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good evening, everyone. i'm larry kudlow. this is "the i'm larry kudlow. this "the kudlow report." haywire italian election may be leading to a luhung parliament d a possible revote. investors worry what is coming out of italy next. and is their whole budget-cutting plan effectively demolished? meanwhile in washington, the democrats are caving in on the budget cutting sequester. now in four days, we are going to have it. there's a new battle brewing, however, and that is how to avoid a government shutdown at the end of next month. my thought, i'm still calm about this. there will be no government shutdown. there will be limited government. and ultimately it will all be bullish for stocks and the economy. that is my optimistic view. and finally, what in the world was popular first lady michelle obama doing in the spotlight last night at the oscars? what was hollywood trying to say

by giving away the most important moment of the evening? i don't know. we'll find out. "the kudlow report" begins right now. let's start with today's rough day on wall street. turns out it's the biggest selloff day since after president obama's re-election. and it looks like electoral chaos in italy. nobody better to tell us than sima. >> the dow jones industrial went from hitting a five-year high to a one-month low all in the same day. looks walk through this volatile day. we started out with a rally on wall street. strong earnings from lows initially providing a nice left to equities, but then results from the italian election started to trickle in, showing no clear winner. further points returning to results that would be inconclusive, which means

italians would potentially have to vote again. u.s. ten-year yield moving lower as investors looked for safety in wake of the italian election. the fear index saw its biggest daily gain in over a year, indicating that fear is back in the game. the dow jones industrial ending the day with a triple-digit loss. clearly this italian election is testing investor sentiment, indicating that not only is the eurozone debt crisis not behind us, but it might take longer than expected to resolve the longer the italian election takes, the longer the push for reform and austerity will be delayed in europe's third largest economy. that's the perception on the street. >> it is. i think you're exactly right. let's bring in our distinguished panel to talk about this. the president and ceo of steven nicolas. michael ozanian, forbes executive editor. waiting in the wings getting ready to join us in a few minutes about the threat of a

government shutdown here at home, we have democratic strategist steve mcmahon, and we welcome former texas senator kay bailey hutchison. ron, let me begin with you. i think we're going to put it up on the full screen. the democratic party, this guy got 30%. berlusconi, against cutting the budget and probably should be in jail for immorals charge, got 29%. then there's this comedian, grillo, he got 25%. monti got 10%. when you add it up, 54% are against budget cutting. ron, should we be worried about this? >> i don't think so, larry. come on, the market was looking for a reason to fall back here.

what's going to go on in italy, gridlock is not going to be the worst thing. the market was looking for a reason to pull back, we've had quite a rally. >> do you agree with that? >> i think we should go back to the president's state of the union address on february 12th. that really was the end of our bull market. what did the president call for there? more government spending, more government intervention and higher tax rates. i think that's the threat to the u.s. stock market. you have over three quarters of u.s. companies that have reported fourth quarter earnings. almost 72% have surpassed estimates. the earnings are terrific here. >> why would you call an end to the rally? >> i wouldn't call an end. the republicans are winning. we're going to cover that in the rest of the show. >> risk capital is very nervous because they heard the president's speech and saw

bigger government and more spending. that's what got us into this mess in the first place. >> jim, are you nervous capital? >> i like to see other people nervous. volatility was too low. the market had gone too far too fast. this is a welcome correction. i know i'm not the first guy to say that. the italian thing is a great excuse, but it turns out people don't want to vote for their own austerity. it's shocking to me. i'm sure it is to you as well. there's reasons to sell off, but the most important reason is that people are not worried enough. there's been money pouring into the stock market and now we're reminded that there could be a negative sign in front of that change. 1445-ish is what i'm thinking about as the end of that healthy correction. >> all that growth stuff is very interesting, the cyclicals. tech, industrials, energy, banks. they got clobbered today. is there anything to that? >> i think we'll have to see tomorrow. ben bernanke kicking off his two-day testimony.

