large nonbanking institution, other than the bankruptcy process. there was -- so -- and we had a really outmoded -- outdated regulatory session. >> it's fair to say that even under great pressure, you didn't take common stock. >> yeah. yeah. >> let me just break in for a second and go to my friend bob mctier, former head of the dallas federal reserve. bob, on this issue -- i mean, half the committee wants to fire lewis, the other half of the committee says he was maltreated with a gun to his head. where do you come out on this issue? >> well, i think the committee is just really looking bad in this. they're on every side of it. i think that mr. paulson ought to get a trophy for his good service. i do the not think that ken lewis should have been fired. he did what he was supposed to do. now, whether he should have been fired if he had gone ahead and invoked that clause and caused the whole financial crisis to

flare up again, maybe then. but paulson has been frank and clear about that. he just reminded mr. lewis that his principle regulator did have that authority. and on your previous conversation with the congressman, i think there was a confusion there. mr. lewis found out about the extra losses after the sharel holders had voted. he didn't withhold that from the shareholder vote. and then at that point, he had that information along with the information that the government was going to make it right. and help ow. so it was sort of balanced at that point. >> all right. so bob mctier, thank you ever so much. we're going to switch right over to "power lunch. "i'm going to toss the baton to sue herrera and michelle cabrusso-cabrera. it is your bedtime. >> thank you very much, larry kudlow. and we will take the pa ton. welcome to "power lunch." the ballots in the markets is ongoing, stocks struggling for the gains, and jpmorgan offsetting concerns about whether one of the biggest small

business lenders, cit, will even survive. and we're going to talk about the market fallout, and of course we're going to digress and talk about that hearing. >> absolutely. i'm michelle cabrusso-cabrera, former treasury secretary hank paulson getting grilled on the hill about whether he strong armed ken lewis into buying merrill lynch. paulson says, yep, it was me, trying to send a strong message to lewis, but didn't encourage him to withhold information about merrill's problems. they are in recess right now. we're going to head back as soon as they start. and joining us for the rest of the show will be steve liesman, as well. >> that's right. and we are going to talk with steve more about jpmorgan. it did have a blow quarter. tomorrow we will hear from its rivals and bank of america in the spotlight today. and then there is citigroup. we will find out if you should be banking on the banks with your money ahead of those reports. . the market right now, however, has been really keeping its eye on what's been going on on capitol hill, and contrast that with the earnings reports,

and it's really been a tug of war on the dow jones industrial average which is up about 9 points right now. resill yept, michelle, really in the face of the fact that we have cit not getting any government assistance. >> right. >> for the second time. and as a result of that, a lot of people thought that because it is so linked into small and medium-sized businesses on main street, that we might see some ripple effects in the dow jones industrial average. but right now, so far so good. >> and, of course, a lot of people think small and regional and community banks could step in and would like some of that business much the hearings on capitol hill, interesting. hank paulson puts it to bed and said i told him i would fire him. he would be out of a job. that's it. the fed could do it if he didn't do the deal. the question i have is now you're ken lewis. don't you have a conflict of interest, because you're told if you don't do something you don't want to do, you're going to lose your job. you're ken lewis, darned if you do or darned if you don't. >> or were you negotiating for a better deal. or can you say, okay, i did what they want me to do, now it's

important that i stay and run this thing. >> and ken lewis was exaggerating and using hyperbole and not telling the truth. >> hyperbole, you're kidding me. i just want to drill down, because i don't understand this issue of disclosure to the shareholders. i want to get your views on this. to me, it was an orderly process. i'm not sure what it is.g these congressmen wanted lewis to do. first they were trying toe attack paulson. that didn't work, because paulson basically said you're darn right i put the wood to him and i was right to do so. so now they're going back and attacking lewis for not disclosing shareholders, including congressmen who have r in their life defended shareholders. i'm going to open this up for discussion. >> but the other issue is, what do they want from paulson? ultimately, what do they want? are there any charges that are pending? >> does had this have my merit? witch huntz search of a witch. i mean, that's really the problem right now.

they don't know what the charge is. we had one guy arguing that lewis should have been fired, another guy saying that how dare you fire lewis, and as you said, kucinich saying -- it was very, very contradictory. i'm a little bit lost here. i am not the guy that's going to judge how a soldier acted in the fox hole. >> in the middle of the war. >> in the middle of the bad war. >> mustard gas and artillery. >> great questions on the table here. you know, why lehman was not saved, why bear was. good question. another great question on the table, why they came forward and talked about t.a.r.p. being the purchasing assets, and at the end of the day, they put the money into the system. they bought it back from the brink. >> and the other question that kept going back to was bernanke, bernanke, bernanke, and paulson kept saying i don't remember, we had so many conversations. >> that's the thing, michelle, the witch they're looking for is to get them to contradict their previous testimony, because there is no particular charge on the table. >> can i say, both democrats and republicans, they're looking for a -- democrats and republicans being sleezy politicians in this

case -- >> that's redundant. >> they're looking at the polls, and the polls don't like t.a.r.p. by the way, the main reason polls don't like t.a.r.p. is because of the gm takeover, not the banking crisis. but having said that, these guys are looking for a needle in a haystack and have been for three hearings. guess what, even if they found the needle, it has so much rust, it's completely useless. they ought to give it up. the reality is, the financial markets have recovered. the bank stocks are roaring. and talk about saving shareholders. bank of america shareholders are doing pretty well, thank you very much, given this incredible -- >> larry, would you go further and say this is like -- >> all nonsense. >> i just wonder if you would go further and say, this is like bringing a guy in who defended his family and killed an invader into his house and then bringing him up on murder charges. >> i agree -- >> i don't want to go that far, but i wonder if that's what it's like. >> a good story in this morning's journal. the reality is, the geithner people are basically doing what

the paulson people did. there has been some continuity, that's good. we should give them credit. mctier is right. we should give them credit for saving the bloody system. it wasn't perfect. and your point as a metaphor. you know what, during a war, it's never perfect. there's a financial war for our self-survival. >> we've got to bring in mary thompson standing by on capitol hill. at the hearings. mary thompson. >> as you mentioned throughout the hearinged today, when we heard from former secretary paulson is that he, yes, admitted he was trying to send a strong message to bank of america's management, saying the fed had the power to fire the management and the board in the event they decided to invoke the mac clause, because of the mounting losses at merrill lynch. the question, of course, that followed is why didn't you fire ken lewis anyway, because there were concerns about bank of america's management. paulson saying, you know what, at the time, you have to consider if there are people who are able to come in and take over that bank, and evidently, he said, at this time, ken lewis

was the man to continue to run the bank. additionally, as far as the mac clause goes, and this has been a point of contention for some time. he laid out the feds' reason for why -- or the government's reason why they didn't think a bank of america invoking a mac clause, which is a material adverse change clause, to get out of the deal was a good thing to do. and he said, you know what, the fed lawyers reviewed this, and at no point in delaware law has a company been able to actually get out of a merger by invoking the mac clause. so that question was answered, as well. throughout the hearing, it wasn't only about bank of america. we should note -- steve was pointing or bringing up questions about why lehman wasn't failed. paulson addressed that, saying we didn't have a buyer, it was a liquidity and a capital problem at lehman brothers, and at that time, they didn't have the t.a.r.p. money that they needed or the power to inject the money. that came afterwards. and that's why lehman failed. he also has been answering a lot of questions from congress about whether or not he misled congress initially when he went

to congress and asked for the t.a.r.p. money, because they needed to buy toxic assets. take a listen to this exchange. >> 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 -- 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. >> of course, paulson says that flexibility was good, because they were able to inject capital into the banking system, something that he said, again, allowed the government to avoid a bigger financial crisis. back to you. >> thank you, mary. stay with us, and join in the conversation here. you know, larry, it's going to be interesting to see -- they're taking a recess, by the way, because they have a number of votes that should take just under an hour to complete that.

