the bell on wednesday. the aluminum producer, once considered a key bellwether of the u.s. economy is expected to post a second quarter loss of 32 cents a share. in april, alcoa reported a decline in the need for its sectors. it's expected to pick up on wednesday and thing will heat up after that. >> are you taking your normal earnings quarter vacation? >> i've got some time that i've got to -- i do have to burn. i won't be here thursday. >> where are you going thursday? >> nowhere. i'm just not coming here. i guess they're tightening up on how much we can roll over into next year. so that -- i mean, i guess i could just let it lapse and not take vacation time.

i thought about that for about -- well, for not that long and i have to take it. so i'm thinking of working a four-day week for the rest of the summer. you are not. that's basically what it comes to. >> how many vacation days do you have? >> i've got to at least do a few more, like five or six more. >> i'm taking mondays off. >> you you guys were not here. somebody was out last week. >> wait a second. over the course of five days, you took one day, he took two days and i took two days. but now let's just agree we're going to be here for the rest o the earnings season, right? >> is alcoa still a dow -- i wanted them to remove it for so long, but you know what? i think given that we don't really know what's happening now after friday's jobs report, we really do not know about whether there is a recovery at all at this point, people are saying

when you have that many unemployed people, foreclosures are increasing, spending -- >> second stimly husband, is that what you were going to say? >> no. people have only spent 10% of the first one. doesn't it seem like this is something you should do quickly instead of curing every other ill the planet has thought about having from health care to regulation to global warming to every single thing? shouldn't we work on the economy and get more than 10% out? >> sure. let me call my people. it's going to be a relatively quiet week on the data front. there are a few reports to watch there. we're going to get nonmanufacturing m today. wednesday, weekly mortgage apps. thursday, jobless claims. also friday, readings on consumer sentiment and the nation's trade balance. but again, as we've been talking about, alcoa kicks things off with earnings season on

wednesday. i think we're looking for s&p profits down 35%? >> yeah. aren't we interested in not only the last couple of weeks of this quarter, but also the outlook, whether there is one, whether there's any trant parentsy, whether anyone has any idea how it's going to play out here. technology seems to be the only bright spot. we need boeing jets, we're going to continue to travel and then i was thinking, wectually need to drive. becky, your windmill car is not ready. gm will sell more cars. >> but if you're talking about 10% of the nation is unemployed right now, it's looking for a job, actively looking out there, how much does that caught into every other aspect? why did general mills and oracle hike their dividend, right? >> how can we go from thinking that we've conquered the business cycle and the world was find and india is always going to be growing and, you know, we

don't have to worry about it so thinking that we're never going to have any -- >> did you see mohammed el-eri n el-erian's column that said most of the time the jobless numbers are lagging indicators although he says there are sometimes it's not, where it's the leading indicator because it's gotten to the point where it's so out of whack with what people are expecting. >> maybe this is what an elephant feels like. joe biden, the vice president is making the rounds over the weekend. he says the obama add mip administration, in his words, misread how bad it was. but speaking on abc's "ts week," h defended the stimulu do package. >> whave to properly, adequately, transparentlynd effectively spend outhe w $780 -- >> that's yr b. you're inharge of that n.pe >>t is myjob. and i think we're doing it well. if you notice, georg there werether predictions. this was going to be wasteful and we were going to be wasting

money. well, that dog hasn't barked yesterday. biden says it's too early to know that -- >> you know, the idea that he said they misread it and they misread how bad of an economy they inherited. but are the calls out there clamoring that not enough is happening quickly enough? is it the jobs number that pushed them into this add mip administration? >> you're saying the administration plans what joe is going to say? >> there has to be something if you're putting home a talk show. >> with most of the people you would think, here is how we're going to do it, joe, we're going on -- with joe, do you really know whether -- i mean, in the past, he speaks his mind. it may not be a problem from the administration. maybe they don't each like what he said. >> is it jt guys named joe? is that what it is? >> i think normal joes are --

you're going to get a more -- you know, a frank discussion. we're not going to spin things. it's a no-spin zone. you know joe oh riley, right? oh, no, that's not joe. bill. >> i was going to bring up scarborough. >> his name is charles. >> his middle name is joe. >> chuck scarborough was taken and he took my name and ruined the whole coffee thing. but go ahead. >> there are signs of life in the economy. fedex is said to be seeing signs of a turn around, as well. the executive giant tells a german magazine that the downturn is easing. also says that fedex's internationally transported items have not fallen further when you compare it with the previous quarter. he says production seems to be picking up again worldwide. this is, again, part of those confusing signals that we see out there. >> the president is in moscow

trying to reset russian relations. obama criticized putin last week for having, in his words, one foot still planted in the cold war. obama and medvedev expect to announce progress on talks that could lead to a new arms treaty. he'll head to italy for the g-8 summit and he'll make a stop in ghana. >> say his name again. medvedev. >> i thought it was medvedev -- say it again. >> medvedev. that's what leisman has told me, has he not? >> i thought you were practicing. i don't know. did you do nightly last night? auditioning? >> i'm going with what you say. >> i am, too. i am not arguing. >> i'm still working on the guy in iran. >> how about the guy in hondu s honduras, right? >> yeah. they won't let him back in.

>> tried to land the plane and -- >> for some reason, i like the new guy. maybe i shouldn't. he's less of a, you know, socialist, right? coups are generally not good for stability. >> i thought it was one of the other houses in the supreme court that said that you can't -- the guy tried to change how long he could run, right?ç i mean, if chavez try toes become a dictator for life and the other branch of the governments say no, you can't do that, and then they get rid of him, is that a coup? is that a coup? >> there are apparently thousands of investors outside trying to clear up the military air force and you don't know where the people actually come dune. i don't know what the vote is. >> cha vaz has the supporters, too. so does act ma dean jad, right? he has his supporters. obviously, that was some interesting stuff that happened with the clerics. >> the new guy --

>> tell me. >> mousavi. >> right. if you're in soern iran, it's mousavi. >> china making reassuring comments about the dollar ahead of the g-8 meeting this week. reportedly they want the issue discussed at a summit. but china's vice foreign minister whose name is -- we have no idea. >> oh, you mean yafai? yeah. yeah, you're right. >> oh, look at that. it is on the screen. >> we believe that the situation will continue for many years to come. we may have heard that comments, opinions from am deckic circles about the idea of establishing a

super sovereign currency. this is all, i believe, now a discussion among academics. it is not the position of the chinese government. in other global fnlt news today, the bank has england has ahead to extend monetary easing by $40 billion. the bank of england is expected to make the announcement this week. >> let's get a check on markets as we kick off the whole five-day in a week or two. >> asia has had problems getting out of the gate. so we'll see what happens later on. oil is back below 64, down 2.7 the. a lot of talk about jitters not only that oil has discounted any take yaup of the global slack,

but also the -- >> the journal says this could be it, run its course. >> but they say be careful of shorting it, too. i've seen the first crack in gasoline prices. it wipt up for about six months and recently i've seen -- >> you did mention that on friday. >> $2779 to $2.75. and then oil, i can get -- my indicators are on route 46. really? >> yes. and it happens before the global crude market. i can see it happening just with these guys that don't like each other. >> so greenspan would watch cardboard. ensana would watch later. >> you don't watch him? urth a discount if you find them. it was a busy week for auctions this week.

some $ 0 billion worth. the yield at 3.5%. the dollar is going to react obviously to what happens with the g-8 later in the week. but we are at 95.239. the yenl is having a good morning with jitters about becoming earnings season. finally, gold is down nine bucks to $921.70. christine tan is in singapore and first to london with geoff cutmore. good morning, geoff. >> hey, carl. you said it right. the european markets are having trouble getting out of bed this morning. we are in negative territory across the board here and are looking for reasons to go higher. if you look at the story, it tells you the whole story as the drip, drip, drip away from confidence in add's session. we had an announcement from sock gen where they said their secretary quarter net income is

expecting it to be less positive. but what we've seen is the dow jones stoxx going down 2.4% on that. and ubs said they have no intention of selling the payne weber business in the united states. christine, on to you in singapore. >> it's a cautious start ahead to the week this week. investors dragged down the resourcing sectors here in asia. in japan, the nikkei 225 fell 1.4%. shippers fell after the battlic exchange main seas rate fell more than 4%. the kospi gained .63%. in hong kong, lackluster trades, a fall in commodity and energy surprises pulled down the hang

seng lower, 1.2%. in china, share rose over 1% despite news this time of another shanghai market. china plans to raise $208 million on the shares of the broker board. and that is the action coming from asia. becky, back to you. >> joining us this morning is subodh kumarah. also johns lonski. john, we are talk this morning about the comments that vice president joe biden was making over the weekend about how the ministration misread this economy d how bad things are. wh do you think about that? >> well, the admintration was looking for an employment fire of 8% byid year and instea we're at 9%.

