good morning. wall street's focus on washington. tough testimony ahead for akio toe yoi da, that man right there, as he gets ready to apologize to congress. the company's reputation is on the line. ben bernanke, coming to capitol hill. the central bank chief is ready for tough questions from lawmakers about the economy, interest rates and the fed's exit strategy. and president obama reaching out to business leaders, hosting a white house dinner for some high profile ceos. today, he addresses a business round table. those stories and more as "squawk box" begins right now.

good morning, everybody. welcome to "squawk box." i'm becky quick along with joe kernen and carl quintanilla. we've been watching the markets this morning. after a down day yesterday, you'll see we're not getting any bounceback just yet. after yesterday's markets, obviously, you've got a lot of watchers waiting to figure out what happens. >> yeah. that consumer confidence number was troubling. >> it was. >> people now thil thinking maybe the sample was bad because i was worse than a lot of people expected at this stage of the game. we've got jobless claims high. we'll talk a lot about that this morning. but toyota's troubles are in the spotlight again today as the company's ceo appears on capitol hill. yesterday it was north american president jim lentz in the hot seat. >> does the report conclude that

elect row mag negative it interference was a potential cause of unintended acceleration? yes or no. ? >> it has not tested electro magnetic as of yet. >> so they have not tested that, yes or no. >> it has not been tested. >> phil lebeau, that answer and the words not totally getting tossed around a lot this morning. >> absolutely. and the fact that jim lentz could not completely dismiss the possibility that electronics could play a role in unintended sell railing, that made it a rough day on capitol hill. there was no one coming out saying rough acceleration as a problem, they were played during the hearing. and they were asking, listen, do you stand by these statements?

and he said time and again, listen, i have not misled anybody. that was yesterday. today, the focus is on this man. akio toyoda, the president of toyoda. the grandson of the founder, he'll be on capitol hill, highly unusual for the ceo of a foreign company to come and testify in front of a congress like this. we've seen his opening remarks and one of the things he makes a point of in the opening remarks is to say we pursued growth over the speed at which we were able to develop our people and our organization and we should sincerely be mindful of that. i regress that this has resulted in the safety issues described in the recalls we face today, and i am deeply sorry for any accidents the toyota drivers experienced. he's going to be speaking english during his opening remarks, but then during the

question and opening sessions, he'll have a translator with him. i do not expect akio toyoda to get seriously tough questions. i think those will be with mr. yoshi anaba. he speaks english. that hearing starts later on the hill, around 11:00 this morning. >> we're going to hear from ray la hood, as well. who do you think is going to come out of these hearings looking word, the company or top safety officials? >> probably the company. there's plenty of blame, obviously, to go around. when you look at some of the documents, there is one document where they show an e-mail where essentially somebody from nsta said i'm not familiar with what i'm looking into. not a good thing for somebody who is investigationing a problem to say. but i think toyota will have a

tougher time when you look over the last two days. >> we heard from some congressmen, especially those later on in the show about the people and congress people who are questioning toyota at this point saying, they are doing this because the government has a six-stake in japan? to me, that sounds crazy. >> and i have to be orchbest with you. almost nobody identified worked with believe there's any type of pressure being put on mr. mr. akio and toyota? >> if i was from michigan -- >> if i was from michigan and i had a bush of -- and guys, there were plenty in my district. i would grill this guy. >> there were plenty of differential comments from those representatives who have toyota

plants in their district or nearby. that's regular politics. >> i think that is all. if you know how politics work, you at least have to consider the possibility. seeing dingle raise these questions make you think, of course, he's from michigan. >> yeah. >> how about this sonata door latch glitch? is it a big deal or are we just all hyper sensitive to any -- >> i think it's a glitch right now. >> i think we're more hyper sensitive. that had, anytime the company stops the sale of a vehicle -- >> that happened one day next to their neighbor. >> once the vehicles' door latches have been fixed at the dealership witness the stosale is over. >> i've got to tell you, and

maybe it's the way they phrased it in the journal, but the first line, the carmakers, u.s. chief of toyota told that recalls may not totally solve the sudden acceleration problem. i wouldn't know. this is going to go on for a while. every time you got into it, you would be worry that it wasn't solved, wouldn't you? >> i think the key, joe, it comes down to this, do we see any accidents in the futures because of sticking markets, whatever. if we don't see those accidents, a dwr now, lul boo back and see -- >> and you're till talking about a year. >> there's always going to be a

question now. >> and you bring up a good point. they cannot definitively say what has caused unintended acceleration in the past, nor can they rule out the possibility of electronics. they're continuing to do testing at toyota and they say they will keep moving in that direction to rule out that possibility. but they cannot, at this point, rule it out. >> there is some weird testimony, though, there was a woman i think from west virginia was it or maybe tennessee who had been driving a lexus. >> tennessee, right. >> she had been driving a lexus. and for six miles, it soared to 100 miles an hour before she finally got it -- she threw it in neutral. it then just stopped. you hear testimony like that and wow. >> and that was the most damaging testimony yesterday for toyota. >> she threw it in neutral, they threw it in reverse. >> almost as chilling as that

low testimony. >> and phil, what do you like, the ten most important auto people or something like that? >> what? >> you were on a list, one of the ten most important people in the auto list. >> listen, i'm never been on gq or carl's list or whatever that is. >> were there only 50 most beautiful people? >> i can't remember. >> it was like one in 400 million you are and you are to us. thank you. thank you so much. >> thanks, phil. thanks for bringing that up. i won't mess with him again. >> brought that on yourself. president obama is in the mist of a major push for support from business leaders. he'll speak to the business round table this afternoon at 1:00 p.m. eastern. he's going to focus on his plan to address job growth and energy independence, other priorities, as well as continue his bush for bipartisan support.

there is a severe push on health occasion following a last night. >> meantime, the fed chairman, bernanke, delivers part one of his annual report in the economy today before the house financial services committee. he's expected to assure lawmakers that the fed can begin tightening policy at the appropriate time without rocking financial markets. bernanke may stress last week's discounts rate hike was a tep technical move, not a shift in policy. although now people are talking about the treasury replenishing the sfp. have you heard? >> yes. maybe a stealth way of going ahead and allowing them to raise rates down the road. but it's something that happened after you finally got congress to lift that debt feeling. and they say they couldn't have

that money there until the debt ceiling was raised. >> some people are saying that today's testimony could set the tone for the markets for weeks. >> and i bet we'll be talking with the traders and that will be their key focal point. citigroup is said to be in advanced talks to sell their business to sky bridge capital. no deal has been signed yesterday. the journal says that the citi team managing the hedge fund unit is expected to keep their jobs. shares of city group have been climbing steadily over the last month or so. european union anti-trust regularities are looking into complaints file by three online -- >> that's the chart. >> i looked at the line. anyway, this is the google start. three online companies against google regarding its practices. the eu says it has not opened a

formal investigation yet, but it is not ruling out the possibility. >> how far is that? >> it's closer than it used to be. i've got a big screen, too. >> did you see "cloudy with m t meatballs"? >> i did. >> the girl put glasses on and she was cuter than ever. why don't you wear yours. >> i have new contacts. >> do we have chairs today? >> no. >> we don't? >> because neither one of you, in my view, are wearing horrifying outfits. both of you look fine. this guy got suspended for saying he didn't like the outfit. >> didn't like the outfit? >> he said it was horrifying. >> i thought it was okay until i read the rest of it. she has on red go-go boots and a

catholic school plaid skirt, way too short for somebody in her early 40s or 50s now. that's where he got in trouble. >> i'm in my early 50s. that would make me unhappy. i think she looks fine. the horrifying outfit i thought was totally fine. >> because it was a horrifying outfit. >> yeah. but that part is okay. but getting personal and saying he shouldn't be wearing clothes like that -- >> she's a really cool lady. i know her. and did you see that he called her and she said, look, you're -- it doesn't sound like she -- >> no. but you know the backlash that probably got from viewers who were trying to defend her on this point?

>> right. but this is a little bit heavy handed, don't you think? >> i don't know. people write in here about how i wear my boots or whatever. >> blue shirt. >> oh, i've got to read this. let's go to the overseas markets now. let me say good morning or good day, louisa. >> yeah. it's coming up to noon time. you can be as hyper sensitive as you want. i'm glad to see i'm standing here in my trainers now. you need to be practical. i think wear whatever you want. in a minute we're dead, anyway, so who cares. european markets, we're slightly more to the downside than what we were earlier. having said that, the smi had

just turned positive. worst trade looking like this, construction, autos and chemicals. to the upside, a brief glance. we, too, are waiting for bernanke. today we'll be dominated by the bernanke statement. what will he say in the aftermath? all the stuff you guys have been talking about. here on the corporate side, namely dsm andros dea. they're chemical companies, both are coming out with numbers that were slightly period about than anticipated. rhodia aiming to significantly improve their 2010 core earnings. so two very different stock companies today from companies that are rivals. then you have accor, up by

almost 3% right now. they're french. they laid out plans to split the company as early as june, and investors are taking that as good news. that weaker than pektded inspect is out of the u.s., hitting some of the export driven markets. pretty hard today. the nikkei losing steam by 1.5%. toyota woes and also the firm yen hammering that market. i got a chance to look at the testimony that mr. akio toyoda is going to make today in congress. one of the things i thought is they're going to add an extra layer when it comes to checks and balances in recall decisions to take into account the commerce' perspectives. they don't spell out how they're going to do that. i think thanked be afternoon interesting element. the recall involving new sonatas due to the faulty doorknobs,

that's going to impact about 1300 people in the i'd. hong kong weaker, as well. mainland banks were the main pressure rising point. interestingly enough, that same impact didn't materialize in shanghai, despite comments from the banking regulator that they're going troo toy to get the banks to limit their loans to local government. interestingly enough, the shanghai stock market added 1 many 3%. a lot part of that could be a lot of optimism about 2k3w069 support measures, pshl when it comes from health care, pensions and so foshth. this is really the time when the clean side had fog to do about bedding. a lot of caution especially as ben bernanke is getting ready to speak later today. carl, over to you. >> thank you very much, chloe cho in singapore. when we come back this morning,

how will the bernanke testimony and yesterday's sell-off affect markets today? later on, congressman darrel issa really to go under the hood of toyota. what he wants to say from acto akio toy yoi da later today.

welcome back. a lot of action happening today. not a lot taking place ahead of the bernanke testimony. that happened later this morning on the house side. after digging out in more than a foot of snow akrod the eastern seaboard, we get ready for another round of serious weather. scott williams joins us with more. this one locally could be even more serious than the last two they're telling us. >> absolutely, carl, as we're track ago one-two punch. right now, we're seeing the first storm system impacting the area, but another one is on its heel. let's take a look at what is happening. you have drizzle around albany. the snow has been adding up. even snow and rain this morning in places like jackson,

mississippi here, moving to atlanta. we'll see a chance for rain mixing with some snow. so certainly, a bizarre pattern shaping up here had a cross the country. as we look at today's forecast, we're watching for rain and snow, some heavy as you move into new england. for the south, some rain and some snow. but into tomorrow, this is when the storm heats up here and provides some heavy snow. new york city will see some of that snow, as well. becky. >> scott, thank you, we think. we'll check back in with you tomorrow and get more on this. in the meantime, let's look ahead at today's trading. joining us right now is the founder and chief investment strategist doug roberts also the chief market strategist from river source investments, david joy. swre, good to see both of you. we are focused on what's been happening with bernanke. doug, why don't you tell us a little bit about where you think the fed is headed and how closely are you going to be taking attention to this

testimony? >> i think this testimony is going to be very important, becky. right now, it's been really, the government is the lender and is spender of the last resource. essentially when you saw the rally starting is when the government said, we're going to go in and back up the banks, we're going to inject stimulus. now people have a concern, is this going to continue? it's unusual for bernanke, he's telegraphed his move. i'm quite surprised he raised the discount rate before this speech aern after this speech. so he needs to clarify and make it quite clear that if this is a proforma move, it's not going to affect total policy. but if people start to view it at some point as tightening, that could have very, very serious aefks on markets across the board. >> david, do you expect that that move is going to happen in the next few months, anyway? and what exactly would be the signals you'd be looking to hear from bernanke later today?

