it's a pleasure to have you, because we want to talk about the issues we are facing right now, including health care. thanks for being with you. >> thank you. good to be here. >> there is a lot of debate about whether or not this can get done by august 1st. i see you said yesterday it's going to get done by august 1st, but the president says do it by the end of the year. what's the ultimate deadline here? >> well, i think we're talking about two different things. we want to get it through the house by time we leave for the august break. but that just means the house bill. that does not mean getting it done. obviously the senate has to pass a bill, we have to go to congress. the senate and the house have to agree on one version, and then we have to pass it again through both houses. the conference sends it to the president. so october is really the target date in terms of a signature by the president. so getting it done would be they're getting it done initially in the house or getting it done finally. they're two different dates. >> leader hoyer, does that

dovetail with his agenda? >> yes, it does. >> let me ask you about the blue dog democrats and when they say thief got a release from representative ross about where they stand and what do they want and will they get some semblance of what they want. >> well, i think they are very interested in passing health care reform. all of them have indicated publicly they want to vote for a health care reform bill. they know american people said want that and that's what they want. they're working towards trying to get some of the things they think are important in the bill. >> such as? >> in terms of cost containment, they want to make sure in fact we're bringing costs down in the health care system. they want to make sure that the provider community is compensated properly. they want to make sure that the disparities in reimbursement around the country are addressed in the bill. they to make sure that we get rid of waste, fraud and abuse, which all of us want to look the at. >> but they're not drawing a line in the sand on when it comes to the public option.

>> no, they're the not drawing a line in the sand on public option. they did indicate they wanted a trigger on public option. there are obviously some members of our caucus who want single payer, some members who want a trigger on a public option. i think we'll have a public option. and i think that's not the line in the sand. >> is that negotiable for you, leader hoyer? public option has to be in there? >> i think we'll have a public option, yes. we'll have a public option there, but the president said we want a public option. however, as i indicated, the blue dogs want to make sure that the public option is not simply a transition to a all-public system without the private sector options available to their consumers. i think we're going to get to that -- >> well, sir, how do you do that, leader hoyer? if the public doesn't have to pay taxes, doesn't have to account for its payroll and has all sorts of other advantages over the private sector, the complaint has been, hey, they start off with both hands behind their back when it comes to the private sector competition. >> you know, there how about a

lot of talk about the cbo scoring and estimates and opinion. cbo makes the opinion. they're a nonpartisan arm of the congress. they make -- they have made the opinion that they believe that less than 10% of the consumers will go into the public option, which means 90% will go into the private sector. and, of course, we're going to expand the inclusion of some 40 million people, and maybe 47 million people, not quite there, probably, but a substantial number of millions of people into the system. now, if 90% go into the private sector, 10% go into the public sector, you will expand very substantially the insurance industry's number of clients. >> speaking of the cbo report, it said that these options on the table or many of them would not end up saving money when it comes to health care. how do you respond to that? >> i think that those are of concern to us, and we're going to make sure that this is a., paid for, and b., that it does,

in fact, bend the curve. that is -- bend the curve, in other words downward so that the cost of health care coming down, not up. now, they'll go up in terms of dollars, but as a percentage of our gdp, we want to bring them down from the approximately 16, 18% that they now are at, down to a lower percentage. we are working on that as we speak. there are meetings going on now to affect that end, and the president has indicated that we need to do that, if we are going to be successful. in achieving the objective of lowering the cost of health care, but providing access to all americans to quality, affordable health care. okay. so lowering the costs, that's one way. but still in the end, you need to pay for it somehow. representative pelosi seemed to back off taxing individuals who made less than $500,000 and wanted to push it more toward couples or individuals making more than a million dollars when it comes to the surcharge. where do you fall on that issue? is that going to stay in this bill? >> obviously, we're going to have a pay for in the bill, the

pay for that's now in the bill as you know that came out of ways and means committee deals with a surcharge on the wealthiest taxpayers in the country about the top 1.2% of taxpayers in the country. speaker pelosi has indicated that that is flexible, that we can talk about the levels at which that surcharge kicks in. she's accurate on that, of course. we will be discussing that. the bottom line will be, however, if you adjust that, you need to pay for this bill, and we are going to pay for it, and therefore you -- >> where do you think it kicks in? >> of either -- i think kicking in at 350,000 per couple is -- makes some sense. i think that's an appropriate level. having said that, i am for a funding source which the senate finance committee has been talking about. and that's taxing benefits over a certain level. 17, $18,000 of exclusion on health care benefits. i think that makes some sense.

it's out of the health care system. i think it's good tax policy. and i think it's good health policy, as well. but having said that, the ways and means chose this alternative. i think it's a reasonable alternative. i don't, frankly, think that that's going to be the final word. there is going to have to be a negotiation between the house and the senate. the senate said they don't like that option. they've come up with their own. so -- all those options are on the table. we're going to pay for it. >> when it comes to taxation, there has been a lot of discussion about the impact on small business, and, of course, whenever you put forth something, policy, there is going to be, of course, some collateral damage. but how do you address the potential impact on that sector of the economy? >> well, we want to make sure we understand how very important small business is. they create many of the jobs we need created in this country. we want to make sure that they can be successful. we've already made an adjustment from the original bill on small business, exempting from 100,000 of payroll to 250,000 of

payroll. and then graduating between 50 and 400,000. so we already made in combination, because of our concern for the welfare of small business, and we'll have to look at the impact on small business of the proposal, the surcharge proposal that comes out of the committee. but i want to assure all of the small businesses in this country that we're very cognizant of their importance, and we want to make sure they're successful, and we'll look at all of the funding options in that context. however, let me say something about small business. this bill passing is going to make it much easier for them to provide health insurance for themselves, individually and for their employees. we're going to give them the assistance to do that, and we're going to give them an option if they can't afford to do it themselves. another very important asset for them. >> i appreciate that, leader hoyer. rahm emanuel says tonight's press conference is a report card on the president's first six months. what grade would you give him? >> i would give him certainly no

worse than an a-. he was elected very handily by the american public, and he stated an agenda he was going to pursue. the overarching agenda he had is to give our economy back on track. and while we're certainly not where we want to be, i make the point that over the last three months, we lost 200,000 fewer jobs than we last in the last three months of the bush administration. the stock market, the dow, is up 1,000, some 1%. the nasdaq and s&p are up even more. nasdaq, i believe, is up over 30% since january 20th. housing starts were up over the last three months. so we're making some progress. are where we want to be, we're not. but in terms of reinvestment, and recovery, we are on the right track. i think he passed -- we passed a budget, we passed a -- the balance of the appropriation bills, we passed an energy bill, which i think is going to help

us create more jobs. be energy-independent. >> okay. >> and get us to a point where the globe can survive global warming. so i think he's done some extraordinary things in the first six months. and he continues to be focused on the issues he promised american public. >> thank you very much, leader hoyer. we appreciate you taking all of time to talk to us. >> thanks a lot. >> all right. denny hoyer, majority leader. he does support taxing folks more than $350,000. he does support taxing benefits. >> blue dogs could take public option. >> he definitely wants a public option in there. so sticking along the party lines we've heard from that side of the aisle, for sure. >> i think so. let me just talk about this goldman sachs story real quickly. >> we have the charts and reaction. >> redeem the warrants that were out there, $1.1 billion is what they're going to be paying to the the government. remember, the government got these essentially for free, michelle. so it was part of the -- remember, they provided $10 billion of capital, i guess, and got back the preferred stock. and then as a result of that,