if he shows any inclinations or if there's any perception on the street that he will scale back on monetary support, we could potentially see investors continue this risk offer approach. that could potentially go further. >> ron kruszewski, i don't know where you're coming from on this, my friend. i'm going to say bernanke goes up there to defend his ultraeasy money policy. he's going to put an end to this speculation about an earlier tightening. that's done. not only that, he's going to say since we're cutting, oh, heaven forbid, $45 billion from the federal budget, heaven forbid, it's not even a cut, it's just a slower growth rate, that he, bernanke, is going to have to stay loose. do you expect bernanke to say i'm about to tighten policy? >> i don't expect him to do that. look, bernanke has been worried about deflation since the beginning of this crisis. and he's been doing a good job at taking deflation risks basically off the table.

larry, all we're adding is a couple of stories to this wall of worry. this skepticism is good for the market. 15 times $100 is $1,500 and you could be higher. the consensus is 112. let's put it that way. >> i'm totally with you. i even think the washington story is going to work out okay. i didn't like the tax hike, but it wasn't as bad as it could have been. secondly, i think any time you cut even a little bit of spending, that's good. any time you can limit government, that's good. there's not going to be a government shutdown. but i want to come back to mr. ozanian because you really believe you should not buy this correction. that's a different point of view. >> no, no, no. i'm with you. i think short-term stocks are going to go up. >> oh! what were you saying about that other stuff? >> i'm just saying the market is very nervous over that. we should take a look at what really is the problem in italy. over the last ten years, gdp growth has averaged less than

half a percentage point. >> and what did monti do? monti increased taxes, though. that was the wrong way to go. i think there's a lesson there for us. that's really my point. >> but larry -- >> tax hike austerity is bad. very bad. budget cutting, government austerity is good. but raising taxes -- >> you want to free up capital for the private sector, look at how much excess reserves we have. gold went up today. to your point, i think people are expecting bernanke to ease. >> no question about it. >> oh, but they are expecting -- >> larry, look -- >> they're expecting bernanke to swing hard, but that was a decisive move in the stocks. a higher high, a lower low. finishing on the beat lows. so yes bernanke is going to swing hard, but the stock market seems like it's poised to go lower anyway, so i'm going to side with that more so than bernanke is going to save the day tomorrow. >> well, he's going to try to save the day. he's going to get very defensive and he's going to make it very

clear. maybe i'm wrong. but he's going to say we're sticking to our targets. we are not going to change our view. basically because the economy is not very good. >> you're not going to get a big surprise out of him tomorrow. in italy, it isn't their economy that you should be worried about. it's going to be slugging along for the last ten years and probably the next five years. the risk in italy is that they do something to destabilize the eurozone by maybe getting out of the euro. those politicians will say anything to get elected but they're not going to do anything to destabilize the euro once they get there. >> i've got one other one. i don't know how people have covered this, but japan is getting a new central bank head and he's going to fall through from the new prime minister abe and it's going to be easy money. printing presses get the currency down. i'm a hard money guy. i'm a king dollar guy. but in this case, i think japan is right, because they're stopping deflation. and i think, in fact, japan is

right, the whole world will benefit. japan's stock market was up 2.4% today, the nikkei. i think this is a good thing. >> depreciation in the end? >> depreciation is good. i don't usually like it, but it's because they're pumping up the money supply to stop deflation and recession. sometimes you've got to do that. >> sometimes you've got to do that, but all in moderation, right? i guess that's the name of the game. if they continue to add more monetary easing and push down the yen, we have to understand how that will impact the import game and the currency war that is clearly front and center right now. >> no. no currency war. i don't buy this currency war. i just think japan is doing what it ought to do. i'm an opponent of deflation. price stability means japan should be easing. used to be a big deal in the japanese market. >> and japan's economy and stock market has been terrible for so long. so it's also a great place for bottom fishing. >> there's two different issues, though, here. there's one to destabilize the currency. it's another thing to

destabilize it at the rate they've done. this is a huge move which sets us up for huge corrections. i don't like the way they've gone about doing it, but i agree with you to a certain degree that perhaps they were due for this. >> and it's going to help the world stock market. ron kruszewski, what would you be buying right now or where might you be buying since you believe this correction is something to buy? >> look, i've liked the financials for a long time, larry and i'm not going to go off of that trade. i like the tech companies that help companies invest in tech. so i'll stick with those for now. >> do you like the financials? >> absolutely, i've liked the financials since last august and i still like them today. >> even if we continue to see political deadlock in italy, would you consider financials going forward? >> look, i don't see political gridlock as a bad thing in italy. i think the status quo will be fine. it's a little destabling in the short run.

