we talked earlier with tom honig, the president of the kansas city city fed, our host here, about the issue of how this year is different, how the mood is different this year compared to last year. >> i think people are of the opinion that the worst lay behind us. we need to start thinking about how to proceed from here. >> reporter: doesn't mean we're out of the woods by any stretch of the imagination a. lot of debate, has policy worked? if it has, is it time to start scaling back? when to make the turn is also a very key issue here, when the fed should start raising rates and pulling back on some of the accommodation out there. also, the issue of growing deficit concerns when it comes to the treasury with trillion deficit. how does it turn into monetary policy? does it mean the fed has to be tighter? finally, call it trail talk, the issue whether or not ben bernanke will be reappointed.

not an issue formally but certainly in the hallways discussed much on the trail. >> yeah. the water cooler discussion, as they like to say. >> water cooler. >> don't move. the news we broke on the incredibly shrinking deficit was confirmed by treasury secretary tim geithner as another sign this turn around is legitimate. >> the estimates of the deficit will be somewhat lower than we expected and feared in part because we've seen more stability sooner in the financial system. therefore, we think the expected cost of fixing this financial mess is going to be lower than we initially anticipated. >> famed fed greenspan jumped on saying the next six months should see strong growth. we ask, is this recovery for real. we welcome steve liesman and economist and author of the upcoming book "it's not as bad as you think," and mort zuckerman, it is worse than you

think and steve is with us. in addition to what geithner said and greenspan said, we had the fed numbers better than expected and leading indicators better than expected.g is this recovery for real? >> absolutely. you can add those two pieces of data to about 42 other pieces of data all showing a v shaped recovery. back two or three months ago, this is what we were talking g about here at first trust.g all the data, copper prices, oig prices, the baltic freight shipping index, philly fed, em empire state index, manufacturing, on and on tracing out a v-shaped recovery. >> mort zuckerman, you wrote the op-ed that says it's worse than you think. will you retract that head line now or do you think it's worse

than you think. >> i hope the previous speakers are right. alas, i don't think so there. are positive numbers for sure but also very negative numbers particularly in terms of consumer spending and what's weighing on them. house prices still going down, wages not going up. i might say, confidence is going down. in the latest survey, the lowest number of people thought their income was going up or economic condition was getting better since they began measuring it. if consumer spending doesn't go up or continues to go down or stay down, then i think we're in real trouble and this economy will take a much longer time to come up. i will mention one other thing, home prices. deutche bank came out with a study -- >> i read that, too, they think 45% of all homes are under water by 2010. i don't know if i believe that. >> it's a serious study if you go through it. even if it's not accurate, that direction is problematic.

>> steve, you have the greatest minds in the world gathered in jackson hole, what are they telling you? the best place to argue is for me to say it's neither as good or bad as your guests are implying. the reality what i'm hearing, their recovery going on driven by fiscal stimulus and low interest rates and driven by restocking of shelves out there. there is no certainty what comes next. some in the camp said the economy will grow and always grows. along the lines i saw as the kicker of brian westbury's book there, capitalism will rebound and take over if the government gets out of the way. on the other hand, all those who agree with mort zuckerman saying it could be until 2011 that the federal reserve remains near zero on interest rates. the other camp saying spring might be early but second half of 2010 might be a time for the fed to reverse course. what's clear from everybody by the time the economy turns

around, it's too late for the fed to reverse course. >> right. >> a lot of talk the strategy has to be ready, the fed has to have its finger just above the button to push on excess reserves and raise interest rates. even before we're anywhere near full employment. >> is that going to be tough? will the fed take the punch bowl away when we still have bad employment numbers. >> congress already front page story of the "new york times" says they don't like ben bernanke as it is. >> it would be a real tragedy, in my judgment, if ben bernanke is not reappointed. it is an absolute miracle there was somebody who had all that experience and economic background in the "great depression" and acted the way he did. he and the efforts of the fed saved the financial system, not saying it saved the economy but saved the financial without which we would have had a collapse in the economy. >> that's a very good point. can bernanke hold back tpull bah

