guarding your future. everything from risk to regulation. today's headlines, the analyst who covers the banks for barclays, his firm holding a financial conference in new york today, but first he'll join us here at 6:3 a.m. heern. plus we have sheila bair. she has lessons to tell. and we've got tpg founder and ceo, he says now is the time to own financials. plus he'll talk about report that's took an enormous losses due to jpmorgan's london whale. so a busy morning ahead of us, but first let's talk about the big headlines starting with the markets. sharp gains last week to end multiyear highs. the s&p and nasdaq posting their best weeks in three months. and the rally was all ten finished in the black. and bp reportedly talks to sell

some of its gulf of mexico oilfields to explain xs floor race and production for about $7 billion. uk energy qui aunt wants to raise money it pay for damages from the 2010 oil spill. and treasury announcing it will sell most of its stake in aig, the move will make the government a minority investor for the very first time since rescued the company can during the financial crisis four years ago. treasury was expected to sell stock this month, but analysts say the makingfully tud of the planned 18 month offering is a surprise and as joe was mentt before, questions about whether politics are involved here ahead of the elections. but i got to tell you, at today's market price, they'll make money. the price to beat i think is $28.73 and we're trading awroun $33. >> thinking about hank greenburg an what he thinks. but what got them in trouble,

andrew, and that was all the insurance that connecticut unit was writing without putting down any reserves. did they not have to pay off on those? did they unwind the credit default swaps or -- >> i don't think many of them ended up having get paid. some, but very little. >> so that was what was going to sink them. so if those didn't get paid off, then the rest of the company was still pretty -- it was that unit that was causing all the problems, wasn't it? >> there was that. a lot of -- aig, there was a lot of problems across the board. nobody ever imagined that they would actually make money. >> $182 billion, like we were all in. >> so my question is if you're an occupy wall streeter, does your view on aig change? >> i don't know. i saw something over the weekend, though, about jay-z. >> it was in the "new york times." he says, look, i didn't want to support occupy wall street, i didn't know what they

represented. pretty fascinating stuff. >> jay-z is a 1%er, isn't he? >> yep. and he also said he's a fan of free markets, a fan of entrepreneurship. i thought it was -- >> he was a 1% of the 1% of the 1%. we need scientific notation. it's like one times ten to the minus eighth on how much money he -- and beyonce's, i -- this is jay-z, not jeff zucker. >> this is the other jay-z, the one supporting the nets over in brooklyn. >> they're both rich. the fed will hold a two day meeting if washington. central bank expected to launch a third round of bond purchases to drive borrowing costs lower and give the economy a jump-start. the fed will announce its policy decision around 12:30 eastern this thursday. ben bernanke will then hold a news conference after what happened on friday, the more

people delved into those jobs numbers, the more it became clear probably that qe-3 -- it will probably be disappointed at this point. >> morgan stanley saying this morning they expect qe-3. >> what a way to go down in unemployment, to have another 380,000 people say i'm not even going to try anymore. lowest level participation. >> politically, i don't know if you saw some of the polls over the weekend, obama seemed to get a bump, but my question, were those polls taken before friday, after friday, and does it matter. >> it's a rolling poll, so i think the ones that came out on sunday would have been -- it's not all new. but it's one of those rolling polls where they keep adding to it i think. >> i just wondered whether those job numbers were included in that because that would have been surprising to me. >> i don't know what to think of

these polls. and the headline, it was either huff post or grudge, when you go back, carter up 8% that the point, the one that really got me was dukakis after the dnc. 17% up. but then again, they look it at the swing states, out of seven swing states,ic t i think the president has a slim lead in six out of seven. and normally in mid september, that's a pretty good indication. >> i know you're a big mike allen fan. i was reading it on sunday and he had quotes from people inside the romney campaign who were a little anxious about a couple of states. >> i saw that. they're all worried about ohio. and it's like five points right now supposedly. in other economic news, we'll talk to -- i'm confused because we have harry will so that on a lot who is the turnaround guy and i always ask him about diamonds. >> this time we have the real -- >> we have harry winston on, so

i'm going to ask him about the auto bailout. you know why diamonds aren't one of the reasons it's a little slow, earnings weren't as good? those rich guys in china -- >> not getting married, what's happen something. >> and they're h are holding on their rough diamonds. it was becky's interview, but - >> and they are holding on to their rough diamonds. it was becky's interview, but - >> and they are holding on to their rough diamonds. it was becky's interview, but - >> and they are holding on to their rough diamonds. it was becky's interview, but - >> and they are holding on to their rough diamonds. it was becky's interview, but - >> and they are holding on to their rough diamonds. it was becky's interview, but - >> and they are holding on to their rough diamonds. it was becky's interview, but - >> and they are holding on to their rough diamonds. it was becky's interview, but -- >> i have nothing to do with her getting significant. >> i don't believe that. cause back, you're a walk -- >> i stam still sick with this cold. i wrbrought my puffs plus. >> you're like the guy who has all the dirt coming off of you. >> she has something different from what i understand. >> what does she have? >> i don't want the imprigs that

we're under the -- i want to make sure people don't have the misimpression because the second i heard that she was sick and i was sick, you -- >> i don't even think people believe your wife is with you. and becky absolutely not. chinese exports grew at a slower pace and imports fell. highlights the challenge facing beijing's policymakers as domestic demand slows while the global economic outlook darkens. in japan the government is revising second quarter gdp slightly low person the economy growing at 0 about.2%. among the reasons companies kept the lid on capital spending amid worries about europe's debt crisis and a global slowdown. italy's primary mario monti says the country has no plans to access the ecb bond buying plan. monti speaking to cnbc's maria

bartiromo this weekend. >> on lake como no less. >> i believe that what italy is doing in terms of domestic policies both budgetary and fiscal discipline and structure reforms should be enough to reassure the markets. >> she he gegets all the good assignments. >> have you stayed there? >> a beautiful hotel. >> i don't know if she was staying there -- >> have you stayed there? you say, yeah, she stay there had. >> it's a great hotel and i proudly have stayed there. >> okay. good. finally. if you were it leave that hotel to drive to george clooney's place, how long did it take,

would it take? >> i have not been -- this was years ago, but -- >> is he right near? >> i assume somewhere on that lake, yeah. it's a big lake, though. >> wonder if maria would see george clooney. >> she might. who was there from fox news? >> chris wallace. which is a weird -- >> interesting dynamic. >> they're buddies apparently. and maria, we'll have more from monti on closing bell this afternoon. all right. time for the global markets report. kelly evans standing by in london. not that far from lake como probably. >> ross got the assignment. it was torture, he had these beautiful shots and i would have loved to be there. >> you're so close. go. it's like a chunnel to get to the continent and then you can drive around over there. >> it seems that way from the

u.s., but then you get over here and you realize, yeah, you can make it to paris in a couple of hours, but it does take a little bit of plan to go go elsewhere. i'm not sure i could have necessarily squeezed that in. >> you're young. let it all hang out. no kids or spoptdresponsibiliti. start seizing the day. >> i'll seize the global markets report. how is that for sad. stoxx 600 down about 0.1%. first of all, we did get weak than expected day todta out of . i think you already hit this in the headlines. imports weaker, exports weak than expected. and even the inflation figures, some of the industrial production figures soft. still some okay signs if there. maybe why we didn't see more of a selloff. maybe speculation that the pboc

will be stepping up to the plate with more activity. the session across europe kind of carried on this muted tone after that. shanghai composite did add 0.3% and it's above the 2,000 level people are watching. it indicates the ibex 35 is an underperformer today, down 0.2% we're still seeing renewed concern about what the detail of the devil being in the detail of the ecb bond buying plan. monti and rajoy talking about reluctant to ask for conditions. ftse 100 down 0.1% because glencore, exextra at that time in the news. tons of attention over here. tony blair the former prime minister's role in help to ing broker the deal. releasing their final offer for

exvat ta xtrata to get the deal done. shares down 1%. we know a big stake holder in x xtra xtra xtrata, we're not quite there, so this may be the last of the deal, but revisions may come with more pressure added. just want to show you the bond wall before i throw it back. euro-dollar done about a quarter of a percent today. and italian ten years where we're seeing a little bit of pressure. elsewhere it's pretty quiet. back to you. >> thanks so much, kelly. stocks of course with rebounded in a new post-crisis highs. will it continue. joining us now, michelle girard at rbs. michelle, handicap it for us.

qe-3. >> we think the odds of the fed doing qe-3 with 90%. >> where were you on thursday night? >> let say 60%. we still thought it was better than even, but that employment report kind of nailed it in the sense that the fed laid out the criteria. we needed to see the sustained and substantial improvement and that labor report didn't show it. so i think the fed will have to make good on their -- >> and you think it happen this is week. >> yes, i do. i think i guess the only question is when the fed says they're going to act, they could mean communication, as well. the markets are focused on the bond buying. >> the really, really, really, really, coming? we'll keep extending? >> we'll keep extending at shall point and maybe even starting to expand that out by suggesting that everyone once they start raising rates, they'll raise rates slowly. some talk of a super charged, if you will, extended language because it was discussed in the minutes. so i think again i think it will

be a combination of both, communication an bond buying. and i think that's what the markets would be somewhat disappointed if it was just the communication. >> sam, do you want to weigh in? >> i would agree that extending lower interest rates there is to 2015 is probably an assured comment at this point and that there's increased likelihood of them engaging in qe-3. so nothing really new coming out of my lips. >> but you're our equity guy, so what does that mean it to the markets? is that already baked into the cake? is this going to go up in here if we hear the same news that you're talking about? >> i think it's largely baked in, but i still believe we have upside potential. when you look to technicals, when you look history, we could be looking at the s&p 500 close to 1550 by the beginning of 2013. what's really sort of depressing that optimistic outlook is the fact that economic macro as well as earnings situations still look fairly depressed.