jobless claimsave been ending wer. the move four-weekavage of initial state unemployment claims is at its lowest level in three months otherindicators such as the ism manufacturing employment index are now at their highest level since september. so what happens we overreacted to that report on thursday. >> although you're talking about numbers that are reaching a point where some people say, hey, you're no longer talking about a lagging indicator, you're talking about a leading indicator if you have 10% of the nation's workforce. how much of a repercussion and how much work could it make the economy? >> the expectati was that june'smployment rate would be 9.6%, higher than the aual 9.5%. when we look at thisata, let's not forget that may's reading on payroll

payrol came in much better an ticipated. peaps we're looki a much better reading in may for june. i want to ad to this, we had a sty sell-off of equities wn 279%. corporate bonds holding nely for the year-to-date hh yield corporate bonds, total return of 30% versus a minus 1% drop in the s&p 500. >> subodh, was this an oversold position or are you concerned about the economic recovery? >> i think what they're seeing is really realism coming in in the sense that normal cycles are the same. but i think the upcoming cycle is more im similar to the early '90s which is balancing acceptsing corporate restructuring and the markets to june seems to be more like low quality do well, we're going to go back to things are great quickly and i think that's not

the case. >> you think that's not the case? >> i don't think it's the case that we're back to where we were in 2006, 2007, within a few months. we will improve, but it's slower. and so it's a restructuring kind of economy, different kinds of stocks, higher quality stocks will be doing better. probably we're going to see moderate pullbacks here. >> okay. if you're looking at higher quality names, what are some of those names that you think are better quality stocks that would do better in this environment? >> i don't usually discuss visit companies, but i think that the kind of criteria for companies say in the early 90s that are important where strong balance sheets, the ability to pay divide dividends, the ability to be leadership and when you look at those kinds of things, the areas that have restructured include information technology, i think they include some of the stronger energy companies, even though energy is not doing well right here. some of the larger industrial companies have long been restructuring.

this market can't move up without the better kwoout quality financials doing better. so i think the stronger financials will be -- >> john, when you look out six months or so, there are a lot of people questioning whether there will be a second stimulus qukly enough or the right places. what do you think? well, i thk it's too early to talk about a second stimulus package when the lion's share of th original stimulus package has yet t benefit the economy. we'll contue to receive support from the orinal stimulus package into 2010. so let's taket easy. this one poor report on payrolls shouldn't be enough to force drastic changes in policy. >> is it surprising that only 10% s been spent so far? >> that's quite accurate. we don want to orlook the fact, too, that over the past cole of months, we've had disposle personal income grow by something in excess of $300 million only to fiscal stimulus

measures. but all that did was elicit a $300 billion increase in personal savingin a slight $25 billion uptake by consumer spending. at we need to do is kp intest rates low. andfdding more fis stimulus is going tout upward pressure on the ten-year treasury yield, at's going lengthen the weit for stabilization of housing. if we can't stabilize home sales, we're not going to stabilize home prices. >> john, are you saying you have hope f the stimulusstill? >> i still do i think it's goi to provi benefits to the onomy going forward that willome more appant especiallyas it relates to spending on infrastructure, a direct spending by thgovernment as opposed to income support payments of some sort to consumers. >> how much patience should we expect? i gue patience is the key, but are we talking three months, six months, longer? >> well, we should be patient, provid that we d't have yet

another very weak reading on employment for the mth of july. ifhat's the case then we have reason to become even more worried and perhaps we have to consider an extension of e federal reserve's purchase of u.s. trsuries, mortgage-cked securities as well as ditional scal stimulus measures. bu i think it's too whirly to call for that right now. >> john, subodh, thank you both for joining us this morning. >> thank you. when we come back, a roundup of this morning's corporate headlines. a bankruptcy judge clearing the way for gm to quickly emerge from bankruptcy protection. plus ubs wants to shake up the banks' brokerage business. as we go to beak, here is a look at last week's winners & leaser peps. s the most innovative companiein the world

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welcome back. a bankruptcy judge has ruled that general motors can sell the bulk of its asset toes a new company. the decision allows the automaker to quickly emerge

before bankruptcy protection. in a 95-page ruling, the judge argues the sale is in the best interest of gm and its creditors, noting otherwise the creditors would get nothing. we still don't know if the decision will be appealed. a group ooh chrysler bondholders objecting to the chrysler sale took their concerns all the way to the supreme court last month. >> it didn't go their way. >> people will need to buy cars, carl. you know what else? it's setting itself up for an interesting dynamic of oil. there's a lot of conjecture today. the front page of the "new york times" is how volatile it's been. what if it heads back down and sort of stays there? all betts are off for these new, fuel efficient -- no one is going to want them. i can't wait to see the obama administration fining itself for not hitting those cafe standards. >> did you see the times? or the journal has a piece of the choosing of that orien

township plant and lamar alexander says some of the criteria that they used to decide where to put it was the carbon footprint and the community impact. >> where did he want it? he's in tennessee, right? >> yes. >> they've got a lot of -- that's a big auto industry down there, spring hill, right? >> yeah. meantime, chrysler completing its board of directors with the appoint of five new members yesterday. last month, they sold most of their@asset to fiat. in other corporate news, the ceo of ubs wants to shake up the top management of the bank's u.s. brokerage business after deciding against the sale. the ft says that ubs has contacted senior figures in this financial industry talking about that top position in the u.s.

brokerage business. in response to the report, a spokes woman at ubs in new york sells reuters than the bank does not plan to sell its u.s. wealth management business, but she declined to comment on any changes. bank of america merrill lynch is the world's biggest wealth manager after taking over merrill lynch last year. the drop in managed wealth is the first since 2002. bank of america is at the top of that last. >> certainly not enough wealth to go around. murphy's law, wouldn't murphy's law mean this that all of a sudden gas is plentiful again and we have trouble migrating to the small cars again and no one wants them? >> they could put a dax gas tax on things. >> would we do that? >> i don't know. especially not with the economy in so much trouble. >> yeah, exactly. that seems like all of a sudden, we lose our resolve to try to

drive smaller cars. people do have a reason to buy minivans -- >> you don't want to take two cars if you have four kid, do you? >> i know. you can't pack them in the porsche. >> and you are going two, four, six, eight, you couldn't even start with one. >> i know. although i could have twins four more times and not have as many children as some people we know, right? >> that's true. >> we'll talk about that later. >> when we come back, we'll get this morning's top stories and plus the futures from the earnings pit. hot hands, we're not talking about money winners in vegas. we're talking about one mey manager in parcular.

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good morning. welcome back to "squawk box" here on cnbc. i'll tell you who i am. i'm joe kernen. this is becky quick, carl quintanilla is here, as well. proud father. any sleep this weekend? >> no. they eat every three hours, which nobody told me that. >> oh, yeah. >> not in the -- instruction manual. >> have you changed all the diapers lately? >> yes, i have, but don't ask judy that question. >> let's get right to the markets. george dowd of new edge is standing by at the cme. george, how long did it take for

all the green shoots to wither up and die? >> not too long. >> they were weed peps that was a terrible employment report. people look for a scintilla of positive reports. no one found it. are we in a full correction mode or sideways? >> i don't know about full correction mode, but we have a bit to the downside in the s&ps. so i think you're probably going to see a lower open, the market will trade down from there, but i think it's important to see how we move into the day after the first hour of trade. if the market stays pressures and we can't make any new highs after the first hour, i think you're supposed to play for a week of risk reduction trade. you'll probably want to look to sell equities. crude is in lower, gold is in loerl and that could be the trade going lower.

if you look at volume, which is a light stage day. so i think if there's any selling to be done, you may see some of that come through today. >> you summed it up. that was going to be my question. should we get used to oil and commodities trading in tandem with equities? that's what we're seeing and you're characterizing that as any risk-based trade, when it goes down, they all go and the only thing that goes up, what, bonds? >> bonds would probably rally. you would see it maybe a little bit more in the long end. >> and then the commodity currencies get hit. so does the dollar benefit, then? >> i think the dollar looks pretty good and, you know, it's interesting, specifically the aussie, they had a gate retail sales number last week and even the saucy comes in after. i normally think risk on/risk off is an over simplification. reading through everything on friday and saturday, it was the first thing that came to mind. i think you might see that this week. so yeah, you know, you would see

the aussie and the cat and like you said, the dollar, it looks like it's close to what could be the beginning of a fairly strong up move and i will say, i don't think you'll see the central dollar on the back. last night we had comments from china .various places around europe saying that the dollar is going to remain the reserve currency. we need to have a strong dollar. i don't think it's going to be on the back of that, but i think we might see the dollar trade up from here, more for technical reasons than anything else. >> and that would not translate into higher particular prices. so a strong dollar at this point doesn't mean that stocks look better? >> you know, i think it's hard to answer that question directly. so the dollar being strong is going to help anyone who is importing. but i don't know, in general, it's going to hurt the exporters and it's going to -- you know, you could get a cheem that the dollar is strong because, you

know, the united states is the best place to be at this time. >> right. >> is that the theme for why the dollar is stronger? >> yeah. everything is half empty and half full. so this great earnings season that we're coming into, we're going to look at all of these things closely. but i'm wondering why the whole story is a macro story, that all the individual names, you look at what they're saying to get a picture of the overall situation and the less important of the specific companies. >> joe, i think you're exactly right. i think that the earnings we start to get next week, we have goldman, wells, i think actually -- i mentioned the financials. but i think the financials will be less to focus. i think you want to get a feel for not what the number is, but what is the guidance going forward and how are these companies faring in this environment. and so for sure, next week we start with the data. this week is going to be a light data weekend. i guess my fear is that people come in with some selling to do on the back of the nonfarm payrolls from thursday and you just don't have the liquidity in

the market this week to absorb it and maybe we see some downside. really, there's not a lot of data out this week. >> thanks, george. in fact, the dow and the s&p 500 are down so far this year. but if you've invested with some of our hot hands, you are way ahead of the game for 200937 we've got a handful of hot managers that have beaten the managers this morning. we're going to kick things off with david iceworse and david, thank you very much for your time. >> thank you very much, becky. good morning. >> we engz mentioned that the dow and the s&p have been in trouble. the nasdaq had been what a different story and that's where you've been focused, looking at the technology and finding the themes that have pulled through. what have been the overriding themes the first half? >> for us, there were two things that drove performance. first of all, i think last fall we saw one of the biggest and fastest inventory corrections that i think we've ever seen in tech. and since we spent the last eight years growing up in terms of how we run tech companies, we

