and "squawk box" begins right now. good morning. welcome to "squawk box" here on cnbc. i'm andrew ross sorkin along with joe kernen. becky is reporting live from sun valley, idaho and join us live in the next hour with special guest host warren buffett. at 8:00 hold court with two men synonymous with the debt debate, simpson and bowles. we got a lot to discuss with capital management. we'll find out how bullish so. let's bring you up to speed on the morning's top headlines. ecb's move to cut the deposit rate to zero having an instant impact. banks having more than amount of cash parked at the central bank overnight. policymakers hope the rate cut

will encourage banks to look for more profitable options beyond the ecb. international energy agency says the global economic slow down can put a lid on oil prices but cautions there's a risk that nasty supply surprises could ignite a market rally. news this morning that the new york fed will release libor documents. that's coming up tomorrow. central bank official says the information will show that the regional fed bank could prompt action four years ago to highlight problems with the benchmark interest rate and press for reform. the new york fed may have discussed problems setting libor with barclays possibly as far back as 2007. congressman requested a transcript of those conversation between the fed and british bank. now back to joe. >> we should bring the clock up but initially as long as we have it it should be for simpson-bowles until warren

buffett. >> agree with that plan. >> then when they are done the next big thing will be jpmorgan. >> up until 8:00, we have one clock. >> maybe we should throw a bone to the rest of our colleagues and we'll do time on "squawk on the street" and then "fast money" and a clock for all the different -- >> i like that. >> team player. >> no i in team. but there's an m and an e in team. >> yes, there is. >> people for get that. united airlines is poised to buy 100 new boeing 737 airplanes. i just want one. >> you just want one? >> yeah. >> you can't land it on nantucket. well you could. but you would have a tougher time. the second i said it i realized

i was wrong. >> saint barts. >> there's some problem. >> this is a mammoth deal. it could be well worth more than $9 billion. phil lebeau the deal will be announced this morning. united airline headquarters in chicago. yesterday we started the show talking about airlines. you were in a tizzy yesterday about amr. it's need you're an investment banker, behavioral. you write something and that want day they decide to consider options. that's power, dude. you should not shy away from that. super value is suspending its dividend to win back shoppers. he wrote a column about amr and who did you want them to get together with? >> u.s. air. >> they immediate started to talk about it. >> sounds like insider information. >> don't start that. you didn't know anything.

>> this was enough to know it needed to get going. now all of a sudden they say maybe we'll do it. >> were you one of the investment professionals they did that poll with and 26% said they would trade on inside information and get away with it. were you in that 26%? >> no. >> seems like it rolled off his lips. all right. the nation's third largest supermarket chain, supervalu is looking to overhaul itself. ceo says bankruptcy is not being considered at this point and the shares drop sharply in after hours trading. jpmorgan will report quarterly results tomorrow. the "new york times" is reporting that a shakeup at the new york fed after the financial crisis could have clouded the view of jpmorgan's risk in mid-2001. the fed replaced nearly all of its roughly 40 examiners at the

bank. is that right? it's true. this goes to this whole idea of accountability, right. they are not accountable for the financial crisis. swap them out. timing of the swap is pretty bad. and now we're left in a situation where potentially and, look, you never know but they brought a whole new group of people in that were less familiar with jpmorgan's operations. >> those changes are said to have left the regulators front line examiners without deep knowledge of jpmorgan's operations for a brief, yet that was the critical time. let's check on the markets this morning again. did you see that? all morning long they were up. you see we closed almost 50 points lower. today it looks like not going to be any tease for us going higher. >> by ten. day it will be up? >> remember opposite day. >> with paulson. bizarre. with paulson here he only shows up when the market is going to

do okay because he's a permeable. i wasn't going to out him on that. >> i was standing over there and find out how bullish so. >> today we'll be up. a lot of times he knows something and has inside information that he's trading on. that's not true. let's look at the oil board. there's been right around 85 or so for most of the -- wow only four cents away from that. ten year, another historic auction at 1.51. it's 1.49 there. people say definitely don't bit but we had some smart people in, paulson that think you still got a couple of years where you could have money in there. >> wouldn't want money in there. maybe it can go lower. >> the thing is if you were to see, i don't know 10% look between now and the end.

year even if the dividend -- if you pull back 10%, 1.5 up is better than 10% down. even if you use the dividend still better? >> short run, i don't know, longer term a lot of risk. >> dollar, give me on the euro, give me 1.22. yes! 1.22. 1.22. you know what that means? that means an espresso and a little croissant. i can almost buy one. the crumbs. but that has been interesting to watch and it has a lot to do with the fed being less aggressive than some people thought which may be changing. if the fed becomes more aggressive which we don't want

them to, right, but if they do then the dollar, then euro might come back although we are, you know, seeing a lot of what we thought would be easy to do over in europe they look like small steps, the bank examiner for the whole union. we're seeing it even the slightest thing that they try to do policy wise gets bogged down in bureaucracy and red tape. that's going to take a while. all that positive stuff that we had from europe two weeks ago now the devil is in the details. who knows. >> maybe this person knows. we're told we got to go across to the land of the olympics. time for the global markets report. kelly evans is standing by. >> can not say that enough. >> she's standing by in london preparing for the olympics. >> i wish i could be playing lacrosse in the olympics but that's for a different lifetime. the tone here is negative this morning. unfortunately we've got decliners outpacing advancers by

4-1 ratio. euro stoxx 600 is down. negative mood set in asia, australia released some negative employment figures. the bank of korea cut interest rates but that has failed to lift spirits and as a result you can see what's happening here. ibex 35 in spain is down 1.6%. dax holding up better down .8 and ftse 100 in the uk is down .7%. couple of companies focus on. aegis group 45% jump. japan's ad giant dentsu is buying the company for a 50% premium. so if anything they can be higher. you go 1.3% higher after announcing they are going to lay off 8,000 people. french government not very

happy. trying to do things to help those workers out. as we know there's just not a lot of fiscal room. quick look at the bond wall. this is a place to focus. we've seen a mixed picture. italy seeing yields rise. 5.85%. spain, 5.84 better than what we saw yesterday. 1.255 on german bunds. the central bank cut its deposit rate to zero. that's pushing some banks out of that facility, maybe starting to make them look at other kinds of short term paper and we've seen for example yields won the year germany going to fresh negative loss. keep an eye on that funding pressure as i hand it back to you, joe. we'll let you know if that euro sinks any lower. people now calling at it funding currency. it could happen. >> great.

the olympics are a big nbc thing, right, kelly? big nbc -- >> i'm aware. nbc didn't have wimbledon this year which i'm devastated. >> you had tickets to the opening ceremonies? >> anything happening? >> do you have a beret? >> i have press credentials so we'll bring some interesting stories out of the olympics. >> you have press credentials? how excited are you? yes. you know -- >> come on. this is like -- >> it's a lot of work she says. it's a lot of work press credentials. >> it's not like you -- >> it's an nbc thing. yes, i'm unbelievable excited. best olympics ever. just try that. see if you can get that out. >> part of the reason why, we got some great interviews coming up throughout the afternoon we're working on for the olympics.

i'm personally more excited and exploring the broader economic impact. there are stories here that people may not be able to get their milk because of the deeruptions it will cause. i want to watch the rest of it on tv or with anyone else. >> if it was cbs or abc it would be all the same is now >> no. no. much better to have it in the family. >> there you go. >> right here on nbc. >> i'm excited. kelly, our earnings season officially under way. general outlook is anything but rosie. jim paulson, not hank paulson. >> that would be okay. some of your calls. >> john. >> not john. some of your calls i almost wish we had pat paulson here. here's my big question and you're a good sport all the time. earnings season that's how we

intro'd you. have been lowered expectations where you can say it won't be as bad as people think or are we still going to go through this time and say wow this time it really was worse. europe was worse. the u.s. was worse and do we actually still have a down side? >> i'm not real excited. >> does it matter? only three months. >> that's the thing. it might be worse than the 2% down that consensus expects. i'm concerned by the 5% move up in the dollar we had during the quarter that will really screw up repatriation of earnings back to u.s. dollars and puts so much pressure on pricing so price competition among a number of companies. market went down 10% earlier in the quarter. they said it's coming. i think in the next couple of months it's a race between is the earnings news bad enough or will we start to see signs of

the soft patch that the united states is ending and we're bouncing. if that happens i don't think we'll care about earnings in the last quarter. we'll care about where we're going. if we continue to get soft news on the current economy, then i think that earnings season bad news will take on more significance and maybe we'll have to trade sloppy for the rest of the summer in the market. i think ultimately, though, we are going to exit the soft patch in the united states and that is going to dominate the market in the second half. >> what is the trigger point that does that? >> well -- >> you just think we're going wake up one morning and decide things are better. >> there's a lot of policy stimulus dumped on this cycle. what created the soft patch was an uptick in mortgage rates, uptick in gasoline prices. now what we got a big decline in gas prices, mortgage rates, 10%

money growth n-affiliation going from 4 to 1.7 adding to real disposable income. so i think it revives the cycle again. and i think that's what we'll see in the second half. we grew 2% in the second half. we'll grow closer to a pace of 3% in the second half. >> and wasn't there just a survey out this morning about ceo spending related to the fiscal cliff, ahead of this fiscal cliff and the conversation we have literally every day about uncertainty. >> i think that's what you get when you have a soft patch. in other words, then everyone goes oh, boy i'm scared about the future and i'll pull back. if we start to get evidence we're bouncing again in the united states then i think those ceos confidence will come back. >> what ceo agrees with you right now? >> if they have evidence they are in a seat where they have stuff hitting them directly, their opinions, doesn't matter

what their opinion is. they should know what's happening. >> most ceos are not as apartmentistic. >> the biggest things that's driving down confidence right now has fwhen fall off in the job market in the last couple of months. mainly weather. we overstated the first part, understated the zoned part. we had some of the best average job gains in the recovery. we created 150,000 jobs. >> early on. >> but the average for the whole year. we created 271,000 household jobs a month, every month this year. we've had the labor force grow by the greatest amount ever and even though we've grown the labor force about a quarter million people a month we've managed to lower the employment rate by .3. i don't think the job market has been that weak but that's the per accepts. i think we could bounce pretty rapidly. i don't know we went down that much. i would argue that's why you

look at the stock market up 5% the cycle high despite the radical concerns how bad things are. we're not that far from an all time decline. the market telling us -- >> i don't know. i think their opinion, the fed looks at 8% and thinks, after four years, after everything they've done already and then we're now consensus 1.5% to 2%, we're hoping for gdp. that's not a post-recession growth rate. >> look there are people who think 2013 we got to havelock on again. we might have a recession in 2013. like 50-50. >> we had 11 quarters. >> have you seen -- you think there's qe5 coming. mark faber a year and a half ago said when we get to qe15 we'll be finished.

