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tonight on "the kudlow report" -- look, instead of the federal reserve regulating pay at 5,000 bank, why not make the $100 million man, andrew hall, the citigroup ceo. he knows how to make money. the fed should stick to restoring king dollar. and the market rally that everyone loves to hate. it's the greatest story never told, and it ain't over yet. plus, the tax man cometh. higher taxes are coming, folks. are you prepared? we'll tell you what to do about it. and how to save california. last night i spoke to

gubernatorial candidate meg whitman. tonight it's equal time for her opponent. fasten your seat belts, everybody. "the kudlow report" begins right now. good evening, everyone. i'm larry kudlow. we believe free market capitalism is the way to prosperity. now the fed wants to curb pay at 5,000 banks. cnbc's mary thompson has the detills. hello, larry. >> the plan under consideration would impact employees beyond executive suites. outside pay is seen as

contributing to the risk taking that fuelled the financial crisis. so people say it's within the authority of the fed as a regulator to monitor pay if it threatens a bank's soundness. it would impact senior management as well as whose creating and taking financial risks. at the heart of pay proposal cutting short-term incentives, based on a couple years' performance, not one, and by maybe using clawbacks and reducing bonuses based on short-term performances. also, they want bonuses on a risk-adjusted basis when the companies have a method for measuring that risk. the fed wants the biggest banks to use these principles to design their own pay plan. the fed would then have the power to veto those plans and if it doesn't, the plan would be mob tored through on sight regulators. the fed board will vote on it and it will be open to public comment. the earliest expectations when

these would be implemented, at the end of this year. larry, back to you. >> now citigroup's vikram pandit says $100 million is too much for a bank employee to earn in a year. well, here to debate all that is peter morisi and a former chief economist and cnbc contributor jerry boyer. hang on. sit tight for one second. before we get your take, i want to once again turn to "the kudlow caucus" on this subject. we put this question to our regulars. is $100 million too much pay for a banker? here's what they said. out of our 12 members, six said yes and six said no. an even tie. here is the yes camp and here is who said no. there's the yes boys. and here come the no boys. boys and girls, i remember your

pardon. to cast your own vote, please head over to kudlow.cnbc.com. how about this picture of your humble anchor, okay? i'm going to break the 6-6 tie because i get ten votes. my law is simple. just say no to class warfare, income redistribution takeovers by government. andrew hall made a couple of billion dollars for citibank and he got a 5% commission for that $100 million. is a hero. on the other hand, our friend dick pandit who is a good guy, he sold his old hedge fund to citigroup for a huge amount of money and then it went under. so what's wrong with that picture? i think flchlt hall, the $100 million man should be running citigroup. he knows how to make money. jerry boyer, i saw you in the no group.

my congratulations. $100 million. what is wrong with this whole story? >> well, what's wrong with this whole story is, you know, taxes are going up. we're nationalizing industries. we're france at the rate we're going. and by the way, this idea is coming from sarkozy. i don't want a western european style social democracy. it's anti-growth, it's un-americ un-american, it violates property rights and violates the sanctity of contract. >> and peter, on top of all the things that jerry boyer just laid on you, my good friend, i do not see any evidence of a link between compensation and excessive risk taking. now, i agree there was excessive risk taking. we'll get to that in a moment. but i do not see any link -- and you know what, bear stearns, lehman brothers and merrill lynch, the old securities brokerage firms, all had

long-term stock ownership plans and they still went nuts on risk taking, peter. 's your response? >> we insent vised traders by volume to take high risic. they didn't pay much attention to the quality of loans, instead they just bundled mortgages and bonds regardless if they were safe. and now it isn't like the free market works. we have to bail these guys out. >> no, we don't. >> but we just did. >> we don't have to. >> you had your turn. let me have mine. we live in a world where the federal government bailed them out. we're taxing grandma to bail out aig. >> you make good points about excessive risk taking. first of all, let me concede to you. the unfortunate proliferation of t.a.r.p. money. unfortunately most regrettably,