pole at the right moment.g saying it has to be done decisively and politically. >> the economic data has alreadg turned. they should be raising rates g right now. >> right now? >> absolutely.g back in 2003 and '03 and '04, ben bernanke was there, droppedg interest rates to 1%, we were g saying, i was saying, this was too easy, this would create problems for the economy yet thg fed held rates down at 1% for too long. they're doing it all over again. the reason is political pressure. >> on the other side is pressure that shows reasons why stimulus in japan and the "great depression" didn't work because we backed off too soon. people saying fiscal stimulus didn't work, you know why, because it was never really tried. >> also, this is a different kind of recession. we're talking about a recession triggered by a financial crisis. in the work of a couple of economists in including ken

rogoff, a recession triggered by a financial crisis are deeper in terms of consequences, the unemployment rate goes up much more and last longer, this is a different recession than we had in 2001. >> we have to go onto the next topic soon. >> the problems in the banking system in the early '80s were worse than the problems we had with subprime. what made it worse this time wag mark to market accounting.g by the way, that's why the g government deficit is coming in smaller than they expected because we changed mark to market and don't need to bail out the banks anymore. >> thank you, steve. we have a big special later on in the show. we'll show it to you in a bit. brian and mort are sticking around. steve has a big special at 8:00 p.m. what is ben bernanke's future and larry summers role?

the clash of two titans. the fed crisis & recovery at 8:00 p.m. when banks go bad, should we bail them out or let them go bust. >> one says, let 'em fail! 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,

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ick today. california edging closer to releasing thousands of prisoners to save money. julia boorstin now with the details. >> reporter: that's right, michelle. the california senate this afternoon narrowly passing a bill to let more than 20,000 prisoners out of jail. the reduction in the inmate population is designed to save the state about $1 billion. the bill would change sentencing laws to reduce prison overcrowding. the senate passed a measure in a 21-19 vote. the state still needs to approve

the proposal but expected to happen later today and michelle, governor arnold schwarzenegger supports the plan. >> that will be all over the news tomorrow. appears cash for clunkers is officially out of cash. many thought the incentive program would last through labor day. turns out the $3 billion program will wind down this monday, just a month after it began. and now to the fed conference in jackson, wyoming, where steve is anchoring tonight. and stirring up quite a debate on banks today, with a proposal to let big u.s. banks fail. should big banks be allowed to fail or have we gotten close to solving that problem. here former chief economist for the international trade commission, brian westbury along with mort zuckerman, both still with us. good to see you. we keep having this discussion, should we let the banks fail? should we not let the banks

fail? i don't know a single person in government or congress or at the fed in their hearts wanted the banks to fail but felt the r repercussions would be too great because we didn't have traded credit default swaps, we couldn't clear them, there was too much interconnectedness. peter marici, now that a lot of these things will trade on a platform they're very visible, haven't we solved the major problem that prevented us from letting banks fail. >> if we have the swaps, no reason not to let the banks fail. with smaller bank, sell them to bigger banks. if they're the biggest banks, take their good assets, auction them off, use that to facilitate the process and if necessary, break up. you don't board them up and close them, basically sell them to other banks and may have to do them in pieces, close them the way fdic does regional banks now. >> have we gotten rid of the problems with default swaps and derivatives and all this stuff

now we could let an institutiong fail? >> i think the biggest concern is the systemic risk, if you leg one go, even if there is g transparency, that doesn't mean there can't be a domino effect g and that's what the fed was really worried about.g i want to add one piece to thisg puzzle, because we had mark to market accounting we pushed these banks into trouble so g quickly. let me give you an example. >> haven't we dealt with that ag well? >> we have.g they've made slight correctionsg changes to the rule that will help us.g that's one of the reasons why g aig was able to say what it didg today, why the government has less of a budget deficit, why ppip isn't getting off the ground, all that stuff. it changed the whole landscape. >> answer my question. are we at the point now, we made changes mark to market. we have gotten place we can put all these default swaps and derivatives on a platform.g

