good morning. welcome to cnbc's "squawk box". it is a party this morning. i'm andrew ross sorkin along with joe kernen. becky is off today. let's bring you up to speed starting with pictures of that fire in california. check it out. the fire at chevron's large refinery in richmond is now contained but not out yet. smoke could be seen billowing over the bay area. a number of train stations were shut and residents were ordered indoors. the plant produces 245,000 barrels a day. they account for one eighth of the state's refining capacity. you'll see a spike upwards slightly as we try to figure out where things may go later today. in other news private equity firm carlisle emerging as the front-runner to buy dupont's

paint business. apollo declined to increase its offer. and finally pfizer and johnson & johnson, bad news are scrapping further studies of an experimental alzheimer disease treatment. this comes after the drug failed to help patients with memory robbing condition in a second high-profile late the agency clinical trial. shares of those companies have been falling after hours on that news. in other corporate news. acer wants microsoft to reconsider its planned venture into the tablet market. they argue microsoft's plans to launch their own surface tablet would be negative for the worldwide eco system. acer has a tablet. chesapeake energy earnings fell short but revenue was above. company expects to announce the sale of a key west texas asset

that we talked about to help that company's balance sheet within the next 30 face and shares did rise after hours. dream works and chinese partners announcing they will produce the next "kung fu panda" and jointly develop an entertainment center in shanghai. "kung fu panda" 3 is the proposed name. this is big news. >> i know it may not sound like big news. >> why? >> because in the world -- we should have someone like jim o'neal in the world of u.s./chinese business, "kung fu panda" 2 did better in china than here. so what dream works is doing is build the business in china and made all these bilateral agreements to start producing things in china and doing other thing in china to get more of their movies into china. >> popular movie in my house. >> "kung fu panda" 1 or 2?

>> both. seen multiple times. >> it's not popular in the sorkin family. >> do you know who the voice of "kung fu panda" is? >> i don't. help me. >> jack black. do you know who plays the old -- >> i'm going -- >> dustin hoffman. >> you do the financials i'll do the -- >> how old do you have to be to watch "kung fu panda"? my guys are almost 23 months. >> all ages. they would like it. >> can they handle it? >> a panda that loves to eat. >> we're still on elmo. >> elmo is pretty good. >> a lot of these things on demand cost money so i don't know if you'll allow that to -- do you have to order it on demand and every time you order it it's another 4.99.

>> your suggesting it's not over basic cable? >> it's good for comcast. let's check on the markets this morning. i can talk to you about women's soccer. >> we should talk about it. >> i will admit i went to sleep early last night. i don't know anything about the olympics except on google's home page. >> soccer was on at about 3:00 in the afternoon. were you on bed. let's look at the futures. soccer was pretty early. >> i thought you were talking about pole vaulting. i did see that. wasn't there a big win last night? >> that i don't know. i saw a headline. >> that i don't know. >> that would be big. the soccer game was not without controversy. it puts the women in the final, the gold medal against japan but canada i feel bad for because one of the calls late in the game was a little bit suspect and they kept talking about

that. where did the futures go. futures this morning, not a whole lot happening. fair value. what is that, up about 17 points or .13%. let's look at the oil board. nothing happening really in the oil today. although wti is back to 92. let's look at the ten year, eric rosengren coming in. the ten year note all the way back surging back to 1.57%. the dollar this morning, 1.24, euro hasn't seen levels like that in quite a while after what we saw last week, draghi comments have bolstered the euro. finally gold, would you think might be moving in the opposite direction of the dollar and it is. it's up just a dollar, 1600 a

troy ounce. >> top of the market report and olympic update. kelly evans standing by in london. miss evans, i happen to be writing a column and going to sleep early and i missed the olympics. give us an update on that and the markets. >> mr. sorkin ufrs doing some work of my own so i'll save the olympics. give you a quick update on the markets because there's been quite a lot of action overnight. i'll let joe fill you in on the extraordinary women's soccer match. decliners out pacing decliners by a 3-2 ratio this morning. a choppy trading session in europe. we started out with a broadly positive tone but pulled that in lately. europe stoxx 600 is down about .2%. let's take a look at we honey in a little bit on the bourses. the ibex 35 is a good example.

it was up 1% then briefly negative, it's now trying to hold gains, stay positive up just about 0.4%. the xetra dax is negative. over here the standard chartered is the one to focus on, down 24% you guys in london trade. we've seen this sort of hovering sitting near its day loss for the last 30, 45 minutes or so. clearly a drag on the ftse 100 as well which is the underperformer of all the indexes this morning. you can see they are now down almost .4%. we had guests on all morning debating whether standard chart serd a buy. let's focus in on the bond curve. when we hand off and gate sense of what the risk trade will be like today, as i mentioned equities are starting to pull in and that may have something do with the reaction we've seen where we see yields looking okay

on the longer data front. 6.863% for spain. as we come in across the curve down to the shorter end this is where we're seeing more of the action. yields rise much more significantly today. traders were saying it sounded more like profit taking after a sharp rally here post-mario draghi's comments last week. seeing what's happening in equities maybe we're not sure. let's look at europe how different countries are handling this move. bunds are marginally higher. the yield is marginally higher, 1.4%. france is lower. ten year in spain up to 6.861%. italy the ten year there doing all right but also the shorter end of the curve that shows a little bit of reason for concern. speaking of italy we did get some worrisome data on gdp. the shrinking by .7% quarter on quarter. roughly in line with expectations but a decline of

2.5% from a year ago. not going to do anything to calm concerns that europe has gotten its hands around the debt crisis. we can see what the euro is doing. it's turned negative. now trying to fight back into positive territory. 1.2402. if you want something more positive, it's probably the aussie/dollar, 1.0573. earlier it was at a four month high after the rba held steady. that central bank in australia didn't move. that trade didn't last very long. we're seeing european concerns creep back into the market. with that i'll hand it back to you, andrew. >> let's talk about the dow and let's talk about the markets. the dow has snapped its string of downer mondays. the s&p 500 closed to 1400. close to 1400. nasdaq hovering around 3,000. really, though, joe we've talked

about this is this too good to be true or is this a return of confidence in the market. our chief economist for nomura securities is here. you're on the set. and raymond james joins us. he's a bull. since you're here and you're across from me tell me why i should get out of the markets immediately? >> i'm not sure you should get out of the market immediate leadership but the economy is in a slow growth world. the stock market, i think, is maybe at best correctly priced for that kind of environment. and we have plenty of down side risks that i don't think are fully prisd in the market. >> what's the down side risk in your mine? >> there's two obvious ones. europe is the one that never goes away. the other is i call it manmade, that's the risk in the u.s. >> when you think of the markets how far down can we go from here? people use this phrase -- people think if you're jumping out the

window and you're still in the basement so you can't fall that far. >> aren't you and economist? >> i am. >> but he can tell us how far down the world can go from here. >> i guess. i think if we go in recession we can be looking at 10% easily on the dow. i don't think we're talking about a recession. unless congress fails to act between now and the end of this year. and i think there's a, you know, 40% chance they do nothing. >> let's go to jeff. jeff, you clearly believe that this wonderful gentleman next to me is wrong. >> the public has already jumped out the window. they liquidated mutual funds last week. been selling mutual funds since 2007. from my perch and we have over 2 million retail accounts in raymond james, the public is pretty much mia and we

recommended raising cash back in the spring and start putting some back to work at the end of may. i got more bullish a couple of weeks ago anticipating a breakout above the 1360, 1370 area and i think we're pretty much on course to as if april rise right here. >> same question four. give me the down side risk. >> i think the down side risk is if our elected leaders don't extend the bush tax cuts. >> okay. and if that what happens what happens? >> the world is rofundally under invested in u.s. equities. if there's some movement in the d.c. beltway in other words pragmatic solutions you'll get a switch out of fixed income in to equities. >> let's go back to what was just said here. 10% on the down side? is there a lehman moment in here or no? >> i don't think so. i think you had a chance of a lehman moment with knight capital thing. you had a chance of a flash

crash ant crash and it didn't happen. >> remember that baron's cover? >> i do. >> how far off are we? >> i remember "business week" death of equities in '79 too and i can't help reflect with that with bill gross's statement on cnbc the other week. if you want to put a 14 multiple on next year's earnings of 118 you can challenge the all time highs of 1550. >> when you heard bill gross make that statement what did you think? >> i recall the statement he made a few years ago when he thought the dow was going to 5,000. >> a man can't change his mind? >> absolutely man can change his mind. make all kind of mistakes. the good thing about me i recognize my mistakes quickly. >> what's ben bern going to do? >> i thinknext month the fed will meet and do another batch

of quantitative easing. >> you think it's coming. you don't think they hold off for political reasons in the argument now being and you've heard now others say we can't do anything right now because anything we do will become politicized. >> that's going case whether it's before or after the election. if they hold off until after the election whatever the outcome is they will say they didn't do things on time because of the election. they can't let that interfere with the decision. i think they've come to the conclusion there's not going to be much stimulus to the economy unless they provide it. whether it's right or wong that's the conclusion a growing number of members are moving to. >> we'll leave it there. should i ask david for his stock picks this morning? >> buy, sell or hold on abercrombie & fitch? >> there you go. thank you guys. >> you know who plays the

tigress in -- see this will get you. >> who is that? >> angelina jolie. you can't see her so maybe that lessens your interest but she's in this. >> to think that "kung fu panda" is part of the culture. talk about madonna? >> no. >> i am the most fascinating -- >> is it appropriate for 3 year olds. >> yeah. scary. very scary. especially the first one. idea that it's so popular in china is very interesting. beautifully animated. it is amazing. coming up as we get into the dog days of august hurricane hunters are at the ready. traditionally a rough time for powerful storms. we'll look at the season's forecast and find out why everything from gas prices to food on your table could be impacted next.

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welcome back. now to the national forecast, eric fish earthbound joins us from the weather channel. pretty nice day today but hot. >> certainly for a lot of folks. up in new york city things looking pretty good. stormy area is across the southeast. definitely watch places like charlotte, raleigh down through atlanta, jacksonville. this is where we have a stalled weather system that will sit and per could late for a couple of days. north carolina, south carolina, we'll see more of this as we head towards the afternoon. you mentioned that beautiful start to the day in northeast. in new york city. 50s in the outlying areas. 40s in upstate new york. steamier towards washington, d.c. barely a cloud. high cirrus clouds today. perfect to get out and about. big weather story is the tropics. ernesto's progress, 80s for highs today. there's ernesto. more thunderstorm activity this

morning. have any interest down across the yucatan peninsula, belize, pressure is at 993. it works off to the west makes landfall a little after midnight tonight. back towards the bay of campeci. >> we'll stick with this theme. so far this weather commodity prices have felt the effect of the sizzling drought. should we be worried about hurricanes? let's bring in vice president of weather a na li ticks at the weather channel. the years are flying by paul so i'm trying to remember last year. i thought it was going a pretty active season and as i recall

there weren't a lot that really hit landfall. we don't think of it as a big hurricane year at least in this country. so how was the forecast last year and how much can we really count on these to be accurate? >> actually the forecast for last year was for it to be a very active year. the problem with the seasonal forecast you can't predict where those storms will go. most of the storms were offshore. last year we had irene. i just joined the weather channel and i spent the night in your offices. i remember that one real well. >> that was a real fluke as it came up the east coast. my basement remembers that. i had a tree go into my living room. but you don't think of it as a normal season where you have a lot of name that you remember. i guess i'm thinking back to the season when we had five or six names that still stick in my mine. we hav't had another one of those since then, have we?

