that's the conspiracy theory. you don't want employment going too much above 10%. when they have didn't, i thought, they're letting the free market do it. some viewers wrote, it's the republican owners of the small business. >> why? it's bush's recession. he doesn't need to fix the economy yet. he doesn't need to fix it yet. he can socially engineer all the social transformations and blame the economy on bush. >> is there really nothing i can add to all this conversation? two things i see from this one. number one, the canary in the mine shaft. it's the small businesses in wisconsin and manufacturers, they're the ones who can't get access to credit. that is a piece of that story. the great news is the private market fixing.

the market is dealing with this stuff. this could be a temporary thing. but the point is, this is being done outside of washington. most things aren't being done outside of washington these days. it totally shows we've got a small business credit problem. this is one piece of all that. >> does the administration know that the industry would step in and private money would cover up these problems here? or was that just a roll of the dice? >> i think it was probably more of a roll of the dice. bailout fatigue. they didn't think this was a systemic risk. this wasn't going to be lehman, so let it go and watch what happens. >> do you think it was going to be disrupted? >> sure. for retailers, for sporting goods stores and retailers. but systematically disruptive, probably not. >> on the unemployment picture, how much would that have pushed things. we have people who say there is a 25 to 50% chance you're talking about the economy really

taking a sharp second leg down because of the unemployment number. >> a lot of people at the fed and economists tell us we're looking at a "w." we'll have slow growth and the fed will probably have to pull everything back. look at the horrible fiscal policy coming down the pack. it's amazing. all these tax increases. all this spending. massive debt. we'll get into all of this. but the economics outlook from a policy standpoint, you couldn't do anything worse than the monetary trade policy coming out of washington these days. >> we will have the other side represented. >> i know. i feel it coming already. >> we'll have howard dean can make up for you in three hours. the ones that don't like you, they write in about our contributor. he's a real lightning rod. >> it depends. it's polarizing. >> it is. and it's getting more polarizing. this is a classic story that

rich democrats are starting. >> in the journal this morning points out -- >> they may have a few constituents. i remember what i was thinking, how much better is it that the government is -- what company would want government help at this point? goldman sachs had it for a little while and took it along with jpmorgan because the government said we don't want a stigma with the ones that are taking it. now they're thrown into the lot with the rest of them. they've got all this debt that the fdic insured debt. they're not out from under it by paying back the t.a.r.p. everything that goldman or jpmorgan being second guessed. the perception is that we bailed them out. they should be doing this stuff. >> you've got bankers in the midwest saying, we didn't take t.a.r.p. funds. come to us. that's where all the deposits

are going. >> it was a huge week for earnings. there are make economic events in the coming days. leading economic indicators at 10:00 a.m. wednesday, a government home price index. weekly jobless claims and existing home sales on thursday. then we'll get consumer sentiment on friday. do you feel good about earnings, the way earnings shaped up last week. >> oh, yeah. i think overall. >> and the way the market was up five straight days. >> not bad. >> this humphreys hawkins, do we take it live both days? >> i'm sure we will. usually 10 a.m.: lely 10:00 a.m. >> do we get a break here? >> i thought he was going to say does he pave a path out of quantitative easing? >> i saw the notes.

they did request us for the top of the 9:00 and 10:00. i don't know about the 11:00. >> i wasn't interested in what he was going to say. will he preempt -- >> it never gets old. >> a quarterly survey of forecasters finds the recession's grip on the economy appears to be easying but has not ended. it suggests a profitability remains weak in q2. 45% say the worst is over for the economy. while the other 55% argue the low point has not been hit. >> speaking of the economy, the white house sees economic growth, showing signs of progress. the white house budget director said second quarter gdp numbers are likely to look a lot better than first quarter. you saw paulson with the trade balance. even if it's negative, you add

it into the gdp. you see who else came around last week? roubini. >> he later said his comments were taken out of context. >> people thought it was so 180 degrees from where he had been. he had to come out and say, no, i just didn't -- but definitely getting a little bit -- >> the economy is -- and the unemployment is rising. you've got to listen. >> he suggests the feeling of fear and panic in the economy has dissipated and the white house is focused on job growth. i can't read this because i'm looking at becky. key drivers of economic activity. all right. >> the poor congressman. >> we love roubini. >> and you do too. >> he didn't do any of this frivolity on nightly news. >> no.

although we did have john harwood on talking about health care. it was good. >> it's crunch time. >> did you throw him any questions -- there's your nightly news. did you throw him any questions that went against the dnc's talking points or -- >> sure. >> you did? you challengeded h him a little? >> i didn't mention his dance party. >> i didn't know whether you went along dance force. >> i don't know if congressman ryan watches at 6:00 a.m. we get to say whatever we want. >> i'm finding that out. >> remember "one flew over the

kuck. >> >> the government's bailout warning that banks have misused t.a.r.p. funds. the special inspector general says that the 360 banks that got money to raise lending levels, 110 invested it. 250 repaid their debts and 15 used money to buy other banks. 80% said some of the funding went to support new lending. they are calling on treasury to require more detailed information on how the money is used. they maintain that this information is hard to use because dollars are fungible. the report will be published today. >> let's get to this. were you there, congressman, for the paulson testimony? >> no. i was up in ways and means for the health care bill.

>> did you tivo that? that was worth tivo'ing. >> i usually don't tivo. >> your own committee hearings. >> i don't tivo other committee hearings. >> speaking of inmates running the asylum, congress, that came to mind. >> paulson really handled himself well. i would have snapped so much more quickly. >> you've got guys teeing off at the guy so they can be seen at home. >> the ohio congresswoman and the tone of her questioning. she does that -- >> what part of ohio is she from? >> toledo. >> kucinich as well. >> dennis is cleveland area. >> i'm from ohio.

that's what i'm hearing. president obama calling on congress to pass health care reform legislation before the ug recess. easier said than done. there are now at least five competing plans on capitol hill. how is this finally going to work out, do you think, congressman? >> probably going to slip on the deadline. the question is what are you going to do to pay for all this stuff? we haven't seen the numbers add up yet. >> grassley seems to be embold edged. i know he's in the senate. but the public plan is they're immovable on that. it will not be a bipartisan plan. >> they have don't need republican votes. >> wouldn't they be too uncomfortable to do it with tissue. >> it depends how much they're clinging to the public plan option. how much thank they can get away with.

maybe one or two. i highly doubt even that in the senate. the question is are they going to pivot to plan b, like a co-op or something like that. they can dress up something that is the public plan. do they completely jettison the public plan. then plan c would be regularize health insurance. basically repeal all underwriting from health insurance. instead of having the public plan from the private sector, pass a bill that takes over nationalizing the private sector. it's basically the same thing. you'll have five or six health insurance companies as claims processors of the federal government. you won't have insurance competition if you do these kinds of regulations that are already in the public plan bill. its entire design is to displace and crowd out the private

sector. if we get that out of the bill, because republicans and democrats want some bipartisan, then you'll have basically the government take over private health care. >> they would argue vehemently with you about that. >> let's bring out the ak tu wearial tables. >> if you like your own plans, you can keep it. keep the insurance companies honest. to say that the private sector can't compete with the government plan is supposedly illogical because the government can't do anything cost effective. >> there are more vague reasons why this is a stacked debt. number one, the government didn't have to pay taxes. the private sector does. the government doesn't have to have huge capital reserves. the government doesn't have to account for payroll and benefit

costs. the government gets to dictate the prices it pays to providers. >> how can the health insurers come out more strongly against this? you haven't heard the screaming. >> that's a really good question. i think they're basically trying to keep their place at the table so they're not on the menu later on. they believe they can ultimately defeat the public plan. even with the resistance on this thing, i think we'll end up with the big insurers cutting a deal where they are basically claims processors. basically takes away competitive nature in health insurance. the small and medium insurers will go by the way side. >> there is a poll asking whether they approve of the president's handling of the health care.

it was 47 and now it's 39. do republicans small blood? >> the problem is the rhetoric has nothing to do with the substance. as we mark up bills, you see the price tags saying it's going to have a huge deficit. as soon as the american people see what this is about, they want to look at something else. the question is, in july and august, will the public become sufficiently educated and engaged on this issue?r what does this law look like in september? >> there's no way this will happen before recess? >> i think we will probably pass this out of the house before recess. i don't know about the senate. we'll see action in the house. i'm pretty sure we'll see action in the house. >> congresscongressman, that's it's done. you gave the four reasons.

i keep seeing the same mantra. you're going to keep what you want. they know this is not -- it seems duplicitous. that's just politics as usual in washington. the republicans do the same thing when they want something passed. >> we have actuaries. that tell us you can choose not to believe it. it's pretty obvious what happened. the whole purpose of having a public plan is not to have fair play, honest competition. it's a stacked debt. it's like my daughter's lemonade stand competing against mcdonald. louen is one of the most well-known firms out there. obviously there's another side to that and i think we'll hear that. i have yet to see an argument

that defeats this point. >> you can get certain people to say if i had it from scratch i would design a single payer system. this looks like a way of backing into it. if they know they're backing into it and using all these words to say they're not, it seems so -- i don't know -- >> cynical. >> frustrating. >> is business on the side of the democrats this time? because they're tired of paying for these ever-increasing health care costs. >> i think they're keeping their seat at the table in order to negotiate terms of defeat. >> i mean big business to say, we can't pay for this -- safeway is unique. there were an entire coalition back in 1993 that have maybe switched sides because health

care costs are bankrupting. >> this bill lets me get off the hook, dump my employees off the plan and pay annual 8% payroll tax. i know what it's going to cost out. i know my employees are getting health insurance. it will be through the public plan. that means the payroll tax goes up to 53% effectively. >> i'm worried about when howard dean comes on. he's not going to agree with you on any of this stuff. what time is that? can i leave the set for that? >> you've got to stay right here. >> i'll be nice. >> i think we want to get to the truth. >> i'm confused about the debate. >> the number of people who are uninsured now. >> only half, 24 will million.