>> let's talk about you're republican for a second. we've heard an i don't know if you had a chance to earlier the comments from mario monti. everybody got very excited last week that there was a plan and now people are a little less excited. how does that impact your sense of where the global markets will be and therefore what will happen to the u.s. equities? >> i think cause people to say, yes, it's nice it went up so nicely, but stale lot of hurdles ahead. >> so what's the down side look like? >> i would tend to say we're still looking at the low he 1400s as a support level. so we still have a lot of support levels out there that could help support the stock market at this will point. >> is he super mario or is he not? >> i have to say, i'm not surprised that we've kind of seen this again. this has been what's happened, policymakers announce something, there's an initial positive market reaction and then the rethink when we actually

consider what we know or what we actually don't know. we've had concern obviously about the bond buying plan in terms of the fact that what it really does is remove the market's ability to kind of discipline countries to follow suit. there's really no punishment in the market. >> have we all officially decided that there is no possibility of a lehman moment anymore? given everything that draghi has said that that is off the table? and if that's true, that changes the dynamic. >> i think policymakers have removeded the so-called tail risk. so that to some extent i think is what has bolstered the markets. but let's face it, it's still going to be a long slow grind over there, the underlined problems have not been resolved, the recessions are deepening and that's what we're deal aing with thousand. >> you don't think the grind is

coming here? nobody seemed to pay attention to the numbers and maybe there's something else going on. >> china. >> yeah. >> while we may have gotten a little bit less concerned about imminent problems out of europe and people say with the fed, the truth is in the last couple of weeks, even i've gotten more concerned about the global outlook because of the worsening news out of china. so i think in terms of the fed again, that offsets some of the maybe calmer feelings for the moment. >> we'll leave it therethere. thank to yyou to michelle and s. >> the "wall street journal's" lead editorial on paul ryan and the simpson bowles commission, because we've asked him why he voted against it, very interesting pieces. the journal shows exactly what was going on at the time. medicare and medicaid were off the table by the time -- but an interesting piece. i'm wondering is it like the conventions where only true believers watch the conventions.

i'm reading this, but no one who hates paul ryan is going to read that anyway. >> i read the top of it and i read it traditionally because you read it. >> and that's why -- well, i don't read krugman. i can't anymore. coming up, chicago public schoolteachers, this is interesting, will strike for the first time in a quarter century today. they failed to reach an agreement with the nation's third largest school district over education reforms sought by rahm emanuel. john harwood will be with us so we'll talk about that next fp with the spark cash card from capital one,

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. chicago public schoolteachers will strike today, the decision comes after a confrontation between mayor emanuel and organized labor. the strike could have implications nationwide and for president obama's re-election campaign. i don't know that you can say rahm. there is nobody else, right? >> rahm is rahm. >> so do you think that was intentional? >> i think it probably was not intentional. >> mitt romney sitting down with david gregory to talk taxes, jobs and much more. >> you didn't think the fed ought to be anymore involved at this point? >> well, i don't think that

easing monetary policy will make a significant difference in the job market right now. i think what the nation needs is a change in fiscal policy, a different structure to our economic positions. and if we take the right course, i believe you'll see this economy come roaring back. >> and harwood joins us now from washington this morning. because if you can just say rahm and people know, i mean, harwood -- >> done. >> done deal. people will know. >> that's all you need. >> did you sleep all weekend? you look like you got some color in your cheekses and you kind of have like a half smile on your face. you're not going to tear my head off this morning. you got some sleep this weekend. >> i did. yeah, it was excellent. >> you didn't go to any dance parties or anything like that? >> no. but i did watch the redskins beat the saints in new orleans yesterday with our phenomenal rookie quarterback rg3. do you know what i'm talking about? >> i love that guy. >> passed for 300 yards.

unbelievable debut. >> you know what, i think i have a chance maybe to go to a giants/redskins. and i forgot about that. we have two quarterbacks on the jets now, although sanchez looked really-will-did you see any of that? >> well, all i saw was that this team that had apparently like not scored any touchdowns in many moons, all of a sudden like had over 40 points. did tee be lay? >> tebow play? >> he took the first snap. i think he ran five or six times for 11 yards. so the big dood duude -- >> this was all sanchez. >> yes, and the defense. >> our teams both had great starts. >> and a great last set. and andy murray today. we like businesses a lot more

than sports as you can tell. what's going on, john? and politics. >> well, look, we had a pretty significant bounce for obama coming out after the conventions. we don't know how long it will last. but going into the republican convention, mitt romney was down a point or two. he pulled to dead even after his convention. he got a little bit of a bounce. his favorables went up. but then immediately had the democratic convention which would by most accounts was more successful, they got high profile speakers. bill clinton in particular. and what you've seen in a series of polls, gallop showed obama up five, rasmussen showed up four. so you have a little drift up and mitt romney has to figure out a way over the next two months probably in the debates to close that gap and try to pull ahead.

>> it's slightly above the margin of error. so a tight race. >> i'm surprised, though, that obama did get the bump that he got because he's so much better known, people already know what they think about him. i thought romney had more up side potential and he captured some of that up side, but we'll see. again, the thing could settle back. check the polls in ten days. and we could be even going into the debates. >> john, what did you make of romney's comments to david gregory about taxes? he seemed to suggest on the high end that he is not lowering taxes, might be closing loopholes, but i was surprised by his comment. >> he's always said that his plan was going to be distributionally neutral. that is, he's going to cut rates 20% across the board for everybody, which takes the top rate from 35% down to 28% under

his plan. but he said he wasn't going to give a net tax cut to people at the top because he was going it close enough deductions and loopholes to do that. the challenge is how many deductions and loopholes can you close to get there. source of the democratic criticism of him and some of the tax policy analysts criticism is there aren't enough -- >> middle class gets hurt more. a although a piece said it can be done. >> aig and the sale of these treasury, political or not? >> yes, i think the administration wants to try to tie that one down before the election. >> coming up, barclays holding a major financial con fab in new york. you know what's complicated? shipping. shipping's complicated. not really.

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welcome back to "squawk box" here on cnbc. i'm joe kernen along with andrew ross sorkin. becky is off today. >> what are you looking at me for? >> i don't know. she's never sick and you were sick. and you brought stuff back from africa. and she's not here. and so i'm not blaming you. making headlines, the imf strongly backing the ecb's plan to launch a bond buying program -- coincidence? -- saying it was ready to get involved this designing and monitoring the inmplementation.

christine lagarde suggest spain and italy have taken enough action already to merit aid. the european union will propose a panel of experts, love experts, to deal with banking rule breaches. the idea is for this to be an extra layer of protection so that the ecb can't immoez its will on the banking regulator when the central bank takes over supervision of the central banks. the ecb is set to take over primary oversight power for 6,000 banks in the 17 countries that use the euro. and greece's political leaders are failing to agree on a package of spending cuts worth nearly 15 billion. they'll meet again wednesday evening. the cuts release of the long a wait loan installme installment. greece still has to play out. >> some of the nation's most powerful financial leaders are gathering in new york today. joining us now, the man putting

the conference together. jason goldberg is senior equity analyst for barclays. thank you for joining us. i want to start with us. we have sheila bair coming on the program later today and then later in the we'll, we have a local host of other people who have a view about bankses which is that they should be broken up. not necessarily by regulators, but because there's a business case to be made. i know you're bullish on the banks, but is that something that you think is a realistic possibility on the table anywhere out there at all right now? >> it's not something we see near term. bigger is not necessarily better. but better is better. and some big banks, they're doing a pretty good job right now. >> you seem pretty bullish for the most part on the banking sector. we've seen the stocks pop last week given some of the news out of europe. i don't know how long that will last. i don't know what you think qe-3 will do to all of this. of the banks, what's your favorites? >> we favor some of the bigger more diversified names. jpmorgan, citigroup, wells

fargo, u.s. bancorp. generally names where you're seeing book value grow each quarter. and trading at discounts. >> i don't know if you got a chance to see it today, in the wall stre"wall street journal" the money investing section, banks rethinking pay for executives. a big conversation about how that will play itself out. what do you expect to happen and how much does it matter? >> you know, it's not necessarily something that we spend a lot of attention to. a lot of these executives are paid in stock, thus their interests tend to be this line with shareholders. as long as your interests lie in the long term values, it's something you'll pull in the right direction. >> what banks to you worry about? >> we worry about some of mid-sizeded regional players that are more he focused on real estate lending. that hear harea has been slow t back and more exposed to interest rates. rates that multigenerational

lows, much more challenging in the current environment. >> you talk about too big to fail and maybe in is a crazy idea, but since we're talking about some of the smaller regionals suffering, do you expect us to see mergers anytime soon? we haven't seen many transactions in the financial space in a long time. >> we expect to see thousands of acquisitions p about t acquisitions. the number of banks that have halved in the last 20 years ago, we expect a secretary could y s. and with increased regulatory pressures, we do see a pick up of consolidation. >> so move some of the chess pieces around. which ones move? >> you saw bought atpk, a name challenging from the interest rate environment. i think those are some of the characteristics to look at in the future. >> if there's one theme that you hope or emergency emerges today

from the conference, it will be what? >> we think there's a lot of focus on interest rates. one reason the stocks did well last week, you you saw the ten year yield back up a bit. we'll see if that continues. loan growth on top of investors' minds. it's being positive, but i think less than desired. and you're hearing more talk about a potential pick up in the capital market environment after a bumpy lasts several quarters. >> jason goldburg, thank you for joining us. go good luck with the conference. >> comments or questions, e-mail us. coming up, president obama squeaking out a fund-raising victory over mitt romney last month. the candidates gearing up for the final stretch before the issues likely to take center stage next. this country was built by working people. the economy needs manufacturing. machines, tools, people making stuff. companies have to invest in making things. infrastructure, construction, production. we need it now more than ever. chevron's putting more than $8 billion dollars

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56 days away from the election. and after the disappointing jobs report, both candidates are highlighting the differences between their economic plans. jared bernstein is former chief economist and economic policy adviser to vice president biden and tony fratto served as the white house deputy press secretary. the last couple of times you guys have been way too nice to one another, agreeing on stuff. jared, you've been around a long time, and you have the gray hair and worrying to show for it. are you -- is this bounce that we're seeing both-dnc, do you expect to last and do you think it these polls reflect any of the numbers on friday from the jobs report? >> i tend to believe this remains a very tight race. i did predict that there wouldn't be much of a bounce from the rnc and i thought that

the dnc was a bit more hopeful. maybe there were more specifics in there. a lot of people have been saying that they want that. but i tend to think things are very close and i guess like many people, if there's going to be a differentiation, items he got it to be in the debates. otherwise this is just going to be a very tight race until the end. >> i did hear the specifics from the dnc, republicans don't care about people, all they care about is money. they're very specific about that, they're very greedy. and they really just want to -- all these things they want to do are really just to cut taxes for their friends and rich people. they were very specific about that. >> the only real specific i saw coming out of the dnc was that they want to tax rich people. >> who deserve it. because they're not really paying any taxes. >> i'm actually doing some back of the envelope modeling on this. i was thinking with all the attacks on bush tax policy, i was thinking where would the obama economy be today if we reverted to clinton tax policy at the beginning of the obama

administration. so maybe i'll put something out on that. it would be fun to see what the dynamic of that would be. but it was interesting, you know, they attacked mitt romney for not having specifics coming out of his convention. and then i looked with great interest at the president's speech and i didn't see anything in there. no new policies. really about defending what they did in the first term and taxing rich people in the second term. >> so i find this to be a very curious argument. on the one hand you have people like tony and lots of others saying where is the beef, so the president says i actually want to let the high end bush tax cuts revert to the same rates under bill clinton. that raises about $860 billion over ten years. and what happens? joe, tony, all their allies jump all over him. now, i'm not saying you shouldn't jump all over him if you don't like the policy, but don't say there's no policy and here's a poly iiicpolicy, i don

it. >> you had the guys get elected in 2010 and you knew it wasn't going to happen. that's the only thing the president has been proposing for the last year and a half. >> wow. okay. >> -- get in a position to put guys in an ob structure difference position. >> that's a very clear statement, so let me do a fact check on you. it was about a year ago that the president presented something called the person jobs act, september 2011. >> it was going nowhere. it was going nowhere when it came out. >> but you're saying he didn't propose anything. >> new york i'm not. i'm saying he proposed things just purely to back republicans into the obstruction corner. >> again to me this is a very weird argument. you're saying no specifics, no proposals, and then when i tell you about specifics and proposals, you say those aren't the ones i'm looking for. >> but that's not policy. >> of course it is. >> it's really actually the third -- >> you knew it was going nowhere. it wasn't leadership. it wasn't trying to get guys in a room to do something. neither was the super committee.

