she's back on monday. let's get you up to speed on the headlines overnight. global shares have risen after comments from angela merkel saying that germany was committed to doing everything necessary to save the euro. those comments were made by merkel at a news conference with canada's prime minister. merkel voiced support for ecb president mario draghi's effort to contain the debt crisis. more on this story from london in just a moment. stay where you are because we have other news. oil prices slipping late yesterday on word that the white house was quote dusting off old plans for tapping the strategic petroleum reserve. prices now recently hit four month highs, over concerns rising tension over israel and iran could lead to disruption in supply. 30 people died in south africa after police opened fire on a crowd. it follows days of clashes between officers and protesting miners. police ministry said the action

was in self-defense. the south african president said he was shocked and dismayed, world platinum prices jumping as the violence continues in the country which holds 60% of known reserves. >> i know. you can hear me because -- >> can hear you but maybe you can hear me. >> i can. i've been thinking what can i say to him that he can't hear to get to you agree to something. couple of stocks to watch this morning. gap, second quarter profit rose better than expected 29% on strong sales in north america. this is the parent of not only gap but old navy, banana republic. it raised its full year's earning outlook although that forecast of the new guidance is still below where the street is. facebook stock losing more friends, stock closed on another new low, thursday was the first day that early investors in the company could sell some of their

shares. kayla tausche reports venture capital firm accel partners unloaded 50 million shares worth a billion dollars. those limited partners can make their own decision whether to hold or sell the stock. accel owned more than 144 -- >> they were one of the early, early, early investors. if you were goldman sachs you would be almost break even. >> far be it for me to -- i don't -- i don't care where stocks go in general. i don't care where facebook goes. but worth 42 billion now. in the past amateur investors will see a stock that goes down 50% and say wow this is cheap, i want to buy it and they catch a falling nifr, they think they see something and amateur investors a lot of times on its way down to much lower prices. i wonder if pros, who bought into facebook the other day.

>> if i rember correctly george soros bought in. >> cohen. >> mr. cohen. >> see they are smart. if this thing is -- >> we don't know when they bought in. >> but if it goes to that, some of these valuation say maybe it's fair at 13. 42 billion, what is that like six alcoas? >> you think it's a 20 billion company? >> i have no idea. i pros can catch falling knives too. how do they know? they don't. i think they are thinking wow, with google you never were able to get in. came in at 80 and went up sense. it was a transformative company. facebook looked like it was having that potential. they think they are getting it at half price. myspace was not cheap at half

price, of it? >> no but this is now impacting the company. >> bet it is. zuckerberg, he can act arrogant at 27 for a while but sooner or later people are going to start looking at him like i used to have money. i used to feel i was a millionaire. >> employees can knock it out. >> i used to feel flush. >> he was worth a lot more too. anyway he's fine. "wall street journal" reports that the facebook founder has acknowledged that the stock's rapid decline is sort of a painful thing to watch is what he called it, company wide meeting last month. the meeting was part of an effort to boost morale. the whole social media thing is weird. it's counter intuitive you'll sit in your basement doing social things and not leave your

house. most of the time if you want to do social things you need to leave your house and be around other people not a computer screen where you're basically ended up sterile. >> talking about being sterile there's an executive -- >> you told me about this. this didn't get interest towing until you found out this other stuff. >> this other piece. i was focused on the ipo. >> are your going to use the word diddling in this? >> i may not. executive suite drama at restoration hardware. the chairman and co-ceo gary freeman has left those jobs. you probably know him. you've seen him in a t-shirt and jeans in all the restoration catalogs every where. but you don't know why he left the company. he's leaving because there was an internal inquiry into an intimate relationship he had with a 26-year-old female

employee, all of this is happening as the company prepares for an initial public offering. freeman joined restoration hardware in 2001 and is credited with turning around the company. he was plugged out of obscurity by mickey drexler. he was a stock by at gap. became president of williams sonoma, pottery barn and turned around restoration hardware. had this relationship with this employee. this employee is no longer an employee. it's a consensual relationship and they still by the way friday, august 17, 2012ing. >> he was divorced. >> he had been divorced for seven years. >> she's not married. >> correct. but this is what happened. here's the great danger in this world today. the girl, the woman, 26-year-old had an ex-boyfriend. >> yes. >> he's jealous, upset, bitter, whatever. we aldo, right?

he's frustrated by what he sees as this relationship with the ceo and his 26-year-old ex-girlfriend. he decides that this is inappropriate. >> the ex-boyfriend. >> he calls up the board. he calls up the company as management. he calls up goldman sachs. i kid you not. he's leaving voice males all over the city telling everybody that he knows that there's this inappropriate relationship going on because she works for him. restoration hardware because they are having an ipo get nervous, hires a law firm to do an investigation. the ex-boyfriend has a criminal record. which made it more complicated. >> did you delve into what it was? >> it was some form of stock fraud. he went to jail. he went to jail 12 years ago. >> a regular petty criminal. >> very complicated, strange,

otherwise weird story. he's going maintain i should say gary freeman will maintain a relationship with restoration hardware as curator. >> no wonder he hit everybody's number, he was involved in stock fraud. >> in general, plugged is a word we try not to use. he said keep plugging the chicken. local newscaster and he didn't say plugging. he didn't enunciate enough and it became legendary. the co-anchor, the look on her face. just in general i would use diddle. you didn't use a verb this time. you said inappropriate relationship. >> it's only inappropriate from what i can tell -- >> she was subordinate by

default in the massive hierarchy but not directly related. >> only thing i'll say normally your columns are business related. you seem a lot more animated and interested in this, you know. right? you found something out that really piqued your curiosity. it was more about restoration hardware and this guy leaving. >> time for global markets report. giving kelly some time off. a bloodless coup. ross westgate. welcome back. ross westgate. shaken not stirred for you most time right, ross? >> yeah a little bit of shaking if you need it. good to see you guys. we are ahead of the u.s. open, joe. a little bit firmer. we had comments from angela merkel.

you talked about it in canada. suggesting she backs mario draghi. trying to stabilize bond yields in italy and spain. they would support unsterilized bond markets providing we got the esm and esff up. markets are firmer after days of flat days. pace pacers out pace decliners. slim gains for the ftse and dax. the real gain, though, has been in spain up over 2%. and spanish bond yields continue to fall this morning down 6.471%. but amongst those comments she made she did say the european commission should receive stronger powers to intervene when budgets of euro states go off course. that still puts her on a collision course with france who don't want to have oversight of their budget from a separate

european entity. still big problems ahead. also it contrasts with views from finland in the daily telegraph, the finland minister talked about how they have contingency plans in place for a euro breakup. said we can't keep going we'll run out of money fairly soon. and we then spoke to european affairs minister out of finland this morning who told us his country is still 100% committed to the euro despite those comment from the foreign minister. >> there's a lack of trust among member states a lack of confidence and we need to rebuild that trust. in order to rebuild the trust we need tighter rules for the tuch. the requirement which is a footnote is part and parcel. what we need to focus on right now is get tighter and tougher rules. >> finland important, of course, because they will have a veto on any plans that eventually come together which includes, course, the sm and asm get them up

running. whatever happens will be a very important player as well. so we'll continue to watch that story. lonmin has been a big declirn. plat mum prices are up at one month highs. lonmin stock is down 1.39%. after violent clashes at its mine in south africa that left 30 people dead by south african police after a dispute between two rival unions escalated dramatically. lonmin said their production targets are unlikely to be met. the ceo is on its way to the mine. 80% of platinum production come out of south africa and there's rather disturbing pictures we've seen as events unfold. we'll be making other miners rethink their long term investments in to the company unless they get a control on the situation. that's where we stand right now in europe. andrew and joe, good to see you

both. >> ross westgate, the markets get a read on consumer sentiment this after several days of big economic data. joining us is drew mathis and john lonsky. we are now back, guys, to qe3 if i -- like 75% now. now "journal" piece today the hawks are taking charge. >> if that's the case with qe, the possibility of qe3 is put on hold indefinitely. economic news hasn't been that bad. more importantly financial markets are moving higher. >> drew, you feel the same way? >> we stopped looking for qe3 but we think bernanke will spell out what will happen if things don't improve and look more like

a bank of england program. >> we are viewing -- we can talk politics as long as we view it through the prism of investments and wall street. the number was pretty good in term of the 160,000, but still 8.3. how long, is it hour delat your firm or how long have you been doing this employment model to predicting popular vote for the two candidates? >> we put together a few months ago and we ran it and kind of based off all the post war elections where incumbents were running and use two variable, change in the unemployment rate and change in the ten year yield. the thing that want sets this apart from 1980 is that 1980 u.s. treasury yields were moving up sharply. the reason they were moving up sharp leadership people were anticipating that the economy was getting better. what sets this one better the ten year yield is -- >> it moved up sharply on a percentage basis but only back to 1.83. on a percentage basis it's

moving up. the bond moved up sharply or the yield? >> the yield. >> so you've gone back and done this analysis on all -- okay. so it's worked for a while but what was it saying in 1980 when reagan -- >> that reagan would win the election in 1980. >> how close did it come to calling the popular vote? >> it was -- i mean it suggested it was not is going to be close. i can't recall the exact numbers. >> you did that recently. if romney wins 51.7%. >> to 48.3. popular vote. >> the popular vote. >> not the electoral college. >> to 30 to 190 is swing state analysis and three or four poipt difference of the composite -- rasmussen and gallup have romney up.

in this next number we get, the next employment number let's say it goes to 8.1 then the next one goes 7.9. >> it only goes through the october payroll report because it's really -- it's not how people are feeling, it's actually here's where the media comes into play. the reason you only go through the september payroll number which comes out in october is because that is actually what's driving people's perception. >> the last month. you don't do anything like this? >> nothing like it. >> ten hours a day -- >> i have plenty to do. >> give me something interesting. >> downgrades in europe. that keeps me going. that's kind of important too. when we're looking at the possibility of another run of quantitative easing in the united states the fed would rather have the ecb finally take some strong action at helping stabilize europe before they make another move. for the longest period of time fed has been compensating for a lack of action in europe.

on the election front, you know one thing we don't want to lose sight of. my impression is that if the economy does worse in way that might help obama because as people begin to lose hope, as we go from hope to hopelessness, they want more government intervention and so they will go with the incumbent >> it's all becoming clearer. he's doing this on purpose this total lack of hope. 35 point negative between right track wrong track all intentional? really? john that's a stretch to say that's the worse things get the more people want entitlements. the more we need entitlements. you go to this guy. >> understand. >> the worse it gets you want to keep the guy -- >> there's a certain group of voters out there -- >> 50%. >> receiving end. >> on the receiving end you want to keep receiving. if things keep getting worse you

want to receive. there's an argument to be made. >> just go permanent which would be -- >> be like europe. >> you may find boomers get nervous when they talk about cuts in medicare and that may shift their vote. >> the "journal" piece today pay come back to haunt. not to bolster medicare but to pay for obama care. cuts from romney will bolster the medicare system itself. >> the danger, to me in the romney/ryan -- >> they are extremes. >> not about extremist. in a debate we used to have around this table every single day about jobs and unemployment, the debate has shifted to this debate about entitlements which

gets to his issue is that people who are on the receiving end of the entitlements say you know what? this is not so good for me. >> an ad idealistic young man -- >> how does romney campaign frame thast. >> you don't want an election to be a referendum purely on someone on what's already happened. you want it to be on the different paths for the future that both candidates are proposing? we don't want to have an election just on a referendum just anybody but obama. we want to know what romney and ryan do. this becomes a choice is what the american people deserve, right? do i sound like a preacher. say hallelujah. this is a choice. who want as referendum. should it be a referendum? >> i'm trying to know what i can say without being fired. >> you won't get fired here.