>> we can come up with a system. i introduced a bill in congress that gets everybody insurance, who is uninsured, and gets you a system where people who can't get health insurance because of a preexisting condition can get affordable health insurance. you can fix the problems of cost and accessibility without the new taxes and new spending. there are many ways to do that. unfortunately, this thing is moving down the pike in the other direction. >> the congressman will be with us for the rest of the program. we've got much more to talk about. let's look at the u.s. markets as we get ready for the second week of earnings. joining us, harry raidy, john sylvia of wachovia. we're talking about the markets up over 7% last week on the earnings. was this entirely because the outlook earnings were better

than expected? >> i think it's low quality earnings. the earnings are being driven by cost cutting. i think it's more of that less worse. so in the short term, we think that maybe this rally has a little more to go. but it's just -- it's hard to understand how we can see much more than up a little more. with unemployment continuing to tick up, with house prices continuing to climb. with the government, their tax and spend policy, it's very difficult to see how this market goes much higher. this volatility and uncertainty created extraordinary opportunities. we're excited. >> did what you heard from companies last week do anything to make you feel better about the second half of this year? >> oh, yeah. i think we do have an economic recovery the second half of the year. you will see that when the leading economic indicator numbers come out later this morning. they'll be up for the third month in a row.

i think the challenge for the marketplace is what is the pace of economic growth, which we think is going to be 2.5% in the second half of the year. you're not going to get any jobs with that. there's a real challenge. >> what about this entire idea of what the government is doing? we've been talking about it with some of the major social programs. are you concerned that will eat into productivity? do you think this is the right direction. >> i think this is the great challenge. on the mark row level, we talk about economic stimulus and spending money with the fed easing. on the microlevel, we have a lot of regulations and a lot of discussions about health care, energy, the environment. all of that is really off-setting a lot of what we would like to see in terms of job growth. you can't raise the cost of labor and expect the economy to grow as it did before? >> what do you want to hear from

bernanke? >> i think again reassurance that the economy is ticking up. inflation stays pretty low. >> what do you do to bunker down and make sure you're defending yourself? >> we're a long biased long-short manager. historically we keep a long bias. we're market neutral to short bias. again, that said, there's opportunity on the long side. we're long stocks like fleur systems. we like some of the drug and biotech stocks. on the short side, short stocks like auto nation and big five, pool corps. >> a lot of consumer names? >> second tier consumer

discretionary names. as i said, we're concerned about the macropays backdrop. this is creating extraordinary opportunity. >> thank you for joining us this morning. >> where were you -- >> you had to be the one who read this. >> where were you 40 years ago? you were in some existiential void, all three of you? angle i was >> i was in college, grad school. my kids were in college. on this date in 1969, astronaut neil armstrong -- you guys weren't around for the moon landing? >> it must have been incredible. did you watch on television? >> everybody did. that's what it looked like because tvs were black and white. >> one small step for man, one giant leap for mankind.

he became the first man to step foot on the moon. then the great buzz aldrin still around. so is neil. quick break now. as we head to break, a look at last week's winners and losers.

good morning. welcome back to "squawk box" here on cnbc. i'm joe kern. let's head over to becky in the command center. similar to the apollo 11 command center. >> that's right. except this one is a little more high tech i think. this week in earnings central, we have a lot going on.

we'll get a relatively slow start this morning. we get reports to watch from the likes of halliburton, has borouborou borouh. tomorrow, caterpillar, lockheed, martin and coke. you get starbucks and many others. on wednesday, we have pfizer, glaxosmithkline, echoir lily and suntrust. on thursday, you get mcdonald's, 3m, ford, foot, amazon and microsoft. friday, black & decker. look at tuesday and thursday especially, very heavy trading. if you're wondering how the earning season is going, check

this out. the green ones are the ones that beat expectations. they beat the estimates. the ones who missed are in the red. you've got six dow components in the green and one in the red, which is intel. this is not working. in any event, this is the heat map so far. it shows so far you're looking at big companies that beat expectations. as far the s&p 500, 5,500 components reported. that gives us a surprise factor right now of 11.2%. we've got a lot of things to recover. it will get really hairy starting tomorrow. >> the heat map is nice. it's nice to see the components laid out graphically. >> it helps explain why we saw

so many gains last week on the market. >> you remember intel as a myth? >> no. >> i remember the news being good. >> you ever heard of the term gigo? garbage in, garbage out? >> you've got to remember they're looking at earnings expectations, not looking at the outlooks for some of things. what they'll tell you is not going to be accurate. >> i think intel beat expectations. >> if the eu is stripped out, it's below. you're right. we talked about there are other things we can do with the heat map to show how the stock traded afterwards. it would not match up with what we showed you afterwards. >> i want -- the most important thing -- even if we just said

it, it would be better than something fancy that's wrong. if you said it with your face or becky's face, you don't want a big fancy system with the ego. >> i hope the appropriate people are listening. >> should i have waited and not mentioned i think intel -- maybe it was just the outlook. i seem to remember -- >> the margin beaten. and the outlook was good too. we'll check. >> either way, most earnings were good. futures today are going to try to build on that. the best week last week since the week ending march 13th, which as you might recall, was when the market reallied. 64 points above fair value. as becky mentioned, a lot of

numbers to come. oil, i think back above $64 as risk comes back in. 64.85. that's up $1.29. watch the yields here. as the bond market tries to continue to draw some capital, yield's back up to 3.7. dollar a loser today. down against the euro and the pound. euro-dollar the highest in six weeks. >> as as i recall -- >> you can't look on the earnings numbers. >> the entire number nasdaq was up on intel's numbers. >> it wasn't. >> the entire market, we were up five straight days last week. some of that was based on intel.

we don't want to give information that's fancy, that's wrong. >> sometimes the stock doesn't trade in the direction anyway. it could have been below on the outlook. >> as i recall, the margins were so much better. >> margins blew things out of the water. >> wasn't it up 10 or 15% that day? >> moved from 16 to 18.5 that day, intel? we have a lot of earnings this week. what do you think so far this week, jason? thumbs up? >> definitely. the appetite for risk continues to go higher. if we close right here where the s&p is, it would be a new high for the year. both reflect that increased appetite for risk. >> the thing that we're talking

about, jason, is unemployment is rising. it's just hard to understand -- there was an article last week that the fed is planning for the jobless rate to get much higher. but for the overall economy to be stronger than expected. it just seems like it can't happen that way. >> i would describe this morning as an incremental recovery. things are coming in better than the analyst expectations. much driven by bottom line growth rather than the top line. that will catch up to us. with stocks, stocks reflect the current expectations and appetite for risk in the market place. if we move towards a thousand, there will be less tolerance for less okay numbers. we've reached valuation that have an impact. it is likely that the economic numbers suggest there is little

sustainable numbers. >> did the inflation talk stir again last week? at 10-year, the talks were going up too. >> it's hard to argue global inflation when the backdrop for prices is so competitive. we see a reflection commodity prices as the dollar moves down. it's a risk play as money moves towards commodity prices. those reflect more of demand related to asia or the canadian dollar to crude prices. >> all right, jason. how about the commodities trade back on or hand in hand with the financials doing better. >> one big trade related to the dollar and the equities going. the nasdaq posted eight straight days up. most of last week's rate of

change was related to expiration. that led to as long as it wasn't any bad news, a trend move higher in prices. that would match with historic al expectations. that i suspect marks the high. >> watching this play out. we had the big move up everywhere, 35, 40%. we had serious double dip fears on this terrible employment report. that got everyone negative again and afraid to buy with a 10% pullback. we're at 87.5. >> in the rate of move up, everyone said we need to move up. >> we could move to new lows. they thought we needed another

shake-out. >> expectations along the way. we continued this. that's why i would call this incremental recovery. i don't think it's possible we could have a total jobless recovery. as long as the earnings continue to come in at or better than expected, whether it's by a top line or bottom line growth, the reality is this is higher for stocks as people continue to move money around. >> all right, thank you. i'm not laughing at you. i'm laughing at something ems. thank you, jason. intel was expected to earn eight cents and earned 18 points. t.i. is reporting the headline, that intel's stellar second quarter results make it likely that texas instruments is going to beat. the one we had in red -- see that number -- i rest my case.

>> q3 revenues higher. and highest since 1988. >> looking at sectors in the market. >> ego, ego. it depends on how you -- you need someone who is -- listen to me, if you opened wned intel ord for them -- they deserve -- >> when you look at it in right, we had g.e. in green. they were down 6%. >> i saw over the weekend, it said ibm beat expectations. however, ge's profits fell 47%. g.e. also beat expectations. >> the problem is the idea of a heat metal. >> they want to take a shot at g.e. wherever they can. >> whether you can look at

things and tell where the market traded. the discussion we had, we did think about it. the first time out, we realized it didn't work. >> next time you're going over there. >> it has nothing to do with futures. it has to do with making sure intel missed when the whole technology sector missed. >> a lot more from our guest host, congressman ryan. everyday we generate 8 times the information found in all u.s. libraries. where did it come from? store transactions, market movements. emails, photos... videos... blogs... what if technology could capture all this information... and turn it into intelligence. we could identify patterns faster... we could predict with greater confidence... convert data into action... smarter information means smarter decisions.

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we know it's july. back to school, kids around the country cringe at the mere suggestion. but the retailers are ready. we'll be grading the forecast when "squawk box" comes right

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or go to our website. i'll see you at 3:00! announcer: captioned telephone - enjoy the phone again! welcome back, everybody. it is no surprise that children dread back to school. in today's economy they aren't the only ones. with 4 out of 10 shoppers vowing to cut spending by $100, retailers are bracing for the worse. it sounds sfritenifrightening wd 10 saying they'll cut by by $100. >> there is a flim glimmer of h for retailers.

we've got almost 14% saying thank the economy is on the road to recovery. that gives hope with regard to the mood. >> is it that or things are not as bad? fewer people saying they're going to spend less because so many spent less last year. >> that's right. that's right. it's not as bad as it looked going into last year. last year was going in with a lot of uncertainty. we saw people really concerned about the items they were going to take away from their wallets. the high energy prices, high gas prices, high food prices. we see people more concerned about employment and the general economy. it's more about what's less in the wallet versus what's coming out of it. >> where do people say they are most likely to spend money? >> destinations haven't changed. discount and value stores, followed by office supply stories. those remained solid.

>> what about the retailers? i know last year they cut inventories. maybe not by enough? >> no. definitely not by enough. they didn't realize how deep the consumer was going to pull back and how much that was going to cut. going into this year, inventories, as you know, are down significantly. so i think the retailers are prepared from the inventory side and focused on value and getting out to the consumers early with coupons and promotions. the hunt for value is still on with the consumer and the retailers know that. >> what about in terms of the inventory levels? are they below where they were last year? are they looking at things going to be very dire, so they're holding back inventories hoping to get the right amount of people to clean them out? >> yeah. inventories are definitely down from last year. and i think retailers are a little bit more comfortable with reducing the breadth of the skews out on the floor. i think they're going in expecting lower sales. i think they're prepared for it.

>> what about the looking at th holiday season? we're not far from the time when they're loading occupy inventories. is it going to be the same story in. >> i think it will be. i think they'll do the same thing with regard to inventory. they thought they did last year and it wasn't enough. i think they learned their lesson there. >> stacy, thank you very much. >> thank you. >> it's hard to believe it's going to be that time again, back to school. >> in some areas of the country people go back less than a month now. august 16th, 18th. >> kids ought to revolt. when we come back, remember the doom and gloom warnings in the government's stress test? the proof is in the pudding. how are the banks really doing? the inside line comes from earnings central. tools are uncomplicated?

