tonight, how does one man, one man pull off a $2.9 billion fraud that results in the sixth largest bank failure in u.s. history? hey, we got to watch this. tune in at 10:00 p.m. and 1:00 a.m. eastern to find out right here on cnbc. i got to tell you. it always is amazing that you hear these things out of europe where someone is doing well. so not everybody, not everybody is being hung up by europe. tibx vivek ranadive told the story. i promise to try to find it for you right here on "mad money." i'm jim cramer. see you tomorrow. hey larry, what do you have for us? >> all right, jimmy, alan greenspan tells me why business is holding back on job hiring and investment. the question to him, are we already back in a recession? good evening, everyone. i'm larry kudlow. this is "the kudlow report" coming to you tonight live from washington, d.c., where our top story tonight is breaking news. obamacare repealed in the house by a vote of 244-185.

five democrats crossed party lines to vote the repeal. the house sent a message to the democratic senate and to president obama after the supreme court ruling that the mandate is a tax after all. voters want their elected representatives to go on the record. as part of our extensive coverage, house majority leader eric cantor joins us, as well as former white house chief of staff andy card who will weigh in. and more breaking news. in an interview recorded just moments ago with federal reserve alan greenspan, that's former fed chairman alan greenspan, he made the case that the country cannot afford obamacare, and that this massive new entitlement has had a chilling effect on business and hiring. take a listen. >> this extraordinary expansion in the deficit is crowding out private sector investment. >> also tonight, the dow is down 49. the nasdaq down 14.

the s&p basically flat. the libor interest rate scandal grows, now involving states and municipal agencies all across the country, and more than a dozen large banks involved, including some of america's finest. also this evening, why was mitt romney booed as he tells the naacp he will make a better president for african-americans than barack obama? naacp president ben gellis is my special guest. in another rebuke of obama's signature health care reform law, house republicans pushed ahead with a bill today that would repeal all of obamacare. democrats accuse republicans of wasting time and simply playing politics. but the bill easily passed on party lines, and five brave democrats switched over to vote with the gop. joining us now exclusively is house majority leader eric cantor. he is a republican from

virginia. leader kantor, as always, welcome back to the show. so you had a big victory today on the floor of the house, repealing obamacare. it's not the first time you've done that. some democrats are calling it a stunt. tell us what were you thinking, what is the message here, why did you go through this exercise? >> well, for starters, larry, the american people have demonstrated again and again they don't like obamacare. and i think principally, it's because first the president promised that if you have health care in this country and you like it, you could keep it. well, we all see the facts now, and more and more employers are beginning to stop offering coverage. individual costs have gone up significantly since the obamacare bill has passed itself, and the fact is because of the rise in costs, people are not going to be able to have the health care they like. so that's number one. number two, obamacare's model is washington dictates to you what kind of health care coverage you can have.

that is not the american way. >> consumers dictating to washington. >> we want patient centered care. today is the first step towards getting back there is to repeal obamacare. and you know what, larry, it's really underscores the importance of this election. if we're going to get health care right, if we're going to get this economy right, we have got to get the election right. and frankly, i would say we have to defeat barack obama. >> okay. let's turn to taxes specifically now. president obama has come out with his own tax plan, 250,000 or less. you extended the bush tax cuts above that. they are going to expire. will your legislative strategy now vote on the obama tax plan? >> well, what we have said is in a couple weeks from now, this month, we're going to bring forward a bill which will make sure taxes don't go up on anyone. so we're going to stop the tax hikes. we also are going to provide for a one-year extension of existing rates so we can then engage in tax reform, the way that mitt

romney is talking about doing, all of us, we want to simplify the code. well want to bring down rates for everybody. at the same time, the democrats will have the ability to bring forward president obama's tax plan. if they feel that that's the way forward for this country, raising taxes on small businesses in this anemic economy, they'll have the opportunity to bring that forward. >> brookings substitute says 1.2 million people will be affected by the tax increase. with everybody at loggerheads right now, there is really not much cooperation. mr. mcconnell, senator mitch mcconnell said today he wants a vote in the senate on the obama plan. and then other republicans want to amend it to have all the tax cuts extended. at a time of acrimony between the two parties, is any of that at all possible? will we actually get straight up-and-down votes in the senate? >> clearly, i think if leader