but the gridlock in italy is not going to be a big problem. >> i think there's investors on the other side of that trade that say they're really watching the situation in it tloi tell them if europe really has a game plan intact. >> i do think the european central bank is going to protect any financial insolvency. i think they've guaranteed a financial safety net. i think the revote is going to be very amusing. and although i used to like mr. berlusconi, i think the only reason he's running is to stay out of jail. ron kruszewski, thank you very much. next up, fed chief ben bernanke goes to capitol hill. we've kind of previewed this, but i want to do more. you can bet he is going to launch an easy money defense of his policies, especially with the sequester on the way. so we're going to talk to the house committee chairman who will preside over the hearing. and later on, take a look at this. >> i am so honored to help introduce this year's nominees for best picture. and to help celebrate the movies

that lift our spirits. >> you know what? i'm not taking a position on this one. did it make sense? was there a hidden message? we're going to try to get some answers from a top hollywood reporter. don't forget, folks. free market capitalism is the best path to prosperity. at least daniel day-lewis won the "lincoln" thing. i wanted "lincoln" to win the movie. i'm kudlow. we'll be right back. everyone's retirement dream is different;

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welcome back to "the kudlow report." joining me onset now, we have democratic strategist steve mcmahon, and former texas republican senator kay bailey hutchison. now, ben bernanke is headed back on to the hot seat this week to testify before the senate banking committee tomorrow and then the house financial services committee on wednesday. you can expect bernanke to defend the fed's easy money policies. the question is will the new committee chairman tangle with bernanke's money pumping? here now is the new chairman of the house financial services committee, mr. jeff hensley, republican from texas. mr. chairman, welcome back. i think bernanke is going to defend his policies to the hill, and what i'm very interested is in how is your attitude? this will be your first new real

committee ben bernanke experience. will you tangle with him? do you disagree with his easy moneys? >> i'm not sure i would use the word "tangle." i have the greatest am of respect for chairman bernanke. but whether we're on qe-3 or qe-33 or qe-infinity, i feel that the marginal benefit of a policy is almost negligible. the risk of incredibly high inflation or possibly bringing us in to a next recession. possibly bernanke could prove to be chairman houdini and unwind this at exactly the right time. but i have doubts. to get economic growth, it's not a monetary policy challenge we have today. it has everything to do with too many taxes, dumb regulation, vilifying success in washington, and lots of uncertainty about the national debt. >> all right.

i know you're right, but he's going to make two arguments and i want to get your quick take on them. number one, he's going to say there is no inflation. and actually, the truth of the matter is over the past five years, the inflation rate has averaged 2% or slightly less. he's also going to say, mr. chairman, and this is interesting. we're going to get the sequester. it's $45 billion to the end of the fiscal year. he's probably going to say this is no time for the fed to tighten up. that's what i guess. how will you react when he says that the fed has to accommodate the economy. because of all the bad horrible dire warnings about this budget cutting sequester. >> well, larry, number one, why are banks sitting on -- i think it's 1.6 trillion or 1.6 trillion in financial reserves? there's over $3 trillion sitting on the sidelines. what is more qe going to do?