but how the questioning changes now, after they do this vote, i mean, he has been asked repeatedly, basically, the same question in different forms. >> i mean, i think these guys are losers on both sides of the aisle, and in view of the public, to be honest with you, because they're going nowhere. but let me go back. mary thompson raised a very important point. regarding lehman brothers. and when i interviewed paulson last fall, we talked about this at some length. his story has not changed. he lacked resolution authority to dispose of lehman. and in his testimony and in his questions, he does say, he totally supports president obama's plan which would provide resolution authority and had no buyers. it was -- >> he did put that forward in the spring and summer of that year. >> i totally agree with that. he said that to me when i interviewed him on the top of the chamber of commerce building that time. he said, look, we couldn't do it because we didn't have a buyer, barclays pulled out and didn't have the authority. that's an interesting point. everyone likes to blast paulson about lehman. and everyone says it was lehman

that helped destroy the system. i'm not sure that's true. but paulson once again said, what the heck was i supposed to do? >> i want to make one point. there have been nine books already written on this crisis that we've had. there are 400 supporters doing this. i have yet to hear a single person break the story, what deal the government turned down. >> no, there wasn't one. >> what was the number on the table? because that is the contention of paulson and bernanke the entire time, that we did not have a deal. didn't have a hole to fill. >> right, exactly. >> 50 or 100 -- >> this is different than cit. and by the way, paulson specifically fingered barclays. remember, barclays was looking to buy merrill and not only did they not do a deal, their own regulators in london -- >> also, bank of america came around a couple times, right, mary? >> he said we talked to bank of america several times, and it became apparent they were more interested in doing a deal with merrill.

>> that's the other point, mary, which is important. when we talk about who is to blame for what, which i'm not quite sure. but bank of america and merrill left the room in the discussion on lehman to go do their deal. they were having a discussion, everybody was in the room. they decided to go, you know -- >> they could get it done because they could have been on the road to go if they hadn't done the deal. >> lewis was looking to do merrill for a very long time, as we see several reports on that. and we have been able to report that. >> but can somebody -- really, come on, all right? someone should stay what mctier said, bob. you've got to give paulson some credit. paulson, bernanke, sheila bair, george w. bush. geithner was involved, too. this is nonpartisan. look, they did stuff they had to do. let's not forget, they guaranteed interbank loans, they guaranteed bank debt. the fed opened up all these liquidity facilities. first they tried to sell toxic assets, they couldn't. so then they put the money directly into the banks. the reality is, as messy as it

was, it has worked. and we should be grateful for the fact that it's worked, because here in july of 2009, we are considerably better shape than we were in the -- >> on that note, can we veer to the economic data, just because we've got you here and that's your specialty. steve liesman, our economics reporter. what about this rally today? is this stalling because of all of this had you been aba loo on capitol hill? some people are saying the weekly jobless claims have paekd. >> i think 3% yesterday, and you take a pause today. makes complete sense to me. >> are you surprised, though, that cit -- >> this is -- >> that's what i wanted to make, sue. >> no, no, no. think about what larry just said. >> there is risk to cit. >> think about what larry just said, that the t.a.r.p. -- what they did with the t.a.r.p. worked to the point of bringing stability back. that cit can be in a position of failing here, and the market is taking it the way it's taking it. i think that's a surer sign of

success of what happened with the t.a.r.p. money and how it added stability to the system. >> i agree with that. there is no doubt, there are more failures to come. the question is, can we do so without the government stepping in? >> there is a pretty good capitalist message that somebody can fail. i assume the fed can grease the wheels of safety net if they had to. but let me say, i think this gigantic stock market rally has essentially been led by banks and bank profits, and that goes back to this paulson discussion earlier. what we have now from the feds, the treasury, the new treasury, i don't mean to be partisan is an upward sloping yield curve that is massive and a zero interest rate where bankers know how to make money. and that's the greatest bailout of all, was a zero interest rate, and the steep curve that's leading the stock market to new highs, and i think we're going to stay that way for a while. even though i'm very cautious on -- the economy. i'm very cautious on the economy. it's the bank issue, stupid, not -- >> all right. thank you, larry.

>> the banks -- >> it's also very important, at the end of this, i'm sure there is going to be inflation trade. there were so many people who were on that train so sure of getting off. >> we're going to go -- we're going to go inside the market numbers. stick around for the whole show. sitting in for bill griffith. we're going to hear more from him. stocks are falling today. is the washington blame game hurting the mojo? we are going to take a trip to the nyc and the trading pits after the break. >> and we will go back to the hearing and the developing story on cit. more on that, as well. back in a moment. they're in recess right now. as soon as they come back, we'll show it to you. not long ago, this man had limited mobility.

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all right. right now, we have the dow jones industrial average up about 10 points on the trading session. part of that is linked to two key dow components, disney is one of them. and heat packed another, jpmorgan contributing in the overall markets today, as well, despite the fact that a lot of people thought we would have some profit-taking. let's get to our market reporters right now and talk about this market. bob pi san see is at the new york stock exchanges, and brian shackman and robert, what are they chatting about today? >> they're talking about cit, but i think we should start with jpmorgan, because the financials are to the down side.

credit concerns are a major issue at this point. they beat on fixed income. that's where they won. but look at the nonperforming loans. they were up 30%. charge-offs were a little higher for home equity, prime mortgages and credit cards. they have more than doubled the amount set aside for bad loans. that may be good news, whether it's enough, is not clear. jamie dimon says he sees leveling off in delinquencies and that's one of the reasons you're only see the stock down federally. here's a good example of how the shopping earnings season is looking. they beat estimates. but again, cost-cutting is what did it. disappointing guidance. 9 to 14 cents for the quarter much heavens, prerp at 20 cents. this is a good example of what we'll be getting. and finally on cit, i'll tell you what they're talking about down here. first, they can't quite decide whether or not that -- that government walked away from helping them out because they thought it was unlikely it was going to rule the financial markets, or did they walk away because the government was very

concerned about putting more money into the company in credit concerns that might make the company way too costly, just tensionally throwing good money after bad. nobody is quite sure. but there is a lively debate on that one right now. tradertalk.cnbc calm. brian, how are we looking at the nasdaq? >> not too bad. after the 3.5 run up yesterday, consolidating what we're up, but the declines are beat advances slightly. we might as well look forward a bit. google reports after the bell, $5.09 a share is consensus on our revenue of about $4 billion. we'll see how they do. overnight, nokia, sony erickson both had difficult earnings reports. research in motion holding up well, up 1. 1%. they did settle a patent litigation suit, although they do have to pay quite a bit of money. apple is basically on the flat line. palm, fascinating story. basically, the reports are the preis not compatible with the new itunes. hmmm.

ironic. yahoo and ebay both really strong. yahoo up 3.1%, ebay 2.4%. oracle, not super, but they did get an upgrade to buy overseas. hcq doing well. up 2.4% in an otherwise pretty difficult week for dell. but gartner, which tracks global pc sales, they were down 5%, a little better than expected. the market share 13.6%, they trail hpq by 6 percentage points. quickly, i want to tell you that it's up, but it has softened as the day has gone on. reaffirmed guidance. but they have switched a bit and charles schwab down 2.6%. they met expectations but had to wave a lot of fees and there is fuzzy guidance in there. back to you. oh, sharon at the nymex. >> we have oil going the same thing here. oil prices over $51 a barrel. but it looks like wire going to probably probe lower today.