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futures trying to build on last week's big gains in the markets. how big is this week going to be in terms of numbers? 30% of the s&p reports this week

40% of the dow. futures up more than 60 point. >> coming up, we'll have more of today's top stories. commentary from our guest host today, congressman paul rain. our radar scope is up and running this morning. wie got earnings and economic data. you need to watch what's coming up in the week ahead. "squawk box" will be right back. at 155 miles per hour, andy roddick has the fastest serve in the history of professional tennis. so i've come to this court to challenge his speed. ...on the internet. i'll be using the 3g at&t laptopconnect card.

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>> several banking giants turning in quarterly resultings. find out how they are matching up with the government's stress test results. earnings central is fired up. the markets preparing for another huge week. we'll tell you what to expect from big tech to blue chips. curing america's health care system. >> all right. bring jobs to be everybody. >> the debate goes on and we light another fuse. "squawk box" begins right now. ♪ fly me to the moon ♪ let me play among the stars ♪ and let me >> good morning, everybody. welcome back to "squawk box" right here on cnbc. i'm becky quick along with carl quintanilla and joe kernen. we've been watching the futures and they are well above fair value, even after five days of gains for the markets last week. dow up by more than 60 point above fair value. the government's bailout,

warning banks have misused t.a.r.p. funds. they say out of 360 banks that got money to raise lending levels, 110 of them invested at least some of it. 52 repaid debts with it. 15 actually used money to buy other banks. he is calling on treasury to require regular, more detailed information from recipients about how that money is used. we'll be speaking with him tomorrow right here on "squawk." a rescue for small lender cit. steve liesman is all over this story. he has the details on this last-minute reprieve. >> does that mean right now? >> that means you. >> i thought you were teasing me for later. why are you looking at me, joe? >> someone says to me, steve liesman is here with -- >> he was checking his blackberry. in his defense, he was probably looking for a last height mif update. >> i'm literally waiting for relief from cit, and i was checking --

>> oh, you were? what happened? it would be -- >> go ahead. >> okay. >> you do your report. joe will watch it. >> the some would say source familiar with the situation. cnbc has learned cit board of directors approved the $300 billion package -- >> nothing yet. >> thanks, joe. it hopes will stave off bankruptcy at least in the short term. official announcement expected some time this morning on the loan which carries a 2 1/2 year term. how are we doing, joe? >> nothing. >> good. the source familiar with the talks says seven of the company's top ten bondholders are providing the loan, a portion of proceeds should be available immediately. >> never mind. >> they are planning a cash tender offer as part of a broader recapitalization plan. probably a debt for equity swap. the financing, according to the new york times, could carry a 10.5% interest rate. what remains unclear is whether the financing is enough for the lender to survive and what role,

if any, the federal government plays now. >> not yet. >> a stress test -- by the way, i don't need to know everybody. the stress test performed by the government found a need for $4 billion in capital but a cit source telling cnbc that the company's ceo thinks that's larger than what it needed. still, the company hopes the government will now look more favorably on its request to transfer some assets to the utah-based banks. government officials over the weekend, noncommittal. they said all along they could help the company get over the finish line but they weren't going to carry it all or even most of the way. there was no sense government officials were working furiously as they have, for example, on the lehman weekend or aig. a regulator told "the journal," the cit, plan a was to ask for government assistance. plan b, to ask again. i was at the yankee game this weekend and a guy walked up to me and said, leaseman, we're going to get the deal done this weekend. goigt carry a high interest rate and the hedge funds will oversubscribe it.

it ended up, true. that's why i -- >> a stranger walked up? >> he walked up, recognized me from cnbc. he told me what was going to happen. we were working on it anyway, but -- >> i think it's great. don't you? >> that there's actual private -- >> it is much better than having the government. what i don't know is if the company requires actually real capital. a 2 1/2 year loan is not necessarily capital. >> if it works, that's okay, though. >> i'm not sure -- >> they can -- you know, they'll take the risk. >> the bondholders are already in for a big chunk already. >> i understand pimco is one of those bondholders. we're trying to confirm some other names. one thing that happened is companies began to draw down their credit lines as they feared cit going under. anything, joe? >> no. this guy messes with me. michael curtis. >> i don't know who that guy is. i didn't want to mention his name on tv. >> i already did. >> here's the thing, if this

financing will stop the draw on cit's capital, and if -- >> they also had a worse bad loan rate than -- >> it did. >> above 4%. >> not going to stop that. financing and liquidity, not capital. it's a different thing. they need more capital. they're still going to need capital. and whether or not this is now enough for the government to come and give the 23-a exemption allowing them to transfer the assets. i think the government will provide that if they feel there's a long-term solution out there. i'm not sure this is enough to qualify as that long-term solution. ultimately, yes, way better the private sector than the federal government but i think there's a way to go here. we'll see in the release this morning -- anything, joe? >> digital playground, what is that? >> oh, what is that? you're making that up. you're making that up. >> nothing came in. >> you're making that up. >> steve, you'll be on top of this all morning. you'll be back in a little bit -- >> on the banks. >> thank you very much. steve's going to stay here. let's send it over to carl

at earnings central with what we can expect this week. >> you thought last week was busy, we're in the thick of it this week. let's begin with the s&p score card. of those companies that have already reported, 71% have actually beaten the estimates. 20% have missed. about 9% were in line. that gives us as a prize factor, they call it, of about 11.2. take a look at the plasma. dow, coke, pfizer, ebay, mcdonald's, 3m, at&t, ford, amazon and microsoft. those are just the big guys. hundreds of companies in the s&p that are reporting this week are much smaller but still give us a good sense of how the economy is shaping up. of course, joe will be over here at earnings central covering it all from sun up to sun down. so we'll be watching closely. >> unless -- you know, unless we

need to go to that humphrey hawkins thing. >> you're so intrigued what bernanke has to say this time around. >> it's so important to hear -- we know now the fed said this could be a decent recovery but with no jobs, which is -- what's the point of recovery if you have no jobs? our guest is congressman paul ryan a a republican from wisconsin and ranking member of the budget committee and senior member of the ways and means committee. i said, you need broad shoulder. republican party in a little trouble. so because you are here, let's see, you've picked on health care so far. let's pick on -- how about the stimulus package. any jobs created in that thing yet? >> we're supposed to keep it at 8% unemployment. we're at 9.5%, way off target. >> people said it could go 10%, 11%, we heard 13%. >> this stuff goes out very slowly. it's not stimulative spending.

here's the problem, after the stimulus package is done and over with, we have a $1.1 trillion debt on our hand. after that year hitting our economy with massive tax increases, on labor, capital, and then for health care, you know, who knows what kind of tax increases. you need about $800 billion in tax increases to make this health care bill work. remember, that sur tax applies to dividends as well. you have huge tax increases hitting, massive borrowing, pressuring interest rates. to me, our fiscal policy is just out of whack going in the wrong direction. and what's frustrating is it's not necessary. you can fix these problems in health care without a massive new tax increase, without all this new spending. we're already going to spend $5 trillion on the federal government for the under 65 population over the next ten years anyway. are we going to throw another 2 on top? this is frustrating. you see our fiscal policy going

in the wrong direction. i would say it's on a collision course with our monetary policy and that's why a lot of economists are showing us, yeah, we may have slow growth recovery, jobless, and then it's going to be worse after that. that's the big concern we have. >> even after the ten-year, there's an even bigger -- not that they don't talk about, right? >> the cbo gave us good testify on this thursday in ways and means. they're saying even if this adds up in the ten-year window, right now there's a $239 billion deficit, it has huge deficits in the out years. the health care bill goes up at 8%, and the offsets only increase at 5% per year. even if these lines cross in the first ten years, you have huge deficits in the years therein after. what we know according to cbo, recruiting a new liability rivaling the size of medicare or medicaid in the out years, compounding or debt problems. >> you saw "the journal." do you have colleagues in congress on the other side of the aisle that -- i mean, would they admit to you they're

starting to chafe a little? >> sure, sure. i won't give you names but i talked to colleagues of mine all the time. rob andrews is coming on later. he's probably one of the smartest democrats in congress. one of the best guys on health care. very sharp guy. there are guys, i think, guys and gals in the democratic party that if it weren't for the current public plan, we could get a good bipartisan deal done without tax increases, without the government taking over health care industry. they're telling us, told not to work with republicans. chris dodd said we don't need bipart bipartisanship. they have consequences. that's the choice they've made. unfortunately, i think we'll end up with bad fiscal policy in the end. >> how do you provide insurance to the uninsured without it costing the government a lot of money? >> what i do in the bill that i recommend is i take the tax exclusion and convert it to a tax credit. i substitute the current tax

policy for a tax credit. i also convert medicaid into a defined contribution system. what that does, it gets you enough savings to have advanceable, refundable tax savings. regardless of your income, you get a tax credit to go buy health insurance at the beginning of the year. in our bill you can get the health health insurance through a state exchange. >> there's huge cost to that, too? >> no, this is deficit neutral. >> but tax money costs the government. >> we have $3 trillion going out the door to tax exclusion. convert it. we have a bill that says, let's take this $5 trillion we'll spend on health care for the under 65 population, spend that more efficiently, more effectively through the individual than through the government. that's what we're proposing. and doing that, gets you universal access to affordable health insurance. >> i don't get it. i'm -- >> i can walk you through the numbers. >> that would be great. >> $5700 tax credit for family,

$2300 for individuals. double that for low income people. you can do that without increasing the deficit, by taking the money we spend through the tax code and through medicaid and spending it through the individual through tax credits instead of through the government. >> what about the people who are really in need? a tax credit isn't going to help them. >> advanceable refundable. meaning it doesn't matter if you pay income taxes or not you still get the credit. a person on medicaid would get $11,000 a year toward buying health insurance. they can buy it in a state-based exchange or comp regional exchange where they don't get screened for preexisting conditions and things like that. >> you get it, joe? >> i do. >> where does the money come from? you give them the money. >> let me just -- we're spending about $3.5 trillion over a ten-year period on -- through the tax exclusion by not taxing health insurance, right? then you have another $1.5 on top of that for medicaid perform so of savings you can get, if

you fix medicaid, we can get $1 trillion from medicaid savings. if you convert the tax exclusion into a tax credit back to the taxpayer, what that does is it get you a universal tax credit that everybody in america gets, regardless if they pay income taxes or not. they get it like a voucher to go out and buy health insurance. now that they have a resource, you have to give people an ability to get insurance and not be screened. you know, let's say you had breast cancer six years ago, type 2 diabetic, you have to give that person power to get insurance. what we think is fix the way health insurance works so that the interest of the health insurer aligns with the interest of the customer, with the patient. right now they don't so you need health insurance reforms but that are market-based, not government taking it over. >> interesting. >> we'll have a lot more to talk about with the congressman today. he's with us for the rest of the show. in the meantime if you have any comments or questions about anything you see on "squawk," e-mail us at squawk@cnbc.com.

