pedro noguera and claiming the promise of education. amy goodman joining me and msnbc contributor, karen hunter. great to have you guys all here. this week, mitt romney called the u.s. education system a failure. unvailed a 35 page education paper called "a chance for every child." >> in speeches, president obama likes to tell us we can't wait. if only he'd say that and mean that about education reform. because millions of kids are waiting for change. and so many are missing their chance. >> last september, romney felt differently about president obama's signature race to the top education plan which provides federal money to state and school districts based on competition and not on need. >> i think secretary duncan has done some good things.

he's the current secretary of education. i hope that's not heresy in the room, but he is has a program called race to the top which is more testing of kids, more evaluation of teachers. those are things that make some sense. >> this week, romney touted his free market vision of educational reform at an inner city at a predominantly black charter school in west philadelphia. romney sat down for questions and tried to defend his previous claim that class size doesn't improve student performance. >> i said let's compare the average classroom size with the performance of our students. we test our kids and we'll see if there's a relationship. and there was not. >> i can't think of any teacher in the whole time i've been teaching, over 10 years -- 13 years, who would say that they would love -- more students would benefit them. >> right. of course. >> and i can't think of a parent that would say i would like my teacher to be in a room with a lot of kids and only one teacher.

>> that is my favorite so far. we call the shot in this show the two shot, when the camera is hitting the two of you. and that shot of mitt romney is my favorite two shot of the whole campaign so far. before i get into the weeds of it and the policy, because it's important, and i think education policy is so important for a number of reasons, both because it's important substantively, because it's how we form citizens and workers, but also interesting politically because it has a lot to do with what we think about in the american dream and achieving all of that. i want to talk first about the politics of this. why is mitt romney in west philadelphia? he's not going to get any votes in west philadelphia. i mean, there's no chance. he knows that. michel michelle cottel referred to his education and the achievement back between black and latino children and white children, she

referred to it as a ricochet pander. it was not a pander -- it was not a political perspective that was aimed at the actual parents of students in public schools and under-performing inner city schools, but at vaguely liberal-minded, people who consider themselves enlightened, you know, white suburban women, for who this was a signifier of not being some monstrous feeling. >> sitting next to the man is not about black folks in philly. it's about that ricochet factor. i read the 35 pages which, by the way, has a forward by jeb bush. this is so political. it really doesn't get to the cord. there's nothing earth-shattering here that's going to change the system or fix what's broken. it's a lot of political pandering and a lot of things rehashed that we've already heard before. yes, we know these things will

work if we implement them but obviously, it's not working. >> i would say romney, like many politicians know, it's about education. he wants to position himself as a reformer and therefore he thinks the kind of conservative approach of choice and vouchers is what will do it and philly is kind of ground zero right now. mostly, it's the pander to the public's general concern that something needs to be done other than throwing money at the problem which is, kind of, again, you know, one of the mantras that we hear. there's nothing -- as you just pointed out very clear at all -- about how we solve some of the problems. i think what's more troubling is this idea that the whole system is failing. the fact is that there's no evidence at all to support that. >> explain that. >> if you look at the data, affluent people are getting pretty good education in this country. middle class people, in fact, like their schools. it's poor people that have bad schools.

the real problem in american education is inequality. the fact that if you look at where ever poor children are concentrated, that's where bad schools are low kated. to have a generalized swipe actually contributes to the dismantling of public education which is one of the few entitlements that all children have access to. >> neither romney nor obama wants fo do anythiwan wantnwan wants to do anything about reducing the concentration of poor children. that they're so tied to small geographic areas where poverty is concentrated. >> but the crazy thing is those poor students bring in the money. those poor students are the ones pushing the special ed where kids are getting more money per kid in the school. >> and there's a special title i federal funding. >> there's more money attached to those kids. i disagree with you that education as a whole is a failed system.

and it speaks to that where we sit in other industrialized nations. we're number 18 or 19 in the world. >> if you control for poverty, we're actually the first in the world. if you look at the districts with the lowest poverty rates, our kids, american kids, out perform. >> this is interesting. one of the things that come up is do we have a problem with poor schools, do we have a broader education problem. when you look at certain things, it seems like we have a broader education in terms of certain fields. we're not producing enough people that are going through those channels to end up as engineers for instance. but then if you look at -- i've read crazy stats to just break things out racially. and if you look at the education that white kids get in america, it's not so terrible. >> look at massachusetts. if massachusetts were a country, it would be in the top five among countries. >> of course, mitt romney has boasted about his record there. i learned from you, dana

goldstein, is the birthplace of america. >> it is true. our education started with the school reform movement around 1830 in massachusetts. and i think it's really interesting to think about -- and i'm writing a book about this -- is when you go back to the birth of our public school system, there's always been a strong rhetoric in america to fix poverty. i think that's why we're so contentious. if you expect school typers to do so much work, there's an incredible pressure on this system. you see that teachers don't spend as much time figuring out whether their kids have eaten breakfast because there's other structures in the society take care of that. when they get into the classroom, it's more about learning. and if you enter our classrooms, they have a lot of stress on them. >> mitt romney showed, actually, in some ways, how similar romney is than obama. how similar the democratic and

republican parties are in dealing with issues, for example, of poverty. the "p" word. the word that neither of them will really talk about. and even their educational plans. while mitt romney was trying to position himself as opposed, they're very similar in what they support. >> let's get to that issue. i've heard two different things about this white paper, a chance for every child which i, too, read. boy, is it riveting. one is this represents something radical. right wing vouchers, it sort of, in the fault lines of education policy reform debates takes you over a certain threshold. you can walk up to that line and be a dem krat. and if you're over it, you're no longer a good democrat. at the same time, i've also heard the opposite. this is essentially nothing that new. that it's more or less in line with the direction or policy that we've seen over the obama administration. in fact, let me show former

education secretary bill bennett in april talking about the signature race to the top program, which has been one of the main ways that this white house and this administration has implemented some of the reform ideas that have been moving through the nation's policy shops. >> the performance of american education is really not what it should be. race to the top is encouraging the states to have system excellence and accountability. that's where i'll tip my hat to have that accountability. that's the thing that's been missing. i've been arguing for years the worst thing about our system is the run for the sake of the producers. >> now, that single line is that is the line, right? obviously, it's the terrain upon which this debate takes.

i want to ask the question of just how much of a difference in vision former governor romney is presenting to what the president has presented. and we'll get to that right after this. [ male announcer ] this is corporate caterers, miami, florida. in here, great food demands a great presentation. so at&t showed corporate caterers how to better collaborate by using a mobile solution, in a whole new way. using real-time photo sharing abilities, they can create and maintain high standards, from kitchen to table. this technology allows us to collaborate with our drivers to make a better experience for our customers. [ male announcer ] it's a network of possibilities -- helping you do what you do... even better. ♪ let's get a recap, merv.