>> i think the great thing about the vice presidential pick for the republicans it does set it up for what's for the future. i think that's what we need to debate. obviously that's where we're going to be living. can't go back in time so no point -- >> the other vice president, the actual vice president said look, here in the 20th century very difficult to handle a lot of these issues and we got figure out what we're trying to do. >> and put everybody back into chains. >> put y'all back into chains. >> you need a clear argument that less government intervention indeed implies faster economic growth. that's the trick. >> that's the question and argument. >> that's the question of all of us. thanks guys. coming up, texas taking drastic measures combat west nile virus. plus investigations exclusive. former head of morgan stanley investments in china has been

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welcome back to "squawk" this morning. let's take a quick look at u.s. equity futures. as we speak, dow looks like it will open up a point hire. nasdaq would be a point and a half higher. >> that's the actual -- >> that's the actual implied

open. so nothing doing right about now. things could change, of course, as the morning progresses and as they do we'll be talking about it. let's get you through some of the morning headlines. be officials in dallas have ordered a controversial aerial assault on its mosquito population to thwart a deadly outbreak of the west nile virus. the disease has killed ten people and made more than 200 others ill. aircraft was called up for the first time in 45 years to spray insecticide over the state's northeast quadrant. texas has seen half of all west nile virus cases so far this year. >> any redeeming quality to a mosquito? >> great question. >> it is. i wonder what the he cou eco lo effect of wiping them out.

>> what about bees. >> love bees. other than spreading disease and being annoying and giving you welts and we have bats that eat mosquitoes. let's get a check on the national weather picture. alex wallace is here. i think you know about just about everything, alex. do you know anything good that mosquitos do? >> as you were saying that i was trying to think of something. and really i can't come up with anything. >> there's no reason to keep these things around. if we could find a way -- i'm willing to take the chance. >> i'm googling redamable qualities of mosquitoes. >> all right, alex. >> let's check the forecast. we have wet weather to deal with across the deep south. heavy downpours parts of alabama into mississippi and there on into east texas. not going to make the mosquito

population any better there. storms flaring up here in the eastern lakes, getting into western new york. all lining up with a cold front. here it is. it's this front that will march its way to the east. some storms we see could pack a bit of a punch. severe threat for parts of the east coast into the deep south. damages winds and hail is the main risk. by saturday the front is along the east coast and trailing back across the south. that will shift south for sunday. a lot of the gulf coast coastal states will stay wet. behind this front cooler air for our friday. temperatures a good five to ten degrees below average. fall like air mass in place fours by saturday. chicago 77 degrees. 82 and an enjoyable day in st. louis. back to you. >> you were not the first one, joe to ask that question. >> let's talk about it after the break. >> our trading block tackles stocks and bonds. paul o'neal is our guest host

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♪ you going to sing along? >> i could. >> who is -- >> my morning prayer. >> i was singing about us. every morning i come in here, to be with you is like a parade. excited.

marching. >> becky quick is out today. i'm joe kernen, andrew ross sorkin. becky will be back on monday. i'm leaving again. i'm like johnnie carson. i'm leaving again. but it's summer. it's summer, you take your time off in the summer and in the headlines this morning yahoo! looking for a chief operating officer to serve as the number two to marisa. to concentrate on day-to-day business issues. another carriage fee dispute involving a big cable company. cablevision customers are without tribune broadcasting educations. tribune is working its way out of bankruptcy. it's not -- these are -- cablevision has always been the one. comcast -- >> comcast.

time warner. >> wall street bonuses will rise less than previously expected. johnson associates says bonuses will be flat to 5% higher compared to 5% to 15% increase that was forecast three months ago. cites weaker than expected revenue at big banks for the reduced forecast. i'm not the first one eradication of mosquitoes. they thin the herd of the human population. now it turns out that there's certain mosquitos that are predators of disease carrying mosquitos. so you end up killing the mosquitos that kill the mosquitos that carry the disease. in general they are one of my

least favorite species of living things. >> on that we can agree. >> don't like them. >> not a misqukw mosquito guy. treasury yields hitting all time loss. finally starting to move slightly higher. joining us now is bill irving. and from chicago the cme in chicago the chief strategist for ameritrade. let's talk about the ten year. where is this thing going. felt like we were at a bottom now we've come up a little bit but still -- your views? >> while certainly we're off of the all time lows that we had late july -- >> are we going back? >> i think there are made headwinds that could, would keep rates at low levels and range

bound. i'm thinking of the european sovereign debt crisis. >> when you say range bound, give us the range then. >> i think that they are going to stay -- look right now yields have only bounced back to their average level year-to-date. i think they stay in that range, you know, around 2% for the rest the year and maybe into next year. >> and does that assume qe3 or not? >> i don't think we're likely to get qe3 at the september fed meeting. mainly for three reasons. first, inflation expectations remain fairly firm. second we have easier financial conditions in the sense that equity prices have held up pretty well. third, i think it's an uncertain risk-reward tradeoff in terms of growing the balance sheet, adding another half trillion in reserves versus the benefit of that. >> right. joe s-he wrong or right?

>> i think he's right about the range. 1.5 to 2.2 on the yield seems hard to believe we'll break out of that one way or another particularly before the election. it does look like qe3 right now the risk-reward doesn't seem to be tlikt. yesterday we heard the minneapolis fed president talk about the possibilities they will have to raise rates sooner. the day before we were talking about keeping rates in line. so it is kind of interesting. it shows there's so much skittishness in the market right now, when you see this kind of skittishness, no certain direction, always difficult to break out of the range and with the election coming up i don't think anyone will take a major stand one way or the other. >> joe, you probably can't see this but on the screen i want says treasuries calm before the storm. we're coming in to the dog days of summer, the last two weeks of august which haven't been so calm the past couple of years. is there anything in the next two weeks that you think we

should be paying attention to at all or all post-labor day? >> i would think it's primarily post-labor day. some numbers are coming up to show inner day moves. we're right at the level at s&p 5001400 to 1414. we're trading in the middle of that. a lot of resistance right there. this is the rally, the rodney dangerfield rally that no one seems to respect. we have a lot of resistance. be interesting as we head into the weekend to see if the market can rally ahead of that. kmooits summer friday so we may slow down a little bit as the day continues with lighter volume it does tend to push the market higher. yield could go a bit higher if the stock market can continue to push and push and push. >> we'll leave it there. bill and joe, thank you for joining us.

if you got comments, questions about anything you see here on squawk including questions about mosquitoes shoot us an e-mail at squawk box squawkbox@cnbc.com. we have more after this break. [ male announcer ] at scottrade, 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... all ] i'm with scottrade.

welcome back to "squawk box". this morning u.s. equity futures at this hour close to one point up, one point down but things

may change throughout the day. did you see this story? should i even show it to you? can i do this. >> here for viewers you show your story then i'll show my. if you want to show this trollop. >> she's pregnant. >> eliot's >> we wish her congratulations because we like to see good things happen. >> you know, i'm agnostic. i wish i didn't know who she was. i wish eliot didn't do something that would put her on the front page of a newspaper. >> right. >> i don't know. >> did you see ken langone the other day? >> let me tell you something, andrew. 5 billion years of the planet being around the evolution, the

amount of time that's designed the genetic code, the struck of dna, the way that it works, it's elegant, it's efficient, look what it does, it allows to us think and see and amazing that -- it's a blueprint for all of life. they have now put a book into a genetic sequence and they actually made dna out of the book and they made it so that they actually had the molecule and then they translated, retranslated it back into the book. so we can do that now. using this. you know how we code with things for computer code and how much space it takes you can put the content of the internet on something as big as your thumb, usual thumb nail. the entire content of the entire web using the genetic code you can sequence all that information on something the size of your thumb nail. are you thinking about that?

>> i'm trying to get my head around. >> you got to pick a story and it's that she's knocked up. do we know -- she's not married. not that there's anything wrong with that. we know nothing anything about the father except it's not former governor. >> i'll bring you more details throughout the morning on this very important story. >> the first story you brought us was restoration hardware. you're in the wrong business. who is that guy? tmz. harvey levin. >> he's done very well. >> we'll retire some day. >> coming up, inside the files of investigation, inc. all scandals all the time. scott cohen has the exclusive interview. our guest host -- >> she is engaged to be married. >> that's nice. >> we wish her well. we wish everyone well.

>> politics, economy, euro crisis, health care and why the fed is out of bullets and what is former apple ceo john scully doing right now? i want to talk to him about a few things. i think we can do all the things spectrum was trying to do. he'll join us at 7:30 a.m. eastern. more "squawk box" right after this quick break. ♪

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you know, you see scott cohen in the rundown that the producer uses. it's automatic. ceo of failed u.s. futures broker peregrine financial will be arraigned in an iowa

courtroom. russell wasendorf was charged with lying the regulators. he's attempted suicide recently in the last month. he's confessed to forging documents about how much money was in peregrine customer accounts. the firm's regulator passed new rules thursday to better protect customer money. a former morgan stanley investment banker faces nine months in prison. he helped build the firm's successful real estate business in china. he's been sentenced for what prosecutors called an elaborate scheme to rip off the bank and pay off a chinese government official but before he heads to prison garth peterson is talking exclusively to cnbc senior correspondent scott cohen who is with us now. andrew won't be interested unless there's a sexual angle to this. do you have anything at all? >> we'll do a little bit of this interview during the day. not in this segment. >> there's something for later? >> he was doing business in

china, in the early part of the last decade when the property boom was going nuts and he told some pretty wild stories. >> he was rich. >> very rich. making a lot of money. he could have gotten five years in prison actually under the law, prosecutors wanted four years, he got 90 days, this was a multimillion-dollar scam and when garth peterson pleaded guilty in april the justice department hailed it as a big step and praised morgan stanley for finding him out and turning him in. in his only interview peterson tells us there's more here than meets the eye. do you feel like morgan stanley threw you overboard? >> yeah, look, i did things wrongs and deserved to get fired. what i feel bad about is the government lying to the public and saying that they had this wonderful compliance program when in fact the government knows it wasn't getting into people's heads.

