heads and let them do their thing, they will find ways to do more with less. it happens constantly. and this is not a squeezing the lemon, the last drop, the lemon is infinite. and we prove that in ge for 20 years. you can prove it over and over. people are smart. people closest to the work know the work better than we do. and they can find ways to do more with less. >> we certainly do. >> thank you so much for coming back in here. it has been wonderful having you. >> thanks for having me. it has been fun. >> come back again soon. >> i will. i look forward to it. >> that does it for us today. come back tomorrow. "squawk on the street" starts right now. live from the financial capital of the universe, this is it, "squawk on the street." i just realized my jacket collar

was turned up. >> oh. >> good morning, everybody. i'm mark haines. >> and i'm erin burnett. front and center, timothy geithner, treasury secretary. >> he addresses the house financial services committee this morning on the future of -- >> an itch. >> -- of home finance. i guess they mean mortgages, things like that. will we get -- will we see more big changes here. we could find out later this morning. >> i have an itch. all right. earnings season starting to pick up some momentum. numbers this morning from walgreen and kb homes, thank you, james. >> google leaves china, sort of. but now the search giant has a new problem in europe. >> let's look at futures. they're pretty unexciting, but they did look like kind of a tiny bit of a higher open. yesterday we were looking at a lower open and we ended up higher by the end of the day.

>> let's hit the markets. we start with cool breeze, bob pisani. >> we're looking for some kinds of improvement in housing. the existing home sales number out at 10:00 a.m. eastern time today. kb home was disappointed. they reported a wider than expected loss. the good news is that things like inventory and paramentes for land options and things like that are improving. the bad news is sales really aren't increasing. only up 5% compared to last year. it i was horrible year. so that's a bit of a disappointment. stocks down. we'll get lennar in a couple of days. saks is up nicely today. they got an upgrade and moved the stock. jpmorgan upgraded on optimism over continuing topline growth. we have seen that already in a number of retailers. walgreens up 2%, zpodisappointi though. a mild flu season, same store sales down 2%. time warner might be in the running for bidding on hollywood studio mgm, the early word. more on that at 9:30.

tradertalk.cnbc.com. >> the nasdaq closed at its highest level since august 2008 yesterday and at least here in the premarket, it looks like the market is poised to maybe set another new high today. trading yesterday in shares of google was relatively volatile. could be another volatile day for these shares again today with the situation in china, the rhetoric heating up on the china side and now as mark mentioned a moment ago, the european situation bubbling up as well. look who continues to benefit. bio shares are up. aqua theron getting hammered 33%, because of its german merck suspended a midstage drug study of a cancer drug because somebody got brain inflammation. and parago up 5% premarket because it is spending millions

to help a baby food company. investors obviously like that farme farmersmarket.cnbc.com. back to you. >> thank you, mike huckman n asia overnight, mixed trade, south korea, and hong kong up slightly. shanghai and tokyo lower. in europe, higher across the board. in london, paris and frankfurt, greece still a big issue with the big summit under way. and guy johnson has all you need to know in london. good morning. >> thank you very much, indeed, erin. good morning. we're waiting for news on greece. they're beginning to begin now in advance of the summit that is going to take place over the next few days between the european leaders. today kind of seems to be a risk on trade for that one. we're still waiting, still watching. greek banks are up very, very nicely today. there is some sense maybe we'll get a deal done. the germans, though, still seem to be incredibly intenseient on this story. we'll show you where we are. we're off our highs, to give you a lie of the land.

we're up by around half of 1%. the euro is trading still around this, 135 level. seems to be a key line in the sand for the market. we broke it a little earlier. we popped it up a little bit off our lows but the euro is still down by .3. the other story i want to make you aware of today, one of the world's biggest carmakers, volkswagen is showing values of around 4.5 billion euros. this is effectively to pay for porsche which is bought a while ago in that acrimonious dispute and effectively to preserve its credit rating. volkswagen, stock downs pretty hard on that. over to you. >> all right. we're down here on the floor with bernie mcsherry, catone and company. good to see you. still hanging in, right here at the top of the reins. where do we go? >> it is like the tide is moving in. you're not paying attention and then all of a sudden you're a couple feet higher and it is happening. i was surprised yesterday, i thought we would see more weakness after the health care

bill passed. obviously that wasn't the case and it doesn't seem like momentum is going to continue for a while longer. >> so there is really nothing to take us out of this, i guess, your characterization is probably the best one, this rise -- this slowly rising tide. >> i'm the short-term. i think there is real concerns out there, you know? concerns about solvency have been moving from the individual level to the institutional level. and now it is going up to the state level. we have got worries about the united states, individual states, greece, problems like that. that could cripple things. i think much further out there are problems so nothing in the short-term. >> an awful lot of things are apparently behind us. greece is not that big a deal anymore. the dollar is not that big a deal anymore. oil is not that big a deal anymore. we don't have any big deals holding us back. >> so we're just driving higher. >> and i guess the next big challenge, assume nothing big

surpri problems is the earnings season. >> over the next couple of weeks as financial reform comes to the forefront, we may get leaks and rumors coming out. apart from that, i don't see a whole lot of catalyst. >> thanks bernie mcsherri. up next, a quick check on energy prices and kb homes reporting a narrower than expected quarterly loss. we will go inside those numbers next. >> and, mark, the big question for many, is it time to abolish fannie mae and freddie macmac? much more easily said than done. timothy geithner talking about that, testifying 10:00 a.m. on the future of american home buying and selling.

live in the financial

capital of the world this is "squawk on the street."

welcome back to "squawk on the street." i'm bertha coombs. we have got kind of a slow start to trading in energy and metals this morning. oil bouncing back a little bit after easing. we are now trading the may contracts for crude ahead of tomorrow's inventories. focus will continue to be the dollar and the equities markets. oil will likely follow, go through them. we have natural gas bouncing after hitting a fresh six-month low yesterday. a lot of traders are watching to see whether natural gas is going to fall below that $4 mark with

the prospect of not much demand and an awful lot of warm weather ahead. taking a look at the metals, we have got metals at this point flat right now. gold absolutely flat this morning with the dollar index a little stronger, giving back a bit. look at copper. copper is doing well with the report that chinese demand continues to be there. chinese copper imports were up 12% in february. mark? >> okay. the wiseman, jack welch appearing on "squawk box" this morning and saying if republicans think they're in for a big win in november, they should think again. >> i don't think they're going to get wiped out. because i think the economy is picking up. i mean, the economy is going to feel good. november is not going to look -- the republicans are going to get an awful shock, i think, if they go running out there. >> okay. so i tend to agree with him, but for a different reason. >> what's your reason? >> everyone expects the republicans to make big gains because of the health care, and

life -- the market especially -- rarely gives you what you expect. i'm just thinking that, you know, we're wrong, and that it will turn out in november. the republicans will gain probably because it is a standard off year election and -- >> right. >> the opposite party usually gains in the off year, but i wouldn't be surprised if it is not that big a deal. >> and then there is also the double issue which is, one, some are worried they peaked eight months too early. there is nowhere to go but down. there is the also broader issue, the american public appeared to be frustrated in general with washington. >> yeah. >> which is not about a party versus another party. it is about anybody who is there making laws. at least that's where the frustration appeared to be hence the popularity of groups like the tea party. >> yeah. but, well, i don't know, you know, the tea party as an independent movement is not going to accomplish much. >> no. but it -- maybe it shows the

