snap chatting next week's show. there's always a bull market somewhere. promise to find it just for you. i will see you monday! welcome to "the kudlow report." i'm larry kudlow. we have two big developing stories tonight. the s.e.c. charges filed against hedge fund king steven cohen and the continued fallout from the detroit bankruptcy filing. let's begin with the latest news on steve cohen. cnbc's jackie deangelis joins us now with all the details. good evening, jackie. >> good evening to you, larry. the s.e.c. announcing today that it is charging s.e.c.'s steven cohen for failing to supervise two senior employees and failing to prevent them from insider trading. this is a civil charge. this is not a criminal charge. now, the charges are the result of a four-year investigation into cohen and his top-performing $14 billion hedge fund.

the highest-profile targets in the latest crackdown on insider trading. the s.e.c.'s investigation found that the hedge fund manager oversaw trading by his employees matthew martoma and michael steinberg and received updates on their trading strategies and the reasoning behind them but on at least two occasions in 2008 the s.e.c. says that the employees provided cohen information indicating that their potential access to inside information. cohen's failure to act in that situation and ascertain whether or not insider trading was an issue, that is his alleged wrongdoing. an s.e.c. spokesman said in a statement that the "s.e.c.'s administrative proceeding has no merit. steve cohen acted appropriately at all times and will fight this charge vigorously. the s.e.c. ignores s.a.c.'s exceptional supervisory structure, its extensive compliance policies and procedures, and steve cohen's strong support for s.a.c.'s compliance program." both martoma and steinberg's attorneys had no comment. the consequences in a situation like this could be pretty

severe. steven cohen could be barred from trading money for others, and he'd have to wind down his clients' positions. he'd only be able to trade with his own money, larry. >> well, okay. we will see. many thanks to cnbc's jackie deangelis. so what's next for sac and steve cohen? here now is the honorable judge richard holdwell. he's a partner at holdwell schuster & goldberg p and he presided over the insider trading trial of galleon group founder raj rajaratnam. judge, welcome back to the show. i want to be honest with you right up front. this sounds so thin to me. failure to oversee. highly suspicious. he ignored red flags. on a friday afternoon. they didn't charge him with insider trading. i think this is just the s.e.c. trying to get a successful trader. what's your take? >> well, i think you can view it as a victory for mr. cohen. >> ah. >> by virtue of what it didn't do. it didn't allege direct involvement in insider trading. it doesn't mean he won't be

charged with that, either by the u.s. attorney or by the s.e.c., but not today. >> but what does this mean, he missed red flags? as our reporter jackie deangelis, said, this guy had a huge compliance system. i mean, they know the whole world's coming down in their head. they know that. how can you charge someone with missing a red flag? how does the s.e.c. even know that? >> well, the s.e.c. has a lot of facts as to what happened in 2008 with respect to martoma's activities set forth in the criminal indictment against him as well as the s.e.c.'s suit. so there are a lot of questions there. >> why have they taken five years? >> why have they taken five years? >> yeah. they knew all this stuff. it's like the justice department. they couldn't make a criminal case against cohen. they've been trying for five, six, seven, i don't know how many years. they can't do it, they can't do it. >> it remains to be seen whether they can't do it or not, larry. there's a lot of water under the bridge, of course. but the government's got a lot of time to pursue s.a.c. or mr. cohen if they want to.

the idea that the statute of limitations is going to run tomorrow on charges against mr. cohen is illusory. the government wants to pursue this, they can pursue it. >> i understand they can pursue it. although i am interested that no criminal charges were brought. i'm very interested in that part because they all tried like heck at the justice department to do that, the u.s. attorney. so now the s.e.c. gets into the act. the s.e.c. does not have a good record in this area. >> the s.e.c. doesn't have a good record in the area. that's true. and you have to keep in mind that they don't have the tools that the department of justice has either. their powers are civil only. they don't have a grand jury that they can seat. they don't have the ability themselves to go out and wiretap people. the information that they get, they have to get on their own. they can't get anything from the department of justice as to what's going on in terms of secrecy rules. it's a one-way street in terms of information flow.