they got the warrants. and there was some discussion that went back and forth, one of the initial offers had been between 600 and 650, and then it goes to some form of an expert panel and then it comes back and the treasury -- so this is i think a pretty decent victory. 23% annualized return, michelle. i don't know if you have that on your books. >> the initial offer they made was $600 million. we'll pay 600, $650 million now, going to be $1.1 billion. would he have got to assume this number got bigger as it got more controversial, just how much the warrants -- remember the warrants at the beginning? >> yeah, remember, though, i think when the offer was made, the price stock was a little bit lower, okay, at the time. and then, you know, there's some differing opinions of what happened. some called it a squabble, others called it a discussion. another says it was just a process that you go through. >> but it was more to get out of them than the real value of them. i'll pay the premium to get out. and the 23%, i think the conversation has to be in the back of it is what about the company -- the government is going to lose a lot of money on

several of these participations, as well. >> and in addition, goldman sachs did this one-on-one negotiation. we heard from other banks who said they're going to do an auction, right, which is going to be substantially different. >> that's an option. also an auction process available. this is one of the biggest banks to redeem the warrants. >> the other big news, of course, is ben bernanke testifying day two for the humphrey hawkins testimony. he is back for the senate banking committee. let's return to that and listen. >> i would further and say, if you had the systemic risk resolution authority, that the fed's ability to lend to a failing systemic institution ought to be curtailed, so that it could be invoked only at the request of the resolution authority as a support of their operations. so i would make our interventions of the sort we did with aig, i would make them

illegal. >> well, i -- appreciate the fact that you could envision, even going beyond the -- what we have now. because we've got to address successfully this issue of moral hazard, where we're perpetually in a cycle that doesn't serve our financial system or citizens, and so i'll look forward to being in attendance when that speech occurs, and i thank you very much for your testimony. >> thank you. >> thank you, senator murphy. senator? >> thank you very much, mr. chairman. chairman bernanke. welcome to the committee. it's always good to be in touch with you. we share a firm commitment to empowering our citizens through financial literacy. to build stronger families, businesses and communities. and i greatly appreciated your efforts and that of your talented and dedicated staff on this issue.

too many, as we know, too many working families were steered into mortgages that they could not afford, or effectively understand the potential risks associated with mortgage products. now some potential homeowners cannot obtain mortgages or meet substantial down payment requirements. especially in states such as hawaii. with high housing costs. what must be done? what must be done to ensure that working families are better prepared to purchase a home, select an appropriate mortgage, and remain in their house when challenged with financial hardships? >> well, senator, as you say, you and i agree very much on the importance of financial literacy. we have talked about this in the past. and i think if there was any -- ever any doubt about the importance of financial literacy the past few years and the

problems we have seen, would dispel those doubts. as you know, the federal reserve is very actively engaged in this on a number of fronts, both at the board level and also under various reserve banks around the country. we have partnerships with a large number of nonprofit organizations, schools and others to provide financial literacy materials and to try to learn about what works and what doesn't work. we have found that teaching financial literacy is difficult. we have not been as successful. we -- the collective community has not been as successful at teaching financial literacy in schools as we would like. and i think in part because students don't necessarily see the immediate relevance of mortgages and things of that sort to their own lives. but we have seen, i think, is that people who are close to making an important decision, to take out a mortgage, or to buy a car or other important decisions, are very -- at that

point, very motivated, and counseling has turned out to be very helpful of. and so i've been very supportive of counselors to help people make better financial decisions. i think also, there's some room for partnership in that parents and kids together can learn. the parents who are motivated and who understand the financial challenges they face working with kids, maybe in programs after school, those sorts of things, maybe helpful. so there are a lot of ideas out there, and the fed is working on many of them. we don't have a magic bullet yet, but i certainly, again, applaud your support of financial literacy and financial education. the more people who can understand about these things, the less risk we run of, you know, problems down the road, because people just, you know, made bad choices. >> chairman bernanke, as you know, due to the outstanding efforts of the chairman, other members of the committee and the administration, we enacted landmark credit card

reformulation. i'm proud that the law includes provisions for my credit card minimum payment warning act. which will provide consumers with detailed personalized information on their billing statements. and access to reputable credit counseling services. what will be done to ensure that credit card minimum payment warning provisions be implemented in the manner that will be most helpful of to consumers, and also, are there additional key, personalized disclosures pertaining to other financial service products that would enable consumers to make better informed choices? >> welsh you put your finger on minimum payment as being an important issue for consumers to understand when they manage their own credit cards. we, of course, are writing the rules for this legislation. and as you know, we have

pioneered use of consumer testing as a way of making sure that disclosures are effective and understandable. and in particular, we have found ways of prebisenting the minimu payment information on the periodic statement that we found through the consumer testing is effective. and so we are using that very actively. i would mention also that the fed has some online resources, including a payments calculator, that allows consumers to go and ask, you know, if i pay just the minimum payment and this is my balance, this is my interest rate, you know, how many years will it take me to pay off my consumer credit card debt? so we are trying to be very responsive on that issue. i also agree that in providing disclosures to consumers, it's important to have transaction-specific information. they can see their own payment, their own loan, as opposed to some kind of generic example. and so we have been working on -- we will be releasing tomorrow new disclosures for

mortgages and for home equity lines of credit which require an earlier presentation of information to consumers that includes information specific to their particular mortgage. so information about their payments, about their principle and so on. and we're using same principle as we look the astudent loans and some other areas where we're working on providing new disclosure. so again, going back to my earlier comment about counseling, when people see their own numbers, their own transaction, it's much more salient to them, they're much more willing to pay attention, and is we hope that by making these disclosures more individual-specific, we'll make them much more useful to consumers. >> thank you. let me ask, finally, in had these difficult financial times, many of my constituents continue to pay excessive amounts for remittences. remittences when they send a portion of their hard-earned wages to relatives -- abroad to

their relatives. what must be done to better inform consumers about lower-cost remittances. and is how can remittances be used to increase access to mainstream financial institutions? >> well, the federal reserve has been interested in this area, as well. we have a program that allows for the low cost sending of remit tanses. i think the federal bank of atlanta working with the mexican central bank has developed some low-cost methods. i think this is an area where many mainstream institutions, banks and credits can provide cheaper, quicker services to minority communities. and this is an entree. this is a way to get a higher rate of participation by minorities in the mainstream banking system. and since i've talk about this for a number of years, we have seen credit unions in particular, but also banks and others offer new remittance

services, which gives them an opportunity to attract minority customers into their -- into their other services, as well. so i think that's a positive development. >> thank you. again, i to express my appreciation to your talented and dedicated staff, as well as your work in this area. >> thank you. >> thank you, senator akaka. senator hutchinson has just arrived, and if prepared, she will be recognized. senator hutchinson? >> thank you, mr. chairman. thank you mr. chairman bernanke. i wanted to focus again on the health care issue that we certainly are grappling with right now. and, of course, the cost stims are all over the lot. cbo says there's no way this is going to lower the cost of -- to government. and what we're concerned about,

of course, is that the government plan then attracts more and more from the private sector plans. and i justifyed to ask you how you would assess another big governor health care program, in addition to medicare and medicaid, that are already causing great concern for the future entitlements that will be required, what you think that does to debt, and is it the right approach right now, considering our economy. and let me just add, the disincentive to employers to hire people, which is something that we're trying to do reverse of right now when we have this high unemployment rate. just give me your view of whether we should be looking at something different, is there a problem here that you see on

horizon, looking at the big picture and the long term. >> thank you. there's certainly a number of issues that health care reform is intended to address, like access, like quality and so on. as i mentioned to a couple of your colleagues, though, i think that from a broad economic point of view, extraordinarily important one is cost. we have medical costs that have been rising more quickly than the gdp for a long time now. and even under existing arrangements with medicare and medicaid and so on, estimates are that we will in a few decades be spending a very big part of the federal budget just to cover those programs. and so while i think there are lots of reasons to look the at our medical system and try to find better ways to deliver health care to more americans, i would urge congress to pay a lot of attention to finding ways to bend the curve or to reduce the cost, particularly if the federal government is going to have a bigger share, because then the fiscal challenge

