good morning. it's the economy. a two-day fed meeting, plus key data on trade, small business and more. gm's race to recovery could a fuel efficient volt be the key? ceo fritz henderson makes a major call today. and not so fast, the judge refusing to rubber stamp that settlement between bank of america and the s.e.c. on merrill bonuses as squawk begins right now. good morning, everybody. welcome to "squawk box" right here on cnbc. i'm becky quick along with joe kernen and carl quintanilla. the economy is front and center today. the federal reserve starts a

two-day policy meeting. the central bank is widely expected to leave its key target lending rate near zero. but market watchers will look for signals on the fed's other programs. at 7:30, we'll get the nifb aechgs small business survey. we'll get the findings live, complete with william did you thinkelberg's findings. 90 minutes later, we'll get the wholesale trade numbers. we'll see exactly how much employers were ringing out of their employees to try and make sure they made some of these profit numbers we saw when we got the earnings. >> the anchors in addition to earnings central, right, joe? >> i don't know how you want to call it -- >> work harder, cracking the whip. >> we're okay with that for a while. we're back to normal, right? >> and the good sign of that is

maybe eventually they're start hiring again. >> i saw that article yesterday that people cut so fast that if it turns around at all, they'll have to hire quickly again. but i also saw how corporate profits could soar, but it could mean no jobs and that that would not be a long-term positive negatively. >> but cost cuts are damaging to the consumer in the long-term. >> i don't see how corporate profits can keep up if you have no one buying the stuff that the corporations are making. my favorite line today is we did go down 32 points yesterday. >> yes. for a while there, it was the worst market day in a couple of months. >> the journal has changed a little bit, i think. not the editorial page, but a debate is simmering now with that 32-point rubbing about whether the market has seen its highs for the year. where is that debate simmering, exactly? >> on the top of the journal. >> well, the dow has been down

three out of four sessions. >> what's the date, is it august? >> august 8th. >> we did have a couple of people, market guys that came on yesterday and said you could be talking about relatively a national line for the rest of the year or that there's ups and downs, but we finish the year not too far from the -- >> all the way up from the first 30% we got on the snapback, all the way up, it's been this same stuff. >> even you would agree that -- >> how do you know? >> i' just saying, like paulson would argue, we are now back perhaps where we should have been all along. >> we're almost back to pre-lehman, right? >> yeah, just about. like the hang seng is -- >> over the weekend, i saw someone saying that 1,200 on the as much was not impossible. >> and that would put us back to pre-lehman. seeing the highs, we're at 1007. the highs for the year sirnl doesn't mean 1,200. >> although yesterday in our

hedge fund summit, lee cooper one one of the guests that came on and said there's a one in  four chance that we end up back at the lows. >> and cass is ersign, he says. >> bearish. >> ersign is bearish. the constellation. >> ersa major. >> what is erk sign? >> eshgel, i don't know -- >> what is it when you're like a musk rat? >> like a musk rat. >> yeah, what is that? >> i don't know. i know about muskrat love, but that's the only thing i'm familiar with. john, if you were fast, you would have a little muskrat love ready to go.

>> ♪ . >> that was fast. i know how lame this song is, but that was fast. people are sure that that was planned. >> meantime, traders will be following the treasury's auction of $37 billion in three-year notes today. it's a big week for the bond markets. a record $75 billion in tet sales. there's an article in today's fc suggesting that some traders would not be surprised to see the yield on the ten-year test 4% ahead of the $23 billion auction tomorrow. that sale will be held about an hour before the fed meeting finishes, $15 billion in 30-year bonds will complete the week's debt sales on thursday. other story in the ft -- >> you are amazing. >> thank you. >> you read this? >> the financial times? >> you crack out this salmon colored pretentious european rag? >> this is a global wealth of information. >> actually, this is our new partner. i'm sorry. we love the -- but you read it.

you were in early. >> did you see who is on it? >> mohamed el-erian. >> he writes for them quite a bit. >> and you see who is in a hiring spree. the new york fed. >> really? >> aggressively hiring because they have so many asset toes manage. >> and fancy coffee helping to boost mcdonald's global sales. they didn't need to be the official sponsor of the real morning joe to become a threat to starbuck peps. >> but it's hard to know what sales would have been if, in fact, they had been. >> i know. but we are uncomfortable being an endorser, i guess, of products. >> now i have too many papers. >> all right. there is a new report today by a bailout watchdog arguing that toxic assets may need more oversight, calling to treasury to expand program toes cleanse

troubled assets from balance sheets if current efforts fail to restart markets. the watchdog says that toxic loans and security still pose a threat to the financial system especially for smaller banks that pose losses on their commercial real estate loans. the banks may need tress tests and capital reports. elizabeth warren is going to be on the show this morning. she'll joan us at 7:30 eastern. we haven't moved on that front. things have improved an awful lot and not due to the ppip. did it ever get off the ground? i don't think it did. >> all of a sudden, the banks looked better and they didn't want to write off these things. >> why take losses? >> other washington news to watch today, president obama's chief economic adviser larry summers will be speaking at noon eastern. he's expected to speak for 30 minutes and then take questions for another 30. so you never know what's going

to get tossed at him in this q&a session. he could go off and say just about anything on anything. meantime, president obama will be participating on a town hall in health care in new hampshire and troops on both sides of this debate are gearing up and getting ready to rally. >> what was said in the journal today? >> i was going to do that in chairs if we have a chairs segment. >> we can wait. >> do you want to wait? just a really reasonable approach to this -- what we've been watching. it is amazing. >> the rancor at town halls. >> yes. the rancor at town halls. one side would say it's totally orchestrated and accepted your fishy e-mails to the government wash dog who is watching for any ideas that aren't in cohorts with the administration. linda douglas, if you get knit fishy e-mails, anything that goes against what you've heard from the president, send it off to them so that they can find out and root out --

>> who is behind it? >> yes. and audit them, audit their taxes or put them on their enemies list or -- >> you know, you have had people that get riled up and get out there. but then you look at the anger in some of these people and that can't be manufactured. however, i don't know how you can get anything done. >> who manufacturers the anger when bush's face was covered with swastikas back in 2004. that was fair game. but my god, if you blink when you're talking about health care -- >> what i don't understand is how you get any intelligent debate when people are screaming on both sides. this is like a miller light commercial, tastes great, less filling. >> and i can't imagine that you would prefer that false information would be out there. you clearly would not want that on either side. >> on either side. but you saw the truth speak yesterday in the "new york times," your paper, about whether you can keep your plan,

what the president says. >> it was a fact check. >> and you cannot make the promise that you can keep your o plan. that's false. and i like this side piece. it's not about health. it's about government or not government. it's about government -- when we talked about paul krudman upstairs yesterday. big government is the answer. and we've come a long way from where we are five, ten years ago after the reagan revolution and we're back to where that is 50/50. we don't know whether big government did kind of save the financial system. >> kind of, yeah. you saw the coverage over the weekend about washington, did they get it right? >> what the president did obviously get right is he didn't let the banks all fail like the republicans wanted and he didn'x nationalize the entire financial system like the liberals wanted. >> policy in this country rides right in the middle. it doesn't go very far in either direction. that's why they're having so

much trouble with the debate. the times today, by the way, does say the white house -- >> you read that, too? >> is suddenly at risk of losing control of the public debate. >> oh, yeah. that's the thrust of this robinowitz piece, too. you would have to say it's been a bit of a train wreck, right? the public relation -- >> one would argue is that their window closed. >> and i think it's a problem of talking to people who agree with you and not branching out beyond that. there are a lot of differing opinions when it comes to health care in particular. >> well, when you've got 60 senators, you don't need people to degree, necessarily. schumer is going to do it. if we're not going to get bipartisan, we're going to do it one way or the other. but in the side piece, it points out that originally, what the idea was was to cover everyone through universal coverage. it wasn't the public plan, necessarily. now everybody is so entrenched and everybody has taken their side on the public plan, no public plan. and that's where it is right

now. >> that's right. >> so it didn't start like that. it was trying to cover everyone. now that the lines are drawn in the sand and we're going to watch it and we're going to report objectively. >> and we have a lot of people here to talk about it today, including bill frist, the former senate leader who is also a doctor. >> and the guy from vanderbilt, right, who knows all about health care. >> the doctor from vanderbilt, yes. >> meantime, general motors is holding a highly anticipated event in warren, michigan today. ceo fritz henderson will announce the fuel economy rating and combined city highway mileage of the volt electric car, its attempt to challenge toyota's successful prius. last fall, gm told investors it reached an agreement with the epa that would give a rating of at least 100 miles per gallon. phil lebeau will join us with complete details in the next half hour. henderson's announcement is expected at 8:00 a.m. eastern

time. we will bring that to you live. are you ready to see this? >> yeah, i am. what's it going to go for? it looks pretty cool. >> some of the prices that were tossed out there were around 40. >> 40,000. you won't be the first one to buy that, are you? >> no. i'm in the middle of a lease, as are you. >> i am. a federal judge refusing to sign off between the s.e.c. and b of a. the judge says he couldn't determine if it was fair to the public and he needed a more detailed account of the underlying facts. last week, bank of america agreed to pay $ 3 million to resolve an s.e.c. civil lawsuit accusing it of misleading shareholders by not disclosing the authorization of $5.8 billion it paid to former merrill employees. >> let's get a check on the markets for this tuesday morning. the top busy say ahead. the fed meetings starts. productivity at 8:30, that three-year note auction.

for the time being, stocks have been relatively mixed around the globe. we're a little above fair value here on the dow and the s&p. check on oil, up 14 cents to the 7 70.74. a lot of data out of china overnight. the output data fell short, loit was the fastest in nine months. ten-year note, we had just talked about these fears that we're going to hit 4% by the time this fed meeting closes tomorrow, but the yield right now is just under 3.8%. the dollar a little weaker across the board. that's a great from some of these. the debate goes on as to whether the correlation between the risk of the dollar has changed. and then gold, which was rallying last week, has given up some ground in the past few days, up $1 to $9 47.90. christine tan has the full story behind the boj's decision to keep rates on hold. first, to london to check in with martin baccardax.

