please, don'ts they keys upmoves. they're horrendous. you have a fantastic time to buy mid-day. there is us as a bull market somewhere. i am jim cramer. i will see you tomorrow! i'm jim cramer. we'll see you here tomorrow. >> the world's top leaders are meeting at the g-8 summit right now, but they are not focusing on the right thing which is growth, growth, growth. the european economy is in a six-quarter double dip recession. the u.s. is sub par. japan is trying to reignite, and i'm especially critical of european monetary policy which is way too tight. and speaking of monetary policy, our markets are more obsessed with it than ever. strong stock buys this afternoon, based on just one reporter from "the financial times" and his ill-advised, uninformed conjecture about what the fed would do, and then when that same reporter tweeted everybody that he really had no idea what he was talking about, well, stocks regained most of

their losses. crazy story. an nsa leaker edward snowden points his finger straight at the big tech companies. they said they should resist the government's demand for user information. wrong. they should abide by all our laws, especially national security laws. all those stories and much more coming up on "the kudlow report" beginning right now. let's start right away with cnbc's michelle caruso-cabrera. she is covering the g-8 summit. michelle, good evening, and what are they focusing on? >> well, not the things that you want them to focus on, larry. of course, the biggest discussion was about syria, and there's been a lot of talk about what happened when president obama and vladamir putin came out of their meeting. the photos, the foet photo-op, clearly looked uncomfortable that. little brief smile that you saw from president obama there, if

you blinked you missed it, that was all you got. it was a very tense situation obviously. they made clear they do not agree on how to go about calming down the situation in syria, fixing it, getting an end to the fighting. they both claim to agree that they want it to come to be a end, but they certainly don't agree on how to do that. presumably, larry, this was going to be a g-8 summit that was going to talk about some economic issues, including free trade, a huge free trade deal on the table between europe and the united states. the two largest economies in the world, especially when you put all the european economies together. that's really going to be overshadowed by syria. the other thing about the free trade talks is the french are already complaining saying they want their art and film industry protected. they seem to have forgotten that gerard depardieu has already moved. they are saying the economy remains weak, but they are very focused, larry, on getting everyone to pay more taxes. they definitely want that for sure. >> what a great idea. it's a six-quarter double-dip

recession. >> yeah. >> and they want everybody to pay more taxes, michelle. i mean, i just love that. just love that. what a -- there's no -- there's no word in european speak for capitalisma, is there? >> when they see high levels of tax evasion they think everybody needs to enforce better instead of realizing the best way to combat tax evasion and to lower tax evasion is to lower taxes. >> oh, michelle. i am sending you in to do battle. how good is that. >> good luck. >> as always, many, many thanks to cnbc's michelle caruso-cabrera. here's my take coming off of michelle. i understand they have to deal with syria and iran, but, but, but, the g-8 needs to look at the economic crisis that continues in the eurozone's six-quarter double-dip recession. that's right. six quarters. meanwhile, the ecb bank's central bank monetary policy way too tight and taxes way too high and where's the deregulation and privatization, all of which

would be pro-growth? i'm okay with government austerity, but private prosperity is what we need. let's see if my next guests agree. here now is harvard kennedy school professor jeffrey frankel. he's director of the international finance of macro economic program at the national bure oefrgs economic research, and i'm joined on set by ben steele, director the international economics on the council of foreign relations and author of the new brook "the battle of bretonwoods" and dougie egan, former budget director. let me start with you, ben steele, i think the ecb is way too tight, as i just said. i think the risks are all deflation. >> i actually agree with you, larry, but the ecb has a real dilemma, believe it or not. dutch, austrian, finnish inflation are all well above the ecb's inflation. angela merkel has suggested in

public that germany needs tighter monetary policy. if greece were to default sometime next year or in 2015, guess what's going to be the first institution in europe that's going to need a bailout? it's going to be the ecb. it will need to be recapitalized and germany will have to foot the bill. >> wait a second. can you repeat that. the overall eurozone inflation rate is 1.4%. the target i think is 2%. they haven't grown in six quarters. you're telling me that those northern countries are actually worried about inflation. it sounds like the republican party here. the republican party here was worried about inflation during the last election. they ought to be worried about deflation. there's no inflation in the whole world right now, seriously >> unlike our federal reserve the ecb has a single mandate, price stability. dutch, austrian, finnish inflation, well above target. unemployment very low in these countries. unemployment very low in germany, so the ecb doesn't have an easy task and if the ecb goes all in with its balance sheet,

