WHEN: TODAY, MONDAY, AUGUST 8TH
WHERE: CNBC'S "CLOSING BELL WITH MARIA BARTIROMO"
Following is the unofficial transcript of a CNBC interview with Standard & Poor's President Deven Sharma today on CNBC's "Closing Bell with Maria Bartiromo." All references must be sourced to CNBC.
BARTIROMO: JOINING ME IN A CNBC EXCLUSIVE IS DEVEN SHARMA PRESIDENT OF STANDARD & POORS. THANK YOU FOR JOINS US. WE JUST LISTENED TO SCOTT COHN, THERE ARE A LOT OF THEORIES GOING AROUND, AS FAR AS WHY YOU CHOSE NOW WHY YOU CHOSE 9:00 AT NIGHT ON FRIDAY NIGHT TO DOWNGRADE THE U.S.'S CREDIT. WHY?
SHARMA: WELL, IN JULY, MARIA, WE PUBLISHED AND HIGHLIGHTED POINTS OF VIEW AROUND THE RISING DEBT LEVELS, AS WELL AS THE POLITICAL PROCESS IN COMING TO SOME ANSWERS ON HOW TO REDUCE THE RISING DEBT LEVELS. IN THAT PUBLICATION IN MID-JULY, WE BASICALLY SAID THERE'S 1 IN 2 CHANCE THAT WE MAY END UP DOWNGRADING IF WE SEE THE DEBT LEVELS CONTINUE TO RISE AS WELL AS IF WE SEE THE POLITICAL PROCESS OF MAKING THE FISCAL MONETARY AND ECONOMIC CHOICES NOT COMING TOGETHER. AFTER THE DEBT DEAL,OUR ANALYSTS GOT TOGETHER, THEY EVALUATED, AND THEY CAME TO A CONCLUSION THAT THE DEBT LEVELS CONTINUE TO RISE, EVEN WITH THE DEBT DEAL, AND THE FACT THAT THE PROCESS OF MAKING THESE CHOICES DID NOT LOOK ANY CLEARER AT THIS POINT IN TIME.
BARTIROMO: STEVE LIESMAN LAST NIGHT DID A REPORT IN OUR SPECIAL COVERAGE ABOUT ALL OF THE COUNTRIES THAT ACTUALLY HAVE AAA RATINGS RIGHT NOW. WE'RE ALL SCRATCHING OUR HEAD TO LOOK AT A COUNTRY, FOR EXAMPLE LIKE FRANCE OR OTHER COUNTRIES IN EUROPE.WE ALL KNOW WHAT'S HAPPENING IN EUROPE RIGHT NOW. HOW IS IT POSSIBLE THAT FRANCE IS HIGHER RATED THAN THE UNITED STATES RIGHT NOW?
SHARMA: FRANCE DOES HAVE SOME GREAT ATTRIBUTES THAT ARE DEBT LEVELS WHICH ARE SLIGHTLY HIGHER FOR GDP RATIO, HOWEVER, WITH THE REFORM ACT AND THE OTHER FISCAL CONSOLIDATION PLANS THEY HAVE PUT INTO PLACE, THEIR DEBT LEVELS ARE STARTING TO GO DOWN, AND THEY'RE IMPLEMENTING THOSE PLANS. THAT IS A BIG DIFFERENCE BETWEEN A COUNTRY LIKE FRANCE AND THE U.S. AT THIS STAGE.
BARTIROMO: ARE YOU EXPLORING RIGHT NOW FRANCE FOR POSSIBLE DOWNGRADE?
SHARMA: AS LONG AS THEY CONTINUE TO REDUCE THE DEBT LEVELS, DEBT CONTINUE TOGO DOWN AND THE DEBT RATIOS ARE LOOKING REASONABLE, THEY'LL BE IN PRETTY GOOD SHAPE. IF THAT DOESN'T HAPPEN, OUR SOVEREIGN TEAM CONTINUES TO ANALYZE THAT AND IT WILL BE UP TO THEM TO MAKE THAT DECISION.
BARTIROMO: I'M NOT PICKING ON FRANCE NECESSARILY, BUT SOMEONE BROUGHT UP ICELAND. YOU HAVE A NEGATIVE A RATING ON ICELAND UNTIL THE 11th HOUR WHEN ICELAND NEEDED A BAILOUT.