and you would expect that the department of justice would have more information than -- >> yeah, i get that. but i've got to tell you, putting this thing out on a friday afternoon in july when it's 300 degrees fahrenheit and everybody -- thonobody's going pay attention to it. we're going to cover it, sure. is this a bunch of government lawyers going after a successful guy? is that what this is about? cohen, rich, great trader, success. why choose? they're going after him. is that what this is, class warfare? is this an assault on capitalism? honestly. >> i think it's a stopgap move by the government and by the s.e.c. it's a placekeeper. the s.e.c. did have a problem with the statute of limitations that the department of justice doesn't have. so they either had to fire their gun today or not maybe. but i don't expect it to be the last word in the investigation. >> they do this stuff, with all due respect to the s.e.c. i guess i can muster some

respect for the s.e.c. i have to really work hard on that. but they can do this stuff. and then they make these charges. and then they rip apart companies. whole companies. this company could go down. maybe he can't trade for his clients. that's a maybe. we don't know that yet. they just do this. cohen has no recourse to this. >> well, he has recourse. he can fight the charges. >> spend a lot of money. spend a lot of time. go after all these bureaucrats who have nothing better to do. what's the s.e.c. done for american capitalism? what's the s.e.c. done for u.s. economic growth -- >> i think the question you can ask is whether the s.e.c. has been a good enough watchdog and a lot of people will say no. >> what do you say? >> i say the s.e.c. has not been a good enough watchdog. but that's -- there's a long answer to that. >> when you prosecuted raj rajaratnam, what was an insider trading case. now, that one read much more clearly. who was working -- was that the

justice department working on that when you prosecuted? >> well, first of all, of course i didn't prosecute it. i judged. >> sorry. >> there's a difference. >> yes. of course. >> and in that situation probably similar to what's happening here the investigation was actually started by the s.e.c. and the s.e.c. brought the rajaratnam case over to the department of justice and said take a look at this. now, the department of justice never gave information back to the s.e.c., but the s.e.c. started the rajaratnam investigation. and but for their stick-to-it-iveness the case -- >> do you think the same thing's going to happen now? >> i'd never guess that -- >> they've been going after this guy for years. they don't need the s.e.c. >> they'll work hand in glove. >> they'll work hand in glove. boy, that troubles me a lot. anyway, judge richard hollowell, we appreciate it very much. >> my pleasure. >> let's move to our other story this evening, that being the

detroit bankruptcy. nbc news's gabe gutierrez live in detroit with the latest. good evening, gabe. >> reporter: good evening, larry. a lot of fast-moving parts to this story this afternoon. 'll first the federal bankruptcy judge has just been assigned to the case. judge steven rhodes from the detroit area. he's a hometown guy. and also the state-level skirmishes, the legal skirmishes have already begun. even today. a county judge ruled that this bankruptcy filing actually violated the michigan constitution. of course the michigan attorney general will appeal that. and that's expected to drag on for a while. the federal chapter 9 case, though, if this judge actually approved -- actually rules that detroit qualifies, that could drag on for several years. the michigan emergency -- the detroit emergency manager says that he hopes to have it done by late 2014, but experts say it could take much longer than that. all this comes as governor rick snyder today tried to reassure residents of detroit that this was not a low point in the city's history but rather a fresh start. still, there are a lot of unanswered questions right now.

for example, what will happen to these public sector employee pensions. what will happen to city services. and will the city have to sell off some of its assets to pay off these more than 100,000 creditors. but also today, the white house is reiterating that this bankruptcy process, that there will be no type of federal bailout or anything in the works. right now the city of detroit, it's a big day here, and they're still waiting to see how this plays out. larry, back to you. >> gabe, can i just ask you quickly, if i may, this -- steven rose was appointed the judge today. who is he? where's he from? who appointed him? that kind of stuff. >> steven rhodes is from the detroit area. he has a reputation from lawyers here as being very tough. but one thing that is important here, they didn't want some judge that was outside of the area. at least this guy they feel, his supporters feel that he will really know exactly what some of the issues are here in detroit and won't have any anti-detroit bias. so he's one that's involved in the community, has been in the

federal system for quite some time, and is well respected with his colleagues. larry? >> thank you very much. nbc's gabe gutierrez reporting from detroit. now,let get right to our next guest, who is a true detroit business expert. here now we welcome cnbc contributor bob lutz. former general motors vice chairman. he's the author of the new book "icons and idiots: straight talk on leadership." i love that. bob lutz, welcome back. who killed detroit? >> who killed detroit? >> yeah. >> 50 years of mismanagement by largely democratic administrations who had an unusually close and collusive relationship with the public service unions. and there was a total mismanagement. spending money that they didn't have, borrowing money in order to close the gap between revenues and the spending. there was never any fiscal discipline. the can was always kicked down