becomes even greater. so if i could just propose that there be a lot of attention paid to how the program, however you look at it, however you choose to design it, find ways to either -- either through -- through consumer choice, through government choice, through however it's designed, to try to limit the so-called -- to limit this on going increase that will really challenge our fiscal stable over a long period of time. >> does it concern you that cbo recently came out and said that it would, in fact, raise the curve, not lower it? or bend it? >> well, i haven't looked at that in detail, and i don't have any specific comments on the c cbo's analysis. but to reiterate, i think we should make an important part of whatever health care reform we do, close attention to the implications, not only for the fiscal expenditure, but also for

the fact -- also for the private sector. because the cost of health care effects businesses and households. you know, even outside the government's budget. so addressing that cost issue, i think, is really -- needs to be a central part of the discussion. >> one of the things that has been brought out is the medicaid mandate. and the cost to the state, and in my home state of texas, it's estimated that it would add $3 billion a year to the state budget. and, of course, that is also a great concern, and being raised in all of the states. with that kind of mandate, on top of the struggling state budge hes, because revenue is down, do you see that the mandate on medicaid also is an issue that is going to affect

the economy in the long-term and the big picture? >> well, i understand the motivation and the objective of trying to cover more people and to help people who are not already covered by insurance. but not to sound like a broken record, but once again, the cost is the issue. and if governments want to add these costs, they need to think about where else they can cut, where else they can, you know, raise revenue, because we need to have fiscal stability, fiscal sustainability going forward. so as a broad measure, we need to think about how our government's fiscal picture will look, you know, not just this year, but five years from now, ten years from now, and make sure that however we choose to structure our health care programs that we have a sustainable fiscal outlook. >> well, thank you. i think that -- one thing we're trying to do is just slow this down enough that we can find the

information and have the best facts that we can. and is heing an arbitrary august deadline seems to many of us to be very unwise, because so much could happen that would be irreversible, if we really do change our health care system to this extent, with the costs. and in hard economic times, anyway. and many of us are concerned, as well, that employers are going to be encouraged to just drop health care coverage, pay the fine, and let people go into the public system, which then becomes a bigger burden on the government, but also the beginning of rags on the health care in many views. so i thank you for saying that we auto to be very careful before we do add more entitlements to our health care

system, and i hope you will work with us as we are able to get more and more information about the real long-term consequences. thank you. >> thank you. may i now call on senator bye for his questions. >> thank you for being with us today, mr. chairman. i would like to follow up on senator hutchinson's question. i realize that you haven't had the chance to review the omb analysis of some of the different proposals that have come up here, but just let me ask you in general, if we enacted a health care reform proposal that did not bend the curve, that wouldn't really meet the long-term fiscal challenges that we're facing, in your opinion, would it? >> if it did not -- if it did not -- address the cost issue, it would not meet the challenges. >> so in some wayses the tests being applied around here, they're looking at health care in isolation rather than as a part of the broader fiscal picture. my concern is that the long term

fiscal policy we're on right now are unsustainable. i know you're concerned about the increasing debt of more than 2% a year. some people say it increase more than the gdp growth. if you look, in no year will the debt be below three, and many substantially beyond that. so it takes on a multiplier effect. and if we don't come to grips with this, it will get away from us. so if all we did was even pass a health care bill that was deficit-neutral, didn't make things worse, but didn't make it better fiscal over the next ten years, that really doesn't get to the heart of the problem, either, does it? >> that's right. >> so in some ways, holding ourselves from a fiscal point of view is inadequate. and at least when the initial analysis proposed it might exacerbate the situation, that say matter of some concern. i know the president cares about that, too, and now looking at things that really can bend the curve, hopefully, because it's

just not sustainable, the financial path that we are on. let me ask you about revenue side of this. you have been an observer of the elected branches of government for a fair amount of time, as have i. the path of least resistance here is to claim savings and some sort of outyears that may never materialize or pretend to impose cost reductions that congress never has the backbone to actually enforce. there are about 18 different things that were proposed to bend the curve. 16 of them had been included. but they're largely pilots or small demonstration projects, don't get up to scale over the next ten years in a way that's going to make a material impact on the deficits. if you were sitting where we're sitting, how do we -- and omb is reluctant to score these things, because they're so amorph as i say and so long term, it almost defies reliable analysis. what do you do if you're a

policy maker in a case like that? >> well, you first judge to see if you have approaches which you think are sufficiently well documented, that you think they would be reliable. and if so, you can score them. if not, you might put in triggers of various kinds and say we will limit the growths unless we show that we can reduce costs per person and by so much percent. and so there might be ways to tie the expansion of the program to the the success of cost-saving measures. >> well, that would certainly be a good thing. you know, again, the difficulty is that some of these things had been -- some companies have i ammed some of them, and worked in sort of a micro level, but never been done at scale so they're not included in the proposal. so omb says look, intuitively it makes sense you can but if you're asking us to put the reputation on the line with the hard score, just can't do it. and it's difficult to estimate things a year or two in advance, let alone ten. so a lot of this is just educated guesswork, and that's -- well, it's a difficult

platform upon which to build long-term fiscal policy. and so that's one of the things that we're struggling with. now, one of the proposals that had been suggested is to take and -- as you are aware, there was an agreement sometime ago to reduce medicare for some physicians, we always waive it every year, and so now there are further savings that have been pledged as part of the program. one has to look with some skepticism about whether we'll enforce them. so to kind of take the politics out of it, to maximize the chances that the savings will actually be achieved, there is a proposal to create an notary public commission outside of congress to set medicare reimbursement rates. do you have an opinion about that from a fiscal policy standpoint? >> well, i think that's ultimately up to congress. but you have seen examples like base closing commissions, things of that sort, which have tried to make a technical decision, and then congress has had to vote it up or down. so maybe something like that would be promising. i guess i would note that things

like reducing compensation to doctors can give you one off savings, but you've also got to deal with this ongoing growth rate, and that ties into the structure of our health care delivery system. and so the question you have to address is, are we, for example, overusing technology? >> we need systemic reform, not just one off savings. >> that's right. >> we may have some of both. but you're right. in the long run, the rifle shots won't get this done. i'm having some cognitive dissidents, mr. chairman. we had payroll reduction to put money in their pocket to buck up consumption. one of the proposals out there dealing with the employer mandate arena is to require employers above a certain size that don't participate to pay up to 8%, you know, higher payroll taxes. as their contribution to health care. how do we reconcile these two things? >> we would be cutting payroll

taxes but then possibly raising up to 8% on small and medium-size businesses that don't contribute to health care on the other. do you have a reaction to that? >> well, in the short run, raising taxes in a recession will tend to weaken the economy. so that -- there is no inconsistency there. i think the issue is, how you -- if you're going to have additional coverage, how you're going to finance that. and i assume that this proposal would be a way of financing that in the longer term. somewhat of a long-term proposition. and in terms of the economy, maybe if you're doing that, you might want to consider phasing it in slowly, so that it doesn't have an immediate impact on the profitability of small business or on the demand of consumers. >> that's true. it's a short-term/long-term phenomena, but as you know, businesses tend to make hiring decisions with an eye toward the intermediate term and even the longer term. so in some senses we're trying to accomplish a humanitarian thing here which is right, and make systemic reform, but

reconcile that with the budget situation that we face, and the need to not add burdens to the economy at a time when, as you pointed out in your testimony, it's burdened enough. i just want to conclude by thanking you. i really appreciate your emphasis on the importance of fiscal policy. i -- your comments today reflected your op-ed piece in the "wall street journal." the hardest decision in this town is going to be how do you go about altering the very accommodative policies we're pursuing monetarily and fiscally. it's going to take the wisdom of solomon, and i think we have a good man in position to do that. so i appreciate your appearance here today. >> thank you, senator bahe. senator bennett. >> thank you, mr. chairman. thanks for hanging in there. and i apologize if i go over ground that was covered since i left. it's because we were working on some other things. the first thing ied to say is, i first of all appreciate your leadership very much, appreciate the difficult times that we've been through.