>> no, we haven't. this year the forecast is that the numbers will be down from last year. they have been ramping up. quick start to the season so far. we have the one going into the gulf and then florence out the atlantic. i want seems active. >> the conditions that caused all this heat in the middle of the country and that have caused the drought, is it -- >> you can point toni one event. we're between a la nina and el nino. what happened when you have an el nino it cuts down on the hurricane activity which is why the forecasts have been for a relatively low number. you can't predict where they go. even if you have a year where you have a couple of storms if it hits the u.s. it's a big

deal. >> have you followed the average temperatures around the globe this year, paul? can i ask you questions about that? are you just mostly looking at the u.s.? >> i mostly focus on the u.s. but you can certainly ask me -- >> i know we had record temperatures. europe has been cooler than normal and parts of asia. what parts -- >> yeah. >> i have friend that look at east coast weather and decide that climate change is real. obviously i've seening sociologists write. is it cooler than average or average. >> a lot of of the world has been cooler. we'll be watching the olympics in england, has been relatively chilly over there and cold. one of the problems with climate change and sort of getting our

arms around the actual sort of topic is the fact that it's such a broad based issue and it takes, you know, very, very many years to capture the trend. so you really can't point toni specific event. >> that doesn't stop people, though. but from the very beginning when we first started talking about it ten years ago, the length of the world instead of looking at things since we live for such a short period of time given how old the planet is i don't think of anything less than 10,000 year increments. because 5 billion year old planet. once you start with that viewpoint that's where you maybe sort of smooth over some of the variability that we've seen. anyway, paul, i appreciate your time. we'll see what happens -- i remember the year we ran out of letters. we went through a -- did we go to z. >> it goes beyond z. that year we went to -- >> we went to greek letters.

so we use all 26 and hopefully that was not -- nobody needs that. >> we don't want that to happen. >> buffet made a lot of money in recent years bringing in the big insurance premiums after that year that al gore said it was is going to repeat itself every year from now on and buffet took in a lot of premiums and never happened. made a lot of money in the insurance business with that. thanks, paul. see you later. >> i'm playing a video game over here. >> why. >> on google. have you seen this thing? did you see this on the screen here. this is on everybody's -- >> that's today. >> jump over. >> every day they had -- >> it's great. >> i got -- that's not a good score. >> what's the high? >> i don't know. >> we can be searching angelina jolie pictures or something. >> no. that's for later. coming up, pictures from the

chicago. >> today is tuesday. maybe you'll see her next tuesday. >> and you said it first. >> i said see her. >> see her next tuesday. >> elton john says he might -- >> i know. i know. >> elton has a place in venice. >> yes. >> beautiful place. >> some of the audience what we're talking about and other people. >> i have no idea. we were going ask the big question are the bulls back and if you should be too plus we got our news maker of the morning. boston president eric rosengren takes us inside the secret walls of the central bank. we'll make him play this google game. find out what ben bernanke said at the fmoc meeting last week. t. because it matters. at hp we don't just believe in the power of technology. we believe in the power of people

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♪ it is a cincinnati band. >> i like this song. i don't even know what it. >> "walk the moon." >> you're so cool. >> do i but i don't wear the brown shoes with the traps. when will you debut those. >> i don't know. we'll see. >> they are in. people are wearing them in "gq". aren't you going to be in "gq". >> only with you. us together. >> you always deflect things that are true. >> we do that together. >> good morning and welcome back to "squawk box". he's sort of fluffing it off like you're not. >> i'm not. >> i just ruined it if you had a chance. i'm joe kernen along with andrew ross sorkin. becky continues off today making

headlines a massive fire at chevron's large refinery in richmond, california is now contained, but not out yet. richmond, i asked where, what city this was in. it's up near san francisco. denly populated industrial suburb off the bay, off san francisco. smoke can be seen billowing over the entire bay area. a number of train stations were shut. residents were ordered indoors. the plant produces 245,000 barrels a day accounting for one eighth of california's refining capacity. >> tough markets are taking a toll on u.s. brokers. the number of financial advisors fell for the third straight year. thin yields eroding earnings and prompting more brokers to leave the business. always a tough business. the spread are so much narrower than they are. on a $1,000 bond you could make anywhere from $10 to $20 on commission. you're making a dollar now at

most much let's check the markets this morning. we have seen a little bit of an indicated opening higher after some good action yesterday that finally petered out by the end of the session. we're indicated up 33 points today. exactly a quarter of a percent. check out the energy markets this morning we looked at it and wasn't a whole lot going on although i was interested to see we're back in the low 90s at this point. that had a lot to do with, i guess, the idea, maybe that qe3 is coming. we'll askeric rosengren about that. >> a ten year note trading about 1.55. the dollar has been versus the euro, seeing some action there

as euro moved back to 1.24. gold markets have been long time between 1500 and 1650 or so, at 1618 towards the high end of the rein. >> joining us now, kevin ferry. good morning to you. >> good morning. >> what's on your mind today, sir? >> okay. this will be a fun session. i think you saw yesterday -- >> a fun session? can a session be fun? >> yeah. supposed to be fun. hasn't been for a while but it's supposed to be fun. that's why we do it. so we like to see after unemployment data the market kind of counter trend and sit and that's exactly what we sautin bond market yesterday. even though equity was trying to trade up a little bit, the bond market just nested up into friday's range sponsorship a very important session. it's going down again, in other words if there was any real heft to the decline we saw in unemployment it should continue

this morning. we're march about inially lower on the day right now. >> we have eric rosengren the federal reserve president of boston, steve liesman man has him in the 8:00 hour. if you can ask him one question what would you ask him what? >> if i could ask one question? i guess i would say why are you guys pushing for so much transparency when it seems to correlate with less efficacy. and so i think you're supposed -- >> when you say you don't want transparency is that what you're suggesting? >> yeah. i'm on the record. we spoke about that with you over a year ago. yeah. absolutely. transparency is a bad idea but they are forced into a public relations to do it. in fact if you read their own research on it, the efficacy of central bank policy is highlighted by surprise and so i think ate failed policy and so i would just like him to explain

more why why they want to tell us what they are doing. >> i assume you have questions about what they are is going do next but that's too obvious for you >> too obvious. i think it's great they are willing to speak. usually the black out period -- as soon as it's over after meeting you're getting a very high level interview. seems to be from what i can tell this guy is in favor of doing more. you know, if he makes the case i think he should make the case more definitively from a detailed standpoint. what would you buy? what would you buy that security and that type of thing and bring up dpsh you're going to be transparent bring up people's education what quantitative easing really is. >> before we let you go do you care about this fire out in san francisco? >> oh, you bet. i was watching that right before i came on. i think it's good -- i believe you said they had it under control. >> that's the good news. >> yeah that's the good news. again, you can see refined

product especially here in chicago those type of things do spark the market so we'll be watching gasoline closely. >> thank you for joining us this morning. love to see you. mr. kernen. >> did you read this -- >> i'm back to the google game. >> i want you to read this. i want to ask you about this. do you know in new jersey the governor christie, unbelievable governor, signed a bill that he says is only behind his reform of the pension and benefit costs that he did and this was linking future job performance with student test scores and the reason that it was such a big deal for him to get it through and signed is because people said there's no way that you can get this done. this is what it does. the law doesn't go as far as some tenure bills passed in other states in the past year but marks a significant shift in this really blue state in new jersey which is a democratic state a blue state.

one of the oldest teacher job security laws all it a allows parents and others to do is evaluate teachers annually, their performance to see how the students do on their test scores and make it easier to fire poorly performing educators. and why was it so impossible to get this through? because organized labor was so strong in these states and the money that they raise from the, from -- >> we could have an interesting, you know my views on teachers unions. >> you know who introduced the bill a democrat. an essex county democrat. >> i have no problem. >> you got to thereof. it's bipartisan. isn't this what we all want our kids, all of our kids to get a better education. if you get 5% of the worse performing teachers it changes how the outcome for kids. i don't understand. this is what achilles me about organized labor. >> teachers unions have been more about teachers than kids.

>> we will hug. >> are we going to hug? >> wait until we go to break. >> you don't want people to see this? >> no. i don't want them to see the emotional side of me. i'm coming across the desk in one second. coming up, questions of confidence trading glitch almost taking down knight capital. libor scandal hitting almost every big bank. what this means for the financial sector and the broader naerkts. -- markets.

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welcome back to "squawk" this morning. let's give an update on a story we first told you about

yesterday. joe -- >> yes, sir. >> we talked about president obama's fundraiser. >> yes, we did. >> harvey weinstein's place. apparently you mentioned i was glowing too. >> you started that by saying you had to leave the show early and -- i said why. you said you had to get to harvey's. >> that was a joke. except for fact. >> in every joke there's some truth. >> no truth. this was just me trying, to you know, do our -- >> nudge me. >> the white house pool reporter last night filed a report from the event, it said that the co-hosts were aaron ross sorkin. a typo. there's aaron sorkin. there was. >> that's some sick hybrid. aaron ross sorkin. >> we're not related. we grew up in the same town.