larry, who is the lender of last resort for the ecb? who is ultimately going to guarantee their balance sheet in the united states, the federal reserve's balance sheet is guaranteed by the u.s. treasury. >> sort of. >> the german treasury is a little less reliable. >> jeffrey frankel, i think they are fighting the wrong teamon over there. what's your take? >> well, i -- i -- i do agree that ecb monetary policy is what the world has needed, and, i mean, it's gotten to a certain extent. japan over the last six months for sure, but i -- i'm afraid i don't completely agree with you on austerity. i mean, i think the austerity, fiscal contraction is a big part of the problem in europe even more so than here. by all means, let's address the long-term fiscal problems that all of us have with pensions, social security and all of that, but at the moment we don't need fiscal contraction. >> all right i'm not an austerity guy, i'm a growth guy.

i'm talking about privatizing state-owned company and general deregulation of labor markets and everything else, for heaven's sakes, and i'm talking about lower tax rate reform. the corporate taxes are okay, it's the individual tax and value-added tax. that's not austerity. that is prosperity. where is it? >> there's a difference between austerity and structural reforms and they desperately need structural reforms because they will produce growth. allow the governments to fulfill whatever general safety net they need. they also need to get the ecb off the hook, real fundamental reforms in the banking system. only so much they can do to paper over the deep problems and europe isn't dealing with the deep problems. asking the ecb to solve it. it won't work. >> it may be old-fashioned. if you look at the money supply numbers. if europe they are growing 4%, 4.5%, and in the united states growing about 7%. europe should be growing at 7%, 8%, 10%.

how can they have a 50-point higher fed funds target rate than we have? six quarters of recession and the economy in germany ain't that good, sorry, just isn't that good. >> i don't think the target rate in europe is really the big issue, larry. you've got the so-called omt, outright monetary transactions. it's the big bazooka in the closet that the ecb has been holding out there to keep down bond rates. haven't actually intervened in the markets yet, and the ecb has been sending mixed messages here because on the one hand they say the euro is permanent. they will do what it takes through -- through omt in order to keep bond rates down and to keep the euro together, but they -- they also insist in the next breath that it's all conditional, and, of course, the germans are imposing very strict conditions right now that aren't playing out very well politically in the south of europe. >> miss merkel has her own problem. go ahead, doug. >> this is the issue with growth. good in and of itself but also

lays the ability to do big reforms and when you're not growing, you're afraid to do trade, you're afraid to do deep changes to your tax system. you're afraid to fix the problems that you have. >> jeff frankel, i'm a gorilla, i want more money pumped out by the ecb, i want the ecb to be like the fed. i want japan to have qe. i don't think there's enough money in the world, jeff frankel. i'm for fiscal reforms, but i think these monetary issues, i think we're still close to deflation. >> well, i mean, we're closer to that than we are to runaway inflation which so many people had worried about, but i actually think the central banks are doing for the most part a pretty good job. i thought ecb was too tight a couple years ago, and, you know, i agree with you that they could be -- stand to be a little tighter, and i also agree with you that there's been too much emphasis on fiscal austerity and what prime minister in japan calls a third arrow of his

quiver and what in europe they call the structural reform. they say it's politically difficult, but austerity is politically difficult. given the choice, i wish they had done more of the labor market reform you were talking about and the rest of it in italy and greece. >> they are raising sales taxes throughout europe. this was part of the imf insanity. england tried to raise the income tax. guess what in the reverse laugher curve, why don't they get it? actually why don't we get it here? >> i don't understand why they get it and now the agenda on tax reform is really a disguised tax increase hoping to raise taxes on u.s. firms, not their own. >> oh, right. >> none of this is going to work. >> the tax safety havens. >> yeah. >> don't need them if your tax rates are low and fair. >> i agree with that. >> it's really on the fear of deflation. we haven't seen inflation expectations start to drop. they have been pretty well anchored, so i think the fear of