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don't worry, we're about to dive into the chance for every child issued by the romney campaign this week. i know you've set your iphone reminder for that. i do want to find out how much of this do the ideas that are represented here signal a divergence from current policy and how closer today are what we

see? >> well, on vouchers, mitt romney supports the private school vouchers. but on things like testing for students, the two candidates are actually quite in line with each other. what i would say about the big difference between them is mitt romney really wants to get the federal government out of this business of school turn around, which has been a big priority of the obama administration. obama says the bottom 10% need to be turned around and he's provided a couple different models for doing this. some are more holistic, in which the teachers stay the same and work with the community to turn around the school. some are more radical, school closings and things like that. mitt romney doesn't want to spend money on this and he doesn't want to believe that the federal government should be involved. so what you see in this proposal is that's really, to me, a major difference between the two. >> and fascinatingly, the elephant in the room of all of this is we have this huge -- the last time a republican was using education as a central platform

to signal his compassion was, of course, george w. bush. and it was the big landmark piece of legislation. i would say he proposed on the campaign and was signed into law, ted kennedy helped write it in the senate. we're now ten years into this experiment. it's one of these laws that it's very hard to find anyone who's like a huge partisan for no child left behind. it seemed orphaned. i remember going around as a reporter in 2008 to campaign events and the businessest pause lines would be getting rid of no child left behind. no child left behind, if i'm not mistaken, doesn't show up. no one mentioned it once in the entire -- >> chris, i started on the education beat in 2007 and that was the first time no child left behind was supposed to be reauthorized by congress and it's 2012 and it still hasn't been. obama and duncan would like to play around with it. but in congress, it's just the

count of football. >> in a parseble, accessible way, what has no child left behind -- does it get a bad wrap? has it worked? >> let me get to the argument in favor. what it did was it brought accountability to public education in an important way. it required districts to disaggregate the data by race and by subgroups so we can see how different types of children are doing. the problem is the evidence we looked for was simply how well they did on a standardized test. it drove all instruction towards test preparation. anything that wasn't on the test literally got eliminated from the curriculum. you have schools where there's no science in the curriculum because science was not on the fourth grade tests. you see a lot of gaming, obviously a lot of cheating going on. all is a result of this inappropriate use of testing. the problem with the obama administration is they don't understand what's wrong with no child behind. they think it's a branding problem.

so they come up with a new slogan, race for the top. >> same policy framework, more or less. >> that's right. and i would say if you look at the history of this, there's a great deal of bipartisan support. ted kennedy and george miller, great candidates, brought us no child left behind with george bush. and this speaks to the point about the failure. we do have high drop out rates. in almost every major city, drop out rates are 50% and higher. this strategy is not working. what the obama administration doesn't get nor the romneys, is what it will take to address that problem. i don't think romney fully cares that much, at least from looking at this document. i think the obama administration is pretty -- it's been disappointing because i don't think they've ever begun to grapple with it. >> karen? >> no one's really gotten to the core about this. i was going to talk about the test taking. you can't educate a person by teaching them how to regurgitate

stats on a test. yes, those kids may perform well on tests, but it doesn't mean they think well. it doesn't mean we have critical thinkers. this nation was number one because we had people who innovated, who thought, who created things, things were made in america because we had that ability to do that. we don't have it anymore. and now we can't redesign a system to compete with china, japan, korea who are all taking tests which you're talking about the sciences and things like that when that's not really what we're about. we need to establish what it is we want to do and look at the system as a broken system and it took to fix it from the core. >> and there's a deep, philosophical question which fascinates me. which is what is -- what's the goal of public education. is it to produce workers or to produce citizens. and those can be very different things. i mean, what do we want out of elt. if you listen to the rhetoric that comes out of the mayor or the business groups that talk

about how battered education is. they're worried about economic human capital that is being produced by the schooling system. but there's also the question of, you know, how do you create -- the original vision had a lot to do with both of these two roles, right? >> yeah, and also creating moral people of high character. >> that was the original goal. >> and then from there, there was a long debate between that goal and also citizenship and also business. but i would add a foresight into that is ch is just knowledge. what do our students know? and on this, i want to get the obama administration some credit. they really asked states to embrace this thing called the common core. 46 states have agreed to do it. a much higher standard in math and english. it's going to keep states from doing what pedro referenced earlier, which is lower standards. and i also think that obama realizes that the cutting of science and the arts from the curriculum is a problem. so he said, let's assess all

teachers including the music teacher, the art teacher, the gym teacher. i've visited some schools that are now giving kids tests in all of these subjects. it's kind of like the reverse thing that the obama administration realizes that we should create test that is will make -- >> this is a classic is if all you have is a hamburger. >> the privatization of education where they were talking abcharter schools. but, also, around high stakes testing where privatization fits into this. i mean, kids are being -- >> make lots of money with this. >> it appears you have these kids that are being forced to take even more tests and they're just guinea pigs. >> one of the places right now that is, as you mentioned, in the opening one of the ground zero for this, is philadelphia. where mitt romney was this week. let's talk about what's going on in philadelphia after we take a quick break. does your phone share what you are seeing and hearing right now with the touch of a button ?

droid does. does it post it instantly to facebook with sound ? droid does. droid with color for facebook. it's the ultimate status update. get a droid razr maxx by motorola for only $199.99. the teacher that comes to mind for me is my high school math teacher, dr. gilmore. i mean he could teach. he was there for us, even if we needed him in college. you could call him, you had his phone number. he was just focused on making sure we were gonna be successful.