>> you don't go a tanning machine quite as frequently as aaron ross sorkin does. >> no comments on that. >> i'm not sure. >> that could be natural. >> possibly. >> nice guy by the way and a brilliant writer. >> definitely. knight capital group struck a rescue deal as you know to avoid a collapse with banks and regulators still struggling with risk management of speedy an complex bets. joining us now is a professor from columbia university at the school of international public affairs. specializing in financial regulation and economic reform. and you have some pretty opinionated viewpoints here, professor and that's that at this point there aren't enough speed limits and oversight of the algorithmic trading. >> right now there aren't enough to make sure that when glitches like this happen you can pull the plug.

you can get over to the safety lane. you can do the things that are necessary to make sure that the markets continue to function when these types of errors happen. >> one of those lanes in colorado where you go downhill and when trucks lose brakes they go straight up in the air. >> or a digital call box on the side of the road. really, just literally we're talking about that because -- >> when did the real -- when was the explosion of this type of trading? has it been in the last five years? >> it has. you've seen a lot of the, not only the exchanges going on and market makers entering into this but you see goldman and other basic traders going into this. there's bean broadening of the activity, fragmentation of the activity and a lot of people are getting into it. oversight and regulating what people are doing and how the exchanges are taking place is important. >> the individual investor in a

dull market that we've seen or a market that's hard to make money in and we've seen different periods in the past where individual investors and the interest wanes and the volume goes down, if they were to come back, would there be enough regular activity to where this wouldn't be such a large percentage. trade or -- >> when it's thin and liquid you can get these huge types of manipulation of the market obviously and a lot of cash sitting on the side. we all know that. if they were all to come back in would that then mitigate some of these? sure. mitigate the volatility. this is where most of the trading is taking place. it's not clear that it would just be the individual broker. >> there was a time when this was good just in terms of increasing liquidity. >> exactly. >> supposed to find a little

half cent along the way. that was its purpose. this is not what's happening. it's now manipulating the markets. >> the tail is now wagging the doggie. >> i would a column about this. similar topic but i think we're all hyper ventilating about knight and facebook and flash crashes and not to say this isn't instyling confidence in the market because it isn't. the reason people left the equities market isn't a function of any of these things. it's a function of the fact that an entire generation hasn't made a dollar in equities opinion you heard phil gross last week saying the equity cult is tying. i want hasn't work. i'm not sure auth function of the fact we have electronic trading. >> electronic trade is a way to squeeze out every dime you can out of these trades. i think it's an effect that's taking place. >> explain. >> that means because it's so hard to make money these fast trades are a way to reduce costs

to find any little cent out there and bring home any return. >> get rid of electronic trading to get the trust back? >> no. we need to put in what i said. the signs on the road. what you do in an emergency. how you handle this. having effective internal and external controls. those are the things you do when you go down this path. we're down there. you don't come back any more. that to me is what's important right now and that's the role of the regulators to step in and do their job. >> i mean, i'm wondering once again how you get in there and do that without somehow, you know, changing the efficacy of what it was there for first. >> when you write your programs you basically have a stop switch. again, these are not hard thing. you can do testing pap lot of this should have been done on testing. you should have some sort of period where you run parallels. a lot of ways you beta test your

stuff. any programmer would tell you this. this was not well executed on the knight side or regulator side to oversee basic fundamental infrastructure. >> thank you. come again. >> come again. >> coming up, one of mitt romney's former partners at bain, how ed conrad thinks the debate over taxes should be framed on the kpacampaign trail. here's a hint don't party like it's 1999. we'll talk about it when we return. thanks to our explorer card. then, the united club. my mother was so wrong about you. next, we get priority boarding on our flight i booked with miles. all because of the card. and me. okay, what's the plan? plan? mm-hmm. we're on vacation. this is no plan. really? [ male announcer ] the united mileageplus explorer card. the mileage card with special perks on united. get it and you're in.

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taxing times for investors, businesses and owners, and of course corporate leaders waiting to see who is going to take the white house in november. joining us now, ed conrad, former managing director at bain capital and author of a great new book, "unintended consequences." we had him on once before. thank you for being here. the reason we called you in, you wrote a piece in the wall street journal, an op. ed suggesting we

can't go back to the tax regime under bill clinton. make your case, because i would like to make my own. >> okay. i think people forget that we commercialized the internet in 1993, that led to an enormous opt of optimism, it drove the nasdaq from 800 to 4,500, increased the payoffs for risk taking and amount of wealth and that drove up investment and consumption and that drafted the offsetting effect of higher taxes. >> today the tax rate should be what then? >> let's not kid ourselves. we're taxes at 16 and spending at 24. you need a 50% across the board tax inkroo's to balance the budget. you want to have it all at historic 18% to 20% of gdp. >> here's the question i have and you can look through at a lot of different studies over time. it is not clear and when you go back into the '90s we had higher taxes and didn't slow growth and i understand the counter factual argument you've made but go back to the '40s, '50s, '60s, we had

higher marginal tax rates and frankly we continued to grow. maybe we grow despite the rates but to suggest that the rates actually slowed things down, where's the facts behind that? >> well, let's talk about the 1950s for a second and i'll give you some more facts. you had two decades of pent up investment, first from the great depression and the second world war. you knitted eted all the u.s. s and roads together with televisions rushing to take advantage of that, cut the cost of food in half, you had a unique set of circumstances in the 1950s as well, probably more than the 1990s. a event oecd study looks at 21 countries across 30 years taken comes to the conclusion that higher marginal tax rates slow entrepreneurial activity and they get down to the level of individual industrials. so there is evidence. >> hold on, i think from the

same study, three decades of tax cuts may have gilded the pockets of the rich but they didn't provide economic juice among developed nations incomes per person grew no faster in the u.s. and britain that slashed the top rates than in countries like spain, germany and denmark, which did not." >> since ron raald reagan we've employed 40 million people. we have 35% to 45% more hours of work per working age adult than they have in germany and france and median incomes that are 25% higher, even higher if you look at it more carefully. >> explain this to me. "the nine high rate states" this is in this country "nine highest tax rate states have had more growth than the lowest tax rate

states." >> sure. i was debating austan goolsbee last week and he threw that statistic out. we know the value of clustering, moving to silicon valley and getting a job at facebook or intel is valuable. can the municipal move in and tax at higher rates, they can, you'd look at new york, california and you look at any of the big states that have really valuable clusters and what you're going to find is high local taxes. it's not the taxes that are driving growth up and down. it's the value of clustering and getting talented people together who can share idea. >> can't you just go back to the notion that capital is going to flourish where it's treated best and have some type of oversight? have you seen the way governments, it's just so simple -- >> i'm not arguing -- >> capital is treated better in the private sector than

government sector. >> nobody at the table, including myself, is going to argue somehow that increasing tax rates is going to spur economic growth. the question is whether it's going to hurt economic growth. >> there's no way it can, there's no way money left for people to develop businesses and capital, and where they're going to -- they need to make money to stay in business or they fail. the government's going to stay in business -- no one minds the store. you don't have a driver's license. >> i do have a driver's license. >> you've never been to the dmv. >> i've waited in the long lines. >> under the current tax -- >> tax cuts or revenue back up. >> because under the current tax structure we were at 18% and 19%, but the recession brought us down to 16% so it's how we get back to a percentage of revenue, not whether we break margins. >> i agree but i don't think we'll get the rebound driving the spending from 18 to 19. we have to roll up our sleeves.

>> that was fun. ed conrad -- >> is it conner? >> conner. >> i said conrad, sorry. the power of technology. we believe in the power of people when technology works for you. to dream. to create. to work. if you're going to do something. make it matter. i haand then i have eleven my grandkids. right when you see them, they're yours, it's like, ah, it's part of me. it's me again. now that i'm retiring they all have plans for me. i'm excited.

the real deal on banks. guest host and pnc chairman and ceo jim rohr sounds off on sandy weill's call. and then the information you need before the first trade. [ bell ringing ] experts on the dollar and energy markets are here on the "squawk" trading block. getting inside the mind of the donald. >> just think of what's happening to this country. people used to respect us. they don't respect us anymore. they laugh at us. >> the billionaire and romney backer speaks out against his critics and what he's seeing now that could help boost your investments?

the second hour of "squawk box" begins right now. ♪ good morning and welcome to "squawk box" here on cnbc. i'm andrew ross sorkin along with joe kernen. it is a bromance week, becky is off. you can see green arrows across the board. nasdaq up 13% and the s&p 500 would also be up. let's get you through some of the morning headlines. massive fire at a california refinery, it is contained but not yet out, it is in the san francisco suburb of richmond, the plant produces 245,000 barrels of oil per day, one-eighth of the state's refining capacity and air quality has been issued for the

surrounding areas. eastman kodak's bid takes a hit, opening bids came in at $150 million to $250 million, far short of the $2.6 billion kodak hoped to be receiving. amazon.com formed a uniit to create social networking games called amazon games studios, released its game for facebook, putting it squarely in competition with zynga and we've been talking about this other great game on google's home page. have you seen this? you can play. >> jim rohr is here. whenever we ask for a great ceo of a bank, that's how we talk about you. >> pnc financial. >> some are your friends, the guys that do that. >> very scientific analysis. >> you run a tight ship at pnc. are you up to speed on the standard charter? >> boy i tell you, wasn't that something?

>> how does something like that happen under, who knew that was going on, do you think? how high would it go? do you have any idea? >> it's hard to imagine but like you, i've read the paper this morning and saw it last night, but the other thing, the ohm thing i know if you have a fraud that large, a lot of people are involved. that's not something that goes on for, i guess nine years, and the idea that it went on and only a couple people fixed the books and hid the documents, i don't think that's correct. >> what went on -- >> 60,000 trades, that's a lot of trades. >> you would have come across that. >> you would think a number of people would have come across that, $250 billion, that's a lot of money and a lot of trading. >> we can't be dealing with iran. so would you take away this, what would you do to this bank if you were a regulator in the state of new york? >> first of all there's got to be more research done to find out exactly what happened and who was involved and how

widespread it was and was it just the new york office or was it an international strategy, if you will. >> all of the international trades, standard charter is a truly international bank, there's stuff going on out there. they're all dealing in -- >> are you implying money laundering going on at pnc? >> not that i'm aware of. >> how big would it have to get. >> we have a lot of people involved -- >> got to be a couple drug dealers -- >> i would hope not but a lot of people try to find them, that's for sure. >> really? >> well, in this country obviously any money laundering is a big deal. >> that's what we said the "casablanca" moment, a bank dealing with iran. iran has a lot of money. there are a lot of banks dealing with iran. >> somebody was dealing with them, with all the money. given the laws we put in place and the rulings that everyone

came out after 2002 you would think that people would have been avoiding the u.s. >> we had this all prepared, we were going to go back like -- standard charter, you had to talk about that right way. >> the standard charter, the libor, so many things. >> we have the sandy weill stuff. >> with he should, topic d du jour, two weeks ago former citigroup chairman was here on the set and talked about splitting up the banks. respond to this. >> i think what we should probably do is go and split up investment banking from banking. >> of course that was the man who as you know so well created the supermarket model. he broke glass-steagall, used to have a plaque on his desk he shattered glass-steagall, no joke. >> sandy weill has been a friend for a long, long time. he's a terrific guy and did a lot of wonderful things over a

long period of time in his career. >> any time you start something like that, you see a, comma but coming up. >> breaking up the banks, what does it mean to break up the banks and one of the issues, take investment banking and put it off balance sheet, move it away from the traditional banks. now, where have we had problems? we had problems where the investment banks had a liquidity issue and knight capital is exactly that way, it was a liquidity issue and frankly what's happened is when we put investment banking together with the traditional bank where there's real funding and core funding like there is in some of the banks, you don't have the liquidity problem that they've had in morgan stanley. >> you're saying else' wrong? >> i think he's not exactly wrong. clearly there needs to be more capital involved, counter party risk has to be more heavily monitored. >> the premises is to break the

banks up and you're suggesting we do bet we are them together? >> i think we do better with them together over time because it eliminates the liquidity risk of the investment banking part. >> hopefully you were watching the show when he was talking. >> yes. of course. >> what were you thinking and what were you thinking he was thinking? >> well, sandy's worried about safety and soundness, i think, and in sandy's day -- >> do you? because he was arguing, i thought he was arguing at some level this was about the profit incentive, he was suggesting that banks would do better, the share price of these banks would do better if they were broken up. >> i'm not sure about that, but i think the issue is safety and soundness. as a country, our first issue is safety and soundness so the idea that you would set up another investment bank without any core funding and we have another bear stearns or we have another lehman brothers. those were liquidity issues. it wasn't they didn't have capital. they had no liquidity and went under. >> what's your price percentage