>> good morning, carl. fascinating what you guides are talking about, particularly in your reference to china. now i think we're seeing the development of a consumer-led story in the chinese economy when typically it was one that was led by ex ports. and i think that's an important dimension we'll have to pay attention to coming forward. what's happening in europe today? mostly august volumes it has to be said were modestly to the up and down ide. some profit taking, probably in the last four or focus weeks has been solid, indeed. a mixed bag of the advancing sectors. you can see some of the cyclicals doing well. on the declining side, it's difficult to understand. tui might be struggling with numbers because they have a partner that's suffering after the collapse in lehman brothers. up about 7.5%, qiagen. it's based in germany, but it's a dutch technological company that is one of the biggest sellers in the world of cervical

cancer test kits and also one of the biggest sellers in the world of swine flu kits. and the sales figures are starting to ramp up. it was interesting and one of the more bright spots. that's the story in london. now to christine in singapore. >> asian markets ended mostly higher here today. china's recovery may be moderating industrial production for the month of july grew at its fastest pace in nine months while fixed asset investments slowed. consumer prices recorded its sixth straight monthly decline. investors in china shrugging off the data. there is a sign that there is no immediate need for monetary tightening. hong kong recovered from early profit taking after yesterday's strong rally, up 0.7%. meanwhile in japan, the nikkei rose 0.6%, a ten-month high.

the bank of japan, the boj as expected kept rates on hold. the central bank in south korea kept rates steady, the decision has muted reaction in the market. the kospi rose 0.2%. that's it from asia. carl, let me hand it back to you. >> christine, thank you for that. before we get to the markets this morning, we want to point out that eunice kennedy shriver has, in fact, died at cape cod hotel in ianis, massachusetts. she was 88 years old. a lot of people know her not just as the sister of jfk, but the mother of maria shriver, the mother-in-law of arnold schwarzenegger. >> they also knew her for the special olympics and helping get that off the ground. >> the founder and chairperson. >> let's take a look at the u.s. markets this morning. joining us today is david dietze from point view financial services, also johns lonski of

moody's investor services. dade, in the journal today, is this the high of the year where stocks stand right now or do you think this climb can continue? >> it's a valid question. i am unenthusiastic right now. we've seen the market move up 50% since march. the price earnings ratio, 18.7%, which is higher than the norm and we still have a boat load of fundamental economic problems. on the other hand, i think we will go higher this year. we've got between 32% and had 2% of the total stock market capitalization sitting in money market funds. you know what they're earning? between 0 and 50 basis points. what are they going to do? a lot a lot of the fear concerns are off the table. other key things to be watching here is what the federal reserve does.

i think historically they have not started increasing interest rates until 14 months after the unemployment rate has peaked. i don't think we've seen the peaks. i think your competition relative to stocks is very, very weak and i think the momentum will continue over the next six to 18 months. >> so the bulls have it, in your view? >> i think so. >> john, let's talk about what we can expect to hear today with those productivity numbers. we are expecting that there were great gains in productivity, better than 5.5% is the common view right now. >> i would have to agree, were looking for that 5.5% increase by-productivity, the second quarter and with that we're going to get a 2.5% shrinkage of unit labor costs. contraction of unit labor costs will improve the outlook for both inflation and profit margins looking ahead. once business sales begin to grow with relatively low labor costs, profits could very much surprise on the upside. >> but when does that move on to the point where companies actually decide they need to start hiring people back and we

can see some sort of a debt put in the unemployment rate? >> well, the common sense answer to that is that companies will begin to rehire workers once a rising trend for business sales has been reestablished. according to the commerce department data, june should be the first month in ten months where business sales grow sequentially. this category has taken a drubing during the latest recession. it's showing its deepest year over year drop on report. my sense is that if we can grow business sales into the second quarter of 2010, we'll begin to be looking at sequential increases for payrolls. >> john, one of the huge pockets of concerns has been what happens with small business. we'll be getting a reading from the nfb in just over an hour's time. what should we be looking for in that report to key off? >> small businesses like businesses in general are hurting from a deeper than anticipated drop by sales. what is going to be important to

small businesses is whether or not they can somehow accomplish and prove access to chris. we think that's on the way, thanks to a narrowing of the high yield bond spread. a high yield bond spread in late 2008 was over 2,000 basis points. yesterday, 770 basis points. usually when this spread breaks under 700 basis points, we see that banks are much more willing to supply credit to businesses in general. >> all right. john, thank you very much. david, thank you for coming in. >> thank you, becky. when we come back, a former bernie madoff lieutenant and an ex both back on their way to court today.

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click today. welcome back. the cfo of bernie madoff's investment firm heads to court today. frank dipasqualli is likely to

plead guilty to fraud. erin arvidlund is the author of "too good to be true." she had some bad feelings about madoff back in 2001 when she first spoke about her. >> and lenly dextra is back in court today. his attorney has filed a motion we futuring claims made against the ex met by the u.s. attorney's office. he was accused of dishonest conduct claimsing his $24 million mansion was insured when, in fact, it was not. >> house democrat leaders dropping plans to buy some fancy jets. the congressman saying they won't force the pentagon to buy more passenger jets used to fly senior officials. the pentagon didn't request that

money. the decision is expected to face resistance in the senate. i just remembered those guys grilling the -- >> who rode here in a private jet? raise your hands. but for them, it is important stuff they do, right? i mean been they generate so much for the economy. ceos and private industry -- really. >> and these guys refused to say where they were going or what they were doing. >> but when they go on these junkettes around the world, do they really in their heart of hearts feel like they're accomplishing more than like if a multi national ceo visits china to see how to set up business over there? that's not worthy of a private jet? but them going over there and bringing their spouse to -- >> and getting on the evening news. >> obviously, someone thought about it. they're not quote acetone deaf z as -- >> someone thought about it after it was dismied across the

wall street journal. >> and we're talking really nice boeing business jets with showers and bedrooms. >> i think you're being kind to say something thought about it. they reacted to the outrage. >> because it was a good laugh, a good chuckle. >> long congress. >> when we come back this morning, wheat get this morning's top stories.

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good morning and welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and carl quintanilla. no one said carl quinn yesterday, did they? >> no. steve leisman did a report and there wasn't a single -- >> i didn't choose -- do you think i can play the deliverance? do i have a button here to play that music? do you think that's me? >> you openly begged the audio department to run that sound. thank you. >> i didn't. you just did. you brought it up. general motors. >> i wish i knew how to quit you. >> general motors is holding a highly anticipated event in warren, michigan today. how bitting that we played that music because that's where we

find our own phil lebeau. >> is that some reference to me being from deliverance this morning? >> no, no. you weren't watching last week when leisman was up there. are you looking at the volt today, phil? it's fast, right? >> well, it's a prototype. this is a model of it. this is not an actual driving version of the volt. but that's why we're here this morning because general motors will be announcing the expected fuel efficiency for the volt when it comes out on the market late next year. take a look at the volt as they introduced it last year. it's been highly anticipated. the first 40 miles, all electric. a range after that, it's extended, goes up to 300 miles. when they announce the fuel efficiency, it will be well, well above most fuel efficient vehicles that are out on the market. yesterday whether we talked to vice chairman bob lutz, here is what he had to say about the type of mileage we can expect to

hear about the volt. how much of a head turner will it be? >> it will be one of those numbers way above anything that anybody has been expecting. >> reporter: and we'll leave it there. and that's all they're saying here at general motors. yesterday, gm's ceo fritz henderson gave an update with about 100 hand razors, people that had expressed an interest, customers in general motors vehicle. he says the transition into the vehicles that the company is going to be presenting at the new gm is going well. he expects gm, by the way, to have an ipo in the first half of 2010. guides, back here live in warren, michigan, when you look at the volt, keep this in mind when we get the number coming out at 8:00 this morning. just for a point of reference, the prius, which is what everybody looks at as the established leader out there, the prius sets the standard at about 51 miles per gallon. that's the benchmark. and we're told this number is going to be way above that. 8:00 this morning, that's when

we'll hear from fritz henderson about the expected fuel efficiency of the volt next year. guys? >> you kind of look like a corporate spokesman next to that back drop. but you're introducing the volt right now. you have an after life if this doesn't work out. joe, you have been trying to put me on that gm payroll for years. >> no, no. >> oh, come on, joe, how many times have i had to sit across from you and you've asked me whether i'm taking money from -- >> oh, i never said taking money and it wouldn't have been from just gm. it would have been from any of the domestic automotivemakers. i thought you were more of a wagoner enabler than a gm enabler been. >> you and i have had many conversations over the years about that, joe. >> see you, phil.

