hi, everybody, welcome to "the wall street journal report." i'm maria bartiromo, reporting today from the nasdaq marketplace in times square, new york. my discussion with a controversial figure who saw the banking meltdown before anyone else. why the author of "the black swan" says we could face another financial disaster. and it is our closest ally in the world, a major economic power. my one-on-one with the former prime minister of the uk. we'll talk the world's hot spots and opportunities. and the ceo of toys r us with us. "the wall street journal report" begins right now. >> this is america's number one financial news program, "the wall street journal report."

now maria bartiromo. >> here is a look at what is making news as we head into a new week on wall street. the federal reserve delivered its latest outlook on the economy, and it stayed somewhere between cautious and gloomy. they left interest rates at near zero and in a statement after the meeting said there would be no change to its $600 billion bond buyback program. that the recovery was too slow to bring down the jobless rate, and that inflation has continued to trend lower. t statement stands in contrast to many analysts on wall street who see an uptick in the economy and are issuing more optimistic forecasts, and who are also expecting inflation. the dow closed at a two-year high on tuesday, up about 50 points, and was flat mid-week. a promise and a pledge to work together to improve the economy as president obama met with american business leaders at the white house this week. among the 20 chief executives present, google's eric schmidt, cisco's john chambers. retail sales were surprisingly strong in november, rising 0.80

percent. a sign the economy may be gaining momentum. he is one of the few people to have forecast the banking crisis and the world's financial meltdown. now nassim taleb, the author of "the black swan" is out with a new book, called "the bed of procrustes. he is also an adviser for universa investments. great to see you again. thank you so much for joining us, spending the time. another wonderful book. you were one of the few people to actually predict the banking crisis before it happened. really an unbelievable prediction. do you think our financial system is stable at this point? what is your view on things? >> the first thing i want to say i didn't really predict, i detected the fragility. this bridge is fragile if you're going to have a big truck, and of course we have a big truck moving on it. >> so you talked to the fragility of the banking system. >> the banking system and the level of debt.

we have exact same problem today that governments now have taken over so the fragility has moved from the private sector to the public sector. >> which is worse. >> sovereigns. >> everyone, sovereigns and all these pseudo, you know, semi governmental things. >> well that sounds even more worrisome. >> a lot more worrisome, because that doesn't go away. whatever remedies we have, we are in the process of doing are worse than the disease. like printing money for quantitative easing. because it seems harmful. so you do a lot of it and suddenly it catches up on you. >> what about the extension of the bush tax cuts? does that help or hurt things? and do you think that because of the fragility now, moving on to the public sector and the governments, do you think that we are in jeopardy of perhaps another collapse? >> i think what we should do is cure the cancer. the cancer is debt. we should tackle government debt, okay. the tax cuts, i don't know what

impact they're going to have on that. people aren't quite sure. but what we know for sure is if you cut government spending, you are definitely reducing government debt. and we should work on that government at all levels. in 2008, they thought we had a recession. no, we have principally a debt problem, okay. and you don't cure a debt problem with debt. >> let me ask you about what is going on in the markets right now. we're seeing interest rates starting to climb. >> finally. >> very interesting. in spite of the fed's efforts, actually, to keep rates down. and we've seen the markets reach two-year highs this week. equity is obviously -- money moving into equities coming out of fixed income. what do you think this tells us? is this a sign of the economy beginning to recover? >> no, it's a sign of the government flooding people with money and they want to buy assets. buying stocks, particularly that company mace have assets, definitely anything okay is better than government bonds. plus the market is intelligent

enough to understand the motives behind bernanke. he's going to print money they think it comes for free. the problem of interest rates starting to rise, things can go out of control is that it may -- it will increase the deficit. refinancing will take place at higher rates. so it can be a spiral. >> how would you fix the problem? >> the first thing i would do is i would do what cameron is doing. i would attempt to say okay, we made mistakes. some adults made mistakes. let's not put future generations at risk. lower deficits immediately. that's the first problem. force private companies to eliminate the hazard, in other words their managers get bonuses in good years and society takes the losses in bad years. eliminate that moral hazard argument. definancialize the economy by making it more equity-based, less debt-based. and of course stop the bailout.

make people feel the pain. >> what about investing today? where would you be investing? >> i know where i would not be invested. i should not -- i don't touch government bonds or anything longer than six months' maturity. short-term maturity. >> why? >> because i'm so afraid of this -- of bernanke. should stay away from anything that can -- that can suffer from these measures. and you should -- dedhersify in currencies. i think europe is one step ahead of us like a cancer patient who discovered he has cancer. and they're going through chemotherapy. the europeans are aware of the problem. they're one step ahead. >> let me ask you about your book. a collection of philosophical and practical aphorisms. one that caught my eye was this quote. the three most harmful addictions are heroin, carbohydrates and a monthly salary.