a bit weaker, and basically a quiet session. not so quiet for natural gas, though. natural gas on a tear. natural gas prices surging 9% after we got the eia storage data. now, you think it was a very bullish number that sent natural gas prices higher. actually, it came in within the range that a lot of folks were thinking it would be, and pretty close to the five-year average. but keep in mind, there is a lot of short covering going on in this market. it has been oversold quite a bit and very volatile over the last week. also, a lot of traders paying very close attention to what may happen with ung, natural gas etf. they, of course, have ped the s.e.c. to add a billion shares. they're still waiting for a decision from the s.e.c. on this, and it could take some time. we're hearing that the cftc hearings may wait until after the s.e.c. the fund is now operating as a closed fund and so that is also putting pressure on natural gas prices, and at least causing

more volatility, as we also have a roll going on in natural gas. very volatile today. back to you guys. >> thank you very much. >> sharon, thanks very much. up next, cit on the brink. but you know what? the market isn't really rattled at all. think about what the reaction might have been last fall. we'll tell you why the fear factor has faded. >> and as a matter of fact, check this out. the market is on track, could be up for six of the last seven sessions. we're watching it minute by minute for you, "power lunch" is back in just a second. the dow is up 6 points. when you're really in pain relief can't come fast enough. introducing bayer quick release crystals. it's ready to dissolve faster than caplets or tablets. it's a whole new way from bayer to dissolve pain fast. new bayer quick release crystals. mr. evans? this is janice from onstar. i have received an automatic signal you've been in a front-end crash. do you need help? yeah.

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all right. welcome back. we're showing you cit group, which is getting hammered today. we're going to talk about why a company is obviously on the brink. and dow jones industrial average hovering around the flat line, now higher by 8 points. weakness in the financials, but keep in mind the rally was tremendous. especially jpmorgan's number. >> let's go to david faber who joins us with details of cit, the story, of course, still developing and evolving. >> exactly, sue. cit right now the finance company struggling to avoid a chapter 11 filing that could come as soon as tomorrow is looking for $3.2 billion in secured financing from private investors over the next day. that's according to people close

to the situation. a number of private equity firms and six income investors have expressed interest in talking to cit about providing that financing that would be secured by some of the companies currently unencumbered assets which numbers about $30 billion. things like airplanes and rail cars. but obtaining that financing in such a short time frame, well, that will certainly be difficult. private equity firms typically require at least a week's worth of due diligence for such an investment. hedge funds that have already taken a position in cit's bonds, might prove willing to offer some assistance. but how much and at what price remains unclear. as well, sources tell me to the extent the financing materializes, it would be linked to cit receiving approval from regulators to remove assets from the finance company to its bank. apparently, any investors want to make sure that cit has adequate liquidity after they invest, something that requires a transfer of assets to cit's bank where then those assets can be funded by deposits. that's the transition cit has been trying to make for some

time here. unfortunately, didn't do it quickly enough. these asset transfers typically regulated by the fed, and provide no additional support for the company. the company is running out of time, as its liquidity erodes quickly. if it could secure the private financing, cit believes it could then buy enough time to pursue debt for equity swaps on some of its debt and have its capital structure properly aligned to prevent any future liquidity concerns. cit's bonds in the short term maturities were as high as 90 cents on the dollar late yesterday. they are now 60 cents on the dollar, that's the august maturity. if the company is unable to reach a deal with regulators and investors in the next, what, 12 hours, it will likely file chapter 11 tomorrow. according to people close to the situation, the company is preparing such a filing, while it also pursues a financing lifeline. >> private equity firms have the

opportunity to get in there -- i mean, they have been looking for capital for a long time. why would they need more time for due diligence? >> well, tpt invested $2 until in washington mutual and lost it all. >> cit has been looking for capital for a long time. >> the question is, why hasn't cit pursued the security financing previously. i believe the answer when i've asked that question is they truly thought, steve, they would get tlgp access, and some sort of organized help. >> let me tell you, my reporting has shown that the government is not opposed to this 23a problem or 23a exemption you're talking about. but what they want to see is a longer term solution. it's not capital. it sounds like -- >> right. the guys providing capital are saying -- >> we want to see the financing and create exemption first. so this is still on the table, is my understanding. this exemption here. but they want to see more from cit. and this 23 exemption thing has been out there for the last

couple days, at least, as part of discussions with the government. they haven't rejected it, but rejected the overall -- >> it was one of a number of factors things that they were seeking. 23a and potentially some capital from the private investors. i mean, they have been trying to -- all of its been in the mix. now they're just saying give us the 23a and separately talking to these private investors. >> if that's what they're saying, i don't think that's what's going to happen. because i don't think they're going to get the 23a. that's my read of the government. >> at this time tomorrow -- >> still more likely there is a chapter 11 filing, again, based on my reporting at this point. it's very fluid. >> don't they represent less than 1% of total lending to when it comes to manufacturing and retailing in this country? i mean, the ultimate question is, how much systemic risk would there be here and could that be why the government is telling them no? >> a great deal of systemic risk to the financial system. >> right. >> $60 billion in leasing and finance. >> i think that's key. >> $5 billion balance overall in terms of assets. you know, but --

>> they are not too big to fail. >> two different things. >> exactly. >> failure, but economic reverberations as a result of a small businesses. >> head of the national retail federation said if this does indeed go chapter 11, expect some major retailers to go belly-up. >> really? >> and that, you know, may not be systemic risk to the banking system, but you've got to wonder what the psychological impact -- >> i have a problem with that. >> why can't they get financing from other banks, maybe they can't get financing from other banks because they have weak retail. >> i don't understand why -- >> i'm not arguing they shouldn't go out of business, i'm just saying that i think there may be a bigger main street impact psychologically from a cit, which has its tentacles into main street in a different way than, say, an aig did. >> right. and we'll see if there is an 11th filing and also may be from what i'm hearing some businesses that are liquidated along with that tomorrow. to your point. you know, some of their things won't be self-sustaining. the question becomes how big can

the debt earnings ultimately be to let them operate their businesses. again, so many questions at this point and of course we don't have the answers. >> going to be fascinating. thank you, guys. appreciate it very much. going to take a quick break, and still ahead on "power lunch," hank paulson will be grilled once again on the bank of america deal about an hour from now, maybe a little less than that b of a and citi, we'll talk about them with their top analysts. >> will volatility be back tomorrow? melissa and the traders tell us how to play this market. get ready for an early version of the "fast money" halftime report.

welcome to the "fast money" halftime report. we're getting to the heart of the action as it is happening.g. stocks pausing today after yesterday's whirl wind rally, but don't expect it to last. ibm, google, citi all set to report in the next 24 hours, could mean for a very wild summer fry dave. but first, paulson on the hill. word on the street now. jarred levi and greg and patty

edwards of storehouse partners. jerry, you're here in-house. good to see you in person.n. what do you listen for out of paulson? >> not much with paulson. i think that news is old news. everybody has digested that news, it's water under the bridge. it was interesting to hear, but frankly, i have got more things i want to watch out for, namely, google's earnings after the close and citigroup. >> patty, you feel the same way or could he say something about bank of america that could make you feel differently about the financials? is. >> you know, i'm not all that positive on the financials, anyway. and so anything he is going to say i think is going to take things down, not up. not that important to me. >> okay. let's move on here, because we are going to be talking about citigroup, the earnings were out before the bell, goldman and jpmorgan both beat this week. but will citi ruin the party for the financials, and before we delve deep into citi, let's talk about the jpmorgan earnings, because certainly what they had to say will impact your outlook for citi, as well as bank of america. they are seeing stabilization. jpmorgan is in the credit card