frustration with washington. >> it has to force the candidates to adapt to them or they will campaign against them, but i don't believe their strategy is to run third party candidates, because that usually doesn't get much done. >> that's the huge thing. there may be frustration with people in washington. but unless you're going to provide a real third party alternative, david brooks has written a lot about for the next presidential cycle, if you can get a real third party there, then maybe you could have some -- >> i guess it was ross perot. >> the real serious one was ross perot, he got around 20% of the total -- >> he did. as a result, clinton was elected with 42% of the vote. >> that's right. >> see who they can come up with. >> or a nontea party. just somebody -- >> it is seven months and the electorate is very touchy. i think anything can happen in november. >> all right. well, kb homes is set to open

slightly lower after reporting first-quarter profits this morning. the builder posted a narrower than expected quarterly loss. bob pisani was talking about a few of the headlines at the top of the hour. buckhorn is horn is a home buil. what do you see? >> i see this as a mixed bag. the margins were better than we were expect, the core home building margins. and they're expecting to be profitable by the latter part of the year. the orders were only up 5%. we were thinking they could do better than that. there was an unusual surge in sg & a costs which we were not expecting. sg & a was spiking significantly higher and really i think the indication people are really looking for is what is happening in march. there just was no indication what is happening yet in march since the selling season is going to be highly condensed to march and april time period this year. >> withhy was there no forecast that? you would think that would be

one of the biggest questions people would have, right? you think the lack of the forecast says something in and of itself? >> not necessarily. i think they'll wait until the conference call around 11:00, 11:30 this morning to discuss that. we have a couple of hours to wait, but that is going to be a key question. what is happening in march? >> all right. eric landry is here from morning star. he's a home building analyst or a home builder analyst. eric who looks good among the home builders to you? >> hey, mark. i actually think that kb homes looks pretty good. and lennar looks pretty g the results with kb didn't really cause know change my opinion all that much. i agree with buck. the company looks like it lost a little bit of momentum, but i still think kb and lennar and all the home builders were in a catbird seat now. if the housing market stays depressed like it is, they just wait until next year and a lot of the smaller competitors go out of business. if things pick up, they got the land and i think they'll do okay. >> according to my notes, production has declined so much

there may be a shortage of new houses? >> yeah. i think so. we haven't had this amount of inventory since 1972. when you normalize that with the amount of households out there, it is the lowest of all time now as far as new homes go. it is a different story with existing homes. >> that was going to be my next question. you can logically and rationally separate to some extent new homes from existing homes? >> you can. but let me just bring up the fact that it looks as if existing home inventory right now is rapidly increasing. in fact, just over the past four to six weeks, we're seeing increases that we haven't seen since 2007 and it appears to me that the nondistressed sellers are coming back in the market en masse and what you're seeing is listing prices are actually lifting a little bit from the fall because of the nondistressed seller activity. >> that is the so-called shadow inventory? >> this is the nonshadow inventory.

they're now coming back, and it seems like to a large degree over the past four to six weeks. >> they can set their prices anywhere they like, they're not -- >> right, right. >> what they get is another question entirely. >> right. >> eric, buck, thank you. >> thank you. >> the other headline in terms of earnings, wall greens, a rise in its profits, second quarter for walgreens. 68 cents a share. while that was well short of expectations, sales up 3.1%, $17 billion. it is the top american drugstore, said sales were pressured by price conscious consumers and blaming a weak and cold and flu season for not making as much money as they hoped. shares are down today 3%. a quick follow-up on that, we saw bed, bath & beyond, that's an interesting one. they are starting to now sell all the thing you would get in a pharmacy. they don't actually have the prescription count, but they have everything else you would get, the toothpaste, the laundry detergent, the full monopoly. >> at bed, bath & beyond?

>> yes. i've been noticing that and they're right around the corner from reeds, cvs, et cetera. perhaps there is something more secular going on. >> no kidding. >> i don't know. just something to think about. >> an inside goody from the shopping front from erin. >> that's right. >> i had no idea. not that i spend a whole lot of time in bed, bath & beyond. >> now you know they have tooth baste. >> lions gate rejecting a deal from carl icon. they are reportedly trailing in the race to buy mgm. time warner in the lead, yeah. they're bidding $1.5 billion for mgm, which, of course, is a legend in hollywood. time warner and mgm trading at year to date highs. the dow closing yesterday at its highest level since october 2008. is the bull market run here to stay? we'll get the buzz beyond the

big board next. and maybe you should forget about china. because google now is another problem. this time in europe. shares are down 10% for goog so far this year. we have got that story after this. hey can i play with the toys ? sure, but let me get a little information first. for broccoli, say one. for toys, say two. toys !

the system can't process your response at this time. what ? please call back between 8 and 5 central standard time. he's in control. goodbye. even kids know it's wrong to give someone the run around. at ally bank you never have to deal with an endless automated system. you can talk to a real person 24/7. it's just the right thing to do.

as we count you down to the opening bell, the futures are indicating a very quiet open. maybe plus 5 or 10 on the dow. you can see the minis are up only one point at this stage. >> let's got the buzz from

beyond the big board. as we get ready for the open in chicago, greg scalo, trader at blue capital group. geithner speaking in a couple of -- not a couple of moments, in really about 45 minutes, but what are you focused on today in trade? will that move the market? we'll get more from the pay czar ken feinberg today. >> we're focused on the housing numbers coming out, existing home sales today, new homes tomorrow, durable goods and gdp on friday. i think the home sale numbers, i mean we have a nice little rally going here, but we can't keep, you know, treading water right here. we have to get some good news out of the housing market, whether it is just neutral, and no declines, or a positive number would help the markets tremendously. >> so i guess you're saying that kb homes conference call at 11:00 a.m. eastern could be important. the analysts were telling us in the kb report they didn't actually give any forecast for what they're seeing in march already or in the spring selling season.

>> yeah. positively, i mean, those kind of things -- i think the housing thing is the last piece to, you know, spur this market higher and we're not getting the good numbers out. obviously the bad new when he's out of the housing market troubles the market. i think that's why we're sitting here right now. we need to push toward 1200 and i think the housing market could do that. >> there is a lot of optimism in the market. we have got the biggest ipo in years, globally, coming out of jap japan. didn't price as well as people thought, but there is -- appears to be a strong risk appetite. we even get a huge ipo out of germany this week. >> the ipo market is pretty strong now. that helps the market right now there say lot of money out there now. and i think right now people e are, i mean this market could turn and i'm not trying to be bearish. i'm not. right now i'm actually bullish this could turn on bad housing numbers and could turn back. we could turn back below 1100

and go to ten half again. we need consistency out of the housing market now. >> doug, thank you very much. we appreciate your time. >> you're welcome. >> mark, as we talk about some of the -- he's talking about housing but some points of optimism around the world, we know that macao in terms of gambling is bigger than las vegas. and now they just hit a record for the first three weeks of march, a record three-week period for macao. in asia you're seeing real, real recovery. >> yeah. the asians definitely pulling out of this sooner than anyone else. >> mm-hmm. >> and i guess part of the credit goes to chinese government which crafted a -- what appears to have been a very well crafted bailout or a stimulus, i should say. >> stimulus package, exactly. >> so -- >> yeah, i mean, they said -- i'm looking at the story here, casino revenue hit a record in march, and last time it hit a record was in january. it is record after record. but they were hit during the financial crisis. i was there a year ago and

things were grim. they were much more optimistic about the recovery than they were here, but revenues were up 63% from where they were a year ago. so they did come back in a big way. >> rather nicely, yes. final countdown to the bell coming right up. and a new way to invest inside saudi arabia. one of the toughest markets in the world to put your money in. saudi market is up about 10% so far this year. would you bet on it? and can you? we'll be back.