when we come back, we'll talk about result from citi, jpmorgan and others have stacked up against the government stress tests. later, more on the health care overhaul. on the fast track through congress. we'll break down the real cost to the health care industry and ask who's going to pay for it. time now for today's aflac trivia question. what is the very last word of the declaration of independence? the answer when cnbc "squawk box" continues. you really need it these days. how come? well if you're hurt and can't work it pays you cash... yeah to help with everyday bills like gas, the mortgage... ...and groceries. it's like insurance for daily living. so...what's it called? uhhhhh aflaaac!!!! oh yeah! that's it! aflac. we've got you under our wing. a-a-a-aflaaac!

now the answer to today's aflac trivia question. what is the very last word of the declaration of independence? the answer, honor. the last line ends with the words, we mutually pledge to each other our lives, our fortunes and our sacred honor. with some of the major banks reporting last week, how have those results from the banks and their outlooks matched up against the government stress test? joining success chris whalen, the senior vice president of the country -- or of institutional risk analytics. >> one day. >> a little earlier. yeah, we'll catch up in a second. steve liesman is with us and so is our guest host, congressman

paul ryan. after what you saw last week, what these banks have told us, how do you think they're doing? >> they been from it from lower interest rates and various other subsidies from our government. joe was saying i was too hard on them. >> you were fighting just before -- >> no. >> we said, if you had done what you said, we would own the -- >> i would rather have equity than give them subsidies, how about that? okay? bottom line is we stabilize the patient and so now we're transitioning into what is going to be the peak of credit loss experience going forward for the next four, six quarters. >> that's what we heard from most banks. the ceosed as much, that you're looking at big writedowns coming. a lot of them put money aside for them. >> ken lewis is worth listening if you're following the industry. he gave you a pretty close -- it sounds like me a year ago, and many other analysts, meredith and the rest, who were saying, hey, you're coming into a tough period of credit loss and he confirmed that.

>> 2010 as well. sorry. >> do you think reserves are getting to the point where they're high enough? >> no. the large banks are never high enough because that's their business model. they always skirted the minimums and when you look things you don't see in their quarterly statements so equally, the question is, do they have the earnings power to redeem themselves over the next year or so? jp is still on the cusp. i think they could be okay. the other three, citi, bank of america and wells are all going to need more money potentially from the government. >> what about the money these guys have raised just in stock they've sold, too? they've gotten a lot of private money. >> that's met the immediate concerns. they look good today. when you add the interest over duration of fall, dramatically lower cost of funds, which is a traditional subsidies, it's made them look good now. the problem is, yields across the industry, across asset classes are falling. as we go through next year, if we get the peak loss experiences

as lewis was saying, and we say there for a couple of quarters, we'll consume all this capital and then some. >> one question. if cit can raise money you don't think wells can sell stock at 25 and get -- >> no, of course they can. what i've been telling my client is this, don't expect a traditional early '90s or early '80s style peak. >> you just said wells would need more money from the government. why do they need more money from the government? $25 stock and cit can get more money? >> god bless them. all i'm saying is when we get into the fourth quarter and beginning of '10, you see where realized losses are and you see they're going to stay there and we have recovery rates in low single digits, that's going to be a very sore thing. we're giving into the asset management disposal business. we did an interesting job, they land in the channel, they do recovery and disposal. it's tough now. when the stuff in foreclosure

today hits the markets going into the next quarter, secondary market prices have to come down for all kinds of real estate. >> sfered in commercial or more residential? >> across the board. >> what happens now is you have disposal properties coming out half the price of all the comps and they sell fast. but the comps are still inflated. we have tv shows about this on late night television now, helping people adjust pricing for their homes to sell. and i think it's going to get more acute as the foreclosure backlog hits the markets, the other comps will have to adjust. >> don't the appraisals include now these foreclose autod propen the appraisals as well? >> appraisal is an art -- >> putting foreclosed properties in the appraisals? >> until they hit the marketplace and this very inefficient market is forced to adjust -- that's what residential is. see, in the commercial sale you have a manager, other people

involved preparing the property, presenteding it, advertising it, everything else. residential is essentially what it's always been, which is individuals trying to sell their house. >> the government would argue they're stepping on the throats of servicers to modify loans at a higher rate. is that going to help? >> modification is going to help on the margins but the numbers for the entire market are much, much bigger than the modification prospects. i think modification is mostly still an experiment at this stage. if you look at the recidivism rate for modification, they're still high. we can't get all the data, by the way. i wish the government would force the enterprises and private sector to let us all see what the modification data looks like. >> steve, do you hear concerns about these very things, getting bounced around in the halls of government? >> you know, i do, but i think one thing government would point out is the delinquency rates banks are reporting are running ahead or better than what was inside the stress test. that's a good sign for how much capital they need right now. the issue, though, i think chris brought up that's critical is

earnings. one critical question is can the banks earn their way out of problem loans? what i heard from a lot of analysts last week is that the earnings from this quarter are simply not going to repeat themselves. both the mortgage refi parts of it and the trading parts of it were extraordinary quarters and nobody expects them to repeat. on the other side of that, one good thing everybody heard inside earnings was this idea that early delinquencies were doing better than past. chris puts all that stuff into his model. what he comes up with there, chris? >> investment banking is great to have but it's not predictably predictable. the other is income securitization, those sorts of things, are going away. we're going back to more traditional model where banks f they can't sell a loan, they have to keep it. >> what's the next risky thing the banks will be getting into? what's the next line? >> well, i think the risks are just about legacies right now. >> i mean, when i say risk y i mean the next high income area they can get into?

very profitable area. >> i mean, that's the flavor of the month really, i think, is dps. then they have to come up with a new formulation for securitization. if we don't restart this market we'll have problems with the whole economy. it needs to be fixed. we need a conversation that says, here's what we want. here's the rating where we'll expect it. we need a registration, whatever we need, to make sure the information is out there so everybody can price these securities effectively. >> the banks need more capital. would that in your eyes come out of what's left in t.a.r.p. or would they have to go fresh to congress? >> i think it will go case by case. there are certainly big names out there not doing as well as others. we don't want to beat on them on tv but the point s i think it's good to have the cash in the bank. i'm very happy to see cit is ending up in a swap. that's what we should be talking about with citi, right? that's how we fix citigroup. as we said the other day,

resolution, you know, rebirth. and i think that's really what we should be thinking about. how quickly can we get the companies turned around so, like joe said, they could raise equities from the market. you restructure them first. >> good to see you, as always. >> thank you. >> steve, are you sticking around or you're leaving? >> i'm always here, carl. i have no place else to be. i appreciate it. >> thank you. when we come back, more from our guest host, congressman paul ryan and the health care debate continues with former governor howard dean. he'll get in on the conversation along with the congressman. that's going to be interesting. taking its rightful place in a long line of amazing performance machines. this is the new e-coupe. this is mercedes-benz.

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welcome back to "squawk box," everyone. let's take a look at markets this morning. the futures have been well above fair value even after all the gains last week. remember, dow was up by better than 7% last week. this morning the futures are up by 55 points above fair value. it appears that commercial lender cit will avoid a bankruptcy filing. cnbc has confirmed that cit has reached an agreement with key bondholders for emergency financing. this comes after talks with the government about a possible bailout failed last week.

charles schwab is denying fraud allegations in connection with its sales of auction rate securities. those allegations had come from a new york attorney general andrew coupuomo. and volkswagen will reportedly complete a deal this week to buy rival porsche for a little more than $8 billion. published reports in germany say vw would initially purchase a 49.9% stake and acquire the rest at a later date. it would help porsche pay off its considerable debt load. >> joe, you drive a vw. >> sort of. that's sort of true. i saw a new vw that looked -- >> i like the new -- some of the jettas i like, too. >> they are really, really good, which makes it tough on our guys. they get better and better, even the japanese, too. just to stay even these guys

need to get much better. let's turn our attention to the trading block and take a look at what we can expect from the markets this week. joining us right now is joe, the chief derivative strategist, sink or swim. good morning. and peter butell and boris, a member of the joe kernen appreciation club on facebook. >> who? who? that's cool. how do you join that? >> you have to sign up on facebook and create a page. >> i got pinged and i decided to join because i'm such a big fan. >> you go to facebook and it says joe kernen fan appreciation club? >> yes. >> i'm a fan of yours, too. >> we'll talk to bothris in a minute. let's start with joe, not you, j.j., maybe i should call it. the markets, up by better than

7%. today you see futures above fair value once again. what's happening here? >> i think what you'll see on the futures, 951 even, a big level of resistance. i think we have to go up and test that. we may get the impetus today with some good news we had this morning. texas instruments after the close today. you know, a lot of earnings. one of the things that might be lost this week is we so many earnings with so many big companies, the fed's testifying in front of congress tomorrow. mr. bernanke going up on capitol hill. i think people have lost a little sight with that over excitement over earnings. so i believe what's said there will actually set the pace for the week, even more so than earnings, perhaps. >> what do you want to hear from him? >> i think people want to hear they do have some sort of plan in mind on how to deleverage all this spending. doesn't need to be done necessarily tomorrow, things like that. inflation is a little worry. you see the ten-year yield creeping up. i think people want to know

there's a plan. it doesn't have to spell it out to exact detail but that there is a plan going forward, that when we -- it is time to take all this off the table, that they're going to be able to do so. >> but, joe, do you realist realistically expect to hear -- you say you don't expect details. but what do you expect to hear to assuage the market? >> just that they're constantly aware of it. yes, there's a lot of money out there. we've put mother money in the system than we ever have. just remind the bond market they're very, very aware of that. >> we didn't always believe him when he was saying that. >> i agree. and, again, i think part of this is always reassurance. the one thing is, mr. bernanke does have, shall we say, some credibility with the markets in that he has followed through on things he said he was going to in the past, overall. >> peter, crude oil is on the rise, even though there are all these concerns about the economy and what's going to happen, not only now but into 2010. what's happening?