left totally alone. he didn't even make a phone call to the committee. >> there are many issues on the table. i don't think you can blame president obama for the failure of -- >> there is one thing on the issue, and this actually surprised mean the full throated attack on territorial tax system whichever corporation in america that oversees business, you it know, really wants to see us move to a territorial tax system. i was surprised to see vice president biden more over the weekend really attacking a territorial tax system. and i actually think that kills any chance for tax reform in a second -- if items an obama administration, if they're drawing the line on territorial tax system, i don't see how we get tax reform in the next few years. >> i think that's a fair point and i do know that for a lot of republicans, territorial is big. i will say this, and it's another good ex3578 spell of a policy that the administration has put forward. they have a corporate tax white

paper that takes the rate down to 28%.policy oversees is not tear torelial, but basically territorial with a minimum tax. so i think gets somewhat close to that, but to me, that's a compromise that people could start talking about. and secondly, in the context of the campaign, territoriality sounds a lot like making it cheaper to shift jobs overseas. so i do think it gets mixed up in the campaign rhetoric. >> but a depressing message from -- here's what i got out of him. the system is riggeded. america is unjust. opportunity is dead. you didn't build that. oh, and republicans are the people who rigged the system. they're trying to take away your rights to vote, your right to health care yorks right to education, your right to housing, they hate women, gays and immigrants and they're unamerican. that's the message. >> i didn't hear that at all. >> did you hear any of that, tony? >> what about michelle obama?

>> i think he just cited elizabeth warren's prime time speech. >> but do you have all the good positions, the democrats do. you care about people, not greedy money. you don't want to cut off health care for old people, you you love old people, you care about educating children. and by definition, i guess republicans are on the opposite side of all those positions which is a lousy -- you staked out all the good positions. >> this is working out great. >> it's difficult to run on that platform. >> it's that kind of rhetoric actually that really makes any kind of reform just impossible, right? because any reform of any existing system means that you are by definition, you know, just -- you want to create pottervilles in america by doing anything. >> it's working, though. >> i don't understand that at all. i mean, look, let's bring it down to kind of a reality level here. reform. okay. certainly i feel very strongly that the financial sector needs

reform. and financial regulatory reform which dodd-frank passed under the president is on the republican chopping block. it's not saying the system is rigged. many people view it as not having enough teeth. but that's a good example of the kind of reform that democrats were talking about at their convention and i think resonates with the american people. >> does it seem like maybe credit that's constraineded a little bit because right at the height of when we need to be able to rebound and we need money to be -- look what the fed is trying to do. we're at zero. something is causing things to lock up here. and you know regulation, while you need them obviously, you need -- >> it's a balance. >> it always goes too far. and -- >> sometimes it doesn't go far enough. >> you understand that those middle class tax cuts, you love those. you love the bush ones that were in the middle. so you understand that money left in the private sector does

work if it's left there. nobody's talking about letting those things expire. >> so here's the thing about tax that i feel like both joe and tony are missing here. do you guys not believe that we need some new revenues in the deal if we're going to get on a sustainable budget path? there is a world out there, it's joe's world, maybe larry kudlow's world, where you never ever need any new taxes. and somehow things imagine he cannily work out. but in the real world, you know you need it. >> what i want to see is sensible tax policy. what i want to see, a tax policy that -- >> yes or no, do we need new tax revenue? >> we don't even know how to predict tax revenue, jared. look, you and i know that it's a parlor trick to do tax policy and up with whatever numbers we want. i want to see a sensible, efficient tax policy that gets us in the ballpark. >> we all want that. it's way too vague. >> it's not vague. >> it's hard to cut spending and to raise taxes at the same time.

so if we're at 25% of gdp being spent for the government and you admit you don't want to raise taxes on the middle class right now that would not help in this recovery. so knowing that we can only do one or the other, why not start with the cuts and -- >> we have started with the cuts. we cut a trillion dollars from spending. >> i'm going to cut you off. no, we got to go. i'm sorry. thanks, jared and tony. we'll see you later. coming up -- >> what were you doing? >> i was blei iblowing my nose honest with you. diamonds are a girl's best friend, but can they also an shiny investment idea? we'll ask the ceo of harry winston after the break. we've got great news for them all. you can try snapshot from progressive before you switch your insurance. [ horn honks ] just plug snapshot into your car, and drive like you -- to see if your good driving could save you up to 30%.

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just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. now save 50% on banners.

a "squawk" ceo calls the little extra sparkle this morning. frederick denarp, ceo of harry winston good morning to you. >> good morning. >> we want to delve into some of the business issues that harry winston is facing at this point. your business model consists of actually mining for rough diamonds, but not blood diamo s diamonds, this is mostly in canada? >> in the northwestern territory of khan canada.

>> you mine those to sell to other people and when you're making diamonds that are fine and that are cut, put into jewelry you buy those somewhere else? >> it could be but we buy diamonds from all over the world. winston is known for being the king of diamonds and therefore the science of the diamonds coming from the mine, it's two different activities. >> it's a bifurcated company. >> yes. >> we've talked about luxury going through the last couple of years, some luxury people sectors have done very well when others have not done so well. >> yes. >> in the recent report, your results were lower, revenue was lower. it has something to do with what's happening in china, yes in. >> the main thing is that harry winston as a brand has doubled in the last two and a half years and we plan to double in the next five years so as a brand,

business has been extremely positive. i will even tell you double-digit group in every single country and continent so it's been positive. on the diamond mine side because of the slowdown of the economy in china and what you read, we decided to hold the rough diamon diamonds. >> you don't want to sell them at the prices now. >> we'd rather keep them on our shelves. >> that accounts for the revenue decline because of that part of the business, not the retail part of the business. >> which is the bigger part of the business, the retail business or what i imagine is the wholesale business? >> it's two separate businesses. >> which is the bigger business? >> the luxury brand business. >> much bigger? >> it's half and half in terms of top line. >> a lot of analysts are recommending it now, talking about if you're able to, you want to expand your retail

stores. you are at 20 now? >> you have 27 salons. >> you want to get to 40? >> even to 50. we are determined to be one of the most exclusive luxurious brands in the world. if we had 19 salons a year ago, we have 27 today, we want to go to 50 or more because we believe there are 50 premium locations around the world where we could have a strong presence, like in china. >> what would be the smallest city, the 50th city would be what? >> the 50th city could be in eastern europe, for example. >> when you're in the market for jewelry, it's hard for me to imagine paying, isn't it super retail, is it for the brand, is the quality that much higher? we have the jewelry district on 47th street or whatever and normally i would be afraid to go to harry winston, i would go and try and get what i would

perceive to be -- >> you think you can make a deal. >> would you pay retail in. >> i'm scared of paying retail so i try to find somebody who can help me, a friend of a friend everybody thinks to hook them up. >> harry winston was born 80 years ago and it's based on the quality in the craftsmanship and quality of the stones, we source with no compromise and that has made winston a premium brand and a brand that is inventive, a celebration of hollywood so there is trust into this brand. the trust and people generation after generation the diamond when it comes to celebrate meaningful moments you want to go to quality, this is why people choose an engagement ring. >> frederic, thank you very much. we have sheila baer and jim o'neill in the next hour, you don't want to miss it.

the markets on the move. we have the smart analysis keeping you ahead of your investments. it's a crucial week for europe. jim o'neill breaks down the steps for the next erou zone austerity measures. sheila bair's plan to protect the world financial system. the second hour of "squawk" starts right now. ♪ good morning and welcome to "squawk box" here on cnbc. i'm andrew ross sorkin along with joe kernen. becky is out this morning, joe,

but it has nothing to do with -- >> really? when people say did you bring us anything back from your vacation. >> i have a cold. >> they don't expect you to bring tapeworm. or malaria or elephant -- why is she not here today? you were sick immediately when you got back from rwanda. >> food poisoning, unrelated. unrelated. >> i'm enjoying the banter and the back and forth. >> you're leaning back like this with andrew talking. >> that's true. >> look at futures as we speak. >> look at the camera guys wearing masks. >> like michael jackson. dow jones looks like it would be off as with the s&p 500, relatively marginal. the treasury selling more shares of aig, selling $18 billion, aig will be buying back $5 billion of that amount doing it at a

profit. bp is selling gulf of mexico exits to plains exploration in a dheel page official a few minutes ago, the price $5.55 billion. bp trying to help pay for the 2010 gulf oil spill. gasoline prices up eight cents a gallon according to the latest lundberg survey, average $3.84 per gallon, as hurricane isaac caused temporary cutbacks in refining capacity. >> yeah, right. >> i know where you could go with that. for the first time in 25 years teachers in chicago are going to be striking this morning, more than 26,000 teachers and support staff are walking off the job, talks broke down late sunday night over issues including pay, beb fits and job security. at least 400,000 students would be affected by the strike at the third largest school district. school is just beginning. a big week on tap as investors await a fed decision

and of course the possibility of qe3 looks more likely. we'll get the prospective of steve liesman. >> the turncoat. >> why am i a turncoat. >> now question three-e3 is com on board. >> i predicted no qe3 in june and august. >> and you're navaling. you think it's a good idea. you can't believe it's taken this long now. >> no, i'm not enabling. >> is it a bad idea? >> i don't think it's a bad idea. i don't think it's a particularly good idea. there is interesting research by michael woodford who presented in jackson hole you could get where you need to go simply by changing its forward guidance. >> let me ask you a question. >> did you understand what i just said? >> yes but i'm thinking about something else. >> i look at him and -- >> we had richard fisher and he's going to be back, but we had some really smart people,

people involved with this. >> was that richard fisher and some really smart people or richard fisher in addition to. >> all together in the same boat saying that to categorically say that all this qe has not at different points inflated commodity prices, they have said absolutely that they think there's a linkage. i saw something last week, erin burnett happened to mention that "the huffing post" fact checkers need fact checking. they're full of crap. they lie more than the people -- the lead story was that she makes fraudulent, false statements, and i read, i go wow, what did she do? she must have screwed up. all she did was tie some of the commodity inflation to qe3 and quoted paul krugman and this other idiot, thein baker, but basically co-communists in a lot of different economic circles but categorically --