and here are your headlines, a minute before the bell. goldman sachs weighing in on the grade wall between china and google. goldman expects access from china to google's new service to be slow at best. goldman estimates byu.com will

get 33% to 35% of google's cheese traffic. lions gate rejected an offer from carl icahn to buy the company. walgreens posted a profit but still missed expectations. the company blaming a weak cold and flu season for the miss. and when you think about it, erin, that's true. not many people that i know -- >> right. >> -- got the flu this year. >> that's the thing if you go to buy flu medicine, you usually buy toothpaste. unless you're in bed, bath & beyond. >> pick up a pillow while i'm in there. >> as we count you down to the opening bell, let's bring in john brady. good morning to you, john. a quick comment from you before the bells. >> we'll pay attention to existing home sales, a little later on this morning. looking for a slightly lower number with perhaps a little bit of downside risk, given the

weather in the month of february. janet young, of course, will speak later on today and we expect comments from her. there appears to be an asset allocation trade out of european equities on continuing fluid situation between greece and germany. and out of european equities into u.s. equities. so we're seeing a little bit of money flow into u.s. capital markets as that situation remains rather fluid. the trade is relatively quiet and look for a range today, perhaps on the slight upside buy, early trade. >> john, thank you. opening bells have rung here at the big board. saudi capital market authority, the highlight of investment opportunities in the country, we'll talk to the chairman in a few minutes. and at the nasdaq, rambus, ticker rmbs, celebrating its 20th anniversary. wow. >> our market reporters are -- 20 years for rambus. >> i know. rambus has been in the past the focus of a lot of controversy and everything.

still cooking. >> wow. we're open. 10,800 even. that's good for a gain of 15 points. not fully open, but, hey, something about the round numbers, when you hit 100, bob pisani, 8:01, here we go. >> new high for the dow and the s&p. here is carnival, i want to mention, mickey aaronson, carnival to the upside. bottom line, numbers better than expected. here is what's important here, i think is important here. booking environment continues to improve on higher pricing, people postponed vacations last year, they're starting to book and raised their guidance overall. now a little bit above the consensus. i was disappointed by kb homes numbers. we have been talking about it for the last half hour. the bottom line is the loss was greater than expected, but the most important thing, the news, net orders, i'm the son of a home builder. if you don't increase the amount you sell, nothing else will matter ultimately you cut your costs but net orders increased 5%. that's a disappointment.

lennar out in a couple of days. existing home sales today at 10:00 a.m. eastern time. we're expecting $5 million. we were doing $6 million in october and november last year on the expiration of the first time home buyer tax credit. it is really not having a lot of effect with the extension now. that's been a little bit of a disappointment. home buying really will be very key now. we need to get better numbers in the next couple of months. we have got sachs doing very well on the jpmorgan upgrade. very enthusiastic about it, talking about topline growth. we know that we have been seeing that already from the retailers. that's a story for the last couple of weeks. walgreens up, numbers a tad disappointing, same store sales down 0.2%. tradertalk.cnbc.com. >> we're up .2% here at the open. the nasdaq has been up four of last five trading days. it is up 7% so far in the month of march. biden shares could help lift this mark ed today. up 2%. kauffman brothers upgrading the

stock from hold to a buy setting a $690 target on the stock. goldman sachs raising its estimates on baidu and its target up to $675. all of this because of the situation with google and china. everybody is saying the baidu will get google's business now that it is at least partially pulled out of china. we're following that situation. this stock doesn't know what it is going to do yet. few other nasdaq stocks making news. tetratech up 1.1%, just announced it won two new contracts including a military one for as much as a quarter billion dollars to clean up rolli radio logical contamination. sequanom up. aquatheron getting hammered because a cancer drug was stopped because somebody got brain inflammation. and kleine ca data filed for fda approval of a new antidepressant. let's go to bertha at the nynex.

>> we have oil more or less flat here after a pretty volatile day. we saw a klidecline and then a bounceback. we'll continue to watch what is going on with equities what is going on with the euro, with concerns about the greek debt discussions. and obviously what is going on with the dollar. strength in the dollar is likely to hem in energy. the other thing folks are watching is gasoline. we're watching for the gasoline withdrawals now as we get these inventory numbers, as we're moving to the summer driving season. and it is happening as gasoline is reaching a new high, up more than a dollar above where it was last year this time. so that's a bit of concern for demand. natural gas meantime has continued to try to fall below that $4 mark. mike fitzpatrick at mf global says we have seen three tries at it and it held in successfully. so it looks like it might have a little bit of a floor here despite the fact that near term the fundamentals for natural gas

are bearish with warm weather heading out and a big overhang when it comes to supply. mark, over to you at the nyc. >> quick check on the markets for you now. the dow up 17.5 points. as erin mentioned, we're over 10,800. has to be very quiet, though. as the dow is up .14%, s&p up 0.4% and the nasdaq just .03%. the dow is leading the way. now dan genter and a new face of cnbc and tom misenheimer with gordon asset manage. how are you doing? what do you think of the market? are we pushing it to higher ground or are we going drop back now that we're at the top of the range? >> short-term we're a little bearish. the market had a 17-month high on the dows as we have seen.

the volatility index is down from a high of 90 in october of '08 to 16 today. and, you know, there is -- i think there is reason -- we're heading into earnings season, i think there is reason the market will pair back a little bit before we go higher. >> todd is cautious. what about you? >> i think todd has a good point. we had a strong run here. for us to pull back 5% or 10% would be possible. i think we'll see a lot of support in that area. i think we're slowly but deliberately going to move higher through the rest of the year. because we're tracking earnings, the market is very fairly valued at 15 times. and the fact is earnings are going higher. we're going to see $78 this year in the s&p, probably 85 next year. that gets us really in the zone to probably somewhere about 1250 by the end of the year and going higher. so probably another 9%, 10% on upside here. >> what is your sense, dan, do you think we get back to the 14,000 anytime soon or do you view 14,000 as something that is just way, way, way in the future because it was a high we hit in

the middle of a bubble? >> well, you know, it certainly is way out there. at this point we might need binoculars to see it. but i think the good news is we'll continue to see moderate gdp growth, probably 3% this year, and as i mentioned, this market has been very predictable from keeping a very constant range of about 14 to 16. so those earnings look good. i think the answer is yes, we'll get back there, but it will be very slow and steady, and, you know, probably going to be a little bit of a marathon endurance trek. >> todd wh, what is your bigges fear? especially when dan makes the argument that earnings are going to go up, that argument makes a lot of sense. but you think companies will feel increasing pressure to hopefully hire, maybe increase wages, maybe bring back some benefits like fedex indicated it would do and all those things will hurt profits. >> i think that's a great point. there is no doubt big corporations are making money. but if you look at net job growth, it is mainly employers

with 100 or fewer employees. and small companies are having trouble accessing capital. that's a big problem. i think unemployment is going to inch down, but it is still going to remain high and then of course you have the government debt and the zero interest rate policy. all of those are things that could keep the market suppressed. albeit we are bullish on select global companies because companies are making money. there is no question. >> name one. >> we like procter & gamble, like campbell's soup. >> your family owns some procter & gamble, right? >> yes, sir. >> dan, todd, thank you very much for sharing your thoughts. appreciate it. >> thank you. >> thank you. >> procter & gamble is unchanged. coming up, the first details of how the administration may change home finance in america. but first, the saudi stock market beating the s&p 500 so far this year. we're going to talk risk and reward, whether you can actually invest in saudi arabia right now.