>> reporter: even garth peterson acknowledges his crime was brazen. he engineered the sale of morgan stanley's interest in some prime real estate in shanghai at a deep discount, the firm didn't know the company it was selling to was controlled by peterson and a chinese government official, who made on paper $2 million on the deal. >> he just fronted for me and to other people. >> reporter: peterson says bribery was the furthest thing from his mind and he claims it was furthest from morgan stanley's mind, too. morgan stanley turned you in. you were reminded 35 times about the foreign corrupt practices act. you went to training about the foreign corrupt practices act. >> the actions of everyone around me, all the way up to the top, completely showed that people had no conscienceness whatsoever. the justice department, the sec

to a lesser extent are so keen on finding some example that they can get by the scruff of the neck, see, here, remember this law, nobody do this again. the doj needs this example and getting it at the expense of truth. >> morgan stanley declined to comment on the interview except to say it fully cooperated with the government and peterson's action were a deliberate and egregious violation of of its policies and values. others who worked around him say very little attention was paid to anti-bribery laws then because that's how in part things got done. what happened to china? we'll have some of that stuff later on "squawk on the street," $200,000 in alcohol in one night. >> wow. that doesn't sound falsie, it was delivered in lap dance for

the alcohol. there's someone -- he literally means teasing it because he loves it. >> this was supposed to be a client taking out five or six people, bankers. >> you can't drink that much, you'd be dead. >> i guess it was very old wine. >> maybe it's wine, right. >> so you can. >> scotch, i guess you could, right? >> it isn't just any alcohol, it's not like the stuff you drink. >> yeah, right, md-2020. i don't look at the date when the wine was made. i look at the alcohol content. isn't that more important really? >> you got to go with what matters. >> right, exactly. you can buy 20 proof stuff -- 20% is 40 -- like thunderbird. >> i don't even know it. >> you brought it up. you like a fine bordeaux. >> with a pinky up. >> or chiante with fava bean.

you don't remember hannibal electricer er elector lecter eating the guy's liver? we're talking about alcohol. >> thank you, scott, this was fun. >> but no sex so you're bored. >> no sex so i'm bored, our next guest has a lot to say not about sex but the world. >> o'neill? former treasury secretary paul o'neill taking the "squawk" walk this morning, not overwhelmed by the president or the challenger when it comes to fiscal policy but he has strong opinions on what needs to be done right now and that's coming up right here on "squawk box." tdd#: 1-800-345-2550 you should've seen me today.

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the facebook freefall, shares of the social media giant sinking to a new low as early investors make a mad dash to cash out. we're following the money trail. and former treasury secretary paul o'neill is going to be here talking about the hot but the to be issues facing america's balance sheet and the presidential election. plus seeing opportunities in mobility, former apple ceo, now chairman of 3cinteractive john sculley and john duffy strive on how to expand the industry, as the second hour of "squawk box" begins right now. ♪ good morning and welcome back to "squawk box" on cnbc. i'm joe kernen along with andrew ross sorkin. becky will be back next week. >> on monday. >> on monday, i won't be and then you're leaving on

wednesday. i'll give you $100 -- >> i didn't give you $100. >> i gave you $170 and it was a total west a. the futures are last time i saw them they were up less than a point, now down two points. few more economic reports finish off a busy week of numbers, we'll get the university of michigan on the latest reading on consumer sentiment at 9:55 eastern time, followed by the latest index of leading economic indicators and that comes at 10:00 eastern. we'll also watch oil prices today currently posting modest losses on word the white house is considering the release of more crude from the strategic petroleum reserve. japanese officials are predicting something its economy hasn't seen in years, inflation. the government is forecasting a mild increase in prices in 2012-2013, it would be good news for japan, japanese consumer

prices have been mostly flat to negative since the early 1990s and if you've read any articles about what it's like to live over there now where saving actually becomes a negative, people are afraid to spend any money, afraid to get married, afraid to have kids, afraid to go outside. little inflation can go a long way and maybe it's finally time. it's been a long time that there hasn't been any. this guy has probably been there. >> we should introduce who this guy is. joining us for the next two hours, talk to yus about how america can write its fiscal balance sheet, paul o'neill, good morning. >> good morning, pleasure to be here. >> so you don't have a guy. you don't have a guy in this race at the moment from what i understand. >> i'd like to. >> you'd like to. when you look at both of them and you're also a budget guy. >> ten years in the omb.

>> if you were to just measure obama versus romney, strictly on the budget, which way do you go? who has a more realistic budget that makes sense to you? >> you're supposed to say that romney's tax plan is a huge budget buster, so that's the first question, that's the correct answer, so in case you want to score well on this test, to get 100, you need to get the first question right and that would be, it's a slam dunk. >> so i have to give you a perspective, do you mind a little perspective? >> please. >> i would like for there to be a balanced budget in my lifetime and i'm a board member at something called the committee for responsible federal budget, and we've done lots of estimates of where various plans would take us. none of the plans that are on the table would get us to a balanced budget again until 2040 and i look at that and i remember when i was deputy director of omb for president

ford, and he proposed $28 billion in budget cuts in order to bring the budget in balance when it was $412 billion. i know if this dates me but you know there was a person who had a grounding, he understood the details of the compensation of the budget and what the needs of the country were, and he believed that there was a touchstone that we should pay attention to that we, the people, should pay for the things that we want and need, and so when i look at the things that are on the table, i'm just mystified that nobody is coming forward with a plan that says we're going to become responsible people. >> what about simpson-bowles or gang of six? >> they were better than what's on the table right now but they still didn't get where we need to get. >> quickly enough. >> i could understand why some people might argue that the obama plan doesn't get you where you need to get because there's

not as much cutting as some argued there shoulden. explain to me on the other side why you think the romney plan doesn't get you there? >> it's because i think nobody is willing to address what i consider to be the major things that we should be concentrating on. you know, i believe we've evolved over a couple hundred years and we kept putting patches since 1913 or so on our tax system. it's a monstrosity. when i was secretary of the treasury i tried to get president bush interested in fundamental tax reform. i went around the country saying our tax code proves we're not an intelligent people because no intelligent people would have invented this thing. so i believe this, to cut to the chase, that i would be out on the streets for a candidate who said we're going to create a sensible, progressive, refundable value-added tax or some variant of that, and in the process we'll get rid of corporate taxes, think about

that, we're going to get rid of the individual income tax system, we're going to get rid of payroll taxes so we get rid of the disincentives to hiring people by getting rid of the payroll taxes. here's the important thing. by best estimates it costs $431 billion a year to administer this monstrosity we have, and as hard as we try we're undercollecting $500 billion worth of revenue that's due and owing to the government that's so complicated we can't collect it. intelligent people would reinvent the system. we need a reinvention convention. >> i like this idea, let's have it here. >> no corporate taxes? >> i am all for that. >> you're all for that? >> all for value-added tax. he said one thing which also is important and speaks to me a little bit, there would be some level of progressiveness. >> refundable and progressiveness, absolutely. >> anyone who talks about a flat

tax. >> done, what's the problem? >> you'd never go for no corporate taxes. you would but he wouldn't. >> you penalize capital? >> let me ask a different question then. are you ultimately planning to raise as much if not more revenue than you currently do through this tax system that you're talking about? >> you'd have to. >> let me say what i said at the beginning. i believe we should have a system that produces revenue that's necessary to pay for the things we need. >> bingo! but that's not saying that it would raise as much as you'd like, i'm sure there's huge, you'd want to cut back on certain things that we spend money on, i'm sure you want entitlement reform. >> here's a conversation i'd like to have, okay. you guys have had people on where they talked about percentage of defense of gdp. rule i developed in omb, if you want to confuse people, divide whatever number you don't like

by the size of the chinese population or convert it into gdp percentage. here's a better conversation. do you know how much it costs for a carrier strike group? do you know how many ships there are in a carrier strike group? >> no idea. >> do you know how many people there are, how many aircraft there are? do you know how many we currently have? do you know how many we probably ought to have? i'd love it if we had presidential candidates who knew the answer to that so when they told me how much money they wanted to spend on defense they could tell me why, not some magical connection to gdp, but this is what we need and n specific terms. >> what we need and why we need it. >> how many threats do we have, how many fleets do we need. >> if we were to do that with defense we're left with the looming promises we've made and can't keep, if people pay $130,000 into medicare and take $450,000 now, we have to do something and broaching that

someone with someone 60 years old or older you cannot have that conversation. >> why not? >> because we couldn't even do social security. we couldn't even go 65 to 67 when bush tried to do -- >> i they will you a little vignette. >> it's hard work. >> reminds me of a conversation i had with bob corker. >> i read that in the notes. >> he said you don't need 2,500 pages, two pages. the first page the date of the bill is passed it should be illegal in the united states for anyone to give or receive a home mortgage without a 20% equity downpayment, stable to the instrument so it can't be diluted with financial engineering and the second page should say all financial institutions should have a 20% equity requirement which means you can't leverage more than 5:1. if we had done that fundamental reform our financial future and our system would be intact and unassailable. you know what he said to me, well, that's right, paul, but we

can't do that. so when people tell me the things we can't do, then i say we're doomed. if we can't do the things intelligent people know we should do. >> we couldn't do that but we could do dodd-frank, the regulations aren't really going to come to after november, you saw that. >> and what does it all mean? does it secure the financial base of financial institutions, no. >> if normal lending practices had been this effect prior to 2008, just the no rememberal 20%, you know, get people that actually have an address and have a job to see whether they should get a mortgage it would have never happened. >> precisely. >> we have 2,500 pages of new stuff to make sure that -- you know what? people do want, you know how much politicians wanted people to own homes so we did backflips to try and find ways to expand home ownership. it came back to kill us. >> if you set aside the rules of reason and economics, you're going to reap the consequence, right?