a judge declining to sign off on the settlement between b of a and the s.e.c. >> good morning, becky. saying the settlement lacked transparency, the judge said he needed more information from both sides. given the nature of the charges involved and the billions of dollars involved, is there not something strangely aexcuse with a fine of $33 million? raycoff says it's hard to justify that. that information being a $5.8 million in bonuses merrill lynch set aside for its employees, the s.e.c. charging it didn't disclose that on those who voted on the brokerage purchase. yesterday, b of a's lawyers maintain the bank did nothing wrong. in a statement after the hearing saying the bank's presentation made et clear that the

settlement made it clear no taxpayer or t.a.r.p. money of which bank of america has received $45 billion will she used to pay that fine noting that the s.e.c. has not alleged anyone at the bank did anything inthengzally wrong. but judge raycoff doesn't see it that way, asking the s.e.c. attorneys who decided not to disclose these bonuses? he disclosed the roles about bank of america ken lewis and john thain. raycoff saying if they signed off on the proxy, didn't they know this information had been excluded? in response to this, they found that both clients relied on the expertise of their attorneys. they have until august 24th to provide that information and two more weeks to file a response. at that time, judge raycoff said he'll decide whether or not he

needs to hold an evident area hearing on this matter to decide whether or not to sign off on the settlement, so another month at least for b of a before this matter is blind us. >> the saga continues, mary. thank you for that. meantime, standing by at the cme, kevin ferry at cronus futures management. good morning to you. >> good morning, carl. >> what word would you use to describe what's going on right now, this week, in stocks? is this the beginning of a sell-off? is this a pause? what's the mood down there in terms of how equity res handling? >> the mood is still quite good, carl. and i can traders have intermittently tried to lean against or test the strength of the markets and it's come back rather strongly. so i think that's impressive. but the next 48, 72 hours are going to be very important because the rate hikes that

people are anticipating starting to build in a buffer for, the fed is going to have to nuance the timing of those things. and if their statement is two weeks and they're going to look like they're talking down the economy or seeing something still in the system that is weak, where the rest of the investing community is seeing something that's strong. >> are you in the camp that says we're going to flirt with 4% by the time this meeting is done? >> at least. i think this is a very delicate balance and i think that the fed here is probably going to do their best they can to keep the idea of them hiking rates a little farther away. but the market beyond that very short-term rates probably isn't going to care. so it will be significant meaning for what they're not going to do and that's obviously, i think, extend any type of program of buying treasury securities. they still have money to spend

in the mortgage markets. >> so the bigger surprise to you would be if they did, frkt, extend it. >> absolutely. >> do you know anyone who is expecting them to do so? >> there's still -- yes. carl, the surveys this we look at would say maybe 1.5 or 2 out of 10 people would still say that that is the probability of that occurring. but i don't think it's been that wab you know, successful. so i don't think they need to continue it and the market might be more encouraged by the fact that they stop it. >> right. how about the dollar, thoughts on what that is trying to tell us right now? >> well, the impressive thing about the dollar, that the rotation in equities, certainly the leadership has moved away from the nasdaq. the weak dollar trade, the strong equity trade was able to roll around a little bit without any real negative consequences for the equity market. so i think that's -- you're going to see continued high volatility over the next 48

hours in the currency market and i think that this is probably around fair value, but this will be the hardest place to keep it i guess is what i would say. so i would look for continued swins around that probably weaker first and then maybe better later. here is something that we're going to watch. watch the fed website over the next two days. we found it very impressive that they were able to put out some significant information, not in the statement, but on the website after the last meeting. so i think any type of structure that they don't want misled in the statement fed out more defin i live venue. in a web only statement, or what? >> right. on the web under what's news, they were able to give out the details of how they were going to extend some facilities and

let other facilities roll off. that was significant information. they just don't think it's necessary to pack it into the statement. so i think they're doing a good -- they did a good job of getting that information out there. it just wasn't what was focused on right away. >> yeah. you know, when you've got a fed chairman on 60 minutes doing town halls, you forget how far we've come in terms of communication strategy on the part of the fed. >> absolutely. it's getting tougher for them. don't get me wrong here. so we're a little bit confused, too. but there's certainly some room in the very short futures market here that they think rates are coming up faster than i think the fed is necessarily ready to do. and that's where the battle will be, the focus on the ten-year, much harder to say what's going on. but ten-year treasury securities are down for the year. if you own a 5% or so, 4% on the index. but corporates and everything is up from 14% to 18% on the year.

so that is the good side of the story, that balance between the two is where we're going now. >> it's going to be an exciting couple of days. kevin, we'll talk to you later. >> thanks. if you have any comments or questions about anything you've seen here on squawk, e-mail us, squawk@cnbc.com. we're going to take a quick break and then get to the news making headlines outside the world of business. and as a progressive customer, you get to use any of our concierge claim centers. so i can just drop off my car and you'll take care of everything? yep, even the rental. what if i'm stuck at the office? if you can't come to us, we'll come to you in one of our immediate response vehicles! what if mother won't let me drive? then you probably wouldn't have had an accident in the first place. and we're walkin'! and we're walkin'... making it all a bit easier -- now that's progressive! call or click today.

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time now for a check on the news outside the world of business. monica novotny joins us now. union jis shriver, the

sister of john f. kennedy has died this morning at a who is hospital in massachusetts at the age of 88. among shriver's achievements is the founding of the special olympics. she's survived by her husband and daughter, maria shriver. the search continues for the last of the nine passengers in new york city. on monday, dive teams found a body but were not able to dislodge it from the airplane. in southern california, there's a hotel with rooms for his for $213 a night. why is that tent there? they'll lower the surprise if you bring your own sheets, skip the bed and electricity, in fact, you can get the whole thing for $19. they will throw in the tent for

free, apparently, if you want to rough pipt becky, what do you think? >> i was reading up about this. i think the lowest price you get is if you agree to bring your own toilet paper, as well. >> yeah. and you have to go out toiletries. of course they're fought going to leave all that stuff out for you. >> forget it. >> that is where carl draws the line. i'll sleep in a little tent, but if you don't give me my shampoo and conditioner -- >> wouldn't you pay to not use the sheets that are there? >> wait until you see my chairs topic today. do you travel with your own sheets, becky? >> no, i'm not quite there. >> she sleeps in fall body suit. >> there sa producer here who does sleep in a full body suit. >> when i travel i used to sleep with my own blanket. do you think those gets washed? >> you know they don't. they get shoved right back in. >> you're never alone in a

plane. nothing that is happening in hotel rooms happens on planes, obviously. >> are you sure? >> no sleeping? >> you know the -- it all goes back to that 20 lsh 20 date line, whatever it was on the black light. that is why you're skeeved out. >> there is a producer here that -- >> he also flushes with his foot and opens the bathroom door with his foot. >> i'm not quite there, monica, but i get peeved. >> we always worry about bed bugs and they're in four-star hotels, too. >> the comforter never, never get washed. >> and don't touch the remotes. >> and the other thing is, don't drink out of the glasses that are in the room because those apparently don't get washed very well, either. >> i would find soap there and -- you know, a toothbrush. good morning, everybody. we hope you're enjoying your

morning breakfast. when we return, we have the stories that have us squawking this morning, plus let's take a trip to the squawk board room. there is a doctor in the house today. former senator bill frist will be reviewing his charnlg. bill frist is ur guest host coming up at the top of the hour. tdd#: 1-800-345-2550

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we're in the chairs. tuesday is science times day. the science times section of the new york times so good, it almost makes up for the rest of the paper, for the rest of the week. i mean, you almost -- >> the international coverage, the political coverage, the sports, the art -- >> all the news that's fit to tint. this makes me hope that it survives even. >> i'm sure the newspaper of record would be thrilled that you think that. >> yeah. i love they call themselves that, though. the guys they always have running it, the kellers and -- who was the last guy? you've got to look high and low for guys to be in charge of an institution like that. to find just the right one -- >> 20 years of reporting in russia i guess isn't enough. >> well, we've got steve liesman. anyway, there is a fable, an aesop fable where a bird is

trying to drink out of a pitcher and he drops stones in it. you don't think it works. crows are -- they did this as an experiment. it's amazing to me. you had tubes, a bunch of tubes in a closed environment, not out in the wild, where you have pebbles, a tube filled with water and a bug floating on the water but the level of the water is down way too far for the bird to get. they immediately start picking up pebbles, dropping them -- >> get out of here. >> -- the and the water level rises -- >> crows are supposed to be so smart. they're one of the only birds that get bored. they're smarter than they need to be to survive. >> they yawn because they're that bored, right? >> but crow ares supposed to be so smart they get bored. >> watching one of our competitors. >> ouch! we talked about the ft story, the new york fed is hiring because they have so many

more assets to manage. new college grads are getting jobs? >> where. >> china. because, a, you don't absolutely -- you don't need to be proficient in the language. you get your job out of college, two or three levels above where you might ordinarily start in the u.s. the cost if you want to start a business, one student is 23, started a consulting firm over there, 12,000 bucks his startup bucks. >> why don't you need to speak chinese? >> the companies there are chinese companies trying to get someone who can help them reach the western world. learn mandarin, more importantly is knowing how to speak american -- or western. interesting, right? >> uh-huh, it is. but that seems like it would be hard not to speak the language. >> you do it a couple years, get great resume material and come back, boom. >> you learn it on the way. you learned my -- >> i get skeeved out very carefully. carl pointed out this article in

"the daily news" today, two-page spread about how flip-flops can kill you because they apparently pick up all kinds of disgusting things on the ground. they carry them better because they're rubber. they're very flimsy. and they have a lot of holes and nooksy crannies in them so they pick up everything you walk around on the new york streets. they sent two reporters around. granted, these people went in disgusting places. they went to a cyclones ball game at coney island, bars in the west village, went through the public rest room at the coney island subway station. after four days of wearing them, they found everything from, you know, basic staph infections to even the major staph. what's that? staph aereus, that can kill you. >> you need a good immune system, stay healthy, work out, eat right. you're he can posed to this stuff all the time.

