tonight on the kudlow report, the senate budget committee wants a 40% tax rate on dividends, up from 15%. it is a tax attack on stocks. it's a war on capital, and it's an outrage. and huge producer price inflation spike today with the biggest food spike increase in 26 years. that cannot be good. house republican leader mike pence is going to tell us why he opposes the obama financial regulation bill. and i ask where are the tea party constitutional limits to taxing, spending, and ultra-big government? where are they? fasten your seat belts, everybody. "the kudlow report" begins right now.

good evening, everyone. i'm larry kudlow. welcome back to "the kudlow report," where we believe free market capitalism is the best path to prosperity. president obama in new york today asking for support from wall street as he pushes for major regulation reforms for the entire financial industry. cnbc chief washington correspondent john harwood joins us tonight with the details. good evening, john. >> larry, president obama's speech matched the mood of the moment of the senate debate in washington as democrats and republicans move closer to a compromise on that legislation. he says there's no clear divide between main street and wall street, that we don't have to choose between unfettered markets and stifling regulation. that, in fact, the financial regulation bill moving on capitol hill would make markets move better. >> our system only works, our markets are only free when there are basic safeguards that prevent abuse, that check

excesses, that ensure that it is more profitable to play by the rules than to game the system. that is what the reforms we've been proposing are designed to achieve. no more, no less. >> one subject the president didn't talk about broadly today in new york was taxes. but i asked him in my interview at the white house yesterday about that promise not to raise taxes on people with incomes under $200,000 a year, asked him if that applies throughout his presidency, and he noted pointedly that some things have changed. >> the thing i didn't anticipate up until a few months before my election was the fact that we were going to be in such a deep crisis that i'd be inheriting a $1.3 trillion deficit, $8 trillion worth of accumulated national debt that we're going to have to deal with, and that's why i've appointed this bipartisan fiscal commission to give me recommendations in terms of how do we deal with this in a serious way moving forward? >> what that means, larry, is

the president is keeping his powder dry, not taking anything out of consideration until that deficit reduction panel reports to him later this year. even things like a value added tax, which his advisers say he's not actively considering, but the debate over how to reduce the deficit and who's going to pay for it is going to continue beyond 2010, larry. it's going to be very interesting to watch. >> john harwood, thank you very much for that update. it's funny. i didn't hear spending cuts. i didn't hear cutting government worker pensions and salaries, which are 50% above private sector counterparts. i didn't hear any of that. let's go over to the republican response. we are joined by the number three man in the gop house leadership. our friend, indiana republican congressman mike pence, who is chair of the house republican conference. mike pence, great to see you. let me just ask you. all the news today, mr. obama is new york. is this financial regulation bill, is this more taxpayer

bailout nation, or will this end too big to fail and risky trading? what's your take on this, mr. pence? >> i think one of the remarkable things about the president's speech today at cooper union was what he didn't say. the briefing i got was the president did not even talk about the whole too big to fail issue. he didn't talk about the implicit guarantee to financial institutions that fall in the category of too big to fail. and remarkably, after fannie mae and freddie mac literally facilitated and were at the very center of the financial crisis for housing, the president made absolutely no reference to gse reform. i'm not really surprised that bank stocks rose today after the president's speech, as was reported on cnbc, because what this is to the large financial institutions on wall street is taking the bailout ideas of t.a.r.p. and making them

permanent. this is a permanent wall street bailout. house republicans and the american people oppose that approach, and sadly the president embraced it today when he visited new york city. >> it's interesting, by the way, congressman -- by the way, i love talking stocks with you. not all the banks went up. a lot of these big banks went down. citigroup, jp morgan chase, and u.s. bancorp actually fell. but you're right, the u.s. bank index was up. what would it take to gain your vote? is there anything at this stage that you, mike pence, would like to see that would get republican house support? >> we welcome the consumer protections. we think we can do that in a responsible way that serves the interest of the american people and doesn't cripple our markets. we certainly welcome some responsible regulation of these derivatives and these boutique instruments that went toxic in the last year and a half. what we've got to see here for a bipartisan bill is, number one, they've got to abandon these