>> paul, as a former treasury secretary, i'm curious what you think about glass-steagall. >> strong dollar policy? >> no. >> that's the one thing we know they all have. >> i was going to ask you about banks and whether they should be split up, or remain. the current treasury secretary does not believe returning to glass-steagall makes sense. >> so if we adopted by 20% equity rule, we could go to sleep, we don't need glass-steagall, don't need to break up the banks because think about it, a lot of the derivatives transactions would go away, the kind of thing that got jamie dimon in trouble because they couldn't come up with 20% equity to support the i don't know how many hundreds of billions of dollars in the trades because their equity break would not let them do it. >> i like him. he speaks truth. he does. >> but i was thinking, you know, that question, save that very

first question, you got austan on today, he would go wild on that first question for you and orszag on monday but you wasted it on a guy who is not really left or right. you got to use that question on goolsbee or orszag. >> i still want to know, we have him the next two hours. >> his thing is health care. the most interesting thing to talk to paul about is, that's what you do now, trying to figure out a way. >> working on it. >> cost containment, which we need to do to deliver effective care and i mean it's just waste. if we just got rid of waste right now we'd probably cut the inflation in half for health care, wouldn't we, or even more? >> i believe we could save $1 trillion a year out of the 2.7 trillion we're spending. >> more than a third, right? >> exactly, close to 40%. >> right. >> by doing things that we demonstrated we know how to do, so i work with a doc in

pittsburgh. >> the mt. sinai guy, did you bring him on as a guest? >> no, but he's coming on. i'm interested in asking him some questions. >> i'm interested, too. this we can always come back to. i read it and it makes sense when you look in number terms if you were to per ounce of sugar of soda you could raise all of this money if you were to tax it and i keep coming back to if we didn't think it was the government's responsibility to take care of everyone, we wouldn't have to have a nanny state, and i'm split on whether i want a nanny state or whether -- >> you're not split on whether you want to have a nanny state, trust me. >> i can see how much you would save, but i just think the whole big gulp thing is ludicrous and it's self-defeating and you saw yesterday we talked to dunkin' donuts, they don't know what kind of coffee they're allowed to make in new york city. if you go over 16 ounces and happen to have sugar instead of sweet n'low.

it should be personal responsibility, and if you were in charge of your own health care you wouldn't drink 32 ounces of soda. if the government is paid with your bills for your health care you have to make regulations. >> you're saying fiction. you think the government really pays for your medical? >> no, i don't, that's what he says. >> they don't. >> you're saying with emergency room visits, we eventually end up paying for fat people. >> we all do. you think the insurance companies pay for your medical care? >> we all do. >> we can't have a decent conversation because there's so much mythology out there. one of the things -- >> with insurance premiums go up because other people aren't taking care of themselves? >> you know why insurance premiums go up, because the providers raise their prices. do you know how prices are set in medical care? the providers say this is how much it costs. >> now you're talking about doctors. >> doctors in the hospital.

>> we have to slip in a break. >> all right. >> we'll continue this conversation and we have him for the next two hours, it's going to be a lot of fun. facebook stock hitting a new low after investors unfriended the social media giant. now zuckerberg is faced with two big problems, keeping investors happy and trying to monetize mobile. we'll talk about that and a lot more, when we come back. comments? questions? send them to @squawkcnbc on twitter. follow the show and look for updates from andrew, becky, joe, and the "squawk" staff. "squawk box" on cnbc, and on twitter. za palace gets the most rewards of any small business credit card! pizza!!!!! [ garth ] olaf's small business earns 2% cash back on every purchase, every day! put it on my spark card! [ high-pitched ] nice doin' business with you! [ garth ] why settle for less? great businesses deserve the most rewards! awesome!!! [ male announcer ] the spark business card from capital one.

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as facebook's august lockup expires, early investors are driving the shares, says here they're driving shares off a cliff. rrr! the stock is trading around $19, now down 44% since its ipo, another lockup scheduled to expire in november, victor anthony, senior analyst at topeka capital markets. is anyone in kansas? >> anyone in kansas? >> i mean topeka. we had an analyst from topeka. >> it's called from topeka because the founder is from topeka, kansas. we are based in new york. >> how many more people at this

point that would be able to sell are in a position where they're saying wow, i'm down 44%, i thought i was rich, i still am, i need to monetize what i have. is that still going to be a concern or is the selling starting to dry out? are we getting to a point where the stock is nearing what it's actually worth? >> well, i think there will continue to be sell impression on the stock because of significant lockups remaining. there's a big lockup come november so i think it will continue over the next few months. >> what was it that attracted soros or steve kohn? was it getting to a point where you have some numbers that you can do a model on and it shows that the inherent value of the stock is starting to be reflected in its price? >> i think right now the stock is trading 12 times 2013 ebitda, so it's an attractive multiple. >> is it? >> yes it is relative to the growth rate.

>> if it keeps growing. >> i think it both continues to grow. i have a long-term view and if you as an investor have a longer term view your horizon is more than two to three years if your mandate is to invest in stocks that are attractively priced relative to the growth rate and if your mandate is to invest in stocks that have the prospects for sustainable long-term value creation -- >> what's your number? >> i have a $36 price target on the stock. >> in how many years? >> a year and a half, roughly 1 months. >> what will happen between now and then that will get you back? >> do they have to do mobile right, figure that out? >> several things. mobile i think is coming in a significant way. they gave us encouraging numbers exiting into the second quarter implying they will be able to monetize mobile in the next year and a half in a significant way. >> i'm confused about when you look at the stock now and you see what's happening, i guess

what i'm trying to understand, what is going to happen in your model that gets you to your 36 number in the next year and a half, straight growth? does it have to be mobile, does it have to be some other thing in. >> this is my view of the stock and why i like it longer term. one, the optionality, two is mobile and three i think they benefit from the secularship of ad dollars away from traditional media onto the internet. let's take them one by one, the first one is optionality, i see facebook as a strong value creating ecosystem backed up by network effects. what you will see happening over the next two to three years is facebook expanded into additional protocols, likely to expand into e-commerce and online search longer term, they've been dropping hints about expanding into job opportunities and ad exchange. so significant optionality in the model.

second mobile market is coming for them in a big way. >> you're not worried that somebody else is going to overtake them? that's the problem with all these things. there's always a new guy. >> not at the scale that facebook is right now. so i just don't see that happening over the next several years. >> these anecdotal things we hear about, made a significant percentage of the people they're saying are using the product really are and maybe the growth, it's now growing but it's not what it was growing, right? you get to a certain point, you get to a billion users. >> i think they'll eclipse the billion mark in the next quarter. >> we hear people don't spend as much time on. i haven't logged in, were you on it yesterday, the day before? >> maybe a day or two ago. >> you did but briefly, and what did you see there? what was the experience that you got? because i've never been on but what is the experience you got

when you did that? >> we were on together. >> what do you mean? >> we were on facebook together? you don't remember? >> oh, oh. well, all right, but yeah, in general i would never -- i don't know how it works. >> according to the numbers out of the second quarter engagement is still strong and people do come on to the platform. the movement is away from desktop moving to mobile and so i saw some recent numbers coming out of comp.score that indicated time spent online on facebook increased sequentially. >> are you on facebook, paul? no? >> i'm wary of hackers and i value my privacy. i don't understand why it is people want to be connected through facebook. i don't understand it. >> we're old. >> i guess. >> there are advantages. >> andrew, what's the reason to be on facebook? >> if you want to find old friends. >> you can go on the internet

and google. >> it's harder to e-mail them. you can keep up. there's a lot of -- >> that's going to cause to you use it for job posting and e-commerce? >> there's a whole network around you. there are arguments it works. >> he's young and happening. we got to go. thank you for coming. >> thank you. >> coming up it's friday and 5:00 somewhere, it means it's time for a beer story, after the break, and he's one of america's best known business leaders starting his career in silicon valley, became a ceo of apple in the '80s, john sculley's new business is focused on mobile coupons and secure cloud payments. he'll talk to us in a few minutes. time for today's aflac trivia question, who was america's first catholic president? the answer when cnbc's "squawk box" continues. glad aflac pays cash. aflac! ha! isn't major medical enough? huh! no! who's gonna help cover the holes in their plans?

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now the answer to today's aflac trivia question. who was america's first catholic president? the answer, john f. kennedy. >> aflac. we're back and we should give joe and paul credit, both of you got that question

correct. >> he's the only one. >> spot-on. >> that was one of the things they thought was going to prevent him from winning the election. of course when they bought all the votes in chicago and some other places. >> he gave a great speech in texas. >> right. >> and basically said i'm about my country. >> we have to get a couple headlines for you. >> how about heineken. >> heineken may be raising its $6 billion bid for asia-pacific breweries. people familiar with the situation say heineken is considering raise to raising its offer from $50 to $53 per share. it's in talks with frazier and need which hold a 60% stake. the third largest brewer wants full control. there's joe there. >> oh, god, bring out the old -- >> always a good excuse. >> i'm happy to say because i wasn't losing my hair there. >> emerging markets.

shoot us an e-mail squawk@cnbc.com is our address and follow us on twitte twitter @squawkcnbc is the handle. coming up next, john sculley and john duffy will talk about the growth of mobile and their new venture, when we return. that's great. melons!!! oh yeah!! well that was uncalled for. uhh... mr. gallagher. incoming!!! hahaha! it's wasteful. you know jimmy. folks who save hundreds of dollars switching to geico sure are happy. how happy, ronny? happier than gallagher at a farmers' market. get happy. get geico. fifteen minutes could save you fifteen percent or more.