>> well, it seems that, you know, the market was pretty oversold a week ago today. we started rising and then by friday, i'm not really sure what was pushing it higher because it wasn't stocks, it wasn't the dollar, it wasn't fundamentals. it was kind of a housing report. but one that a lot of people said, on this station, that really shouldn't get anybody that excited. >> is that key technical level? >> well, not really. we're at 65 right now. we're right kind of in the middle of where there's, you know, kind of importance. i mean, once it gets back over 70 we've got some serious resistance. once it get back under 60 then we have serious support. we're kind of in month man's land right now. it's going to take something, i think -- i think we're going right back down. that's what i think we're doing. back towards 58. >> does it mean anything gasoline prices are coming down every day now? does that mean -- >> well, that's going to stop soon because, basically, you

know, we saw the movement lower but that kind of stopped. so i don't think that's going to continue unless we see another lag lower. which i personally believe we could. if you look at the fundamentals, the one that's so egregious is the heating oil, it's terrible. it was basically falling off the bottom of the chart. i had to keep rescaling the chart for three weeks running. and we're making new highs in the inventories, new 24-year highs. once we get into august, we start really thinking about that and the season ahead. and i think that maybe is going to put some downward pressure on this market at some point soon. >> boris, the dollar's been under quite a bit of pressure. it's down against the euro now. this is the market that will most be paying attention to what bernanke says. >> most definitely. last time i was here my trading instinct said to me the dollar was probably going to go down. we were all bearish risk at that point.

i felt the rally was going to continue because we were all swaying on the other side of the trade. that having been said, though, i really think the risk rally is really going to run out of steam here at these levels and the currencies -- in the currency market mainly because the whole notion here is that china chugs along as we go forward. and i think that's a very, very suspect idea as we go forward. when you look at the last week's data out of china, the gdp numbers show that 35% or 32% was capital fixed investments. they can't sustain that kind of growth just on pure capital investment going forward. >> when do you think we actually start to see them run out of steam when it comes to that, though? >> i think in the next month or so you'll see weaker data coming out. basically, q3 is going to be really when the rubber hits the road. and i also think basically the demand in u.s. is really tough. the real test after earnings is going to be back to school season. sxing back to school season will probably disappoint. that's when the market will have a little hangover, we start the retrace. for the meantime, it stays on and aussie dollar which is where

you hide out and get high yield works well. i caution it. i worry about it staying at these levels much further. >> guys, thank you very much. it's good to talk to all of you. >> have a great week. >> you, too. when we come back, health care overhaul on the fast track for approval, perhaps. is it the right move to get these skyrocketing costs under control? we'll debate the health care bill after a break. then halliburton is out with earnings. we'll go to earnings central for a look at quarterly results and talk about the slew of numbers still ahead this week. we need to send an expert. a walking, talking...

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got an interesting call out of goldman, a bullish call out. the firm raising its year end 2009 s&p 500 price target to $10.60. that's 13% above the current level. i don't know where they were previously, guys, but 1060 by year-end, that's what some are calling for before we face the music down the end of the road. that's what meredith whitney and

doug cass and some others -- >> doug cass is some bullish comments. so i think they had to move him to a different column because he was -- he said positive things. >> he did say positive things. ableson had the best column he's ever written. i learned from -- >> this week was not ableson. >> it was randy. >> that explain something. >> it was randy foresyth. >> i learned something. i learned something. it wasn't just flowery language signifying nothing. we planned this, didn't we? i sold you -- >> you and ableson have a love/hate relationship. >> yeah, there's a lot of love there. meantime, quarterly survey of forecasters out today finds the recession's grip on the economy appears to be easing but likely hasn't ended. the national association for business economics report suggests profitability remained weak in q2. 45% of the polled economists say the worst is over for the

economy while the other 55% argue the low point has not yet been hit. batten down the hatches, strap yourself in. the race is on for congress to bring a health care reform plan to vote before the august reese. the house ways and means approves the bill. joining us is howard dean, former governor of vermont and dnc chairman. john shields, and our guest host this morning is congressman paul ryan. good to see you, gentlemen. governor, i'll start with you. earlier we've had so much talk today and over the weeks about what this public plan would mean. becky and carl, we all are trying to get to the truth here. and we're told on one side that you'll be able to keep your own plan if you like it in the private insurers and congressman ryan giving us four reasons why there's no way a private company would compete against the public plan. >> well, look, it's not our intention to put private health

insurers out of business. the our intention to get them to behave themselves. private insurance has failed in this country. we're losing jobs not just to china but to canada because their businesses don't have to pay for health care and our costs go up 2 1/2 times the rate of inflation. you have to have a public plan or you might as well not spend the money. i was fascinated -- you know, we'll have good weeks and bad weeks for those who want health care reform. last week was a great week. not just because the house endorsed a public plan, a real reform package, and the senate health and wealth -- health and education, pension plan did, but harry and louise approved a plan, and most shocking the american medical association, one of the most conserve ty groups that's been in opposition to every single bill we've ever had, was in favor of the house bill. that was a stunner. we'll have good and bad weeks

but i think we're making progress. >> mr. shields, in your nonpartisan group, in your group can they code this public and private? >> i think they could co-exist but only if they play on a level playing field. what the public plan -- the public plan and the house bill would pay providers, hospitals and physicians on the basis of what they now pay for medicare services. and that's about 20% to 30% less than what private insurers have to pay for the same services. so there's a huge price advantage built into the public plan in the house bill. the senate bill, the health bill from kennedy's committee, would require the public plan to compete on a level playing field with the private sector. they'd have to use pretty much the same rates everyone else has to use. the impact of that will be very, very different. under the kennedy style, you'd probably get, perhaps, 20 million people in this public plan. under the plan in the house

bill, we think you get, perhaps, 100 million people in the public plan. and about 90 million of those people would be people who are -- find themselves shifted from a public plan -- from the private insurance they now have to the public plan. >> does that jive with your numbers, governor? >> yeah, i think that's right. i think it's a little high. i don't agree you'll get 100 million in the public plan if the house bill passes. and i -- look, there's plenty of room here for working this stuff out. as i said, i think the behavior of the private health insurance industry has been reprehensible over the last 15 years. years ago most primary care physicians would not have supported a single payor, noe now most do. it's not because medicare has gotten better. it's because the private insurance has gotten so awful, to patients and providers. i agree you can't have an unequal playing field. i actually think there should be a compromise in the rate somewhere so that you do have a u.n. -- pretty much a uniform

payment scale. >> that doesn't sound so bad, congressman. >> i'm looking at john shields' numbers right here. 122.9 million people in the public plan in three years, 113 million coming from private health insurance. governor, let me ask you this question -- assuming these ak tu aral estimates are right, and there are other estimate that say the public plan crowds out the private sector. if that does happen and if the public plan does displace the private sector, are you comfortable with that? >> there's no evidence it will happen, paul. >> but there are -- >> the fact is, is that the cbo believes the plan was passed in the house adds only 5 million people to the public plan. so there's very wide-ranging estimates. look, there is no system in the world, in the western world, that doesn't have some sort of private health insurance. even britain, which is the most government-oriented system in the western world, has 15% of it in private dollars. and other systems in europe have

more. so i don't think -- i think the american people -- look, this is about whether the american people get to choose or whether congress people and insurance companies get to choose. >> let me ask you -- >> we think the american people should get the choice of a private or public plan and it's up to us to write the plans so they're fair. >> if we give them, quote/unquote, a choice, and the only choice they're left with is the public plan. that's not a choice. let me ask you the quick question. the cbo, i've been looking into their numbers, they have two foundational premises, which is number one, cost shifting isn't that significant, it doesn't really occur, doctors and hospital don't overcharge the private sector because they're underpaid by medicare/medicaid. number two is employers will always be focused on competing for work not on watching the bottom line, therefore, they'll never shift their people to a public plan because it will not be in the interest of their employees. but if we defined the insurance they have to buy in the private sector is actuarial identical to

the public plan, that in this national exchange, why wouldn't they push their people into the public plan if they could cap their losses or expenses at 8%, invested inflation, instead of the unpredictable price of health inflation which is three times the rate of regular inflation by sticking with the private sector. john, you care to elaborate on that? >> the thing i understand is if the public plan succeeds in putting together a program at a lower cost, we think maybe 20% to 25% lower, a lot of employers will feel and want to take advantage of that opportunity. move into the public plan so that they can enjoy those savings. several players will feel compelled to go in because if their competitors go in, they'll be operating at a cost advantage relative to you. you know, you'll lose out. so the incentive here, it will be to get people into these lower cost plans. the way it works is that the employer would make a decision to stop their health plan and to

move people into something called an exchange, which is kind of a supermarket for insurance products. and people would have a choice of products. some would be private options and then the public option. it's true a person could lose their employer coverage. the employer could decide to stop that plan. but once you get into the exchange, you do have the opportunity to pick some private insurance. we think that the difference in price is so great that we'd actually see about -- most of those people taking the public option. >> yeah. even cbo is saying the public option will be at least 10% lower than the private sector, inside of the exchange. >> let me add to that. isn't that what this is about? doesn't that then require a private health insurers to reduce theirs on cost? let's look into what goes into the costs. on the private side, it's return on equity, huge ceo salaries, in the $20 million range in the three largest health care companies in the country, it's

advertising, bureaucracy inefficiency. when i was governor we farmed out, we essentially privatized medicaid for three years. and we had at the end of three years, we had to take it back ourselves because it cost us three times as much for a nonprofit private insurer to administer the costs as it did us. maybe one reason the president want this public option is to squeeze inefficiencies out -- >> cbo is telling us, this doesn't address health and inflation. you've been very outspoken but this doesn't address health and inflation. the spens go up 8% aa year, according to cbo. that's more than medicaid and medicare grow. what the cbo is telling us we're creating a huge, new, unfunded liability. even if this is paid for in ten year, you'll have a massive unpaid intilgtment on top of the others we've got and it won't address health inflation. it will grow at 8% a year. so, you know, i worry we're not

actually addressing the root cause and part of the problem here, which is health inflation. which you and i really want to tackle. this bill, i don't think, is tackling it. >> i think this bill falls somewhat short although i don't think it will go up 8% a year. historically the private sector's done much worse in controlling health care costs than the public sector is. you can say that's because of arbitrary payments to physicians or whatever the reason is, but that's just a fact. now, i do believe this bill could go further in controlling costs. i also believe, given the history of health care reform -- we've tried to control costs for year. the private sector has failed to do that owe the last 35 years. so i think the only way to get this done is to have everybody in the system. only if you have everybody with health insurance can you, i think, have any shot at making reforms in the public plan that will, in fact, control costs. >> that was with no yelling. that was very good. i just wish we had more timing -- >> that's because the congressman is a great host. >> no, i learned a lot from that conversation.

we'll have all three of you back again to talk about that. gentlemen, thank you. we appreciate it. still to come this morning on "squawk box," the budget battle in washington comes to "squawk box" after this. paul ryan and democratic -- democrat rob andrews is going to be talking about health care, the deficit and getting spending in washington under control. that's coming up today at 8:20 a.m. eastern time. up next, before you make a trade, you need your daily dose of stocks to watch. we break down today's movers and shakers after the break undefeated professional boxer floyd "money" mayweather

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get ready for lift-off. from microsoft to coca-cola, another huge week for earnings central. will the numbers be out of this world? stuck in orbit. >> roger, we confirm. >> the debate over health care reform goes round and round. today it is scheduled to land on "squawk." >> the eagle has landed. 40 years ago the dow stood around 800, the mets were halfway to winning their first world series, and that summer nasa put a man on the moon. >> that's one small step for man, one giant leap for mankind. >> "squawk box" begins right now. ♪ i'll see you on the dark side of the moon ♪