what do you mean by that? >> i keep attacking employment at several levels mostly on ethical grounds in the fact that people who are addicted to salary, to that middle class lifestyle will do anything to fit their ethics to their job rather than pick jobs that fit their ethics. they are very ethically vulnerable. it makes them partake of collective scams, you see simply because the establishment, working for the fed is something unethical, but they do it because oh, i got a mortgage to pay. or they justify it that way. so this is why i'm -- i say here i trust people who make a living standing up or lying down more than those who make a living sitting down, the bureaucrats. >> what great sentiment. nassim, great to have you on the program. great sentiment and there are many more on the books. congratulations on the book. >> thank you. >> always nice to see you. nassim taleb joining us. up next, the former british prime minister looks back at the

economic crisis and asks if we're out of the woods yet. >> i would say we've not done enough yet to avert a future financial crisis. and it's still time to shop for your holiday gifts. the ceo of the country's largest retailer on santa's top sellers. back in a moment. tested, built and driven like no other. and now they're being offered like no other. come to the winter event and get an exceptional offer on the mercedes-benz of your dreams. it's our way of showing a little holiday spirit. and stay connected with three years of mbrace service complimentary. ♪ sadly, no. oh. but i did pick up your dry cleaning and had your shoes shined. well, i made you a reservation at the sushi place around the corner. well, in that case, i better get back to these invoices... which i'll do right after making your favorite pancakes. you know what? i'm going to tidy up your side of the office. i can't hear you because i'm also making you a smoothie.

[ male announcer ] marriott hotels & resorts knows it's better for xerox to automate their global invoice process so they can focus on serving their customers. with xerox, you're ready for real business.

the former leader of the united kingdom, gordon brown, spent a decade running the world's fifth largest economy and was on the hot seat for more than a trillion dollar bailout of the british banking system back in 2008. his new book about the financial meltdown is called "beyond the crash, overcoming the first crisis of civilization." i spoke with the former prime minister about the lessons of that crisis. >> i think the first thing we've learned is that we've got a global financial system. and you can't regulate it simply by national supervisors. i think the second thing that i've learned is not only do you need global solutions to global problems, but if you don't act clearly, then you get yourself into worse trouble.

and i feel we're facing a decade of low growth and high unemployment in america. i think we haven't faced off what we need to do than, and i think we're too sanguine about the consequences of millions of people who may be losing their jobs or may not get jobs in the future. it's a shift that is happening in the world economy. asia and the rest of the world is now outproducing europe and america, outmanufacturing them, outexporting them, and we have not yet developed the policies that are right to respond to that for the future. this is a real challenge for a decade. >> what are the implications of that? we talk so much about the rise of the east, and in many cases the decline or certainly the slow stagnation of the west. >> well, i think we can avert what people might see as this decade being the decline of the west. the reason i think we can do it, the first change was the production of growth in the east. the second is the growth of mass consumer market in asia. so you have a billion people who

are producers becoming consumers. the size of the asian consumer market in ten years' time will be twice the size of the american consumer market. so you're talking about a massive shift in the world economy, the major driver of growth is going to be asian consumer demand. >> the numbers are so much larger in terms of population growth outside of the united states, particularly in asia. so how can american and uk companies sell to those people? >> by producing the branded goods. all right 24% of the luxury goods market is in china. and so at a certain strata, chinese and asian people are buying luxury goods coming out of america and europe. the next stage is mass consumption of a billion middle class consumers. and if we've got the products, we've got the technology, we've got the innovation, we've got the genius, we've got the products and low carbon technology, the products in information technology, pharmaceuticals, huge expansion opportunities for a market that is a billion strong and perhaps bigger than that.

and we've got to orientate ourselves towards that. that's when the rebalancing of the world economy will take place. that's what strategy from the financial crisis, and that's our opportunity. >> you write about overcoming the first crisis of globalization. and we are in the midst of watching the biggest test of the euro since its inception. so when you talk about collaboration, do we need to see all of the members of the eurozone get together to pull one weaker player out of the upset? should the uk have participated in bailing out ireland? >> yes, but you've got to see the european problem as three different elements. and i think people are seeing it as only one at the moment. it's not just a fiscal deficit problem, it's a bank liability problem. the banks have got to face up to the fact that they have got huge debts and that they are undercapitalized. equally at the same time you've got a growth problem. solve the problem without growth and you have a deficit going to come back again.

