good morning. let the games begin. earnings season has arrived and companies are preparing to post results. but are investors ready for when they're about to hear? patient, please. president obama makes a direct plea for more time. he says the stimulus plan wil work. the markets at this hour have asian stocks down overnight. a mixed picture out of europe. u.s. equity futures are pointing to a lower opening at home after a tough four weeks. "squawk box" begins right now. ♪ ♪ put me in coach ♪ i'm ready to play today

>> welcome to "squawk box." i'm becky quick. we have a special guest host. democratic congressman paul c kanjorski joining us. >> it's great to be here. >> we'll tackle today's top stories. here comes earnings season. investors are bracing for a steady steam of korptd results in the next few days and weeks. companies in the s&p are expected to post a 17 % drop, which compares with a week ago. when you break down the market, only one sector, consumer staples, is expected to turn in an increase in earnings. we'll be getting numbers fast and furious. things get into high gear tomorrow. >> staples telling investors

it's actively talking about solutions that don't involve accesso the fdic's temporary liquidity important program. shares were crushed on friday when the company warned there is no assurance its application would be approved by the fdic. there were media reports the company hired a law firm to explore a possible bankruptcy filing. people looking at that and using it as a barometer to how special businesses will get capital. >> this is the biggest loaner to small businesses. over the weekend, i saw people you would see other companies. but it's hard to imagine that ge capital is interested in expanding small businesses right now when they've been trying to pull back. >> there is opportunity. every crisis creates opportunity. the government is playing hardball with cit. i guess i understand. it's not as important

systematically and not too big to fail. it's ratcheted up the risk to some extent and the governme is uncomfortable with the amount of risk cit has taken, i guess? >> that's true. >> we called you a democrat. we spoke in makeup. have i not moved you a little bit to the story? >> i feel i could end up being a radical. >> there is a lot of opportunity on the republican side of things, congressman. you could be our nominee in 2012. >> you want me to occupy a vacuum? >> there is a lot of opportunity. it's like a team that might have anderson last pla finished in last place the year before. you're jockeying for position now. there are a lot of big names. the water is fine. this is a big test. we'll talk.

how long do i have with them? >> two hours. >> a big sinking tent, thanks. let me move on to ubs and the u.s. government. they're trying to delay a major tax trial, suggesting -- you know what that means -- the u.s. wants to force ubs to reveal the identities of thousands of americans suggested of doxing tax accounts. i wish they would get this out of the way, to see what ubs can do with maybe hiring -- up see the conjecture there. bob mccann, the guy at merrill lynch. they've got what, 8,400 brokers or something? merrill is still at the top. bring in mccann. those guys at merrill love this

guy. all of a sudden, competitively, you don't want what ubs would be able to do. that's in the wor. but they're waiting for this swiss thing to get settled before they make the move on the. >> in the next three weeks, could be wrapped up. can't you go to the caymans to dodge taxes? pick up better chocolate? it's cooler if you have a swiss account. i think the bluebloods have the swiss accounts. the nouveau has the new account. i like the caymans better. >> there are reports this morning than north korean leader kim jong-il has life-threatening

pancreatic cancer. now pictures of him looking gaunlt led to speculation his health was worsening after the reported stroke from last year. his health is a topic after talk of instability of north korea and the talk of a power struggle should he die without name happening a successor. his son is widely thought of as his heir. >> in his weekly radio and internet address, as well as an op-ed in the washington post, obama said the critics have little credibility. >> this is a plan that will accelerate greatly through the summer and the fall. we must let it work the way it's supposed to. with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity. >> the president is back home after his trip last week to russia. he mad that stop in ghana.

his supreme court nominee, sonia sotomayor begins confirmation hearings today as democrats in congress try to pass his health care plan by the august recess. we'll see if that happens. >> you could have saidsotomayor. you're in a position to. there have been parodies. it's sotomayor on fox. you go to msnbc and it's sotomayor, depending on your -- you said i had aolitic flair once, congressman. we know what your flair is. i'm not sure what that meant. >> it's the name. >> but you're in a position. some people say quintanilla. >> you could say it better than you just said. but you didn't want to show off. >> i was practicing this

morning, sosotomayor. >> going to say it a lot this week. there won't be any problem with that, will there? >> i've heard cl called other names. >> we are here with the g gentleman from pennsylvania, congressman paul kanjorski. >> kanjorski. >> the president with the op-ed in the post. he's been gone for a few days. some of the poll numbers in ohio have been dropping on the president's approval ratings. do you think republicans are sensing vulnerability when it comes to the stimulus package? >> you know, i hate to throw anything on you fellows, but 24 hours, seven-day news cycles that we're in tend to skew the whole population to making judgments day to day, week to week that are farcical. nobody said this would be easy. two, no one suggested we had a vaccine.

if we had a vaccine, the bush administration would have used it and john mccain would be president of the united states today. the president said early on he is willing to take any and all actions and make adjustments along the way in order to save the american economic system and american political system. i've brought into that and most of my colleagues have. >> when you say adjustments, did you mean a second stimulus package? >> we don't know what the end result will be. it hasn't changed. we had a tremendous kick-up from march 11th with marking the market. now we've had a downturn in the stock market. that's understandable. all things do not go up. maybe we ought to get that in our cranium. economy, we knew it wasn't going to it was going to go higher and probably will go over 10%.

those things happens in excess of what some may indicate may happen. >> are you disappointed at all in the way the package was targeted or not targeted well enough? >> i voted against the original recovery program because i thought it wasn't large enough and didn't deliver the money fast enough. three, it took into consideration things i thought were not necessary. i thought we should have targeted toward a major economic development in the country. i would have gone from making rail lines from boston to richmond into cleveland. i think it would have stimulated the american imagination. we're not going to come out of this and be a world power unless we've dinner on every past occasion and that is innovation, and invention and discovery. >> when you're talking about

that, do you mean in terms of the energy bills congress has been considering in terms of some of the other areas the administration wants to push into health care too? are these tareas you're talking about? >> health care is housekeeping. energy is exciting. if we have breakdlthroughs and break through and discovery how to maintain quantities of energy for a long period of time and long how to use hydrogen in a new way and perhaps get it in a cheaper way than we presently obtain it. that would mean magnificent changes. >> you're talking infrastructure, not necessarily some of the plans that consider is considering now? because we had governor rendell on and we were talking about the bang for your buck that you get

with some of these jobs you can get. >> 35 jobs for $11 million. >> something like that. >> last week, saying like taking half a viagra and the rest candy. >> i like that. >> half a viagra and half a candy. >> lost your train of thought? >> yeah, i forgot to take it this morning. we know a lot of times every dime might not get to where we want it to go. if we have something to show for it, even if it's expensive, even if it could have been done better, if we had a rail system, even if it was expensive and cost more than it would have cost, we would have something to show for it. what do we have to show for it? >> it's not only that but the psychology of the population. if we lay back and get very

noncommittal and reactive as a population, we'll reflect that in our economy. >> let me ask you one more question which is what you say about my flavor. if we see that the economic situation more front and center, does that make you think some of the other stuff should go on the back burner until we get this right? >> some of us have our own internal criticism about the president. i'm external. i think we can only afford to concentrate on a couple of major issues at a time. quite frankly, everything else doesn't matter. if you get the economy wrong and the economy collapses and therefore the country ultimately would collapse and the world would collapse, what does it matter whether we have universal health care? >> cap and trade. >> we'll be back in the stone age. we won't be affecting the climate of the world. the reality is that i think we have more on our plate than we should have at this period of

time. >> you're turning blue dog. you're with me on a lot of this. >> i'm just being pragmatic. >> it's what i'm saying. you need to talk to your colleagues to move them to the pragmatic side of things. >> do i look blue? >> you have a blue tie on. >> no blue tie. well, that's for the red state. >> a lot more from the congressman this morning. >> let's focus on the trading week ahead. we have david deets and anthony chan. gentlemen, i assume you heard what we were talking about in terms of where the economy stands. anthony, where don't you weigh in on where youee this coming headed, where do you see unemployntnd how long do y think we'll stay at ncerning levels? >> becky, i don't think anyone is underhe expressiimpression te

stimul package was going to solve everything in 30 minus. asresentative kanjorski indicated a mu minutes ago, let itwork. i think we'll see that o of the ctisms of this stimulus paage was it wasn't spendg money fast eugh. when everything is getng worried, perhaps ts a time to ke a deep breath and say a lot of th stimulus packag hasn't been spent. a lot is in the ipeline. that stimulu is coming. maybe this is a time to take anotr deep breath and say maybe the exit strategies that everyone is demandin from the central bank are emature. maybe the central bank has to stay in a little bit longer until this program is resolved. >> where do you think unemployment is headed? thatill be a hug factor that affect the amerin psyc. >> no question it wl go hi hier. 10.4% is not unrealistic.

ive looked at the accident cycles in the past. the last recession, for exple, the recsion ended in novembe of 20. e unemploymentte did not peak until june of 2003. if you go farther back and look at each cycle, one of the things that you find is whenever there's a surge in the labor force, the unemployment rate tends to rise. we'll have to look to see whether or not that will happen. there are some cycles at this the unemployment rate peeks at the end of the recession and comes down. if the labor force starts to increase when people get excited and think they can find a job, in relate it's good news. it means people are more confident about finding a job. >> you'll have a hard time selling that as people watch it tick above 10.5. when is the bad rise and when does the good news kick in? it sounds like a difficult sell. >> i don't think it's a

definitely sell. when people are more optimistic about finding a job, they join the labor force. people don't think they can find a job so they don't join the labor force. >> that's not what happened last month when we climbed to 9.5%? >> we're not close to that. we are far away from a siion where we cldave thathe unemployment vaet goirate is go peak. that conversation is highly premart. >> let's talk about earnings. we'll hear from a lot of financials, goldman sachs and jpmorgan and citigroup this week. when you look at what we should be expecting and what the market is set up for, what are planning on? >> the expectations are very grim. we'll see very quarter earnings 34% below a year ago. the only hope as investors is that there is going to be a

back-ended recovery here later on in the third quarter and the fourth quarter. the good news is that the expectations are grim. so i think now, particularly after this four-week retreat in the greater market averages, oil prices coming down, treasury prices coming down, we're setting up for perhaps a rebound based on what we're seeing. it's not quite as bad as what analysts are looking for. but i think it's not just what are the reports for the second quarter but what type of outlook are they prognosticating? >> my guess is the outlook is not fantastic from companies. no one will want to stick their neck out there. they've had a hard time seeing what's happening with the economy right now. david, would it surprise you if companies are overly cautious in their outlook? >> you don't want to stick out your neck more than you have to. one thing that hasn't been talked about is the overseas economy. we've seen some of the most

robust, china and india, never going into recession territory. despite all of the grim domestic news, which is grim, there is no question about it, i think there is some strength overseas, which could give an extra degree of optimism for ceos. for example, general electric this week when they report to investors. >> anthony, when you're looking at what to expect in terms o the gdp, what are you lookin for in termsf ouook? >> i'll be looking to see whether they feel the climate is getting better. i agree with david. the international situation is also very important. in the second quarter, we are likely to get a 1.5 to 2%oost to relgdp because the tde deficit is narrowing. it's narrowing because imports are growing and exports are slowing. >> anthony, david, gentlemen, thank you very much. good to talk to both of you.