reid in the senate was going to be true to his cause and let the american people see where senators stood, he would allow a vote on any of these amendments so the american people could see where their elected officials stand. as i said in the house, we're going bring forward a bill that will keep rates where they are, but the democrats will have the opportunity to offer as an alternative president obama's plan. and so that the american people can see. as you know, larry, we don't believe that now is the right time to raise taxes. number one we have a terrible economy. we need to be creating jobs. taxing job creators is not smart. in addition to that, the runaway spending here in this town has not been brought under control. so if a raise in taxes with that being the fact, you're just digging the hole deeper. and why would anybody want to do that is our argument. >> good message, a growth message. you've always been a growth guy, you've always been a supply side guy. you have your own bill to cut business taxes. are you satisfied that former

governor mitt romney has a sufficiently succinct and hard-hitting growth message, four or five points to connect with the american public? the polls say the two are neck and neck. where is romney's growth message? >> i think that mitt romney is an individual has a tremendous track record in terms of being able to grow jobs. i mean certainly in the private sector, he has experienced beyond even imagination what the president has. >> biography is great and everybody agrees. but the question is message. remember reagan, four or five points, very effective stuff? well, mitt romney replicate that? >> i would say this, number one the track record was there. and number two, when he was governor of massachusetts, he was able to deliver results because he worked with the democratic legislature. part of the problem is this president has been unable to bring everybody together under a growth message. you know that this president's idea of growth is bank bailouts, auto bailouts, housing bailouts,

and then cash for clunkers, cash f for. mitt romney's growth agenda is about tax reform. it's about regulatory reform, it's about increasing trade in this country and making sure that government is put back in its place so we can grow this economy. >> i hope he hears your four or five-point message. it's a good one. last one, real quick if i may, yesterday governor romney suggest head might designate a vice presidential candidate well in advance of the republican convention. would you advise him to do so? >> again, i think that mitt romney is going to be the candidate that wins this election. he'll be our next president. >> should he go for veep candidate well before the convention? >> it's his decision. but i know that mitt romney makes decisions that i think this american people will see he is a decision-maker. and if he makes that decision, i think great. and if he makes that decision, it will be for a person that

most americans will say you know what? that person as a vice president will be qualified. >> ann romney said they're looking at women. i want to ask you. is it the boomlet for condi rice? what is your opinion about condi rice, former secretary of state as a vice presidential candidate for the gop? >> she is a good friend. i'm a big fan of condi rice. she brings a lot of gravitas to whatever situation. >> is this an endorsement? are you endorsing condi rice for vice president? >> i think there are a lot of people that are qualified. certainly she would be qualified. >> on the list. great stuff. thanks. congressman eric cantor. i don't know. i think it was very close to an endorsement for condi rice. anyway, thank you very much, sir. all right. lets get some discussion to that. we covered a lot of ground with mr. kantor, as always. now we have jonathan cowan, third way president, and we welcome back dave limbaugh, syndicated columnist and author of "the great destroyer: barack obama's war on the republic." david limbaugh, i want to start with the end and work my way

forward so brother callan can criticize the substance. condi rice for vice president. what do you think? >> not my first choice. not conservative enough for me. wonderful woman, great integrity, but she is not my first choice. >> and romney picking a vp well in advance instead of waiting the week during the convention. maybe he should pick one in the next week or two. what do you think of that? >> maybe so, but i'm not sure who is it. i don't think the dust has settled. we ought at least be sure who is the best person to nominate. >> john, speaker or leader kantor said to me, it wasn't just to put democrats on record about taxes for obamacare, which the supreme's ruled, it was about costs and the lack of patient power and too much government centralization. is he right? >> look, i think eric cantor is a super smart guy. he is just wrong on this. there have been 30 votes that republicans have called on repealing obamacare. this is the 31st. it's the same thing again and again. repealing obamacare with nothing to replace it. here is the big question.