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the candidate who has suddenly somehow found west philadelphia, somehow now wants to talk about education. romney has always opposed investing in our children's education. again, i don't understand why he's here today. what he supports are policy that is hurts the ability to educate our children and prepare them for good jan >> welcome back. now, the irony here, of course, is that city mayor michael nutter -- and that's why the politics get so complicated. as both camps are trying to create distinctions, they keep stumbling over the fact that there's a whole lot of bipartisan defense in the drebt direction of policy. mitt romney questioned the efficacy of reducing class size. and then people say class size

is a sacred cow that we have to take a look at. and the data is a little inconclusive on class size i'll say having dipped into it recently. and then you have michael nutter going after romney for, you know, his education vision while in philadelphia is the site of this very ambitious massive project in essentially breaking up the central school district. they've hired a boston group to come up with the plan and they're going to try to create competition among different entities that would manage different schools. so it doesn't look like that different from the basic outlines of the vision that mitt romney is employing. how much is privatization? how much of that is driving? >> i think a lot of it is headed there. many people look at public education and see a lot of money being spent and some would argue being wasted and would like to have private access to it.

you have a lot of companies positioning themselves to take advantage of the system. while i would agree that we need to be willing to experiment with different ways of delivering education, i think the questions that you've raised before about the quality of what our children receive and not encouraging critical thinking, all of those are very important question that is we should be focused on. what we also need to realize is that public education in this country is one of the only institutions that all children have access to. and that commitment from our state governments even more so than the federal government because it's not mentioned in our constitution, is fundamental to ensuring that our children have at least the opportunity to participate in our society. and i think that's what's really at stake here. >> let's take the politics out and focus on making sure these kids get educated as opposed to all of this political pandering. >> what would that look like? i think you have expressed -- and correct me if i'm wrong -- you've expressed sympathy for

the idea? >> if charter schools work and some of them do, do charter schools. if vouchers work, do that. if there are public education systems at work, model that. i think it's too crucial right now. we are in a crisis situation to not look at everything and say what's working? >> well, that is a question, for example, in philadelphia, there are 18 charter schools under investigation right now. but we don't hear this very much. >> because it's political. >> with the grand experiment, we've been running as a country, and, again, i'm not going to pretend that education policy is my area of expertise. please correct me if i'm wrong. it's hard to see -- it's not that there's a ton of obvious consensus, big, silver bullet answers that have come out of it. do this one thing. we've seen the gates foundation thought smaller high schools. silver bullet. they've spend hundreds of millions of dollars making

smaller high schools across the country look to the data afterwards and say no. the question you will hear in the debate over education reform, we know what works. we just have to do it. and the question is is that true? do we know what works? we have examples of what works. they are working. they are serving children well. what we are not doing is replicating what works. the reason why is the complexity. it's the teachers, it's the kids, it's the investments in that commitment. >> it takes one person with a vision. >> i like you dropping chiro as if it's no thing. >> schools that work, you could probably tie back to a principle that has a mandate and a vision that trickles down to the teachers. all of us can probably think about a teacher in our lives that have had an impact.

i know ms. johnson and sister joan who taught latin. i was impacted by these teachers who sparked something in me and allowed me to move forward. >> that is exactly the problem. jeffrey counted new york city as one of president obama's favorite models. you cannot clone jeffrey. and what's more, his position here in new york city, the finance capital of the world, allows him to do a level of philanthropy that is completely inaccessible to someone, say, in a small, midwestern city. so you see president obama say let's replicate the harlem children's zone. and it has a few million dollars in it. there's a hundred million dollar budget there. how are you supposed to create something like that with this trickle of money. i've been in some of his

schools. you can go to a place like new york that has a terrible reputation and you can see an amazing teacher or principle. but you can't photo copy these people. and i think what it would take to do that is to care about poverty as a whole. as long as the schools are the only institution in society that are expected to take any responsibility for this problem, they're going to be struggling and it's going to look like they're failing. it's going to ask them to do a little bit more. schools are for learning. >> well, and i think -- i agree, entirely, about the macrocontext this is in, which is we don't talk about moebility and equality. and the two aren't so neatly acceptable. those inequality of outcomes will bleed in and corrupt the a

attempts to create the equality of opportunity. that's what we see happening. we ask them to undo everything that's happening with taxes and deindustrialization, everything that's happening with the high levels of unemployment. we say to the schools, it's your job to mitigate all of that that's happening on this part of the scale. and no matter how much weight we put on this part of the sea saw, it doesn't balance. >> are we going to talk about the elephant in the room that society doesn't care about? maybe black, poor, hispanic children. we don't really care about them. we may put out a document and we'll mention them in a couple of lines, but we don't really care about what happens to them as a society. >> it's not only that we care on them or not but what we have given up on in this country is desegregation. that is not part of this whole conversation. we're going to have some schools that are a hundred percent

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it's you, fully charged. all right. we've talked about the elephant in the room before we went to break, which is school segregation and the fact that we have a very segregated school system. in fact, the new york times did a block buster piece on this i think about a week ago in which they looked at the numbers. the trends are not very promising. we have essentially given up as a nation on desegregation achieving integrated schools as a policy obltive. i think it's fair to say we threw in the towel on that. and what are the -- are there concrete benefit ins education to actually desegregating the schools? >> i think because of court orders that have made it more difficult and because of the history that showed a great deal

of resistance on the part of white middle class people which refer to putting kids in schools, we basically say okay, i'm going to leave it alone and accept segregated schools. the way we are now, if you think about it, not only aren't we living up to the brown division, we're not living up to the plussie division. now, the good news is, and this is the story that doesn't get heard, is there are a small number of schools around the country known as magnet schools, connecticut has several of them, that are integrated by law and are doing extremely well. and the research has shown that our kids do, in fact, do better, particularly poor children, in integrated schools. a lot of that is about access to resources. but it's also about the effect of other children getting support at home. so you're not in a school that has concentrated poverty and

where kids are coming from very similar circumstances. >> if i could just jump in here, i was lucky enough to attend integrated schools all through my education. i've been interested in this as a journalist. while it may be great for poor kids, it's not great for middle class students. they're going to go down. and that's why i think parents resisted. if they're like oh, the teacher is really focusing on them more and my kid is going to suffer. that's not true. they're bringing a set of values with them out into the world that i think value diversity are more sort of in tuned with what other people's lives are like. >> that's why you're so successful and cool. because you have that flavor. and you know, i think it is important. so how do we -- how do we get people to stop being inherently racist. that's really what we're talking about. i don't want to send my kids to school with those people because they're going to infect them with their bad education.