anti-capitalistically does give government a shot at the pay caps for those t.a.r.p. firms. i agree with that. but the fed is talking about 5,000 banks. and soon those t.a.r.p. firms will be de-t.a.r.p.ed. leverage ratios. the sec failed to enforce lerch borrowing ratios. that was the problem, not compensation. and secondly, peter, capital reserves are too low. so we need less leverage and more capital to stop excess i risk taking. and finally, the goof ball, stupid dumb bow rating agency that signed off on the mortgage-backed pools and the cdos, right? they're the ones to blame, peter, yeah? it has nothing to do with pay. >> don't forget the fed, easy money. >> do i get a chance or are you two just going to gang up on me. >> i don't see the link to

compensation. >> we rewarded people on the volume of loans so they did any kind of loans they could. we wrote swaps on top of swaps on top of swaps. >> why is that an argument for a cap rather than a different structure of compensation. it's a nonsecond by tor, peter. >> i want a different -- >> the question is about caps. >> let me finish. i want swaps backed up by real assets, not what aig did so if they come to pay out, there's money to put there. we wrote four times as many swaps as mortgages. then there was no capital to back it up. and that's how we ended up with lehman brothers causing so much disruption and having to bailout aig. >> the question is about pay caps, not capital structure.

>> it's a necessary complement to -- >> you've made no case whatsoever. you talked about some reasonable stuff about capital requirements but the question is pay caps. there's no link between the level of compensation and the level of risk. this is just envy. this is just recession revenge and it has nothing to do -- >> please don't talk to me about en envy. don't go down that path, okay? i'm talking about the structure of compensation, how you compensate people. >> do you think there should be caps? >> yes or no. >> doi. >> so we're not just talking about the structure, we're talking about caps. and that is envy. >> i'm talking about capping the amount of net income that goes into compensation so adequate profits will be put aside in good years to cover for bad. >> that's up to shareholders. >> the shareholders didn't fulfill that responsibility and now we have a crisis on our hand. >> i don't want nichololas sar y sarkozy -- peter, you're making good points, but i'm telling you, the solution to your good

points is enforce leverage ratios, all right? add more capital, get a better structure of rating agencies, and to jerry boyer's additional point, stop the fed from massive easy money with negative real interest rates, which i might add they're doing all over again. peter, i do not see what the link is to compensation, but i do see the government interfering to a free enterprise matter that is best left to shareholders and the boards of directors, peter. i think you're barking up the wrong tree, even though you're identifying the right branches of that tree, peter. >> i guess we agree to disagree. i think how you compensate bankers, what incentives you provide them is a legitimate concern of regulators, if you have situations where incorrect

incentives cause them to take incorrect risks which ultimately result in the failure of banks which are considered by the system, not by you, not my jerry, not my me, as too big to fail. i was never a big advocate of t.a.r.p. or bailing anybody out pop . i understand, you're a good thinker, you just have this one glitch on compensation. how can we grow this economy in the next 20 years if we don't allow for the incentive structure of performance? that is what i don't get. i don't want -- the federal reserve with a bunch of gs-14s are going to tell these guys what they should make. sales people, bankers, traders. what in god's name does the federal reserve know about this? except, jerry, is the fed doing the bidding of the class warfare crowd from the white house to nancy pelosi to barney frank? is that what they're doing? >> yes, yes. america is surrendering to france.

for the first time in history. larry, here's the pattern. first, you have the nationalization, then you have the talent exodus. and that's what we're going to have. no really talented person is going to want to run a u.s. auto company. no really talented person is going to want to run a u.s. bank because there's caps on compensati compensation. so they're going to go ooiter to another country where they don't have caps on compensation or they're going to go to another industry that isn't t.a.r.p.ed. >> there will be no place to run. >> dubai. hong kong, singapore. >> all the c-minus students are going to go into financial services. they're going to do, peter, to financial service what is they've already done to doctors and physicians, cap their pay so they're all going to leave and we're going to have a bunch of dummies running banks and you're going to hate the dummies running the banks. >> or how you structure the amount they get. shareholders should decide, not you. >> they didn't do a very good

