sold at home depot. though the economy does appear to be growing again, not all the news is bad. hi, everybody. welcome to the "wall street journal" report. i'm maria bartiromo. the market hit new highs for the year. ben bernanke says the recession is over, and positive economic news piles up, but we may not be out of the woods just yet. are the markets getting ahead of the economy this week, or is this justified? >> well, i think it is justified, because we still have quite a few tail winds behind the economy. the problem with it, though, is a lot of the tail winds are coming from artificial stimulus from fiscal spending. >> what happens when that fiscal spending is reversed? a lot of people talking about what is the exit strategy out of the federal reserve, and what happens when the stimulus goes away? >> well, the good news, i suppose, is we still have probably another year of stem husband to keep -- to continue

to push the economy in and hopefully the markets forward, but then it's like taking the patient off the respirator. we just hope that it can breathe. you can breathe once that's done. i don't think there are that many bullets left to, you know, keep stimulating an economy. >> ben bernanke just this week said that the recession is likely over, but that the recovery will be weak. do you agree with that, and if we are in a weak recovery, do you still think that the markets rally is justified? >> i do think that the market's rally is justified just based on what -- everything that we know now. the problem is a year from now when we do have what i agree is going to be a subpar recovery, will the economy grow enough to actually create enough jobs to get that -- the 7.5 million people or so who lost their jobs during this down cycle back into the work force. >> what's driving the economy now? we got some okay retail sales numbers. housing starts up as well, for sure. does it -- does the data add up to something bigger? where is the growth? where is the weakness in this economy right now? >> generally what i'm seeing is

the growth is coming from just the resurgence, the fact that we can take that armageddon scenario off the table, so i think from that perspective, we are seeing some strength. again, you know, increase production. maybe it's because of cash for clunkers and other incentives. the weakness still, though, is in jobs. the fact is that companies were very quick to get rid of workers. they're not going to be so quick to bring them back on, and i just like to see the job picture improve to really say that you know what, the coast is clear. >> let me you ask you about inflation. gold is up. silver is up. oil is up. copper. so many commodities are much higher today than a year ago. we got numbers on consumer and wholesale inflation, and they did show some signs of inflation. are you worried? >> i call inflation an eventuality, but i will say that we're going to have a period of, i don't know, one to three years where inflation will be held at bay. we've got slack capacity. i think we're operating at less

than 70% capacity, and usually you have to be above 83% use of plant, property and equipment to really start to push the prices higher. the surveys of small business owners show that most of them can't raise prices, and, of course, with so many people sidelined, there is not going to be much pressure on wages. >> what about this moment in time where now a year removed from the collapse of lehman brothers, and certainly a lot of people talk about that moment in time as being the beginning or close to the beginning of the year collapse. are there lessons to take away from the lehman collapse auto or the year that was for the average investor? >> absolutely. i think what i find is that the landscape for investing has changed. the fact is that buy and hold, the traditional ways that investment companies and investors have learned to manage their portfolios have been call into serious question. diversification, and

historically, you could buy a group of asset classes. they don't move exactly the same, and you could lower your risk, well, in the fourth quarter of 2008, we learned that they can all move together, and it wasn't to the upside. i think that my lesson is investors have to be more agile. they have to be more nimble. part of the reason why i wrote that book was because i needed to get out the word that the landscape has changed, and we really do need to be a little more aggressive in how we manage portfolios. >> are you putting in question buy and hold for the long-term? >> absolutely. >> jack, great to have you on the program. >> than you, maria. >> thank you so much. jack ablin, joining us in the studio. remember the week that lehman brothers fell one year ago. three men in the middle of the storm and their recollects to me in their observe words. >> there were a number of us there who knew this was not only a question about one company, one firm. this wasn't only about intercompany contracts and whether we will make money or somebody else makes money, but

that if something did happen to lehman, it could undermine confidence in the entire financial system. >> going into the first part of this year, we went from bad to worse, worse to worse. and the marketplace was so frightened that people put so much of their free money into cash. >> it was stressful. it was emotional. we knew we were playing for big stakes. so, on one hand, we knew that if lehman went into bankruptcy, there would be huge implications in the markets. >> up next on the "wall street journal report," who is watching america's banks? i will talk to the woman in charge and how she keeps an eagle eye on them. sheila bair joins me. and the cause for global education. my one-on-one with former president bill clinton. take a look at how the stock market ended the week as we go

to break.

