our guest host, former senate member john sununu, is there any way to not talk politics now? >> definitely, definitely. >> how can we do it? it seems like government and the economy are one and the same. >> in many areas of the economy, they are. but i think people understand we

need to start pulling back. we're having repayments under the t.a.r.p. i think it's important for congress to ensure that that money is kept in the treasury, used to pay down debt. we have warrants that are going to go to auction next week. we talked about jpmorgan today, their earnings. there is a good, clear, transparent process for the treasury selling back the warrants. they couldn't come to an agreement and now it's going to go to auction. i think it will be interesting to see what happens. and one final thought about jpmorgan, i think it came true in the stock wasn't trading up because jamie dimon was very honest. the consumer hasn't come back yet and commercial real estate. there's a lot of pain to come over the next 18 months to two years in commercial real estate. >> senator sununu, thank you very much for being with us today. by the way, joe, i just got an e-mail from judd greg. of course i like joe. he's the only person i know that's to the right of me. anyway, that does it for us

today. "squawk on the street" is next. >> friends like these. >> out me. live from the financial capital of the known universe, this is "squawk on the streets." good morning, everybody. the dow and s&p riding a three-day winning streak. can we make it four? nasdaq up six straight sessions today. tug of war for investors. sentiment, fears about cit failing, better than expected numbers on the jobs front, better than expected results. jp morgan chase. >> a lot of things to contend with today, mark. i'm rebecca jarvis in for erin burnett. initially breathing life into stocks, but auto layoffs cueing the numbers and the market gains were very short lived here, mark. obviously not only seasonally adjusted numbers, but also we're

still talking about more than 500,000 jobs here. so when people look at it, they see it as something less bad than expected, not necessarily something good, either way. >> seasonal adjustments bother the heck out of me. you know, the way it works is if they expect 100,000 layoffs in the auto industry, then they reduce the claims number by 100,000. >> exactly. >> and they think that's what's -- so economics can play some tricky games. >> yeah. anyway -- oh, yeah, futures. they picked up on the news that it has fallen back and we're down a half. we need 2.28 to get to fair value. so, you know, we're pretty much blah. >> and not only those jobless claims numbers, but the cit situation is front and center. the pending collapse, david faber has been reporting the story and he is here with the latest. hey, david. >> good morning.

cit is certainly going to be one of the focuses today, of course. the company is having a very difficult time throughout this week. a great deal of attention paid to its negotiations with the various federal regulators, including, of course, treasury and the fdic in terms of trying to get access to the fdic's program that would essentially allow it to issue debt. also being trying to ultimately move a number of assets from cit to the cit bank. we heard from cit in a press release that there did not appear to be a likelihood of additional federal support being provided over the long-term. and as i reported late last night, it does appear likely there will be a bankruptcy filing for the company as soon as friday. this is a very fluid situation. cit trying, of course, to do what it can to perhaps try and find either a buyer or some way to access that private capital

that has been so elusive until it recently finds itself in this division. the stock trading, what, about 1.60. bonds will be the key. they are expected to suffer today. certainly the credit default swaps, as well. we'll be following this situation throughout the morning. the company has about a $75 billion balance sheet, so that would make it certainly a very large bankruptcy if that, in fact, does occur. a huge lender with small and medium sized businesses. ultimately, here it appears the regulators have made a choice that cit is on its own. despite the fact that it has taken in $2.3 billion worth of preferred stock from the u.s. treasury under, of course, the t.a.r.p. plan, it would seem that u.s. taxpayers are going to be out that $3 billion unless something unexpected changes in the next 12 to 24 hours for cit. key for the company also is how many of its customers are

actually pulling down on revolvers that they currently have in place. we've talked about this the last couple of days. there were $5 billion of uncommitmented at the company during the last quarter. companies have been pulling down on that money. they need to be forming some form of collateral in order to do so. finds itself in. i also want to get back to you at some point on jpmorgan. the numbers look good on one side, but hearing a number of different things in terms of questioning the quality of those earnings. so that is an important story, as well. back to you. >> absolutely, david. back to you. we're monitoring that jpmorgan conference call as it take place right now. in the meantime, as we've been talking about, the number of workers filing unemployment, that fell sharply last week, but

it was distorted by an unusual pattern of auto industry layoffs and that amplified the drop mark as we've been discussing. >> let's find out how cit, jobless and all the rest of these things are impacting premarket trading. our reporters are standing by. bob pisani here at the big board. robert. >> there's good and bad news here. they beat on the top and bottom line and much of the beat appears to be from the fixed income area. the bad news is credit. that's sort of the big talk here. nonperforming lobes were up 30% in the quarter. net income charge thinks the company will never probably recovery. continues to tick up in the home mortgages, prime equity area. the company has increased its provisions for credit losses here, so they're trying to address that. but nonetheless, a conference call is going on right now and there's a lot of discussions about the fact that particularly commercial real estate will continue to worsen here. do you know what the other big story is here today? china. did you see the gdp numbers?

7 b 9%. that's well above expect sagszs of 7.5%. they've got an active stimulus program there that appears to be having some kind of effect. some disappointing earnings commentary this morning from marriott. 9 to 14 cents for this current quarter, very disappointing. nokia, they also came out with their commentary and they lowered their market share and their margin guidance. that stock is trading down 10% right now. brian shactman is standing by at the nasdaq. >> that nokia news is part of what's moving things. let's not forget we gained 3.5% yesterday. he mentioned nokia. sony ericsson swinging to a loss. just want to show you research in motion and apple in thand set world. both of them down in the premarket trade. microsoft, no surprise, but they're going to try and position their retail stores near apple.

oracle, an upgrade to buy at socgen. gardener, which tracks pc sales globally said says down 5%. dell, they say, has 13.6% global market share, about 6 percentage points around there below hpq. biogen idec, huge restructuring charge meant a 96% drop in their profit. they're down. axalinx, down today. qlogic gets a buy upgrade. let's check out the oil trade with sharon epperson. >> brian, you saw that $2 rally in oil prices yesterday. today we're seeing a bit of a pullback after the strength in oil as well as the weaker dollar yesterday. we did get to that $62 mark overnight, but we have pulled back over a dollar since that time. and keep in mind, demand continues to be a big concern here in the u.s., but a lot of

folks say, hey, we need to be looking east. bob told you about china's second quarter gdp numbers, almost in an 8% gain there and crude runs in china up significantly, about 650,000 barrels per day compared to what we saw a year ago. even the data we got out of china is not enough to support the metals market. copper hit a one-month high yesterday. it's seeing a slight pullback right now. now across the pond to lobbed with guy johnson. >> thank you very much, indeed, sharon. let's talk about what's happening in the european markets where we are trading generally. positive. we are taking the banking news as a positive. let's just say that right now. the european banks are up. they're not really absorbing the negative side of what we heard on credits. we've been hearing that from bob. let's talk about the markets and show you what's been going on over the last few days. in the last week, we've been

trading up-and-up today no exceptions. but there are a number of negatives in this market and the big one is nokia today. we heard the impact that it's having down at the nasdaq. it's having a big impact on the european technology sector. the conference call, talking about a fundamental shift in the hand set market that nokia still needs to continue to react to. we are seeing margin targets being cut in the second half of the year. that is the big fear coming into this number and today it was confirmed the stock really reacting rather violently. it was up sharper yesterday, but today, down strongly. no variety novartis, upping its sales target on the drug for the second half of the year and matching q2 expectation figures, as well. so good and bad news on the earnings in europe, but nokia is certainly a big, big negative. rebecca, over to you. >> thank you so much, guy. among the main events on capitol hill today, former treasury secretary hank paulson will be

