get up to 25,000 bonus miles... with the gold delta skymiles credit card. call 1-800-skymiles to apply. this is the official card... of the world's largest airline. final check on the markets for you. we've been hovering. you know, it's funny.. the futures were running on a flat line and here we are an hour and a half later and the markets right around flat line. the dow is down less than 6 points, the s&p is down about 3. the nasdaq is taking a bit of a

hi, down 7. the internals look okay. you know what strikes me, rebecca? >> yes. >> last week, it was we have come too far too fast. the recovery isn't really happening. and we've got the head and shoulders. >> yes. >> this week, head and shoulders turns out to be just a shampoo, and everybody is saying, wow, you know, we're getting guidance and things like good. who knows what next week will bring. >> well, next week, one thing we know it will bring. merck, coca co la, dupont, caterpillar. before we go, we want to wish michelle dorffman, her newborn baby benjamin is calling her home, and she will be going there. >> what? >> we just had a great time with her. and i had a wonderful time with her. >> what?t? >> i know. but she has been great.. >> you can go down to petco. you can get one of those dog cages, stick the kid in the cage and go to work much. >> no. absolutely not. she is a wonderful person..

>> i am kidding. >> and we wish both she -- >> i have both dogs and children. and i use cages for all of them. >> this is not goodbye for the show. take care. welcome to "the call," i'm melissa francis, trish regan is off. we are 90 minutes into the trading day. stocks moving lower as investors digest the earnings from general electric, parent of this network, citigroup and bank of america. we are listening in on the citi conference call, and we will sort it all out for you. >> hi, i'm larry kudlow. cit races to avoid bankruptcy as the government refuse to say bail them out. i think that's a return to capitalism. but some are wondering, are the big banks more important to the economy than small business? that will be our call of the wild. this is "the call." this is also cnbc. all right. updated economic data from the housing sector offset by

disappointing results from ge this morning and google last evening. right now, the dow is trading lower, but not much, really. just about 13 points.. the s&p following suit, down about 4 and change. the nasdaq also off. before we head over to the earnings central, let's check in with matt nesto down at the new york stock exchange. hello, matt, what's the fallout? >> larry, it's interesting. you showed the dow versus the s&p, and there's a spread between them that is unusual. 3/10 of a percent, as we just showed. it's all coming down to really two stocks. ge and ibm, both out with earnings today. if you take a look at the heavyweight bout between these two stocks, 9.9% of the dow is one stock, ibm. ge, which is only 25 billion smaller in market cap than ibm is only 1% of the dow. and you can see there, give or take, about the same in the s&p 500. and that in this and of itself is the difference. in other words, ge, to have the back is on the dow that ibm is

today, would have to rally about 31% or a little north of 3 bucks per share. not happening. there's your earnings movers here today. you can see, ibm pushing higher. ge and bank of america both lower. and citigroup, we're going to call it little change here today, as analysts are still debating on whether it was a hit, a miss, a good, a bad, a win, a loss, whatever. fact of the matter is, we're trying to go positive today. of we turn this into a six-day rally. we haven't done that all the way back in november, eight months ago. but it is the best week that we've had since the trough in march. we're up north of 6%, the materials, the energy and the builders very strong here today. we're seeing the industrials and the utility stocks and the health care very, very weak. speaking of weak, if you look at that five-day stat 'tissic, the financials, ge 9% higher for the week. look at the moves. 30% for capital one. citigroup and am mechanics, up

20%. b of a and goldman sachs double digit gains. the best sector for the week, all ten sectors are higher. materials also up 9.5% on the week. big gains in the steel makers over the past five days. and then technology, about 8.5% higher on a week to day basis. very strong week here. sand sandisk up 20%, and ibm up north of 12% themselves and then the nesto shutdown trade. utility, telecom, understandably and predictably, lagging this market, up 2 or 3%. earnings central now, for more, melissa francis.s. >> all right, matt nesto, thanks so much. we've been reporting ge's profits fell by more than half while citigroup's primary banking business continued to suffer. and bank of america's credit losses soared. joe concernin and scott cohn are here with me at earnings central. mary thompson is on the sit group conference call, monitoring that and other calls all morning. that's not her desk, but looks

like it's her desk. we're going to back to her in a bit. from san francisco, we have the president and portfolio manager of the permanent portfolio fund. let's start with joe. so the banking scene kind of continuing. bank of america, you know, revenue there soared by, what was it -- it was like 60% or something, right?? >> yeah. you've got some troubling things in addition to what looks like a pretty good number. the 33-cent number was good.. it's nice to see the biggest bank in the country that had been written off as a zombi bank, at least they're making money. but there are items that did boost it. but the company did make money. here's the bad part. there was a lot of concern and angst on the street in the growth of charge-offs and nonperforming assets. ken lewis acknowledging it's going to be tough through 2010 and conditions are going to be tough. $13.8 billion set aside for bad loans, chargeoffs $8.7 billion, up 25%.

