hi, everybody, welcome to "the wall street journal report." i'm maria bartiromo. the reagan republican who says america should go over the fiscal cliff. that's not the last of former budget director david stockman's controversial ideas. an interview you don't want to miss. how safe is your money? the woman charged with watching the stock exchange tells us if she has enough laws or personnel to make sure. my conversation with s.e.c. chairman mary shapiro. plus, it's a dirty business, but somebody's got to do it. why urban farming is looking up. the "wall street journal report" begins right now. >> this is america's number one financial news program, "the wall street journal report."

now maria bartiromo. here's a look what's making news as we head into a new week on wall street. more encouraging news about a turnaround in the housing sector. existing home sales jump nearly 8% last month. to a seasonally adjusted rate of 4.82 million homes. that was well above expectations. housing starts were up as well. increasing 2.3% in august. slightly below expectations, but single family home starts reached the highest level since april of 2010. the dow industrials continued its streak of monday blues this week and was flat midweek. taking a breath after reaching recent highs last week. the markets were mixed on friday. fedex and oracle reported earnings this week. fedex beat lowered expectations. however, it forecasts a gloomy remainder of the year. stock traded down. oracle met stock expectations though its revenue fell short. apple devotees lined up to pick up the new iphone 5 on friday. 2.5 million new iphones were preordered in the first 25 hours

exceeding expectations. apple stock continues the momentum closing above $700 a week. david stockman has big ideas, many of them controversial. all are interesting. he's the former director of the office of management and budget under president reagan and a author of "the great deformation." david, great to have you on the program. thank you so much for joining us. you're in favor of letting the bush tax cuts expire. you want the tax cuts to expire hoop w . why is that? doesn't that make the recovery weaker? >> i think it does. on the other hand, we're in month 38 of this recovery. we don't have the rights to just keep borrowing and borrowing and borrowing massively until someone says we've reached a point where we can start to pay our bills. i think we have no choice, and if it means the economy is weaker because we have to either cut spending or raise taxes or

both, which i think we need to do, then that's the agenda before the country. i mean, we finally are reaching the point where we can't borrow our way to prosperity. >> what are the implications of this? this so-called fiscal cliff, when the tax cuts expire at year end, simultaneously when the spending programs expire, you know you're going to have defense companies, health care companies, transportation companies laying off. they have to tell employees they're going to get cut because these federal programs are going away. so what's the implication of the economy in 2013 if we go over -- >> i think it's going to hurt the economy badly, but it's evidence we're living beyond our means. we don't need a $750 billion defense budget in the world we're in today. we have to cut it. and when we cut it, there are going to be layoffs. there's going to be a reduction in activity. but it's not an excuse to keep spending on the military industrial complex when we're almost broke as a country. likewise, we can't keep giving the middle class tax cuts like the president says he wants to

do and romney says he wants to do. when we have $1 trillion deficit. somebody has to pay the taxes and we have to start paying them now. or we need to cut the spending. >> what is the other low hanging fruit? you talk about the defense budget. entitlements come up in terms of social security, medicare, medicaid. what do you think is going to move the needle in terms of cutting spending? >> the heart of the matter is social security and medicare. the first $800 billion a year, the second is $600 billion a year. that's $1.5 trillion. that's the heart of entitlements. romney doesn't cut social security ever. ryan gets around to addressing medicare in 2023, but for the next ten years does nothing. >> what about the president? >> the president does nothing. he's the great defender. so if you have both parties, essentially giving $1.4 trillion of spending a pass, then how in the world can we begin to close

the deficit without major tax increases? so when romney says, no taxes for anybody, he's not telling the truth. when the president says 98% of the public will not have a tax increase, i'm for the 98%, let the 2% pay, he's not telling the truth either. >> let me get your take on where we are in this campaign right now. of course, we have all been watching the missteps that have happened around mitt romney and the 47% comment. do you think he can recover from that? >> i think he's lost. i think it's almost over. the problem is, romney is not a real conservative, and he's trying to lip-synch their talking points and he doesn't understand that he's not carrying the tune. and so, therefore, this point about 47% is kind of silly. 150 million people in this country pay payroll taxes. most people pay more payroll tax than income. that's a tax. $220 million people in this country pay consumption and sales and other taxes.