>> because that -- let's not forget there was a brutal war waged over this issue. in boston, it was a literal war. >> i mean, i come from bay shore high school in long island. public high school. and my dad led the task force to integrate the schools of our community. that's where i grew up in that fight. i would go to the cafeterias in the high schools, a thousand screaming parents. my father had death threats against him, the whole task force. ultimately, they integrated our community. >> in terms of what it would take, it would take us reputting on the agenda. here's what we know. a focus on equality. you can only force poor people

to put their kids in bad schools. we shouldn't tolerate it. that's why i say new york city. here we have mike bloomburg had control of the schools for almost 12 years now. and what has he done to address this issue? it's not even part of the agenda. even as they -- joe cline, now mitt romney say education is the civil rights issue of the 21st century, this is the civil rights issue they've never touched. i'm glad we've talked about the segregated nature of american education. but now i want to turn because while i have you here, i want to talk about something which is always at the center of it which is the teacher's unions. you can't go a day without the horrible speck tor of the teacher's unions. mitt romney had some strong words. and then one of the spokes people for the obama campaign seemed to throw the teacher's union under the bus. we're going to talk about that right after this break.

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the teacher's unions are the clearest example of a group that has lost its way. whenever anyone dears to offer a new idea, the unions protest allow it. our job keeps getting harder because the unions wield out sized influence in elections and campaigns. >> that's mitt romney going after the teacher's unions at a speech he gave to a latino coalition lunch on wednesday. fascinatingly, it's not surprising that teachers' unions, democrats and republicans both attacked. teacher's unions are within the democratic coalition so it's much easier to go at them full bore. stephanie cutter, who is a spokesperson for the president'

obama's relationship with teacher's unions. it's anything but cozy. and then she pasted a fact check which said yes, actually tharks is the case. but it's about a huge number of policy issues. so she was right. but it's a strange thing to advertise that people dislike you. just generally as a political thing. you don't go around talking about all the groups that hate you. fdr famously said that of the bankers. i welcome their hatred. the second after stephanie cutter did this, it got some attention. teacher's unions are a part of the democratic coalition. someone said explain yourself. ander tweeted back pres fights for union's teachers because he believes in them. mitt dishonest about being beholden to them. what do you make of this and covering the politics of all of this? >> i actually think stephanie's statement is pretty true. if you go back to 2007 when

obama was facie ining hillary, was booed in front of a teacher's union convention in 2007 for advocating teacher pay tied to student test scores. so he doesn't have a cozy relationship. he ran for the democratic nomination knowing that he wanted to change the parties relationship with the teacher's unions. that said, he and randy weingarten have a relationship. they are careful not to step out too far ahead of the other. it saves a lot of teacher's jobs on the ground. that agree on the common core. the share of english and math standards. the teacher's union haves moved a lot. and i often think the facts have changed. it's a really different-looking relationship than it used to be.

>> and a lot of that should be credited to randy wi. a lot of these other protections of bad teachers should be off the table. we should have these discussions in a society where we claim to care about kids, right? if that's really your goal, tough be able to talk about these things and i applaud her for moving that needle because it was an important thing to do. and you're absolutely right. the unions have been an impediment until quite recently to change. >> well, i would say we have to be very specific in what areas our union is an impediment. the fact is, what the evidence shows, the states that are the most unionized out perform the states that are not. if it was simply the union -- it's more complex than that. we need to be very clear. the unions play a very important role in ensuring that teaching,

as a profession, does not go downhill and teachers are not abused. at the same time, i think your point about addressing the teachers that should be removed, because they're not effective in the classroom, not committed to children, unions should play a role in facilitating their exit. >> and here's my feeling as a kind of broad theme to all of this. you know, what happens is the discussion gets narrowed. and it gets narrowed to benefit some specific political constituency. and to me, what i find frustrating is that it gets so narrative. if we're going to talk about desegregation and inequality and childhood poverty and teacher tenure and merit pay, let's have a comprehensive discussion. what happens is it gets narrowed into specific things and goes after those constituencies deemed the weakest. i think broadening out is a good step chlts i want to bring you

guys back to continue talking about this in the future. great to have you. thank you so much for joining us. president obama's sharpest jab yet. they get to stay with mitt romney over bain capital when we come back. high schools in six states enrolled in the national math and science initiative... ...which helped students and teachers get better results in ap courses. together, they raised ap test scores 138%. just imagine our potential... ...if the other states joined them. let's raise our scores.

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this week, president obama launched his most direct attempt yet at bain capital. it comes at a campaign stop in iowa on thursday. >> the main goal of a financial firm like governor romney's is not to create jobs. and, by the way, the people who work at these firms will tell you. that's not their goal. their main goal is to create wealth for themselves and their investors. there may be value for that kind of experience, but it's not in the white house. >> obama's willingness to engage romney head on this early in the campaign is unusual for a

sitting president. but his remarks follow a week over the legitimacy of attacking romney's past. the back and forth began with this appearance by new york mayor on nbc's own meet the press last sunday. >> i'm not about to sit here and indict private equity. we're getting to a ridiculous point in america where pension funds and unions investing in bain capital. if you look at the totality, they've done a lot to support businesses who grow businesses and this, to me, i'm very unkfrltble. >> under pressure, booker backtracked a few hours later. >> let me be clear. mitt romney has made his business record a center piece of his campaign. he's talk about himself as a job creator. and, therefore, it is reasonable, in fact, i encourage it for the obama campaign to examine that record and to

discuss it. >> the president was asked to defend for the first time at the nato summit in chicago the next day. >> he's not going out there touting his experience in massachusetts. he's saying i'm a business guy and this is his business. and when you're president, as opposed to the head of a private equity firm, then your job is not simply to maximize profits. and so to repeat, this is not a distraction. this is what this campaign is going to be about. >> romney continued to dodge the issue two days after that. >> so when the president says he wants to focus a lot of the election debate on your career at bain capital, do you welcome that? >> of course. i'd also like to focus on his record. what is it that he's done as the president of the united states over the last four years? >> joining us now is a professor

of economics and joe weisenthal. gentlemen, what did you make of this back and fort politically this week in the fall out? it started basically when we were on air last sunday on "meet the press." it's interesting to watch democrats specifically try to walk what is a very, very narrow line on this attack. >> i think the interesting thing is there is an attack, but it's hard to say what the attack is. so with obama's criticism of romney and private equity, he certainly doesn't offer any solutions or propose any regulations that would change anything. i think there probably is some legitimacy of the idea not having had experience as a private equity teef. it does not mean he knows anything about creating jobs or qualify as president. then again, i can't think of any jobs. >> well, possibly governor of a large state. the irony is he was governor of

a large state and he has completely erased that line. >> one of the things that i find peculiar about this entire debate is we have the opportunity to ask ourselves the following question. what are capital markets for? do we really want to take the private equity and hue of private markets? what i find kind of peculiar is they won't raise this debate because it's so unpopular. >> right. you're not going to see a 60 second ad recalling what are they for? last weekend, when we were in the first round of this and someone at the table, an economist said you know no one's debating whether we should have private equity. no, that's the debate i want to have.