business. they recorded a record investment banking fees, but at the same time, they see rising loan losses.. brian set land, what does this mean to you in terms of citi and bank of america? >> well, in terms of all those financial names, i actually disagree a little bit with pa y patty. i think you have to have a little bit of exposure right now to the financial area. now, img not sold on that. they ramp up much higher from where they are right now. so what i've done is actually gotten long bank of america. i like the stock, but i'm a little cautious. i put in some protections in the market against it. buying august 11th puts, may roll that up. the stocks have moved higher to the august 12 puts. i don't think the stock goes a ton higher from here. >> why do you cap your up side, brian? >> i cap my up side around the 17.5 strike.. i like selling cause there, my writing or position against that. i think bank of america, a stock like that moves higher or citigroup moves higher thervegs a chance where they may issue more stock again to continue to finance themselves. so that's where i think the up side is capped. maybe at 10% to the high side right now. but i do think you need exposure

to the financials. >> from the short term, i was looking at something very similar. in fact, i think given the reactions at goldman sachs and jpmorgan have had this week, i like the august 12th, 14 -- buying the august 12 put to sell the 14 calls and you collect. >> basically willing to buy the stock at 12. >> they own the stock probably lower than 13 if they bought in '0. >> greg, what do you see in terms of the financials, specifically what we are watching for in earnings tomorrow. >> sure, melissa, b of a, i don't think your down side is that graetd, so i don't mind owning it outright. i interact with the merrill system, there are dividends that are going to impact big time. citi, tough. you know, nice $3 stock, around there, i don't mind picking some up, i would take a third of your normal position, dip your toe in with citi. >> and what is the option strategy you're looking at for citi? >> for citigroup, believe it or not, i'm nervous for citi. it's probably going to be

something without of money call. where is it trading at, somewhere around that area. up side call, maybe the $5 calls or $7 calls going out to january 11. i frankly do not personally like citigroup. i'm not playing any bets at all. >> let's shift gears from financials to technology. our next trade. google earnings giving you a few hours left to place your bet. trading slightly lower after a 6% surge this week. pat patty, what do you make of google? it's had quite a run. at this point, it seems like they would have to walk on water in order to keep the run going. >> well, that's it. and if i look at the charts, i'm seeing that there is a cap on it, right around 447 or so. i'm not sure we're going to get anything through that.t. it's trading fairly cheap when you look at it on p/e historically. i like the stock on a long term basis, short term, i don't think there is anywhere to get in before the report. >> what do you see for google? >> same thing, melissa and i agree with patty to a point.

2.50 to 4.50 in seven months, would not touch it. >> but on a percentage basis, isn't that much. if you look at what the rest of the market does, it's the same thing. here's what i like about google, i see it pulling back slightly, going with the 410, 400 put spread in july. one day, all it has to do is stay above 410, you make 15% return on your money. >> but that's the way to do it. jared -- >> not to pay 4.50 outright. >> exactly. and that is the advantage of options over playing the equity market, more capital efficient in that respect. okay, next trade, the other big tech name to report, ibm coming out after the close. what is the trade on big blue? for that, we bring in the pit boss, who joins us on the fast line. petey, it's great to talk to you. >> always great to be with you, melissa. >> we had a fascinating conversation with zeke karabell yesterday. does it change your outlook for what they're going to say tomorrow? >> i think the only thing it changes is it makes it much more

bullish. i think the services end as we talked about, the outsourcing, the cost savings people are moving toward, i can that makes ibm extremely attractive, and still, when you look at ibm, even at 108, and it's made a nice move this week already, but it still trades in single digit p/e, i like the direction of ibm and i think people are also missing on ibm, they are so much involved in other aspects of the market, they're almost google-like from the standpoint of they have gone green. they have gone in a lot of different directions, but when you look at the main source, you go back to the services, that number should be absolutely killer, and i expect that to be a huge number for ibm. >> okay. hold on, pete. hold on, traders.. we're going to take a quick break and get the ibm trade on the other side. stay tuned. ♪ >> the after hours action rolls on with the biggest tech name and the best traders in biz trade on air. and charlie gasparino goes off the record for "fast money." he brings the juice and then we trade it. . plus, went from american

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welcome back to the halftime report. we are talking ibm out after the bell today. and pete najarian, you still there? >> i'm with you, sister. >> what are you doing before the close? >> what i like in ibm right now is the explosive move we're

seeing again in the july options. this is a theme we have seen throughout the earnings season and we had it withgoldman sachs and jpmorgan. i still think this sets up well for what we call a calendar spread, which is not to be too complex, buying the same strikes, but buying in august and selling in july, trying to take advantage of the huge skew in volume at this time, that way you can participate if ibm doesn't have the explosive move we're looking for, at least not overnight, you can still participate in the options world and still be able to be there for the earnings itself. >> got it, pete. we'll get an idea if that trade might work out tonight when ibm reports.s. thanks so much for joining us, pete najarian, the pit boss. and greg, you're looking at the technicals at ibm here. >> might, melissa.a. i like pete's trade, i love ibm overall, and the reason being when the overall market made a low last november, so did ibm. when the market made a new broad low in march, ibm outperformed tremendously. it never went to a new low at that point. so i love it overall. near-term, though, we have a resistance area at 1.10 that

dates all the way back to last september. a 9% move, but i think we go through it explosively. i would buy into ibm. >> okay. got it. let's move on to the next trade. we're going to focus on consumer stocks. we've got a couple of data points from harley-davidson, and marriott, any way you slice it, dismal for the consumer. patty, we see the retail index trade lower right now. how much of it is the data points from harley and marriott? how much is the concerns over cit and the impact on the retailers who might not be able to get financing? >> i think it's all that, plus the fact that we're seeing bad numbers coming out of jpmorgan. they're really concerned about delinquencies. i think the people who have been really excited about the consumer going forward have to be taking precaution right now. i know harley is up, it's only up on cost cutting.g. marriott is telling us their

revenues were down 20%, costs down 14%. that's a recipe for disaster. people are not traveling, people are not spending minnesota on things that they can -- can do without at this point. and when you add that and the cit news, thinking that perhaps some of these major retailers could have some difficulties getting their funding for their -- >> right. >> holiday merchandise, i don't like space at this point. >> thanks for that. and time now for your "power lunch" trade to go, and you've been looking at an exchange stock. we have seen concerns about potentials on futures trading. >> a lot of times, the market tends to overbake decision situations and right now it's skittish and the stock is trading $88. i think the impact will be minimal, more like 6%. they're an attractive p/e, and moving at 20% earnings. the trade is to the 75, 65, full put spread.. let me explain that. that's in august.. the bottom line is, would i like to own this stock pretty much

anywhere above 75, if you're a regular stock trader.. waiting for the stock to come in and maybe buy below 85. >> let's go around the cohorn, you buy or sell. >> might pull back today specifically, but i look for the market to trade up to 942 on the s&p by the end of next week. >> greg. >> overall, sell into the close. >> patty?? >> you know, with google coming out, they're going to have to walk on water in order to make things happen. plus, the financials. i'm staying away. i would be a seller. >> and jared. >> very, very moderate buyer. >> all right. that does it for us here halftime report. do not miss your after hours action on google, and charlie gasparino is saving just for our traders. first more "power lunch" right after this. today there's a way to save more for retirement,