permanent bailout funds that are in the house and senate bill. secondly and more subtly, even if they do that, which apparently the white house has signaled they're willing to do larry is to give up the $50 billion fund. they also have to abandon the bailout authority that is enshrined in these bills for the treasury department and the fdic. the american people have rejected, to use your phrase, bailout america. and what the democrats and what the administration are advancing here is really, again, taking the wall street bailout of a year and a half ago, and in the authority that's being extended to this and future administrations, they're making that bailout permanent. >> just a couple of things. a recent rasmussen poll shows 34% of americans want more regulation of financials, but 47% actually oppose. that's amazing. 47% oppose financial regulation. and as you probably know, the pew poll recently, 80% of americans completely mistrust what's going on in washington.

my pal dan henninger of "the wall street journal" wrote a great column about that today. i, like you, think there are some positives in this bill. senator chris dodd worked hard on this bill, and it's a much more open process than the obama health care process, that's for sure. congressman, why not just put all of these failed banks, if they occur, into bankruptcy court. that's the simple. have some bankruptcy court reform. take the discretion away. just put them in the bankruptcy court like any american company who has to face the consequences of free market capitalism. >> look, i want to acknowledge that senator dodd has been working in a more open way than frankly what we saw in the cap and trade bill or what we saw in obama care, and i appreciate that. as "the wall street journal" reported recently, he's moved slightly in the right direction on a couple of these things.

but i think you hit it right square center. at the core of the republican proposal is, number one, we end the era of bailouts. we reject bailouts as a legitimate response to a financial crisis. number two, we introduce a new chapter of the federal bankruptcy code that is designed to give our federal courts the latitude and the expertise to deal with either reorganization or liquidation of complex financial institutions. is there any reason in the world why with the modernization of our bankruptcy code and a few more resources to the courts for those big cases, there's any reason in the world why the big firms on wall street shouldn't have to face the same reorganization or liquidation that a small business down in my hometown of columbus, indiana, has to face when they get upside down. >> amen to that. let me go on to a couple of other topics beyond bank

regulation. first of all, the senate budget committee is marking up their bill. get this, they're putting a 40% tax rate on dividends. even president obama said from 15 to 20 for cap gains and dividends. the senate budget committee is going up to 40%. i have heard the house mark-up people want the same thing. that's an attack on stocks, on capital formation, on jobs. i don't get this. >> well, i really don't get it either. you know, also what we're not getting in the house is the house, according to our information, is the house budget committee isn't even going to try to do a budget this year for the first time since the enactment of the budget act. i was struck by john hared wood's report. i hadn't seen it before the program today that the president actually conceded that, in fact, he has been raising taxes on americans that make less than $200,000 a year. paul ryan, our budget leader in the congress, actually produced

analysis that you can see at gop.gov that this congress and this president have signed into law 60 tax increases, and 14 of those have violated the president's pledge not to raise taxes on middle class americans. at least i'd appreciate some honesty coming back into the debate, but it would be more welcome if we saw the congress and this administration beginning to talk more about spending restraint, more about entitlement reform in the long term, and less about value added taxes or taxing investments during the most difficult economy in the last 25 years. >> the president today renewed his call for that $90 billion bank tax, which many people thought was dead. he renewed his call. senator durbin on this program last night renewed his call. new york senator chuck schumer wants it. that's very odd coming from a new york senator because it's going to be very damaging to banks. then you've got this

announcement too. from the senate budget committee, mr. pence. apparently, they are not going to advance an inflation allowance for the alternative minimum tax. so you can have 100 million people -- i'm sorry. 30 million people may be hit with a higher alternative minimum tax after next year. the death tax, the inheritance tax is going up. the bank tax is back on the table. and a european franco-german value added tax looks to be on the table. your speech down in new orleans -- i heard it on c-span driving to the weekend place a couple of weeks ago. it's one of the best things i've heard in a long time. where are the constitutional limits? where is the tea party contract with america? where are the spending cuts, mr. pence? it seems like, after all the demonstrations across the country last week, it's all gone, and we're just back to taxing and spending. >> we really are. i've never seen a time, and i started in politics back in the

