the fed isn't perfect. as the guardian of our financial system the fed in the past have come ushort in a snub number of ways. i only say while we consider making the fed the lead systemic regulator the fed and we must examine how it can improve its functioning to take on these new duties. what about the arguments against? while ensuring financial stability may be too big a job for just one regulator even if the fed takes the lead, coordination with other regulators will be essential for success. coordination with regulators and central banks abroad may be more critical than in sync regulators at home. our regulation is largely local. i like the president's recommendations for the financial services oversight council and international cooperation and coordination especially. last, what about rssigning other responsibilities. regulators should do what they do best. and, for example, as others have said, consumer protection and promotion of financial literacy could go to another agency. but i think theed may s

the problem is there's too much talk what the fed can do. what the fed can do to help us. i want the fed toothless because all the economy needs is a stable dollar to use as measuring stick so they know how to consume and investors measure investments. all the rest of this stuff is noise where it gets us every few years talking about the latest financial crisis. we need to greatly reduce the fed's mandate, about a stable dollar, that has the one thing they can actually control. >> john, you just mentioned the treasury, i think you're bringing another actor in. actually, ben's biggest challenge is the obama treasury and large deficits we have going forward. we all know we can easily get into the feedback loop if folks lose confidence in the dollar, interest rates go up, we end up having an ever bigger deficit. >> larry, why doesn't mr. bernanke call a halt to buying treasury bonds, which does smack of debt monetization? and why doesn't he call a halt to buying all the mortgage bonds which kind of smacks of trying to control market interest rates which is futile? why doesn't

, fed, fed, here in asia today.delines, just waiting for what the fed will say and do. taking a look at the markets, the nikkei 225 really pulling off or coming back from ten-month highs yesterday. down 1.4%. the kospi down 0.8%. the shanghai market tumbling today, down 4.6% on concerns that much of the lening driven economic growth in the first half of the year, you know what, may not continue into the second half given the mixed data we saw overnight yesterday. the hang seng is down 3.03% and the bombay sensitive index down 1.1%. in terms of oil, this is how the picture is looking. we did get the iea report now, tumbling -- falling 37 cents, $69.08 a barrel. and brent is off, as well, off 58 cents, $71.88 a barrel. ross. >> okay. joining us now we have some of the issues of the day, chief strad strategist. we've got the calling inflation forecast a little later, which we'll talk about. let's start off with the fed today. what are they going to do when we hear from them? how is that going to impact risk appetite, d

what i've been saying is forget about what the fed is doing, this trend is bigger than the fed. >> that'so a trend, it doesn't matter if you don't feel like making a bet on blackberry versus iphone, you got to have a light. >> that's a solution. that's cree. >> t.j. said something interesting, we own the technology in the country for cell phones, nokia has too come to microsoft to make the phones smart. most i would describe as being not smart. this is a very big move. we've only had -- apple has only 3% of the phone market, but it has, nearing 40% of the smart phone market. >> who is going to get that -- this is the holy grail product, you can deal with -- and there are big mobile companies talking about merging right now -- none of them are american. in africa and india, you can provide somewhat smart phones to people because all they use is cell phones and now it's too expensive, if someone can gets the product -- >> there's a great debate going on with the smart phone companies do we cut price down to $99 and explode the sale and hurt the margins, or do we let the verizon and at&t. in

that's not the fed's purpose. the fed has a very narrow purpose. armey's ax yumm is division of labor works when people mind their own business. the fed should have done that. now the fed has itself in a big pickle and it has to be cleaned up, disciplined and brought back to its tradition role. inflation, fighting inflation in the futures as a result of all of this easy money, all these big deficits, is going to be -- >> steve, how much baggage does he go into this second act with? >> well, i think dick armey is more decided about the causes of the subprime crisis than most economists are. >> but i brought this up to you last week as he was about to make his speech on friday, i said, some people are wondering if his speech would include this -- you know, the title of the speech was reflects on a crisis and i asked you if it was going to go back to the period where he was on the fed with chairman greenspan and why they kept rates so low for so long. >> yeah. the idea of rates being low for a long time, we had some very long conversations about that