>> people spitting on the ground, you walk through that. >> it's out of their mouth already. >> but if you get a cut on your foot when you're wearing these things, you could die if it gets into your blood. >> now we know that. i love that. anything that you swipe a petri dish with anything, you see what gross -- >> it can't be good. >> clean them with bleach is the only way -- >> we're living with a lot of friends at all times. >> some are good for you. some are bad. when we come back -- we'll get our top stories when we come back after a break. plus, former senate majority leader bill frist makes the "squawk" house call. the diagnosis, a severe economic condition commonly known as america's health care crisis. the treatment options are numerous. the doctor turned politician will give us his second opinion straight ahead. businesses more efficiently,

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cleaning up trubled assets. the chair of t.a.r.p. oversite elizabeth warren joins us. a prescription for a health care cure. today's guest host, not just a senate majority leader but a doctor as well. senator bill frist is here with his opinion on health care reform. the fed begins a two-day meeting. big news, the national federation of independent business, its read on the state of small business and its ability to weather the financial storm. as the second hour of "squawk" begins right now.

good tuesday morning. welcome back to "squawk" on cnbc. i'm carl quintanilla along with joe kernen and becky quick. futures today better than fair value. we've been in a tight range as we begin the federal reserve meeting. speaking of, which some of the stories we're following, the fed starts a two-day policy meeting today. central bank widely expected to leave key target lending rate near zero but market watchers will look for signals on the fed's other programs. the congressional oversight panel says toxic assets may need more support. the oversight panel's chair, elizabeth warren, is going to join us this morning at 7:35 a.m. eastern time. for the next two hours we're going to be talking about health care and the economy with our guest host dr. bill frist, former senate majority leader, the author of soon-to-be released book "a heart to serve ". leader, dr. frist, great to see

you. thanks for joining us. thanks for taking off the jacket, getting -- roll being up the sleeves, ready to go. >> ready to go. >> we are a business network but there are times when you watch what's happening in the country and we have to start with that. what do you make of these -- of the polarization at these town hall meetings and the response from both sides? it's interesting to watch. >> it's been fascinating. washington, d.c. has gotten to be really partisan. you're used to yelling at each other, and i was part of that for 12 years. it's gotten increasingly worse. you're used to that give and take with republican, democrat, liberal. usually if the green room before shows, not this show but other shows you're saying, go at it. what's unusual this time around, like an op-ed yesterday, the democratic leadership wrote, you have the politicians going after the people. it's the people out there really

these politicians are serving so i think we need to be careful. >> it's counterproductive. i don't think they -- not everyone is a plant -- i mean, they found a couple of people, i guess, that had been on the campaign of a republican who said she didn't -- >> she said she wasn't affiliated and she used to vice chair of the party. >> what argument on both side is not populated by democrats arguing because they're democrats on one side and republicans arguing because they're republicans on the other side? that's why you're renting in the first place or democrat in the first place because you believe the things you're talking about. >> are you saying the debate at these town halls is counterproductive or not? >> i'm saying -- >> the ability to organize and then face your senators are -- >> read what -- no, i'm saying they're calling this undemocratic. the people that don't like what the -- what they're hearing at these town hall meetings when -- usually i think they're talking

about people that are against the health care plan, they're calling these people plants. calling them thugs, liars. >> a lot of the screaming seems to be from people who think there needs to be a health care plan. >> that's not the screaming we're hearing. now they're saying hit back twice as hard to these republican plants. but it didn't start with people -- >> i think you hit on both sides. clearly you've got republicans saying it's the democrat plants, the democrat plants and republican plants. i do think it is a lost opportunity. we have this month where civil discourse and discussion should be carried out on an issue -- that's what's unusual will this. this issue affects everybody, all 300 million people will be affected by this issue. if it gets to the point where either through the media or op-ed you're saying, be quiet, you know, it is un-american to participate, then it's dangerous overall. we're losing this teachable moment. >> you said one other time where the people -- originally the rowdy people at the town hall on one of our previous shows, you

said it's people clamoring for health care reform. and you knew that was -- that was insane and disingenuous. you knew that wasn't the original rowdiness wasn't caused by people clamoring -- >> have you been to every town hall? please, tell us what's going on. >> i haven't. but i think that even your side would say that -- your side would say that the republicans put the initial thugs in there to get things started. >> i do think the problem is we're starting so much time fighting about who's in the plan, who's not. the debate over health care's gone. >> it is if you close down the town meetings. i travel to all 95 counties in tennessee, try to do it each congressional session and these town meetings are valuable. it's the only time you get away from lobbyists, washington, d.c. to see real people. once you close those down and try to do it by controlled telephone calls where you're controlling the questions, you lose the beauty of democracy. >> but do you think you've lost it anyway? are these town halls still

legitimate? are you hearing from the actual people or do you think -- >> you know, aarp two days ago out in dallas where you have the aarp, a system built around seniors. those are not plants in there. they're women, men who are scared at a time with they've lost their jobs, their security is gone, their children don't have jobs. they are scared to death. and to have an experiment or something that may be an experiment because nobody knows what can happen s overall frightening to them. >> do you think at this point, whether or not you agree with the public plan or not, that the administration has lost control of the debate? that this is not going to happen? >> no, it is going to happen. >> you do? >> i can tell you as a former majority leader of the united states senate, knowing the way politics is, president obama at the end of the day is going to have a health care plan that victory will be claimed. whether it bends the cost curve, makes costs less. it's not going to do that. there will be a lot more spending. it will be claimed as a victory.

hopefully the bad stuff, the real experimental stuff, drive up the cost of health care, will be shifted to the side. there has to be a plan. president obama staked hidz presidency on getting a plan. the united states congress will pass a plan. they've got 50 votes and they said they would use the 50-vote threshold so a plan will pass. >> they can live with the consequences of passing big generational policy without a single republican vote? >> wouldn't be the way i would advised him to do it. and when we did the last big health care bill, which was about a $500 billion, a big bill in 2003, as majority leader, it's the leader who decides, i basically said we're going to use the 60-vote threshold, which requires bipartisanship. it requires it. it means you have to talk to democrats and republicans together. now they've made the decision, and it's coming out slowly, we need reconciliation. all that means is you lower the 60% to a 50% and you can cram it through at 50%. by definition that says, we're

going to exclude the republicans. that obviously makes republicans mad. >> there's so many -- obviously, i'm not an pert inspect figure that doesn't fall under the reconciliation, the reason for the original -- you know, you put -- there's a lot of the major things they want won't be able to go through reconciliation. so you won't get a grand plan. >> you will. >> is there another way to do it? >> reconciliation was initially set up to take care of the budget, to balance the budget really. what you can do as a leader, this is the only power a leader has, and harry reid has it and under president obama's direction, will use it. in this reconciliation, it's a tool, legal, part of the senate rules, you lower the vote from 60 to 50. now, people are saying on, you can't get enough stuff in there. you can get 80% to 90% of a health care plan in there. the other 10%, 20%, you can legislate inkra mentally. that's easy to do. republican reconciliation will

be the vehicle they will use to pass this plan. again, another contrast to 2003, the prescription drug plan, so seniors have affordable access to plans, the far right didn't like it, the left didn't like it, i was in the middle and we pulled the group together and passed it with 60 votes. it can be done if you say we're gb going to listen to everybody. once you say we're going to cram it through with 50 votes, you can only get 50 votes and there's the risk of a big backlash. >> the senator's going to be with us for the rest of the program. we have a lot to talk about, not only with health care but also how we're seeing this ripple through the system and the markets as well. he'll be with us for the next two hours. stay right here. by the way, if you have any comments or questions or anything you'd like to send to dr. frist, e-mail us at squawk@cnbc.com. when we come back, the man behind madoff's money makes his way to court today and will be criminally charged for his role in the ponzi scheme. we'll go live to the courthouse.

also, we'll be hearing from the author of "too good to be true: the rise and fall of bernie madoff." a first on cnbc interview. time for today's aflac trivia question. the longest work stoppage in major league baseball history began on this day in what year? the answer when cnbc "squawk box" continues. oof! i hope he has that insurance. aflac! 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. the longest work stoppage in major league baseball history began on this day in what year? the answer, 1994. the world series was canceled for the first time in 89 years. frank dipascali expected to plead guilty to fraud charges today. he helped run bernie madoff's investment advisory firm for decades and he could become a key witness. mary thompson is live outside the courthouse on the significance of this testimony today. mary? >> reporter: well, becky, chief financial officer, director of options trading today, thanks to his 33 year career with bernard madoff, frank dipascali will be adding another title to his

collection, criminal. he agreed to wave his right to an indictment by a grand jury. but what the bridgewater, new jersey, native pleads gilly to isn't known yet. that will be known when the charging document is filed at 3:00 p.m. eastern today. the bigger question is what, if anything, is madoff's former employee telling prosecutors about what happened. on the 17th floor of madoff's securities office. here a group of small employees helped madoff run his ponzi scheme. since turning himself into authorities madoff always has said he acted alone. as far as dipascali says he struck a deal with prosecutors, however his lawyer declined comments, as did the u.s. attorney's office and calls to dipascali's home in new jersey were not returned. for many of madoffs thousands of

retail victims dipascali was the point person at madoff, fielding calls and answering questions about the accounts that proved to be worthless. he also reportedly worked closely with some of mad jot's hedge fund clients, some thought to be cedar funds for the scheme. david freely, madoff's former act not was also charged. today's hearing will bring that number to three. if dipascali is cooperating with the government, that number is expected to climb. carl, back to you. >> thank you for that. joining us with more on the story this morning is investigative journalist erin arvedlund is the first to suspect madoff. she wrote an article back in may 2001. it's hard to overstate how long ago that was questioning madoff's returns. today she's out with a new revealing book called "too good to be true: the rise and fall of bernie madoff."

first of all, congratulations. thank you for, with us. >> thank you. >> dipascali, you i think he has the goods? >> he was bernie's right-hand man. if he has any information, he does. i'm very much looking forward to the hearing today. his knowledge is probably key to all the further indictments that will come down. >> do we have a sense as to how much he'd be willing to give us? >> i think he'll give up pretty much everything. >> really? >> because we know he's been cooperating from the very beginning. we know there's some tension between the fbi and prosecutors. fbi would like to go after everyone. i think the prosecutors need proof. dipascali is the guy. he's the con significant lsigli. >> are you thinking family members as well? >> i think peter madoff may be indicted because he signed off on all the financials.

bern bernie's brother, peter. he signed off on the s.e.c. filings. >> there was no trading going on. >> no. well, there was a legitimate brokerage firm -- >> not on that side. >> and then the phoney hedge funds. >> i just want -- in prison all the prisoners say, hey, bernie, you know, didn't give anybody up. we love you, buddy. you're a stud. how many people are we talking about that probably had full knowledge, in your gut? >> full knowledge, boy, that's a good question. i would say probably half a dozen. >> half a dozen. >> and then there were ancillary people carrying out the fraud and probably didn't know what was going on. they weren't sophisticated. >> $5 million. >> that's not a real number, you have to remember. >> even if you divide it by ten, it's the biggest ever. we need -- it's a madoff scheme, not a ponzi scheme. >> you think ruth madoff might be vulnerable here?