>> we've grown about 2.5% annualized. that's not that much different. our job creation 36 months in is almost identical to the average of the job creation in the last two recovery. i think we're rolling out not like we did in the '60s and '70s but like recoveries have for the last 20 years is not that far off. those turned out okay. at this point in the early '90s panic. white collar layoffs. concern it wasn't going to cure. it did. i think this one is more normal than people give it credit. >> much more dome from jim pauls is sen. you'll be here for buffet? >> i'm leaving before warren. >> you're leaving at 7:30? >> i think so. >> we have you come in here at

6:00 and kick him out at 7:30. you can sit and watch. we're going to go into a time machine when we get back. i don't know if you remember this. when netflix hiked prices for rentals by 60% and faced that huge backlash. that was about a year ago today and our next guest is calling it is lost year for netflix. we'll talk about it. plus we're counting down to our first "squawk" news maker of the morning, w.b., he'll welcome back us. he'll join becky live from beautiful sun valley, idaho this morning at 7:30 a.m. eastern. he's getting up early because it's much earlier there. first let's check out this video this morning. the pre-historic site of stone hedge success illuminated with tompbs and flames as part of the olympic art project. visitors can get closer to the stones than usual. even enter the circle of stones

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not a very happy anniversary for netflix today. one year ago to this very day the company killed, you probably remember this, its hybrid

subscription plan jacking up prices by 60%. since then the stock tumbling more than 70%. can you say quickster. joining us now is greg sandoval. he wrote a piece delving into what happened a year ago. greg, let's talk about the piece. let's talk about what went wrong and talk about the position they are now in today. when you go back and look and try to dissect what went wrong the single thing that went wrong would be what? >> they just didn't consider their customers. the ceo is fantastic. he got rid of the late fees, the hated late fees. he made it easier for us to rents videos. people loved him. he didn't believe in dvds any more, he believed dvds were the past, he was looking to push the company into streaming.

he believed the time was right. but he didn't take to it his customers. >> one of the things you dissect in this piece is the management, he was not listening to anybody around him. >> right. >> do you think he's listening to people around him today? >> i would like to think he's been humbled. it was a fiasco. remember how they announced quickster with that youtube video. my sources said they threw that thing together. the stock was going down. their customers were cancelling subscriptions. it was a panic move. it was a mess. and he has himself to blame. i would like to think he's been humbled by that. >> we'll put a stock up. look at this company now. look at the competitive landscape. look at hbo. look at everybody else out there who is trying to actually get in the space, the difference between streaming and dvd are you saying this is the end of

netflix north? also we haven't talked about amazon. they are trying to get in this game too. >> they are. you ask any analyst out there and they will tell you amazon is the netflix potential, netflix killer, company that netflix should be worrying about. i don't think you should count out netflix by any stretch of the imagination. they screwed up. they acknowledged that. much of their management team has been restructured. we don't know what this group can do. reed lastings is a smart guy. >> nobody wants to do business with him any more, right? some of the hollywood studios have decided this is not an economical exercise. >> exactly. >> costs have gone up. >> but they are still taking money. those checks that netflix goes out there is found money to a lot of the studios. here's what i've been learning. we can't think of each studio as a separate entity. i mean as a monolithic

structure. >> greg, we got to run. if we see you a year from now today the big winner in this space >> still netflix. nobody will take them in a year. >> we'll leave it there. great article. >> thank you. >> coming up a portfolio manager tells us why stocks are cheap right now. >> we do let guests host pick. who did you pick? >> i hope he smiles when he says that. >> still ahead worrying about the fiscal cliff, taking matters into our own hands and solve all the -- right? we'll solve all the nation''s trouble. we'll get help from warren buff let and alan simpson and erskine bowles will join becky live from sun valley. the sweet spot that powers sound decisions.

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good morning. welcome back to box here "squaw here on cnbc. becky will joins live in the next hour with special guest warren buffett. at 8:00 they will hold court with two men is synonymous withe debt. alan simpson and erskine bowles. a chinese cabinet think tank

things it grew in the second quarter and grew 8% in the first half. watching shares of navistar. let's check the markets. futures board is showing once again a ragged opening down about 85 points. don't need that after the action we've seen in the last few sessions. you would think maybe that would be negative for oil but it does sometimes move in a different direction and it is down today. but right around 85 not a whole lot has happened there in the past that three months or so. the ten year note continues to confound and amaze people at under 1.5%, 1.4. these are historic loss. the dollar was at 1.22 versus the yen now at 1.21. we reached 1.22. finally we didn't look at gold last time but you wouldn't

expect that top of be happening, down $13. joining us now mike carfield runs a fund and bronze rated. the fund is up almost 8% over a one year period and ira harris is with praktis trading. >> bronze. the olympics are coming up. we're happy. a medal is a medal. >> i would take any medal. >> third best in the world. >> i would take zinc. >> you would take zinc. >> how about manganese? from "caddie shack." so at this point i asked paulsen an important question.

expectations for earnings in this period since it's the beginning, right on the cusp. expectations have come down to where they will be above expectations or could they disappoint on teams of how bad they will be the >> i think they can still disappoint. >> where? >> i think the cummings pre-announcement was interesting. nobody should be surprised that people are lowering guidance now given what the economy is like in the world. magnitude is pretty surprising. their new guidance went from up 10% for the entire year to flat and we're already six months into the year the back half has to be down 15 or 20 for that to happen. >> just nodding. >> i think second quarter will be a nasty earnings quarter. i just don't think the second half the year will be as bad as the first. >> how can you get the second quarter will be nasty and second

half will be pretty. >> for the same reason that the first quarter was good and second quarter was nasty. we have policies out there that's driving the momentum in the economy. and, you know, they were negative. last year's third quarter we were in the midst of an armageddon european meltdown and then grew 3% in the next quarter. it can change pretty rapidly. >> hope you're right. i'm less optimistic. our belief has been for a long time -- >> you didn't skraen him. >> he just bought some stocks. obviously i didn't get the full story. >> we said that you were -- you did 8% in the last 12 months. >> yes. >> you going to do again? if i had a money manager and asked him that and he laughed like that -- >> past performance is no guarantee of future performance. >> he's got a lawyer in his ear. >> exactly right. we hope to. you know, we're in this

fascinating time from our perspective where we think the economy -- ever since the downturn in '08 or '09 we've been pretty cautious about the economy and never expected much of a bounce back. we've been right on that. flip side companies are really cheap. stocks are really cheap. companies have a lot of cash in their balance sheet. tremendous cash flow. buying back a lot of stock. we're in this very interesting position. not positive on the economy but constructive on the stock market. we feel we're range bound. hard to see a lot of down side. >> ask imp ra. where do you think it can get this year? answer that. >> i think we'll be range bound. you can have up 10%, down 10% from here. >> iran, are you a contributor? >> no.

>> you want to say something not just cash our checks. what do you think? >> you know what? the problem with the market looking forward and i don't look for the earnings side up but from the top down last night we saw interest rate cuts again, brazilian cut. koreans cut. when we get central bank action across the board the kick to the equities markets is less and less and hates to be somewhat more than bother some. we're almost in the, do i dare say really major deleveraging phase here or what we've now called risk off and that's really bother some because where we used to get some kick from the central banks we're not getting anything. >> i find it interesting in both your comment on that we had a half year so far where the s&p return almost 10% through the first half, 20% annualized return and the attitude that that has created is nothing but sheer bearishness for the future. it's kind of an amazing result

to me you can have a 20% annualized return and no one thinks we're going to do well in the future. i shutter to think if we went down 10% what that would do. >> i think that's looking at the markets and when you take a step back and look at the economy the math of what we see around the world, in other words, the math of the debt overhangs every where, fiscal consolidation, china slowing, brazil slowing it's hard to see what could be significant enough and big enough to really propel meaningful growth. that's where our cautiousness comes in. when we look around the world, we see some negative, so many headwinds that it's hard to get really excited and think we'll really have a meaningful uptick in gdp and economic growth globally. that's where my concern comes from. >> just think we've got -- china has slowed down emerging world because they tightened interest rates from 2010 up through last fall. if that worked to slow them down what have they been doing for

the last year? they have been easing interest rates which will lead to a pick up. >> that's true. my first job in the business was being a steel analyst and what i was steel analyst, i'm dating myself about 12 years ago, china in 2000, china's steel production i want to say about hundred million tons of steel a year. today ten years today china has gone from hundred mill tloons t 800 million tons. that demand has driven the global growth. while you're right about policy easing and it could be incrementally from here change direction, the magnitude from here can't be anything like it's been. that's where sort of this big picture concern comes from. >> we're missing the point that what's going on we had a supply side implosion but end route to chapter 2. chapter 2 is developing middle

classes that will create a demand force we've never seen before in a g7 world. we're very close to that. >> that would be fantastic. yeah. >> thank you to mike carfield and ira harris and paulsen we'll talk some more. >> if you have comments or questions about anything you see here, shoot us an e-mail. this is one of the wildest, craziest massive fraud on wall street you'll never hear another story like this. we got a con man hedge fund manager trying to fake his own death to avoid prison. the story of sam israel coming up next. this clock you'll see it over here. we're counting down to our first major news maker of the morning, warren buffett will be joining us live from sun valley at 7:30 a.m. eastern. you don't want to miss it. [ male announcer ] how do you trade?

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welcome back. u.s. equity futures at this hour, the more paulsen is talking the more they are going down. 97. making headlines investigators are looking into why collapse brokerage pfg best use ad tiny accounting firm. why? can't we answer why they would use a tiny accounting firm to audit their books? >> going to be a good segue. >> madoff accounting firm, remember that guy he was in a closet. one guy. anyway the firm appears to be operating from inside a suburban

chicago home. reuters reports the use of such a firm should be a red flag. they had 500 million in assets and several employees inside and outside the u.s. >> joe, you don't know how good a segue that is to our next segment because -- >> unbelievable. >> it is. but the saddest part is it's happened before. and this morning we have investigative reporter who is coming out with a new book just out called "octopus." it chronicles the massive fraud and the hedge fund manner who tries to fake his own suicide to escape prison. does everyone remember sam israel faking his own death, running away. it was an enjoy, a gmc envoy. >> suicide is painless from "m.as.h.". >> he invented an accounting

firm. >> this is a remarkable story. in full disclosure we've been talking for a very long time, i wrote a column about sam and i got down the prison to see sam israel about a month ago. given the story that joe just teed up and you talk about fraud going on today and in that want case, their own accounting firm in sam israel's case they made up their own accounting firm. how rampant do we think that fraud like this are? >> i started talking to sam in september of 2008. he had just been sentenced to 20. and one of the first things he said to me is there's hundreds if not thousands of funds like mine out there. ponzi schemes are epidemic. three weeks later the global financial crisis hit. it was like no floor underneath this thing. i just thought my goodness he could be right about this or at least right now i better go look at it. the other thing he's telling me

there's this massive ponzi scheme called the federal reserve and american economy. >> glenn beck calls the fed a ponzi scheme. >> i went down there. sam israel, he was very explicit with me up front. he said look i'm a professional liar. this is what i do so you can't necessarily take everything that i'm saying seriously but i'm going to tell truth. >> spend three years reporting that truth. >> wasn't sure whether he was telling me the truth. how did you feel about that? >> i had all of his documents and i had all of his travel records, financial records, i had access to everything. the nuttier things got, sam told me about the secret bond market, within the cia agent. >> really this story is like a novel though it's true. designee murders a man in hamburg. >> he says to me in prison,

almost crying. i killed a guy in germany. and i'm looking at him like what are you -- when you ask him details they are fuzzy but he's got, he has detail. do you believe that? >> you know, as i said to you, because he's not lying doesn't mean he's telling the truth. the whole point of a congame you convince your victim, your mark that they are experiencing the secret urgent lucrative truth. this is what sam did to investors. this is what cia guy did to sam. >> do you think he's sane, i ask you that seriously. >> he'll tell you he's crazy. >> i mean medically. >> actually do. i think what happened is that he got so damaged by, you know, on one hand he's leaving the life of a millionaire and he's being crushed by his lies. he's taking drugs.