>> becky, i don't, quite frankly. the fed will remain on hold for the rest of the year. i think today's testimony stays focused on monetary policies, per se. i think it will be a relatively easy day for chairman bernanke. he's going to say, look, we're going to leave rates low for an extended period. that's exactly what congress is going to want to hear. we're going to -- but if they start to get into things that are more fl fiscal policy, then it's going to get bogged down and become a political show, which it has a tendency to do. so, you know, if they stay focus focused, i think it will be fine. >> actually, david, the journal lay eggs out this story about the supplemental financing program that the treasury put in place after the debt ceiling was raised. and some people are interpreting that as a sign that will allow the fed to raise rates sooner rather than later. obviously, some of those questions will be brought up. do you think that he'll be able to select those? >> i think so. i think what it is is really

just another step as the discount rate hike was in a return to normal state. this program was in place before. it got deplaced. it doesn't necessarily mean that they're going to use it right away. so, you know, i think really this is just getting their ammunition lined up. but it does not nisly, in my mind, signal any tightening policy is eminent. i don't expect them to do anything for the remainder of the year. >> doug, obviously, we're reaching some sort of an inflexion point. maybe it's in two ms. or six months or ten months from now. but what do you do with your investments in the meantime as you wait for this period? >> i think at in point, i agree with david. you may have a longer period of unemployment. i think what you're looking at is if you're going into fixed

income, you want to keep your maturity somewhat shorter than usual. we've done some research and we found that actually, if you keep your maturities, intermediate term bond in the short-term range don't seem to be as affected as moves in the inflation rates or during the highly inflationary times of the 1970s, inter-mead yapt term bonds contrary to polar beliefs. so what you want to do is on the fixed income in there, keep it there. and then what you really want to do is keep your eyes on the inflationary data as we with saw with ppi last week. we have not 37 i think right now what the fed is doing is really a case more of form over substance. what they have to emphasize is that they want to get away from the quantitative measures.

over no transparency and go back to more liquidity provided to the banking system as a whole. actually, i think that's what bernanke may want to go into more detail on its alternative target he's talking about targeting a bank rate as opposed to a fed funds rate, which not only subsa decideses the banks but the shadow banking system. i think if you make that clear, it will go a long way to reassuring the markets that this is a case of phasing out extraordinary measures as opposed to a general tightening cycle. >> doug, david, gentlemen, thank you both for your time. we appreciate it. coming up, we have congressman darrel issa, about to confront toyota's ceo, akio toyoda. ahead of that high profile confrontation, he will be here to talk with us on "squawk box"

next.

"what do you mean homeowners insurance doesn't cover floods?" "a few inches of water caused all this?" "but i don't even live near the water." what you don't know about flood insurance may shock you. including the fact that a preferred risk policy starts as low as $119 a year. for an agent, call the number on your screen.

good morning and welcome back to "squawk box." i'm joe kernen along with becky quick and carl quintanilla. we are down a massive 1.38 points on the dow already. so there's a lot of action you don't want to miss this morning in the futures, carl. but there's other things happening, as well. >> let's find out. >> what are traders watching? >> let's find out. ira harris joins us with real

insights. good morning to you, ira. >> under pressure, carl. yes, i know. we have a few hours before bernanke starts talking to house members. i wonder how many traders will be willing to make any betts ahead of that. are we all waiting for that moment? >> you know, it was kind of set up yesterday, and when i was watching earlier, becky had it with a supplemental financing program. and as we start to see, i think more importantly was janet yellen's speech from san diego. people read that. it was not only gloomy, but it laid out how the fed was looking at this. i think she's one of the more prominent members of the fed. she talks about the importance of that interest and reserves as beam being the big arrow in the quiver. so that will be interesting to

watch. we want to see bernanke. the supplemental financing from the treasury. from my perspective, more interesting is that the treasury and the fed are working so cleesly together, that puts something up on my radar screen. let's not forget that funny and freddie, without caps on them, under the -- now under the thumb, thoelths thumb of the treasury, that the fed and treasury working closely together here makes what he says say to me even more paramount. >> like they're almost one unit. when you say soften his stance, what do you mean? >> when he says listen, when i'm telling you, there is no change in policy at this moment, what you've seen with the discount rate rise and then with the supplemental financing program yesterday, that these are just one off events and there's steve liesman said last week when we

were on together that there's a lot of testing going on here. i think that's right. the fed is working off their own model. because we've never done this before, rolling back of all this liquidity is going to take a lot of experimenting based on the theoretical model. >> when you say experimenting, what do you mean? do you mean they're going to be testing things, seeing what happens as they start to pull back from some of these programs, what happens to the mortgage prices, what happens to the markets, so this is part of the test back and forth? >> exactly. we know traders who i've traded over 30 years, reverse repos. the interest on reserves of course is a new one. as you bring up the point, mortgage backed securities, some people are talked about, well, when the fed has to unload that paper that we're going to see rates back up 40, 50, 60 basis points, that's an unknown. i would say that the number is going to be much bigger than that. who is going to step in and start buying that paper? you know, the fed has perverted

the curve as they've done this and a lot of investors have had to either pay or get lower rates of interest than they otherwise would have. and i think that they're going to exact some pound of flesh, if you would, going forward. >> even though the end of this game has been telegraphed for weeks, months, and they've been resolute in saying this is the date, do we all know what's going to happen? the element of surprise should not be an issue? >> yeah, but that's tend of the buying, carl. and who is going to be the first one to step up? one thing about traders, i don't want the first $10 billion, 20 billion, not that i could take those numbers. but i'm thinking with these pension debates, you might as well wait to see how the air clears. the fed may think they'll get 30, 40 basis points out of this by the end of the day. that's something nobody knows and they're depending upon their models to tell them. but i think we've all learned that some of these models are suspect the. >> quickly, on the short-term

stuff, was yesterday about consierm confidence and do you trust that data? >> no. that data is so erratic, to me, it's become -- sorry to say it, like the michigan sentiment numbers. and there's so much of that going on. when i see all of this and take everything into play, i think joe kernen will appreciate this, you think of springfield for what it's worth. there's something going on over there, but we're not exactly clear in any way, shape or form and yesterday's supplemental financing deal was one more log on that fire. >> i heard that yesterday, ira. >> yeah. >> buffalo springfield? >> for what it's worth, something happened there. brings me back to the 60s. back to when you were marching on washington? >> parade for our side, exactly. i was in ohio. do you still have that fringe vest you wore back then? >> i have all that stuff, yeah.

i made a wrong turn at albuquerque. something happened. >> something happened. >> what it is ain't exactly clear. >> so any calls for how we might finish up the week, given the land mines that stand between us and the week, ira? >> you know, carl, this is going to be a tough year. i am looking at one indicator, to tell you the truth. i'm watching black stone stocks. really? >> yeah. nobody haas has had this more wrong for the last several years than the private equity guys. >> you mean like buying from zell and so forth? >> well, you know, it was more than that. their whole thing was to keep companies private and how do you do that? convert equity to debt. we know debt has not been the place to be and they've been under a lot of stress. but the stock seems to hold it here. and i think if we saw in the real debt markets, meaning tlos and other types of more m&a

activity, that that is where it would show up. that is where for the rest of the year, i'm keeping my eye on that. that would tell me there's truly a change put to the market. >> that's a good tip, ira. we'll talk to you later. thanks. >> thank you. >> ira harris. if you have any comments or questions this morning, we would love to hear from you. our address is squawk@cnbc.com.

on monday, march 1st, the oracle of omaha will be joining

us for three hours of questions and answer on the markets and what you've been seeing and specifically on the annual letter that he writes to berkshire shareholders. log on to cnbc.com. start submitting your questions there. we'll try to ask as many as we can on air, coming up on monday, march 1st. great scene in forest gulf of mexico in vegump in vietnam. >> one of the great bars. >> but it's back to the sink now. >> yeah. >> but steven carved his name into it. >> where? >> into the table at the sink. we go there and just go -- >> you have a real soft spot for '60s rock, for one. >> don't we all? when we grow up in an era, don't you -- >> and prefer free love and social unrest. >> drugs, psychedelics, yeah. where are we right now, exactly? >> we were going to do chairs a

little later. >> oh, okay. i'm having a flashback right now. are you becky or carl? oh, you're carl. >> hey, the "times" has this great piece about how many fewer calories you burn when you're sitting than when you're standing. it doesn't matter if you go to the gym, it doesn't matter if you work out. if you spend most of your day sitting -- like three hours. >> you're at high risk for cancers, high risk diabetes and heart disease. >> and you get fat? >> here we go. we're going to do this for the rest of the program. >> they say for most of us, you gain about two to three pounds a year. >> in general, weight gain -- >> and you can gain that weight by eating 30 more calories than you burn each day. >> you're kidding me the. >> 30 calories. >> just because your body is not metabolizing as quickly? >> exactly. >> how many calories in two

samoas, girl scout cookies? >> you would know this, given the time of year it is. >> i checked last night. in two, 8 grams of fat. >> wait, the thin mints? >> no, no, the coconut with the caramel -- oh, yeah. maybe it's not samoa. it's something like that. >> yeah. i know when ones you're talking about. >> give me a box. >> it's one of their blogs this morning. >> some truly obese people, they must let them -- if i let myself go, i would eat a case of those cookies. i would. i would just keep eating. >> did you know that you burn more calories chewing gem or gidgeting than you do when you're sitting down? >> so should we chew gum here or if you have the nervous leg thing, that probably helps a little.

>> in your case, you're doing aerobic exercise right now. >> i'm going to try that, then. because that's bad. we sit for three hours and then we go upstairs and sit. >> i'm going to start getting up every commercial break and walking around. >> i do that, anyway. >> gotta go, gotta go, gotta go. >> exactly. when we return, president obama -- or i guess this means i'm -- >> no, i think we are teasing. read them. >> okay. in corporate news, we've talked a little bit about this. citigroup is said to be in advanced talks to sell its sky fund bridge to wall street capital. last year, citi outlined plans to shed several noncore assets. the journal says that the citi team managing the hedge fund unit is expected to keep their jobs. let's show you shares of citigroup. right now, completely unchanged on this news. $3.35. shares of google, keep an eye on these today. european union anti-trust regulators are looking into complaints filed by three online companies against google

regarding its practices. the eu says it is has not opened a formal investigation yet, but it is not ruling out the possibility of that. >> are we getting issa? we were supposed to come back with him, but we've got some technical issues. >> i think it's an issue with the cameraman. we're trying to figure that out. >> it was good because you got to learn about getting fat. it was worth it. >> it was. >> when we come back, samoas, president obama in the major push for small business support from business executives. we'll check in with john harwood who was out late last night. we'll tell you why and with who we we come back.