>> saying no. >> categorically untrue there's no commodity inflation? >> one of the best discretions i've heard, bernanke cannot take credit for raising the price, stock values without having also to raise commodity prices. i was interested to see last week when the jobs number came out, what you saw was commodity prices rose because there was anticipation of qe. there is definitely some connection. >> in the blogosphere you can write what is libelous, you can lie and taken aback by the readers. >> joe i get concerned when people who are not economics reporters, they get involved like when the white house guys start writing about economics, it makes me nervous. >> all right we don't have any time left. thanks, steve. >> i want to talk about what a depressing weekend it was, not for me personally but if you spent time reading economic

reports after the jobs report on friday, economists took away growth in the third quarter could end up weaker than previously believed and it would prompt the federal reserve to act. daiwa saying "the employment statistics are pointing to a slow quarter, we suspect that firms will remain reluctant to expand payrolls in the next several months because of the market uncertainty in the current environment" ubs, increasing certainty the fed is going to act, and guys, if you could scroll down, i know we're running out of time, i want to get to the comments on inflation here, we'll skip morgan stanley and go, one of the big issues here, let's look at the week ahead, german constitutional court ruling and then you have ppi on thursday, and then you have, give those guys a chance to catch up in the back, they did a nice job there, retail sales and cpi is what i want to

point your attention to. you actually, i didn't know we'd bring up inflation, i'm bringing up inflation. the headline cpi number expected on friday, 0.6%, that's not year over year, that's month to month, and that's going to be driven by surging gasoline prices. it's going to be the highest month-to-month change since june, 2009. it's going to raise more than a few eyebrows because if the forecasts are right it comes the day after the federal reserve announces more qe so the higher gasoline and weak earnings in the friday jobs report central to what jpmorgan said, workers hit by higher inflation and slower income. the forecast looks for real gdp growth of 1.5% this quarter and 2 next quarter, about in line with the first half's disappointing growth pace. one of the big stories i thought from the friday jobs report was the lackluster earnings, causing people to go backwards. >> some of these started in about a month, two months that we started as qe3 became more,

they didn't have to announce it, just the likelihood was growing as these things are going over, gold, 1700 -- >>b bernanke has taken credit fr qe3 stopping deflation and it's essentially an inflationary act. i think he has to answer that question in a better way. >> there will be a press conference this week. maybe he'll answer that question. >> i'm going to answer that question and put together some data and seen stuff, you can't take raising one and not the other. >> thanks. multiyear highs, hersh kohn from clearbridge advisers, with so many things, hersh, is the market up because of qe3 coming, because corporations are doing better, is it looking six to nine months down the road into next year and discounting something into the election in. >> i don't think it's six to

nine months down the year. if that's what it's looking for, then i think it's looking through foggy glasses. how can it know with the fiscal uncertainty. >> market always knows. what do awe contribute the firmer action to? >> short term bases. >> climbing a wall? >> and so you had, you went from a market where people really complacent and people starting to get worried and then you had people grasp on to this short term economic news last week that jobs were reported on thursday and you get the trends exacerbated by the very thin trading. you had two days of a rally, that's it. >> but the market is at four-year highs in the face of -- >> four-year highs for some things. i would say there's a lot of lagging sectors and as the market has made new highs on the averages there are fewer stocks

participating. >> any of it attributable to fed action? >> qe3 i don't know but certainly the whole monetary situation has been favorable for equities for the past couple of years and i think that's to me -- >> is the market expensive now? >> it's not expensive and not dirt cheap. the market could support a much higher pe if you got rid of the fiscal uncertainty which i think will not happen, and -- >> but not happen this year or not happen next year. is your expectation, i can see that you could be worried preelection or even pre the end of this year but if you look farther out, nine months, 12 months out there's got to be a sense some of this uncertainty is going to go away in terms of some of the fiscal cliff issues. >> what if it goes away in unsatisfactory ways, what if it goes away in ways damaging to the economy. tell me a way that we get out of this fiscal cliff situation that is good for the economy, tax increase is good, are spending

cuts good for the economy? so i don't think the outcomes are particularly attractive in the whole fiscal situation. >> you don't think the worst case is expected by the market? >> i'm not sure. is the worst case expected by the market? not with the market at nominally new highs. i don't think the worst case is expected. i think there's a lot of complacency about it. >> what's your sense on europe? >> it's in a recession. what can you say? >> so one of the questions we talked about in the 6:00 hour -- >> stthere's a fiscal drag in europe going on, monetary stimulation, same thing that's happened here over the past few years. >> do you think over the past few months dpichb what mario draghi has done that the worst case scenario is off the table if. >> europe has not been my worry. i thought a year ago when people were worried about europe we were bullish because of the lehman experience there's no way europe could have started letting the banks go. if it hadn't been for lehman i

don't think they would have had the experience so you had one relatively small investment bank crashing and causing the whole world to fall apart so they couldn't let that happen so europe is not my worry. >> are you bullish or bearish? >> right now i'm bullish. hey, excuse me, go back and look a few months ago when i was bull in the dividend stocks and they were giving them away. >> how would i know that, hersh? >> i have been on. >> all right. we appreciate it, thanks for coming in. >> that's it? >> yes. thank you, mr. cohen. coming up next, greece's objecting to part of the austerity plan. jim o'neill of goldman sachs, the superstar himself is going to join us with his latest read on the eurozone and later we kick off a special week-long series called the future of finance. special look at the sector, regulation and investments. former fdic chair, sheila bair, is back after this.

>> comments, questions, send them to @squawkcnbc on twitter, follow the show and look for updates from andrew, joe, becky and the "squawk" staff. "squawk box" on cnbc and on twitter. bob... oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking.

you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. now save 50% on banners.

in addition to the fed,

investors will watch the latest developments out of europe this week. joining us is jim o'neill, chairman of goldman sachs asset management. i think about you, jim, and you had a long-term perspective i would describe as sanguine and we've had, if you tack it all one way or the other, we bring you on and say oh you've changed, but all in all you've been sanguine and sanguineisity was the place to be. >> maybe i should retire gracefully now. >> that wouldn't work for us very well. please don't do that. but is there a day of reckoning coming? i talked to some people over the weekend that have traveled all over europe and they say the euro is not coming back down and there's not going to be breakup and anyone who thinks we're going to parity is miscalculating. >> that's been my view all along, as you said earlier. i just joked with a couple of

clients this morning but i meant it on the line seriously, you have to distinguish on the euro the amount of subjective view of what it should or should have been with, from what is an objective view of what is the reality, and you get so stuck in the idea that the euro shouldn't have happened and it shouldn't have involved all these countries, and you don't take into account the deep history and the complexities. you're lost before you go any further. all that said, what one consequence results in another dilemma, my own view is, you know, draghi telegraphed very clear to us back the day before the olympics started in london what he was going to do, did it thursday, two big issues now are when is spain going to actually formally apply for help, if they didn't within the next four, let's say i think the markets might have some disappointment in that. the second thing which is a bigger picture and something

that will really test let's call it the sanguinity as you nicely described it. >> i made it up. >> i made one up people talk about all the time in finance these days so i'm not going to hold that against you. >> refudiate, and misunderestimate. >> it seems to me the big thing thursday is merkel backed draghi and the bundes bank and the bundes bank is the conservative voice increasingly of germany, they're heading toward what will be some referendum in germany on a closer euro in which germany as part of its dna has to support the others and that's a huge thing down the road. >> we had a chart up and i was looking at it and i remember that day before, i'm glad you put it in that context, day before the olympics, andrew that was the day that draghi had the plan for the plan. >> i said it was a plan for a plan for a plan.

we still have plan for a plan. >> that move in the euro we just saw from 1. 2, it was right back, there is august and the olympics were in august, you know what i can also coincide that low point there was when it became clear that qe3 was really going to happen again. i'm back to wonder if it's a leper with the most fingers. the dollar doesn't look good either so the euro goes up. there may be a little bit of both, right, jim, may be partly -- >> yes, both the two big developed powerhouse regions of the world or at least large in terms of size both trying to outcompete each other for further efforts. japan might not be far off doing more as well, hence why gold is showing signs of breaking out again on the upside. >> and oil and everything else, but what we learned was when draghi said that, we learned that germany must have been, there must have been enough chinks in the armor that draghi

knew he could say what he was saying and it wasn't going to be overruled by the germans in the bundes bank. >> there's something known as the gang of four, which you guys might have covered this but draghi is one of the four of them who are basically mandated with the task of a medium to long-term sort of united states of europe kind of plan which involves fiscal, more fiscal union and political union and most interestingly i detect more and more some sort of thoughts about more parliamentary responsibility, so therefore a bit more accountability and democracy so he knew all of that before he said what he said six weeks ago and he certainly knew that he'd gotten merkel behind him in my view. >> george soros has an op. ed piece, he says germany needs to lead or leave and if a germany were to leave, the euro would depreciate, the debt burden

remain the same in nominal terms and debtor companies would regain their competitiveness and the value of their real estate would also appreciate in nominal terms. do you buy that? >> i can't resist in teasing him a bit. he must be dabbling around in mantis united shares going to his head. without germany there is no euro. the idea germany leaves and the rest carry on is a non-starter. i don't understand why someone like george is saying that. >> i want to see his book, whenever he says anything, i want to see where his book, you know, fool me once, fool me like 10,000 times, how many times has he talked this book and a guy with that much money he talks his book. >> he has lots of books. >> it wouldn't be a euro without germany so if germany were to walk away that would be the end of the whole thing. i don't know why people come up with this.

>> andrew loves the incendiary crap from these crazies, you do? >> it makes for interesting conversations. >> that's for sure. >> jim, greece, now that mario has spoken, chances that it stays in or leaves? >> you know, this is another thing which i think has shifted over the summer. i'm not quite sure where it started but it also separately from everything we've just discussed looks to me as though germany has backed off this view that the euro can cope and survive without greece. occasionally i think some of it is tactical that they've made some pledges to washington, i'm certainly aware of a number of things i've been in the u.s. this year where people have said the biggest threat to the u.s. election is greece, et cetera, et cetera, but it probably couldn't just be alone. they're probably scared but it looks to me as though merkel's people have already decided that they don't want to let greece go. >> you're irish, right? >> that's write come from originally in the old days.

>> mcilroy, man, mcilroy. boy. >> we have to go. thank you so much. coming up, former fdic chairwoman sheila bair will be here in a moment.

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to watch requesting closing bell" today. maria bartiromo will have an exclusive interview with italian prime minister monti. chairman and ceo of lvmh is seeking citizenship, as the french president francois hollande moves ahead. in a tv interview hollande says arnault should show patriotism. when we come back a week-long series with some of the most influential names in the sector, former chair of the fdic, sheila bair going to talk bank risks and much more, the chair bair is in the house and "squawk" will be right back. at optionsxpress we're all about options trading.