at some point, this economy is going to take off, and so there's an incredible inflationary risk here, number one. so it could happen tomorrow, it could happen the next day. i don't know how to time it. but sooner or later, we know that if the chairman doesn't unwind this properly, there's going to be a huge problem. and today, you talk to my constituents in east texas when they're filling up their ford f-150 pickup trucks, i can assure you they are feeling inflation. whether or not it's not part of the chairman's core inflation, they feel it. >> all right. that's fair enough. senator hutchison, i want to get your take on this. all i'm saying is ben bernanke's got a new arrow in his easy money. he's going to say budget cuts. i've got to have easy money on the fed. do you agree with that? that's what he's going to argue. he's going to argue it tuesday and wednesday. >> larry, we're talking about a budget cut of 2.5%?

are you kidding me? are you kidding me? i'm so glad that the republicans are standing up, because otherwise we would never get a cut. we would never get a cut unless it is st. louis for it is absolutely forced. we have seen that. i just think the sky is falling mentality that we're hearing is so wrong-headed. we need to cut 2.5% and then we need to keep going. the real deal, of course, is march 27th. that's when there can really be a government shutdown. >> we're going to get to that. >> but this is just kind of what we should have been doing over the last two years when we'd been talking about it. >> the democrats are losing the sequester. a great one today. janet napolitano, the head of homeland security, said now we're going to have trouble defending the homeland because of these budget cuts. what she forgot to tell people is even with the sequester, her budget this year is higher than last year.

i think that is the height of total hypocrisy. let's level with the american people. we need these cuts and they're not going to have any negative adverse effects at all. >> i think the argument the president is making is this isn't the way to make them. across the board, just taking a hatchet to programs across the board indiscriminately is not the way to do it. he was hoping and i think the speaker and the republicans were hoping when they passed this grand bargain that they would do their job. >> i don't think chairman hensarling agrees with you. >> number one, if the president says this isn't the way to go about it, it's well established it was his idea in the first place. that's been admitted by his spokesman, so number one, it's his idea in the first place. second of all, she the chief executive. he has the ability to manage this to some extend. is he the commander in chief or is he the scarer in chief? and the bottom line is, as kay

pointed out -- and it's great to have her back on national television, i would prefer that we not do these indiscriminate cuts, but come on. there are so many families in east texas that i represent that would trade their challenge for the challenge of trying to get by on 2.5%. over the last ten years, the federal budget has almost doubled. at some point, you've got to quick spending money you don't have and borrowing 30 to 40 cents on the dollar. >> i agree with you completely. but what the president and your speaker did is passed a bill and said we're going let congress decide how to cut this $1.2 trillion. congress didn't do it. the republicans and democrats all say we want to make these cuts. why don't you get together in a room and work it out. >> let me just ask -- there's a very important point. a very principal point here. would you give the white house

ultra discretion, more flexibility -- flexibility is a big word right now. would you give the office of management and budge etc. under mr. obama, president obama, the flexibility to implement these budge etc. -cutting sequesters or not? just in the last 30 seconds. >> well, he already has a certain amount of flexibility. i'd be open to giving him more flexibility to manage this. but what the president is trying to do is frankly a shell game when he talks about balanced approach. he already has $600 billion in revenue. where's the $3 in budget savings for every $1 in revenue? all he talks about is revenue. >> john mccain was very clear about this over weekend. he said he would not give the president all that flexibility. mccain basically said let's just give him all the money and be done with it. >> well, what mccain said is he's very worried about what the president would cut on the defense side. that's what john mccain is afraid of. but i think that's where congress and the president ought

to be negotiating right now is on the flexibility. not on the cuts. >> all right. we're going to come back to this. jeff hensarling, mr. chairman, good luck on your first hearing. >> you're doing great! >> thank you, kay. >> we may have heard the most dire sequester scare tactic of them all today. it came from janet napolitano. please take a look at this. >> i don't think we can maintain the same level of security at all places around the country with sequester as without sequester. >> with all due respect to secretary napolitano and my friend steve mcmahon, she neglected to tell us that even with the sequester, her budget will be larger this year than it was last year. if she could defend us then, why can't she defend us now? we're going to come right back. there is so much nonsense with this sequester story. announcer: where can an investor

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with 40 days until the spending cut sequester, john boehner put the ball right back in president obama's court. please take a listen. >> the president says we have to have another tax increase in order to avoid the sequester. well, mr. president, you got your tax increase. it's time to cut spending here in washington. instead of using our military men and women as campaign props, if the president was serious, he'd sit down with harry reid and begin to address our problems. >> all right.

i think speaker boehner is right. the country is waiting for spending cuts for a change, not tax hikes. i still make this case, by the way. lower spending, limited government. it's good for the economy and will also be good for stocks. we'll be right back on "the kudlow report."

