former house majority leader dick armey takes him to task. "the kudlow report" is moments away. all right. don't move. most important interview of the day is coming up. larry has a huge interview with mitt romney. our market after the close. texas instruments not that good. we got that and moody's changed to negative for germany, for lu luxembourg, netherlands. they have held up well. we could expect one more day down from europe. remember my game plan. there's always a bull market somewhere and i promise to find it for you right here at "mad money." i'm jim cramer. see you tomorrow. hey, larry. big show tonight. what do you have lined up? thanks, jimmy. mitt romney. plus when mickey d's stands for deflation you have global stock market problems. good evening, i'm larry kudlow. this is "the kudlow report." our top story tonight, my exclusive one on one interview with mitt romney. his first interview since the

vile colorado shooting. two-thirds of americans tonight blame bad obama policy and wrong obama actions for the economic malaise we're in. that's from the hill.com. we'll talk with him about that. another special guest this evening, former house majority leader dick armey joins us. tonight, the dow drops 101 points easing off an early cliff dive. cnbc's brian shactman, what happened? >> when the dow is down a hundred points you characterize it as ugly. when the low is 200 it doesn't feel disastrous. everything revolved around europe. when europe closed the selling pressure eased. the biggest down story was mcdonald's, disappointing earnings now down double digits for the year. larry, back to you. >> thank you very much, brian. we'll get more expert analysis coming up. another exclusive tonight, the treasury inspector general who oversaw the whole t.a.r.p. bank bailout thing is going to

be here to expose what he calls a rigged system that favors wall street banks over main street taxpayers. we begin with my one on one exclusive interview with republican nominee mitt romney. america is at a crossroads. president obama tonight releasing a new ad taking a left turn saying americans have a choice. i believe the country wants a right turn, not a left one. we begin by discussing the horrible incident in aurora, colorado. we first got a look at the suspect today. take a listen to what he told me. >> i think we are. we're starting also with a level of thoughtfulness and seriousness that i think is appropriate in the aftermath of a tragedy of this nature. obviously the campaigns are under way. we are talking about our respective views and at the same time our hearts are heavy as we think about the funerals that will be held this week and the families that have been so tragically altered by virtue of

the loss of life. >> you know, a lot of people are asking on those very points you made that you and president obama spoke so eloquently and beautifully about this tragedy right after it hit. people are saying is it possible we could have a less negative back and forth for the duration of the campaign. is such a thing possible or is that wishful thinking? >> it really would be nice. i know the president when he called and con gram lated me on becoming the resump tif nominee said america would benefit from an important and healthy debate. i haven't seen the healthy, important debate coming from the president's team. it's been almost all attack ads on all sorts of peripheral issues. i think the american people want to hear a discussion of the economy, how we'll get it going again. our philosophy relating to foreign policy. how we'll get iran to be dissuaded from the nuclear folly. these are the yushs we should be

talking about. i'm afraid what's primarily come from the president's campaign has been a series of attacks on me for private sector work for which i'm proud. recently the olympics which i'm proud of and of course my leadership of massachusetts and i think i was able to -- by virtue of having a great team able to achieve things there as well. >> just one more on the aurora tragedy. over the weekend, as uh i'm sure you know, a lot of law enforcement officers came on news shows and talked about why they would like to have restrictions on the internet sale of ammunition and so forth and restrictions on the general sales of semiautomatic weapons. what's your thinking on those? restrict the sales of both? >> i'm a firm believer in the second amendment. i believe with emotion so high this is not a time to talk about the politics associated with what happened in aurora.

this is a time, i think, for people to reach out to others in their community that need help or a comforting hand. let's do that for now. then we can get to policy down the road. i still believe the second amendment is the right course to preserve and defend and don't believe new laws are going to make a difference in this type of tragedy. there were, of course, very stringent laws which existed in aurora, colorado. our challenge is not the laws but the people who obviously are distracted from reality and do unthinkable, unimaginable, inexplicable things. >> as the governor of massachusetts you did sign legislation restricting or banning a assault weapons. did that work in massachusetts to your satisfaction? >> well, actually the law that we signed in massachusetts was a combination of efforts both on the part of those that were for