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investors talking technology all week long. here are some of the names in the sector on the move right now. sandisk, invidia, marvel technologies. best performing group in the s&p 500 today, technology. the "fast money" gang talking about the titans after the bell, what the traders take. what do you think the street is saying. sue? >> we find out with jim goldman. he joins us with a bit of a preview of those. hi, jim. >> hey, sue. yeah, good afternoon to you. big reports, as you've been following tonight after the bell and the question for investors

now, can ibm and google build on the big knew from intel earlier this week. ibm will give us a good they will give us a window into the global enterprise and largely a services customer. ibm has been able to use that revenue stream to insulate it, but the outlook will be key. there was a bold downgrade on limited upside from $120 a share target on that company. analysts expecting over $24 on $24 billion in revenue. at gaggle, this company has been in rally mode up until today. mostly because expectations into earnings are so low. some think the company will have no trouble meeting or beating numbers. a miss unlikely that that might be. the google report could offer a glimpse into consumer and corporate spendings. the revenue bread and butter. looking for $5.06 a share on $4 billion in revenue.

any comment from google in a nice ramp up in microsoft both search and operating system development will be interesting. both reports are due after the close. >> one of the guys was talking about that he likes ibm as an investment, but the stock has really, really run. that's one of the things the treat is concerned about even if they outperform, it had a performance stock-wise. >> that was the point of what goldman sack was saying and if you look at the revenue streams as far as services, the upside as we get ready for what everybody thinks is the turn around. ibm is sitting prettier. in europe, this is a company positioned well. target is 140, 145. >> that's what we were hearing. >> you look at that and see where the company is today, it may have room to run. >> are any of the tech companies

guiding relative to government tax breaks when it comes to capital investment? those are going to expire and is there an expectation he is using the tax breaks that are out there before they expire. >> that's a great question and i think some people are interested to see if it comes up on intel's conference call. i think that will come up with ibm and i think we will see that as ibm. >> google's first time they traded they didn't do other than earnings growth. what's it going to look like on that decelerating path? >> the law of large numbers and where google has been. today the expectations are so low and they are not expecting that kind of growth.

you think if google can meet or beat expectations, that will justify the run we have seen. as far as what google is suffering and deceleration of growth, that will be in the next quarters to come. >> let's get more from the earnings front. >> matt nesto is always watching the most interesting. >> you talk about decelerating growth. they know what it's all b. if there shareholders today, they are loving it. look at the under the radar stocks on this jpmorgan kind of an earnings day. some of the highlights are including harley. the tock is up about 7%. the reality is they will be cutting 1,000 more jobs and 700 rourls.

they are exploring strategic divisions and may shutter the factory in yorktown. the stock keeps pushing through and third quarter results are smaller than expected loss and the third quarter goes higher and all segments see quarter on quarter growth and looking for above average seasonal growth. look at the small stocks. >> we hope to have the ceo. >> that will be good. >> very, very strong and the full year goes higher. lastly. >> that are will take care of the flu, i hope. >> it will make sure you are getting better and that much d

more easy to take. >> on the losing side, the stock is getting pounded. you give back 13% here today. you are down only 6% on a week to day basis. the stock had a nice rally in front of these results. marriott is down about 9%. they were fine on the first share, but on the full year, they grab the hand brake and they were looking for 88 to $1. >> matt, quickly, the overall results according to thompson reuters, they are looking 10.1% ahead.d. 43 companies and they have a decline in earnings on 0%. since you will watch the surprise number, early days we want to watch carefully. we have a "power lunch" coming straight up.

breaking news on the health of the home front. >> the house is in recess right now doing the people's business or voting. when they come back in the recession, the grilling will probably resume. hank paulson will take you there live when "power lunch" continues. [ engine revving ] [ engine powers down ] gentlemen, you booked your hotels on orbitz. well, the price went down, so you're all getting a check thanks. for the difference. except for you -- you didn't book with orbitz, so you're not getting a check. well, i think we've all learned a valuable lesson today. good day, gentlemen. thanks a lot. thank you. introducing hotel price assurance,

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♪ dude, you feeling the hops? i'm so feeling the hops. yeah! former treasury secretary hank paulson told his role of pushing through the bank of america deal was done in the best interest of the nation and the financial system. freddie mac averaged 30-year fixed ready at 5.4%.

a drop of six basis points. the news now, i'm julia boorsten. welcome back to "power lunch". i'm hampton pearson in washington where we learn that confidence among the nation's home builders is up. the home builders, wells fargo housing market index is up two points in july. the hmi stands at 17 and that's the highest it has been since last september. builders are seeing improvement in current sales, but there is angst about the future. the gain this front was entirely in the portion of the index, tracking current sales conditions, but expectations for the next six months are flat. naahp crew chief recognizes it will be a slow where you see negative forces. looking at the housing markets,

they believe there won't be a true recovery until the housing crisis eases and there is credit for housing production. the index doubled since last december, but today's 17 compares to a confidence in the mid-70s in the 2004-2005 housing boom. >> you had to spoil it. i thought 2% was good, but it's a dramatic fall. i am surprised that we got that big of a move given the nervousness we have seen in the market. >> it's compared to what situation. >> thanks, hampton. welcome back to "power lunch" guiding you through the markets. bill is on vacation this week. let's talk about the market. we wait for the house to finish its vote and come back from the recess. let's go to brian shackman at the mi nax and sharon at the mi neck and bob da sonny at the new

york stock exchange. >> we are on the flattest side with mr. paulson's testimony being rather riveting. the choppy data continues in the economic news, chinese gdp and jobless claims may be better than expected. very choppy economic news and choppy earnings as well. let's look at the jpmorgan with the biggest star. beat on the top and bottom lines, but credit concerns will remain into the third and fourth quarter. fractionally to the downside and another big issue is what's going on with cit and of course here's the story and it's simple.. a lot of debate going on about what happened and whether or not they thought they should a ban on them because they are not important or because they felt putting additional money into it could be a money-losing proposition. they want to know where marriott

came out with earnings to beat estimates and the guidance very much on the weak side. tradertalk.cnbc.com. let's go to sharon at the nymex. >> oil just went below $61 a barrel and natural gas prices spiking 10% in one day. it's not that unusual. what is unusual and it's a neutral number on storage. we have a market that is extremely short and when you consider the fact that some forecasters expect this hurricane season to be uneventful, it is in the middle and a lot could happen. they expect natural gasses to be this year and don't expect to

see natural gas prices until well into 2010 and. >> we are holding on to gains and i want to point out internals. we had the nice pop on monday and we consolidated and had the nice pop yesterday and today we are consolidatinconsolidating. jim goldman talked about google. google with the expectations of the numbers and that's the consensus. i want to touch on something you guys talked about. the chips, i want to give you a quick summary. up about 6/10 of a percent. applied materials up 1.2%. back to you. >> a week of rallies.s.

as brian is pointing out, we see tug of war. is it washington or the economy? cnbc market analyst, guys, let me start with you. s&p up 6% three days in a row. you will have a pause here. this pause, is it just a stall or do you see something that worries the markets? >> i think something worries the markets.s. if you look at the last four or five weeks and look at the correction in the stock market and the performance where you have defensive sectors and outperforming small cap and industries collecting and worried. what they are worried about is simple.. it's valuation. basically the market has gone very far very fast. it's gotten ahead of itself and it discounts a stronger recovery in the economy and earnings that

lies ahead. valuation, market has to correct back to levels that make more sense. >> do you agree or is it washington that concerns people? >> it's a little bit of everything if you think about it. what we are seeing is what hugh described. remember how markets reprice themselves. you have the multiple put on to the earnings. expectations have been so low that the fact that we were meeting and beating a couple of these early releases are starting to scare out the weak shorts. what worries me more than anything else is the fear starting to subside. when fear comes out of the market and that's evident, it's time to be scared. that's what the last or nine months have taught us. >> time to be scared. >> writing that down. >> are you getting any comfort that the earnings are coming ahead of expect as or is this

just early days you are getting the better companies reporting earlier? >> a little bit of both. primarily these are let's not get too excited about it. it's second quarter earnings and what matters is third and fourth and the first and second quarters of 2010. what are those going to look like? the more i crunch the numbers, they will look good in the fourth quarter this year and the first quarter of 2010. they will not look as good as the stock market four weeks ago and maybe more recently. that's why i think a little bit of a consolidation and what i'm saying quite frankly is consistent with financial market history. when you get this big of a lift off, you usually get a period of consolidation and correction and that's what we are going through consistent with financial market history and consistent with the market. >> after three days of the sell off, did you see business warning from the cit news?