his marriage falls apart. people on wall street experience these highs and loss and sam it changed his point of view. i wouldn't say he's crazy but i would say he took a trip to the dark side of the moon, you know. >> humble today? >> i would say but -- >> if he was out of prison would be running the same scam? >> no. i don't know. honestly? i don't think so. i'll tell you what he can get away with it today. he's smart enough. >> guy lawson, the book "octopus" go get it. thanks for being here this morning. appreciate it very much. he didn't bring you a copy? >> we'll give you a "squawk box" -- wait a minute that didn't go so well the last time we gave someone an award. maybe not. we would -- i'll give you one. >> we didn't have it. giving an award. come back for the award. >> getting an award.

that does not constitute plugging krugman's book? someone wrote in on a tweet yesterday that they went back and found one of paul's diaries when he was 9-year-old and said i had my birthday a bunch of people were singing at me then they burned my birthday cake with candles. bastards. that's what he wrote. we gave him a celebration of his book and turned around and call you a zombie. >> coming up on "squawk box" -- >> he called me a zombie. >> we'll talk about jpmorgan. still ahead, "squawk" special we're calling searching for solutions avoiding the fiscal cliff. warren buffett, alan simpson and erskine bowles. live from sun valley. how about for the rest of your life? [ male announcer ] feeling like a shadow of your former self?

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what's the max numb amount that the government should spend as a percentage of gdp. do you have a number for me? i'm trying to figure out that. >> look, when it gets above 50. >> when it gets above 50. >> then i start to wonder. >> government spending is a percentage of gdp. >> finally yesterday i got the answer i was looking for, and that was that in mr. krugman's

mind that maybe 50% is a level of gdp to spend on government spending where he might start to have a problem with that. we were at 8% 30 or 40 years ago. we got up to 18% or 19%, we were trying to match revenue with government spending. we're at 25 now and a lot of that has to do with the recession but a lot of people think we need to come down from 25. the biggest fear from a lot of people on the current trajectory we'll get to 42% with all the entitlement, promises that we made and 42 is clearly too high. the other thing, and andrew, the mainstream media for some reason always looks for some weird angle and their whole angle on this was that krugman blogged about cnbc zombies and somehow that it was on argument between "new york times" columnists.

it had nothing to do. all you did was give him the "squawk box" award which he clearly didn't appreciate but the main stream media is going to say ooh, it was david brooks, now he's mad at the -- although he gets a little pissy. he the go a little pissy with the guy in spain before, on bloomberg. zombie is the word you use whenever anyone says something that is, i guess, antithetical. if you have big government you need higher taxation. thomas payne, "society in every state is a blessing but government, even if its best state, is but a necessary evil, in its worst state an intolerable one." if you read anything out of "common sense" one of the great books and payne one of the great

patriots, it's just throughout the writing, there is the notion that individual liberty and people living with the merits of their own efforts and whether good or bad that's the way we do things in this country. the one other thing that got me, andrew, he will constantly say what happened in europe was not because of big government, it was because they adopted a common currency too early but the reason that a lot of the countries are unable to live up to germany and have the same currency and same interest rates is because of all the structural problems with the economy and the huge government and the entitlement state social democratic nature of their economies. that's why they couldn't be in the union in the first place and he misses that step. it was fun yesterday and it's everywhere on the blogs but it was not you. >> thank you for that. still to come, we've got alan simpson, erskine bowles, warren buffett and maybe some unicorns. yes it's true.

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this is this is a special presentation of "squawk box." becky reports live from sun valley, with the oracle of omaha, warren buffett, europe, the u.s. economy, politics, the looming fiscal cliff, all on the agenda. plus the countdown to jpmorgan's quarterly results. after weeks of speculation, wall street will finally learn how much the london whale cost the giant. the second hour of "squawk box" begins right now. >> good morning, welcome to "squawk box" here on cnbc. i'm andrew ross sore kin along with joe kernen. becky quick is in sun valley

this morning. we'll hear from her in a moment. united airlines set to buy at least 100 new boeing 737s. that's in a deal that could be worth more than $9 billion. cnbc's phil lebeau saying the official announcement will be made later this morning at united headquarters in chicago. the number of homes entering foreclosure process increasing in june, reality track says that's the second consecutive monthly rise. and supervalu is omitting its dividend and evaluating strategic alternatives after the third largest supermarket chain reported profits half of what analysts expected. the move will try to regain market share from competitors like walmart. we have red arrows across the board, 106 is how far down we'd start the day, nasdaq would be

off about 21 points and the s&p 500 looks like it would be off 11 points, but now let's head to two hours, the wrong time zone for us, sun valley and check in with becky, whom we haven't seen in a long time. miss quick. >> hey, andrew, how are you doing? >> it's great to see you. >> great to see you. what's new with you guys? >> we've just been talking about unicorns basically on the set. >> becky, becky. >> i heard you mentioning unicorn. >> becky, my little ginger snap. look at you out there. i'm so happy. >> hi, my dear. >> do you remember my little ginger snap, that's from "it's a wonderful life." you're a sight for sore eyes. look at you. >> i miss you guys. i miss you so much and i've been listening to you this morning and wishing that i could actually see you guys in person but boy, have i missed you guys and i heard you talk about unicorn this is morning and wishing i couldump in and play with you. joe, i haven't seen new weeks

now. >> i know, and we havea becky sandwich going on right now, looking at, woo, moving in and paul is enis the mayo. what are you? >> hi, boys. >> look at both of us, see if that will work like -- ooh, i get the first kiss. >> looks like "the brady bunch" is what it looks like. >> becky, who said no to you that you had to settle for warren buffett and simpson and bowles? >> alan simpson and erskine bowles, you know, it's just so hard to find good guests to talk to here. guys we are so lucky. we have our dream line-up this morning who are coming and talking to us and the futures are down this morning sharply after what we've seen over the last five days, i guess this is six days in a row if the market closes down again. what better time than to sit down and speak with the oracle of omaha, ask what he is seeing in the economy, there are so many questions of what the fed is thinking about things, what is happening in china and

europe. i don't know how we'll cram enough questions into the ri limited time we have with these three hours. warren buffett always talks to us about the economy. you know over the last couple of years he's been talking about when housing turns, that's when things will turn in the united states. we'll get a sense what's happening with some of his biggest businesses including burlington northern -- wah! there's bugs flying all over me, i think they lick the lights, they're ail little attracted to what's happening here. big grasshoppers, i'll try to catch them. ooh it's a moth. hold on a second, almost got him. almost got him. wait. anyway, warren buffett is going to be joining us and talking to us about what he's seeing with businesses in the economy right now, and then we get the chance to talk about the huge fiscal cliff with the two most important gentlemen over the last several years who have been in this debate and who have

actually come up with solutions that haven't been taken to this point. we're talking of course about erskine bowles and alan simpson who put together what was thought to be an impossible task getting 11 members of thes fiscal commission to agree to it. of course nothing's happened to the proposal since that time so we'll get some time to talk to them about simpson and bowles redux, if there say possibility of making this happen, and obviously, guys, we have a ton of questions to ask all of them, coming up today. there it goes again. >> is it above you or behind you? what's going on there? >> looks huge. >> it is flying -- whoa, there's lights all over the place. i'm going to catch him before -- there's lights all over the place attracting -- >> whoa! >> we saw it. god, it looked like a bat. that's not a moth. this is like mothra from the japanese -- yeah. >> because we know how to treat our special guests, guys, we have the moths lining up for

buffett, simpson and bowles. >> i treat that moth better than some of my bests. >> unicorns? >> yeah. >> did you go to the pile yet? >> did i go to the pile? oh, no, no, i have not been out to dinner downtown yet. is that -- >> you llabsolutely. i've been there before. i haven't been this trip yet but no. >> do you need to know what to order? >> the potatoes as big as your head in. >> yes, just about. and the surf n' turf. it looks like it's circa turn of the 19 -- 18th -- in the late 1800s is what it looks like when you're walking. it's wonderful. >> where are you set up on the road outside coming up? >> are we on dollar mountain or elk horn mountain? elk horn mountain. why am i telling you guys where you can find me. we're on elk horn mountain.

>> becky, you could get an audience this morning. >> it's cool when things light up, it's obviously still dark because it's so early and i can't believe buffett, simpson and bowles agreed to get up. alan simpson said "5:45 in the morning, are you kidding me?" when things light up you'll get a better view for where we are. it's a beautiful area down overlooking the things. as the sun gets up, this is another tease -- the moth is back. you got to be kidding. he's on me. hold on. >> all right, maybe, yeah, wow. that moth is in love. thanks, becky. jamie dimon and jpmorgan in the spotlight, the bank set to release quarterly numbers and presumably more information on its multibillion-dollar trading loss. makes me thinking remember how spider-man, how that started with one, i mean, i don't want to becky to come book ooh! >> are we going to endorse that movie, the kernen sorkin thumbs

up and i don't know if becky's seen it. becky grasik from large caps for morgan stanley. what is the loss? that's all we care about. give me a number, what do you think it is? >> the number we have in our models is $6.5 billion. >> ooh! wow, if we were scared at two, but based on the size of jpmorgan, that is manageable, and that probably doesn't put the uninight an overall loss, does it? even the unit, much less the bank. >> they have gains they can harvest to offset part of that, if not all of the loss, i think the important thing going forward for investors on friday morning is going to be how much have they actually closed out of the trade and what's the forward look, because that will really set the tone for what you think your earnings are going to be good forward. stocks reflecting that,

expectation as well as how much they can start to reengage the buy-back and when they can start to reengage the buy-back. >> in your view as an analyst there are probably a lot of other things that are going to be actually more important to consider, right? what are those things rather than this, the whale. >> you know, so i would say the whale's important just to put behind us or at least as much as possible and on the other elements we have two major trends going on in earnings in the large cap banks, jpm included. negative note is capital markets in and between you have declining nim and market share gains so how does jpm navigate the waters? our expectation is that they're going to show market share gains that, they'll be able to show strong mortgage origination. they've also got improvements going on in the expense line and we think that will carry through to a more positive outlook relative to some of their competitors as the earnings season unfolds over the next week. >> betsy, it's andrew.