additional gun rights and those that opposed gun rights. they came together and made some changes that provided, i think, a better environment for both. that's why both sides came to celebrate the signing of the bill. were there opportunities for people of reasonable minds to come together and find common ground? that's the legislation i like. the idea of one party jamming through something over the objection of the other tends to divide the nation. not make us a more safe and prosperous place. if there is common ground, i'm always willing to have that kind of conversation. >> thank you. i want to turn to the economy now. everyone is talking about this poll today from the hill newspaper, the hill website. a majority of voters blame the president for bad economic policy. two-thirds of the voters believe that bad job growth is because of bad policy. over a third blame president obama. he is the largest beneficiary, if you will, of that kind of

blame. what has gone wrong? the economy is faltering again. in your view what specifically has gone wrong? >> well, i think the president made an error coming into office and deciding that the economy would take care of itself. he focused his energy on a series of liberal plans that he and his friends have been working on for years, take over the health care industry, a massive regulation of financial services in this country, trying to impose unions where employees don't want them, a new energy policy, slowing down the leasing of federal lands for the production of oil and gas. all of these things, not coincidentally had the impact of slowing job creation and making it less likely for entrepreneurs to open their doors or expand hiring. that's come home to roost at a time we should have focused on getting the economy going and only passed measures which encouraged job creation, most of the measures the president pursued are ones that hurt job

creation. as a result, we are still suffering. >> you know, a lot of your supporters want you to be even more specific or just as specific regarding your own policies. in other words, governor,le what will you do to fix the problem? how will you convince voters you are the right man for the job? people agree the situation is bad. how can you make it better, sir? >> well, i will describe in some depth my economic plans as we continue through the campaign. there are five key points. one is to take extraordinary advantage of our energy resources. i have a very different view from the president on oil, coal, natural gas, renewables, nuclear, energy number one. number two, trade, particular uhly in latin america. number three, convincing the world we are on track for a balanced budget is critical. number four, human capital. training programs for adults and better schools for kids. number five, restore economic freedom by keeping our tax rates down. get regulators to see themselves

as the allies of enterprise, not the enemy. if we do these things you will see america's economy come roaring back. i don't know how bad it will be in the coming months, but if we put in place those five policy directives, america's economy will see the kind of resurgence the american people expected some years ago. >> how should congress be handling the so-called fiscal cliff? everyone says we'll fall over the fiscal cliff of a huge tax hike and large spending reductions and that's going to lead to recession. first of all, if the bush tax cuts are not extended do you believe, sir, we will have a recession? >> well, i'm not going to predict, you know, the economic future. i can tell you that you don't raise taxes on people in the middle of a downturn like this, particularly one that's gone on for three and a half years. circumstances in this country suggest people are still having hard times. jobs are not plentiful. what the president should do is say, look, we're going to extend for at least a year -- well, i

would like to see it permanent, but at least a year, the current tax environment. this sques administratiequestra defense spending has to be put off. the american people ought to choose the course for the future. if they want to raise taxes on business creators and cause further slow down vote for president obama. if they want the economy to come back with good jobs they ought to vote for me, in my view and whichever president is elected ought to get at least six months or a year to get policies in place. let's extend where we are now as opposed to looking at a cliff in january that would cause real distress for the economy and perhaps lead to the kind of outcome you suggest. >> what do you think president obama meant if you've got a business you didn't build it, someone else made it happen. he claims it's taken out of context. what do you think it means? do you think this is anti-business, anti-entrepreneur or maybe he's been treated

unfairly? >> well, read the whole speech. i found the speech even more disconcerting than just that line. the context is worse than the quote. the context he says, you know, you think you've been successful because you're smart but he says a lot of people are smart. you think you have been successful because you work hard. a lot of people work hard. this is an ideology that says, hey, we are the same here. we ought to take from all and give to one another and achievement, individual initiative, risk taking and success are not to be rewarded a as they have in the past. it's a very strange and in some respects foreign to the american experience type of philosophy. we have always been a nation that has celebrated a success of various kinds. the kid that gets the honor roll. the person who gets a better job. the person who builds a business. if you have a business and you started it, uh you did build it. you deserve credit for that. it was not built for you by

government. by the way, we pay for government. government doesn't come free. the people who began enterprises, work in enterprises are the ones paying for government. his whole philosophy is an upside down philosophy that doesn't comport with the american experience. if we want to get people working again, and that's my priority. if we want to get people working again we have to celebrate success and achievement and not demonize it and denigrate people who have worked hard, who are smart, who have made the kinds of investments to build a brighter future. whether this is by succeeding in their job or starting a new enterprise. >> do you think that president obama has demonized you and your experiences at bain capital and are you satisfied with your response to the timing that you left bain capital or investments or overseas operations and things of that nature. do you think you have more work to do on your bain capital story? >> look, i'm very proud of my