our gues, former fed governor urence meyer and fed watcher david jones. >> paul: what's anothe2- trillion? the white hoe revises its ten- year deficit forecast to %9 trillion. but servicing all that debt ll be a costly prosition. >> susie: a new repo shows that conmers are feeling more confident about theconomy. and that could mean more on wallets. but analts say american tailers are still adjusting a "new normal". >> paul:'m paul kangas. >> susie: and i'm sue gharib. this is "nightlyusiness report" r tuesday, august 25. "nightly business rert" "night business report" is made possible by: this program was made ssible by conibutions to your pbs station from viewers le you. thank u. >> susie: goodvening, everyone president obamgave ben bernanke vote of confidence today, ninating him to a second term as cirman of the fedel reserve. speang from martha's vineyard, where he is vacationg, the president praid bernanke for hi"calm and wisdom" and "bold action" in rescuinthe u.s. economy. bernke's current term at the fed ends in january. his nonation still needs to be confirmed by congress. but tod

everybody, i mean you can say there's a difference between the fed and the branches of the fed. although throughout business branch means in effect another office. not even a separately incorporated subsidiar most of the world is going t view your branches as part of your tree. do you think it's appropriate to have privately elected governors serve in what appeared to everyone to be a governmental pacity? >> the boards of directors of the reserve bank i think of the reserves banks have served a valuable function in the federal -- >> well, sir, in germany in before world war world war i they had what manyeople thought was a good government. but your voting power and control depending on how rich you were. you could argue that was aood government that made good decision. i'm not asking if it's good government. what'm asking is it consistent with what we celebrated on the fourth of july to have such governmental power in t hands of those elected on the basis of one bank one vote? >> i think congress from 1913 on has considered it consistent with it's authorities and how it wied to

the fed's up to it.it runs again the political risk that would compromise the fed's independence. the committee on capital markets regulation that i co chair had recommended a large umbrella regulator to stand side by side with the fed, and i still think that's a much better idea. >> mr. hubbard, when do you anticipate a rise in interest rates? we were debating it earlier on the show. some people are saying maybe by spring. what do you think? >> i think that would be aggressive. a rise in interest rates will occur when the economy's financial normalization is well under way. that's beginning, but i would hardly describe it as well under way. >> i think mandy and i have t exact same question. >> it's all yours, trish. >> when is it going to normalize? when, in fact, will we be out of this tough economic environment? >> i think we will see financial conditions beginning to normalalize much more by next spring. whether the fed begins hiking the funds rate at that point is anybody's guess. the first statemen

the fed's view of the world is as follows. high unemployment low capacity utilization, overall low aggregate demand means inflation is on hold for an extended period, that means foote fed is on hold and/or low for an extended period, if you think that's wrong, go ahead and trade against the fed. in other words, worry about inflation, trade on inflation, but really what they're saying is they believe inflation remains subdued for some time. i will say one thing. i think there's more talk going on behind the scenes that we'll get to about an exit strategy. i think they are talking about what i call preparing for the peace in a very, very serious way. so they are ready to move when things start to move that way but not anywhere close to actually implementing them. >> thanks so much, steve liesman. we won't keep you on hold here. scott, over to you. >> thanks so much. back on the floor of the new york stock exchange, where we can get more on today's market move and the fed statement and everything else going on today. jamie ajaspe

what's your take away of the fed's decision? >> i thought it was an expected decision, but all in all pretty good news. before they said that the economy was still contracting, but the contraction was slowing, that it's leveling off right now. that they're seeing some positive growth in the rate of change, that's pretty good. but they're sort of calling for washington post said today they're calling for a recovery that only a staity stish an can love. it means we're leveling out but not looking forward to any tremendous growth. we have avoided a lot of dire scenarios, so there's a lot the feel good about in this release today. i'm not sure what you translate that in rushing out to buy stocks. >> susie: exactly. i think michelle the point that michael is making is a good one, because the fed is still saying that there's ongoing job losses, sluggish income growth. moth people don't feel that this is really a recovery. >> right. well, that's the tricky thing. it's like, people are likened it to a stock that falls from 10020 $10, ev

the fed is going to meet today. we're not expecting them obviously by tomorrow to tell us anything about rates moving, but that statement is always the important thing. what sort of note do they need to strike as far as their outlook for the economy and as far as their strategy going forward? >> i think the strategy going forward is actually the important issue here. there is a wild belief that we have seen a recovery, whether the bottom is here in september, and the v-shaped recovery is sort of priced into equity markets. so what they will be looking at is the statement as to how they'll exit this method stimulus of money into the system and drag it slowly out so we don't see a double dip in the economy, but at the same time, you know, we do not -- at the same time, we're not going to see any deflation -- sorry, inflation worries. the point is that the statement is a very important issue here. >> let me turn to you, bob. how do they get it right here? in a sense, which is the market going to cheer, that they would