job, did they? >> i want andrew hall to run citigroup. he's the guy to run citi. he knows how to make money. >> and pandit should be out of there. >> we agree on that. >> we agreed on that. that's a good way to end it. peter, you're terrific. jerry, you're terrific. you both had double cap withf w couple of extra shots. is the u.s. auto industry on the fast track to recovery? phil lebeau is going to have the full report when we return. automobiles are beating the street. gdp, profits, industrial producti production, they're all beating the street. so why does the smart money in stocks not understand? you're watching cnbc. (announcer) take your time to find the right time

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microsoft is dedlaring a quarterly dividend paying 13 cents in december. i believe that's a surprise. once again, beating the street's expectations. let's turn to the car business, which may also be beating street expectations. orders are up at gm. is is the u.s. auto industry on the fast track to recovery? here's phil lebeau with the full story. hello, phil. >> larry, the return of leasing at chris ler along with better than expected orders coming in with gm dealers has many people wondering if the auto industry is poised for a steady increase in sales as we head into the new year. let's start first with general motors where dealers are asking for more vehicles than the company anticipated. now, this is due to a couple of factors. inventory right now is at a record low after the cash for clunkers program. they need to fill the show rooms again. at the same time, the money-back offer has many dealers around

the country seeing increased traffic, increased consideration of gm vehicles and as a result, the dealers want to be ready in case sales start to pick up later this year. meanwhile, gmac is bringing leasing back to chrysler. slowly, the industry has been returning to leasing with better rates than we saw before the meltdown last year. how much will this help business at chrysler and frankly at the other auto makers that have also brought back leasing? the expectations are modest at this point. most believe the leasing business, which has remained relatively steady since automakers pulled it off the board last year, that business is likely to stay at about the same pace. still, it's one more indication the automakers are moving back to northerlized business. back to you. the car business may be beating the street. coming up, folks, the greatest story never told. there is no september swoon. the market is creeping up, seemingly a little bit each day,

which is just fine with me. you know what, the hedge fund guys, the few kuhle fund guys, all the guys missed this rally, the summer rally. don't go away.

whatever happened to the

september swoon? what's hot, matt? >> thanks, larry. another day, another gain. stocks are up 7% since the rally began. big movers today include proctor and gamble after being raised to buy from hold at city dprup. also of note, home builders led higher by toll brothers. reits continue their run-up, gaining 9 1/2% for the week. oversold at&t and the entire telecom sector staged a late turnaround on friday, able to avoid a losing week. audio and electronics harmon international jumped. its 75% gain since july 1 has the shorts on the run. and e trade popped 8%. goldman raising it to a buy.

next week, 11 earnings reports coming our way, including conagra and general mills. back to you. >> the dow jones was up 215 points this week. the s&p 500 up 2.5%. as matt said, we are up 7.5% so far in september. forget about the swoon. we're up over 20% for the summer rally beginning in july. and 60% going back to early march. let's bring in our market gurus. bob frolik, author of "a bull for all seasons." before we get down and dirty in our discussion, i want to look at one of steve moore's stock market calls earlier in july. i believe we have some sound on this? let's see if we can crank this tape up. here it comes. steve moore, stock market strategist.

steve moore, i've got to tell everybody out there. steve moore gleefully calls me on the cell phone to tell me he sold his portfolio today. so you're either going to be a genius or you know what. >> i don't have nearly as much money in my portfolio as the rest of you all do here. when you talk about free market capitalism being alive and well, what country are you talking about? i don't see anything on the policy horizon that is bullish. i would challenge you and the others on this panel to point to one single thing that the obama administration is doing that is good for stocks. >> all right. i don't know how much he missed on that, probably close to 20%. i'm going to tell you, you issued that challenge. incredibly easy money from the fed, which in the short run is bullish for stocks.