SHARMA: AGAIN, AS WE SEE, THE FISCAL SITUATION IS CHANGING, WHAT POLICY MAKING IS HAPPENING, HOW IT'S HAPPENING, WHAT RESOLUTIONS ARE BEING DONE, WHEN WE DON'T SEE THAT, WE SORT OF NATURALLY GO AHEAD AND DOWNGRADE.
BARTIROMO: BUT THIS IS AN IMPORTANT POINT RATINGS ARE ABOUT CREDITWORTHINESS, RIGHT? THE PROBABILITY THAT A CREDITOR WILL EITHER GET HIS MONEY BACK OR NOT GET HIS MONEY BACK. IN THE REPORT YOU WRITE THE DOWNGRADE REFLECTS OR OPINION THAT THE FISCAL CONSOLIDATION PLANS AGREED TO FALLS SHORT OF WHAT WOULD BE NECESSARY AND REFLECTS OUR VIEW THAT THE EFFECTIVENESS, STABILITY AND PREDICTABILITY OF AMERICAN POLICY MAKERS HAS WEAKENED AT AN IMPORTANT TIME. SO IF RATINGS ARE ABOUT CREDITWORTHINESS WHY ARE WE TALKING ABOUT THE POLITICAL PROCESS? DO YOU NEED TO COME UP WITH DIFFERENT RATINGS? HAVE YOU CONSIDERED A DIFFERENT KIND OF RATING FOR THE PROCESS? S&P GIVES INSURANCE COMPANIES DIFFERENT RATINGS, WHY DOWNGRADE THE DEBT WHEN IT'S ABOUT THE POLITICAL PROCESS?
SHARMA: THE POLITICAL PROCESS BECOMES IMPORTANT, BECAUSE THAT SPEAKS TO HOW THE FISCAL AND ECONOMIC AND MONETARY CHOICES ARE BEING MADE THAT INFLUENCES THE CREDITWORTHINESS. TO PRESIDENT OBAMA'S BRIEFING THIS AFTERNOON, HE SPOKE ABOUT TWO FACTORS, THE DEBT LEVELS THAT ARE RISINGS, AND THE WILLINGNESS TO COME TO A PLAN, TO MAKE THESE CHOICES, RESOLVE AND BRING THE DEBT LEVELS DOWN. THAT'S EXACTLY WHAT OUR RATINGS ACTION IS BASED ON. ALSO THE RISING DEBT LEVELS AND THE WILLINGNESS AND PROCESS IN THE CONGRESS AND ADMINISTRATION TO COME TO SOME GAME PLAN ON REDUCING THE DEBT LEVELS. SO REALLY THE TWO POINTS THAT WE HAVE BASED OUR RATING DECISION ON WAS EXACTLY WHAT THE PRESIDENT CALLED FOR. IT WAS ACTUALLY A BIT OF A RENEWED SENSE OF URGENCY THAT WE HEARD FROM HIM, WAS ENCOURAGING.
BARTIROMO: LET ME GET TO WHAT TIM GEITHNER SAID ABOUT THIS, AND OF COURSE YOU KNOW THAT TIM GEITHNER, THE SECRETARY OF TREASURY SAID THIS WAS TERRIBLE JUDGMENT. LISTEN TO A BIT OF TIM GEITHNER'S REACTION TO S&PS DOWNGRADE.