nonperforming assets -- the biggest bank. these are huge numbers, but scary and hopefully the bank is big enough to, you know to handle. nonperforming assets up 21%. nonperformers $31 billion.n. another $4.63 billion to reserves. that's up to $36 billion. now, remember, they got $45 billion in t.a.r.p. they're not allowed to pay back because of situation. credit card losses, everybody looks to those. soaring 12%, and the credit card operations lost $1.62 billion. so as stocks moved up in the last week, it's not given back much, but, you know, there are certainly -- if it you want to worry, there's plenty to worry about. but if you want to be an optimist -- >> at least there is revenue. >> hey, joe? >> yeah. >> joe, let me ask you. i'm having an out of body -- >> that's the voice of god, and in my world, you are god. >> i'm having an out of body experience, joe. one of the things that just blew

me away, citigroup actually lost revenues and profits in their securities trading. their capital markets trading. now, for weeks and weeks, i have said, even a banker can make money. of. >> i've heard you say that. >> in a steeply upward yield curve. if citi can't make money just in ordinary trading and securities operations, we have got a very different problem. >> and that's different from jpmorgan. >> if they can't make money in this environment with a zero borrowing rate and their refi'ing mortgages at 5 and 6%, and trading stocks and bonds that are going up and can fund it all at zero, joe, we have a bigger problem. >> can i pitch one down the middle? maybe they're having trouble attracting any talent since they can't pay anyone anymore.e. >> oh, you think that's it, or do you think they don't know what they're doing? i am very troubled by this, because this is the meat and potatoes of the so-called comeback for banks. >> at citigroup, larry, without that smith barney unit, it really looked nice that they made $4.2 billion -- 4.3,

almost, or 49 cents a share. but if you factor out the smith barney -- i guess they lost 26 cents. still not as bad as analysts' expectations. what do we care, 23 billion shares outstanding after the exchange offer. >> but didn't everybody trade that rally the end of march and into april?? everybody traded that well. they managed to not do that? is that what the numbers are telling you. >> with the yield curve, i hadn't noticed that, but maybe sheila bair has a point.t. it seems like you ought to be able to make a little bit of hay. >> anything. even a republican country club goofy banker shows up to work with a steep yield curve, you make money. this is the first report of any of these big banks, correct me if i am wrong, that they haven't made a bundle in trade and stocks and bonds and whatever. this is a disaster for them. >> we have mike standing by, as well. with his take. do you agree with what we're saying, or are we crazy?? >> no, i generally agree with what you're all saying. and, in fact, on cnbc before,

the main reason why we have permanent portfolio gravitated more toward the investment banks and servicing banks versus the hard core, you know, too big to fail banks. you know, citi's results were better than expected operationally, but if it wasn't for the gain on the sale of smith barney, they would have been in a loss position. so i think that's turning around a huge bow in the water. it's going to take several quarters of years for them to restructure that business and turn it around. b of a, i think the most troubling thing larry touched on was the increase in write-offs and nonperforming loans and maybe the softness in the overall banking business. again, i think that's a multiyear turn around story. >> let's bring in scott cohn and talk ge here. i'm going to let you talk ge. you do that. and we're going to stand here quietly. and show us some graphs that we can distance ourselves from you a little bit. >> wonderful. it's a little more of the same here, and all trying to put a good face in a tough virm. let's take a look at the

situation at ge, ugly. this is the revenue down 16%. the profits down, as well. down 49%. in a very, very tough environment. what they kept on saying in the conference called today.. take a look at the stock, which is just kind of an ugly chart if you look -- >> did you say ugly? >> yeah, i said ugly. i did. >> how many other words -- >> i think we can change it here. yeah, moving right along here, but there's the stock, and as you can see, we're down 5% today. 6% or so. and it's been tough, as people kind of have a tough time believing in what the company was saying, what jeff immelt was saying, what keith sharon was saying about ge capital, they're feeling good about it, they say. here is a look at the break down of the profits by the different divisions, different segments. energy infrastructure up 13%, technology infrastructure down 11%. nbc universal and capital finance are the ones that really lead the losses here. the decrease in profits, i