look at that as a great opportunity. the supply chain was basically shipping under consumption of goods. and so we took advantage of that by names like semi conductor, bro broadcom and names in the blue chip sector. that's largely overbalanced and i think a lot of the things your commentators are talking about is that quick bounce in inventories being over. but at the same time, i think there are fewer prices of stock picking overutilization. so we look to pick the best stocks. when we get into this period of summer of volatility, we're going to look for that volatility as opportunities to add to the best names, to add to the themes that we think are strongest heading into next year. >> you're talking about buying in when there are fullbacks and trying to find unidentified guides? some of the themes that you talk about are undervalued. what are some of those companies >> sure. when we look at broad trends, a

couple of the broad trends that we see are mobile commuting and that's a shift towards 3g, new devices, handhelds, apple is a big position in the fund and we think apple will continue to take share in local commuting. light emitting d inting diodes. that is a driver. so a company like axtron in germany who makes depp sigz equipment to make l.e.d.s, that's a large pog in the pond and we're looking for pullbacks like that going forward. palm, i think it's called now, is another big position in the fund and we look at that as exposed to a global market shifting to smart phones, a company with a very small market cap and that's a great new technology. so we expect things to be volatile and we expect to have to add on volatility, but being

supposed to those kind of trends, we think, is very positive. >> you also like microsoft. it has another roll out of windows that's coming? >> so microsoft is a cheap stock and it's controversial. and i think you can rightly make an argument that they've been pouring out capital over the past few years in terms of where they're investing. that said, coming off this kind of disaster in terms of technology, we think that windows 7.0 looks much more attractive and we think that they've made a lot of strides with bing and with the new arch engine. given the cycle, we think that's a good position for the fund to hold. >> you don't like the pcs overall. you're generally bearish. but you don't own dell, you don't own hewlett packard, but you own a couple of companies coming out of thailand. why is that? >> that's a good question. pc companies, the way it works is intel and microsoft sucked out all the r&d and what we see

is we see some asian xps like aseuss being able to take much lower margins in the space. even as we see a cycle in pcs, we think you want to own a guy with a lower margin structure who is able to take share. ace is a relatively large position in the fund. acor is also the second largest share of pcs in europe and we see them continue to go gain traction, again, at a much lower margin structure. we want to avoid areas in the fund where we see world competition. >> david, we want to thank you very much for joining us. it's been nice talking to you. >> thank you. any comments or questions this morning, we would love to hear from you. our address, as always, squawk@cnbc.com. we'll take a quick break. when we come back, the president is making a pitch for new russian relations. d#: 1-800-3450 "i rethinking everything...

tdd#: 1-800-345-2550 cluding who i trust to looafter my money." tdd#1-800-345-2550 tdd#: 1-800-345-2550 "t dust might be settling... tdd#: 1-800-345-2550 that'sreat, but i'm " tdd#: 1-800-345-2550 tdd#: 1-0-345-2550 "i guess i'm jt done with doing noth you know?" tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 "oh, i'm not thiing about moving my mone tdd#: 1-800-342550 i am moving it."

the tt president is in moscow today promising to try to reset russian relations. our john harwood is following this story this morning. palin resigning, congress back in session, there's a lot to talk about this week. but on the president's trip out there, what do we expect to get done? and is this recent notion a reasonable one? >> well, we'll find out what the results are. but what the president is hoping to do is try to take an area of arms control where there's relatively larger space for agreement between the two sides on further reducing the number of warheads and use that as a way to warm things up toward the issue that's most important for the add mip administration right

now, which is relations with iran and seeking russia's helping on curbing iran's nuclear ambitions. that's the major long-term play here. he is traveling with a group of american business leaders and some of the trade figures that are on the wires this morning. russian trade with the u.s. last year, $36 billion, which is as much as we had with the entire country of poland. that seems really low for a country of russia's side. to what degree is business trade with that country a priority for the administration, john? >> well, i think it's a priority which ask why they're on board. look, the add men administration recognizes that russia, even after the cold war, even after the fall of the soviet union is a major player economically as well as in national security terms. and so president obama needs to get that relationship back on track. we've seen under president bush an a promising start relations get to their worst point in a couple of decades. and so it's clearly a priority to the add mip administration. it's not the top priority, but it's near the top.

so he's working on that. we don't expect an arms control final agreement this week, but they're hoping to take some steps towards making that a reality. >> what do you think biden meant by saying they misread the economy? >> oh, i think that was a standard way -- you know, we've seen it from administrations for many, many decades saying, oh, boy, the conditions that we inherited were worse than we thought. you notice joe biden didn't say we misread the right solution toward our economic problems. he simply said -- he's offering this for why unemployment is higher than administration officials forecast. he's saying, that's because we were in a deeper hole than we anticipated. >> is it a covert way for arguing or making a case for the second package? >> i doubt it. i think, carl, the administration believes the economy is turning around, that their fundamental problem is one

of communicating that to the american people and their primary problem is finding a way to communicate that to the american people. if that doesn't work and they say in the polling numbers and if they see in the heat they get from democrats in congress who are on the ballot next year that they've got to do something, i think they'll move. but i think their initial default response is going to be not to go for a second stimulus because they're trying to make the pivot towards fiscal responsibility. >> how long are they giving themselves? >> i think it comes in the first quarter of 2010, carl. i think still in the summer they're hoping that the third quarter economic numbers reflect later this year that the economy, in fact, has resumed growth. if they get positive growth, that will make it easier to communicate the argument that i mentioned. >> how will palin's resignation, what was your take? >> i think it is by any conventional political standard it was a crazy decision.

>> crazy to step down? >> yes because you don't help yourself politically as a first term governor who has a reputation for being a little wacky and a little nonsubstantive, you don't help yourself by quitting before your term is done, before you finish doing the things you were elected to do by the people of your state. one is a personal explaining. she wants out of politics, it's a real meat grinder when you're somebody at the top of the food chain in terms of media attention and she's -- and her family have taken a big battering. if on the other hand this is a step toward trying to sort of stretch an unconventional path toward the white house, i think that is a very, very big risk that she's taken. not likely to pay off, but we'll see. she's defied predictions before. >> others pointed to nixon's past. >> yeah, but richard nixon had been congressman, senator,

two-term vice president and what he did was he took time off after losing a race for governor of california. it's not the same thing as sarah palin walking away from her job. >> john, back to the economic stimulus package and the patience that people are -- should expect to some point, there are all these questions about only 10% having been spent so far. is there a way to ramp that up? is there an argument that more should have been spent or is this just what it takes to get something like this moving? >> well, i think they're hoping that this summer period is when they can, in fact, ramp up the spending. it's not easy to spend the amount of money that they appropriated, $800 billion, that quickly. can they be faulted for not getting more money out the door earlier? certainly if you think tax cuts were the best option, you could have gotten that money out quicker. they have an argument that government spend sg more stimulative in the summer months when prime construction season

is when they're hoping to get more of it out. so now is their time to at work today, too. although we're out of time, we'll be talking over the next few weeks -- >> big week for health care, guys. >> yeah. and climate change and the west. we'll talk to you later. john harwood. coming up at the top of the hour, global head of quek wits, bob doll and his outlook for the second half of 2009. plus, is he one of the newest members, the bank of america's board. today don powell is holding court in the "squawk" boardroom. ñ oof! i hope he hathat insurance. afc! you really nee these days. how come? well if you're hurt and can't work it pays you ch... yeah to help with heryday bills ke gas, the mortgage... ..nd groceries. it's like insurancefor il. so...what's called? aflaaac!!!! oh yeah! that's it!

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i don't know if you managed to see wimbledon but yesterday a memorable final for the men's. roger federer defeating andy roddick in, 16-14 in the sixth set in which roddick held his serve 37 times in a row. four hours, 18 minutes. and as roddick later told pete sampras, whose record is shattered, quote, sorry, pete, i tried to hold him off. >> sampras arrived a little late, i guess. >> in the third set. >> federer stopped play and said, hi. >> he didn't want to be rude. >> i thought it was an amazing afternoon. turned into an afternoon of tennis. >> i watched it. here's my take.

if no one ever gets broken, because the servers are -- you know, the rackets are, the technology is incredible, you can serve it so quickly, if no one ever got broken again -- >> it's not as fun to watch. >> it's not as fun to watch. >> let's say there was not tie-breaks in the first ur sets. they would have been -- >> how long would they have gone? >> each one without the tie-break. i just remember back to -- do you remember when conners and mcenroe would play or conners and christine and you'd see those volleys -- >> long volleys. >> there were a couple -- i was watching and we watched that last set, which, where it's, okay, had is the game where you do it. literally, 30 seconds later the game would be over. four serves, 30 seconds later. i'm thinking, you don't even need the guy on the other end of the court. okay, it's your time to seven, go out and serve four aces, the next guy serves four aces and then the next guy -- >> that's why they're not

exhausted to the degree they might have been. >> and roddick, who, you know, you sort of did develop a respect and admiration for andy yesterday and for how he hung in there and how great federer is. but, you know, as -- i think tennis -- i don't know how tennis handles what i think is kind of a problem with maybe not being as compelling as it used to be. >> it's hard to sit hose serves at 140 -- >> hard to keep your shoulder that long. when we come back, we'll get top stories and "squawk box" guest host donald powell into action. he ran the fdic, now on the bort of b of a. e world'souncer leading compans thrive on collaboration with the world's leing companies. together, e helping to shape the exchging world. nyse euronext. powering the exchanging wld.