♪ oh oh >> welcome back to "squawk box" here on cnbc, first in business worldwide. i'm joe kernen along with becky quick and carl quintanilla. our guest host today, congressman paul ryan, senior member of the ways and means. they did not go to the dark side of the moon, which would have been so scary. if you were on the other side where there was no light -- >> one of them did, right? >> well, when they used it to go around -- >> apollo did go around. >> they didn't land over there. >> "apollo 13" did go around. >> are we sure they did? i think "rolling stone" -- he has direct evidence -- >> with goldman finance. >> to make money. >> buzz aldrin is going to pop you. >> someone went up to buzz aldrin and said -- you were in a studio filming that and buzz at 70 just popped them right in the nose. cnbc has confirmed cit group's

board reaching -- you're wondering why i was -- i missed you this week. i don't know 37 reached an agreement with bondholders for $3 billion in rescue financing. we've also learned the liquidity facility carries a 2 1/2 year term, and parts will be available of that plan immediately. the funds that should help cit avoid chapter 11, at least in the short term. an official announcement is expected before markets open in the u.s. this morning. i think that steve liesman will probably come back when that comes back. >> yes. word he's been working on that story all weekend long. earnings are coming in. >> we are going to. let's check out the markets. the markets have been well above fair value this morning, even after all the gains last week. gary levin at the cme is standing by, president of secretsoftraders.com. we have a lot of things to be watching, including the testimony from bernanke.

what do you think we should walk? >> technical levels. we haven't been in these areas in a really long time. 944 where we're trading is really important in the s&p. it was friday's high. we could trade as high as 950. who knows from there. as you heard me talk about before, the fundamentals don't support the market moving higher but that's exact tli what it's doing, regardless of bernanke, and leading indicators 9:00 my time. all this stuff seems to not have a problem pushing markets higher. to me it's all technical now. >> yeah, it is until it isn't. if you start to see a few bad outlooks, you see a few companies that missed earnings or bernanke says something to throw you for a loop, technicals are out the window. >> everybody is set for earnings. everybody is coming n even if earnings are bad, projections are better like intel, american express. that pushes these markets higher. whether you believe that stuff or not could be a different story.

again, earnings seem like -- i'd be surprised if these companies don't set themselves up so they beat almost every time. >> that's a really good point. i guess what happens is, is there a change in expectations? after what you said, it was a very low bar coming into this, but now the street's got to be thinking of things a little differently. it will be a higher and higher bar to leap over? >> they should be. i hope that's what happens. so far that hasn't been the case, you know. that would be my -- that would be my hope going forward in the next six months but so far not so much. >> i'm sorry. we hear carl there, too. >> don't curse, carl. >> we're listening. >> we can hear everything you're saying. >> the other things we've been talking about, the dollar sitting at six-would eek low ve the euro. how much is that changing things up? >> people are watching that. we saw the dollar come off. the stock market went up a whole bunch and started making people feel more comfortable. again, you know, the bizarro world, things are not the same as they used to be and

fundamentals and technical get jumbled in together right now. i would keep an eye on the stock market, these levels, 950 on the s&p. we get above there. i won't be surprised if we test that. see a lot of buy stops get hit, short covering. we've seen that already but it wouldn't surprise me to see a lot more this week. >> larry, thank you very much. we'll watch things with earnings central. in fact, that's where carl is this morning. what are you watching today? >> you probably know i'm watching johnson, since you heard me talk about it earlier. we'll get numbers if from variation companies. not a lot of blockbusters. third quarter earnings at jci did beat the street by seven cents. shares called higher on johnson controls on that news. halliburt halliburton, the stock on the move following some better than expected earnings. the oil market and oil servicers getting a lot of attention this week. hasbro, reported three cents ahead of consensus although revenue was short. that's a recurring theme we're

seeing in the s&p where the earnings beat largely due to cost controls but it's the revenue falling short. shares of hasbro are called higher. eden shares getting a boost, they beat the street by six cents. the current quarter guidance is in line. weatherford international will be under pressure. all of these names not the headliners of the week. the mcdonald's, cokes, boeing, american expresses, all the dow components kick off tomorrow the lion's share of the s&p and dow report this week. joe, you and i will be doing that work as the days progress. >> there's some huge -- you know, mcdonald's, coke, merck. >> dow components. >> yeah. 40%. >> 4%. >> i figured that out. carl's on his way on the scooter medicare pays for. now we turn to guest host,

congressman paul ryan, senior member of the ways and means committee. off camera, we didn't have time in that interview, congressman, because i brought up i saw grassley, who's kind of -- you don't think of him as a real nasty guy. and when you say -- he says that the public plan isn't a competitor, it's a predator. >> isn't grassley who said that guy should kill himself? >> yeah, he had -- >> oh, yeah, that's right. that's right. the guy who -- >> aig. >> yeah. he said the aig guy should fall -- >> you know, he's a corn farmer from iowa. he's a -- >> right, but he's friends with backus. my point is, your side seems to have their feet in concrete. >> that's right. >> we heard from howard dean, they're going forward with this. is that right? >> that's right. >> they'll do the public plan either way? >> yes. now, here's the question, i

think this will pass through the house in july, most likely. the question is, will it pass in the senate? and then what will august look like from a political standpoint? everybody goes home for august recess. i'm doing a bunch of townhome meetings. everybody goes home for august. what is the public reaction going to be and then what mood will democrats be in politically to pass the public plan into law in september? >> what does that do when you try match things up from the house and the senate? >> right now, that health bill is not all that different from the senate bill, which the pay for is the big difference. how do you pay for this new entitlement? surtax which will have to get larger tax and make it deficit neutral or what is the senate going to come up with? they need $800 billion in tax increases on top of the payment cuts they have. no one knows at the end of the day where they'll get that money from. >> front page of "the journal" talks about democrats who make a lot of money, beginning to balk at this. of course, this is "the journal"

but do you believe the surtax can survive? sdwli don't think it could. i'll be interested to see what rob andrews has to say. 50% of that income is paid by small businesses, s-corp -- >> that's the rhetorical, right? >> it's the fax. 50% of this surtax, according to the numbers we have the number crunchers goes to small businesses. our tax rate will be 45%. top tax rate on dividends, 45%. top tax on gains, 45.4%. we'll do this in the middle of a recession? this is a good idea? we'll have income tax rates when you combine state and local, they'll be as high as 50%. don't think that's a really good idea. >> of course, this is "the journal"? of course -- well, you say, of course, this is the new york times? >> of course i would. i would. >> this is cnbc. of course, this is cnn. >> he doesn't have to. you say it. >> the front of "the times" is

about the governors. >> i already said it. i said, this is -- >> most of the jobs come from small businesses. that's the problem. the jobs don't come from the cit or goldman, they come from small businesses. it's the small businesses who pay their taxes as individuals. >> but the freshmen, in the article carl was talking about before, the freshmen are headed over to the white house. they're a group of the democrats there who are freshmen who represent wealthier districts who are very concerned about what this means. they're headed over to ask rahm emanuel to pull back. will he be heard? >> you had 21 freshman democrats who signed this letter saying, do it a different way. raise taxes somewhere else on somebody else, not the surtax. that's why i think you go through the gris mill -- >> it's not just those freshmen -- 21 signed this letter, blue dog democrats and the republicans who are solidly behind that. >> i don't know if the blue dog -- >> i thought he had the juice -- >> he had the juice to get out

of our committee at 2:30 in the morning. >> the president has been talking a lot about this on tv. he's very, you know, forceful on it. he wants it done by august or -- >> yes. he want it out of the house and senate by august. >> he doesn't want -- he wants -- that's what you just described. >> yeah. so then you'll have conference. remember, you will not pass identical bill out of house and senate so you have to conference -- >> kanjorski seemed to indicate that was a pipe dream -- >> you would need a magician. >> are they back on -- >> they told me on friday they're still planning on moving to the floor next week. >> what could happen on the floor? what could happen to -- >> the question is, watch these 21 freshmen, people worried about the pay fors and do they -- do they really put their votes where their mouths are right now? at the end of the day, on cap and trade they were 21 votes down the day of cap and trade. they muscled it through and passed it. >> washington post says the president is going to take the baton on this now. >> yeah. so he's going to be bringing people into the oval office,

doing one-on-ones -- >> he's meeting health care providers today and will talk at 1:00 today. >> ama who told us three weeks ago said they would never support a public plan gave us this letter on friday saying they're supportive. that's why you have state chap terse of the ama splintering away from the national chapter of the ama saying, no, no, we're opposed to a public plan. you have this in-fighting. >> what happened with the national? how did that -- i mean, howard dean was shocked. >> it shocked me, too. we met with the head of the ama. >> the lead editorial in "the journal" today says it's because the doctors are convinced they will be able to get paid more. they're not going to get crammed down on this thing they have now -- >> they will get the sgr. they are scheduled to get a 21% cut in medicare rates next year. nobody's for that but they want to get their money over ten years to fix medicare rates. if everything's at medicare which underpays doctors by 20%, they gain on the right hand and

lose on the left hand if this public option goes through. that's still what most physician groups claim, except the ama suck coupled to this deal, apparently. >> the congressman is staying with us. when we return, we'll talk more about bernanke's big date. what he is likely to tell congress when he delivers his economic report tomorrow. first, though, more on fixing health care and it's serious impact on ballooning budget. robert andrews and our guest congressman host -- our guest host, congressman paul ryan are going to be squaring off on how to solve this crisis. "squawk box" will be right back.

welcome back. two house panels approved legislation to revamp the u.s. health care system on friday. joining us, one of the lawmakers pushing for changes, bob andrews of new jersey, serves on the house budget committee, joining along with our guest host congressman paul ryan. congressman, good to have you on the program. >> good to be on with my friend paul this morning. you're doing a good job, paul. >> thanks. >> you're both trying to carry some water. what we're trying to figure out

is whether or not the notion of a public plan is either losing or gaining momentum. the president's poll numbers on health care have come down. on the other hand, he seems to be aligning with some groups, like the ama, that historically you wouldn't expect to be part of this. which is it? >> i think he's gaining momentum because people realize the competitive value of the public option. you know, 96%th health care companies would fail the stress test. i think the only way to break that oel goply is to have meaningful competition. >> governors have problems with some unfunded mandates in the plan. blue dogs are writing letters they don't think are so great. i mentioned the poll numbers coming down. why is that not a sign that the president, to some degree, surnd the gun here and time is running out? >> i think it's a sign that changing something as massive as health care is going to be difficult. if it's easy, someone would have done it a long time ago. this is the normal give and take of the legislative process. i think we will get it done.