>> this is huge. the battle for coffee and donut domination is ratcheting up today in new york city. starting this morning, canada-based tim horton's is taking over a dozen dunkin' donuts shops in new york city. we have the president and ceo, who joins us on cnbc. you're in a suit. i thought you would be in full battle gear. you've got your work cut ought for you in new york city? >> there is no question new york city is a great place to be for tim horton's. >> 427 dunkin' donuts. the closest tim horton's is in meridian, connecticut. you're moving into enemy territory. >> we've got a great partner that decided they would louve t

join forces with us. >> it's about coffee, which not even realizes. the other thing, you'll make all donuts on premises. which the durchgin donuts, they ship them in. >> we're all about fresh produce. the process we have now allows us to make products on-site. if you want boston cream, we can make that in five minutes. >> he says he wants to attract more lunch and dinner time people at tim horton's because dunkin doesn't make them. you can make them right in the place. >> we're more than a coffee and

donut shop. today we offer a full line of products from breakfast sandwiches, bagels in the morning, freshly made sandwiches at lunch, soup, healthy products available to customers. we have a product offering throughout the day. >> throughout the day. a lot of your -- you have ready-made customers displaced from canada. >> last night we were visiting a couple of the stores, getting ready for the store and canadians walking by were very excited to see tim horton's. >> big hockey guy. won four stanley cups and got killed or something. >> he was killed in an automobile accident in 1974 driving back to toronto from buffalo. he was playing from the buffalo sabres at the time. they played toronto that sl saturday night. a fordpantero, was driving back

and unfortunately was killed. >> it's just aut everywhere in canada. but dunkin' donuts and krispy kreme, are all ubiquitous. >> a lot of time and effort goes into making sure -- we have one blend of coffee. our goal is to have every cup taste the same in every store, every day. that's a real challenge when you're dealing with an agricultural product like coffee. >> have you had anytoday. >> not yet. >> coffee has always been competitive, right? but it seemed like it ramped up even more with mcdonald's and the advertising around their emium cough ease. is that a national push or very localized, about new york. >> we're already in 11 states in

the u.s. our chief operations officer, when he got that appointment last year, i told him to think outside the box. how are we going to grow tim horton's in the u.s.? it's not as easy as taking what is clearly a very successful operation in canada and transferring it to t u.s. you need the right sites, the right partners. that's why people like reese, we're pleased to be with them. they bring outstanding locations in new york city and a wealth of experience from a complicated market. >> it is a difficult time to be doing this. you're talking about the biggest downturn in the economy that a lot of people have seen in their lifetime. how do you attack this at this interesting time? is there a reason you're doing this now? >> in terms of why now in new york city, clearly when we met the reese organization and the quality of the sites they made available to us, plus the experience, we thought that is a

good time. there's no question there's challenges in the economy both he were and in canada. i think the needs of the customers are the same in canada and the u.s. they're looking for good price value. i think that's what we bring for the last 45 years. our customers have come to know that every day at tim horton's they can get quality products at a very fair price. we go back to coffee, we have the coffee. we compete with starbucks. we offer that same quality. our customers know they're getting premium coffeeevery day at a fair price. that applies to all the other products we have as well. our donuts, we have a facility where we manufacture the donuts and they're shipped to the

stores and finished there. we went to europe and got the finest equipment and technology they use for making fine pastries and converted that to make donuts. so the consistency and quality of the product is there. >> starbucks has the advantage with sponsoring morning joe and the coffee on that comting show to us here with the guy who is named charles scarborough. tim horton's sponsoring "squawk box." the real national coffee. >> we're a morning show and they serve products typically eaten in the morning. >> for coffee, exactly. and the guy's name really is joe on this channel rather than on -- >> just like his real name was tim. >> he didn't chae it from tim to fit in with a morning joe moniker. >> we'll have to explain what we're talking about.s >> we wouldove to have you

drink tim horton coffee every morning. >> we'll have legal tlook over. >> i made the first delivery here this morning. >> we can get this all squared away right now. thank you. good to see you. my handshake is good. i hope yours is. >> thank you. >> okay, thank you. >> coming up, a huge week in washington. wall street is watchin we'll get the inside story from congressman kanjorski. tp

welcome back to "squawk box." i carl quintanilla. as you know, earnings season is in full swing with the stakes so high for the market. the most decisive earnings season we've seen in a couple of years. we decided to take matters into our own hands. we welcome you to earnings central. we're rolling out the new home, complete with all sorts of technology, capable of giving

you the numbers the second they hit. plus all the analyst tools for the full story. joe and becky are over, manning premarket condition. if earnings were to hit right now, it would take you how many seconds to deliver analysis? >> you would see me jump into action. >> wait, that's the wrong one. >> today we're expecting a couple. >> that's a big deal. >> tomorrow. goldman sachs. >> we're previewing this and working the bugs out to some extent. >> four times a year. we've been here 19 years. ready-made news. the most important stuff we do. to get it fast and accurate. an earnings report is never the same. you have it figure out which numbers are used. to compare to what expectations

are with analysts. it dictates -- i think this one is really going to be important based on the past three months and based on the outlook. >> the outlooks that we'll get from these companies and the types of guidance will give us ap indication for the second half and how soon we expect this economy to turn. >> you know about this toy? a lot of networks have their own version of a wall. this is earning central's telestrator. >> i'll go over here. here's watching me put my hand through him. you're a hologram. you are real. you're not a hologram. am i allowed to get up? did i ruin everything? >> you did ruin everything. wait, i wanted to show you this. >> draught a line and illustrate that. if you wanted to --

>> one more box. >> if you wanted to draw say highlight a certain part of a chart there. you can drag one over here. all sorts of things you can do. you don't need to press hard to do this. it's a sheet of light across the screen. you can break that barrier and make the line happen. you've been trying to tell the story this week. it will be a great way to illustrate. >> you want to do the olympic rings? >> vancouver next year, yes. >> that's close. >> go like this. i did it really well the other day. >> j-o-e. >> that's right. >> that's what i wrote the other day on it.

>> it's what comes after it. here's what comes. financials are first. thursday, jpmorgan. friday, city and bank of america. in between that, we get a slew of other regional banks and smaller names. analysts expecting goldman to post the huge profit of more than $2 billion, driven by the trading business. from financials to technology tomorrow after the close, intel, thursday, ibm, and then google and other dow components. before the bell tomorrow. that's creeping up on us tomorrow. friday, brings bank of america and citigroup and the parents of nbc universal, geral electric. that will be t biggest day of the week. would you agree? >> friday, definitely. >> meredith whitney will be on later talking about what these guys are likely to talk about. it will be very interesting with the last three months. watch that at 8:00 too.

about what the financials are like. >> it's all the same kind of stuff. >> there's the earnings stuff. i think you have to hit a four to get back to the earnings to see what the estimates are. you can see what we're looking at trying to figure out whether the companies are missing. >> you can take advantage and gain market share and do even better. this is all expensive. these are flat screens that make carl into a hologram. >> it hurt. >> it did. i thought my hand would go right through you, but it didn't. we'll be here a lot. i'm thrilled to be leaving the set and putting these mikes on and coming over here three times an hour. >> it's not just our show. >> we'll be working till 12:00,

all right. it's a three-week sentence. it's not appealable. >> i think it's a three-week opportunity. >> we're excited about earnings season and have a lot to focus on this week. when we return, we'll head back to congressman paul kanjorski and play a game of rapid fire. washington's hottest topics and why washington is paying more attention than before. having the right tools is ccial

to being able to mage your diabetes proper it's very imrtant for me to uh check my blood sugar before go on stage. being onhen i'm feeling low n be like a rollercoaster. itoeat times feel like my by is telling me do one thing... and, mmind, my heart isellinge to do something else. maging my highs and lows is sur important. withy contour meter i can persalize my high/lo settis so it really does micromanage where myblood s. i'm nick jonas anever slowin is my simple w.

of t world's most revered lury sedan. this is a histy of over 50,000 crash-tested cars... this is the worlcord for longevity anenrance. d one of the most technologically advanced automobis on the planet. this is the 9th genera. this is mercedesenz. you have questions. who can give you the nancial advice you need? where will you find the ability and resources to keep you ahd of this rapidly evolving world? these e tough questions. where will you find the ability and resources that's why we bught together two of the most these e powerful names the indu. where will you find the ability and resources inoducing morgan stanley smith rney. here to rethink weth manement. here to answer... your qstions. morgan staey smith barney. a new wealth management firm with over 130 years of experience. the gold delta skymes credit card...

from arican express... it's the officiacard.. of the world's largest rline. and it's the only it card... that earns miles on lta. milethat take you... to more places an evebefore. over 3 destinations worldwide. so switch today. get up to 25,000 bonus miles-- od for a free flight. call now to apply. there's no annual fe for the first year... and you n redeem... these ar just a few of the benits... ofarrying the official card of delta air lines. switch now and you can rn miles... on delta with your purchas: sgroceries, gas, entertaient, and more.. get to 25,000 bonus miles... wi the gold delta skymilesdit card. call 1-800-skymiles to apply. this is thofficial card... of the world'sargest airline.

welcome back. a wig week in washington ahead. the health care debate heath up. sonia sotomayor begins confirmation hearing. john harwood covers it from the nation's capital. so much talk about palin and ensign and fan ford but also talk about the degree to which the president is facing increasing opposition to his stimulus and economic reform agenda. who's got the tougher agenda right now? >> reporter: what everybody is talking about is all the new toys on your set. that's just incredible. >> i remember election night, my man, when you had that same

telestrator with a map of the 50 states. we could take lessons from you. >> reporter: beautiful. new toys in washington. new sets in d.c. president obama has the most difficult patch of his presidency so far. unemployment is high. people are concerned about the deficit. that puts him in in a box about how he can respond to it. that has a toll on the health care debate. everybody looks at the price tag and said, if unemployment is headed over 10% and we've got a deficit that's almost $2 trillion this year, how could we spend another trillion on health care? all of those things that the president has to address personally. you'll see a lot of him this week. he'll have to get more involved. this is crunch time. he said he wants bills out of both the house and senate on health care by august. that is not looking likely. more difficult for the senate.

you've got sotomayor. how much space will that consume on washington's band width? >> we had to have congressman kanjorski right now. what do you think about what john's talking about? >> that's true. it's optimistic to think that the health care bill will be on the floor before the august break. the president does that, we don't have anything to worry about it because 's a magician. >> a big part of health care, is that going to happen? >> i think what's important about that is it's going to really move the debate to the right issue. that is, there is no free lunch. nothing will drop from heaven to take care of health care in this country. it's got to be paid for. the country has to get into debate over it. i think it's important for the administration and congress to invite the american people into this debate. earlier in the day, joe and i

had debate on who should pay for it and whatnot. legitimately, everybody has a good argument why it shouldn't be them. let's have the debate but not confuse the thing and say we can get it as a free lunch. it ain't going to happen. >> is it sellable to the american people, this idea that you raise taxes on companies that make more than 350? what is the limit on individuals, two-something? >> when you say is it sellable? we discussed that in my office this week. this probably isn't the right program. where don't the american people talk to representatives and senators as to what they want. i'm not hearing from the uninsured. the only people i'm hearing from, i'm hearing from the high income people. i'm hearing from the business class. i'm hearing from the people who are defending the status quo. let's find out. maybe there isn't a dire in the country to go the extra mile to provide coverage for the uninsured.