>> i think she's kind of a lady mcbeth figure. i have a crazy figure that either she was the mastermind of it. her father was one of the original fund-raisers for bernie. i talk about that a little in the book. and she's not -- she's not a dumb lady. she's a very smart, smart cookie. >> right. >> she got a college degree in an era when it wasn't common for women to go to college and she was with bernie every step of the way. >> this article was written -- your initial article. what would happen if you had had a million readers of that initial article? the initial article is, what, your investigation was in 2001? >> yes. >> you wrote an article, did it have any impact at all then? >> i certainly hope so. i wish it had more of an impact, i really do. i regret i didn't do a follow-up. but i felt like i said everything there was to say. >> what tipped you off? >> i had a very good source, a guy by the name of ken nakiyama

who was a derivative expert at deutsche bank. we were talking about different hedge fund guys that would be worth writing about. and bernie was supposedly running this billion dollar fund. no one had ever heard of him. he was supposedly trading options, the split strike conversion or whatever, which turns out he wasn't ever trading, as he was saying. so ken and i got together. he showed me some marketing material from fairfield century, one of the original cedars. the returns were just too consistent. >> that was your tip-off, that -- >> right. >> 20% returns all the way through, the same thing that madoff was reporting. >> right. it was 10 to 12 at that point. >> could have you done more -- once the article was published, i mean, knocked on the door of the s.e.c.? do you regret -- as a journalist you can only do so much, right in. >> i should have gotten -- i put everything i could in the story at the time. i didn't know it was a ponzi

scheme. >> you had no proof of that. >> i had no proof. without, libeled, i wrote everything i could. >> do you have stuff in the book now that's not out there? >> absolutely. >> so this is the insider's book. >> yes. this is really a book about how the scam works. >> erin, do you have a feeling of -- was there ever a time where he was legit and got over his head and -- >> my gut says yes. >> he was an innovator, in a lot of ways. he was an innovator in popularizing computerized trading. definitely on the leading edge of that. i think a lot of money managers get a small loss and then they figure, i can make it up later. >> yeah. that's the way it starts. >> does jpmorgan have reason to worry? you raise this in the article. >> yeah, yeah. the allegations in the suit are that they knew what was going on on both sides of the store, both on the chase banking side and

after they took over barry stern stearns. >> fascinating read. we are to go. erin arvedlund. the book is "too good to be true". when we come back, day one of a two-day fed meeting. the nfib about to be released. we'll go to the pits in chicago for a check on markets. latest report on trubled assets is out and we'll talk to the chair of the congressional oversight panel, elizabeth warren at 7:35.

let's get a quick look although the markets. we're at the cme group watching futures. todd, we have a lot going this morning. we'll be getting the nfib numbers, productivity numbers, labor costs, oh, yeah the fmoc is beginning a meeting, too. what's the most important in the mix? >> it's anticipated the fed could announce the stopping of their treasury buy back program which has sort of failed here. yields were well below 350 when they started and now have gotten as close as 388 on friday. so i think the whole gist that

they're going to keep lending rates low, they'll probably just cut their losses here. continue to buy mortgage-backed securities but leave treasuries alone. likewise today we get a three-year auction, a mere $37 billion which yesterday's run down in yield was a bit of a surprise but could have been short covering as we get a hit with a lot of supply this week. >> if the fed, as you put it, decides to leave well enough alone, what happens to the treasury yield at that point? >> i think you could see a little bit of, obviously, a continuing of the curve steepening, 10, 30 year yields elevate, probably not too bad. we continue to see aggressive dealer buying, not only from the auctions but in the outright open market as banks look to basically play the carry trade. they borrow money cheap from you and me and buy treasuries at 3%, 4% yield. i think right now the curve will remain a little steep and maybe get steeper if the fed does make that announcement. they'll keep other liquidity measures in place to keep the banking system and the credit flowing, which right now is

starting to thaw but not where they want it. >> thank you, todd. if you have any comments or questions about anything you see here on "squawk," go ahead and e-mail us at squawk@cnbc.com. up next would he will get the latest read on how small business is fathering. we'll be hearing from the nfib's chief economist right after this. you're watching "squawk box" on cnbc. finally, good news for people with type 2 diabetes or at risk for diabetes.

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welcome back to "squawk." get a check on the markets. nikkei with a new high overnight. gm set to unveil mileage ratings for the all-electric chevy volt. set to hit show rooms next year. we'll are the news when it hit shortly, expected to be well into the triple digits in terms of miles per gallon? >> way above 51. that's a lot. >> that is a lot. berard madoff's cfo will be in court expected to plead guilty to fraud charges. dipascali. per shing square capital has

cut stake in retailer target president. 4.4% comes after pershing square lost that slate on the board. . steve liesman is here with the numbers from the nfib. >> reporter: >> fell to -- where is is the exact number there? it's 88. >> 86.5. >> it's up -- it's down -- >> we've got it up. >> we'll check on that. down 5.5 point from -- it's still up 5.5 points from the march low. joining us now is the economist who puts all this together, also took a trip up to maine with us last weekend, phil dunkleberg. do you get the feeling things stalled out in july? >> that's what it looks like.

we went flat and the main driver seems to be a loss this confidence about the economy. so we had a ten-point decline in the percent of owners who thought the economy would be better six months from now. and that really accounts for the decline in the index. so, you know, we're still not sure things are going to get better. because of that, we're not willing to commit money for hiring much or for capital spending or inventory rebuilding yet. >> i want to check on this. i'm reading the survey says it's down 1.4. is it 1.4 or 1.3? >> i go 1.3. >> why is it in the survey 1.4? >> it's in both ways. that's my fault. last time we had a rounding issue. some people thought it was 0.9 and the other 0.8. 1.3 is where we're at. >> having too much fun up there in maine. that's what i think. >> too much wine. >> let's get to the jobs aspect of this, which is -- again, this thing went flat but it's consistent with an unemployment

rate that's right about where it is right now, even when it's a little lower. >> that's right. we did lose a little ground. we lost a point or two on the percent who planned to increase employment. we lost a point or two on the percent with job openings. nonetheless, when we crank that into our model it gave us a three-month look of 9.1. we have the unemployment rate falling, like we talked about last friday morning. that's a good sign. i certainly hoped for more in the july survey. it's not there yet. >> bill, capital spending is flat. inventory's flat. profits and wages don't look so good. what about the credit situation inside this report? >> the credit situation is about as tight as we've seen it since the bad days of the pre-1983 days. we had 15% say harder to get. it's -- the pattern for most is about the same as we've seen in all the expansions but we did have a few more people tell us that it's harder to get their credit. so the chart there shows that they say all their credit needs

were met is about as low as we've seen since we started that particular question. we didn't start that until after the 1990-91 recession. he we haven't really seen a really bad recession for that particular series yet. >> what kind of gdp growth does this number consist of? >> this -- the current number would be consistent with a minus one, minus two kind of a number. not a good growth number. >> not a good number. back me up on this, we did take a vote and joe is, again, not invited up to leen's lodge next year. back me up. >> we had had that vote and it was pretty much unanimous. >> joe is not invited -- interesting, we don't vote on anybody else. >> i will not -- >> nobody else. >> i have said i will not take that oath of secrecy for what goes on up there. i have not -- i wasn't here yesterday. you do need to debrief me, and dunkleberg can stay but what happened after you didn't have to get up for early tv

appearance? was there some wine? >> there was some wine. >> did anyone have a lampshade on their head? who made the biggest fool of themselves? >> there was some dancing that went on while we were playing. randy spencer and i had a jam session that evening with a great sax player. there was a little dancing going on. >> why don't i give you a shovel and you can dig your hole even deeper. you go in with this -- >> you know what, carl, i don't care. we had a good time. we talked economics till they turned the lights out, and we talked fed policy -- >> did you not -- >> saying we have to go. joe can make as much fun as he want. >> did you not mess with me how much fun all the fun we had kidding around? >> we had a lot of fun. >> was there anything that you didn't -- >> joe, i'm just continuing the fun. >> okay, good. >> continuing the fun. and it's clear you are not invited. thank you very much, joe. you're not coming. >> i want to know who was dancing but we'll get to that later. >> i can't tell you that. it's part of the secrecy pledge.