>> i was looking at the allocation takes place just so you know. this was a strategic allocation and you have seen the number being put in. it's a function of the market place right now. let's not discount what you were talking about with the head wind out of washington. remember one of the things the market is looking for are where the companies will earn money from. if people are not creating jobs, there is a huge head wind ahead of us here. >> 18 new 52-week highs over the nyse today, but only four new 52-week lows. what does that tell you if anything? >> we are pricing in armageddon and when things start to appear that they are getting better like we saw this morning with the jobless claims number, it starts to create a perception and hopefully it won't be a perception problem. i think the market has more work

to do before it rallies hard. >> this is typical. i was checking out the number r that they were talking about and sue was excited about the move. >> i was. i'm trying to look on the bright side of life. two out of seven is a great entage. >> let me give you a factoid. pawe brought that thing up from 17 to 20, we would have hit the bottom of the 1990 downturn. >> i will start calling you dior. >> a long way to go with housing and getting back. >> i see that you are buying energy and technology. why are you buying energy if you are worried about that stuff? >> keep in mind i could be wrong on the short-term and that's all within the correction that i'm talking about in the context of an ongoing bull market. when investors start to get wind of the fact that the economy recovers, oil prices are going back to $75 and probably higher than $75 and technology,

spending on technology and equipment and software in the economic reports that you look at for 2010 will be strong. technology and energy are the two places to be as soon as we get through the period of consolidation and correction or whatever you want to call it. >> thanks, gentlemen. appreciate t. straight ahead, earnings versus numbers. today's thrilling about hank paulson's financials and will it encourage you about financials.. we will ask the folks to dig into the numbers for us. >> we will look ahead to google and ibm's earnings and the stock and talk to the ceo of cypress semiconductor. onoma valley... no, my friend, these grapes are very... sierra foothills... - foothills, ha. - idaho. with fields of the finest hops known to man. harvested at just the right moment, to produce the perfect balance of flavor... and refreshment.

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welcome back to "power lunch". what we know so far for s&p earnings, the that we completed. 43 components. 67%.%. two thirds have beaten estimates and that's a healthy number. 27% have missed 12%. we have earnings expert and he said a little bit careful here on the numbers. jpm and goldman sacks. two is i'm intrigue friday an economics point of view. a 25% decline in profits.

he told me about the concept of operating leverage and geared towards producing a lot of stuff. when they can't, profits fall. let's say we get top line or revenue growth. profits can come back as strongly as they have fallen. >> thank you for that. we appreciate that. we will focus on the banking sector. jpmorgan reporting blockbuster earnings. let's ask al, senior financial analyst at first american funds and diversified financial services analyst at s&p, standard & poor's. we will start with you on b of a. that's the wild card certainly and i think al, you agree with that. what are the numbers going to look like and are they gain for example refinancing and that will offset the mortgage problems they have on the books.

the question is how good is that number going to be going forward with mortgage rateses going up and trailing back down a bit? the charge off numbers from jpmorgan were very high and i think that jpmorgan's numbers from an underwriting standpoint is more conservative than bank of america. you have to understand that the area is moving into q4 and start going down with the capital that becomes an issue or not. >> al, what do you think? >> i would have to agree with the statements. when we look at the bank of america tomorrow, it's hard to get a read on today. we have to get the activity out of bank of america and strong lead financing, but jpmorgan is more conservative with the underwriting. the market was looking to crack open the champagne and say consumer concerns are over, but

i don't think they are. charge offs are higher and we had stabilization in delinquencies for jpmorgan. we saw that recently the data out of jpmorgan and bank of america as well. tomorrow we will see out of bank of america. >> we just ran a headline. the new york state labor department said the securities industry added 1400 jobs in may and june.. does that shock you as much as it shocks a lot of us? >> it does shock me a little bit. we did see a pick up in capital activity over the last couple of quarters, but the rate of change in jobs is surprising to me. i didn't know we were gearing up fast. we did see strong results and saw it out of goldman sacks and it is indication that we are turning the cycle here. >> adding 1400 jobs in an recession, is that a turn? >> i think banks are probably y still conservative.

>> there were foreclosure attorneys, michelle. >> or bankruptcy, guys. >> let me ask you about those jpmorgan results. >> we are to get to city too. >> is that a defensive posture by the bank or is that a reflection of the reality of the deterioration of the portfolio? >> it's a reality of the credit portfolio. there is a moratorium on foreclosures that went on with jpmorgan and wrote down the loans to home value. the banks that haven't could face those in the charge off going forward. they are in the non-performing mode. you also have some of these loan modifications and right now they are in non-performers and may may pay loans and if this doesn't work out, they could be charge offs as well. >> what about city? hope against hope, what are you looking for? >> in both bank of america and

city, there is gains from one-time sales of items that bring up into positive earnings, but we look for negative earnings going forward. >> do you agree? >> i do agree. i think the more we will be focused on is the direction of the company given that the government is in there now and the plan for the company going forward. we will witness another aig scenario out there. >> thanks, guys. over to you. >> let's talk more about that. charley is joining us now with cit front and center in the news. tell us about the ceo. who is this guy and what is his background? >> really nice guy. now you know i'm about to smack him. >> i have known jeff for a long time and he should have been the ceo and he lost out and an amazing board room battle with stan o'neal in 2001 fired by stan after that.

>> stan was that kind of day. the former ceo of merrill lynch wanted to appoint and went directly to the board and said i will cut the costs and grow the businesses this way and the board agreed. he was out of work and landed at cit. it's fascinating and in some ways. what makes it an interesting story is both stan o'neal personally different people and jeff is a very nice guy. a lot of people wouldn't call him nice and i think he is all right because i know him personally. they both blue up in the same way. this addiction to risk i think is the best way to put it. >> they took on a lot of risk. >> jeff led to a lot of small businesses and that's the prime market. as you know, stan o'neal is

fascinating about merrill. this is in my book. he demanded that the company take more risk. managers. i don't think he understood. there is another chapter hereof exactly how the guys blew up. i will make a comment i heard you guys talk about before and the losses they are taking on on their loans. as opposed to stan o'neal and jamie diamond is one of the sort of risk-adverse ceos in the world. what was interesting as i did my research is that he was getting out of the cdo business and out of that structured finance business while merrill lynch was. >> stan o'neal, there wasn't a mortgage he didn't like. >> he plays it safe and i think

them writing down the mortgages, i don't think other firms do it like jamie diamond. that's what makes him a great ceo. >> good point. good to see you again. >> michelle, thanks very much. call it the audacity of dope. >> that's what he said. >> california officials say taxing and regulating marijuana would bring the struggling state over $1 bill ron in tax revenue. california really goes for this or is it just a pipe dream? a person in the back is rolling over laughing. >> the audacity of dope. >> the audacity of the jones is negative by five points. we are up by 6% in three days. we will see you on the other side. we need to send an expert. a walking, talking...