>> what's the difference this time around versus when this was tried under the clinton administration? >> if we had gotten to the solution we wouldn't be where we are now. every ten, 15 years, we have to get into increases in the cost of health before we realize this is a problem. this is early as it did in the '90s in the same way. the reality is we have to find some way to contain health care costs in this country. they can't go on indefinitely. we're almost twice as high as the cost of any other industrialized country in the world. that's incredible. >> odds to whether we see a bill by the end of the session? >> reporter: i still think as to a chance the house can produce the bill by the end of the recess. i do agree with the congressman on this point.

that is that by putting forth the financing mechanism, the house advanced that debate. i think at the end of the day, their proposal will not fly. i think it's a difficult proposal to get through the senate. perhaps even the house as well. the posture we're in right now is that there is a dozen different financing mechanisms out there. none with majority support. you need to start making choices or putting things on the table so somebody can say, not "a" but "b." >> not a, b or c, but d. >> reporter: i suspect in barack obama gets more directly involved and you notice his ratings have dipped down below 60%. that shows the toll of governing.

but if he exerts some of the capital he can move this thing ahead. >> john, join us at the telestrator ahead. >> reporter: i want olympic rings of my own. >> coming up, the safety of the u.s. financial system. are more rules the answer or just different rulemakers? congressman kanjorski and former ntroller of the currency wil be weighing in. the world'sannounc) leading companies

thrive on llaboration with t world leading companies. tother, we're helping to sha the exchanging world. nyse euront. powering the exchanging world.

i'm sorry. i can't hear you very well. announcer: does someone you know have trouble hearing on the phone? dad. dad, let me help you with that, okay? announcer: now, a free phone service shows captions of everything a caller says. i'd like to make an appointment to see the doctor. announcer: to learn more about captioned telephone, call 1-800-552-7724 or go to our website. i'll see you at 3:00! announcer: captioned telephone - enjoy the phone again! still to come, she is one of the most powerful women on wall street. financial analyst meredith whitney our special guest, when we'll get earnings from jpmorgan, bank of america and

citi. meredith joins us at 8:00 a.m. this morning. oh, hi! welcome to progrsive.c. ar? a ferocious white whalewrecked . welli'm sure we can help you, captain... ahab. so you don't have to pay a deductible. $500? i could t electronic fish-fder. that's the spirit. saving you money on boainsurance. now that progressive. call or click today.

(announcer) joe uses theontour meter from bayer. (joe) my meterbsolutely adapts to me and my lifestyle. i'm joe james,nd being outside of the box is my simple w. (announcer) now availae in five vibrant colors ♪ so blessed with inirion ♪ i don know much ♪

♪ and tt may be ♪ all i need ♪ to know (announcer customers love ge rcraft engines almost as ch as we love making them innovation t for america's tomorr.

should we do a reality show, behind the camera -- >> it would have to be pay-per-view. >> with the cursing, you're right. apparently cursing makes you -- it activates your fight or flight and makes you more virale and more ready to handle things. i heard that on one of our news cut-ins. >> did you really? >> no wonder you're so tough. >> i'm just getting started. he was one of president

clinton's top controllers, gene ludwig is the ceo of -- i just looked this up. >> financial group? >> yeah. he now fixes banks that are in trouble. our guest host is congressman paul ken jorski. gene, good to see you. congressman, you'll be with us for a while. you're satisfied mostly, i think, with some of the government response to the financial crisis but obviously we're right in the middle of the game and we've got to keep our eye on the ball. does that sum things up? >> i think the administration has done a fine job of directionally identifying the major issues that have to be dealt with. it's now time for the congress to take these major directions and knit it into, i hope, a best of the best pieces of legislation which is hard. these are big issues. >> they are big issues. they come at the same time we're

trying to do an energy bill and a health care bill. you know, trying to get out of what people are the great recession so nowe have toix the regulatorytructure of our financial system. what dyou like about the propos we've seen and what do you not like a what go you think actually the end result looks like? >> well, i think congressman and i both believe we have to look at the whole elephant before the elephant comes out of the zoo or out of the gate in full dress. i think that's very important. all these complex pieces create a coherent hole. if you don't get one right, it unbalances the other. the heart of what i think we ought to have, and the administration begins this discussion, is a coherent regulatory mechanism that's professionalized, world class, competent enough to deal with our more complex financial institutions on the one hand and

deal fairly with our community institutions on the other. in that case, you know, it's one of those situations where bigger isn't better and more isn't better but better is better. we need more pro professionalizatio not more rules that gum up the system. >> absolutely correct. gene, you make some great points. one of the things gene and i have been discussing for months now is time is very important factor. if we rush this through and we don't do comprehensive reform in the right way, in the correct way, with taking into consideration all the unintended consequences that could occur, this could end up just exacerbating a disaster. so, you know, we set these artifici time schedules that we have to get this done by the august break, we have to get it done by september, we're going to push it together and make it fit, regardless of whether we've had a full analysis and a full debate. many of these issues require not only a debate within congress,

not only a debate between congress and administration, but in reality a debate with the american people. that's something we haven't had all along now since the disaster started a year ago. >> gene, wh what's proposed, i an, do w need fewer regulators, less alphabet sou they're not really doing that with what's proposed right now, are they? >> well, you're at the heart of what i think we are to focus on. that is, we do in america have an alphabet soup of regulators. it's a product of history, not logic. there are a lot of good people in these agencies. they try to do the right thing. but it's so complex. it produces so much burden, so much indirection. one of the reasons we are where we are is because we have too many and less professionalized than we ought to have. we need a much more coherent mechanism and we have to get out of the mindset, which we were in the mindset that sort of no regulation is good regulation. >> all right. gene, thank you very much. we want to have you back and

talk at length about this, but we've got to go at this point. >> all right. super. nice to be with you. stay right here. click today.

"squawk box," the place for earnings. we're kicking off a busy week of numbers, including johnson & johnson, goldman sachs, and google. . how important this earnings season is for the markets and the economic recovery in the second half of the year. the president urging patience, saying it has stopped the economic freefall but the rise of unemployment in a ballooning deficit has made investors uneasy. is is the president running out of time. kim jong-il has cancer. what it means for pyongyang and markets around the world. congress man talks about that. "squawk box" begins right now.

good monday morning. i'm carl quintanilla along with becky quick and joe kernen. asia got clocked overnight. nikkei down 3%, close to 9,000. some worries about exporters there. some of our top stories. the president urging americans to give his economic recovery plan some time to work in an op-ed in "the washington post," the president says the purpose of the package was to kickstart the economy, not return it to full health. the presidents so far is has done that. it was from the start a two-year program and it will steadily save and create jobs as it ramps up over the summer and the fall. there are some reports this morning that kim jong-il has life-threatening pancreatic cancer.

picture last week showing him gaunt and ill. it leads to concerns about instability in north korea and the possibility of a power struggle if he dies without naming a successor. his youngest son has often been mentioned as a possible heir. that could probably introduce instability into markets, perhaps, if something happens on that front. >> depending on which way it goes. the markets have been watching north korea over the last couple of months. commercial lender cit group says it's in active discussions with regulators on ways to impruf the near term liquidity position. the company is struggling to finance its business. tells investors in a statement it is actively talking about solutions that don't involve access to the fdic's temporary liquidity guarantee program. company shares were crushed on friday when they warned there was no assurance their application would be approved by the fdic. there were reports over the weekend the company hired a law firm to explore a possible bankruptcy filing, also just concerns once this gets talked

about that several of its clients would draw down their lines. that could put the company in more trouble. ubf -- you and us, u.p.s. and the u.s. government are trying to delay a major tax trying suggesting there may be a deal in the works. to dodge taxes. who can get congressman, those people, those 52,000 to pay for health care because they obviously -- they're loaded. anybody who's got a swiss bank account has -- they're hiding it over there, maybe we can get those guys -- maybe they can take care of california for us. >> there's an idea. >> those 52,000. i don't know. anyway, discussions are ongoing between the two sides. they're now said to be focused on transferring client data but still not breaching swiss law. "squawk" is in session with guest host representative paul

kanjorski. do have interesting discussions off-camera. one thing i just said, congressman, you say go slow on financial regulation. you say to have a health care bill by august you'd have to have a magician. a lot of the stuff i hear from you must really -- some of your colleagues on your side of the aisle must get mad from time to time, because you don't really take the parting line in all cases, which is what we need now probably. >> well, that's possibly true, joe. they do feed me. i'm still -- >> they still do but probably less than other people get, right? >> i haven't thought of that. i'm not weighing portions. >> you think bipartisanship which to me leads dead in -- you're getting zero republican votes on all this stuff. i mean, zero. you're not getting one. 230 guys or whatever in the house -- >> it's not dead in the water.

my ranking member on my subcommittee, capital markets insurance and government response to enterprise on the financial services committee, he and i got together early in the year and i had a suggestion and he went along with it that we form a common meeting and have dinner -- >> with scott -- >> right. and what we've done is sponsor with the support of a bipartisan policy center, which is a nonprofit organization, to stimulate this, made up incidentally -- started by george mitchell, howard baker, tom daschle and the fourth escapes me -- bob dole. these former senate majority leader formed this bipartisan effort so we could develop bipartisanship. weave done it already. we've had five dinners over the last five months. we've had tremendous presenters. gene ludwig was a presenter earlier in the year, one of our first meetings. last week we just had dinner

with secretary goeithner. we spend three hours, small drinks, wine, dinner, open discussion, unrecorded, no press present and we really go at it. it's with the idea of -- now, we're not going to walk out holding hands and agreeing. that's not what congress is intended to do or party structure. what we have to do and strive for is open up the law-making capacity to both sides and get the input from all 435 members of congress. you know, i discovered an amazing thing both in the majority part of my terms in congress and in the minority. it's amazing, even some people in minority have good ideas, joe. you know, maybe we shouldn't exclude them all the time. what we're trying to do on our side and our committee is say, come on, guys, play nice. >> you probably -- you guys are in the -- you probably feel like you were excluded for eight years. >> oh, no question. >> why open it up, you know, when you were treated like that,

why open it up at this point? you've got 60 now. you've got al franken now and you've got 60. so you can do these things. >> but we always have to bear in mind that we, too, will be in the minority some day. what is the purpose of the system? the system is to invite in the best ideas and the working agreements of sophisticated politicians across the country, the best to represent the american people. the american people are just not democrats. they're just not republicans. quite frankly, they're not independents alone. they're a great, wide mixture much people. it takes in bringing in all the voices of congress, in the house and senate, to get a representation of the thoughts of those people. >> things are so intractable it's tough on -- >> it's frustrating. >> we watched the climate bill vote, which is was not easy, and talk about the democratic sen terrorists, the mary landrieus and the pryors and the ben

nelsons, do you get the sense they're getting impatient -- not impatient but uneasy about some big ideas on the president's agenda? >> they recognize there's a need to make these policies. we haven't done it for a long time. part of the reason, carl, we're in trouble in the united states -- i don't want to blame the recession on the political structure, but it probably did contribute to it in some way. we have not been willing to update and bring things alive as they should be. we have frozen ourselves in place. now we have all these five, six, seven issues that are huge. immigration could have been handled years ago. and could have probably been done more correctly than it ultimately will be done because we tend to abandon reasonableness and let it go to the extreme. wait 20 years until the questions become almost unsolvable and then we try to solve it. i think what we're trying to prove is that we've got to do these things on a regular basis. just in regulatory reform, you know, we knew and could have

done things ten years ago. we passed up the opportunity, and i won't blame just because it was a republican congress at the time. it could have happened and probably did on other issues, with a democratic congress. but we passed up getting any control on derivatives. derivatives went crazy. not that it totally caused the recession but it certainly made it much more serious and took down some huge institutions that otherwise probably wouldn't have gone down. >> let's talk about one of the issues that has come to the forefront in your subcommittee, the capital market subcommittee. david from green light capital writes in and he says he wants to know what's going to happen with ratings agencies. it was a huge question but it seems to have fallen off the radar screen. >> it's a big question. i think congress is in a position we have to resolve it. the administration sent up their white paper and although it discussed in several paragraphs the rating agencies that didn't put nearly the weight on them or the analysis of them.