of book? >> we're trading at about book. >> these guys come on and talk about the firms trading at half book or 6/10 book. if the model doesn't reward shareholders and you go back to the normal business of banking maybe you traded book or over book and that's why they're saying it would be good for everybody if people did this. >> i'm not sure it's that simple. i'm not sure it's just the investment banking issue. we looked at knight capital, you look at standard charter, you look at the libor issues and the entire industry has taken a hit and it does take a hit every time we have one of these announcements. we saw the, just when jpmorgan had their trading loss, the entire industry took a hit and the reputation of risk. it was their money. it wasn't government money but nonetheless there was confidence. >> you watched heim when he was on? >> i missed it. >> he wanted to break up the

banks since way before sandy weill found religion, but hanix's viewpoint, the more hazard comes from too big to fail and made the point no ceo wants to have his stock go to one and be run out of town on a rail. >> sure. >> there's plenty of risk even though you're too big to fail. his point was too big to fail rears its ugly head because of how cheap the funding is when you have the implicit government banking for a big bank fund something cheaper and it allows you to do a lot of things you wouldn't be able to do, some of it may be reckless, if you didn't have such cheap funding, if you had funding that reflected the risk that the bank was taking you wouldn't be able to inflat these bubbles. there seemed to be truth to that. what about bernanke, how much he's allowed to keep things art

feshlly low and the whole economy is allowed to have a too big to fail funding which is much lower and we see what happens. we get crazy bubbles built up. >> there's a couple of different issues. we have 7,500 banks in the country, and when we talk about trading risk, and we talked about bernanke, we're only talking about two or three banks in the whole country. and quite frankly -- >> systemic, is that what you mean? >> systemic is one of the words. >> pnc, we wouldn't like to see you guys -- >> no, but we went right through the financial crisis with 4% capital, which was the requirement at the time, and we did fine. we made money right through the financial crisis. we managed risk and did fine. most of the banks in the united states did, so we end up with all kinds of rules because of lehman brothers and bear stearns. we didn't do that stuff. >> you were a different model. >> totally different model. super regional bank, cover 23 states in the country from

chicago down to florida. >> you want to get bigger? >> we want to grow customers. we grew 300,000 house holds, natural growth and 140,000 in the first half of this year. we're growing corporate primary customers, wie grew over 1,000 each of the last two years. >> there's a lot of regional banks, would you buy other banks? >> we're growing customers. we just bought the rbc bank inspect southeast, we're building that out, working extraordinarily well, going to be 40 cents this year. >> how much? >> 40 cents this year. >> wow. >> we're pleased with how that's working and building out the franchises. >> pnc five years, does it look like barge of america minus merrill? >> no. >> do you consider yourself an empire builder? >> no. >> does it look like wells? >> we keep growing customers, we will not have the mortgage dominance wells does, we only have 1.5% of the mortgage

business. while we like the mortgage business because it's a key product for our customers, we're not going to be a dominant mortgage player. >> you remember these guys, what is the l.a. bank city national, the cleveland bank was national. do you remember that? >> yes. >> they waited until it went to zero and stepped in. >> no, no, we bought it at two. it was good. >> i'm from ohio, i used to get, that pnc. that was a good buy. >> it worked out just fine. >> it was easy. >> that was a big bank, you got a lot -- >> it's worked out very, very well for us, knock on wood, we'd love to do another one i don't think we'll see another one. i don't want to go through the crisis that took us there. >> that presented that opportunity. >> you'll be here for the next two hours, the music is playing us out so we have to go. comments, questions, about anything you see on "squawk," anything mr. rohr has been talking about, shoot us an e-mail squawk@cnbc.com. follow us on twitter @squawkcnbc

is our handle. next time you're on an airplane you'll find something manufactured by triumph, we'll speak about its high flying success. buckle your seat belts. "squawk" is just about to take off.

there's the future this is morning, up about 35 points, as

far as the dow goes, which is, last i looked, about a quarter of a percent. andrew? >> aircraft supplier triumph group supplies the essentials to get planes off the ground. joining us on set is richard aile, founder and chairman of triumph. the danger of his name, could you say -- >> but he's not a hunchback, and you're not limping around, right, trying to kill children. >> before we get anywhere, just tell the viewers because i have to say, because i've studied your company i know about what they do, but i didn't realize all of the little things that triumph actually does. >> we are probably, have the widest breadth of product in the aviation manufacturing industry, we manufacture empanags, wings,

the fuselage of the aircraft, including components such as landing gear, acctuation and on and on. we have 66 locations all around the world. >> are you working on the dreamliner? >> we have a lot of content on that. >> what do you have on that? >> we have actuation equipment, we have cable control assemblies. we have insulation, acoustical and thermal insulation. we have a number of other electronic products. >> and airbus, too, right? >> and airbus. boeing is, by far our largest customer. >> who makes better planes? >> i'm sorry? >> who makes better planes. >> whoa, how can you ask him that? >> you're asking me to comment on my two biggest customers? >> he must have a view about -- >> in terms what have? >> no, look, there are people who are airbus guys, he has to be both. >> it depends on route schedule.

>> i think if you look at the newer aircraft, that they're all building, first of all the 787 and the new aircraft being built by airbus are needed trackcally by the airlines, because the airlines need more efficient aircraft, more efficient in terms of fuel, and all of them, the 787 is 25% more efficient than any other older aircraft. so that's why the commercial end of our business is going to last for a significant amount of time. >> you make fuselage componts or you make the fuselage -- >> we make the fuselage components. we make the empanage -- >> the biggest buildings in the world are boeing assembly. what do you send them, pieces of the fuselage? ? >> in some cases we send them pieces of fuselage, in other cases we'll send a whole fuselage. >> really? >> he bought the voigt company,

that was the big fuselage manufacturer that rick has turned into a really profitable operation. >> that's amazing. >> can we talk military -- >> you don't seem that old to be the founder of this company. >> well, thank you for that. >> he is. he is. >> not to worry, i am. >> can we talk defense spending. >> sequestration. >> defense spending is one of the critical issues that we're concerned with right now. >> i'm sure you are. >> a little over 30% of our business is military, and today there's going to be, if the government can't come to any agreement on budgets, sequestration goes into effect. and that sequestration means that there's a process that, if they can't do it by the end of this year, there will be an additional $570 billion cut out of the defense budget. >> which means what to your company? >> means two things, number one, in current days, we can't plan going into the future, so

there's a whole bunch of uncertainty involved in the military spending. going forward, it will mean more than that for the defense industry. it will mean jobs, somewhere between 350,000 and 1 million jobs could, in fact, be lost, if, in fact, they don't come to some agreement. >> and is there technology that we will be missing as a country? >> potentially, yes. >> the planes that we need, that we won't have? >> potentially, yes, or at least they'll be delayed a significant amount of time, because that trillion dollars that's coming out of the defense budget is over a ten-year period of time. >> which is an issue about the fiscal cliff we don't talk about, the uncertainty. it's not about taxes but it is about not being able to come to an agreement in washington about what we're doing going forward, which obviously has the impact on the immediate budget but also has long range planning issues for industries across the country. it's a big issue.

>> you look at his stock for half a second because jim made a point before you came on about how this, i mean take a look at this. >> we need much farther back. >> we should go further back than a year. >> it's remarkable, there you go, a remarkable success story. >> businesses and probably maybe initially for, there may have been some overlap and i don't know whether there were any job losses initially but eventually you're adding jobs and this has been an entrepreneurial success to put these companies together and run them efficiently. >> 1996, when we went public, we had about 350 employees. we now have about 12,500 and we've grown our companies, both internally and through acquisition. >> a good, solid manufacturing jobs that we won and they're all here. and you found a guy to take over ceo named frisbee, which i think is great because those are

beautifully designed -- >> aerodynamic. >> you bought his company but he didn't make the frisbees. >> he makes the actuation equipment. >> that's neither here nor there. i'll stick with the frisbee idea which is genius. he's running the can. now. >> he just became ceo. >> did you see that? >> i did. >> rick before you go, would you ever run an airline? not you, personally. >> is that stupider? >> no, he sells planes and the airline business is one of the worst businesses in the world. >> sells components. >> he's in the plane business. i wanted to know -- no, because he sells the product to the people who have a lousy business. >> i think the answer is i would think long and hard before i do that. the major reason is the airlines are our customers eventually, when we sell to boeing. the business model, boeing is selling to an airline and the

airlines are selling to people who don't want to pay more than $400 for a ticket. >> right. >> so it becomes a real issue on what the business model is for the airline. >> effectively for your business model. that's why i asked the question. >> cobuy a lot of stuff as airlinemaker. i'm trying to figure it out and save you. >> thank you. >> a lot of fun, kids. coming up, curiosity is a triumph for nasa's space program but another country's space program is feeling left out of the fun. and later, how is donald trump feeling about a documentary playing in his own backyard? >> did you read the review of this movie? it's unbelievable. >> that focuses on his development saga in ireland. let's just say -- >> hammer work. >> it's not a pretty picture. his reaction to that and much more is just ahead. ♪ fill my heart with song and left me sing forever more ♪ time for today's aflac

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now the answer to today's aflac trivia question, what two former presidents last names begin and end with the same letter of the alphabet? the answer taft and nixon. >> aflac. russia took a hit after a botched multimillion-dollar satellite launch. its proton rocket failed after blastoff, junking two telecom satellites being launched into space for indonesia and russia. the error comes a year after a mishap that scrapped the $265 million satellite. launches are expected to be suspended, pending an investigation. i'm just wondering, andrew, do we just, as journalists, just

have a completely objective view of this or do we take some satisfaction that their crummy satellite blew up immediately after launch. >> sounds like you're taking satisfaction. >> normally you wouldn't want to, but are we, if no one got hurt, are we saddened that russia had a setback in the satellite launching? >> like a horrible sports -- "and nobody got hurt." >> i just feel something about russia, i'm sorry. you're not going to shed any tears? >> well, a lot of us grew up rooting against the russians in the olympics. >> right. and they don't win anything anymore. >> a different country for sure. >> i think you got to give them a little slack. i know people who won't buy german cars. time heals things. >> we're talking about russia. >> i'm just suggesting that time heals things and maybe we're supposed to -- >> having a failed satellite launch doesn't help anybody. >> look at what's happening in

syria with russian help. >> i've heard about that somewhere. >> i think you have to go with me on this. not celebrating it didn't work but just you're not sad. >> if it landed on somebody? >> that would be bad. you don't want anyone to get hurt. okay, we got it, andrew. >> your sensitivity is amazing. >> i know. >> sensitivity training here on the "squawk" set. coming up, your pregame to the markets. the "squawk box" trading block is standing by, but up next, the economic fiscal cliff, how worried are you? find out what the donald thinks you should be doing to protect your investment. "squawk" and the donald return after this very short break. and this is what inspires us to create new technology. ♪ technology that connects us to everything the world has to offer and vice versa. ♪ technology that makes lightweight stronger, safer,

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welcome back to the party, otherwise known as "squawk box." in the headlines this morning, we've got a big setback for two big drug companies, johnson & johnson and pfizer are abandoning development of a key alzheimer's drug after it failed in a late stage study. johnson & johnson taking a $300 million to $400 million charge.

