversially in the 60s as well right yes yeah I mean it it just they went too far uh for me and uh so then I then I eventually switched over to do a formal change I had to wait till my mother died because she would have been heartbroken it's like converting out of Catholicism or something it was bad enough I didn't become a lawyer like she wanted me to but not to be a lawyer and not to be a Democrat would have been punishable by my death so so so Mr secretary one last question I want to ask you traveled the world advocating for for our businesses for our workers all around the world and like what do you see as the most important relationships for the us next decade and what gives you hope for America's role in the world going forward well I think the biggest crisis that we have facing us and it's not just later on it's right now is education because our educational system by and large is failing to produce students that are qualified for the new world that we're going into you know that technical World better than I do but I was appalled to hear milen Institute sent me an interview they had done with the head of the school system in Los Angeles and the reason they did an interview with him is he had abolished prohibited the teaching of mathematics in high school and they said well why why are you doing that how can it make sense especially California has used to have even more Tech than they have now but anyhow he said well why are you doing that you know what the fellow's answer was he said teaching mathematics is a racist act he said a racist act what do you mean and so the fellow said well name me a black mathematician that kind of reasoning is going to be death to this country if we have to look at everything through a racial prism or a sexual orientation or something we're losing our way and if you look at the statistics even in grammar school the lower grades we rank at best 30th in the world in Reading Writing and grammar school math how are you going to stay the number one country in the world if you're 30th in the quality of Education that your kids get so I'm much more worried about that threat and I think you've seen it lately a lot of these kids protesting for hamus I don't think they have any idea about the actual situation that the idea that hamus somehow are victims rather than and terrorists I I don't quite get it so I'm I'm not a warmonger by any stretch of the imagination but the kids are very ill informed and one of the most amazing things about that there's University I think it's University of Wisconsin surveys people 18 to 25 each year with a bunch of macro questions and the two most interesting ones on the last survey I saw first one was where was slavery invented you know what the most popular answer was United States now it's not only thousands of years incorrect it's thousands of miles incorrect not saying that we should have done what we did do with slavery that isn't the point but they had no idea how it came to be the other one which is little more amusing but almost is terrifying they asked who was Andrew Jackson and you know what the most popular answer was Michael's brother now that's 0 for two um when this is what people 18 to 25 by now they're voting age and if they're that ill informed it really gives me worry much more worry than than anything else what gives you hope for the future well what gives me hope for the future is the US is a resourceful entrepreneurial country and as long as we don't lose that there'll be some guy come along with the next great invention and then another guy and another guy My worry is we'll run out of those people before it's it before we can afford to but if we don't I think we'll be fine the other thing is while our government has a lot of Mis functions and you read a lot about it in the book it still functions better than any other government that I've seen so it's like rard Kling said in the Kingdom of the blind the oneeyed man is the king and we're at least the oneeyed man I'm just afraid we'll lose vision in the other eye before we get done with it well Mr secretary not aex has anything to say about it you're a financial Legend and a great American leader thank you for joining us thank you thank you