is the problem solved. >> if we fully suspend mark to market so it can never come back, yes, we should allow these banks to fail. >> mort zuckerman, you want to weigh in here. >> the issue with bank, forgetting default swaps, what is the condition of their loan books, you look at credit cards and student loans, whatever, auto loans and home equity loans, major banks have literally trillions of dollars of this paper and nobody knows how good the paper is. you saw in the reports issued, quarterly reports, how much trouble they're having with credit cards, if you allow a major bank to fall, it will create such a lack of confidence on the stability of the bank, you might risk the financial system. the whole security market has virtually evaporated, dysfunctional. if you make the banks dysfunctional because they're worried about possibility of run on those banks in terms of lend

k, you will automatically by definition create a major downturn in the economy and why people are reluctant to take that risk. i agree with that. >> peter, do you remember that? in the wake of lehman brothers, when we figured out what was happening there, remember there was this drama on a sunday afternoon, they had 1,000 traders on a conference call because they were trying to get them to match up their counterparty risk. it was a disaster, a mess. now that we've gotten a point we can see that stuff, does that take care of what mort is talking about? in lehman brothers, they didn't know who had exposure to all that counterparty risk that was spread out and come to node all over the place. >> roosevelt had a bank holiday in extraordinary circumstances and we just had the equivalent of that in extraordinary circumstances. we've taken the steps necessary so we don't have that kind of saturday night again, so we can close a bank in a timely fashion

and sell off its assets, if necessary, break it up. if you do the thing right the way you do with regional banks, you can pull it off and create confidence. >> you don't get the run on banks mort brings up, a very good point. >> are we getting runs in the bank around the country as we close six, seven banks every saturday night? >> they're little banks. we all know who the big ones g ar are. >> right.g remember, we closed washington g mutual and sold it off, g wachovia. these were monster institutions right in the middle of all of this. one other thing. what are we looking for? some magic pill that allows us to get through every problem without any hiccup in the markets? the stock market can't go down, nobody can be scared, because g that's impossible. in a process of having a major g firm hit financial difficulties, you are going to have fear, you

will have worries, you will have the markets hiccup, you will have them go down. >> have either of you guys changed your mind in this discussion? >> listen, nobody knows the answer. the real question is we don't know. it's not just one piece of the banks, could be the major solvency, if that happens, you saw what happened in lehman brothers, it happened so fast in so many different directions, the risk of something like that happening again, what it could do to our financial system and therefore the economy are not acceptable. i would never take that kind of risk if i'm chairman of the fed or secretary of the treasury, you don't want to risk an absolute catastrophic outcome even if there is a small chance it will happen. >> that was a great discussion. i love having all these smart people around. good to see you around. thanks for your contributions throughout the show so far. the economy is not the only

thing being talked about in jackson hole as fed ben bernanke's career, can he hang in the balance without larry summers stealing his job? >> and president obama crossing party lines on a conservative talk show today. is this a hail mary to get the party on board?

so all the whispers around

jackson hole today are about the political future of ben bernanke. does he have the political clout to keep his job or will larry summers sweep in and take it away from him. more important, does he deserve to keep his post. guys, good to see you. john, let me start with you. you think he should keep the job, right? why? >> let him keep the job because the improved performance of financial markets tells me investors are growing in confidence with ben bernanke's leadership and why risk this improvement in confidence especially given the very vulnerable and still weak state of the u.s. economy. >> andy bush, you say no. >> the u.s. is more stable now. why would you reappoint somebody who created the crisis, could even see the ramifications of a lehman failure and do nothing to stop it. >> what do you mean? keeping money too cheap? is that what you're talking

about letting lehman fail? >> he saw lehman crisis coming, they failed, both bernanke, paulson and geithner failed to come up with a deal to save lehman. they had no plan d, once the barkley deal fell through, they had nothing left. this really comes down to political ramifications. envision a world in which barack obama does not have any major pieces of legislation passed by this fall, you've got unemployment still stubbornly high above 9 1/2%. this becomes a question of a fresh start, new ideas and somebody has to take the fall. that is going to be ben bernanke. >> the point is basically, you don't want to change the horse in the middle of the race. >> this has nothing to do with financial considerations or what the economists or analysts or strategists want. we lost control of the economy and the politicians took it back. they're going to make the decisions on the appointment. >> god help us all. >> that's really the key here. >> what do the markets do if ben bernanke does not get