deflation has always been overrated. >> if you look carefully, look carefully. >> interest rates have moved. >> look carefully at break-even spreads here. >> i acknowledge that. but i think we shouldn't encourage the fed tock printing more money. they have done everything they can. >> i want them to stay on track. >> i want them to hold on to a couple of bullets in case the incompetence grows elsewhere. >> milton friedman 101. interest rates blow sky high when inflation rises. interest rates are low when there is no inflation. around the world interest rates are very low. what does that tell you in the problem is not inflation, okay? that's all i'm saying. i know there have to be limits on monetary policy. hell, i would like it all retied to the gold, but right now we need money and liquidity. got to get out of here, jeff frankel, thank you very much, ben steele, the author of "battle of breathonwoods" and doug holtz eykyn back with me.

a business angle to the nsa surveillance story. nsa leaker and traitor edward snowden says google, microsoft and verizon should resist the government's demand for customer information. i say nonsense. later on, look out, tax-free municipal bondholders. look out. your investment in detroit looks like it's going to go up in flames. we will explain why. and don't forget, folks, free market capitalism is the best math to prosperity. i don't know if france has a word for capitalism. i'm kudlow. we'll be right back. tomorrow on "squawk box." the fed speaks what. will the markets hear. >> reporter:? from washington to wall street experts read the signals on what to expect on chairman bernanke's next move. "squawk box" 6:00 a.m. eastern here on cnbc. [ kitt ] you know what's impressive?

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during a cyber chat session hosted by "the guardian" newspaper today nsa leaker edward snowden denied he's a spy for china and blamed president obama for an expansion of the secret surveillance of phone and internet data from millions of americans. you're own i'm an javers joins us with all the details from the washington newsroom. good evening, eamon. >> good evening, larry. edward snowden is on the run, last seen publicly in hong kong, but he took time out of his schedule today to talk to the london "guardian" and give anon

the record live realtime internet chat explaining what his motives are and why he did what he did. frustrated with some of the media coverage of this, focussing too much on him and not enough on the revelations and also said that consent of the governed is not consent unless it's informed consent. snowden also had something to say about the tech companies saying their denials went through several revisions it is a became more and more clear they were misleading and included identical specific language across companies. also, he said something about his next steps. he said all i can say right now is the u.s. government is not going to be able to cover this up by jailing or murdering me. truth is coming, and it cannot be stopped, so snowden clearly hinting there that there's some more revelations to come in all of this. meanwhile, larry, a lot of the technology companies at issue here have issued new details about exactly what their role in all of this, explaining how often they have given over information to the u.s. government. here's facebook's number they put out today. facebook saying that in the six

month ending december 31st, 2012, they have gotten between 9,000 and 10,000 requests from u.s. government entities for information. microsoft similarly, same time frame. they say between 6,000 and 7,000, criminal and national security warrants, subpoenas and orders in that time, and then finally apple, a different time frame here, december 1st, 2012 to may 31st, 2013 about, 4,000 to 5,000 requests from u.s. law enforcement, but the company's, larry, saying, that what they are doing here is blending both national security type intelligence requests with traditional law enforcement requests, things like trying to find a grandmother with alzheimer's or that sort of thing. they say the government won't let them provide more detail than that, but are trying to be transparent as they can staving off some brand damage. >> a lot of this stuff is state and local too. >> yeah. that's right. state or local subpoena, that kind of thing. >> no, i mean, it's so interesting. i'm on javers, thanks very much. i mean, let me say to my panel,

hold on a sec. i want to read this. the most common form of requests comes from police investigating robberies and other crimes, searching for missing children, trying to locate a patient with alzheimer's disease or hoping to prevent a suicide. that's where the requests come from in the main. now, snowden points the finger at president obama, but how could u.s. companies possibly resist national security laws? you're now cnbc contributor and former clinton white house aide keith boykin and heather higgins and peter brooks, former deputy assista assistantant and now a member of the heritage foundation. heather in, terms of national security requests, what michael haden told us yesterday, former nsa head, they had 300 last year, 300. part of kagill iion collections >> what snowden first did when