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we are back. welcome. the treasury department is selling $18 billion in shares of aig, the insurer it bailed out in 2008. the sale will make the treasury a minority owner for the first time since the bailout. >> i can't preannounc that. quacu adaboling goes on trial in london this week. if he's on trial this week you may have to say that later. he's been accused of fraud and false accounting in a case involving $2.3 billion in trading losses. i forgot about this, now i remember. ubs maintained the trades were unauthorized. amazon.com will allow customers to opt out of advertisements that appear on the new kindle fire models, if you pay a one-time $15 fee. follows criticism of the ads with i amazon said it helped keep the price of the tablet

computers lower so 15 bucks and you don't have to look at them. we are kicking off our future of finance summit this week with one of the chief financial regulators during the financial crisis and joining us now is sheila bair, former fdic chairwoman and chair of the systemic risk council at the pew charitable trust. thank you for joining us. >> good morning. >> given the aig news this morning, the fact that it looks like they'll make a profit. did you ever expect this four years ago? >> i didn't know what to expect. we were taking a lot of risk with a lot of government money and i'm pleased on a cash flow basis it is returning a profit so that's good. but i do think there's a danger in trying to rationalize money sayi it saying it made money so no big deal. >> t.a.r.p. worked, was profitable and aig will be profitable. >> there's a combination of the fdic guaranties, the t.a.r.p.

investments, the combination of measures stabilized the system but i don't think what happened never should have happened, it was distasteful to have to do that, it created moral hazard and basic unfairnesses. i'm glad they're making money but i don't think we should use it as a rationalization. >> we'll have dick kovacevich later on this week and this summer we had a spirited debate about t.a.r.p. and whether it worked and he said it did not instill confidence in the system, he appears to be an outlier on the issue since so many on wall street seem to be supportive. nobody's happy about it. he says look at the stock market. he says it didn't get better until march or actually the low point. so why are you convinced? >> well, look i think going forward we have a much better framework for dealing with this and the t.a.r.p. capital investments i think history will debate whether those were necessary. the liquid programs were

essential. we had some inkohl vent institutions, forced capital into everybody, frankly, to help with a couple institutions that were insolvent. going forward under dodd-frank we have a resolution process, we have bankruptcy and resolution process to deal with insolvent institutions, and i think that's a much better model. the ones that were insolvent should have been put in restructuring. >> did dick kovacevich need the money? >> no, i don't think so. the capital investments, no, the liquid for the system -- >>'whole system broke down then everybody -- that's what they say. >> most of them did not. they needed liquidity help because we were in a crisis situation late 2008 but no, the commercial banks frankly because the fdic had a leverage ratio. >> i hear congressmen when they talk to goldman sachs saying you definitely would have been out of business if you had been in t.a.r.p. >> that goldman sachs would have been out of business?

>> the entire system would have broken down. >> people say that. you know, i don't know if we have the analysis to justify that. goldman was able to access capital for warren buffett, a tremendous confidence boosting factor there. because of that my sense was if they had to, they probably could have gotten more. they needed liquidity support but capital i think they were able to access the market for capital and so i question whether it was really all needed. >> later this week another guest we have is bill purcell, wrote an interesting op. ed and sandy weill talking about breaking up the banks, not for regulatory sake per se but from a business perspective and that's the case you've made. if that argument holds as much water as i think you and people like sandy and phil purcell think, why has jamie dimon and victor moynihan not pursued that? >> i think they should. they should have robust

discussions with their boards and shareholders and at least do the analysis and determine whether they would be worth more in pieces than they are in very one large complex financial institutionses. obviously chase's stock does better than b of a or citi. shareholders need to look at that but i would very much like the market to drive this. one of the things government can do is try to force simplification of their legal structures, some type of s subsidiarization models. that would make it easier for shareholders to see how it could be broken up. >> they say it is a, too complicated to break them up. >> right. >> they say how would do you it and b, bill harrison was on cnbc last week and said this is what the client wants. you don't buy that. >> well, i don't. first of all they're complex legal structures, we all say we

break them up and that's easy to say but getting from point "a" to point "b" is difficult. dodd-frank, they are required to submit breakup plans basically as part of the resolution process, could also help inform shareholders how they could go about being done. it's outrageous they can't say here is my investment banking operation and how many thousand legal entities that support this investment banking operation, and my commercial bank, here are the legalse, so if you can't figure out how to align business lines with the legal entities, so i don't buy that. >> if you had to say the actual chance that one of these big banks does what you're saying, what do you think is it 20% that it happened? >> i don't know. i mean i think if you look at, it's hard, the securities operations, that's what's hard to know. the commercial banking it's a no brainer. you look at wells, they're big but they take deposits and make loans, they're a big community bank. look at u.s. bancorps, their

shares perform better than even chase so the commercial banking by itself it's a no brainer but the investment banking would be hurt. >> we'll sneak in a break and come back and talk about the money market business and the fdic seems to be punting on all of this. >> and europe. >> and europe, we have a lot to talk about. >> so exciting. it is. >> don't be sarcastic. i'm thrilled she's here. >> really you're bouncing in your chair, you love this stuff. >> i do love this stuff. >> she's a tough task master. >> she is. >> she kind of scares me, i don't want to say something wrong. >> we'll be back with sheila bair after the break and at the top of the hour, after 14 years with goldman sachs, dinakar singh launched his own hedge fund, quickly grown into the top performing funds around the world. a crash management system and the world's only tridion safety cell which can withstand over three and a half tons.

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welcome back to "squawk." dow looks like it would be off 26 points, nasdaq off about 7 points and the s&p slightly as well. >> let's get back to our special guest, sheila bair, still a chair >> i said it in the promo. >> so you still are. >> i still am. >> you're still chair bair. i thought it was interesting the euro was surging through 1.25, i was reading we're not allowed to use the "r" word for spain, run, there were people leaving the country with cash. is it weird that both of those things are happening at the same time? how do you -- >> it's kind of scary i think this is happening. >> what should spain be doing? aren't you able to go over there and tell them what they needed to do? >> they needed a deposit insurer so they're not strong enough by themselves, that's the problem. they have a system, the state government is viewed as not as credible as it needs to be. i don't think that's going to happen. i think the decision-making structure over there is so

difficult, they are moving towards more centralized bank regulation. >> will what draghi is going to do solve the issue in spain? >> it helps in the short term. all this central bank lending helps on the margin in the short term but longer term, the structural problems and they're going to condition that on meeting certain fiscal targets, making structural reforms but a lot of the countries haven't done that so far. we'll see if the cure. >> if it is solvency and not liquidity, how does it finally work itself out and why is the euro at 1.27 right now? >> i don't know. >> do you feel it's weird it's there in. >> yes, i do. that mystified me throughout this process. >> is it because we're going qe3? >> it could be. it could be. >> areal? >> well, yeah. i mean yeah. do you think, it could adversely affect the currency. it's not resulting in more lending. i wish it were but it's not. >> the commercial we run

constantly, the central banks around the world, runs on just money flying out of the central bank and that's happening everywhere. >> i don't follow the central banks, their political structure isn't working, elected officials aren't doing their job. they're the only game in town. >> it sounds like you feel a little bit better about it but do you think that there's still years to go? >> about europe. >> yes, i this i in the short term it helps but longer term it doesn't solve the problems and it could hurt to the extent again, it's the same thing inspect united states, to the extent the central banks let the elected officials off the hook to do what they need to do, we're kicking the can down the road. >> what would you like the elected officials to do? >> i like simpson-bowles. >> you liked the grand bargain? >> absolutely. >> until then we're vulnerable to the same thing, the lack of confidence? >> we are. we are, and it scares the heck

out of me, you look at the banking system and banks more and more are funding with insured deposits so the short term funding was good, get rid of the volatile short term funding but a lot of the long-term funding which is stable, they're terminating and funding with insured deposits, it's cheap money right now so it improves their net interest margins but those deposit also reprice. i worry about inflation risk and worry about the fed's ability to control the interest rate environment when that happens. >> if we were to go to 4% in six months. >> that would be bad. >> 4%, in my life -- >> historically yes. >> doesn't sound like a very -- it could put us in deep doo-doo. i wonder can they come back quickly, vigilantes, they're dead, gone, never coming back? >> they're painting them in bubbles, everybody calls them too soon. we are in the middle of all bond bubbles. this is not different.

>> if you jump from the top of the building you think you're flying until you land. >> that's right. >> another industry that's probably still flying money market business. >> you want to delve into this? >> because it's an issue she spent time on and issue that the i k icc seems to have punted on? happy, upset? >> i'm dismayed. >> dismayed? >> i am dismayed. this thing should have been fixed six months ago after the crisis. >> we should explain what was going on, srkec was going to propose real regulation on business and would have cost the money market business a lot because you would have had to hold collateral against what was going on. and nothing's happened. >> right. >> why? >> because three sec commissioners refuse to put the proposal out for public comment. >> people talk about regulatory capital, how do you explain it? >> the mutual fund industry put loads of money and lobbying and

muscle into this. they went to the hill and got some unfortunately some members of congress and there were a number of members who supported it as well and potentially lobbied three of the commissioners and they eventually succumbed. we knew it was a problem, it fed the prior system in 2008. >> how would you grade mary shapiro, head of the sec? >> the sec was in deep trouble when mary took over so you have to consider the baseline she started from and i think she has accomplished a lot. i think she's had a difficult commission to manage, staff difficulties, too, and a hostile congress in some respects. one of the things that impairs the sec and sfdc is they have no ability to plan long-term to manage their operations, and government agency just like a business they need some budget,

some ability to plan for the long-term and instead they go through these constant cycles of the pope police stations committees whether you have enough money to operate. >> i don't know if you saw the story in the "wall street journal," this is about bank executives and compensation. >> i did see that. >> earlier today. >> yes. >> get a little light on that, maybe that will help, banks rethinking pay for executives, talking about lowering pay, but interestingly they were talking about how jamie dimon, 93% of his pay is in the form of restricted stock. is that good enough? do you think the compensation scheme on wall street needs to change? >> well, some people say that gives incentives to risk taking when you have so much, your base, whatever you make. >> is that skin in the game? >> it's called skin in the game if it is clawed back or reduced when there's a problem, there was clearly a problem at jpmorgan chase and dimon

acknowledged that. one of the things that concerned me about that article the board was saying if they whack back on the bonuses it hurts the take-home pay which suggests they're looking at the bonus more as the base salary he needs to live on more than what a bonus is, based on good performance. you try to have good performance every year but don't always have it. he should have a reduction and i think he said that publicly and good for him and i'm glad to see they're applying back the compensation from the employees responsible for the mess and the citi board is a larger question, 5% of the shareholders are saying no compensation so how do you deal with that? that's a much more fundamental problem and one they need to work out with their shareholders. >> what does the future hold for sheila bair in terms of public life? >> i'm content doing what i'm doing. >> for how long? >> the pew work is interesting. for as long as i want to do it. >> who do you think looks at you

more ascance, republicans or democrats. would you be in a republican or democratic institution? >> i decided to stay out of the presidential politics this year because i don't frankly i'm disappointed with both and i don't want anybody to think my book has got any kind of motivations. it doesn't. i laud people to both parties. >> is this the children's book? >> no, she has a big book coming out in a couple of weeks. >> you have a children's book so it's not in there. i'm not reading that wrong. i didn't see a lot of political stuff in the children's book. >> no political stuff. parents be assured this is an apolitical book. so i'm just really kind of upset with both sides and both could do a job of particu lating what they want to do. jon huntsman was the only one talking about this in the primary and we haven't heard from mitt romney and president obama kind of defended

dodd-frank but you look at the implementati implementation, i think dodd-frank gave a lot of authority to regulators. i think there have been some real problems with the implementation and that has hurt public support for dodd-frank and financial reform. >> what is it, in the lobbying, regulatory capture? >> it's capture, lobbying and also lack of leadership and setting priorities and having a public communications strategy, and this horrible negotiated process for the system wide rules, you get several different agencies, the industries all trying to play them off each other, negotiating with each other and it adds to the complexity of rules, usually adds to the rules being watered down and the length of time it's taken to finalize the rules, the longer it takes the more they get watered down. >> is there anyone you say i'm going to give them an "a"? >> of course my old agency, i think we went quickly out of the chute to get the rules in place within our own exclusive