reappointed? >> it depends who takes his place. perhaps larry summers is a very suitable replacement for ben bernanke. that's somebody they could live with. he was rumored to be in line for the fed chairmanship in the past. it remains to be seen how negatively or positive ly markes might react if bernanke is to be replaced. >> andy, do you agree with that? did you read that "vanity fair" article when he was running harvard and all the money he spent, spending money out of style like the endowment was going to grow at the pace it was forever. is that the kind of person you want running fed policy. >> a lot of the endowment funds made similar mistakes as far as -- >> i'm not talking about the endowment, talking about the spending at harvard run by his part of the balance sheet. >> let's put it this way. summers is presumably the choice

that obama would make. i think there's other candidates. for right now, he seems to be the front-runner. >> would you be comfortable with him? >> i would not be considering he worked with robert rubin. i wasn't a big fan of robert rubin. again, my men do sa line for bernanke getting reappointed is 9 1/2%. you watch that unemployment rate. >> mendosa line. excuse me, my ignorance? >> you can't hit above .200, you get sent down to the mine this for. >> he uses a baseball reference with me, i will be completely lost here. >> do you agree? is he at risk if we continue to see the unemployment numbers go against him and economy go against him. >> if the economy is doing poorly and we need a scapegoat, ben bernanke is very much at risk, no question about it. on the other hand, if the unemployment rate is declining, equity market is up by another 10 or 15%, yield feds of

narrowed further, it will be duchlt for obama not to reappoint ben bernanke. >> 1$1.9 trillion balance sheet that is up from $900 billion for the federal reserve. part of what makes congress so crazy is, i think it occurred -- ding-ding ding, all the lights went off during the crisis, suddenly there, was this other institution that could be in charge of purse strings and congress really wants to be in control of that, right? >> that's absolutely true. >> i remember asking one representative how do you feel about the fact the federal reserve took away the purse strings and took all that power. they didn't seem to realize it until the moment. >> it's like the fourth branch of government taking over the legislative process. that's truly one of the major outcomes we saw from a crisis. how about getting $7 billion carte blanche and not being able to tell congress where it went

to some extent. a lot of these decisions happen during a crisis. i agree with john. if things improve by november, december, he's absolutely right, it will be impossible not to reappoint bernanke. things change. if we've learned anything from the past fall, whatever seems to be really rock solid can melt away pretty quickly. >> that is so true. guys, good discussion. an andy busch and john. >> we had discussions yesterday about why tax havens are a good thing, why hey help prevent government tierney and keep taxes lower. writing it is so refreshing to hear someone on television warning about the threats of tyranny and advocating individual choice. you seem to be one of the few defenders of classical liberty on mainstream television. i was so happy to hear the word trade off. >> sorry castro took your family fortune. but enough with the wacko big

bad government is watching and stealing from you approach that we can always count on when you offer an opinion. steve obviously knows castro took everything from my parents and oo my grandfather also immigrated and didn't ever ask for help from anyone. ni average joe or jane hides money offshore. if a fellow citizen hides money offshore to avoid paying taxes we vote on as a democracy, whether we like the laws or not, the tax laws need to be enforced in this case internationally. i wonder how many of our elected representatives were on the list. i did not advocate people breaking the law. that is wrong. the point of my editorial is what we get from the ubs decision is not worth what we give up, the entire world gives up when it comes to freedom, civil liberties and ability to hide from corrupt tyrants and government. you want to see what i had to

say, go to cnbc.com. it's posted there. let's go to jackson hole where steve is hosting a special at 8:00 p.m. stev steve. >> michelle thanks very much. we have a special hour, the fed crisis and recovery. we will get down to the issue. has what the fed has done, $800 billion injected into the system, purchasing, bonds led to a recovery. we have top experts coming up. top economistfeldstein and richmond and monetary policy expert, jacob frankle. and tom hoenig, the fed president. we will do some handicaps whether or not fed chairman ben bernanke will be with us another four years beginning in january. michelle, back to you, tune in at 8:00 for the fed, crisis and recovery. >> it will be fantastic. viewers, if you're out there, the smartest minds in the world

on the recession and recovery, fed crisis & recovery, a half hour away. be sure to join us tomorrow morning as ben bernanke talks to keep his job. he is set to talk live. we will have coverage. look how beautiful it is out there. housing still a thorn in the side as the economy makes it into the record books. hi, may i help you?