founder richard schultz offers to buy the 80% of best buy he doesn't already own, the price tag $24 to $26 a share. finally a deal in baseball, a group that includes golfer phil mickelson agreed to buy the san diego padres for 800 million bucks. peter o'malley also in the group, former owner of the los angeles dodgers. it needs to be voted on by mlb after before the deal is complete. >> you remember the stuff about the dodgers. where are they? i thought -- >> that's the dodgers, we're not talking about the dodgers, this is san diego padres. >> oh, that's right. but $800 million? >> the other guys paying $2 billion. >> $800 million -- with

policyholders money. phil mickelson, he's a san diego guy, lahiya. you probably have an opinion about our next guest, and he loves it. joining us done and trump, chairman and president of the trump organization. good to have you on today. >> $800 million sounds like a very, very lofty price. >> for the padres. >> sounds awfully high to me. i wonder who is really putting up the $2 billion. >> that was the point of andrew's piece. donald, have you ever had any dealings ever with standard charter and did this take you by surprise? >> well, it took me by surprise. i have never dealt with them but it certainly took me by surprise and too bad, another problem in the banking world. >> but do you think they're alone in this? the new york fed is saying basically the top regulator in

new york they operated as a rogue institution for nine years and we're talking hundreds of millions of dollars here. >> seems hard to believe that could be as you go. when you look at libor and what's happened with libor and how that disease is spreading all over the place, you really sort of think maybe nobody's alone. >> let's talk about the convention. are you going to speak there? >> they want me to speak there. i'll make a determination. the night before, in sarasota, florida, i'm getting statesman of the year award so i'm going to be right next door and they do want me to be there. >> what would prevent you from being there, then? >> just if i want to do it. we'll find out. it is not my business. i run a very big business and a great business and going to the convention and speaking is not my thing. i like doing it. i enjoy doing it. i've been in politics all my life.

i think i've been of great help to mitt romney and to the republican party but they do want me there, and i will probably be there, but we'll see what happens. it's quite a ways off. >> what should romney do with his releasing his taxes? should he -- it keeps coming up, harry reid's never released his taxes. what do you make of harry? he was a boxer before and i don't think he's running for re-election so he's willing to sort of, you know, he's going to take a lot of flack. he already has, for this. what do you make of all this? >> the problem with a complex tax return you can nit pick it to death, if you release ten mo are years they'll nitpick it and find tiny statements made in the return and make a big deal out of it. it is a little bit unfair. obama has a simple tax return. he made nothing. he doesn't have much to report. now, i will say this. if i were romney, and i'm not, i

would say simply i will release my returns if you release the information that we want. he spent $4 million trying to hide lots of different things that he's done, whether it's his passport records, whether it's his college applications and college records, and i would sort of absolutely, if i were romney, i would do this, i will release my returns if you release the records that you've been trying to shield for the last four years. >> there's a big piece -- >> having spent $4 million in legal fees. >> "drudge" is all about it, the columbia records or something, i don't know. what about harry reid? i mean, he's majority leader, right? he says "i have a source that says that you paid no taxes for ten years. i mean that's out there, isn't it?" >> i've always liked harry reid, first of all he did pay taxes. >> don, you're in the casino

business. everybody kisses harry reid's ring that's in the casino business because he's in nevada. >> no, i just liked him over the years and i've sort of -- >> he's like senator pat garry from "godfather." >> it's the wrong thing to say and i think he probably wished he didn't say it. >> i don't think so. he doesn't care. >> donald, do you know anybody who has $100 million in their i.r.a.? >> yeah. >> you do? >> yeah, there are people. >> it's a rollover? >> people exist. there are people that exist. >> that's part of what the whole debate is about. $100 million is a lot to get in there. >> you can roll over whatever you have in your pension fund. >> in terms of how he did it, through putting in units from bain that were at these, what people thought was a very low basis, that grew and there are questions about that. potentially reasonable questions. i'm just curious. >> you know you pay taxes on it eventually. >> you do. >> that's growing tax deferred

in the meantime, it's not tax avoidance. >> one thing you can see by even the returns that he has put in, everything was done perfectly. it was done beautifully. major accounting firm, highly respected people, they have to sign the returns also, and i mean it was perfect, but even then you'll find somebody says oh, what about this, what about that. >> we have people now, donald, having the 100 million itself is something -- >> i don't know about that. >> well i think that's really the thing that they're going after, you know, having $100 million is not right, and why don't you spread the wealth all over to everybody. >> that is the implied thing here. >> no, no. >> how about this, say he paid 14% taxes and then gave 14% to charity. you've got a guy that maybe -- >> god bless him. >> $7 million to charity, and seven -- then you've got someone who maybe pays, who knows how much and their contribution to society is this in terms of taxation and charity. how can you disparage someone

who has had a life that allows him to give $7 million to charity and to pay millions of dollars in taxes? who is the more productive -- and i'm not saying one's better than the other but how do you disparage someone for that? >> i don't think you do. there's a reasonable question -- >> but they are doing it right now. >> -- people have about how much money ultimately put in the i.r.a., most people think, do you have $100 million in your i.r.a.? >> i wish i did have $100 million in my i.r.a. i would guess the irs would look at this, right? if there was a problem you'd hear from the irs. >> you're saying there's something untoward in the way it was done? >> no. >> is it a fell snee. >> no, there's nothing, there may be nothing wrong with it but people want to understand it because it informs how he thought about this process. that's all. that's all. >> andrew, the fact is he worked hard. he was a brilliant guy, made great decisions. >> none of that is in dispute. >> therefore he has the money to put in. there's something nice about that and there's something nice about that kind of mentality running this country for a

while. >> donald, before we let you go, tell us about -- have you seen this new documentary "you've been trumped"? >> i haven't seen it, it's a small time deal done by a third rate producer. i bought in scotland 2,000 acres of land frankly they said you couldn't build on, i was able to get permits after years of negotiations. we built the greatest golf course anywhere in the world, totally sold out for so long, you can't get onto the course, impossible to get onto the course. it's the hottest thing going so i guess controversy is probably a good thing, but it's an aberdeen, the hottest thing you've ever seen but more importantly probably the greatest golf course ever built because of the land. >> did you meet this guy who made the documentary? >> i haven't met him. i've seen him. he's a third rate producer, very inexpensive, and we'll see. it gets a little publicity and i think that's probably good for the project itself.

it's a very big project. >> absolutely. >> donald, i was trying to get something up quickly and i think it's an ft piece about the backlash, see, to deny that there's just a backlash against wealth in general is just not being -- >> there is a backlash in certain corners of the world. i'm not suggesting it's me. >> the backlash against the rich has gone global, there's a global backlash against the rich, heads of states and governments are given in populous demand for higher taxes, hollande proposed 75% income tax is the highest but it's not just how the 100 got there, it's the 100 itself and we have someone, you know, romney versus obama, the president said at one point i think if you've made enough money you stop, it implies a zero sum game where if you make it, someone else doesn't have it. you saw the new batman. catwoman said "you've been living high off the hog for way

too long and it's going to come home to roost." the rich people had to walk out of the ice and fall into it -- >> don't give away the movie! >> i'm not talking to you, here, but coming up, it's the economy, stupid. the "squawk" trading block -- it said that. no! the "squawk" -- let me look, i was looking over at him. he's our money launderer, no. >> whoa! >> i'm kidding. you're not. i'm kidding. >> thank you. >> you're welcome. the "squawk" trading block looks for economic signs that should dictate your investment strategy, at 8:00 eastern, managing principal at sandler o'neill, jimmy dunne on night trading and investment. >> he knows how to play golf. >> we'll see how much jimmy dunne has in his i.r.a., when we return.

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automating all the right actions, to bring all the right results. [ whirring and beeping ] it's the at&t network -- doing more with data to help business do more for customers. ♪ we're back and a fire erupted overnight at a california refinery. the good news, it's been contained, though not yet completely out. that could put pressure on oil and gasoline prices. the fire erupted in san francisco's suburb of richmond

and a questionable tweet helped drive oil prices higher, those two headlines moving crude, you can take a look here, if we've got crude going, but we don't have our screen there. there, you got it there. it has moved up. let's get to the trading black on set, joseph travisani, worldwide markets and kevin booke from clearview energy partners joins us from washington. let's start in washington this morning. you saw the fake tweets last week or rather yesterday? >> yeah, we're in august now, and august is a thin volume trading desk kind of month when the "a" team is on vacation. you want to be careful of the volatility from the next opportunity or fear of the next loss. we have peak fundamentals. the world is awash in oil, it may be draining in u.s. inventories but there's probably more room to travel to the downside than the upside, tweets

notwithstanding. >> tell me about the tweeting situation yesterday, i don't know if you're familiar with it but the fake tweets went out suggesting that there was an alleged death of syria's president, this came from a fake account, but seemed to have everybody a-twitter, if you will. >> welcome to the world of round the clock trading and interconnectedness. yeah, the reason that you have sort of a fundamental waiting for the next thing situation is because we've had a year with such volatility, such expectations of supply disruption, the rampant thought of lost supply because of the iran situation, so any major change in a major producer, syria destabilizing, whether it's a story what's coming out of kyrgyzstan and the disrupted pipeline there, you have plenty of reasons why people could respond. the fact that twitter now has more magnitude on the trading probably has more to do with it being august than anything else. >> do you have twitter built into your electronic monitor?

some of the tweets go straight into computers that then try to read them. >> we don't have that. i have a twitter account. i use it periodically, not probably as much as i'd like to. the whole world is awash in, and kevin's right, in events affecting the markets. this is true on the currency side. it's true on the credit side, certainly true on the commodity side. people are not looking so much now at fundamentals, although they're there. they're waiting for the next event to happen, it's an event-driven world, true in the currencies, you wait on what the next move out of the ecb will be. are they going to do this? are they going to do that? is monti, i mean is draghi going to keep his word? is he going to do something? this is what's driving the world right now. that's partially, you know, sponsored by the idea that the information is so readily accessible instantly accessible. part of it is because we've been through a crisis where these people are now running the show, and part of it is because it's now possible, so we have the

same effect across all trading. >> we had kevin ferry on in the 6:00 hour and he said transparency is a bad thing. in your business -- >> i like that. >> transparency is a bad thing, and your business right now, all you're doing at some level is betting on what governments are going to do. >> that's correct, transparency tends to mean -- put it this way, transparency is access to information. doesn't guarantee the quality of information, doesn't say where the information comes from, doesn't say if it's true. it's simply access, that's the way we're using it in the modern world because so much is available. whoever put up this twitter account, were they looking to possibly profit on a rise in price? nobody knows. no guarantee or not even something that you can assume. >> is there anything you can do in the markets right now -- >> in the currency markets particularly you have a division.

you have the euro and the u.s. dollar, acting sort of canaries on what's going on in the financial world, not so much on what's going on in the united states. if you want to bet on government action, go there. if you want to bet on currencies and looking on longer term trends, you go to the australian dollar, the canadian dollar or the swiss franc. it's an unusual world we're in right now. still a good trading world. >> kevin book, joe tresvisani, thanks for coming in. the u.s. volleyball team in men's beating tunisia, the latest from london, saw a lot of that match, a lot of guys that hadn't been playing much were in that after the russia debacle, you see that one, won the first two games and then lost the next three. at the top of the hour -- >> i'm still on badminton. >> yeah, that's all the scandal is all you're interested in. i tell you, if you want

something to be interested in, it's the call that was made against the canadians on the soccer team, that was unfortunate. >> any game you could play at a picnic is not -- you won't just find us online, you'll also find us in person, with dedicated support teams at over 500 branches nationwide. so when you call or visit, you can ask for a name you know. because personal service starts with a real person. [ rodger ] at scottrade, seven dollar trades are just the start. our support teams are nearby, ready to help. it's no wonder so many investors are saying... i'm with scottrade.