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banking on member. don powell will be our special guest host. a "squawk" exclusive. the ceo of lehman holdings, he's in charge of cleaning up one of the biggest disasters on wall street. looking for the hot hand. money managers share their winning strategies. we'll speak to one hot hand up 30% year to date. the second hour of "squawk box" begins right now. ♪ you've got to know when to hold 'em ♪ ♪ know when to fold 'em ♪ know when to walk away and know when to run ♪ >> good morning, everybody. welcome back to "squawk box" on cnbc. watching the futures this morning and despite those big

drops we saw on thursday, the last trading day of last week you're seeing significant pressure this morning. right now those dow futures are down by close to 80 points below fair value. let's get to the stories we're following this morning. vice president joe biden says the obama administration misread how bad things were but he's standing by the stimulus package. a bankruptcy judge ruled general motors can sell the bulk of its assets to a new company. that potentially clears the way for the automaker to quickly emerge from bankruptcy protection. and bank of america is the biggest world manager after taking over merrill lynch. they show private wealth managed by banks dropping by 17% last year. > our guest host this morning knows a thing or two about banking, don powell, former fdic chairman, one of the newest members of the board of of b of a. great to see you again, don.

welcome back. >> thank you. >> no surprise to see b of a at the top of that list. when they came to you and said, we have this opportunity, what was your initial thought? >> i thought about the bank of america franchise and about bank of america's place in banking across the country. then, of course, i wanted to know a lot about the issues surrounding bank of america. and i was -- i satisfied myself of that and it's a wonderful franchise. >> they have a lot going on. the most high-profile is probably this, i guess, argument you could call it between ken lewis and the fed and hank paulson. we will see what paulson says to congress in a few weeks' time. do we know any more about what exactly transpired between the two of them? have you been -- are you satisfd with what the bank has told you? >> i'm looking forward to it, carl. that's something that occurred before my time. and that will work its way through, but going forward, i

think it's very important to focus on things that bank of america n do to benefit not only the customer base but their employees and shareholders. >> right. so i'm guessing you don't -- it's not over for you. the's still more information you want, i guess is -- glo i've been to one board meeting, and, again -- >> it's been a month. >> i'm looking forwa to watching the bank of go guard and emerge in a very positive way. >> right. it's a good time to be a bank but there's also a lot of frour pay back the money that's been taken from the government. so how do you -- kind of match those two things up? where is it to be in banking right now? what's the future, let's say, over the next six months? when do you get to the point when you can pay back the money taken out of taer.a.r.p.? >> as you know, some bks have paid back t.a.r.p. mon. the last 30, 60 days the banks were able to go to the mket and attract the capital. i think we should not underestimate that. i think th was extremely imrtant.

so as this get etter, i think, obviously, all these banks want to pay back this t.a.r.p. money. >> but the a goodim to be a bank, right? what's happening with the banks? >> the banks, the margin is good at the banksut they still have lots of assets that are troubled. and they've got to workheir wear through that. they'reocused on that. very focused on make shurg their pital ratiosre adequate to going forward also. >> you doint don't sound all that positive on the economy overall. you talk about -- we don't even use the word green shoots anymore. if we did -- >> joe has his green shoot tie on. >> i'm doing everything i can after friday. >> if we did, you say we need a whole lot more sshine and fertilizer. >> that's right. i think it's going to be more time. you must remember we had record years, seven, eight yea of record earnings. it's going toake a little time, a lot pore time than we all want f this economy to turn.

>> do you thi joblessness is close to peaking? >> i don't know. i think it's a very iortant indicator, phaps the most important indicator. i thinmost americans today are concerned about their welfare as it relates to jobs. and so when theyget up in the morng they say, is my job safe? and i think we're all -- that's somewhat timid right for you. and i think when these job numbers begin to turn, we'll feel a lot better. >> over the weekend the vice president was on some of the sunday talk shows. said they misread how bad it is and people want to use that now perhaps as a way to build a case for a second stimulus package. are you surprised that only 10% of the $787 billion has been spent? at what point would you say this money is just not being ft? the impact's not being felt? >> i'm somewhat surprised. somemes it takes the government longer for that money to get out. i know in my work on katrina, there's aot of bureaucracy

ing forward. i don't think it will tak time. >> four months, though. >> four months, to you and i is very, very quick. getting it out. we want to be sure the money is properly spent and that there are adequate controls in. >> so as we --s you look around, you have the economy to worry about, you have regulation, obviously going over big changes in the coming year, compensation's still a big issue. people were talking over the weekend about some of the bonuses at goldman they'll be paying. all those figures they paid in '07, citibank raising base salaries, up to 50% in some cases. is that good? is that going to spark even more anger than we've aeady seen? >> i think it's important you be able to attract and retain competent people. viously, the compensation package is part of that. athe same time, i think the american people are concerned about the cpensations of some of these institutions. i know management is looking at these things. u know, management is going to be focused on the long term,

making sure ey reward pple as relates to long-term objectives. going forward think it's important also that we focus on other issues. such as accounting. i think the way we look at acunting and som of this accounting has ge amuck and it's not been healt, the way weook at loan loss sees, the way we look at capital, the regulators, i think, are very important. the administration has come forward with plan that's good solid recommendations to it. and hopefull we'll debate that goingorward. >> there's a lot to talk about. did you read frank rich over the weekend? >> i did. they got madoff but the real criminal -- and i like the way he brought up the rolling stones piece, but -- and obviously, said, look, there's not a whole lot of substance here. but he said at least, you know, it raises some of these questions. now, citigroup, 50% above what

the government was machine dand. that's less than $50 million with the increase, isn't it? >> any idea? >> 500 -- what was the maximum you could pay, do you remember, don? >> i'm not sure what it is. but i think you're right. >> right, 500. so we're talking under $1 million with the 50% increase for people at citi. >> so your argument is -- >> it's not enough money. >> that's my argument. they have to 345ik less than you? but you need -- >> 30% -- >> you saw -- >> i'm saying it's not enough. >> it's not enough for some people. i am saying that. you're not going to get -- >> i think that message may not resonate across the country -- >> and you think that's a decent argument? >> i'm saying it's subjective, is what it is. >> you've got athletes making $25 to $positive million a year -- >> and you don't have -- >> that's taking taxpayer dollars. >> this is your money now. you don't want them -- if anybody -- didn't you see dick

parson saying we're having trouble keeping decent people? you think that's totally not true? you're going to get -- >> can't they just race bays salaries for some of these people? >> that's what they're talking about. >> but it's still -- the 50% raise still brings you below $1 million. >> do you disagree it feeds the argument that the government -- >> i don't -- >> it's taxpayer money from people around the country and to some banks that are paying bankers $1 million, which to you is not enough money. >> i think the banks need to do what they need to do to run their business as they see fit. >> even as they lean on the government? >> even more so because i'd like us to get -- >> don, i'd like to ask you -- >> i think the american people are looking at this -- i mean, $1 million -- i agree with both of you. $1 million is a lot of money to the average american especially they believe the taxpayers are contributing and helping some of these institutions. i think once that t.a.r.p. money, once the government money is paid back, then i think the discussion is a little bit

different. and the marketplace will take over. but, again, i think the american people are weary of large, what they perceive to be large compensation packages. >> especially when you have people trying to get loans and can't get loan. that's the other part of the question. is there being money loaned out again. >> obviously, in order to make these institutions work, they've got to have very competent people. and the marketplace will demand certain -- >> there won't be anyone left at that bank. >> if it were an easy answer, we would have fixed it by now. it's nowhere close to being fixed. >> don will be with us for the next two hours. we have a lot more to talk on this connection. meantime, it is back to work for wall street after a long holiday week en. we're getting ready for earnings season to kick off this week. joining us is bob doll, global cio of equities. you listen to what's happening with the economy, thursday with the jobs number. a lot of concern about where

we're headed, whether there will be a turn in the second half. how do you figure outer what to do with your forportfolio with of that? >> care, caution, kid gloves. we've had the good news of the black holes not there anymore. less bad news. as you've been talking, looking for the good news is what has to happen that fr here. we'll get some but it's going to take a long while. the credit headwinds will not go away. >> we've talked to a number of people this morning, some who say you need to be looking at companies that are above average companies that you're going to see returns to some of the big industrial companies. others say you need to be looking at technology because that's where the good news is. what do you think? >> i would not shy away from either of those groups. i would add energy to the list. we've had quite a recovery in the price of oil. the stocks have not kept up. many have good balance sheet, good free cash flow. these are the characteristics i think you look for in this market, where it's tough to have

top line growth. you want companies that have strength, that have staying power, can gain market share in a tough environment to grow. >> although -- go ahead, don. >> i was going to ask you with health care with all dote bait occurring in washington, what's your take on going forward as relation to health care. >> look, don, i think the thought in the market where the stocks were priced a few weeks ago is what was a big black cloud. i think realistically it's a gray cloud. over the last few weeks we've had concerns about how are we going to pay for this. health care stocks have had some outperform an. i think there's more to can go. whatever legislation is enacted is not likely to be great news for the industry. >> health care, not all stocks are equal, what do you look for that might avoid some problems. >> the ones that have gone down the least. i think you take take basket approach. i would own some in the teeth of

it, united health care, i would want some biotech companies like amgen, so i think you need a mix across the board. even pharmaceuticals as they're very cheap with and a lot of mergers. >> what about new products, research, as it relates to these health care companies? >> unfortunately, slow, few and far between. first of all, their size makes it difficult to come up with things. but with the slow pace of approval, with the absence of lots of progress in some major areas, i would not look for significant new drugs, especially from the big companies. the problem is the opposite and that is the roll-off of the patent egs pxpirations. >> you also mentioned energy stocks because they haven't kept up with the pace of oil. oil prices are coming back down and the journals we may have seen the highest levels for some time with oil. would that change your strategy when it comes to energy stocks?