that's a tax. 110 million households pay property tax. that's a tax. so the issue is not that people aren't paying taxes. the issue is, our tax system needs fundamental reform and he's not even addressing it. we need to tax consumption and reduce the taxes on labor. the payroll tax. >> has the president addressed these issues, though? i mean, it feels like the president is not answering any questions, either, about the issues that are important to the american people. like job creation. >> no. i agree. because the two parties are now simply engaged in a war of talking points in a kind of artificial debate about, you know, hot buttons that they can press in order to mobilize this or that constituency. >> you've got an intriguing idea. somewhat controversial. you're in favor of a national sales tax consumption tax. >> right. >> basically. like a value-added tax. to replace taxes on corporations. what are you saying? that corporate taxes go away entirely? and then you come up with this

tax? isn't this shifting from corporations to individuals? >> well, look. i think the biggest problem in our society is we save too little and consume and borrow and spend way too much. by need to fundamentally shift taxes away from income and away from jobs and payrolls to consumption. my proposal would be to have a national vat and replace a large share of the payroll tax. you know, we have the highest cost labor in world and tax it heavily, 15% between employer and employee at $1 trillion a year. lower that burden, make it easier for people to earn a living and shift the taxes we need to pay our bill to consumption. also while we're at it, get rid of the corporate tax. it is a total fail wrure. in a global market we live in today, there's no way you can tax income, you know, effectively without just encouraging people to move things around.

>> david, very important issues. great insights. we appreciate your time today. >> thank you. >> good to siee you. david stockman. coming up, who's watching wall street? we'll talk to the woman whose job is to keep the markets on the straight and narrow. mary shapiro. later, everything is all right up on the roof. the rise of urban farming. local produce grown high in the sky. as we take a break, take a look at how the stock market ended the week. back in a moment. in america today we're running to compete on the global stage. what we need are people prepared for the careers of our new economy. by 2025, we could have 20 million jobs without enough college graduates to fill them. that's why at devry university, we're teaming up with companies like cisco to help make sure everyone's ready with the know how we need for a new tomorrow. [ male announcer ] make sure america's ready. make sure you're ready. at devry.edu/knowhow. ♪

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commission. she joins me now for a rare interview. mrs. chairman, it's great to have you on the program. thanks for joining us. >> thank you, a pleasure to be here. >> i want to start with a piece you contributed to for "the wall street journal" this week after lehman brothers collapsed in wait, the $62 billion money market fund, the reserve fund collapsed along with it. you recently fought for new rules to regulate that $2.5 trillion money market industry, but didn't have enough support from other s.e.c. commissioners. tell us about this. in your editorial you said "all who care about financial stability must act to prevent another run on money market funds." how critical is this fear? >> oh, i think it's very critical. when the reserve primary fund broke the buck four years ago this week, the american taxpayer had to step in and backstop the multi-trillion dollar money market fund industry. four years ago, that froze the short-term credit markets, run spread to other money market

funds. as i said, the united states taxpayer had to step in and backstop the funds with a guarantee. we should never want to see that happen again. >> how do you avoid that at this point? people have money in money market accounts and think that's just money in the bank. when you say break the buck, explain to our audience what that means. what steps have you taken to ensure that won't happen again? >> sure. well, people do assume what you're saying is that they put $1 into a money market fund they'll get a $1 back out. a money market fund is, in fact, a portfolio of investment securities and politics wait in value. the $1 trillion is a little bit of a fiction because a money market fund may be worth more or less than that at any given moment as its portfolio securities fluctuate. >> you know, mary, there have been so many events to erode investor confidence since the financial crisis. look at the flash crash of 2010, look at the night capital software glitch back in august. are investors safe?