happy friday and welcome back to "squawk." let's get you through some of the morning headline this is morning. the stock market aiming for several milestones in today's trading. the dow and s&p 500 just a handful of points short now of their highest levels in more than four and a half years, also on track for their sixth consecutive week of gains. apple, joe, did you see this, is now at its high, i think. separately bankrupt, eastman code dak isn't ready to declare its patent auction over saying discussions are still active. according to the "wall street journal" one option is selling the entire patent portfolio, could bring in more than $500 million but that's way below the $2.2 billion to $2.6 billion

that kodak originally thought the patents were worth. restoration hardware garrett friedman left the jobs, i had reported on this earlier, it's a little complicated this story. should we get into it? we can get into it. the company had an inquiry into a relationship that we had with a 26-year-old female employee, he still is having this relationship, so it's an ongoing relationship, but there was an ex-boyfriend involved, this is when the whole world is going crazy, restoration hardware preparing for an ipo, the company's ceo, known for completely turning around the company gets involved with the employee and now is forced to step down because of an ex-boyfriend who starts calling the board and everybody else, calling lloyd blankfein, goldman sachs and bank of america underwriting the ipo, calling all sorts of people and beneath the pressure. >> this is beneath the "new york

post" story, not "new york times." he's been very tired in the morning and i see you're out like going through people's trash late at night as a "new york times" reporter. did you ever think you would be like a gum shoe like a paid private investigator following people's wives or husbands around? >> i was going to be writing a column about restoration hardware because they have an ipo coming. >> how did you find out about this? >> well, as i was doing a little calling around, all of a sudden the ceo made this weird announcement earlier this week, gary friedman would be leaving the company and starting this new business but still keep a hand in the business and all seemed odd and someone said by the way the real reason is he has this relationship with this woman. she said it's consensual, he's divorced. >> someone wrote in and said it should be puritan hardware not restoration because it's consenting adults. she didn't report to him either. it wasn't a direct boss -- >> i don't believe it was a direct report. she may have been hired by him

or he may have encouraged the company to hire her taken gets complicated as everything in life is. >> half your age minus seven is fine, he's 54, you go all the way to 20, so she's 26. that's your thumbnail monetizing mobile. monetizing mobile has become a mantra for companies like i don't know, like facebook for one. here to talk about the opportunities they see in mobility, the famous john sculley, former apple ceo, chairman of 3cinteractive, provides mobile platforms for best buy, carnival, and others. john duffy, good morning to you both. we're here to talk about 3c. first thing i'd talk to you about how you used to come on "squawk box" and we talked about spectrum information, i don't know whether you remember that, after you had left apple and i remember what spectrum was trying to do, incredible

technology you could do something wireless, send something and then you could print it out, something that you sent off of a handheld device and i was thinking we do all that stuff now, like it's nothing, and it all happened but were you early? >> we were really early. probably 20 years early. when i was at apple, the last product we worked on was newton, and -- >> which was a pad. >> it was basically the pre-ipad. >> why didn't people -- >> because the technology wasn't ready. we coinvented a microprocessor called a.r.m. and it became a $20 billion company and used in every device today, started with the newton. when i left apple we thought the next big thing was going to be moving data wirelessly over mobile devices. they had the patent, but it was just way, way too early. >> we have a lot to -- doritos,

i think, it's a soft drink company that also owns a salty snack company, the greatest idea for synergy because you eat and then you're thirsty. >> that was the idea the merger of pepsi and frito-lay. >> the man invented the two-liter bottle. >> is that true? >> oh, boomer doesn't like you. you don't even go into new york city. >> was it just a liter bottle? >> i love new york city. >> you know what? the man is full of incredible stories and the story about raising the size of the soft drink package is one of the best ones. i'll let him tell it, someday. >> we'll get to 3c sometime. it's a three-hour show. i see what you're trying to do with the mobile applications, you remind someone that they have to have a prescription filled or it uses the cloud to allow fortune 100 and 500 companies to stay in touch with their customers so that the customers do things. is that 3c? >> well that's broad.

it's about making business processes that exist today more efficient. mobile is the biggest leap forward in communications i think ever, telegraph, telephone, internet, mobile, there's more of the devices. they're very personal, they do more things. we're about building a cloud platform that takes that power and helps make our customers more successful. >> give us an example how one of these things works. >> we role played last night and talked about track phone, one of our best customers that sells prepaid phones, they have millions of customers. our platform connects to track phone system, connects to the carriers and helps them activate customers, manage them, bill those clients, and retain them. today, we process about 1 billion transactions a month for our clients and at this point have touched more than $100 million unique americans. >> what do you do have mckesson? >> mckesson likes and i'm careful about talking about

specific customer applications, they're a new client. i think they'll use some of the programs we've done successfully in retail pharmacy, where we help our pharmacy clients lower prescription abandonment rates and raise refill rates by making the process more efficient. >> you're texting me, sending me an e-mail i need to refill? what are you doing? >> sure, at simplest form exactly that but also knowing who that customer is and establishing that relationship with that customer at the right time with the right message. up talked about facebook having a billion members. >> right. >> our customers know that's where their consumers live and if they can help improve their business process by using that platform, they'll be more successful, we'll be successful and so will facebook. >> i have to -- you have to go slow with me. it's not hardware. it's software. you need software and code to access these cloud-based solutions. >> it's people. it's domain expertise in the markets we serve and it's software communications hardware

creating a cloud, that our clients connect to, that connects out to the mobile phone networks and the social networks. >> all right. don't look at me and shake your head. if you don't understand, there's no way that i do. >> you have to walk me through this. >> i apologize. >> john told me you got to talk in 15-second increments. >> don't worry. >> you really have to worry about that. >> if paul was going to use your business, what would be the application? >> let me jump in and just make an observation. we're all familiar with the web. >> right. >> the web is based upon standards which are accepted by everybody. mobile doesn't have any such standards. every carrier has slightly different protocols of how they do things. what 3cinteractive does is create a layer of software that deals with all of that complexity, and then on top of that, they take all the different data types which can be, you know, social media, it

can be location-based services, it can be, you know, payment systems, all those things, and it makes them accessible to build applications that can acquire customers, build loyalty programs. >> who can you compete with? who else is doing something like this? >> there's lots of people competing in mobile, many of them building apps, others trying to develop advertising models. we generally compete with the larger, more sophisticated technology companies, you know, ibm, accenture. >> is facebook a competitor or someone that you could help? >> well, i think we could help each other. i think their platform is extraordinarily powerful and that platform combined with our services -- >> you could help them with mobility? >> well i'd like to think so. >> the challenge for everybody in mobility doing advertising, people spend about 10% of the

time on the mobile devices but represents about 1% of the advertising dollars so no one's really figured out yet how to make a big monetized business out of advertising on mobile yet. it doesn't mean it won't happen. it just is something that needs to be done. >> did johns hire you? >> yes. >> what can you tell us about him and your experience? >> i can tell you that all of the first principles we've become familiar with the iphone and ipad, steve was talking about those things 30 years ago. >> when jobs came back, was that the difference for apple? would it be at $600 billion if you had stayed. >> no, it was him. there were two ceos after i left. i was pushed out because i refused to license the software because i thought it would bankrupt the company and it almost did. when jobs came back the first thing he did was stop the

licensing but it takes a product leader to build a company like apple. i'm a marketing person. i'm not a developer. >> you look at tim cook and apple, do you say the company is on the same trajectory it was two, three, four years ago? >> careful. >> i think steve did a great job putting the management team in place with all the right skills. even though tim cook may not be the product innovative steve is, he has johnny ives there who can do that and tim cook i think is doing a fabulous job. my sense is that apple has still got great, great days ahead of it. >> do you own the stock? >> i do. >> from back in the day or -- >> i have some from back in the day. >> god bless you. that's good. while we have you, views on pepsi? >> views on pepsi. >> inger doing a good job, bad job? split up the company? a lot of people are talking about pepsi. >> back in my day it was about market share and the cola wars

between pepsi and coke and i think i hear pepsi is trying to get back to doing a better job with marketing and that's the right place to put their attention. >> you'd spend the money. they're going to be in the super bowl again this year advertising. >> that's right. it's not because we didn't understand what you were saying that i switched back to talking about steve jobs. >> fair enough. >> we got to, i'm hearing we needed -- did you think i'd bring up spectrum information? you're ready for anything? >> i didn't know what you were going to bring up. you're a smart guy, you know so much. >> i'm old. i mean i remember when you were a guest and used to come in, we were in a different building in the old studio. >> i thought that's the studio we were going to be going to. >> over in ft. lee, exactly, across from the dead oak diner. >> over the george washington bridge. >> red oak, we used to call it the dead oak. >> gentlemen, this was fun,

thank you very much, i'm a big fan of the show. >> thank you. >> welcome. >> oh, you're coming back. coming up stocks to watch and much more from paul o'neill. you've been quiet, we have to get you back in the conversation. on monday "squawk" is going inside the envelope, we have an all pro line-up as we gear up for the football season t is something to behold, houston texans owner and businessman robert mcnair is our guest hold and related company founder and owner of the miami dolphin, stephen ross, and the commish is going to be here, roger goodell. we'll kick all of that and the markets monday morning starting at 6:00 a.m. eastern. his reputation is expanding faster than the universe. he once had an awkward moment just to see how it feels. he lives vicariously through himself. he is the most interesting man

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♪ ♪ give yourself a recognition all right, let's take a look at some stocks to watch this morning, it's interesting that we talked about the synergy that pepsi had, andrew, with soda and salty snacks and i'm starting with smucker, which as you recall they bought a peanut butter company. i never really understand c3po whatever we were talking about with the cloud but when smucker said we're buying peanut butter, i immediate ly -- they pulled m mike. is it working now? it's not working. so smucker, $1.17 that was -- >> again.

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let's turn back to our guest host, former treasury secretary and founder. >> you don't seem so excited. >> my mike was cutting in and out. >> you're so calm. >> is the mike working again? >> it's working again. >> because it was here, i think it was on our -- >> you're working again, looking good, all ready to go. >> it was on our sound board. would you say right now that your passion is health care,

trying to find a way to make it better and more affordable? that's really what you want? >> what i really want to do is get more institutions in the country, health medical care institutions to adopt practices demonstrated that can reduce cost by as much as 40% with vastly better outcomes for the patients. so if you look around the country, there are places that have done it, virginia mason in seattle, inner mountain health care in salt lake city, utah, cincinnati children's hospital, theta care. this is ironic. theta care in wisconsin is a collaborative of hospitals, there's a wonderful doctor named john toussant to runs the place, ten years ago started to employ the dees of lee manufacturing and toy yo da production system, dumbing whatever favor you like, whatever you like, and it's 100 miles from where paul ryan lives, they've tried hard to get

ryan to see how you can reduce cost 40% and improve outcomes, which they've done so medicare patients, typical same set of problems, medicare and theta costs may be $5,000 and the rest of wisconsin is $7,000 or 7,500 bucks. >> is this like a six sigma thing? >> it's applied to health medical care. you saw the "usa" cover story about cdif, the terrible intestinal bacterial problem, 30,000 people a year die about it. it's unforgivable, we know how to prevent that but it's about fundamental stuff. all of our policy conversation is up here about how are we going to distribute the financial responsibility, we're going to cut payments, all the rest of that, instead of paying attention to how we could simultaneously reduce cost in

monumental way and improve outcomes for the population. i've tried hard to get any politician of note to be interested in fostering the pursuit of excellence in health and medical care. >> and you think that is because of what? >> i don't know. it's just like we have these conventions about how we think about things and how we do things, and even though i know there's this productivity opportunity in health and medical care and have written articles for medical journals we went from, these are real live numbers, 1,7 7 people in the base period year, their infection rate in intensive care units is below the national average, so the national average is 2%, 1,757 patients, how many people get an infection, 39. how many die? 19. that's good enough, it's better than the national average. after we introduced these ideas

and worked with the people to refine the process of how you do this, 1,800 patients, one infection, nobody died. can you tell the difference? it's published. it's out there. >> when you explain what you have to do, so all the health personnel need to wash their hands more. >> that would be a really good idea. >> there's standard practices for inserting an iv that aren't followed right now. >> right. >> all of these things seem like there are things where you need to hire a great manager and then you need to have the manager hire people that are willing to be, go by the book on all these protoc protocols. it sounds like we try to do that now and you hit a wall for, because there's always going to be people that on a bell curve that aren't going to do what they're supposed to do, that aren't going to follow protocols. >> if i told you 95% of the places in the country weren't doing things that we know how to do to improve. >> so we already have laws that -- don't we have laws that say wash your hands?