i want -- and also your statement with regard to the examiners and the regulators. i just want to testify on behalf of the small businesses and small banks in my state that they really feel like message is not getting through. and i know you talked about training, i know you talked about other kinds of things, all good. but i hope that we could work together somehow to create a set of metrics so that we can measure in some way whether or not -- whether or not your message is getting through. and nobody wants bad loans made. and i'm the last person who would want that. but to the extent that it is true that that hesitancy that you mentioned this morning, that natural hesitancy at a time like this to be maybe more risk-averse than you would otherwise be, to the extent that's affecting decisions being made at the local level, we ought to figure out, what more we can do to clear that up.

because where there are willing lenders and willing borrowers and where the loan is a reasonable one, given how tough these times are, we ought to be doing everything we can, i think, to make sure that happens. so i appreciate your willingness to at least think about what more can be done. the second thing i wanted to ask you about, and quickly, because my time is short. is on -- you were reassuring this morning on the question of the stress test and what we learned from the bank's abdominal to raise capital. i continue to hear from -- but at the same time, you also recognize this coming potential crisis in commercial real estate, and is some other things. and i'm having a hard time reconciling in my own mind how those two things are true at the same time. and i know there's a deep concern, continuing concern, that the bid ask spread for the assets that are on the banks of these books is really not shrunk very much. and that haven't yet taken our

medicine, you know, with respect to commercial real estate. i don't know that you've got anymore you want to add on that, because you've already talked about it, but i'm having a hard time seeing how on the one hand we should feel okay, because the stress test came through -- the banks came through the stress test fairly well, they weree to raise private capital, but on the other hand, we know that this looming issue is out there with commercial real estate. >> well, it's not inconsistent. the stress test, first of all, applied to the top 19 banks, and we found that there is still $600 billion of losses to be experienced in the next two years. so that's quite substantial. and our conclusion was that even after that $600 billion of losses, they would still be able to meet well-capitolized requirements. the other aspect is that a lot of the commercial real estate loans are in smaller banks, and so some smaller banks will -- you know, which were not counted in the stress tests, were not examined in the stress test, you

know, will be facing those costs going forward. so it is a major challenge to the banking system, and i've discussed with a couple of your colleagues some of the things that the fed is doing, and i think what we will see is that banks faced with commercial real estate loans, which cannot perform at the original terms, will be trying to find renegotiations to allow at least partial performance, not lowered. >> and it's my sense that up till now, there is -- there has been an inclination to roll over these financings. but what hasn't happened yet is a resetting of underlying valuation of the assets, which is still something that we're going to be facing, i think, in the next 12 months -- over the next 12 months. one very quick question, and then -- it will be very brief. you mentioneded twice this

morning that i heard that you thought the talf had an effect on small business lending, and consumer lending. and i just wondered what the evidence of that is. >> the evidence is first, in the secondary market, you can see the spreads on securitizations that are traded, and those have come in quite substantially. and we've also identified -- we've talked to lenders who said that the ability to issue these security advertiseded products has freed up their balance sheets to make new loans. and so we do have some evidence for that. some of that was discussed, by way, in the financial oversight board that oversees the t.a.r.p., just released its second quarter report, and that has discussion of some of these issues, because the talf is partly a t.a.r.p. facility. >> i'll look at that. i think that the commercial paper efforts were so successful, at least in my view,

that i hope we'll see similar success here. i don't know. the last question i had is just as we think about -- as you think about unwinding this giant bridge loan to the economy that the taxpayers have been forced to make, and that the fed has done, we've got a lot of work to do around here, in thinking about what we do about these mountains of debt that we've got on the federal government, and our deficit. and i wonder -- i know there was some of this in your written testimony. i wonder if you've got anything you would like to say to us about how we need to think about that side of the equation, as you're thinking about unwinding the -- the work that the fed has done. how do we acknowledge that when you're in a recession like this, it's the -- you know, that the -- it's inappropriate to do as has been done, but as we come out of this will he recession,

we need to get our fiscal house in order. >> it's very tough, and i don't envy you, your task. i think one small piece of advice is instead of thinking about this as a year to year situation, think about the whole trajectory. how are we going to go forward not just this year and next year, but the next five and ten years, taking into account what we know about population, aging and health care and those things. so the whole path is what matters, not just this year. >> well, thank you for your service. thanks for your testimony. thank you, mr. chairman. >> thank you, very much, senator bennett. senator cole. >> thank you, senator akaka, mr. bernanke. the federal reserve has been increasing their balance sheet over the past year, as you know, and creating many new lending programs to continue the flow of credit to consumers, as well as stabilize the financial markets. additionally, the federal reserve announced it will purchase up to 1 1/4 trillion of mortgage-backed securities by the end of 2009 to help support

the housing markets, and that's good, too. despite all these efforts, loans and lines of credit are hard to come by for many credit-worthy consumers in smaller communities, and community banks are having a difficult time originating new loans due to liquidity problems, as i'm sure you're very well aware of. federal reserve has done pressures little to many people say for small community banks at the national level. so when and what can the federal reserve do to help small banks all across our country start lending again? >> well, let me agree with you that the community banks are very important. and as i was mentioning to one of your colleagues, in many cases where large banks are withdrawing from small business lending, or from local lending, the community banks are stepping in. and we recognize that and think it's very important. the federal reserve provides similar support to small banks

that we do to large banks, in that -- you mentioned liquidity. we provide discount window loans, or loans through the term auction facility, and smaller banks are eligible to receive that liquidity, at favorable interest rates. it's not our department, but the treasury has been working to expand the range of banks which can receive the t.a.r.p. capital funds, and they've gotten -- made significant progress in dealing with banks that don't trade publicly. we have worked with smaller banks to try to address some of the regulatory burden that they face, and we have a variety of partnerships, for example, with minority banks, to try to give them assistance, technical assistance and the like. i agree, if i were a small banker, i would be a little bit annoyed, because the big banks seem to have gotten a lot more of the attention, because it was big banks and their failures that have really threatened our system. and that's whyis very important, as we do financial regulatory

reform, that we address this too big to fail problem, so that we don't have this unbalanced situation where you either have to bail out a big bank, or else it brings down the system. that's not acceptable. we have to fix that. but we are working with small banks, and personally, i -- you know, i always try to meet with small bank leaders, and, you know, the icba and other trade associations, and i agree with you that they're very important, playing a very important role right now in our economy. >> you say you agree that they're important and they play an important role in our economy. are you satisfied that we're doing proportionately as much for small community banks as we're doing for the large banks? >> well, again, within the powers that we have, in terms of providing liquidity, and from the perspective of the treasury and the t.a.r.p., providing capital, we are trying to provide an even playing field to extent we can do so.