and today's fed meeting is really going to be important, because if the fed indicates they're going to extend their quantitative easing program which should run out sometime in september, that will be, you know, kind of a death nail for whatever kind of rally we're going to have. the dollar will go lower, because thaelg extend the supply of u.s. dollars, just like the bank of england did. so in theory, john and larry, i think what's happening here is that for, you know, the commodities right, we have seen speculation that if you want to hedge inflation, if it you want to hedge dollar weakness, you buy commodities and oil is part of that. so that is part of the big program. and that is how they're kind of linked right now. >> i mean, andy, don't consumers love king dollar? come on, it keeps inflation down -- >> our president -- >> no one wants to defend the consumer, john. you always talk about consumers and 70% of the economy. okay, great. so why don't people help the dollar, which would help 70% of the economy? >> i don't get it. i don't get it. >> i mean, really, it's one of those my

does it mean the fed has to be tighter? finally, call it trail talk, the issue whether or not ben bernanke will be reappointed. not an issue formally but certainly in the hallways discussed much on the trail. >> yeah. the water cooler discussion, as they like to say. >> water cooler. >> don't move. the news we broke on the incredibly shrinking deficit was confirmed by treasury secretary tim geithner as another sign this turn around is legitimate. >> the estimates of the deficit will be somewhat lower than we expected and feared in part because we've seen more stability sooner in the financial system. therefore, we think the expected cost of fixing this financial mess is going to be lower than we initially anticipated. >> famed fed greenspan jumped on saying the next six months should see strong growth. we ask, is this recovery for real. we welcome steve liesman and economist and author of the upcoming book "it's not as bad as you think," and mort zuckerman, it is worse than you think and steve is with us. in addition to wha

fed and increasing dependence on the fed, to me is a huge mistake. like rewarding failure. we are -- by having bernanke there, you're rewarding-e ½010, okay, you have a bigger tax break for those who make mistakes are rewarded, those who did okay are penalized. is this capitalism or not? finally they are rewarding the bankers. the bankers are playing a larger role than they did before, the bangers are playing a bigger role instead of penalize them. the obama administration has been setting a horrible example with bernanke. i'm sure that anyone in place would have done the same thing, if not a better job, in the subsequent, you know, unfolding of the crisis that you know. >> editorial "new york times" i spoke about the mistakes bernanke made including his approach to the greenspan deal, many mistakes made. after 2007, actions were very aggressive, conventional, and he's learning from the great depression experience to avoid another great depression. i give him credit for doing that. he made many, many mistakes, with those policy options avoided it an

now, turn back to the feds, fed head ben bernanke says the recovery is real. i am personally a little worried as i said in my opening remarks he is ignoring king dollar and possible for future inflation. let's have a talk about this story and the fed. we have barclay's capital economist michelle meyer and michelle managing director and senior economist at rbs. two michelles, terrific stuff. michel michelle, welcome to the show, great to see you. i want to ask you, to me, the fed is basically saying the recession is over. i'm worried they will buy up 1.5 trillion in mortgage bonds and treasuries and that will flood the money supply and create inflation down the road. what's your take. >> i think the key is how do they unwind this easy policy. right now the economy is indeed in our view emerging from the recession. we think the recession ended in june. it's still quite vulnerable. you still have a lot of head winds against the consumer. we think we will see a cyclical balance the second half of this year but still a question how sustainable this recovery is. bec

do i love that feeling. >>> just getting started on this fed day. you can see the fed right there. that's the countdown to the fed decision. mixed news on housing market, home sales up, but prices down, and in some places you might not expect. cnbc's housing experts, diana olick joins us from washtd washington with more. diana. >> >> that's right. the second quarter showed a healthy surge in home sales, but the recession on price social security driving the surge and we know it's happening on the lower end of market. take a look at the latest quarterly metro home price report from the national association of realtors showing prices rose nationally, but off 3% from a year ago. while 39 states showed increases, these ten showed year over year, which is really an even better indicator of a real trend. the worse states are california, arizona, florida, nevada, the usual suspects. overall, 129 of the 155 metropolitan statistical areas reported lower prices from a year ago. and the steeper price drops are broadening now to atlanta, chicago, seattle, new york, new jersey area and here in