you've got to have the mind view, a european sort of high noon where you did what we did with the g-20 in april 2009. we brought all the leaders to london. we said look, we're sitting here until we get a solution to this problem. and what the markets have got to be convinced of is that you have solved not only the fiscal deficit problems but the bank liability problem and the structural impediments to grow. it needs a european strategy that is built on at least three elements. and i believe that europe is perfectly capable of delivering that sort of strategy. it needs the political agreement of a number of leaders. i was a person who refused to bring britain into the euro because i could see the inflexibilities of the euro which we're now seeing at the moment. but i want the euro to work because it would be an economic and political disaster fer the euro was unable to cope with the circumstances of the time. you don't deal it with one answer. you've got to have answers to the three problems, and it's got to be done pretty quickly in my view. >> your book is critical of the banking sector and the banks in

terms of the way they handled their business leading up to the financial crisis. two years into it, with all of the rescues and the reforms that we've seen, what can you say about the banking sector today? is it well-capitalized? >> it's better. it's not wholly capitalized, for the tragedies it faced and for the problems of the future. look, when you have a bank that is only beginning to understand the risks that have been taken or someone who says look, all i need is overnight finance and the bank is about to collapse and they need a massive restructuring of their capital, then you've got doubts about the wisdom of the decisions that have been taken in the banking system, particularly in respect to some of the very damaged banks. but a lot has been done. but i would say we've not done enough yet to avert a future financial crisis. i would say that the failure to agree global rules in key areas means that you will have a race to the bottom in financial standards in key sectors. and i would say that there are

banks that now need more fully capitalized if they're going to face the challenges of the future. >> my thanks to prime minister gordon brown. up next on the "wall street journal report," we're playing around with toys r us. what is on the holiday wish list of the kids and kids at heart that you know? as we take a break, take a look at how the stock market ended the week. ♪

[ man ] i thought our family business would always be boots. until one day, my daughter showed me a designer handbag. and like that, we had a new side to our business. [ male announcer ] when businesses see an opportunity, the hartford is there. protecting their employees and property and helping them prepare for the future. nice boots. nice bag. [ male announcer ] see how the hartford helps businesses at achievewhatsahead.com. ♪ [ male announcer ] open up a cadillac during our season's best sales event and receive the gift of asphalt. experience the exhilarating cadillac cts with a direct injection v6. it's the one gift you can open up all year long. see your cadillac dealer for this attractive offer. backed by the peace of mind that only comes from cadillac premium care maintenance. the season's best sales event. from cadillac.

if you're making a list and checking it twice, you still have a few shopping days left to find the hot toys and great gifts for the little ones in your life. joining me now is gerald storch, the ceo of toys r us, the world's largest toy retailer. good to have you on the program. >> great to be here. >> this is dave acting up. >> this is one of our newest toys. we just brought him in from the united kingdom. he is the hottest toy in england. this is dave the shoulder monkey. you put him on your shoulder and he does all kinds of things by remote control. for example, does he like being on television right now? no, he is too shy. see how shy? >> and, you know, he just starts talking. you didn't even press a button and he starts talking. >> i pressed the button. >> do you want a banana? >> bye-bye! >> bye-bye?

>> what does dave retail for? >> dave is $29.99. >> let me ask you, jerry, with this holiday season for retailers, how is it feeling to you so far? are people out spending money? how does the retail landscape look? >> it definitely started very, very strong. it's been kind of in a holding pattern. and now we're in the race for the finish. i think people have been procrastinating a little with christmas on a saturday. and they don't realize they don't get to shop on saturday. that's christmas day. so it's getting very heavy right now. i expect the next week to be one of the busiest in the history of retail. >> toys r us acquired fao schwartz in 2009. your initial public offering is expected next year. lou things going? >> we're focused on selling justin bieber dolls and disney princess dolls as we can. >> let's talk about the hot toys and what you're selling this year. we saw dave. >> yes. >> this is a fun toy here, huh? >> that's a nerf blaster. that's a sonic series. it just came out just last week.