do you have the regulations and personnel to keep them safe? >> i think investors largely are safe in our markets. and we've done so much at the s.e.c. in the last several years to try to bolster the resiliez n yansy of our markets. we called heads to washington and hammered out a set of reforms and dealt with issues prevalent. banning quotes, banning naked access to the markets. requiring exchanges have to clear rules about when they would break trades which was, in fact, very useful and night capital markets had their technology issue so it could be contained to their problem and less so a problem for many other investors in the market, although not obviously perfectly so. i think investors are well protected. but that's not to say there's not more work to do. >> let me ask you about dodd/frank. the s.e.c. charged with writing the dodd/frank financial regulations. huge regulation. 2,300 pages. it has taken so long to get

these rules actually impleme implemented. do you have the stats needed to actually do this? and handle much more than before? >> well, we're working very hard on dodd/frank. as you know, the s.e.c. was handed an enormous amount of new responsibility under dodd/frank with more than 90, some say 100 new rules to promulgate and we made tremendous progress. we laid the groundwork for the regulatory regime for the over the counter derivatives market, the market at the core of the financial crisis. we intuited a new whistleblower program that's enabling us to do a better job of bringing securities law cases faster and broader and more effectively. we registered hedge funds for the first time. now we receive systemic risk information. we put in place new corporate governance provisions like say on pay that gives share holders more of a voice in the stock

they own. an enormous amount of progress has been made. is there more to? absolutely. we can always use more resources to do the job more quickly. >> it's so fast, the trading. the technology, as you say, has been implemented to an extent that people are trading in milliseconds. some folks are wondering if the high frequency traders are having an unfair advantage over everybody else. how do you get the law of the land even so everyone's following the same rules and some fast traders aren't able to put their bids in sooner than others so they're getting a better price and beating the individual out there? >> you know, it's so important that investors understand that they, and that the markets provide a fair opportunity for everybody to participate. you know, senator reid held a hearing this week. i thought it was very interesting, very enlightening about high frequency trading and technology. everybody seemed to be able to agree. there's a real consensus around,

there are issues in this market and issues with complexity from high-frequency trading and conflicts of interest in fairness. there was no consensus about what's the right way forward. that's what we need to find, the right way forward to ensure at the end of the day the markets do what they're meant to do which is provide companies with a safe and sound and fair place to raise capital, to build factories and create jobs, and where investors have an opportunity to invest in those companies and earn a reasonable return on their investment. >> when you look at the markets, do you think the retail investor is gone? have they left? what's your take on what's really -- who's participating today? >> no, i don't think so. i think retail investors are still in our markets. certainly they're in our markets through mutual funds and pension funds indirectly. but they're in our markets directly. and i think it's our job at the s.e.c. to continue to try to improve the market structure so they have a level of confidence about continuing to be there.

>> it's good to have you on the program. thanks so much. >> thank you, maria. >> we appreciate it. it's wonderful to see you again. mary shapiro joining us in washington. up next on the "wall street journal report," digging up dirt on a business trend in major cities. rooftop farming. the potential and startups hoping to recapture agriculture. back in a moment. they have teachers... ...with a deeper knowledge of their subjects. as a result, their students achieve at a higher level. let's develop more stars in education. let's invest in our teachers... ...so they can inspire our students. let's solve this.

well, it isn't often a crowded city like new york has any available real estate let

alone property overlooked. but by looking up, way up, entrepreneurs are digging in to a trend that offers a taste of place, rooftop farming is growing up. high above an industrial zone turned business incubator a farm grows in brooklyn. brooklyn grains is now covering two rooftops, so two full acres of farmland. >> we sew our vegetables through three primary channels, one is restaurant deliveries, another is farmer's markets and the third through csa in which customers prepay us in the spring for a weekly box of what is in season. >> we grow everything from leafy greens, salad mixes are probably our most popular crop of with chefs. tomatoes and peppers grow particularly well, night shades, eggplants. >> farming on roofs has a number of parallels with traditional farming and differences. we have to be creative to deal with wind challenges. >> the farm is more subject to the winds of mother nature than the market. we really wanted to create a

fiscally sustainable model for urban agriculture, and really just focus on how to succeed as an industry. >> locally grown produce is a real attractive thing for people. it's quick to market from the farm which means it tastes better. and it can be less expensive. >> the produce section at new york area supermarkets owned by a&p will soon be selling vegetables grown in the borough of brooklyn. startup, bright farms, links hydroponic roof greenhouses to grocery chains. >> we'll have the ability to sell this high quality, high nutrient food for a lower price. >> joining me now, ceo of bright farms and brooklyn grange's ceo ben flanner. guys, thank you so much for joining us. really good to see you. so, paul, you are linking grocery stores to roof farms. tell me how that works.