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welcome back to "the kudlow report." i'm larry kudlow. in this half-hour, we said from day one that treasury secretary nominee jack lew is unqualified. among the many reasons for this, his revolving door crony capitalism with nyu, citigroup, and the white house. somebody should put a stop to this. president obama never did. now, first lady michelle obama says she loves movies. well, that's great. but why did she get the most important moment of the entire oscars ceremony? is there a hidden agenda here, something i may have missed? i think the gop pledge to prevent a government shutdown is very bullish for stocks and the economy. the white house continued with its sequester scare tactics. take a listen again to homeland security secretary janet napolitano earlier today. >> i don't think we can maintain the same level of security at all places around the country

with sequester as without sequester. >> all right, really? as i said earlier, her budget is going to be bigger this year than last year even with sequester. i've got to go to my pal steve mcmahon. >> don't you want to go to senator hutchison on this one? >> democrats are really going to lose this battle, and hurt her politically because the dire consequences will not happen. >> well, they won't happen maybe right away or maybe everywhere instantly, but over time, if this isn't changed somehow -- and i think what the president and the administration are trying to do is lay out the facts. you might think it's hyperbolic, but they're trying to lay out the facts of what's at stake here and trying to get congress to the table. eric cantor had a pretty good idea today. he said to the president it's time to go line by line over the budget. i'm one of these people who used to work in washington when congress actually got things done and when people like senator hutchison walked across the aisle and met with their democratic colleagues and went line by line and made decision. not everybody got what they

wanted, but we got progress. it's time to do that and if i were the president, i'd invite cantor in, invite the speaker, and put it on c-span and let's say do it. >> we already had a tax hike this year. >> my fear is they might let the things go that actually are going to have some catastrophic effect. which they don't have to do. >> like what? >> there is flexibility. like cutting back on tsa agents and making the lines at airports longer. you don't have to cut back on the tsa agents. you can cut other parts of tsa. >> why can't they do that? >> this president has used executive orders very effectively. i'd like to see him show the leadership and some guts and say okay, we're going to -- we as leaders are going to determine right now what is essential and what is non-essential in government.

and with a 2.5% cut, don't you think we could as adults make the decisions on what's non-essential? like travel budgets? >> actually, less than that. >> like outside consultants. >> that's what i see. the department of homeland security was a bureaucratic behemoth. we didn't even want it in the early days. >> you know, i think the answer here is that republicans and i hope the administration together are looking at march 27th, because that is the real deadline. and if there could be -- if we could go ahead with the sequester, the 2.5%, you're going to have to start cutting somewhere. keep that going, and i think they're talking about flexibility issue right now. i think that's where the compromise is. >> we've got a reaction from an influential house republican. joining us right now is marcia blackburn. as always, welcome. you heard what kay bailey hutchison said. first of all, what i want to know is march 27th is another one of these big dates.

the so called continuing resolution to fund the government ends. will there be a government shutdown? >> no, there will be another continuing resolution. we will do what we've always done. larry, bear in mind, we bring forward the continuing resolutions in the house. we even passed the budget. it's been over four years since the senate did so. and i think that many of us in the house are looking at this and saying look, this is another chapter in the obama drama. this is -- what he's pushing for to make it look as if it's going to be draconian, these are going to be disastrous. but you know what? a lot of us have served in state ledge l legislatures. we know it's not going to be disastrous. we know that we together with the american people, we are going to work through this. and the president needs to start to show some leadership. senator hutchison is exactly