the street. nobody ever faced the tough issues. the declining tax base and all of the other problems that beset detroit. and now it has become time to pay the piper. >> this is a perfect example of why collective bargaining by public sector government employees is a lousy idea. the taxpayer is not at the table while they feed at the trough. >> well, that's true. and they were an important part of the election base, which perpetuated a totally democratic dominance of detroit politics. i mean, there was just never any fiscal discipline in the system, no accountability, and of course as we know from the deceased mayor coleman young and the recently convicted and sentenced -- no, not sentenced yet, kwame kilpatrick, there was also a great deal of fraud

involved. in fact, under kwame kilpatrick it's fair to say that he was basically running a criminal enterprise while he was mayor of detroit. >> so plenty of corruption on that. i'm not going to name any names, but somebody said in our network today that the car companies were to blame. do you have a thought on that, bob lutz? >> well, that's absurd. i don't even know how to comment on that. because the car companies are right now -- the car companies and the suppliers and the supplier network are the new lifeblood of detroit. and i think after this chapter 11 i think kevin orr is going to concentrate on spending the money properly. he will restore basic city services. he will sell assets in the city doesn't need. he'll downsize the city to a realistic measure. but the essential services, water, police, fire, which now basically don't function at all, i mean, 87.5% of major crimes in

detroit go unsolved. so they're just -- his inadequate police, fire, and all of the services need major upgrading. despite that the automobile companies have by and large stayed in detroit, both general motors has its headquarters right in downtown detroit. has not fled to the suburbs. the ford family are great supporters of detroit. chrysler is. you've got peter caramanos. you've got quicken loans. you've got the ilitch family. you've got people like roger penske, a lot of -- >> this can be fixed. you know, they have the highest property taxes in the country. did you know this? not only for individual homes, bob lutz. they have the highest business property taxes in the country. >> i know, sure. >> these things can be changed. they can be fixed. business can be welcomed back. smart people in the hospitals and smart people in the

universities and smart people in technology. this can be fixed. what can't be fixed is collective bargaining. that's my big point. that has to be changed. >> yes. and i think this is probably a further blow to public sector unions because they're going to fight this thing. the reason it went into chapter 9 instead of a workout which kevin orr wanted, is the union pension funds were absolutely intransigent. they wouldn't give an edge. so finally, there was no solution but to take it into chapter 9. but i think, you know, a lot of these public sector union pensions, and there's about 20,000 people affected, those pensions are going to be affected for sure, and they're going to probably be affected much more than if they had played ball, but they're not used to playing ball. they are used to bullying it through and having it their own way. >> they'd have been better off taking kevin orr's deal.

you are so right. mr. bob lutz, thank you very much. appreciate it. good luck on the book. folks, a little later on in the program, i'm going to give you my take on how to fix detroit's problems. here's a preview. i'm going to call for economic growth incentives. it can't all be about cutting budgets and bailing out unions. that's for sure. but next up, do stocks seem like a bubble right now to you? even some very weak earnings from microsoft and google only resulted in a flat day on the markets today. so we'll debate these markets just ahead. don't forget, free market capitalism is the best path to prosperity. that's why detroit needs free market capitalism. i'm kudlow. we'll be right back. (announcer) at scottrade, our clients trade and invest exactly how they want.

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welcome back to "the kudlow report." i'm larry kudlow. another historic day on wall street as the s&p 500 closed at an all-time new record high. i'll give you my quick take. real quick. i don't have any problem with the high level of stocks, provided that profits, the mother's milk of stocks, beat expectations now and in the future. and that investors realize there's a big federal reserve shift to tighter money coming.

so all i'll say is keep your eyes open. these issues may be more difficult than some people think. let's bring in the experts. btig chief global strategist dan greenhouse and larry mcdonald, new edge senior vice president. you don't like the market, larry mcdonald. and i want to know why. >> well, if you think of the level of bullishness, i've heard over the last couple weeks and months that this is the most hated rally. i've heard and over and over again. but then i look at investors intelligence data this week that showed that the last number of years, two years the level of bullishness has only been this high in five weeks. so the last two years the level of bullishness has only been this high. then i look at the put relationship between puts and calls. that's one of the lowest readings in the last two years as well. so in other words, nobody's -- the complacency is really over the top. i think ever since lehman you're better off selling complacency and buying -- >> so you're a seller just in

short. >> yeah. and i want to buy fear. june 24th look at my tweet stream. i was extremely bullish. i like to buy fear since lehman. i think you're going to get those moves back and forth. you want to add into fear and sell complacency. >> dan green has the other side of the trade. >> yeah, i don't disagree that this is the most hated rally, but at the end of the day as you noted in the little intro the path for equity is the path for profits, is still higher. there are sirnl some headwinds as there always are and there always have been, but the path for profits is higher. unless you can convince me there is a decline in earnings either expected or forthcoming, then arguing for a sustained and meaningful decline in equities -- >> the most important factor in my opinion, profits. >> it's not just your opinion. that's how we value stocks. unless you make a case for me to alter those cash flows. >> but you had a mixed bag -- i mean, i'm not going to list them all. >> sure. >> in terms of some big names, microsoft missed and google missed. okay. on the other hand, ge and honeywell did good. ge in particular did good.