should say. consumer industrial down 20%. jeff zucker, the head of nbc universal did say that the area -- >> keep going. >> -- said that the advertising challenged businesses. so this is a memo to employees today, that maybe they have seen the worst of it. and that's what the issue is, in nbc universal with a 41% profit drop is total advertising that continues to be a problem. but the hope is maybe we have seen a bottom in that. >> larry? >> yeah. >> scott, scott, scott. okay. let's take the gloves off here. if the global technology stuff is doing badly, if the global industrial stuff is doing badly, we know all about the lousy credit performance and so forth with ge capital.l. but you're talking about bread and butter here. global industrial stuff. global technology stuff. what's the game plan to get it out? did jeff immelt indicate a game plan to rescue these key, key, underlying fundamental ge areas? >> it's all about cost-cutting. what they were talking about in

the conference call. and also, continuing to sort of rein in ge capital. and maybe not increasing enough, as far as real estate. 170% reserve for real estate losses but we all know what's going on. >> kb e is in china, asia, they're leading the way. look al places like ibm how they reported great results and intel because of their linkages -- >> let's ask mike that. >> ibm is cost cutting. revenue is down significantly. >> we have revenues from the china/asia recovery. >> revenue wasn't that much different at ibm or ge. >> mike, what do you think? >> well, i don't think the issues at ge finance were all that surprising. it's been that way for quite a while. i was a little bit disappointed. ge being such a diversified business, i was a little bit disappointed with the outlook and the softness of the variety of businesses. i mean, except for infrastructure spending, which was real positive, everything

else was really negative. and it continues to indicate a softness, potentially in the overall economy. so i mean, i was disappointed more from an outlook standpoint than the actual numbers themselves. >> yeah, it was kind of a defensive stance that are taking in a lot of areas. they did say, hey, we can play offense in ge capital over the second half of the year. they said there may not be transactions there to do. >> yeah.. bottom l lrom all of these companies, we got off to a blockbuster start with goldman and jpmorgan. a little bit more disappointing, but dave, looking at a market down 12. >> the bottom line is you have two heads of the class. isn't that the bottom line? the "new york times" story is exactly right. goldman and jpmorgan. that's it. >> we had 7% on the s&p this week. so anything we give back today is, you know, after some pretty good gains. larry, i can if you x out forex, not that different, larry.

so the cost-cutting at ibm, plus technology. check it out. the numbers are not that different for revenue. >> alright. >> thanks, guys. when we come back, david faber with new details on cit group in dire straits. >> plus, a small business ceo says ignoring cit is detrimental to our economy. he's going to join us live to explain. and i guess complain. coming up, only here on "the call." me, i like capitalism.

cit in discussions with potential lenders to secure financing as it tries to avoid bankruptcy. this coming on the heels of the administration's rejection of its request for more bailout nation money. right now, cit is trading, ooh -- it's slightly higher, up 16 cents. if you can believe that. anyway, to get the inside scoop, david faber has the latest. hello, david.. >> hello, larry. this is like as we say a fluid situation. as we reported yesterday, cit still embarking upon an attempt to line up as much as $3 billion in private financing thatat wou be secured by some of the company's unencumbered assets. a number of banks are trying to help in that effort and listing fixed income investors, perhaps private equity, but all of this happening in a very, very tight time line, or needs to happen, to allow cit to avoid a chapter

11 filing. that filing may not come today. the board met yesterday, no decisions made at that point. but nonetheless, time is of the essence, because frankly, if you're going to file, you want to do so with as much cash as you possibly can. and then it moves on to what the recovery value will be, of course, for bond holders and the like. i should also add that in speaking to a number of people who have been approached who run funds, been approached about participating in a financing, they have been approached on both, well, could we do it out of bankruptcy, or would you participate in bankruptcy? in other words, as a finances financier. things still look rather bleak, make no mistake about it, for cit, in part because the company seems to have embarked on this entire effort. plan b, if you want to call it that. at a very, very late stage. truly believing it would seem

until wednesday it would ultimately get what it needed from its federal regulators in terms of being allowed to transfer assets from its bank offer finance company to its bank. and to get support from the fdic to issue debt backed by them. take a look, though. you want to try and figure things out, you want to play distressed debt vft investor at home. here is a spreadsheet that's making the rounds. there are the -- the assets ex pledged collateral. so that's actually unencumbered. corporate vendor, transportation trade, student loans. you have it all there, and then you take a haircut, and that's your potential recovery value we're talking about there. $28.7 billion. again, this is one of many spreadsheets making the rounds amongst investors right now as they take a look at the situation, trying to figure out whether they want to play, where they want to play the in capital structure at all. ultimately, you then need to discount yet again that $28.7 billion. over like a two-year time frame to figure out what you would ultimately get.

