until some time late next year, and that mileage test was under very specific conditions. the volt can go 40 miles on an electric charge. after that, a small gasoline-powered engine will kick in. so the big news this week is not so much what the fed did, but what it said. and joining us now to help interpret that and where the markets and the economy may be going next, mike cuggino is manager of the permanent portfolio funds with more than $4 billion in funds, and diane swonk who is chief economist at mesirow capital. diane, what the fed said is that financial conditions are leveling out and further financial conditions are improving further. do you agree? >> i agree. they are leveling out and they certainly didn't say they were soaring ahead, did they? >> no. >> well, saying we are seeing some cross currents in the economy, and good news and bad news. the armageddon scenario is behind us, but we are moving into an economic recovery, but it's very fragile and will be a rocky recovery at best.

so the fed left the door open, the backdoor open to continue its quantitative easing, if necessary, and expand the balance sheet, although i it would like as we continue into move into 2010 to reduce the balance sheet and not raise the rates for quite a while, but certainly accommodate it. >> well, what about it, mike? i think that at some point there needs to ban exit strategy, they will need to do that and the fed will need to raise the rates. when does that start? >> yeah, i agree. they took maybe the first baby steps in this announcement where they started to say the end of the direct treasury buy program is going to happen in october. so that's maybe the first steps. typically coming out of a recession, you don't see a fed tightiening until four to eight quarters after. given the reappointment of ben bernanke, which i think has been an underreported story at this point. it's going to impact the markets in q3, q4. >> do you think he be reappointed? >> well, i don't know. it is a tough question because there is debate going forward on both sides and certainly reasons to go forward because he steered

the financial economy around the crisis in the last year. on the other hand he was around presiding over it in the early stages when it was created, so it a double-edged sword. so we will see what happens. >> diane, late this week, disappointing news on the economic retail sales and the rise in jobless claims. just a bump in the road or something else going on? >> well, again, the u.s. consumer is badly hampered and what we saw is the u.s. sales disappointed despite the cash for clunkers program which added $1 billion in spending in july. the payoff was huge for auto dealers, but not for overall retail sales. i think it would have been weaker absent the cash for clunker program, but it really underscores how the government is providing morphine for a more painful economy for the u.s. economy. but not curing what ails us. vehicle production was up for month of july and picking up even more on the heels of the

cash for clunker program which is more than we got out of $150 billion in tax rebates a little over a year ago. we spent that money filling up the gas tanks rather than stimulating the production, so this program is at least giving us a bang for the dollar in terms of production. >> and mike, the stock market has performed in a great way since the march 9 lows. too much too soon? due for more correction or what do you think? >> well, both. we came from such lows in mar thatch a snap-back rally was inevitable. the market stalled in june and late may when it needed firm economic underpinnings to keep going and it was whether it was a bear market rally or sustainable bull market. what we saw the with q2 earnings coming out this summer is that they were better than expected as a general rule and that gave us firm underpinnings for the rally we had for the summer. going forward, we need to see more of that, and we are also need to start to see more news on the consumer housing

foreclosure which is too high, and unemployment too high, and those sorts of things have to move the economy forward from here. the jury is still out as to how robust that is going to be. >> what do you like in the market? certain sectors? >> well, in the long term, i like the u.s. market generally. it predicts future economic recovery, so from that standpoint, the market was vindicated. we like financial services. the positive yield curve is such to allow the firms to grow out of the earnings out of the balance sheets issues. and we like the u.s. manufacturing on the basis of global economic growth story. still intact. encouraging news coming out of europe this week as well as asia. i like the natural resources and commodity story as part of the global growth story which is a longer term growth story. >> and diane, in the longer term sector of the economy, housing, in your view, has it bottomed? >> it has bottomed, but the problem is it bottomed at such a low level and declined for so long, it is in a deep hole it now has to climb itself out of.

i do believe it has bottomed, but it doesn't mean much of a bounce going forward. first-time buyers coming back into the market. some buyers actually bigd on homes in california. and still a lot of foreclosures. so it is still going to be a buyers' market for some time to come, but at least it will be adding to growth in the second half of the year after four years of taking away from growth. >> mike cuggino and diane swonk, thank you for seeing you today. and now, coming up, are we better off than we were a year ago? and that is what authors and business leaders are talking about in their own words. >> you have credit coming in and residual values are strong, and used car prices are quite strong. some of the leading indicators are flashing green for the industry. so while the impact of the cash for clunkers stimulus would go away when the program goes away, there are still fundamentals to indicate the market is beginning

to recuperate. >> there is a lot of risks ahead, and the markets are tightened to perfection, but we have a balance sheet that needs repair. we still have problems in the housing sector, and we still have ultimately to get out of a massive amount of fiscal stimulus. >> we have much fewer people employed today with almost the same level of debt than we did before the crisis. plus, now we are converting private debt into government debt. okay? so, we have more problems today. up next on the "wall street journal report," profiting from pollution? we will take a look at the market innovations that could turn environmental concern into a good investment. and they are three little numbers that can determine an awful lot of your financial life. your credit scores. how to keep them healthy. as we go to the break, a look at how the stock market ended the week.