>> no, we don't actually have laws that say wash your hands. >> in the icu? >> no, we have harangues but we don't have laws. here's what i believe. transparency would help this problem and i had an opportunity proposed to president obama's people that he do this, that he get on national television instead of demonizing the insurance company and he'd say to people, next week, i'm going to order the veterans administration hospitals and the u.s. base military hospitals to post on the internet every morning at 8:00 in the morning the newly identified hospital acquired infections. >> we'll return to this, we'll return to this once again. >> we have three hours and then -- >> this is what i have to do or else it's like me not washing my hands right here. coming up the long road to economic recovery, we've got austan goolsbee, one of our favorites, to talk about what it takes to get jobs manufacturing and investments in u.s. growing again, he'll talk investments as

well and paul and mr. goolsbee i'm sure can do something interesting here. the most sweeping piece of welfare legislation since the new deal, why the ceo of mt. sinai hospital says the affordable health care act must be implemented and what it means for patient health care, after the break. you know what i love about this country? trick question. i love everything about this country! including prilosec otc. you know one pill each morning treats your frequent heartburn so you can enjoy all this great land of ours has to offer

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fiscal issues, front and center, for both presidential campaigns. >> are you trying to trash talk me? >> you might want to decide whether or not you want to buy toilet paper or aftershave, because your face is like a butt. >> we'll talk to austan goolsbee, former economic adviser to president owe ba marx calling the romney tax plan a budget joke. and both campaigns gearing up for a big fight on health care ahead of the election. >> it's me, frank, your buddy. >> we'll get a report on the state of health care from dr. ken it davis, c oh, of the mt. sinai center. the world's top car collectors gathering for the pebble beach car show. we'll get a closer look at the luxury collectibles said to break sales records at this week's auction. >> oh! watch out! >> the third hour of "squawk box" begins right now.

♪ welcome back to "squawk box" here on cnbc, first in business worldwide, i'm joe kernen along with andrew ross sorkin. becky quick is off today. our guest host, former treasury secretary paul o'neill. checking equity futures, we'll take a close look down 6 points or so, a weak week and the averages may or may not continue today but so far not a whole lot happening. >> the dog days of summer but it's not the dog days for facebook. we'll continue to be watching shares of facebook. social network stock closing at another new low, could you call that a dog. >> with fleas. >> $19.93, thursday was the first day that early investors could sell off some of their shares and kayla tausche

reporting accel sold $50 million of its stock. the "wall street journal" reporting that facebook's ceo and founder mark zuckerberg acknowledged the stock's rapid decline at a company-wide meeting last month calling it "painful" to watch. the paper says the meeting was part of an effort to boost mo l morale. we're watching oil prices today, you'll see that hopefully come flying across the screen, maybe not, currently posting modest losses on the word that the white house is considering a release of more crude from that strategic petroleum reserve. our good friend paul o'neill is shaking his head, on the set. we'll talk about that what that means. and comments from angela merkel saying germany was committed to doing everything

necessary to save the euros, the comments came at a news conference with canada's prime minister, merkel voicing support for ecb president mario draghi's efforts to contain the debt crisis, fueling hopes of further stimulus and mr. o'neill we have to get your views on europe as well. joe? the battle of the budget plans continues as president obama and governor romney continue to hammer each other on economic issues. joining success austan goolsbee, former chairman of president obama's council of economic advisers and economics professor at the university of chicago's booth school of business. austan, good to see you. >> hey, joe. >> we said we're going to have you on and you called the romney plan like a big joke. compare the romney plan to simpson-bowles. where are the differences and do you think simpson-bowles or the gang of six do you think they're on to something or entire different solution? >> i think the simpson plan was fundamentally about getting some balance.

you got some revenue, you got some discretionary cuts, you got some defense cuts and entitlement cuts, you save some interest, you try to build that they could do something. it strikes me you look at the romney plan, it's totally the opposite. he's dealing with a non-partisan tax think tank about whether or not his tax plan is $ trillio2 trillion, $5 trillion or breaks even and if you're in that space you can't do bowles-simpson in the slightest way. >> i've heard figures are so hard when we're talking in trillions to talk about. we had someone earlier in the week talk about how well the 1% or how well rich people would do under romney's plan but we had one of his spokespeople on, governor sununu said that the 20%, the top 20% and what they pay now that there's no way it

would go below that. so if you don't think we're progressive enough right now, that's one thing, but if you think that the top 20% pay a decent amount of taxes right now, you know it's a big number, austan, because the bottom 50 don't pay income tax so the top 20, if they pay as much as they pay now i don't see how it can be as much of a joke as you're saying it is. >> well, if what they were saying were true that, would probably be right. the only problem was, and what this study, all the controversy was about the fact that if you add up the $5 trillion of cuts that romney's proposing, it adds up to more than all the exemptions combined, it could not pay for itself. that was the whole argument so i think the fundamental way this is different from bowles-simpson

is the way bowles-simpson did not have a big giveaway to high income people, is they actually significantly raised the tax on capital income, capital gains rates would go up to the ordinary income rate under bole simpson, you end the deductions for 401(k)s and things like that, dividends goes to the ordinary rate, and if you compare that to romney, he's doing the opposite, so they have to specify how would they do it because it's basically impossible. >> but i guess simpson-bowles, if they lowered the highest rate to 26 or whatever it is, then the dividend and capital gains wouldn't be as punitive as where they're heading right now. austan, let me ask you this. what gets me, and i know we're friends, we talk when we're not on tv, just doing the 250 and above and demagoguing that, it doesn't help enough and not telling the american people --

i've heard the bush tax cuts cause 70% of our deficit problems, and i hear democrats say that all the time, but they're not, that's in total the bush tax cuts. that's the ones from below 250, and you don't really make much of a dent long-term if you just raise, if you just let it expire on 250 and above, but nobody tells me that. it's like the obama administration is basically saying we're at least going to get through the next election without threatening anyone below 250 with a tax increase. sooner or later everybody, the whole base has to be broadened to where -- because there's not enough, rich people don't have enough money to solve the deficit problem. >> but joe, wait a minute, you got two things going there. first i think where you put the line on high income people, it's a third of the total, so i think you make a fair point about well if you wanted to generate revenue, where would the revenue come from. you tried to raise taxes on everybody. you would have to raise them less than what would happen just looking at the top.

>> 39-6 on 250 and above is not going to come anywhere near and not going to help with entitlements, that's all we hear about in the election, what axelrod and your former boss decided just to talk about, austan. >> it's almost a trillion. the budget's added up -- >> and we need four. we need a lot more. >> that's close to what bowles-simpson said you should get. if you want to do the trillion a different way you could. >> we need $4 trillion at some point. >> but it's $3 trillion from cuts and $1 trillion from revenue. that's the bowles-simpson. >> austan, i want to ask you a question with your economic suit on, not your political suit. did you hear what i said about the desirability of a progressive refundable value-added tax replacing all the tax schemes we have right now. as an economist would you sign up as a way to liberate our economy?

no corporate taxes, no payroll taxes, a progressive value-added tax? >> i think we should certainly look at that. larry summers used to tell me the reason we don't have a value-added tax in america is because the democrats think it's highly regressive, republicans think it's a money machine and he said we'll get one when both sides realize the other one is correct. >> is that a yes or a no? >> you want to get rid of income tax. in europe they keep income tax and add the value-added tax on top of. > it. >> ultimately you're still trying to raise the same amount of revenue. he's he not trying to take down the revenue number. >> we need more revenue than we have now. >> here's the thing that you got to try to figure out how to address, and that is if you're raising the same revenue of value-added tax or other consumption tax to replace the income tax would be a really

large payout for the top about 5%, depending how you did the standard exemption, it would leave the bottom the same or be a small tax cut, and therefore it's going to be a pretty big tax increase on about 80% to 90% of the country. it's hard to get out of that logic, and so that makes it a difficult sell. >> austan, we can make it refundable. we have a technology, it's interesting, john sculley was here earlier, we had a technology, we use it today to make food stamps basically progressive, right? so that if you go in with your food stamp card, you get food. we could do the same thing, we could give people a card that's related to their trailing 12-month income that basically forgave the value-added tax so you could make it of no consequence wherever you want to strike it in the income level. and it would liberate us from the concern of payroll taxes slowing down the hiring process,

it would get rid of the $400 billion a year it cost us to administer the federal tax now. it would get rid of the fact that we're not collecting $500 billion that that n theory is due and owing under the current tax system and it would be clear -- >> that's just from romney himself it's not being collected. that's $500 billion, right? >> oh, geez, you know, i don't like doing politics because i think our problems are sufficiently desperate that we need to reinvent the structural conditions of how we do things in this country. >> too much, right, austan? that's what paul keeps hearing we can't. i keep telling him we can't. >> we should look at all of these ideas. the only thing is, depending how you do the -- and i agree, refundability is technically feet feasible now in a way it wasn't

years ago. if we're going to collect the same amount of money it's a big advantage to lose the compliance cost but if it's going to raise the amount of money that the middle 60%, 70% pay and reduce the amount that the top guys pay by a whole lot, it's going to be really hard to get something like that through the political system. >> all right, austan, thank you. have a great weekend >> nice to see you guys again. coming up with less than three months remaining until election day, health care, of course, already a key talking point for both presidential campaigns. up next we'll talk to a health care reformer, dr. kenneth davis, ceo of the mt. sinai medical center. he has interests views on what we need to do. still ahead on "squawk box," some of the finest and most expensive cars in the world are on display at pebble beach automotive week. joe and andrew will take a closer look at some classic rides and high performance machines in the next half hour.