grilled about his role in bank of america's overtake of merrill lynch. the hearing begins less than an hour from now and mary thompson is on the set to set the stage. >> reporter: he was saying if bank of america had backed out of buying merrill lynch, the financial sector risked collapse. a lead player in steering the country through last fall's financial crisis, paulson was seen by some to be the most powerful man in congress. now some in congress think he abused that power. today questions are likely to focus on whether he threatened to ax bank of america's management if they invoked a material adverse claim clause to get out of buying merrill because of mounting losses at merrill lynch. in his prepared statement, paulson said if bank of america exercised the mac clause, such an action would show a colossal lack of judgment. paulson does acknowledge if he

invoked the act, they have the power to remove both he and his board. but paulson says he did use strong language, but says those words were his own and not a directive from federal reserve chairman ben bernanke. he also says he didn't tell lewis to keep merrill's mounting losses from shareholders. he says that simply didn't happen. look for paulson to be questioned about how and why he distributed t.a.r.p. funds as he did. specifically the money to be given to aig. including the companies that paulson used to run goldman sachs. look for a lot of questions on that. back to you. >> thank you very much, mary. we will take you back to capitol hill for the paulson hearing in the next hour of "squawk on the street." live coverage of the opening statements and then the q&a beginning around 10:00. >> we'll see how long that

takes. it tends to last a while. >> it goes on a while. >> coming next -- >> oh, i'm sorry. up next, earnings central, the hog not riding so high. marrio marriott's profits plunging. jpmorgan's results may not be what they seem. what does it all mean for your money? >> then the markets riding a real winning street into today's action. but will unemployment angst washington spending free? will that stall the surge? plus, another fear factor for wall street. the health of the home front. just released foreclosure data says housing isn't ready to recover. we will take you inside those gloomy numbers. the world'sannouncer) leading companies thrive on collaboration with the world's leading companies. together, we're helping to shape the exchanging world. nyse euronext. powering the exchanging world.

mark's favorite music, earnings season in full swing this morning. he's dancing to my right. joe and carl meantime manning earnings central for us. david faber with us with his expert analysis. let's kick it off with jpmorgan. joe, take it away. >> thank you, rebecca. jpmorgan out of the gate early this morning.

okay. you're tall. we get it. >> that's not nice. the company earning 28 cents a share. stand in front. jpmorgan earned 28 cents. that beat expectations at 4 cents. revenue came in at $28 billion. that, like goldman, was maybe what a lot of people were pointing to. to beat revenue sess a good sign in this market. but the story of jpmorgan may not be what it seems and that's why my -- your big on knowledge, big on confidence, you have a big brain and i will slouch because i'm a sloucher. >> yeah. well, you're shrinking, anyway. if this keeps up -- >> what do you mean? >> you know, there's questions about nonperforming loans being more than anticipated. the reserve bill being less than anticipated. there's questions about the quality of earnings. there seems too be a good will reversal from wall. the call has been going on.

you know, as you said, 55 cents ex the t.a.r.p. repayment, obviously, well above what had been anticipated in terms of the earnings. fee income was higher than what had been anticipated. so there are some mixed signals. >> which we would expect. >> it's up this week. >> right. >> is the overall theme, though, like operationat excellence in just an awful macro environment? that continues to be the story at some of these banks? >> yeah. you know -- yeah. jpmorgan has had fewer problems than many other banks, as you well know. but the key question here is what are we getting a sense for? and you talked about this earlier in terms of credit quality especially when it comes to the consumer. mike cavanaugh did say something that i thought was of importance which was that they are starting to see over the 60 to 90 days new trends in terms of the early delinquency buckets in which they put some of these loans, that things are starting to

stabilize. so we don't know whether that's going to continue, but he pointed it out and said that would have good implications for future loss trends and said we could be getting near the end of adding to reserves in these portfolios. >> he's on at 11:00. are you part of that? >> no. >> you don't need me any more, is that it? >> no. i just wondered if you were with larry and melissa. >> melissa might be coming from jpmorgan, right? is she over there i think today? >> yeah. it's good to have him on. this was the earnings report we were waiting for today, obviously. >> without a doubt. then there were a couple of things. jamie, you always like listening to him because he doesn't really -- there's no bs. he answers the questions, every question. he did say he believes commercial real estate will get worse over the next several quarters. although not materially significant to jpmorgan's numbers, but perhaps some bad times for the regional banks when asked about commercial real estate, which didn't really figure in a lot of the slides they've given us.

>> got some other numbers this morning, as well. nokia to disappoint with its outlook, 73% drop in q2 profits. it says it no longer expects to gain market share. you got that this morning out of our 6:00 hour. >> yes. and the consumers across europe and in finland are trading down and that hurts the average selling prices and makes it harder for nokia to gain market share. you pouinted out that smartphons are not high end at this point. if they're not, what are the high end phones be? >> why wouldn't it be -- i don't know. >> the iphone. >> i guess you could still get a cheap -- you know, you can still migrate lower. >> everything moves to mobile, and these devices. how is nokia going to fare in that world when you have the palms and the apple --

>> you saw a turn around about a year and a half ago as nokia surged back to $30 a share. this year it's been as low as $8. it's back up to $13 or $14. you saw in that chart, it gave back quite a bit today. >> you were watching hawg, too. >> we're saying it crashed and burned. if you look at the numbers themselves, profit was down 91%. i looked closer and there are good will charges and noncash charges that toog earnings down to that number. a 91% drop. the company plans to cut 1,000 more jobs. it will have lowered shipment volume and the notion that the dream buy that people in good times or bad, if you've been saving up for a harley your whole life you're going to get one, i don't know if they can make that case any more.

>> is there a consumer good that's as discretionary? how about boats or rvs, they're not doing well, either. >> and combine the ability to get credit with it, we were trying to figure out, is anything in elasticinelastic? contact lenses, people wear them longer. >> baby powder. >> they trade down. >> have you done that yet? >> no. >> you said it was like putting on silk. >> i know. but i might move to cornstarch because people are telling me there may be health concerns. and i'm a user. i've gotten kicked out of health clubs. >> it's true. people wear masks. >> a guy complained it was on the carpet. >> what are you here for? >> i know. what a -- >> mark? >> you love this. >> okay. that was fun. to look in on a chip n dale's

audition. a quick programming note, coming up on "the call" a cnbc exclusive, melissa francis since down like with jp morgan chase's cfo, michael cavanaugh to get a first hand look at his company's earnings, the economy, financial sector, you know, whatever he wants to talk about. that's his high school prom picture. thaems that's coming up on "the call." coming up next, however, a look at how traders are digesting the latest news. and on the hot seat, hank paulson testify egg on his roel in the bank of america/merrill lynch deal. that is starting at 10:00 a.m. eastern. g b

you're watching cnbc's "squawk on the street" live from the financial capital of the world. >> we're down here on the floor being joined by barette meyers. he's the ceo, the big man, the big kahuna. what's going on here? >> we had a couple days of beautiful run up here off of earn cans and economic data. i think we're ready for a bit of a respite today. cit will weigh a little bit on this marketplace and, you know, i wouldn't -- >> but my point is, it looked like we were head & shoulders, we were going to test the

bottom. is that over? >> i'm not saying it's over. it looks like we have a head & shoulderses, maybe a hunchback going there. i think you can throw that out the window. we'll see what happens over the next day or two. >> so as far as china goes, how much does that story play in today's trade with their gdp number better? >> it soes there's continued growth over there that everyone knew was going on. i think that bodes well for all the companies here that export. beyond that, i don't think it's too exciting. >> all right. thank you, warren meyers. >> my pleasure. >> opening bell, coming right up. at 155 miles per hour, andy roddick

