of the banks have overleveraged the private sector of the economy.e ought to be making that argument. from the president on down. everybody a ought to be looking at that. austerity economics is the first cousin of trickle-down economics. the idea that we can all do fine if the rich make a lot of money and if they leverage to the hilt, well that's not the way it works. we'll all do worse when the rich do very, very well when they leverage to the hilt, then we end up having to borrow either through the public sector or individuals have to borrow just to stay afloat. then we find ourselves in deep trouble. that's what is happening to homeowners all over the country. we ought to be making exactly that point. public leverage is one thing but the private leverage that bain capital and others have created greats much more mischief. >> eliot: real quick, how do you push back against this desire of false equivalent say that you criticize one then you have to cite size the other. other than to state what is fact and what is clear. you came up with a clever phr

as a result, these highly interconnected overleveraged firms nearly brought this entire country and its financial system to its knees, and it was quickly recognized that keel supervision for these nonbank areas was missing. we did two important things in dodd-frank to address this bill eliminating the hiding places from regulation and ending too big to fail. first we gave the fsoc, the financial stability oversight council the authority to require federal supervision of nonbank financial companies that pose a systemic risk sxwg required the fed to impose heightened regulatory requirements on these companies as well as nel bank holding company with at least $50 billion in assets. these changes also level the playing field between nonbanks and banks. secondly, if a company does fail in spite of the heightened requirements and supervision, we also provided an orderly liquidation authority in title 2 of dodd-frank so that regulators would not be faced with the horrible choice between either bailing a company out at taxpayers' expense which we did with aig or letting it fail to the great det

which left us overleveraged, the private sector has pulled back, consumers can't spend because they'reng with their debt problems. businesses won't spend because the consumer demand isn't there. and so even cutting interest rates to zero is not enough. it's not structure. what it is it is very severe problem of inadequate demand because the private sector got overleveraged. this is the time when the public sector has to step up and do the spending that the private sector for the time being can't. >> so if the answer isn't a lower fed interest rates anymore because we can't, the only solution then is to return to stimulus and more of it? >> well, yeah, although it's a funny thing. what we've done is not stimulus, but austerity. we've actually pulled back a lot. if you look it at the cut backs, they're huge. so we don't actually much need new stimulus as simply to reverse those cut backs. which will riequire aid from th federal government. monetary policy can help. i beat up on bernanke saying he should be doing more, but the heart of it has to be that we need to reverse this really misg

frankly, you can overleverage. but you require your competition and the competition shrinks in the market as a result. liquidity was supposed to imply, i think at some point, liquidation. but these firms will never fail. i want to quote back to you the new head of the fdic and mr. gruenberg's recent comments and get your reflection on this. he said three of the goals are to ensure financial stability, accountability and viability, which means converting the failed firm into a new, well-capitalized and viable private sector entity. now, when the market hears that, they don't think that that's a firm that is going to fail. the implication here -- and it may not be for the stockholders, but certainly for the creditors -- is that if you loan to that firm, there's a very good chance -- that's not to talk about, you know, death panels for what's going to happen to the firm. that sounds like the goal was the same as it was in 2008, unfortunately. although part of that goal is to stop the crisis from spreading, the other p

the situation today is quite different than 2008, when most big banks were massively overleveraged and had far less reserves. for that reason, there's less risk to the banking system. let's be clear: a $2 billion loss is nothing to sneeze at, but it's less than 1% of last year's pre-tax profit. so the embarrassment will likely last longer than the damage to its balance sheet. >> it's a financial hit and it's a reputational hit. the financial hit is about $2 billion and the reputational hit may linger for years. >> reporter: j.p. morgan stock got slammed today. and its rivals citigroup, morgan stanley, and goldman sachs also fell sharply. >> investors are worried about what other banks are doing in terms of their hedging strategies. they're going to have to disclose their hedges as well and there's a lot of uncertainty out there. >> reporter: j.p. morgan says it's trying to fix its mess. but the loss is still expected to hurt earnings for the second quarter, ending in june. erika miller, "n.b.r.," new york. >> tom: still ahead, we'll take you to one of the nation's top business schools,

completely overleveraged and undercapitalized. $250 billion of capital led by spanish banks. $250 billion of capital raised for the european banking system and about $2 trillion of assets need to be shut. that's a rather significant problem that the banking system has, when shedding assets not in a position to be able to lend, austerity spills through to the corporate side, which is going through a recession. so we think, for instance, high yield companies, leverage loans and bonds of european companies, will see detault rates as high as 8% or 10% before the cycle's done and the recession gets deeper towards the second half of this year. europe, last year, grew and we grew about that same rate, and this year we're growing about 2.2% last quarter. 2.8% quarter prior. it was accelerated. and they've now fallen into recession. the risk last year was the length that we would fall into a double dip as they dragged, because about 25% of our trade is with the europeans. the link is broken, but that link if europe gets much worse, the banking system and their economy will start to relink again, a