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>> we're back on "squawk" on this friday morning. we already have a hot debate going around the table during the commercial break. we'll get to it right now. health care reform, one of the key issues as the presidential election campaign heats up.

joining success dr. ken davis, he is the president and chief executive officer of the mt. sinai medical center. i should start with a question you guys got into it during the commercial break. joe said have you seen the dmv, is the government really the way to do this, am i outing you? you said this before. >> no, paul is arguing if we just purely were able to really make the delivery of health care as efficient as possible, everybody follows the same protocols, everybody washes their hands, everybody inserts the needle in the same way, if we could run it really well. and i asked who is more likely to run a really efficient system, the government or the private sector? >> let's let the doctor respond. >> it's not the government who runs my hospital. i mean we have a management team and the management team runs the hospital. >> we're saying hospitals are the problem right now. >> right, it's our players who are the government largely, and the payers can do much more to

make us more efficient. the payers can demand things from us, the things that paul talked about, in quality and efficiency that can make us a better system. indeed, that's starting to happen in the affordable care act. we have aspects of this law that have never been in federal law before. we're being paid for the first time to have high quality. we're being penalized for readmissions. that hasn't been there before. we being paid to manage populations, for the first time. we're moving off of fee-for-service. we're moving off of being paid per click, we're being paid now to manage a whole patient and that's different. that's really a sea change in what we're doing. >> the switch from fee-for-service has been going on for a decade. >> we tried it in the '80s and '90s under managed care. people revolted against it. they didn't want to have their doctor being incentivized to give them less care. >> aren't most hmos run with not

fee-for-service? i remember the old insurance companies that were fee-for-service but united health care and wellpoint, aren't those all -- >> no, we are largely paid in our medical center by those big insurance companies for everything we do per click, per procedure, per operation. >> what about all of the capitation rates? >> capitation was much more in the '80s and '90s. i expect it's going to come back but going to come back differently because they're going to ask us to manage very p p populized medications. i'm arguing that medicare, which charges you three cents on the dollar for administrative costs is more efficient than insurance companies that, until the affordable care act, were getting 25 and 30 cents on the dollar. >> the other side of that says some people argue medicare is not a long-term viable business. >> right, nor is anything else

in health care. >> but you got the fraud and waste and everything else that goes along with medicare that offsets the savings and administrative costs. >> there are pervasive costas cross the entire system no matter who pays. >> my question on "the journal" piece that talks about both sides demme gakagogue metascare commercials. obama care was $750 billion in medicare cuts to pay for expanding coverage and now the republicans are going to say why not try to save medicare, why not try to bolster medicare with those cuts instead of just adding more people, when essentially it's insolvent the way it's going to go right now. we can't have medicare as it is exist. why not use the cuts to bolster medicare? >> you're exactly right. we have to do something much more dramatic to save medicare and the entire health care system. >> you're not likely to see it's demagogued the way it is now?

>> it's a tragedy. the political dialogue is a tragedy. we're not talking about some of the real issues. we're not talking about thebesi. we're not talking about the fact that in the last year of life, we spend most of our medicare dollar. we're not talking about the ability to demand that people have advanced directives, living wills, that we know what to do the at the end of life. >> how do we tackle obese isn't it do we tackle it through some type of government regulations or do we tackle it through some other way that makes it -- >> i'll give you my view. >> yes, that would be great. i'm trying to tackle my own obesity. you looked at my stomach. you looked right down. how's it look? >> it could do a little bet per. >> oh, my gosh. >> he's a doctor. it's his professional opinion. >> he's 36 years old. >> he's a lot older than you are. >> what are you saying? >> all right g ahead.

you're going on vacation. >> here's the deal, we are not afraid to tax tobacco because we know how destructive it is to health care. we're not afraid to tax alcohol because we know how destructive it is to health care. we are scared to do doing the same for sugar sweetened beverages and we know that will decrease consumption, 10% of all health care costs today are related to obese pit >> mayor bloomberg would love you. this goes back to, we had the ceo of dunkin' donuts on yesterday telling us about how regulation was completely screwing up his business. i'm not saying that's a good thing or bad thing. >> there's regulation and there's regulation. i don't hear a lot of people screaming about how high the cost of cigarettes are. >> can i ask one question while we have the doctor here. if we had what i was saying earlier and joe cut me off, we had to post every day, every day, newly identified hospital acquired infection, patient falls and medication errors, would mt. sinai find that useful

to have a public place where people can see what are you doing to your patients about bed sores, c.dif, all the rest? >> yes and no. right now "u.s. news & world report" publications. >> they're worthless. >> i'm not so sure. >> i am really sure they have nothing to do with the quality of care that's provided in the institutions that are rated. >> here's part of the problem. some of the metrics you want to use disadvantage impoverished communities. >> and what's so -- so why don't i want to know that? >> well, because some hospitals that serve a poor population will have a poorer outcome and it's not related to what the hospital does. it's related to the absence of a social safety net in large sections of the country. >> dr. davis do poor people debt c.diff more than rich people? >> you're right.

absolutely there absolutely. >> what about patient falls? >> patient falls i agree with you. >> what about medications? >> those are fine. >> why can't we get this out there if i live in your community i can go on the internet and say i'm not going there. they have an outbreak of c. dif and they're going to kill me if i go in there. >> there's no problem with the transparency. >> let's do that. >> well what about red meat do, we tax that? wait a minute, the consensus thinking changed, the new study shows it's not as bad. >> that's soft. >> if i want to drink one sugary beverage per week, where do you draw the line? how about broccoli, do i need to eat broccoli? >> do you want to subsidize corn so that the price of beverages of sugar sweetened beverages in the communities i serve is less expensive than the cost of milk? do you want carbohydrates so

cheap that -- >> i don't -- >> no, what you're use something the government to subsidize corn. >> this is a whole ethanol argument. is it smart to use it to put into gasoline when becan get it cheaper from south america. >> i'm worried about health care. i don't want to make people sicker. >> can i have an egg mcmuffin or is it totally out of the question. >> should we tax tobacco? >> i don't get he a dikaddicted eating 20 egg mcmuffins a day. >> thank you for being here, doctor, we appreciate it very very much. coming up -- are eggs good or bad, i don't even know. >> we're still on. >> oh, anything in moderation. our guest host, chairman and ceo of alcoa. i'm only in my 60's...

i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses, i got a medicare supplement insurance plan. [ male announcer ] if you're eligible for medicare, you may know it only covers about 80% of your part b medical expenses.

the rest is up to you. call and find out about an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement plans, it could save you thousands in out-of-pocket costs. call now to request your free decision guide. i've been with my doctor for 12 years. now i know i'll be able to stick with him. you'll be able to visit any doctor or hospital that accepts medicare patients. plus, there are no networks, and you never need a referral. see why millions of people have already enrolled in the only medicare supplement insurance plans endorsed by aarp. don't wait. call now.

coming up, we're going to have more from our guest host, former treasury secretary paul o'neill and still ahead, we're going to go behind the wheel of some of the world's most expensive collectible cars up for auction at the pebble beach auto show. when i'm trading, i'm totally focused. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 and the streetsmart edge trading platform from charles schwab... tdd#: 1-800-345-2550 gives me tools that help me find opportunities more easily. tdd#: 1-800-345-2550 i can even access it from the cloud and trade on any computer. tdd#: 1-800-345-2550 and with schwab mobile, tdd#: 1-800-345-2550 i can focus on trading anyplace, anytime... tdd#: 1-800-345-2550 until i choose to focus on something else. tdd#: 1-800-345-2550 trade at charles schwab for $8.95 a trade. tdd#: 1-800-345-2550 open an account and trade up to

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we've got some news in just from the treasury department. paul's old department. it's a modified prefrt stock purchase agreement that it has now put in place with freddie mac and fannie mae. under the modification, all profits made by freddie and fannie going are going to be returned to treasury. previously the treasury received 10% of dividend payments on its preferred stock investments. this new agreement also accelerates the reduction of the size of fannie and freddie mortgage portfolios. joe? >> get a check on the markets,

is my mike working? sounds weird again. cnbc's rick santelli joins us from the cme in chicago. we're going to tax sunshine pretty soon, rick, if you go out in the sun for very long, you could cost me money someday when you develop some type of, i don't know, what are those calls -- >> melanoma. >> melanoma or the lesser ones, i don't know which ones that they actually tax you on. we have to get a list. i don't know sarcoma will be enough as a melanoma but sunlight is definitely bad for you and the government ought to moderate your use of sunlight, rick, that's what i just found out. what else you got? >> well, you know, there's going to be some mandate legislating you live in caves, no container over 15.5 ounces and you have to go in for every hang nail to make sure the longevity of your fingers doesn't impact long-term health costs. >> stay away from the buttered popcorn, i've heard that's alzheimer's last week, we have

to outlaw that or start taxing that until the week after when they come back and say we got another study that said it didn't do that. >> you know, it really isn't funny, joe. >> it's pathetic and sad. >> there's no personal responsibility in life at all and when everybody needs a nanny or a babysitter or all of those roles by a person wearing a government hat, it tells me two things, okay. it tells me it will be much more inefficient, a, and b, it tells me that this is what our leaders think of us, what's urinic they ought to look in a mirror. >> it aches a village. if we pay for one other kid to go to school i have to worry about -- you can't do anything then, you just pay for yourself with everything. can't be anything. that's the next leap. >> think about this, joe, how many of these strange commercials have you seen where you know, they go to the heart strings and show a student that might not have the ipad and that is the reason that he's not

getting a good education in the public school system. i don't know about you, joe, but i went to public schools, my kids go to public schools, and it isn't necessarily how many gadgets you have. it's the student's willingness to learn and it's the school's willingness to look at what students need and give that to them, but you know, when you put a million steps of bureaucracy in between students' needs and what a teacher is allowed to do to address those, all is lost. it's all a shame. it's a shame that we don't administer more of a balanced view of the world, whether it's education, and how silly it is that with all of the technology we have, there's very few that are trying to bring that technology into people's homes to better education, because the old system of unions and teachers doesn't fit with that well. it's never about the students.