he spoke about this, made it sound like they were listening in on phone calls, they weren't. they were looking at meta data, the same data deciding and sorting out what ads you're going to receive. all of the aspects of this have that have been legal and publicly discussed for years that have survived aclu challenges in courts, et cetera. >> right. >> and contrasting the decision, for example, of cambridge not to turn on the surveillance cameras and so not look at the bits of data that really are public information. people forget that this information, this is not a private phone call that they are having in terms of the fact of they are having it. >> they don't even -- the nsa part doesn't even go after cell towers. >> no. >> that's a local law enforcement. they could if they wanted to, but they don't. now, are you going to defend snowden? where do you come out on this? i'm very interested to hear your

take. >> there's been a dissolution of the whole notion of privacy. i think about myself. everybody knows if i go online, facebook knows my entire family, twitter knows my entire political beliefs and google knows everything about my health history because i type it in to find out what might be wrong with me if something goes awry, but i think there's a larger problem here with this guy snowden. i think he has this whole sort of messianic complex or martyr syndrome and portrayed himself in such sanctimonious terms so he's defender of all liberty and the reality is a lot of these claims like heather pointed out have been out in public for a long time, even though i do think there's a legitimate reason for him to be a whistleblower and protect whistleblowers, if he really believes in what he's saying he should take the responsibility and come and allow himself to be extradited. >> he won't do that and there's more to this story that we'll learn. >> peter brooks, i'm going to give president obama high marks on this, okay? know he changed his mind after the campaign and so forth years ago, but he's on charlie rose,

an interview that will run tonight. i read some of the experts. he's hanging tough and is basically saying what former nsa head michael haden said yesterday on the news. there's a big difference between collection an content, and something else i want you to comment on. president obama said, look, there are trade-offs in life, all kinds of trade-offs and named a couple. airports and drunken drivers. those are two very interesting -- two very interesting examples of that. give obama credit. do you? >> he was mugged by reality from his days when he was campaigning and to when he became president and he saw what the world was really all about and the challenges we face from terrorism. you know, larry, tomorrow is going to be really telling as well besides what the president says tonight because general alexander, the director of nsa, is going to testify in an unusual public hearing, and what i'm hearing here in washington is that he's going to -- this program has stopped dozens of terror plots in more than 20 countries.

now, i don't know if i'll be made a liar tomorrow morning. >> how specific? >> by sunrise, but that's pretty significant. >> how specific, peter? >> i don't know what he's going to tell us, probably what he's going through. i heard he was going to talk today, but they are probably scrubbing the information because they don't want to give away any more sensitive intelligence sources and methods. enough has been exposed already that undermines our national security, so they are probably very carefully going through this, and talking with people within the intelligence community to see what they can tell the american people. the unfortunate part about this, larry, of course, is the fact that it comes amidst the bungling of benghazi, rifling through reporter e-mails and the irs scandal. >> couldn't have been planned worse because everybody lost confidence in the irs which is politicized and corrupt but that's a far cry from the nsa. heather richardson higgins, seriously the role of apple, the role of google, the role of facebook, why shouldn't they

cooperate with u.s., state and local laws? i don't understand the logic about that. >> they -- they actually should, and, in fact, one of the places where snowden went wrong is -- even if you think that there is far too much that is classified in our country, and, i mean, there's far too much protection of trivia and persecution of people for releasing things that are not actually material, the are reality is there were other ways for them to handle it hand more importantly nobody elected him to make that decision. there is a collective project here, and he seemed to have forgotten that this is a team effort, and he was not the accountable representative our president is, our elected representatives are. he is not, and he has secondly caused real harm to our intelligence collection efforts which actually matter. >> because the bad guys probably didn't know near as much as they are learning. >> not only that -- >> sophisticated, where, when, how and why? >> that's fair and our allies are starting to say why the heck should we ever trust you with

anything? we knew that you've got these people there -- part of the problem is that in the 1990s we totally changed the standards for who could work on sensitive information and classified programs, and anybody -- it used to be this cold war mentality, if you had a weakness, if you had, you know, a psychological messianic complex, i think he's a narcissist who has gone all the way on a self-esteem moment. >> that's why i don't record him as a whistleblower, i regard him as a traitor. >> i don't think he's a traitor, not a hero, somewhere in between. >> all the things that -- >> for there to be treason there needs to be war, and there's no actual war right now. >> well, there's an undeclared war, a terrorist war. >> i think we should back away from all the harsh language and just focus on what he's done. the most important point he's making is no one is above the law, i agree, which means, he, too, is not above the law so he has a responsibility to turn himself in. >> that's correct. and that includes google, and that includes microsoft and