TIM GEITHNER: I THINK S&P HAS SHOWN REALLY TERRIBLE JUDGMENT, AND THEY'VE HANDLED THEMSELVES POORLY AND THEY'VE SHOWN A STUNNING LACK OF KNOWLEDGE ABOUT BASIC US FISCAL BUDGET MATH AND I THINK THEY DREW EXACTLY THE WRONG CONCLUSION FROM THIS BUDGET AGREEMENT
BARTIROMO: MR GEITHNER IS SAYING S&P CAME TO THE EXACT WRONG CONCLUSION HERE WHAT'S YOUR REACTION
SHARMA: WE UNDERSTAND THE SECRETARY'S PERSPECTIVE LET ME SHARE OUR VIEW OUR VIEW WAS REALLY BASED ON A CRITERIA WHICH LOOKS AT A NUMBER OF FACTORS AND THE TWO CRITICAL FACTORS THAT DROVE THIS RATING DECISION WAS RISING DEBT LEVELS EVEN DESPITE THE CUTS THAT ARE BEING MADE THE DEBT LEVEL IN 2015 IS GOING TO BE 14 TRILLION DOLLARS WHICH IS 25% HIGHER THAT WHAT IT IS TODAY AND IN 2021 IT IS GOING TO DOUBLE TO 20 TRILLION DOLLARS FROM WHAT IT IS TODAY AND SO THE RISING DEBT LEVELS AND THE PROCESS OF COMING TO SOME PLANS TO RESOLVE THOSE THINGS ARE A VERY DIFFICULT PLACE. HIS ISSUE ABOUT -- AND WE SEE DIFFERENTLY THE WAY HE CHARACTERIZES IT.THERE WERE SOME ASSUMPTIONS THAT WE MADE, AND IN TALKING TO CBO TREASURY AND POINTED OUT SOME POINTS, AND WE HAD FURTHER DISCUSSIONS WITH CBO AND TREASURY. AND RECOGNIZED OUR ORIGINALS ASSUMPTION HAD LOOKED AT THE DISCRETIONARY SPENDING GROWTH AT GDP LEVELS AND BASED ON THESE DISCUSSIONS WE REVISED IT TO INFLATION LEVELS DESPITE THOSE CHANGES THE DISCRETIONARY SPENDING CONTINUES TO GROW TO 14.5 TRILLIONS DOLLARS -- IN 2015, WHICH IS ABOUT 25% HIGHER.
BARTIROMO: I'M GLAD YOU MENTIONED THAT. I WOULD LIKE YOU TO WALK OUR AUDIENCE THROUGH HOW THIS ALL TRANSPIRED. BECAUSE YOUR, YOU KNOW, RECLASSIFYING OR GETTING A MORE ACCURATE ACCOUNT, AS YOU JUST SAID, WAS ACTUALLY HEADLINED BY THE ADMINISTRATION AS A $2 TRILLION MISTAKE. DID YOU MAKE A $2 TRILLION MISTAKE?
SHARMA: WE SEE IT VERY DIFFERENTLY. IT WAS A CHANGE IN THE FORECAST ASSUMPTIONS OF HOW THE DISCRETIONARY SPENDING GROWTH WILL HAPPEN, AND AS I SAID, IN 2015 THE REVISED ASSUMPTION SAID 14.5 TRILLION, AND INITIAL ASSUMPTION WAS 14.7 TRILLION -- EVEN WITH THE CHANGE IT'S STILL RISING 25% FROM WHERE WE ARE TODAY -- AND IN 2021, IT IS DOUBLING FROM WHERE WE ARE TODAY, AND YES, IN 2021, INSTEAD OF 20 TRILLION, THE ORIGINAL ASSUMPTION WAS 22 TRILLION, BUT THE FACT IS THE DEBT LEVELS ARE STILL DOUBLING FROM WHERE WE ARE TODAY TO IN 2021 FROM -- AND THAT IS AN ISSUE TO ADDRESS.
BARTIROMO: WITH ALL DUE RESPECT, WITH GOVERNMENT COMING OUT AND SAYING S&P MADE A $2 TRILLION MISTAKE, WE ALL REMEMBER WHAT WENT ON IN THE SUBPRIME MESS, A LOT OF PEOPLE ARE SAYING HOW CAN WE POSSIBLY TRUST A FIRM THAT MISSED SO BADLY THE SUBPRIME CRISIS AND GOT US INTO THIS MESS IS WHAT A NUMBER OF PEOPLE SAID EARLIER. SO WHERE IS YOUR CREDIBILITY? I MEAN, WHY WOULD WE TRUST YOU NOW AFTER WHAT WE'VE SEEN IN THE PAST?
