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 d

>> if the trades were done in an s.e.c. regulated entity, broker dealer or ultimately when the rules are finalized, a security based swap dealer, then they would clearly be under the jurisdiction, excuse me, of the s.e.c. >> okay. which, of course, raises another question. if i were running jpmorgan, couldn't i just set this up in a way to avoid you? >> well, that's an important issue that we're all wrestling with in the context of the cross-border release and how to apply our rules to activities that might not take place in the u.s. entity but might face a u.s. customer or take place in the affiliate of a u.s. entity but overseas or in a branch overseas. those we will lay out in our cross-border release. i think generally, a foreign entity with a foreign customer, we can feel reasonably comfortable that our title 7 rules wouldn't apply, but a foreign entity that's regulated -- registered with us with a foreign -- doing business with a foreign customer would likely be subject to our rules. a u.s. entity, including a branch o

i'm not going to the s.e.c. t, 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're

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. 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 everybo

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 lobbiests tell you to write in there. i hate to be so cynical, but they're going to have a big influence on how that looks if it ever gets done. >> of course. and they probably should. but the problem with writing too many rules, you're going to get another code of the irs, an internal revenue code. and the smart

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 g

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 thi

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

the chairman and the s.e.c. chairman have jointly created widespread uncertainty about the regulation of derivatives. according to a recent report, regulators have met only one third of the dodd-frank deadlines. while there is no question that the rule writing process make it difficult to meet the deadlines, the regulators share culpability here. although they have proposed numerous new rules for derivatives, they have still not proposed rules that clarify the definition of a swap. let me repeat that. almost two years after the passage of dodd-frank, giving the cftc and the f.c.c. joint jurisdiction on swap markets, they have still not agreed on the definition of a swap. yet they have still finalized rules, defining and governing swallow dealers and participants. if market participants don't know which of their activities will fall under the swap definition, how can they be expected to know whether these activities will be subject to the patchwork of registration, record-keeping, clearing and trading rules? and i

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 sense

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 earning

. >> the immediate question, the s.e.c. is looking into this. did the bank break any laws? d 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 ba

>> the answer is, we do not know because the investigations are just underway and the s.e.c. and the self-regulatory organization for brokers, they are both looking into this, and, adding fuel to the fire, are reports that morgan stanley made $100 million in profit, and the other under writer made $100 million in profit so people are looking to them wondering what will happen next. >>shepard: nice work if you can get it on a big glop. and the lawyers are here, and associate editor of barrons, which is owned by our parent company. >>guest: there were breakdowns at every point but i don't know if it was a violation. too much stock came up after the last minute and they made the deal bigger and priced it high because they thought they had demand. and if this is true, that, perhaps, morgan stanley analysts in the informal projection said maybe revenue will be soft, and they did not tell everyone, that is an issue. you supposed to rely only on the documents when you buy initial public offering but we have road shows and we talk to the people so, there could have been a problem but

the policy that we and the underwriters operated under, and this has been by the regulators and the s.e.c. is that there is individual disclosure, no written reports to institutional investors interested in what an analyst says and many companies pick up and the policy to date has not been the same information and to retail investors. >> so do you worry, you know, yeah, you've got the amended s-1 but the average guy out there, they don't know how to read that s-1. they don't know what they are looking for and they are saying the best clients of morgan got that before i do. maybe that's why you have major cancellations and modifications of those orders. >> no. but all of this occurred before. all of this was during the period of the road show. it wasn't after the transaction went public. and the demand was still there at that point when we got to the end of the road show and, listen, it will be looking at that and this was standard operating procedure. it's the policy we and all of the other underwriters have operated under with retail organizations and there wasn't any desire to skate or

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 countrie

and i think you had an opportunity to talk to the s.e.c. g at and their investigation into what's happening here with the trading on friday. bring us up to date. >> reporter: yeah, that's right, gary. i'm standing outside the banking committee hearing on capitol hill this morning where the s.e.c. and the cftc are testifying before senators. you called me with an interesting question, this question of whether or not there should have been a halt in trading on facebook on friday based on the rules of the nasdaq. i asked the s.e.c. whether they were investigating that. the folks are right here just down the hall from me now and they said basically nothing in response to my question. they said we continue to review the facebook matter with nasdaq and have drawn no conclusions as yet. i asked whether they are specifically looking at this question whether there should have been a halt in trading in facebook at some point on friday and they would decline to comment on that specific question, gary. so no real answers here from the s.e.c., folks, eve

facebook tells cnn, by the way, that the lawsuit is without merit. 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 s.e.c. the department of justice have civil arranges as well, where they may be looking to see if shareholders were defrauded or lost their money in an improper way. that's very, very different, though, from a criminal probe. a civil suit would not surprise me. as a matter of fact i think some have been filed already. shareholder derivative suits they're called in which chase -- jp morgan will be sued, jpmorgan will be sued, i'm sorry, for alleged negligence. >> so paul, how much could jpmorgan be on the hook for? do you have any sense? i'm not talking just fbi, but overall with all the investigations going. >> we know the initial reports were of a $2 billion loss. it's hard to say what the final number might be because if the market goes back up and shareholders in fact i think the market did go up in jpmorgan's stock today. so calculating the actual damages is not easy. it certainly probably will be less than the $2 billion figure if shareholders were to prevail in a lawsuit and i don't thi

the s.e.c. might think otherwise, though. an internal investigation into the loans. analysts like paul weiss of argas research say that chesapeake could becoming the next enron. >>> number two, a former wife of an aide to john edwards testified today about depositing money for the former presidential candidate's mistress. cheri young told the court she was disgusted with having to deposit checks into her account from donors for hunter's expenses. however, she testified that edwards told her it was legal. our joe johns reports that the trial ended early because young said she had a migraine. >>> number three, the obama administration, for the first time, publicly justifying its use of drone attacks against suspected terrorists. john brennan, the president's chief counterterrorism adviser, said today the attacks are legal and only target al qaeda terrorists who pose a threat to the united states. but the drone program has been criticized for how targets are selected as well as civilian deaths, which happen as collateral damage.