the -- >> and the president of the united states. >> everybody at this table and this panel. that's exactly right. people should get this. i'll say this. i'm glad the president is out there now defending this, the first we've heard from him and that's a very good thing and i hope he stays with it. peter brooks, thanks very much for filling us in. keith and heather going to join us later on. now, remember the story of the kpmg partner accused of giving stock tips to a bud? cnbc caught up with him outside the courthouse today. we'll show you what he said. the biggest names making big calls at the biggest investor call of the year, delivering alpha. >> i'm going to pose to you that hewlett-packard presents the ultimate -- >> be a part of this opening gathering with keynote speaker jack lew. go to deliveringalpha.com and reserve your spot now. >> i want to apologize in advance that i don't have enough subpoenas for all of you. >> that's july 17th from

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scott london, former kpmg partner accused of giving stock tips to a buddy. the friend made over $1 million. today, london was in court. let's go over to courtney reagan for all the latest. good evening, courtney. >> good evening to you, larry. former kpmg partner scott london appeared in a los angeles court where he told a judge he plans to plead guilty to insider trading charges. cnbc caught up to london outside the courthouse where he spoke for the very first time ever on camera. london describing the moment where he realized the extent of the scheme was far worse than he had thought. >> i was driving down to the courthouse the last time i was in court. i was looking at my iphone and saw one of those "wall street journal" online blurs, and i saw that, you know, mr. shaw had made over $1 million, and i nearly threw up in the car, your heart just sinks thinking that's impossible.

i was led to believe that the number was far less, closer to like around $200,000 based on his comments and his representations, so -- i don't know what happened or why he did what he did, but he did. >> london says his total take in the scheme was $70,000 in cash and jewelry. he's expected to return to court in the next few weeks where he'll officially entry guilty plea. larry in. >> many thanks, courtney reagan, appreciate the update. if you didn't think the markets were too fed obsessed before today, you do now. just one reporter's ill informed conjecture about when the tapering will begin all sank the entire stock rally today. we'll tell you what got things back on track and more next up on "kudlow." all business purchases.

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welcome back to "the kudlow report." i'm larry kudlow. today's market was crazy stock trading. five straight days of triple-digit moves on wall street. today the dow gained 109 point and the nasdaq 29 and the s&p surged 12. here's what you need to know. at 2:00 p.m. markets started selling wildly when they read "financial times" robert harding

feds likely to signal tapering is close so the dow fell from the session high on this headline. then harding retreated, and he put it on twit err, and he said glad people are reading my fed preview. i've been in the september taper camp for a while, and i'd stick with that, but people need to chill out. the fed does not leak anything to any journalist to steer markets, especially during blackouts. you know what, folks? that's just his opinion. pretty shoddy journalism, if you ask me. so i then tweeted i'll take john hilzenrath over john harding. the highly regarded john hilzenrath will in fact be live on this show tomorrow evening. let me add in a more serious vain, i don't see the fed slowing its bond purchases for many, many months. money supply growth is too low, vossity is falling and so is inflation and inflation expectations. in other words, can i mac a deflationary case as much as

anything, and i think the fed knows that, and i think that's why they are not going to move. they ought to stand pat for quite some time and, please, fed, don't make a european-style mistake. let's talk. here's ed padowsky and the president and ceo of steeple nicholas. you heard my little sermonette on the fed, what say you? >> the fed said they are going to look at growth and inflation. growth is below the targets. inflation is significantly below their targets. they are not going to taper. >> they are not going to taper. >> not at all. >> when do you think they might? when is this panic going to end? >> i don't know when the pan sick going to end. i think the fed has made it pretty clear that they are going to deal with the balance sheets in times of economic strength. not there now. this tapering is -- discussion is -- is not accurate in my opinion. >> all right. ed, what say you? you heard my sermon.

