the s.e.c. to actually fund the s.e.c. and unfortunately, we had an a fight in the appropriations committee and they incysisted on not doin that. so could you talk for a minute about the funding issue and how vital it is, especially in relationship to the oversight that you are being asked to do by everyone on both sides of the aisle? >> sure. as you point out, we've been asked to take on very significant responsibilities. not just over-the-counter derivatives but hedge funds now registered and overseen by the s.e.c. municipal advisers which will add many new registrants, specialized corporate disclosure, a whistleblower program, quite a lot of new responsibilities. in fiscal year '12, we asked for 116 new positions for dodd/frank implementation. we did get a very good budget for fy '12. again, not as good as had we been self-funded. but we were very grateful to get an increase at a time when many agencies didn't. the hiring is going on right now for those new positions. and i will say we are fo

the s.e.c. to have the money markets mark to the market is a real danger point for the future of the economy. i am very sorry that regulation is unlikely to see the light of day. >> secretary? >> yeah. i think the s.e.c. made important improvements with respect to money market mutual funds last year, the collateral they hold, the kind of liquidity they're require today maintain. we think there is more room there and we worry that runs on money market mutual funds in a stress circumstance could be the start of something that's very dangerous, and we think it's prudent to start to look for safer ways to make sure that those are not a source of a stress and contagion for our financial system. >> very briefly, i agree with the first part. i think the secretary -- the commissioner has done a great job as far as the initial regulations they've laid out there for them, and i think we need to give that appropriate time to see what the impact and effect of that would be and a cost-benefit analysis to be

and will the s.e.c. start -- when will the s.e.c. start collecting that data, and where does the implementation stand? >> the security-based swap reporting data collection will begin when the rules are finalized, which they are not yet for regulation sbsr. i would -- it's hard for me to predict with a five-member commission exactly when we will have final adopting rules. hopefully some time later this year. we have one set of rules left to propose and then we've done one final. we'll do another final and the next month or so hopefully and then a steady stream after that. it's important, obviously, i'm a big believer in transparency in the marketplace. and we have seen it work extremely well in other markets. we think it's critical for the public to have access to this information. and very critical for regulators to have access to this information. it's a discipline that ultimately translates to, i think, management as well to know that the regulators and the public can see the information. so when we do have the rules in place, we w

i'm not going to the s.e.c.at, how big should a bank be to qualify for a swap facility or whatever the rule is. what would you say is happening broadly in terms of dodd-frank implementation, is it encouraging or worrisome. >> i think it's worrisomworriso have a lot of rules that haven't been finalized yet. we're starting, dodd-frank is big, a big chunk of it is is what's called title seven, derivatives reform. it's under attack right now in congress. about eight bills toeth total that are chipping away at different pieces of title seven about derivative reform and dodd-frank and some are getting bipartisan support. >> let me remind people, derivatives are financial instruments whose value derives from an underlying asset. which is why they're called derivatives. they can be used to make bets. in some cases they can be used to hedge. i use a lot of oil i bet on oil. in some cases you can say, i bet greek bonds are going to go up or greek bonds are going to go down. if you're right you get a lot of money. if you'r

if the s.e.c. wants to stop this nonsense they've got to go after the individuals, not the firms, fine them or make them give back their bonuses and perhaps refer them to the justice department for criminal prosecution. you don't want institutions to be prosecuted criminally because that can wipe out a whole company and a huge amount of jobs just because of a couple of rotten apples. but do you want those bad apples to pay and suffer. we know insider trading has been cut back. talk to as many people as i do in the industry and you know how fearful they've become, and that's what jail time does. there's almost never a comeback from jail in this country except of course for the brilliant martha stewart. if executives would have to forfeit their bonuses back to the shareholders or have them clawed back while at the same time being sanctioned for life, really take away their livelihood, believe me, there would be far less chicanery than there is now. here's the bottom line. we don't get justice because