it really isn't. >> no, it's not, and it's really not about the teachers. it's about the unions themselves. anyway, paul o'neill wants to bring technology to these things, don't you, at least to health care. >> yes, i'd like to start by setting fire to straw men. >> which ones? >> i like it. i've heard straw man argument, i think uttered about 20 times in the last 24 hours. amen! it's a great phrase and it summarizes the times we live in. >> i think he was talking about some straw men you were setting up nufrl this caunfortunately i. >> i believe it's unforgivable 30% of our 10-year-olds can't read, write and compute. >> you are so right, mr. o'neill, go! >> i believe there's a solution to this problem which i advocated when i was secretary of the treasury, to no avail, which is this, when children are 3 1/2 or 4, we should assess where they are in the cognitive development curve, and if

they're not going, projected to be at fullnce in reading and writing and the computing, we should fashion an intervention program that takes account of all of their circumstances and works in a systematic way to make sure that they do get to that good point when they're 10 years old, so i believe we would so improve our society if we could deliver on the promise that every 10-year-old has competence and it's a possibility for 99% of our children. >> you saw that we've got more teachers and we spend more money than we did 30 years ago. >> we're not measuring the right thing. >> how do you improve the experience for the kid in. >> this is true about a lot of things. if you want the aggregate numbers to be better, you got to improve the individual pieces. so our aggregate numbers are going to get better when we focus on those individual children. we're not doing that. >> you're talking about teacher

evaluations then. >> no, i'm not talking about that. i'm talking about assessing the cognitive development of children and making an intervention. >> how do you make it better? what's the intervention you're talking about? >> tell me the individual kid and i'll tell you what i think is the right intervention. part of the answer to your question is, we don't really know exactly how to make the right intervention, and it would be pretty good if we told ourselves the truth and it would force us to go back and try and figure out how can we make an intervention with kids that have different problems with their rate of accumulation of knowledge, because that's the way the aggregate is going to get better, by focusing on the individual cases. >> i don't know, i think you got -- if you have a school and the entire class, after going to school, for nine months, didn't learn anything for the entire year, you've got a problem with some of the teachers that didn't teach. >> i'll tell you something, if you talked to people who are in the teaching profession, long time ago i was a chairman of president bush 41's education

policy and adviser committee, caused myself to learn a lot by being in school. if you show me any teacher almost without fail after three weeks, they know which children aren't going to make it. they already know. what do we do about it? nothing. maybe in some schools, in some advanced schools we send them off to some remedial class or something but we don't fashion the intervention for individual kids. the teachers are -- >> the entire class didn't learn anything, would that tell you anything? >> okay, but you know, if we assess individual children, wait, if we assess individual children, and we can see in three months' time that they're not moving up the accumulation curve then we can go back and look what's the reason for that, it's because the teacher is no damned good then we can act on it. how about acting on the facts instead of the aggregate. >> if you get rid of the 5% of the lowest performing teachers in the entire school, all of a sudden the entire school goes up

40%. >> joe, hey, in the best school districts in the country, 10%, maybe not 30, but 10% of the 10-year-olds are not competent. it's not a function of poverty or bad teachers. >> i'm with him. >> it's a function of not paying attention -- >> what do you mean you're with him, in what respect? how do you fix it? >> that's the complicated part. >> the reason you're not learning you need people that know how to teach them. >> joe, how about starting with assessments, hmm? how about starting. >> we do do assessments, no child left behind, trying to test children. >> wait, wait, wait, i'm not talking about tests. i'm talking about assessing, and assessing is a predicate for an intentional intervention, and in six weeks you do a feedback loop and say this is not working. >> seems much simpler to make sure you got people in there that care about the kids, that

want to teach the kids. if you worked there two years you automatically get tenure without looking at all at their performance? >> i'm not advocating all of that. >> you're calling it strong -- >> i'm telling you how to fix the problem. so why don't you give me the response, that's right but we can't do that so i give up. if we can't do the things that are intelligent then we're really in trouble. >> i'd start with something we can do, making sure that every kid has a teacher that cares about whether he learns something. and the only way to do that is to do teacher evaluation but we're prevented from doing that because of the unions and we're not allowed to go in. you see what cuomo tried to do? christie barely got the slightest thing through new jersey and did it on a bipartisan basis, it was a democratic individual that actually wrote the law. you saw that, right, but barely able to do any type of teacher evaluation. >> we need to make this about the children, not about the

teachers, not about the -- >> that's what i'm saying. >> no, you're not. >> we have to slip in a break and get to a commercial. we also got to get you talking about greece and -- >> international financials. >> we have so much to do, but in the meantime, coming up, one of the cars expected to make history at the pebble beach auto auction, clark gable's 1930 -- this is not that, this is you. >> that's me. you. >> next we'll look at some of the world's most classic expensive cars and high performance machines. on "squawk" on monday peter orszag, former omb director and vice chairman of global banking at citi, he'll weigh in on the gop vice presidential candidate paul ryan and obamanomics after the break. [ male announcer ] eligible for medicare?

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welcome back to "squawk box." some of the world's top collectors gathering for the premiere car auction of the year in pebble beach. robert frank joins us with more, a lot of classics. the 911, one of those air cooled 911s, too. what are you seeing out there? you got anything in mind to bring home with you, robert? >> reporter: i got a lot of things for you, joe. we can go over that, great porsches behind me. this has become the woodstock for millionaire car collectors, the world's most wealthy car collectors from around the world come with the most valuable cars in the world, they descend on this beach town, they show the cars, they compete for awards, most importantly they buy and

sell them. this weekend they're expected to sell more than $200 million worth of cars, that's going to be a new world record. the star of this show is right behind me, this 1936 mercedes owned by an aristocratic german family, it sat in a garage in greenwich, connecticut, for 30 years. this weekend it's expected to sell for more than $10 million, perhaps $50 million. it could set the world record for a car sold at auction. why are cars doing so well with such a bad economy? cars have actually outperformed or performed as well as stocks over the past five years and the wealthy are looking for a safe place to put their money. we talked to some collectors yesterday. >> likewise, if you have money, you don't want a return, you want safety. you don't trust the banks anymore, so it's nice to have something sitting right under your house, in your garage, tucked away, so you can have cocktails with your friends and try for a drive around the block and still have it sit there and

represent, you know, a solid asset. >> you know, one collector told me yesterday you can't take your stock portfolio for a drive on the beach with the top down. that's certainly true here this weekend. back to you, joe. >> where are you? are you somewhere around 17 mile drive in monterey, in carmel? >> we're at pebble in the gated community at the gooding auction tent. in this tent alone they're expected to sell more than $100 million of cars. i've been doing a little shopping for you and andrew. you're a porsche guy so we've got this beautiful 1948 red car way behind me, you can see that. this 1973 is going for only $120,000, so pretty affordable and i've got a great convertible cadillac, 1930s that jeeves could drive for andrew, it would be perfect. >> is there a rolls out there for me? i need a rolls. >> we have a couple of

rolls-royces. we have this clark gable deusenberg, it played a role with the affair he had with carol lombard. >> half of the cars are not -- most of those are standard transmissions, right, there, robert? none of those are -- right? any of those would be -- dp >> jeeves can handle them. >> it would have to be a stick for andrew. you have to have one that's an automatic, that's the first thing, robert. >> are they selling any bicycles out there? >> i love cars but they just are not making cars the way they used to. you look at the designs of these cars, they really are rolling sculptures and the people here, it is about the money but they really have a passion for bringing back these pieces of history and you look around here, it's like being in a gallery. these cars are gorgeous. >> robert, thank you, robert frank, seems very comfortable out there. >> we'll bring you something back, let me know. >> drive it back. >> like four days, he's

comfortable around rich people. you are. coming up, much more from our guest host, former treasury secretary paul o'neill, when we return. ready or not, the stock of the day is coming up. you're watching "squawk box" on cn cn cnbc, first in business worldwide. [ thunk ]

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that was 17 cents above estimates and smucker also raised its quarterly dividend by 8%. footlocker earned 38 cents a share in the quarter. that's better-than-expected performance. and gap earning 49 cents per share for the second quarter. one cent above estimates and they often have missed historically. the parent of gap raising its full-year forecast to two bucks per share, below current con kens estimates of $2.08. coming up, parting thoughts

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join mercedes-benz usa on facebook for the best summer sweepstakes. stock of the day, vivus, jeffries downgraded the stock. everybody's excited about that new obesity drug newly approved. let's get some parting shots from our guest host. former treasury saeshecretary p o'neill.

if you were the treasury secretary today and you were told, go fix -- figure out what your role should be in the problems in europe, we have not even talked about what's going on in international finance right now, what would you do? >> like many of the things we've talked about this morning, i believe we need to make structural changes in the arrangements we have in international finance. so i ask myself the question, we had argentina, the philippines, a variety of places around the world over the last 50 years where the sovereigns have made really bad decisions. and what did we do? we used the imf and the world bank as intermediate areas and we got the plumbers and carpenters in chicago to bail out the bad decisions. now we have greece and we have portugal and we have ireland and we have spain, we have italy. so an intelligent people would say, we've got to have a world agreement first of all that every sovereign debt will have in it collective action clauses

which means they can be clawed back and reduced in value if a sovereign gets in trouble. we need a sovereign default mechanism. and beyond that, we need to basically say that we're not going to let financial institutions buy sovereign debt and put it on their books at face value and carry it like the germans currently are carrying greece debt. and 100 cents on the dollar when it's worth 230 cents. we need to have a world agreement that the imf and the world bank and no other government agency is any longer going to bail out a sovereign gone wrong. >> grade tim geithner? >> i think tim has done well. we have a fraternity of treasury secretaries and one of our coda is we don't talk bad about each other. but i think there's a definite need for structural changes. we need structural changes in

our tax system, in the way international finance works so we don't keep repeating these problems. you would think after we've been burned with these sovereign defaults, we would stop letting sovereigns issue debt that can't be redeemed at face value. >> i was going to ask you to grade hank paulson. but if you were in that job at the time, what do you think you would have done? >> i wouldn't have done t.a.r.p. >> you would not have done t.a.r.p.? >> no. >> because? >> because you go back and look at the history of t.a.r.p., the first idea of t.a.r.p. is they were going to figure out a way to buy the outstanding stuff and that was going to make everything -- they actually didn't end up doing that at all. they ended up stuffing the banks with money. so i believe this -- actually had a conversation with the people at the treasury in those frantic days and said to them, if you can really value this stuff, all you have to do is guarantee it and you don't have

to appropriate $700 billion. and the truth was, we couldn't have put a value on it. that was the awful stuff. >> would you have saved lehman brothers? >> i think i would have let them go down, but i hope i would have been smart enough to understand that the collateral effect through all of the other connections was going to have a really terrible effect and i would have tried to fence off -- >> would you have saved aig? >> i would have been happy for the equity holders in all these places to go down the drain and lose all of their equity. but i think we needed to pay attention to the collateral consequences coming from all these exotic financial instruments that we invented -- >> sounds to me like you would have let lehman go, t.a.r.p. was a failure. you would have saved aig or no? >> paul, glad you weren't there when this was happening. >> i said what i did earlier.

if all these places had 20% equity requirement -- >> but they didn't. >> okay. but how do we fix that? >> we didn't. >> i know. why don't we fix it now? >> we don't need to. we have dodd/frank. >> 2018, what the hell is that about, right? are we not smart enough to know the system needs to be protected from malfactors and? and a way to do that is to make sure no single institution can unravel the whole finance -- >> autos, saved the autos or not? >> i was on the gm board for two years and i decided after two years in 1995, there's nobody here who has the courage to take the action that's necessary. and so i got off the board. i knew in 1995 they were going to -- >> sounds like you were going to let them go. >> i think the equity holders