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welcome back. stocks are in the green for august. china did come back yesterday. we have now had three days of gains in the u.s. now, the s&p 500 is currently up 49% since the march 9th lows. the dow, s&p 500 and nasdaq all making a good gain today for both s&p 500 and the nasdaq and we're back above the 1,000 mark for s&p. market stocks were leading a gain. we have a really big pop to the upside after banking analyst

richard bove a regular on cnbc said some are betting the stock will triple in three years time. and going up 21% after the newly reappointed ceo says they may be able to pay the boost value to shareholders. obviously, investors liking that news. they do like a little bit of oo oomp. we've been getting mixed news from retailers. hormel foods, and the gap all be beating street estimates. sears reporting an unexpected loss and sent stocks down by quite a lot actually. 12% at one point. it is dimming investor hopes the billi billionaire investor eddie lampert can turn this retailers around. and currently the tech, software

maker oracle getting a price tag of $1.4 billion. >> i have to imagine it was the short squeeze and some people were betting the stock would go down. there seems to be a feel good in the financials and we did get good economic data in the manufacturing numbers and that off seset some negative views o housing and delinquency and everyone focused on the manufacturing data that came in at a good reading. >> thank you very much. >> now to housing where we are still setting records on the foreclosure front. cnbc diana has the report. >> we're still setting record. total loans past due climbed to

30% of all loans out standi ing and the culprits are changing, t the delinquency rose in the past quarter. subprime fixed most dramatic in the past three years leveled off in the past quarter, same with subpr subprime a.r.m. and it was flat thanks to banking loan industry modification programs also due to a big moratorium in illinois. it's always good in those four states we always talk about california, arizona, and nevada and they account for 44% of all foreclosure starts. michelle. >> thank you. what is going on with aig? amanda showed it to you. stocks skyrocket over 20% today. our markets on this move. we'll talk about it. "the kudlow report" is back in two minutes. announcer: what are you waiting for?

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suggestions the giant may be ready to pay back the t.a.r.p. money and maybe even return some money to shareholders. is that possible? >> here to discuss the research, the chief investment officer and action contributor and peter shipp of euro-pacific author of "crash proof," how to profit from the coming economic collapse. the ceo says he's optimistic he can pay back all the money and even thinks the shareholders will end up with money. do you think that's possible? >> highly unlikely. i'm sure he will. >> cynicism. >> all investors need to stay away. all that's happened apart from accounting changes that benefitted them. they got a lot of free money from washington. took it to the wall street casino, placed some bets. bets are going their way, lavishing the winnings on themselves with bonuses and

raises. there's nothing for the shareholders, as soon as the bets turn sour, they will have new lows and executives be back in washington looking for more bailout money. >> how much was a short squeeze, ceo says something positive and a lot of people thinking like peter and short the stock and suddenly getting creamed. >> exactly. we have seen short classics like vw. peter is right. it is adult swim, get out of the pool. if you have a thousand shares in your safety deposit box, you wonder how that happened. they're putting it out and buying it back and buying it back again. the traders are in charge. not a good place for investors. this is a classic short squeeze. >> i like when you say adult swim, keep your bathing suit on. you want to move to the overall markets. >> the comments about adult swim are appropriate. let's not forget about one

additional thing not talked about, change of leadership. we're talking about caretakers in a garage sale and then have a business builder. the dynamics are a little bit different. i don't think it was purely about those who got caught on the short side strictly but i think there is a directional change in leadership, too. >> tell me about s&p 500. we're back above it. we've done this three or four times. are we going to hold this time. >> we will be back and forth. i think we're in a trading range and over the balance see equity grind higher. this is still this case we look for proof points in terms of the real economy. we will continue to look very very closely at corporate earnings and see emergence of continued evidence the economy is getting marginally better but you won't see this sudden swoop that will drive equities significantly higher the balance of the year. >> it will be drip drip drip. do you think the s&p will hold