>> no, i would not disagree with that. i think the fact we got to $35, $40, the fact we stayed there so long, and recovered and got over $70 so fast. that was a surprise as well. i think somewhere in the $60 these companies can make a lot of good money, create cash free flow. >> what's your faith names? >> marathon, murphy, oxy and conocophillips. >> bob, great to talk to you. we appreciate your time today. >> thanks. comments or questions about anything you see here on "squawk," e-mail us at squawk@cnbc.com. are you feeling lucky? we have one of the hottest hands on wall street. he'll show us some of his cards next. what to buy in a market like this. later, talk about a tough task, a man charged with cleaning up the mess that was lehman brothers. that's his job, the restructuring guy. we brought this guy in quick. lickety split became ceo almost immediately in that horrific weekend. bryan marsal is our guest. ?z

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aflac trivia question. on this day in 1957 what tennis player became the first african-american to win wimbledon? the answer althea gibson. morning. we're quicking off cnbc's special all-day focus on the fund and money managers who had a hot hand recently. donald is the portfolio manager of yakman fund up nearly 30% so far this year. good to see you, don. how are you? >> fine. how are you? >> 30% is not bad. is 30% getting back some losses from last year or are you able to eke out a profit last year? >> no, no. last year was a pretty tough year, i think, for everybody. but we're ahead of a year ago. >> you're ahead of -- so if someone had invested in -- the beginning of 2008 they're up right now? >> i believe so.

or very close, yeah. >> okay. so at this point we're seeing a 30% move. what do you like now, what areas? >> well, i tend to focus on where our biggest holdings are, because that's where we have the most money, so things like coke, pepsi, news corp., via-d com, microsoft. >> sounds like you're a bottoms up guy. these don't have anything in common. >> you've got it. >> okay. let's talk about them individually, then. i mean, i can see coke and pepsi. those are defensive plays, do well no matter what the economic climate. >> yeah. basically what we do is look at forward rates of return and the quality. so we're very much like a bond buyer. and those show up very well on our methodology. >>, don, are dividends important? >> the capacity to pay dividends is important. but not the actual payment of dividends. >> yeah.

>> how about news corp., why would you be looking at that at this point? it seems like advertising is one of the hardest hit areas in a recession, in an environment like this, or viacom for that matter? >> that's why they're where they're at and that's why bargains are created. volatility is the friend of a value manager and they're just very good values. >> microsoft continues to chug along, i guess, and generating a lot of kessel but for years and years it hasn't really rewarded anyone unless you -- i guess you had to trade it, buy it in the teen xs sell it in the low to mid-20s. >> i wouldn't -- well, i don't know if you have to be that cute, but certainly -- you know, what the history is of a stock is not as important as where it is today and what it's worth relative to where it's selling at. so it's what you buy and what you pay for it that really count. >> uh-huh.

when you add, let's say being money comes into your fund and you want to add to -- you know, you want to deploy it, do you just buy the same stocks or are there other opportunities you're considering right now? >> we try to be objective. we tend to be very concentrated so our top ten holdings in, say, the focused fund plus cash will be 75%. so we would rather buy our -- with the best value is out there regardless. part of the problem is sometimes we get stopped out because -- and then we have to search for other alternatives because we have too many money in that area already. >> so because these are your top holdings, and you haven't sold them, does that mean you still think they're in a position where you'd be adding to these names? >> in a lot of cases. >> in pepsi, you'd still buy, coca-cola, you'd still buy, viacom, news corp, those are still in the area of a good buy? >> otherwise they wouldn't be the top six holdings in the

funds. >> go ahead. >> donald, the names you mentioned all have significant revenues from overseas. how big of a factor is that in your thinking? >> it isn't, although, you know, i mean, that -- that just affects the overoverall cash flows and the valuations. but, yeah, coke makes like 80% of their money overseas. >> yeah. but is that a -- is that part of the motivation? >> no. >> people talk about waiting for the domestic economy, for developed economies around the world to recover, but that's not why you're in these names, is what you're saying in. >> no, no. it just adds to the predictability of the cash flows and adds to the valuation. >> okay. great. don, we appreciate your time this morning. good luck. >> thanks. coming up on -- >> a lot of luck. >> yeah, he does. coming up on "squawk on the street" to hot hands, their secret. when we come back, the man in charge of cleaning up a wall

street mess, bryan marsal waiting for his exclusive interview about unwinding the wall street giant. tomorrow on "squawk box," boone pickens, one year after launching the pickens plan. success, failures, the climate bill, cap and trade, everything on the table for the legendary lman. that's tomorw right here on "sawk box." d#: 1-800-5-2550 "i'm rethinking everything... td: 1-80345-2550 including who i trt to look after my money." tdd#: 1-800-345-2550 tdd#: 1-805-2550 "the dust might settli. tdd#: 1-800-345-2550 at's great, but i'm not. tdd#: 800-345-2550 tdd#: 1-800-345-2550 guess i'm just done with doing nothing, you know?" td: 1-800-345-2550 tdd#: 1-800-345-2550 "o g about ving my money. d#: 1-800-345-2550 i am movg it."

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let's take a look at the futures. they are under pressure. right now you're talking about those dow futures down by 73. well below fair value. but anything could happen today. right now it looks like we'll be off to a weak start. >> that's right. any comment or questions this morning, please drop us a note. our address is squawk@cnbc.com. when we come back, the ceo of lehman brothers holding, bryan marsal has the task of cleaning up after one of wall street's biggest messes. you ve questions. who can give the financial advice youee

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welcome back to "squawk." busy week shaping up. beginning of earning season later in the week. for the time futures are lower. oil is below $64 a barrel on the august contracts, down $2.86 as

jitters about the global economic recovery continue. top stories. a bankruptcy judge approved gm's plan to sell its assets to its so-called new gm while leaving most of its liabilities behind giving way for a quit exit from bankruptcy. gm-chrysler has appointed new appointment to it's board. last month chrysler sold it's assets to a newly joined adventure with fiat. and roger federer earned his record-breaking 15th graham grand slam by winning wimbledon on sunday. we're not kidding when we say he earned it. it went to the maximum five sets. the fifth set took 30 games before federer vested andy roddick in front of the former reining record holder pete sampras, 16-14, incredible.

our next guest is the man behind the unwinding of lehman brothers. a process that's been going on since the firm's historic collapse last fall. here with an update, bryan marsal, ceo of lehman brothers holding. good morning. >> good morning. >> great to have you here. this is your job. this is something your firm has done. you've worked out s many different bankruptcies, not all of them financial firms even. how is it going? >> it's -- significant problem progress is being made but it's a liquidation. a wind-down of an operation. we got in there it was clear there was no rehab, no fick or reconstruction of lehman. gfsing to ab a wind-down, a collection of the assets. and then to figure out, a lot of people got hurt so we had to figure out who we owed money to. obviously this would bring out people who who think of this sz an opportunity to put in a false claim. we're trying to sort out the good claims from the bad. >> there are so many different

thinks we could -- i wish we had hot hands i wish we had you for the next two hours. because i'm trying to figure out whether -- looking in your note you say this was not handled properly. >> that's correct. >> yet many people say that the other bailouts shouldn't have been done, things need to fail or else we increase moral hazard. you seem to be saying it should have maybe failed but in an order early way? >> that's right. i'm not in a position to decide whether or not lehman should have been permitted to go on, but i will tell you that it was a miscalculation. miscalculation in the way in which the winddown occurred. >> how should they have done it? >> a transition like in the case of bear stearns or merrill lynch, a transition to a third party. >> we should look at those as failures now? >> no. i think they were allowed to fail, allowed to fail in an order early fashion. the merrill -- the stockholders

addition clearly the stockholders of certain institutions did not realize -- >> we think of then as bailed out. >> they were bailed on zout they were bailed out and also failed? >> yes, they failed. >> how perfectly would it have gone out chronologically in the closing days? >> what should have happened is either one of two thing. the board of directors were shocked by the result, which was a freefall chapter 11 proceeding. they thought one of two things was going to happen. either, an order early transition as in the case of bear stearns or a bailout as in the case of fannie. they did not expect anyone would pursue with 1.2 million derivatives and a notional value of $6 trillion, they could not perceive anybody would do a freefall chapter 11. >> wasn't part of the problem the company's own inability or willingness to acknowledge the situation they were in, right? i mean, they were coming on our

air and trying to defend the solvency of the bank. >> well, i think the bank was solvent, it just ran out of liquidity. the time the company had sufficient capital but what it didn't have at the end was liquidity. it didn't are the cash to continue to operate. but i can't, again, defend one way or the other. what i would tell you is if there was a wind-down of lehman it should have been a bailout. it shouldn't have been a freefall. >> should we look at reviewing the bankruptcy laws? >> yes. i think the bankruptcy laws have to be reviewed. i think in this case the safe harbor revisions which were put in are really unfair. they're actually getting a bad result in that they're -- they're forcing companies into a liquidation mode as opposed to a rehabilitation mode, which is when congress originally wanted. oddly enough europe has gone to the rehabilitation concept of the united states. the united states seems to be

going more back to the old liquidation concept, which is unfortunate because it doesn't reserve jobs and i don't think it maximizes value dwloo the thing that confuses me the most is with you talk about with trying to sort out the bad claims. i can't imagine looking at your books, trying to figure out from every trading partner along the way, when these are a lot of times new values are written up every 24 hours on these things. the bad claims coming in, are they from other banks and trading partners who say you owe us "x" amount? >> no. what happens in a derivative there's an event default which occurs by the a counterparty. when the counterparty defaults is provides an opportunity for the other counterparty to make a determination. so within less tan a week 85% of the derivatives were terminated bit other side of the trade. on we in some instances they owed us money. many of those people have tried

not to pay us. in some instances we owed them money and they tried to exaggerate the claim. on sorting that out is a challenge. we're slugging through that. >> how do you -- i mean, you're talking about valuations that nobody knows right now. >> no, we know what the valuations were. the difficult value with the derivative -- it's far more complex than i make it. when you seek damages being you seek five bids, throw out your top, throw out the bottom and you average the three. obviously, that's -- there's room for a lot of abuse in averaging the three, depending on how you who to. no requirement as to who you'll go to. >> in hindsight, how do we look at derivatives going forward? >> der i havetives is simply financial innovation. what we do is we go out and hire a quaunt out m.i.t., a ph.d. and they help us with a derivative. keep in mind, we're paying the