SHARMA: IMF RECENTLY PUBLISHED A REPORT ON SOVEREIGN RATINGS AND ONE OF THE THINGS THEY ACKNOWLEDGES AND RECOGNIZED HOW THE SOVEREIGN RATINGS PERFORMED RELATIVE TO HOW THE DEFAULTS HAVE HAPPENED IN THE SOVEREIGNS SO IT'S AN IMF INDEPENDENT STUDY THAT SORT OF ACKNOWLEDGES AND RECOGNIZES THAT. MORE IMPORTANTLY REALLY, IF YOU LOOK AT OUR CRITERIA AND THE FACT THAT EVEN THE PRESIDENT ACKNOWLEDGED TODAY THAT WE HAVE A RISING DEBT LEVEL THAT NEEDS TO BE ADDRESSED WE HAVE A POLITICAL PROCESS THAT NEEDS TO COME TOGETHER TO RESOLVE THESE ISSUES, WHICH IS ENCOURAGING.
BARTIROMO: WHAT ABOUT THE IDEA THAT WARREN BUFFETT EARLIER BROUGHT UP THE FACT THAT WE HAVE A PRINTING PRESS AND CAN PRINT MONEY. WHY WOULD YOU EVER QUESTION THE CREDIBILITY OF THE UNITED STATES GOVERNMENT, GIVEN THIS FACT? WE ARE ABILITY TO PRINT MONEY, THEREFORE DEVALUING THE DOLLAR. DO YOU NOT PUT ANY CREDENCE IN THAT PART OF THE STORY?
SHARMA: WE DO. AND BESIDES THE TWO FACTORS I MENTIONED, OTHER THREE FACTORS ARE MONITORING POLICY, AND EXTERNAL FUNDING AND ECONOMIC STRENGTH OF THE COUNTRY. WE ABSOLUTELY LOOK AT THOSE, AND THOSE ARE THE STRENGTHS OF THE COUNTRY. HOWEVER I MUST POINT OUT, GOING FROM AMOUNT AAA TO AA DOESN'T MEAN IT WILL DEFAULT. IT JUST MEANS IT'S MORE RISKY TODAY THAN IT WAS A YEAR AGO. THAT'S ALL IT MEANS.
BARTIROMO: WHAT WOULD THE LIKELIHOOD BE THAT THE U.S. GETS THAT AAA RATING BACK IN SHORT ORDER?WHAT WOULD BE YOUR EXPECTATIONS FAR AS THE U.S. GETTING UPGRADED?
SHARMA: I THINK, AS THE PRESIDENT'S RENEWED THE CALL TO COME TOGETHER, TO FIND WAYS TO REDUCE THE DEBT LEVELS, REINVIGORATE THE ECONOMY. AS THAT ALL STARTS TO HAPPEN, WE SEE THE POLITICAL PROCESS COME TOGETHER, I'M SURE OR SOVEREIGN TEAM WILL BE LOOKING AT THAT ON A CONTINUAL BASIS.
BARTIROMO: ARE YOU FEARING AT THIS POINT RETRIBUTION IN THE MARKETPLACE? CLEARLY PEOPLE HAVE BEEN POKING HOLES IN THE S&P REPORT, TRYING TO GET A SENSE OF WHAT THIS MEANS, AND AT THE SAME TIME CRITICIZING S&P 500 IN MANY CIRCLES. HAVE YOU HAD PRESSURE, FOR EXAMPLE, FROM McGRAW-HILL? OUTSIDERS? ARE YOU FEARING RETRIBUTION IN THE MARKETPLACE?
SHARMA: OUR ROLE IS TO CALL THE RISKS OBJECTIVELY WITH TRANSPARENCY? THAT'S WHAT OUR JOB IS. IT IS FOR THE BENEFIT OF INVESTORS SOVEREIGN ASSET CLASSES IS A 40 TRILLION DOLLAR ASSET CLASS WHERE INVESTORS INVEST IN IT, AND WE SEE OUR JOB IS TO PROVIDE OUR POINT OF VIEW HOW WE SEE THE RISK RISING, AND THAT'S WHAT WE HAVE DONE. THAT'S WHAT WE HAVE DONE HERE, DONE IN EUROPE, THAT'S WHAT WE DID IN JAPAN, AND THAT'S WHAT WE'LL CONTINUE TO DO
BARTIROMO: WHAT DO YOU MAKE OF THE BOND MARKET IGNORING THIS CALL? TREASURIES ROSE TODAY AND LOOK AT THIS SELL-OFF TODAY DO YOU THINK THE MARKET SELL-OFF IS AN UNINTENDED CONSEQUENCE OF THE DOWNGRADE, PERHAPS A KEY EVENT THAT PRECEDES ANOTHER MAJOR ECONOMIC DOWNTURN. WOULD YOU TAKE RESPONSIBILITY IF THAT WERE TO HAPPEN?