we may pay for it with inflation in the long run. gdp is beating the street, production is beating the street. the internals of the economy is self-correcting. we are still basically a free market economy. when you make the bullish call we may have to get the heck out. >> thank you for recalling those days when i sold my stock at 9,000. i was premature. and, you know, you were right, i was wrong. you've been the biggest bull in america. congratulations, it was the right call. all that stuff i said about two months ago. i still believe. i don't see any of the policy dials turning the right direction. i'm certainly not bullish now because the market is up by about 10% since i made that call. i just still don't see anything washington is doing that's going to make things better, but you're right. the credit markets have so eased up that it's called a lot of

reassure to investors. >> i think you do have some sympathies with steve moore, but i do want to say this -- sometimes we can overrate politics and policy. a lot of stuff out there that i do not like, government takeover of health care, i don't want any part of it. cap and trade energy, higher tax rates. but the stuff doesn't come until 2011 on taxes and the health care doesn't start 2014. aren't we better looking at the internals of american companies and the economy recovery and of course the federal reserve's easy money? >> absolutely. and, you know, the -- graham said that the market can remain irrational longer than you can remain liquid. in large part that's what we're seeing. a 60% rally, 19 times earnings, the earnings growth isn't there. there's a lot of short-term money fuelling this. but you can't get in the way of a short-term trend. we stay fully invested over the

long term but boy, if i was betting money, i would have lost and i would have felt a lot better being steve moore. i'm glad i didn't do it, but i was sympathizing. >> steve said i was a big bull this year and i appreciate that. jimmy's call about selling treasury bonds is something i wholly agree with. i said so on this program last nigh. i don't want any part of treasury bonds because they're probably the richest asset class there is. but regarding profits, all right, i don't know what the p/e is going to be. profits may totally beat the street. and that's an important component of this. >> i think it is. and i think this has clearly, larry, been a profits driven rally. i think we're reaping the benefit of corporate america, tightening their belt. they've been downsizing. productivity is on the rise. and what we're seeing is profits

is driving the market. when we talk about can we sustain this, can we keep this thing going. the only way to sustain a rally is with employment. i think what we're looking at is the this corporate profitability is those employment increases lead to sustainability. i think we're setting up a great foundation for next year. >> maybe in the fourth quarter we'll see job gains on top of the profit gains that are going to beat the street. it's all the recovery and so-called reflags sectors. it's commodities and materials. it's banks and financials. a steep yield curve and a zero interest rate, even a bank kerr make money.

you've got your retailers and home builders inside discretionary consumer spending and finally the treasury and the fed are debreesh yating the dollar. i'm going to come back to steve moore and give him his due. i think in the long run steve may be right. but this stuff, on top of the fact that hedge funds missed this, mutual funds missed this, the wall of worry is still there, that's why i don't think this baby is over yet. >> and $3 trillion still sitting in money market to buy every dip that comes along. here's my problem. i hear bob and i like to see these improvements in corporate profitabili profitability, but they're coming as a result of cost productions because top lines are generally falling. and my real problem is when does end unit demand pull actually able sustain profitability.

longer term if that lags, steve moore is going to be right. >> i want to start with the fed and easy money and the dollar, okay? the fed is much more powerful than government spending and borrowing. if you borrow from peter to transfer spending to paul, there's no net anything. but the fed creates money, okay? their balance sheet has doubled in the past year. m 1 is up 18%. mzm and m 2 up 8% to 9%. we talked about the cpo curve. the interest rate, year to date, consumer price index is up 2.5% at an annual rate. very big negative interest rate there. and here's my final one, the dollar. we are at a year low on the dollar. gold prices are up $100 since, what, july. they're over $1,000. now, i think the treasury and