the s.e.c. has failed to bring a significant case. of course this is going to happen. >> let's bring in other views. we have scott, frank and tito north jersey community bank as well as governor spitzer sticking around as well. frank, i want to go to you first. you heard what the governor had to say. strong words about the s.e.c. pushing for the volcker rule. the volcker rule is not yet written, right? we've heard it's a couple hundred pages. we doept know what's in it. we don't know how it's going to end up looking. is the volcker rule, whatever you understand it to be, a good thing? >> i think the intent is a good thing. i don't think banks that have fdic protection should be trading for their own account. proprietary trading under those types of institutions probably is not a good idea. the problem with the volcker rule is how are you going to write those rules? how are you going to deal with all the complexities of that legislation? and therein lies the problem. >> scott, you're going to write the rules based on what the banks lob

you've got the s.e.c. looking into this. you've got regulation implications. these are all the questions that we are going to ask james gorman. but it goes beyond just the facebook deal. we're also talking about a situation that obviously is fragile. not just for morgan stanley, but the entire banking system right now because of capital worries. worries about a downgrade coming from moody's. what does that do to the cost of capital? where does this all end up in terms of what this firm looks like, what the industry looks like? we're going to hit on all of that. we're also going to hit on what happened to jpmorgan. try to get mr. gorman's take on the implications of that huge trading loss there. i spoke to one very, very inside analyst just yesterday. and that person was telling me that the losses at the jpmorgan story could exceed $5 billion. we're talking more than $5 billion. this will have wide, wide implications. so we'll talk to mr. gorman about that. but no doubt about it, you hit on the number one issue that everybody wants to hear about, and that is th

the s.e.c. may do to the htcs in general? >> i think, howard, first of all, a great question. but the s.e.c. very recently blessed this. a few years ago they blessed this where they talked about this was double and triple powered etfs that they can't affect prices. and now we don't have a deep market, and consequently, these products are whipping around the stocks, the actual stocks, but the s.e.c. just blessed it. too embarrassing to the people who opined it was okay. >>> can we go to russell, please? >> caller: what is the disadvantage of triple leverage etfs? >> that they are marked to market every day basically. what happens, you could -- they are trading vehicles for the day and reset at the end of the day, so you could have a negative -- you could have an e.t.f. that bets against bank stocks and they can go very big. but they didn't go down on a given day, you will lose money on the thing. they are not a way to bet against bank stocks in the long term. they are a flawed product, and everyb

did it violate any accounting rules or s.e.c. rules?> so we've had audit legal risk compliance and best people looking all over that. we know we were sloppy. we know we were stupid. we know there was bad judgment. we don't know if any of that is true yet. they will come to their own conclusions but we intend to fix it, learn from it, and be a better company when we're done. >> david gregory is joining us. hi, david. right off the top, he didn't answer your question directly about whether or not they violated anything. he's waiting to see what happens here. >> right. i think he's taking it pretty careful approach to the fact that, you know, he wants to be open and transparent at this point about what's gone wrong and he knows people are going to look into this. there's already been talk about hearings surrounding this issue on capitol hill and as he talks about in the interview, there's no question that he's given new ammunition to regulators, particularly in the volcker rule and how banks operate. he seems to welcome that new scrutiny.

i've talked to a lot of s.e.c. attorneys today. i've talked to the s.e.c. about some of these very specific allegations. do you think this case has merit? basically it's saying facebook, they changed this. it was a material thing to say look, we can't make money in mobile and it's future. we haven't yet. they amended it. that was given to everybody. but then, morgan stanley and the banks said look, this is really going to hurt how much this company can earn and not everybody who was buying the ipo was made aware of that. fraud? >> well, it's a close question. if you believe every allegation and the complaint, yes, it does make out a claim of fraud. but i think we have to step back a little bit and say also that every time there's a public offering on a company like this, the class action lawyers swarm around it and file lawsuits because the legal fees that are collected in a case like this are staggering. multi-multi-millions of dollars in fees for the lawyers, so there's not a lot of incentive to sue. you almost always see suits. we've got to see what the