the reality is, what do you do in a free enterprise system with a first amendment right of free speech when you need some entity out there to give some of us who are not in the market every day and terribly sophisticated an ability to have impartial analysis of the value of things? and rating agencies were expected to do that and probably did a good job for a number of years. and then we got into securitization and aaa became the mantra of the day and it meant millions of dollars in fees, tens of millions, hundreds of millions of dollars in fees. quite frankly, some of our rating agencies, all the independent, not government entities, they -- i think they let us down. and i think the american people and the investment community know they let us down. and we're not going to correct this problem in the future if they can let us down again by the user paying the rating agency for the value of their valuation. >> but who pays for it if they don't? >> well, it wasn't done that way

before. prior to 1970 the user paid for it. it was changed around to make profit or because it became convenient. >> not nearly as profitable. it's not nearly as profitable when you don't have the issuers paying the big fees for -- >> i agree with, but -- >> "the washington post" is up against the same thing. not nearly as profitable -- >> don't go to didn'ter with your sponsor. >> exactly. >> but there's a perfect example. and i like "the washington post." how could a newspaper decide to do that and not, you know, con jur conjure up all the ideas of what that could do to our system. >> no, because the newspapers are almost out of business. >> no. part of the problem is we've taken commercial free speech so far and we've gone to the altar of profit in free speech that it's become dangerous. it's a commodity now to be sold. that's very dangerous.

it used to be impartial -- you know, newspapers before wrote for political party entities and only wrote for that entity. >> it's not going to happen he. let me get some tim horton delicious coffee. oh, my god, the arabaca beans are so -- no news organization would ever do that. >> are you going to do something about rating agencies? >> we're going to try. we're having additional hearings. we've already had some hearings. we're already in task force working group to draft much stricter legislation than the administration has recommended. we've got to find an answer to it because, like the real estate problem, if we don't stabilize real estate, we're not going to bring the economy back. if we don't get ratings to function again, to really function again, truthfully, we can't have securitization. we can't have the amount of capital come into our system from around the world if people

can't rely on the judgment of independent analysis. >> fair enough. >> joe, pass the -- >> cream? you want one of these delicious -- >> really, starving. thank you. a lot more from the 1 congressman after thebreak. when we come back being we'll hold our own financial services hearing. the ranking hse of the subcommittee, scott garrett will join our guest host and congressman kanjorski. this time we'll be doing the questioning around here. and then oil, one year after crude reached record $147 a barrel. do you remember that? >> yes. >> gas, i think a year ago, was $4.11 and it's now $2.55, $2.56. we'll ask the experts whether that record is likely to be revisited.ho has that insurance. aflac! you really need it these day w come? well iyou're hurt and can't workpays you cash... ye to help with everyd bills like gas, thmortgage...

...and groceries. it's linsurance fso...what's it called? uhhh afaac!!!! oh yeah! that's it! aflac. we've got you under our wing. a-a-a-aflaaac!

our next guest is among those calling on the president to investigate the fed's role in that bank of america purchase of merrill lynch. scott garrett, ranking member of capital market subcommittee joins us along with the committee chair, congressman kanjorski. >> good to be back on a monday morning. >> a lot to get to. you want to start with this bank of america think? we've had congressman issa on and we've knocked this around a little bit. >> what did he say to you? >> when you say the fed needs to be investigated, what does that

entail? beyond these hearings? >> yeah, i think we need to make sure all the facts are out on the table because there's been so many allegations that have been out there. you couple that on the one hand with what paul and i know is what's coming down the road in the next several weeks and that is total reform of the marketplace and the proposals by the administration with regard to the fed, which they want to just take the fed, which has so much power today and expand it so greatly. before we do that, we should really have a clear insight as to exactly what they've been doing and just bottom line that he answers these allegations. >> former treasury sretary paulson will be in front of the committee this week, thursday, if i'm not mistaken. do you hope to get more out of him than ken lewis and bernanke going back to he said/he said. >> it's like he said/she said and, yes, get more people out on the table and get the questions answered, why not. >> congressman, do you have any hope for that? >> i happen to sit on both

committees, financial services and oversight. oversight is going back to what joe was talking about, it's going back and asking who was at fault for -- what does it really matter at this point? what i'm worried about and i think scott's worried about and all of us, what is the next four to six months going to be like? if we don't get this thing changed, we're not going to save the economy and we'll be working in strange and inventive ways to try to change things. by wasting any of our talents and time on the fight between whether threats were made or not made, i really don't -- i don't like threats to be made by anyone, but it's not going to change the present reality and the future reality. >> maybe, congressman, people who are calling for an investigation just don't want to see the fed inflated any more. i mean, why not just say that? >> i'm an anti-fed people -- person, but i've got other reasons we shouldn't be embracing -- >> we're probably on the same page on that one issue. that goes beyond if we're on the same page or not.

>> nobody has yet categorized what do these various regulators do, including the fed? well, what they fail to do, for 14 years, was a direction and authority from congress, they were asked to put into standardization and controls the mortgage system of the united states and they failed to do it. and that's why subprime mortgages and securitization went crazy, because they failed to exercise the authority that congress gave em them. so they have to step up to the plate and recognize that. i think when they do and when congress recognizes that failure being i think we should say, do we really want to reward the fed with greater powers. >> you're saying the entire housing problem was the fed's problem for not reining in -- there are people saying it was congress pushing fannie mae to say every person should own a home. >> we could argue day and night, and we disagree on a lot of those and we could go back. the only time i would like to find out is have a commission, do a real in-depth but fast

study on what caused the situation, identify those causes so we can take remedial action. we're not being asked to do that. we're asked to operate on the patient and we haven't looked at the x-ray yet. >> that's part of the problem. you're coming out with a prop e proposal from the administration, and republicans have thrown out a proposal as well, to try to go forward but really you can't go guard completely and you certainly don't want to put a statue into law completely until you understand what the underlying problems are. we just talked about two, you talked about fannie mae/freddie mac, and i think they played a huge role. we agree on the fed's role. i think they helped bring us here. both places, we need to act. now, in obama's administration plan, there's absolutely no talk whatsoever with regard to the gfas. you don't mention fannie mae and freddie mac. a lot of economists out there have come before our panel and said they've helped with

their -- with rev lajing, they helped, if not cause it, exacerbated the problem. >> is the white paper a -- >> it's a place to begin with. there are some points -- we had secretary geithner, i heard just before i came on, you were talking about the bipartisan thing they were working on, he was with us the past week, right? he was talking about that. talking about derivatives. i think i said during this time, there are some areas we actually agree with with regard to derivatives and what needs to be done. you look back and go guard and address the problems. not too confining or mandating the derivatives through clearing houses but there are some we agree with. so there are certain points you want to get into some details on. even when geithner was there -- geithner was in the dinner meetings and also in a joint meeting we had with both -- the ag committee and the services committee. it was a strange phenomena, both

committees, 110 members trying to quiz the secretary. so some areas of agreement, some areas -- >> where do you have these didn'ters? >> well, we had one in the capital, in the room of the basement of the capitol. >> you don't go to the restaurant? >> no, we did go to a hotel. we don't select the place. >> no round of picture or -- >> no, none of that. >> i think you tried to get a table at tim horton's, by the way, this coffee -- >> i'm going to make a prediction. scott and i are going to strike up a sufficient, not only a personal friendship but a political friendship because you're actually going to see bipartisan legislation introduced that he and i are both going to be conoco sponsors of that. would you agree of that? >> i do agree. we already signed onto joint legislation, that's covered bonds. we never sat and stalked about that here but we believe covered bonds is one area you can sort

of -- should have been addressed before, we can address right now, deals with a piece of the housing market. >> it's good to see you both. nice tag team action. congressman -- >> congressman will be with us for the rest of the show and congressman gartrett, we'll see you soon. coming up on "squawk box," shares of goldman sachs are higher after meredith whitney upgraded it from a buy to a neutral. she's our special guest coming up at the top of the hour. welcome to the now network. polation 49 million. right w, 1.5 million peop are a conference call. 750,000 wish ey weren't. - ( phon chirping ) - construction workers areaking 244,000 nextel direct connt calls.

- 151 accidentally hit "reply all." - ( foghorn blows ) that's haening now. america's most dependable 3g network bringing you the fir wireless 4g network. - sprint. the now network. - ( whoosh sound ) deaf, hard of hearing and peop with eech disabilities cess www.sprintrelay.com.

♪ welcome back to "squawk box" and earning central on this week where earnings quick off with some full force. futures, mildly negative here after some weak action in asia overnight. the nikkei really got trounced. europe is hovering after multi-week lows after those consumer confidence numbers on friday that weren't all that hot. there's s&p at 873. when we come back, john joins us at the earning central desk to talk about some big names you

need to be watching as we kick off coverage of earning season. access to favorite courses

chef's meal wi pommes frites perhaps a night athe theater with extra speciaseats additional hotelnight,t you world in perfect harmony: priceless look for worldn your mastercard to get rewards and off that matter to you. go to hotwire.com. they use hotwire to fill t. so you get the lowest prices , guaranteed. ♪ h-o-t-w-i-r ♪ hotwire.c

welcome back to "squawk box," everyone. among our top stories on this monday morning, ubs shares are rising overseas on report of a possible deal between the swiss bank and the u.s. government. the u.s. has been trying to force ubs to reveal the names of thousands of u.s. accountholders who they think may be dodging taxes through swiss bank acts. president obama says the stimulus package was not designed to produce instant results but kickstart the economy. in a washington post op-ed piece the president says, quote, so far it has done that. it was from the start a two-year program and it will steadily save and create jobs as it ramps up over the summer and this fall. we have congressman paul kanjorski. i was thinking back to the dark days, congressman, when -- remember the initial idea of a t.a.r.p., when it meant ppip

back at that time, and we thought that was the only thing that would save us. we are scared. you were meeting and you came on and said, we're going to put something together here, we'll get something accomplished. we did. although it wasn't the ppip, it was t.a.r.p., just capitalizing the banks. do we need the ppip? >> i think the important thing is we showed flexibility. i said earlier in the program, nobody really knows what's going to cure the problem we're in. we're trying different medicines, if you will. and if they don't work we're going to discard them and try something new. i think that's what i like about what the president is administration has done, they've been willing to be more flexible. not that if mccain had been president he wouldn't have been, but he's not going to be president and isn't, so we have to go with the president we have. thank god he's flexible. >> he is flexible. you met with one of the guys from the last administration and he's there now, and i think you

can't minimize what geithner's presence has meant either. there's been the continuity from when this all started, and he was working with secretary paulson, and now he is the secretary himself. i mean, are you impressed with his -- >> joe, it goes back to something i said earlier. it's too bad, when this whole thing came apart, september 15th, september 18th of this last year, that we didn't have the opportunity or take the time to go to the american people and fully explain it. that we failed todo. that was a failure of the bush administration. but it's also been a failure now of the obama administration. the american people are still -- they don't quite understand, why did this happen? what happened? who did what? the reality is -- i was there. i sat at the tables of discussion. there wasn't any disagreement among the finest economists, noble prize-winning economists on both sides of the political

equation. there was no difference that we had to act, we had to act fast. it was a question of how large and we could make mistakes and lose money. but it had to be done or we'd lose the whole system. and in reality, you know, i've had -- and chairman bernanke up several times and i've asked him that question. he gives a great answer but not enough american people are watching it. those three days in september we were on the edge of falling over the cliff and going 200 years behind. >> right. >> in history. >> i quote president bush, this sucker's going down if we don't do something. and i think -- that's like five words. yeah, that sums it up, what could have happened. >> right. we were so ose to losing the whole system, not in the united states but around the world. we would have lost the american democracy. i could go on and tell you discussions about how do we provide law and order, how do we feed the population. they were all discussed those nights and days that we were

working. >> we don't know that. that is scary. >> that's right. but we made it through. now we're in the next hit. the question now is, are we going to have a second crash or are we going to prevent that second crash? and to a large extent, i believe a lot of that is psychological. i think we can talk ourselves into feeling things aren't going well and that could stampede the market into dumping their stock and not making the investments necessary to propel the economy in the right direction. or else we can say, hey, we're going to make it because we're willing to do anything we have to do to make it. that's the position i'm taking. and i think that's what the president's saying. and then he's finally saying, as he said in that article this weekend, hey, let's not get scared after 10% of the bailout is out. let's give us time here. let's work a little. >> all right. >> congressman is going to be with us for the rest of the program, or at least the rest of the hour. meantime, we're focusing on what's been happening with some of the commodities markets. a year after oil's record run to

$147, some are wondering just how long that record will last. here now with their perspectives on this is john ikenberger, the director of convenient stores which sells three-quarters of all gasoline sold in this country. also kevin book, from clearview energy partners. thank you for joining us. john, we've watched gasoline prices come down over the last couple weeks, about ten cents a gallon is what some surveys are showing us. what's happening right now with oil pries and with gasoline prices? >> well, whenever oil prices move, wholesale prices move with them quite quickly. retail prices typically lag a couple days behind that. we've seen throughout the year that 26 weeks, 20 of those retailers were actually below break-even levels. now that oil is coming off the highers, wholesale prices are coming back, retailers are able to recover some lost profits and give back to the customers.