on the other hand in some of the private sector areas where maybe there's significant overleverage, brokenls, certain other sectors, certain residential real he estate, certainly a tremendous hang over. >> thank you for spending time with us. >> thank you so much. >> >> i like the reits. finances costs are low. >> one you like best? >> i like colony. >> final trade next. [ male announcer ] introducing a powerful weapon in your fight against lawn weeds. ortho weed b gon max. with a new continuous spray wand. so you can kill invading weeds down to the root. without harming your lawn. guaranteed. ortho weed b gon max. ttd#: 1-800-345-2550 let's talk about market volatility. ttd#: 1-800-345-2550 in times like these, it can be tough to know which ttd#: 1-800-345-2550 way the wind is blowing. ttd#: 1-800-345-2550 at charles schwab, we're ready with objective insights about ttd#: 1-800-345-2550 the present market and economic conditions. ttd#: 1-800-345-2550 and can help turn those insights into ttd#: 1-800-345-2550 a plan of action that's right for you. ttd#: 1-800-345-2550 so don't let the curr

under the phenomenal leadership of the ceo, aig has gone from an overleveraged highly complicated financialpany into a leaner slimmed down play on life insurance, property and casualty insurance and mortgage guarantee insurance. stocks have been one of the best performers of 2012. up 37% year to date. i think people are starting to recognize the power of the turnaround. in the last year of the major financials, only wells fargo has outperformed aig. even if you didn't get a piece of the deal -- and like i said, this thing came together so quickly, most people didn't -- uncle sam is selling, still giving you a terrific chance to buy a hot stock at a nice discount. aig closed down 99 cents, because while the deal was miraculous, it was still done in the hole. that's not the only reason this big government secondary makes me more confident about the stock i already adored. the treasury department sold $5 billion of its stake and aig was allowed to sell back $2 billion of it. aig brought back 40% of the the total. we know that the federal reserve an aig worked together on the deal and the gover

yahoo was not an overleveraged situation.company, it may have an earnings problem, but it's not an overleveraged company with a balance issue. >>> in light of mounting woes for big banks, what's a retail investor to do? "investment adviser" magazine is out with their list of the 25 most influential people in the financial services industry. our next guest topped that list. nice cover shot. joining us in a cnbc exclusive interview, elliot weissbluth, ceo of hightower investors. elliot, thanks for coming by. good to see you. >> good to see you. >> what does this mean to you, something like this? >> it's humbling, but i think it's also gratifying, because it shows that the industry is recognizing that there are 300 people at hightower that have effectively built an innovative business, and this is an honor for all of us because it shows that we've done something that hasn't been done before, and we're quite proud of it. >> you know, elliot, i have to ask you, today there's news about morgan stanley likely not trying to accelerat

if i'm an overleveraged family in ohio trying to make ends meet, middle class, whatever, why do i care about the federal reserve? >> to some extent, brian, you care to the extent of what you're earning on your savings deposits and your money market funds. there are, you know, trillions of dollars worth of deposits by middle america that are only earning 25 basis points. and in the case of money market funds, only .01% on their money market funds. yeah, they've been hurt badly. they will continue to be hurt in terms of the savings function going forward. the stimulation in terms of the economy and the job creation may not be what they want. but certainly they're being robbed, so to speak, of their ability to stay even with inflation by these negative real interest rates. >> that's right, right? you've got to have money to have a money market fund. we often forget that really one of the two mandates of the federal reserve is job creation. got a huge number coming out friday. goldman says maybe over 100,000 jobs created. that's not enough to get growth going. why haven't fed policies stim

that's due to overleverage on the consumer. that's on the greece side. on the other side, the democratic left side, he is pro-euro but anti-bailout. i looks like a showdown between the eu and imf is coming. >> i'm sorry for cutting you off, but i want to get to the trade. which of those stories i mentioned has the most bearing on what you're trading today and tell me what it is. >> neither. you set it up at the top of hit the, i think it is more chinese news and the oil inventory numbers. we have the most oil on the market since 1990. we are getting -- we have a five-banger on the market here. i'm sure with the market, you want long dollars in the fx market. specifically long dollar against norway. i want to buy a pull-back around $5.84. we are on the show a couple days ago and i was going back and forth. the pull-back shows a stop-los of $5.80 but it will be $5 .90. specifically watch the $13.65 level in the s&p. that's going to spell that dollar pushing higher if $13.65 holds. >> todd, thank you soon. you can see more tonight at 5:30 p.m. on cnbc. >>>

this was a very different kind of recession caused by overleveraging, excessive asset values, and whenles burst when the de-leveraging takes place, when you have a massive contraction in the private sector's propensity to spend, then it takes a long time. >> larry, what do you say to your critics? okay. you just debated john taylor of stanford a couple of times, john do cochran is a colleague of yours, another colleague in the "wall street journal" today. they acknowledge the financial roots of this deep downturn. but they also argue that bad policy responses, too much stimulus spending for the short-term, too much borrowing, obama care because of its taxes in regulatory mandates have inhibited hiring. no corporate tax reform to get competitive. you're aware of these critici s criticisms, what do you say to them? >> look, with the benefit of hindsight, there's certainly aspects of policy that you could think about having adjusted. but i think if you look, what you have to go back to is an economy that was facing depression-type conditions and in the six months after the president took