'70s as a democrat, became a republican in the reagan years. i've never seen a time in my adult life where i felt like washington, d.c., was more out of touch with the american people than they are today. here you've got millions of americans packing town hall meetings, tea parties, saying we need to focus on jobs. we need to focus on tax relief to get the economy moving again, and we need to focus on spending restraint. and yet it's more borrowing, more spending, more bailouts. and more taxes here in washington, d.c. i'll make a prediction to you. washington, d.c., is either going to get the message before election day, or they're going to get the message on election day. >> mike pence, we're going to leave it there. we thank you very much for your candid views and giving us your time. up next on "the kudlow report," does the obama regulation tactic solve the problem of last year's meltdown, and does it solve the problem of the threat of future ones? that's a very big question because there's a lot of regulation coming. is too big to fail going to end,

or is this just one gigantic takeover of the financial system of the government? you're watching cnbc, first in business worldwide.

so does the obama thin reg package actually solve the problem of 2008's meltdown, and will it solve the problem of future meltdown threats? let's talk. we have roger lowenstein and author of the just published book "the end of wall street." and nicole, author of "after the fall." i read "after the fall, " and i loved it. roger, i have not gotten to your book yet, but i will because i always read your stuff. nicole, let me start with you. does this bill solve the problem? somebody's got to ask this. i feel like i'm going to ask it. >> no, it certainly does not. thank you, larry, for having me on. the text of the bill says that the fdic, which would be

responsible for liquidating these failed financial firms to bail out creditors to make lenders whole for the losses at their banks when the fdic feels that is necessary and appropriate, and, of course, the government is going to feel that way in the next financial crisis, a crisis that will be created by this very expectation. >> interesting. roger, get your take on what nicole said. roger, i was riffing with congressman mike pence before, don't know if you heard any part of that segment. >> i heard the whole thing. he called the $50 billion fund a reenactment of the t.a.r.p. but constitutionalizing it. first place, the t.a.r.p. was $700 billion. this is $50 billion. second place, this is bank money, it's industry money. it's not a radical deal. we have that with the fdic where banks contribute in case the banks get in trouble. we have that with the pension guarantee program, corporations contribute in case the pension fund goes down. this is a very small, you know, little bit of foam on the runway.

when you ask your question, though, your larger question, is it going to solve the problem, that suggested there was one problem. okay. i think there are a lot of them. i think the most important effective part in the legislation, or the various bills dancing around, would be moving derivatives out into a regulated format onto exchanges. i think that would address transparency, and if the exchanges maintain capital requirements, i think we'd be less likely to have an aig calling up, you know, the secretary of the treasury saying, oh, by the way, we're about to go bust tomorrow and take the economy down with it. >> i agree with you, by the way. i think that's a very important point. nicole, mr. obama today did not mention fannie mae and freddie mac. and that's a fair criticism. they're part of the problem. i know the banks made big mistakes. i know there was some insane risky trading coming off of wall street, but he didn't mention fannie and freddie, which is ongoing. in perpetuity, government seems to own those two enterprises.

he didn't mention the federal reserve had negative real interest rates for years and gave us massive doses of easy money and a cheap dollar. he didn't mention the hud housing secretary, the housing department pushing unaffordable mortgages on people. in other words, nicole, this is a big irnarrative than just looking at the role of wall street. why do we want to keep this a narrow narrative? why not understand all the things going on? maybe step back before we have a 2,000-page bill that a lot of people object to. >> right. that's absolutely true. wall street learned a long time ago that, as long as it learns to make all of these innovations in the housing market, that the government would never dare treat the housing market as the government treats other speculative markets. you've got to put 50% down when you purchase a stock. if you had to put 10% down when you purchase a house. you make fannie and freddie irrelevant. you have the same rules for them as you have for banks so banks