and the banks have been doll rather well. it's a mixed bag. >> earning season has been all about the financials. if you exclude the financials -- i'll make two quick points, which is earnings season better than expected right now. a lot of nervous and uncertainty heading into the ear. even excluding financials. with respect to microsoft that's very much a company-specific issue. >> it has been for quite some time. >> we're moving away from the types of things we've been selling. i like what ge and honeywell had to say. >> but larry, you really don't buy into the earnings story. you're worried there's a disconnect here between earnings and the whole economy. >> my big worry is inside the earnings season you look at the top line, the sales, we're only up to 1 1/4% year over year. so top line these companies are really using amazing financial engineering to get earnings. but the top line sales are actually kind of flat year over year. and then the expectations, the bar is so high for the third and fourth quarter, michael jordan couldn't touch it.

market expectations are for 6 1/2% earnings growth s&p 500 in the third quarter and 12 1/2% in the fourth quarter. >> but this whole entire recovery has been one of too high expectations that eventually get brought down. i don't think the back half of the year -- the back half of the year we're looking for something like 10% in the fourth quarter depending on your sector. we're never going to get there. >> the fed's going to tighten. >> i totally disagree. fed's not going to tighten. >> at the very least they're going to put less cash in by buying fewer -- >> that's not tightening. >> it's tightening. your mom cutting you allowance off if she was giving you 20 bucks a week and -- >> still an allowance. p and if the fed cuts 50 basis points and then cuts another 50 basis points and cuts 25 basis points, if that's tightening this is tightening. it's not. >> it is possible as some people point out if the economy grows better -- for example, let's go back. you had falling jobless claims, what, yesterday. falling jobless claims can be a very interesting sign.

a, pretty good job creation. maybe 200,000, continue that. real interest rates rising on a growth trade. and therefore the fed story ain't that important as long as earnings rise. >> that's the thing. anywhere between 150,000 to 200,000 jobs a month are created. the most likely we get down to that 6 1/2% employment next summer. that's@market's so concerned. we're not only going to start tapering in september, probably from 85 billion down to 75 or -- >> cut your allowance. >> but the fed funds rate is most likely going to go up in the summer of next year and that's when the market -- >> oh, no, no, no. >> i've got to get out of here. >> no, no. >> what if bernanke gets it right for a change and the economy really does improve? >> listen, we're going to have to -- listen -- >> some of these futures curves, euro-dollar, fed funds futures curve, they're showing an earlier hike in the short rate. >> no market has been wronger

during this recovery than those markets. we'll have to reassess this. there's nothing on the horizon to suggest that the recent trend of modest growth is going to change. >> we're going to end this friday night. bull, bear? is that fair? >> i don't know how i got here, but sure. >> dan greenhaus bull. larry mcdonald bear. i'm larry kudlow. now, this detroit bankruptcy story has a very big connection to the white house. we have two pieces of tape to play for you that will explain why team obama cannot run away from this story. that's next up on "the kudlow report." ♪

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but we refused to throw in the towel and do nothing. we refused to let detroit go bankrupt. i bet on american workers and american ingenuity. and three years later that bet is paying off in a big way. >> there is a rumor, though, and i'd like you to talk about it, that at the last minute it might have been last week, i can't confirm that, that you did speak to the white house, you did talk to presidential adviser valerie jarrett about some kind of bailout and you were turned down. can you confirm or deny that rumor? >> no, i can't confirm or deny that rumor. >> sow say you did not talk to ms. jarrett? >> i can't confirm or deny that rumor. all i'm saying, larry, is we reached out to a number of different people. but we've got to solve this problem on our own. >> detroit is just the first city of many dominos that will probably fall. there are several cities in the same kind of situation that we're in. if he does it for us, everybody will say why detroit and why not

us? >> all right. there you have it. detroit mayor bing saying his city is not alone. and president obama taking credit for saving detroit in the 2012 campaign. we're going to get into all that in just a few minutes. but first up, this is an historically good day for american energy and american economic growth. that's because of a brand new report about the safety of natural gas fracking. and this thing is a blockbuster from the department of energy. we will explain why, right after this. ♪ [ male announcer ] you wait all year for summer. ♪ this summer was definitely worth the wait. ♪ summer's best event from cadillac. let summer try and pass you by. lease this all-new cadillac ats