if you have other thoughts, i would be happy to think about it. >> well, we have, you know, small bankers all across our country, and i'm thinking about my own state of wisconsin that are wanting so much to do more business, you know, in their communities, but they don't have a liquidity to do it. and i'm sure you understand that very well. and in these small communities, they are the backbone financially of the community. and, of course, i hear from them that they feel that they're not getting as much attention as they would like, you know, at the national level. and i think you've said that you agree. >> i do agree. >> thank you. while consumer spending has remained flat through 2009, the personal savings rate, as you know, has finally started to rise, and quite substantially. the weak economy has made consumers more skeptical of borrowing, and increasingly aware of their spending habits, as i'm sure you know. as we here consider reforms to

the banking system to help financial institutions prepare for possible future economic down turns, we need also to help repair the american families across the country for their next economic crisis. do you have any policy recommendations that would help continue the upward trend of the personal savings rate, and avoid another bubble based on consumer activity? >> well, there are very few silver linings to this crisis, but i think one of them is that increased thrift and an increased attention to family finances, it's going to come out of it. so we welcome the higher saving rate. it's constructive for the country, it's constructive -- reduces our dependence on foreign lenders, it supports investment. so it strengthens family finances, so i think that's positive. the government policy makers have been trying for many decades to find a magic bullet to increase saving, and given the low savings rates, obviously

it's not been very successful. there have been a number of ideas. one -- a number of them relate to what's called behavioral approaches. taking account of the fact that people are sometimes mentally lazy, and you give them the first -- the first choice you give them is the one they take. for example, recently the congress made changes to the law that allowed employers to make 401(k) contributions, and opt ow rather than opt in choice for their workers. and they found that just by making that simple change, that many more workers decided to contribute to their 401(k) plan. and that builds up over time, of course, to a significant amount of savings. many employers also contribute a match 401(k) contributions. so those are some of the kinds of methods that may be useful. i talked with senator akaka recently a few minutes ago about financial literacy and financial

education. about financial literacy and financial education. and i think part of the issue, particularly among lower income and minority populations who don't save as much, is making them aware of the benefits of saving for retirement for other life goals. so i think education has a role to play as well. i have to tell you, senator, that the economics profession has not been extremely successful in finding good methods of increasing savings. and it takes unfortunately this kind of crisis to change behavior the way we've seen it. >> thank you, very much. chairman bernanke. >> thank you, very much senator cole for your questions. i want to thank the chairman for joining us today. the hearing record will remain open for one week so members can submit additional statements or

questions they may have. this hearing is adjourned. >> banking committee winds down, ben bernanke finishing his testimony. quick thoughts? >> overall a neutral to somewhat negative outlook. i look at the ten-year yield being down from 366 to 352 over the three-day period of testimony. not too much up beat coming from the chairman. >> overall he defended his position. >> i don't know if he made progress with consumer production protection but we're do to go where -- >> fast money halftime report. to

welcome to the "fast money" halftime report. can we continue our winning streak. i was going to say you're in the house but you're not in house today. options trader and daniel hughes of divine capital. scott, what's your strategy? >> it seems like there are two sets of banks. good banks that can do little if anything wrong, morgan stanley

and goldman sachs. poster child, wells fargo, some of the good banks are buys and wells fargo, it's tough to see they are not going to try the $20 level it had so much trouble getting through in april. >> let's move on to technology here. we're watching apple today and back of those earnings, 5.2 million iphones sold. tim, these are earnings we ingested yesterday night. nine upgrades and price targets today. >> the outlook for the fourth quarter is probably better. everybody laughed and this is good news as you said. analysts are following through, you're seeing upgrades. 1.95 at this point, plenty of room to go. >> john, you were point man on yahoo! today. there is some buzz from cara

swisher's blog that perhaps a deal is in the works and could be announced as early as tomorrow. what do you make of that buzz? >> of course, that will be around the microsoft earnings announcement, so that's why cara is putting that out. i liked how aggressive on the call last night. i bought it on the dip. it's higher than it was and still looking good to me. i would stay long yahoo! >> want to talk about american express. danny, was the feeling there? we have the stock approaching highest level since october. what's your take here with the stock a little bit soft on the session? >> there's a lot of overhead expression, the toughest around $32, but got a lot more lower and sagging, so your down slide is much lower. i wouldn't buy the stock right here but if i'm long, that would

be my strategy. >> is that does it for us, a very shortened edition. we have a full edition of "fast money" tonight. sports illustrated women suit model shares a hot new iphone app. >> a slew of bank earnings after the top of the class reported, it's clear mounting losses aren't going anywhere. will the banks bring down the bull again? another slugger steps up to the plate? why the fast money all-stars will be trading these reports on america's post market show tonight. l

hello and welcome to the second hour of "power lunch." bill is off and sue is on

assignment. michelle ka rus so ka better ra. stocks pushing for a second day of gains. intel among today's big winners on the dow. >> goldman sachs it is redeeming its warrants to the tune of $1.1 billion, a tiny profit for the government. >> president obama going prime time tonight at 8:00 p.m. to push his health care reform plan. the question we'll ask and answer, who is winning the spin war, the president or the republican opposition, you'll hear the experts and their take on it. >> they are from the a-team. >> always the a-team with the analysts. >> bernanke wrapped up his testimony. bottom line people said he needed to do well to resesh his job.

>> will he be here next year which kept popping through my head. >> i think he had to come out without a major ka tras trophy, maybe the politics are wrong, i think the job is his to lose. >> let's move on to health care. the health care discussion and everybody keeps talking about bend the curve, the cost curve on health care is going straight up. they want to bend the curve so it goes down. >> and that was the one area he wanted to comment open, remember he's taking this role of not commenting politically on the issues that are before congress. he says, look, if you do one thing at all, you're going to have to stop the incredible costs which are rising, which he said in response to the republican question, you're going to have all of these costs. look, there's going to be added costs any way, evan bayh criticizing saying they don't

end up -- >> the debate is cost and how to handle it. that's where the taxation question comes in. let's hope it doesn't go the way of the green shoe. >> we want the audience to realize, the new phrase they'll hear over and over again when they talk about bending the curve, 30 times in under five minutes pend bending the cost curve of health care. >> it's on the way up and what do they want do, pile more people in the roller coaster. you have the never ending rising costs and now we want to add more people essentially to the government -- >> we don't want to bend the curve of the profit for the government on these warrants -- >> new topics. >> 1.1 billion. and the question i have to you, steve, at first blush, that's a good return, is this a har binger for the way the government will get rewarded on

this? >> probably these are some of the best returns the government will see. but it doesn't mean the government will lose money on the rest of these things. remember, some of these things may be under water relative to the strike price. but the government has an option to purchase at the price for the next ten years. let's say your stock is at 100 and i have a warrant at 110 for ten years, somebody will give me something for that. >> are we going to talk about buying back the warrants five years from now? >> we might be. >> sure. >> absolutely. that's a little scary. >> the question is how much of it outstanding, what the trajectory of loss is for the government. the whole issue, 22.7 trillion, the government has two assets underneath the t.a.r.p. money its begin, the preferred stocks it has, 5% for five years then rations up. all got these warpts.

how will the government come out on the $700 billion it committed. they got back 10% and still has the warrants that it's going to get on top of that. the government made 22% on an annualized basis on the goldman deal. >> a little more than an hour ago goldman sachs bought by $1.1 billion. so the government will bring in $1.1 billion. 23% return. >> now free -- >> completely, 100%. >> that would go to those companies still holding t.a.r.p. -- >> average $700,000 bonus for employee with impunty. >> they got out from under that restriction when they paid out the t.a.r.p. money. the other bid -- any or sort of tent cals that could come from a company connected to the government through the t.a.r.p.