1,000. >> probably because there's no catalyst. we're through the bulk of earnings season. the problem with earnings season, hey, great, all these companies beat on the bottom line. the problem is only 1 in 12 of the top companies beat on the top line and bottom line. >> in other words a lot were cutting costs but not improving revenue? >> that's right. we know how they're cutting costs because we see the jobs numbers and claims numbers every thursday. it's not really pretty. it will be a little bit tough. the companies that will do well going forward will have pricing power. they will be able to leverage the top line better than say wal-mart who will have a hard time raising prices and boosting revenue. >> peter, you don't think the s&p 500 holds. >> it will not hold indefinitely. this rally has legs. it is a bear market rally. the primary trend is down, this market is lower eventually.

>> are you trading right now? >> no. i'm not really active in the u.s. market. i have my money offshore, in foreign commodities, in length bull markets. i don't want to try to time market rallies. >> if we have traders watching you now, you think this is a bull market with more to go. how much longer would you stay in if you're playing it. >> i don't know. i don't have a crystal ball. i think a lot of people will get hurt if they're reading anything into it thinking the worst is over for the u.s. economy. this recession will outlast barack obama's presidency. anyone who thinks the economy is improving. >> why? what's going to do that? we're getting a lot of economic data that suggests to many economi economists things have turned. >> it doesn't suggest it to me. maybe to the economists completely blindsided by what has happened. >> the leading indicator of the fed today. >> you have an increase in claims. you get a little bit of boost

from trillions of dollars of stimulus that has actually worsened the economy. they have undermined our economy further with additional debt and crippled our economy with more government regulation and involvement in the market. all these things are negative. >> give me prozac here to the depression coming out of peter. >> recessions and depressions end. the point about the government assistance is appropriate. certainly, this is not yet a self sustaining recovery. >> it will end eventually, just not any time soon. >> i'm not so sure about that the notion we never quite see the recovery coming until it's well upon us. it's happened historically in the past. >> remember, very few people saw this recession coming even when we were in it. >> that's true. i think that will happen -- >> i think that almost proves his point. >> we're likely to miss the recovery until we're well into it. >> scott says go with companies with pricing powers. peter says he's not even in the

u.s. market. what's your advice to investors right now. >> we're modestly long in the markets and don't agree we continue to wait on emerging markets, think the prospects are better there. >> even though emerging markets are dependent on us, the u.s. consumer, the people who buy? >> that's less and less important. if you look at what's happening. they're repositioning themselves no longer dependent upon a consumer driven cycle. you have it backwards, we're dependent on them. they produce, they save, we're getting a free ride on their gravy train. >> i have issues with treasuries and everything else. when it comes to the cheap manufacturing they, do we buy i it. >> we don't have any -- >> the problem with emerging markets we've seen this recently in china, they're incredibly volatile, if we're going to rely on them or invest our money

outside on them, fasten your seatbelt and wait out the ride. it will be incredible. >> thank you, gentlemen. the show has been incredible. good ride. good to see you. a quick reminder, catch more of scott on options action tomorrow at 8:30 p.m. on cnbc. one more reminder, stay here when steve leisman goes live with the annual jackson hole conference. look at that beautiful live picture? isn't that gorgeous? still daylight out there. aren't you jealous of him and all those guys being there. steve will be there tomorrow when ben bernanke takes to the microphone. will they be famous last words or can big ben win the rumble in the rockies to keep his job? up next on "the kudlow report," are democrats ready to go it alone on health care with not one but two bills? you heard right. senator ted kennedy trying to change senate succession laws in massachusetts to ensure his vote is heard. we'll debate and discuss why this is pretty hypocritical on

his part actually.ea you're watching "the kudlow report." not just some cute little gecko waffling on about this, 'n' that. gecko vo: i mean, i am easy on the eyes - but don't let that take away from how geico's always there for you. gecko vo: first rule of "hard work equals success." gecko vo: that's why geico is consistently rated excellent or better in terms of financial strength. gecko vo: second rule: "don't steal a coworker's egg salad, 'specially if it's marked "the gecko." come on people.