can compete on customer service with fannie and freddie. and you also mean that all of these exotic mortgages are irrelevant. if you don't have the 10 percents or maybe even higher, then you just don't have it, no matter what kind of hoops the bank tries to go through and have the brightest minds create to pretend you can't afford that house. you have very simple rules that make a lot of these innovations irrelevant if they are not truly add gs economic value. >> roger, let me ask you a question. this comes from mike pence. a lot of people have said that. peter wallace has said this. former treasury secretary john taylor said this. why not bypass all the discretionary aspects, including the $50 billion fund, which was not in the original obama package, why not go straight, roger, to bankruptcy court? i guess that's always been my first choice. let's do it the way they do it for all the other companies. wouldn't that really, really solve this particular piece of the meltdown problem?

>> it worked great when lehman failed. there were no problems. mike pence wants to go back to when republicans ran the show. the last time they ran the show was september 29th. they voted down the t.a.r.p., and the market fell 750 points. it's not that simple with a financial firm. when financial firms go bust, it's not that pleasant. that's really why we're all here. let me get to fannie and freddie, if i can. >> stick with this other poin this is a very important point you're making. i hear you. >> we saw what happened. it's so pleasant. this is industry money they're talking about. >> let me ask nicole. what's your reaction to what roger is saying? because, look, if heaven forbid we have another total widespr d widespread, what's called a systemic meltdown where there's no trading between banks and there's a credit freeze-up, i understand there have to be back stops in the name of civilization. but what if not, nicole? this bill is really designed to look at individual cases where they've written their own funeral plans, and if they flank

those funeral plans and they're failing, why can't you put them into bankruptcy court? i accept roger's systemic issue. what i'm asking you, nicole, if there's -- let's take citigroup. i don't want to demean citigroup, but i'm just saying right now we are in financial recovery. what if citigroup can't make it? should they be put in bankruptcy court, nicole? >> the financial holding companies that do not go through the fdic should go through bankruptcy court. in 1990 drexel went through bankruptcy court. in 1995 bearings went through bankruptcy court in europe. the only reason the firms cannot go through bankruptcy today is because you have two problems that overwhelm the system. the answer is not to reinvent the system, it's to address those two problems. too much leverage based on what the government is telling you is safe and what is not safe. you've got the washington and the rest of the world's western government saying certain aaa rated securities are so safe, the banks don't have to put very

much capital behind these securities. that means, instead of markets making millions of different mistakes, they're all making the same mistake all at once, which overwhelms the system. the second problem is differentatives. you've got to put these things under exchanges. that's why barron's could go under. long range capital couldn't just three years later. when you're creating this grand level of customized derivatives, these are instruments where the bank's goal are to make sure this instrument looks like no other financial instrument so that no one has public pricing and volume. >> let's not go too deep in the weeds. let's stay with this point, roger. nicole says it has been done in terms of bankruptcy and can be done. >> i love the market and capital requirements and restrictions and leverage. i agree, i would have let citigroup go under in november of '08. but look at the distinction. if that had happened, the regulated part of citigroup, the bank, it was protected already.

the fdic is coming in there. you're letting the holding company come under. i have no problem with that. what they're saying is with institutions like lehman brothers, where there is no regulated part where the public interest is taken care of and not let to go to total chaos, the government has some leeway or some access. >> any bankruptcy court -- i've got to get out. what has some debtor and possession financing, that could come from the creditor side too. that's a normal bankruptcy process. why is it that i think that experienced bankruptcy judges, roger, might be better than some certain treasury officials. >> the experience of lehman, i guess, is one they don't want to repeat. it wasn't very pleasant. i really think we're talking about a small part of the bill. this is $50 billion. you know, i think the derivative regulation, which is really bringing derivatives into the regulatory architecture we set up in the new deal, these are instruments that grew up outside of it. it's much more important. the $50 billion stuff is