but that gives you some sense as to what we're talking about here, larry. things are moving fast. i'll have updates through the day, if there are any to be had about where things stand. as of this morning, my latest check was, they had not yet moved specifically to say, okay, we are filing today. you know, you do have a weekend. they do have a little bit more time. >> but, david, this is the problem. and i'm sure everyone has said this to you when you talk about dip financing. this business model is broken.. the way that they funded, the way they did business, you know, through commercial paper, through securitizeded debt, there is no appetite for that right now. do you think that it's permanently broken, how long is it broken? because people are saying this is a business that should just go away. >> yeah.. that's a very good question. i don't know the answer, melissa. >> yes, you know the answer. you have all of the answers, david! >> believe me, all i have is questions, and get no answers. they were transition from being a capital markets funded to one

being funded by deposits in the bank. didn't get far enough along in the transition before it came home, unfortunately, to hurt them. and i don't know the answer. i know there are plenty of people who say this business simply shouldn't exist. >> it's over. >> they were trying to change, of course, the business model.. they didn't make it. >> so was gm. so was chrysler. right? >> let me ask another quick one along melissa's lines, business models being broken. did cit buy a bunch of subprime mortgages or package mortgages or cdos? >> not that i'm aware of. >> i thought i read that. >> you may have, and i think cit's debt, its credit, larry was included in cdos. a lot were made up not necessarily with mortgage-backed securities, but also made up with synthetic cdos made up of credit default swaps on corporate debt. cit compromising 100 to 150 corporate names. >> the only reason i read the

cdo is i read about it in your book and you taught me about it, and that's why everybody should continue to read your book on the best-seller list. >> thank you very much for that endorsement. >> did you pay him -- does he have a commission for 5%? >> i learned a lot from the book. >> got to say for mr. kudlow, i gave him the book, he read the book and was interested. >> david, up next, strong news out of the housing sector, and mixed earnings from the bank and tech sector. >> which sector will lead the way to economic recovery? housing, banking, technology? none of the above? that discussion is up next, only here on "the call."

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all right.t. take a look at oil right there on the rise today. this is the fifth day of gains. the first week higher in a month. above $63 a barrel. almost 2% on the day. new housing starts -- we'll save that for later. new housing starts jumped more than expected in june, getting a boost from rise in single family homes. but with banks seeing better than expected earnings, could the financials lead the way into the recovery first, or will it be housing, or as our jim cramer said, will it be the tech sector? let's ask thomas higgins, dean

macke, chief u.s. economist at barclays capital and roger kay at endpoint technologies. roger, who do you think is going to lead the way higher or out? >> i'm a tech analyst, so i think i'm going to vote tech. >> okay. why? >> well -- >> i mean, besides the fact that you're a tech analyst. >> tech companies going into the recession had very strong balance sheets, and cash flows, and they generally maintained those fairly well. even though there's been revenue declines. of now they throttled back on costs, their margins are beginning to turn up, and there are some sectors that are looking quite bright in terms of capital investment, which is a leading indicator for the recovery. so i like tech pretty well. >> macke, let me go to you. two favorite numbers this week. today's housing starts, maybe we'll put it up on the full screen. this is the third straight month that single family construction has gone up. the other one i really love, there is your housing starts. actually, one, two, three, fourth straight month, so that's good, although the levels are

low. the other one, dean, the huge drop the last two weeks, 100,000 in jobless claims. i want to ask you if that number is going to stick. >> we don't think that that extreme the drop the last two weeks will stick. but the underlying trend downward in jobless claims is for real. and we think that will continue in the third quarter. in terms of housing starts, this does look like a real turn-around. we had about a 94% rise in housing starts in the second quarter.r. that's the kind of spike we get at the end of recessions. we do think this recession is ending right now. >> but thomas, i want to ask you about that, because i couldn't understand that stock this morning. single family homes jumps 14%. why? why are we building single family homes right now? >> well, we've already seen sales bottom in terms of -- we saw them bottom earlier this year, around january, february. and then after you see a bottoming in sales, you see starts begin to bottom. and that's what we're seeing right now. >> but -- diana olick would jump into the conversation right now and say, well, prices haven't