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huge news today for proponents of fracking. a major study by the department of energy found no evidence that chemicals from the fracking process contaminated drinking water. so will this convince doubters like new york governor andrew cuomo or yoko ono or robert f. kennedy jr. or a whole list of right-wing greenies to get on board with the pro-growth technology? well, let's talk to former shell oil president john hoffmeister. but first, john, let's address the study. pretty dramatic coming from the department of energy. >> it is, larry. and it's very good news. and it proves the myth of migration is exactly that. it's a myth. people have been perpetrating

that myth for a very long time, frightening residents needlessly in the areas where the drilling takes place. grossly unfairly. when all the evidence that the industry has produced now confirmed by department of energy study in the obama administration really sets the stage i think for an increase, not a decrease in natural resource production which can only be good, to your point, for prosperity. >> right. that's what it really is. the great energy revolution. just one more thing, john. it actually -- correct me if i'm wrong, but it was a private company for the first time that worked with the d.o.e. and they put this flag on it or whatever it is on the fluid and watched it go down. they've done it private. and that the fluids go down so deep they're nowhere anywhere the drinking water, they're a mile away. >> there's a mile of separation. as is the case in most of the geologic form aigsz they're so deep in the earth and there are so many lairs of impermeable

rock that as long as you have a closed system engineered well and you do it right the chances of a mistake are always present. but the likelihood of a mistake is very rare. and so this is good news all around for domestic natural resource production. >> all right. well, i want to sit you down with yoko ono. we could start with her. and maybe go on to robert f. kennedy jr. kennedy's the guy leading the charge here in new york. he's got a whole coalition of left-wing enviros, spending millions of dollars running advertisements to stop governor andrew cuomo, democratic governor cuomo, from signing off on new york fracking, which by the way could end upstate new york's 50-year depression. do you think this is going to have any influence on that or are they just going to go on sad do what they always do, these quliftz? >> cuomo is to fracking in new york state what president obama is to the keystone xl pipeline.

when you take money and lots of it from very wealthy environmentalists in order to do the right thing for the people of your state or the people of the nation, you have to overcome the social pressure of all that financial contribution. so joe and jane doe live in southwestern new york don't have the access, don't have the voice, don't have the money to make an impression on a governor like cuomo who was taking this advice from yoko ono and joseph kennedy, and they don't have a say in their own joblessness. there's something wrong with that formula, larry. and i think this whole financing of campaigns is ridiculous and has to stop. >> but do you think this will have an impact on the president's decision for the xl pipeline? >> oh, of course it does. all of the people who paid for his campaign early in 2012 threatened based on what i'm told to withdraw funding if he approved the keystone xl pipeline. you've got to pay for a campaign, a billion dollars.

how ridiculous is that? you've got to have a money source. you've got to pay attention to the people paying you. i think it's a perversion of democracy, larry. >> john hofmeister, always outspoken. we appreciate it. thanks very much on a friday night. now, folks, it's time for our free market friday panel. the issues for them to tackle are big. we'll start with their take on the detroit bankruptcy. and that is just the beginning. please stay with us. we're "the kudlow report." (announcer) scottrade knows our clients trade and invest their own way. with scottrade's smart text, i can quickly understand my charts, and spend more time trading. their quick trade bar lets my account follow me online so i can react in real-time.

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with detroit now the largest municipal bankruptcy in u.s. history, are residents of other cities worried this will happen to them? go to the front page of the "chicago tribune." "city faces bleaker financial outlook." and inside an editorial says chicago and illinois as a whole needs to "go big on pension reform." well, here now cnbc contributor and chicago-based radio host carol roth. she's the author of "the entrepreneur equation." carol, is this tidal wave coming to chicago where they probably need it? >> i certainly think that it may be coming to chicago, larry. and part of the reason why it is coming here is because the

people continue to put up with it. every day i'm talking to people, whether they are teachers, police officers, members of the private sector, and i hear how concerned they are about our financial future, not just here in chicago but statewide. however, the majority of people who are concerned are also voting in the same people over and over and over again, especially at the state level, people who have been corrupt or dishonest or created this mess to begin with. >> and that's -- >> the interest -- >> let's just pause right there. that's very important. okay. so particularly this -- particular i. the case for chicago and particularly the case for the state of illinois. okay. it's almost like a one-party state. you have the same crooked politicians negotiating with the same public service municipal union guys. they go to the table, and they pick the taxpayers' pocket clean