republicans had eight years under george bush. they've had years under house republican control. where is their plan if they have a better idea? it's awol, totally awol. >> where is their plan? >> well, they need to get a good comprehensive plan. >> but at least we agree they don't have one. >> well, hold on. i dispute the premise. obama, his whole basis for health care is that we need to reduce the cost curve, ande is doing the opposite, and to increase access. forcing increased access to insurance does not equal increasing access to health care, in fact, quite the opposite. so your reform is much worse than doing nothing. that said, we do need to get market reforms on the table. liberals, as usual have mucked things up with their government intervention. we need to have health savings accounts, tort reform, reduce regulations across the board. >> look, david, that's just not right. this is a market-based reform. a lot of liberals, a lot of liberals wanted a so-called public option that would have

been socialized medicine. this is a market-based reform that leaves private insurers in charge, leaves americans able to choose their health care, and by the way, provides not just more access, but stability and security of the middle class who need it on their health care. thinking whole thing is a trojan horse for socialized medicine. obama revealed that he would have gone the whole way delicious is no one inside the horse. >> the more government you put into this, the less likely you can ever roll it back. this is not market reform. >> decades, including eight years under a president to do something. >> what about the centralized boards that are essentially going to dictate what you can and cannot get by way of insurance, by way of operations. all government-run. why it is that 83% of the doctors in a recent survey are saying that they should get out of the -- get out of the profession because they're not going to be paid, and they don't want the central government to run it anymore. >> look, there is a huge problem that you and i can agree on, we all can agree on which is we still have a health care system that isn't going to contain its costs. we've got to do something. just take ipad for a second.

who is going to decide how the heck we get health care costs under control? because the system hasn't decided it for itself. >> it's because medicare and other government interventions. we are not going to solve this with government reforms. and this is not a market-based reform. how do you get away with making the statement this is market arena. >> i come back to the same basic question which is i agree with republicans on medical malpractice. it's got to be done. but that's a sliver of the problem where. is the plan? >> so that's competition. >> but where is their entire plan? they don't have one. look, even republicans, david dreier, head of the house rules committee said today we're going to wait to 2013 to introduce our plan. >> i don't so you introduce a plan worse than the status quo and you call that a plan? >> no, this is far better. >> rome was built piece by piece, brick by brick. you can't do it all at once, and you shouldn't do it all at once, because you're going to screw it up all at once. i got to get out of here. david cowan, thank you, rick

limbaugh, thank you. i asked whether obamacare would put a strain on the economy. take a listen to what greenspan told me. >> this extraordinary expansion in the deficit is crowding out private sector investment. obviously, the health care entitlements are the critical issue where the expansion is occurring. but when i look at the data, what see basically is an extraordinary set of pressures which say to me by say 2030 government will not be able to fulfill the promises now legally on the books. >> well, he basically just said we are going broke. anyway, please catch more of my exclusive interview with allen greenspan coming up later in the show. coming up now as we continue live from washington, the markets don't like uncertainty, and today's fed minutes didn't seem to help much. stocks dive after the fed does not provide a clear green light

for more stimulus. but then they claw their way back later in the day. what investors can do to deal with the ambiguity, next up. and later on, is the libor rate scandal in europe wreaking havoc on state and city budgets right here in the u.s.? and could that send a tsunami of lawsuits towards wall street banks? don't forget, folks, free market capitalism is always the best path to prosperity. and that includes consumer choice and patient protection in health care like everything else. i'm kudlow. we'll be right back. ttd#: 1-800-345-2550 ttd#: 1-800-345-2550 let's talk about the cookie-cutter retirement advice ttd#: 1-800-345-2550 you get at some places. ttd#: 1-800-345-2550 they say you have to do this, have that, invest here ttd#: 1-800-345-2550 ttd#: 1-800-345-2550 you know what? ttd#: 1-800-345-2550 you can't create a retirement plan based on ttd#: 1-800-345-2550 a predetermined script. ttd#: 1-800-345-2550 at charles schwab, we actually take the time to listen - ttd#: 1-800-345-2550 to understand you and your goals... ttd#: 1-800-345-2550 ...so together we can find real-life answers for your ttd#: 1-800-345-2550 real-life retirement.

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all all right. stocks fall again. the dow suffered its fifth straight drop. fed minutes offered investors no real sign of more fed easing. so the question is are we closer to a global recession than we think? that's the theme of this show. let's go to zach karabell of river twice research. barry knapp at barclays. welcome, gentlemen. barry knapp, let me start with you. besides the tax uncertainty and all the rest of it down here, what about the theme of global deflation, okay. front page story today about china's problems. now they're going to pour more money in. that just means their story is worse. german cpi actually fell. the u.s. cpi is falling. what about deflation, barry? >> well, i think it's -- it