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we're back. it is time to bring your attention to some stocks on the move. starting with aflac. downgraded to market perform from outperform at bernstein. valuation -- there it is, and the potential for greater competition for the downgrade. price starter remains $55. next, caterpillar. quarter one estimates lowered at wells fargo to reflect weaker than anticipated short-term demand trends. ratings still outperform.

next. saks, leaping higher. >> leaping. >> leaping. this is one of those lords of leaping. overweight from neutral at jpmorgan. increased its year end target on the stock from $11. it was $7. >> leaping. a nice image. the largest companies in saudi arabia are in new york meeting with investors today, fresh from ringing the open ing bell is hi excellency dr. abdul rahman al tadri. we thank you for taking the time. >> thank you for having me. >> when we think of saudi arabia, it is by far the biggest economy in the middle east. ahead of iran and egypt, which are the next ones. it is the most popular -- one of the most populous but known as one of the most closed markets to foreign investment in the region. what is changing? >> well, what we have, of course, you said the largest market in the region, in the middle east.

we have the very good companies. we have very good story to tell. the potential investment in saudi arabia is bright. and also we want to benefit from having institutional foreign investor coming to our market. so we are opening gradually in a very calculated step for institutional investors in the world, in our market. >> so how will it work? who decides and which institutional investors in the u.s. are going to be able to open funds that buy into saudi stocks? >> we have many i wways for theo do it now. they can do it through mutual funds. they can do it through swap agreement with investment banks in saudi arabia. and now we are -- next week we are going to exchange traded fund which will be open for foreign investors. >> are you reaching out to other investors other than u.s. investors?

>> of course. we are open for all investors from around the world, but we think it is very important to come to new york and to introduce ourself and our companies to american investors. >> how has the saudi stock exchange been performing? >> it is performing very well. in the last year, we are up about 28%. so far this year we are up close to 10%. >> your market is about three times bigger, i think, or two or three times bigger than the rest of the markets in the region combined. clearly you are the economic heavyweight. but there continues to be a perception in the united states of a lack of transparency. do you know exactly what you're getting? is that going to change? is that just a misperception or is there something specific that companies will do to open up a little bit more? >> no, this is a misperception. we or-- the regulations are new and very up to date. and we are really emphasizing

transparency and disclosure of our company and we have a perfect record in terms of transparency for all companies of reporting on time. >> well, thank you very much. we appreciate you taking the time. >> thank you very much for having me. >> and that meeting will be next week. a lot of people will be interested to see how it works. an eu court ruling is out this morning saying google did not violate trademark laws when it let advertisers buy keywords that were identical to trademarks of other companies. google also took a huge step late yesterday opting to redirect users from its china site to its hong kong site, rather than pull out of china completely. on "squawk box" this morning, jack welch was asked about doing business in china, money or morals? >> you're playing in somebody

else's rules, in somebody else's playpen, and you want to make it the rules your rules. that doesn't always go. i mean, china doesn't -- they're not making this rule up as a surprise. >> all right. now, let's go trading the globe with tim seymour of emergingmoney.com. what is with google? did they make the right move? does it matter? how big is china in their business plan? >> i don't know. i don't know if they're acting in their own best interests or that of the u.s. government, but i think jack welch said it clearly. understanding the rules of the game is what you need to do follow in emerging markets. china made the rules of the game very clear. they have chosen not to play by the rules. china is not unique in emerging markets investing. there is a lot of very difficult operating environments around the world. this is being -- this is a major highlight, possibly because the u.s. government has got extraordinary friction with

china now in the trade. >> not to get preachy, but have you ever noticed when someone says not to nag, and then they nag, not to get preachy, and now i'll get preachy, but google, of course, an internet company. internet is information. the mantra of the internet world is information should be free. and meaning it should be able to travel freely. i mean, at least on one level google is making a principle stand here. >> you're getting preachy, mark. >> yeah. >> it doesn't really matter because the chinese government ultimately has told you what their rules are, and i don't think -- >> right. i get that. from a business standpoint, i get that. however, if, in fact, this is a principled stand, i can't help but admire google doing that. it is not all about money. >> i think admiration is a great thing, but i think they're leaving almost 400 million internet users aside and i think

the chinese government is going to win. look, if google needs to make a stand globally and tone doris theto endorse their model for free speech, that's terrific. but they're going to pay a price. i think relations with china, this is just the beginning. i think we have got some very thorny issues on trade that we don't talk enough about in this country. >> flipping to the other side now, the practical side, you point out china's 400 million internet users, but so far it is my understanding google has maybe gotten 1% or 2% of those so they're not really giving up that much. >> well, they have actually got about 35%. >> i beg your pardon, all right. i was misinformed. >> from a revenue perspective and eps perspective this will not hurt goog in the short run. for baidu this is probably 30%, 35% eps growth immediately that the moment google leaves the country. >> so, tim is o, is one way to this, if you're not going to continue this is not just

google. we saw rio tinto yesterday with issues, bribery related. we can see more companies, western ones, have problems. do you just go into every industry in china, pick the local company, the that currently is a partnership of the u.s. or competes with the u.s. and buy the local? >> i would not. i would say that, you know, i would look at the telecom sector and feel that sense of confidence with china tel or china unicom. with rio tinto, the chinese is looking to extend an olive branch around the world. the rio tinto is unique. there was a deal scrapped between the two countries. i think negotiations with china have been painful and acrimonious. i think that's what you're seeing there. i would not necessarily say i want to be with the local chinese brand because that's, you know, that's the safe play. i think investing with the government around the world in emerging markets whether it is gas problem in russia or looking at petro in brazil, yes,

understand who your partner is and as a minority investor, understand what the government's interests and yours are aligned. >> all right, tim, thank you. >> thanks. for more of tim's international trades, catch "trading the globe" every tuesday here on "squawk on the street" and every week night on "fast money" at 5:00 with michelle. or melissa. >> melissa. >> okay. next up, big news on the business of hollywood. plus, toyota's big announcement on production. and a new survey showing where other american companies stand when it comes to doing business in china. so to that question i ask tim, where do other companies stand? is there a big competer in chcoa that may crush them. here is a look at top buys.

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. all right, now the markets, 25 minutes into the session, up 15 on the dow. actually down a bit on the s&p. and the nasdaq up just a point. so all the action so far somewhere in the dow. >> and in this morning's street cap, the chamber, american chamber of commerce in china reports 38% of american businesses now say foreign companies are increasingly unwelcome in china. that's up from 23% two years ago. the companies say the country's judicial system is unfair, technology standards are biased

against foreigners. and time warner is recordedly leading the bidding for movie studio mgm offering $1.5 billion. lions gate and access industries are also in the hunt. toyota meantime lifting its global production plans by 1% to 7.75 million cars and trucks for 2010. cap starting to mark some improvement after the crisis. and we found out yesterday, another one of those supposedly runaway pri was driver error, yes. >> yes, all right. i guess i'll take that piece -- that page is dead. we move on next. brand new data on existing home sales and home prices right after this break. and the first glimpse of the future for fannie and freddie. do they deserve a future? treasury secretary timothy geithner will be taking tough questions on the hill.