>> thank you. the t.a.r.p. commission out with latest report this morning. this month's focus are the toxic assets and the havoc they could still wreak on bank balance sheet. here from capitol hill, chair of the congressional oversight panel, elizabeth warren. chairman warren, thank you for joining us this morning. your concern is that there are still a lot of these toxic assets out there. how vulnerable do you think the financial system is? >> we think is really vulnerable. what exacerbates is that that we've turned away and quit looking at that. we went through our stress test, we passed the top 19 banks, didn't run the stress test on the smaller banks and we said, that problem seems to be resolved. what we're doing here is going back and saying, boy, that problem is not solved and is still hanging out there and still runs the same kind of threat it ran last october. >> what happened to the pipp, we thought there would be a program to unload assets off the bank balance sheets.

>> that's right. it's getting ready to start again but in i much more divided form than before. as you know, toxic assets can show up in two forms on bank balance sheets. they may be held as part of the securitized assets the bank has or may be held as whole loans, that is, the bank has the whole thing. the pippp now as it's going forward is only addressed to the securitized assets, which means by implication it's only addressed to the big banks holding that particular form of toxic asset. >> chairman, this is bill frist. in your report today you concentrate a lot on small banks. you seem to highlight through the necessity of the small banks themselves and the attention that treasury needs to place on them in the future. elaborate a little on that. i didn't really see in the report of what sort of things treasury should be doing with regard -- >> well, the real problem, i guess, to say it the other way about not focusing -- that treasury has not been focusing on small banks.

let's keep in mind, small banks hold principally whole loans which means pipp is not directed toward them or getting bad assets off the rolls. they hold the commercial real estate mortgages that all the projections look like are going to be big trouble in the next few years. they have more difficulty raising capital and they have not been subjected to the stress tests. remember, the small banks are the ones who do a huge part of our small business lending. so they are really a crucial part of this banking system. and yet treasury is sort of the ter of where treasury is going is once again toward the very largest financial institutions. >> you know, there's been this sense, chairman warren, that these small banks, we would see more failures but that would be okay. the fdic could handle the small bank failures. you make this sound as if this is not going to be a few dozen or beyond. this is more of a systematic

risk when it comes to the small banking institutions. >> i'm going to say it slightly differently. one thing that's deeply troubling is that there's no good estimate of how much toxic waste is still left on the books of either the large or the small financial institutions. the congressional oversight panel crunched as many numbers as we could find. we went to the other experts. the estimates run somewhere between 600 billion and 1.5 trillion. now, that's a lot of variance. when you put that onto the books of individual banks, that's a lot of banks that are still at risk. >> have you heard anecdotally from small banks who are hoping they could get access to things like the pipp? >> i think there are a lot of small bankers who that are disappointed that treasury's new move really shuts them out on dealing with toxic assets. you know, small banks are --

keep reminding us, they are not regarded as too big to fail. they seem to be right in the sweet spot for our government letting them go. >> we've talked to several small bankers on this program who kind of relish the fact that they are not one of the big wall street banks, they did business differently and they hold the whole loan and they've always been more careful about who they give those loans out to. that doesn't seem like that's the sense you get from small bankers overall. >> i think the best way to describe this because there's a lot of variability out there. there are a lot of small banks that are in terrific shape. but there are a lot of small banks who are holding these whole loans that will not be part of the ppip program and for whom there is not an obvious path out of this to get rid of these toxic assets and get the bank back into a position where it can lend. you know, this always keeps intersecting with lending. as long as there's this

possibility of big losses coming from the toxic assets, banks tend to hold onto their capital. and that means they're not out there putting it in the small businesses. >> chairman warren, how long have you been in this position? how many months has it been? >> it's been nine months now. >> we're nine months in. and you have had the opportunity to set up a working relationship back and forth with congress, with treasury, with a lot of the people there in washington. what's your sense of how that relationship's progressing? >> well, i think progressing is the right word. when we started, secretary paulson made it clear that oversight was not one of his priorities. we then went through a period where things were fairly chaotic at the new treasury when secretary geithner came in. and now we've kind of gotten a fairly good working relationship. they give us a lot of data. we have a lot of meetings with them to see what's going on. and, of course, you have to remember, a large part of our job, while we ask treasury for

information, we're also looking at lots of other places for information. part of what we want to do is be the outside vision on what's going on and find ways we can see if what treasury is telling us is accurate, whether or not there are other points of view. i think there's been good progress. doi want more? you bet. >> elizabeth, this is bill frist again. what about my colleagues in the united states senate and in the congress, what is your working relationship with them? we've had t.a.r.p. ten months, they had something sent out to them, a lot of people voted for that. what are they doing now? are they doing any oversight? what's their responsibility in items of the commission and your report and where we go in the future? >> you know, i have to say, there's been a lot of engagement on capitol hill. some in hearings. but a lot of it -- one office at a time on both sides of the aisle who just want to sit down with me or sit down with our

staff and go over what we've got, where we're finding, what seems to be going on, where the areas of danger are, what the numbers look like. this is the first time, as you would know, of course, that we've ever -- that congress has ever set up anything like this. where they say we're going to give treasury $700 billion, enormous discretion and we're going to set up this board that every 30 days has to keep issuing reports. not just little numerical reports, but reports that step back and look at the whole strategy treasury's taking. i think there's been real engagement on the part of congress. it's been an impressive exercise for me in watching governance work. >> impressive exercise. are there people who have been more or less helpful on the other side of the aisle? >> my yob is to be helpful to them. that's what i try to do. i try to answer as many questions as i can. i try give them as much information as i can.

we get letters from individual members of congress asking us to look at particular thing, which we do when we can. so there's been, i think, a pretty good working relationship. look, there are more than 500 people in congress and some who are not very interested if what we're up to. there are a lot of people who are interested. >> in your report today, is the bottom line, you use the word substantial danger. is the bottom line that we're ten months into this, there's been progress, some mistakes have been made but overall real progress. the message is these toxic assets today are a substantial danger, using the report. is that the underlying message? >> yes, sir. you have it exactly right. >> chairman warren, we want to thank you for joining us today. we appreciate it. we look forward to talking to you again soon. >> thank you. when we come back, we'll check in with our "squawk" doctor. our guest host today, doctor and former senate majority leader bill frist, his thoughts on improving health care. tomorrow on "squawk" -- doom and gloom.

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for tb under the so-called socialized medicine of the uk. i'm here walking and talking and chewing gum today. they gave me magnificent care. and i was in paris, they had no mechanism at the time to draw on my own u.s. insurance to pay for it. i didn't pay a dime forp three months. welcome back. we continue our conversation with our guest co-host former senate majority leader dr. bill frist about the showdown that continues in this country regarding health care. do you think politically it would have made a difference if kennedy had been well and daschle had still been around? >> i think daschle would have really made a difference. president obama hasn't spent much time in the legislature so he's never really legislated. washington's a strange place. you've got the president who's a cheerleader but a co--equal branch of government, the legislature. so president obama, learning from the 1993 experience, that i'm not going to write this

thing in detail, i'm going to have the legislative body write it. that's okay if you have somebody planted in the legislature to be massaging this and compromising and all. and that's what the role senator daschle would have played. majority leader, knows reconciliation, he knows what that means. i don't think he would have used reconciliation for the reasons we talked about earlier in the show. he would have made a huge difference because he would have been orchestrating all of this. the obama administration doesn't have anybody there right now. >> they are reid and pelosi but they're not filling that same role. >> they don't love health care. it's not their reason to be. now, senator kennedy is the spirit of the senate. i don't care who you are. he knows the body. he is probably the most efficient, most effective legislature in recent times. he know how to work with the other side, demonstrate it again and again. he knows how to compromise.

he care about health care. there's nobody in that body right now, nobody who has spent more time on it. that would have made a difference as well. >> do you think in 2010, most people think there's a good chance the gop will win some seat back. they need 41 to get a ma yoert. possible? >> well, always in the first mid-term of the party of the president loses votes. always. and we didn't back six years ago but always, always the case. >> post-9/11 president bush held onto -- >> that's right. but we'll have to wait and see. if this is just crammed through and people feel like it is a government takeover and their koss go up and you don't get all the ininsured insured, there could be a backlash to this. but it's way too early to predict that. but we are going to have a health care bill. all of this gnashing about, we're going to have a health

care bill. the debate is crazy in the world with town meetings. hopefully there's some good dialogue legislatures are hearing and you've got two very smart people in baucus and grassley who have gone through these debates for the last eight years together, just like -- you know, they know how to work together. they wrote the last big health care bill in 2003. not because i'm in the senate or was in the senate, but i have huge confidence in their bipartisan approach. now, will they be able to sell it to my colleague harry reid and nancy pelosi and the president of the yat? i don't know but i have real confidence. still to come, larry lindsey will be here to talk about tax policy, the deficit and the job the president is is doing in handling this economic downturn. that's coming up at 8:00 a.m. eastern time. up next, before you make a trade, you need your daily dose

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♪ if you start me up ♪ if you start me up i'll never stop ♪ ♪ ♪ if you start me up i'll never stop ♪ >> there is a page on youtube where some viewer has assembled -- it's a link to --

from facebook but a page on youtube that some viewer has assembled all -- every time we come back from break at 7:50. >> there is an explosion of ring tones across the country that have the animal oeshg tra on their phone. so we have ranker at town hall, fed by the sound -- >> and, you know, you keep pushing against us to try -- the flood gates have opened, quintanilla. it's not going to stop. did you run it yesterday? >> you don't want majority control. >> did you run it yesterday? >> no, we did not. >> i'm back today. let's look at stocks to watch. target. this is interesting. bill akman, pershing square, reducing the holdings down to 4.4 as of may 26th it was 7.8%. that was kind of a defeat, i guess. >> kind of? >> yeah. and he's going to -- is he taking his ball and going home

at this point? we're not sure what he's doing at this point. it goes down from 7.8% to 4.4%. we'll see whether he continues to -- >> it's had a run. >> yeah, it has. but i think they're not back to -- no. sprint nextel downgraded from underweight to neutral at piper. target reduced to 3.5% from 5%. the continuing customer losses is what is, cited in fiscal '09 and 2010. it's hard not to say '010 but that makes no sense. is '010 the other day? >> no. you got after me the other day for saying that. >> yum brand downgraded the ubs. the cdos, the rmbs losses will eventually overwhelm capital --