by giving themselves huge pensions and wage increases and th care benefits. and carol, the taxpayer is not at the table. and that's why collective bargaining is a terrible idea. >> you are 100% right. and that's the issue here. everyone's trying to pit the people of illinois against each other and say private versus union. it's not the people who are working for the union. it's not the average taxpayer. it's the people who are representing them. the union bosses are letting down their constituents. our leaders are letting down their constituents. until we have an authentic voice at the table, somebody who is independent, who can stand up and who can break this cycle of corruption that we're seeing over and over and over again in illinois, because whatever happens in illinois is what chicago has to stand by. and that's a huge problem. >> does anybody figure out that at the end of the day, i mean, you saw this in wisconsin where there was a vote with scott walker. you're seeing it now in detroit. at the end of the day, carol.

you let this cycle continue. you run out of money. it's b-r-o-k-e. when that happens you have to wind up selling for i don't know, 10, 20 cents on the dollar. that's what it's going to boil down to. do they get that? does anybody ever talk about that? >> we're trying to get the message out on this, larry. and it goes even deeper than just 20 cents on the dollar. it goes to a 9-plus percent unemployment rate here. it goes to the worst credit rating. it goes to the fact that businesses are fleeing our state and that we're not going to have the jobs for the future. and the power really is in the voters' hands in illinois and we're going to have to make that change. otherwise, we're going to reap what we sow. the action we're going to take is what is going to break this cycle. >> we have to leave it there. carol roth, thank you very much. now, my brief take. with detroit filing for chapter 9 bankruptcy once again we see proof positive that the public union, connective bargaining model has utterly failed. unions just loot the benefit lock box at taxpayer expense.

and that of course was the message of governor scott walker's victorious crusade in wisconsin. and the detroit unions are going to find that their benefits are going to be slashed and their power decimated. good. but i want to make another point. if detroit is to truly recover a growth program of tax-free investment incentives must be part of the solution. yes, i'm calling for a jack kemp tax-free enterprise zone, especially a suspension of the capital gains tax. that tha will bring in new investors and revitalize a new detroit. so isn't it time to end collective bargaining in the public sector in order to stop government unions from looting taxpayer funds? and what about this issue of putting a growth element into the final solution? let's talk to former special counsel to president clinton, lanny davis. he's an attorney specializing in crisis management and author of

the book "crisis tales: five rules for coping with crises in business, politics, and life." and with me on set jennifer stefano of americans for prosperity and mark simone from w.o.r. talk radio. lanny davis, if you were advising these unions, who are still stonewalling, they were offered a deal and they wouldn't take the deal, now they're going to bankruptcy court and they're going to get a worse deal, lanny, what would you advise them? >> i'd advise them to certainly not allow themselves to be scapegoated the way your rhetoric and the prior guest calling people corrupt who have never been tried for anything. i'm glad that she's not in the criminal justice system. so she would be called corrupt on national television. but i agree with the second half of your comment. robert kennedy and jack kemp had the same idea about private enterprise zones to restore this-some business and generate some revenues for the inner cities. who's going to pay for police, fire, and basic services when

everyone is fleeing the inner cities of the country, much less detroit? that idea, larry, i like. but scapegoating public employees -- >> you have to scapegoat, lanny. let's be serious. who's sitting around the table? you have the union chiefs and you have their political operatives from the legislature. there is no one representing the taxpayer. and that's why collective bargaining is a lousy idea. i don't think carol roth meant literally corruption -- >> well, she said corrupt. >> i understand that. >> you've got to watch your words. >> okay. fine. i'm going to watch my words and say to you that the process is corrupt corrupted because the taxpayer is not present when these decisions are made. that's the wisconsin point. and lanny, this is going all over the country. in ohio, for example. and it might get to illinois. i don't know. >> well, look, larry, i understand there's a lot of resentment when public employees do better than their counterparts in the private sector. >> right. >> and i think that is a bad bargain. but there is somebody