right on this. this is a time for him to prove that he is capable of leading this nation and step forward and say this is how we're going to do it. we're going to work with the house, work through this budget, line by line. >> congresswoman, this is steve mcmahon, how are you this evening? >> i'm good, thank you. >> quick question for you. i think you're right. i think the president has a role to play. but doesn't congress have a role to play, and shouldn't the democratic leadership in the house, the republican leadership in the house, and the executive branch be sitting downright now going through it line by line? >> absolutely. >> and isn't that what your constituents, all of your constituents elected you to do? >> steve, you're exactly right. my constituents are saying, look, let's protect the military, because we want to protect them, provide them programming authority, but let's get over here in discretionary and let's quadruple the cuts over there. we need to reduce this spending. and you're right, that the president should be sitting

downright now with the senate leadership and saying take these bills up that the house is sending you. they've already sent you bills. >> but congresswoman, so i understand that your constituents would like to take the discretionary cuts and triple them. and the democratic constituencies would like to take the defense cuts and triple them, but neither of those things are going to happen. so at what point does congress sit down with the administration and say we're not going to get everything we want. democrats have to say we're not going to get everything we want on the democratic side. but when does this happen? because america is being held hostage again. you saw what happened -- >> well, we've got a month. the key point here, marsha, is will there be a government shutdown march 27th? >> no, there will not be. >> you'll have a republican print next week from what i gatter in the house. what will the senate democrats do? >> my hope is that they're going to take it up and take some serious action on it. you know, the president has gotten his tax increases.

it is time now to focus on how much we're going to spend and rein this out-of-control washington spending in. everybody that we're talking to, everybody is saying you have to start reducing what the federal government spends. get inside some of this waste. it's past time. >> congresswoman, hi, kay hutchison. >> yes. >> let me ask you on the entitlement side. this is what nobody has been talking about yet. we know that discretionary spending is going to be about 35%, maybe 40% of the total budget. the rest is entitlements. it's not anything you have a choice about. so is there talk behind the scenes, is the president sitting down with congress, are you all talking now about where you can meet in the mines, because the president has mentioned that he would go along with cpi, as has nancy pelosi, and maybe starting to edge up the age of retirement, which we know is

unsupportable, both in social security and medicare. is that going on right now as part of either march 27th and the government funding, or down the road? >> well, what you're going to see is republicans will bring forward a budget and take it to the house floor that will balance in ten years. and what you have to do is look at the entitlements, of course, which medicaid is the largest. and then you also have to look at the stabilization of the trust funds, which are medicare and social security. and you're right, there are lots of good ideas that are out there, that are ways that this can be done so that obligations are met to today's seniors, and then you look at other options. there are ways also that we're hearing from some of our governors for looking at the issues of medicaid. for looking at what is happening through some of our wealthier

support programs. the point is this. this is an opportunity for us to begin to make some cuts. to begin to reduce what the federal government spends. >> i sincerely hope you're right. and what i'm hearing from you is no government shutdown. one way or the other, march 27th. you're going to take the continuing resolution -- >> i don't think we will. we're working toward not only a continuing resolution, but larry, we're working toward that budget that is going to balance in ten years. i think the american people are very clear on this. get the job done. >> all right. congressman marsha blackburn of tennessee, we appreciate it very much. >> absolutely. the senate finance committee is going to vote on jack lew's nomination to be secretary of the treasury. that vote, i believe, is tomorrow. among the many reasons that i believe he is unqualified is his million-dollar revolving door crony capitalism between nyu, citigroup, and the white house. i don't like it one bit and we will debate that next up.