>> you're loading this page from youtube. >> it's a homage to the animal orchestra. >> no kidding? >> but it's every it's six minute of nothing about animal orchestra. >> the youtube video? >> yeah. 6:22. >> how many views? 200. what's it titled? >> homage to the animal orchestra. go check it out as voting for both teeth with the animal orchestra that drives carl crazy. when we come back, a special interview with larry lindsey. we'll talk taxes, the economy, financials and a lot more. former majority leader bill frist says in on a panel to discuss private versus public health care system and a lot more. fithe same tools the pros use,

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gauging the economic recovery. former white house economic adviser lawrence lindsey gives us his forecast. gm waiting to unplug in the volt. is the 100 mile per gallon barrier about to be broken? ♪ jump in my car ♪ i want to take you home ♪ come on and jump in my car welcome back to "squawk box" here on cnbc. first in business worldwide. good morning again, everybody, i'm becky quick along with joe kernen and carl quintanilla. our guest host is former senate majority leader bill frist. we've been keeping track of thep futures and they've been just about in line with fair value. you're going to see that they are below fair value but not by a whole heck of a lot, down by nine point. we have numbers coming out at 8:30 including productivity and labor costs. phil lebeau is in michigan and he's there with breaking

news. >> reporter: as we speak, gm ceo fritz henderson announcing the chevy volt, according to the company's calculations based on a formula provided by the epa, their calculations and what they are promising is that when the volt comes out it will get 230 miles per gallon. the equivalent of 230 miles per gallon when the volt comes out late next year. for some point of reference f you're looking in the mass market right now, people look at the priu suchlt as, the gold standard, it gets about 5 1, 52 miles per gallon. that's a hybrid. the volt will be an electric vehicle with a gas-assist engine which recharges the electric motor. it's recharging the electric motor. a range of up to 300 miles. gm saying the chevy volt will get 230 niles per gallon in city driving. i can tell you guys, based on the formula, they believe that that estimate might even be a little on the conservative side. for now, that's where they're sticking their claim when the volt comes out next year.

becky, back to you. >> i knew a lot of people were expecting this to be a high number but i have to say that comes as a shock to me. >> reporter: it's a stunner, isn't it? absolutely, absolutely. gm is looking -- >> nobody was looking for that. >> reporter: no, no. i heard people say don't be surprised if you see this thing coming in at 110, 120. but 230 in city driving. it will be far lower in the highway as well as the combined rating. that's still well over 100 miles per gallon, the equivalent of that, according to general motor. their calculation with electricity and utility rates where they are right now, about three cents per mile is what it would cost people to drive the volt, roughly in line with what the expect has been projecting for some time. the 230 mild per gallon is going to get a lot of attention and might help this company overcome the criticism that the volt at $40,000, the estimated price when it comes out, that people are not going to want to buy the

vehicle. you're promising 230 miles a gallon. that might change things a little bit. >> do you know off the top of your head how many gallons that gas tank on the volt can hold? i'm just trying to figure out how long i could go without filling up. >> reporter: it's 300 miles, becky. fully charge with gas-assist engine is 300 miles. some other electric vehicles, developed they'll have a range of about 100 miles. the first 40, becky, are all electric. and the typical american, about two-third of americans, we drive fewer than 40 miles a day. that's why they set 40 miles as, all electric. the first 40 all electric. after that, then the gas assist recharge engine, it comes on to recharge the electric motor. >> phil, the task force -- the volt didn't win great reviews from the task force but it survived, right? >> reporter: it did survive. the criticism that the task force this is mainly, listen, great technology, but limited technology at this point. we really don't see this, a

game-changer for the bottom line for several years for general motor. gm has known that for some time. they don't expect that people are going to flock out to showrooms and buy these vehicles. there's limited production right off the bat because of the battery issue they have in terms of developing those. it's going to be many, many years before we see gm return money -- or make money on the volt. that was the criticism of the task force. the task force was looking at gm and saying, you need to get back in the black now. the volt is nice for the future but right now, what do we do? >> phil, thank you very much. appreciate it. phil lebeau in warren, michigan. >> are you stunned by that number, joe? >> i am. >> i am, too. >> we said triple digits. i was thinking 100. >> i know. >> the question i have is -- i'm getting ready to trade my clunker, 1991 suburban, i love it, i resisted as republican because i don't think the taxpayer should be subsidizing me to buy a car but last thursday i called lee beeman and

said, i'm caving. i want my $4,500. what are the cars? he said, a prius, 50 miles a gallon but maybe i should wait for the volt. >> thank you that's news that bill frist is participating in cab for clunkers. >> the taxpayers are going to be paying me cash. all of you, your tax dollars are buying me a car. >> he's buying a prius. >> my staff is not pleased. my family, my boys, they say, yukon, go for it. >> is he on for the rest of the show? >> he is, another hour suspect is that a problem? >> we won't talk about -- i'm already in trouble for getting it. >> one of your big promoters coming on the show. no, just kidding. we love having you. >> whether it's cash for clunkers or stimulus of other kind, the economy is front and center today. the fed begins a two-day policy

meeting. they're widely expected to leave key target lending rate near zero. market watchers will watch for signals on fed's other programs. joining us is larry lindsey, president and ceo of the lindsey group, and author of a book that really could come in handy right now, that is "when a president should know." good to see you again. >> thanks for having me. >> you make the point if your book, one reason presidents haven't succeeded on health care is it's hard to pay attention to coverage and affordability, to / quality. you're saying obama has, i guess, shirked the affordability part. >> which is his big problem in washington. i think he's also having trouble on the liberty part or the coverage part. that i think they can deal with through ad campaigns. the problem inside the beltway is affordability as far as the government goes. nobody -- neither party says the bill adds up. how do you add a trillion dollar

program right now? i think that's a real problem. you know, if you've got a deal with pharma and the hospital and the ama, you're not going to touch them, how are you going to save money? the answer s the patient, i think, and that's with people are concluding. >> "the journal" today says the health debate is not about the health care plan it's about people worrying the government is too big. even if this is cheap to do, don't you think americans would bristle at it in. >> i think that's the problem in the town has, no question about it. inside the beltway debate is how do we pay for it? long-time observers of this, "the washington post," for example s commenting very strongly that someone's got to pay. look, first week of ec 10 at harvard you have to learn to ration, by price, by cueing.

not rationing at all does not work. we have so to find some way. >> do you think the so-called deals that have been cut with pharmaceutical, with the hospital association, with the doctors, are those going to be deals that eventually are reneged on because you can't take have cost from the patient? >> well, the house has already said they're not going to follow the deal. i think one of the surprising stories here is that some of the side bars in the deal, pharma's putting up $150 million for pro-obama car ads after they cut a deal with the white house. >> what was the deal? so they cut a deal so president obama and pharma can be on stage saying, let's go for it. pharma says, we'll run pro-ads. underneath, what was the deal? >> well, according to the -- the head of pharma and the white house confirmed it, the deal was they can't take more than 80 billion over the next ten years

from drug companies, as far as assemblying the cost for the deal. well, you know, the difference between 80 and 81 is $1 billion so it's cheap for pharma to come up with $1 million in ad spending in order to seal the deal, we could say. >> they had a brief deal with the insurance lobbying group, too. >> then they turned around -- >> the interesting thing was th7 insurance lobby-i agreed to almost everything they wanted but now they're back to, the poster child for all that's wrong with -- i mean, a lot of this -- i'm always surprised, this always comes down to politics and seems dirty on both sides but comes down to politics and it's dirty on both sides. >> well, yes. i guess the best we can say is it beats the alternative. fortunately, we have the politics and we can protest. >> if washington we had big, beautiful buildings. it seems important. it seems like nothing can work unless what's going on in these

big buildings succeed. the minute i get out of beltway it's back to -- >> back-stabbing, those who helped make the proposal. >> deal-cutting is new, cutting deals with pharma, the hospitals, the insurance companies. i don't understand why these deals were cut so early. usually deal-can youi ideal-cuto weeks before. now the american public knows about these deals and agreements were made, congress didn't make these deals, and they're writing the bill, it was the president of the united states, what's the reaction going to number. >> i think that's interesting. i think that's why they wanted the bills done before the august recess because they do have a shelf life here. and i think that the white house and rahm emanuel was there for the last health care battle and he remembers people who funded ads against the bill. i don't mean to be overly cynical.