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this is the official card... of the world's largest airline. this year, u.s. businesses and consumers are expected to emit 5.5 million tons of carbon dioxide from fossil fuels which makes us the world's largest polluter per capita and second to china in terms of total emissions, but is there an opportunity to make lower emissions good for business? maria spoke to one environmental economist who is taking a cue from traditional commodity exchanges. instead of trading on futures in corn and soybeans and wheat, he is trading on air. >> with the administration's promise to lower greenhouse emissions this decade, and

congress' first step to eliminate a cap and trade system, more members of the business world are trying to find market solutions to environmental issues. joining me is richard sandor, ceo of the chicago climate exchange, the world's first greenhouse gas emissions reduction registry and trading system. richard, great to have you on the program. >> great to be here. >> what an interesting idea. how do you make air a commodity? >> well, i was asked that 30 years ago when i developed bond futures and they said how do you make money a commodity? it is much the same thing. you regulate and give out the right to emit. if you don't use all of your rights, you can sell them to somebody else. if you don't have enough rights, you buy them from somebody else. >> so you founded the chicago climate exchange in the late '90s after the u.n. kyoto protocol set binding targets for the nation to lower emissions, and the united nations did not sign that

agreement interestingly. how does your exchange work now? but what companies for example now are going to be trading on it? >> well, the exchange includes companying like ibm, ford, dupont, intel. it is 112 members and if you added their emissions together, they would be bigger than germany. so actually, the united states already has the largest cap and trade market in the world. >> how big of an industry is this? >> it is going to be huge because carbon touches anybody from chemicalmakers to automobiles, to building -- across every single sector that you can imagine. i think that carbon ultimately will be the largest commodity in the world. >> do you think there is a place for individuals to participate in this? individual investors? >> oh, sure. we will have futures in carbon and we already do on the

european affiliates. 700,000 contracts which is a regional project here in new york. and believe it or not, we trade regional carbon in the northeast and that market is bigger already after 11 months in milk and lumber. >> now, is it sustainable and do you think over the long run there will be a carbon tax on polluters? >> no, we have the perfect case in the united states. in the 1990, we passed the clean air act to try to get rid of acid rain. it was 18 million tons, and we got it down to 9. it cost $1 billion or $2 billion a year and throws off $122 billion in reduced medical expenses. so it is worth -- and as a matter of fact, the success of the acid rain program is what drove the world to come up with carbon trading as an alternative to taxes. >> i mean, i guess people need

to see first what a big problem it is, and then look for solutions and opportunities to trade. in june, the american clean energy and emissions act set reductions on greenhouse gases by 2020 so we have a deadline in place. the congressional budget office estimates that could cost to economy $22 billion, which is really fascinating. in 2010 dollars or $175 per household. do you think that congress is taking the right steps? >> i think that congress is absolutely taking the right steps. we have more to go in the senate. they will enhance the bill, and then you have the joint committees of both houses to reconcile any differences. but i think unambiguously, they are tackling the problem, they are going through the issues, trying to develop a program that has cost containment. >> so, do you think of yourself as an environmentalist or a capitalist? >> i think that i am like patty hearst.

i got basically kidnapped by the environmentalists, and i fell in love. i developed the financial markets and then the stockholm syndrome hit me. a dear friend in graduate school always urged me to fulfill my financial skills for the environment, and i just love it. >> are we doing enough do you think to lower carbon emissions? >> i think that the bill will get us in the right direction. i worry that there is not enough clean air, not enough water in the united states. >> sure. >> we take a look at things that we generally thought were free. once you put a price on carbon, you are going to get the modifying the microseed pollutants and get biodiesel and you're going to get a whole new industry that will both generate jobs for america and make us energy independent. that is what a price will do for us. >> yeah, that's a really great point. i'm so glad you made it. richard, great to have you on

the program. >> pleasure to be here. >> thank you. richard sandor. up next on the "wall street journal report," your credit score and what you should know about the numbers that signal your financial health and how to keep them in good shape. and small no-interest loans have helped millions of poverty stricken people in the world. this week, the white house recognizes the man who pioneered microfinance.

your credit score -- it is a three-digit number with a lot of power.