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- get 13 remastered cds - ♪ let it be - in limited edition packaging - ♪ let it be - ♪ let it be, let it be. - and never-before-seen video. the beatles "ultimate limited edition collection" available in stores now. sheila bair is one of the most powerful women in finance and in the world. she is the head of the fdic which is charged with watching america's banks and on occasion taking them over when they fail. i recently spoke to her about the state of banking, real estate and when the number of bank failures may slow down. >> well, we don't make public projections, but it is going to be continuing to go at a pretty good clip this year and next. you know, banks are a lagging indicator of recovery, so as the recovery comes around, the banks

will lag behind that somewhat. but we are about protecting insured deposits and a minority of them when they fail, it is a nonevent for insured deposits. that is important for people to understand. >> do you feel you will have to go to treasury and congress for more money? >> not congress. we have a line of credit, $100 billion and $500 billion with the approval of the fed and the treasury. i don't know if we will have to do that. i will never say, "never." >> let me ask you about the recent changes in terms of the rules for private equity. we know that the banking system needs new capital and private equity firms are out there at the ready wanting to invest. you open ed up an opportunity fr these private equity firms to invest, but a lot of pe guys are saying it is not enough and we want the come in and buy more of the banks. what is the problem? why not private equity firms to invest in the banks since we need them anyway? >> well, we do want them in, but

on the other hand, they pose additional risk that we would not see with a traditional strategic bank buyer. a healthy bank buyer has a long supervisory history to look at a and supervisory knowledge of the entity and balance sheet to back up the operations of the failed back of the employer, with the private equity funds, they don't have a regulatory history. they are not historically bank buyers and they also invest to shell holding companies so they will only put in a limited amount of capital to the shell which is used a as source of strength for the banning they are acquiring. >> how tough is it to balance what you are balancing right now, overseeing the banks to see that the capital levels are where they need to b but at the same time looking at the reserve fund looking to pay down some of the debt of the banks and absorb and take on the losses and ultimately you may have to increase premiums for the banks and that hits earnings and puts them in a weaker position. >> well, we may or we may use a combination of tools. but to deposit insurance, it is

the cost of doing business like everything else, so halts to be factored into the equation, and it is a legitimate expense and valuable thing that banks have and they have always paid for it and should paid for it. we are not concerned with the raising premiums and will look at other options as well. >> you wrote an op-ed saying about one reg you lair or the over seeing the entire industry not the way to go. >> it not a good idea. that is right. we they the resolution authority should be separate from whoever the systemic regulator is. we suggested a council of regulators who could oversee the entire system from an institutional perspective and a market perspective. i think that bigness has dangers whether it is an institution or government agency and consolidation of too much power or all of the power in a single entity has a lot of risk. those single regulator models in europe did not work well. >> is there a turf war going on and people don't want to lose their power and the fed wants it

all or they don't want to lose the consumer protection part of it? >> well, we support consumer agency, and we do think that it would be for the examination enforcement component, it would be better for legislating existing examiners in banks to keep that in place, and give it back-up authority for banks, but have the primary focus be on the nonbank tech or the. there's a lot of banks that are taking it on the chin a lot, and banks and bank regulators are far from perfect, but this crisis really got started in the nonbank sect or, and there's a lot of arbitrage between the hefley regulated banking system and the lightly regulated shadow banking system. i think that the focus on consumers should be on that nonbanking sector. you know, i worry -- mortgage, i see these ads already. they're coming back. mortgage origination. i think we need a federal enforcement presence for mortgage brokers, payday lenders, check cashers. there's a whole array of financial services provided by nonbanks, and there's no way a federal standards setting and really nothing in terms of

federal enforcement. >> what are your expectation for 2010, 2011, 2012 when people are expecting commercial real estate to weaken? >> well, of course, commercial real estate sa problem. it's -- mortgages are still accounting for the lion's share of the losses, but the commercial real estate is catching up, and we're going to see more failures driven by commercial real estate, and that's going to be a big factor through 2010, but i am hoping at least. you know, so much of this depends upon the economic recovery which is something beyond a bank regulator's control, but assuming that the economic recovery stays on course, we will be through most of it by the end of 2010. >> my thanks to sheila bair. up next, my one-on-one with president bill clinton, including the impact the debate over health care reform is having on president obama. >> i think that he has to win the argument on health care. it may be that some of his more extreme critics also are racially prejudiced.

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well, the national debate on health care reform may have a familiar ring to bill clinton. since leaving office, the former president has focused on global philanthropy, and his annual clinton global initiative, a gathering of world leaders, business executives, nobel prize winners and academics to debate solutions to some of the world's most pressing problems. i spoke with president clinton just days before the initiatives fifth gathering. >> already more than 200 million people in more than 150 countries have had their lives

improved in some measurable way by this work, so the idea of bringing people from all walks of life from all over the world together to just discuss these things and then come up with a concrete action and saying to people we want you to make a commitment and to keep it turned out to be a magical, simple, powerful thing that has kept us going now through five meetings. we're about to have another one, and it looks look it's going to be a success. >> what are your thoughts on the current debate you and your wife, secretary clinton, have spent so much time trying to make a change in health care. do you think that a public plan will actually accomplish what you think needs to be accomplished? >> i think that the president was right to take up health care reform. i think it's not just about extending coverage to people who have coverage. it's about insuring that the people who already have coverage will be able to keep it at a price they can afford. it is about insuring that people