do we want to overleverage companies, bankrupt them, and leave workers holding the bag but even in bankruptcymney walking away with a hefty profit. mitt romney's picking winners and losers but he always wins. that's not what the american people are looking for. we've seen what happened. >> there's hand wringing over the tone -- there's hand wringing over the tone of the campaign and i know some folks in chicago like to call these folks bed wetters sometimes when it comes to these things. but i want to play you a clip of david brooks on "meet the press" and ask you to respond to it. >> i question the obama decision to go after to start negative. they've decided to focus on a negative way and this seems to be self-destructive. i think starting negative not only distracts you from what you should be talking about but also damages his personal reputation. >> and, stephanie, in today's politico there's a senior democratic strategist active in the obama campaign who is quoted as saying there is some validity to the point that we lose something, unquote, by attacking mitt romney. how do you respond?

ones that are going to be the losers are the ones that are overleveraged and don't have anywhere to go in terms of liquidity and that's chesapeake right now. you don't want to be here. >> give me one name on the way ow the door that people should look at. >> i'll give you to. canada, devon. >> yahoo! meantime firing back at hedge fund manager and founder of third point daniel lobe today in a letter to shareholders. yahoo! attacks lobe for his lack of skill set an experience and goes on to endorse its own recommendations for members of the board. yahoo! especially says mr. lobe, thanks for playing, thanks for nominating the board members, ours are better than yours. is this stock worth getting in for investors at this point? >> no. >> is there anything that would make you want to get in here? >> it is not. until you can tell me what it is exactly the plan is in order to monetize the asian assets. that's what this is all about. they just reported earnings back on april 18th. they continue to lose share in the search space. yes, they have significant cost initiatives, yes they have the si

. >> narrator: just then, overleveraged and filled with toxic mortga assets, the megabank citigroup was failing. >> every option from a merger to a possible fail is on the table. cigroup stock fell 23%. >> it's a very dynamic situation, because the economy is melting. the bush administration is left or rapidly leaving the stage-- "this is beyond our kin to manage. we're going to be out of here in january." meanwhile, there's no one really to manage it. >> the federal government plans to pump billions of dollars into citigroup. >> the government rescued citigroup from the brink. >> narrator: george w. bush's treasury secretary henry paulson had already spent $125 billion bailing out wall street's largest banks. and now during the transition he would spend another $20 billion to keep superbank citigroup afloat. but it wouldn't stem the unfolding disaster. >> that period, when we go back and look at the history books, i think is going to be one of those periods where you look and go, "what were they doing? why did nothing happen? why was there no political will to do anything?" and the rea

out to the problems that we face, starting with europe coming to the united states, our extreme overleveragen europe. china is slowing down. japan has its issues. the whole world is in a vicarious position and it has me worried. >> when you look at europe and it makes the headlines we have day, and we've got a number of companies here that try to focus and grow their businesses, do you think it is possible for business leaders to run a business and not focus on europe and what's happening there? >> no, it's impossible. europe is end gral integral to what happens in asia, what happens in this country, the cross-border trade between the two is very, very large. european union taken as a economy is bigger than the u.s. and it is just too important to world trade. >> i think carl wants to jump in there. carl? >> peter, great to have you on the show. we love having you. i guess zeroing in on europe for a bit, have you started to compute the most likely scenario, whether it is greece or greece and spain, whether it is a euro that survives some exits, whether it is a euro that goes away completely,

morgan, for how many years you've been coming on and i don't want to put words in your mouth but overleveragedomething you said will take a long time to play out. you've been worried for three, four years. that's your tune. you've been right. here we are still. >> long way to go. you know, we're seeing what happens when an irrestible force in the form of deficit, persistent deficits meets an immovable object which is excessive debt. we're bouncing back and forth guardrail to guardrail. >> we're ahead of -- we got time here compared to europe. but knowing you, i know that the things that we're facing, we shouldn't be less worried about what's happening here. our problems could be bigger. i'm thinking of entitlements which we've done nothing about but obamacare is a nightmare. >> yeah. well you know there's a lot of talk about austerity versus growth. it's a red herring. it's not one without the other. the advocates of austerity, you look at what's happening with respect to greece and how that's radicalizing the population. that has an outcome that's bad. if you look at growth i find the approac

the banks are way overleveraged. the fed has papers on arbitrage going back to 1992. they never stopped it. it would be no better. now t. one might hope that the political pressures that could be put on a fannie mae and freddie mac as government sponsored enterprises would be less in terms of the banking institution, that that is they would have to put political pressure to say we don't want to be pushed to make bad loans. i understand the risk and i think you want to try to have a securitization market that relies on the underlying loans that has as many issuers as possible so you are not focusing all that risk. the home loan banks have been considered one option to do that but they are systemically important. you can shift the risk there and they would fail. >> i didn't see a lot of discussion in your presentation about record low interest rates being a factor in the housing bubble. and traps even poor monetary policy on the part of the federal reserve. i was hoping you could talk a little bit about that. >> sure. as i said there's 1,000 stories. this was one of the