you're building the largest roof greenhouse in brooklyn. >> long-term contracts with supermarket chains and attract the capital to build the greenhouse farms we operate on behalf of supermarket clients bringing them produce that's better, fresher, it's healthier, it's better for their profits and better for the planet as well. >> ben, add adverse smaller percentage of each dollar we're spending on food makes it back to farmers or producers. in rooftop farming, explain how this works. how do the numbers work out for you in terms of efficiency? >> we're bypassing the supply chain, we're growing vegetables right where they're consumed across new york city. and we sell mostly directly to the consumers through our farmers markets and csas and wholesale to restaurants. >> now, is there any sort of difference in terms of how vegetables are grown in an urban place versus somewhere else? in a large farm where you have a lot of land? >> we have lots of similarities.

we have an organic farming approach. we grow in a compost that has delicious fresh vegetables. we have certain challenges to deal with. the weather at times. and some unique complications with farming on a roof. but in general, it's actually fairly similar to organic farming. >> is that right? really fascinating. so what more is going on in terms of projects, paul? you have projects developing in several states. is there demand? >> there is. local food is the strongest demand in both restaurants and supermarkets right now. the large suppliers of produce that currently supply supermarkets are supermarkets but aren't great at local but independent farmers are great at local but not the supermarket. we're meeting the supermarket needs to decentralize local farms. we're building in st. paul, minnesota, buck s county, pennsylvania. st. louis, and other markets as well. >> how do you determine what is a viable space?

a similar question for ben. the difference in terms of urban farming versus somewhere where you have a lot of land. >> we're first looking for land that's not being economically utilized. we don't want to compete with developers for the cost of the space. we're uniquely looking for waste heat. greenhouses need energy to heat them. if we can pull heat from a data center, brewery, power plant or bakery, it reduces consumption of fossil fuels. >> you were an engineer and consultant before getting into this. what is the job skill set? what does it take? how do you translate being a farmer and running a small business, offering the community the education you do? it's a lot of, i guess, hats to wear, right? >> exactly. yeah, my background in quantitative analysis and engineering helps out a lot. you'd be surprised how much overlap there is with farming. constantly analyzing the value, the yields and the productivity of certain props. grow next season, next month, et cetera. then also as a small

businessowner, entrepreneur, also in new york city, kind of inventing the wheel, we wear a lot of different hats, lots of dig different skill sets. >> good to have you on the program. up next on "the wall street journal report" we'll take a look at the news this upcoming week that will have an impact on your money. find us on facebook, check it out, wsjrwithmaria. gestive bala. ♪ ooh, baby, can i do for you today? ♪ try align today.

for more on our show and our guests check out the website, wsjr.cnbc.com.

follow me on twitter and google-plus @maria bartiromo. a look at the stories that may impact your earnings this week. earnings out from nike and blackberry maker research in motion. tuesday, case-shiller index gives us a window into home prices in 20 cities across the nation. the latest reading of consumer confidence will be out on tuesday. wednesday, new home sales from the last month. on thursday, the final reading of gross domestic product for the second quarter will be out. the gdp, of course, the broadest measure of the health of the u.s. economy and typically a market mover. that's the show for today. thanks so much for being with many me next week, former fdic chair sheila bair. each week keep it right here where wall street meets main street. have a great week, everybody. i'll see you next weekend. to compete on the global stage. what we need are people prepared for the careers of our new economy. by 2025, we could have 20 million jobs without enough college graduates to fill them. that's why at devry university,

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