program and dividends. i guess it's my job here -- >> it is. a-team would have made that transition without letting the audience know -- >> mary shapiro and gary gents letter have wrapped up testimony for financial regulatory reform. here's more on these more than hearings. >> reporter: the hearing wrapped up a short while ago and fcc chairman mary shapiro staked out a big claim for her agency in terms fd proposed legislation of $99 trillion derivative markets. the fcc should have the power and authority to decide when they are standardized. it's a key detail in the plan that would produce all standard

contracts -- >> it is important that similar products be regulated similarly so that market participants cannot use size and leverage to work around the system. accordingly, we believe securities based swaps should be subject to the federal securities las. >> reporter: a lot of decisions would be made with the federal reserve board and the commodity futures trading commission if the chairman says his agency and the fcc are very close to harmonizing their approach to regulatory reform. >> i would agree with that. i think we're in agreement and the products that interest rate currency and commodity products, sec would take the lead on broad based product area. >> reporter: in about an hour t.a.r.p. back on the hot seat, the warrants program specifically at gao saying taxpayers being shortchanged in

terms of the value to the tune of $2.7 billion. assistant treasury secretary allison will give treasury's version. maybe he can use some of the talking points that you guys were kicking around before this. >> the a-team in the house today. thanks. while all that is going on the market is rebounded a bit. we're positive across the board. yahoo! has turned positive and morgan stanley made a bit of a profit. let's start with bob down at the nyse. >> we have been moving up throughout the morning here. most interesting comments mr. bernanke made, he said the american consumer is not going to be the source of a global boom by any means. one of several cautionary comments he made. several ceos made similar cautionary comments. ceo of delta came out and said, we don't see any meaningful recovery in 2009.

he said tough environment for airlines because of deregulation. we'll get jeff bloom tomorrow, us air tomorrow as well. probably similar comments. you want something a lit more positive. did you see the home builders? government home price index better than expected. nvr came out with amazingly great numbers here. their orders increased 2%. i have not seen that in a long, long time from the home builders. rick, what stuck out in your mind from mr. bernanke's testimony? >> reporter: many traders down here pointed to the fact that he continues to stress that any future fiscal expenditures need to take into account debt, deficit and costs. in terms of treasuries per se, remember, monday was the day where we traded up in the 370s. yesterday as you see on the two-day chart, we came down aggressively on the first day of mr. bernanke, which was a big

force because many believe he isn't very optimistic about employment. and today, just treading water close to unchanged. next chart is the dollar index trading towards the lows of the session. and earlier the big talk was the rockefeller institute pointing towards record drops in revenues on the tax side. less go to sharon. >> we're looking at natural gas which has rallied nicely this afternoon. natural gas up 4%. mainly a tropical rally. there are two tropical waves they are monitoring but not expected to develop into anything significant. we're looking for a technical rally taking prices to this level and could take them above the $4 mark. we got the report from the energy department today about supplies and gasoline and fuel supplies rose as expected. and we are seeing a bit of a bump-up in gas prices.

oil prices continue to hover around $65 a barrel. the rally we see helped to take oil off the low. >> you wanted to make a quick comment? >> bernanke said in testimony yesterday and again today that the fed was not going to dump the treasuries at the purchases, come down a bit during the process and going to hold on to them. i wonder if that is something that made investors a little more secure. >> treading water today, as rick said. >> the best quarterly performance in years according to new data. investor money is flowing back in. how are they making money again after getting creamed next year? stay tuned for answers. a hot new addition to the apple app store, the swim suit edition model will be here in the studio to tell you all about

it. >> you won't be anywhere near her.

♪ hotwire.com ford shares are trading higher ahead of their earnings tomorrow. $6.39 a share and power lunch has a first on cnbc interview with ford ceo tomorrow at 12:10 eastern time right here on "power lunch". >> we're fresh clues about the

health of the housing market. here are the details. what's up? >> reporter: my mantra of less worth continues with this report that measures prices of homes sold, soemz skewed to the mid to lower end of the market. prices in may fell 5.6% year over year but that's an improvement from the previous month. so have we hit bottom? not according to the director who says revisions and volatility in the monthly index make it hard to draw any conclusion. if you look at the past five months, prices overall are u up .7%. regionally prices are still down everywhere but month to month of the nine regions five were down, four were up. annually the worst out west. 14% year over year. mountain region and south atlantic posting the big losses. the smallest drop in the west

south central and that is covering your basic texarkana area. meanwhile, mortgage activity bumped up despite rising rates. tomorrow we get all of the important existing home sales report so we can sum up the spring season. >> thank you very much, hedge funds are back in a big way. according to the firm hedge fund research assets increased by $100 billion in the second quarter with the industry posting gains of 9.1%. in today's wall street journal, greg zuckerman looks at why the pull back on proprietary trading the big banks helped the hedge fund. a lot of the other guys have gotten out of the business? >> there's a lot less competition for the average hedge fund. the biggest rivals were wall

street firms, weren't buying up stuff the hedge funds like and now they are closing down or have less cash to play with. they have more opportunity. >> we read about it in the wall street journal and financial times, will they get back into it at some point when they see too much money being made elsewhere? >> not right now, pretty embarrassing to say, we had a big interest rate derivatives -- at least another year -- >> goldman sachs is doing all sorts of prop trading. >> they say they are doing less than they used to be doing. the bulk -- they are making some money there though. >> are these guys off their backs in the sense they are providing the kind of liquidity they have been providing for, actively trading the way therapeutic they were before. >> what they play in and making the most money or residential

mortgage backed securities, convertible bonds where they are providing a lot of liquidity, isn't a lot of competition from other hedge funds. >> i had dinner with a couple of back office folks for hedge funds there's a lot of concern about regulation from the obama administration. how much concern are you hearing? >> a lots of people are resigned to more regulation and embracing it sort of a good house keeping seal maybe, a lot of them sort are assuming there will be more scrutiny and more regulation, but some are trying to embrace it. >> thanks. >> i'm the lead in for brook -- how do you like that? good seeing you guys. >> hedge funds are sexy too, you know. >> a quick programming note, tune in tomorrow to "squawk box" to see an interview with

salliekrawcheck. the battle over the president's health care plan reaching a full boil in a prime time news conference. what about the lawsuits? can you have real health care reform without tort reform? we'll fire up a debate. take a look at some of the winners, starbucks on the earnings, and darden up 3%. >> and woman in a bikini coming up. >>

take a look at shares of starbucks, much better than expected. they cut 25 million more than

analysts expected. everyone seems to be a little bit more bullish on the stock. >> president obama is out stumping for health care while congress is feuding over proposed changes. can health care reform succeed without tort reform? lawsuit reform? joining us now mike papantonio, also co-host of a show called "ring of fire" on air america. and partner with covington. let me start with you, do we need to have tort reform before we can have health care reform so that way we don't have doctors prescribing all of these things to cover their butts so they don't get sued? >> people like howard have been making that argument for decade. 100,000 people a year die from medical malpractice. american medical association

breaks it down and says 20,000 deaths occur every year because of procedure error. here's the issue. corporate defense lawyers like mr. howard and multibillion dollar insurance industry, they want taxpayers to pay for medical malpractice. when a doctor blinds somebody, insurance companies don't have to pay it because they become a ward of the state, ssi pays for it. >> mr. howard, we do not need tort reform. you say we do. make the case. >> i think we need a system of justice that earn can just. >> for the few minutes on television we're talking about tort reform. >> the overhaul of the legal system so it's reliable to hold doctors accountable when they do something wrong and reliable to protect them when they didn't. the problem with the current system, it infected the health care culture with defensiveness contributing to hundreds of

billions of dollars. >> he's been making this argument for ten years. the people he represents are people like pfizer and merck they want us to go away. they want tort reform because they don't want to pay when their drug kills somebody. >> our proposal doesn't include farm ma and the people supporting it, aarp -- >> let me point this out, mr. howard -- >> one at a time. >> harvard school of public health. >> feeding a line to you. >> hold on. >> make it work better for everyone. >> don't you agree, mike, that there is some money, there's a lot of time and a lot of productivity wasted with some aspects of the entire -- >> this is all about cost cutting, that's what reform should be about. here's the point. the reason you have to cut costs you can't have a company like

pfizer charging $50 for a $1 pill. >> the question is this, how much cost is embedded in the system because doctors overprescribe procedures in order to not be sued? >> here it is, nationwide malpractice payouts account for less than 1% of all of the health care -- >> that is not the metric we're looking at. what kind of costs are put into the system because a doctor does something he wouldn't accept he's afraid he'll sued. >> hmos don't allow doctors to perform tests that should not be performed. they don't even pay the doctor. if a doctor performs the test they think is inappropriate and these are mbas telling doctors how to practice medicine. -- >> that's a response to a macro question.