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 discovery reveals in this case and we've got to

facebook upped the price, now playing the other side, too, filing paperwork with the s.e.c. in it, facebook will increase the number of shares that circulate publicly. this is facebook's eighth amendment to the s-1 and it makes the total value of the ipo as much as $16 billion. eight times the value of google's ipo in 2004. it would be the third largest ipo ever in america. at the same time this morning, general motor says it will discontinue advertising on facebook, saying it's ineffective which is the most biting criticism you can bring against facebook. it's kind of weird timing. gm knows facebook is hours away from an ipo and this criticism is like saying something nasty about the bride on the way to the church. and they're setting the stage for friday. actual stage at facebook. constructing a steel monstrosity in the central courtyard to host a celebration friday. we expect to open the nasdaq marketplace. >> on the road to the olympic games in london in a month from now, the top gymnasts rolling into the south bias the olympic trials hit san jose. tickets go on sale this

the s.e.c. is investigating the trading loss. last night in a conference call with investors and analysts, he apologized, calling the mistakes grievous and self-inflicted. >> it puts egg on our face and we deserve any criticism we get. soy feel free to give it to us. and we'll probably agree with you. >> concerns about jpmorgan's brazen $100 million bet by a trader nicknamed the london whale, were first raised a month ago. diamine then played it down, calling the media reports a tempest in a teapot. he now said, quote, there are many errors, sloppiness, and bad judgment. >> hey, hey, millionaires, pay your fair share. >> occupy wall street protesters have targeted dimon. who made $23 million last year. in october, several hundred marched on new york's upper east side to his home. now the bank's admission is new ammunition for those in washington calling for stricter regulations on wall street. >> if they get away with this kind of bet, we're going to be right back in the soup again. we're going to end up facing economic disaster,

. >> if the allegation are true, the s.e.c. has to come in to morgan stanley and demand the heads of everybody who has involved in this deal. >> morgan stanley insists it followed the same procedures for the facebook offering it follows for all ipos. already, the lawsuits are mounting. facebook says the suits are without merit and we'll defend ourselves vigorously. today, the senate banking committee began asking questions as massachusetts subpoenaed the morgan stanley's internal documents, all of it, further undermining faith in wall street. >> it looks pretty clear that main street believes wall street is low on scruples and high on get rich quick schemes that are often at the expense of the mom and pop investor. >> all of this as congress considered tougher oversight of the financial sector. something wall street has been lobbying hard to avoid. tom costello, nbc news, washington. >> let's talk about this more with andrew ross sorkin. "new york times" journalist, author of the book "too big to fail" and co-anchor, of course,

>> i'm hesitant to say anything other than what is available under title 18 or available to the s.e.c. would be the focus of any ongoing investigation. >> and can you talk at all about the timing of that investigation? >> well, all i can say is we have opened a preliminary investigation, and as you would well known, have done this business for a long time, it depends on a number of factors. >> i'm not going to press you further, but i would just encourage you without your needing any encouragement, i'm sure, to press forward as promptly and expeditiously and aggressively as possible because i think that the american public really has lost faith in many other enforcement agencies partly because of the delay and lack of results, and i think that the fbi's involvement is a very constructive and important presence in this area. >> thank you. >> turning to the violence against women act, where again the fbi has been a leading role in stopping assaults and intimidation and harassment of women as you know, the senate has reauthorized, it's now under consideration in the house with provisions

. >> 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? >> 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 sterlin

in washington, the 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

the s.e.c. and the federal reserve have to look into -- the federal reserve is supposed to be regulating the holding company of jpmorgan and the cio office with $370 billion should be regulated by the new york federal reserve bank, but i don't know how they could be regulating these transactions over in europe on a realtime basis. i think that's where the mistake is. we have not been told exactly what these transactions were, but some of them were done in very, very large amounts in murky credit default securities few understand. the market is not public. it's not where the public can see what's going on. no one can see except the handful of people playing in it. i doubt whether any federal crime has been committed. >> okay. that's the big question. we'll find out if a crime has been committed. at the shareholder meeting today they voted to let dimon keep his job. >> they should. >> instead of sflit splitting up the jobs. he said no customer suffered as a result of the mistakes of the company. do

so, again, the s.e.c. has to look at this because it is just bizarre to me that you could have an estimate cut in the middle of the road show and not have that communicated widely. >> right. >> well, we'll certainly see how all that have plays out. let's switch to the issue at hand and that's the price of where facebook is currently trading. you take a look at the fundamentals of this and you say the stock is between $17 and $24. clearly there's a big mystery as to what this company should be valued at, right? >> that's right. and i thought all of your guests made great points both pro and con. i think where i come down is with patty to say, look, there are lots of possibilities for this to become an incredibly powerful business over the long term. sure they could go into different businesses that we haven't seen yet, payments and development platforms and so forth that could absolutely justify the ipo price and a lot higher. the problem is we're not seeing that. what we are seeing is an advertising busines