what do you think? >> i agree with you guys. the fed said they would start favoring when things looked good. the only thing looking better is housing which could be a leading indicator. nothing looks better. i do argue how the calculation of inflation is made because i believe there's inflationary pressures around. many a wall street guy as i have been, we do see some arguments that can be very strong about deflation. it can go either way at this point, but i don't see any tapering of any printing of money at any time in the future. >> i think what the fed has to be careful about. stocks have become fed watching and that's the case for the next 48 hours or so. if you look carefully at brain-even spreads. those are bond market measures of inflation expectations. they have come down. people are selling the treasury protected security. that means they are not worried about inflation. that's actually driving up interest rates. i'm not sure it's about real

growth. they are not worried about inflation, so if they are not worried about inflation, and, rop, the unemployment is still way above the target and frankly we're seeing some pretty sloppy stuff today, the new york empire state manufacturing report underneat the head line was absolutely terrible, why would the fed take a risk of a double dip recession and fall into the trap that's been set in europe? >> well, they are not going to do that, larry, it's that simple and the market is also misreading the fact that when the fed does start to taper, it will be good economic news so the market should react well to that. look, people keep thinking when the fed tapers, lions and tigers and bears, oh, my. the fed will taper when growth gets better, equity markets are undervalued and let's not panic here. >> do you believe equity markets are underperforming? >> they should be 10% overvalued. think about this.

where interest rates are right now, stocks should be 10% overvalue. we haven't had the stock market overvalued in almost 11 years, so don't be surprised if you do see stocks rally and become overvalued at some point, but you know what? the market is controlled by computers. the whipsawing and individuals are not them buy and selling. hitting different points and then they sell off and then they pie. >> what would you buy, talking about a so% to 15% rally. >> yeah. >> that's a big number. that's off of 1639 s&p. you're talking about a 10% to 15% rally. that is serious money. what is your favorite investment at? >> i didn't say i'm looking for a rally, i'm saying we're under value. what do i like? some of the small-cap names. i think you'll see rally in small cap and technology stocks, and i love the financial

services. >> ron, what do you like the most right now? >> i like financial services and like tech. look at dividend-growing companies. stay away from high-yielding stocks, but look at stocks with dividend growth. i think you'll do very well in that, buying those, larry. >> how worried are you about the rise of interest rates which historically is barely resucseptible and right now, ron, bears are out there saying a 50-basis points for whatever reason, it's bearish for stocks and housing and the whole any. do you agree with that? >> rising rates are jenl not going to be good, even history will tell you that, but rising rates are good for financial services stock. rising rates will cope side with an improving economy and that will show that actis are

fundamentally undervalued. >> right now, let's see, 2.18%, call it 2.20. here's what i think. when the ten-year bond hits 5%. that show you that we have a really healthy fully recovered economy and, therefore, i think it's silly for people to panic over the faction that the long-term bond rate is the 1.5% we need 5%, the historic rate going through the '80s and 90s and by the way stocks boomed under those conditions. housing conditions boomed, unfortunately, under those conditions. i've never seen anything so overestimated. we appreciate you coming on the show. >> thank you. >> one other financial story this evening worth going after. the government may be about to break up the bailed out mart giants fannie mae and freddie

mac, maybe. there's a bipartisan bill in the works to replace fannie and freddie with a new government agency. let's go to larry mcdonald, head of global strategy at new edge and ron who knows a thing or two about fannie and freddie is going to stay with me. all right, larry mcdonald, what are they going to do to attract private capital that will ultimately get the government and the taxpayers the hell out of the mortgage finance market? >> well, larry, it's an absolute outrage that almost five years after lehman we still haven't addressed the most important part of the financial crisis. that's our housing system and fannie and freddie. the current bill, the corker bill, can be massively improved. the corker bill was kind of floated a couple weeks ago. the first key is do no harm. make sure we do no harm to the existing mortgage market in the united states. in other words, we don't want to create a peeviece of legislatio that increases mortgage rates