did the fed make the right decision? what's your thought on extending the bond buying program and what do you see in the bond market, giving the reaction we had yesterday with the ten-year once the fed is out of buying there? >> the well, obviously, the fed doesn't need to do an awful lot. it's expanded the program slightly, but we're talking about duration rather than amount here. i think as far as the markets are concerned,he fed has given us sufficient indications that it will be drawing this program to a close over the next couple of months. and that will give markets time to prepare and subsequently, i don't think we're going to see a huge sell-off in markets. the fed is still a big buyer of treasuries, of course. but once that program tapers off rather than come to an abrupt halt, we'll see market yields probably grind higher, but it should be a fairly orderly transition. >> peter, hi. this is christine. who is going to order all the supply coming on to the market? will china pick up some of the slack? >> i guess t

with the feelings about the fed?wall street wants. the question is, how the decision reflects on obama. and i don't think the politics of that are either clear to obama right now, and, b, i think there's discussion of, you know, are there alternatives we could have? the administration has it's plate full right now. i wonder if they've considered what frankel told us last night, which is, you know what, between now and january, what are you going to get, some unemployment reports, a gdp report? is that what you're going to base your decision on? an economist said, hey, are we going to make this decision based on one month's unemployment rate? i hope not. >> is there any downside to the administration not suggesting they're going to reappoint him right now? does it create any uncertainty or is there a problem with it. >> i think the downside is the uncertainty. i'm taken back to the interview i did with george friedman from stratford back in maine pep said, first of all, wall street has no vote here. be, the americans

we'll ok at options f reducing the fed snding spree. >> susie: daysfter anuncing a new schule for its green liner boeing announces a major management shake-up. details in tonight's stock in theews. >> pau i'm paul kangas. >> susie: and i' sus gharib. is is nightly busess repo for monday august 30. >> sie: good evening, everyone. the gornment needs to stop spending money on the u.s. economy. that's the conclusion toy fr a new poll leading economists conducted by t nationalssociation of business ecomics. acrding to the rvey, 76% of those economists donot believa second stilus package is necessa. saying the economy is now beginning to recover. stead, they say the u.s. government should cut spending ov the next two years. scott gurvey has details. >> rorter: the economists poed were generally supporti of currentiscal and monetary policy. but guard about prospts for the fure. fo out of five say e governmenttimulus programs have add to g.d.p., but ree out of four don't believe a second stimulus package is needed. on economist think the current imulus package is enou. >> we've only aocated..

so the next real challenge for the fed and for fed chairman bernanke will be the exit strategy. that's a challenge they want. they want us to be in a recovery, and they want to take that challenge on. whether they can surmount it and the appropriate way is another question. >> yeah, david, how are they going to do on the exit strategy? >> well, right now they're trying to assure everybody they have an exit strategy, which is the first part of the program. they say they can pull back some of this credit they've extended. i think it's really going to be a question of wlikt will. they're going to have to tighten credit before it's clear to a lot of workers that the recovery has arrived at their employer. you know, even if we have a slightly better recovery than we had been anticipating just a few weeks ago, we're still likely to have high unemployment for another year or so. so it's really a question of whether the fed has the spine to tighten when it believes it's necessary despite the political pressure to hold off. >> okay. thanks, guys, for joining us today. we appreciate it. >

so the treasuries may stay on the books of the fed, and the fed may act to replenish them over time as some of them expire. but among the things they'll be exiting from, i don't think treasury is one of them. >> yeah, but bob heller -- in effect, bob heller, the balance sheet has not grown in, what, seven months now? almost eight months? in other words, they put a trillion dollars of round numbers in the fourth quarter of last year. since that time, as some of the emergency programs are running off because the market demand is not there, they have bought the treasury that may end in september. it's a flat balance sheet. is it an exit strategy? that's what i'm asking. >> no, essentially these programs are designed to self-did he say instruct. 100 about him up for sale, only 43 were auctioned off. so automatically, these programs were shut down because they're at penalty rates. >> and is they're not replacing them. in other words, the replacement rate is neutral. that's the point i'm making. there is no new money creation going on since late december, early january. >> the market realize

he was part of the fed -- alan greenspan's fed, in spite of all this experience, ben bernanke soundsike was slow to catch on, slow to understand the magnitude of the potential problem. >> i think that's right. i think both ben bernanke at the fed and hank paulson at the treasury used the word "contain" a lot in 2007, by which they meant they thoughtg was a problem but they thought the damage would be contained to housing and somehow other parts of the economy would do well, after all oil prices were rising suggesting there was demand for oil so there was growth somewhere and they didn't understand how much the house-price problem had infected the entire financial system. it really isn't until late 2007, early 2008 when they realized the whole world economy is infected, it's not contained at all to housing. >> brown: the other person, looking back salan greenspan, lionized for much of his term and yet you look back and it looks like he, and he has said some of this was kind of controlled by a mindset that in the end didn't apply to what was happening. >> that's right, i think alan gre