i think it's working. >> the s.e.c. is going to open an investigation. >> yes. >> to this, will you open an investigation? >> i can't comment. again, i don't comment on ongoing investigations even before i know the facts. i'm working closely with the s.e.c. and the working group president obama set up to look at problems created by the mortgage backed securities crisis. i have a lot of confidence in their ability to look into this. >> i know you don't comment on investigations, but given what you know of this particular situation, would those circumstances normally warrant an investigation? >> i comment even less on situations where i don't have all the facts. i think that the key here is you're not out to protect people from mistakes, but you are out to protect people from the kinds of investments that shouldn't really be made. hedges that are not really hedges. we'll figure out what this is. the more important point is that this is what calls out to all -- you think that the american people have gotten over their sens

additionally the s.e.c. has finalized 14 of the more than 20 studies and reports that the dodd frank act directs us to complete. we are continuing to work diligently to implement all-pro visions of title vii as well as the many other rules we are charging with drafting and to coordinate impleblings ace with the f.c.c. and other regulators. it is divided between the cftc and the economics. the law assigns the f.c.c. authority to regulation security based swaps, while the s.e.c. has the bulk of the title vii. our rule makings are designed to improve transparency, to reduce information asymmetries, and to facilitate the centralized clearing of security based swaps to reduce counterparty risk. they are also designed to enhance investor protection by increasing disclosure regard security based transactions and mitigating conflict of interests. by promoting transparency and stability, this framework is intended to foster a more stable and competitive mark. in implementing title vii, s.e.c. staff is in contact with

they said that the s.e.c. has not officially signed off on the latest one yet, so they can't confirm that's i got going to go ahead and tried a week from today, friday, may 18. but they won't say. i think facebook just wanted to make sure they didn't make it sound like they were getting ahead of themselves. i would be surprised if it didn't happen a week from today. melissa, it's been kind of a crazy day here. mark zuckerberg, cheryl sandberg and the third executive. they just finished a q-and-a session that took about 45 minutes talking about the model and the advertising plan. investors were in there carried their marked up s-1s and about the dozen, dozen and a half investors want to by the ipo and get stock and be significantly oversubscribed. if this ipo is as huge as many expect it to be, this could benefit the entire sector and it certainly could open up the ipo market to more ipos. i want to bring in the linkedin chart. they're an analysis. that stock is up about 75% year to date. so linkedin has had a

did it violate any accounting rules or s.e.c. rules? >> we've had audits, legal, risk, compliance, some of our best people looking over that. we know we were sloppy. we know we were stupid. we know it was bad judgment. we don't know if any of that is true yet. regulators should look at something like this. that's their job. we welcome the regulators, and they will come to their own conclusions. we intend to fix it, learn from it, and be a better company when it's done. >> in the simplest way you can, what was what you call the screw-up? what was the screw-up? >> banks either make loans or invest the money in securities. we have a huge securities portfolio. we're a big bank. the securities portfolio had an unrealized gain of $8 billion. in how we manage that portfolio, we did lose $2 billion trading. in hindsight, we took far too much risk. the strategy we had was barely vetted. it was barely monitored. it should never have happened. >> so here you are, jamie dimon. you've got a sterling reputation. why? because say, he knows how to mana

who are the people -- with the cftc or with the s.e.c. or any of these agencies, a good leader can make an enormous amount of difference. >> a leader can make a lot of difference, but again, it goes back to the uncertainty. i think dense ler is a great guy and -- >> the chairman of the cftc? >> very dedicated, but the fact you have rules promulgated first and definitions coming out after the fact raises a lot of question marks for some people. how can you prom um gait rules and the industry know what they're going to be dealing with if that is the course of events? yes, the pendulum has gone too far. it is typical of washington during these times. sometimes i would swings back too far the other way. case in point is what led up to this, is that the reasons that we got to '08 was two or threefold, one of course we touched on already, and that is for the government intrusion into the various marketplace, iner issings of capital and intrusion into the housing market and such, as much as through fannie mae and freddie m mac, but the other was