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breaking news. tim geithner going to speak about the future of home mortgages and in front of the house financial services committee. we're getting the richmond fed survey. it could be a market mover. and existing home sales, diana olick, what's that number look like? >> reporter: mark, existing home sales fell 0.6% in february to a seasonally adjusted annual rate of 5.02 million units. no january revisions. sales are up 7% year over year, but that is the third straight month of sales declines. regionally, sales up 2.4% in the northeast, up 2.8% in the midwest, down 1.1% in the south and down 4.7% in the west. the median existing home price

in february, $165,100, that's down 1.8% year over year. regionally the biggest price drop 9.8% in the west. but year over year, actually, price increases in the northeast 7.5%. inventories, here is your big story of the day. inventories added 312,000 units to a 3.59 million supply. that is 8.6 month supply. with inventories rising, the realtors are saying we better see that second sales surge soon, or else we're going to see additional downward presser on home prices. distressed sales, 35% of the market. first time buyers, 42%. all cash, 27%. erin? >> cash? >> cash. >> all cash? 27%. all right, we're also playing close attention to the hearing on the screen. timothy geithner testifying before the house financial services committee obviously chaired by barney frank. we're going to be hearing more about the administration's plans on mortgages and home finance. i wish we still had diana

because i am curious if 27% is a normal number of people to buy their homes in all cash. >> no, it is not. >> you usually only hear that in emerging markets where they don't have a mortgage market. is that unusual? 27% all cash? >> 27 t% all cash is definitely unusual. what we're seeing is the investors getting into the market. you're also seeing people who cannot get loans using all cash, but, again, that is your investor share, which is really making up a huge percent of this housing market and up from last month as well. >> 5 million, again, so we had 6.5 in november, that's clearly the first time home buyer tax credit, but the extension really hasn't had much of a boost for existing home sales. i think that's a little bit of a disappointment. don't you think we need to get back to 6 million and above that here to really start impressing the markets? >> i don't think you'll see 6 million annualized rate anytime soon.

245ir expe they haven't really seen a surge yet, they're saying, okay, maybe we're seeing the increase in inventory because people are putting their homes on the market hoping to get that surge from the first time home buyer tax credit you got to sign that contract by april 30th to get the credit. so we're just barely a month and a half away. >> and kb homes numbers, diana, 5% increase in sales after one of the worst years in history for kb home. i thought it was a real disappointment. i'm glad to see their inventory writedowns are dropping. that is certainly a good sign. when you only do 5% increase in sales, i don't think that's a particularly great number. >> what would happen, diana -- >> remember, they're up against foreclosed properties. it is all the distressed properties. why buy a brand new home at a higher price when you can get a home that is barely a year old and nobody lived in it. >> the percent of cash that is unusually high, does that mean there is a lost pent-up demand?

to buy with all cash, for most people, makes a purchase prohibitive or make you prolong that purchase. >> right, no. if we see interest rates go up when the fed backs out of buying mortgage-backed securities, then i think you'll see that cash number rise even more because you're going to see a bigger share of investors in the market. investors are not getting the tax credit or anything special because they are not eligible for that. so when they're in there, they're buying up big lots of distressed properties, and in fact we heard that california has almost no inventory on the market now because investors have swooped in and bought all that up. so i think if you see mortgage rates go higher, you're going to see more investors in there with all cash. >> are you going to get a pass for february, but the numbers should improve in march. and we need the jobs numbers to improve in march. a lot of guys -- >> thank you, diana. >> 300,000 job growth and we'll get the numbers, you know -- >> on good friday. >> when the markets close, thanks for that, government. we need to get -- the market is expecting 200,000 job growth. i know people who got 400,000 estimates. the market is a little bit long.

this home sales numbers, we got to see home sales and the job growth start picking up in march. >> all right. bob pisani, thank you. interesting numbers there. we were going to talk about a lost things. we wanted to get in on the housing numbers. let's get to mike huckman at the nasdaq. what are you focused snon? >> we're still higher when the housing numbers came out. i don't know whether that's related to each other or not. but the nasdaq is up 7% so far this month, putting it on track to have its biggest percentage monthly gain since last july. we have got baidu shares up better than 1.5%. goldman sachs raising its estimates and targets on that stock. kauffman brothers upgrading baidu from a hold to a buy, putting a $690 target on the stock. $100 worth of upside there potentially. the firmt saying it estimated that google would generate $440 million in gross surge revenues china in 2010. if google china access were

restricted, kauffman says we believe baidu would capture approximately 53% of the revenue google generates in china. we have google shares down 1%. and finally the day after the day after the health care reform vote, terra pharmaceutical, and milan at a multiyear high and perego at a new year high, up 7%, buying up baby food company, a private company, for 800 million bucks but says it will add to earnings by a dime in fiscal 2011. back to you. >> thank you very much, mike. now the commodity trade. we're down just a little bit. north of $81 a barrel. let's get to bertha at the new york merc today. >> we're steeply unchanged here. we are looking ahead at some of the data we're looking at for this afternoon. we'll get the spending, gasoline demand and the american petroleum institute's version of the inventories ahead of

tomorrow's government inventory numbers. and gasoline becomes a real indicator not just of the economic strength, but where this market is headed as we look towards the summer. and as gasoline starts getting closer to a three handle is that going to put another damper on demand. as far as metals, with the concerns about the greek debt discussion going on this week, bursting a little weakness in the euro, strength in the dollar, and that's keeping the precious metals hemmed in. look at copper. copper definitely the standout today on data coming out of china that chinese demand remains strong. imports in february were up 12%. copper today definitely one of the standouts in the commodities corner. back to you at nyc. >> still a lot more ahead this morning. next up, stocks on the move. plus the housing market and the impact of the president's plan on the fha and fannie mae. and we're waiting on treasury secretary timothy geithner, as you know, he will

be testifying in front of the house finance committee in a couple of moments. and today's hearing could be the starting point of overall the way american homes are financed. a lot of the programs so far have been rather piecemeal, but this could be different. we're going to listen to him speak live as well as the questions and answers. we will be back in a couple of moments. but we leave you with a check of the top movers. let's see if harman is still on there. carnival as bob pisani has been talking quite a bit about.

all right, about 40 minutes into the trading day, the dow going for its tenth gain in 11 sessions. existing home sales dropped less than expected. .6% or so in february versus 7.2% decline in january. on the dow, intel, caterpillar and general electric, saints preserve us, all of them up over 1%. two cruise lines, royal caribbean and carnival both crushed 52-week highs. now for other stocks on the move, flextronnics, biggest gain ev on the nasdaq, up nearly 7% now. got an upgrade to strong buy from outperform at raymond james and increased their price target

to 1150 from 9. sprint nextel up another 2%. company expected to unveil that 4g smart phone at the cti wireless conference that kicks off today in las vegas. and wendy's and arby's getting a nice pop, purchase program by $5 million. mm, arby's that is my favorite fast food. >> is it really? >> potato cakes and a roast beef sandwich. >> potato cakes? >> yes. at lunch, with the roast beef sandwich. that's how i like to -- >> i've never been there so i don't -- >> you haven't been for the roast beef? >> made out of -- >> mashed potatoes, like a triangle shape and doused in grease and absolutely delicious. okay. so treasury secretary timothy geithner getting ready to speak in this room. might not have time for much more lunch other than a potato cake. in front of the house financial services committee, they're talking about the future of

fannie and freddie. we are going to be taking his testimony live, but we have a panel to get ready on the president's plan for fannie and freddie. howard glazier is president of the glazier group and former adviser to fannie and freddie. good to have both of you with us. we appreciate it. howard, what could he possibly say? these companies have become more reliant on the government than they ever have perhaps been before and also more central to the home market than they ever were before, even though they were the center of the crisis. >> we're in a very tough spot here. fannie and freddie have become essentially the vietnam of the american finance system. hank paulson went in there guns ablazing in 2008 with no plan for an exit strategy and now we're kind of stuck because as you say we're so dependent on fannie and freddie for the housing market, and the economy is so dependent on the housing market that congress is unlikely to do anything dramatic this year. so today i think secretary