getting peanuts in interest from depositing the feds own money back at the fed, the banks will want tod it out to borrowers who'll pay a lot more. and then? >> then the fed has to start pulling it out. its a very, very, very difficult task. >> reporter: chairman bernanke acknowledged as much in his newshour forum in kansas city. >> once the economy starts to grow and begins to move ahead, then it will be very important for the fed to unwind, raise interest rates, bring that credit back, bring the money back, so that we don't have an inflation problem down the road. >> reporter: in short, the fed might actually offer banks a higher interest rate to hold onto fed money, keep it out of circulation. or suck up the money by selling banks all those securities it bought during the crisis. but none of it will be easy, says mit's simon johnson. >> its a very tricky game they're playing. they're worried about the money getting out of control. if you pump money into any economy even this economy, without limits, you don't quite know what's going to happen to the price level. the prices could jump

dugan, and the fed regulated the holding company? under your policy in case law, the subsidiary of the affiliated mortgage company was not subject to california law? >> so we regulated the bank, and it did a portion of its business inside the bank. it did all of the subprime lending outside the bank, not in the subsidiary bank. >> it was subject to california law? >> but the bank itself was not subject to california law, and it is also where they did not do their subprime lenng that caused them a number of problems. >> prime lending it was an entity that was subject to california -- a prime lending was an entity that was subject to california law, attorney general review, all that? >> at that time, before they switch charters, yes. >> did they do that, to your knowledge? what completed the use? -- what template did they use? >> you will have to ask the regulators. historically, there has been this anomaly where the banking company gets heavily regulated, and the holding company affiliates were not subject to the same requirements for

f re-deposits at e fed., we asked brian sac who runs the fed tradingesk in new york, n't the point of pumping reservesnto the banks to get thmoney loaned out and moving through the economy? >> we're trying toncourage that pross of boosting the flow of cdit and making credit available on more accommative terms. >> reporte and that hasn't yet happened to the extent thayou hope it will well it has happened to som extent. i think were seeing provements in a l of private asset markets. mortgage rates areelatively low. certain types of nsumer credit maets seem to be coming back. so i think were eing some effectbut overall credit condions are still quite tight anwed like to see further improvementsn order to encoure economic growth. >> report: so the fed has annoued another $1.75 trillion of nepurchases of assets from the banking system, trsuries, mortgage-backed securities fannie mae andreddie mac loans replacing them with fedal reserves, eleconic money. it's at they were doing the day our cameras were the. >> the

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rick, i thought that fed was -- ben bernanke, i should say, not the fed. the man at the fed was has been a student of the great depression and that he should know, of all people, when to exit the strategy of easy money. >> he might be a great teacher at university. he's navigated some rough waters. in the end, i can't really look to mr. bernanke to pull the punch bowl away, for the party is so far extended into the wee hours of the morning, it won't be the lights going out, it will be the sun coming up. >> i got disagree with you on one point here on bernanke. the entire situation on soaking up liquidity. if you go back to his "60 minutes" interview, he said he was concerned about the political will. i will tell you this, the obama administration, he's the pilot light right now landing the plane. they are going to rip the pilot out of the chair, put their own guy in the chair. they won't allow him to soak up the liquidity. >> i completely agree but i'll take it even a step further. what do you believe he would have done differently today or the last meetin

that's what the fed did in the 1930s. they were so concerned about the potential for inflation they ignored putting a crunch on the economy too early. the chairman is very aware. so far we don't see signs of inflation. the chairman is reiterate -- >> do you think err on waiting too long. >> he doesn't want to err on either side. he wants to get it right and a strong commitment to do that. >> when do you think that might be. >> that's a difficult question. it's all going to be about forecast. it's not going to be about the data that has just come out or what's looking in the past. trying to make policy, the windshield rather than the rearview mirror. based on forecasts of recovery, forecasts of unemployment and forecasts of price pressures. right now we don't really see any of those price pressures, that's why the chairman and other members -- >> some might take issue of that. no signs of inflation. certainly if you trade oil, there are some signs of commodity inflation. >> there may be particular commodities but if you lo