representing the taxpayer. it's called democracy. it's called the mayor. and if he doesn't do a good job saying no to unreasonable demands by any union, private or public, then we ought to fire him. we have a chicago may, rahm emanuel, who's been very tough on the teachers and finally negotiated a compromise with the teachers. i think that he's a tough man and he will tough bargain. if you don't like the way he bargains, don't blame the public employees, who by the way the pension you're talking about in detroit $18,000 a year is not a lot of money. and i don't think you should blame -- >> for heaven's sake. >> with how much money -- >> with all due respect that is an incorrect statistic. let me go to mark simone -- >> is that incorrect? tell me. >> yes, that is completely incorrect. but i want to go to mark simone on this. you know what they're doing in detroit? they've got 15,000 workers left. that's what they have. because the city's shrunk so much. and those 15,000 workers are paying for the retirement-length

health benefits. as long as 22,000 workers who have retired. as long as they're alive their health benefits are paid by the last 15,000. and of course whatever tax increases the government puts in. now, that is a lousy system. >> you may not know this. i grew up right next to detroit. and it is -- this has been going on for years. it started with the detroit riots in '68. that's where the crumbling slowly started. it was at that year, actually, that the great governor george romney left. he was the one who really held that place together. detroit is so physically beautiful. 10, 20 miles of the waterfront, which is empty now. just empty fields and closed factories. and jefferson boulevard on the other side. do you know how many businesses would love that? you talk about a tax-free zone. if they had real business there's, they'd go out and recruit businesses from around the world to come from, they'd get mitt romney, who has a love for that city, appoint him some special czar to turn that around. >> that would be a good idea. or vern orr should appoint

romney. >> or the president. the president has turned his back on a major city in america and lets it crumble. >> jennifer, i do want to go back to the jack kemp argument. i may be the only living person -- jack was a dear friend and a mentor, the late jack kemp. because this was a perfect example. either neighborhood by neighborhood or the entire city. make it tax-free for cap gains, for investment. did you know, the property tax for businesses, machinery and the land they're on, is the highest in detroit, anywhere in the united states. this would be a great time for tax incentives so detroit can grow and all the beauty that mark simone is talking about can flower. >> absolutely. i think when you're talking about what's happening in detroit, it had one of the highest tax rates in the country and the other cities you see about to fall are not just chicago. philadelphia, cleveland, cincinnati, also some of the -- >> don't forget buffalo. >> buffalo, new york. highest tax rates in the country. so we see the experiment of progressivism, liberalism, of what the democratic policies

have put forth. that is detroit. then we can look over to wisconsin and see what free market capitalism has done. >> this is the great victory and the great example of governor scott walker of wisconsin. he sent a message. this detroit crisis is going to send another message. it's another canary in another coalmine. and from that mine comes some recovery. i think that's very, very possible. but i'll tell you this. i'm sorry, lanny, we're going to go to another segment. i may disagree with you, buddy, and i've known you a number of years. this collective bargaining process cheats taxpayers left and right. and that's what politicians are learning. and you see it again and again and again -- >> larry, next time equal time you have me on so i'll give you a little bit of counterpoint. >> i'm going to go back -- we're going to come back in a second. i'll go back to fdr who said -- >> come back to me and i'll -- >> in the public sector. >> just tell your guests milwaukee, wisconsin is having trouble in wisconsin. it's not the free enterprise system in the inner city of

milwaukee. she doesn't know what she's t k talking about. but in milwaukee, wisconsin where there's no revenues as there aren't in any inner city in this country. so get real and -- >> the wisconsin economy's doing great. >> and i love jack kemp and i love your idea about free enterprise zones. and robert kennedy began that idea in bedford-stuyvesant. i agree with that. but let's get rid of the rhetoric about liberalism and socialism and corruption -- >> detroit is an example -- >> fact. what about milwaukee, wisconsin? milwaukee, wisconsin. spell it. they have no revenues. >> because it's been run by liberals -- >> you just said free enterprise system in wisconsin. >> ideology for years. >> then take back your comment about wisconsin and the free enterprise system. because you don't know what you're talking about. >> i know very much -- >> everyone stay where you are. we're going to go to another subject. the irs scandal is starting to really make its way closer to the white house. and speaking of the white house, we want to get the panel's take on president obama's very

surprising speech today on the trayvon martin case. that's all up next on "the kudlow report." come to the lexusnouncer ] golden opportunity sales event and choose from one of five lexus hybrids that's right for you, including the lexus es and ct hybrids. ♪ this is the pursuit of perfection. ♪ trust your instincts to make the call. to treat my low testosterone, my doctor and i went with axiron, the only underarm low t treatment. axiron can restore t levels to normal in about 2 weeks in most men. axiron is not for use in women or anyone younger than 18 or men with prostate or breast cancer. women, especially those who are or who may become pregnant and children should avoid contact where axiron is applied as unexpected signs of puberty in children or changes in body hair or increased acne in women may occur. report these symptoms to your doctor. tell your doctor about all medical conditions and medications. serious side effects could include increased risk of prostate cancer; worsening prostate symptoms; decreased sperm count; ankle, feet or body swelling;