s.e.c. n,airman said... >> there are issues that we need to look at specifically with respect to facebook. : baason: banks underwriting a stock offering generally are barred from issuing written recommendations until 40 days hiter it starts trading. >> this was supposed to be the chance to restore the public's faith in the public markets and in wall street. sustead, it's been a reminder of everything people suspected, feared or hated about public markets and wall street. >> mason: morgan stanley, in a statement tonight, said it acted in compliance with all traveable regulations. but one veteran of the i.p.o. market called this a travesty. facebook, he said, has become a nthonyng stock. >> pelley: anthony, investors who got in on the ground floor vee now headed for the basement. is this the worst initial public offering ever? >> mason: maybe the worst high- profile one we've seen. there's been a black eye for just about everyone involved. first of all, for facebook itself, for the nasdaq, tha

and the investment banks as far as my conversations with s.e.c. attorneys and the s.e.c. today abided by the law. >> well, good evening. and thank you for the opportunity to address these very serious allegations. with respect to the allegations in the complaint, i think mr. callan hit it on the head. it will be very interesting to see what discovery reveals in the case. and i would like to correct an important point of law that perhaps you or maybe some of the viewers haven't grasped. that is we don't have to prove fraud to succeed in this case. that's a critical distinction in the law that comes up specifically in connection with an initial public offering of a secondary offering of stock. if the plaintiffs can demonstrate that there was one material misstatement or omission in any of the offering documents, they're entitled to receive monetary damages. >> so what was left out? so okay, let me just ask you what was left out. they did file an amendment talking about the mobile issue and a few days later the banks that were underwriting it, they did tell some of the clien

back in 2003 henry settled a civil securities charge with s.e.c. he was banned from the securities industry. he's a good friend of our show. henry, i say this because it's relevant to our discussion. you probably know more about this now than most people do. >> unfortunately. >> if no laws were broken, no regulations breached, and it's quite possible that's the case, this still has some kind of stink that makes investors think the system is stacked against them. >> that's right. this highlighted a set of rules that really are grossly unfair to individual investors. it was similar in my case. when i got in trouble analysts working closely with bankers and ipos after the dot-combust. that's ludicrous. we've got to change the rules. again, we've got to change the rules. in this situation facebook preannounced a lousy quarter. analysts not just morgan stanley but all found out about it and that was whispered to investors. individuals didn't know about it. it had an impact on what institutions were going to pay for the sock. >> ron, what's your take. >>

under s.e.c. regulations a deal cannot price more than 20% above the stated range without refiling because otherwise it's a material change to financials. so with $38 as the high end, that means $45 is your absolute ceiling. now, investors i spoke to says wall street has been sounding them out on a $39 a price. by no means a sure thing because it's coming to investors if a higher price is possible. that happened with blackstone and zynga. there's no difference once an investor wraps their head around the valuation of 26 to 29 times sales, those numbers aren't really a deal breaker. above $40 a share could raise some flags, especially considering what jim cramer mentioned on "squawk on the street," 59% of the deal coming from investors who because they're selling could push for a higher price ultimately, carl. >> thank you very much, kayla tausche. want to run through all the original founders. they all met at harvard. and perspective dollar signs now. none of this is final. it's all dependent upon

again, i think they have to adjust that with the s.e.c. and with their filing. i don't think that you can put that on the shoulder of all of the syndicate or even just the lead in this case, morgan stanley, and say it was their responsibility. nng so. we'll see what the securities lawyers say. i'm sure if you're a plaintiff's attorney you'll sue anybody, but i believe this does not fall under morgan stanley, i think squarely on to facebook. >> amazing what we might have been talking about aside from facebook because it's the one-week anniversary of facebook's debut tomorrow, so imagine we'd have nothing to talk about here on this desk. >> time flies. >> if it never went public. >> i think there's a pile-on effect, particularly for the capital marketplace. these capital market police, they topped out at end of march. the real story in the near term is tear ability to grow earnings. you'll find out about that in july. if you believe this quarter has been a favorable up, you step in and buy jpmorgan, goldman sachs. i don't necessarily believe that. i believe earnin