jurisdicti jurisdiction. i think the fed is trying on capital but i was disappointed, it was march and they finally got the capital rules out. i would have done capital first. capital liquidity would have been at the top of my list and liquidity rules haven't come out yet. i think their prioritization has been a problem. >> would you do qe3? >> no, and i hope he doesn't. >> he's going to do it next week. >> i know he's going to but i wish he wouldn't. i don't think it adds to lending. if i had any confidence it would help lending support real economic activity i would say go for it but there are significant risk witness doing it. >> is it antiquated? >> it may be. i think it does put the fed in a conflict situation. the congress, again, gets back to elected officials they should be pursuing the task and fiscal policies on unemployment, that should be their job, not the fed's job and they're not doing any job right now as near as i can tell. it puts the fed in a difficult

situation but i don't think qe3 is going to help and i think they're a risk to it. >> you know ben bernanke well. >> yep. >> is the decision for him on qe3 have anything to do with politics or do you think it's something he genuinely believes? >> no, i don't and he's getting batted around a lot and there are a lot of people especially people who support the current administration -- >> the theer c kernan administr? >> no, the current administration. i think he does try to make these decisions absolutely based on what the fed is supposed to be doing. he's a good man, a passionate man, troubled with the unemployment rate, he wants to do something as his instinct but i don't think it's within his heart to do it. >> honig says the too big to fail still allows big institutions to, their interest rates of subsidized by knowing the taxpayers will bail them out. is that still the case? >> well, actually bond spreads

have gone up from pre-crisis so there are different explanations of that and i this i that's good, people in bank funding want the costs to go up. i want the big bank funding costs to go up, so that's a good thing but the problem is the fed is and i do fault the fed for letting them roll out the long-term debt on to insured deposits, explicitly guaranteed by the government, that's lower funding cost but the government's on the hook for it, so i think some of the benefit we're getting is being dissipated because they're letting them blow their long-term off. >> thanks for all of your time. >> appreciate it. >> our special "future of financiers" continues this week, dick grasso tomorrow, sean matthews of cantor fitzgerald, dick from wells fargo. >> covassive, phil purcell and kevin w aorsh will be here.

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a legend of wall street and cnbc exclusive, dinakar singh ran goldman sachs trading unit before leaving. he will tell us where he's investing $4 billion in an environment of lackluster growth. david stockman served as budget director in the reagan

administration but no fan of the gop the. ial ticket. he'll tell us why he's calling the romney-ryan budget a fantasy and a fraud. the third hour of "squawk" starts right now. ♪ withal come back to "squawk box" on cnbc, first in business worldwi worldwide, i'm joe kernen along with andrew ross sorkin. becky quick is out sick today. >> not my fault at all. tissues over here. >> thank god i workout, i've been doing all i can to ward off not feeling well. the s&p and nasdaq had their best week in three months, the rally was broad in its strength, all ten s&p sectors finished in the black, and among the events this week likely to drive the markets, the fed will hold a

two-day meeting in washington, they meet nonstop. that should be in our master rundown, so much, we're so fendefend e dependent on them, a good metaphor for the world. the central bank is expected to launch a third round of bond purchases to drive bow rowing costs at lower. they're not at zero so not low enough. the fed will announce its policy decision around 12:30 eastern on thursday, chairman ben bernanke will then hold a press conference. and for the first time in 25 years chicago public school teachers are going to strike. today more than 26,000 are going to walk off the job to support, and the support staff walking off the job as well, talks broke down late sunday night over issues including pay, benefits and job security, at least 400,000 students will be affected by the strike at the nage's third largest school district, we'll get a live report from chicago in the next half hour and just want to say that none of us are taking any

satisfaction in seeing rahm emanuel face some of the same things that chris christie or scott walker or some republicans have faced with the teachers. nobody's taking any satisfaction. are you? no, i'm not taking any satisfaction in that. ity he will's prime minister says his country has no plans to access the ecb bond buying program. cnbc's maria bartiromo, hard to listen to the content with the backdrop but here it is from this weekend. >> the issue is simply if the eurozone market comes down because of the announcement that this new instrument is available, probably the interest rate on italian government securities will go down gently and nicely, and we will not need to use the instrument. >> we didn't see maria that

time, the lake behind her was even -- >> lake como. >> dinakar have you ever been there? >> i have not. >> how do journalists like srk join be sorkin -- anyway, multimega bucks hedge fund, he's iconic and has not been to this fat cat retreat. now were you doing a story when you were staying there? >> i went there years ago. we'll just leave it there. >> your life is like, i want to be you but i can't, can i? >> stop it joe. it's tough. we are swroe deucing a trading legend, managed to stay relatively under the radar, at least until now, he hasn't stayed under the radar, lots of people in the business joining us now in a "squawk" exclusive is dinakar singh, former partner and head of the principal strategist group at goldman sachs, mr. rubin's group, you worked with mr. tepper and

mindich and others over the years. am i correct? >> yes. >> you taught them everything they know but only 10% of what you know, right? >> it was a heck of a group. i think when you look at the talent that was in that group from the days in the '80s and '90s, pretty extraordinary. now evolution has taken its score so no more gsps at goldman anymore. >> 12.5%, you were up in august. >> according to investors. >> a good number according to some investors. in any event let's talk about qe3, do you think it's going to happen? >> i think what central banks everywhere are doing is trying to make sure people are not focused on the world breaking part and crack risk, right. ultimately i don't think lower rates make that much difference anymore. there aren't this many people left who haven't borrowed money, but would if rates were to end up slower.

i think the biggest factor is just keeping markets calm, and look, i think, joe can vouch for this a little bit, to me the mood of the markets, people have to get over the ricky/bobby thing. i'm a fan of dumb movies but "the legend of ricky bobby" if you're not first, you're last and in markets people have been manically focused on are we going up or falling apart and the reality is we have years of in between. it's a tough restructuring world. >> when you're looking at different investments how much of it is based on what the governments here in the u.s. are doing, what the fed here is doing, what mario draghi is doing. if you had to make serious bets over the summer to get it right. >> you can take the approach you're going to try and bet those turns all the time and get them right every which way, tough way to make a living because the volatility is high

and you'll be right until you're wrong and then get clobbered. our general view is we'll have a lot of volatility and there will be peaks and valleys, a moment where markets are stressed and all that matters is what policymakers are doing. we are seeing differentiation with companies starting to play out and it goes up and down, not a straight line. >> where are you investing? >> so about half of the u.s. and the rest of it and asia and europe, by market cap the biggest underweight for us publicly is europe and biggest overweight publicly is japan. >> what is going on in japan? >> japan was up a lot in the beginning of the year and now up 4%, 5%. the real issue is restructuring. you look the last 15 years,

absolutely no focus on shareholders, a lot of assets, low profitability and they were stuck in a rut. the last five or six years especially most companies have done a great job of restructures, seen profits go up even though the yen is at 80 and today unlike any time in our business life you can look at japan and find plenty of companies with 4%, 5% yields, mull tips at 10 or 11 times earnings and one of the few places in the world, you look at u.s. and europe there aren't a lot of places where you see margins at levels repressed and have a chance to go up from here. in japan you still do. >> as an ideological just to point it out, will a big return to shareholder value and shareholder return as a mantra in japan, will that be good for the people of japan and the country itself? i mean, not having any shareholder return or shareholder value in the past 20 years has coincided with just a real, the entire country being

stuck in the dirt, right? >> look, i think there's what you want and what you have to do. i think for companies, they eventually figured out the government's not going to save them. they have to restructure in a world with high cost of yen and labor as well so companies cut their forces, moved jobs to places like thailand. >> that sounds bad for the common people in japan, sounds like the jobs are -- same argument we're having here with private equity, whether shareholder return holds the country and the population at a whole. >> there's a cycle in this. for a while it's brutal, jobs getting cut and shipped off and companies get to being profitable. you get business growing and jobs created again. most companies figured out they can't function with the yen at 80 and massive workforces in japan so they've kept their high-end workers in japan and moved their low-cost

manufacturing to places like thailand. >> can you run a world, can you run a company where it's all about worker return and not think about shareholder return or does that eventually counterproductive? >> i think there are plenty of companies in places like germany and japan where it's a balance. i think, take bsf, one of the best run -- >> germany brought up the temporary, they don't fire people, they go -- >> when you talk to german ceos, i think if you bang the table and you're the american hedge fund guy saying buy-backs, buy-backs, gets nowhere. there are plenty of rational guys, let's have a plan that meets all objectives. you have to balance a bunch of objectives, not just one. i think they're rational about doing that and not wrong that in the long run, take chelical as an example. bsf is german and outperformed steadily dow and dupont year after year in terms of stock prices. profits grown steadily and

multiple hasn't gone very far. despite all of this stuff being german they've done a better job. >> helps to have a euro held down by the crappy southern european countries. >> but before it was higher, for four or five years the euro was going straight up and they managed that and it came down. little bit. it depends on the year. >> the jury is still out on how long it works. >> dinakar will be here for the remainder of the show and we'll continue the conversation after the break. up next former republican congressman from michigan and served as omb director under president reagan. he's calling the gop hopeless and lost, thinks romney-ryan is a fantasy and fraud. we want to flesh a lot of this out because there's more to it than, i don't think he thinks either party is doing that well. as we head to break check out the "squawk box" market indicator. at optionsxpress we're all about options trading.