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all right. next question up for our free market panel. is a white house appointee behind the irs targeting scandal? during congressional testimony yesterday a key witness fingered the office of the irs chief counsel, namely william wilkins, as one of the only two political -- one of only two

political appointees to the agency. we're back with lanny davis, jennifer stefano, and mark simone. all right, lanny, let me begin with you. now that they've fingered wilkins, several people have, what advice would you give them? >> even the chairman, the republican chairman did not say larry, you're incorrigible. they said the office -- someone in the office there are 1500 people and now you're fingering someone who wasn't fingered by anyone. you just made that up. so please, let's at least stick to the facts. you're my old friend. you're better than that. >> no, but i think -- i don't agree. >> well, it's a fact. they never fingered -- the general counsel. they said the office of the general counsel. >> if you read peggy noonan -- i can't spend the whole time on this. but if you read peggy noonan's thing, she said -- i'm going to read this, darn it. this is this guy lerner's senior adviser. okay? and this is the transcript. reque

did lerner say whether she agreed or not? "she said it should go to the chief counsel." question, "the irs chief counsel?" answer, "the irs chief counsel." now, that's part of the transcript from peggy noonan. >> the irs chief counsel? what does that prove about what the irs chief counsel did? i'm missing something, my good friend larry. >> we'll go to mark simone. >> we've got to o'prove it is the obama description. that would be great for everyone. i'll tell you why. if that's all it is, you can vote them out, probably solved. if it's not what it is it's systemic and it's all through the irs it could take decades to clean that up. >> jennifer, you get a shot at it, one whack at it. >> this is a continued problem. you have the political opposition of the sitting president targeting somebody and they tried to blame it on low-level employees. >> we don't know. >> they came forward and said they found it a nuclear strike by people like lois lerner and then it goes up to the top for these -- >> not a single fact. your guest keeps -- >> we keep finding out more and more. and this is the greatest

argument for limited government. >> your guest continues to be fact free. >> you continue to be fact-free. lim limousine liberal condescending. >> would you give me one fact that links it to the general counsel? no answer. >> we're going to leave it -- >> limousine liberal. >> no answer but name calling. that's all you do. that's all you do. not one fact. just name calling. >> why did president obama suddenly appear in the white house press room today and talk about -- and talk about trayvon? why did he do that in your opinion? and should he have done that? >> well, i don't think he should have said anything before the trial. and i was critical of that comment by him. i think he did it and didn't mean to prejudice anybody. but i think he did make a comment about his daughters. and i think it was not helpful. but after the fact, larry, he's president of the united states. he tried to i think calm and not

blame people. and i believe the jury system worked. i didn't expect the verdict but i respect the jury. i think the president as president of all of the people needed to calm things down, and that's what i heard him do. >> all right. fair enough. mark simone, same question to you. i want to ask you, though, seriously. did the president's remarks hint or suggest that if trayvon had been white he wouldn't have been chased and he would be alive today? was there a hint of that in there? >> absolutely. i thought he almost got into the gutter with al sharpton with those kind of comments. the only one that got attacked that night was george zimmerman. it's been a week of stupid comments. stevie wonder said i won't go to florida ever again because of the stand your ground law. 30 states have that law. he'll have to cancel his whole tour. you know, mayor bloomberg said the shoot first laws. i don't know any law where you're allowed to shoot first. it's an overreaction by everybody. and does the president not understand this case? i mean, wasn't he a law professor? >> jennifer, i've only got 20 seconds. i'm sorry. >> i think the president's words did more to inflame than to calm down, and i think what's lost

here is this is not a right-left issue, it's not a black, white, hispanic issue. this was human mistakes. humanity, tragedy on both sides. and i don't see why it continues to have to be politicized. but of course knowing how divisive president obama is i'm not surprised. he said something before the trial and now. >> i've got to jump. thank you. lanny davis, appreciate it. his book, by the way, "crisis tales." it's available now. also many thanks jennifer stefano, mark simone. that's it for this evening's show. i'm larry kudlow. more free markets on monday. a friend under water is something completely different. i met a turtle friend today so, you don't get that very often. it seemed like it was more than happy to have us in his home. so beautiful. avo: more travel. more options. more personal. whatever you're looking for expedia has more ways to help you find yours.

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