who practice medicine and deliver health care will be able to do that in the future without having to spend more and more of their time shuffling paper and navigating the finance system. i believe a bill will pass to make it better, because there is not anywhere near the potential of a filibuster in killing it as there was when i tried it. because we have all of the same problems now that we had then, except they are worse, because the american people want it to happen, and because frankly, i think that the some of the republicans are a little more open to working with the president, and they don't have the same capacity they did in '94 to shut it down. all they needed was 41 of the 45 republican senators to kill anything. i couldn't get five of them. the real issue is if the people who don't have insurance now are the people who might lose it in the future, a small business can no longer afford to provide for

what they have now, and they go into the marketplace in a given state and they cannot afford a policy, will the plan fail? if they don't have an option like a public option? the real argument for the public option is to guarantee not that you just i displaced the insurance companies, but that there will be an affordable option. now, senator snowe from maine says we should create and keep it in reserve and should be only available in states where there is no effective competition and there are no affordable policies. the main thing is that you don't want to get a market that is so dominated by one or two companies that they can charge whatever they want and de facto, you won't get the coverage you wanted. >> are you surprised at how divided the country has become about this?

president carter said part of the upset over the health care reform is -- he said overwhelming. he said an overwhelming part of the criticism of president obama's plan has to do with racism? do you agree with that? >> no, i agree with the president on that. he has to win the argument on health care. it may be that some of his more extreme critics also are rationally prejudiced, but they're the same -- those people were opposed what i tried to do when i tried to do it, and so i think they also are against him on health care. so, i think that this is a battle that has to be fought on health care. he got a majority of the vote in november. he has had approval ratings that went well above a majority. most americans are way over being divided racially. they think that our diversity is a big asset for us in the 21st century. and they want to be free to disagree. >> global health at cgi kicking off the session with the fact that more than 70 million

children will not see the inside of primary classroom on global health and education and 26 million won't continue on to secondary school and add to that so many global health issues that the world faces. what kind of progress can be made and what can corporate america do in particular? >> when i was in my last year we allocated $100 million dollars of your tax moneys to give to poor countries to feed children who were poor if kids would come to school to get the meal. that program is still in place. that $300 million increased school enrollment by 6 million. $50 a kid. that is how much just the inducement of a good meal everyday got people to school. if you think about them as future customers and future employees, every year of schooling in a country where a per capita income under $2/day adds 10% to earnings every year for life.

on tuesday the clinton global initiative begins in new york. my thanks to former president bill clinton. coming up next on the "wall street journal report," a look at what will have an impact on your money, and a potential bright spot in the chicago housing market. it is not like living next door to the white house, but it sure comes close.

for more on the program and our guests, check out the website, wsjr.cnbc.com. you'll also find a link to my new blog, investor agenda. check it out. here are the stories coming up

in the week ahead that may move the markets and impact your money. on wednesday the federal reserve's open market committee wraps up its two-day session. the committee is not expected it raise interest rates, but once again, we'll be watching the language they use. thursday dipping home sales for the month of august will be reported. also, on thursday the g20 summit opens in pittsburgh. the heads of state from the world's largest industrialized nations will gather to discuss progress on the global financial crisis. friday, we will learn the total number of new homes sold for the month of august. also, the commerce department reports on durable goods sold in august. consumer products meant to last three months or longer. and finally today, what would you pay to live next door to president? the realtor selling this house in chicago is hoping that being neighborhoods with the obama family commands a premium. the eight bedroom home at 5040 south greenwood avenue is listed without a price right now. potential buyers must be reviewed to insure they are financially capable of purchasing a home worth at least $1.5 million and will undergo a secret service background check.

the 17 room property was purchased by its current owners in 1973 for $35,000. that will do it for us. thanks for being with us. next week our guests, philanthropist bill and melinda gates join me. each week keep it right here where wall street meets mane street. i'll see you again next weekend.

the united states of america, home to 300 million people. each of us assuming that if we obey the law and mind our own business, there's no reason for anyone to pay much attention to us. that is what we might think. but we would be wrong. >> records are being created of activities that used to be wholly private. >> there are a lot of companies that you've never heard about, but they've heard something about you. >> details, personal information is being collected every day and used in ways we could never imagine. >> most americans are in a database somewhere, right? >> also billions of transactions. >> internet searches are being

recorded. >> they keep everything, your political leanings, your religious leanings, your medical concerns, your sexual concerns. >> driving habits are being monitored. >> vehicle speed, engine speed, whether the brakes were on or off. >> employees are surveilled. >> he's heading back to the shop right now. >> shoppers are observed, recorded and analyzed. >> that's an alert right there. >> and personal phone calls? >> i was under the impression that nobody could steal my cell phone records. as it turns out, i was very, very wrong. >> we are living through a revolution. a surveillance revolution empowered by technology. >> literally within five to seven minutes we've identified the individual. >> it's technology that can be put to good use to stop terrorists and solve crimes. but if information falls into the wrong hands or it's just plain wrong, it can ruin lives. >> i went without a job four months. >> tough four months? >> very, very difficult.

>> from implantable chips -- >> they make a small incision in