all right. there's a look at what the markets are doing ahead of the fed chairman bernanke delivering part of his semi-annual report before the house financial services committee at 10:00 a.m. eastern. he's expected to assure lawmakers that the fed can begin tightening policy at the right markets. bernanke may also stress last

week's discount rate hike was a technical move not a shift in policy. we'll see how far that goes on the health today. >> people don't know. let's get to congressman issa. much more going on in washington today other than toyota. ben bernanke set for the semiannual economic testimony. treasury secretary timothy geithner will be in front of the house budget committee and president will address the business round table. joining us now congressman issa is here to talk about this and more. let's take a shot. congressman, good morning. it's not -- it really is john harwood. >> ha, ha, ha. >> we're trying to get him, john, and can't. we're trying to get him in the next hour but we're saying he's going to be on -- >> teasing him. >> cnbc is having technical difficulties? >> yes. believe it or not. >> don't trash the parent. really, talk -- let's get to the gist of what you need to tell us and then at the end we'll

explained why we played black-eyed peas at the top of the show. >> nice. >> we did, john. what's going to happen? this is your interview. go ahead. >> you want to do financial -- sounds like corker is moving right along. >> it is moving along. they're making some progress. for that reason, chris dodd is unlikely to lay down his bill this week. he had originally planned to, mark it up in the committee next week. that schedule is slipping by a couple days because corker and dodd have been making headway in their discussions. richard shelby interestingly, the ranking republican on the banking committee, has gotten back in those talks. he can see the train leaving the station. the one thing we ought to -- our viewers ought to understand is that there's going to be overwhelmingly likely that there is going to be a financial regulation bill one way or the other. the question is is it one that has a significant number of republicans supporting it or just a few needed to get by the filibuster threshold? that's at stake in these corker

discussions. >> safe to say that after getting some pushback from fellow republicans corker is now applauded for stepping up to the table with dodd, yes? >> not necessarily applauded by a lot of republicans. >> encouraged? >> by richard shelby his ranking member. >> right. >> but corker has decided to sort of seize that moment and the winds seem to be shifting a little bit. you saw that with scott brown voting for cloture on the jobs bill the other day which is likely to pass by the way with that payroll tax credit for people that have been out of work for six months. >> benedict brown they're calling it. >> rough in the big city. >> unbelievable. >> go ahead. >> is the volcker part gone, the commercial banks not doing the risky trades? is that now gone? i read in "the journal" that it was both sides, both democrats and republicans said no we can't do it? they both got, i don't know whether they bought off, but did the industry get to both sides? >> well, it's not gone but it's diluted somewhat and what they appear to be moving towards is a

circumstance where instead of having the legislation dictate the prohibition of certain risky activities that they give authority to the regulators to do that. and you can ascribe that to lobbyists fair enough. there are a ton of lobbyists working this issue but, you know, that always happens in legislation. look what happened to the cadillac tax in the health care bill. the cadillac tax was the principal means by which -- or a principal mean by which the cost curve was going to be bent. right? >> right. >> it got kicked back to 2018. >> not by rich people with a cadillac plan but by the unions with the cadillac plans. >> exactly. and although you probably noticed in the plan that obama laid out this week he took away that special treatment for the unions that the house and senate had negotiated earlier. >> but they moved it up to 27,000 or 28,000 which booted all the unions out of it. what do you mean? it didn't take it away. >> no, in the original deal they had said that the cadillac tax takes effect at certain

threshholds except collective bargaining which is kicked down the road. >> now it's above all the union contracts. >> yeah. >> did the same thing. >> but is that 27,000 frozen at a point in time? that's going to be like those taxes the amt that eventually catches up to everybody. i mean, 27,000 may be -- >> i don't know what the inflation ak sell raltor is but one of the methods by which clever people writing legislation get back some of that revenue they lose by kicking it into the future is by making those inflation accelerators not compensate for the rise in costs. >> right. so in ten years maybe -- >> this could happen. >> right. >> what do you make of this dinner last night? who's who with the president? >> the president was dining with the executive committee of the business round table not by and large a democratic friendly group and that's an extension of the message he's going to deliver today which is trying to convince at least some component

of the business community that he's not out to get them. in fact, he sees his program on health care, energy, and other issues as related to building a new foundation for the economy, trying to defuse some of that criticism you get from business. we're seeing business get concerned about tax increases, regulation, tilting a little bit in this political environment toward republicans where they tilted obama's way in 2008, so he's trying to counteract that. he's not going to take questions, his remarks to the business round table today. the white house views last night's dinner as the question time. >> the most important part of this whole interview, where were you last night and explain this picture that we're going to look at if it's okay if we put it up. >> if it's real. >> go for it. it's totally real. >> seems real. we were at the black-eyed peas concert in washington and, you know, will, you remember we profiled on nbc a couple weeks ago, we went backstage and had a

little fun with him and fergie. it was an awesome show. >> looks like they stuck you in behind them. >> at the white house yesterday he saw obama in the oval office and has a little more business in washington today. >> no, no. i'm not buying it. >> business? >> they put him there. >> harwood is meeting with fergie. >> i am an extension of the government now, you know? >> well, he did the obama video during the campaign, right? >> exactly. that's why he went to see the president yesterday. by the way, guys, he's coming to your town tonight. you could probably still get tickets for the show. >> you could probably get us backstage if you're in town. we're going with you. john, thanks. a lot going on. >> you got it. >> good to talk to you. when we come back we have more on the hearing on the hill, toyota's ceo making the trip to washington to talk with lawmakers. enron's jeff skilling's case goes to the supreme court and we sit down with his attorney to talk about the appeal.

toyota facing the heat. >> we are sincerely sorry for that concern and anxiety we put people through. >> the automaker's jim lents taking the first round. now the man himself, akio toyoda, will sit before u.s. lawmakers to explain the recall fiasco. we are live in washington with all the details. >> but wait. there's more from the hill. fed chairman bernanke also facing lawmakers. the economy, interest rates, and the fed's exit strategy all in the spotlight. we'll have a preview. >> remember this guy? >> on the day i left on august 14th, 2001, i believed the company was in strong financial condition. >> that's jeff skilling

currently serving time for his role in the enron scandal. his appeal is about to be heard from the highest court in the land. we'll have a cnbc exclusive with his lawyer. >> you're out of order! you're out of order! the whole trial is out of order. >> "squawk box" begins right now. good morning. welcome back to "squawk box" here on cnbc. i'm joe kernan with becky quick and i almost stood up because of that whole thing. on the rundown this hour we got, hopefully, senator ted kaufman on the push for financial reform. we will not have if you were waiting for congressman issa, we apologize to him. it was not his fault. he was there ready to go. it was technical difficulties on our side. we're also going to talk markets

and the economy after yesterday's 100-point drop in the dow with morgan stanley, chief economist dick berner. later this hour the ceo of polaris industries telling us how his business is doing in the face of a weak economy. >> toyota chief akio toyoda answering some tough questions from congress when he visits capitol hill today. our automotive reporter phil lebeau is in washington this morning following the latest developments. >> reporter: day two of toyota on capitol hill and day one was a rough one. it started off with toyota usa president jim lentz the man running toyota motor sales here in the united states defending the company's tests of electronics. remember the issue here is whether or not there is a problem with the electronics in toyota vehicles leading to unintended acceleration. he did say he cannot rule out the possibility that electronics are a possible cause though time and again he defended the tests that the company has run so far. that was yesterday.

also yesterday, mr. lentz was defending some of the comments he made on "squawk box" three weeks ago. he said toyota has found a fix for its problems. he was asked about those comments. many of the congressional leaders were saying, listen, were those misleading comments? he side time and again, no, they do believe they have found the fix, whether the shims they put into the accelerator pedals or removing the floor mats. as for today akio toyoda the president of toyota, the grandson of the founder, he takes center stage on capitol hill. he will be testifying. what are we going to hear from him? plenty of apologies for the recalls, for the way toyota has lost its way in terms of safety and reliability, and he'll also lay out a plan for improving quality at the company. that includes appointing a quality control commission that will have representatives from all regions of the world. one of the criticisms we heard yesterday on capitol hill as you take a look at shares of toyota, was is this a case where toyota out of japan is calling the shots and is not clearly tuned

in with what's happening in other regions, for example when the recalls and the complaints started coming in the united states? so akio toyoda on capitol hill, a little later on today. it'll be interesting to see how deferential members of congress are to him because it's highly unusual for the head of a foreign company to come and testify here. guys? >> they call him the prince in japan so, phil, don't go anywhere. we want to bring in some more voices, the pulitzer prize winning journalist, former washington bureau chief joins us to shed some light. good morning, paul. >> good morning. >> separate from the political theater and the apologies and the mea culpas do you think toyota technically has their hands around the issue that confronts them? >> i was actually surprised when mr. lentz said yesterday that he couldn't fully guarantee that they have the right fix. it's unclear to me whether he was trying to strike a corporate pose of humility and, you know, appropriate self-reflection or whether they really don't have

the fix. i tend to think it was probably the form he but it shed a little more confusion and, frankly, is the latest example of how toyota has not communicated effectively at all on this whole issue. >> you have written about car companies faced with these kinds of things for years. what is the best step for them? i mean, we're all here clamoring for them to come clean and be aggressive in the fix but obviously they've got to protect themselves against liability in the future. what would you be doing if you were consulting the company? >> things are going to get worse for them before they get better. they're facing not only more hearings today but also lawsuits, more government investigations, potentially sec, grand jury, all that sort of thing. but you hit it right with the way you framed the question. what they have to do is just communicate very forth rightly and directly with everything they know and obviously they have to get good legal advice but saying more and saying it firmly as oppose today wafflie i ing is a much better pose here

because the court of public opinion is going to be the most important coat for them honestly. >> phil, it's been interesting to watch the balance between -- we know there's outrage, right? >> absolutely. >> there's going to be some marketshare of outrage between people angry at toyota and if darrel issa has his way the government, regulators back in the bush administration, he wants to expand this well beyond the company itself. >> there are two pieces of outrage here, two waves of outrage in washington. there's that which is directed at toyota for how it's handled this but plenty of outrage for how nhtsa the national highway traffic administration really did not have an idea how to go about forcing toyota to do something when it came to unintended acceleration. if you look at some of the e-mails between nhtsa investigators and toyota it is frankly embarrassing for the organization. there were administrators, investigators, e-mailing toyota as they look at these problems saying i'm not really sure what we're looking at here. that's not good. you cannot have an investigator saying that nor do they have the

staffing, you know, that they need to go after a company and say, wait a second. we've got a problem here. we need to address it. >> paul, anybody who drives a car knows how complicated they've become. they are computers on wheels now. does nhtsa get any leeway in that or should we be expecting them to be up to the task of protecting us all no matter what? >> you know, there is no sure guarantee of anything in life, so it's really quite unclear to me whether the solution is additional regulation and legislation like the congressmen are talking about or whether you just had a couple people in nhtsa just sort of not do their job properly. i strongly suspect it's the latter. i think they just sort of flubbed it. you can write all the laws you want and that won't protect you from people making poor judgments along the way. in this case it looks like some poor judgments both at nhtsa as phil said and at toyota. so how are more laws going to help that? it's far from clear. >> we've seen big pieces in big

newspapers this week all about electric ro electricro-magnetic interference. is that going to be haunting the industry for years? >> clearly people are worried about this but it's quite unclear whether this is the big issue in this particular recall or future issues. i talked with a retired big three executive here in detroit yesterday who had a floor mat issue with his own car that was not a toyota. the floor mat slipped and basically kept the gas pedal down and it was one of those things where it just sort of happened. so there's no guarantees. floor mats are diametrically the opposite of electro magnetic fields if you will. a lot of things can go wrong in cars. let's put it that way. >> phil, as we approach the hearings today you mentioned in your report that regulators are going to treat mr. toyoda maybe with some deference.

why is that? why are they going to leave the tough questioning for his subordinates? >> i think he's likely to say, hey, i've only been ceo of this company for the last year. that doesn't mean i'm clueless as to what's going on but in terms of how far back this problem stretches, it goes much further back than mr. toyoda taking over as ceo. and yoshi anaba is probably better positioned with being here in the united states and how toyota responded in the u.s. to these complaints or lack of response to these complaints. that's why i think he is probably going to get the more pointed questions than mr. toyoda will. >> paul, have you seen some of these letters from some of the nation's governors that have big toyota plants to the committee calling toyota a good corporate neighbor. hailey barber writes a letter in "the washington post" today, says it seems to me the company is doing everything it should as quickly as possible to make things right. is that just governors looking out for their constituents? >> well, of course, but you know it's really interesting.

phil i think used the term outrage a couple times in his remarks and the direct level of outrage is directly proportional if you will to whether you have a toyota plant in your state or not is what's happening here. so, you know, for the average guy on the street this makes it more confusing. how much of this is real and fundamental and, yes, toyota did screw up and how much of it is bureaucratic, you know, covering your back side and how much of it is political protecting your taxpayers and your constituency and the corporations in your state? there's a lot of noise in this whole thing. >> do you think we'd be treating them differently if they were union, paul? >> you know, i'd like to think not. i'd like to think on a regulatory basis this is really a fundamental safety issue, but the truth of the matter is, i think the congressional hearings or circus or whatever you want to call it on capitol hill the way individual congressmen are react tog this has a lot to do with their ties to the detroit car companies or to the unions.