i wanted to go through some of the trading loss issues. my report suggested we might see a $4 billion, $4.5 billion loss taken with a billion or more left over. when you look at that billion or more that's left over, what are you going to be looking for and what do you have to hear from them? >> i think the question is on the size of the trading loss, you know, i don't think any of us would have precision estimates here. it's all, you know, point estimate with a big wide band around it. to your point the question is how much has it gotten through and what's left. what do i have to hear from them is look, we need to hear a number, what percentage of the trade is done, what percentage is left to go and what's the impact to the volatility outlook on that piece that's left to go such that we can have a narrow band around our point estimate as opposed to the wide band. >> do you care about the issue of clawbacks or is that a publicity issue in your mind? >> oh, i had put in research on this topic over the past couple of months that we would not be surprised to see some clawbacks. >> does that change your calculus in terms of how you

this i of the company, how you think of risk? does it do anything in that respect? >> it would be surprising if you didn't have any clawbacks in this situation. >> do you want to hear absolute numbers or want to hear they're doing it? >> i think we need to hear it's on the table. >> betsy, gym paul is en. i was curious where you're thinking of the bank stocks in general, i notice sneakily the large cap financials have been outpurchasing the s&p since last fall, the longest period of outperformance of the recovery. what do you think looking out over the next year? from from our perspective what we need to see is market share gains in the financial services companies that we think are going to be winners in the group of large cap banks that we cover so in order to outperform, you need to have again market share gains, some loan growth, you need to be very efficient. why? because we do have a nim pressure, you know, from the yield curve, and so that's what

we're looking for in outperforms. >> all right, very good. time tomorrow, do you know exactly? >> what time they're going to be releasing earnings? >> yes. >> we expect 7:00 a.m. 37 and the call starts at 7:30. >> is that just what the media and regulators and others seem to be so fixated on? >> no, investors want to understand what happened, who knew what when, how they've exited, what they've exited so far, what's left and what's the volatility component. >> is the jamie premium gone forever or do you see a reason a year from now, less than that, where you could see that premium return? >> i would argue that the way they execute this is important and i would also expect that, given the size, scale, scope of the business, and how they've been managing through this last

five years, i don't think this is going to completely override the quality performance that they've been putting out to date. >> we got to run. let me ask you one last thing, i apologize for this. do you think they made a mistake coming out as forcefully as they have? we've had people around the table saying this mia culpa has been almost too large. >> look, i think that the trade was outside of what jamie has as a standard for him and his company and so, you know, my sitting armchair expert from where i'm sitting i would say no. >> thank you so much for joining us this morning. >> all right. thanks. comments, questions about anything you see here on "squawk," about jpmorgan, warren buffett, simpson-bowles. >> unicorns. >> if you've got questions for both of them or all of them, please shoot them to us and follow us on twitter @squawkcnbc is the handle.

unicorn, paul krugman quote, made in 1998, "by 2005 or so, become clear that the internet's impact on the economy has been no greater than the fax machine's." >> okay. >> any comment at all? oh, that's right, we're leaving you out of this. i'm sorry. >> i'm trying to stay in switzerland here. >> which has a great economy and a great welfare state. first, synchronize your wachds, people, we are preparing for the oracle of omaha, warren buffett will be joining becky live from sun valley at 7:30 a.m. eastern.

welcome back. checking the futures right now, we are, ooh, down 106 points. you don't have a whole lot of time left, paulson. >> i got the whole day, whole day. >> before you leave can you get it to double digits? making headlines, italy's national statistics body is threatening to stop issuing data on the economy. that's a good idea. says it's been crippled by government spending cuts aimed at reducing national debt and fighting public finances and it's only been releasing bad news anyway. they might as well just, i would disband that, wouldn't you, andrew? it's only bad. you don't release it, no one knows about it. >> you'd just prefer not to release it? you think that's how we should

do it from now on? >> in italy. if you had been -- >> i know where you're going with that. >> are you tweeting again? >> i was doing some tweeting. also talking about, where is mario monti today? i think he's in sun valley. i don't want to put that out there but we were talking about italy. >> you're seeing him at the pioneer, right? >> jim, during the break we were talking about all the regulators, one of the first times we've seen policy across the board, that's what's making you as bullish as it is. what do you expect them to do today? >> up until the last few months, throughout this entire recovery, policy officials around the globe have not been universal in what their approach has been, so the u.s. was easing throughout but you had until last fall you had europe tightening, you had the merger world tightening. this is the first time in this

recovery that you have almost every policy official in the globe easing. now, what that means is everyone's trying to promote growth for the first time, and everyone's got a floor under your portfolio. what every policy official on the globe is trying to do is push up your stock base. i think investors should reflect on that a little bit. it's not just one in north america against asia tightening. this is a universal effort and that's the first time this occurred. i think they're going to win. i think they're going to get better growth and higher markets. >> you don't think they'll stop at some point or that you'll see breaks in all of this? >> absolutely. when the growth -- it shall. >> aren't they there to keep a floor rather than to push it up? >> i think -- >> it's a little bit of both when you say that. >> i think it's both. china and the emerging worlds are trying to push up their economies and i think they were successful in slowing them down and they'll be successful in speeding them up. i'm encouraged that the approach in europe to me until last fall was austerity and now it's

turned more to promoting growth. >> during one of the last breaks i said to you is this 2002? 2002-2005 boring at all get out but there was a recovery although didn't feel like it. >> this recovery is like the last two, it's rolling out much slower, but each time in the last two recoveries it took about three years, andrew, before we decided that we are in recovery. we are debating white collar layoffs in the early '90s, couldn't get rid of the do dot-combusts in the 2000s. year four of the economic cycle things started to gear, confidence finally went up, the job market finally came to life. i think that's exactly what's happening here. >> if you're an investor and you go back to that period, could you still get on that train right now. you could get on that train in a year from now, so there would be more money to be made if you had

gotten on the train in the beginning. >> that's right, we've already had 125% go under the bridge while everyone is worried about the next armageddon. you're right, there's still more but you've already had 125% returns going under the bridge while we're worried about what's going to blow up and so there's always going to be stuff to worry about. that won't go away, but i think if it does go away, my advice would be sell. >> well, that would be an interesting day when you say that. jim paul is enthanks for being here. >> thanks for having me. it was great fun. >> thank you very much. >> jim, we'll see you soon. coming up, warren buffett joins becky live from sun valley, we're going to talk about the economy here, europe, and else where. plus oracle's latest investments, maybe we'll get something out of them about that, and 8:00 eastern, becky and buffett will be joined by the dynamic deficit-fighting duo, alan simpson and erskine bowles. stay tuned. tomorrow on "squawk box," the first of the major financials reports.

we'll get jpmorgan's quarterly results in the wake of the multibillion-dollar trading loss, we'll talk to former bb&tceo john allison and former merrill lynch president sally, and bank united chairman ceo john cannis and for up to the minute earnings news keep watching "squawk box" on cnbc. the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services.

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welcome welcome back. in the headlines this morning, we're a little over an hour away from the labor department's look at first-time jobless claims which we get every thursday. economists are looking for initial claims of 370,000 for the last week, down from 374,000 in the prior week and as you know these numbers did -- are you like pressage or pre-ssage? >> pressage. >> you are continental. can you say, how do you say souffle? >> souffle. >> oh, look! french automaker peugeot. >> you don't think it's pu-gut?

>> it closed an assembly plant and down 8,000 jobs, trying to match production capacity with demand. coming up the man of the morning, warren buffett is up early in sun valley and joins becky live on "squawk." good to see you, warren, the oracle of omaha, when "squawk" returns after this break.

this this is a special presentation of "squawk box," live from sun valley, avoiding the fiscal cliff, the masterminds behind the most talked about proposal will reunite, live on "squawk," alan simpson and erskine bowles. but first, our newsmaker this half hour, the oracle of omaha, warren buffett. >> welcome back to "squawk box" here on cnbc, first in business worldwide. i'm joe kernen along with andrew ross sorkin. becky quick is in sun valley, idaho, with a special guest who will join us for the rest of

this show. we didn't decide you were at dollar mountain so we don't know where you are, but you have noticed, nothing costs $1 anywhere around that mountain, on that mountain or any of the vints ne vicinities near that, but it is dollar mountain. >> yes, that's right, joe. the inappropriately-named dollar mountain, we're over sun valley and joined by a special guest, warren buffett. mr. buffett thank you for joining us this morning. >> good to be here. >> we couldn't think of a better time to have you on because there are so many questions about what's been happening with the economy, what's been happening with the jobs picture. why don't you tell us what you're seeing now in your businesses. >> for a couple of years i've been telling you everything except residential housing was improving at a moderate rate, not crawling but not galloping but the last two months it's

been sort of the opposite. the general economy in the united states has been more or less flat, and so the growth is tempered down, but the residential housing we're seeing a pickup, and it's noticeable, it's from a very low base and it doesn't amount to a whole lot yet but it's getting better, and so we've got a flip-flop on that. >> what happened? we talked in the past you had said when housing turned that would be when the u.s. economy would turn. what happened? >> it hasn't turned that much yet but it is picking up but at the same time, the rest of the economy i would say is slowing down. it's not heading downward but it's not growing at the rate that it was earlier, and then it's kind of interesting in europe, for a year or so, in most places, i mean forget about greece for the moment but generally in europe, you didn't have a big slowdown. you had a lot of worry in all of that but in the last couple

months in europe, particularly in the last month, it's pretty much across europe things are really starting to slip pretty fast. >> we've heard this from a lot of ceos who joined us in the last several weeks but what business lines in particular do you look at and do you see these things kind of popping up? >> i look at all of the businesses we have and then i talk to people in other businesses, and it's pretty clear that that's what's going on right now, that there's certain figures i can't tell you where i get them, but they -- europe is really, it's headed downward in the last, i don't know, six weeks or so, and it wasn't going that way before, it wasn't doing that well, but it hadn't really hit the skids. >> is that because of consumers or because of businesses, confidence and spending slowing down. >> spending slowing down and when spending slows down, business reacts.