the fed want a cheaper dollar, a because they thit's great for exports and b, because they don't give a darn about inflation. if anything, steve, they want inflation. what's your take on this whole fed easy money dollar business? >> i agree with you. and this is inthe biggest conundrum i've seen in the stock market in a long, long time. maybe michael can explain it to me. maybe you can, larry. i don't understand how stocks can go through the roof. at the same time, the dollar is falling in value. >> because in the short run, it is so stim la tif. in the short run. that's all i'm saying. it's lousy policy, don't get me wrong. it's terrible policy. >> terrible. >> markets are rational. investors are rational. if they see the dollar falling even if it's stim la tif in the short run, people are looking out ahead two, three years and that has to have a negative effect on the market. so i just find it very puzzling. but i do agree with what was

said earlier, one of the things that's very -- there's a catharsis effect of a recession. and businesses across america have cut costs with you know what, larry, there's only one sector in the economy that hasn't cut costs and that's government. >> right, absolutely. bob, let me go back to this. so many of the smart guys missed this. there's a story about the few kuhle fund guys missing this. s&p 500 today closed at 1068. the credit markets say we should be pre-lehman. 1200 on the s&p and maybe 1400. furthermore, the dow which closed at 9820, can that get back to 11,000, i want some parameters to you mr. froelich. >> absolutely it can. i was extremely bullish in

march. i think it's very easy. this weak dollar, we may not like the fact that the dollar is weak, but when 60% of the earnings from the s&p 500 come from outside the united states, that weak dollar is what's fuelling profitability. the other economic things that are happening. no one is talking about these things. that's going to drive the economy. what's going to drive demand is a 60% boom in our stock market. consumer confidence will start soaring again. when it starts soaring, they start buying. the psych ll start to work. we're going to be at 11,000 before you know it. >> okay, good enough. everybody is misunderestimating gdp and profits. it's all beating the street. but michael farr, we're going to talk to steve moore in a minute about tax rates. put that aside for a minute. when this fed easy money, cheap dollar, rising gold party comes to an end, michael, then what's going to happen?

>> that's kind of my concern. i don't disagree with what bob says, but they're all having short-term effects. you take that dollar lower and take the bondholders see the value of their bonds dropping in dollar-denominated terms you have higher rates than we have long term problems. >> bingo. >> we have to keep our eyes open. these are short-term -- this is not a long-run play, given these very easy, easy cheap dollar policies. >> be careful if you're an individual investor. >> you've got to keep your eyes open. >> steve and i are going to talk about what to do with rising tax rates in just a moment. coming up, the tax man cometh. and the federal budget is skyrock skyrocketing. how to beat the tax man, the "kudlow report" will be right back. ♪ look at this man

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all right. the taxman cometh. the skmi is on the mend and don't expect high taxes to not be far behind.

those expected to increase, capital gains and dividends could be raised. will be raised. it's already legislation. the top rate will be raised to nearly 0% and the eskate taxes top rate will rise to 60% in january 2011. we are back with steve moore. first of all, steve moore, keep your chin up. you missed the summer rally. you know what, steve moore, i have missed plenty of calls, and i really mean this. look, let me go back a year ago. you were kind to point out. i've had a full forecast this year because aye been a bull. while i was worried about the cheap dollar and the oil stocks, i did not see lehman collapse. i did not see the massive financial meltdown or the great recession. nobody gets it right with some humility, and i want to just weigh in on that. >> larry, let me just say on that. i'm glad i was wrong. i believe in america. i'm bullish on america.

i want the stock market to go through the roof. i want to see people put back to work. but i am worried about a double dip recession. >> you have to be. politics and policy do play a longer-term role. we will see what happens in this november in new jersey and virginia and we'll see what happens a year from now when we get to the midterm elections. things may improve for the better. most tax planners would say defer taking income. but now, you have cap gains dividends, the top rate in the estate tax. steve, if you know that's out there for 2011, what do you do in 2010? is there a way for people to beat the tax man? >> yeah, remember, it happened when bill clinton raised tax rates back in 199 when a lot of people, you know, moved up their income in ways that they got accountants to move income that would have been taxed at the higher tax rates in '9 4.