. >> the immediate question, the s.e.c. is looking into this, did the bank break any laws, did it violate any accounting rules or s.e.c. rules? >> so we've had audit, legal, risk, compliance, some of our best people look into all of that. we know we were sloppy, we know we were stupid. we know there was bad judgment. we don't know if any of that's true yet. of course, with regulators should look at something like that. that's their job. we're totally open with regulators and they will come to their own conclusions. but we intend to fix it, learn from it, and be a better company when we're done. >> in the simplest way you can, what was what you called the screwup? what was the screwup? >> banks either make loans or invest the money in securities. we have a huge securities, the securities had an unrealized gain of $8 billion. but in how we manage that portfolio, we did lose $2 billion trading. in hindsight, we took too much risk. the strategy was badly vetted and badly monitored and it should have never happened. >> so here y

ron gefner is a former s.e.c. investment attorney. henry blodgett is the ceo of business insider, a website. back in 2003, henry handled a civil charge with the s.e.c., banned from the securities industry. he's a good friend of our show. and i say this because it's relevant to our discussion. you probably know more about this now than most people do. >> unfortunately. >> if no laws were broken and no regulations were breached, and it's quite possible that that's the case, this still has some kind of a stink that makes investors think the system's stacked against them. >> that's right. this has highlighted a set of rules that really are grossly unfair to individual investors. and it was actually similar in my case. when i got in trouble, it was analysts were working very closely with bankers on ipo as. after the dot-com bust, people said, that's ludicrous, and we changed the rules. and again this is a case where we've got to change the rules. because in this situation, facebook basically preannounced a lousy quarter. the underwriter an

the s.e.c. and bank regular lation arbitrage created sim large leverage to these -- regulation arbitrage created similar leverage to these. the smart money was replaced by dumb money. and then it was the regulatory accounting that allowed them to book fake profits, forced them to book fake profits that kept this whole model alive. and in the end you can't short the government which was what was driving the house prices up for that whole period of time. so, basically what i'm going to give you now are really the confessions of somebody who is a former freddie macer, but mostly a former private label securitizer. how did the private label securitizer capital requirements set? anybody know? the financial crisis commission didn't tell you. they don't know because they are very opaque. one of the reasons they are opaque is private label securitization wasn't created, it was created for ginny may the government agentcy, and they didn't need capital requirements. the government backed it. other countri

>> well, i mean the s.e.c., you know -- the impression is the s.e.c. look at whether there are disclosure issues that come out of this. but i mean ultimately what we're talk about, i think jamie dimon used the word yesterday. this is a cop duct that may be inconsistent with jpmorgan's practices, but they do not necessarily rise to the level of s.e.c. violations, certainly anything of greater significance. yeah, there certainly is a possibility if there's something that can shoe horn into a disclosure issue, but based on everything i read, i still don't see where there's anything that would rise to the level of a regulatory violation. >> and let me ask you this. was this in your -- the way you look at this, was this a hedge -- michelle was chatting about this earlier. was this a hedge or a prop trade, the way you look at the definition of what each is? >> well, you know, from my perspective, looking at it both as an ex-federal prosecutor, it almost doesn't matter. what's more significant is what was the effect of the trade? did they follow their interna

operating procedure. >> and i know post deal you've got lots of inquiries coming, whether it's the s.e.c., regulators looking at this. what can you tell us about that? where does that stand in terms of investors wanting to know what the next step is with morgan stanley and what kind of issues you face with regard to what went on? >> i've looked at this, as you can imagine, pretty closely. and i'm confident that we've followed exactly the procedures that we've followed. we did the job of the underwriter. we've represented the interests of the sellers and buyers putting together the syndicate and we, the underwriters and the company the regulators should look at this because it's attracted so much attention and so much hype but, again, the journey is not over. right? this is week number two. day number one, this looked great. everyone said the underwriters did their goal and everybody was happy and then we went into a downward spiral for a couple of days and who knows where we are at this.. we're obviously off the lows of the afternoon. >> you're planning to move a chunk of the $52 trillio

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