certainly decelerating. inflation is decelerating to a great extent. and i think that's the big issue for additional fed stimulus as well is one of the things that hasn't happened that happened each of the last two summers was we went from the first quarter we were achieving escape velocity to new normal by the second quarter. in the summer after that second quarter gdp report, we got a good deflation score, forward inflation break evens really fell sharply. the fed got spooked by that and actually eased. that hasn't quite happened here yet. and i think it's -- it's a key issue about whether we get additional stimulus. i think the stock market probably follows those down. and i do think that's likely to occur. but we haven't quite gotten there yet. >> i don't know. zach karabell, color me so skeptical. actually later in the show we're going to play alan greenspan. i asked him directly if more fed stimulus, quantitative easing, whatever is going to help, and

he said he didn't know why. he couldn't figure out any reason why. i think people that are sitting around, investments and strategists talking about waiting for fed stimulus, they're whistling past the graveyard. even if we get fed stimulus, it's not going to do any good at all. >> you know, larry, you're one of the last optimists on wall street. i feel like i've got to hold up the flag here, if only because the relentless consensus of either recession contraction collapse does become its own negative feedback. you know this better than anyone. that's not to ignore structural problems. but if you take away european weakness, which is both a major drag and a potential cliff crisis, meaning if europe were to implode, had it done so, if it does so, that is a global game changer. if it does not, i think what you really have is a picture of global stasis, meaning it is a slow growth, relatively stable, inherently boring, and very difficult to gain much, you know, enthusiasm for rapid

change in this global economy. that is a very different story than things are on the verge of a significant and dangerous contraction. >> well, i don't think there is a catastrophe out there. but i think there's got to be a lot of caution baring that. i'm looking day after day, the cyclical growth commodity-related growth sectors are the one tass that are typically falling that is the front page of the "wall street journal" this morning. china now is going to pour in, more on more state government money. that is absolutely wrong. they're moving away from the free market. but it tells me that the situation in china is even worse. and that tells me it's a good time to be cautious, barry knapp. >> i agree. i think that the net export channel is a huge problem for them. all they're doing is promulgating a further investment bust in areas like steel. it's absolutely inevitable that that happens. i agree with your former point, though, as well about fed policy not doing much of anything in this case. i think it's a long-term negative as well.

i think we're going to flirt with that recession dynamic. i don't think we'll get one either. i would agree with your other guests. but i do think i would flirt with that in the coming month or so. >> on the china thing, it really depends on how they do their stimulus. if they do construction stimulus, that's probably not a good thing. they can also try to do consumption stimulus. they used to handout out cards to people. >> i love you, but they're pouring money into steel mills. central planning, socialist communist mistakes. that story read like a karl marx primer on the front page of the "journal "this morning. it was awful. all right. i'm sorry. sorry i took the last word. zach carrabelle, thank you. barry knapp, thank you. next up, record drought leading to the worst crop conditions in nearly a quarter of a century. now official figures showing it could hit your own investments and your pocket at the grocery store. that plus other break in headlines coming into the cnbc

newsroom. i'm kudlow in washington. please stay with us. [ feedback ] attention, well, everyone. you can now try snapshot from progressive free for 30 days. just plug this into your car, and your good driving can save you up to 30%. you could even try it without switching your insurance. why not give it a shot? carry on. now you can test-drive snapshot before you switch. visit progressive.com today. i don't spend money on gasoline.

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prices. cnbc's jackie deangelos joining us us with that and all the late-breaking headlines coming into the newsroom. good evening. >> good evening. responding to widespread drought conditions declare in order than a thousand countries in 26 states as disaster areas, enabling farmers to get emergency loans at low rates. we spent the day on a farm watching prices seesaw. >> the price of corn was all over the place, it really shot up after they came out with projections for the crop this year. slashing expectations much more than most people expected. so the price of corn got over $7.80 at one point. then at midday, all the prices for corn, wheat and soy bean started to fall off they declared over a thousand counties in the midwest disaster areas and is offering those farmers low interest loans to help them get through the the rest of this year. >> thank you so much for that. meantime, trial of merck's experimental osteoporosis drug shows that it reduces fracture

risk prompting outside monitors to recommend that the trial be stopped early so all patients in the trial can be offered the treatment. they expect to apply for approval in 2018. ate peers that leon black ahead of apollo management was the buyer of edvard munch's the scream, the highest price ever paid for a price of work at auction in may, but not identified until now. the question is whether black with show the painting in public. he is on the board of the metropolitan museum of art and the museum of modern art. larry, back over to you. >> all right, thanks very, very mump. folks, thanks to jackie deangelis. next up, a naacp crowd boos presidential candidate mitt romney today. there anything he could possibly do to win over the african-american vote? we're going to ask the head of the naacp, mr. benjamin gellis when we come back. [ male announcer ] at scottrade,