should we look askew? should there be more program and sanction attached to private ektyty. that's the debate i want to get into right after we take this wraek. dave, where are we on the new laptop? it's so slow! i'm calling dave. [ telephone rings ] [ male announcer ] in a small business, technology is all you. that's why you've got us. at the staples pc savings event, for a limited time get up to $200 off select computers. staples. that was easy. more than 50 times a day? so brighten your smile a healthy way with listerine® whitening plus restoring rinse. it's the only rinse that makes your teeth two shades whiter and two times stronger. ♪ listerine® whitening... power to your mouth.

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get a droid razr maxx by motorola for only $199.99. good morning from new york. i'm chris hayes with economics professor marcellus andrews. amy goodman of democracy now and msnbc contributor karen hunter. we are talking about private equity. we are talking to marcellus, what are capital markets for? why do we have them? what do we want them to do? one thing that is fascinating about watching the politics of all of this is when you start looking, private equity people are everywhere. one of the things they've had to do is to say look, we're not going after private equity. we are going after specifically either bain capital and what bain capital did which i think

doesn't quite hold water because from all that i've read, bain capital was no worse than other private equity firms. but when you start looking around, you see a lot of private equity firms after a government service. this is just a little -- just former reagan defensecarlucci, bush, vice president dan quail, president bill clinton, clinton energy secretary, it goes on, white house chiefs of staff. george stefanopolis, house speaker newt gingrich, new york city mayor, john snow, rod page. these -- here are public officials who work at private equity firms before joining government. the obama jobs council member

mark, richard parsons, steve ratnor who's been making the rounds. the budget director, now chief of staff in the white house. nancy who is deputy chief of staff. so there is -- this is a -- there is a lot of movement between the world of public life and politics and private equity. and that obviously is going to make it very difficult for the president to make this argument specifically about the enterprise of private equity. let's forget about bain for a second. i think he acts like most private equity does. have private equity had a positive or negative effect? >> i think there are a couple things. i think what you point out with the connection between private equity and government speaks to something very interesting about the private equity business which is the extent to which having connections and

understanding the law and understanding regulations provide huge opportunities, you can come in, bring in this, you know, expertise in government and suddenly unlock a lot of value for a company. >> why is that the case? because you can get tax subsidies from the government? >> regulatory tax subsidies, understanding what programs can bring your companies benefits. stuff like that. i think going back to sort of the history of private equity, i do think there was a time in the heyday when there were a lot of big american company that is had become old and bloated with executive csuites of people who took off at 2:00 on their private jet and they saw it as a huge opportunity. we're going to come in, really cut the fat cliche, but they saw an opportunity there and they made a lot of money. the opportunities get smaller.

there's the development of private equity with this regulatory ash traj and then the illegitimacy of the profits become more questionable. >> explain what that means. >> one thing about private equity, it benefits tremendous sli. so the great thing about mitt reasonable, were he to become president, his whole career is a testament to the wonders of debt. and i try to think is there some institution out there that could afford to spend a lot more. the u.s. government could afford to spend a lot more. hopefully, he really wablts to learn, you know, take his lessons that he applied in private equity to the u.s. government, that would be the big lesson that i hope he takes away. i think the president has asked this question of us.

is this how we want america to be shaped and viewed who make money off of bad debt or good debt or make money off of other people's hard work? i guess that is how we kind of started, huh? but, really, is all of this good? you know, is this -- all of this money making, is it good? is it how we want to make money? >> i think he wants to have a narrow conversation are you quick to be a president on this experience. but the question of should there be a moral sanction. if someone who were running for president who is a former tobacco executive, i think we all share the intuition that they would get killed for it, right? and rightly, right? we think -- that doesn't mean i don't think you should make cigarettes illegal. i don't necessarily think they should be out lawed. but i think some moral sanction should attach to it. i think it would be fair to say -- and the question, the only way i think to make this argument work in a campaign

sense, is to have some sub text that there's something morally self optimal. >> there's two questions. one, the moral approach. but there's another question. does it work? we want capital markets to put capital to the most sufficient uses and we want to fix companies that don't work. does private equity do that? arguably it might have worked in the '80s. it doesn't work now. there's simply no evidence that having private equity creates jobs, private equity makes countries smarter. there's no evidence of that. at which point, it strikes me that the president could say, you know, mitt, you made a lot of money, that's good. you didn't do much good, dude.

when we're talking about the number of jobs that have been lost, i'm talking about this whole question of where romney comes from. he doesn't tout being the governor of massachusetts. you know, supporting planned parenthood and all of these things. but it also goes to the power of occupy. that this election is taking place in the midst of inequity and equality in this country. that's the flip side of what his cars and cadillacs represent. >> we've always had this, right? we have folks who are extremely wealthy off, you know, a lot of different industries. but they also gave back. and we're not talking about mitt romney's donation to the mormon church or what have you.

we're talking about a real understanding that there's a responsibility to this great wealth that i have to make my country better. >> but that speaks to really important basic questions, right? and we're going to come back. what is the social function of inequality. we want a rockafeller to make a lot of money if he create as lot of jobs. americans don't mind if you make a lot of money if the rest of us do better. >> it's about checks and balances. >> one of the things is equality. the point that you raised. now, that speaks to a democratic party and i would say it's a presidency that i find a little disturbing. it's not what's the function -- >> i don't think -- i don't think -- let me just say. i don't think it's quite the case the democratic party

doesn't want to talk about inequality. they do. but they want to talk about it in these very specific ways. and i think that's the distinction. >> they want to do things about it in very specific places, right? so something like the tax treatment of kerry, which are gains you get from these kinds of private equity deals which are taxed at 15%. there's the buffet rule, the idea that you shouldn't be taxing that lower than the warren buffet secretary middle class wage earning work. they talk about regulating the market. getting back to joe's point, what are they proposing we do to make it not a world in which private equity can swoop into a company, extract manager's fees, take none of the downside risk and still walk away with a profit, that's very unclear to me.