on the other hand toyota is marshalling its own politicians, too, so it's getting very political on both sides. it's just the way the game is played, sadly. >> although, phil, you're there and we all know what congressional hearings are like. >> right. >> we know when they descend to the comedic level.i wond fer yo better chance we might actually get some information and answers than we normally see. >> i think we got most of the information in advance through the testimony and documents forwarded to the two committees and that information has been released. what's interesting, when you look at that information, there's a lot of damaging documents that have come out about toyota and nhtsa, about what they've known and why they didn't move quick enough, but there hasn't been a smoking gun. in other words, there has not been a document produced by toyota to the committee where toyota says, listen, we know it's electronics. but we think that we can go in a different direction. that's not to say that toyota is off the hook here. they've even said we cannot completely rule out electronics but there hasn't been that

smoking gun that has people saying, ah ha. here you go. criminal activity is involved. >> and you don't think the $100 million fix -- >> that's certainly damaging, no doubt. but almost every company is going to do that. they sit there and they say, what does it cost for us if we can mitigate this? and that's not to say it's right or wrong but all companies do that. i think it is damaging to toyota, no doubt about that. >> paul, the likelihood of anything like that surfacing slim? >> well, you know, i think phil is probably right on this. look, corporations turn out not only products but hundreds of memos a day and i'm sure there's going to be some -- there already is some stuff that looks sort of untoward or damaging in these memos and, you know, there will be more discovery actions, more sort of embarrassing things like this, but the chances of a, you know, we covered this up deliberately memo somewhere in there are probably pretty slim. >> well, the drama is going to continue today. paul, appreciate your insight as always. we love it and, phil, talk to

you soon, later today. >> you bet. >> and our own drama with our technical difficulties for congressman issa have been fixed and he's back. we thought he was gone and now the first on cnbc to tell us what he is going to ask the embattled head of the auto jinlt. thanks for sticking with us, congressman. >> thank you. >> i'm trying to figure out in looking at some of your commentary, what are you more concerned with shedding light on, the way regulators in this country acted or toyota or both? >> i'm concerned with both but there are 11 major auto companies doing business in the united states and it is very clear that nhtsa let us down. they have an $18.4 million budget designed to leverage $86 billion worth of these companies' r&d. their job is simply to say, it's not good enough. get it to our satisfaction. they don't need to engineer. they simply need to say we have

complaints and we're not convinced you've resolved them. they're starting to do that today but it's been a decade of neglect. >> so your point is that if it comes down that it's not electronics and really is, i don't know, some kind of mechanical thing with the floor mat or accelerator that our regulators knew about this a long time ago and didn't act on it nearly quickly enough. could have saved people if they had. >> they not only knew about it enough to act more but they failed to know about things they should have. they didn't know about similar cars in britain that had sticky gas pedals. they didn't know about a fix in japan apparently where instead of, you know, saying take the car mats out they were actually modifying the accelerator, which today they're doing in the united states but they were doing this far earlier in japan. so one of the questions for secretary lahood is, when are you going to think global in your reach for what's happening around the world rather than relying on self-reporting by these car companies?

>> congressman, when did they start changing the accelerator pedals in japan versus when that happened here? >> that's a good question. it was about four years ago. it was a -- almost five. it was a similar car. not an identical car but it was still judged by the japanese to be a carpet entrapment and the solution was different, a solution that today is being done here. very clearly, this is sort of one of those, again, what can we get away with? what's the minimum we need to do? that's what akio toyoda has to convince us they're not going to do anymore, they're going to put safety first so do the most they can do to be positive in fact their cars are safe not the least they can do to save money and get past regulators. >> and once again, you know, lahood and mr. toyoda both been on the job about the same amount of time, right? these aren't even the guys that were around when everything was happening. >> that's one of the good things is that ray lahood doesn't have to apologize for nhtsa in the

past but he has to pledge to make real differences going forward and tell us how he plans to do it. akio toyoda, who has a background in toyota in quality and a number of other areas has to say based on his 50 years of the family being with the company and his decades with the company how he's going to make these changes going forward. it's always easier when you're the new ceo to blame your predecessor, but we're going to ask for more. we're going to ask for real vision for how these organizations are going to change. >> i think about, you know, our security, the guys watching over the country before 9/11 and after and the way that the agencies didn't talk. isn't it just the nature of the beast that there will be incompetence? i mean, it almost seems frustrating or futile to even hope that things can change but i guess that doesn't mean you don't try. >> well, certainly it's the nature of large bureaucracies to add to staff and to go to a lot of meetings and talk about the

future but not actually do the tough work of breaking eggs to make an omlete. in this case we don't have the -- even though these agencies do go abroad and talk to each other, we don't have the information. >> think about that. madoff, the -- is there one that we could really model a good agency after at this point? >> well, candidly, there isn't a good model but here's a reasonably good model. when you google something, or do any search in the cloud, you get an amazing amount of information. it doesn't know national borders. it's everywhere in the world. there is no reason every vin number of every car sold in america and around the world isn't part of a global data base of recalls and information about that. we deserve it. there are private services that will tell you if your car has been wrecked but why is it that even the department of transportation if you put your vin number in can't tell you what should be fixed on your car to make it safe? there are so many ways we can

use modern technology to make our job easier to know that we're driving a safe car and, in fact, to hold these auto companies accountable. >> i mean, would more money help? >> you know, more money is the easy answer. this agency has never asked for more money. what i would hope they would do is they would have a vision for what they need to add to their portfolio of skills and tools and then we can certainly fund it but ultimately the $86 billion worth of r&d spent by the top 11 auto companies is what we have to leverage. we have to make them do their job better and it shouldn't take a lot of dollars to say, hey, we've got complaints in 12 countries about a similar car. prove to us that, in fact, you're fixing it. by the way, we're going to kp n communicate everything back to the other countries so there are no longer global companies operating differently in different countries with different fixes. that is incredibly inappropriate that canada was doing work on recalls with toyota that the

united states wasn't doing or, in fact, that general motors has the cobalt that has a bigger problem for longer than the corolla and yet it somehow is not being treated the same. we need to stop that. and the american people deserve greater safety as result. >> didn't even get into all the conspiracy theories, you know, depending on which state a congressman is from, you know, how tough they're treating mr. toyoda. but we'll save that. we're just so glad we finally got you on. >> thank you. >> we'll save that for another time. thank you, congressman. we really need like a big federal agency that controls health care, i think. >> really. >> yeah. after listening to that. that's what i think. >> how about the panel that would turn down premium increases? >> we haven't gotten any mail today and i just figure i'd say that. after hearing about all of these bureaucrats and agencies, let's give our entire health care system to the federal government. >> okay. sounds good. they're going to get some practice.

they're in the game. >> is that tomorrow? >> any comments or questions this morning please drop us an e-mail. our address is squawk@cnbc.com. plenty going on in d.c. the fed chief testimony ahead today. the senate nearing this deal on financial regulation. >> that was low i know. >> hampton pearson will join us with more of those developments.

fed reserve chairman ben bernanke headed to capitol hill this morning where we find our hampton pearson who has a preview of today's speech, nothing that we're not going to break any embargos or anything. >> not yet. we're about an hour before the lockup so i'd have to be clairvoyant to do that. but this is -- these next two days are big time for ben bernanke. if you ever wanted your federal reserve chairman to look cool, calm, collected, but totally engaged, this is it as he begins to outline for congress and really all of us -- looking at the testimony expectations, just more detail as to what is the fed's exit strategy both in substance and timing as far as its execution? what's the future as far as interest rate policy being one of the tools as the president pulls back from the unprecedentedly low, key short-term interest rates?

going forward, as well. what will the fed be doing as far as trying to tell us the shape of the recovery especially job growth, which is going to be a central nervous system issue for members of congress who of course are running for re-election. what will he be able to say about when we might expect to see positive job growth and, again, a drop in the unemployment rate? the other things that the fed chairman, too, may still get asked to weigh in on, keep in mind this is a fed chairman who was reconfirmed to a second term as chairman but got 30 negative votes. also on the senate side in particular tomorrow they're getting close to trying to fashion some sort of financial regulatory reform so the next two days are key on both the economy, monetary policy, and again the future of financial regulatory reform. becky? >> thank you very much. we'll watch that closely all day. a group of senators has been lobbying the sec to become more aggressive. senator ted kaufman has been leading those efforts, the

delaware democrat who took over vice president joe biden's senate seat. thank you very much for joining us today. >> thanks for having me. >> why don't you tell us a little bit about what you think the sec needs to be doing and why? >> well, there are a number of things the sec should be doing. i've been talking to them about the predatory short selling and the problems of predatory short selling. they're going to come out with an announcement today on what they're going to be doing on that. also, i've been very concerned about market structure. what has happened during the last eight years? we had a theory of not having regulation, alan greenspan said he was dismayed self-regulation didn't work. a lot of things went wrong. one is we changed to a digitalization system and coming out of that started a industriary called high frequency trading and it's never been looked at or studied so they have a full plate. >> specifically on the predatory

short selling, that is already illegal. why aren't we doing more to enforce the laws already on the books? >> we'll find out today. all i know is what i read in the newspaper like you do but i'm very concerned. we've known about predatory short selling for hundreds of years. we know that one of the things when you have a free market there are people who are going to come in and drive down prices. and i am totally okay with short selling. i do it myself. but predatory short selling has to stop. >> you do it yourself? >> i do short selling, not predatory short selling. but what we know is that for 70 years after the debacle of 1929 we put in the uptick rule which would regulate it and slow it down. that was 2007 shall the sec commission in a decision to deregulate did away with that. we know that during the lehman brothers and bear stearns that there was predatory bear short selling. what we have to do, put in an uptick rule or something like

that. the second thing is there is a thing called naked short selling where when i sell short i have to have the stock that i sell. >> right. >> naked short selling is already illegal. >> no. there is no way to enforce it though. the rule is a reasonable belief standard which everyone says including the folks from the sec you can't enforce. we need a new standard and a hard locate on short sales so that i just can't go and say i've got 500 shares when i know -- i actually have to have it. the sec put in this failure to deliver rule but we know that during bear stearns and lehman brothers literally millions of shares were -- did not -- there were failures to deliver and nothing has ever been done about it. >> in the immediate aftermath of bear stearns and lehman brothers there were these bans on short selling put in or at least holds on how much you could do in terms of short selling with a lot of those financial stocks. >> exactly. >> the short sellers who come out and talk about this, the problem is they're saying is

you're not letting the market naturally do their jobs, which is weed out the weakest players, find places of fraud like happened with enron before hand. how do you put in additional rules without cutting off the markets' ability to scent out bad players or weak players? >> becky, look. there is one basic rule in this country. you can't sell something you don't have. >> sure. >> when i'm -- i'm in favor of short selling. i think it means liquidity in the market. i don't think there is anything wrong with short sellers but predatory short selling, selling stock that i do not own and do not have a hold on in order to drive up the -- drive down stocks is just wrong. we've known it for hundreds of years. this is not something that's new, some new, complex, technical -- look at the history books. we know it's bad and if aw lou people because we found out with lehman brothers and bear stearns, they'll sell millions of shares that they don't own, drive the price down, and then we're left with the aftermath. so, you know, this is -- >> but would that be enough for you if they put something in to make sure you actually own the

stocks and there was a way to check it? >> i think they have to do that. we have to have a systemic approach. there is talk in the paper they'll put in a circuit breaker. not a bad idea but it basically saends message, basically what they say in the press they're going to say, a 10% drop. well, the 10% drop of the stock, everybody knows that the market stopped it, the next day everybody is going to be selling because they know the bears are out and after to get them. becky, one last thing. there are plenty of people on wall street i talk to every day, people in major financial institutions that know it's going on but will not say anything and it would really be very important for people on wall street who know what predatory short selling is all about and know the impact will come forward and say what's going on. that's what it will take to get real regulation. >> thank you very much. we appreciate your time and hope to talk to you soon. >> thank you. >> i want to check on the markets this morning. we did see selling in asia taking the cue from our selloff here last -- yesterday. asia was down, europe having trouble getting out of the red