experience at bain capital. i hope people understand that i was investing other people's money for them. i was compensated, if we were successful. the returns came to groups that included charities, college endowments. those are the people who received the greatest rewards from our successes. i saw a report by the current partners of bain capital over the history of the firm which i helped start they made some 350 investments. 80% of which grew. that's the kind of record i'm pretty proud of. at the same time i'm proud of the success we had at the olympics and in massachusetts. but i understand the president will do everything in his power to try to get people to talk about shiny objects which distract from the fact that he's been unsuccessful in getting this economy going. we're even having a conversation where you bring up the recession word as you look forward. this is not the kind of hope and change the people of america

expected. i think the president will have to explain why he's been unsuccessful. if people want to bet on the same coach who's had a losing season for the past 41 months, i think that would be a sad course to take. >> we'll leave it there. thank you governor romney. we appreciate your time very much, sir. good luck on your trip and on the campaign trail. >> thank you, larry. good to be with you. all right, coming up. fears intensify over spain and greece with u.s. stocks joining a global sell-off. keith mccullough joins us with correction protection. later in the show, going over the fiscal cliff will cause a recession. why are high profile democrats pulling a thelma & louise and advocating that we go over the cliff? conservative economist douglas holz-ekin tells us why that's plain stupid. don't forget, folks, free market

capitalism is the best path to prosperity. you heard a dose of it from mitt romney.

a quick news alert.

moody's says greece could leave the euro zone so they are lowering the outlook to negative for germany, the netherlands and markets around the world registered significant declines. i'm worried about the global sell off, global deflation. i worry about global recession. i worry about bad global economic policies. where is the growth? i don't see it. so far not from the u.s. not from europe. not from china. china's gone back to their communist central planning subsidization roots. i don't like it. the ceo of hedgeeye risk management, welcome back. kpoo keith, i hate to be bearish. maybe there is a pony in all this manure but there is nothing i like to see. i see lousy economies, lousy policies and lousy markets.

give me the glimmer of hope. >> i'm not the one to give you that now. we have three huge problems. growth, jobs and the cliff. i think the glimmer of hope could come from romney getting the message tighter. to be frank at the end of the day i think he needs to simplify the complex. the reality is the democrats and barack obama and all of his cronies across the keynesian construct are going to obfuscate the truth. growth is slowing. jobs are nonexistence and the cliff is quickly approaching a debt ceiling converging alongside it. if you want to get more bearish i can give you that. >> i don't want to lose the market. did you hear the romney interview? he had five points. i don't know, keith, if he has that growth message. you know, the really big growth message. i can do this and here's how. >> i think you're right.

there are very few economists around at this point that have had anything right. you have had it right and it will continue to be right. romney needs to get away from the top five or at least change them and anchor on the dollar. if you don't get the dollar right you won't get growth right. simple equation. 71% of the economy. forget the 1%, the 2%, the class warfare. 71% of the u.s. economy is u.s. consumption. if you get the dollar strong, up another 10, 15% from here. not the chicken little moves you have a policy of strong dollar. you will take the oil prices down sub three bucks at the pump. that will get america growing where it matters on the growth side. >> okay. the dollar is rising as the euro falls. the thing about that, keith, there is a deflationary impulse. putting aside the krougt and corn prices -- drought and corn prices, prices are deflation, but there is no economic growth to pick up the slack. in the 90s we had a strong

dollar and great growth. this is different. i think it's global. i think there is a threat of global recession. >> it's good for you if you're in cash. the last i checked is problem is those people who are long gold, oil. the asset price ifs they deflate would be a huge consumer, really a tax benefit on the consumer side. if you go back to either clinton or reagan in both periods asset deflation, particularly in oil and again we saw u.s. dollar levels that were 15 to 30% higher on average between 1983 and 1989 and 1993 to 1999. pick your horse. reagan or clinton. they had 15 to 30% higher dollar and oil prices in both periods. >> came down. >> were 18 to 20 a barrel. >> and gold prices came down. i was disturbed by the

mcdonald's report today. mcdonald's, the quintessential global company, every place, and they reported lousy earnings, lousy revenues and lousy guidance. you know what? i'd use mcd's as a global indicator. i didn't like a thing hay had to say. >> it's nasty. that's what economic cycles are. keynesian economists say the elixir of life is we can smooth the economic cycle. that hasn't happened. you cannot ban gravity either. corporate earnings cycles go up and down. the best way to get earnings on track at mcdonald's is to drop the oil price. >> drop oil prices and grow the economy with supply side policies. keith, thank you very much. up next, unprecedented fines levelled against penn state over the child abuse scandal. some are questioning tonight whether the school should be paying the price. we'll report on it in a moment. my volt is the best vehicle i've ever driven.

