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Steve Forbes: Bill, great to have you with us. You’ve been involved until 2008 in virtually every major debt crisis around the world, from Turkey to Uruguay, Asia and everything else. You’ve got a great new book out where you recount your experiences. I don’t know how you survived all those plane trips. I’ve always said that people who take a lot of plane trips, those miles should be convertible into a 401(k), which would put you on our rich list with all the travel you’ve done.
Bill Rhodes: I think that’s a great idea.
Forbes: But tell us just briefly, before we get into the crises today, how you got involved in banking. It was quite a circuitous route, it seemed, on a freighter.
Rhodes: That’s right. I took my freshman/sophomore years at Brown University and wanted to see Latin America. So I hired myself on first as a cabin boy and then the next year as an ordinary seaman and went down the east coast one year and the west coast the next year.
So I helped myself learn Spanish. Then it came time to look for a job. I had been playing lacrosse up at Brown and I busted up my knees. I thought I was going into naval training school at Newport, and suddenly I had two busted knees. And in those days the operation wasn’t as easy as it is today. So they did the operation and they weren’t interested in me.
So I have to go out and find a job. I heard they were hiring at Citi. George Moore, who was a great banker, was running the international division. He was hiring people who could speak Spanish to go to Latin America. So that’s how I got the job. I never thought I was going to be a banker. I was brought up on the opposite side by my father, having come out of the Great Depression, and I thought I was going to get in the oil business or something, as he was.
Forbes: You also made note that the equivalent of human resources said, “Don’t hire this kid.”
Rhodes: Yeah. Because I was telling them stories about my trip. They said no. And then George Moore said, “I want to talk to him anyway.” And what George said to me – after we spent a little time talking and he found out that I worked my way through Latin America for two summers at Brown – he said, “I don’t care what they have to say. What we’re looking for here is workers, not talkers. We’ve got too many talkers and you’re hired.” And that’s how it started.
Forbes: Sounds like Washington today, about talkers. One of the things you’ve emphasized is a comprehensive approach when you have these crises – that it’s not enough to focus on just the debt itself, you’ve got to make sure the borrower can get back on its feet. In terms of Europe, you’ve used the words and others have, austerity, austerity, austerity: Ain’t ultimately going to work. Please explain for me.
Rhodes: Well, you’ve got to have a plan, first of all, that you can sell to your own population. Because if you don’t have the population of the country behind you, it’s not going to work. Austerity is just one part of reform. They used to call it “adjustment,” as you remember, in the 1980s and ’90s. Now we’re into the word “austerity.” But if you don’t have a pro-growth program in, it’s not going to work. You have the revenue side there. And I think that that’s one of the problems that we’ve seen in Greece, because they haven’t been able to adjust the tax system, they haven’t been able to start privatizing and all they’ve been doing is cutting.
They’re in their third year of negative growth. And until you can get Greece, Ireland, Portugal – and Spain is just hanging in the balance here – into a pro-growth strategy, they’re not going to be able to work their way out. That was the beauty of the Brady Plan because that allowed a path towards growth.
Forbes: Now describe briefly – some people may not remember those years when the Brady Bonds were invented. What, essentially, do they do? They take the debt and make it longer?
Rhodes: Yes, well what they did is they securitized it because it was basically bank debt.
Forbes: Right.
Rhodes: And when you securitize it, you can trade in the market and it makes it much more interesting.
Forbes: Gives you an instant barometer of how people feel.
Rhodes: Exactly. And you had options; you had an option to take a hit on interest, to take a hit on principal or even if you wanted to put new money in, you could do that. And it all added up together, backed by zero coupon bonds. Part of this was financed by the IMF, World Bank, there were U.S. Treasuries, zero coupon bonds, the Japanese Government, regional development banks like the Inter-American Development Bank. Basically, what it did is allowed the countries of Latin America – and subsequently those that had problems in eastern Europe and Africa and some in Asia, like the Philippines – to get back to growth.
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