Weill: Fed 'keeping rates too low, too long'

Sandy Will was guest host on Squawk Box on CNBC on September 10, 2013.

Unedited Transcript form CNBC:

more from our guest host sandy weill, of the weill cornell medical college. hopefully you saw that interview we had a little while ago. i'm glad i'm here this time. you do have a much more nuanced view. i'm going to try to summarize a little bit. it provides a capital that allows us to deliver the prosperity for this country. i don't think if you could figure out a way to do it quickly and easily with good regulations, you're open to a lot of different things, basically more capital and, you know, better lending standards. absolutely correct. but the -- to tarnish bankers and put them all in the same penalty box, which we talked about earlier doesn't help anyone. or they can't trade and they're not going to be able to trade. what will happen to our capital markets? right. how do you determine what is for customer and for your own account? i also picked up on -- listen closely and, you know, people that are saying, look, the sequester's killing basic science and it's really bad for science. you said this is the new reality. right. we need public/private partnerships, with need philanthropy, the corporate sector to step up. you also said the private sector, they hold people accountable for the money they put into things. sort of implying it isn't the accountability with the public sector. there'll be more. yeah, there'll be more. with all of that in mind, i look at the fed. has there ever been a fed that's been this activist? and do you think it has been a net posztive to be this involved with the private sector? has it gone beyond the point of helping where it's hindering the private sector? i think if the fed and treasury didn't act the way they did in the bottom of the crisis -- right. our conversations would be very different. and when did they overstay their welcome, the fed? i think they're doing keeping rates too low too long. a year too long? i don't know. there's qe-1. but keeping short-term interest rates zero and having the return on six-month treasury bills being one basis point is not a good way. we're forcing people to take more risk. and we're forcing the wrong people to take more risk. we're forcing the pension funds in the united states to take more risk, to get the kind of return they need. we're forcing individuals to take more risk because, you know, they're not getting a return over the rate of inflation. and they should. when they announce the -- as a banker and someone who knows -- i hope they start tailoring this thing back. do you remember what your thought was when -- that was shock and awe. i think that was good then. this was only how long was that? six months? more than that. a year? so we've had 12 times 85. and the deficit has gone from 1.3 trillion to $500 billion. that was a sequester that everyone hates so much. they're not going to raise rates. no, they're going to stop the taper. maybe another year and a half away. i think they should loosen the short-term rates. that's way off. they're talking about 2015 or 2016 for that. i think keeping rates that low affects everything else. and how steep a yield curve can you have? and i think it's really unfair to savers. savers are paying the price. front page of the wall street journal today, lenders, buyers feel rates squeeze. some of the big banks are saying that actually they're going to start losing money, laying people off as a result of all this, right? that's the flip side. well, i think of the, you know, if they go back on the buyback program, qe-3, i think you'll see even a steeper yield curve if they keep rates at zero. ultimately. well, we've seen the ten-year go from 1.6% to 3% in a very fast period of time. once this thing starts, you know, and 3% ten-year is way below the long-term average. what about -- which i think was more like 5%. you've seen the size of the balance sheet now. u.s. balance sheet. the fed's balance sheet and what it's grown to. it's big. it is very big. it's profitable. it is profitable, but what if we start losing money on it. if freights went up enough, all the bonds they're holding would be worth much less. correct. but i don't think they mark to market. yeah, probably not. the other banks -- but can they -- we're not past the point of no return. we can extricate ourselves from this? i think so. and we'll be okay? i think our economy has done incredibly well. when you think about all the uncertainties about taxes, ability deficits, about what the government policy is going to be, how much free cash is in corporate balance sheets today that they're not spending because they're unsure of the future and yet the economy's growing, it's not just housing market going but housing prices increasing, automobile sales are terrific, what's happening coming out of silicon valley and other places with new ideas and new products, it's unbelievable. happens nowhere else. if you were in charge of the executive branch and the legislative branch -- that would be good. it would. how would you fix things? you think the economy's doing pretty well and it's being held back. is it being held back or self-inflicted? i think i would look at the tax code, which everybody -- so we've got to fix that? is a problem based on the world today. corporate tax code. the corporate and the individual tax cut. i mean, there's too big a spread between the bottom level of workers and the top level. i think you don't make that better by taking money from the top and giving it to the bottom without any benefit which is what we talk about sometimes. i think if you want to really squeeze the difference, we should change our immigration policy and let these people that get their ph.d.s in the united states from foreign countries, give them green cards, you'll have more bright people competing for those jobs which will drive down the top, create more new companies, more new places that can hire people. and reduce the spread between the bottom and the very successful. well, we're going to -- when are we going to do the corporate individual tax reform? are you optimistic? god knows. i'm not optimistic. i think we have a couple more elections maybe to go through before republican party becomes one party again. and then they're going to be the ones that need to help orchestrate that? well, usually it's been the opposite party that does the things that makes things better. so -- you know, maybe you'd have a democrat in the government that understands more and leads the reform with -- a guy that talks like this with, perhaps the republican