>> kevin, watching oil prices, they have come off significantly over the last couple of weeks, dropping by more than 10%. are you concerned that oil prices are going to turn around and march higher once again? >> eventually, yes. right now you have all of the hallmarks of a well-functioning market. you had an overbought commodity that converged back to reality. last year you had a real moment of scarcity followed by real correction. so far i think we're going to stay about where we are for the rest of the year. >> were you concerned when oil prices were skyrocketing it was because of what was happening in the market, speculators were driving oil prices higher? >> there's been speculation. my members are concerned there may have been a lack of fundamentals driving the price to $150 a barrel. and the reason they're concerned about that is they have no control over what's happening and the cost of the product they're selling to their customers. whenever they see markets moving without seeming justification from what they're seeing on the street, they get very concerned and are wondering, is there any type of manipulation going on?

is there any type of untoward influence happening in the market. if so, we're looking for some sort of protection to make sure that doesn't continue. >> you make it sound as if they were casually asking. my guess is, you got quite a bit more push from them than that. >> quite a bit more push. the problem is, when prices skooe skyrocket, retailers are hurting. they a lot went out of business because they were unable to develop the cash flow to buy their next delivery. they were looking at causes. they were looking at prices of crude oil skyrocketing, driving wholesale prices with them and they were very concerned and lookfor some protection. >> on the other hand, kevin, you don't think speculators were involved with any of this or they had anything to do with driving prices higher? >> i didn't say that. i think they have a short run effect and they usually get their hats handed to them when they screw up. this is evidence if there is speculation manipulating the market, they're not doing a very good job of it. i'm sensitive to john's point,

retailers are squeezed on both sides. fundamentals of demand are very weak and anything that imposes new costs on those retailers will challenge the downstream. >> why couldn't speculators have run up the price when all the pension funds and everybody else -- you can name the investment bank you want of choice, run it up to $150 and when they're finished with the trade, they're out. just because they were speculators on the way up doesn't mean they would lose on the way down. and what scarcity are you -- i don't remember waiting in a single line for gas at $150, kevin. where was this -- at the margin there was a tight supply/demand situation? where was it? >> as you know, commodities trade at the margins. gasoline is the finished product, manufactured from oil. the oil itself, the light sweet crude we use to make high-quality refined product, that was in short supply. last summer you had several indicators. you had an indicator the inferior product from saudi arabia, the heavy, sour oil was trading above wti, you had people bidding on single hull

tankers going westbound above prices in europe. these are signs of scarcity. the correction on the way down, i won't pretend that was speculators. this was a lot of people covering their trades and selling out fast. >> kevin, you testified about a year ago the impact of noncommercial institutional investors and all these speculaulatorspeculators. has anything changed since then? >> john? >> i think, yeah, congress has actually taken a much more close look at this. you look at what's happening in the credit card holders bill of rights, look what happened in the energy bill that passed the house a couple weeks ago. there's a much more concerted effort on the part of congress to take a look and see, are new regulations necessary. maybe that type of threat, a potential regulation s causing change in market behavior. you never know. i know from our industry, we start seeing congress take action, starts changing the regulatory future, we really start taking notice and thing change quickly. >> jon and kevin, thanks much. >> thank you for having me. still to come, guys,

earnings central in full effect. cnbc contributor, john najarian. coming up, financial giant entering earning central. influential financial analyst meredith whitney will be our special guest right here on "squawk box." you have questio. you have questio. who can give you the financiaadvice you need? whe will you find the stabilitand resources to keep you ahead of this pidly evolving world? these are tough questions. that's why we brought gether two of the most powerful names in the iustry. introducinmorgan stanley smith barney powerful names in the iustry. hereo rethink wealth management. here to answer... your qstions morgan stanley smith bary. a new wealthmagement fim th over 130 years of experiee. sincre/max first opened its dos back in 1973, we've helped milons of families buy or sell a ho. through good times a bad, cluding five previous recsions,

america relies on to get the job done. toy, in t worst housing market mo of us have ever seen, that experience isore important than ever. find outhat re/max can do for you. nody sel more real estate than rmax. has the fastest see in the histo of professional tennis. so i've come to this court to challenge his speed. ...on the inteet. ll be using the 3g at&t laptoonnect card. he won't so i can book travelplans, check my account balances fasr. all onhe go. i'bill kurtis and i'm faster tn andy roddick. (announcer) "switch to the nations fastest 3g network" "and get the at&t laptopconnect card for free"

ready or not, here comes earning season. investors bracing for the stream of corporate numbers. companies and s&p season posting a 17% drop. joining us, john najarian, co-founder of monster.com and he joins us with the telestrator at the central desk. nice to see. >> you good to see you. >> before we get to individual names, everybody wants to know about the outlook for the second half. in general, do you think it's going to be a good one or even a mildly good one once these numbers start coming? >> i think it will be mildly good but i think we're going to get through the first two months of this, the third quarter, in fairly back and forth/sideways

action. >> one of the bellwethers going to point the way is intel. usually centers around margins and inventory down the road. what are you going to say? >> you're exactly right. they already told us to expect gross margins of 40%. since you have the telestrator, you're the czar of the telestrator -- >> i share that title, but thank you. >> that's right. well, multiple hits at the 15 line. the stock certainly has good support there. i think i've got a couple pretty good reasons why it should -- if they have any oops, why it should be bought on weakness. number one the integration of wind/river, which gives them the open source code. i love that. and the integration with intel with that side. i also like the idea that going forward the semicon start today

as well, a big chip conference out on the west coast. and then the microsoft os 7. that is the catalyst for upgrade. i think it helps the biggest and baddest of them all, which is intel, so i'm very bullish on intel but i say if we do see any weaken, it will be because the guidance you mentioned. and i would use that as a buying opportunity. >> interesting, you mentioned the $15 price level but you can see back in august, jon, what took it down from $25. i guess that was the realization the consumer was gok a part of all this. it wasn't going to just be a corporate recession. >> that's exactly right. without this upgrade cycle, like i say, on the pc side, i don't know what the catalyst would have been last year. everything was looking pretty dismal. now we do have substantially better outlook because of the reception os7 is getting so i would say intel would be a buy here, especially on dips. >> and then yum coming on the 14th. same store sales for quick

service have not been bad, at least if you look at mcdonald's, the big bellwether. will it translate to the rivals as well? >> it will. and will to the best competitor internationally, which is yum brand. when magic johnson gave them that great plug saying michael jackson loved kfc, that can't hurt. the stock has obviously traded sideways. you look at, it it's basically $32, $35, bouncing around for the entire quarter. i think the outlook -- they beat every quarter, by the way, carl. this is one, better than john chambers, just beats 100% of the time. whatever the guidance is, that is what the key is. not this quarter. but what the guidance is. i think overall, the growth in china, of course, could help mitigate some of the losses they see in some of the other economies. look for another sideways quarter from them but i would be a comfortable owner of yum at these levels. >> you mentioned -- i mean, look, we're going to see this a lot, jon being we're going to

see patterns where we hit the march lows and turned into a decent rally all the way, as we rode that to the middle of may. how much -- to what degree does that mean that the good stories to the degree we hear good stories, are already baked in, right? how much of these companies already benefitted from the rally that appears now to be at least topping out? >> well, an awful lot of them benefitted from exactly that rally you point out. but what i'll say is that you take a look at the december to march low and all we did was recover from that. i mean, these aren't like just shots to the upside. these are recoveries from the very harsh selloff of february and march. and that's why i think yum brands in particular does look like the recovery story will continue to play out. >> then we've got google. this is going to be great fun to watch. it's the perfect excuse to play with it because there's december, jon, as you can see. maybe a little higher low in february, a little more in march and then finally a nice wave as we got -- as we saw with yum.

is this happening because people are anticipating what's going to happen with -- we've heard people say this could turn out to be the mother of all corporate battles between google and microsoft? >> it could be, just like bing could be the battle of all search sites. i fail both those. >> really? >>y. bing is a great search engine. it's not google. google makes money from, of course, the ads they place in there. look for the clicks to be up substantially but the paid clicks, the price advertisers are paid, down substantially. that's the negative for bing and google is we're looking for that margin to drop on the paid click side. now, as far as krone down the line years from now coming out with this operating system they develop for free against the world's biggest company, i don't buy it. >> really? >> i applaud them for wanting them to do, it just like i

applaud microsoft for wanting to compete against google in the search space but i don't think any make more progress than microsoft has made, quite frankly, with bing and google in the search space. google does also have a venture with intel we're hearing about about the an droid phone and intel operating for the web. i think that could be a bigger story in the short term, carl, than krone, which is years out. >> getting plenty of headlines, at least today. that will be fun to watch. you've got to get down here and join us at the telestrator as well. >> love to. coming up in ten minutes, the analyst who called the financial fallout. meredith whitney is with us for the hour. ño up next on "squawk box" -- don't make a trade until you know which stocks are making headlines. joe tells you all the pretrade news you need to know. #

♪ i can't believe it's true >> can i just say -- >> go ahead. >> you may open yourself up to legal action. >> we're combining it now, carl. we don't just play the animal orchestra -- >> if i were watching -- >> we've been playing it all hour. they're unbelievable. >> i would call my work.