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>> a lot of earnings. >> yep. the futures have indicated a mess to mess opening. we've had some good earnings, we've had some not so bad jobs numbers, but who knows how everything is going to work out. here at the big board, best buy, bby, and at the nasdaq, wireless device distributor brightpoint ticker cell brating its anniversary. >> and we start with bob pisani down here on the floor. robert! >> hello there. let's take a look at the crowd here. this is cit. cit is going to open here todaye crowd, 25 and 35. it was $ .64 yesterday. it looks like talks with the government has collapsed. there is a possibility avenue bankruptcy. still 25, 35? >> no.

30, 35. >> thanks, guys. so you heard about jpmorgan. the good news is they beat on the top and bottom line. the bad news is there's a lot of credit issues here, nonperforming loans. 30% up from quarter over quarter. the net charge-off for some of the big areas like home equity, prime mortgages, credit cards continue to increase. there are increased provisions for losses that the company has taken into question as to exactly whether or not that would be adequate. jamie dimon talking about increases in commercial loan losses likely. i'm talking commercial real estate there. elsewhere, china is the big story because 7.9% on their gdp, above expectations of 7.5%. they've got an active stimulus program ongoing right now, and it appears to be having a positive effect. companies generally supporting down beat earnings guidance this morning. marriott was a good example.

they beat on the top line, again, cost cutting, but very disappointing earnings guidance here. despite an earnings beat, nokia also brought rather poor guidance and is we talked about that. they're down about 10 mers. me lowered their market shairs share as well as their guidance. brian shactman, how are we looking at the open on the nasdaq? >> we're down about 8 points. you mentioned nokia. sony ericsson swings to a loss overnight. research in motion did settle a patent litigation suit with visto. they're both down. microsoft, the news is when they open their stores, they're going to try to get them close to apple. cisco, that's not a buy. charles schwab, it didn't meet expectations, but it's a 30% drop in profit and they had to wave a lot of fees to stay

competitive here. biogen, very strong there. google we hear from after the bell. steel dynamics on the conviction buy list, up 2.6%. we have james river coal which had an upgrade to buy at you ubs. they're at $16.91. canadian solar off 7.3%. they've had their estimates raised and their price targets now $19 a share. i want to send it down to sharon epperson. yesterday the bulls were fairly in charge. how about today? >> we are looking at oil prices here that are lower. the market seems to have shrugged off that positive news coming out of china about its economic rebound and they've shrugged off the fact that we are hearing that the militants in nigeria may not agree to the cease-fire any longer. still, we're looking at oil prices right now that are under $60 a barrel, around $60 a barrel here in the nymex and

that is a key equilibrium point, a precarious equilibrium as we see the momentum kind of wane on either side of that $60 mark. so that is a very important target level there. keep in mind as we look at natural gas prices, storage data will come out at 10:30 a.m. today. there is an expectation that we will see an injection, an increase of 87 bcs, but that's significantly lower than what we saw a year ago. perhaps that's why we're seeing a bit of a rally here in natural gas prices ahead of that data coming out at 10:30 a.m. eastern time. rebecca, back to you. >> thank you, sharon. matt nesto has been listening to the jpmorgan conference call. it's over now and nesto gives us some of the highlights. >> any questions he'll give you answers. let me just run through some of the things. they're talking about their loan

loss coverage ratio. they're at about 5% right now. they're very comfortable with those levels, not only for themselves, but versus their peers. in terms of retail banking, they're talking about the 30-day delinquency rates prime at about 9%. two-thirds of their losses are coming from california and florida alone. in the card business, they opened about one-third less cards than they did a year ago. they're 30-day delinquentsies are at about 5.2% and their charge-off rate is almost double from a year ago. their wamu car losses could approach 24%. the chase card losses 10% next quarter if and both dependent upon the unemployment rate. it's interesting, it's almost an economic reminder about jamie dimon saying credit card losses have a direct and highly

correlated doekz unemployment sxl home losses. speaking about real estate, they asked about commercial real estate and he said, you know, commercial real estate in the u.s. is going to get worse. at the same time, it's it oh sin accuratic. it depends on the develop he, the location, the property, etcetera. as far as jpmorgan, they say our exposure to commercial real estate has been conservative all along. it's not a big problem for us, but it will be a big deal for the regional banks. that's some of what we got from jamie dimon. kind of what they did about goldman, a little worried about how far we've go the come so  fast. but i didn't detect any signs of real fear or concern or the ability to call the bottom in the economy from jpmorgan today. >> thank you very much, el nesto

grande! >> the market kind of tiptoeing around. how should you proceed? joining us for the cnbc edge in stanford, connecticut, my colleague, chairman of holland and company, owner of the tunnel and in philly, if you're lucky, he gives himself the 6:00 to 8:00 a.m. shift. so if you're lucky. go through the tunnel at that hour, he might take your money. in philly, shawn clark at clark capital management. start with shawn. where are we headed here? head & shoulders was a bust? now we're going back up, or this is a head fake and we're going back down? what? >> yeah. that pattern that most technicians were talking about, the head and shoulders pattern, if it held it probably would have indicated that we would go down to 800 on the s&p 500. we saw 875 break. triggered a bunch of stops and real quickly, this week, monday,

a little rally tuesday and then big advance yesterday. i think almost invalidated that pattern. i'd like to see the s&p get above 930 and hold. if it does that, i think we then look for the june 12th highs of 956. i would expect those to be penetrated to the upside. then i think that -- >> wait a minute, wait a minute, wait a minute. this is way too complicated. are we going up or down? >> all right, mark, so far, the market has done absolutely nothing wrong. we've had a 7% correction, well well within the scope of a normal correction in the early part of a cyclical market. we're going higher. >> mike, a lot of folks who bet on head and shoulders were wrong and particularly wrong yesterday. is that yesterday sort of a head fake out there or is that more of what we expect to see coming? >> a head fake and a head and shoulders, rebecca, well done. other than mark haines, to who say whom i listen about stuff is

art cashin. and he said he needs a few more days here. and he says be nimble. and i think that's obviously, in this market, the right thing to do. it looks as though the market try toes make the fools of the most number of people the most amount of time and it's doing that right now. >> and so when you listen to jpmorgan, which one do you trust as the bigger view of what's to come right now with jpmorgan and goldman sachs? >> i love those two together, rebecca. the best of times being those two, worst of times being cit. the people manage their business in a way to get through this incredible crisis over the last couple of years are reaping the benefits and unfortunately, the others are getting hurt. >> all right. so where should i put my money here? what sector am i going to be treated best? >> sean or me? >> we'll stick with you.