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industrial revolution among the best movers on the s, and p, pp and g, masko is better than expected earnings. whirlpool is higher as we said. baxter international is on the list as well. up $1.89. ppg industries and whirlpool. michelle in. >> can marijuana be the solution to california's budget problems? according to a study, a new bill to tax and regulate marijuana like alcohol could inject billions into the state. brilliant idea? or simply a pipe dream? here now bruce with the marijuana policy project in san francisco. let's guess what he thinks..

welcome to our lunch.h. good to see you. >> good to be here. >> you think legalizing marijuana so it can be tax and bring in $1.4 billion which is the estimate for california. >> it makes sense for a lot of reasons. one is there is a large piece of the california economy as has been reported on cnbc many times that is economically off the grid, unregulated and untaxed. it would do a lost things that make sense. it would gift ability to regulate and have reasonable control and enable us to put an end to the environmental damage caused by marijuana being grown by criminal gangs in national parks. there is a reason they are not planting vineyards up there. >> unclog the judicial system as well. three types and you are out and you have small petty drug crimes that are clogging up the system there as well. >> indeed and that's part of the

e dwhagz is not there. the law enforcement that would be saved. in 2007, the last year there is statistics available. there were 74,000 marijuana rests, 80 percent per for possession. >> let's get the other stats. 8.6 million pounds of marijuana grown with 13.8 billion. we are quoting statistics from california because they are thinking about whether or not they should do this and it would bring in 1.4 bill whereon in revenue. 990 million would come from levying a $50 per ounce fee on all marijuana that is grown and $392 million in sales tax if you are going tax it just like alcohol. do you agree with that? they are sammying consumption in californiaablely and do the numbers sit well with us? >> in all honesty, none of the

estimateses can be precise. >> that are goes without saying, sure. >> that's illegal and you can't measure precisely. they seem to be in a reasonable ballpark. there other metrics you can look at that suggests this is a large amount of money. last year the state of california said they seized $11 billion worth of marijuana plants. tally up up the sales thax on that alone. >> why would taxes it allow you to regulate it better. why wouldn't there be illegal production to get around the taxation. >> for the same reason there is no more alcohol and cigarettes. it's a pretty standard rule that when you have illegal markets for something, the underground disappea disappears. no need for gangs when you can do it legally. >> the sproez diminution is you

legalize and you get a lot of real growers. >> i will ask you real quick, you being the accolade here, what would you say about this? >> i have seen here and he thinks drugs should be legalized. he doesn't endorse using them, but you have them as well. >> milton friedman was a time member of the project. do you think it would go through? >> absolutely. the oldest and most respected survey in california show 56% support. national polls are trending in that direction. the public is way ahead of the politicians. they are going to take a while to come around, but the public is going to drag them kicking and screaming. the current laws make no sense.

>> -- >> not to my knowledge, but i don't know positively. i doubt it. without asking whether or not they would be high, still ahead, cypress semi and we have a first on cnbc. >> the house is in recess and doing the people's business, but it looks like some of them are filing in when they are all back and start grilling the secretary once again. we will take you there live and following the markets just modest moves to the downside and the dow is down about six points. today there's a way to save more for retirement,

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♪ hotwire.com they have finished their voting on capitol hill and back in session. the q&a with former treasury secretary harchg paulson. let's listen in. >> the government intervention was not something i came to washington to do, but better than the alternative. we switched gears and fortunately congress gave us the flexibility to do what we needed to do and prevent the american

people from really having a very serious problem. >> thank you for clearing that up and i also voted for the t.a.r.p. authority and recognized that the time that this was an important feature of it and if things continue to get worse, the only thing you can do fast was a rapid injection and this was an important element of it. thank you for clearing that up. i'm interested in exploring the principal that you seem to be bringing forth in terms that in times of systemic risk, conditions under which the shareholders of the important t firm might be expected to take a bullet so to speak for the good of the overall system on the grounds of the firm like everyone else has much to lose if the system collapses. that more over, threats from federal regulators are appropriate means of encouraging them to take that bullet. is this a reasonable little bit of characterization of your position on that?

>> that is not my characterization at all. we were very fortunate in this situation to have an alignment of interest here. i have no doubt what was in the best interest of the public which was to not have bank of america collapse and not have merrill lynch collapse and the financial system. i happen to believe and i think ken lewis testified he believes that that was also in alignment of interest with bank of america and merrill lynch. i believe that if bank of america had invoked a mac which was a legally bining contract, there was not legally valid, the merger contract -- >> you asked them to not pursue -- they had the legal right to try to invoke it and you used what could be

characterized as an incorrect threat to encourage them not to use their rights. i wonder if there is need for additional clarity on this. >> the more we have the better. i heard people discuss this and no one dealt with as far as i heard the basic issue. show me a delaware court that after shareholders have voted let a company by invoking a mac. this mac actually had a carve out to changing market conditions. >> the argument was likely not impossible and these were circumstances like delaware courts have not seen in the recent past. are there specific issues of legal clarity? for example, some sort of safe harbor for ceos that act in ways that might be construed as being

against shareholder interest and because this is a time of systemic risk and they have been given direct orders by the regulator, do you see mile an hourit in that? >> there is something that i have that is a complicated issue. it's one that i really don't feel qualified to have gone through all the arguments, but one that bears consideration. >> thank you. i feel better. secretary, thank you for service to your country. that is about the action that took place in regard to deal we have a good bit of disclosure on because the new york attorney general in essence now public

testimony about what occurred with that. the reason we are having the hearings is about going forward. we want to make sure the government officials really keep what is appropriate. so that's why this hearing is occurring today. now, you have had a long history in the financial market place as chairman of goldman sacks. a couple of these great quotes about your service and your actions on wall street, one quote they think says a lot is jim column describing you as competitive, can do and -- and a committee member said hank hasn't changed at all since he was at goldman, literally.

i don't think the president had concerns about that when he offered you the job. another fortune magazine described you as investment community stealthiest power broker. we get the deal. you have the capacity to get a deal done. now, as chairman of the -- i'm sorry, as chairman of the federal reserve, ben bernanke had a different set of powers than you had as treasury secretary. is that true? >> absolutely. >> as secretary of the pressury, did you have the statutory authority to fire -- thanks.. you don't make much of a window here.

as treasury secretary, did you have the statutory authority to fire the board of directors? >> no. >> no, so in your testimony you said i mentioned the possibility that the federal reserve could remove management and the board of bank of america if the bank invoked the clause. in essence you were carrying a message from will the federal reserve. >> i would prefer to characterize it the way i had to earlier. i had had a comprehensive conversation with ken lewis in which i reaffirmed the support that he was going to receive from the government because we were committed to every systemically important institution. >> that are support is also

feds, treasury -- >> i expressed the view and i expressed it in strong language that the mac was not illegally a valid option and the judgment of the lawyers and -- >> one of the economists who has been the most dire about the outlook for the economy saying that he thought we might have a double dip recession saying now he believes the worst could be behind this with the financial and economic conditions.s. he is saying there will be subpar recoveries. he will be predicting the downturn and he believes it's one of the most bearish. >> extremely bearish. he said he thought it would last

another six months. this doesn't really contradict that. you can still see another six months. >> the jobless numbers are polluted by the auto sector and a lot of detail there. the issue is that once jobless claims peak, the recession is almost always over. >> some believe that happened. >> it does appear to be. you have to believe as you look at the chart. it's starting to come down. we were worried about 700 and below 600,000. >> interesting if that is the case. >> the safety trade has come out of treasuries. >> that's what you would expect. >> we are going to keep monitoring the hearings. secretary paulson still testifying, but we. ed to bring in the ceo because they had a second quarter loss of three cents a share. that beats etimates and trading at a 52-week high.

if not, more than 6%. joining us now and a first on the interview is ceo of cypress semiconductor. you heard the discussion about rabini and the macroenvironment has stabilized. how does the economy look and are things starting to turn? >> we were surprised by the other chip companies and we are hoping it's permanent, but nobody can know that. >> i was going to ask you about sustainability. what signs are you seeing that perhaps we have bottomed in this economic downturn. >> we are actually seeing customers as opposed to ordering things a day or two in advance and we are seeing orders in the fourth quarter already. that's coming back so people are anticipating and waiting for

chips a little bit. the real test is out in the next first quarter and we will see if we have a slow first quarter. >> you mentioned that you decreased inventories by 10% sequentially. we keep talking about this over and over, the drawdown in inventories across the economy. what are you expecting? do you have to ramp up production? >> absolutely. i have more meetings than i am personally involved in and getting ready for the demand to turn on harder than we are expecting. i'm worried about that. >> where is the growth coming from? are these customers who put off replacing critical equipment until now or is this an expansion? >> it's new stuff.