>> sound stage. and entourage last night at 10:30, which i didn't see. i tivo'd that. big sixth season. a lot of stuff happens. he moves out --. >> don't tell me! don't tell me! >> gary ferrara -- >> don't tell me. >> he's dating jamie lynn ziegler -- >> don't tell me. >> this has all been out there. >> i don't read that because i don't want it spoiled. let's take a look at stocks to watch. this will be talked about a lot in the next hour because we have meredith whitney for an hour. she'sup grading goldman sachs from a buy to neutral. i believe this is the first buy rating since she formed that group and left oppenheimer. a target price of $186. a lot of other positive things to say about some of the finance -- i don't know if you call them positive, but things that might affect the way this -- the way they trade. discover financial was added and

bank of new york mellon was removed from the conviction buy list at sachs. i think they need to change that name being conviction buy, do you think they should call it a conviction list? >> sounds like the attorney general's list. >> it does. with what we've been through, i wouldn't be surprised if half these guys are cons. anyway, the rating remains buy for both stocks. best buy upgraded to outperform from perform at oppenheimer. target increased from to $42 to $40. recent concerns for the shares are overblown and the market has been too quick to dismiss the poshl benefits of circuit city's demise and how that will help best buy. i just want to say you're doing a phenomenal jobs at the earning desk. >> i had my turn -- >> no, you're the man. you are the man. >> you are next. >> no. our final thought from guest host, representative paul kanjorski, representative of the financial markets subcommittee. it's been great having you here.

you're charming and evuncular on remotes and there's an air about you. i don't think your bipartisan comment are just rhetoric, which is normally what i think. >> i appreciate you, joe. >> i think you already were where i was trying to move you in makeup. i think you're already there. who cares what i think. nice to have him. >> yes. and tomorrow you're going to be hearing from mary schapiro, she' be testifying before the oversight committee. her and get out? >> whawe're trying to dois stabilize the situation as to what has to be done with the regulators. to get to a position wher the markets start functioninve well on their own. and that's sort of ppening but in a st of slow way. organization, th sec, we're still interested in madoff and what happened there and how did they lose all thos

opportunities that they had over the last 10, 15 years. and she's going to tell us how she's reformed the organization five, six months. i have a lot of faith in mary schapiro. she's very bright,ery able and works dilishly hard. >> congressman, tnk you for yourtime. we he to see you again soon. >> it's been a pleasure to be with you in person. >> pennsylvania's right next door so you can make it here. coming up next, influential financial analyst meredith whitney. she'll help us with the banking giants that are about to enter earning central. fithe same tools the ps use, so you can b a disciplined trader. by selecting from eight advanced triggs, your ord gets executed, even wheyou're busy. and with trailing stopsto u lock in profits and minimize risk, you can be confidentin yo, no matter which waythe mark.

find out why more and more active traders are turning to fidely for a smarter way to tradenline. trade ke pro. trade withidelity. en a major hospital wantedo add on to theirenefits package at no dict cost to the company, their very first word was. aflac! aflac! fi out more at aflacforbusiss.com an eleven sixteenths ch over here? here you go. eleven sixteenths... (annouer) from designing some the world's cleanest and most fueefficient jet engines... to buiing more wind turbines than anye in the country... the peop of gere working together... creating innovation today for america's tomorrow. no problem!

the gold del skymiles credit card... from american press. it's thefficial card... of the wor's largest airline. and it's the only credit card... that earns miles on delta. miles that take you. over 350 destinatisworldw. so switch today. get up to 25,000 bonus mile- good for a ee flight. call now to ply. thers no annual fee for the fit year... and you can redeem... with no blacko dates or seat rections. these are just a few the benefits... of carrying thofficial card of delta air lines. switch n and you can earn miles... on delta with ur purchases: groceries,as, entertainment, and more. get up to 25,000 nus miles...

with the goldelta skymiles credit card. call 1-800kymiles to apply. this is the official card. of the world's largest aline. this is a special presentation of "squawk box." financial giants entering earning central. goldman sachs, jpmorgan, bank of america, citigroup and many more about to turn in quarterly report cards. influential financial analyst, meredith whitney, will be our special guest, setting the scene for earning season. "squawk box" begins right now. ♪

good monday morning. welcome back to "squawk" on cnbc, first in business worldwi worldwide. i'm carl quintanilla along with becky quick and joe kernen. futures have been down after rough night in asia and europe. we'll get inflation numbers later in the week. you know what this week is, joe, don't you? >> earnings! >> that's this week? >> this week. >> it's like it happens every three months or something. >> like clock work. >> almost like clock work. four times a year, right? >> it's built-in news and it gives us the best read we're going to get as to where business is headed and what that means to the broader economy. >> and no golf tournaments scheduled. >> so you have no excuse to miss eng. they'll be here on friday. >> you were off for a while because -- i know, your twins, oh, i got -- oh, i have twins. they're newborns. >> i'm back now. that's exactly that they sound

like. >> i need time off, like the mother can't handle it. >> oh, my gosh. here come the e-mails. >> commercial lender cit group says it's in active discussions with regulators on ways to improve near-term liquidity position. the struggling with financial position. telling investors that it's actively talking about solutions that don't involve access to the fdic's temporary liquidity guarantee program. the shares were crushed on friday when the company warned there's no assurance its application would be approved by the fdic and then we had these media reports during the weekend the company hired a law firm to explore a possible bankruptcy filing. one of the big corporate headlines today. also, ubs and the u.s. government are trying to delay a major tax trial suggesting that there could be a possible settlement down the road. the government want to force ubs to try to reveal the identities of 52,000 americans suspected of using secret swiss bank accounts to try to dodge taxes. discussions between the two sides are said to be focused on

transferring client data without breaching law. citi says it's extending the step acceptance of the california ious through friday. some nation banks have said they would no longer accept the ious after last week. and president -- >> among the banks on that front. >> a little split there. the president has been making comment over the weekend. obama calling for patience on the impact of the stimulus package. in his weekly radio and internet addressings as well as in an op-ed piece in "the washington post," the president says the critics have little credibility. >> this is a plan that will also accelerate greatly through the summer and fall. we must let it work the way it's supposed to, with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity. >> president obama is back home today after his trip last week to russia, italy and ghana. his supreme court nominee, sonia

sotomayor begins confirmation today as democrats in congress try to pass his health care plan. our next guest host -- meredith, i don't know if i'd want someone calling me, one of the most powerful women on wall street. that's the kiss of death. remember erin kalyn -- let's just say one of the -- >> 57th street. not wall treet. >> thanks for coming along. >> thanks for having me. >> reading some of your stuff, i mean, am i overstating it to say that about just some of the stocks, you feel a lot better about what might happen after these earnings come out this time around? >> it's all different. so this is a very tactical quarter. i upgraded goldman last night/this morning -- >> first buy. >> it's a bearish call but a bullish call on the stock. >> on the stock. >> because just as you were talking about the ious in california, you have most of the states underfunded. you'll see a tsunami of debt

issuance where you think goldman would be a pure play equity trade it's actually the number underwriter of munis, they played heavily in the agency mark. you never feel like you feel like you know how goldman makes money. next year it will be debt market focused. they layer on the derivative products and others. and lehman, the fact that lehman is gone is a big deal for these players. as to the other banks it's going to be really interesting earning season because while the core earnings numbers may be not so good, good, the underlying -- the below the line numbers are going to be huge. it's going to be the mother of all mortgage quarters. so you may have, you know, a nebulous earnings number but a huge move in tangible books. these stocks trade on a multiple of tangible books. things aren't improving on a core basis, improving for the banks.

their basic businesses don't make much money. in this environment because credit costs are so high. but you have a huge refinanced wave, huge refinanced quarter. last quarter they can write up their msr asset which is is a big move for banks. also you have the issue of loan. modification which i think is going to be a key issue. >> i want you to explain that because as of may 20th, s-8 6, helping families save the home act, you say that modifications are going to go up not just by a multiple but by -- there's going to be ten times as many modifications because of this program now? >> a quantum leap. >> and that's going to help the tangible common equity of the -- how is that -- >> well, what happens this quarter is you have -- what happened in the nonagency nbs number market is what happened to the agency market in the first quarter where you had a material move.

six-point move from the first quarter, beginning of the fourth quarter to end of the first quarter and banks wrote up their positions in agency paper. this quarter they'll write up the same, an equivalent move in nonagency mbs. i would say the net move in the first quarter is about 15 points. they've been trading them, they've been buying, selling, and they can write them up. that will be below the line. also you have gains from the sale of china construction bank. the smith barney morgan stanley move effective this quarter, other one-time issues. and then fas-157 gates the liquidity discount and credit discount that will flow below the line earnings. mortgage bonds works like this. on may 20th, you thought chrysler was game-changing. this is truly game-changing. over the past you think loan modifications, no big deal because the problem is, two-thirds of the mortgages are mortgages are held in the securitization market.

so it's a bond that holds our mortgage. you can't renegotiate. you couldn't renegotiate that bond. it's a violation of contract law. you couldn't sue -- you could sue the server if they changed the rules on you. you have a coupon of 8%, if they change that, you sue them. well, obama's plan on may 20th changed all of that. so you could no longer sue the servicer. what's more, the government's given the banks $18 billion to incentivize them -- >> we heard hud is having to -- >> all the wig servers, 56% of serving market is owned by the four big banks. they're all saying -- jpmorgan came out a couple weeks ago saying they were modifying 130,000 new mortgages. it works this way. when you have a past due and modify it, it becomes current and you're modeling your provisions off past dues so your

provisions, therefore, would be lower. and you also get money in the door from modifying these mortgages. it's -- it's unbelievable. >> but is it -- i thought so many of these modifications wind up where the people end up in default again anyway. if they're not -- >> here's how it works. you're 100% right. and it's also difficult to modify someone who's grossly under water, right? so the rate of recidivism is north of -- is at 25%. so those that redefault. what the banks are going to do now -- becky, you're not even late on your mortgage, but you might be, so i'm going to call you in advance and modify your mortgage in advance that way i don't take a capital hit but i can show that my modifications are working better and i lessen the chance you could default. >> is there aifference for people who aren't steeped in housing credit? is there a difference between a loan modification and a mortgage

refi? >> there's a difference because if you -- a refi shortens the life of an asset. i prepay and i go to -- my mortgage with-s with you and i go to joe. a loan modification extends the life of an asset. you have mortgage servicing rights write up this quarter and you'll have mortgage servicing write-ups in the prospective quarters because your servicing asset is with more. the servicers will be more inclined to do this if they, in fact, service and then own other loans as well. so i talked to some servicers who say that msr write-ups could ultimately be three, four x of what they are today. these are big assets for the banks. nothing improves on a core basis but you have so many things moving around that from a tactical basis if a tangible book is moving up you don't want to be short these names going into it to say i want to go

nuts. you could trade them but you don't want to marry them. >> so your goldman call is a -- it's very different from this one. you know, we're getting five points on, you know, a whitney bounce today in goldman. i was going to ask you about, if this is logorythmic and it sounds like a watershed event that when banks report you're going to see. you're not telling me i should go out and buy bank of america, jpmorgan, wells, or are you? >> bank of america is the cheapest of the banks relative to tangible. i'm taking citi out of this. >> okay. >> i think that you could see a -- >> what kind of move? >> i mean, you could see 15% move in these names short term. handily. now, what happens is, they will increase their tangible capital now and i expect probably within the next six, nine, 12 months

they start to ebb away the tangible capital again because there are over 7 trillion of assets -- >> the rast time you were on, i think, but your big concerns about credit cards and other consumer debt being the next shoe to drop. a lot of people that were looking for and hopeful about a recovery in the financial group would say, well, meredith whitney still has concerns -- meaning meredith whitney -- >> the economy is still contracting. >> exactly. >> this sounds like we can at least move you from, you know, very bearish near term, at least to neutral or slightly positive on the financials. >> solvency has been off the table for several quarters now. i'm concerned about the consumer. on the financials, you probably don't do much. you probably have a 15% move, which is decent, 15% move in

financial short term and then you may flat line. then i think you have another leg down. there's a -- yeah, a couple things are going on. there's a lot of one-time tricky things going on with the financials, but then main street consumer has not been helped one bit. and from the credit card industry is so fascinating because 90% of consumers resolve at lea -- revolve one time a month. already $1 trillion in credit lines have been cut from the system. uniformly, credit card lenders are cutting. in the fourth quarter jpmorgan cut $200 billion in lines perform first quarter, bank of america cut $230 billion of line. citi has yet to do a really big cut. but the main street -- >> but they did raise their rates. >> and they raised their rates. so the unintended consequence of all the legislation and risk aversion is that fewer people have access to credit. there's no doubt in my mind the consumer is not going to come back in any major way and is

going to pull in their horns for a protracted period of time. how that helps over the long term, how you get the economy moving significantly over the long term? it's still a big, big question mark because everyone has gotten a pay cut. >> this is not a call on the broader economy. this is a very smefk call. >> it's a trading call. i mean, it is very clear when the dough nominator shrinks and consumers have less available liquidity, and reminding you there's a lot of refinancing going on, not a lot of new net lending going on, the consumer suffers and the consumer will sufferer for a longer period of time. you look at the first quarter, i mean, what went on with the government buying agency paper was a way of putting money in the back door of these financials. this, you know, fas-157 you could argue was the same thing. and this quarter weights going on with the mortgage industry, i mean, it's wild. the mother of all mortgage quarters. >> all right. >> wow. it's amazing. >> that is incredible.