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. welcome back to . welcome back to "the kudlow report." i'm larry kudlow. in this half hour, a worried

alan greenspan says america cannot afford obamacare, and that the entitlement proposal has frozen business investment and hiring. my exclusive interview with the former fed chairman coming up in a little while. also this evening, the libor manipulation scandal gross. hundreds of trillions of contracts are tied to libor short-term interest rate as congress begins investing, this scandal is affecting major cities and states, as well as some of the biggest banks in the country. there is real trouble brewing on this one. but first up, mitt romney booed during a speech today before a skeptical naacp crowd. a simple reminder of the uphill climb he faces in courting the black vote. in fact, the latest polling shows romney with just 5% support within the african-american community. nbc's steve handelsman joins us now with some of the details. good evening, steve. >> reporter: good evening to you, larry. a lot of people here in washington think this worked out just like mitt romney intended. first of all, he showed up like

john mccain did last election cycle at the naacp, which communicated respect. not just to african-americans, but to all of the other voters who were watching. and romney made what was for him a bold, direct appeal for votes. >> if you want a president who will make things better in the african-american community, you are looking at him. >> reporter: beyond that, a prominent black republican noted to me today romney did not alter his message in the slightest because the audience was full of african-americans, who romney know vote overwhelm leg democratic and voted 95% for barack obama. so consistency, not pandering. that might have won him points, until he got to health care. >> i'm going to eliminate every nonessential expensive program i can find. that includes obamacare, and i'm going to work to reform and save -- [ booing ] >> reporter: some say the use of the term "obamacare"

communicated disrespect of the president himself and not just of the president's health care law. but romney took his boos, hoping he can win more than the 5% of the african-american vote that mccain won. and hoping, larry, that people watching shows like yours tonight see a guy who looks principled, courageous, and presidential. back to you. >> all right. many thanks, steve handelsman. mitt romney vowed today that he would do more for the african-american community than the nation's first black president, barack obama. joining us now for reaction, naacp president and ceo ben jealous. ben, as always, welcome back. >> thanks, larry. >> do you give him any credit for showing up? let's start with that. >> showing up is half the battle. but this was his opportunity to hang the game. and instead he played the game. and that part i think leaves people feeling sort of disappointed. he could have come there, and in that 5% of his speech where he said repeal obamacare, he could have talked about, for instance, how the civil rights community

and governors in his party have found common ground on criminal justice reform and built a bridge. and that with a have been difficult, because we would have heard about something that people in his party -- you know, newt gingrich stood up with us last year. grover norquist endorsed our justice reform agenda. and he really hasn't spoken about that issue. he could have come there, talked about something new, built a bridge. instead he seemed to send a signal to his base, and that sent a signal to folks in the room and in the communities they represent, about 1200 different communities have folks there for this convention. that he really wasn't trying to talk to them, that he was trying to talk to somebody else. >> so it was a bit too sharp-edged is what you're saying on those key points. now, what about his -- the rest of his message is really a message of economic opportunity. >> sure. >> what he is trying to say is that with more free market policies and smaller government and lower taxes, he can improve a 14.4% unemployment rate, which is the african-american unemployment rate.

and as you well know, among teenaged blacks, it's much, much higher than that. >> sure. >> he is trying to say president obama has not delivered on the economy. i can. does that hold any water? >> people i think are excited to hear somebody who has new ideas. but he really didn't get into what the new ideas were. and when you simply say things like deregulation, that scares people. i mean, deepwater horizon, people felt that the regulations didn't do their jobs, with the banks and the financial crisis, people felt like perhaps there wasn't proper regulation in place. and so you've got to come and say, you know, look, this is my general plan for the country. but for the black community, this is what i'm going to do, because i realize, as he acknowledged, that basically our problem is twice as big as that of the country's. you've got to spend a little time saying one, two, three. he didn't say one, two, three. >> it's interesting to me this one, two, three. by the way, i happen to agree with you. he has this public elsewhere, not just to the black community like today. he has the problem elsewhere.