SHARMA: LOOK, THE MARKET REACTION IN MANY WAYS THAT IS SOMETIMES NOT EXPLAINABLE, BUT OUR RATINGS REALLY ADDRESSES THE FUNDAMENTAL OF THE CREDIT WORTHINESS NOW THE MARKET COULD BE REACTING TO THE FACT THERE'S SLOWDOWN IN THE ECONOMIC GROWTH,COULD BE REACTING TO WHAT'S HAPPENING IN EUROPE, OR WHAT'S HAPPENING IN THE U.S. THERE ARE MANY MULTIPLE FACTORS THAT CONTRIBUTE TO HOW THE MARKETS REACTS.
BARTIROMO: HOW DID YOU MISS THE MORTGAGE MESS?
SHARMA: WELL, IN THE U.S., CLEARLY THE HOUSING DECLINES WERE MUCH MORE SEVERE THAN WE HAD FORECASTED OR ANTICIPATED SURELY. HOWEVER, IF YOU LOOK AT OUR STRUCTURED FINANCE AND MORTGAGE RATING PERFORMANCE OUTSIDE U.S., THEY HAVE PERFORMED TO OUR EXPECTATIONS AND TO THE MARKET'S EXPECTATIONS. CLEARLY IN U.S. AND THAT'S A REGRET. HOWEVER, WE HAVE MADE MANY CHANGES IN STRENGTHENING OUR ANALYTICS WE HAVE MADE MANY CHANGES IN PUTTING NEW CHECKS AND BALANCES INTO A NEW ORGANIZATION AND BRINGING MORE TRANSPARENCY TO THE MARKET. AND WE'RE DOING A LOT OF EDUCATION WITH INVESTORS AND ANALYSTS AND WE'RE COMMITTED TO CONTINUE TO DRIVE THE REFORM PROCESS
BARTIROMO: AND HOW MUCH OF THE DEBT CEILING DEBATE, THE BACK AND FORTH OVER FAILURE TO COME TO AN AGREEMENT WENT INTO THE DOWNGRADE OF THE U.S. CREDIT?
SHARMA: NOT AT ALL. THAT'S WHAT THE PROCESS IS. IT'S A TRANSPARENT PROCESS, AN OPEN PROCESS. WE LIKE WITH ANY OTHER COUNTRY, WE SIT DOWN, GET THEIR POINTS OF VIEW, ANALYZE, COME TO A CONCLUSION AND WE GO BACK AND SHARE IT WITH THE ISSUERS, THEY GIVE US MORE FEEDBACK. NATURALLY WE GO BACK AND FORTH, AND THERE ARE TIMES WHEN WE AGREE TO DISAGREE. THIS WAS ONE POINT WHERE WE AGREED TO DISAGREE.
BARTIROMO: IS THAT WHY YOU SAME OUT SO LATE AT 9:00?
SHARMA: THAT'S RIGHT. THERE WERE DISCUSSIONS GOING ON, AND IT TOOK A WHILE TO BRING THAT TO A CONCLUSION.IT WAS GOOD TO HAVE YOU ON THE PROGRAM. THANK YOU FOR JOINING US.
About CNBC:
With CNBC in the U.S., CNBC in Asia Pacific, CNBC in Europe, Middle East and Africa, CNBC World and CNBC HD+, CNBC is the recognized world leader in business news providing real-time data, analysis and information to more than 390 million homes worldwide. The network's 16 live hours a day of business programming in North America (weekdays from 4:00 a.m.- 8:00 p.m.) is produced at CNBC's global headquarters in Englewood Cliffs, N.J., and includes reports from CNBC News bureaus worldwide. CNBC.com and CNBC Mobile Web (mobile.cnbc.com) offer real-time stock quotes, charts, analysis and both on-demand and live streaming video.
Members of the media can receive more information about CNBC and its programming on the NBC Universal Media Village Web site at http://www.nbcumv.com/mediavillage/networks/cnbc/