headline stuff. >> i agree. i think we all agree that derivatives should be opened up, transparent tra transparent, traded on exchanges, and run through the chae clearing house. i think that's terrific. i think there is potential to end too big to fail, by the by, but the closer we get to bankruptcy court, the closer we get to ending the hazard and making a reformed free market. nicole, it's great to see you again. coming up, this is unbelievable. tax attacks. we're trying to have a v-shaped recovery. now we have tax attacks everywhere you look. the latest one today. the senate budget committee in a mark-up wants a massive 40% tax rate on dividends. this is a direct hit on stocks. it's a war on capital. it's bigger than mr. obama, who said take it from 15% to 20%. these guys want to take it to 40%. this cannot be a good thing. it's monday,

some people will stick with their old way of getting vitamins and minerals. others will try incredible total raisin bran. with 100% of the daily value of 11 essential vitamins and minerals, juicy raisins and crunchy whole grain flakes. guess it's all about what kind of crunch you like. how are you getting 100%? some thoughts on the money politics news of the day. we're going to get to the economic statistics later in the program. inflation hike from producer prices, better home sales, and some better jobless claims. but, but, but. the worst thing i saw today by far was the senate budget

committee markup to jack up the dividend tax from 15% all the way up to 40%. this is a direct tax attack on capital, on jobs, on the stock market, and on entrepreneurs. it would be scheduled to take place next year, 2011, which is not so far from where we are now in late april 2010. and, of course, it comes on top of a capital gains tax hike, and then you've got a potential new tax hike on the alternative minimum tax, a tax hike on the inheritance death tax, a renewed president obama called today for the bank tax. remember that one? you thought it was dead. it's still alive. and then the usual chatter about a european style, that tax. you know, first of all, this is all bad for economic growth. let me ask this question. whatever happened to the tea party contract from america

which called for constitutional limits on taxing, on spending, and on ultrabig government. we covered this story last week. it was a national story. the tea party polls are way up, and washington has completely tossed it aside. a pew poll says 80% of americans mistrust washington. what a shock. stunned, shocked at this. read dan henninger's great column in today's "wall street journal" on this very important point. whatever happened to the tea party call for limited taxation and spending and government. that's what i want to know. i've got two guys with the answers. cnbc contributor and syndicated columnist jerry boyer, and matt miller, washington post columnist and host of public radio's left, right, and center. all right, gentlemen. thank you. i want to talk with you, left, right, and center. where are the spending cuts,

matt, and why is all this tax hike stuff in the air? mr. obama put that bank tax back on the table today. senator durbin did it last night in the program. now you've got dividend taxes. what is up with this, matt miller? >> the 40% dividend tax, i just heard that before coming on. that sounds a little crazy to me. you're going to have to have the spending cuts, or the reforms and the entitlements, and you're going to have to have some tax increas increases, all of these together over the next few years if we're going to get the budget back in shape or china is forced to do it or the creditors will. you're going to have to do some of both. both sides will have to figure out a way to make this work. it's not going to be spending alone, larry, because republicans can't figure out a plan that will actually leave them electable once people understand the details. even the tea party people, when you interview them, "the new york times" did this the other day, when they say, we want small government. oh, you're open to social security and medicare cuts.

one tea party woman said, oh, i didn't realize that. that's something i need. i don't want that. >> if they had gone the other way, they'd be called extremists because they don't support social security and medicare. those are well-known programs, but it's different than national health care and bank bailouts and nationalizing auto companies. tea party people are mainstream. the mainstream of america says, all right. we're not going to mess with social security. >> jerry, this is a late breaking story on the senate budget committee markup, which i find very disturbing. they want to knock the dividend tax up to 40%. you're at 15% now. at 15%, leaving the corporate tax aside, you take home 85 cents on the extra dividend dollar earned. now you take home 60%. that's almost a 30% roll back on incentives. this has got to affect the cost of capital, affects what entrepreneurs do. whatever your view. matt takes a more middle of the road view, which is quite sensible. we can debate that. why go here, gentlemen?