as well. not a lot of conviction given what we got on our plate today. the fed chairman obviously has a date with lawmakers and will deliver his semiannual testimony on the economy and monetary policy before a house panel. investors hope to hear more about the fed's exit strategy from monetary policy. we're also watching shares of google. eu regulators have begun a preliminary antitrust probe. it's focusing on how the company deals with advertisers and how it ranks its search results. airport security in the u.s. about to get a new look. officials say the first of 150 of those full body scanners will be installed next week at boston's logan. all the machines are expected to be installed at various airports i think including o'hare around the country by the end of june. so don't be shy when you go through security. >> all right. one of the most notorious financial scandals of all time is front and center once again. on monday the supreme court

haerz formal arguments in the appeal of former enron ceo jeff skilling. our senior correspondent is live in new york and joins us now with a special guest. >> reporter: good morning, becky. since the very beginning of this daniel petrocelli has been at jeff skilling's side as his lead attorney and we're coming down to the main event here, the supreme court arguments on monday. tell me what it means to go into this juncture here. >> well, we are very hopeful that the supreme court will give mr. skilling a full, fair, and frank hearing on two critical issues that we believe led to his wrongful convictions. the first issue is whether the case should have been tried in a venue other than houston because mr. skilling could not be assured a fair trial by an impartial jury in houston. and the second issue is whether

the government pursued an erroneous theory of criminality in prosecuting mr. skilling. and, of course, the two of them combined and argue to produce a recipe for wrongfully prosecuting and convicting mr. skilling. >> you argued from the very beginning that the case should not have been tried in houston where the emotions about enron were so high. the trial judge rejected the argument. the appeals court rejected that argument. what makes you think the supreme court is going to say that the case should not have been tried in houston? >> well, actually, the court of appeals agreed with us that this was one of those rare cases where the entire community of houston should have been presumed prejudicial to mr. skilling. however, the court of appeal thought that the jury examination was sufficient to overcome that error. on this record, we believe that

that was an erroneous conclusion by the court of appeal. we believe that this case is very much like the oklahoma city bombing case that was transferred from oklahoma city to denver. here houston, itself, was perceived to be the victim of enron's collapse. and the community blamed jeff skilling. they blamed ken lay. and they sought vindication through the trial. it was described literally as an exorcism by the houston chronicle. you can't have a community with jurors who perceive themselves to be the victim sitting in judgment of the defendant. there would have been no reason against transferring that case to a different venue. we're talking about a single, y yun teary federal system and the case could have been transferred to another federal court in another community that was not impacted in the way houston was. >> the other issue is this whole

honest services statute, which is used in all kinds of fraud cases, and that means that this case could have wide implications for all of white collar crime and if the case is overturned on honest services a lot of other cases could be opened up here. what is -- and you say in your brief here, it's time for the government to stop making up crimes under the statute. is that what they did with jeff skilling, they made up crimes? >> those are strong words in our brief but they are accurate words. the government's problem with this case from the beginning is dhe not have any concrete evidence of criminality so they stretched the bounds of the law and relied principally on a statute that had previously been confined to very narrow types of cases like bribery cases and kickback cases. and they persuaded the trial court that it was applicable to mr. skilling's case, which had

nothing to do with bribery and kickbacks. and the government should not be allowed to take statutes and mold them and bend them and stretch them in order to criminalize conduct that they find objectionable. criminal statutes have to be precise and clear in telling people what is forbidden by law and what is not. and the statute used to convict mr. skilling is vague. we think it's hopelessly vague. but even if it's constitutionally precise enough, even the government admits that mr. skilling's case is not the proto typical type of case that was covered by the statute. >> jeff skilling has been in prison for a little over three years now. you went to see him recently. how is he doing going into all of this? he ready for a new trial? >> well, he is certainly very hopeful. he's obviously very anxious. he has been waiting for this day for a long time. and, you know, we're going to be on the phone with him immediately after the argument

on monday and then we're all going to be awaiting anxiously for the supreme court to render its decision, which will follow a couple months after the argument. but mr. skilling is engaged. he has been working side by side with us under the circumstances of his being in prison. we send him drafts of the briefs. we speak with him on the phone. we visit with him. and he's very much a part of this process. >> it's interesting, in the little time we have left here, here we are talking about a scandal from 2001 as we go through a whole new wave of scandals following the last financial crisis. what did we learn back then? what are we learning now? how does that scandal apply to the current scandals? >> what we learned is that failure is not a crime. we told that to the jury in mr. skilling's trial that just because a large company can spiral into bankruptcy because

of a punishing liquidity crisis or some other financial circumstance doesn't mean people were committing crimes. if that were so, then all the executives on wall street would have been prosecuted for crimes when we experienced the financial crisis a couple of years ago. businesses can fail. risks are taken. and oftentimes there are rewards. but when businesses fail, it does not mean people should go to jail. i think that's the real danger of what the government did and hopefully, you know, we can correct that with some good rulings in the supreme court. >> daniel petrocelli represents former enron ceo jeff skilling who will get a hearing before the supreme court on monday and we'll be there to watch it. guys, back to you. >> scott, thank you for that. when we come back the fed chief ben bernanke delivers a key report on the state of the economy today. we'll check out big ben's latest

rapport with the markets. and it sells off road vehicles that can handle almost anything but is polaris rugged enough to cope with the sluggish consumer? we'll get some answers. also the oracle of omaha answering your questions. "squawk" is going to air its live, three-hour warren buffet special with becky in omaha. >> on monday. >> on monday. e-mail your questions to the buffet mail box at cnbc.com. it's open right now.

a busy day ahead. yesterday's hundred-point selloff on the dow, the biggest selloff in a couple weeks. we'll get a little back this morning but not a lot of conviction ahead of the fed chairman's testimony today on the hill. check out shares of h & r block the nation's leading tax preparer. the company says it will not be able to meet its fiscal outlook for 2010. it says the high unemployment rate has led to a drop in tax filings. block says the same office tax preparation volume down 5.6% compared to a year ago. a lot of people just will not need to file taxes. >> that's right. >> not a good thing. >> no, it isn't.

>> wow. >> how many people are paying income taxes at this point? do you know? >> that's a good question. >> i can tell you. about 50%. okay? >> of those who work? who have income? >> in the country, yes, about 50%. others would say that -- >> including kids? >> others would say the payroll tax -- they are actually paying it but to say you give a tax break to 90% -- anywanchy. >> payroll tax counts as a tax. >> no. it's social security. you get back in spades. >> if you live. >> yeah, there is going to be a lot left for you. >> yeah. >> it's actually your money that you're getting back. u.s. equities down for the second straight day yesterday with markets losing momentum ahead of today's bernanke testimony. joining us now, david katz chief investment officer and dick lerner chief u.s. economist at morgan stanley. let me start with you first, david. if we knew, i guess you never really worry whether we're in a trading range or whether we are

in a sustained advance because you're a bottoms up guy i guess and it's a market of stocks not a stock market -- well whatever. you like individual issues, right? >> we like individual stocks. we think this year they're going to be macro head winds. people are going to be concerned about everything the fed says. people will be concerned about the economic recovery. it's too slow. it's too fast. consumer confidence. the offset of that, and it's a significant offset, is that corporate america, companies are doing very well. the earnings are going to be very good this year. a little bit better than expected. and we think businesses are starting to spend and ultimately earnings will be up and that should drive prices higher. >> yeah, but we came up from the depths of the 666 on the s&p. then we gave back our -- or did our 7% or 8% correction. are we ready now to go to new highs, david? you're not concerned at all. >> we think the year end is 10% or 12% higher on the year which means 10% or 15% higher from

here. if you look at recoveries over the last 100 years the type of very sharp rebound we had the last year is perfectly normal. it usually will continue into the second year so we're very comfortable with stocks here. we would be buyers on days like yesterday. >> we had the lion's share of the gains already or we'll eventually get the new highs, all-time highs? >> eventually but that's a long eventually. >> five years? >> probably two, three years type of thing. >> okay. >> but we do think that you can have a continuation of last year but in a much slower pace. >> so the names you like and would you buy multinationals with this looming tax on foreign earning? >> the government is pretty antibusiness from our perspective of late. we just think there are lots of good businesses out there. we like technology and we think they'll have another leg up because business is very good. we like financials, big banks, bank of america, bank of new york, state street. we like a western union. a lot of businesses out there.

on the technology front we like microsoft tier and think they could easily be 50% to 80% higher in a year, dell. >> the economic backdrop, what you foresee, will that allow what david is saying to occur do you think? >> well, joe, i'm the economist not the strategist but our strategists think we are in range bound markets right now and i think there's good reason for that. the back drop for the economy is in my view improving and i think we're ontrack for sustainable growth. i think what you hear from fed chairman bernanke today is a cautious outlook but sustainable as well. so that's the good news. i think that there is a lot of uncertainty around the outlook, however, and the markets don't like uncertainty. in addition i think there's some political uncertainty with all of the policies that are being discussed in washington but which have uncertain outcomes. and that kind of political uncertainty is probably not great for markets. and last, i would say, you know,

if the economy exceeds expectations and right now it looks like it's matching expectations, but if it exceeds them, then, you know, you'll see the fed move to the exit a little quicker and so that's probably going to be a head wind for risk guesses. >> even though initially to go up 25 basis points, the first couple might be considered actually you wouldn't do it if the economy couldn't take it. that could actually be seen as a positive, right? >> it could. and i think it really depends on the pace at which the fed moves. it depends on, you know, what people extrapolate into the future from those moves. >> can they continue to go up if, and i want your forecast on employment, but can they continue to remove all of the stimulus and to, you know, raise rates if unemployment goes back above 10% and will it go back above 10%? >> well, i think it will go slightly above 10% to answer

that question. because as people come back into the labor force as, you know, labor market conditions improve, then you're going to see the labor force expand maybe a little bit faster than the pace of job improvement. so it probably will. you know, what the fed is doing now has very little to do with raising interest rates. but it is the first steps in the exit strategy. those deal with liquidity whether a hike in the discount rate or whether it's the program announced yesterday that the treasury is helping the fed with, either way, those relate to liquidity. >> it's tough for the fed to do anything that looks like taking the punch bowl away if unemployment is above 10%. >> it certainly is difficult. that's right. and obviously there's a presumption with labor markets slack, with a lot of slack in the economy in general and goods as well as labor markets, you know, the outlook for inflation is for further declines in the near term. so i don't think you'll hear any hint from the chairman today that they're ready to start down

that path of raising rates. >> all right. gentlemen, thank you. we just went from trying to go from stocks to the economic backdrop and you guys don't need to argue. you'd be arguing apples and oranges i think, right? they're in different worlds. >> they're in different spheres. >> yes. remember new math? they don't -- twain shall not -- they're not together. thank you. >> not that they're repelling us. >> no. >> up next, this company does not tread lightly. one of the world's top makers of snowmobiles and off road vehicles. and dick armey a guest in the next hour on a crucial day of testimony on the hill. this is a stolen blue chevy tahoe, south on i-75, near exit 5. we're on it. onstar, we may have that tahoe. ok, i'll flash the lights. we got it. it's in the clear. i'm sending a signal to cut the power.

we got him. mr. ross, the police have recovered your tahoe.

polaris industries looking for a smooth ride through the economic recovery but the maker of all terrain vehicles says we may not be out of the woods just yet. the company expecting slower sales thanks to tighter consumer credit and higher personal savings rate. here with his pulse of the consumer and economic outlook, the ceo of polaris joins us onset. we were talking during the break about what kind of toy you can deliver to "squawk" so joe, becky, and i can just go off roading. >> less than $50. >> well, our products are not just toys. there are a lot of work utility value as well so you can convince your wife. >> we don't work -- we work here.