>> i will give you an example. i don't know if you like to watch tv late at night, but you see the movie with the old cell phone that's about this big. the new old cell phone will be something with buttons on it and doesn't have a touch screen on it. that part of the market is taking off like a rocket. >> how am i going to dial? is it voice command? >> your buttons will be pictures and you are going to talk too them. that means a billion cell phones will go from the old style to the new style. >> we have to leave it there and go back to the hearings in washington. we want to go back to the former secretary paulson who is being questioned right now by the congressman. >> the bonuses given out before

the deal went through. >> understand the bonuses were paid before the deal went through. >> do you think that's fair and ethical? >> in terms of two different words. >> why don't we start with ethical first. >> i'm not sure i would call it unethical. whether that is something that should have been done is another question. >> do you think it should have been done? >> i can't there and i don't think i should be judging that today. >> you judged everything else and made a judgment with regard to mr. lewis. you said it would be a colossal lack of judgment where you made decisions affecting the american economy.

why are you washing your hans of this? you have been bragging. >> i do not have all the faxes on this situation. a letter we received from mr. bernanke and handwritten notes under subpoena indicate it was mr. lewis who first brought up the issue of receiving a bailout. isn't it true it was bank of america who brought up the bailout? >> i'm not sure how it came up, but it could have been.. it was with 100% certainty it was bank of america who came and said they have the losses and said they have a major problem and we are considering triggering the clause. >> in december of 2008, did you promise mr. lewis you would

provide with enough capital to fill the $12 billion-let me finish. i want to you answer the whole question. created by the losses at merrill lynch or would it be fair to say you at least intimated to mr. lewis he could count on an amount equal to merrill's loss in december? >> we weren't as specific with the losses, but we more than intimated.d. we were both ben bernanke and i were clear we were committed to having a support program we thought would work. >> immediately before becoming secretary of treasury, you were the chairman of goldman sacks, were you not? >> i was. >> you had the board member take over the head of aig. was that correct? >> yes.

>> he was revealed to be the largest recipient of the counter party payments, benefiting to the tune of $13 billion after aig was bailed out. they claimed exposure to aig was fully hedged and not material to the firm. just this week, goldman posted a record 3.44 billion and plans to give out millions of dollars worth of bonuses to the tune of $600,000 for 28,000 employees. this is my last question. the people in my district were losing homes. their homes and insurance and everything they got. you know what they asked me? they said that money that those folks are getting on wall street and the millions and millions,

is that our money? it went somewhere.. we don't know where, but people are getting millions and billions of dollars whachl about us? what about us who sent our kids to college who did everything they were supposed to do and what about us who don't have a house? the storm will be over, but when the storm is over, who will live in my house? is some of this their money. it want to answer that when i go home. >> i had no regarding payments to any of aig's creditors or counterparts, number one. secondly what i would say to you is the thing that bothers you bothers me. the people that are paying the

price had nothing to do with the problem. the sad truth is if these companies had gone down, they would be paying a bigger price and there would be more foreclosures and would be more people unemployed. you are right in asking the question and keep asking the question. this is a terrible thing and that's why i believe you and the other members of congress need to work hard to put in the regulatory reforms and kinds of powers that we need to have in place to make sure we don't have to go through this. >> my time is up. thank you, madam chair. >> are straight from the hearing is darrell isa. pleasure to have you with us.

>> thank you and thank you for covering this hearing and it brings closure to a lot of questions related to this difficult time in history. >> that was my question. are you satisfied with the answers you got from the former treasury secretary. >> we hadn't had all our questions, but the ones that have been asked and answered have been good. the opening statement said a lot. he took credit for what he said and why he said it and why he stands by what he said. he doesn't want it characterized as a threat. most people say it was a threat and it was a threat made at a time when our economy was hemp rajjing and the reason with resources he thought it was the right decision. >> does that mean you are done? what next? i told ken lewis i would fire him. now what?

>> just before you came to me when you heard paulson talk about the reform changes that mead to be made so it doesn't happen again and i would say in case it happens again, how do we expect the treasure to work? what kind of transparency will we demand?? he set up what we need to do next is we understand a great deal of the history and the limitations of the structure there and we understand that a lot of things were done and we wouldn't necessarily want to have to do again and the oversight and reform has to begin looking at reform and working with this commission that was just put up yesterday over the next 18 months.s. to get the kinds of structural changes so we don't simply hand $700 billion in walking around money. >> this sounds like a kind of secondary reason for this.

should you have fired lewis or kept louisis. was it wrong to wrong to threaten them? wrots the point of the hearing? >> it was wrong to threaten. we should try to have ways in which this is not going to happen again. the manager will be removed. has that always been a power of the regulators? >> one of the questions here is did they have a legal right to pull the mac? absolutely. were they told if you take advantage of that, win or lose, you are out of a job? yes. i think there were things that were done that should not have been. the reason for the oversight by the ranking members and the republicans was so that we could view the power of the fed and

the treasuries going forward. we now have the fdic and in many cases locked out of the events. we need more transparency guaranteed in the law and need to have companies. >> this all started the investigation into the federal reserve. now that you had these r these hearings, are you done investigating about whether or not there was a cover up? >> i don't think we are done, but i am convinced. it should keep to it. >> not be the super regulator. >> that are is probably the most important person for us to gleam.m. let the fed into do what

economists do well and find other ways for the risk situations when they get in the middle of mergers and make decisions on which company survived and which fail. i believe we have to find the expertise in the system and not go to the fed. >> that's a question of the confidence of the president. what i would say is if the president envisions the powers of the fed, i don't think ben bernanke is up to it. >> thank you very much. >> let's go back to the hearings and elijah cummings is under way. hoo when he goes to the camera we will go to him. let's listen to the q&a. >> when you communicated, did

you express on this day multiple calls and a couple of calls to ken lewis saying a number of different folks throughout the day. did you describe to the chairman your conversation. >> with who? >> ken lewis. >> on which day? the 19th? >> whatever day it was. did you describe the conversations? >> on the 21st? >> you talked multiple times in december and conferring where is he said they were considering -- >> joining us is elijah cummings who was just involved in the hearings. you have been listening to hank paulson all morning. i told ken lewis he would lose his job. are you satisfied with that answer and do you think he did

something wrong and is there follow-through you want to do now? >> he came in and i think he made it clear. he was doing the right thing and did not go overboard. we need to look at this further. iment to look at the bonuses i asked about given to the employees and i still want to know how that came about. what happened is that the bonuses were given out and shortly after the american people came by with an infusion into this deal. it started off as a private deal that was supposed to cost the american people nothing. so we got to get to the bottom of this. i think in order for us to regulate and make sure these things do not