why all this tax hike talk right now? i don't get this. jerry, you take it, and then, matt, i want you to come back on it. >> because their ideology is an ideology that sees capital accumulation as a bad thing. it's all about income equality. it's all about this statistical chimera of fairness. they don't like capital accumulation. that's kind of where they're coming from. they should, but they think the bush tax cuts were a terrible thing, and somehow you think, you'll add fairness to the system if you take -- here's what happens now. a corporation makes income. they pay 35% on that. then they distribute it to the shareholders, and now they're going to pay 40% on top of that 35%. it's punitive levels of taxation. what it's going to do is capital will just flow to other countries that don't have these ridiculously high taxes. >> matt miller, you are a capitalist. you are an entrepreneur. you are a wealth creator. i know you have interesting thoughts on the vat tax. it's just this direct attack on

capital that troubles me probably more than anything. going after dividends, matt, and going after capital gains. how the heck is this country going to lead our way into world economic growth? >> look, i don't think people should get too distracted by the near term debate over the budget the next year or two. the real question is how are we going to reshape the tax code and the bigger spending programs over the next five to ten years? and that conversation is going to require both parties to get together. you've got the debt commission that obama has put in place to try and give him some kind of cover for at least starting a bipartisan conversation on this. look, we're going to need some kind of major tax reform. if i had my druthers, you would lower taxes on corporations and payrolls, because those are job killers, and you'd raise taxes on dirty energy and consumption. there ought to be a way to do a bipartisan deal like that, but as you know, the short term politics are going to make that a bunch of finger pointing over the next year or so until we get past the midterms and maybe we

can have a more rational conversation. >> jerry boyer, why can't we really take a look -- there was a great piece on bright bart's biggovernment.com today. why not use our information technology advances to promote productivity in the government? productivity in the private sector has soared. really it's a 10 or sa-year story, but it continues. even now in the recession, it's rising at 5% or 6%. that may be one reason why job creation is rising in the short run productivity. why not put the government to the productivity test and enforce that and really lop off large numbers of staff people in all these agencies across the board. we never really modernized. >> do you want them productive? >> what i'm saying is you can do with 20% less staffing, and that would have humongous. i did this with alex pollock of the american enterprise institute. you could knock off 30, $45 billion a year just that way

alone. >> and you can put them on the traditional pension plans the rest of the world has, like 401(k) plans rather than the fixed benefit plans. you could just start dealing with some of the outlandish benefits they have in the public sector. you can cut government spending if you have the will to cut government spending. the left doesn't have the will to cut it. i'm not sure if the right does either. the tea parties are saying, we're going to look until we find somebody that can actually cut government spending, and we're not going to be satisfied until we actually find that person, or those people. >> matt miller, politically, how much trouble are the democrats going to get in with all the tax hikes on the table? this is right before the november election. senator conned rad, who i think is an able guy and usually a centrist. he talked about they're not going to help out on the alternative minimum tax inflation allowance. they got the inheritance tax hike and now the big dividend. is this going to decimate democrats come this november? >> no. because you've got to remember, larry, most americans got tax cuts under obama as part of the recovery act.

and so the fact they're tax increases on the table, mostly on business interests, and you can expect that with democrats the way they play their politics. but most americans have gotten tax cuts, and that's something you can expect the democrats to be pounding home as we get closer to november. the productivity point, if we just have a second for that, i agree with you. it's not just public sector productivity. you take a sector like health care, 17% of the economy. half of that is public sector. half of it's private. they're both equally inefficient. the problem is that every dollar of health care waste, in quotes, is somebody's dollar of income. that's true whether it's public employees or private sector providers. you know, the doctors, the nurses, the hospitals. and until we can find a way to crack that political nut, which means getting everybody to sort of belly up and be willing to give something, we're not going to get the productivity in areas like health care and education that you rightly say we need. >> we bellied up enough.