compensation we're providing the regulators is peanuts relative to the compensation you're providing these smart people to figure out ways to circumvent the system. >> so you're saying the regulator did not understand the dertives? >> i don't think they were focussing on it as they need to which is the proposed reform -- >> it's okay or should you expand it or -- >> i think there's a lot of terrific content in that proposed reform. a draft the treasury came out with. i believe, however, that -- i mean, there's -- consumer protection, terrific. long overdue. derivatives, oversight being long overdue. being able to avoid a lehman by not categorizing something as a bank or nonbank but saying it's a meaningful financial institution and taking action. all of those are very good measures. just a few are in the plan. the administration/treasury came up with great content. the problem is, the regulators

are somewhat dysfunctional. based on my view of lehman and interacting with the treasury, with fdic, with federal reserve, office of the thrift and so on, sec, what i would say is they're fully coordinated, there's no consistency of -- there's no consistency of policy or direction. they really do not give a clear message. and i think there's significant amount of turf yirz with these various agencies. i think unless you change the implementation process, unless you fix that, and i think each agency has -- serves an important role, but there's not a coordinating role. i think you need to reform that. >> so single regulator? >> i would say a single head. if this was a business, a business person would handle it limpbtly. they would have a leader and they would command all the various components. today we have an sec dominated

by lawyers. we have a federal reserve dominated by economists. we have an fdic with ban examiners. we don't have cord nation of all of those. i think that's a problem. >> do you get a good hearing with those regulators? >> i won't answer that. you'll have to shoot me if i answer that. absolutely. absolutely. >> what's due pros if you have a dispute? >> due process is very nonexiste nonexistent, in today's world. due process is nonexistent. it's really what the regular litters are telling you. >> how many lehman -- how many people with your firm are doing the unwind and how many were hold-overs from lehman? >> we have approximately 500 -- about 500 people -- 500 to 550 doing lehman. >> so 400 are still from lehman? >> yes. >> how did you get them to stay?

>> paid them well. paid them well, because this is a winddown and -- >> you know what people say, and this is a philosophical argument we keep having, these are the same people that caused the mess mess, there's no reason to pay them, you can get a clerk to do this for you for $100,000 a yore. why don't you do that? >> because it's silly. >> this is what got you in the mess. all bankers are idiots. why would you pay them to do anything? >> the people overseeing didn't get you in the mess. so with we are -- our personnel are overseeing it. and they're not making what they were making but making a althy dollar. i mean you have to do what you have to do to maximize the value for the state. the judge understood it. it's politics and emotion. you have to divorce yourself from that. >> politics, emotion, and the knee-jerk populous reaction. >> exactly. it's silly. you expect your leaders to be

able to with stand -- >> don't go in expecting to much. >> you have to in business. i make a lot of unpopular decisionses but i have to make them because it's right for the estate. >> who are you losing people that are leaving? what bank is inflating their ranks? >> initially we didn't use them to anybody. there were more layoffs in the fourth quarter of last year. through the first quarter things have gotten a little better and we're finding ours losing a few people. still no exiting. >> it's hard to believe people can be that talented and worth that much money. you said it yourself, the regulators are are paid a certain amount and the guys designing the derivatives get paid so much more. they're that much more competent or work that harder? >> i don't know who about who's smarter. i will say if you want to get the kind of talent for a long-term valvement in regulator, you're not doing it for the money. you're doing it because you want

that job. you want to be in government. you want that role. if it's financially driven, you would go work for a wall street firm. >> are you paying people $3 million a year? >> no, no, no. not -- fog along that order. but to pay somebody with $500,000 and $100,000 bonus with a certain amount of recovery, we do that. and all of this is -- >> were you selling real estate at the wrong time? >> it's not a wrong time to be selling assets if you have to. we're selling them -- i mean, today we started the process, there was no cash in the till. today we have $12 billion, in excess of $1 billion so we are selling and collecting but not doing it in a fire sale way. >> how much do you have in claims outstanding against the $12 bl -- >> we have stated claims, which you have when you file bankruptcy. that's about $150 billion. then claims arising out of the derivative term nations and we have claims abing out of the

guarantees -- the inner company guarantees to various property. those are significant. >> what's the fallout going to be on the rest of wall street? i mean, you're unwining lehman but if there are other banks, other trading partners that say, you owe us "x" amount, you say it's not that much, when kind of fallout would we still see this is completely unwound? >> i would hope we would be able to get some money back from some of those trading partners. i would hope to be recovering some of that cash. i guess to the extent they have stockholders and return the cash, those stockholders might be upset but my creditors will be delighted. >> brian, who's oversight on you? >> the united states bankruptcy court. >> do you have a creditors' committee it approves everything -- >>-i a creditors committee and de factor board. and anything out of the ordinary

course of business i would take to the judge or take to the creditors. >> and you have anuditing firm that audits your books? >> yes. >> what happened at lehman? >> too much leverage. trying to keep up with some of funds, concentrating assets in in order to keep up with those firms. trying to deliver both bonuses to themselves and a bottom line to the stockholders. they concentrated too much in real estate. that result was -- and combined with terrible liquidity management. >> that also an argument for investment banks not being publicly traded, trying to keep up with the shareholders and paying hems? >> no. they're actually trying to keep up with the firm that historically had been private. but it was just trying -- you had a number of firms like goldman sachs and morgan stanley with a better concentration of's sets. lehman tended to concentrate in

a couple of areas in which they did well, one of which was real estate. unfortunately, the that cycle wunt against them. >> to what extent were they done in the end by rival banks? did they contribute to the rug being pulled out? >> i have my suspicions but we're in litigation so i couldn't talk about that. >> in this stoling stone article you talk about -- >> i wouldn't touch it. >> you wouldn't touch it? >> no. >> the fed says, we would have saved these guys but our hands were tied. we had to standing in that arena. >> i don't believe that. i believe the fed had -- if there was a will, there was a way. and i believe the fed 24 hours later found a wap. the window was opened within 24 hours. >> you have $12 billion so far. how much have you got less to sell you? ghoo i'd have to kill you if i told you, because then everyone would be trading on it and i'd be in trouble.

>> are you sold that -- >> no, just a fraction. just a fraction. we still have -- we still have a significant amount of assets to -- >> can you lever up that 12 to try to -- can't you go 30 to 1 on that? has anyone suggested that? that might not -- yeah, that's a horrible. >> we have but that would be harrisy under the circumstances to get become into what we were in. no. >> how long a process are we talking about? >> on aassets, our internal target is two years. that's very aggressive on the asset size. we will not convert everything to a liquid asset but contribute stock in that company to the credit holders. >> your access primarily in real estates, and then a thrift. possibly savings bank. >> we have bank platforms, real estate proceed priority assets which include pe and hedge fund

investments, along with a loan book. >> foreign investments, domestic vements all over the world? >> everywhere. we have ski resorts and hotels. you name it, we got it. >> how are other countries treating you, regulators in other countries? >> it's very difficult because each country -- there's a sovereign -- sort of a sovereign risk associated with bankruptcy. each jurisdiction appoint their own receiver. operates within the laws of that country. to finish up the answer to your question on the claim side, it will be very difficult to do it within two years because of all the international receivers are not going to be responding in the same time -- some people view this as a five-year project. we view it as a two to three year project. they view it as a much longer project. >> is this the most complicated unwind you've ever been involved with? >> no, no, it's not. it's a difficult unwind but because it's not a rehabilitation, i mean, we did health south. i did health south, the richard

crew which i and replacing him, this was a much complicated situation because it was -- we had an opportunity to bring the company back to life. and that was -- we were successful in doing that and buying, and in this case there was no ability to bring lehman back. >> autopsy versus a surgery? >> yes. >> we bring a lot of guys on in business and we talk about what the reward is for them, and sometimes it's taking a risk and having it take off. as a structuring guy in this winddown, how do you measure the reward for yourself? >> just making a difference. if this case,ist trying to do the best job you can for the creditors and it's trying to maximize their ultimate recovery. making the best of a very bad situation. >> are you turning people away? >> in terms of hiring people. >> no. in terms of your worko business at your company? i mean, is this the greatest -- is this a great time for your

business? this is a terrific time. what's more sickening is the -- one of my partners said yesterday, we're going to call this phase the -- he said the extend and pretend phase in our economy, which is you extend someone's maturity, is it going to default, and you pretend that business is going to come back, or that leverage factor is going to come back. then we enter phase two which he said is the request to -- the request to extend or amend. and then send. in other words, send the keys. so that's the phases that we're in right now. but everyone is trying to buy time. you know, as opposed to dealing with the leverage, they're trying to buy time, whether you're a banker or a company, they're all trying to buy time. i don't see the leverage coming back. and i don't see the -- i don't see the consumption of goods and services coming back. >> that implies that we are going to pay the piper here still at some point?