i mean, they're not seeing the same kind of spending so they're pulling their horns some. >> of the things that you can talk b the numbers that you do see concern you the most? >> well it's pretty general, becky. like i say, it has not turned down in the united states. our freight carloadings are up week by week. i normally get them today but i'm not home. last week, they're up, although the eastern railroads were down moderately. lot of that's coal but nevertheless just across the board, looking at retail sales and jewelry or furniture or you name it, yards of carpet are down. carpet business is better. on the other hand, if you look at, we're the largest home builder in the country, clayton homes. that's up, brick is picking up but these are from low levels but you are seeing, and our real estate brokerage firm, second largest in the country, pending

sales are up by a reasonable amount but from a very low base. >> with everything else, with not a reversal but a slowdown in the growth, what happened six weeks ago to spook people, to spook businesses? >> i don't know the answer to that. i know the result. you can argue in europe why it was delayed so long. i mean, because europe has really been, you can see this coming, it was two years ago we sold all our spanish and italian and even french bonds, we were overly cautious probably but that was two years ago. so europe, with all that's going on, it probably kept it from having any kind of gains but it didn't really seem to sink in, but i would say the last, well i know the last couple months, and with some acceleration, it's been hitting over there. >> we've watched the jobs picture, and the last unemployment, the last

unemployment numbers at 8.2% from that last big government report last friday. is that a chicken and egg cycle? are people watching the jobs number and getting spooked by it or is the jobs number kind of -- >> well, you're right. there is some circularity to it, but i don't know the answer as to exactly why it's happening and i don't know what it will be three months from now or six months from now because three months ago i didn't know what it would be today, and the u.s. economy is doing better than virtually any big economy around the world. this economy has come back a long way with the exception of housing, from where it was a few years ago and you can see it in corporate profits, but i thought it would take housing, i still think it would take housing coming back significantly to move us generally significantly upward and i still think that's true, but so far, the little

pickup in housing has not been near enough to offset whatever is going on in the world generally. >> the fed came out with their minutes yesterday, and obviously they're concerned about the economy. they say that they could step in to do something else but i guess the question becomes what would it take to get them to step in and what could they do at that point? >> i have my own doubts, i'm sure chairman bernanke would disagree with me and he knows a lot more about it than i do. i get -- when you have interest rates down to zero, not only here but in the major countries in europe, and you have the, you have a 15-year treasury inflation protected so-called tips security, in a negative yield, 15 years people are willing to put their money out at a minus rate in real terms, that -- that's about as far as you can go. you can talk about more easing or that sort of thing, but you

know the banks are sitting with enormous amounts of money at the fed. they don't want to be sitting with the money at the fed. it's bringing in a quarter of a percent. they're not happy having that money at the fed. they just aren't seeing that much demand for loans. although they're picking up a little, i mean, but it's nothing like people would like to see. i don't see what the fed does that's dramatic. >> does that mean we're in a wait and see pattern? >> to some extent. it also means that they shouldn't be bicycling like crazy at the fed while -- maybe they should be bicycling like crazy but while congress sits there on the sidelines and you know, basically squabbles. >> what should congress be doing at this point? we'll talk more with simpson and bowles a little later this morning but you think there's something congress should be doing right now? >> i think people have a feeling that congress is inept, and sort

of paralyzed by the desire of each side to make the other side look bad. i think that has got to be a factor in general confidence. you know, if you see your government not functioning, it's not really the most -- it's not the biggest spur to activity that you can imagine. >> maybe not a confidence booster so to speak. >> so i think it's hard for the fed to offset the congress in terms of changing public opinion. >> okay, we're going to have more with warren buffett in just a moment, but andrew, i know we have to cut in for a commercial break so i'll send it back to you. >> we will do that. thank you for that becky, thank you, warren. still ahead, warren buffett will be joined by erskine bowles and alan simpson, tackling the looming fiscal cliff, taxes, and a lot more when we return. tomorrow on "squawk box" -- the first of the major financials reports. we'll get jpmorgan's quarterly

results in the wake of the multibillion-dollar trading loss. we'll talk to former ceo john ellisson, former merrill lynch president sally, and bank united chairman and ceo john canus and top financial sector analysts. for up to the minute earnings news, keep watching "squawk box" on cnbc. summer is here. and so too is the summer event. now get an incredible offer on the powerful, efficient c250 sport sedan with an agility control sport-tuned suspension. but hurry before this opportunity...disappears. ♪ the mercedes-benz summer event ends july 31st. ♪

this is new york state. we built the first railway, the first trade route to the west, the greatest empires. then, some said, we lost our edge. well today, there's a new new york state. one that's working to attract businesses and create jobs. a place where innovation meets determination... and businesses lead the world. the new new york works for business. find out how it can work for yours at thenewny.com.

welcome back to "squawk box" this morning. we have red arrows across the board after a tough day yesterday. the dow looks like it would open down 106 points lower, the nasdaq down a little over 21 points and the s&p 500 down over 11 points. china's largest ecommerce platform taubau is accepting preorders for the iphone 5. the ali baba site also has technical features and specifications, all this despite the fact apple has not said anything about releasing the iphone 5 or given details or pictures so someone may be losing a job today. it's an interesting one and you should check it out, joe.

i know, are you getting an iphone 5? >> you know what? someone the other day laughed at me because i have a blackberry, and made an age reference. >> i have a blackberry and iphone. >> you're young and happening. >> i don't know about happening. >> you were at the book party, the grayden carter. i know where you were at the other night, you're at page six, you're at every page six event. where is pilar, home with the kids all the time? unbelievable. much more with warren buffett, while you're out cavorting around. still ahead, breaking economic data, the closely watched weekly jobs report is due at 8:30 a.m. eastern. keep watching "squawk box" on cnbc, first in business worldwi

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good morning, everybody, welcome back to a special edition of "squawk box." we're live in sun valley joined by warren buffett. mr. buffett let's get back to what we were talking about with europe before. >> sure. >> the spreads blew back out again and all of the fixes we thought we'd seen from the ecb at this point seem to be lasting for less and less time. back above 7% for some of these bonds. what's this mean? where are we headed? >> well it means that a

fundamentally flawed system was designed some years back and we've been trying to or they have trying to patch it during the th couple of years, and it's hard to change a very fundamental, important system with patches particularly with 17 people having a say in where the patches should go and what kind of patches you should use so it's not an easily solved problem. >> at this point as you mentioned it's hurting the economy there as well, starting to drag down in a major way. >> particularly in the last few months, yeah. >> what's the end result over the next six months or so? >> ten years from now, europe will be working fine, but people will be consuming more there. they'll get it worked out, but there is no obvious answer and that becomes more and more apparent as they go along and like i say, they're trying to put patches on something that's got a lot of leaks. >> but patches on something that has a lot of leaks, you could have a lot of different

solutions to the end of that. is the euro still going to exist ten years from now? europe will but will the euro know? >> i don't know. and i don't think they know. it certainly can't exist as originally designed. we've found out that trying to have a common monitor unit when you don't have common fiscal policy and cultures and work rules and all kinds of things just doesn't work, and how they'll resolve that is anybody's guess. >> obviously it depends on who's in charge, who the leaders are, and leader there is seem to get voted out every time a new election comes along. >> yes. >> so if there's a constant changing set of players at the table, how is there a good solution? >> i would not know the solution myself. henry kissinger said a long time ago, if i want to call europe, what number do i dial, and essentially that's the problem. when we had our crisis in 2008,

everybody knew the responsibility was on with the president behind him, and as long as they knew where they were going, they had the will and the ability to do things that were needed to do, but exactly who has the ability, when you don't have a printing press, it's a different animal. >> we've been watching the headlines over the last several weeks, and the manipulation of libor is just the latest in a series of scandals that has to break down the public's trust in what happens with financial institutions, what happens on wall street. what do you think about what's happened with libor and how big of a deal is this? >> well, it's a big deal. it's a big deal. i mean, you've got the base rate for the whole world, including some loans we have in the past, and so the idea that a bunch of traders can start e-mailing each other or phone each other and

play around with that rate is an important thing, and it is not good for the system. >> does it shake your confidence in the system? >> i've got a lot of confidence in the system over time. our system works. we are sitting here in sun valley in pretty good circumstances, compared to a couple other years ago so we're not working any harder than 200 years ago or not any smarter but we live far differently so our system works over time but it sure shakes your faith in certain institutions, i'll put it that way but not the whole system. >> i know andrew's got a question for you as well. >> before andrew talks about jpmorgan, woarren, i wanted to ask, bob diamond, very good executi executive. in the past, goldman had pr and ethics issues. you said -- i don't think you want blankfein to lose his job and the officers at walmart and

i'm wondering whether this is an overshoot, diamond is unceremoniously dumped. he was an american in london, and i mean, wouldn't you rather have him stay, if you were a barclays' shareholder? >> well i'm not a barclays shareholder but i don't think he had any choice but to go. something as big as, i wi libor he wasn't in charge of all of barclays at that time, but there are a lot of things that went on in that trading room that who knows who was aware of what, and i don't know anything specific about it, but that was not -- it was not a rogue trader, let's put it that way. >> you don't have a different opinion based on whether you own shares of the stock, though? >> not on this but i may know less about it. >> sometimes maybe. >> i haven't followed barclays. you know, at solomon we had some

problems and they had to go. >> warren, talking about trust in a company that you do own a stock in, jpmorgan, we're going to hear from jamie dimon tomorrow what their earnings are and we're going to try to hear more about what happened to the sour trade. your views on the trade itself, your confidence in the company, your confidence in mr. dimon. >> yeah, i think jamie dimon is one of the best bankers in the world, and if i had a bank -- i like john too at wells fargo. if i owned a bank in omaha and could get jamie to run it for me i would feel very happy. jamie understands banking, he understands risk and it's a significant loss, but jpmorgan lost billions and billions and billions of dollars on loans. i mean, if you got a couple trillion-dollar balance sheet you're going to have some losses someplace. >> do you have any different views as a result of this about the volcker rule or part of the regulations of dodd-frank?

>> my partner charlie is more of a testament than am i on this but i think there are good reasons to restrict the activities that banks can be in. >> the activities that led to these losses you would preclude jpmorgan from participating in the future? >> it's hard to say what those activities are. if they're truly hedging risk, you know, there's certainly a lot to be said, if you're running a bank and you want to hedge interest rate risk, hedge foreign exchange risk. that's perfectly proper. we do it in our energy companies, we have transactions all the time to hedge risk. if somebody goes off the reservation and starts turning hedging positions into speculative positions, you may have a problem but that was not policy at jpmorgan. that was one fellow's near as i can ascertain that went very big in a position that was originally designed as a hedge position and then he put a hedge on a hedge, and pretty soon they

had what they call a texas hedge. >> warren, can we go back to libor for a moment, too? >> sure. >> you mentioned that you have some contracts and some things that are based off of libor. >> sure. >> that have been there, i'm guessing derivatives and other things that have been in that? >> yeah, we own some auction rate municipals for example, priced off libor, a couple billion. >> what happens, if libor was manipulated, do you have a case to go back and have a complaint, to have a lawsuit, to have anything that comes up with any of this? >> well, i think there certainly will be a bunch of lawyers that think that. if you can pin down the everyone that did something to you and there may well be some kind of a case. we bought these securities in the market auction rate municipals that have, that are tied to libor. i have a feeling that, for any one entity, the amount might be

very, very small. >> $3 there will and things that are priced against this. >> the numbers would stagger you. >> so how big of a problem could this turn out to be down the today? >> it could turn out to be a big problem but we don't know what banks did what at this point, but -- well, go back to our solomon experience, you had one fellow with a couple of bond issues and that caused a lot of trouble, and you get libor and you're talking about the whole world. >> right, and everybody associated with it. >> and of course you're in this terrible position, if you have millions of contracts based on libor and one side profits from a given price being out of line, and the other side loses, you're not going to collect from the fellow that got the benefit and if you're in the middle of the trade you'll have the people on the losing side of each trade come after you, so it's very asymmetrical for the person who has a punch of trades on it. >> it could be a potentially huge can of worms. >> it is a can of worms. i will guarantee it is a can of

worms. >> okay. warr warren, we'll have much more in a moment. we thank you for your time. we're going to bring in another quick break and then andrew we have some other special guests who are going to be joining us as well. >> absolutely, we're looking forward to it. thank you, guys. coming up we'll reconvene the deficit reduction summit in sun valley, erskine bowles and alan simple yin joining becky and warren to tackle taxes, spending and a whole lot more. this is a special hour of "squawk box" starting next.