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u.s. men's volleyball team, they beat tunisia in pool play and now playing italy in the quarterfinals. let's get across the pond to cnbc's michelle caruso-cabrera who is in london this morning. good morning, michelle. >> thanks very much. we're doing a lot of coverage of the business angle of the games as well and one of the big things that often happens, whenever a country bids for the olympics, they sell it to their people, that they are going to get a big economic boost, they're going to build all this stuff you see behind me that's going to lead to construction jobs, and then it's going to have a lot of retail impact as well, so many tourists are going to come that it's going to lead to a lot more money being spent at the retail stores. we are still waiting to see if that's actually going to be the case with the numbers. anecdotally we see ourselves, we hear from people who live here that central london is nearly a ghost town. many locals have left. regent street is advertising huge sales. the ceo of a department store

said during a recent earnings call he thinks the olympics have hurt traffic. there's an area around olympic park, hacknec wick has already been hurt and because of the construction going on, because of the closed subways that have resulted they've really, really struggled. we actually got some video of workers washing away, powerwashing away anti-olympic graffiti put up in the hackney area and a owner of a small cafe called the griddler's home cooked food. >> it's a waste of time and money. what's going to happen afterwards? >> all right, still the head of the chamber of commerce is insisting that ultimately this is going to lead to at least a half a billion dollars, when you convert from pounds to dollars, when it comes to retail sales in the uk. >> one thing we've seen happen

is that in the outer areas of london, they're busier in the afternoon and evenings during game times. we believe that is because of the rise of teleworking, flexible working, businesses in asking and allowing their people to work from home. >> so he's speaking to the shift that happens, right, so maybe the sales were going to be in one place normally but because a lot of people are staying home or working from home, the shifts move to the money is shifted to the so-called suburban areas. guys, back to you. >> right. you have a favorite, michelle? i mean which -- there's a lot of hunks on the volleyball team. i know, just -- oh, we gotta go. got a heartbreak. message me. coming up. >> i'm sweating, joe. you know, ronny...

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plus eric rosengren raising the curtain on what's going on inside the central bank from qe to the euro crisis. the third hour of "squawk box" begins right now. ♪ welcome back to "squawk box" on cnbc, first in business worldwide. i'm joe kernen along with andrew ross sorkin. becky quick is off this week. our guest host is jim rohr of pnc. u.s. equity futures up most of the morning fractionally, 38 points or so which is a quarter of a percent. things happening today, you can see, 0.3%. massive fire is striking a major refinery, a chevron refinery in richmond, california, near the bay area.

the fire is contained but not quite out yet. the densely populated industrial suburb of san francisco and you could see smoke going over the entire bay area, a number of train stations were shut, residents ordered indoors, and that refinery produces about 245,000 barrels per day of oil, accounting for 1/8 of the state's refining capacity. for more on the potential effects of the refinery fire on gas prices cnbc's sharon epperson, i cannot remember the last time you were on "squawk." great to have you. >> i'm so happy to be here and happy the workers at the refinery have been accounted for as far as we know. the impact could be serious in terms of gas prices particularly for folks in california. we are already seeing higher energy prices, pretty much across the board here, in the futures market in electronic trading and we are likely to see higher prices in the spot market for gasoline first, in california. we are already seeing an increase in the rbob gasoline

futures market and it's been reflected in prices at the pump. the national average hit $3.50 a week ago and it's up about 13 cents in that period of time. $3.63 a gallon, and we're approaching where we were a year ago. in california prices are already above where they were a year ago and this has a lot to do with the fact it's usually the most expensive gasoline in the country, we're talking about $3.86 a gallon and the fact that they have a super clean type of fuel there, it's difficult to get gasoline from other parts of the country and we're also seeing refineries wind down their summer grade gasoline for the winter grade so there's not a lot of supply out there. they've alady been hit with low inventories in that area. traders are expecting we're going to see an impact most likely in that california spot market, maybe not as much of a serious impact in the rbob futures market but it's something to watch closely because, of course, california will influence in some way the rest of the world. >> sharon, we appreciate it, thanks for giving us that

report. good to see you. >> sure, good to see you. pfizer and johnson & johnson are scrapping further studies of an experimental alzheimer's disease treatment, this after the drug failed to help patients with memory-robbing condition in a second late stage clinical trial, closely followed, shares of both companies fell after hours on that news, as you can se fractionally. and amazon.com is making a new platform to compete with zynga. >> there's a great olympics game you can play. knight capital group thrown a lifeline with a group of investors aagreeing to take a significant stake in the embattled brokerage firm. joining us the man behind the deal in many ways, jimmy dunne,

senior managing principal at sandler o'neill, one of two advisers to knight capital on that transaction, one of the best if not the best golfer on all of wall street. i think that is true, correct? >> that's one of the -- that's the best banking m&a manager as well. >> i would ask him about his handicapped, if he asked me, i'm totally handicapped. >> too tall? >> height is not good for golfers. >> it's changed. years back better players were all shorter. now they're getting much taller. >> you're short. >> i'm very short, and i'm fat, too. >> and ugly. >> i'm not ugly, i'm not good looking but i'm not ugly. maybe a little ugly. >> let's talk about this knight capital. how close were they? >> they were right there. i mean, jim said something earlier, actually there's been two very smart things said on this show in the last two days, one by you, one by him. it becomes about liquidity.

obviously you had this, you know, computer terrorism, if you will, i mean it was not a business. they didn't like say we're going to buy all these subprime loans and make money and -- this was a thing that started, there was a voluntary program, it started, there was a glitch from some eight-year-old cold and i'm the worst person to talk about technology, this happened, it was just a freak thing that had nothing to do with their business, it was just unfortunate. >> was it clear to you the second -- you get a call when? >> well, first of all, i basically got coffee over the weekend. brian sterling runs m&a for our firm and he was, had the long relationship with tommy joyce and tommy joyce, you see through his relationships with everybody was key. i got wednesday afternoon brian said i think you need to be around. i'd like to have you in on all these calls so i was next to brian the whole time. >> this consortium of buyers.

>> yes. >> they bought this thing for a song. going to make a fortune? >> bought it for a song, i think the stock is trading basically at tangible book which is where knight historically traded. what's interesting is that when you go to the brink on something, it is an energizing experience for a firm and i can speak a little to that, so i think that knight is going, was a superb firm before this unfortunate glitch. it will be an incredible firm after it. certainly, the investors that came into this are going to do well. i mean, we advise the company of the management and the board so we can take no part in the underwriting because we want to say we didn't want to be biased, we didn't want the underwriting over a deal, over a debt deal or anything else. i think they'll do very well because the company will be bet and stronger than ever. the problem with this, what you learned from a banker's standpoint, is that i guess starting wednesday night, we had

a tremendous amount of calls from people wanting to buy certain businesses, very few calls about trying to do the whole deal, and a lot of people wanted to come and look just to see what was around. the majority of people thought this would fail. >> they were looking for a look at the centerfold without a buying the magazine. >> possibly buy a particular business, any number of things. you said something yesterday that had some value. >> thank you. only happens occasionally. >> no, it was good. >> i was thinking it only happened once. you watch every day? >> i try to watch every day but you said that this was different and you said it before anybody else did, this was a little different than the bear stearns situation or lehman because you got a sense some people tried to come together to actually help. >> right. >> that's an indication of a couple things. how important knight is to the system. when they trade over 10% of all the volume, it's very, very important, and, two, the reputation of tommy joyce and the reputation of all the people

that are there. people wanted to come in, window shop, kick tires, do all that stuff but there were some people including the firms that eventually got in the deal that genuinely wanted to make some money but wanted to help. >> this is really a crisis, though, right, jimmy? you were up all night, all weekend long trying to get this hammered out. >> i gained eight pounds and thursday, friday, saturday, sunday -- sunday a couple hours but that was a terrible couple of hours because you know, it was just not a matter of announcing something. the regulators were on site, they wanted the money in before the opening. and anybody in the free world, there's mostly institutional holders of this thing, which changed over, 400 million shares traded on thursday and friday. >> wow. >> so the point was, they had, it was a liquidity issue, which you spoke about, and they had to get the money in by monday morning, and really on friday, i didn't think we'd make it through friday. i really didn't.

>> this is a nice segue to a different too big to fail conversation. we talked with jim earlier about sandy, sandy, on this show, and i wanted to get your views as someone who has been on the street for a long time, represented a lot of banks about the larger issue of too big to fail and whether we should split up the big banks. >> it's a waste of time for a discussion. all right? you can't unscramble the egg to start off with. if you want to legislature, to announce you can never make a bad loan. there can't be any leverage in the system. if you can do those things -- too big to fail is not the point. it doesn't make -- first of all, we have to have large, strong financial institutions, period. >> right. >> the other thing is, these companies survived. companies like pnc, wells fargo, jpmorgan survived the crisis. they're not the ones that caused all the problems. >> why do you think sandy thinks what he thinks? >> that is a question i have no insight into and i've spent zero time worrying about that, okay?

in a nice way, i don't care what he thinks, but, it's irrelevant. he can think what he thinks. that's fine. it's just it's over. we spent a lot of time -- i make the analogy it's ar little bit like my firm, when i call in, it rings three times i don't like it, so unfortunately i blast the guy who picks up the phone. there are 348 people who didn't pick up the phone. we want to punish these people. lehman is gone, fannie is gone, freddie is gone. those are the people that created the problems. i don't know if they were too big to fail but they certainly weren't managed very well. >> sandler would make buku bucks. you could make a lot of money. >> i want to make money under any scenario. >> bad idea? >> it's a waste of time.

>> because the toothpaste can't be put back in the tube, the genie can't be put back in the g genie. >> whatever you want to say, and by the way, we need the strong institutions. >> people say that that's not true. >> well, they're wrong. okay? >> globally we need -- really? >> i think so. >> they seem to question whether that's true. >> the customer is the customer. somebody says perhaps we should break up the banks. the customers are used to having electronic banking. online banking is growing at 20%, mobile by 40. the last national savings loan is not going to build that technology and the customer is demanding it. you think about large underwritings and large financings, government underwritings, they're not done by small banks because they can't take the risk. >> i initially sawthought sandy maybe feels guilty from getting hammered for picking chuck prince and almost causing the collapse of the financial system by building a citigroup that was not managed -- huh?