because it wasn't thought through. we want to max shiz shareholder value. uncle sam owns 80% of fannie and freddie eequity so maximize shareholder value. free market capitalism, protect the capital structure of fannie and freddie, and not only that, companies around the world, especially the united states. >> i'm not sure i agree with you on that last point. losses have been taken, certainly by the common stock owners. i don't think we should bail them out. >> no, no. >> i think we've bailed too many people out too often. what i want to know is, before i go to ron. there is a lot of talk about a reinsurance agency, a reinsurance agency that would stand behind this new entity. now, larry mcdonald, i don't see that as anything essentially but a redressed situation that we have now. reinsurance, that sounds like the government. reinsurance, that sounds like the taxpayers stand by. reinsurance, doesn't sound like a darn thing is really changing

and why should private capital go in? >> that's not true. the current proposal on the table, the corker bill is more like a nationalization. a super insurer would not issue bonds. in other words, in 2004, fannie and freddie could issue bonds, okay? those bonds would get back by the government. there's a big difference between that and a reinsurer simply takes an fdic-like free from the market from participants and then insurance a portion of the mortgages. >> that's what is in the legislation. >> let me go to ron. what should they do, ron? >> well, look, first of all, larry, let's recognize that what's going on in mortgage finance is a form of qe. over 90% of mortgages are backed by fannie, freddie or hud, so this has got to be thought out before we just take out subsidy, and it's been a huge subsidy to housing. in fact, i think one of the largest subsidies of all time between fannie and freddie and

the interest rate deduction. the bill is not going anywhere. it's found talk about, by think it's a harvard business school study. >> conservatives like myself, larry mcdonald, i would like to see fannie and freddie broken up and would like to see a completely privatized secondary mortgage market and so forth, but, you know what? right now i don't know. right now maybe you let sleeping dogs lie. there isn't going to be any consensus on this, and what's -- what's to be done should be done right. we don't want to really throw the baby out with the bath water right now. >> larry, it's five years after lehman. >> i understand. >> the problem hasn't been fixed it's an outrage. >> it is an outrage. you're right. >> without government intervention you're not going to a 0-year mortgage. >> i'm not saying -- >> you need the backing. >> ron, i'm not saying that, okay? i think the government should be involved, okay, in a part of the

backstop, but i'm not saying you shouldn't eliminate the government all together. >> i think the government should get out of anything that free market capitalism can do better. >> right. >> but the point is that what took this economy to its knees was the housing market. the housing market is improving, and now is not the time to talk about taking away that prop. >> i mean, it is five years after lehman. unfortunately, the economy has not really recovered five years after lehman, and as somebody who has worked for three decades to try to privatize fannie and freddie, and i have when i was in the government and now, i still would not necessarily take a big move right now. >> but you know what you can do, larry? what they should do i dow is widen the fees that the government is taking. >> thanks very much. the supreme court made a key decision affecting free markets today. it's all about big pharma, again rings and something called pay to delay. that's next up on "the kudlow report." [ male announcer ] with free package pickup

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honey... it's time to go. no. honey, it's too perfect. over a quarter million properties... you'll never want to leave. booking.com booking.yeah all right. supreme court ruled today that the ftc can keep challenging something called pay to delay. those are deals between pharmaceutical companies and the

generic drug-makers, but the court stopped short of declaring the deals illegal all together. now, question. do these deals help provide the necessary incentives for vital research and development, or do they just get in the way of the free market making drugs affordable for consumers? tough question. let's ask our panel. cnbc contributor and former clinton white house aid keith boykin and heather higgins, president and ceo of independent women's voice, and we bring back doug holtz eakin, former congressional budget offi congressional budget office director. what do you think, heather? >> i think that's complex. people need to understand that this occurs where there's a drug with a patent. a generic manufacturer looks for ways to go around the patent and say that the patent is flaws that. then means that the drug company gets into litigation to defend their patent and then because both sides are looking at this enormously expensive lawsuit, they settle, and the generic maker gets to make a drug a little sooner which benefits patients, but the drug company gets to preserve at least some

of the life of its patent that it was expecting. the challenge to this is it's not going to be good for consumers. >> right. >> because it means that you have less incentive to set. it's a reflection of one of the ongoing themes of the problem that i see which is that we constantly create uncertainty for business. there's no point settling because that might immediately put you into the challenge. >> what do you think, keith? >> i completely disagree with almost everything she said. >> the settlement is good for consume sommers. >> the ftc decision was good tore consumers. it doesn't say that the drug manufacturers have to negotiate deals, but if they are, the court -- you can actually sue and the court's get to decide in which cases the -- the deals that they are making are appropriate and which cases they are not. the reason why this is good for consumers, larry, the big pharmaceutical companies have for many years had a cankabbal.