90% of doctors regularly order tests that are not necessary because they distrust the system of justice. studies have repeatedly shown that every incentive in the system is for doctors to do more to protect themselves as well as make more money. until you have a reliable -- it's not good to injured patients. average of five years to settlement and 60 cents on the dollar goes to attorney's fees and -- >> that's class action stuff, though. >> you have a proposal you talked about earlier. could you give us the basis outline of the way you would try to control some of these costs? >> the basic proposal which everyone in health care is in favor of basically is to create special health courts like bankruptcy courts that would have neutral experts, no juries and be resolved within a matter of months. >> another bureaucracy.

>> it's an expert court system like we have many other expert court systems in the country, all we're looking for is pilot projects to see if it would work. >> let's point out you represent not only plaintiffs but plaintiff's attorneys who make a lot of money on this -- let's be clear about who you're representing here. what is your response to that. >> let me disclose, i'm not under some name like common good or common cause whatever the organization is he's representing today. i'm here telling you people like mr. howard -- >> the outcome of this debate. >> they don't want to bend the cost curve, they want to break the back of american consumers so insurance companies that they represent can make more money. >> that's fine, let's keep going now. what's the response to the proposal? >> here's what it comes down to. if we want real reform, if that's what this discussion is about, the reform has to take

place by cutting cost, doesn't have anything to do with medical malpractice, you can't let one of mr. howard's clients charge $50 for a $1 pill and can't tell that person they can't cross the border to buy the same pill in mexico. >> he wants a pilot project. what's wrong with a pilot project? >> i don't know there's anything wrong with a pilot project -- wait a second. what it comes down to, you know what it comes down to, what they want, here's the perfect world for mr. howard -- >> you gotten seconds. >> it's tort reform with corporate defense lawyers make $800 an hour and the individual doesn't get representation by lawyers. that's what mr. howard wants. >> good discussion guys. good to see you. >> mr. obama wants tort reform but does not favor a cap. >> you have to break down tort reform to a broader thing.

it is the class action issue that is a broader issue with tort reform. medical malpractice is tiny in the whole thing. >> vested interest in our judicial system. >> cnbc's covering the presidential news coverage tonight at 8:00 p.m. apple is hot and dell is not. how about goldman and jp morgan, no comparison. is it time for investors to stick with the best in the breed? >> we'll look and see how they are holding up in today's marketplace. >> and a woman in a bikini. swim suit model, and apple on the upside by 5 bucks. >> a woman on the set promoting this. dddddddddddddd

at this hour, welcome back, goldman rere redeeming t.a.r.p.

warrants, getting out from underneath the government shackles, i guess you would say. strongward dollar. creeping sales at pfizer, almost 20%, raising outlook for the entire year. altria boosting the 2009 profits. >> could be the 11th day for the nasdaq in years, decades -- >> to be what? >> positive. was i not clear? let's go to steve grasso. good to see you, we want to focus this discussion on whether or not you should be focusing in on best of breed here. what do you think? is that the way to go as we move forward in the markets?

>> always is. you can't go wrong with best of breed. goldman sachs has been best of breed, been bled out. goldman sachs, j.p. morgan. check with best of breed until the market has proved itself. >> a lot of people may feel these names are toppy, how do you approach it as an investor? >> if you take a longer look back to 2000, you'll see something very different. what we're focused on is not only best of breed but tech is clearly that. throw health care in that as well. reduce free cash flow that can support dividends and capital spending and all of those things can be found in sectors like technology. we own apple and ibm, those are companies we like. >> best of the breed idea, your idea suggests there's some

inefficiency in the market. if i own the lesser company, that is a stock price is overvalued, i won't be competented for the risk i'm taking. is that what you're saying? where does that come from? >> let's make it in easier terms. what you've seen is portfolio managers have had a risk aversion trade on. they don't want to stand up and don't want to place any bets. what they've done is seen the market perform a little bit better over the last couple of weeks, let's say, we're struggling for a 956 spot in the s&p 5 s&p. goldman sachs was the first one to come out and say, we can still make money. it was leaked to the street. the financial sector is doing better and people are starting to make bets again but haven't had any collateral strength. >> interesting stuff. best of the breed. >> always the question. >> speaking of best in breed or second tier, what do you think

of morgan stanley, reported third quarter loss losing over $1.2 billion. charlie is asking the question, is ceo john mack a victim of bad timing. >> i thought you were going to call me second tier. >> no, best of breed. >> here's the interesting thing about morgan stanley, it kind of reminds me of the issue with the compensation package you received. is someone is going to give you $150 million, what are you going to say, no? >> it's kinds of like this. the government is giving morgan stanley the ability to make a lot of money in the market and they said no. did not take the leverage or risk that goldman sachs did and you have what they have. they underperformed in terms of trading and still had to take

losses and now there's one-time charges in there, smith barney purchase is in there, right, had some money there and other charges. >> debt value actually improved in the weird way accounting works, that hurts them. >> the broad stroke is that the government is subsidizing wall street risk, because you have the designation and access to the fed window, you have lower borrowing costs in the open market. go out and take risk and rebuild your balance sheet. that's essentially what goldman sachs did. i thought it was a scandal because i don't think the government should be financing the risk taking. the government saying we want the banks to improve dramat dramatical dramatically. >> morgan stanley did not take advantage of that. john mack kind of made the bet late in the game in terms of

risk in 2005, 2006 and went from an agency model, which was the old dean witter, and now it pays to be somewhat of a risk taker, rebuild your balance sheet. he's not doing it. i think that's something you have to answer to. we're going to talk to them later on. i tell you, goldman sachs, when you talk about best of breed. they know they are being sub d siddized to take risk and they are doing it. every time i say something nice about goldman sachs after beating them up 90% of the time. i have this bloggers writing about me, i'm getting a call from roy blank fine at something called zero intelligence or hedge, which one it is. this idiot keeps writing that i'm on the paycheck. i will beat up on goldman sachs

all the time, i have to give their side of the story, that's what i did a couple of days ago. thanks to you mr. zero intelligence. >> more onic bloggers is redundant. >> probably not even his name. >> probably not as handsome as you either. >> fight club character, that's what it is, a pen name like mark twain. >> let's get over to brian. >> let's look at what's clicking, what's hot on the web. we have the best taste for business coming up. you took a side -- >> unveiling it tomorrow, top states for business, whole data base there later in the afternoon. it would be fun to ask readers, what do you think the top state for business is and a lot of people are diving in. i suspect people are going in and voting for their own state versus what they do think. but you can sort of get a read on who read our special on this last year.