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welcome back to "squawk box." the futures, we have red arrows across the board, dow would be off 26 points, nasdaq off 7 points and the s&p 500 off

marginally 2 points. our next guest doesn't like the offerings from the gop candidates or obama administration. joining us former reagan omb director david stockman, there's a lot more to you than the way we've been teasing you that you hate the romney-ryan budget and you sound like you're, i don't know, a turncoat republican thrown his lot in with the democrats. in fact, you think ron paul probably has the -- >> he was the only one that was right about the fed and the fed is the heart of the problem. we have destroyed the capital markets, the money markets, interest rates mean nothing, everything is trading off the fed, wall street isn't even home. it's a bunch of computers trading word clouds, you know, emitted by the central bank or that. now in that environment, everybody's being given the wrong signal, in other words the ryan-romney campaign is about restoring vibrant capitalism. how can you do that when the financial markets are dead? the lifeblood of a capitalist

system. that is the problem today. >> the other thing he pointed out, why would either side come to the table to deal with long-term entitlement issues when you can borrow at zero? >> look at the yield curve this morning, three-year money, 33 basis points, that's absurd. one-year money, 11 or 16 whatever it is. all the way out to five years, you can fund that at 65 basis points. i spent a lot of years in washington in congress, i know what it takes to have people fall on the sword, to really reform entitlements, finally face up to the military industrial complex or maybe begin to reform the tax code. they'll never do it if you can keep borrowing free money forever because the fed and these lunatics who are running it, and i use that word advisedly, are basically telling the whole world untruths about the cost of money, about the cost of risk, about how you allocate capital. >> you wonder why we get bubbles and when you're keeping things at zero and obviously that's not

what any of these yields, where they should be. >> let me ask one other thing -- >> you say that the reason you're mad at the republicans because they've baen doabandone republican principles of their forefathers. >> exactly and everything that ronald reagan stood for in the 1980s went down the tubes in september 2008 when they bailed out wall street, when they came in with this t.a.r.p., which was an abomination, when they were unwilling to let morgan stanley go down the tubes which it should have because of the speculation it was doing and the irresponsible, reckless balance sheet that it had. >> if you can't fail you shouldn't succeed. >> that's exactly right, so we haven't even adressed any of that. we have simply said there were some great prices, we don't know where it came from, maybe an asteroid or meteor from outer space, but it's over and we're going to keep interest rates at zero for six years. go back to pre-1990, i was around quite a while. no one in 1990 would have

thought keeping interest rates at zero for six years was anything but lunatic. >> the romney-ryan budget, some of the things you don't like about it, you hear that medicare is going to end as we know it and the republicans come back and say well wait a second, anyone who is over 55 won't be touched. that's what you don't like about it. takes ten years to address medicare. you want to address it sooner. you want to do a lot of cuts that the progressives would not like. >> of course. >> you admit there's tax -- >> of course. >> they got the wrong guy for their posterchild for the left. >> i think they do but here is the thing. we have an $800 billion defense and national security budge pet >> right. >> i call that the warfare state. it's absurd we're spending $800 billion when we have no industrial enemies in the world. ryan wants to hold it. $800 billion goes to social security, $40 million of the people on it need it, there's 15 million that are affluent that have many other assets and sources of income, they should be means tested now.

medicare, he's taken a huge hit for medicare, doesn't touch it until 2023. why does someone think we'll get between now and 2023 -- >> third rail because he can't say 2023 without getting demagog demagogued. >> what would you cut the defense budget by? >> a third. radically tell the generals put your toys way, get out your sharp pencils, we are going to bring this down to a level in real terms that eyisenhower in 1960 said we can live with when we were facing an industrial enemy that was able to do some damage to the united states. >> where would you cut? >> i would means test heavily social security, medicare, drastically reduce defense spending. >> how would you handle medicare? would you like a voucher program? >> it's too late for that. you need to simply means test it, so if you're affluent, you're going to pay a much higher premium. everybody needs to pay bigger copays, bigger deductible.

>> the equivalent of raising taxes on some people. >> we have to raise taxes on everybody. the bush tax cuts, all of them, for everybody. we cannot afford them. we couldn't afford them then. >> he's not the guy you thought he was. you want him to come in, you were going, we're not worthy, we're not worthy. that's not who he is, and you've written these things about the fantasy of the -- if you ever wrote about the obama budget it would be a nastier piece. >> the reason i haven't done that is i assumed people could see that. >> you can't assume that. we're going to meet all the actresses, you want to be a left winger so you can meet hollywood, that's not it, right? >> i tell you what, the obama budget is total fantasy. he is saying we're four square for protecting social security forever and medicare you can't take a dime out. >> you want to throw him off the set? he came in under false pretenses. >> i happen to agree with him as well. >> here's the thing about obama, to do all of that, fine, that's

what a liberal democrat wants to do. >> at least you know what you're getting. >> a pro-big government democrat but you can't keep taxes low on 98% of the population. the bush tax cuts for the 98%. >> they love those. >> what are progressives thinking? half of the population doesn't even pay income tax and getting protected already. the rest of the population has to pay for the government that all these democrats and big government, big spenders want. and the problem we have right now is two free lunch parties giving bad signals to everybody. i want to go back to the junk bond rate of 4.95 on the bb. what kind of signal are you giving to the private sector that you can borrow way down deep in the capital structure of a bb credit, a junk credit, for 250 basis points over inflation. >> you're in the private sector, dinakar, what do you think? >> corporate balance sheets have gotten better in the last number of years. lower rates hasn't led people to

borrow money. people have been in repair mode. government sector isn't borrowing money and private is shoring up cash as fast as they can. the issue with politics is practical. when we talked to companies and look at markets, to some degree you care whether taxes are at one level versus another. most of all you want people to stop yelling and have some predictability. if there's no predictability. >> there's a lot to yell about. how about corporate cronyism. >> it's terrible, the fiscal cliff everybody talks about as if it's a one-time event. it's not. it's a permanent event. we've got ourselves buried so deep in promises and parties dug in, the republicans are out of their minds saying that they can't -- >> you agree with david walker? >> he's good. >> he totals up our promises, it's not 17 trillion, it's like 60. >> joe when you get to the cliff, 500 billion of tax cuts expiring, 100 billion a year of the sequester and so forth.

they're not going to solve it through some grand compromise. >> what would happen if the bush tax cuts expire? >> the economy would go into recession, which it needs to. i know that's a controversial statement. >> our deficit would go away in ten years. >> we have to eat our broccoli, we can't stimulate artificially the economy by borrowing from the future. you can do it for one year at the bottom. this is month 39 of the recovery, 39 months. >> you don't see any hope the way it's being demagogued on both sides. >> of course not but what i'm saying the average cycle since world war ii has been 48 months. we're in month 39 and we have all of these boys and girls on wall street begging the fed for another injection of sugar. now this is how sick the system is, and you have to blame it on the federal reserve, so if romney were real about what he's saying about restoring capitalism he would say day one, hour one, job one, bernanke is

fired. >> he does say that. >> he's not that clear about it. but until he says we're going to clean house at the fed because that's where this crisis came from in 2008, that's why we're still buried, we're crushing savers, we're giving speculators and traders free overnight money we're telling you through '14 you get free -- >> you weren't expecting this, i'm sorry. >> i think he's got pretty interesting views. i'm listening very closely. >> but isn't it true that when you tell traders that 'til 2014 the overnight rate is zero, you buy anything with a yield, anything with a duration, because the fed isn't going to surprise you. now i was there -- >> keeping a little bit of consistency. >> i was there when volcker was fed chair hahn. there wasn't a guy on wall street who wanted to take anything for granted because he was going to do what he thought was right, he wasn't going to placate the boys and girls who want a little more. >> david, it was great, thank

you, and very much clearer now. andrew, i'm sorry. coming up a busy week for the fed watchers, the central bank expected to announce qe3, we might hear it, its two-day policy meeting is on thursday, we'll find out what's going to potentially move the markets after the break. bob... oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking.

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coming up, more from our guest coast, dinakar singh, and head to chicago for a look at what traders are watching in the futures pits and a live report on the first teachers strike in chicago in 25 years. [ male ann] what if you had thermal night-vision goggles, like in a special ops mission? you'd spot movement, gather intelligence with minimal collateral damage. but rather than neutralizing enemies in their sleep, you'd be targeting stocks to trade. well, that's what trade architect's heat maps do. they make you a trading assassin. trade architect. td ameritrade's empowering web-based trading platform. trade commission-free for 60 days, and we'll throw in up to $600 when you open an account.

welcome back to "squawk" this morning. in the headlines it's only monday but investors are looking ahead to thursday, the fed may or will release its latest policy statement. the question is will it be qe3 followed by fed chairman ben bernanke's news conference and we'll hear whether the central bank will unveil a new round of quantitative easing. the treasury selling another $18 billion in its holdings of aig, bringing its stake below 50% since the 2008 rescue. aig will buy $5 billion of the shares. france's richest man applied for belgian citizenship, he is denying a report he's doing the move to dodge new taxes on the rich that's proposed by french president francois hollande.

arnault says he'll continue to pay taxes in france and keep his french citizenship so the story is going back and forth, joe. >> this isn't the guy with -- no, the other guy with the salt mine, it's pinot, not arnault. the other rich french guy, right? you're not with me? >> i'm with you. >> this is your stuff, you know everything, every time somebody sneezes you know what's happening there, right? chicago public school teacher also strike, the decision comes after a confrontation between mayor rahm emanuel and organized labor. nbc correspondent kevin tibbles joins us now more. good morning, kevin. >> reporter: hi, guys. well it's the first time in 25 years that chicago public school teachers have hit the bricks over a labor dispute. that essentially leaves the families of 400,000 plus kids in

the lurch with regards to what they're going to be doing with their children. some of the schools like this one behind me has opened its doors for half a day, many kids need breakfast and lunch and they'll be given activities within the school but still it's only a half a day and many of the families are scrambling to find out what to do with their kids. the issue here really isn't one of money but it is of benefits and teacher evaluations, many teachers disagree with the fact they are somehow being evaluated on the fact that many of their kids come from very poor neighborhoods, underprivileged neighborhoods and they're actually being criticized for the fact that they are not providing the services that -- >> please support the teachers. >> reporter: -- people in the neighborhoods apparently seem to support the teachers, at least this fellow behind me, it went right down to the wire, the last notice came in about 10:00 last night they are going to walk off the job. you mentioned our new mayor here, this is a real test for rahm emanuel, his first real

test on the job. interestingly enough the money issue is not really the problem and this is a strike of choice by the teachers. the teachers of course have called our mayor rahm emanuel a bully when it comes to this. they've said they are close, but they are also out walking the streets today. joe, back to you. >> thanks, kevin. we've been talking about it, when you become mayor you're not in washington, he has the same problem republicans have, scott walker and kasich and chris christie, and it's just, i don't know, kind of ironic to see rahm emanuel dealing with some of this stuff now, isn't it? >> reporter: and guys like that guy that just walked by. >> exactly. >> reporter: regular guys. >> exactly, this is a story that we're watching with great interest once again. is it about the kids? who is it about, the kids or the unions? the kids are the ones who are going to suffer here. we appreciate it, kevin, thank you. let's get a check on the markets. rick santelli joins us from

you're in chicago, rick. you can talk about that if you want, and steve liesman is on set. steve was, let me see if i can start something just make it up. no, i can't. i was going to say steve is coming down on some side of the whole issue but he's not. if you want to get into it on something else. sheila bair doesn't want to do qe3, rick. >> reporter: board of education, the federal reserve, you know, there is a connection there. it's of course that there's a higher being that seems to tell the rest of us how to handle our lives. i don't know. i think it's sad that these kids aren't in school but i also think it's very sad considering how much money we spend per pupil, there's an issue here and throwing more money at it a ala the late great ted kennedy is not going to fix it and not going to fix it with the economy. >> is it weird to see rahm emanuel channels scott walker and chris christie? >> let's see exactly what channel he ultimately gets tuned into before we decide on that.