i don't want to spend anything on that stuff. i think americans have figured out we didn't all get a tax cut, that most of us didn't get a tax cut. these business taxes are passed on in the form of higher prices, which we're starting to see, and lower employment, which we've already seen. >> we're flat out of time. i'll just say this, matt, on the political question, to jerry also. i think these tax hikes, this dividend tax hike thing is going to be a stick in the craw of the investor class. >> oh, yeah. >> that's the single biggest voting bloc. those guys vote like crazy. and the next bloc is the seniors who are very unhappy with the obama care cutbacks in medicare advantage, the threats to doctors, the threats to medicare. you've got two big voting groups there. i don't understand the politics. i'm not saying republicans are political geniuses, matt, but i think the democrats are digging their own grave on this stuff. >> corporations will stop paying dividends then because they have to have dividends yes or no. they can't just give them to high income people. >> matt maler, appreciate it very much. jerry boyer, appreciate it very much. coming up on "the kudlow

report," is bank reform bullish or bearish for stocks? the market today teetered and did come back from lows and finished flat and slightly higher.

welcome back, everybody. question, is bank reform bullish or bearish for stocks? you've already heard me talk about the dividend tax hike, which i think is just about the dumbest thing on the face of the earth. but there are other factors going on in the world. we've got howard, a great friend. he's chairman and ceo of counter fitzgerald. and we have peter navarro, our left coast genius, university of california irvine business professor. it doesn't get any better than this. howard, bank reform good or bad for stocks? you're actually going to do okay in this >> our public company bgc partners is effectively an exchange for everything that doesn't trade on an exchange. all the bills we've read out

there, they all let us keep doing our business. central clearing is good. do it in competition with an exchange is good. >> so you're going to stay in new york. you don't have to move to chicago. the banks won't be able to do derivatives. looks like the volcker rule may be in. they're all going to chicago. >> the rules are in the senate bills, and that would split derivatives out of these banks. but basically goldman sachs will spin off a goldman sachs derivative trading firm. what it mean for deutsche bank? what's it mean for europe? we're going to be hiring an awful lot of people in london, that's for sure. >> it's going to go offshore. howard knows. i've known him for years. the most wired guy in new york. the most wired guy on wall street. you just heard him. what do you make of it? >> let me ask you this question. when was the last time a 1,300 page bill in congress was good for the stock market? this is insanity. i mean, if you read it through

carefully, you're basically creating a bunch of new bureaucracies that we don't really need. i you take an akem's razor approach to this thing. if you look at what caused the problem, two things. one is a money based policy. rules based policy, take that out of the equation. two, no skin in the game for home buyers. if you go to a 10% or 20% requirement like they do in canada, plus mortgage insurance if you don't put the money down, you don't need all this stuff. i mean, it's insanity. by the way, larry, i've been listening to this show. i feel like alice in wonderland here. let me see if i get this straight. you're going to tax capital. the senate's going to tax capital. >> i'm not. the senators are. >> exactly. >> i'm opposed to it. >> i understand that. but the senators are going to tax business investment, which is the best job creator we have. >> right. >> and they're going to use that money on a fiscal stimulus to create more debt than jobs. i mean, what do they think? i want to play a game, larry. >> this is brilliant. >> are you smarter than a u.s.

senator? ask the american public this. if you tax business investment, do you think you'll have more jobs createded or less? >> i know. i hear you. >> if the american public says less, what the heck is the congress thinking? they're nuts. >> that's why the pew poll says 80% of the people distrust washington. that's why the tea party constitution contract from america is right on track, and they're losing it. we're going to lose everything. we've got to take a commercial break. we'll have you back. howard ludnick and peter navarro. great stuff, gentlemen. movie futures for mr. ludnick. he's going to win-win on this bank deal. not everyone else will. >> cnbc rocks! hey can i play with the toys ?