bottomed, though.h. >> no, that takes a much longer period of time.. what you see is, it bottoms demand-first sales and then a starts bottom which is supply, and finally prices will equalize the two. >> you're exactly right. that's a really important point that sales have to bottom first. actually, in these big troubled states like california and nevada, florida, the sales are rising very nicely. so that's slightly positive. roger kay, back to you. in a stock market sense, the best part of the story has got to be the healing in the financial and credit markets, right? so they're leading us out. i mean, that's the most basic leading indicator, isn't it? >> right. and then tech could basically ride all of those things, because the fleet is getting old, in enterprises, and companies now need to refresh their clients, so they're going to start buying again if they have some money. and so if there is an upturn in financial, then that accrues also to tech. >> dean, i mean, if i believe that financials was going to lead us out, i would think we're

already on our way out because of the earnings we have seen this week and the revenue we have seen in these businesses. obviously, they have a lot of charges. they have a lot of things pent up from the last year and few quarters. look at that chart. >> i think the thing to keep in mind here, from an economic growth perspective, is the financial system doesn't seem to be deteriorating anymore. things charge offs are rising, but not a lot worse than people had been expecting at this point. so it's a very dramatically different situation than last fall, when the surprises just kept coming to the down side, one after another.r. >> tom higgins, are we sure there is a recovery? let's go there, just for the heck of it. i've got a chart that shows all of the money the fed has pumped up its balance sheet with, it's gone to excess reserves. look that. that means banks are hoarding the money, there is no money multiplier in the economy, and a whole lot of people, including myself, think this fiscal spending stimulus out of washington is a waste of money, because there's no multiplier there! are we just overrating the

recovery chances? >> well, i still think there is a recovery on the way. i think the private sector will lead the recovery. i don't think it's going to be of the go spending, larry. i agree with you there. but the fed has to stay on the accelerator for now. it looks like we're going to get positive growth by the third quarter. i mean, you have the trade gap shrinking dramatically over the first half of this year. hopefully, you'll see some stabilization in in consumer spending. and then gradually over time we'll see a recovery in business investment. >> but if these multipliers aren't working, i mean, look, the fed is pumping money in, not being put to work. the same is true mostly for the fiscal stimulus. then i want to ask you, is this recovery made in china? is that what this really is? is china the tail wagging the u.s. recovery dog? >> i don't think so -- i don't think china loan can really drive a global economic recovery. >> well, you just mentioned trade. you just mentioned trade. where is that coming from? china -- >> that is true. but it's also due to a collapse

on consumer spending, which we're expecting to reverse later this year. hopefully, we'll see some stabilization in consumer spending. but really, the trade numbers will begin to contribute positively to growth in the third quarter, simply because consumer spending has fallen so far. and gradually over time, you have a pickup. >> and so we're all -- everybody in this panel sees recovery. is that what i'm hearing?g? no naysayers. >> no double dip. >> neuro o-rabini says by the end of the year. but 1% growth. that's not recovery. >> i'm more concerned about 2010 than 2009. >> why? >> a lot of stimulus. trillions of dollars going into the economy this year and next year. and after that, we have to see a sustained pick up in this private demand. if we don't, then we have to be concerned about the double dip. of. >> yeah. we leave it there. thanks, guys.. >> thank you, gentlemen. coming up, cit group deemed too

small to bail out. but is the administration underestimating its impact on the economy? we'll discuss. but gosh, the administration sounds very capitalist here. i've got to give them kudos.. >> but first, banking on the big banks for big profit. two top analysts tell us which stocks could boost your portfolio. that's next right here on "the call." we'll be right back.

welcome back to "the call" i'm mary thompson at the cnbc conference call desk. the conference call i'm listen in on right now is citi's reporting profits. once you exclude the sale to smith barney, it lost $2.4 billion. the company's ceo, vikram pandit on the call saying that the rate of growth in consumer losses may be moderating. keep in mind, this, of course, is an important story not only for citi, but some of its rivals like bank of america, jpmorgan that have exposure here in the u.s. he says as losses moderate it will have positive implications for future reserve bills at citi, meaning most likely they won't have to reserve as much. he also went on to say that while the markets remain uncertain right now, citi is