we've heard from the oracle of omaha. >> the general economy in the united states has been more or less flat. >> now warren buffett will tackle the looming fiscal cliff with the debt reduction duo of erskine bowles and alan simpson. it's a special hour of "squawk box" you can't afford to miss, and it starts right now. >> welcome back to "squawk box" here on cnbc, first in business worldwide. i'm joe kernen along with andrew

ross sorkin. becky quick is in sun valley, idaho, with warren buffett, joined by deficit reduction duo erskine bowles and alan simpson in a minute. if we were the "new york post" we're calling them a superhero duo we would superimpose their heads with batman and robin or capes. >> a little, you know, why not -- >> a whole lot of things i've never done but i never had too much fun. >> that is true. united airlines is poised to buy at least 100 new boeing 737 airplanes, the mammoth deal could eventually be worth well more than $9 billion. phil lebeau reports the deal will be announced at united airlines headquarters in chicago. the new york fed is going to release libor documents tomorrow and just for warren buffett

talking about that, weighing in, central bank official says the information will show that the regional fed took prompt action four years ago to highlight problems with a benchmark interest rate and press for reform. they may set the libor with barclays as early as 2007. earlier this week a congressman requested transcripts related to the conversations between the fed and the british bank, which brings us now to -- >> jpmorgan i'm thinking of batman, not batman and robin they're not equal. we need to think of superheroes together. >> they're not together but they have to be of equal standing. >> so like spider-man and superman. >> spider-man and superman. batman didn't have superpower, right? >> that is true. which made him cooler in my view. >> yeah and he had a lot of badgets. let's talk about some other news this morning. jpmorgan will be reporting quarterly results tomorrow. the "new york times" reporting a

shakeup at the fed after the financial crisis may have clouded the view of jpmorgan's risk. in mid 2001 the fed replaced nearly all of its roughly 40 examiners at the bank. those changes are said to have left the regulators front line examiners without deep knowledge of jpm's operations for a brief yet perhaps critical time. we'll have complete coverage of the bank's results tomorrow on "squawk." let's look at equity futures this morning, we do have some red arrows, we've been talking about it after a tough day yesterday. dow looks like it would open down 86 points, nasdaq off about 18 points and the s&p 500 off close to 10 points. let's get to our "squawk" newsmakers of the morning. becky requestic is in sun valley, idaho, with three special guests right now. >> and no moths. >> hopefully one of them is not a moth. becky? >> joe, thank you very much. we are in sun valley as you mentioned and we are joined by our dream line-up this morning, warren buffett, who has been

with us for the last half hour and joining us and sitting down with us right now are former senator alan simpson and erskine bowles, former chief of staff for president clinton, two gentlemen we have been hoping to get on the program for an incredibly long time, because of simpson-bowles, bowles-simpson and everything that's happening with the fiscal cliff. gentlemen we thank you for agreeing to sit down with us this morning. >> thank you. >> warren buffett can attest to this, but when we go around and talk to ceos, it is almost universal among them when they say if they had a chance and could vote for bowles-simpson or simpson-bowles, they would put this in immediately and they can't understand why this hasn't happened already. >> it's not limited to ceos either. but i think if you polled fortune 500 ceos, it would certainly be 80%. i wouldn't be surprised if it's 90%, that would not only think it should be done. they think these fellows are

heroes and so do i. >> what we'd like to say is first of all, thank you for the work you've already put in to this point and ask you what you think can happen, because the fiscal cliff is coming, it's a huge issue. to this point no one has listened to your advice and taken you up on this. how much more of a desperate situation are we now than when you first came out with the proposals? >> here i am, these are the numbers guys. i do the color. erskine can tell you but let me tell you, this is a giant among pygmies on this kind of thing. peopler not deali er are not de. he strung the original package together with his patience and brilliance because he was the last guy balancing the budget so ship them out a little bit. >> i'm not saying. doesn't get any better than that. >> oh, no. >> let me say something about these two, they sat down with republicans and democrats and they were given a charge to come

up with a plan that got it down to 3% of gdp and they got it below that, got a majority of the republicans to vote for it, got 11 out of 18, they did exactly what they'd been asked to do, and they came up with a plan, no plan is perfect. you know, everybody comes up with a little different one but everybody knows that we need something done, and they did their job and congress has not done its job. >> we got some hope. you know, i think if i had to tell you the probability, i'd say the chances are we're going of the over the fiscal cliff and he hate to say it but i think that's probably right, but we worked hard to try to get common sense to overrule politics, and that's a tough thing in washington, as al can tell you. we've been around the senate and the house. we probably have as many as 45 to 47 senators, equal number of republicans and democrats, who are in support of our efforts.

we've got about 150 house members again relatively equal. we put together a ceo fiscal leadership council, which is, has over 100 fortune 500 ceos who are actively working to try to influence congress to do something that makes just plain common sense, and we've got a social media campaign that we're working on, where we hope to get about 10 million signatures of people around the country to tell congress, come on, let's put partisanship aside, and let's pull together and let's face this enormous fiscal problem that we have coming up. >> with all that on your side, why do you think that the odds are we do go over the fiscal cliff? >> because it's politically painful. it's really tough to get beat. >> and it's not going to get less painful in the future. that's the other thing about it. if you had some kind of a disease you might not want to

have somebody open you up and cure it but if you knew it was going to get worse next week, next month, next year, you'd face reality. >> the problem is real. the solutions are all painful. >> and there's no easy way out, but i was talking, warren, a couple of weeks ago, to american university's graduates and i just threw away what i was supposed to say and i said they ought to be mad at us, at our generation for shirking our responsibilities and kicking the can down the road. we've got to face up to this. this is our generation's problem and we got to fix it. >> senator, you've been criticized for coming out and speaking your mind on some of these topics. >> if i could do it with less earthiness, it would be good. >> no, no, give us a little earthiness. i'm waiting for that. >> i know, you bait me. i've known this fine gentleman for years. he says, "tell me that joke about the coast is clear." i do tell it to him, but i do -- it's frustrating for me, here in

politics, and i loved it, you're entitled to be called a fuool, boob, idiot, whatever, but people try to nail me with a guy that hates veterans and hates seniors and the cap food commission, that just steams me and they say are you thin skinned? i say hell yes but i just punch back and never lost an election because an attack unanswered is an attack believed and when people lay that stuff on me that's distorting my persona, i fire back, and i could do it but i grew up with irrigators and they had a terrible vernacular. >> what's your joke about the coast is clear? >> it's quick, this couple hit the sack, 3:00 in the morning the phone rings. guy answers and says how the hell do i know? that's 2,000 miles from wyoming. hangs up, his wife says who was

it? he says some nut called and asked if the coast was clear, i don't know. >> he's just warming up, folks. believe me. >> mr. bowles you're the numbers guy. tell us how bad this number is when we go over the fiscal cliff. >> i think if we don't get these politicians to come together and we face the most predictable economic crisis in history. i think it's absolutely clear that the fiscal path we're on is not sustainable and for me, the best analogy is these deficits are like a cancer, and over time, they will destroy the country from within. here's an easy way to understand it from a math viewpoint. if you take last year 100% of a revenue that came into the country, every nickel, every single dollar that came into the country last year was spent on our mandatory spending and interest on the debt. mandatory spend something principally entitlement

programs, medicare, medicaid and social security. every single dollar we spent last year on these two wars, national defense, homeland security, education, infrastructure, high value-added research, every single dollar was borrowed and half of it was borrowed from foreign countries. that is crazy, crazy. it's a formula for failure in any organization. >> and right now we are faced with the benefit of incredibly low interest rates. what happens as interest rates start to climb? >> we're spending right now $250 billion a year on interest, at these incredibly low rates. that's more, to put it in perspective than we spend at the department of commerce, education, energy, homeland security, justice interior and state combined, and if interest rates were at their average level in the 1990s over the first decade of this century we'd be spending over $650 billion. >> senator, warren buffett has

said that part of this is the problem that congress didn't act on this and didn't pick it up but the president also didn't act and didn't follow up with what he had set out. who do you blame for where we are right now? >> well we try to stay away from the blame game because people will often say how did we get here? it's easy how we got here. we were told to bring home the bacon for the last 70 years. go get the highway, go get me some money, go raise this, do this, do this, and you got reelected by bringing home the bacon, and now the pig is dead. but let me tell you what happened. the president would have been torn to bits, his base would have said you are dealing with entitlements. you're dealing with medicare and you promised you'd never hurt we poor seniors and never do anything to all this vulnerable population. well, you know, that was his promise, and anything he would have done at that time would have been rejected unanimously by republicans. if he had said, "i'm for this,"

it would have gone to the house or the senate and they would have said if he's for this, boy, we're going to nail him and just vote against it for no other reason than that. >> so in other words we cannot do politics as usual. this has to be a whole new way of looking at the situation. >> and one of our members, dick durbin, give him a lot of credit. durbin voted for this and tom corbin, two fine men with totally everyone ideology and philosophy on politics and durbin kept saying where is the tipping point and that's the key. because when the tipping point comes and the guys who gave us money want more money for their money, inflation will kick in and all these things and interest and guess who will be hurt the worst? the little guy, that everybody talks about, day and night, what fakery, what phoniness. >> i tell you what, when we come back, we have to slip in a quick break, gentlemen, but when we come back we'll talk about some solutions, some of the specifics that you laid out, and get into some of those details.

right now, andrew i'll send it back over to you. >> thanks, becky, great conversation. coming up we'll get more of the headlines that are lighting up the "squawk" news wires and the bowles-simpson deficit reduction proposal has had some high profile supporters, among them clint eastwood. as we head to a break take a look at what he had to say in an interview with becky back in february. >> i was kind of amazed when they took simpson-bowles and assigned them to this research, and then they came back with a recommendation, which was exactly stop spending and then everybody said that's enough of you guys g home. i thought that was a waste of money, time and effort from everybody. it wasn't very spirited for the country, when people would see that. still ahead on "squawk box," breaking economic data, the clothesly watched weekly jobless claims report is due at 8:30 a.m. eastern. we'll bring you the numbers and the market reaction. keep watching "squawk box" on

cnbc.