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in alabama we had more beautiful blooms... in mississippi we had more good times... in louisiana we had more fun on the water. last season we broke all kinds of records on the gulf. this year we are out to do even better... and now is a great time to start. our beatches are even more relaxing... the fishing's great. so pick your favorite spot on the gulf... and come on down. brought to you by bp and all of us who call the gulf home. the jerry sandusky sex abuse scandal has come home to roost for penn state in a big way. the university hit with what's called unprecedented sanctions and fines sparking debate over whether the ncaa went too far. cnbc's brian shactman has more. >> joe paterno's legacy is basically erased. over the weekend his statue was removed from campus. today as part of the penalties more than a hundred of his football wins were taken off the

books. now he's no longer the winningest coach in ncaa history. also a $60 million fine, no goal games for your years, reduction in scholarships and a five-year probation. what many are talking about is did the ncaa have the right to hand down penalties on a criminal case? the ncaa says the case doesn't set a precedent. >> this case is incredibly unprecedented in every aspect of it as are the actions we are taking today. we do not see them as opening pandora's box at all. this is a distinct and unique circumstance. >> some disagreed. the ncaa didn't give them the poorly named death penalty but many think this is worse, allowing the program to continue centers on the innocent people who rely on football games for their livelihoods. there is a lot of collateral damage here. overarching this is the victims.

i don't think any amount of money or criminal charges or games lost will replace that. >> it will take time. this, too, shall pass. my heart is with the ncaa on this. brian, thank you very much for helping out. up next, a new poll says 66% blamed bad policies for the bad economy. most of the blame is directed at the president. did the door for mitt romney just open wider? long-time democratic strategist bob strum and former leader of the house dick armey up next to discuss.

welcome back to "the kudlow report." i'm larry kudlow. in this half hour, remember the movie "thelma & louise"? the two women drive off a cliff to their death. america could drive off a fiscal cliff into a recession. nutty, we'll get into it in a moment and the inspector general who oversaw the t.a.r.p. bank bailout says the banking system is rigged in favor of wall street banks over main street taxpayers and that nothing is being done about it. first up, troubling uh news for

president obama tonight. a new poll finds that 60% -- 66% of americans say bad policy has caused a bad e economy. who's to blame? 34% point the finger at obama followed by congress, wall street and last former president george w. bush. the romney campaign hopes to bounce on this and voter angs. listen to what he told me earlier today. >> i think the president made an error coming into office and deciding that the economy would take care of itself. he focused his energy on liberal plans he and his friends have been working on a at a time we should have been focused on getting the economy going and only encouraged job creation. most of the measures the president pursued hurt job creation. as a result we are still suffering. >> liberal plans blocking jobs and the economy. the country is at a crossroads.

one leads us to european style government. the other leads to economic freedom. which road is america going to choose? new york university professor and long-time democratic strategist and friend robert schrum. and former house majority leader dick armey, co-chairman of freedom works. i thought the hill.com poll was really important sending a message that america is, indeed, at the crossroads. but people are going to vote for a right turn toward economic freedom, not a left turn toward centralized government. how do you see it? >> you would probably draw that conclusion from the poll. what you are seeing playing out here is such a sharp contrast between the republicans and the democrats, between president obama and governor romney. all right, what's the driving force of enterprise and

productivity and creativity, income generation and equity in america. it's the private sector. the obama presidency has an irrational obsession with government control of income and product distribution or redistribution in america. it just doesn't fit any successful economic experience in the history of the world. i think the nation is now starting to gather this in. look, all of this egalitarian romantic miopia of this administration is not working out for them. >> whoa, i love that. egalitarian romantic miopia. do you plead guilty? >> you know, i love the nonloaded terms with which you discuss issues and the way you pose these things neutrally. look at the poll. >> my specialty. >> 61% of people blame bush, congress or wall street. 34% blame the president. let me e tell you something.