we have the 10-year tomorrow before the fed's announcement when it comes to the fed meetings.i have to imagine there is a lot of indecision out there if you want to get in on the action? >> this is huge. especially since about four hours ago, something unique happened. the november fed fund futures and trade the highest price. 9978. september is supposed to be the run off month for quantitative easing. should i connect the dots? they could have a boat load of wild cards that affect the perception of asset purchases and that could make the auction go rackably well if people thought that was going to be in the statement. >> this is a big issue. we know the fed said we will buy up to $300 billion worth of u.s. treasury debt, but wasn't that always conditional on the state of the economy and the state of the markets and hasn't the market gotten better? is there a chance they will tell us that maybe we will not going to buy all 300? >> they continue on and do that 300. they have another excuse that makes sense. they really had depleted the stock of treasuries and they bring it back

hampton, always busy on fed day. >> yes indeed.and as you and bob were just talking about, the open market committee tweaked what it said about the economy since its last meeting at end of june. it reassured market and fed watchers about the future of monetary policy and it provided a date certain for ending at least one of its asset purchase programs. here are the highlights. as we mentioned, economic activity's leveling out. conditions are likely to warrant exceptionally low levels of the fed funds rate for an extended period. inflation will remain subdued for some time. the purchase of $300 billion in treasury securities, the fed anticipates the full amount will be purchased by the end of october. now, while financial markets have rebounded, leading economists and former fed officials say the key to a main street recovery is jobs and a rebound in consumer spending. >> i think it is important because, again, unemployment is still a serious problem and it's growing. more and more people continue to lose jobs. even though it's slow

the fed will have tout hike the acb. the history out of the last two session is fed is slow to act. >> in effect what i'm hearing from both of you this is quality of the american credit and financial system is suffering because of the failure to do anything about it. that's what i'm hearing from both of you. adam, in monetary terms, if the dollar will suffer, inflation prone policy if the dollar keeps going down, doesn't that impoverish consumers and business, dollars in our pocket are worth less, harder to keep him porting? this puts bernanke between a rock and hard place. >> it does. the inflation between weaker dollar is fairly long variable. from the fiscal point, we had an exit strategy from ben bernanke published a few weeks ago. that's what we need on the fiscal front. you don't need the action yet but do need some sign is there an exit strategy for fiscal policies. >> dave walker, when you talk to people in washington as you do, a fiscal exit strategy, entitlement exit strategy, i have to tell you my instinct is

and the fed rate decision. i'm racing cross country in this small sidecar, but i've still got room for the internet. with my new netbook from at&t. with its built-in 3g network, it's fast and small, so it goes places other laptops can't. i'm bill kurtis, and wherever i go, i've got plenty of room for the internet. and the nation's fastest 3g network. gun it, mick. (announcer) sign up today and get a netbook for $199.99 after mail-in rebate. with built-in access to the nation's fastest 3g network. only from at&t. >>> all right. let's take a look at the trading day. weak ahead. we're going to bring back dodge dorland. it will be about the consumer with the michigan consumer number and walmart. one of the things that will be a big head wind for the consumer is the fact they're seeing the yields move up. getting closer to 4%. is that going to be a problem here? >> it it may not be a problem. it may be the opportunity for the market to take the break. and we are looking for a break from a trading point of view. it's

at's a key question that fed policymakers will be debatin this week. they begin two-day meeting in washington tomorrow,o decide what's next for the econy and terest rates. many economis have already decled that the recession is over and that the u.s.conomy is on the th of recovery. but as scott gvey reports, even the experts he lots of questions out the central bank's next move. >> reporte fed watchers would like answers to three quesons when the central bank conclus its august meeng on wednesday. first, they want to know abo plans to raise ierest rates. second, they want to know the fed thinks the econoc recovery is real. anfinally, they want to know if chairn ben bernanke will be re-appointed to a cond four- year term. ll, answers to two out of three isn't ba first up, there ist a owball's chance in a very wa place th the fed funds rate wi be raised from its zero to .25% range this mont or, acrding to jim o'sullivan of u.b.s., anytime soon. >> most likely they'll reat the nguage, indicating that the funds rate'soing to stay exptionally low for an ext

you refer to the fed now as even a fourth branch of government. >> right. i think that exposed itself almost a fourth branch of governmentdrnghis crisis. no one se had the power or the money to act to save us from calamity expt the fed. the present had more authori to launch a nuclearmissile to defend the count thane did to spend billions of dollars to defe the banking sytem, so the only institution i our government that had t ability to do this was the fed and they came in with all guns blazing. >> brow but that leads us to here we are no whi is a debate over this uneleed -- >> right. >> brown: this unelected officer, ts unelected agency with so mh power in a democratic society. >> it'caused cocern. there was a gallup poll that found fewer people think the fed is doing a good job tha think the i.r.s. is doing a good job. part of ople's suspicions of concenations of political powerit's why alexander hamilton's first ba of the united states, a forerunner of thefed, was blown u and the second bankof the united states was own up as well. i think peoplere a lit