>> you could have a radical retreatment of the tax code would actually take away the advantages of debt. and if you actually look at the causes of the crisis. somehow, it's not an issue at all. >> it made it much worse. >> right. absolutely. the expansion of the debt is what saved the economy. private sector debt is a really big issue on the household side and on the corporate side. in the broad scheme of things, this question of should we be pry prioritizing -- i don't know. it might be a really big problem if we tried to do anything about it. but it would be a legitimate question that would really be fundamental. >> let me piggy back off of that. at one point, we used to give consideration to the consumer

debt and now we don't. we have a block buster chart that would blow your mind. that's the kind of joe weisenthal tease. we have a block buster chart that will blow your mind right after this break. and let's see how colorful an afternoon can be. with the home depot certified advice to help us expand our palette... ...and prices that keep our budgets firmly rooted... ...we can mix the right soil with the right ideas. ...and bring even more color to any garden. more saving. more doing. that's the power of the home depot. get memorial day savings with 4 bags of earthgro mulch for just 10 dollars.

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joe weisenthal, the lesson of mitt romney's career is a testament to how awesome it is to take on debt when debt is cheap and how good it can be and how much it can increase the enterprise. here, finance with debt verse investments financed with equity. that's the equity financing.

you have an effective tax rate of 30%. and this is one of the big ways that private equity works when we talk about tax arbitrage is literally, you're moving things from one column of the accounting ledger to the other from a place where they get taxed heavily to a tax subsidy. it is constructed. it is an artifact of a tax stream. it would be like you went to indiana, bought a truck full of cigarettes, drove them to new york and sold them. you can make a neat profit because cigarettes are taxed in new york much more. it's not like you're doing some amazing thing in the adam smith sense of the market of innovation. >> people selling cigarettes and buying cigarettes in low tech

states and selling them in high-tech states was not the essence of what the financial crisis was about. this was exactly, like, square on, a big part of why the economy collapsed. >> because of the preferences to take on debt. >> by the interesting thing, one of the interesting things about it is when we usually think about capitalists, capitalists take on risks. so you put your equity at risk and you get a return. if you look at that, they're transferred. >> it's as small as possible. the equity is some representation. >> what does that mean? what you're saying is in the same way that -- in the analog of the whole -- >> right. exactly. >> 5% down. >> right.

5% down, why not make it 1%. which is what we did on the inside. but also, here, you know, buying a company, the principle is not that different. the structure -- the incentive, if the equity represents your risk, the structure of the tax code encourages you to put as little risk in as possible. >> and i should say when we have the tax reform discussion, interestingly enough, people will identify on the right and the left. i mean, in its framework for tax reform, the obama administration has identified something as problematic. it's something conservatives talk about in terms of how it distorts the incentive. but i love this idea of mitt romney as someone who his whole life is about the virtues of death and how you can explore death and now he's running for the nomination at the time when he's running with the debt clock behind him and debt has become the signifier in the minds of the populous. it's a very simple, concrete

symbol and token of how we lost our way, right? and then the private debt has been moved on to the public debt balance sheet. as a way dealing with the crisis. >> but we've create cultur culture, right? we expect to do very little and create a higher return. we now invest in companies that i'm not even sure what they do. we're going to talk about facebook later. how do they make money is someone going out and getting venture capital. $50 million for a urban box office, how does that work? oh well, we'll just write it off and go on to the next thing. that's our culture. we do have to address what is it we want to stand for moving in the future. is this how we want to be defined? >> this is back to our question. well functioning capital

markets, what should we be doing? what the capital market does is price future income. you put money in to venture. if it works, it's going to be some profit. you bhie a share of stock because you want a piece of that future earnings strength. you lend people some money because they're going to be guaranteed to pay you back in the future. the prices are supposed to reflect what guesses are. so you get everybody together and they compete and you come up with an average consensus price. the system we've constructed makes asset prices meaningless because what we've just done is borrow as much money as we can. take as little risk as we can. that would be us, the taxpayers.

so mitt romney ends up making an enormous amount of money putting the risk on people who don't know anything about it. >> where is -- >> i'll respond to that. far be it for me to question the economist. but in defense of mitt romney -- >> please, that's why you're here. >> everything is voluntary. now, grant it, not people getting laid off. but he has to go out and borrow the money from someone. there's not a machine out there that he presses a button and says oh, i'm going to put half a billion dollars into this. he has to make the case. now, there was a bubble, you know, in the 2000s in which it became extremely easy to borrow money. money was cheap. >> and we saw the private equity. >> people believed in never having a cash again.

most of the companies that bain capital invest in weren't the type with big bail outs during the collapse and so on. but for the most part, it was people who entered into them voluntarily. >> i absolutely agree. it's not the issue that someone like mitt romney comes along and he puts his own money at risk and he makes it work. the question about the nature -- what the capital market is for, do we want the banks to lend money to these guys to do this?