increasingly improving operating story. he says the quarter's performance comes down to mortgage and credit card losses and the bank continues to work to mitigate both of those, both helping consumers, and also to reserve and mark these assets accordingly. and also, he said looking at the credit cycle and where we are, he says we may be past the first phase, which basically involves mark to marking these toxic assets, in large part because they actually saw positive marks on some of their toxic assets, specifically in the subprime area in this quarter. the second phase being the consumer, which he says we are certainly in the middle of. the third phase being commercial real estate, and he said that citi, again, this is vikram pandit, the ceo, is minimizing its exposure right now. the company's new ceo -- or excuse me, cfo, john gursback also on "the call", and he said he expects them to be volatile until citi holdings, which is basically part of the company is set up to hold a lot of toxic

assets and some of the assets they want to sell. until citi holdings is wound down, the earnings stream will remain volatile for citi. larry, back to you. >> thanks, mary. thanks very much. so what's the investment play in the banking sector right now? let's bring in dick beauvais, financial strategist, rock dale securities. matt mccormack, and matt, start with you. of i thought citi's numbers for securities trading was pathetic. they lost money there. it's the -- even a banker should make money at a zero interest rate. is it time to throw in the towel on citi? >> i don't know if i would have given them a towel in the first place, larry. i think it's quite different versus goldman sachs' release, which they benefited from their trading operations. i think even though pandit was saying that they're seeing some slight visibility in terms of exposure to the consumer, that still gives me quite a pause for concern, and certainly this macro environment, i do not think is as rosy as people expect. i think the early assertion that we let it ride out a little bit,

certainly they've had some wind behind their back with the spreads narrowing. it certainly is helpful to all of the banks, but i think for right now, i still recommend caution on citi's shares.. >> dick beauvais, a tale of two banking sectors this quarter, without question. probably previous quarters, as well. tell me about the guys who haven't reported yet, so i know how to trade then ahead of that. what about wells fargo and everybody else who hasn't reported. going to the jpmorgan goldman or citi? >> i think you have to recognize that the quarterly reports of the big banks were terrible right across the board. i mean, morgan stanley -- >> really? you think jpmorgan and goldman sachs, you're calling that terrible? >> goldman sachs had real earnings.. jpmorgan had no earnings. jpmorgan saw its deposits, loans, go down, its margins go down, trading go down, and had big capital gains that it pulled out from somewhere to come up with a positive number. citigroup last money. if you look at bank of america, they didn't pay taxes in the quarter, they fooled around with their loan loss provision, and if you really look closely at

the number, it was about 4 cents a share, not 33 cents. but the stocks are going up pretty sharply. so the question becomes, why would numbers -- which would have destroyed these stocks last year, had they been published, why from these numbers so positive in terms of the stock market. >> what's the answer? >> the answer is psychology. >> this is the most bearish i've heard you. in the last three paragraphs, dick beauvais, is it time to get out? what are you going to say to an investor, you ride this baby up, the stocks have doubled since early march, had a great week, but as melissa said, basically because of jpmorgan and goldman. so what you do you do? get out? sometimes you have to sell. are you advocating that? >> no. in other words, what i'm telling you is the psychology and the method of valuing bank stocks has changed. a year ago when everybody thought they would be nationalized, you would look at them on a tangible equity basis and say they were one time

tangible equity. today you talk about what is normalized earnings in these banks. in other words, what ken lewis said in his conference call was, i've got $14 billion in pretax, free provision earnings. the market is now starting to focus on that metric, instead of the capital metric. so i think that, you know, what the market is saying is, we're willing to accept some pretty bad numbers from banking companies, and still buy the stock.k. >> yeah. >> so i would still buy the ones that i mentioned.. but in answer to melissa's question, i think that next week, you're going to see terrible earnings out of just about every bank that reports, because most of these banks don't have the benefit of capital markets activities.. i would say 50% of them are going to lososoney, and they'ree going to look like first horizon, which also published numbers today. they're going to look bad. >> matt, do you agree with that? and jpmorgan, 27.7 on the top line. do you think that's a terrible number? do you think it's manufactured? >> i think dick has a point that psychology has changed about the banks. and you're starting to see, in

my opinion more speculation move into what are essentially low quality shares or low quality sector. i disagree with him where i think now is the time to take profits. i'm more concerned about the macro environment, and especially if you look at unemployment. if the economy is essentially 70% of the consumer, and we have roughly 16.5% total unemployment, i think it's going to increase, these banks are going to be impacted accordingly. >> okay. we've got to go to scott cohn, he has breaking news right now. thanks, gentlemen. scott? >> melissa, confirming a story we broke on cnbc on wednesday, bernard madoff's outside auditor david freelying, waiving his indictment, waiving his right to be charged by an indictment in the case against him. he was charged in march in six criminal counts, but it's not a done deal as far as any plea agreement. so he has pleaded not guilty for now, as the two sides condition discussions about whether he will come to some sort of plea agreement. he has waived his right to indictment. that's a step. if he was going to fight the charges, he would have insisted on a grand jury indictment. but pleading not guilty and