so first to the fed, the fed has nothing in my opinion whatsoever to do with the free market. the free market is social cooperation bounded by private property rights we engage in voluntary transactions with each other and cannot trespass upon other people's rights to life and property. that's all that is for the boogeyman definitions you've been given that's all it is. there is no room in that set up for a monopoly paper money producer. that violates the tenet of the free market which opposes monopoly and the free market would never produce a paper money system like we have now where the money is paper, it's not redeemable. the system we have now has never been created, no such thing. it's been produced through government and threats of violence and use of the police to suppress alternatives. it has never spontaneously emerged. as the fed therefore is going to be the target of my remarks. i am of the opinion the free market more or less works in every situation so why don't make an exception to say that is the free market works however when it comes to money and interest rate

so what happens when the big, bad fed ultimately steps in and raises rates?ld slow the pace of the recovery but accelerate the profits and paychecks and adp, getting slammed right now by the fed funds rate that's practically at zero. as we know, money market funds are yielding almost nothing. stay tuned to this for a second. remember, these companies earn interest in the float as they sit on large sums of money for short periods of time. we've had a prolonged periods where paychecks and adp have suffered from the twin problems of a weak economy and low rates. not many companies are hurt by both. now we're moving to a period where the economy's getting better, the fed will have to raise and these double losers will become double winners. which one? both companies have pristine balance sheets with zero debt, well run. adp is cheaper in a price to earnings multiple. these are big cyclical companies. price earnings multiple higher. as earnings increase with recovery and higher rates, multiples will stop looking so big. you'll be kicking yourself for missing a gre

because it will eventually cause the fed to tighten.is there a way to let you thread the needle here, some stock that will be helped, not hindered, by higher interest rates that may happen before the end of the year. an investment that won't let you be fretting about the next fed meeting and the one after that and the one after that. i've got two of them tonight and they're both excellent companies. they've been down in the dog house because of all of the weakness in the economy. they are paychecks, payx, and automatic data processing, adp. these two payroll and human resource outsourcing companies do better with a recovery, especially nonjobless one, something latest unemployment figures indicate. an increase in jobs means an increase in check volume. your paycheck. transaction volume. for both companies this is a big plus. they also benefit from higher rates. most companies don't. these do. because the way paychecks works, they collect money from the company where you have your job to run payroll, then they send out the checks to empl

sam, what do you think the fed is going to do? >> i don't think the fed is going to do anything. they might soften their commentary to investors when they conclude their meeting on wednesday. but i think what they want to do is they want to make sure that the unemployment rate does not peak above 10%, which we think it will. and probably will stay above 10% for all of 2010. and they don't want to makee mistakes like in japan and pull away the stimulus too quickly. >> so the drop in unemployment rate last month was a fluke? >> i think, well, following with steve liesman's fishing expedition, possibly so. >> or rirsorry, didn't mean tha >> it won't abe a hook-shaped recovery, either. so basically when we have a lower participation rate, meaning more people saying, i'm not even going to play in this game, i'm not going to be looking for a job because it's so hard to find, i think once they see that, gee, maybe we can start to get a job, that participation rate will increase. and as a result, the unemployment will increase as well. >> conrad, this puts the fed in a very, very difficu

in 1913, people thought let's get the fed to do this. the fed become you the agency regulating banks, then the fdic got into the business of regulating banks. we have too many regulators with too many overlapping responsibilities and before we give regulators any more power, let's look at the whole pot and divvy it up in a sensible way. what i see bernanke doing, just give us more power. we have weren't able to properly oversee bank holding companies. let us now take responsibility for. >> let me clarify this for a second. first of all, it's president obama who has proposed that the fed act as systemic regulator. that comes from the president of the united states. not from mr. bernanke. number two, just a moment, sir. number two, i think it's beyond debate that in light of the near death experience we all saw from march -- from september to march, that we need systemic regulation and today there is not a party which is responsible for it. i think that's beyond debate. therefore the question is, who, not whether. and there's not a party a