you can take a poll and 34% of the people would blame the president for anything, no matter what the question was. i think what's much more revealing here is when you look inside that data at the centrists, for example, who will decide the election. a majority of them think the president has the right economic policies. >> bob, bob, look. >> i read the poll, larry. i read the whole thing. >> 53% -- this is 1,000 likely voters. 53% say obama has taken the wrong actions on the economy. only 42% say he's taken the right actions. >> 53%. larry, a majority of the centrist voters -- >> you can't blame george bush anymore. >> a majority of the centrist voters who will decide this say he's on the right economic track. when you ask bush or obama, who's to blame in the washington

post poll or the nbc poll, bush is always the one one to blame. the one statistic i thould would provide comfort for you and dick armey, obama leads in every state except north carolina. >> all right. dick armey, what's your reaction to that? in general, the economic performance question is going to dog president obama even though bob schrum is telling us not. is there going to be a change? that's the question here. >> first of all, i have never put a lot of confidence in polls one way or the other. the fact of the matter is if you focus on what policies have built this great nation, has made a distinct from the failed economies across the globe and would restore the nation to greatness, it's the policies that are advanced by mitt romney, not the policies advanced by this president. again, he's son narrow in his

perspective he can only see control of income redistribution, the allocation of product. that's never worked any place in history. i believe by november the american electorate will say, look, the guy doesn't get it. he doesn't understand who we are and refuses to accept our own history. again, however the election turns out i cannot believe the american people could be irrational enough to re-elect this person now that they know who he is. >> bob, i think president obama made a huge mistake that will dog him. not only is the economy going downhill, but this whole idea -- and i have talked to mitt romney about this. of course this is the crux of the difference between the two guys. obama believes the government is more important than entrepreneurs and businesses within the economy. romney believes entrepreneurs run the economy and pay for

government. i think that's obama's dilemma. i think the history of the country proves obama loses the argument. >> first of all, i don't think obama made that argument. i think obama's position is the engine of growth in society is the free enterprise system. government has a role to play. for example, we ought to have real infrastructure investment in this country which we haven't in a long time. along the lines that eisenhower did with the highway system in the 50s. i have never heard barack obama say government is the key to this. if you want to talk about tax rates we had a 35% tax rate under clinton and a produced 22 million jobs. we lost millions and ended up with a huge financial collapse. i think people are pragmatic, not ideological and that's how they will make their judgment. >> dick armey, i will give you the final word. >> you can go back to franklin

delano roosevelt as secretary of treasury. >> he was great. >> every person who had the responsibility to make it work has said cut taxes, especially reduce the penalty to investment and success and you will grow the economy and everybody who's tried it -- >> what happened under clinton, dick? 22 million new jobs -- >> i see. i see. i thought you said -- >> okay. >> i will do this again. terrific stuff. clinton and gingrich cut the capital gains tack. thank you to bob schrum and dick armey. studies show going over the fiscal cliff will be catastrophic for america. douglas holz-ekin says a deep recession is likely to ensue. we'll be right back. [ male announcer ] how do you trade?

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to go along with you. keep dreaming. keep doing. go long. who are these guys? oh, that's just my buds. bacon, donuts. -my taste buds. -[ taste buds ] waffles. how about we try this new kind of fiber one cereal? you think you're going to slip some fiber by us? rookie. okay. ♪ nutty clusters and almonds, ♪ ♪ almonds. ♪ fiber one is gonna make you smile. ♪ [ male announcer ] introducing new fiber one nutty clusters and almonds. with 43% daily value of fiber for you. crunchy nutty clusters and real almond slices for your taste buds. welcome back to "the kudlow report." as we count down to the 600 billion dollar fiscal cliff that's at the end of 2012, only a few months away, conservative economists and former cbo director douglas holidays ekin says it will lead to recession.

$600 billion. higher taxes in particular. why are so many high profile democrats including my pal howard dean, seen right here. why are they intent on having us drive off the recessionary cliff. here now, former vermont governor howard dean and doug holz-ekin of the congressional budget office. doug, your paper argues we'd be looking at a 10% or worse unemployment rate if all the tax cuts expire and if all the spending cuts occur simultaneously. 10% unemployment. >> absolutely. we have 8% now. we are growing at less than 2% a year. the fiscal cliff represents $600 billion hit. $400 billion in higher taxes. $200 billion in spending cuts. 4% of gdp. follow your nose to realize