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the battle of obama-care rages on as democrats look to push not one but two health care bills. and senator kennedy has written a letter for leaders of massachusetts can replace his seat in the event he dies from brain cancer.

former policy advisor to john edwards and james taranto of the "wall street journal" editorial board. guys, good to see you. let's start with ted kennedy. we all feel terrible about the situation he's going through but he wants massachusetts law to change so that way somebody can actually do a vote for massachusetts rather than the five month waiting period that would normally end up happening. i guess what frustrates me the reason they put this law in the place is the democrats in that state didn't want mitt romney to appoint a republican. isn't there hypocrisy there? >> this is just about making sure that massachusetts voice can be heard. >> when democrats are in charge. >> in the house debate regardless who is in charge and senator kennedy. >> but not when romney was in charge, right? when a republican is in charge? >> states can decide how they want to replace their senators. senator kennedy, who didn't vote on this the first time, he was

in the federal senate, not in the state, is encouraging state leaders to look at this and ask themselves, do they want to be in the position of being in the middle of this very important health debate and not having a vote only having one senator instead of two senators they're supposed to have. this makes sense for senator kennedy, who's been a tremendous voice for massachusetts, to make sure they have a voice in this debate. >> do you agree with me, is this hypocrisy. >> it is not only hypocrisy, it is on ted kennedy's part because he wrote a letter to massachusetts urging them to change the law five years ago because of the fear john kerry would be elected president and mitt romney appoint his successor. we've had such great experience of senatgovernors appointing se, rod blagojevich in illinois and patterson in new york, if anything the case for popular election has been strengthened. >> tell me the justification when it comes to the democrats

talking about two different bills. the public option in one, obviously the most contested part of the health care debate and do it through this congressional slate of hand, do it for reconciliation so they need fewer votes. is that going to work? >> the whole reason we're having this debate over two bills is because republicans refuse to engage in a constructive way in the house reform debate. senate leaders have bent over backwards to include the republicans, over 160 republican amendments were included in the health committee bill that passed in the senate. we're in this position because they're not going to engage. it doesn't make sense. we need to have health reform. so if there are senate rules that allow a will to bill to go and you can get 50 votes, democracy is about majority rules. >> is that how democracy works. >> i read about this in my newspaper today. i find it hard to believe they'll actually do this.

maybe they'll split off less controversial bills to get it through, you're going to tell me in the face of a popular revolt against this legislation the democrats are going to take sole responsibility -- let me finish. watch the tv, pal. the democrats are going to take full responsibility, only democrats will be held responsible for this, and they're going to blow up the senate in the process for a bill highly unpopular and terribly expensive and possibly will kill people. they're going to do this. and, you know, seems to me, it's a case of if they actually do it, i would classify it as political assisted suicide. a plan to revive the discredited republicans. >> that got you laughing, peter. >> the town hall meetings, these are events where conservatives are putting plants in the audience, putting out information -- >> you cannot tell me all these elderly people got out there

because -- they're scared to death. >> so much misinformation right now. we're talking about the senate has majority rule. >> thanks so much. stay tuned after the break for steve lee s steve liesen's cnbc special. live from the jackson hole. thanks so much for watching "the kudlow report." when people say,

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rocking the nation like a bucking bronco. the question remains are we moving out or about to see wild swings that will make the charts look like the great mountains of wyoming. it's economists like you've never seen before giving us what's in store for your money. fed, crisis and recovery starts right now. steve leisman live in jackson hole, wyoming. >> good evening. i am steve leisman live in jackson hole, wyoming, this week, this is the capitol of the country. the prospects for an economic recovery. tonight in a special presentation, we'll bring you the best and brightest. we'll focus on two important issues, where are we as far as recession and recovery go and what is the prospect for jobs and return to normal in this economy? is the current chairman, ben bernanke the right one to lead the nation back? let's begin this special hour with a look why this conference so