geithner will set the table for debate that won't really take place until next year. the whole process, i think, we're looking at five years, maybe longer, to transition to a successor to fannie mae and freddie mack or change mac or agen agencies. >> sherry, is there any way that will happen, do we have the financial capacity? >> i agree with howard it will be a long haul because if you look at how much sort of distress is in the pipeline and how much government debt is out there and how much these gses are indebted now it a long haul before they're ever going to be independent of government. but the republicans on the committee have already laid out a five-goal, ten-point plan toward privatization so it will definitely be part of the discussion. congressman bacchus has made it very clear that he feels that the current model is not an american model, which sort of brings to issue the whole concept of what these gses are here for in the first place, which is to enhance and allow more americans access to the

american dream. and maybe some dialogue over how that has evolved because, remember, fannie mae was really formulated back in the 1930s and the american dream then was about hard work, and earning the right to have security and stuff. and i don't know if that's what the american dream is really about today. on the democratic side, you know, congressman frank has been very clear in terms of his position that this private/public model is not really working. the hybrid. and, of course, he's reminded us that, you know, he's told us so in terms of the investors, so investors should be expecting to maybe not get out of this mess whole at the end of the day. erin, the interesting thing is that with this crisis, you don't have to actually be taking steps. as soon as we start discussions, investors react. and there will be reactions just to the discussions. >> howard, don't we have to be awfully careful what we do here? >> this is the great dilemma facing tim geithner you see him

t trying to thread the need until his testimo needle in his testimony. he wants to lead us down a path that says this model was flawed, it is broken, we want a new model going forward. those two messages are diametrically opposed. it is a tough place. we saw that when barney frank mentioned a couple of weeks ago that the government nigmight no stand behind fannie and freddie. this is a very tricky place. i think it is one of the reasons why we're really pumping the ball down the road to next year when we'll see more activity. i think really the strategy in washington right now is to pray that the jobs market gets better that the economy gets better, and provide some running room for these very tough decisions about the depth of federal involvement in fannie mae and freddie mac. can't be unwound overnight. it will take five years, maybe a decade. >> five years to a decade? okay. >> if you're lucky, mark. all right. howard and shari, thank you very

much. we appreciate it. and this is a live picture of house members. we're going to show you in a couple of seconds. this is separate from the fannie and freddie thing. these are presumably democrats, mark. i guess i say that a bit tongue in cheek. they're getting on buss to go to the white house for the signing of the health care bill and the president invited those who voted for the bill, which is why i say presumably those are democrats. >> yeah. there won't be any republicans in that. >> that would be a fair point, yeah. >> no republicans who voted for the bill. >> that would be true. so there is the busing and there is -- >> there is barney. >> barney getting ready for his hearing. this is the timothy geithner hearing. and barney frank in the center of the fannie and freddie storm. years and years ago, it was barney frank in allegiance with republicans, including president george bush, who strengthened fannie and freddie. i know someone who was at the fed at that time, said they opened up the champagne when they had home ownership in

america pass, what was it, 70%? >> i don't know. >> they had a big champagne event because fannie and freddie had, due to pressure from democrats and congress and republicans in the white house, changed the lending standards and so that more people could own homes. >> all right, well, once these opening statements are done, and the treasury secretary begins to speak, we will take you there. wednesday on "squawk on the street," small may be too high, big may be too low, but midcap may be just right for your portfolio. we're naming the names you should be on the watch for. watch the opening bell live on "squawk on the street" with erin burnett, mark haines and david faber week days at 9:00 a.m. eastern.

and right now the dow jones industrials up 41 points. we were up only 22 prior to the housing data, even though the existing home sales data is really rather unexciting, to be honest. and we are at a fresh 18-month high for the dow overall as that upward trend continues slow, but

st steady. the tortoise appears to be crushing the hare. shares of triumph group on the rise. the aircraft componentsmaker buying aircraft from carlisle group for $1.4 billion in a cash and stock deal. euro group chief jean-claude junker would welcome leaders from countries using the -- let's bring in simon hobbs here. something happened here, some words went to missing and i didn't know how to pronounce the man's name so i will let you correct me and tell us the story. >> junker was the guy you were after. >> junker, yes, okay. >> we're counting down now, erin to the european summit tomorrow. and a miracle is a chance of germany holding out saying she won't come through to bailout greece and she really is playing with fire at this stage. if the euro doesn't come through and bail out greece, arguably it is not a -- >> the treasury secretary has begun, sorry, simon.

we'll get back to you. let's listen to mr. geithner. >> a complicated, difficult question but we're now at the point where we can begin a serious effort to build consensus on reform. fannie mae and freddie mac played a significant role in this financial crisis. over the past decade, they were allowed to take on excessive risk and leverage with inadequate capital and oversight. by the fall of 2008, their potential collapse posed a threat to the entire american financial system. fannie and freddie operated with a perception of government backing, which aloud them to take on significant leverage and build up and retain portfolio to the size the market would have never allowed. meanwhile, the government did not move quickly enough to put in restraints on their activity, restraints that would have protected the system from failure. this committee understands as well as anyone that these failures were not unique to fannie and freddie, which is why you moved late last year to pass a comprehensive set of financial reforms for the rest of the american financial system.

the failures of fannie and freddie were symptomatic of fail gle iers in the financial system as a hole, failures by people over a long period of time. they took on tremendous amounts of risk there was a damaging reee roegs in underwrying standards and a buildup of leverage across the rest of the financial system. private companies, mortgage brokers and large financial institutions with no government back stop and support were also becoming overleveraged. these institutions were offering credit that too many americans could not afford and in many cases did not understand. underlying all of this, of course, was the unrealist assumption that housing prices would go up this brought america to the collapse. important progress has been made toward comprehensive financial reform and today this hearing marks the beginning of the next stage in the process of reform evaluating,000 bring reform to the gses and the entire housing finance system. over the coming months we're

going to consult broadly across the private and public sector, across both sides of the aisle, working closely with this committee and your counterparts in the senate, to take a fresh, cold hard look at the core problems in our system. we're going to consider a full range of options, a full range of alternative models to determine what role the government, what role the private sector should say in promoting a stable and efficient housing finance system. we believe any reform should meet the following broad objectives. to ensure broad and reliable access to mortgage credit, to provide financing for affordable rental housing and ownership for americans, to protect consumers and to safeguard the stability of our financial system, effective reform has to end the system in which the benefits the government support were captured by shareholders, rather than homeowners, and where the taxpayers were left with very substantial losses. now as we move forward, it is critical we facilitate a smooth transition to any new system, and i want to be clear, treasury remains committed to supporting the continued activities of the

gses and conservativeship. we'll continue to make sure they have sufficient capital, the capital necessary to perform under any guarantees issued now or in the future and to meet their debt obligations. and we will be very careful not to pursue policies or reforms in any way that would threaten or to disrupt the function or liquidity of the securities they have issued or the ability of fannie and freddie to honor their obligations. thank you, mr. chairman. i look forward to your questions. >> i thank you, mr. secretary. and bring get to the question, i want to address some of history. the gentleman from new jersey raised some questions. first of all, he said we're waiting three months for the hearings. well, as you know, three weeks of that came because i -- march 2nd and had to postpone it and this was first day we could get. so i think the desire to make points here is sometimes -- breaks out of the bounds of normal conversation. the hearing would have been

three weeks ago, i had a problem, and we do have other hearings that are scheduled. many of those hearings, by the way, have been at the request of the minority. but he also then said that it was uncomfortable for some of us to talk about this because of our role in helping fannie and freddie, the gentleman from california also mentioned his efforts to try and rein things in. it is true. and, again, the history gets forgotten here. the republican party controlled the house in 1996 through -- 1995 through 2006. no legislation became law at that point. the house did pass a bill in 2005 under the chairmanship of mr. oxley to reform fannie and freddie. many of the republicans, most of the republicans supported it. some opposed it as too weak. it is true the gentleman from new jersey thought that was not a good deal, but it was a republican bill this the republican house so the notion that some of ounce this side, i don't know whether the