it impacts your ability to get credit as well as the interest rate that you receive when you do get a loan. for years at three major credit agencies have used a version of the formula called fico which was created by the fair issac corporation back in 1956 to grade credit worthiness. recently, equifax, transperion have joined together to form their vantage score. maria spoke to the ceo. >> i am now speaking to barrett burns, the ceo of vantage score. great to have you on the program. >> thanks for having me. >> can you tell us how your credit reporting works? the scoring algorithm. how is it different from fiko, whi which is what a lot of people are familiar with? >> well, our model scores many

more people. we recognize that many millions of people were being excluded from the credit process because other algorithms don't recognize what the information is in the bureaus' files. so we score many more people who have access to mainstream credit. >> is the price the same, and the scoring the same as fico? >> well, we don't know. we license the algorithm to the three bureaus and they sell it into the marketplace and compete in the marketplace. >> a u.s. district court judge recently dismissed claims from the fico corporation that your corporations engaged in unfair business practices by forming vantage score. how is business after this ruling? >> well, we've been business as usual even before the ruling. we went into the court to ask the charges to be dismissed. we are very pleases with the vast majority of the charges were dismissed, and we're moving forward. we're assuming some lenders may have held back pending this ruling, so we're moving forward. >> now, is there any sense of sort of how healthy consumer balance sheets are today based on the information that you

have? what can you tell us about what is going on with the consumer today in terms of the debt load and their overall health in terms of finance? >> well, actually some scores at the lower end are improving. it is all a function of are people paying their bills on time? and that is the biggest determinant in improving or degrading a credit score. but an algorithm can understand your payment behaviors very quickly. so if you are improving the payment patterns, our score will pick it up very, very fast. >> as far as the score, what are you seeing from the lenders today in terms of the importance of the actual numbers attached to the credit score? how high should the numbers be for getting a mortgage, for example, or buying a car? >> well, if you are in the 700s or 800s, that is good credit. but it depends on the criteria from the lenders themselves, and their target market and credit criteria and their pricing.

it all starts with an accurate credit score. >> if you have a bad credit score, how easy or tough is it to revive your credit score? how do you do that? >> paying your bills on time is the best way to improve your credit score, and they can -- the algorithm will learn that very, very quickly. >> what about the current environment? what about the economic slowdown, unemployment rising? how does that come into play and affect credit risk? >> well, not directly in an algorithm because we use -- it is all fact-based. we don't use any econometric models, so indirectly, if you are unemployed for a long time and run out of cash reserves, but there is not a direct correlation in the models in economic factors. >> great to have you on the program. we so appreciate it. barrett burns of vantage score. up next on the "wall street journal report," the look of the news this week that will impact your money.

and the white house recognizes some of the world's most giving citizens, including the economist who pioneered microcredit by giving away his own money. ñ

here are the stories that are coming up that may move the markets and affect your money this week. on tuesday, second quarter earnings will be released by the final two dow components of the season, home depot and hewlett packard as well as target and saks. and also, the commerce department will release ppi which measures wholesale levels.

and also new residential units that began construction in july will be released. and friday, realtors will report the number of homes sold in the month of july. finally, the nation's highest civilian honor, the presidential medal of freedom was received by 16 people this week in the east room of the white house. among the recipients nobel laureate, a bangladeshi microsoft pioneer who gave away $27 million of his own money to the poor to start small businesses. >> offering himself as a guarantor, he withdrew a loan and paid off their debts and founded grameen bank. a bank that has dispersed over $8 billion, and lifting millions of people from poverty with microloans. muhammad eunice was just trying to help a village but somehow managed to change the world. >> by the way, banker to the poor, he and the grameen bank

have a 97% repayment rate. astonishing. that is the show today. and thank you for joining us. mara will be back next week talking about retirement strategies. how to make smart decisions in good times and bad. if you have questions on retirement you want our experts to answer, e-mail us at maria@wsjreport.com. each week, keep it here where wall street meets main street. i'm bill gref eiffeth. have a great weekend. taking its rightful place in a long line of amazing performance machines. this is the new e-coupe. this is mercedes-benz.

we know, father, that people have worked hard for their homes, lord. and we know that you've blessed them with them. and we know that you didn't bring us into this world to leave us.

>> we have evictions every 20 minutes. i was just trying to get ahold of you to see if we could get in there. every 20 minutes, sir. sheriff's department! these are nicer, upper class homes. but i believe middle-class people got into them thinking they could afford the payments. you're going to come into this neighborhood and you're going to start seeing all kinds of foreclosed homes. you have four houses right here. you have five, six. probably a foreclosed one there. one there. you look down the street here, and then there. you come around. you have another one right there. one right next door to it. this is just one street. >> so we ask that you would be with us today, lord. >> sheriff's department. >> bless each one that we may save all the homes if possible, lord. >> the grass is dying. the leaves are -- the flowers are gone. it's kind of sad. we can't move. we can't afford to move. one of the biggest worries is