>> right now texas. >> texas is leading but being followed by the other states, it tends to be states with high populations which leads me to believe, let's vote for the home state. >> people seem to like some of the suffering of celebrities, we have one in particular going through a tough time. >> you see that behavior a lot. steven baldman hwin had to file bankruptcy. >> talk about states quickly. >> we put up a slide show which state puts out the most welfare checks and california, there you go. headed it up and new england states have a heavy presence. go figure. >> best states for business will be tomorrow. michelle, back to you. >> speeches, interviews, town hall meetings, prime time news conference president obama is waging a pr battle to push the

health care plan. is he winning the war? >> nasdaq up for the 11th session in a row. somewhere in there, a woman in a bikini. today there's a way to save more for retirement, with annuities from fidelity. turn your savings into income -- guaranteed, and get a retirement "paycheck" for life -- guaranteed. call... to get started, and learn how to secure retirement income that won't go down -- guaranteed.

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there is a legitimate business reason why right now we're showing you a woman in a

bikini because there is a new special app for the apple iphone, ipod, whatever it is. >> we want higher ratings, come on. >> a new swimsuit model app for apple. and a woman many would like to see in a bikini in the newsroom. brooklyn decker, certificasur r rounded by everyone man in the newsroom right now. >> president obama has been tweeting, back on tv again tonight. his fourth prime time news conference since taking office. that's the same number george bush did in his entire eight years as president. is obama's pr blitz working or is it overexposed. carol lee wrote about this today and author of the best seller "damage control." what do you think, is he

overexposed or is this what he needs to do to get the health care reform bill pushed? >> there's an obama saturation and the question of whether or not he's overexposed or this is working is a little less important than the fact that he's finally in the debate. what you saw the white house was painfully obvious when the president was away a couple of weeks ago traveling in russia and ghana that his absence was sorely missed. republicans gained some footing, and health care bill hit some stumbles and now you're seeing him make up for loss time doing something health care related every day. >> you give obama a b plus and the gop a b minus when it komco to the health care wars. explain your grades and whether or not you think that president obama is getting overexposed.

>> politics is a smash and grab business, after the olympics a certain athlete is overexposed. of course they are but they have a very short window with which to use the juice they have and obama is doing very well with the media. the media love the guy. i think that the question is, will that be enough? at some point obama courting media is trying to win over the pretty girl's parents and for getting about trying to get the girl to like you too. and the girl is congress. and he'll have to throttle back on the media and try to win over congress. i think he's doing well now. >> i'll play the media for a movement. he's obviously made a commitment to a date here, what happens to him and his credibility in the public sphere and in congress if

it doesn't happen the way he wants it? >> you know, my b plus is based on i believe there's room for improvement. i think that the president is he's -- the white house is banking on the fact that americans are not going to be oversaturated by the media blitz and relying on the fact that most americans -- >> are you reading the same polls i'm reading. i see obama losing this spin war when it comes to the american public, down on health care. the republican congress is up, i think that was the usa today poll, down on the economy -- >> i think the policy among other things is what's failing here. >> i see things a little differently. the fact is he is winning the media war, but that's not the only one he can win -- >> he had to push it to 8:00

p.m. and we mock it almost every day he's been on talking health care -- >> but the mainstream media continue to love him but the point is not that he's mishandling the media. the point is it's not enough. at some point he's going to have to win over congress and be able to introduce political risk. >> i think part of his strategy is targeted towards winning over members of congress. what you see the president start to do, most notably in new jersey campaigning for jon corzine, thousands of people in the audience to get on members of congress and push for his agenda. he sort of is doing things behind the scenes but also using his stage to try and gin up support and not be -- >> can't win congress if he doesn't win the public and the congress will flee from him. >> reminder, be sure to watch

cnbc's coverage of president obama's prime time news conference tonight at 8:00 p.m. eastern time. had to be moved from 9:00 p.m. >> as if the apple app store isn't hot enough, now they have a quts sports illustrated swim suit act. darrel will took to brooklyn decker and maybe she'll sign his speedo. maybe he does have it. we'll be right back with that. welcome to the now network. population 49 million. right now, 1.5 million people are on a conference call. 750,000 wish they weren't. - ( phones chirping ) - construction workers are making 244,000 nextel direct connect calls. 1 million people are responding to an email. - 151 accidentally hit "reply all." - ( foghorn blows ) that's happening now. america's most dependable 3g network bringing you the first wireless 4g network. - sprint. the now network. - ( whoosh sound ) deaf, hard of hearing and people with speech disabilities access www.sprintrelay.com.

of course there are iphone apps for everything. there's now an app to find marijuana. it also points out layers and doctors other services. in states where it is illegal, it points you toward apps directed towards reform. there's another app that has a good chance of doing very well. darryn has that story and joined by a very special guest. >> let's get to her as soon as

possible. in the dead of winter the sports illustrated swim suit issue gets our attention. they have beefed up its online swim suit presence and now comes with the iphone app. joining us now, brooklyn decker, one of 20 models where the app is being offered. >> it's the perfect marriage of guys who love sports and beautiful women. >> which is every guy. >> i hope so, up to 20 models and a whole calendar for the year and in the calendar, you can download six of your favorite teams, whether professional and college sports, you get updates, scores and stats. so you have one app, you don' have to check a computer, you can get it on your iphone. >> $2.99 and debuted yesterday. 268 million viewers and now the iphone. what's it like to be able to

extend this now. you take pictures once and now it's extended. >> like they never escape you, luckily. >> there is a business angle. we know about contracts and talk about it a lot and how so many companies try to -- what they do online. >> sports illustrated doesn't pay monetarily as much as other clients, what they give to you for your business and brand and career is greater than any other client out there. they have more to offer as far as -- like you said, the number on the hits alone is enough to be -- >> it's not like 25 cents of every app you download -- >> no, what they give outside of that is bigger than any client can. >> you're married to andy roddick, but there is a branding point, you show -- shown at these tennis matches. how did ha help you out as a

model? >> when i go to tennis matches, it's all about the tennis. it's nice, we both have careers were passionate about and it's nice to have someone who experiences the same thing and you can support each other and grow with somebody. >> also, they take your picture -- showing her every ten minutes and there are brands on you. we noticed during wimbledon you were wearing rayban. deal or not? >> rayban, i wish. call me. >> call brooklyn decker. >> thanks so much for being px here. the iphone app available for 2.99. download the calendar. we'll be back to wrap things up. g

in this economic environment, be careful where you park your car. according to usa today, u.s. cities are ramping up parking enforce the and boosting fines, because they have declining revenue. cities include santa monica,

yonkers , new york, and andover. if you're parked illegally, no more debates, once they start writing, it's over. they are not bending. giving tickets all the time. >> speeding too, i think you assume there's more speeding tickets going on as well. >> public transportation. >> are you still thinking -- >> and keep a bunch of quarters in the park -- in the ashtray for parking meter. >> street signs begins in 30 seconds. chrysler is doubling t$4500 clunkers for cash. and sales were 15% lower from a year ago. avon products will eliminate

1200 positions by 2013, part of a restructuring as the company deals with reduced demand for its cosmetics. i'm rebecca jarvis. i'm mark haines, president obama has to make the sale of the century. can he close that deal? chrysler throwing money on the hood, doing everything it can to close that deal. offering huge incentives. have we seen thisstory before? is the government putting bambi on a black list, saying good-bye to goofy, the latest on the place where fund goes to die, washington, d.c. that's our show and it starts right now. let's check the market for you.

dow is up 2 1/4 and s&p is up 3. nasdaq up 11 1/2. crude oil -- it's up 8 cents. it was down more than a buck this morning. here from the trading floor, bob at the big board and roberto in chicago. cool breeze, you first. >> the market may be flat but one sector doing good is the hold building sector. the reason the home builders are moving, had earnings way above expects. these sell mostly to first time buyers but here's what's amazing, not only do earnings beat by a wide margin, write-downs even