he is being criticized for it by conservatives that he does not have a specific is one, two, three plan on a lot of issues. you're really picking up well, it seems to be one of his larger problems. >> we would hope that he would come there saying, look, i've got 5% of the black vote right now. it sounds like according to the poll. perhaps i could do 10. and use his time to try to court those voters who swing in our community. george bush in 2004 got more than 10%. john mccain got 4%. that is% that are potentially in play. when you're running for president, that actually matters. >> let's say a self-made black entrepreneurs, let's just take that group. self-made small businessmen. would they take a second look at romney, or are they just going to support president obama and that's it? >> i think if he came there today and said, for instance, this is how i'm going to solve the credit crunch for small businesses, there were a whole bunch of people who would have their ears wide open. if he came there and said, you

know, this is how i'm going to open up contracting, which has really become shut down, not just to black vendors to the state governments and federal governments, but to all small vendors. people would have, you know, turn and ear. talk and small business real brass tacks. >> i like that. i'm taking notes. i like that a lot. anyway, ben jealous, thanks for your time. we appreciate it. and thanks for your honesty. the other big story of course tonight obamacare repeal. joining us is andy card, now the dean of the bush school at texas a&m university. andy card, as always, welcome back to the show. >> thank you. >> i think you may have heard mr. ben jealous talk about the lack of specifics from mitt romney, and particularly, i thought ben's last point, you know, for a small business people and the african-american community, entrepreneurs, how do they get credit, how do they break through on contracts, these are things it seems to me that all small business people want. and maybe mr. romney hasn't given it a enough thought,

hadn't had enough specifics, in general, not just to the naacp. >> well, it's too early in the campaign. i happen to think that mitt romney did a terrific job before the naacp convention today. first of all, he did show up. second of all, he was very presidential. third, it was a challenging audience. he allowed the audience to boo, but he did not react in a hostile way. in fact, he was very measured and actually skillful in describing his position. so i thought he did a terrific job. and i actually believe he will learn from that experience as well, and he'll come back and talk to that group about some of the things that will make a difference in their lives, like helping them get access to capital so they can build a business and experience the entrepreneur opportunities in america that they so desperately need, because their unemployment rate is outrageously high. >> right. >> and we've got to help them find jobs. >> right. >> i think it was a great experience for governor romney to do. and i think he handled it very well. >> but, okay, access to credit by the way is this gigantic issue. you're quite right. let me just ask you, andy, in all honesty, you've been through

many of these campaigns. you served as chief of staff and so forth. some conservatives like our friend bill kristol at the weekly standard and "the wall street journal" editorial page are criticizing romney, saying yes, he has a great biography, but, no he hasn't spelled out with great clarity how he is going to get the economy to grow, how he is going to get the unemployment rate down for everybody across class and racial lines. do you think that team romney has got to become more specific, even in a reaganesque sense of one, two, three, four, here is how i'm going to do it? >> i would like to see him get there, but i'm not concerned. i'm confident that they will. the reason i'm confident is they are focusing on the real challenge of building a credible campaign, and that's raising the resources. and right now they're committed to raising the resources and grounding themselves with a solid base of support. and governor romney is doing that. i think he is going to get to outline his plans. remember, the public is going to lose focus on this election during the olympics. and mitt romney is doing

everything he can to make sure that he has such a solid base to stand on, and the resources to be able to compete in the real general election right after the olympics, i think he is handling everything exactly right, and he is being measured. he is being smart. he did a great job today at the naacp where he couldn't just stay to a script, he had to react to an audience that was reacting to him. and he did it very well. so i think he is well-positioned to husband his resources, put more money in the bank, take care of the message, and he'll get it out right after the olympics are over. >> all right. we're going to leave it there. andy card, thank you very much. appreciate it. >> thank you, larry. >> up next on "kudlow," the break rigging scandal. this may be one of the most expensive ones ever. more than a dozen banks across investigation across the globe. now it turns out city, states, and municipal agencies in america could be swallowed up. they're all in hock to libor. they're threatening lawsuits. what it all might mean for you, next up on "kudlow." [ male announcer ] this... is the at&t network.