you're going to have a recessionful if you use christina rumor's research you get 10% declines in gdp and a spike in unemployment. this is not playing russian roulette with live ammunition. it's playing with howitzers. >> why would you want america to go into a deep recession? >> that's not going to happen. the cbo says we'll have two quarters of 1.3 recession but by the end of the year will be at 2.3% growth. i believe washington is incapable of dealing with this. this isn't the perfect solution, but you will raise taxes which we need to do and cut spending, especially the defense department which hasn't been cut for years because of all the pork in it. we need to get rid of the deficit. one thing doug and i agree. we don't agree on how to get rid of it. but we need to get rid of the deficit. congress has done nothing for

years. this is going to be what happens and i think it will. there is not a chance the republicans will aa low us to raise taxes and there is not a chance that the democrats are going to start cutting medicare and social security while millionaires get big tax breaks. >> doug -- >> wait. >> can the economy just flip around like that? >> no. >> we'll have a neat lit 1.5 recession. >> no. >> and then a big comeback in the second half of the year. with all the mischief that will happen and all the sluggish legislative process and whacky ideas that will come out of the left, it's not going to be that simple and clean, is it? >> we have been forecasting the rebound for three years now. it hasn't happened. we have gotten sluggish growth again and again. the claim is we can say to american entrepreneurs, american families, international capital markets, look, we are going to raise taxes by $400 billion because we don't have a deal. but don't worry. don't go into recession. after we do that we'll get a

deal. why would they ever believe that. >> i would argue that -- i'm sorry. go ahead. >> i find it implausible. we are already seeing the impacts. the fed is saying, look, things are slowing down in defense industries. contractors are scaling back. they see the squeser coming. we are not growing at 1.5, 2% when this hits. we may not get through fall without going to zero or worse. i understand your point about the politics. but there has to be a point when it is recognized the biggest part of deficit reduction will be economic growth. you can't cut the deficit without economic growth. >> right. >> to run this risk gets it backward. >> this is where i disagree and why. i think the big overhang in this country is not the tax rates or even the spending. the big overhang is deficits. our deficits ballooned in the past ten years. we can't continue as a nation with this kind of deficit.

i think most reasonable people agree, including all the commissions that you're going to have to have a tax increase and spending cuts. i think that's right, too. these are not ideal spending cuts. doug will say they are not ideal tax increases. if this happens you will restore confidence in the markets because people finally believe the united states of america is doing something about the deficit. >> you're singing off my song sheet there. i have been worried about the debt for a long time. we agree. >> yep. >> but how do you get there? the play book that works is keep taxes low, keep them pro growth. broader base, lower rates the way bowles simpson went and cut spending. not all spending. preserve national security, infrastructure, basic research, education. we are about to gut those. instead you cut transfer programs. >> i think health care. how can you say one of the four core functions isn't health care, preventing old people from starving? >> you're not worried about spending too much in health

care? we're done. you can't cut the deficit without controlling medicare and -- >> you can't take defense off a the table which hasn't been cut for years. >> we took $500 billion out of defense over the next ten years prior to taking another $500 billion out with the sequesters. >> we're not spending money on iraq anymore. >> the deal with defense is you don't do it that way. you say what are the threats the country faces, the capabilities needed, fund them. that's defense. >> it is possible to have a disagreement about the essentials. most americans believe it was not essential to go to iraq and we did. why fund that stuff? >> it's all water under the bridge. only point i want to make to you, howard, is we are never going to solve our fiscal imbalance or bankruptcy unless grow. >> absolutely. >> one thing europe is teaching

us though people aren't listening. you have to have 3 to 4% growth per year for a long time. raising taxes across the board won't produce the kind of growth to get rid of or reduce the deficit. it's a matter of gdp. >> cutting taxes wasn't the uh way either. i don't get why you persist on this. >> we don't have time for that. howard dean, thank you. doug, appreciate it. coming up, a business news exclusive. the former t.a.r.p. special inspector general, author of the new book called "bailout ". he sounds off against a system he says is rigged in favor of wall street banks over taxpayers on main street. he's next with a tough story. ecy as the world around it. with the available lexus enform app suite, you can use opentable to make restaurant reservations. during the golden opportunity sales event, get great values on some of our newest models. this is the pursuit of perfection.