welcome back to a special edition of "squawk box." now here's becky quick request

more of our summit on debt reduction, live from sun valley, idaho. >> welcome back, everybody. let's get straight back to our conversation with our three newsmakers of the hour, warren buffett, alan simpson, erskine bowles. gentlemen, we had just been talking about the problems but let's start talking about some real solutions. what needs to happen? i know there are a lot of different ways to get to the numbers, but the basic number is warren, something you've talked to us a lot about on this program, what do you need to get for revenue and what do you need to get for spending? >> you know, 2.5% is, if that's average of gdp, that actually is sustainable. debt-to-gdp will not go up over time and these gentlemen were charged with bringing it down to 3% and came in i think at 2.2% or something of the sort, so you have to get expenditures, in my view, down to about 21% of gdp and revenues up to 18.5 or 19,

and you can get hundreds of people that could draw up plans, thousands that i would accept, he would accept, and they wouldn't all be identical but it's an obvious problem, the need of a solution is obvious and most of the aspects of the solution are pretty obvious to everybody and you can argue around the edges, and the democrats don't want to talk about reducing expenditure, they want to talk about reform and the republicans don't want to talk about revenues, they want to talk about reform. reform is the copout word. >> i know your plan, gentlemen, had six points or six basic parts that lays out, a huge part of it is tax reform and people that we've talked to i think spin it in different directions. they use tax reform as their code for doing whatever they want to do. your plan was not revenue neutral. it was to raise revenue, and to do that how? >> what we wanted to do was first of all, in order to stabilize the debt and get it on

a downward path as a percent of gdp, you've got to have at least $4 trillion of deficit reduction, so that's kind of like your bogey. if you talk about anything less than that, you're just kidding yourself. what we said is look, let's take a trillion of that from revenue and $3 trillion from spending cuts. and how did we get to revenue? we said what makes the most sense is to broaden the base, simplify the code, start off with getting rid of all of the, of this back door spending in the tax code. we only raised last year $1.3 trillion in total tax revenue coming into the country, and you know why? because we had $1.1 trillion worth of spending in the tax code. it's literally crazy. >> wow. >> and if you were to eliminate that, okay, you could take rates to 8%, up to $70,000, 14% up to $210,000, have a maximum rate of

23%, could you take the corporate rate to 26%, and could you pay for a territorial system so all of that $1.5 trillion is captured overseas could be brought back here and if you just used 8% of that money from eliminating those tax expenditures so you're using 92% of it to reduce rates, 8% is about $100 billion a year, that over ten years is $1 trillion. that's where our $1 trillion of revenue comes from. it's not revenue neutral by any stretch of the imagination. we have to have about $1 trillion of revenue and the reason you have to have that is if you take it all out of cuts, you'll truly hurt the disadvantaged or you'll disrupt a very fragile economic recovery, or you won't have enough to invest in education, infrastructure and high value-added research. what we need to invest in to grow the economy. >> gentlemen, i know andrew ross sorkin has a question as well. >> hey guys, we had paul krugman

on the program yesterday, and there's been, you know, depending on which side of the aisle you come from, you can like this plan and say or rather you can dislike this plan and say that the tax cuts are too harsh or too much or this or that. he said that this proposal was "regressive," and i'm curious how both of you think about that critique. >> well paul krugman is a little hyper, and when this started for me, he said that i would, never saw a spending cut i didn't love, or some snide little crack but i think he needs to rest. he needs some solace. he needs to sit in sun valley and someone hold his hand and say, "poor, poor dear." he just gave in to ranting. >> he had a really, really, really tough weekend. i guess he spoke to a spanish, i guess the guy from the austrian school of economics and it's all over -- check it out on the web,

but apparently it didn't go so well for the eminent mr. krugman with this guy. i don't know, check it out. you might enjoy it, from the sound of your tone. >> joe, you also might tell him to check the analysis that we had done and we tried to make sure that as we reform the tax code we kept it just as progressive as it is today. >> and how did you do that? how did you ensure by going back? there are things like you get rid of second home mortgage interest deduction, you cap it at $500,000, those are all things designed to help people at the bottom. >> actually if you look at it, becky, only 27% of the people itemize. 73% of the people don't even itemize so they don't take advantage of the mortgage interest deduction, so what we said is, well you can -- >> 12.5% non-refundable tax credit, that helps the little guy. i mean paul krugman talks about the little guy all day long. the little guy will be wiped out, and stimulus? i mean, i get a kick out of

this, they say well we can get ourselves out of this with consumer spending. what consumer is ready to spend in this atmosphere? >> right. >> i mean this is madness, and a stimulus, you're not going to get a nickel's worth of stimulus from either party or they'd go home and get cremated. >> we have a $1.3 trillion stimulus right now. we're spending $1.3 trillion more than we take in. >> we have a huge deficit and these guys are not talking radicalism. for 50 years after world war ii, more or less revenue was in the 18.5% or so range and spending was in the 20.5% range, and it really worked quite well. this is not something the country s you know, we're not talking about something we never attained or anything of the sort, it's just we've drifted into this situation where we're not getting enough revenue and we've overpromised on expenditures. we've got a rich country but a rich country can overpromise. >> we've never had less money coming into the country since the korean war. 15.2% of gdp.

who is fooling who in this game? it's madness. it's numbers. it's math. we don't do wizardry. we do math. >> gentlemen we have more numbers coming after this, jobless claims, we'll get you the numbers and be back with more with a special conversation from sun valley. stick around. "squawk" will be right back. now you don't have to go to a bank to get the things you want from a bank, like no-fee atms, all over the world. free checkwriting and mobile deposits. now depositing a check is as easy as taking a picture. free online bill payments. a highly acclaimed credit card with 2% cash back into your fidelity account. open a fidelity cash management account today and discover another reason serious investors are choosing fidel ♪

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welcome back to "squawk." we are just seconds away from the weekly jobless claims,

import price data. u.s. equity futures ahead of the data lower across the bort. rick santelli is standing by at the kr, me group in chicago. rick, the numbers, please. >> the survey says june import prices and initial claims, we'll start with import prices down 2.7 on a month-over-month basis. open it up to a year over year, down 2.6. both these drops are larger than estimates and also included in the revision scenario that made the price drops a little more substantial, 1.2 on month over month, down a half a percent year over year on the last read, jobless claims dropped, they dropped 26,000 from 376,000 to 350,000. and of course, last week that number originally reported at 374,000 was upgraded by 2. aand dropped by 26,000. with the peugeot firings there

will be a renewed fascination for state of business, global dynamics, continuing claims, they dropped just a smidge from just under 3.32 million to just a bit above 3.3 million. has it changed the complexion of the market? no. we're still down about the same amount in the 70s in dow futures b 8.5 points in the s&p, pre-new york opening, and i guess close to my heart, if we look at the treasuries, we could be shooting for the second time in pretty much recent history, at least, in my lifetime, with the ten-year note yield back below 150, didn't settle below 150 yesterday, and the 30-year bond also slipping under 260, getting close to historic lows while maturities like the five-year have been flirting with historic low yields. back to you. >> okay, rick, thanks for the numbers and that report. >> let's get back to becky in sun valley, idaho, with our special debt reduction summit.

hey, beck. >> hey, joe, thank you. we've been talking about solutions and better than expected news, 350,000 but if you look at the unemployment picture and last monthly jobs number there are concerning things happening here. when we have unemployment at 8.2%, how much does it take for people to talk seriously about these measures to try and help us? austerity is a tough thing for people when you're looking at numbers like this. >> they're talking seriously around the country, where you need them talking seriously is in washington. just one example, everyone knows you're going to have to change the debt limit. the leaders of each house should get it done in five minutes. why spend weeks posturing and huffing and puffing and accusing the other side of bad faith and all that.

just raise it and get on to the next problem. i would think you could get reid and mcconnell and pelosi and boehner, just say we're going to raise it, so why should we go through the charade of everybody blaming each other. >> they've already spent it. >> and to waste weeks on that and to hold the legislation hostage over it, that's for school kids and you know, let's just get down to what needs to be done. i mean, if berkshire were in trouble financially, charlie and i and everybody else the directors we'd sit down and say we have to figure out a plan to get out of this and we'll do it today. >> is anything going to happen before this election, gentlemen? >> no. we thought the easiest thing would be to have some vert safe

for 45 years and lord came the aarp and the senior groups and the cat food commission, just absolutely stupefying and we said take the lowest 20% and give them 125% of poverty? that will cost some money and give the older olds from 80 to 85 a percent kick a year and keep the progressivity and raise the wages subject to the tax. we did all that stuff and then get nailed by groups who really, really don't care. the aarp, i asked their leadership, where they patriots in here or just marketers. that did not go withal that day either. it was just one of those days. >> we recommended raising the retirement age one year, 40 years from now, we want to give people a chance to get ready. it's like, you know, give me a break. >> i'm for anything 40 years from now. >> as sob who could be affected by this, i would even take it sooner than that.

i'd say okay let me know what i'm getting ready for, tell me what's coming rather than having a crisis where you look like greece and have to pull back the promises you'd made to people over 40, 50 years. >> and at the same time we took care of a truly disadvantaged, we raised the minimum payment to 125% of poverty, we gave people between 81 and 86 and 1% bump up because when every economist, republican or democrat told us their private pitching funds generally run out. we tried to do the kinds of things that made a difference for people who desperately need social security as that you know sounding board for them. >> and not one person will argue with this number, that if you do nothing, in the year 2033, they moved it up three years in one year, you're going to waddle up to the window and get a check for 27% less. >> in f nothing's done. >> what is smart about that? when we said raise the retirement age to 68 by the year 2050, and the aarp said, how

will people ever be able to prepare for that? well, we said we think they can figure it out. we just know they can, try to help them do that. >> andrew's got another question. sorry, andrew? >> hey, guys, this question i'll start with warren but all three can jump in. the president proposed extending the bush era tax cuts for those making less than $250,000. number of democrats, including senator schumer and others have come out and said 250 is the wrong number, it should be $1 million. warren, you have the buffett rule. how do you think about this? >> well, i am generally in favor of making the tax code more progressive, certainly when the most recent figures for the 400 highest incomes in 2009, incomes that averaged $200 million per taxpayer showed that over half of them paid less than 20% in a combination of income taxes and

payroll taxes, which means that they, those, over half of them paid less than 23 of the 24 people in our office, the only one lower was me. i think there's some changes needed but i say let's -- if they aren't going to do anything i'm for doing that, but why not just solve the problem? i mean, why just -- why work around the edges? i am for what these gentlemen propose. >> gentlemen, senator simpson and mr. bowles, what do you think about those proposals? there's proposals out, with unis to extend the bush tax cuts for another year and the president has laid out his proposal. what's the right solution for right now? >> well, between november 6th, when they will do nothing, nothing will be done, politically nothing will be done between now and november 6th. it's just posturing and guy also get up and say we can get this terrible thing resolved without touching precious medicare, precious medicaid, precious

social security and precious defense. let me tell you, that person would be described as a phony that's going to do that in this election. we think, naively enough, that if you have the guts to do something along the lines what we suggest, the people will reward you, and it won't come now, but in four months, as this thing closes in, man, you know, people are going to say hey, if i don't do something they're going to throw me out for sitting here doing this b.s. and mush that i've been pouring out. >> can you imagine sitting at berkshire, and you know you have the equivalent of a $7 trillion economic event hitting in december, you know, that if you do nothing, it will have an adverse effect on the economy of at least 1.5% next year which is enough to throw us back into recession, and you're not doing anything? it's crazy. >> in an election year, why pay