>> steve, as an enabler of qe3 -- >> right, right, so reporting that i think the fed is going to do that -- let's try the other side of it, joe. if i were to say the fed is not going to do it, what would that be, disenabling them? i could do what? exactly? >> you could weigh in saying we're at zero, not helping. >> i've said all along there are not many projections for there being much effect from it. i know some people at the fed think another nudge could be the thing that gets the economy going to which rick would throw up his hands saying we've done this and done that and it hasn't helped at all. they feel like it's part of the solution. they don't think it's the entire solution. they would very much like congress to begin to solve the fiscal cliff problem, take away some of the things that create uncertainty in the economy, but they feel like if they have a part to do, they should do it, and i think that's where the majority of the board is, both in lengthening the guidance and

in providing additional balance sheet additions to the balance sheet. >> rick, if you were sitting on the fed and had to do a mandate you'd probably have to say go with it, too, wouldn't you? >> listen, i liked what mr. stockman was saying a few minutes ago. we should probably have some of the candidates be very specific, ala mitt romney, exactly what the outlook of ben bernanke and the federal reserve contingency plans are, because i think it's huge. i think this is, i can still see chuck schumer pointing his finger at ben bernanke and telling him to get to work and get to work in the context of the calendar and monetary policy. >> i'm actually, i think, rick, we'd spend more time trying to figure out the impact of the policies on banks and on corporations. >> independently, yes. >> i think there's an intuitive sense that the fed can do these things, and that driving down

interest rates makes sense. there's a theoretical proposition and what may be missing from what the fed is doing a long-term look at how it affects the system and the psychology of guys making key decisions so yeah, i think, rick, if he was in that position of responsibility might come to a similar conclusion, but i think he spent a little more time looking at the real world, i think that may be a failing of the fed. >> dinakar? >> i think all the central banks are just trying to give people some emotional comfort so they can get on and focus on other things and the reality is the next six months are going to be a tough period between elections, everything else going on, if you're a company you're going to wait to invest. the key is get through the next few months, see what happens with elections and if you're xyz company you can get back to doing your work. >> to what extent what we're going through a psychological issue? you can make the dollars and cents argument, there's no

demand, i'm not going to borrow money to build plant and factory because there's a lot of excess capacity out there. that would be the longer term, this is the financial crisis, the rogueoff reinhardt analogy. >> i think for companies, there are some areas a lot of growth and other areas there's knob at all. in general we'll be in a world that has less growth and part of it, balance sheets have to get repaired. look at the jobs numbers we've seen recently, the big story keeps on being the same thing, the state and federal sectors are cutting jobs so the private sector job creation has been okay, government jobs have been reduced, that's going to happen for years. we're going to see this story for a long time. the question is how do you make money from all this and the reality is you go to find places where there's structural growth where companies can use their own efforts to go and deliver value for you.

if rates are low, who has got a balance sheet to take advantage of to deliver cash to your front. for an investor we need to get used to a world where markets go up and down, people get emotional about things every now and then, and you've got to find ways to make a living that manage that. >> thank you, diany car and santor dinakar and steve and rick. >> sorry we didn't argue. >> i feel it's my fault. >> i think sometimes you spend the weekend trying to figure out how to get us going. >> it's my fault you didn't argue. tomorrow, you'll be here tomorrow. >> i don't know if i'll be here tomorrow. i'm going to a charity event tomorrow morning. >> good excuse. coming up, more from our guest coast, dinakar singh and tomorrow our summit on the future of finance continues, our guest host is going to be dick grasso, former ceo of the new york stock exchange and shawn matthews, ceo of tanner fitzgerald.

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welcome back to "squawk" this morning. ceo ron johnson tries to move the revamping of jcpenney forward, one recent idea seems to be a hit with consumers. the retail chain now making permanent a promotion at rand during august, this is for joe, free haircuts for kids on sundays, we'll consider you a kid, joe, and starting in early november, 1.6 million free haircuts were given, they'll keep that promotion going.

maybe henry and mack should go to jcpenney for a haircut. >> i got a boys regular this last time. it's hard to mess up a boys regular. >> a little bowl cut maybe even? >> bowl cut is always good. more from our guest host, dinakar singh, founder and ceo. when it comes to it, what you do is what a lot of guys do, look at each individual company or stock on an individual basis and decide whether there's a good future for the company and the stock, right? >> i think you have to care about the macro. and these days that matters more and more, but at the end of the day you've got to be able to do something you can get an edge in and staring at the screen or trying to predict what the fed is going to do or s&p is going to go up and down is a tough way to make a living, but when you look at stocks you can find plenty of stocks that are cheap and earnings are actually still growing, maybe it's through buy-back but i think the big issue in the market is this, first top line growth is tough

to find so you've got to find a structural niche or restructuring or use of balance sheet. if you can find them, that's a pretty good deal. i think second when you look at where people aren't and are, and you think about whether or not it's an opportunity, europe and financials have been the big underweight so far. people ignored them, they've been beaten to death so they've stayed away. i think we're not big fans that europe is cheap. there is he a lot of talk that europe is at bond bad valuations and a big opportunity. we don't think so. we find good stocks and bad stocks. i don't think apples to apple europe is cheaper than the u.s. financials are probably worth revisiting but pick your points. if you're a regional bank where interest rates are low and you're getting interest margins compressed, earnings will go down next year. on the other hand, four guys like the morgan stanleys,

jpmorgans, goldman sachs of the world, you're finally getting to some of the regulatory screening on the financial side. you take health care, financials, these are sectors where the entire sectors have been on hold because you don't know what the framework will look like in 6, 12, 18 months. the financials may be the first step but 6, 12 months from now maybe you've got at least the end of the capital ratio movements et cetera in the banks and at that point they can become boring companies that pay back dividends and buy back stock. health care won't be clear any time soon. >> buy banks across the board? >> i think if you're -- >> regionals, the well managed one or the big, ones that are going to be broken up? >> we do short regional banks because their valuations have done better because they've been safer and interest margins are compressing. right now this isn't a depressed earnings level, it's high. margins are fat and credit costs are low so both are going to move the wrong way over time. they're well managed, plenty of

capital but earnings are going down. the global money centered banks have been the dogs of the markets last 6, 12 months, and a little different story at seven, eight times earnings that will grow and for balance sheets that are in pretty good shape is a decent deal. >> would you buy into your former employer at goldman sachs? >> personally i think -- >> do you like the goldman/morgan stanley, morgan stanley doesn't look like goldman sachs anymore. >> sure, i think for all of them, are we going forward is going to be different than in the past, but earnings already reflect that and you're trading at seven, eight, nine ten times earnings. >> would you bet against the whale? is that right? >> we happen to own some of the banks against some other financials, we had gotten out as it happened almost before the whale thing popped up so sometimes it's better to be lucky than smart. in the recent following days or weeks i think that financials

are what people are going to care about, u.s. and some areas. this is simple. talking about ricky bowdoin before. in every other recovery people get excited about cyclicals and a big bounce in gdp, you're not going to get that here. >> you used to be on the prop desk at goldman sachs, do you think that it's in the right decision, the volcker rule? >> i think there are two things that mattered, when you look at the financial crisis, forget the mortgage problem in the recession. it came out because a large complicated firm failed and people's money got trapped, that created a cascade and everyone got hurt by it. two ways to prevent that, one has been fixed and the other hasn't. first lower the odds of a firm

out which is a risky business, more padding is the best way to go. i think having higher capital ratios makes lots of sense. >> has it introduced risk to the system now that some of this risk has moved into the shadows as we'd like to say? better, worse? >> these things go in cycles. i started my career in 1990. at that time the rqc was the big crisis, banks were too narrow, too focused on mortgage loans and too regional in loan exposure so they were vulnerable and as that wound out banks moved towards being more global and diversified because that was a better business model. now we're going back again. >> joe? >> i get tired of talking about financials sometimes and we're in the media business. you got some interesting thoughts on media, too, don't you? >> sure. >> who are the winners and losers? >> media has been a great sector

for us this year, but in places where you can find very good cash flow, low multiples and restructuring. >> what's that, like cable? >> some cable, people like time warner cable, sirius has been one of the better stories, part restructuring and part cash flow. when you look at the business overall it's an example of a classic industry where things are complicated but multiples are low, cash flow is fantastic and companies have good balance sheets put to work, you're looking at 10%, 15% total return to shireholders in a number of cases which is fantastic. you're trading at 11, 12 times earnings and using your balance sheet to return real earnings as a result it's great so in this market, that's the thing, i think why are rates low? basically people are scared. if you can find a place where there's some predictability and they can take advantage of it being low it's a big edge. >> right, good. >> fascinating. >> you're a media guy and you love to talk about financing.

i want to talk about comcast. we have to go, anyway, thanks, dinakar. coming up, treasury unloading most of its stake in aig earlier than expected. some say politics could be at play. jim cramer and david faber are going to sound off after the break. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. now save 50% on banners. looking for a better place to put your cash? here's one you may not have thought of -- fidelity. now you don't have to go to a bank to get the things you want from a bank, like no-fee atms, all over the world. free checkwriting and mobile deposits. now depositing a check is as easy as taking a picture.

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welcome back to "squawk." larry fink says he expects to markets to rally. fink also says stocks will be volatile because of the presidential election and the so-called fiscal cliff. let's get down to the new york stock exchange where jim and david joins now. we're going to talk a little bit about aig and this big sale and maybe some of the politics behind it? what's your sense, guys? >> listen, when aig did not sell all of aia last week, they could have sold $7.6 billion. they went with a $5 billion buyback. we talked about it last week. there was a thought the government might not come as much. but i have been hearing there have been a lot of reverse inquiries from institutions about how much stock can i get? maybe they see enough to manage it. that's a big slug of stock. >> they can get all they want,

no? >> now they can because the government decided to sell $18 billion. at $18 billion, we include the green shoe, even taking out the $5 billion, talking over $15 billion worth of stock that may have to find a home. >> i expected a smaller offering. one thing that's been well-managed, all these deals have been well-managed. i weigh the notion that maybe they wanted to get out in a quicker and faster way because of the election versus the fact that there's been tremendous demand on all these deals. >> and what i'm picking up is that there probably will be enou enough, perhaps 32 or so is where they get it all done. >> thanks, guys. coming up, final thoughts from our guest host, dinakar singh who's going to tell us why hospitals are an attractive buy right now.

>> tomorrow, our "squawk" summit on the future of finance continues with dick grasso, former ceo of the new york stock exchange. plus a special interview with sean matthews, ceo of cantor fitzgerald. and we'll talk to donald trump. companies have to invest in making things. infrastructure, construction, production. we need it now more than ever. chevron's putting more than $8 billion dollars back in the u.s. economy this year. in pipes, cement, steel, jobs, energy. we need to get the wheels turning. i'm proud of that. making real things... for real. ...that make a real difference. ♪ ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere

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stock of the day, plains explorati exploration. >> our guest host this hour has been dinakar singh. we have a few moments to talk about hospitals, health care. you have a take on this? >> yeah. first, if you'd gone back 15 years, tech bubble and told dow chemical, international paper would be trading higher than the health care stocks, thought you were crazy. kraft, kellogg. but it's a crazy world. health care's the sector where people have been dislocated in stepping back for a while. too much changing.

everything's been up in the air. they're more affected than pharma and other subhealth care sectors. hospitals aren't going away anytime soon. if anything at this point, you've seen the worst when it comes to cutbacks. and if obama care were to happen, there's a massive kick in terms of spending that comes for them. it's ironic, if you look at what markets do. managed care, one side is a romney bed. hospitals are a bit of a obama bet. they're both trading as if their guy is going to lose. >> hospitals, it's just such a demo play, too, right? sooner or later, unfortunately we all might see the inside of one, at some point, right? and $50 aspirin.