department of justice saying that -- that the discussions continue, apparently aimed at t some sort of a resolution. he remains free on bond, and the next hearing is not until october. so it could be a while before we find that the -- the fate of david free ling, who the government had until today to indict, but that has been continued now as freelg waves the indictment. >> these so much. a quick break and more on the cit group and what the small business loaner -- why they aren't getting a bailout. >> and does the administration deem big banks more important to the economy than small business? well, "call of the wild" is straight ahead. how about a little dose of capitalism? we'll debate capitalism. people have it out. people have it out. capitalism or not? d luxury seda. this is a history of over 50,000 crash-tested cars... this is the world record for longevity and endurance.

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all right. check out british airways. the carrier raising a billion dollars to avoid a cash crisis, including $540 million in bank loans. that is earmarked for a pension fund. right now, british airways trading up 3.5%, $4.70. a little action there. >> cit looking for capital as it races to avoid bankruptcy. this after the obama administration rejected the request for more bailout funds. but does that mean that the

government thinks big banks are more important than small businesses when it comes to the impact on the economy? that is our "call of the wild" question.. let's bring in scott baxter, ceo of sa baxter and cnbc's steve liesman. steve, it sounds like we're going right down the main street versus wall street, the class warfare, going to bring it all out for this one. >> this is the danger when you get involved with politics and the economy. and decisions are made or the no not made based on the political impact as much or more than the economic impact. i think there is a lot of sort of pulling at heart strings here, and i think the economic -- >> the only hope. >> it may be a bit overstated when it comes to what impact a cit bankruptcy would have macro economically. >> scott, make your case. >> yeah, well, i would totally agree. i'm a big capitalist, and bailing cit doesn't help me at all. as a matter of fact -- >> why? you're a small business owner.. you should be rooting for them. >> yeah, but i'll end up paying for it. i'm actually a thriving small business owner, i make products

in the small business industry, and we're growing as we speak. >> how is that possible? >> international sales, good product line, focus, marketing, tightening your belt and moving forward. >> so, scott, you don't to get in debt with the government. you are a good capitalist. so there is really no debate here. i thought you were going to come on and say, give me money. >> no. >> you want money? what about small business administration money? do you want to get t.a.r.p. money? you know, you too can be t.a.r.p.ed. >> no, this is very simple to me, and that is, you've got to help the economy, you help the economy, you help small business, because people will start spending money, buying our products. you've got to fix the housing situation. >> how do you want to help the economy? >> well, i want to lower the cost. i want to improve the value of people's homes, especially me, because that's when i sell to. but you know, you mentioned the sba. the sba, and this new program, it's completely failed.. the -- >> it always does. it's all bs, it's all red tape and bs and government control. doesn't mean a darn thing.

why don't they just cut your tax rates so you know what you're going to earn and you can keep it? why don't they slash and better, give you a tax holiday on payroll taxes for your employees? >> absolutely. my employees' taxes just went up to support infrastructure. >> all right. >> you know, it costs -- it costs my employees throw times the total to come to work this year, three times, than it was last year. this is the stuff that kills small business. >> how about health care? is that going to help you? the health care tax?x? take a look at what they've got in store for you, my friend? >> yeah, well, okay. you're going to get a point -- health care is a double-edged sword, right?? i want healthy employees, and i want to be abe to provide health insurance to them, but i want to be able to do it competitively. so, yeah. government-based health program, i'm not necessarily for it. on the other hand, it seems to me it's completely unfair for small business to have to pay 45% more. >> right. >> for health care than large business does. >> yeah.

>> so there has got to be a balancing act here. and by the way, we talk about job creation, 75% of new jobs created come from people like me.. you know? building hardware of all things. but, you know, we're generating jobs. i'm hiring people. not a lot, but i'm hiring people. >> steve, why do you think the government didn't fall for the main street versus wall street argument on this one? i mean, is it bailout fatigue, are they running out of money? why did they not bite on this one? >> a lot of back stories about what role sheila bair may or may not have played. but at the end of the day, the decision that's made so far, we do not rise to the level of systemic risk. because there might be losses to the economy, which i think is legitimate, i think is something the government wants to play this very carefully here. i think that if there are ways that the government can bridge some of this financing without essentially taking it over, or getting in the way of the private sector coming in, i think that's helpful for a very short period of time. but just because some people will lose some financing over a period of time, which, by the