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♪ i want to go ♪ i want to win [ breathes deeply ] ♪ this is where the dream begins ♪ ♪ i want to grow ♪ i want to try ♪ i can almost touch the sky [ male announcer ] even the planet has an olympic dream. dow is proud to support that dream by helping provide greener, more sustainable solutions from the olympic village to the stadium. solutionism. the new optimism.™ ♪ this dream all right. all right. you're looking at live pictures of the san bernardino attorney's news conference about the city's bankruptcy. san bernardino today became the third california city to file for bankruptcy this year. not good. that brings us to our next

story, the banking rate scandal deepens. cities, states, municipal agencies nationwide are looking at whether they suffered damages and are weighing legal action. economists and analysts are predicting it could be one of the most expensive scandals to hit wall street since the financial crisis. we have mark calabria to talk to us and brian gardner, washington research analyst. mark, it's interesting. the front page of "the new york times" today, some seriously large state ready tied to libor, just like we are tied our credit cards, tied to libor, our mortgages are tied to libor. okay. how big a scandal is this going to be? were they fixing libor, and are they going to be liable? >> there absolutely was manipulation of libor going on. the question is going to be were there times and periods? because it didn't happen continuously. there were certain periods around settlements and derivatives. so these cities and municipalities are going to have

to go back and prove that the manipulation resulted in a different rate, which if you look at the information that the uk government has put out, the changes were often one basis point. >> right. >> so again, might not have made any difference. so you need to prove that and you also need to prove that you, the reset in whatever your investment was for that city was also tied to the reset date of when the libor was manipulated. so there are a couple of hurdles that anybody is going to have to reach. that said, i think the banks will ultimately settle. >> the banks will settle. with whom will they settle? with the cities? with the states? >> i think you'll probably get something organized by the conference of mayors and organization. >> my second mortgage is tied to libor, and a whole lot of people, i saw a number, 800 trillion. $800 trillion worth of contracts are tied to libor. now how do you handle that, and how do you reform that? >> just to size the problem, the potential problem is quite difficult. but then you also have to show that you have been harmed. and one of the things that we see in the fsa report is some

people were actually asking for lower libor rates. >> right. >> so you may have actually benefitted from this. an individual may have. i think the bigger problem is the swaps market, where you're going into the derivatives market and you're swapping out a fixed income for a variable rate product floating. that's where the problems could be. it's such a complex -- >> what kind? in other words, those markets are also dependent on libor. >> that's correct. it is the benchmark. and after that there is an additional spread on that that you negotiate with your bank. but libor is the -- >> but how does that affect the banks? in other words, at the end of the day, one of the biggest issues, not the consuming states and mortgagees, but the banks themselves, they've had their problems. english banks, french banks, american banks. are we going to go through a banking crisis again because of this, or are we making too much of it? >> i think we're probably making too much of it.

one of the things why they were trying to drive down the rates lower than they would have been otherwise was to show that they could access the liquidity markets at the height of the crisis to make themselves look like they have liquidity when they did not have it. so it is tied to the financial crisis. i don't see a new financial crisis stemming out of this. there will be some kind of reform -- i think there have already been some steps in how libor is determined. one thing also to keep in mind is it's a very odd system to determine. there are 16 banks that bid on libor. they only take the middle eight, it's not a real market. >> no. talk about rigged, it's rigged by its very nature. >> you would want this to be a, a real market function, would you not? >> thing would be a far better measure if it was based on real transactions. one of the odd things about libor is it really doesn't alternate all that much from day to day compared to the federal funds rates or real market rates there is a lot of variability to it. i think having something based

on the market would be a very better measure. >> people are asking me, the head of barclays had to resign, dimon had to resign, okay, the chairman of the board had to resign. american banks are up to their eyeballs in libor today, jpmorgan, citi and so forth. do you expect any of their senior executives to have to resign over this? >> what i would say is it depends. if you look at what happened to barclays, you had the less 17 separate traders involved in. this you had at least 14 different submitters involved in this. it's very hard to say this is one rogue employee. at barclays the evidence seems pretty strong this is wide throughout the firm. we also know the conversations between the bank of england happened with bob dimon. he was involved. whether he was massively involved, did he orchestrate. >> what about the other banks? >> i think if we find out that you had widespread manipulations that were known at the ceo level, and of course i think it's important to separate out two issue. one you had the libor manipulations before the crisis

that were directly aimed at benefitting barclays in terms of the contracts. the other part was during the crisis. i think if you find out that if you're a bank ceo and tim geithner called you up and said lower libor. >> so the government officials are to blame also. >> an interesting age. >> thank you, gentlemen. i think we helped clear that up a little bit. up next, former federal reserve chairman alan greenspan, are we in a double dip recession? my exclusive interview with mr. greenspan coming up. supports tax breaks overseas. insourcing. industry and favors bring jobs home. it matters. this message. i don't spend money on gasoline.