>> do republicans smell blood? >> i think we do on the public plan. i think, you know, as more public scrutiny occurs in this thing, it becomes much less popular. i have a question for rob. you know, the cdo just gave us this spreadsheet on friday. it says that the house bill is about $239 billion if deficits so it's not deaf knit neutral. last year alone $65 billion. my question is basically this, give me your crystal ball. the surtax the day before the bill was released was 4.7% higher on earners. do you think now that we have a $239 billion deficit with this bill that they up that surtax number or where do they go to close that gap? where do you think that's going to go? >> i think it's more likely we look to more cuts. paul, you're aware of the so-called med pack commission which looks although ways to con

train medical growth. i think we'll look that and find things like hospital readmissions and so-called budgetedin i bundling meaning you have one universal care. i think we'll go there and not to a higher surtax. >> that means that lowers medicare reimbursement rates even further. if you tie public plan rates of reimbursement to medicare, that's even lower rates which puts more competitive pressure, cross-shifting from the public sector to the private sector. what the actuaries tell us, the lower you tie it and tie medicare to public rates the more companies will dump their people on the public plan. it start to become a self-fulfilling prophecy. >> i think there's a misconception about the medicare rate and public option. here's what the bill says. if the hospital or doctor takes medicare patients, on the first they have to take the public option patients but they can opt out of that on day one.

so let's say that the public option comes in and says to a hospital, we're going to pay you medicare plus five. and the hospital says, nope, it's not enough money. then they don't have to take the public option patients. in which case, the rate the public option pays is going to be a function of a negotiation between the public option and the hospital. >> let me -- >> the medicare plus five is the opening bid, paul. it's not what's necessarily going to be paid. >> correct me if i'm wrong, it's medicare plus five for physicians just medicare for hospitals, right? >> no, i think are you wrong. the bill as written has an automatic opt-off for hospitals and doctors on day one. so if they think the medicare and five isn't good enough, they don't take it, they don't take public option patients and negotiate the rate with the public option just the way they do with a private insurance company. >> that's not my read of the bill. it's medicare for hospital is medicare plus five for only three years for physicians, aleast according to the cbo in ways as means as early as friday

morning. >> an example of just how complicated it is. >> it is complicated. >> congressman, let me ask you this -- assuming we get something through the house before the recess, they're going back to their districts and going to be faced with all these questions. the republicans are doing a fairly good job of responding not to the guts of the bill, but to the notion that somehow this is a plan by the administration to eventually get to a single payor system. why have you not been able to walk that back effectively? >> oh, i think the president's walking that back very effectively. he's had his attention on a lot of other things but starting late last week, this has been the primary focus of his attention. i think he's the best persuasive force in american politics. he'll tell the truth. if this bill lets you keep your plan if you like it and that's the way it's going to be. >> he's been overseas, he's had other fires to put out. do you see his attention to the issue getting magnified in the next couple of weeks. >> without a doubt. his calendar this week is going

to cleveland for an event, something at the white house, doing a press conference. this president is the most persuasive advocate in american politics. he's focused on advocating for this plan. i think it will be a game-changer in terms of policies. >> are you convinced he'd be willing to let anything else on the agenda, cap and trade, if not -- if it's not about letting rahm handle the phone called, would he be willing to let it go to get it done? >> he can walk and chew gum at the same time. he's pretty good at that. but i think health care's at the top of his list. and i think that his -- his persuasive authority will make a huge difference in this debate. >> see, rob is right. this is the most articulate president we've had in a long time. and he is very persuasive. the problem from our perspective is the rhetoric is over and the substance is completely contradictory to the rhetoric. sooner or later substance will catch up -- >> how do you think it's rhetoric? >> first he says we're not going to tax anybody under $250,000.

this is chockful of tax increases. >> what are they? >> pay for play tax, 2% of agi tax for everybody that doesn't buy health insurance. >> that says employers who don't insure are no longer going to be subsidized by employers who do. >> 8% of payroll is taxed. >> i don't think -- >> what about a -- you have to pay 2.5% of all your income if you don't buy health care. >> the a mandate. it's a sense that everybody has the responsibility not to be a free ride -- >> either way you go it's 2.5%. it's a tax. the point i'm making is we disagree on the public plan. it's not just republicans against democrats, it's outside actuaries telling us the public plan chews up and crowds out the public market. the notion if you like what you've got has exploded with the ak tu aral facts and -- we just don't agree on that. we have independent confirmation of these facts. >> i think those independent confirmations are written by

people vested in the status quo of the system. if you like your plan, you get to keep it. that's the reality of the bill and that's the message the president will say this week. >> we have to let it go there because the debate is going to continue. congressman, thank you 230r your time. "squawk" continues in a moment. aflac! it made a big splash with the employees yeaaaahhhh! find out more at aflac!... ...forbusiness.com (laughter)

up next, the return of rick santelli. he's back in action just in time

for fed chairman bernanke's semiannual report on the economy. we have a "squawk" scholar ready for today's lessons. has the fastest hands boxing has ever seen. so i've come to this ring to see who's faster... on the internet. i'll be using the 3g at&t laptopconnect card. he won't. so i can browse the web faster, email business plans faster. all on the go. i'm bill kurtis and i'm faster than floyd mayweather. (announcer) switch to the nation's fastest 3g network and get the at&t laptopconnect card for free. the same tools the pros use, so you can be a disciplined trader. by selecting from eight advanced triggers, your order gets executed, even when you're busy. and with trailing stops to help you lock in profits and minimize risk, you can be confident in your strategy, no matter which way the market moves. find out why more and more active traders are turning to fidelity for a smarter way to trade online.

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walk to "squawk box" here on cnbc. first in business worldwide. we are just one hour away from the opening bell. a quarterly survey of forecasters finds the recession's grip on the economy appears to be easing, but very likely has not ended. the report suggests the possibility remained weak in the second quarter. 45% of polled economists say the worst is over for the economy. the other 55% argue the low point has not yet been hit. >> fed chief ben bernanke will deliver his semiannual report on the economy tomorrow. it will come before the house financials committee and here to explain what to expect is john brady. rick santelli is back at cme. senior economic reporter steve liesman is here. and our guest host paul ryan is in studio. steve, i'll start with you since -- i mean, you've got something prepared on what bernanke is going to talk about, right? >> i wish i had the testify, but

i don't yet. i think we'll have talk and not too much of exit strategy. what they don't want to do is overplay the hand. it's like, hey, we're ready for the situation when we have to start with drawing it -- >> but not yet. >> but too much talk about it, you know, really gives the impression they're about to do it. i don't think that's where they are. take a look at the balance sheet. see there has been some run-off of the balance sheet. it's been kind of counteractive by the purchase of mortgage-backed securities. there it is. it's come off the top. it's kind of ticking back up a little bit because of the mortgages. look at things like term auction facility, credit loans, or if you look at primary credit -- sorry, credit to primary dealers you'll see both of those have come down. so the use of lending out there or the use of the fed's borrowing has really declined in part because the credit markets have gotten a little better. >> rick, you've been out. did you -- you say you're going

to stay out. as long as the ten-year's under 3.5 and gold's under 940 you're not coming back until your commodity trade gets rolling again? because it is again. >> if the test of me, here or not, here was the low above 3.5%, i'm not going to take a lot of vacation time because 3. %, you know, we did violate it a bit. of course, we all know that that was the equity trade and the fact that equities have regained their footing because the borrower has been so low on earnings. i think it's an interesting model in direct relationship. i will tell you that if you had to look at one relationship on a bigger picture, it would be how the dynamics of interest rates at some point in the future move even with equities higher. i call it the trifactor regarding the economic models. that is, you have the price of equities, you have the price of credit, and then you have the jobless rate. and i think the first two aren't going to really give you a true gauge of the economy. it's the third camp that means

everything. i've said that for a while now. >> does that make sense, john? >> i think so. i think rick and steve are both pretty accurate here in terms of what the fed chairman will and more importantly will not discuss. i think the global macro economic backdrop perhaps has the fed's hands tied in terms of removing quantitative easing and perhaps normalizing the structure of interest rates any time soon. i think slow global growth and more importantly, the lack of demand for loans and credit here in the united states, mixed with deflating asset prices and rising unemployment rate, will cause the fed to be rather slow and perhaps making a mistake about, too slow rather than too quick than removing -- >> they're only too quick when they print. they're never too quick when they stop. come on. >> no, no, i think that's right. and, again, i think this whole -- any sort of chatter about inflation or inflationary pressures is probably a little

practice mature. i think dr. bernanke may coyly and sulgtly remind the committee on tuesday. >> the issue has been the hyperinflation trade and even the regular inflation trade has really come off in the last couple weeks, if not months. rick, people were so sure there was going to be inflation. the ten-year rocketed up to 4%. you had oil up above $70. you had gold pushing much higher. that's come off a lot. i think there's more confidence -- >> i don't consider that inflation trade. that's commodity prices. inflation is the monetary phenomenon and it's just a matter of when, if we continue -- >> right, but -- >> but -- >> put up a chart of core inflation over the last 20 years. >> oh, i don't even want to look at it. there's not enough money supply in equity prices. with that chart up your buying yourself into an equity rally. >> the bot bottom line is -- >> food and energy.

>> we have not had a lot of inflation in this country over the past couple of decades. >> it's not an inflation argument, steve. prices and inflation aren't the same. prices go up and down -- >> you changed the metric. >> no you changed it. >> you said put up food and energy. i did. >> they're going to printed and ultimately your dollar's worth less. end of the story. >> the dollar's worth less. it's 1.39, 1.40, where it's been for a while. >> it's the lowest level in a year and a half. the only losing trade is, is when companies that are mull take national don't think you're a good customer because you're not as financially positive as overseas. that dynamic of better exports because we're weaker is what's, sold as -- >> the -- >> so viewers buy multinationals and then see if you can find a job. >> congressman.

>> all those things you said are premised on the history of the great moderation we've gone through. we're not in the great moderation anymore. we're having the author of "the taylor room" on next. we're on a fed roller coaster. ben bernanke is probably going to address those fears of inflation talks by saying there's a good exit strategy we have, we know what we're doing, we'll mop it up at the right time, trust us. we're out of the great moderation and we're on this roller coaster whether we like it or not. >> with all due respect, the great moderation is a determination that was made about the performance of the economy. >> that's right. >> over several decades. the idea of saying that, out of the great moderation because of the economic performance of the past year or so is not enough data to make that determination. my idea about inflation, though --. >> my point is the policies that got us the great moderation, our monetary policies -- >> right, right. >> we're not conducting those type of monetary policies anymore.