way, if you look at the results from cit, they have been high in the default. these are not very economic loans to be making right now. so there's problems in that business. the government has already ponied up -- >> broken business model. >> exactly. they have given $2 billion, and i heard cit failed over the period of time they got this capital to go ahead and raise new capital in the private sector. >> let me get this right. steve liesman, friday morning. you are against bailout nation. for cit. >> i'm against this component of bailout nation. i've been against others, larry. >> we note this. >> the automotive aspect of this, as well. >> you said t.a.r.p. -- ready to get these t.a.r.p.s? what about the -- let mr. baxter run the economy. he sounds like he knows what he's doing. bureaucrats and the treasury and emb and elsewhere.e. >> i hope i've been consistent that t.a.r.p. should be a bridge of the shadow banking system into private sector totally. but in this case, i don't think

the -- the litmus test has been made. >> got that. they're closing my water down. >> i'm going to shut this down. >> scott baxter, thank you. steve liesman, very sensible this morning. "power lunch" at the top of thec hour. michelle cabrusso-cabrera, are you a free market capitalist? >> oh, larry, you don't even have to ask that, right? we have a cnbc exclusive coming up on power lunch, the choice hotel, is he benefitting from trade down as people move toward less expensive hotels?? and then charlie rangel and nancy pelosi making statements at 12:30. are they even going to acknowledge that the cboe says your plan isn't going to save us any money, it's going to cost money when it comes to your health care plan. we're going to talk about that and the effect on the economy.y. and also the trader triple play. we're going to get you ready to trade next week when it comes to oil, bonds, and also the stock market, of course. melissa, back to you. >> all right, sounds great. look forward to it, michelle. thank you so much. we'll take a quick break and phil lebeau is standing by with

a look at ford's new road test. >>. >> i know larry is a gear head, so i'll give them this question. what if i could offer a 8 cylinder vehicle but only uses a 6 cylinder engine? we'll talk about that when "the call" returns. fidelity, traders learn from the pros. say you want to backtest an entire portfolio of stocks. market experts show you how through fidelity's extensive trading knowledge center. and fidelity gives you free research from 15 independent firms, with accuracy scores... to help you decide which analysts to trust. find out why more and more active traders are turning to fidelity for a smarter way to trade online. trade like a pro. trade with fidelity.

all right. take a look at matell right now. reporting better than expected second quarter earnings, and six pens a share, a nickel better

than the street was expecting. the stock currently trading higher on the day by 87 cents. doesn't sound like a lot, but 5.5%.1 larry. >> all right. better than a kick in the butt.8 ford motor is the last automaker standing on its own without any government bailout money at all. and so far, it is really paying off. check out the shares of ford over 160% this year alone, although it is trading lower today. but hope springs eternal.l. the day is young. now, the automaker is ready to test drive its new eco boost engine, and that could change the landscape for fuel efficiency vehicles. and cnbc's phil lebeau in boulder, colorado with the details. hello, phil.l. >> hello, larry. we hear so much about hybrids and electric cars and fuel efficiency coming that way. well, ford believes you can take the standard internal combustion engine and turn it into this, the new eco boost engine.. it allows you to get eight cylinder performance with using

the gas of a six cylinder engine. we had a chance to take it for a spin here in boulder.r. a couple things to keep in mind. one reason they brought it here to boulder to be tested is because the torque stands out. but it's fuel efficiency. 20% more fuel efficient, 15% lower emissions. there -- the key here is that it's turbo-charged and there are about 100,000 turbo-charged cars in the market today. the question is, at another $3,000 -- that's the price for an eco boost engine, will people want to pay that in order to have greater fuel efficiency? ford believes so. >> this is the issue. the psychology is, gas may be cheap now, but i'm going to own this vehicle for three or four years, and i know during that period of time, it could double or triple. so i'm going to make the decision up front to make the best fuel economy choice. >> and ford believes that the decision will become clearer for

people when a four cylinder version of the eco boost engine comes out next year. for more on the price of eco boost, as well as other fuel efficiency technologies, check out the blog, behindthewheel.cnbc.com. larry and melissa, it comes down to this, you're going to have to pay, whether it's with eco boost, a hybrid, an electric car, you have to pay for fuel efficiency. the question is, how much are people willing to pay? ford believes this eco boost is a smart bet people will make. >> i do like the look of that thing. >> yeah, cute. >> melissa francis and i will bf right back for the last call.f you are watching cnbc. first in business, worldwide.