>> may 20th it happened? which one? >> unnoticed, unnoticed. >> what is it? 189? i want to start using it. i was reading the notes, may 20th. what was i doing on may 20th? it escaped me. >> $18 billion incentives going up to $75 billion of incentives to modify mortgages. >> and the liability risk being removed, too. that's a major -- >> they can repackage them and sell them to ginnie mae. >> there were some comment in barrons over the weekend that loan mods are great for the banks but releverage the consumer. >> it's still money. but you've reduced -- what's going on now with the loan modification business, they are reducing your monthly payment, whereas previous loan mods in many cases increased your monthly payment. it buys you time. it doesn't cure things.

you have to restructure the entire banking system. a lot of the -- the issue is you've got rotten loans. you could make a loan that didn't makmuch money, razor-thin margins in mortgages and credit cards because you were making it up by packaging and selling it to third market. that obviously is not happening anymore. and so when credit turns, you've got less of a cushion. in fact, no cushion. >> we're going to have much more with meredith whitney. she's with us for the rest of the hour. we have to sneak in a very quick break. coming up in the next half hour as well, we've got the ranking member of the finance committee, senator chuck grassley. he'll be talking to us about what he thinks the regulation revolution should have involved with it. also talking about health care reform. that's been dominating capitol hill. we'll have much more when "squawk box" returns.

in these markets, for annuity with guaranteed income f life. that's right, guaranteed income for life.

it's guaranteed, no matter what happens. if granteed income for life unds good to you, do what i did -- let fility be your guide. call fidity at... for details out guaranteed income r life.

the treasury secretary, tim geithner, in london today

meeting with uk prime minister gordon brown and darling, talking about american and british efforts to stem the global financial crisis. let's go over to beck at earning central. >> earning central and up is running this morning, just in time for the huge week of quarterly reports. today we'll be focused on the financials. up next, we'll be targeting key names that the markets will be watching very closely. earnings central on "squawk box" right after this.

you have questions. who can give you the nancial advice you need? where will you findthe s to keep you ahead of this rapidly evolving world? where will you findthe s these e tough questions. that's why we bught together two of the mo powerful names the industry. where will you findthe s these e tough questions. inoducing morgan stanley smith rney. here to rethink wealth manement. here to answer... yo qstions. morgan stanley smith barney. with over 130 years ofxperience.irm

♪ we are kicking off a giant work week for earnings, especially from the financial sector. in fact, if you haven't heard this already, take a look. we are expecting some big names. it's something the street's going to be closely focused on. goldman sachs, they'll be reporting before the bell tomorrow. on thursday you get dow component, jpmorgan, chase on the list. friday, you've got bank of america and citigroup. in fact, today we are joined by a very special guest, meredith whitney of meredith whitney advisory group to talk about what to expect from the financials, what the street's looking for and what she's looking for as well. meredith, we've been talking about goldman this morning, but

you've got a very interesting perspective on goldman. the street is at bz 3.48. what they're expecting tomorrow for goldman. you're looking for a very higher number. >> i'm looking for $4.65 and looking kroes to $20 a share for 2010 and $20.10 for 2011 which makes goldman a very cheap stock on a earnings basis. it's very similar on what's going on with the banks except goldman's acting on an agency basis. is this going to be the mother of all mortgage quarters. so they're going to have enormous stick revenues, stick revenues from buying, selling, nonagency mortgage-back securities from the muni debt, corporate roll debt. so i think goldman is going to surprise us big on the upside tomorrow and everyone will have to -- analysts will have to raise their estimates dramatically. this is on a three-year prospective average basis for

earnings and i'm 30% above the street. >> what's everybody on the street missing or why is they missing that? >> maybe they haven't focused on it yet. look, the stock in november was $50. you could say, well, i missed that, too. i didn't have a sense for how they were making money, the sustainability of their ability -- the sustainability of them making money. once you figure it out, i need to have strong conviction to put people into a name over the long term. now i see how they make money. it will be clearer. again, they make money, seemingly, at different ways every quarter. so when people get confident about the fact they're making money in a very boring way, they'll raise estimates and the stock will move. >> how are the rest of the financials this week going to match up? let's talk about jpmorgan, which comes out on thursday. >> goldman does all of the -- has all the benefit of the mortgage market, of the capital markets in general without what i call junk in the trunk in terms of, you know, rotten loans. >> junk in the trunk, huh?

>> so, you know, jpmorgan, citi, all the banks have it, which is the issue of home equity loans, mortgage loans, issue of credit cards -- >> anything dealing with the consumer getting into trouble. >> jpmorgan will do very well on investment banking side. it's ahead of the terms in credit issue. it's plagued by a sizeable home equity book. i think jpmorgan will be the really good insight into what's going on with the mortgage modification efforts. and so jpmorgan, below the line, will do well. i expect the below the line number to be significantly better and that will be a great preview to see what happens with bank of america and to a lesser extent citi. >> you say bank of america is really one of the most important ones to watch this week. >> i think bank of america is, because bank of america is, bar none, the cheapest big bank relative to tangible book. i describe bank of america as having a lot of optionalty,

meaning they have a lot of things to sell and things they are ready to sell. things they're ready to spin off. not only will they have a humongous mortgage quarter but @ they also are going to make an announcement about the jv between first data and bank of america merchant services. slim on the details. i think the street is expecting that to add $2 billion to bank of america. i think the write-up will be much greater. bank of america, i think you could look at a tangible book of value growth over $50. tangible book closed out the first quarter of $10.88. you could be looking well in excess of $12. that a big ve. >> what about citi, what are the important met ricks to watch. citi is in a unique position. >> they just restated numbers. my poor associate. restated numbers again on friday, so he had a nice weekend in the office. and what matters with citi is,

you know, they've got so much dilution, it's hard for them to move the needle. if they had a strategy of asset to position, you could get excited about the stock, but there's just too -- really too much going on. i don't know that most -- i don't know that that many people are focusing on citi this quarter. >> meredith, this morning we pointed it out before, but goldman sachs up about $5 in the premarket trade based on what you've said, largely. looking at some other financials, the bid ask higher across the board on this. is that a fair -- a fair reaction in the stock market, you think, from what you're actually seeing beneath the surface? >> if fairness, the stocks have been off so maybe they're recooping. it's an easy trade into this quarter. you know, we'll know soon enough. i mean, we got proof positive tomorrow with goldman. >> tomorrow with goldman. thank you very much. by the way, meredith is going to stay with us and be coming back over to the set with us.

we'll have more in the next half hour of "squawk box." carl, right now, back over to you. >> thanks for that. when we come back after the break, the word on the hill, reform from financial regulation to health care. we'll talk to the ranking member of the finance committee, senator chuck grassley, our special guest at 8:40 this morng on "squawk."bo floyd "moneh so i've co tthis ring to see who'saster... on t internet. i'll be using e 3g at&t laptopconnect card. he won. so i c browse the web faster, email business planfaster. all on the go. i'm bill kurtis and i'm faer than floyd mayweather. (announcer) switch to the nation fastest 3g network and get the at&t laopconnect card for free. thsame tools the pros use, you can be a disciplined trader. by selecting from eightadv, your order gets exut, even when you'reusy. d withrailing stops to help yo

lo in profits and minimizeisk, you can be confident in your stragy, no matter which way the market mes. find out why more and more acti trade are tug to fidelity for a arter way to trade online. trade like a pro. trade with fidelity.

welcome back to "squawk box" here on cnbc, first in business worldwide. we are one hour away from the opening bell. checking the futures, they're now positive. find out -- find out whether some of our comments from our esteemed guest host is getting some scuttlebutt on the froor. i watched some futures move on the comments of financials. we're joined from chicago, meredith whitney is here. positive on goldman, making positive comments about the financials. suddenly the markets are called higher. >> that's true, joe. she definitely turned it. you know, in that regard, i would like to ask meredith a question because she raised an issue about the sanctity o contracts when it comes to

credit markets. you know, i'm always suspect about that. her work has been great in this area. she was willing to tackle this issue. but we've seen the sanctity of credit markets be broken back in the '80s which culminated in brady bonds. i thought they could always go that route to reinstill new covenants into these agreed-upon issues to try to renegotiate the whole structure of the mortgage -- of the residential mortgage market. i would like to hear her speak to that. >> is there -- the -- i mean, you can -- obviously, they can do whatever they want. they've done it. and it doesn't make you feel any better as a bondholder, right? the question, the rules are changing all the time, is one that -- has been an issue now for a year. so, you know, it's what they're doing. i don't have any -- i don't have any religious, you know, view on it one way or the other. i'm just stating the facts.

>> and, you know, i appreciate that because, of course, we've had the club of roman. i would imagine we'd see some type of domestic program based on it, especially because the obama administration would really like to force that issue. and i don't think wrongly, by the way. i think that needs to be done. >> you're going to see a big issue with the municipal markets because that's a very fragile -- i mean, the municipal market could be poised to, you know, to double, i think, in the next few years. state are so grossly underfunded. and, you know, something has to be -- something has to be done there. debt markets, obviously, the linchpin for all of us. >> yeah. and that's, you know, joe, i think that brings the point up about that california now is starting to get traction in people's minds. i think it had a lot to do with the late selloff last week with the equity markets, as california really does become a bigger issue because we've always said as goes california as goes the whole nation. so if california is forced into

a bailout, i think meredith is right, that will force the municipal bond issue right to the front of the burner. >> we have some t.a.r.p. money left, i think. that's possible. >> well, it's interesting. the banks -- the money that were paid back by the banks went out the other door to help some of the state governments. so, what -- >> because congress is not going to -- they're getting too many calls from constituents about helping california, i think, but there's t.a.r.p. money that could go there without any authorization, right? >> well, california's just -- they've been talking about this since 2007, but, you know, arizona's right behind them, and nevada's got to be the worst state in the country in terms of underwater mortgages, increases in unemployment. you're starting to see that bleed out through the northeast now. we got into a regional recession the last cycle because lending was regional. it's a national recession now because lending's been nationalized. >> ira, that was good. thank you for -- you know, i'd

rather have you ask questions of our guest host than me ask you questions anyway. just makes it easier for me. i've got carl and becky at the earnings desk. i've got to read "the post." anyway -- >> you could go back to your desk. >> if you go ahead. what's this about? oh, the michael jackson stuff. >> see you tomorrow, joe. when we come back after a break, republican senator chuck grassley being ranking member of the finance committee, never short on opinion and he's ready to talk about financial reform, health care, stimulus, cap and trade, a lot more from the senator. ♪ look at ts man ♪ so essed with inspiration ♪ ♪ i don't knoch