>> we'll come back to sean. >> no surprise. i still like the tech area, mark. i think -- and is then when you get a pullback, which you're going to get at some point here, i would look to the emerging markets. china, taiwan. in the fixed income area, once again, the u.s. treasury inflation, the tips where urth rewards from both inflation and deflation, you get a pick up over money market fund rates. >> sean, same question. >> i agree with everything mike just said. our largest sector waiting right now is technology. we added the semi conductors on tuesday pre-intel news. that trade worked out for us real well stylewise. and i'll reiterate what mike said about emerging markets. those areas emerging, in asia, that's where the economic market is for the foreseeable future. >> sean, speaking on that topic

of emerging markets, we got out of china last night. better than expected. in terms of the growth, how much of it do you think is built into chinese stocks. >> china is with international holding right now, so we still like it. who knows. i don't know what we can trust in terms of the economic data. what we trust is the performance of the chinese stock market. it's done very well. the strength continues to be very strong. not only relative to the rest of asia and emerging markets, but also those in the u.s. if that's an area we're going to stick with until the performance starts to wean. >> thank you, gentlemen. sean clark, mark collins, appreciate it. up next, the brain continues to analyze jpmorgan's results. >> plus, the latest data on foreclosure and the news isn't pretty, folks. the health of the home front being hurt big time by the

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welcome back. we're going to start off here on jpmorgan. obviously, on cit, anything i get we'll bring right to you. i'm hoping to have more insight into that situation past what we told you at 9:00 a.m. eastern. the overall market is looking pretty stable this morning after that huge rally yesterday. much better than anticipated. remember when you look at these revenue, year over year comparisons, even earnings, they didn't own washington mutual. there's a look at the market

itself, which started lower this morning, but as you just saw, the dow jones -- actually, the s&p is let's call it flat right now. as for jpmorgan, kind of a mixed bag in some ways. some positive signs, somewhat positive comments on the wall and we'll hear from mike cavanagh this morning. not performing loans, $3.5 billion up from $3.2 billion from the prior year. the question is, are things continuing to get worse? if they are, some are saying they would have expected a higher provision, perhaps as much as $500 billion higher. that provision closed to the bottom line. and they had $8 billion in provisions for credit losses. so that is a question that i'm hearing, as well. at the same time, you've got this comment from cavanagh on the call, which some people will say, hey, that seems like it might be a positive.

and he was cautious. but nonetheless said, charge-offs do trend higher versus prior periods. in a couple of cases, prime and subprime above their future guidance. they gloe flow into early deliquency buckets. the dollar value of the loans sit in those early delinquentsy buckets has started to stabilize. in other words, it's starting to stabilize. some of the circumspect beyond that, that could be a sign of good things. for example, home equity, you can see what that is looking like at this point. delinquentsies of the 30 days.

this is totally written off money. that doesn't look like it's getting much better. unemployment to a certain extent, that's just going one way right now. we'll see how bad things get as unemployment continues to grow. on that subject, by the way, as for card services, again, an area of here on the faber report. losses to chase, 10%. highly dependent, of course, on unemployment after that. wamu losses to approach 24% by the end of 2009. we expected continued pressure on charge volume and outstandings growth. they told us that before. mark, back to you. >> thank you, david faber. another sign the housing market is still struggling to find a bottom. new foreclosures surging to record levels again. hampton pearson takes us inside those numbers. good morning, hamp. >> good morning, mark. as you just mentioned,

foreclosure activity nationwide continues to set records and continues to be on the rise despite all those government and/or housing modification programs out there. in the first six months of this year, we saw 1.9 million foreclosure filings on 1.5 million properties according to realty track. that is up 9% from the previous month and 15% from the same period last year. in june, there were 336,173 properties filing. the fourth straight monthly increase. rising unemployment is the biggest catalyst and the number of homeowners who owe more on their mortgages than their homes are worth continues to rise. nevada, arizona and florida have the highest state foreclosure rates. california, the highest total. nearly 392,000 properties, roughly one out of every 34 housing units in the state received a foreclosure filing. >> thank you very much, hampton pearson. up next, the buzz from the

trading tip and we look at what's the biggest driver, job losses, foreclosure data, cit's troubles. the answer on the other side of the break. plus, mark, we are minutes away from former treasury secretary hank paulson appearing before the housing oversight committee. he's going to defend his role in the bank of america/merrill deal. many have come before him. we will see him speak his own words today.

♪ hotwire.com markets are bumping back into positive territory here from the looming bankruptcy of cit to all the noise in those jobless claims numbers. however, what are traders in the pits making of today's headlines? johning us now, john brady. john, along those lines of the cit group, i'm wondering how much counterparty risk there might be out there. the government, it seems, has deemed them not too big to fail, but what are you hearing? there's been very little contagious especially on a comparative basis from lehman

brothers and cit. we saw a modest uptick in three-month libor settings earlier this week. but given the liquidity facilities that are in place and given the ring fence that i think has taken place within cit and their counterparties, we think the cit situation is most likely limited and has been taken care of and dealt with effectively by policymakers. >> in terms of what we're seeing today, equity is coming back. what do you think is going to drive this? >> we've come a long way just in the matter of a few days. s&p futures will have that settled on friday close to 870, and this morning they're concentrating to 9.5. there's a lot of good news i think built into the 55 handle rally that s&p has seen the first three trading days of this week and thus we may see a pullback in equities. bonds are firmer here, as well. so i think we may see a little bit of a pullback given the

impressive run up we've seen. i think where the risks may lie in the short-term, rebecca, is that the outlooks for quarter three and four may not be as robust as what the current quarter earnings were. and the policymakers may have further challenges as it relates to unemployment, consumption and profit expansion. >> so did technical analysis fail us? >> i think it's tough to say technical analysis failed us, mark. you know, there are a number of different crosswinds and cross currents in the market. some would suggest the head and shoulders perhaps failed. >> that is what i'm referring to. >> it can be a failed earlier this week. and i would argue, too, that given the drop in open interest we've seen in some of the s&p 500 futures understand decks that perhaps one of a few things have taken place. perhaps short players have been squeezed out or perhaps long players have taken chips on the table. sure, the focus here failed

early on, but i would suggest given the short squeeze here the market is a little off in terms of long being long from bad levels. >> so you're not willing to be bullish? >> i think it's a trader's market, mark. i think we have to be really careful as we approach 950, 925, 950, i think what investors have to ask themselves is how much better can things get from here between quarters three and four. thanks so much, john brady. thanks, rebecca. the oeld professor is here with the philly fed survey and analysis after the break. >> plus, we'll take you live to capitol hill where former treasury secretary hank paulson defends his role in the bank of america/merrill lynch deal. welcome to the now network. population 49 million.