>> yes, sir. yes, sir. i think it does. >> name the top three issues we should not repeat? you talked a lot about leverage. what else? >> well, i think that leverage simplicity. i mean, it's silly what we did. if you look at residential mortgages, this residential mortgage crisis never would have happened if two things would have been implemented. number one, 20% down. 20% cash down. number two, no exceptions, and if you want to give a poor person a subsidy, do so but do it outside of the banking system if that's the case. two, check on people's financials. to the extent people lie or -- >> make loans thaw might dish. >> yeah. it's common sense underwriting. >> it's straight-forward stuff. >> who's at fault? the people askinfor loans or the banks for not asking for -- >> both party. i mean, both are lying. both aren't -- one's not checking and the other's not

telling the truth. and i think it's not that complicated. we like to make this regulation much more complicateded. derivatives are complicated. commercial lending and residential mortgage lending, not that complicated. i mean, we just -- we don't need -- we need to use common sense and employ what we already have in place largely what we have in place. >> will this be the pin kel of your restructuring career or more to come -- >> i hope there's not more gloi did arthur anderson and health south. >> citigroup ask for any help yet? >> i'd have to kill you if i told you. no, they haven't asked -- >> i'm like a cat with nine lives. >> i couldn't tell you that but i have not had any kvgs with citibank. i haven't. >> thanks for coming on today. i hope we see you again soon because it's fascinating. >> thank you for inviting me. >> and something we have to do here. >> inedible.

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♪ hot town summer of the city ♪

>> you heard my discussion. i said not to run it today for you. >> oh, really? you were like, no, don't run it, wink wink. >> then he said "summer in the city" we'll feed it in. i said, that might be a good -- but all i did is take slack from you, from management. i try to give people what they want and all i get is slack for it, you know? it was funny the first time. i don't know. why -- >> keep him honest, carl. >> yeah, exactly. >> stocks to watch include sea gate to buy. target rated to $14 from $6. western digital upgraded to buy from underperform at bank of america. target rate to $35 from $19. both of those look like cyas to me. way above what the old target was at bank of -- sorry, don. >> cya, what does that mean?

>> cover your assets, i think. nordstrom upgraded to neutral from sell at goldman sachs. some type of conspiracy here given that groundbreaking -- i mean f you look for facts and insight, it's rolling stone. rolling sto is where i find it. target is $47.50. and finally, goldman sachs add to the strategic selection list the ubs -- >> that's their version of the conviction buy list. >> no, conspiracy. they're conspireing with another fat cat investment bank to create their own stock. >> rolling stone tells us the truth yeah. the regulation revolution rolls on. find out if plans floating around d.c. have the right stuff to keep the nation from another financial meltdown. the front lines of budget shortfalls. the states have it rough these days. illinois state tasurer are

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the regulation revolution. >> we have an sec dominated by lawyers. we have a federal reserve dominated by economists. an f dichlt c dominated by historic bank examiners. we don't have any coordination of actives. >> the move is on to give regulators, including the fed, more power. >> with great power comes great responsibility. >> find out if that's the right strategy to keep the nation's banking system from another meltdown. >> i'm melting, melting! oh, my world, my world! back to work. the three-day weekend is over. the jobs report is in the books and earnings season is on the way. we are tracking market sentiment with mark, editor of the holbert financial digest. states of crisis. ♪ >> california in a financial emergency. >> it is extremely important that the legislature takes this seriously. >> and it is not alone. we're going to talk to someone

on the front lines of a budget nightmare. illinois state treasurer alexi. ♪ and all that jazz >> "squawk box" begins right now. are you ready? you have to read after i read this. >> i thought it was -- >> no, you have a big story coming up. >> oh, really? >> oh, it might be. we'll see. welcome back to "squawk." i'm going to hand it off in a second. >> really? >> yeah. >> then you're out offer. >> no, i'll be here. >> we're first in worldwide here on cnbc. i'm joe kernen. becky quick is here. carl quintanilla and a great guest host, don powell, former fdic chairman, one of the newest members of bank of america board. we have that to talk to him about as well. a lot over the next hour. we'll talk about maybe sheila bair, and who should be running

the show around here. who would the single regulator be? >> you, joe, you. >> good idea. let's take a look at the markets -- >> i'm moving. >> yeah. let's take a quick look at the markets. not prettiy. looking down. it's gotten a little better. i think it was down 80 which would have been 68, now 71 brings us at about 59 points of downward pressure. thursday and friday the green shoots all withered up and died. lickety split. that happened quickly. those things died on the vine and were gone with one employment report. >> bad employment report. worse than expected. >> no one could see anything in there. no one could see -- people looked. people looked but they didn't see anything there. >> the work week, temp jobs, all the things that would lead us to a better number, didn't happen. >> the cross-section of different industries. there was -- you couldn't point to anything very positive. but we keep saying it's a lagging indicator but it doesn't mean we're not going to hammer it as a coincidental indicator.

in the headlines this morning, general motors has won bankruptcy court approval to sell assets to the so-called new gm. it will leave most liabilities behind. that clears a key hurdle from emergence from bankruptcy. chrysler, which preceded gm out of bankruptcy, ahas afinished appointing all nine members to their board of directors. last month chrysler sold to fiat. some signs of economic hope from fedex. michael druker who runs fedex international business told a german magazine that international transport volume seems to have bottomed out. he says fedex will save $1 billion from a variety of cost cut. also, this just in. emc says it has increased all cash offer for data domain from to $33.50 a share up from the $30 it previously talked about. emc is in a battle to acquire

data domain. as you can see, that is helping the stock right now. da that domain up 2.4%. >> a pretty protracted bite, right? >> yeah, people -- favors have been talking about it a lot. >> $33.50, that's all -- it's already up 34 bucks above that. maybe they're expecting an even sweeter deal? >> i don't -- i think the $34 is -- that's this morning? >> yeah, that's where it was trading a second ago. a little tug of war over something. >> yeah. we talked about that, too, exactly what data domain does. why would i know? vice president joe biden the obam ministration misread hobad thinks were but he defended the stimulus package. >> we haveto adequately, properly, transparentally,

effectivelspend out this pr $780 -- >> that's your job.ar you're in charge. >> it is my b. sxing we're doing it well. you notigeorge, mine, there are other predictions. this is going to be wasteful and all these terrible projects were going to be out there, wasting money. that dog hasn't barked yet. >> biden says it's too early to know if a second stimulus package is going to be needed. we'll be talking about that a lot in the coming weeks. meantime, the nation is going through a regulation revolution. time now to hear from two experts on the outlook ahead. what an amazing time to be a security lawyer. joining us from washington, chuck, a partner at gibson dunn and crutcher, former counsel to the former chairman and from sullivan and cromwell, and our guest host, don powell is the former fdic chair. great to have you all here this morning. good morning. >> thank you. >> chuck, i'll begin with up. just talk about the proposal as it was laid out by the

administration, how ambitious was it? too ambitious? not ambitious enough? what are the political realities about how it's going to finally be done once it works its way through the wheels of congress. >> i don't think it was too ambitious. i think that the -- it's pretty clear that the new to have focus on a systematic regulator. frankly, if it were me, the one thing that i don't think that they did went far enough on is that there should be a single regulator for each institution. that is to say, you ought to have a regulator that looks at the institution from the top down and all of its elements. they pulled up short of doing that. the politics will be excruciatingly difficult. both the stan and the politics of these issues cannot be underestimated, although i would bet that a year from now we do

have legislation that has a systematic regulator, a counsel and a new consumer regulator. >> don, he's pointing -- >> yeah. chuck, you indicated that it would be better if, in fact, these large institutions had a single regulator. don't they have regulators in the institutions now? >> what i'm saying is not so much there should be a single regulator on the fsa model in the uk but, rather, that each enterprise should be regulated by a single regulator rather than -- so that you have specific accountability as opposed to having regulation divided up between -- in the case of this proposal, the uber regulator as well as the functional regulator. >> bill, your thoughts? >> i find the administration's proposal is somewhat tid. and perhaps a lost opportunity to be bo. it accepts in large measure the

existing regulatory structure and creates a counsel to oversee risks. and i believe that group bodies have been problem historically. i am concerned that tha will continue to be the case. and i would strongly prefer that there be a single systematic monitor for the entire system rather than kind of the counsel that the administration proposal opts for. >> why -- why are you not worried about o much centralization of that very power? >> well, with centralization comes responsibility. and the problem with the existing systems we have had historically is that the responsibility has been quite diffuse. that would apply to the banking

regulators historically. we have a lot of different bank regulatorsegulating the same set of concerns, as you well know. we have had the ffiec. we have had the president's working group. but if you actually try to identify where the responsibility is, either historically or for the current crisis, it's really quite diffuse. and there is a risk of impasse as certainly i have experienced and you have experienced in trying to g theregulation done. and my fear is that will continue because the proposal is insufficiently bold. let me say i also agree with chuck, that the politics are quite difficult. that is, of course, one of the explanationsor why it's not more bold, but there's also a

rush to get it done before we fully understand the causes, before treasury completes its study of capital levels and the like. >> bill, under your model, where would oversight fall? >> the oversigh would fall with a single systematic risk monitor. >> but where would the check be on that one regulator? >> the check would be administrative -- administration and congressional oversight. >> all right, now, that doesn't sound goo too good, does it? seriously, i wonder to what degree is congress the toxic force in all of this? they all want oversight and none of them to want see power. all those committees want to keep what they have right now. >> and i think that is precisely part of the problem. it's why you have such a diffuse proposal, because of -- because of the diffuse power in part in

the congress. >> how important is independence, guys? chuck, how important is independence of the regulator? >> it's interesting. i think that independence is important and at the same time, i do think that treasury in the political process has an important role in achieving accountability here. >> chuck, there's a big piece in "the new yorker" about sheila bair and how she came to the job that she has now, her time with senator dole and his campaign and the degree to which she has become a bit of a pit bull in the administration. is she a force for good? is she arguing on behalf of the fdic well or is she an illustration of the turf battles that we continue to hear about in this white house? >> well, i think two points here. one is that chairman bair was out front and really showed extraordinary leadership in terms of the -- of the mortgage

foreclosure problem. i think at the same time, chairman bair as well as other regulators reflects just the reality that -- and this does relate to the point that bill crowder made, is the reality that people are going to have differences of views and strong and effective people are going to argue them strongly. and that that can lead to -- that can lead to conflict. and sometimes slow things down. >> bill? >> i think the conflict is not a problem. it's the lack of a resolution mechanism of that conflict that is the problem. you are going to have regulators that to a greater or lesser degree have to interactith each other. they will have differences. they will have differences in perspective. it's important, i believe, to have a prompt resolution mechanism so those differences can be resolved. and that, i think, is what has been lacking in the current system and may lack going

forward in the proposal reform. >> we just heard from the head of lehman brothers bankruptcy that he does not believe there is any due process. what's the answer to that? is he correct? >> well, i'm -- >> is he incorrect? >> i'm agreeing with bryan marsal on the point. >> we'll see if anything changes as a result of this, as much as pain as we'll experience watching congress put their thumb print all over it. good to see you. thanks for your time. don will be here for the rest of the hour. still ahead on "squawk box," summertime market sentiment with mark holbert, the editor of the hole better financial digest. california in financial crisis. see how governor schwarzenegger is dealing with the crisis. and illinois state treasurer on battling his state's budget woes.