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we're back with howard ludnick and peter navarro. howard, your business is booming. your derivatives are booming. as i said at the close, you even got movie futures contracts you're going to be able to trade. tell me real quick how you see the world. why are your businesses booming? >> we trade a lot of u.s. government bonds. imagine that issuance. you know there are such huge defici deficits. you knew someone would be happy. now you've met him. bgc partners trades in government bonds. we're the marketplace for

government bonds. corporate bonds, right? you can't borrow from banks anymore. insurance companies aren't lending. the only market open is corporate bond issuance. blowing record after record month. someone's got to trade that kind of stuff. that's my business. >> a lot of smart guys thought the ten-year treasury, you're trading that too, was going to 4%, 4.5%, 5%. and i do see a v-shaped recovery. you may disagree. it settled back down to 3.77%, and it's been falling in rates. what does that tell you? >> it's pretty clear, which is rates are going to go up, just not yet. let's face it. the economy is weak and slow, and if you're china or any -- or saudi arabia with oil prices in the 80s, what else are you going to buy? people just don't remember. if you've got a trillion dollars, you either buy u.s. treasuries. it's the only thing you can sell. where are rates in u.s. treasuries going? we talked about this six months ago. you remember, i said rates are going to go down. everybody on the show said up.

i said, you're right, but you're early, too early. >> you are looking good. peter navarro, what about the kudlow v-shaped recovery? and by the way, peter, i have the john paulson of goldman sachs, aca hedge fund, s.e.c. fame, john paulson told his customers last night on their conference call that he sees a v-shaped recovery. he's probably watching the kudlow report. i don't know whether that's good orred ba. >> why would you ever believe anything john paulson said after the show that he played with goldman sachs. >> he looks smart. so what if he doesn't have any ethics? nonetheless, he made the right call on the mortgage bonds. howard ludnick says rates are going to hold these levels. do you agree? >> i do, but howard's missing something really big here, larry. he basically got lucky. it's the whole greece thing. it's the whole euro thing. you know the kudlow boom was pushing up the long end and everything like that. but what's happened now in this interval here is this great lack of confidence for the euro of

flight to quality. here's dollars going up. the whole u.s. dollars to reserve currency is boosted, and basically it's been a boom for the bond market, and that's what's going on. i'm not sure it's good for the stock market. boy, this is really kind of interesting. i don't know how long it's going to last. i think howard's right. it's only a matter of time. >> what's this euro problem do for you? how do you see this from your van page point? >> the euro problem is just early. remember one thing. we've got gdp, and we own a printing press. think about greece. they can't print it. they go broke. they have a big gdp. each of these countries cannot control their printing press. therefore, they can't inflate out of their problem. therefore, their problems are only just beginning. >> let's look at this inflation thing. let's put the producer price index up on the full screen. we had a huge number in today's ppi. it rose .7% in march. there's your year over year change, and there's a v-shaped recovery in producer priced

inflation from minus 8% now to plus 6% over the last 12 months. now we also got today, peter navarro -- i'm going to aim this at ayou -- the biggest food prie increase in 26 years. of course, all the geniuses on wall street are saying food doesn't matter, right? energy doesn't matter. gasoline doesn't matter. you have to strip out everything people buy to get to the core rate of inflation that the fed thinks will never go up. energy was up .7%. up 12% the last three months. food is up 13% the last three months at an annual rate. what's going on, peter? howard was talking about the printing press. is this printing press going up? >> this is a historic period. if the people in washington miss this, they're going to screw up the whole globe. everyone thinks core inflation is what we watch. it's ex-energy and food. for the future, energy in particular is going to be an

upward secular trend and causing inflation. the new inflation we have to worry about is going to be primarily energy and food, and if we don't incorporate that into our federal reserve decision, we're screwed. >> we keep making the same mistakes we always make, howard ludnick. last word. 20 seconds. what's your single favorite investment right now? >> got to love the dollar. >> you want to buy the dollar? with all the free money and all the zero interest rates and all the borrowing, you love the dollar? >> you got to love the dollar because the rest of the world, it's ugly compared to us. >> wonderful call. howard ludnick, pleasure to see you.

i'll make it real simple. quit raising taxes. quit raising taxes on dividends and capital and jobs. quit raising taxes on banks. can we think about economic growth rather than root canal aus territory? i'm kudlow. be back tomorrow night.