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here's your invoice. last week, the initial public offering dominated the news cycle. but all the initial news came out after the industry went public. the stock was trading at $31.90 what was supposed to be kind of a corporate celebration has turned into a depock el. the first screw up for stock purchases. the news got worse when reports surfaced that analysts for facebook's underwriter banks lowered their future revenue estimates and told some investors but not all. this week, they filed a class action lawsuit against mark zuckerberg alleging that morgan stanley could be lower than estimated. the bank kept that information on the inside.

now massachusetts secretary of state is promising to review issues reliterallied to the ipo and the senate banking committee wants to know more. there was a time when stocks used to be the most benign instrument on wall street. what happened? so what do we make of this? screw ups can happen anywhere. is this a screw up that's just contingent accidental? or does it say something about what is going on in our financial markets? >> let's do a little reconnaissance. we have a group, a generation of investors that have been lost over the last ten years. we call the years between 2000, 2010 the lost decade of stocks. the indexes have gone nowhere.

we can see over the course of the last four or five years that the gains made in the stock market have been made entirely without the resource investor, those guys like me who were trying to play by the rules. you wait for the dividends to compound and it hasn't worked out in the last ten years. here's the sub text of what's running through. we've lost all of these retail customers. this was an ipo that was decidely to try to get them back, not only for the occupy wall street crowd. remember, this is the one that inspired the arab spring. this is the act that's going to bring not just the 20 somethings, but the participants who still have their 20 somethings living in the basement and can't get them out of the house but they still have to work for another six or seven years. here it is. here's the ipo of the century. this is the one.

this was entirely on every level, by the underwrite writers, but the exchanges, by the media. everyone had a piece of destroying what could have been a grand reintroduction of an entire generation back into the equity markets. >> you're talking about facebook and what facebook does in terms of connecting people as having this fundamentally small d democratic ethos. it's empowering people with platforms they wouldn't have had before. i have a friend who is a grad student doing really fascinating research i've mentioned before on the program. basically the life of teens and the digital stream, particularly teenagers in harlem and their online life. what's remarkable and the power of facebook is someone who's a

16-year-old who lives on 130th street has more instant access of a platform to talk to people than a tenured professor did 40 years ago. if you wanted to tell 500 people 40 years ago, what did you do? start a phone tree? so there's a distinction between people on the inside and people on the outside. >> it should have been the easiest ipo in the world. everyone wanted in. everyone expects that you pay too much. the level of screw ups from all down the line from perhaps facebook not understanding and what you need to put in the s-1 to be clear. to before a company goes public, they have to file all of the relevant information in this filing called an s-1.

and basically, it stels out every last detail. and there's this question of were they clear enough in the final s-1 just days before it went public. when business had actually slowed down. they were seeing weakness in recent months and people knew the analysts who covered the stock for the banks, clearly, they got word from the company because they all lowered their forecast at exactly the same time to the exact same number. it was not obvious from the s-1 that that had happened. so that was one screw up. for the full day, people didn't know if they had gotten shared that they had orrered. it was a remarkable chain of events. >> i wonder what you make of the media fren si that we had over this ipo? >> i think overall, now, talking about the level of corruption. especially you're talking about what facebook represents to so many people in the world.

the same old thing happened. and what about the banks? and what about the financial institutions? >> even the banks didn't benefit that much. i mean, they were forced to use their entire green shoe to support the stock so it wouldn't be a total disaster. >> what is a green shoe? >> we'll go through this, but basically, they are fake shares that are generated through the ipo process so that the investment bank -- >> wait, what? >> i kid you not. joe will confirm this on me. they are fake shares that are created so that there is a short interest generated into the investment banks so that they can provide to a certain degree -- >> it's like a margin for them. >> and it allows them to press the stock upward or in other ways, support the stock so that the institutional players, those inside the syndicate and everybody else who's involved in the ipo has a good opportunity to get out for at least a

scratch, if not a profit. it's an incredibly stilted process. >> the investment bank can go to the original issuers and say we want these shares back at the original ipo prices. >> i want to hear the blow-by-blow for this. but we have to take a very quick break. the blow-by-blow on how the green shoe works right after this. y. instead i got heartburn. [ horse neighs ] hold up partner. prilosec isn't for fast relief. try alka-seltzer. it kills heartburn fast. yeehaw! mine was earned off vietnam in 1968. over the south pacific in 1943. i got mine in iraq, 2003. usaa auto insurance is often handed down from generation to generation. because it offers a superior level of protection, and because usaa's commitment to serve

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let's give it a couple of months after this settles. >> i don't know what to say about this. i'm afraid to say anything. >> that's just a little taste of the coverage of the facebook ipo this week that debuted. >> there were a few things that really harmed the chances of it. first of all, it's been a very bad few weeks in the market. timing matters. people have been getting skittish about all kinds of things. facebook sold an insane amount of stock. so one of the reasons that ipos tend to pop on the first day is because there's a shortage. there just aren't that many shares available. now, theoretically, that shouldn't have -- and this gets to the failure of asset markets to pricing.

the number of shares that exist shouldn't technically change the evaluation. but it does. it seems to be the thing to happen. words started getting out that the company was not doing so well. then, also, in the days before the ipo, there was that news item that gm had to start advertising on facebook. so it seemed like the ipo that should have been amazing suddenly had several things that on is own wouldn't have been a problem. don't forget the greed factor. facebook itself, zuckerberg, they all wanted more money. >> first bankers picked to sell the stock. second make ipo unavailable to anyone but the rich.

fourth corrupted market claims for first two hours stock is traded. fifth, corrupt banks, dump stock leaving investors with losses. corrupt financials, professional economist writers all invent more lives. eighth, corrupt politicians collect more campaign money. >> as someone who works the market -- >> that's a bit over. but it's true. this one was boloxed in eight ways. the retail broker was the one that got hurt the most. the ones that are suing are knight and citadel. there's huge retail claims against them from people who wanted a fair price on this. it's corrupt. and that's the big thing here, i think, in terms of we look at the ipo. when we think about this distinction between people on the inside and people on the outside. the regime of securities regulation that begins in the new deal, that still extends

forward, right, is about getting rid of to the extent possible everybody's got to have access to the same information. it explicitly bans insider information. there were two tiers of information. that's not a mistake. >> that's the way the ipo process in general works. these are biassed mechanisms. >> i want to find out which parties they advantage right after we take a quick break.