>> no work? okay. >> what was that thing we were looking at? >> that was the new cobra razor 4, a four seat recreation utility vehicle we've developed with robby gordon. >> a dune buggy. cool. >> it works very well in the dunes. it's been a great hit with our dealer network. in the early indications for consumers it's going to be a great product for us. >> wow. how much does that cost? >> that retails for $14999 i think. >> wow. >> 1500 bucks? >> no. i'm 15,000. >> never mind. >> big piece, front page of "the journal" today jittery shoppers dim stores' hopes. we got retailers out this week like home depot and macy's. their comps are going a little bit positive but outlook for the year is flat to marginally better. why is the consumer having a tough time getting more confident about spending? >> i think the problem right now is unemployment is still high and the housing market is still weak. until those things start to turn around i think consumer confidence as we saw yesterday

with consumer confidence index is going to remain weak. what we have to do is continue to drive innovation and give a better solution to our customers which is why we're confident we can get back to growth this year although it's going to be muted by an overall weak economy. >> how does a better product, though, i mean the consumer is going to spend what they can afford to spend, right? >> that's true. one thing about our customer base is it's extremely passionate and to the extent that we can provide value to the consumer, we found that to resonate. i think our fourth quarter performance showed that. we'll be back to positive retail sales in the first quarter of this year and we feel good about where we're positioned. >> would you finance that thing? you need to finance a $15,000 vehicle. >> quite a few, about 2/3 of our customers finance their product. about 40% finance through us. >> okay. >> we don't do it. we have relationships with hsbc, general electric, and that's how

they, our partners help finance it. >> and you're not seeing any problem with credit worthy people getting the funds? >> one of the things we've benefited from is we never let our fico scores go down too much so we still maintain about a 740 approval level for our customers. so some of our competitors that had bought down during the downturn were hurt worse than we are. >> we talked a lot about harley davidson and some of the problems they've seen. huge, discretionary items obviously. you have to be happy with the way the stock has managed to hang in there. >> i'm happy with the way the team and the business have performed. it was a difficult year last year. we took a lot of costs out of the business but we continued to launch 34 new products. we made investments in our international growth opportunities. and we feel good about where we're positioned right now. >> the school of thought that if a consumer hasn't been laid off by now, right, they still have their job, we got joblessness, you know, trending flat, that maybe they might start to feel more comfortable about making a

discretionary purchase. do you believe that or is the housing overhang and the threat of losing your job more powerful? >> you know, we're actually seeing that. i mean, it's one thing to prog n nosty kate about what's going to happen but actually better to look at real results. we saw in the fourth quarter consumers coming back in a positive way. our off road vehicle division had positive retail growth in the fourth quarter. we're seeing strong demand in the first quarter as well. our recent orders with dealers are coming in higher than we expect expected. >> so to really get a sense of where you stand versus three years ago, just give us a sense of the health of the consumer, where they are now versus where they were at the height of the -- some the crazy spending going on? >> you know, to the extent that credit was essentially free, we're seeing that demand go away. our business is 20% smaller than it was. >> you got any low end stuff? i mean obviously -- not necessarily -- i'm not saying -- >> not $50. >> it's not, i don't think of it

as luxury but as discretionary. it's a new normal now where people may not be splurging on things that are not essential. is there a way to address that? what product -- lawn mower or something? >> part of our innovation last year was to introduce a more value oriented line. that did resonate well with our consumers. >> all right. we got to go. but it's obviously a good prism at which to look through the consumer. thanks for coming in. >> thanks for having me. >> when we come back splitting time with two big hearings, congressman paul kanjorski ready to go at 10:00 am with the bernanke testimony and off to the toyota hearing at 11:00 eastern. we'll find out what he wants to hear before these two big events. he's taking the squawk walk. former majority leader dick armey is headed to the set. plenty of ammo for everything from budget to financial reform when "squawk" continues.

washington is front and center today. fed chairman ben bernanke takes the hill with his latest assessment of the economy. investors will be looking for clues about when interest rates could start to climb. >> hold on, everybody.

here it comes! >> the budget battle. treasury secretary timothy geithner goes before the house ways and means committee where congressman paul ryan will get his chance to poke holes in the president's plan. but first he is talking to us. >> the toyota recall hearings. day two. >> the most important thing is we lost sight of our customers. >> and today the man, himself, the grandson of the company's founder, akio toyoda, will face lawmakers. congressman paul kanjorski has a busy morning which starts right here with us. "squawk box" begins right now.

welcome back to "squawk box" here on cnbc first in business worldwide. i'm joe kernan along with becky quick, here somewhere, and carl quintanilla. our guess host this morning dick armey. so much to talk to him about with everything going on in washington today from toyota to the budget. i just want to, in fact, find out -- i read in the "new york times" there were ten people in washington from freedom works. were there more than ten that showed up for that rally? >> well, are you sure they weren't talking about the size of our staff? >> no, no. >> ten people. >> the "new york times", no, how many were actually there? >> i'd say we were closer to a million than probably any other number you would draw. >> i read tens of dozens. i mean, the movement is -- are you surprised? >> it is the biggest wave of small government activism i've seen. i've witnessed six such waves in my lifetime. why did this get so big so fast?

because it's the first internet wave. >> right. >> the viral communications between these folks and this, of course, is one of the reasons why it's so big and so impactful without a leader. and that's of course what just baffles people. >> you're kind of a leader, leader armey. >> oh, yeah, bob dole, remember, called his dog leader. so don't get too swelled up over that. >> we'll get back to this. i don't want to waste, becky, that you went all the way -- we got to do the headlines. >> i hiked all the way into the control room. >> and here i am. go ahead. >> let's bring you some of the top headlines. hyundai moving quickly to avoid the kind of criticism its rival toyota is seeing right now. it has recalled 47,000 sonata sedans and suspended u.s. sales of the 2011 model while it fixes a problem with potentially faulty door locks. mortgage applications fell 8.5% last week to their lowest level in 13 years.

the mortgage banker association says this is the third straight weekly decline though bad weather in much of the country may have been a key factor. we have another sign of economic weakness this morning, though. the architecture billings index, a leading indicator of nonresidential construction, it fell in january to its lowest level since last august. this is the architect group. it says that it puts out this index and says banks are being unusually stringent about how much they will lend for new construction. carl? >> interesting stuff. thanks, becky. federal reserve chairman ben bernanke heads to capitol hill this morning for a semiannual testimony on monetary policy and the economy. our senior economics reporter steve liesman has a preview of what he may say. >> reporter: yeah, interesting testimony. the chairman will be forced to walk a fine line today, carl, between talking about exit strategies from the fed's easy money policy while he continues to pursue that policy for what we believe to be at least several more months. the dangers of confusion highlighted yesterday when the treasury announced the restoration of that supplemental financing program. essentially that's the draining of $200 billion of excess

liquidity, no way to get around it, and also raised the discount rate last week. that sent the bond market on a wild ride the past week. you can see right there. the fed is characterizing both moves as essentially mechanical not a clang in policy. sources insist the policy remains unchanged. that it will remain exceptionally low for an extended period. they told us the two only happened close together by coincidence. markets are jittery. like a prog frog in the proverb pot on the stove, that policy could become gently warmer before anyone notices. ben bernanke may sound more dovish today than he normally would. it's said we suspect that bernanke would have worked hard to avoid any hint that the fed already had a timeline for tightening under any circumstances but the events of the past week make it even more likely that he play down any risk of an early start. that's what lou crandall writes in icap.

the fed's most recent forecast, he is north of 3% this year and builds to 4% by 2012. recent data, though, not so buoyant. maybe a little squishy even. jobless claims, consumer konls both disappointing. in particular consumers' views on the job market. we're back where we started. the fed undertaking all of these, putting them in quotes now, mechanical operations that seem likely to lay the groundwork for tighter policy while it is anything but clear when the fed should implement that tighter policy, carl. >> all right. i mean, what are you going to be listening for the most? >> well, i want to see how we sort of characterize the recent economic data, jobless claims and the consumer confidence numbers and whether or not he thinks we're kind of into this mode of a self-sustaining recovery. then i want to hear what are the next mechanical steps? i don't think the fed should -- a lot of people were a little miffed yesterday that the fed spri surprised us. if it's mechanical no reason for surprises. there is nothing to be gained. if you're trying to drag us along and say that's mechanical,

okay. but why surprise us? >> explain it and make sure we know it's coming. >> there were some people who, jp morgan put out a thing about how confusing it was yesterday. it's really a trading operation but the argument is they're going back to a security that existed or amount that existed back in september and only came off as a kind of gimmick with the debt ceiling. >> the debt ceiling is back so they can put the money back in but why weren't there any heads up like hey by the way, just so you know. >> i'm told they wanted this done back when the debt ceiling was raised but couldn't get it done. >> either that or didn't want to draw attention to it because they don't want to draw attention to the debt ceiling being raised. >> exactly. >> it's been said this morning his testimony today could set the tone for markets for the next five weeks. is that fair? >> you know, i think so. i mean, what he needs to do is to redirect us back to the january policy and make believers out of the market. right? because the market is a little uncertain about whether or not to believe the fed when it

says -- what they did is they said policy remains unchanged from the january fomc statement. that was a reference to but not a direct quote of the phrase exceptionally low for an extended period. they need to kind of tell us, chill for six months or so, particularly with the next big step. of all the things out there is the fed getting out of the mortgage market and how that settles down. >> that must mean $1.44 at the bottom. i don't think people are looking for $41.44 for dollar tree. let's get to what's important. you did meet bob weir? >> i did, yeah. playing in radio city. we did an interview with him about the business of the grateful dead and played a little guitar with him. >> did you play the weir part? >> it was a little confusing. i played the weir part in all of the stuff that i do but there was bob weir doing the weir part so i was forced to take the jerry part, playing a cool gibson guitar. >> you didn't bring us a picture? >> you know, i didn't think about it. >> we had a picture from harwood

with black eyed peas. >> i just want everybody to see how much cooler everybody is than they think. >> here is news that wasn't revealed. i talked about selling his songs to commercials and he said he was not opposed to it. what do you think would be the one product that might approach bob weir? >> he's got some good hair. >> it's not hair. relative to a song. a fairly popular song for the dead in the '70s. >> sing it. >> i don't like any of the popular songs. >> okay. anyway. this was miracle whip approached bob weir. >> miracle whip? >> to use the song "i need a miracle." true story. right from the guy's mouth u we'll try to bring you this. because of the olympics also we'll bring you this stuff next week but his thoughts about wall street, joe, and making money and all of that stuff. i know we got to break. >> we do. >> bob weir has a lot of interesting thoughts. >> touch of gray? >> do you know how dead heads there are in power right now? harry reid, nancy pelosi, david axelrod. >> and i was saying -- >> dead heads are h running it

for better or worse. >> case closed. >> i suspected they were dead heads for quite a while. >> bob mentioned there are a lot of conservative dead heads out there as well. interesting. >> i know. i was going to try and skew the demos younger with this discussion but i don't think i did. >> becky and i are really silent. >> i like the dead. i do. >> also talks about the demographic which he says is getting much younger. and it shows that. >> a new generation. >> just like the population. >> just remember "i need a miracle whip." >> that'll work good. that reminds me, now they moved it. >> yes. >> my fault. all right. >> we'll have more with dick armey in a moment but in the meantime the other hearing that is kmanlding the spotlight today, it's all babout that toyota recall. akio toyoda will be in the hot seat. phil lebeau is in washington preparing for today's main event. >> reporter: the focus will be akio toyoda when he goes in front of this house committee looking into the unintended

acceleration cases reported at toyota. here's what we expect to see from akio toyoda and more importantly what we expect to hear from him. plenty of apologies and humil y humility. he will testify before the house oversight committee and will be apologizing for the recalls of 7.5 million vehicles here in the united states. he will also lay out a plan for improving quality. we've had a copy of his testimony that he'll be making, giving before the committee today. he says we pursued growth over the speed at which we were able to develop our people and our organization and we should sincerely be mindful of that. i regret that this has resulted in the safety issues described in the recalls we face today, and i am deeply sorry for any accidents the toyota drivers experienced. akio toyoda will then be laying out a plan for the future as toyota tries to convince lawmakers it will not run down this path again. they'll have a quality control committee of which akio toyoda will be in charge. the group will include members from all regions of the world,

including north america. the company is also adding a products safety executives here in north america. again, we'll hear plenty of apologies and a lot of humility and sincerity. this is as much about appearance as the actual substance of the message. guys, what's interesting is this stock took a pretty decent hit in the middle of yesterday when jim lentz was testifying and that was around the time that he said we cannot completely rule out whether or not electronics might play a role in unintended acceleration. i don't think the really pointed questions will go to mr. toyoda today, more likely to go to the highest ranking toyota executive here in the united states. >> all right. phil, thank you very much. we'll be watching that closely today and checking in with you throughout the day. up next, splitting time between bernanke and toyota is going to be the game today. congressman paul kanjorski is a busy man but has "squawk" on his schedule. we'll talk to him about the fedex it strategy and putting toyota on the hot seat, next. we have dick armey.