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>> first time jobless claims fell last week to 522,000, the lowest since january. continuing claims also fail. realty track reports home foreclosures fell nearly 15% during the first half of this year. and treasury secretary hank paulson is set to testify before a house panel this morning on

bank of america's takeover of merrill lynch last year. that's cnbc.com news now. i'm courtney reagan. welcome back to "squawk on the street." we are waiting for the philadelphia federal reserve's business activity index which is expected to come in at minus 3.1. it had come back substantially since the prior -- since the depths. there it is right now, just coming over the screen here. we're looking at minus 7.5 after it said in june minus 2.2. looking at the components there, the prices paid came back at minus 3.5 versus minus 13. shipments, that fell off, as well, as did delivery times. that improved a bit to minus 10.3 to minus 18.9. overall, a weak survey, but not as bad as it's been. it's been down as low as minus

38. but bouncing along the bottom here, the expectation was for a slight decline. itdy client a little more, might beus 7.5. that will set up expectations for the national ism survey which we'll get in the beginning of august. opening statements guessing under way in that paulson hearing. let's listen in. >> $20 billion of taxpayers' money to help finance his merger. he never had to disclose $12 billion in merrill lynch losses to investors until it was over. he never had to ask the shareholders to re considconsid. in the end, mr. lewis got everything he wanted. mr. paulson and mr. bernanke also got what they wanted out of this marriage. they got an unbankruinterruptedr

that they believed help to stabilize the market. the problem is that while all of this was going on, the american people, investors and the congress were kept in the dark. there was no oversight to determine whether this arrangement made sense. in my view, this sun acceptable and must be prevented from happening in the future. that being said, significant issues need to be resolved today. wi was bank of america really forced to go through with the deal or was this just an old fashioned brooklyn shakedown? did ken lewis threaten to back out of the deal in order to squeeze more money out of the federal government? if mr. paulson believes that ken lewis had demonstrated a colossal lack of judgment, why

did he and mr. bernanke leave lewis in charge of bank of america? did government officials tell ken lewis to keep quiet about the escalating losses at merrill lynch and the government's commitment to provide billions in federal fwunding? did congress make a mistake in conferring broad authority on the fed and treasury in october 2008 when the t.a.r.p. fund program was created? should congress have required more accountability, transparency and checks and balances in the operation of the t.a.r.p. funds? fraps perhaps mr. paulson will help us shed some further light on this transaction and help us to answer these questions. i look forward to his testimony this morning. i now yield five minutes to our ranking member of the full

committee, mr. darrel icer, for his opening statements. >> thank you, mr. charnl, and thank you for being a full partner in this process. mr. chairman, i would ask unanimous consent that the gentleman from florida, mr. sterns, and the gentleman from new jersey, mr. garrett, be allowed to sit in on the panel pursuant to our rules and ask questions at the end of other questioners. >> mr. chairman, it's clear that most of the basic facts related to this event in december of last year are no longer in question.

secretary paulson has confirmed that he did tell bank of america's ceo, ken lewis, that if the bank of america exercised the mac clause and later needed assistance, then management would or could, depending on how you look at it, be fired. this is not in debate. as a matter of fact, the candor and clarity that the secretary is bringing to us today is refreshing and helpful. the fact that the secretary does not believe it is inappropriate, perhaps we should look at in light of the times, just as revisionists have rewritten what we were doing after 200 to protect the homeland, we are already beginning to question whether, in fact, means used at the disposal of the fed and the treasury and the fdic were inappropriate or appropriate now that, of course, a global financial meltdown has been averted. i think in fairness, just like in the cold war, had the soviets

come over the czech border, we would have had to come as we are and bring what we had. what we had at the beginning of this crisis was, in fact, secretary of the treasury relatively new on the job, a fed chairman relatively new on the job, all of whom were being told here is what's happening on a daily basis, do something about it. they came to us with a plan, a plan that i voted against, a plan to buy toxic assets for some $700 billion. but when they went back and started looking at how to execute after receiving it, it became clear that it was more complex. that it was more nuanced, that the needs were not necessarily for toxic asset purchases and that it might not be in the taxpayers' best interest. solo there will be some things that i approve of and some things that i disapprove of, i think today, mr. dharm, we have to consider with this last witness the situation that existed at that time, one in which the president had lobbied

heavily for monies, but without anyone having a book written on how you get through these times. wall street, perhaps, would say that the end justifies the means. we have, in fact, been saved. here in washington, we're monday morning quarterbacks. monday morning quarterbacks say, in fact, if we have to play again next sunday, how do we do better? what can we learn from what happened on the gridiron on sunday? mr. chairman, that's our job here today. we have to ask some serious questions and use an expert witness as part of the process. we have to ask what would he do differently if he had it to do over again. what should we do in order to glean the causes, the events, the solutions and, in fact, what regulatory changes will be necessary or at least considered

if we are to be prepared to not have it happen again or, as the chairman said, provide the transparency, accountability, predictability and rule of law the next time that may have been lacking in this once in a century event. so mr. chairman, on a bipartisan basis, i am thrilled that we were bringing to the a close this three-part hearing process because i believe it is helpful and will continue to be helpful not just as oversight, but as a partner in the necessary reform. mr. chairman, i might take note that just yesterday, all of the -- on the house side, at least, all of the commissioners for the 9/11-style financial commission that you and i worked on together were named. that is a beginning of what could be up to an 18-month process in which i believe that both of us and all the members of our committee will be working together to ensure that our reforms fit future possible challenges.

i thank the chairman and yield back. >> thank you very much, congressman issa from california. this hearing is being conducted with the joint policy domestic sub-mt. i now yield five members for the opening statements for congressman kucinich from ohio. >> a bunch of five-minute statements by a bunch of people. >> a lot of openers. >> we will return to this when secretary paulson starts talking. in the meantime, a quick break. in these markets, i'm glad i turned to fidelity for an annuity with guaranteed income for life. that's right, guaranteed income for life. my annuity from fidelity means my retirement income is safe. it's guaranteed, no matter what happens. if guaranteed income for life sounds good to you, do what i did -- let fidelity be your guide. call fidelity at... for details about guaranteed income for life.

once again, we are waiting for the politicians to cease their bloviation. the house oversight and government committee, we're expecting treasury secretary henry paulson to begin his testimony sometime. as soon as he does, we'll bring it to you live. >> and the markets have turned around a bit here following the philly fed survey. we did see them in slightly positive territory this morning. now we are seeing them in slightly negative territory, kind of a seesaw session to start out things here. and you have this mix of data omg out. you have the jpmorgan news coming out on its face looking good. maybe some of those wamu credit card issues going forward, so there's definitely a combination of data combined front following yesterday's major market search.

>> there is one under current i should mention and that is downed volume is three times up volume. so even though we're not down much, a lot of down volume. let's pay some more bills for mother ge and we'll be back with hank paulson's testimony when it begins. speak one financial language. the language of exchanging. together, we're helping to shape the exchanging world. nyse euronext. powering the exchanging world.

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welcome back. we're waiting for mr. paulson to begin his testimony. in the meantime, here is a quick update on the markets. drug and transportation stocks fractionally on the upside. transports had a great run this week as commodity stocks have done well and, of course, one of the railroads making major positive comments earlier in the week. take a look at some of the big financial names. you know about jpmorgan here. good news and bad news. beating on the top line and on the bottom line. there are concerns about chit issues overall. we talked about charge-offs crediting a bit. nonperforming loans up 13%.

mr. dimon in a conference call this morning talked about increasing provisions for loan losses and about the fact that commercial real estate losses are likely to increase. most of the major banks are slightly to the downside. take a look at another sector of the financial group. on the downside of margins. mark and rebecca, back to you. >> thank you, bob. a quit break and then we're back with more of the day's market headlines and that testimony from hank paulson. >> yep. still waiting.