i think you'll see a big effect of that. by the way, larry, on the dif debd tax, although obama says he wants to take it 20%. if we revert it back to the old law, the dividend tax goes to 40%. that's a huge clobbering tax on stock ownership. if you increase capital gains to 20% and then more than double the dividend tax. that's going to be bearish for stock ownership starting in 2011. >> brt. but for 2010, is the referred strategy to beat the tax man by taking as much income and investment as you can at the lower tax rate? that's a supply side incentive oriented tax strategy which reverses most tax planning which tells you to shelter the money, keep it there. you're saying bring it in 2010? >> larry, you remember what happened in 1986 when we raised the capital gains rate from 20 to 28%.

in 1986, the year before that law took effect, we had a massive spike-up of people taking capital gains before the rate went up. so you may see selling going on late into 2010 to sell those stocks before being locked into higher rates. >> now, that was like in the fourth quarter of 1992. just like obama, he pledged higher tax rates. now that boosted the fourth quarter of '92. as i recall, hillary clinton took her law firm's bonus in the fourth quarter of 1992. that would have been barred in '9. >> so did robert ruben. >> so that means we could get stronger growth in 2010, but it's all going to come out of 2011. >> i think that's right. and what worries me is this combination, larry, going into 2011 of a weaker dollar of rising tax rates.

that doesn't add up to me to be to the a bullish market, but we will see. >> you've got to keep your eyes open. that's all. this rally is not forever. it's just going to go on for a while. >> if we kill health care and cap and trade, that's pretty bullish. >> the politics could turn positively. thank you. archer daniels midland was the largest antitrust case in u.s. history. now it's a hollywood comedy at a theatre near you. our own scott cohn will have the full report when we return. stay with the "kudlow report" and accelerate your income in 2010 to bae the tax man. welcome to the now network. population: 49 million. right now 1.2 million people are on sprint mobile broadband. 31 are streaming a sales conference from the road.

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from fraud to money, the film is about whistleblower mark whitaker who spilled the beans on archer daniels midland whitaker gave his only tv interview to scott cohn who joins us now with the full report. hello, scott. >> larry who knew white collar crime could be funny. of course at the time there was

nothing funny about it at all. a price fixing scheme that nearly brought down archer daniels mid mitdland. matt dillon plays an up and coming executive who blows the whistle involving a feed additive called l eed lie -- ly. turns out he has issues of his own, like the fact that he was embezzling money from his company. he gave his only tv interview to us, still insisting to the young and skinny reporter that the $9 million in his swiss bank account was given to him by the company. >> it was standard operating procedure in 20 years. you play overseas tacks and most of my money was in switzerland so i played swiss taxes. >> he initially gets off on his

role as a secret agent. at the depths of the scandal he tried to kill himself. he served eight years in prison. today, he and his wife ginger live in florida where he's the president of a biotech company and he does not shy away from his past. larry, matt damon posedly put on 20 pounds for the movie and so did i. >> oh, scott cohn, you never looked better today, buddy. it's good to see you. thanks. now, coming up, who's going to clean up california's economic mess. last night we spoke exclusively with gubernatorial candidate and former ebay ceo meg whitman. tonight, we're going to talk to rer main competition, republican state insurance commissioner steve poisener. i want to hear what his policies are and so do our viewers.

we'll get them to you right here on "the kudlow report." she wants to make up. we decide to turn in early. we just know. announcer: finding the moment that's right for you both can take some time. that's why cialis gives men with erectile dysfunction options: 36-hour cialis or cialis for daily use. cialis for daily use is a clinically proven low-dose tablet you take every day, so you can be ready anytime the moment is right. tell your doctor about your medical condition and all medications and ask if you're healthy enough for sexual activity. don't take cialis if you take nitrates for

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all right who can save california? yesterday we spoke exclusively with republican gubernatorial candidate and former ebay ceo meg whitman. joining us this evening is her competition in the gop primary. he's the only republican statewide officer holder.