welcome back everybody. we are just hours away from testimony of akio toyoda and from fed chairman ben bernanke, a very busy day on the hill. joining us right now with a preview of those hearings is congressman paul kanjorski. he is a member of the financial services and the oversight committee, so he is going to be getting a double dose of these hearings today. also our guest host today is dick armey who is the cochairman of freedom works and former house majority leader. gentlemen, let's start off on this and, congressman kanjorski, we'll start with you. do you want to talk about toyota first or bernanke first? you're going to have a lot to juggle today. >> i first want to register my objection to a comment joe made earlier about a hair test. i'm worried about failing that. >> we don't have you on for your hair, congressman. i have a name of someone if you want to call after the show that might be able to help you out. they don't have a name on the door when you go to them. >> thanks, joe. no, this is going to be an

exciting day, an interesting day, but it can be a positive day or a negative day. i hope all of us across the country, particularly the congress, make it a positive day. we can concentrate on the negative and it really doesn't accomplish anything but what we can accomplish with the toyota hearing is to set a procedure. darrell issa earlier on your show suggested a world inventory of all products. this is something we can do in a bipartisan way. we can do it right now. start that process. and it's part of the global market to have that type of a record. and then this experience would turn into something very positive that would affect the future in a very positive way. >> that's an excellent point and a wonderful note to take. i guess one question we have, though, is there's a lot of sound and fury from all sides on this and it is difficult to somebody on the outside to try and figure out what's real, where there's real smoke, what needs to be paid attention to, and when things are maybe just being used for one reason or

another. how can we watch these hearings today and try and navigate that? >> well, i think have an open mind. but, you know, i think we'll all go -- i'm going to pick on my friend dick armey. we served together for a long time. dick will recall this because i remember sitting on the floor of the house aof representatives when dick made a speech in the 1993 budget battle where he predicted what would happen if we adopted bill clinton's budget in 1993. and, you know, all of us have made those suggestions or predictions that were just dead wrong. and i'm not bringing it up so dick has to make a confession like that on the station. i'm bringing it up because it points out something we should all do. when we have made misjudgments, and god knows i've made a lot of them and just recently in some of the processes we've gone through, maybe it would start establishing some sort of credibility out there for our institutions if those of us that are in the public view started admitting to some of those failures. it would be healthy.

it would be saying something that we, too, know that not everything we see in the future happens. not everything we predict in the future happens. and that we also make mistakes. but from those mistakes we shall learn. >> well, i appreciate you remembering me that way, but of course in my defense with respect to that speech at that time i had no way of knowing president clinton was going to enjoy the luxury of working with a republican majority in just a few years. but nevertheless. the toyota thing, i've watched this with some interest and i think probably the most distressing thing i have seen in there since we're not living in a world where the consumer, himself, would be ever vigilant but living in a world where the consumer presumes that the government is looking out for his interests, this story that broke about how toyota was congratulating themselves for having negotiated a relaxed

recall with some agency of the government is more distressing to me because that tells me the government is at least culpable, shares in the culpability of any tragedies that came from this failure to get on top of these recalls quicker, and of course the government is endowed with the public trust. toyota is not. but the government is. so once again i'm distressed at the possibility that what we really ought to be looking at here rather than having a pretty good show of the world about how we're getting down toyota's neck is looking within the government, all right, who us down in doing our duty after we assumed the responsibility for protecting the consumer? >> well, dick, i would disagree with you fundamentally. see, you're a republican so you're in favor of government getting involved in running everybody's lives and running industry. i believe in the free enterprise system. that's what the tort system is all about. if a private company makes a mistake, covers it up, tries to

avoid and evade responsibility they have to pay and should pay dearly. but you don't want to, dick, i know you too well, you don't want to have the government be the nanny of all of us. >> no. >> all of industry. that would be the worst thing we could do. we just aren't capable of doing it. let's admit it. i think there's been too much of a thrust. everybody is complaining in the madoff case why didn't the sec and why didn't the government stop this? well, we don't do that. know what you're doing. >> paul, bless my heart, you misjudge me again. what i'm saying is the government intruded itself into this whole area of auto safety and left the consumer to believe that i can be careless and relaxed in my own vigilance with respect to my consumption choice because the government is watching it and then the government goes in and negotiates with this company a

recall regimen that is less than what the market would have required of it. so i'm saying, if the -- indeed, had we had a world of more caveat emtor and less government false promise, of we will secure your safety, we might have, in fact, had more quick resolution to this problem than we are today. >> right. >> again, we have the government in here saying to toyota, why did you let us down when, indeed, the government made the deal with toyota. >> well, let's disabuse toyota and the government that that's their role. and let's get back to what their correct roles are. i agree in such a technical world as we live in, individuals can't determine electronic devices, mechanical devices of such subtlety as we have in this case. but the reality is we do not give a guarantee that everything is correct or works well. we give a remedy through law and that the people have. but i don't believe that either

the united states government or for that matter any government in the world should start taking on the responsibility of saying to its citizens or our citizens that you don't have to worry about this, everything is perfect, and if it goes wrong the government or the people that make up the government underwrite this process. that's a mistake. and maybe both of us, you know, we're a little different philosophically, you and i, dick, but not that far different. we still have faith in the american system. we know how it works. let's get it right ontrack. let's make sure that the government plays a proper role if it's charged with being an inspector but let's not say it is the sole responsibility party to make sure everything happens correctly and perfectly because it can't be done. >> congressman, why don't we shift our focus to bernanke coming up today, as well. steve liesman just laid out what he would be listening for and part of that is to hear more about the mechanics of what else we can expect as we continue down the road. you have the treasury stepping

in with these funds last night and that caught some people in the markets by surprise. what do you want to hear from bernanke today? >> i really want to hear his gut reaction to where we are. i have a suspicion we are on the road to recovery and i'd like his evaluation of just how fast that will be or how slow it will be, what we can expect. i think the liquidity question in and out of the market place and these things are really tactics and superficial. what we're at now, as a matter of fact, what i'm preaching in every speech i'm making is, look, we're now psychologically hurting ourselves more than anything else. that's our biggest problem. if we as a population start getting positive and moving forward and thinking positive we will have a greater impact on the economy and market than anything else. >> but if you think things are going well and expect to hear that from him today that maybe the economy is chugging along you also expect to hear he will

be pulling back from some of these extraordinary measures quicker than some of the markets expect. >> he'll call the timing on that. i don't know. i haven't any doubt he'll give us a little formula of how he withdraws from the market and he should. we cannot have the government in at these rates indefinitely. it's always, you know, they're taking us off the bottle if you will and i remember as a little kid i didn't like that too well. i don't think any of us do. but once you start to recover you no longer need that extra fe feeding. that doesn't mean we have recovery, good jobs, and there aren't hurting people. they are massive yet out there but i think we are turning the corner on the way to recovery. let's get to it. but let's be positive about it. let's try and help out. let the bankers want to lend money. let the business people want to hire their people back. let the workers work a little harder if they can to create more productivity in the system. let government people stop yapping at each other and get to work doon a good job. >> all right. >> let me also say that i've

been saying about the federal reserve for sometime, it's time that this agency starts thinking inside the box. they have a limited responsibility. and it is imperative for app reserve system that they fulfill that limited responsibility with rigor. they ought not to be out there, so under valuing the price of capital, that they negate the market's ability to efficiently allocate it to its more precious resources. we have been squandering capital on housing while starving capital to the manufacturing and we sit around and wonder why can't we have a more vibrant manufacturing sector? because we have underpriced capital by virtue of the federal reserve's consistent policies of too much too easy money for too long. >> congressman kanjorski -- >> paul, quickly, that's how much we know each other. i can call him paul. >> you certainly can. >> you know, you had a five-vote

margin the first time the house passed the health care deal. now hoyer says unsure whether the big thing can go through. do you think you've lost some of those five? do you think you could still do it? what would you tell ms. pelosi at this point? >> i still think we have this deficit of misunderstanding and obligation to inform the electorate. i'm not sure if we can do it or how soon but we have to get on to some of the more important things being the economy, jobs, and reforming the regulatory reform. we have to get that done or we'll end up with another crisis. >> so you're ready to leave it on the back burner? >> myself, you know, it never was the most important thing. it is important but we can't afford to spend two years of a congressional or a congress term on that. i think we'll get to it. i sense even in the senate and some of my colleagues on the republican side are starting to realize if we miss this

opportunity, it's going to be a horrible failure and it has a tinge of politics of why it would happen. if we could just back up a moment, as i said to dick, let's not, you know, talk about what happened last year or ten years ago. >> you started it with talking about stuff ten years ago. anyway. thanks. >> i just did that for a point. >> all right. congressman, thank you very much. great talking to you. we'll see you soon. >> great. >> all right. well, bernanke testifies and akio toyoda gets grilled. timothy geithner, the treasury secretary will defend the president's budget. among the critics congressman paul ryan the republican from wisconsin talks to us before today's budget hearing.

all right. welcome back to "squawk box" here on cnbc. first in business worldwide. we are just one hour away from the opening bell. our guest host today is former house majority leader dick armey. he is currently the cochairman of freedom works and we've got a lot to talk about with him today. in the meantime let's check out the rundown. we'll tackle the fixed income market to search for some investor opportunity. then congressman paul ryan ahead of the budget hearing where treasury secretary timothy geithner will be on the hot seat. and we've got the stock of the morning coming up. but in the meantime, let's see what else is happening. >> all right. $42 million worth of five-year -- no, no.