assumption is that we inhabited mr. oxley's body, we somehow captured his mind, we were working through mr. delay who was running the house at that point, i'm not sure what it is. but it is true the gentleman from new jersey, mr. garrett, offered an amendment to strike the higher cost loan limits. and he did get some support. the gentleman from new jersey, 2005, under republican control, he actually got 53 republican votes. of course, 168 republicans voted against him. those voting against him included my friend here mr. bacchus, mr. biggert, the minority leader now, mr. boehner, mr. cantor. these are all apparently our tools. i got to tell you, you don't know how good we are that i get all these people to vote to under poor mr. garrett's valiant effort here. then mr. roy said his bill, he did a little better than mr. garrett, got 70 republicans,

only lost 153 of them. the same people voted against him. mr. oxley, mr. boehner, ms. biggert, mr. bacchus. this notion that it was the democrats who stopped him, by the way, mr. garrett previously said, well -- >> will the gentleman yield on that? >> i'll yield if i get another -- unanimous consent for an additional 40 seconds, sure. >> i think my words actually were to the secretary that some members of this committee were uncomfortable with discussing this issue and looking at my notes, i never mentioned democrats ones at all, so i think the chairman doth protest too much. >> i don't know what that means when someone is correcting someone. if he was in fact referring to mr. bacchus and ms. biggert and ms. miller and mr. boehner and mr. cantor, i accept my constructio correction. and i appreciate him making sure

making sure know he was criticizing them, not just some of them. mr. royce, he got 70 republican votes, the same group of people voted against it. by the way, the bill that the republican house passed was then denounced by the republican president. some will remember famously mr. oxley saying he could have passed this legislation in 2005 if he hadn't gotten the one finger sa absolulute from the w house. mr. snow was in favor of going forward. what happened then was the republican senate and the republican house had a fight and no bill passed. comes 2006, and mr. paulson becomes secretary of the treasury and as he report in his book, he asked for permission to negotiate with the congress. he got the president whom he admires for doing this to let him do it over the objection of many others in the white house, he then announces he began negotiating with me, and with the democrats, in that next election the democrats got the

majority. he then point s out in his book that we honored the agreements with he made and in 2007 we passed a bill that was far from perfe perfect but better than the republican bill that was passed in 2005. i thought he was saying the democrats had done this, instead he was talking about democrats and also the republican leadership. i will say that previously the gentleman from new jersey said while republicans had tried to -- i do remember this, we checked the transcript to fix the bill, but they were outvoted by the democrats and some republicans. in fact, in 2005, the records are all here, no amendment, either in committee, or on the floor, aimed at making the bill tougher on fannie and freddie that received the majority of republican votes passed. in other words, the bill that passed committee and on the floor was supported by a majority of republicans in every single case. and in no case did a majority of republicans get overridden

because the minority republicans voted with the democrats. now that is the history and go have to go forward. i believe with regard to the current situation there is agreement we need to replace fannie and freddie. there may be disagreement about whether doing that is enough or whether or not we need to also figure out do we need to restructure the federal home loan banks and the fha and do we need to provide any more authority in terms of the liquidity in the secondary mortgage market? all of those are subjects ahead of us. we're here to deal with them. the gentleman from alabama. >> thank you. i guess there is a question in there some place for mr. geithner. >> no. no, there wasn't. the rules say -- i'm sorry, this won't come out of the gentleman's time, the rules say each gentleman has five minutes. sing a song, if you want to. >> secretary geithner, how can you say that the regulatory

reform bill in the senate is comprehensive when it doesn't include the gses, the reform, and as chairman franks just said, we all realize now that that's a critical part of financial reform. >> well, i said the house bill is comprehensive too. and i agree that reform of the housing finance system is going to be a critical part of overall financial reform. but for reasons i think you understand we decided to do this in two stages and we're now at the beginning of the next stage. and this is going to be a complicated consequential process and we'll have to take a careful look at the full range of institutions that operate in these markets. there are parts of the system that worked very well over a very long period of time, but there is parts -- >> fannie and freddie was not a part of the stham woystem that very well. >> i agree with you. if you look over the past decade, a lot of things went wrong. the system did work relatively well for a long period of time but things started to change at

the beginning of this decade, and at that point you saw fannie and freddie start to build up these very large retainable portfolios, huge amount of risk in the portfolios. they started to provide guarantees that ultimately resulted in them taking on more credit risk than they were charging for. both those mistakes were central to the problem. >> mr. secretary, you know, i would have to disagree with you, you know. in 1997 they started making loans without down payments and to people with questionable credit. so i think that it was a disaster waiting to happen. and i will say that several of us did speak and resisted the clinton administration's efforts to relax those standards. >> there was a -- i was not a combatant in these debates in that period of time, but there was a long period of advocacy by people up here in the congress on both sides of the aisle and in the administration starting

in the late '90s designed to try to bring stronger oversight, greater constraints, but of course, ultimately, as many of you said, those efforts are not successful and that was a very consequential failure of policy. >> right. i think the time is now not, you know, not some second stage. let me ask you this. several alternatives have been suggested to reform them. one is to simply to nationalize them, and make the government guarantee right from the fed and be skimt exempted from state anl taxes. another is to create more gses to compete against each other. this is the government completing against itself. but still with the government subsidy and guarantees and privileges. isn't a better alternative to do what we republicans are saying at least, you know, long-term, and that's phase out the government's subsidy and guarantee over time, transition housing finance to a competitive

market-based environment and implement withdraw of all federal government support? >> i agree with you, congressman. i do not think either the two options you began with look particularly appealing at this stage. i think the two options you laid out at the beginning, full nationalization or creating a whole new class of gses to compete with each other with the same basic model, those do not look like appealing options to me. i did not have a chance to look at your proposal in detail, but i will. i think you ended by saying transition to a world in which you phase out all government support in any form, is that what you said? >> particularly the gse that has a line of credit with the treasury, built in to borrow from the fed or state and local -- >> i personally said, as i said in my testimony, we need to end a system in which you have this

awkward combination of private shareholders with a broad sense of explicit and implicit support. i think that system was a terrible mistake. those mistakes were very consequential. and when as we work together to create a new system to replace our current one, we can at least agree, we should not re-create that fatal mix of public and private shareholders in the same institution. >> but i think as long as you have a government entity competing with the private market you subsidize them anyway. it is unfair competition. i think it crowds out the private market. i think we have seen the result of that. >> i think, again, this is -- at the heart of this debate will be to think about what is the appropriate rule for the government in providing some form of guarantees to assure more stable flow of housing finance, and what role should the private markets face? that's the fundamental question we face. and we should take a fresh cold look at that. and that's going to be critical to reach consensus on before we

figure out what the transition period should be to that transition pass should be to that new regime. >> the gentleman from pennsylvania. >> we're watching this hearing at which tim geithner is speaking about financial reform and they're engaging in a little back and forth over fannie mae and freddie mac and who said what to whom and when. >> barney frank talking about singing. >> barney came loaded for bear, though. >> yes, he did. >> we will be back with more in just a moment. the dow is now up 35.