if you buy off -- >> louise. >> if you buy off those who buy louise ads, but you have pro-obama ads funded by the same people. i think that would have worked. what slowed them down was the affordability issue. when congress said, hey, numbers don't add up and that slowed down the process and now we have a rotting fish. >> will we be able to get real genuine polling numbers so that we don't -- you know, there's  the town hall meetings, they're disrupted. pelosi and reid say they're all plants. when will we find out if there's a ground swell of real, normal people that don't want to move on some of these things? how will we know? when will reid and pelosi say it's not just operatives, paid thugs? >> i don't think that's the standard. you have a conflict between liberty and equality and people feel passionately on both sides. those are the -- that's why we

don't -- >> like health care. >> liberty so people can choose their doctors, choose their plans, choose their -- there's not a single payer, that what you mean by liberty? >> right. >> and equality is you get everybody in. >> the other piece of equality, this is not looked at enough in the bill, yes, you can keep your insurance policy at first, but the insurance company is going to be regulated as to what it must cover, what it can cover, what it can't cover by uncle sam. so i think that's definitely a proceed-equality move because you want everyone covered equally but it ain't good for liberty. >> limits choice. >> limits choice quite a bit. >> in truth this does all out there. nobody really knows what's going to happen. it is kind of an experiment. >> i had a pollster call me last week to start asking me what i thought about the health care plan. that'sen a hard plan i can look at to say i like these pars parts of the plans, i don't like

these parts. there's no ways to get your arms around it until it's already pushed in the door. >> yes. the other thing people are concerned with, you can put a lot of words in a 1,000-page bill. one that's gotten a lot of attention, and i find it amazing it's buried in there, 1233, the opponent's quality ueuthanasia clause. you do have uncle sam paying health care providers to counsel frail, elderly citizens to sign on the dotted line. that's what it says. that's different than euthana a euthanasia. but if you've been through the process of living wills, everyone should get a living will, but if you've been through the process of elderly people, it's tough to are uncle sam in there. it's a real issue of how much society is going to pay. >> kind of roik my prius

statement, at the end of the day, the key is to keep people alive. doctors are afraid they'll get sued if this don't start counseling and give everything out there. they should consult with people and say it's okay not to get the c.a.t. scan, the mri, i'm on the other end of this debate. we need to deal with end of life issues with professionals and have the government reimburse for that so people aren't out there trying to do it for free makes sense. >> larry, can i get one macro question in? "w," "v," i think you're in the "w" camp. we feared malaise, we have town halls going crazy, tent cities on the second page of the jourm.

are we witnessing something bad the markets are belying? >> i think there's a lot of ricks aheric risks ahead. i think the markets are priced for perfection right for you. we still have a consumer balance sheet that needs repaired. we still have problems in the housing sector. we have ultimately to get out of a massive amount of fiscal stimulus, massive amount of monetary stimulus and i agree those are technically possible to do but not painless things to do. so i >> you were the first to warn us about the consumer crunch and how that was going to affect the car industry. is there another shoe to drop that you see? >> well, what our contacts tell us is that we probably have another round of credit card and consumer credit restriction coming. those have still not caught up to the rise in the unemployment rate. there's a decline in fico scores. frankly, the legislation the

congress passed on this matter is going to rush the process. so i think we're probably in the fall going to see another round of credit tightening. >> good to see you, larry. >> my pleasure. always here to cheer you up. >> larry lindsey. coming up, beyond the dollars and cents of reform. what about improving the quality of health care? then at 8:30 eastern, breaking economic news, productivity and costs. the data and instant analysis still ahead.

one of the biggest fears in health care reform is how it will impact the quality of care. so he didn't -- he didn't listen, didn't care. dr. harry jacobson is vice chancellor for health affairs at ameritus, guest host former senate majority leader dr. bill frist. good morning. i'm going to refer to leader frist as leader and to you, doctor, as doctor. that will make it a little easier. we'd all like to have -- the last thing any of us want, doctor, is to have much more expensive health care and for the quality to go down. how do we ensure the quality gets better? >> well, health care is really

made up of making a bunch of decisions. quality is really dependent upon making sure that we make the right decisions based on evidence so that we do the right thing and only the right thing each time we interact with patients. one way to do that is to have the right information and decision support available so that at the point of care, we can make the very best decisions. that's health care information technology. >> harry, you ran a $2.8 billion health care enterprise with 20,000 employees, the largest employer by far in nashville. and your hospital is always at the top of, the most wired in the united states of america. so the question that people ask me, that i want to throw back to you is, health care costs, spending in other countries is a lot less than it is here for the same stuff, the same stuff that we get. outcomes in other countries arg

gouably is equally as good if you use these beverage marks like end of life and infant mortality. i get asked all the time, why is it they pay less and they get more? what is it? what are the two or three things that explain that? and what should we do about it? >> well, you raise, bill, a key question and one that should tell us where we should go to find savings in the cost of health care. in the united states in 2007 we spent almost $7,300 per person for health care while in the uk and canada and europe on the average they spent about $3,500. so we should be asking oursel s ourselves, what are we spending money on they aren't and where are we spending more money than we need to? of course, one big area that needs to be addressed with

reform is the immense cost imbedded in insurance companies and in provider organizations around submitting a bill and getting paid for services rendered. >> all the administrative costs? >> the administrative costs. the estimate is $200 billion a year. of course, the other has to do with -- with the lack of evident space practice and tremendous variability in practice that's been highlighted by jack wenberg and his groout at dartmouth. if with we would be able to reduce that variability, get rid of the misuse and overuse of resources -- >> like doctors, like me, prescribing too much, doing too much, or other doctors not doing enough because they don't have the evidence. what do we do about that? you're basically saying the medical providers don't use evidence-based medicine, data that's out there, things that work. what should we do about that or what should the obama administration do about that?

>> what i said is we have an insurance issue and a practice issue. so we need to synchronize insurance reform and practice reform. and make sure they move together and that we actually incentivize the right kind of practice behavior. more prevention, more evidence-based care, less variability, much more rapid deployment and use of information technology. >> so in your hospital, again, the huge hospital, all services coming in $2.48 billion a year, you made a decision to wire the hospital and to lead information technology. one of the good things the obama administration has done early in the stimulus package is to put $25 35 billion in health information technology. why is that so important? why should the taxpayer think that's a good investment? like i've said early, health care is is an information-dependent service. the higher the quality of the

decisions that are, made, the higher the quality of the service and the less waste and misuse of resources we'll have. unfortunately, only 10% or so of providers really are the information technology tools they need and that are available today. so we need to accelerate that. >> right now, one last question. is the obama administration in terms of information technology working in the right direction? >> i think the devil's in the details. certainly, one of the reasons we only have 10% penetration is because people are reluctant to invest the monies. so freeing up the monies and providing mechanisms for hospitals and physicians to jointly work together, to dough ploy incht .t., is a step in th right direction. >> thank you for joining us. we need to get more on the front line rather than just a lobbyist in washington, d.c. thanks a million for, with us. >> my pleasure. >> i wish we had more time.

a lot of the statistics that we see about our outcome not, as positive as other countries, but we are -- i look at the amount of obesity and the way of our lifestyle and the freedom to enjoy these things that ruin the outcome. people still come here to get the best health care in the world but you can give the conclusion it's the best in the world but you're mixing apples and oranges. >> smoking rates have come down, right? >> no, we're the worst. if you really look, health and cost of health is more than hell services making health insurance more than health and doctors. health is about 15% that stuff and about 40% behavior. behavior is seat belts, smoking, obesity. that's why the statistics in the united states are so much worse compared to a canada or even an

england or fran or -- >> it almost boils down to obesity, isn't it? >> if you look into the behavior end of it, number one is obesity, and violence in this country is still higher than in other countrieses. when we return, a venture capital pro who has backed names like apple. now ee looking for countries that can survive the new economy. i'm racing cross country in this small sidecar, but i've still got room for the internet. with my new netbook from at&t. with its built-in 3g network, it's fast and small, so it goes places other laptops can't. i'm bill kurtis, and wherever i go, i've got plenty of room for the internet. and the nation's fastest 3g network. gun it, mick. (announcer) sign up today and get a netbook for $199.99 after mail-in rebate. with built-in access to the nation's fastest 3g network. only from at&t.

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are you talking to me? the government's about to release their preliminary report on second quarter productivity. rick santelli is at the cme group in chicago. steve is in the studio. the range is 2.9 to 7 with the consensus right around 5.5. what's most important to keep in mind as we await this number, rick? >> well, i think the most important thing to keep in mind is to thank those three guys left on the assembly lines that are sweating and doing all the work, pushing this productivity number way up. you know, it's normal, as the journal pointed out, to see this behavior toward the end of a recycle of recession. is this a normal recession? are we going to have the same number? this is an important number but

productivity isn't going to aid those needing jobs. we're not making more thing, we're paring back. two seconds and the number is out. boy, it is on the high side. 6.4%. there's your nonfarm productivity. last time revised from 1.6 but only up 0.3 but in the context it doesn't matter. they're down 5.8%. last month only slightly revised. well, actually revised big, from 3% to down 2.7%. so no matter how you slice it, if you're a productivity fan, you're going to be happy. if you dig deep into why productivity is doing what it's doing, especially in the context of moderated 9.4% unemployment rate, there's where the real interesting discussion lies. preopen equities, still down 8%

or 9%. interest rate seems throw but the proof in the pudding will be how the auctions go and everybody is very fascinated about today's op-ed in the journal about guininnie mae. we have learned so little. >> steve? >> economists are throwing out the book on productivity and what we think about productivity and recessions. the idea has always been employers are reluctant to fire workers because it's inefficient to do so. what we see here in the wake of the lehman panic they let go of workers like never before and managed to keep up output which is probably one of the reasons why those earnings that came in were better than expected. and that, yes, in the short term productivity is probably -- probably works against hiring but in the long term it's how we live better and leads to hiring as we find more productive parts of the economy. this recession and the last one

are rewriting the economic textbooks about productivity and w it behaves in a recession. it shows the flexibility of the u.s. business work force. also to the detriment of the work force here. that's one aspect. part is positive for profits in the short term here. >> rick, baltic index is down nine straight days, china's industrial output disappointed overnight, shanghai was down four straight earlier in the week. are we beginning to see the signs that this rally may, in fact, loose some steam, deflate, correct? >> you know, it's very difficult for me personally or many of the people i hang around with on the trading floors to make a guess there. because, obviously, there's a lot of reasons why equities are moving higher, whether it's cost cutting, government programs, all of that makes a difference. all i can tell you is i think i would keep an especially close eye on the dollar because the

new awareness seems to be that if there's skiddishness about the fate of the current couple-month rally in equity tis, maybe it's going to show up in more buying of dollars. maybe we're not really getting away from the