>> sometimes the fall is all the man has left. >> sometimes the what? >> sometimes the fall is all the man has left. >> we can get good here. he says he doesn't want to come on as a guest host because he's going to say something one of these times. he's so close. he's so close. >> everybody can have an opinion. >> oh, my mike is gone, that's great. >> that's okay. let it out. just whisper it to me. >> next, what's the next question? thank you. >> we got to go but i have one final. standard charter because we talked about it earlier. broader question just about wall street, the image of wall street, libor, all of it, the wale, all of this stuff going on, is this an aberration? is the industry going to get its mojo back, its reputation? how big an issue is this? should we care? >> you know, mistakes are made, the sizes are all much bigger now. maybe you know, maybe it should take a certain time to get to

the drugstore, maybe we're trying to get there too fast. maybe there's an issue on speeding things that we ought to just step back and one of the investors said that yesterday, that maybe we're just trying to do everything too big too fast and we ought to reevaluate some things and i think that's going to happen. look, it's a lot of bad things have happened. there is a lot of debate on certain other issues. it will get through it. it's not a great time. there's no other way to say that. >> i think knight capital is a good example, a major problem, the financial institutions came to the fore, good consultants, and investment bankers, put the deal together and saved the company. i even heard that you had -- >> knight capital had good lawyers, i mean lochtel lipton. lose $4 milli00 million on wedn

and the regulators were helpful. >> good lawyers and good regulators. >> wow. >> not good bankers but other than that you're all right. >> jimmy dunne, thank you for being here. this was a lot of fun. really, thank you. >> he starts leaving before we get to -- coming up, cnbc exclusive, we just had a cnbc exclusive, this is with boston fed president eric rosengren, first tv interview and calling for the central bank to expand mortgage and treasury holdings, he'll have to pull out all the stops, sitting down with steve liesman, cover story on "huffington post." and john harwood joins us live with details on an unusual congressional battle. it's been a while, john. where have you been? >> reporter: joe, if you hate congress, and i know you do, there's an awful lot to hate here in this congressional race in parma heights, ohio, at the center of the 2012 campaign. [ male announcer ] when he was only 4 years old,

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election season bringing an unusual race in a battleground state this november, thanks to

redistricting, two incumbent representatives are facing off in ohio's 16th district. cnbc's john harwood joins us with more. this was the big piece i saw in one of the papers this morning, right, john? >> reporter: exactly. ohio is the ultimate battleground state, obama and romney fighting over it, the vice presidential candidate could be rob portman, the u.s. senator from ohio, but we've also got a big race for congress. you look at the polls they tell you clearly just like voters will tell you here in the parking lot of a shopping mall, this congress simply is not getting the job done. >> a lot of talk, and not a lot of action. >> reporter: what action would you like to see? >> jobs, better jobs, better pay, people not losing their houses. you know, to see a family on the streets or going to a food bank to make -- it's just sad. i work t jobs. >> fresh faces are always a good thing, you know, if you're there

for only to back the people that have put you in there, and not to do what's best for the country overall, and you night us all, then i think is t is a very good thing to have new people on the scene. >> reporter: but of course that's the problem in this race, you can't have a fresh face. redistricting has thrown together two members, republican jim renasi, democrat betty sutton into the same district, fighting one another and trying to make the case to constituents that it's not their fault, but it's not easy. >> i think it can be very discouraging. all people are looking for is a shot, a fair chance and frankly, that's the fight that i'm in on their behalf, and so while it's true, it's been a difficult environment and so hard for people to cut through and see who is doing what. >> they don't understand where they're not getting things accomplished. i have to remind them we are passing things in the house.

the senate is not taking up these bills. go back to the government classes, we have to change things down there. >> reporter: but of course civics class is not what the voters in ohio's 16th district are getting. ener this' getting attack ads like this one from a labor union accusing renacci of supporting a 23% sales tax which he told me he doesn't support, republicans doing the same thing to betty sutton so we're guaranteed, guys, to have a race where voters will go to the polls in a sour mood here in this district, as they are around the country. >> i was looking at this other race, a lot happening in ohio obviously, it's the one battleground state people, along with florida, bring up in the national election more than ever, and then there's mcguern piece in "the journal" starts out with an incendiary question "will jewish voters vote for a conservative mormon," talking about mitt romney and goes on to

say the more intriguing question is in ohio will jewish voters vote for a conservative jewish candidate, this marine running and points out the diversity of the republican party at this point, but it's all happening in the great state of ohio, amazing. lot of presidents are from that state, by the way, john. >> john, jim rohr. i grew up right near parma. do you think portman could carry ohioor romney, if he were the vice president? >> reporter: i think romney can carry the state of ohio. the question of how much portman adds, it's not clear that many people vote for vice presidents but i've got to think it adds something. i was talking to renacci, the republican congressman yesterday. he wouldn't say portman would make more of a difference than paul ryan would, the wisconsin chairman of the budget committee, were put on the ticket. ryan is his colleague and as portman is in the ohio

delegation, but i do think that portman would be a very solid pick. i consider him the favorite to become romney's choice and i think he could make some positive difference, not a huge amount, no vice president delivers their state. >> i thought it was going to be portman. now i'm wondering, you know, in the last election, they thought they had to shake things up when it was a virtual tie. that was weird last time and now i'm hearing the same kind of stuff, you got to do ryan, you got to do condi, got to do rubio. they have a lot on their plate obviously and very careful -- >> reporter: i don't think that's true, joe. i don't think romney needs to shake up the race, he's in a competitive contest with obama. obama's got a slight lead so romney does have to make some things happen but he doesn't have to swing for the fences. >> all right, john harwood, thank you, our intrepid -- >> i like that shot of harwood, he looks great, like in a small town, good one. >> parma is a great place, softball capital of the world. getting the economy back on track, we've got an exclusive

interview with boston fed president eric rosengren. we'll ask him what action he expects from central bankers at the jackson hole conference at at end of this month, we've got him and mr. liesman after the break. this is $100,000.

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we've got a news alert for you this morning, and it's good news. chevron now reporting that the fire in its richmond, california, refinery is now officially out. >> that's great. >> we will bring you more updates oen that story, of course, as we get them. in the meantime coming up we're minutes away from a very special cnbc exclusive interview with boston fed president eric rosengren. he wants the fed to expand holdings of mortgage bonds and treasury securities until the economy gets healthier. he's going to join us to talk about all that and more, after the break. check our bags for free, thanks to our explorer card. then, the united club. my mother was so wrong about you.

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welcome back to "squawk box." let's look at some stocks to watch in early trading today. cvs caremark earned 81 cents a share, raised outlook for the year on strong results from its pharmacy benefits business. the company says it expects to retain at least half the business it gained during the

now resolved dispute between walgreens and express scripps. molson coors, shares well above $1.19, it was helped growth by the u.s. business as well as an expansion in europe. let's get up to boston to steve liesman who has got a special cnbc exclusive interview. steve? >> yes, andrew, thanks very much. i do have something of a newsmaker here this morning. eric rosengren, the boston federal reserve bank, making some news. thanks for joining us this morning. >> nice to have you here in boston. >> i love to be here. let's talk about before we get to some of the other issues about policy, i want to just lay the groundwork for your economic outlook, doing about 1.5% in the second quarter, no the a lot of opt minimimism for the third qu. >> as you highlight we've only been treading water. we started the year with 8.3% unemployment. we now have 8.3% unemployment as

well. we started with the population ratio and participation rate in the market of what we've been seeing now. we've only been treading water in the labor markets and the gdp reports are disappointing. first warter 2%, second quarter 1.5%. my expectation is the second half of the year won't be much better so given that we're only treading water that's the reason why i would advocate for a more accommodative monetary policy. >> where do you think we end the year on unemployment and inflation? >> my own forecast is a little bit lower than the consensus for gdp and higher for the unemployment rate. my own expectation is, in the absence of any kind of policy, that we'd have an 8.4% unemployment rate at the end of the year, and i'd expect the second half of the year not to be much better than the first half. we did 1.75% the first year, roughly that, maybe a little worse. we've gone from the first quarter to the second quarter the economy slowed down, both consumption and investment got weaker and i think that's a

reflection of concerns of what's going on in europe, concerns about how our own fiscal deficit will play out. >> talk about what you think the appropriate fed policy is, given the economic outlook. >> if you're read treading wate even if you're a good swimmer, at some point you need to get to land. we were expecting a pickup in the economy, if you looked at our january meeting, when we produced the forecast, peerm expecting 1% to 3% for real gdp, we'll be substantially below that over the course of this year so it calls for accommodative monetary policy. i think it needs to be substantial enough that it offsets some of the shocks we're getting from abroad and some of the concerns people have with how weak the world economy has been so we're in a global slowdown so that would argue for a quantitative easing program and one of sufficient magnitude that it has an impact. >> what would be that magnitude? >> exact magnitude, roughly the magnitude we saw for the first

two quantitative easing programs i think would be appropriate. >> combined or single, it would be one -- >> what we'd argue for, actually, is to have it open-ended, that we focus on economic outcomes, so i've argued for the guidance should be tied to economic outcomes, president evans suggested the same thing. i would argue that if we do quantitative easing program again, we should be using economic outcomes as what we're trying to get. we want a stronger economy. we want faster growth in the income, and we want a labor market that has an unemployment rate that's clearly declining. >> explain what an open-ended qe would look like. how would it functionally work or operationally? >> i would focus on the mortgage-backed securities and it would be a monthly rate that you could alter if you wanted to, but an expectation that you would have it of a substantial magnitude, so rather than setting a calendar date, rather than setting a magnitude, you'd say we're going to do this

monthly growth rate until we see an improvement in the economy we're hoping to get -- >> growth rate of q snerks. >> of purchases, yes. >> you'd grow the balance sheet by x% per month? >> or x dollar amount. >> and you would raise that or lower that based on incoming economic data? >> exactly. >> what targets -- first of all, why not just set a rate, why not peg the 30-year to a 3%? have you tught about that? >> i have thought about that. i think there are some have that argued we should be pegging a rate. i think it's very difficult to peg a rate in an environment where a lot of things are occurring in the world that we don't have much control over, so you could be in a situation where you're flooded with securities that you're purchasing or that nobody, that you're not purchasing any securities, so the one issue with pegging a rate is that you may not have complete control over your balance sheet at that point. if you want to have more control over how rapidly your balance sheet's increasing then you'd set a rate. >> hold on, you've just --