$42 billion -- million -- billion. >> a really small auction. >> i read what's there. >> yeah. 42 million. that was the one guy. you took down that. worth of five-year notes sold today. part of $118 billion in -- >> yes. >> okay. all right. in notes. whew. joining me now with his outlook on the treasury market is the head of u.s. fixed income at barclays, a.j., so this is a lot dweek. but we worried about it repeatedly and it always seems to go pretty well. is that still amazing to you, a.j.? >> not for this month, not for the next month, not for the month after that, even. really what i worry about is how all of that supply will be digested in the second half of 2002 and more importantly in 2011. because i have to tell you, you know, the next few months' supply i think will be well but after that there are two very big issues looming for the u.s. treasury markets. >> all right. so at this point, though, you

would expect, why wouldn't you wait? because most people think that in the second half of the year in 2011 you get much better yields on these things, right? >> true, but at the same time you have a significant percentage of investor base who are not quite convinced about where the u.s. economy is heading. those are the people really putting money to work. the other part of the equation from the demand side is really a lot of investors bought a lot of treasury bills across 2009. those are holding off. a lot of these people are putting their money in coupon issuance such as the five-year point on the treasury yield curve. >> i guess every time we get an inflation number like that you're like vindicated for participating in these auctions. >> and you will be for the next several months. inflation we think will stay across 2010. it's not so much inflation that worries me quite honestly as the fact that the deficit projections we have seen put the u.s. on a path that is not sustainable. i'll give you one number.

this year the budget is $3.8 trillion. 2.4 of that is mandatory spending. social security, medicare, and medicaid. that does not include paying interest on your debt. in my mind paying interest on your debt is pretty important but that is not included and tax and revenues for this year are $2.3 trillion. there is a structural issue here i guess we can say as we see each one of these proceed successfully that the day of reckoning with our friends in china are -- our best friends is not yet here. >> it's not yet here but there are some troubling signs. now, last week there was a lot of discussion of the chinese holdings of u.s. paper, 35 billion or so. we think that misses the point but the longer -- the last several years the chinese have been diversifying away from the u.s. dollar. that is very much in place. it stopped for a year but because of the financial crisis right? everyone rushed to the safety of u.s. treasuries. as that has changed and has

become clear that there will be a lot of debt for a lot of years and the chinese seem to be diversifying away. >> thanks for your time today. >> thank you. >> we'll have you back. i got smart. very good. appreciate it. although that last name had me -- >> yes. >> a difficult one. >> it was spelled out phonetically for me, thank god. but then when i actually saw it, i would have had some problems. >> quintanilla is challenging sometimes for you too. >> and what do i want you to do? >> change it to -- >> carl quinn. carl quinn. >> still working on that. i mean, you're an anchorman, carl quinn. >> when we come back we'll talk to paul ryan. that's easy. talk about the budget battle as the treasury secretary testifies to the house. we'll do that when "squawk" comes right back.

there's a look at futures as we await not only the toyota hearing but also on capitol hill today the fed chairman testifying. those two gentlemen getting grilled. then the treasury secretary at yet another hearing today. this time the budget is front and center and congressman paul ryan will want to know where all the money is coming from. he'll join us next on "squawk."

there is another big hearing nearly getting lost in the shuffle today the treasure tri secretary testifying before the house ways and means committee about the president's budget. here now with a preview is congressman paul ryan. also our guest host today is the

former house majority leader dick armey. congressman ryan, good to see you back. >> thank you. good morning. nice to see you got the old man with you today. >> oh, ho! man. great. he's going to take that out on us you know. >> you're a dead man now. >> you know, it's fascinating, congressman ryan, to watch the president in things like that baltimore back and forth where he is actually i think you could argue giving you some props for the proposals you put on the table. are you feeling that? >> yeah, look. i'm one guy from wisconsin who's actually put out a budget plan that the budget office says works, actually pays off our deficit and our debt. look, i think it's kind of strange you get all this attention for simply doing your job when the president's own budget by his own treasury secretary's admission is unsus tainl and not credible. we need to budget. we have a real fiscal crisis on the horizon. unless we get serious about fixing this, the t.a.r.p. episode we talked about for that long weekend is going to look

like chicken feed compared to the problems we'll have if we don't get a handle on our fiscal situation. >> we just got done talking about china selling off some of our debt in december. >> yeah, right. >> you think that will mark a turning point? >> i do. look, what we have is a budget that triples our national debt, never gets the deficits to sustainable levels, 2 trillion in higher taxes, any new entitlements, this is the budget the president is trying to pass. they had this little table underneath, looked like a cigarette pack warning, that says oh, we're going to punt all the tough decisions to a commission. if one guy from wisconsin in congress can come up with a plan that fixes the problem surely the president of the united states with all of his cabinet and omb can come up with a plan to fix our fiscal problem. >> the argument is going to be housing is tentative, right, job markets tentative. where's the line between getting serious and getting the economy righted again? >> well, if you take a look at paul ryan's road map, it's one

of the most courageous and ingenious devices we've seen out of congress for sometime. it hurts me to say that, paul. but you really have done a great job and you deserve to be complimented. but it is a long run policy plan for america and it's serious work. now, the problem with the president and the white house and everybody around him is they only have short run political plans for today for me. this reminds me of an old country western song i don't care what's right or wrong. i don't try to understand. let the devil take tomorrow but tonight i need a friend. help me make it through the night. the president just wants to get through the night. and the night now is the next election. quite frankly, if he gets lucky, the republicans will gain a majority. paul ryan will be the chairman of the budget committee, and he'll get that kind of strength and relationship with a responsible congress trying to control spending that can save his presidency. >> do you think, congressman, that a republican house and

democratic senate could get more work done than what we got? >> nothing is getting done right now with a full democratic majority. they can't even pass their agenda because it's really unpopular with the american people. so we'll see. but the point is this. if we actually get a handle on our fiscal situation, focus on the spending, that's going to help the economy and give us, you know, bring interest rates lower in the future and give investors more confidence that their taxes aren't going to go through the roof in the future. so good economic spending discipline is good economic jobs policy at the same time. that's not what's going on in washington right now. we need a dose of reality around here and the sooner the better as far as i'm concerned. >> we've been taking an informal poll this morning about where the house vote stands right now regarding any proposal regarding health care. it's been written that speaker pelosi has lost three which makes it tough right there. >> right. >> is it worse than that or not quite as bad? >> we've been doing a little counting ourselves. by our count they're down 2 to 12 votes. the president's bill doesn't do

the stupak amendment so funds abortions. that's 10 or 12 votes. you had a couple democrats leave. that means they are down, in deficit, and trying to flip democrats to vote for this. this bill is basically the same bill. we're talking about the same policy, a brand new entitlement which is a government takeover of health care when it's fully financed and phased in as $2.3 trillion over ten years, smoke and mirrors budgeting, new entitlements, and it makes health care spending go up not down. that's not according to us. that's according to the president's chief actuary of medicare and medicaid. >> all right. then what happened? the skinnier bill and they do a bunch of stuff later? >> this bill could fail. they're going to try and jam it through with reconciliation. if they fail to do that, then i think they'll conclude they have a failed presidency on their hands and maybe then they'll come talk to republicans about what we can actually do to collaborate to fix what's not working in health care. >> you don't think that's happening tomorrow? >> no, not at all. look --

>> it is a meeting between republicans and democrats right? >> i'm familiar with this meeting. it's with the tv cameras. the problem is they're not meeting with us when the tv cameras are off. they're meeting in secret cutting deals behind closed doors to try and jam this thing through. they're still going to try and jam their thing through. if they fail to do that then only maybe, hopefully, we can actually collaborate and fix some problems around here. >> my own view is the clock is really caught up with this presidency. obviously the senate race in massachusetts made a big difference. but the fact of the matter, paul, you get to measure on the floor as you talk and walk among your colleagues, this national uprising that is precipitated largely out of reaction to this militant insistence on doing the wrong thing in health care, has unnerved a lot of people, so quite frankly there's an awful lot of members, when and if they're facing that vote they're going to say, look. i'm not giving up my job to help you and george miller and all of

you liberals in that wing of the party achieve your lifetime objective of gaining control of health care. i'm not going to give up my job for you. frankly, i think they have a very, very tough time getting their votes. >> i tell you, i had the most swing district in washington in congress according to charlie cook, dukakis, clinton, gore, obama won my district. i can't go to the gas station, grocery store, my daughter's soccer game without somebody coming up and saying please kill this health care bill. this is a national uprising. it's not just a republican tea party movement. it's everybody because they're worried about what this is going to do to their health care and our budget situation. >> so "the times" this morning says this is beginning to feel like the start of the final act. >> yes. i think that's right. >> do republicans feel like they are within grasp of putting this thing to bed for good? >> i think we're about a month away from that. we'll see if they can muscle the votes. they've been pretty good at it. cap and trade for example they were down 24 votes the night before it came to the floor. they passed it by eight. the speaker has been really good at breaking arms, muscling

votes. she has a perfect track record on that. don't count her out. right now we think they're down and in deficit when it comes to passing this bill. >> i might also point out between now and whenever they shut down business the more they insist on trying to do this the more they play out their heavy-handed tactics, the more they're losing the next election. >> right. >> the nation is aware. they need to understand they live in an internet world now and people are getting their information from some place other than msnbc or other soft news sources that are pandering to the left. >> wait, wait. hold on. >> whoa. >> are you guys in the same holding company? >> cnbc we love with all our heart don't we? >> one last question, congressman ryan. if the offensive in afghanistan continues to proceed as it is, if job growth does start ticking up into the hundred thousand range, doesn't that give a little wind to the democrats'

back? >> we have to have 250,000 jobs every month for five years to get back to 5% unemployment. >> not recovering everything we've lost but talking trend. >> look, i was in afghanistan three weeks ago. the counterinsurgency strategy i think is the right strategy. the surge is the right strategy. so i hope and pray this is going to work. i was with the 82nd down there in the southern province. they're doing a great job. we have to get behind them on this. if the economy starts to pick up i just don't see unemployment getting anywhere dloclose to wh we're all comfortable with where things are going in this country. i don't think this sort of uprising in america is temporary. i think it's building not shrinking. >> well, we went from budget to health care to foreign policy, a lot going on. congressman, always good to have you on. >> you bet. nice to be with you guys. >> see you later. >> we have more with our guest host dick armey coming up but first let's check on the dollar as we head to break. "squawk box" will be right back.

you all want to run your businesses more efficiently, so we've brought in a team of experts to help. one suggestion is to make your shipping more efficient with priority mail flat rate boxes from the postal service. shipping's a hassle! weighing every box... actually, with flat rate boxes you don't need to weigh anything under 70 pounds. if it fits, it ships for a low flat rate. call or go online for a free flat rate box shipping kit

that includes free boxes and our helpful shipping guide. do it today, and we'll ship it all right to your door for free. ok, but i ship all over the country. you can ship anywhere in the country for a low flat rate. ship international, too. and remember flat rate boxes come in four sizes and shipping starts at just $4.95. call or go online for a free shipping kit with a full supply of free boxes, plus the shipping guide. act now, and you'll get them all delivered right to your business free of charge. priority mail flat rate boxes only from the postal service. a simpler way to ship. call or go online now to get started. 

the dollar is holding on to some broad gains this morning as we await chairman bernanke's approach to the hill. we'll hear testimony there but the dollar strength has meant some weakness for gold right now. it's down about $9.70. $1,093.50 an ounce. coming up, the armey of one. a parting shot from our guest host.

advisor:... ms. davis, this is onstar. i've received a signal you've been in a crash... i'm contacting emergency services... 911 dispatch:...onstar reporting a front end crash... on wakefield road... chevy malibu... fire/ems:...air bags deployed... ...injuries reported... advisor: ma'am, help is on the way...ok. and i'll stay on the line with you until they get there. automatic crash response. built into 15 chevy models.

the oracle of omaha answering your questions. "squawk box" will be airing live three hours with warren buffet, a special coming up on monday. e-mail your questions concerning what's happening with the markets or specifically questions from the berkshire share holders letter that he writes that comes out on saturday. e-mail those questions to the buffet mail box at cnbc.com open right now. >> let's turn for parting shots from our guest host, dick armey. dunt take offense to our talking about the grateful dead but you do want to talk outlaw, wailon jennings. >> waylon jennings had a great line, no right way to do the wrong thing. an enormous lesson. let's apply it to the president and his party's obsession with health care. they masquerade their intentions

as health care reform but every iteration of it has been some form of health care takeover. it's been through about 15 iterations and they can't make it fly because it is simply rejected by the american people. because it's the wrong thing. >> there are some complications. >> you say it like it's a dirty word. >> what? >> a takeover by the government. >> of course it is. >> at least 30 million people would be covered. other countries have done it. >> well look. you want to get those people covered then reduce the cost of health care. get rid of -- 1/4 of all medical procedures are medically not necessary. reform the tort laws so you can fix that. you can sell insurance across state lines. there are so many things you can do to reduce the costs. give the person who buys their own insurance the same consideration under the tax law as is now given to the person who buys insurance for somebody other than themselves. >> you know how else you can lower costs? tell the insurance companies how

much they can charge. is that going to work? >> well, first of all, price administration by the government is a failed model. >> that was really good the way you -- because that was one of my softballs. >> they got in this latest iteration mandates, the government forces you to buy a product whether you feel like you need it or not. they got a price control. >> price controls are great. they've worked so well. >> for whom? >> exactly. who ends up with any insurance? >> if you talk about the miracle of the market, the miracle of the market is that it takes all of this enormous amount of information that is involved in any simple little product, reduces it to one data point that you and i can make a decision on. >> dick, it's not working. the miracle of the market has not worked. you are talking about more than 30 million people -- health care costs that are out of control on one hand and millions of people oon the other hand that don't have