the fed has created enough money. it clearly has the technical capabilities to take the credit out of the system to use their tools of the way they handl bank reserves, to raise interest rates and to get the credit out before it creates inflation. i think the problem you identify is really one of political will. they will have to tighten before it is clear to all of us that the economy is healthy and they will need a lot of political resistance when they do that. look at the criticism they are getting now and they basically have to bring it open so there is that res. their people and say that is inevitable, that every countr has ge deficits and lots of stimulus through inflation. ina such a determine is. i think they have identified the ppoblem and we will have to see whether they have the guts to turn the spigot in time to stop it but that is the right wrist. sir. >> i'm a little concerned about the-- about two years ago the prophets in corporate america for over 40% going into the nancial sector, and of cour it is g

we undertook extensive investigation by the fed, including fed bank of san francisco and others as well as state regulators within the fed's holding company jurisdiction. granted the charter to countrywide. one of the things that seemed to be lost in the discussion is that the three months or four months before countrywide came before ots, citibank took two historic thrift charters totaling $322 billion of assets to the national bank charter from the federal thrift charter shortly after countrywide came, capital one took approximately $17 billion in assets from a thrift charter to the occ. i would suggest that the mere action of an entity, a business entity, choosing to chains -- change its charter on its business plan in and of itself does not necessarily suggest they are fleeing. i just wanted to make -- >> i appreciate that. let me ask a question. several big banks have come here and argue before the committee that we shouldn't have a consumer financial protection agency because it is dead to separate safety and soundness regulations from consumer protection regulations. but that arg

lending like crazy and the fed will have time to do it. you have to keep in mind, neutral fund rates are above 4%. >> i want to say something. or the fear of infon. it's serious that if you don't stop the train before the tracks end. the fact is there is a conductor and a functioning break. they added new breaks in the form of interest on reserve to remain to be seen how the brakes work. i will warn people don't watch the funds rate, but watch the balance sheet and the interest. the new things that will tell you whether or not diana is right. whether or not the fed is actually putting the brakes on it. >> what about the chicken and eggs question. you never got the income growth. not as if you had an inflation problem. how much longer can we continue where income as a fed are sluggishly growing or falling. >> the general rule is that the turn around is not tomorrowed by the 10% of unemployed and the 90% who are employed. if it were the case that rising unemployment neant it would mean we would always be in recession, those will determine th

we undertook extensive investigation by the fed, including fed bank of san francisco and others as well as state regulators within the fed's holding company jurisdiction. granted the charter to countrywide. one of the things that seemed to be lost in the discussion is that the three months or four months before countrywide came before ots, citibank took two historic thrift charters totaling $322 billion of assets to the national bank charter from the federal thrift charter shortly after countrywide came, capital one took approximately $17 billion in assets from a thrift charter to the occ. i would suggest that the mere action of an entity, a business entity, choosing to chains -- change its charter on its business plan in and of itself does not necessarily suggest they are fleeing. i just wanted to make -- >> i appreciate that. let me ask a question. several big banks have come here and argue before the committee that we shouldn't have a consumer financial protection agency because it is dead to separate safety and soundness regulations from consumer protection regulations. but that arg

we're also waiting for the fed decision. also following the stock market, but also notably two geopolitical development, first the arrest of six al qaeda suspects in kuwait, just reminding us that that is always omnipresent, the danger there, they were targeting with a bomb plot, supposedly u.s. military bases and other important institutions. then the second major development is going to be opec trimming in their 2010 demand forecast. it's small, it's slight, some say it was expected but it is a reminder in terms of what is out there. then lastly, the national hurricane center, watching a storm developing off the coast of africa. yes, folks, hurricane season will return as will rick santelli at the cme. >> i tell you what, matt, it's so interesting that today is the first day of a two-day fed meeting. even more interesting that there are people out there point to the fact that fed funds in february are pointing towards a tightening. wolfman, you agree with that? >> dwre, is actually. absolutely. >> buy the front, sell the b

we know about the fed. you are asking me to create something that is altogether new and it may not function well at all to handle the issue of systemic risk and very important issues. why should i take a leap of faith in something here creating a whole new entity that may include the fed is going to have a problem of spreading out their responsibility in such a way that you never figure out who is running the shop in the sense systemic risk will be suffering despite you've given it an ice cream and hired a bunch of people it will not make the kind of decisions we need to have it a single regulator with experience that has to do the job. why is that not a bad idea? >> i think copiously we disagree. we think the council with real teeth and rulemaking authority needs to have some authorities. it would be highly effective morsel in monitoring for systemic risk in taking action to address it. immortalize you have looking at this from different perspectives and quickly if the fdic has a different perspective from