joining me now is a democrat making headlines taking digs at team obama. did the federal government bungle the bank bailouts? that's t.a.r.p. my next guest sounds off against the system he says is rigged in favor of wall street banks over taxpayers on main street. former t.a.r.p. special inspector general, author of the book "bailout" an inside account of how washington abandoned main street while rescuing wall street. neil barofsky is a thorn in treasurer geithner's side. a colorful quote from the book. you report that treasury

secretary tim geithner's epic tantrum in 2009. neil, i have been the most [ bleep ] transparent secretary of the treasury in this country's entire [ bleep ] history. end quote. is that a true quote? >> absolutely. >> what were you rg aing about? >> when i got to washington i was shocked to see how much control a handful of the giant wall street banks have over washington and regulation. when i saw the bailout unfold, time and again the officials would be differential to wall street interests. they fought the efforts for transparency. in this meeting i was trying to convince geithner to be more open about what the banks were doing. >> more open about his language. that was a joke. more open about what he was doing to the bank. but did t.a.r.p. fail in your opinion? that's what i want to get at? >> yeah. i mean t.a.r.p. failed to achieve many goals. it helped prevent a giant economic collapse which was

important. but it was supposed to reinvigorate the economy. banks were supposed to take the money and deploy it in the economy. it was supposed to help struggling homeowners. help up to 4 million homeowners. in those main street goals the program failed. it failed because of a series of choices made by secretary geithner and the treasury department. >> on the business about the failure to help the homeowners, you have all these programs. you don't believe that stuff could replace the market, do you? you don't believe you can give banks money and forgive mortgages or change mortgages that are owned by investors. nobody was thrown out of one of their homes. i know paperwork mistakes were made, but nobody was even thrown out. why do you think throwing money at homeowners was going to help at all? >> yes, i do. >> you do? you buy into that? >> me and martin feldstein, a conservative economist for ronald reagan also believed a massive principal reduction was

key. >> what about the bond holders? they get screwed. i don't want to use geithner's language. they get hurt. >> that may be the case. you may be right that i disagree, but there is an argument that we should have let the market forces find the bottom. what i lay out in the book is that what geithner and the treasury department did was say they were going to do one thing which is help homeowners. they did something right in between to stretch out the foreclosure crisis, extend and pretend. >> i agree. >> he used the words we are going to foam the runway for the banks. whether you agree with me or you the middle thing has been a disaster. >> waste of taxpayer money. $75 billion, $80 billion down the tubes. maybe more. one area i like is you say what happened is the big banks have come out ahead and they are too big to fail. they get cheaper credit than ordinary banks. it will get worse if we don't break them up.

>> we have tremendous incentives i saw in washington for the banks to take more risk because of the government backstop that's alive and well. we have regulators who are deferring to their interests. it got so bad to the point that treasury officials over each administration would say to me when i was trying to make recommendations we have to protect the programs from the banks, from committing fraud, stealing money. they would say, don't worry. these are big banks. they would never risk their reputation, embarrass themselves again. that's the attitude -- >> was there fraudulent use of the straight t.a.r.p. money, the original t.a.r.p. to capitalize banks? was there fraud, waste, abuse? >> all of the above. the good news is we did a good job of tamping down on the amount that was lost to fraud. we were able to deter a lot of bad players from coming into the program. historically you will see from a fraud perspective historic lows in the t.a.r.p. program. something i'm proud of.

>> but you also complained that there is no criminal enforcement. you feel there should have been criminal cases made here. okay. i'm willing to say maybe you're right. if you're going to criminal niez the bankers for making bad loans and bad paperwork and so forth -- >> fraud. not bad paperwork. >> how about the rating agencies, fannie mae and freddie mac? none of those guys went to jail. >> nobody's gone to jail. the only people who went to jail is people who tried to steal from the fund. on a global financial crisis no one's gone to jail. part of the problem is the concept of too big to fail. these guys play by a different set of rules. the government is afraid to indict one of the large institutions or hold them accountable. if you indict jpmorgan or goldman sachs you bring down the entire financial crisis with it. that incentivizes the bad conduct we are talking about. what i learned in washington and

why i wrote this book, we are headed to a bigger financial crisis. >> neil barofsky. check out "bailout." we asked the treasury department for a statement. they said, quote, we haven't seen the book. we wie wish him well. >> i wish him well, too. i'm larry kudlow. thanks for watching. mine was earned off vietnam in 1968. over the south pacific in 1943. i got mine in iraq, 2003. usaa auto insurance is often handed down from generation to generation. because it offers a superior level of protection, and because usaa's commitment to serve the military, veterans and their families is without equal. begin your legacy, get an auto insurance quote. usaa. we know what it means to serve.

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