thank you for coming on. >> hi, larry. >> 12.2% unemployment in the state. what would your top priority be if you were elected governor? >> the unemployment rate is 2.5% highser than the national average. my number one priority would be to cut tax rates across the board. that's why just a few days ago, i rolled out my jobs package with the centerpiece being bold across the board tax cuts. 10% cut in personal income tax, 10% cut in corporate income tax, a 10% cut in sales tax and 50% cut in capital gains rate. that's exactly what the state of california needs to become competitive again. we'll get jobs to come back to california. that's how we'll balance the

budget. >> ms. whitman talked about taxes. she doesn't have your specific plan. she says she doesn't want to raise them and she would like to cut them over time. but her greater emphasis was on controlling california spending through line item veto, through citizen statewide initiative ballots and changing the culture in sacramento. in your judgment, which is more important? spending cuts or the lower tax plan you've outlined. >> last night she said there didn't need to be a change to the tax structure in california. i couldn't disagree more. lower tax rates are essential to stimulate our economy again. 3,000 people a week, 3,000 taxpayers a week pick up and leave the state of california each and every week the only

person running for governor about these tax cuts, and as we know, the curve actually works. lower tax rates will stimulate job growth and that's how we'll solve the bulk of the problems that we have in the state. >> one that i did not ask ms. whitman about, but it's circulating around. some kind of soda tax to stop obesity. would you veto or not a soda tax? >> well, i signed a no-tax pledge here just to make it crystal clear, i would veto any tacks of any kind right now. that's the worst thing we could possibly do. we already have one of the highest sales taxes and income tax. we can not handle any more increases. >> i was going to say it's really crucial that we actually cut taxes.

actually raising them again is just completely out of the question. >> well, in truth ms. whitman didn't talk about raising them she talked about keeping where they are and reducing them in the longer term. i didn't hear any talk that she would raise them last night. let me ask you about the state's cap and trade plan. ms. whitman said she would roll it back. what is your response to california's cap and trade? >> by the way, she did say she wanted to keep the tax structure the same. that's just wrong. that's why i'm proposing a 50% decrease in capital gains taxes. we do need to fundamentally change the structure here. with regards to cap and trade, i owe pose it. it's just another burden on the business community in the state of california. >> would you abolish it or roll it back as she suggested last night? >> i would suspend those rules and i would overhaul the regulatory system.

we nuld to streamline the regulatory process. some of the environmental rules in the state of california are just way extreme. now, i care about the environment. i have sew saar cells on my roof. we're going to protect the environment here in california but the rules are so extreme here, all it does is kill jobs, hurts the economy and pushes manufacturing to the midwest. now, in the midwest, they get their electricity to run their manufacturing plants from pretty dirty coal-burning fire plants. our environmental rules hurt the environment because if we had the manufacturing here, we would have a much better control over the impact of the environment but we keep the jobs here, that's key. >> do you agree with using the line item veto to curb spending? >> i do agree the next governor needs to boldly use the line item veto.

i'm only one of eight officers elected statewide. when i got there, 1,300 employees. i now have 1,100 employees .. i've been able to cut my expenses 15% permanently. i cut taxes on insurance companies that fund my $200 million department. so i actually practice what i preach here. we need to right size and modernize. i've dealt with all the bureaucracies and unions to get that done. we need to do that right sizing and overhauling across the entire state of california. every department and agency needs to be overhauled. i'll do it for the entire state of california. >> in the last minute, i want to ask you about what your criticism what's your key issue in this campaign in the republican primary. i asked the same question of ms. whitman last night. she referred to you as an outsider -- as an insider, rather, i beg your pardon, and

she's going to run as an outsider. what's your principal criticism of her? >> well, basically the state of california doesn't need a roo e rookie. i have a perfect blend of experience. i started and ran high-tech companies very successfully from scratch. but now in politics and public sector service, i've gotten it done. i want to make california's economy so attractive, larry, that you move your show to california. >> you're wonderful to come on. we appreciate you very much. all the best. folks catch me monday on "the call" with melissa and trish. have a great week. ♪ look at this man

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