and market is higher about 39 points. lead existing home sales, they were up -- they were not very inspiring, but the market continues its slow and steady to tortoise-like crawl forward. >> we're effective enforcement in place. when you do that what happens is risk tends to migrate from where

it is constrained to where it is unconstrained. risk tends to move to where regulations are weaker, and the supervisor is more compliant or less experienced. so a central feature to the bill this body passed and a essential part of reform for the senate is to make sure you have a level playing field across the system, with clear standards enforced evenly across institutions doing similar activities. if you do that, you make the job of the supervisor much easier. if you make it easy for firms to evade those protections, you make those jobs much more difficult. if you look back over the history of fannie and freddie's role in the financial market, we saw, like you saw across the system as a whole, you saw mortgage underwriting business migrate from those institutions to parts of the system that were engaged in a competitive race to the bottom in underwriting standards and consumer protection. and the most important thing we have to do in financial reform and this will be true as we move to housing finance too is to make sure there are clear standards set across the marketplace with clear accountability for enforcing

those standards. >> thank you very much, mr. secretary. my time has expired, mr. chairman. >> the gentleman from delaware. >> thank you, mr. chairman. mr. secretary, i have about three questions here i'll try to put them all together so this may get a little complicated. but last month i asked federal reserve chairman bernanke whether fannie mae or freddie mac served their purpose and whether we should be looking at a different way to finance mortgages since the problems when hwe had, and he said the fd has been vocal on this issue for years and we need to be cautious about going to conflicts between private shareholder and public objectives and suggested either privatization with government guarantees or a public utility approach. my first question is would you agree or could you comment on that assessment? my second question is using the federal home loan bank model, is that a -- is that something you

can actually substitute for all this and in terms of what we're doing or are not doing as far as the future is concerned? they don't seem to have had the problems that the other gses have had? and what about soliciting all of the support systems, to a system whereby institutions which are making loans have to stand on their own in terms of what they are doing? i'm not necessarily saying i advocate that or you do, i'm just curious on your comments. >> paul volcker is absolutely right. i think the two options you summarized there should be among the options we take, a careful look at. i think the federal home loan bank system is not without challenge today. and i think as the chairman said at the beginning, when you look at the housing finance markets and the gses, you have to look at the flb structure as well to make sure it can play the role

it is designed to play, again, without leaving us with too much risk in the future that the government will have to come in to step in to underwrite those losses. you ended by asking is it possible to advocate a system in which the government plays no role in providing support for mortgage finance market through explicit guarantees, subsidies, support for liquidity. and i think there is a -- there is a -- certainly a pure theoretical option in this that may make sense, but my own view is there is probably going to be a good economic case, public policy ok policy case, for a carefully designed guarantee by the public sector going forward. because housing markets are so critical to overall economic activity, they play such a large role in people's wealth, the perception of wealth, they're very vulnerable to volatility when you see -- when you experience broader financial markets, shocks to the financial

system, and because of that, housing markets play, i think there is likely to be a good public policy case, good economic case, likely that both conservatives and liberals could agree on for the design of a carefully calibrated guarantee, appropriately priced, that would continue in some form. >> what do you think the timetable on all of this is? we have had a lot of discussion -- >> we're going to take another quick commercial break and take you back into the question and answer session of the treasury secretary. we'll be back. national car rental? that's my choice.

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and google supporters are holding a candlelight vigil outside of google's beijing headquarters. tonight, this video, just into us from china. this, of course, comes as google moves its chinese-based operation to hong kong. google has been involved in a long running dispute with the chinese government and goldman sachs says the move will indeed cost it some business. only 1.5% of the revenue now, but with hundreds of millions of internet subscribers, the growth potential is rather significant.

>> yep. now let's get back to the hearing. representative maxine waters, from california, is asking some questions. >> -- system did work remarkably well over a period of many, many decades. it was in many ways the envy wa of the world. things started to change in the late '90s and in the last decade you saw a dramatic risk on their balance sheets and a substantial erosion and underwriting more broadly and as we know now those mistakes caused a huge amount of damage. but i agree with you it's important as we think about the future to make sure we retain what was good in this system. i don't think, though, tenable to try to re-create the system as it exists today in the future. i think we're going to do things. we're going to have to do fundamental change if we achieve the objective you laid out at the beginning. we are, of course, prepared to work with you and always find ways to provide ways for

continued support for the housing truss fund. i am not here to describe in precise detail how to do that but we are here to work with you on that and we do have some suggestions. >> i appreciate that very much, and we look forward to working with you on that and as i wrap this up, i'd just like to be clear about whether or not we're talking about fannie and freddie formulated in different ways to continue the mission without the risk. are we talking about getting rid of it altogether? what are we talking about here? >> well, i think as many of your colleagues have already said, i don't think there is a credible argument that we can abolish, put out of existence these institutions today. that would not be responsible, one could not defend that, but i think we need to be very careful as we work together to dezin the future of the future of the

american housing finance system we preserve what was good but we end what is too risky. >> that makes good sense. and in the interim, i appreciate your representation that you will help us to do what we can to fund this housing trust fund. we need something why we try to reorganize those tses. >> we have 30 seconds. i just want to stress again and the administration committed to work with us on this. we are talking primarily here about rental housing. i want to make that point clear. we're not ruling out home ownership but many of us believe we did too good in terms of rental housing and the finance rental housing avoids other problems we have gotten to in the past. the gentleman from california. >> mr. gither, i want to thank you for your time at the fed. i went back through my notes and i counted 15 times when the fed came before congress and warned

us about the moral hazard and i admit we were in the minority, those of us, i think there were about 70 of us who lisened to the fed about this argument about the overleveraging, but my amendment on the house floor was not actually written by me, it was written by the fed just as over on the senate side. chuck hagel's amendment was at the behest of the fed to allow them to deleverage the arbitrage going on and it was chairman dodd that blocked that amendment of hagel's that came out on the floor. i will yield you if you yield me additional time. >> i will point out at that time chris dodd was not even the ranking democrat. the republicans were in control of the senate at that time in 2005. paul sarbane was the running democrat and chris dodd was the second ranking democrat in the minority. >> right. he objected on the house floor to the bill going forward. but the point i'm making is that, is that the fed recognized

the problem created in the housing market. but there's another aspect of this that economists have talked to me about and we've also seen over the last 10 or 15 years the huge increase in the derivative's market and this is where i'm going with this with respect to the gse's. how much of that was tied, especially since they trade in the derivative market the same way they did in the housing market and i was going to ask you, mr. secretary. have you looked at this issue where gse was a large driver in the growth of the derivative's market and in the nonrisk adjusted trading that went on in that market. in other words, the point i'm trying to make is that these entities, because of the presumption and the moral hazard. you know, the same argument you were making to us, just like investors in their debt believe they were triple a the counter parties here believe it was

triple a. here it had additional significance. so, they played a big role, i think, in the growth of the derivative's market on wall street. how do we mitigate that going forward in the context of gse reform? thank you. >> they take on two different types of risk, credit risks and interest rate risk because a lot of the mortgages are guaranteeing 30-year fixed rate mortgages. they need the capacity to hedge those risks. so i think what they did there -- >> we'll take a brief break and be back with more of tim geithner's testimony and we're also closely watching the white house where president obama is going to sign the health care bill at about 11:15 this morning. about 20 minutes from now. we're following both.

and back to the hearing where treasury secretary timothy geithner is answering questions and the house financial services committee. >> fannie and freddie invested in an affordable housing project in the district.

peter cooper. over 25,000 constituents live in this affordable rent stabilized housing. fannie and freddie with the mortgage-backed security deals that included peter cooper debt. it was well known in the press and by economists and people looking at the deal they knew at the time that the rental income on this property would not be sufficient to meet the owner's debt service obligations. the owner's knew that they would have to turn over or convert affordable housing to market rate units in order to increase the rental income and accelerate the rate of turnover, hundreds and hundreds of my constituents, lieutenants were dragged into court to defend their homes on very frivolous lawsuits.