okay. we're back and they are they have apparentlily finally said all they want to say at the beginning here. hank paulson is taking the oath and i believe he's about to begin. hang with us here for just a moment. yeah. here he goes. let's listen. >> ranking member issa and distinguished members of the committee, i served as secretary of the treasury from july 2006 to january 2009. during my tenure, the world experienced a financial crisis unprecedented in our lifetimes. the crisis presented a relentless series of novel challenges that required swift, innovative and dramatic responses. had the crisis of 2008 been left

to unfold without strong federal reaction and intervention, the world of 2009 would look very different from the world we live in today. many more americans would be out their homes, their jobs, their businesses, their savings, their way of lives. the crisis of confidence last fall threatened to disrupt or entire financial system, not just the institutions that had high credit losses on their mortgage investments, but all financial firms, whether weak or solvent. as liquidity dried up, the continues collapse of financial institutions that provide credit and handled payments would have met in short order the firms across industries, not just wall street, but every street would have seen a massive curtailment of access to financing needed to purchase supplies and pay employees. missed payrolls would have

quickly turned into even more millions of layoffs and this, in turn, would have meant an even greater retreat of consumer spending. it would have been extremely difficult to break the momentum of this downward spiral. now that the financial system is stabilized, we could and should take the time to learn the lessons of the past. in the mist of a rapidly changing crisis, our responses were not perfect, but i am confident that they were substantially correct and that they saved this nation from great peril. this hearing is about bank of america. and in my prepared testimony, i lay out the series of events surrounding its acquisition of merrill lynch. there are three issues that are appropriate to address at the outset of this hearing. first, some have opined that i and other government officials allowed concerns about systemic risk to outweigh concerns about

potential harm to bank of america and its shareholders. that simply did not happen. in my view and the view of numerous government officials working on the matter, the interest of the nation and bank of america were aligned with respect to the closing of the merrill lynch transaction. second, some have suggested that there was something inappropriate about my conversation of december 21st with mr. lewis in which i mentioned the possibility that the federal reserve could remove management and the board of bank of america if the bank invoked the mac clause. i believe it was appropriate for me to explain to mr. lewis that the government was supportive of bank of america and that it felt strongly that if bank of america exercised the mac clause that would show a colossal judgment and would jeopardize america, merrill lynch, bank of america

and the financial system. under such circumstances, the federal reserve could invoke its authority to remove management and the board of bank of america. i intended my message to reinforce the strong view that had been expressed by the fed and which was sharedly the treasury that it would be unthinkable that bank of america take this destructive action. third, the suggestion has been made that i discouraged mr. lewis from making required disclosures to the public about losses that merrill lynch. that simply did not happen and mr. lewis has denied it unambiguously in testimony before this committee. i would like to conclude with what is most prominent in my recollection of the events of last fall. what i recall most vividly is a nation faced with a threat of an unparalleled economic crisis and the efforts of the men and women for both the public and private sectors who worked hard to steer

our nation away from that precedent. it was my privilege to work with them and i am proud of what we have accomplished. thank you, mr. chairman, and i'd be very happy to answer your questions. >> thank you very much, mr. paulson. we will begin with the question period. each member in turn will have five minutes, of course, and i will begin. as you can see from the document up on the screen, mr. lewis, bank of america claimed under oath to attorney general cuomo's office that he would have renegotiated the deal if you didn't tell him he could not do so. and the lawyer says to mr. lewis, you can always renegotiate. mr. lewis says, not when you're told you cannot do it. mr. lewis has asked, would you

have tried to renegotiate the price if you weren't told not to do it by mr. paulson? mr. lewis' answer to that is yes. is it true, then, mr. paulson, that you told mr. lewis he could not renegotiate the merrill deal? >> it wasn't quite that director specific, but i can be very clear that we viewed the invoe vacation of the mac clause, whether it was to -- whether it was to renegotiate or just get out of the merger as being very risky. the markets were driven by fear and uncertainty and the invocation of a mac clause, whether it was ultimately going to be resolved by the courts or be resolved by a shareholder vote would lead to an extended

and difficult process and the fact still remained that we viewed the mac clause as being a legally binding contract. >> was that a yes? >> well, that was what i said. i said that -- that we viewed -- i viewed and i know the fed viewed that the invocation of a mac clause was -- would be a serious mistake. it would be a class colossal lack of judgment if he invoked the mac clause, whether it was to renegotiate or whether it was to go through the courts. >> i'm still trying to find out whether that was a yes or no. >> well -- >> and maybe it's not allowed. >> did i order him directly? it wasn't that direct. but i did say that i thought invoking the mac clause would be a -- would be a colossal lack of judgment. there was no sound legal basis for it and the distinction between invoking the mac clause

to renegotiate or go to the courts was what was one for all practical purposes was not a significant one. well, let me say if he had issued and indicated the fact with the mac clause, wouldn't that be a colossal lack of judgment on his part? and wouldn't this have updiesed his own bank and the american economy if he had exercised the mac? >> yes. yes, but mr. chairman, the -- it was the view of very experienced federal reserve lawyers that there was no -- there was no sound legal basis. and it is my understanding that there is no instance where a delaware court has let a company use a mac clause to get out of a merger. and this particular mac clause, it even had a carveout which

carved out changes due to market conditions. >> my concern is that if you had those concerns, you know, why didn't you just fire him? >> well, i would say this. remember, mr. lewis did not invoke the mac claud clause. he did not doing in that showed a colossal lack of judgment. mr. lewis was considering this and his board was considering this and they decided -- they decided to fulfill their contract and acquire merrill lynch. >> well, you know, it seems to me that if he had this lack of judgment, how could you give him $20 billion? it seems to me you would have just forced his hand at that point in time and pushed him out. >> mr. chairman, i'm making a distinction between inaction that he must have taken, which he didn't take.

if he had taken an action that showed a lack of judgment, i think then the regulator would have been irresponsible if the regulator didn't push him out. but he did not take that action and he -- they fulfilled their contract and they acquired merrill lynch. >> let me -- i'm running out of time here. did you call mr. lewis or did he call you in reference to this deal? >> in which of these calls? >> is it true that mr. lewis called you in december 2008 and asked the government to get involved in the merrill lynch deal or did you call him? >> no. the fist 250i78 we heard of this was -- was a call from lewis. and so on december 17th, i heard from a member of my staff that he would be calling and then i got a call from him and he said that he and his board were

concerned to learn of the extent of what merrill losses, which he'd become aware of very recently. >> my time has expired, but let me ask you this before we run to -- is it true that bank of america first brought up the bailout? did they bring out the bailout to you or did you bring up the bailout to them? >> well, bank of america came to us with their concerns about their losses and their concerns about going ahead with the acquisition. and in terms of the -- and in terms of the bailout, i'm not -- i prefer to use the word rescue, but whatever word we use, that this came out of discussions because we had very much -- at least i think we had an alignment of interest. because the -- my concern was

the american people. and i took a look at the losses that i heard coming -- >> can you pull the mike a little closer to you. pull the mike a little closer to you. >> oh, i'm sorry. so as i said, the rescue came out of discussions and i believe it was the view of the government that the fed and treasury that when these announcers were lost -- were announ announced, that they would truly shake the market, were it not for a -- some form of government support being in place. and so we felt that we needed that in place in order to keep the system intact. >> let me say we'll continue to

yield to the congressman from california, ranking member mr. issa. >> thank you, mr. chairman. mr. paulson, with our previous two testimony, witnesses, obviously, chairman bernanke found himself in an odd situation of saying, although mr. cuomo had said that the threat that you had said, and i'll quote it as best as i can from his letter, secretary paulson has informed him that he made the threat at the request of chairman bernanke. now, that came from cuomo's office and i apologize that his work was a little sloppy. we get a letter, but there's no transcript, there's no written record, so we have to take his interpretation of your statements and that's one of the reasons you're here today. we also dealt with ken lewis who came here in which he had received a threat by your own statements and yet he had to say that the threat was not the