i don't have to use gas. i am probably going to the gas station about once a month. drive around town all the time doing errands and never ever have to fill up gas in the city. i very rarely put gas in my chevy volt. last time i was at a gas station was about...i would say... two months ago. the last time i went to the gas station must have been about three months ago. i go to the gas station such a small amount that i forget how to put gas in my car. ♪ that i forget how to put gas focus lolo, focust sanya let's do this i am from baltimore south carolina... bloomington, california... austin, texas... we are all here to represent the country we love this is for everyone back home it's go time. across america, we're all committed to team usa.

welcome back to welcome back to "the kudlow report." all right. the federal reserve minutes from their last meeting showed a split in new stimulus demands. but in an interview recorded just moments ago, former federal reserve chairman alan greenspan cast doubt on whether more fed stimulus will have any positive effects at all. please take a listen. >> let me begin on the economy right away. it just seems like whether it's jobs or a host of other indicators or gdp coming down less than 2%, everything is faltering right now. and i'd like to ask you, is it possible we are in a recession? are we going back into recession? >> strangly, i don't think that's the right question. i think we have to examine basically what type of economy we are running into right now, which is really quite different from anything we have ever seen. the best way i would describe it

is to think in terms of two separate economies. one is probably 90, 92% of the gdp and is doing actually reasonably well. the other 8% is largely structures, or more exactly, long-lived assets. the attitude of business and households against committing to long-lived assets is extraordinarily suppressed. >> investment? >> it's investment. >> it's almost like a capital strike. >> it's a capital strike for long-lived buildings. in other words, those with 20 years of potential life and longer. it's both household and residential. the rest of the economy is not doing well, but is doing reasonably well. but if you take 50% out of 8% of the economy, that's the 4 percentage points which the

unemployment rate has run up. and that's where all of the problem is. >> so you're not -- what you're saying is you don't see this recession, you just see this almost structural imbalance. >> precisely. it may be a recession, but i'm not seeing it at the moment. and it's not relevant as far as i'm concerned. >> all right, fair enough. so let me ask you the next obvious question. in those circumstances with your view, it is worth it for the fed to stimulate more, whether it's quantitative easing or whatever? i mean they put in what, 2, $2.5 trillion of high-powered reserves. all we got out of this from the joint economic committee's recent study is the worst recovery in modern times. do we need more fed action? >> well, i've stayed away from commenting on fed policy. i will say this, however. that the data do show that the expansion of assets has had very little impact on the economy for important reason.

that we've created a major increase in the asset side of the fed balance sheet and a very large trillion and a half increase in excess reserves, but there is no evidence that any of those reserves, which were essentially deposits at the 12 central bank reserve bank, the 12 reserve banks by depository institutions, mainly commercial banks. and they're not relending it. >> right. >> and unless and until those reserves get into the marketplace, into the purchase of goods and services, it has no affect, and indeed you could collapse the whole system now without any really significant impact. and i think the fed is aware of that. >> i mean, what about the other side? we've had almost about a trillion dollars of federal spending. it does not seem to have done much good. again, i go back to this joint economic study. this so-called economic recovery the worst in modern times. so we've had a trillion dollars

of federal spending. what has that done? >> well, actually, strangely as it may seem, the data are showing that it's negative. >> made it worse? >> well, i'm very surprised at the data. but the data themselves are very interesting. we show, for example, that if you try to measure the elements of uncertainty in this system, i find that there are two ways of doing this. for the business sector, what i tend to do is look at the share of cash flow that is invested in illliquid assets. the disinclination of business people to take liquid assets and put them into irredeemable long-term assets, even if the rates of return are potentially high is extraordinarily low at this stage. and indeed, the ratio itself of fixed investment to cash flow for the nonfinancial corporate sector is at the lowest level

since 1935. >> all right. you heard it. the lowest level since 1935 for commit and cash. ththat's it for tonight's show. we're live from washington. thanks for watching. mr. greenspan very candid and very honest about his concerns for the american economy. we will back in inglewood cliffs tomorrow night. people with a machine. what ? customers didn't like it. so why do banks do it ? hello ? hello ?! if your bank doesn't let you talk to a real person 24/7, you need an ally. hello ?

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