♪ but i know i love y ♪ and that may ♪ll i need ♪o know (announcer) stomers love ge aircraftngines almost as muchs love making them. innovation today for america's tomorrow. the go delta skymiles credit cd... from american exess... it's the official card... of t world's largest airline. and it's the only credit card. that earns miles on delta. miles that takyou... to more places than ever before. over 350 destinaons worldwide. so switch day. get up to 25,000 bonus miles-- good for a free flight.

call n to apply. there's no annual fee r e first year... and you can redeem. with no blackout dates or st restrictions. these are just a f of the benefits... of carryg thed delta air lines. switch now and you can ea miles. on deltaith your purchases: gries, gas, entertainment,ndore. get up to 25,0 bonus miles... with the goldelta skymiles credit card ll-800-skymiles to apply. this is the official card... of the world's largest aline.

in the midst of washington's push in reform in the financial sector and health care, how are taxpayers positioned to hold up in all that? for a first on cnbc interview this morning we turn to washington and republican senator chuck grassley, the senate finance committee ranking member. senator, good to have you back. >> good to be with you. thank you. >> a lot of ground to cover in a short period of time. let's sgin with health care. a bit of a debate at this table as to whether or not this will get done before the august rece recess. what's your prediction? >> well, i think it will get out of committee before the august recess, that's august th, until labor day. i don't see how, with sotomayor nomination coming before the senate, before we adjourn on august the 8th that there will be time to get a bill through

the senate. and, by the way, i think that it's better if we take more time because this is an issue that is so all-encompassing, restructuring 16% of our economy, it ought to be done in a thoughtful way. >> the president, of course, would say he would agree with on you that point, that it is important. all the more reason to get it done. he's basically said in so many words, it's either this session or not at all. if it doesn't clear the senate, that's going to be a setback for him. would you agree? >> it would not be a setback if it's done before the end of 2009. if it goes over into 2010 then i would agree with the president. i didn't read the president to say that it needed to be through the senate by august 8th. i think he's expecting to sign a bill sometime this fall, and that could still be done. >> that could still be done. we've had the deal with big pharma, some savings contributed at least in theory by hospitals.

now we've got charlie rangel and house ways and means talking about a surcharge on people who make a little bit more money in this country. is that going to happen? >> i hope it doesn't happen because what you're talking about is bringing a massive new amount of money into health care. what people are telling me, both at the grassroots as well as my republican colleagues and a lot of democrats, is that we need to bend the cost curve. and that means within the 16% of the economy that's now spent on health care, we need to restructure it, not bring new money into it. and that sort of tax, any tax for that matter that brings new revenue in, will not bend the cost curve. what we need to do, as we're making ahead 10 or 20 years, that we're not spending a lot more than 16% of the gross national product on health care. people are saying, we're

spending too much and not getting enough out of it, our quality isn't what it ought to be. >> but as you know, the surcharge is not in lieu of any savings on the medicare front. it would be part of the total contribution. i guess i'm saying, even with a reform in medicare and savings on that front, is the tax -- the surcharge tax sellable to the american public in any way? >> you're talking about the surcharge on income tax that chairman rangel has proposed, as an example? >> right. >> if you look over the ten-year period of time that we call a budget window, it may balance out. but what you're doing is you're bringing more money into spend on health care and you're increasing the percentage of the gross national product going to health care, and you're increasing very dramatically the 2.3 trillion we're already spending. most of the people -- any senator that gives a speech on

this says we're spending to much and not getting enough for it, so bringing more money into it is not solving that problem. >> all right. so on health care you think we may not get anything to the senate or through the senate by the recess but potentially by the end of the session. you're not quite as confident on cap and trade, is that right? >> oh, i think if you look at what the president and the group of eight did over last week on global warming, not making any definitive judgments of what ought to be done, when it ought to be done, but just setting broad goals -- >> 2050. >> well, yeah. but not setting any specific goals for countries and, don't forget, china walked away from the group of eight meeting because of problems back home. and they're not being there to say what they're going to contribute leaves american workers in this country to seeing more manufacturing jobs outsourced to china because china, if they're not part of

the effort to bring down co2, carbon dioxide that causes global warming, then american workers are going to see their jobs outsourced because china contributes more to co2 than the united states does. >> so i hear you saying, if g-8 was an illustration of how c connecticut ten shus this issue is, we know how difficult it was for democrats to get to 19 in the house i hear you saying cap and trade for all intents and purposes is dead. >> i didn't say it's dead. because when you have democrats leading this congress and gore pushing them in the religious way he's pushing them, they're going to want to produce something. but i'm telling you, it's -- if it had trouble getting 219 votes in the house, it's going to have trouble -- really big trouble getting 60 votes in the senate at this point.

don't forget, senator boxer, origin originally was going to have a bill out august 8th, now put it off into september. that tells you there's big problems in the united states senate on global warming. >> the last issue. the hearings on judge society m sotomayor. is that sabre ralttling or not s easy democrats hope? >> can you call it sabre rattling if you want to but there's a great deal of study of her cases that she's been involved in now over her more than a decade on the circuit court that indicate that she's very much a judicial activist and that she's going to make law as opposed to interpreting law. and her challenge this week will be to show conservatives in the

congress that she's not a judicial activist and leave bias out of it. it's not so much her cases but a lot of speeches she's given that led people to believe she's going to be very much a maker of law as opposed to being an interpreter of law. don't forget, the latter is the goal and responsibility of judges if they're going to be judges and not be legislators. >> but you still think she has the time to make that case? >> oh, of course. she has not started. she's just starting today to do that. everything before now doesn't count. >> senator, it's always good to talk to you. thanks for your time. >> okay, thank you. >> senator chuck grassley joining us from washington. >> i need to read this, i guess. i thought i was clear sailing. >> this is like 50 words and then you can go back to reading "the post." >> all right. i'm trying to figure out what jacko's dad has planned here.

earning season is upon us once again, like christmas for us, really, sort of. four times a year. a gift that keeps on giving. 500 stocks in the s&p. there are literally thousands of stocks in s&p 500. next, more with one one of the most powerful women in the financial world, our guest host meredith whitney. : 1-800-345-250 "i'm rethinkingeveryth. tdd#: 800-345-2550 including who i trust to look after my mon." tdd#: 1-80345-25 tdd#: 1-0-345-2550 "the dust mightbe sett. tdd#: 1-800-345-25 that's great, bui'm not." tdd#: 1-800-345-2550 tdd#: 1-800-342550 "i guess i'm just done with " td1-800-345-2550 tdd#: 1-800-345-2550 "oh, i'm not thinking about moving my money. tdd#: 1-800-345-2550 i am"

let's take a look very closely at shares of cit. we've been watching that this morning. that stock got crushed friday. it's under pressure again. tim geithner making comments in london where he says they are watching cit developments very closely. of course, this has been a big question about what's going to happen with small business lender. you can see the pressure on this stock once again. just again, to tell you what we're reading from the wires, tim geithner, telling us he's watching cit developments very closely as well. let's get more insight from meredith whitney of meredith whitney advisory group. we've been talking an awful lot about the financials. across the board the financials have been indicated higher this morning, whether it be goldman sachs, the call you made, or just other stocks from bank of america on, based on some of the

xhebts ycomments you were makin. when you see the consumer, you're still worried about a lot of of things you're worried about. >> none of what goes on this quarter impacts the consumer on main street. consumer on main street is having lines pulled on at least a consistent basis. it was accelerating. it may accelerate again. at least it's on a constant basis. there's nowhere to hide. there's no optionalty for that consum consumer. what you know, i divide things into a chart, what i know and don't know. what i don't know is what the government is going to do. i do know banks are not lending on a net basis. there's runoff, particularly with the sub prime portfolios there's runoff and less available credit to the consumer. the consumer is going to spend less. banks underwrite loans with two basic presumptions. where home prices would go. over $7 trillion of loans we

were initially under the idea home prices would never go down. they hadn't since the great depression. they had to play catchup. the other key assumption is unemployment. >> right. >> unemployment continues to drive higher. and the banks are not prepared for double digit unemployment. so that's going to be a -- you know, an issue for them that doesn't go away for the next, you know, year and a half. >> how long would you say we can afford to have unemployment at 10%? at what point does -- when you say we try to buy ourselves some time with these modifications, when does even that run out? >> i don't think you have a lot of -- i don't think you have a lot of time for the banks' assumptions. they were underwritten with a w very thin margin. i think it's the unemployment that will come to haunt banks and require many of the banks come back for capital. because you didn't plan for it.

now you're not prepared for it. despite the banks have big reserves. so many of the assumptions they made going into this were bad assumptions. >> you're more worried about the severity of unemployment, the amplitude? >> frequency. you pay a loan based on your willingness and ability. the willingness is driven by how much under water am i on my home? how much more do i owe than own? the ability comes to do i have a job or not? and that's the age-old issue. so for credit cards, it's a 1/1 correlation. i pay based on do i have a job. and you've got unemployment in states that are -- is up more than double year on year. and so not to mention the fact we talk about all these states underfunded. 12% of the cit is driven by state and local, you know, government spends. >> in your models where do you see unemployment headed or at least where are you factoring this is lining up? >> i'm chicken, so i probably

wouldn't say what i really feel like. when i said home prices would be declining more than 40%, i really meant 50%, but i was too chicken to say it. low double digits to low mid double digits. >> so you're talking 13%, 14%. >> i think you could say 13% unemployment. >> over the course of years? 2010, 2011, 2012? that's a problem. >> that's a problem. >> yeah. >> the whole economy has to restructure, right? we have been so dependent upon -- we underestimate how much of the economy was dependent upon the mortgage industry. and so much of that has to change. >> she just put a buy out on goldman. >> i know. >> we're not going to be positive in the third quarter. the gdp is not going to be positive in the third and fourth quarter, then. >> i don't --

>> the economy -- >> it's true. >> he is good. i love that. i could listen to that all day long. >> we sometimes do. >> off camera. >> the issues haven't gone away. >> that is awful, what you just said. you said -- you said the t word. 13. then you said the f word. 14. >> no. >> i said 14. >> you said 13%, though. and you said you're chicken to say 13%. i said chicken because i usually say low double digits. >> so your worst case sew ncena that's 13% or 14%. >> not ready to go 14%. but 13%. >> 13% would be -- the worst i think is the duration we're talking about. forget about second half 2010. >> this is what happens when you delay the inevitable. we're buying time here.

we're not restructuring the economy. so many of the banks are buying time. they're not restructuring the way they're doing business. and -- >> there was a question about that heard on the street -- >> i don't know how anybody makes any money, you have no earnings to put any multiple on. >> goldman sachs is an exception. you know the municipalities are going to raise money. you know the government -- >> consumer things. anything related to consumers is in the water for the next few years, then? >> no doubt about it. no doubt about it. >> can i ask you about new york real estate. do you have any opinion about that. >> i'm a renter. >> that says a lot right there. >> these forcasts from tmi last week where values will continue to plummet in at least half of -- >> there's an easy way to look at real estate. the load modification is a really big deal. you had homeownership at 64% forever until 1994 when the standards were relaxed and clinton made a big push with

fannie and and freddie. now you have homeownership at just over 67%. it peaked just under 70%. it's a supply demand issue. there's more supply than there is demand. that usually means prices go down. >> i know of a guy who bought a place in september for $1.18 million in the city, tried to refi, it's valid at $780,000. it's going to be hard to refi a lot of these homes. >> stress test. >> the stress test was not so stressful. >> a final word with our guest, meredith whitney, after a break in just a moment.

not a lot of aivity. you read the new and yet, se people need to sell and other people want to buy. this is a moment of challenge and opportunity. to help you meet the o and recognize the other. because the fure's counting on us. nobody sells more real estate .