them? pay them three years out of four. they're only going to work three years out of four. >> of course we have an election every two years, too, it's crazy. >> andrew, sorry, did i cut you off before? >> the question i had is, i completely understand that we have a much bigger tax reform and reform broadly that we need to get to and i guess i was just trying to understand from both gentlemen, given where we are and that maybe we won't get any movement, if the million-dollar number, the 250 number, i know it's peanuts on a relative basis to the bigger scheme, where they come out. >> andrew, eight not exactly peanuts, because the difference between the 250 and the 1 million is about $366 billion, and we've got to pay for that some way. that's -- we're always ready to reduce revenue but we're never willing to pay for it in any way. i really think talking about the bush tax cuts is almost a waste of time. what we should be doing is talking about how do we reform the tax code to broaden the

base, simplify the code, take some small portion to reduce the deficit and take most of it to reduce rates, so we'll be globally competitive. that's what makes sense. >> but that's not going to happen between november and january, right? >> no, but what you could do is set up a framework between november and january that would call for that, you'd have to have some real specificity -- what is it? specificity. >> you got a framework, yeah, you fellows worked on it for ten months. >> that could be set up as something to say here's what we will get to, maybe it doesn't kick in january 1. >> becky, one of the things we've done is taken that 67-page report that you've read and we've now put it in legislative language. >> why not have an up and down vote on it. >> yeah. >> anybody in the past could say, i read their 67-page report, but it was a little vague, so if i saw legislative language, i would then get enthused. well, baby, you got it right now and that's what they have in

front of them, and then we say, do what you're supposed to do. if you don't like it, take it out, amend something, get in the game. so erskine has pushed that so beautifully, but if you send the bush tax cuts just like that, it's between 3.8 trillion and 4.2 trillion in ten years added to the pile. i mean, madness. >> now you're talking some real money. >> and if i had been in congress at that time with what we had to do, and i'm not being a smart alec, why would you give a tax cut when you're fighting two wars, borrowing money hand over fist and give a tax cut. i think the american people came up when reading their newspapers saying what's going on? madness? >> we'll continue the conversation in a moment but for right now andrew back over to you. >> thank you, becky, a tremendous conversation. coming up we'll have more from warren buffett, erskine bowles and alan simpson.

tomorrow we bring you quarterly results from jpmorgan, there's a lot going on there. a

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. welcome back to . welcome back to "squawk box." the futures right now indicated down about 88 points. i see tim paul is enleft and we went to double digits from triple digits. i asked him to try to get it back up there. the number of people seeking unemployment benefits plunging to the lowest level in four years, applications dropped by

26,000 to 350,000 in the latest week, and that was not expected to drop to that extent and that could portend some good things. we get back to becky in sun valley, idaho, with our special debt reduction summit. becky, i came this close to calling it our debt reduction task force. i love and miss jonathan walt, right? it's really kind of a task force. >> something that sticks with us, it is. this is a supersized task force. this is the mother of all task forces, you might say, joe. >> unknown. >> oh, i don't know if you heard senator simpson, he said fathers unknown. we're going to jump back into this conversation, and gentlemen, we have already talked an awful lot about what needs to happen with tax reform, probably one of the hot button tickets but as we were just talking off camera here, another thing that you mentioned erskine, you're very concerned we need to also be doing a lot about cutting spending as well.

why don't you tell us how the plan really would attack that. >> we cut spending by about $3 trillion over the next decade, and again, that gets us to the $4 trillion which is the minimum amount you have to reduce the deficit in order to stabilize the debt and get it on a downward path as a percent of gdp, and we don't spare anything. the problem is so big right now that you have to make significant cuts in defense. you have to make significant cuts in the entitlement programs. you have to make significant cuts in the spending into the tax code if you're going to produce enough deficit reduction to stabilize the debt. >> what is significant? 5%? 10%? just for people to get their heads around, what's really coming? >> all of it is doable, okay? we spend today about $760 billion a year on defense.

>> get this one -- >> no you tell it. >> well, this is madness. $750 billion, $760 billion is the usa, and the other countries, major countries of the earth including russia and china combined spend $540 billion. now, the only thing being hallowed out here is your brain. this is impossible. think of it again, 750 for us alone and every other major, all these evil, even, you know, china and russia, combined, 540. there's also a situation which is when you get into this, you see you get savage. i'm a vet van. i was proud to serve. there is a thing called tricare, and it's for military retirees, and give them anything, 2.2 million, there's not a great cohort of them and some of them have had very little active duty but they've been in the guard, the reserve, have their own health care plan and the premium is 470 bucks a year, and no

copay, takes care of all dependents and costs us $53 billion a year. leon is trying to do something with that, and what's he getting from the professional veterans? getting his head mashed. >> here is how crazy defense is. just think about this. the u.s. has a treaty with taiwan that we'll protect taiwan if they're invaded by the chinese. there's only one problem with that. we got to borrow the money from china to do it! that's crazy! >> that is a little tricky there. >> the entitlements are a big part of what we have to focus on, and what we've been trying to do is figure out how we can slow the rate of growth in health care to the rate of growth of the economy. >> but the richest country in the world has ever seen, $48,000 of gdp per capita, enormous, but no matter how rich your family is, you can overpromise and that's what we've done and you have to get your promises in line with your capacity.

>> and today not only are our promises too big out our outcomes are not so great. you take health care. we spend twice as much as any other country in the world on health care, whether you talk about it on a per capita basis or percent of gdp and you know, that might be okay if our outcomes were twice as good as anybody else's but on outcome, on almost any outcome measure you look at, we rank somewhere between 25th and 50th in things like infant mortality and life expectancy, and preventable zet and anybody who doesn't think those 50 million people who don't have health care insurance don't have health care, they get crazy. they get health care but get it at the emergency room at five to seven times the cost of being in the doctor's office and you know who pays for it? we do. we pay for it in higher taxes and higher insurance costs. >> well, this brings us to the question of whether the health care plan, the health care law fixes any of this. we've got to slip in another

quick break, we'll come back with that and i know joe has a question as well, gentlemen, thank you very much. we'll be back with more with the special conversation from sun valley, right after this. special conversation in sun valley right after this. duff & phelps financial advisory and investment banking services. looking for a better place to put your cash? here's one you may not have thought of -- fidelity. now you don't have to go to a bank to get the things you want from a bank, like no-fee atms, all over the world. free checkwriting and mobile deposits. now depositing a check is as easy as taking a picture. free online bill payments. a highly acclaimed credit card with 2% cash back into your fidelity account. open a fidelity cash management account today and discover another reason serious investors are choosing fidelity. i don't have to use gas. i am probably going to the gas station

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get get back to becky in sun

valley, idaho for some final thoughts from our special guests. becky -- >> i want to ask your question. jump in. >> i want to ask one thing because we frame -- a lot of simpson bowles talk in trying to get the 25% government spending and 15% in revenue somewhere. for a while we were at 18%, 19% and it matched up and went along pretty well. we got to do both. hopefully if the economy improves we won't be at 25% and 15% will come up if we don't do anything but obviously we do need to act. yesterday referencing again this conversation we had with paul krugman, i kept asking what is the acceptable amount of government spending as a percentage of gdp. and alan simpson, i got him to say that 50% was in some european countries, once i want gets above 50 he would have a problem with it but 50% --

>> 50%? >> 50, 5-0. everybody ran with this interview yesterday because he said our ideas were zombies and disparaged all of cnbc and our macroeconomics. no one led with him saying that 50% was an acceptable level. but he also said -- he favors a free market welfare state is what he favored but can you imagine someone saying that 50% is an acceptable level? >> run with 21 from this interview. >> no higher than 21. >> that's unanimous. >> no higher than 21? >> we can do 21. >> we can do 21 and, you know, there will be certain years in the future because business is cyclical. that's why you have to get it down. >> it's harder now because of the ageing of the population to get to it 21 but can you. you have to work at it but you can get to 21. >> if you're really serious.

>> would there be any negative consequences for 50%? >> yeah. >> i know, it's laughable. and yet -- it's laughable. i know. >> can i throw one more out there real quick. larry summers came on this broadcast, talked about, since the cost of a loan to right now, interest rates are so low we should move forward, spend a lot of money on projects that we would otherwise have to do in the next 10, 20, 30 years. given what you've talked about today, have you had a chance to read that or see what he had to say. what do you think? >> look, i'm spending for spending money we spend today more wisely. i could give you lots of examples, having run a university, having worked in state government, having worked in the federal government. you know, it's a little bit like this guy who was the nobel prize winning scientist who said his

nobel project was running out of money. he turned to his team we're running out of money now we have to start thinking. that's what we got to do. we're running out of money we got to start thinking and make tough choices, tough political choice. we can do it. >> the way to get to 18.5 or 19 is to get to 18.5 or 19. you can design a plan, joe can design a plan. most people, everybody would be a little unhappy with something but certainly be better than floating along like we're doing now. we need something done. >> the real driver is health care. it doesn't matter what you call it. forget the obamacare label. you call it elvis presley care. there's nothing in it that has cost containment. not a thing. people say will it will happen. it won't happen. and the reason is very simple. you're going have pre-existing conditions of a 3-year-old that will live to be 60. one person in the united states

weighs more than the other two. you got diabetes a and b. you got to do some tort reform. you got to do something with docks. 10,000 a day turning 65. hospitals have to keep one set of books instead of two. come on. let's quit fooling each other. this is absolute madness and this baby is on automatic pilot and will stuck up all the discretionary budget of the united states. so i say to people what do you love? well i love education, i love this, i love that. well, pal, that stuff will be wiped out unless you put the screws to this system. we said 400 billion we would knock it off and not let it go over 1% of gdp a year. what more can you do? >> gentlemen, in the commercial break you were joking around and you asked if there wasn't anybody we haven't insulted yet. anybody left? >> we'll try to think of one. we'll get to you.

>> if we have not offended you, please write to us. >> on a serious note, you mentioned at the beginning of the interview that you were looking for 10 million signatories to sign off. if somebody is interested in getting involved what do you. >> fixthedebt.org. that's where we want our people to go. we're bringing in names there. that is our social media campaign number that we're going to be launching next week. fixthedebtexamine.org. >> fixthedebtcampaign.org. >> when you look out across everything happening, we started this interview erskine you said you think we'll go off the fiscal cliff. >> yeah. >> what happens at that point? >> i think if they don't -- if they don't turn around very

quickly and fix it shortly thereafter then i think it could be a disaster for the country. $7 trillion worth of economic events. it will have an effect of at least 1.5% decline in gdp next year. that's enough to put us back into recession. >> dick durbin kept asking where is the tip point. >> we don't have to do it. this is not only the most predictable economic crisis but the most avoidable if we come together, put partisanship aside and pull together. >> we have 30 seconds left. warren from the market's perspective if we do go off the fiscal cliff if we don't how do you -- >> i have -- this country works over time. we'll do the right thing in the end. we just wait until the very end. i until think the luckiest person that's ever been born in the world is a baby boirn the united states today. i'll stick with that. i love owning businesses in the united states. we'll invest $9 billion alm