reason that he went through with a bad deal for if he had said that, then the ohio pension funds and others that have sued saying that the merger diminished their asset value in bank of america would have, in fact, had their lawsuit go forward much more readily. so each of you before you have been in an odd situation. you're uniquely positioned to help us. one, you've told us, yes, you did issue the threat. two, i believe that it was reasonable. and i want to put it into perspective just for a moment. perhaps for historical purposes, go back to the first gulf war of 1990 in which margaret thatcher said to mr. george herbert walker bush, don't go wobbly on my, george, when she felt that he was not prepared to pursue a war of saddam after he invaded and brutally treated people of

kuwait. this was not a war, but this was an emergency situation. your threat is admitted. your threat was because you felt that there were clearly disaster if they went -- if they didn't go forward with it. after i -- one more thing i'd like to ask you to elaborate on that and how mr. cuomo came to give us the line he did. as i understand is had the mac clause been completely valid, had ken lewis renegotiated, had they agreed to new terms or to auto break-up, isn't it through that, in fact, we would have had a long period of time well noticed wsh statutory notice for stockholders and then a stockholder vote occurred? >> yes, there is -- if there had been a renegotiation, there would have been an extended period and there would have been a revote is my understanding. >> and isn't it that which is at the center of you why you issued

the threat and why ken lewis ultimately decided that the damage from that period, even if he got a better price or broke it, either way, could be disastrous to both firms? >> again, ken lewis didn't characterize it as a threat and i -- >> no, actually, he did characterize it as a threat. he managed to say that he didn't feel threatened while receiving a threat. >> i prefer to characterize it as me explaining the fed's supervisory authorities to him. but in any event, whatever we -- i like margaret thatcher's way of doing it myself. >> however we characterize it, that the concern that i had was that the mac clause wasn't a legally viable option.

there is no precedent for it, there is no basis for it. so doing that would have just -- would have been -- it would have shown a lack of judgment and i think it would have really undermined the viability of b of a and merrill lynch and the financial system. >> well, the -- going back to mr. cuomo's characterization of what you had to say, if you can help us, if you will, thread the needle twens these two and before my time is up i want to ask one other question, sort of an easy one. would you say that effectively, no matter what the reason, the viability of the mac, you were saying the equivalent of what margaret thatcher said to george w. bush, which is stay the course, get this done. it's better to do it right now than not. >> yeah, i -- let me go to -- to

explaining the confusion with second cuomo's office. it's really quite simple. the fed had invoked a privilege that kept me from recounting my conversation with ben bernanke to cuomo's office. so if it hadn't been for that fed privilege, i would have told and would have said to the secretary -- you know, to the attorney general cuomo's office exactly what i'm saying here today. and so i think the -- it's really quite understandable that the discrepancy in light of the fed privilege. and right after attorney general cuomo's letter came out, i made a published statement where i said that my prediction of what could happen to lewis and the board, that was from me. those are my words. but it was based upon what i

knew to be the fed's very strong opposition to b of a renouncing the deal. now to your last question, i was attempting to sent a very strong message to ken lewis in terms of how strongly the fed and treasury viewed this matter. and so -- and it wasn't just the words that -- about the fed's supervisory powers, the other language which i presented at that time, which again, very strong message on the lack of the mac being a legally viable option, very strong message on it being a lack of judgment and a very strong message on what i believed and what the fed

believed this would do to bank of america and merrill lynch and the financial markets. >> thank you. thank you, mr. chairman. >> thank you very much. now yield five minutes to the gentleman from ohio, mr. kucinich. >> thank you, mr. chairman. secretary paulson, in your testimony, you justify telling mr. lewis that the government might remove bank of america management if they terminated the deal with merrill lynch. you say it would show a colossal lack of judgment and updies merrill lynch and the financial system, unquote. if a lack of management judgment merits decisive governmental action, what about potential violations of the law? mr. paulson, were you aware of concerns felt at the fed and treasury that ken lewis' management team failed to do due

diligence in acquiring merrill lynch and possibility violated securities laws by withholding material information from his shareholders to get the vote for the merger with merrill? >> i have become aware from some of the e-mails that this committee has released and other documents. >> do you know that at that time? >> -- that there were concerns and i know that there were some concerns -- >> at that time, did you know, mr. secretary? >> my staff members some concerns at that time as to whether how, you know, along the lines of what you expressed on due diligence. i had not heard concerns at that time about securities laws. >> now, chairman bernanke testified here that he shared those concerns about bank of america's management. did you share the concerns with anyone? >> in terms of concerns about bank of america's management?

here is what i would say about management. that -- and congressman, i have been involved and was involved in at least three situations when i was a treasury where ceos were replaced. fannie, freddie, aig. >> well, let me ask you this. on that point, in 2008, did you ever inform the management of any systemically significant bank that this would be forced out for any reason? >> well, i would say this. here is the kal ewe husband. is this management capable of running the firm and is there someone else there or someone else you know of that can do a better job? and i would say that these large complex financial institutions are not easy to run and it's not easy to find strong people to

run them during a financial crisis. >> well, i just want to say, the investigators of this committee have reviewed tens of thousands of notes of conversations, including conversations you participated in where the federal response to bank of america's problems were crafted. these documents clearly show that you were an advocate of aggressive fiscal response. you advocated for a large cash injection, a very large asset protection plan. but nowhere in these documents did we find documents that you advocated for holding bank of america's management accountable for failing to do due diligence and for withholding potentially dealer information from shareholders. so mr. secretary, did you, in fact, advocate for requiring such accountability as a condition of the bailout you were developing? >> i applicated the

accountability we wut in place. we treated bank of america like citigroup. we treated them differently than those that went to the t.a.r.p. the first time. so we had tougher restrictions on executive comp and we had provisions on foreclosure mitigation. but in terms of replacing the ceo, in this situation, it was my judgment and it was the judgment of the regulations that it was appropriate to keep mr. lewis -- it was -- that this is a decision that's made by the board of directors and for regulators to come in and decide to replace them, we didn't think that was appropriate. >> now, mr. paulson, as you know, invoked the mac, however ill considerate it would have been was not against the law. mean while, bank of america's decision to withhold material information about a merger from shareholders and their failure to do due diligence are potential violations of law. perhaps you can explain to this

committee how as secretary of the treasury can justify punishing an unwise, but lawful act, while ignoring potentially illegal ones. >> well, in terms of legali legalities -- >> could you speak closer to the mike. >> i would say in terms of legalities, i would say i'm not -- i certainly don't feel qualified to sit here and opine on whether there was an illegal action. and i certainly have not seen evidence of an illegal action. in terms of the relationship between b of a and the capital markets and the rip between b of a and the s.e.c., i think that's a matter for others to opine on.