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that's after lew said "i don't recall" about most of the years at working at citigroup and new york university. today's "wall street journal" questions the big bonus citi paid lew. sounds a lot like revolving door crony capitalism. that's right. back with us now is mike ozanian, steve mcmahon, and kay bailey hutchison. mike, i don't know this guy. i don't know. i don't know why nyu had to give him a special severance payment. he left voluntarily. i don't know why citigroup had to give him a bonus. he went to the federal government. the stipulation was if you go work for the federal government, we will guarantee you a bonus. not if you go work for the red cross or a non-profit. this sounds to me like crony capitalism revolving door. >> you know what? i have so much respect for tim geithner, that to me this seems like such a downgrade. it's very disturbing to me. it bothers me even more than the nomination of chuck hagel.

it just seems like the president is totally disengaged. no one vetted this guy. it's just crony capitalism, as you said. and the president spoke so vehemently for so long that this was something he was going to put a stop to. >> that's a key point. he talked about transparency and we're not going to have a revolving door. senator, tim geithner made a mistake with his taxes and corrected it and apologized. he apologized on the air, he apologized right here at a conference room. we had a meeting with the guy. this guy lew is sitting around saying i don't know, i don't remember. and these contracts are sweetheart deals and favoritism and revolving door, the type obama said he would stop. >> well, you know, it's a hard thing, but i do think this second term appointment of people in the cabinet, treasury secretary has always been such a

plum job and it's been really high quality people. and i don't know jack lew. i've met with him a couple of times, of course. but i had no idea that he had this background. so, you know, i would think he would be forthcoming on the questions and apparently he was not. i think the president should have leeway. i think he should have the people he wants. >> sure. >> but i just am disappointed, i guess, that in this job we don't have somebody who can really do something about the economy. somebody who has ideas. >> steve, god bless him, if he wants to make a million bucks, makes five million bucks, i don't have a problem with that. what i have a problem with, and i'm reading from the editorial, that citigroup gave him a guaranteed bonus, if he left the bank for higher level positions in the u.s. government. not the red cross. not some non-profit group.

so clearly, as people knew he was going to take a big position with obama, they gave him this -- this kind of stuff shouldn't be going on. >> i'm going to sound a little bit like kudlow. free markets, free markets. >> right. this is crony capitalism. >> nobody made citigroup enter into that concontract, but nobo at citigroup was surprised that somebody who spent their life in government might go back into government. >> but why didn't they -- look, okay, fine. why didn't they have it for non-profit groups? as "the wall street journal" editorial said, if he went to red cross, he wouldn't have gotten this bonus. it's only because he went back to the federal government. you think that had anything to do with the fact that he would be regulating citigroup, which was bailed out many times? >> i think it's possible that citigroup -- that that might have occurred in citigroup, but you can't blame jack lew for going out into the market, free markets and for negotiating a deal with a suitor who wanted to hire him. i'm sure there were other banks that offered similar packages and he took the package that suited him the best. >> with all respect, that's not

free market capitalism. it's crony capitalism. it really is. you scratch my back, i'll scratch yours. and i know out there there are powers that be and we want to take advantage of that. >> well, look, that's the system that we have and it's free market. we can pass a law that you normally wouldn't support that says you can't do this anymore. >> i thought obama was going to stop the revolving door. >> the president made everybody sign a two-year agreement not to lobby anybody in the administration for two years, which was more than any administration previously had done. he supports a law to actually make this kind of thing statutory. >> why is lew doing it? i'm going to run out of time. lew is going to have to recuse himself. >> would you support a law -- >> i thought that law had gone through. to tell you the truth, i thought there was a law. >> before it was jack lew, it was out of the bush administration. >> i'm not going to defend -- >> it doesn't apply to congress.

>> i've got to get out of here. love or hate the first lady? wasn't it just so weird to see michelle obama take the spotlight during the biggest moment at the oscars last night? i have nothing against her whatsoever. in fact, i admire her. but i thought it was odd. and i'm trying to figure out what they were trying to say with this big surprise? we'll get some answers from one of our top hollywood reporters just ahead. up to be the world's best sport sedan... ♪ ...people noticed. ♪ the all-new cadillac ats -- 2013 north american car of the year. ♪ for a limited time, take advantage of this exceptional offer on the all-new cadillac ats. exceptional offer and you wouldn't have it any other way.e. but your erectile dysfunction - you know, that could be a question of blood flow. cialis tadalafil for daily use helps you be ready anytime the moment's right. you can be more confident in your ability to be ready.