i brought you some new toys here. >> go like this? >> right. it's a translucent green color. disneyla and there is a whole range with the translucent see-through mechanism. >> oh, the boys are going to love this. how much does this retail for? >> $10.99. >> these are really cute. >> these are sing-a majigs. >> and these are how much? >> $12.99. they're one of the hottest toys of the year. certainly in running for toy of the year. >> and this is the hottest doll. >> this is the hottest doll right now. la la lucy is incredibly hot. the only place you can get her right now is toys r us because it's run out everywhere else. we pride ourselves it would be in stock all the way to christmas. we do have these still in stock or go on ebay and pay a fortune for them. but have them at toys r us and you should rush and get them while they're still there. >> why is it so hot? >> it has a different look to

it. even though it has some contemporary materials, it reminds you of a doll your mother might have made for you with the button eyes. it's very sweet. >> an interesting trend that is happening with dolls. they're getting bigger. >> that's right. barbie is still very hot. make no mistake about it. barbie is the queen of all dolls. having said that, there is definitely a move toward larger-sized dolls. these are disney princess dolls. you can also get a little dress, a gown for your daughter to wear which matches the gown that the princess is wearing. >> that's beautiful. that's a great idea. and how much is this? >> that is $49.99. >> $49.99 on that. okay. let's talk about what you've got down here. >> for boys, this is the wildfire rc vehicle. this is the largest remote controlled vehicle ever offered with giant 9" wheels. this can go over all the terrain. this is by far the hottest rc vehicle we have ever offered that. >> is cool look. the wheels are bigger than i've seen in the past. >> kit go over any rocks or

terrain. you can let it go outside in the woods, wherever. >> very cool. the price tag on that one? >> $89.99. >> and the price point most appealing to shoppers? >> there is no single price point for hot toys. we see products sale in the 10 to $15 range an also see products selling great in the 50 to $100 range. hot toys are hot. and you get a lot of value for them. something like a lego set. always sells well, year in and year out. they're anything but cheap, but they represent quality. it's not so much the price point, it's what you get for the money. >> are people doing more of their shopping online, or are you seeing actual foot traffic? >> both. our store is just a few blocks from here. and on black friday they were lined up down the street and around the block and two blocks farther away. it took over two hours just to get into the store if you were the last person in line. clearly people are coming to the stores. having said that, we've seen significant double-digit growth in our internet site, toys r

us.com, babies r us.com, fao schwartz.com. the internet is growing at a greater rate than stores and we expect that to continue. >> have you finished your shopping yet? >> i haven't started. but we have a tradition. we want to get through this weekend which is one of the wildest for retailers and then we go out and see what is going on. >> i'm with you. great to see you. thank you so much. >> great to be here. >> merry christmas, happy holidays and thank you for your time. up next on the "wall street journal report," we'll take a look at the news this upcoming week that will have an impact on its money. and then a swiss bank schools its workers on putting its best dressed feet forward. [scraping] [horns honking] with deposits in your engine, it can feel like something's holding your car back. let me guess, 16. [laughing] yeeah. that's why there's castrol gtx... with our most powerful deposit fighting ingredient ever. castrol gtx exceeds the toughest new industry standard. don't let deposits hold your car back. get castrol gtx.

it's more than just oil. it's liquid engineering. verizon 4g lte. rule the air on the most advanced 4g network in the world. [scraping] [piano keys banging] [scraping] [horns honking] with deposits in your engine, it can feel like something's holding your car back. let me guess, 16. [laughing] yeeah. that's why there's castrol gtx... with our most powerful deposit fighting ingredient ever. castrol gtx exceeds the toughest new industry standard. don't let deposits hold your car back. get castrol gtx.

it's more than just oil. it's liquid engineering.

for more on our show and guests check out the website, and a link to my blog at investoragenda@cnbc.com. hope you will check it out. now a look at the stories in the week ahead that may move the markets and impact your money this week. on wednesday we get the final instrument for gross domestic product for the third quarter of the year as well as the sales figures for existing homes last month, and that is also on wednesday. thursday new home sales for november will be out. and then on friday, of course it is christmas eve. all u.s. markets will be closed in observance of the christmas holiday. meanwhile, bankers at ubs in switzerland may soon be taking the phrase "dress for success" quite literally. the giant bank has a suggested dress code. women should wear a tailored suit or pant suit, a white blows, closed toed shoes.

for men no stubble allowed and black knee-socks and black wristwatches are encouraged while hair dye is a no-no. part of a test they're carrying out at 50 branchs in switzerland. if it works, it could move to all the banks in the land of watches, chocolate and bank accounts. thank you so much for joining us. next week, posting the holiday season. with a look at the industry that fills our glasses with sparkling wine. each week keep it right here where wall street meets main street. have this holiday season, chevy's giving you more. like a 100,000 mile/5-year powertrain warranty. that's 40,000 miles more than ford. and now we're giving you our best offer of the year. 0% apr financing... plus $1,500 holiday allowance... plus no monthly payments until spring. on most chevy models. but hurry, because your chance to get our best offer of the season ends soon. see your local chevy dealer now.