>> -- trying to push the rate down. >> -- you're advocating open-ended qe which means you don't care how big the balance sheet gets. >> open-ended in terms of not setting a time or calendar date and not setting a magnitude, but it's not saying that we would purchase everything in a short period of time or not purchase anything for a short period of time, depending on where market rates were relative to your peg. it would be setting a quantity that you're going to continue to buy until you get the kind of economic outcomes you want. >> do you feel like there's any practical limit to the size of the fed's balance sheet? >> there's clearly a limit to how large the balance sheet can be because we're limited in what we can purchase so we can only purchase treasury securities and mortgage-backed securities so the stock of those two is certainly the maximum amount that we could hold. my hope would be that the policy would be substantial enough that we actually wouldn't have to carry it on for that long and we'd start seeing real improvements in the economy, that we'd see stronger growth in the economy. >> i want to talk about some of the criticisms of quantitative

easing but maybe in the first order, could you explain why this would do any good? you were already talking about, i looked this morning, a 3.6% 30-year mortgage, 1.5, call it 1.6 on the ten-year yield, if you must. interest rates are already low. real rates are actually already negative. why would an even lower rate have any practical impact on things that matter to people, the level of growth, and mortgage rates, interest rates? >> there are a number of areas quantitative easing can help in. one it does push up asset prices so around times when we're announcing quantitative easing program, stock prices, equity prices tend to go up, that increases consumption as people's wealth improves. second area is the housing market, before we went on we were commenting on the housing market has been improving in boston. look at what people are renting for apartments in boston and looking at what a condo is, and factoring in what the current mortgage rates are, the lower the rates are and given prices

are quite low relative to historical standards there's more opportunity for people to make a decision instead of renting they'll purchase a condo or a house and the housing market has been improving, partly a reflection of what we've done to date. >> aren't we at a point the marginal person who would qualify for a mortgage rate is not qualifying not because of the rate, but because their home is deeply underwater and that's really an issue for the fiscal side, not really a rate issue? >> i think it's both a rate and availability issue, as the rates go down, part of it is you need to be convinced that housing prices are going to go up and you're getting a rate that's low relative to the cycle, so if we're artificially pushing rates down it encourages some of those waiting to determine when they want to purchase a house or purchase a condo, that this is a particularly good time to do so. and i think that's actually true and that's why we're starting to see some legs in the housing market, and you certainly see it in boston, where the housing has picked up. >> you said it pushes up asset prices. some say some of those assets

whose price, pushed up are things like oil and commodities and overall inflation which tends to undermine spending power. isn't that a big negative for additional quantitative easing? >> you would be concerned about the inflationary effects if you thought that we would have big inflationary effects. we've had two quantitative easing programs, right now the total inflation rates, 1.5% so our balance sheet expanded in 2008, it's now 2012, many people were concerned about the involitionary impact of expanding our balance sheet and both of the quantitative easing programs. our problem right now is we're below our 2% target, not above our 2% target. that's despite two quantitative easing programs and the fact that our balance sheet is much larger, so i think the inflationary effects, while that's a real concern and we have to factor that in, to date we haven't seen the inflationary pressures because we haven't got the economic growth we were hoping to get. >> president rosengren, thank you for joining us this morning. >> enjoy being here. >> joe and andrew, back to you guys.

i'll have a longer conversation with president rosengren, we'll bring you some of that later on in the day. >> where are you up there, in that federal reserve building down near south station? i'm trying to figure out where -- >> exactly and looking back at the seaport i think behind us here. >> that big silver cool looking -- >> we normally go back to the bay but the sun was there this morning so i had no water for you, sorry. >> that's okay. what floor, is there, you're like in the middle of the federal reserve building, right? >> yes, the fourth floor of this nice terrace they have here. >> i see the building there, so okay, great, thank you, and that's interesting. sounds like qe3, jim. you like qe3? >> i think one or two certainly works. the question is the marginal impact of qe3, if they do it but i think one and two certainly s has upped the commercial market and helped the government borrow

at lower interest rates so it has had a positive effect on those three areas. up next, he helped oversee bailouts of aig and citigroup for the treasury, now james millstein runs its own fund focusing on stressed debt. tomorrow we'll talk to another former treasury official, pimco's neel kashkari will talk about europe, the fed and global stock picks for your portfolio. you do what you do... because it matters. at hp we don't just believe in the power of technology. we believe in the power of people when technology works for you. to dream. to create. to work. if you're going to do something. make it matter. you have to dig a little. fidelity's etf market tracker shows you the big picture

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the european commission said to detail proposals for a european zone banking authority. joining success jim millstein, chairman and ceo of the advisory firm millstein and company and treasury department's former chief restructuring officer. jim, good to see you. >> thanks for having me. >> last week we heard the details of the prior week's comments from draghi. were you heartened by what he said, disappointed by what he

said? >> it looks like he's likely moved the ball with the germans, and with the rest of the ecb so he's saying he's going to do whatever it takes. that's what they needed. >> so you weren't disappointed. we thought at the time, andrew, remember, we've called it a plan for they got another plan for a plan. >> a plan for a plan. there's more to it. the esm is a huge institutional development, took a year and a treaty change to get done but it gives them the fire power to recapitalize the banks, something missing monetary authority can provide liquidity but can't cure insolvency problems. >> when does someone take a haircut. >> it's a dangerous thing. >> it's not something to hope for? >> the moral hazard crowd, you know, on the sidelines, the cheap seats probably roots for people to be taking losses but if you inflict losses on bank creditors, you actually impair the ability of banks to fund

themselves. >> someone made the point and it's almost, and i'm guilty of it, almost dogma now that i think none of these countries can ever grow enough to service the debt that they already have, and they're making a point that even spain is recovering and it's possible they eventually do some reforms, some labor reforms maybe, where they are viable and maybe we can assume they can make good on their debts? >> yeah, growth is definitely the issue. >> is it possible it can happen? we worry about that here now, the new normal. >> look, you've got, there is sort of funding and liquidity issues and solvency questions. in the short term, there is liquidity issues and that's what draghi is actually really attacking both at the sovereign level and at the bank level. in terms of the sovereignty stuff, that's a question of fiscal discipline which needs to be reinvigorated in that region, same thing here. but you know, assuming that they can get back on a growth trajectory, and that's really

the issue. >> we are talking spain. greece we just definitely decided they can't -- >> we've written greece off. >> they can't ever pay anything back. >> i think they've got a series of reforms they've got to implement and it will be a long time. >> boy they got some great islands, though. why not sell santrini to or micinos -- why not -- >> cash flow on santarini can't be that good. >> but larry ellison would love it. >> i'm thinking steve wynn. could you have some cash in there. >> you want to go aig. >> i want to go aig if i could. you obviously worked on the bailout, have great insight to someone who was at treasury on this. last week treasury sold a little bit more of its stake in aig and sold it supposedly for a marginal profit $30.50, the break-even, treasury said $28.72

is the profitable number. >> yep. >> the thorn in your side, a guy named neil barovsky. >> not my side. >> was a thorn in someone's side. >> he was doing his job. >> said the real price is $h $43.53, given the way the t.a.r.p. was structured with the fed we have to think about the break-even price totally differently. >> like a 90% difference. >> it's a huge difference, so i want to know from the man who actually worked on it, what is the real number and how do you get there? >> okay, so in its most simplified form, the treasury department got $1.6 billion, give or take aig shares against $48 billion of net investment, so you tell me. that works out to $28.72 a share. what neil says -- >> what is neil talking about? >> neil is doing a little nitpicking and he's entitled to do it if he wishes. we got -- he says, well,

actually, half a billion of those shares came via the aig series c trustees who got a 70, what did they get? well, at the end of the day, we had, it was a fee that you'll recall in september of 2008, when the fed made its extraordinary $85 billion loan, they took a commitment fee in the form of a warrant effectively, a series c stock. >> okay. >> and that was the commitment fee for the $85 billion facility. and in the recapitalization, they took that -- >> you're confusing me. >> it just sounds like the half empty thing says it's 43, the half full part is 28. sounds like real money, though, doesn't it? >> no, no, but the difference here is this, is that when the fed set up that trust, they set the trust up for the benefit of the treasury, so the treasury was going to get those shares and all of that, and they got those shares, so there's a

t.a.r.p. account, which got it 1.1 billion shares and series c trust account half a billion shares. we got the half a billion for free so our basis is a mere $48 billion, a mere $48 billion. >> so from a government point of view, they have $28 a share in liquidity. >> taxpayers going to get all their money back? >> they're making a profit on aig, the taxpayers are, for sure. >> did you think originally when you were working on this they'd originally make a profit? >> no. i think the gao at the time said we were going to lose $60 billion on the $185 billion. >> that's remarkable. >> you've got to be remarkably pleased with how that whole t.a.r.p. thing worvegd out, very profitable and really did the job of stabilizing the markets. >> i think it's unfortunate it got politicized so badly, because in fact, it is an example of the government actually doing its job well. >> i know we have to run but dick kovacevich a week ago said

t.a.r.p. instilled no confidence, said look what happened to the stock market after t.a.r.p. was announced in october of 2008, and look where the market went, remember march and how far of 2008, remember m and how far down it went. he said, how can you give credit to this thing. >> think of the alternative. >> i wanted to get -- >> think of every banking institution this this country basically being taken over by the fdic and liquidated. that was the alternative. >> he would dispute that. >> depositors unable to get their funds for years. it's not even -- it's interesting, but it's so far removed. >> i think in dick's case, not all the banks needed it. we took t.a.r.p. the money never left the the fed. we left $7.5 billion undeposited. the fed paid $460 million worth of dividends then a warrant. we all would have liked to have that investment, but many banks

did need it. you look back at the time they put the t.a.r.p., from the day they put it in, the market stabilized from a liquidity point of view and got better. >> thank you. >> thank you. appreciate it. coming up, we've got more from our guest host and ceo, jim roar. roar. i do that with my kids. this roaring. commercial. please. ♪ i want to win [ breathes deeply ] ♪ this is where the dream begins ♪ ♪ i want to grow ♪ i want to try ♪ i can almost touch the sky [ male announcer ] even the planet has an olympic dream. dow is proud to support that dream by helping provide greener, more sustainable solutions from the olympic village to the stadium. solutionism. the new optimism.™ ♪ this dream

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coming up, final thoughts from our guest host. i love it. i do it all day long. pnc chairman, ceo, jim rohr with some final thoughts. >> tomorrow, we'll talk banks and bonds with meredith whitney. she's be our guest host starting at 8:00 a.m. plus, fix for your portfolio from neel kashkari. don't miss "squawk box" at 6:00 a.m. eastern.

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stock of the day, or stocks of the day in this case, it's a partnership. not a good one. pfizer and johnson & johnson,

scrapping on an experimental drug. failed to help patients with the memory robbing condition and it was a second late stage clinical trial. it was high profile. i guess the first one was more positive than this one. elan is also involved in document and they're all trading lower. jim rohr, we like to do that about business at pnc. getting customers. >> it's all art the first half of the year, revenues were up 10%. pleased about that. core income up 8%. >> are those good numbers? >> good numbers. really good numbers. we had a mortgage repurchase reserve we had to set aside, national city bank. reserves for the putbacks that come back. it's hurt the quarter, but if you look at the core quarter, really, we had a great quarter.

revenues up. expenses control. good and improved. delean quincies. particularly strong and commercial growth up 3%. we're pleased with that. we're continuing to see long growth in the third quarter. it's not quite as robust as it was in the second quarter. people are being more conservative. i think waiting for the election. >> did you ever do anything with the dividend during the financial crisis? >> we had to cut the dividend. we built the capital ratio from 4% to almost double that now. basic capital. so everybody had to build their capital. >> what was the highest dividend pnc paid? >> about 50%. >> it's still a 2.