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so why exactly did the big

moguls in hollywood ask michelle obama to make a surprise appearance at the oscars last night? i have nothing against her, my lord. i actually admire her. but it was interesting, last night mrs. obama took the most important moment of the entire evening, announcing the winner of the best picture oscar. i just want to know what is behind this? what am i missing here? joining us now from los angeles, sherry waxman, the founder and editor-in-chief of therat.com. thank you for coming on. look, i just didn't get it, okay? it just was so unusual, i didn't get it. can you help me out? >> well, it is a first that i can recall ever seeing a presidential resident or a white house resident live on the oscars. it's interesting that they did that. it's no surprise to anybody that the obamas have lots of good friends in hollywood and i'm sure that they need to give back because they have taken from them quite a bit. >> yeah, i understand that. i get that. but just let me ask you this. she's standing up there, behind

her is a phalanx of dedicated military personnel. is that because "argo" and "zero dark thirty" and "lincoln" were war movies? what were those military people doing back there and she never really acknowledged them? >> no, but they looked pretty star struck. they were grinning from ear to ear. the whole thing felt to me a little bit like a stunt, honestly. if you recall at the golden globes, bill clinton was a presenter there. it almost felt like the oscars felt like they had a need to one-up the golden globes by having the actual president's wife rather than the former president presenting. and i kind of felt like it would have been more appropriate if she welcomed everyone at the beginning of the evening instead of being there at the height of -- you know, to take the football being passed off from jack nicholson. and he's pretty famous. he's a pretty good get as a presenter as it is.

no, no, we're really going to amp it up for you this time. that's how it felt to me. >> i found it very disturbing. >> disturbing? >> the sense i got from it is young people are big president obama supporters. a lot of young people watch the oscars. there are a lot of social media about the oscars. that's to me what this was about. i couldn't think of any other reason why the first lady would do this. >> well, i don't know how young the viewers of the oscar telecast are. i think they were trying to go younger when they invited seth macfarlane to be the host. and there's some evidence that they did okay with that because the ratings were up today 20% over last year, so that was a good thing. and i don't know if it was michelle obama who did that. but clearly, they're looking to penetrate -- you know, the white house wants to reach out and touch millions of people who can find them. there's an awful lot of people who watch the oscars. >> i worked for reagan a long time ago. he did a video, he did a sort of video welcoming to the academy in 1981. he didn't show up. he just did this video.

but the thing is, reagan had been an actor for all those years. he did something like 75 films and tv and he was the head of the screen actors guild eight times. >> all true. >> so he did a video. i just didn't see what mrs. obama's connection is to the academy. >> i think it's fair to say that she's been a very vocal supporter of the arts and talks about arts education. she talks about arts education. that's where she felt kind of out of place, only coming in the telecast at that moment when everybody's dying to hear the best picture winner, and go. but she kind of gave this little speech about how supportive she is of the arts because that really is her legitimate connection to the oscars, is the arts. >> you know, i thought it was fine. it didn't bother me at all. i think presidents and first ladys, they first of all need to have fun and do fun things and show that they can kind of be down to earth. it just didn't bother me. i thought it was fine. >> i'm just guessing now, but i'm thinking if they called last

year and said to larry, we're going to come away when the best picture envelope is opened, would you do it? i'm thinking you probably would say yes. >> sharon, i might say yes. i don't think i'm going to get asked. does this have anything to do with the fact that steven spielberg had president clinton at the golden globes and ha harvey weinstein wanted to re-up him, to beat him at the oscars? does it have anything to do with that? >> i think it had to do with bill clinton being at the golden globes. i don't think it's about a steven spielberg versus harvey weinstein, because i don't know exactly how many villages it took to get michelle obama to do this. i'm sure more than one phone call was made. >> but sharon, don't you think she had a great dress? >> i thought she looked amazing. >> she did. she looked great. >> i'm on the record, she looked beautiful. >> no conspiracy, just a great dress. >> she's a good mother. i don't have any problem with that. i just thought it was weird. sharon, michael, steve, senator kay bailey hutchison. that's it for tonight's show.

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