>> as i look at this, i think it demonstrates a clear pattern of intimidation. i think it starts at the october 13th meeting when you called the nine biggest banks to washington. they didn't know what the meeting was about. the whole meeting took 45 minutes. you slide a piece of paper across and they have to sign it and write in the amount of money they're going to take. i think this continues. but this is wa i've said is a pattern of deception. this is a concern. ting american people need to see this situation. it sheds light on where we're headed. we've got car czar, pay czar, 21 other czars, we've got unprecedented involvement by the government and coming soon to families across america a board to decide what kind of health care coverage you're going to get. so i just want to walk you through a series of things that took place in this acquisition and then ask you a question at the end. first of all, i want to start

with what some people would describe as an exaggeration. i said the world would end and everything would be terrible if this deal was not completed. and the doom's day predictions were, quote, little over the top. you timed the release of information so you kept the american public in the dark. you only gave verbal assurances to mr. lieuit. you wouldn't put anything in writing. you maid made sure that ken lewis's testimony was we don't want to disclose an event. we said if merrill sdiepdz to follow early, we want to steer merrill to a later filing date. so you controlled when the american people could get this information even though you were using $750 billion of their money pup deserved the regulators from congress. the office of the comp troller of the currency was also kept in the dark. we have letters of e-mail from

brian peters from the new york fed where he's talking about an upcoming conference call and kwiven the presence of the occ on the call, we should not discuss or reference the call with ken lewis or secretary paulson. maybe most importantly -- our staff did good work. i want to read from the memo they put together. you kept the financial stability oversight board in the dark, as well. let me read this. not only did mr. bernanke and mr. paulson keep the s.e.c. in the dark, but you failed to raise the issue at two consecutive meetings at the financial oversight board which congress established to bring oversight to t.a.r.p. according to the minutes ofs these meetings, it was not until the january 15th meeting that you and mr. bernanke informed the board of additional bailouts with bank of america in connection with the merrill lynch merger. so you claim forcing the merger

would have had catastrophic effect, but it wasn't worth revealing it to the financial stability oversight board. then the last example i would point to is the one i started with. go back to the october 13th meeting. you dereceived the banks involved with this. this is base odd ken lewis' testimony. i've offed talked about this with him and fed chairman bernanke. you called the nine biggest banks to washington. they don't know what the meeting is about. he describes the meeting. they sat on one side. male speaker: bernanke, ms. bair sat on the other side and told them they would take t.a.r.p. money, like it or not. so i have one last. that was on october 13th. i want to go back to october 3rd. when we started down this bailout road, this bailout fever that grabbed washington wibt started on october 3rd where the united states government decided to give you $700 billion of

taxpayer money. the premise of that action was you were going to clean things up and things were going to get track. and yet to date, the treasury has not purchased those assets. so i want to know, when did you know that you could not be able to do what you told congress -- i remember hearing -- sitting in on the conference calls. i remember when you came in front of lawmakers and you talked about, we're going to buy these troubled assets. and yet -- actually, ten days later, you changed direction completely and instead just injected capital into the institution. so did you did he receive congress before the october 3rd vote, mr. paul. >> yeah -- >> and, again, pretty clear pattern of what's taken place. >> well, unfortunately, i don't think i have time to respond to every question you asked or every statement you made, many of which i disagree with. but let me get to the t.a.r.p., because i think that's critical. we went to congress, and when we asked for authority to buy liquid assets, we also recognized we needed

flexibility. and we worked with congress to make sure that we had the flexibility to deal with whatever we had coming at us. congress, i believe, knew they were giving us this flexibility, and thank goodness they did give us that flexibility. now, what happened in the -- the last few days before we got the t.a.r.p. legislation, which passed on october 3rd, and in the week after we got the t.a.r.p. legislation, the markets continued to freeze up. we had a whole series of bank failures overseas, five or six different countries had to intervene to rescue their banks. market participants were clamoring for us to do something quickly. we needed to do something quickly. and the way we were able to do something quickly and make a difference and make a dramatic difference, and prevent something very dire from happening, was to make the

change and inject capital. and is i would say one other thing. i think subsequent events have proven unequivocally that there is not an easy, quick way to purchase illiquid assets. so when did i -- when did i come to the conclusion that we would -- we needed to move and do something? it was sometime -- it was a -- >> sometime between october 3rd and october 13th, obviously. my question is was it before october 3rd. >> it wasn't. >> would you disagree -- would you say the main point that you and mr. bernanke sold -- and i didn't go along with this -- the main point you sold to the congress of the united states was we were going to go in and buy these toxic, troubled assets? >> i would say this -- >> would you agree that was the main point and it changed in ten days? >> well, let me say this. that was the main thrust, and that's what we talked about.

but we from the beginning wanted flexibility. congress wanted to give us flexibility. it was very good that congress gave us flexibility. >> gentleman's time has expired. i now yield to the gentleman from pennsylvania, mr. ken jurors key. >> thank you, mr. chairman. mr. secretary, i'm not sure that the committee here isn't having this examination to find out whether we could promote the shareholders' interests of bank of america. that seems to be what you potentially violated. but i'm going to give you an opportunity, since this is your first testimony before the congress, to be a little more explicit and descriptive of what happened on the 18th and then october 3rd by act of congress, processes were taken so we can

return. you heard my colleagues on the other side seem to suggest that you overreacted, that there was a -- exaggeration of difficulty, and that in some way, abuse of power occurred on behalf of yourself and the president, and this congress in acting precipitously in the fall of '08 in this disaster. now, we've had the occasion to have chairman bernanke before this committee and before the financial committee on three or four times, and i always asked the question, and i'm going to make sure we restate that picture, and that the american people have a chance to understand what happened. and i dare say, for criticism, i think both yourself and chairman bernanke and the new secretary of treasury have failed to inform adequately the american people as to what meltdown meant. i remember those vital days, and some of those meetings, and

telephone conference calls that we all participated in. and some of the descriptions. i don't want to provide that testimony, but i'm hoping that maybe you may remember whether questions of law and order were asked, whether questions of the capacity to feed the american people for what period of time were asked. i'm not going to say what i remember the answers to be, but i think when you give the description now, something dire had to be stopped from happening. that's great for you to understand that, and those of us that were there. but that doesn't mean a damn thing to the american people. and as we move through this, you can see committee members here don't quite understand what the situation of september, october, november and december of '08 was like. please take moments now to describe as fully in detail as you can what were the projections that could happen to not only the united states, but

the world in a period of 24 hours, 48 hours, 72 hours, and how that would comport to what life would be like if no action were taken. >> congressman, thank you for the question. and one of the issues we dealt with at the time was the more explicit we were -- >> mr. paulson? mr. paulson. mr. paulson -- >> would terrify the american people, and lead to an even greater economic problem, and so we were -- as we were -- attempting to explain this, it was -- there was this -- there was this conflict. we didn't want to overly scare people and make it worse. >> all right, folks, we're going to break away from the hearing for a minute. david faber has more on the developing story out of cit. david. >> thanks a lot, rebecca. that's right. cit, the finance company, of course, struggling to avoid a

chapter 11 filing that could come as soon as tomorrow. it is seeking to line up between 2 and $3 billion in secured financing from private investors over the next day, according to people close to the situation. a number of private equity firms and fixed income investors have expressed interest in talking to cit about providing financing that would be secured by some of the company's unincumbencumbere assets, which numbers about $30 billion and includes things such as airplanes and rail cars. now, that private financing to the extent it materializes would be incumbent upon cit receiving approval from regulators to remove assets from the finance company to its bank. such 23a approvals are all cit are all they're asking of regulators who have thus far indicated they would provide no additional support for the company, made in a report last night. and so cit finds itself in a position of needing 23a professionals to secure private