>> of course we're not. >> i'm not saying it's wrong. i'm saying it is what it is. >> you could make the argument that we are conducting those policies exactly, the great moderation. what is the great moderation? is-t reduces the amplitude of economic performance on the downside and upside, right? if the fed were tough right now, we could argue a much steeper decline in gdp. my call about low inflation or my belief on low inflation is really predicated on the idea there is an independent federal reserve that will make the right policy choice -- >> what country? what country is that independent federal reserve, by the way. >> the united states, rick. >> oh, i'm sorry. >> i shouldn't even play games with you, the game you want to play. >> there's no games here. >> i say, look at the performance, rick. >> the great moderation, by the way, by saving the downside with all of these programs -- >> rick, come on -- >> we have forsaken the upside. we've controlled the var yents

of our gdp. i agree. you're right. >> 140 is the dollar, 360 is the ten-year. i don't see the hysteria that's out there. it is what it is. >> there's no hysteria here, steve. it's just that we have a weak currency. bury it. >> so what? >> there are two things i think are, missed here. you talk about the great moderati moderation, that was characterized as expansion of credit and credit made its way into asset bubbles, equity or housing in the early part of this decade and the 1990s. the other observation is rick and steve have missed each other during this time away for rick and i think it's good to see the energy back -- >> i agree. i agree. it is. >> oh, come on out. >> like a couple. like a couple. you guys need each other. >> can i ask the senator a question? >> the producer will have a heart attack if you do, rick. >> that's all right, he can have one heart attack. i just want to ask you one question. forgetting the specifics of health care, at the end of the day, tell me why my health care

is going to be any different than what i go renew my driver's license at the department of motor vehicles? >> i can't. >> if the government takes it over. >> you'll have to go to the exchange -- my next question is, name one government program, a big one, in the last 30 years that you would say past the litmus test for a really well run business? >> let me get back to on you that, okay? i need time. >> so, rick, you have a really good experience when you call your hmo, huh? >> you know what, i've never had a problem with my health care. why don't they do a couple of easy things. why don't they separate health care from your employer? why don't they just start with that. doesn't that create a lot of issues in. >> have you had a problem with your hmo? you just washed the john grisham movie -- >> my problem is bureaucratics. they work at aetna or the department of motor vehicles.

i don't see a whole lot -- >> people don't want to deal with bureaucrats, right, the uninsured -- >> i think the argument there are a lot of brew accuratic at hmos and some other -- >> the third-party payor doesn't do that. the question is, do we have the hmo bureaucratics or government1 bureaucratic? let's have neither and have -- >> john taylor is up. go ahead. >> coming up next, "squawk" scholar, john taylor, former treasury undersecretary will be holding class. we'll get his lesson.

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cit is expected to announce today that it has reached a deal with bondholders for $3 billion in rescue financing. here with thinks thoughts is "squawk" scholar john taylor, an economic professor at stanford, a fellow at hoover institution, and undersecretary for international affairs and he serves on california governor's council of economic advisers. thank you for joining us today, professor. we've been talking a little bit -- we'll get to cit in a little bit but we've been talking about this great moderation and whether or not we have ended that period. do you to want weigh in on that? >> sure. this recession is much deeper than we had any time during the great moderation, so we're departing from it, unfortunately. the hope is that we can get back soon. i think we departed from the great moderation because what i call as the great deviation, we

deviated from the policies that were working really well in the '80s and '90s and hope we can get back. i like to call it getting back on track to things that were working in the past. >> what happens if we don't get back to that period of great moderation? >> well, it will continue -- i would say it would be like the late '60s and '70s where we had ever increasing inflation and a recession every three or four years. those were the bad old days, if you like. we don't want to go back in that direction. that's the threat that would happen if we don't get back on track. >> what has to happen to get back on track? >> first of all, monetary policy has to get to the mode of reacting timely to increases in inflation or timely to slowdowns in the economy as it did at that point in time. not hold rates too low for too long. as we come out of this. i think the fed says they're not going to do that so we can hope along with them. but there's threats. i think on the fiscal side, i might say, the fiscal side is a real concern. we have a trillion dollar deficit already, trillion dollar

deficit as far as the eye can see. that raises, i think, real questions about inflation and about sustainability. >> but weren't some of these emergency packages necessary to keep us from falling off a cliff? >> i think for the most part a lot of the things the government did as we got into the crisis made things worse. i'm sorry to say. they prolonged it, didn't address the problem back in august-september of 2007. yes, some things have been helpful, especially after the panic of last fall, but now it seems we're going in the direction, we're responding, doing too much, creating uncertainty. actually, i think the cit decision was a good one in sense of letting the private sector work this out. >> were you surprised to see the private sector actually step up or did you think it was there in the wings waiting all along? >> i think it was in the wings. when the government hangs out it's shingle, it's going to get the business.

i think that's what we've seen. this time they took down the shingle and sure enough there are other people out there doing the job. i think it's the way it should be. >> john, it's paul ryan. i have a quick question. you had a very interesting op-ed in the financial times a little while ago talking about sort of how our fiscal policies on a collision course with our monetary policy. give me an articulation of that, if you will, which is, $1.8 trillion deficit this year, big deficits for as far as the eye can see, tripling the publicly held debt over 10 1/2 years and now we're building a new health care entitlement that will add on top of that. how is that compromising our money tear policy and what's the forecast? >> well, something's got to give. you have to have an increase of inflation to make the debt less own rus us. that means it seems to me the only -- the only solution here is to control the growth of spending.

and that's what i'm hoping will happen. >> they don't say that in washington anymore. sorry. >> well, that's why we all have to remember that even if we're outside of washington to get the message back. of course, the california voters, i think, indicated that quite clearly in the recent initiatives, that spending control is what we need. >> is our health care system broken? and do we -- what do you make of these efforts to fix it? how should we fix it? >> well, actually, i think the proposals to fix it, of the kind where there's a credit to individuals to buy insurance rather than to force firms and penalize firms for naught, i think some competition across state. i think that's where some competition can come. if somebody in new jersey can go across the delaware river and buy insurance in pennsylvania, that's going to be competitive. >> what about buying it in washington? >> i think the public -- i think the public option, i don't see how that's going to create more competition. if anything, it's going to increase spending and costs. that's what the cbo is

projecting just last week. i think that's the fear. i would like to see some of these proposals to let the private sector and more competition come into play. don't ruin the things that are working so well. >> the patient's choice act, you can go to my facebook page or web page -- >> you have facebook? >> of course i do. you can see how we're proposing along the lines of what john taylor is saying. i want to ask you this question quick. they're going to raise taxes. democrats have the votes to do this. the question is, what tax increases are better than others? now it's a surtax that hits dividends and capital gains and incomes. is that the best tax increase they can come up with? what's your opinion on this. >> no, no. frankly the worst tax increases are the increases in these marginal tax rates. the extra dollar of income or extra dollar of investment or capital gains. they discourage all that activity. that's not the way to go. tax reform, experts say the other direction, reduce marginal

rates and find ways to broaden the base, if you can. especially in this tough economic times in this recession, the idea we're increasing taxes or even planning to increase taxes next year seems to me just exactly backwards. i hope somehow people can wise up to that. we have to focus on this tough economic times. coming out of this recession robustly. those kind of policies don't help. >> i agree. how do you see the situation in california ending if new taxes are out of the realm of possibility? >> well, i think getting ahold of spending. if spending had just been controlled -- >> that's in the past, though, john how do you roll back your budget to 1990 levels? >> i don't even have to go back to 1990 levels. you just have to hold the growth rate equal to the growth of the economy, plus inflation. that will actually do it. if we had done that for the last five years in california we wouldn't have this problem. it's quite remarkable. it's politically difficult but

straightforward. and the voters are telling the politicians that right now, it seems to me. it doesn't mean cut spending, it means holding the growth of spending to the growth of the population and certainly inflation and that will do it going forward just like it would have done it in the past? >> professor taylor, we want to thank you for joining us today. >> thank you. appreciate it. >> some viewer just wrote in. not to our -- >> it's been broken. >> joe, will our senators in congress use the plan? >> i had an amendment in the ways and means commit toe to make the congress get their health plan through that. thursday at about midnight. if we're going to make people take this public plan we in congress ought to go on it ourselves so we could truly represent people. except from alabama, he voted with us to put congress in the public plan. democrats have the majority. they defeated that amendment.

so now we keep you -- >> did they give you reasoning why? >> no, not really. >> like, because we have a better system right now? >> roll call vote and they have the vote. >> i think they said are you out of your cotton picking nimind, what their reason was. >> we talked about this off camera a little bit. i can't believe you put up an amendment. i can't believe it got voted down. you can buy into the private plan if you want to but you should be given the same plan as everybody else. >> public plan of your own already, yes? >> we as federal employee have a health benefit plan. we have a variety we can choose from. it's a good set. range of private insurance plans we can choose from. the public plan is a publicly run thing. it's more public than we in congress have. we want people to have choices. if you make members of congo on a public plan that's not treating us the same way as the

american people. too which i said, phooey. which put us in the public plan so we can experience this plan. >> the amendment didn't say we will have the option to go to a public plan. >> no, it said members of congo on the public plan. >> that's different. americans will have a choice. >> look, if you just look at the facts, actuarary -- >> we'll be back. >> we've got earnings over load. that's coming up at earnings central. we'll be back.

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we'll be speaking with the t.a.r.p. special inspector general. he's got some complaints about how the money's been used. we'll hear from him tomorrow. coming up this morning, washington's big week. fed chief ben bernanke heading to the hill tomorrow. we will have a final roll call with our guest host congressman paul ryan. "squawk box" will be right back.

let's get a final roll call with our guest, paul ryan. so, we think -- you think it is going to be -- the house plan will be done by august recess. senate, probably not. what kind of reception are you going to get when you go back to your district? >> good question. as soon as people learn the

detail that was thing, as soon as they learn that, oh, my gosh, my employer can just dump me and my public plan, pay 8% payroll tax, they're going to do that. where i come from, cost shifting is huge. medicaid/medicare pays them massively. they make up by charging the private sector. the more this occurs -- and the doctors and hospitals in wisconsin are telling us this. >> you're not willing to make a call yet on what happens in october? >> who knows. does the public get involved in this debate or not? >> for a public plan. i hope the public gets involved, it's a public plan. >> thanks for having me. >> that does it for us. join us tomorrow. "squawk on the street" is next. this is cnbc.com news now. >> goldman sachs is raising the s&p 500 target to 1060. that's a 13% increase over the prior target based on better earnings and stabilization. gold has risen $950 an ounce.

thats a the dollar tumbles. german newspaper reports volkswagen will bid to buy rival porsche. $11.3 billion. that's cnbc.com news now. i'm courtney reagan. live from the financial capital of the world, this is it, "squawk on the street." good morning, everybody. i'm mark haines. stocks looking like they're going to push to the plus side after cit gets a $3 billion lifeline. cnbc confirms cit has reached an agreement with key bondholders that staves off bankruptcy, at loose for the moment. and buys the small business lender more time. >> hello. i'm rebecca jarvis in for erin burnett. today kicks off a huge week with quarterly reports from nearly

30% of the s&p 500. 40% of the dow 30. mark? >> futures right now looking good. we're up 560. we needed 0.28. pretty much what you see is what you get. 40 points on the dow? >> cit headline, a very important one. cit lifeline, one that we will continue to delve into. right now senior economics reporter steve liesman back at hq with the latest. hey, steve. >> thanks. as you said, cnbc is on the cit's board of directors last night. it hopes will stave off bankruptcy for the small business lender at least in the short term. this is financially, not capital yet. official announcements expected this morning on the loan. carries a 2 1/2-year term. they say seven of the company's top ten bondholders providing the loan. a portion of the proceeds should be able almost immediately and then over time. they also earned cit has outstanding se