>> to heather's point, the patents were cut back. >> got to have a patent but they were cut back. >> patents themselves are not necessarily good for consumers and allow monopolies to persist and allow the drugs to begin with and you're always balancing this economic play kill. what bothers me is the court is stepping in and saying we're well positioned to decide the balance between innovation and how long a monopoly persists and those parties that were actually in the settlement who looked at the competitive playing field and came to a deal are not well positioned. that's just backwards. >> i've got to get out. >> need to look at it -- >> the lawyers are going to get rich. the consumers may get screwed. >> consumers always get screwed. >> and lawyers always get rich. >> i've got another one for you, it's really free market.

moody's calls detroit's new restructuring and default plan an historic move. me, too, absolutely. ten cents on the dollar, and unions will get the same treatment as tax-free municipal bondholders and pensioners. the pain will be spread in motown which is going bankrupt. that's next on "kudlow." ♪

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okay. detroit emergency manager kevin orr, my new her hero is going to

offer bondholders, unions and pensioners ten cents on the dollar to stay detroit city's finances. the next step chapter 9 bankruptcy and then everything will be off the table and every single contract will be broken. i think this is tough stuff. i want to go to my panel to get some wisdom on that, heather higgins. >> one of the problems that we've, and you look at the state and the localities have been spending money like drunken sailors. >> that's right. >> and they do it in part because they are subsidized by effectively unrestricted access to capital markets, and the credit holders don't really care how awfully these cities are managed and how much money they spend and their ridiculous pension deals that are just feather bedded and there's the assumption that they can spend money indefinitely without costs. >> and the unions and pensioners will get 10 cents on the dollar, the health care guys will get 10

cents, or if they say no, then you're going to court and chapter 9 and every single contract will be completely broken. >> the mush mish constitution forbids them from impairing the contractual obligations. >> you don't really believe that that will be enforced. >> if you want federal law trump the local state law you won't have to worry about it. i thought conservatives didn't like it. >> in this case the gig is up. detroit has been bankrupt for 40, 50 years. the gig is up. >> it's been run by the liberals since '61. >> it's a workers paradise. >> there was a story in "the detroit free press" the other day about the 77-year-old man who worked for the city of detroit for 22 years. he gets $800 a month in his pension. that's what he depends on. you're going to tell him he has to survive -- >> i hate that part, i agree with you, but his own union leadership is to blame. they are the ones who screwed him. >> go ahead, doug.

>> this doesn't fix the future and if he can get a functional economy underneath the seat of detroit they will have a chance, very different policies going forward, lower taxes. >> that's what oral wants to do. he wants to get rid of these liabilities and get rid of this debt and take his cash flow and -- tax rates and have better public safety and make the street lamps work for a change. >> if he gets it all done, what does he do, next? greece. sign him up. >> greece. look, i hate -- >> the pensioners are getting screwed. i hate that. >> but the union leadership does this time and time again. in michigan particularly and detroit particularly, the unions were so strong, the uaw, et cetera, they are the ones -- they should hang them up, hang them up and string them up. >> is this about destroying unii don't understand or restoring the fiscal integrity of detroit? >> i've got to get out of here. >> they go to the wall. >> change is in the air from wisconsin. >> they go to the wall to stop

the -- >> thank you very much. that's it for tonight's show. we appreciate it. tomorrow, we'll preview the fed meeting with the "wall street journal's" john hilsenrath who knows a thing or two, unlike the guy from "the financial times." we'll also be joined by free market economic intellectual george gilder and i'll hang out, too, to talk about free market economics. i'm kudlow. we'll see you tomorrow night. and for the last four summers, coca-cola has asked america to choose its favorite park through our coca-cola parks contest. winning parks can receive a grant of up to $100,000. part of our goal to inspire more than three million people to rediscover the joy of being active this summer. see the difference all of us can make... together. has oats that can help lower cholesterol? and it tastes good? sure does!

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