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>> well, so one of the things, you know, people talk about level playing field. what does that mean in practice? who actually was on the lower tier. what's interesting is the underwriting firms themselves are -- >> we say the firms themselves. >> right. morgan stanley was the firm that took facebook public. they were the ones who knew that business had gotten weaker. they were the ones who knew these newly revised analyst forecasts. and it's worth noting there's analyst forecast and then there's guidance. guidance is when a company gives a forecast but then analysts can make their own estimates. in this case, it's just guy dansz. we know this because they had the same numbers. so the retail, the wealth managers, morgan stanley has its institutional clients.

but then they also have, you know, your morgan stanley wealth management that might have helped someone with their retirement. they weren't given this -- >> right. >> so that's two different tiers. and then that creates a problem. that's where people are really angry at the bank. >> i'm listening to you guys explain something very important. and it's making me understand why i don't have all that many stocks. you just described the situation where i don't have the information to make judgments. this is amazing. is this a regulatory problem? >> all i can say is this is the way the mashlgt has always worked. now, part of the problem it seems to me has been in the me canization of the market and the lack of human contact that has gone on particularly in the last five years, part of the problem

that happened with the facebook ipo was particularly related to nasdaq and the insane amounts of volume that are being driven through there through high frequency trains and guys who are shorting stock that they don't really own that's really doing some guesses on whether these guys really have the right to short things. i would say that the ipo process worked a whole lot better when everybody sort of collectively created a price that kind of worked. now it's this whirlwind mechanized, high frequency trade monster. particularly in a stock this large it's a mess. >> what did morgan stanley know and when did they know it? >> they have an sbe mat knowledge of the business. they'll say we did everything to

the letter of the law and also how we've done every single other ipo. we know what's going on. we talk to the company. we do know the numbers and we can tell certain clients that. and for the most part, people who have their money with morgan stanley wealth managers are probably pretty close to that 1%, as well. so the ipo does come off as seeming incredibly rough. they actually do need selling. most people don't know who they are. it made sense for a lot of things that you had to go on this road show and advertise this. >> what do we know now that we didn't know last week? my answers after this. look at the car! my dad's gonna kill me dude...

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letting you know now what you didn't know last week. the most he rarlded position was the worst performing. we know that the stock lost 18% of its original share price and $38 at its be. and that the stock was lowered by friday. midway through the roadshow for the ipo, managing banks cut the revenue projections on facebook and communicated only to the retail and not consumer investors. even with a long tradition of relative transparency and oversight, there remains ample opportunities for the insiders to game the system. we know that ceo of jpmorgan has been offered to testify before the bank oversight commercial

and we know that the staff committee chairman is a registered lobbyist for the bank. we know that he was hired to work on the regulatory inform on behalf of the bank. we know he is staffing the committee tasked with overseaing the committee and though we don't know where the al leenss lie, we can guess. thank you to michael isikoff, we now know what the next billionaire super pac donor access looks likement we though that a group calling themselves the oil champions we know that with the s.e.c. disclosure filings we know that he contributed to the pro romney super pac restore our future rg and we are certain that we will is see more billionaire benefactors with financial stakes in the ranks of romney's policy advisers in the months to come. we knew that allen simpson was performing a self-caricature of a cranky old man by taking to

the airways and saying things like this. >> children are not sending thank you cards for the christmas presents and listen enning to the snoopy snoopy poop dog. >> well, in a letter to the california senior groups that was critical of his simpson/bowles group, he knows that he was writing and the flier s of saying that you are wretched group of seniors you mus be to use the faces of the very people that we are trying to save while the greedy geezers like you use them as a tool to

front for your prefairous and you need a pane of glass up your navl to see the truth. >> i don't know what that means. >> well, i know that plutocracy does not work. i know that in watching the jpmorgan disaster and in watching the facebook disaster, i know that not only do financial markets have the difficulties that we as college professors talk about all of time, but i know for certain now that unless we fix this, this nation is in unbelievable trouble. they really do know. >> what a risk of the system. joe, what do you know? >> i learned something that i learned from the u on twitter that of course, mitt romney is not going the cut the spending like crazy, if he wins, because it would harm the economy, and he knows that spending cuts harm the economy. >> this is interesting of an interview that i and mark hall

pr hallperin and rachel maddow picked up on it, that it would hurt to cut the spending. but this get bask to the question, how much do the republicans believe their own talking points? >> i thought for a while when austerity is what the out of party advocates, and now -- >> until they get in power. >> now they are in power and already revealing it. >> amy, what do you now know? >> the media likes to cover soldiers and veterans and they should, but not when they are questioning the military. i just came back from the major nato summit protests where thousands gathered, and a solemn ceremony of 40 veterans of the iraq and the afghanistan wars who hurled their medals back at the nato generals toward the nato gates. i am thinking of aaron hughes one of the organizers of iraq veterans against the war as he hurled each medal he said this is for the 18 suicides a day of veterans.

this is for the sexual harassment of the men and women in the military, and this just to say i'm sorry as we move into memorial day what we should know about and particularly mary kirkland who lost her son, derrick, to suicide. he tried to commit suicide in iraq, and was brought back and sent to a hospital in germany and ultimately sent back to fort lewis and there they deemed he was low risk for suicide and released him and the next day, he killed himself. >> we will have mary kirkland on the program tomorrow talking about memorial day. what do you know? >> well, what i learned this week is that individual racism was tied to ignorance and a limited iq and i now know that is not the case thanks to the ucla's medical school which has singled out christian head who is the first and only

african-american tenured head there who has been singled out for other things that have been said. you can go on youtube and watch it. it is christian head, and they put his head on the face of a gorilla and had it sodomized, but these are doctors who have said first to do no harm and have completely assassinated this man's character simply because of the man's color of the skin, and we have to do something about this skin. >> and my thanks to you, and all of the panel. thanks for getting up today and thank you for joining us today oar "up" and join us tomorrow, sunday morning at 8:00 a.m. yu can go to msnbc.com for upcoming shows and guests. up next is melissa harris-perry. what have you got for us? >> we are going to dig further into the education plan and in particular romney's education plan and take the opportunity to jump back and say, wait, are we even asking the right questions?

we have a great panel of education reformers and also ask the president obama is a big spender or a frugal fannie and i want to ask about the question of the issue of the new black politician and all of what was made of the cory beeskocory boo and also, i will have say gaa cigar. >> wow. i don't know if they allow that in studio 3a. melissa harris-perry, thanks for getting "up." solution, in a whole new way. using real-time photo sharing abilities, they can create and maintain high standards, from kitchen to table. this technology allows us to collaborate with our drivers to make a better experience for our customers. [ male announcer ] it's a network of possibilities -- helping you do what you do... even better. ♪ sven's home security gets the most rewards of any small business credit card!

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this morning, egypt voted, but could the arab spring prove to be the very perils of democracy? plus, the president's spending spree that wasn't. try telling the u.s. auto industry that this administration spends too much. and how is it that the mayor of the nation's 68th largest city commands such national attention? but first, how can we possibly find the answers to america's education problems if we are not even asking the right questions.