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earning season officially opens this week. dow component alocoa will be kicking off after the bell wednesday. they are expected to post a second quarter loss of 32 cents

a share. in april, alocoa warned of continued end market weakness for product in aerospace, construction, and global transportation sectors. quiet week on the data front but we'll get ism nonmanufacturing later today. wednesday, weekly mortgage applications. thursday, we'll pay close attention to jobless claims and wholesale trade especially with the holiday shortened week last week. friday, readings on consumer sentiment and nation's trade balance. we've had consumer sentiment up three months if a row, joe. you don't do that in general in a recession. >> yeah. interesting. and then -- are we -- will the next one be up? >> no. i don't know. >> how do we -- let's take a closer look at what investors can expect this summer and the rest of 2009. mark hulbert, editor of the hulbert financial digest. good morning. nice to see. >> you good morning. >> where are we, mark? last couple of times you've been

on i think your point was maybe we had gotten not quite negative enough and that people were getting a little complacent. is that still the case? it seems to be bourn out. now we're backing out again. >> i think sentiment grew so quickly after march 9th and that didn't bode well for the life of the rally. a fly in the ointment has appeared in that thesis and that is, over the last two, three weeks as the markets pulled back, investment writer, which is the focus i have on sentiment, they have pulled back even more quickly than the market. that might suggest that even though i do think my original hypothesis about the rally off march 9th the beginning of a bear rally more than a bull market, it suggests the rally has a little more life market before we end up going back down sdwlo i just wonder if we can build up negative sentiment with sideways action. i mean, we're down a little bit, down to 8300.

it seems somewhere like 8200, 8500, 8700 is where we've been. up 0%. it hasn't gone down 20 to let people in. it's still keeping people out. >> that's exactly right. it's interesting to me, the market is not down all that much relative to the rally we saw from march 9th and yet advisers are down. the particular focus we have is on the average recommended exposure to the market. it's down from peak in early january, down 25 percentage point. a lot of advisers, just the sheer fact the rally didn't continue and they didn't continue. perhaps there is a little more sentiment wind in these sails before it completely peters out. >> you could almost say it's playing out almost -- to a script that you could have written, i guess. you said initially second derivative trade, the perception that the worst case scenario didn't come to pass. so you get a bounce.

then you start questioning whether it was anything more than just the pain sort of, you know, dissipating a little. that's where we're at now. we're ready. this morning we said all the crocuses and green shoots have shrivelled up and died. and you can see it playing out in a logical way. >> what happens if the market goes down and hit a new low? lower man the march 9th lows. i think there will be such widespread despair, that's my sense reading the newsletter editor i monitor, there would be such dough spare and then you could see the capitulation that contrarians -- >> we don't need to that that. that would set up -- that would be like a 1982 situation where you couldn't get someone to buy a stock if -- you could ask them, here, i'll give it to you, will you take it? they would say, no, i don't even want it.

people would never invest in the stock market again. it might take 20 years. >> that's right. but if you look at the bear market it's worse than the bear market that ended in '82, worse than the bear market that started in '74. you would expect similar degree of pessimism, but we haven't seen it so the contrarian point of view we didn't think march 9th marked the final low. >> isn't this all about earnings going forward? >> i think long-term earnings are a big factor being if not the most fundamental factor. our study of sent many shows it does a good job of predicting market trends over a one to three-month horizon. it's basically saying are we ahead or behind the underlying trend? i'd say given the strength of the rally and even more than the strength of the rally, the degree to which people jumped on the band wagon after march 9th

it was a little too fast. >> it's always the chicken/egg thing. we don't know where markets are headed. >> again, it's -- you know, it may be earnings are going up. as always, invest ares overreact. when they say thing are getting good, it's going to get really good. it's that overreaction that gives the recent contrarian analyses works in the first place. >> you said something interesting. you said from dish a contrarian would think we teed to put in a new low? >> well, that's right. you know, contrarians don't necessarily have to predict exactly where that low will be. what they dough do say is you want to see the capitulation where people throw in the towel. you mentioned 1982, you would have to pay them to take stocks off your hand. we haven't seen that. that really does mark those kind of major bear market lows, that kind of pessimism. we haven't seen it. people were so eager to get back

in the market after march 9th that's typically not what you see in a major bear market low. >> oh, boy. all right. thanks, mark. it's not your fault. >> you're welcome. >> we appreciate it. see you later. when we come back, california usually deals with natural disasters. now the golden state is in a financial state of emergency. handing out ious to pay the bill. can governor schwarzenegger get lawmakers to deal with this $26 million deficit. check out the price of crude, right at $64. "squawk box" continues. d#: 1-80g everyt...

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futures are showing some improvement this morning but they are still below fair value. you're talking about a significant dron this morning. when you consider we were looking at a big dropoff in the last trading day of last week. however, those futures have been improving through the course of the morning. we'll see where things get going once we get to that opening bell, which is just about an hour away. up next, we're going to be on the front likes of a fiscal nightmare. i will i state treasurer will tell us about facing a budget crisis during a very difficult time for the economy. "squawk box" will be right back.

good monday morning. welcome back to "squawk" on cnbc. first in business worldwide. one hour away from the opening bell on wall street. our guest host, former fdic chr don well. wel be talng with him for the next half hou keepinan eye on moscow. the president meeting with russiapresident. you're lking at a live shot inside the emlin. e lastime these two gentlememet was in london. and the both sides say ey are hoping to ild on the excellent took place there. words, that it's really cold in russia today. unseasonably cold. medvedev tol a translator, 's cold outside but wa inside. we'll see how warm it gets when they tal about cutting nucar senal, aiding nato. it will fascinating discussion later on today. checking on the market on this monday, futures have been -- have gotten off to a relatively weak start. some modest improvement over the course of the morning. joining us today from the cme, lincoln ellis, managing director

at the lynn group. on the other side, joe joining us from fx solutions. good to see you both. >> good morning. >> link conner, would awaiting not just the president but earning season kicking off in the middle of the week. some projections is have been going up for earnings but the mood this morning is not too hot. why not? >> clearly last week's activity notst not supportive of any bullish scenario. what wie seen at the lynn group and have been on the tape over the last couple weeks is that these equity prices are not supportive. the demand both in the energy sector, in the grain complex, which is where we spend a lot of our time. the demand is just not there. the appear tied for risk assets which is interesting ahead of a summit meeting with russia, with risk assets is not there. that seen and global

sinkization, moving towards one. we saw that trade twice in four trading days last week. it loobz like it's happening again this morning. >> yeah. meantime, joe, the dollar's going to get a lot of attention later on this week with the g-8. worries about what the chinese really mean had they're talking about revamping the structure of global currency markets. are you expecting anything big? >> well, you know, the chinese, i think, really do mea they would like to have a revamping of the world reserve currency structure. but in reality, that's going to be very difficult to achieve any time soon. i think what they are doing, and some of the other countries as well involved in this, is they are warning our government not to monetize the debt. if the u.s. runs big sef dits, i think the bargain from china will be, we'll fund those debts, which is with they're doing, don't monetize the overt. that may, they talk about in the

g-8. >> right. so their words are cloaked, in other words, they're not -- i are they looking for any structural change to the dollar's status? are you saying it's about these other warning shots across our boushgs in other words? >> i think it's much more warning shots. i doubt they're looking for a structure to be put in play. i doubt one ko actually be negotiated in this venue or any other. there are competing interests to come up with a stable structure. the world is becoming mul multi-polar, economically and political. that makes it difficult to come up with a single structure. >> lincoln, talking about some of the data. we've been mentioning this mornings it is a light week for data. why being lincoln, are the markets, if you say they've -- the fuel is running out, don't we still have some things in our pockets like pending home sales

being like ism numbers, durables? the jobs data said from last week? >> yeah. i think the things we have left in our pockets may be a couple of nickels to rub together. what the -- if we're really going to put -- try and hang our hats on a consumer rebound or some sort of housing rebound which the market gets overzeal yous will last tuesday, they have another thing coming. prices may be stabilizing but the amount of trades going off at lower levels seems to suggest to me there's a lot of space between buyers and sellers in that market. consumer sentiment has really sort of risen on the pixie dust of this equity rally we've seen over the last four months. and -- >> well, pixie dust to you, but some people who were lucky enough to get in at the beginning have 30-some odd percent in their hands. >> absolutely. i would suggest to you a lot of

those people will be taking some money home in their markets this week. >> lincoln, you mentioned housing. how important are interest rates in relation to that? we've watching the ten-year bounce around in the last two weeks. >> they're xroebl significant. that's exactly why we're keeping our eye. i mean, the three-year is where the interest rates are going to be set off of but the volatility could play a counterbalancing effect to that. with the amount of supply in coming on in the market this week you'll see a bid in the front end of the curve, showing you interest rates will go higher. it'snclear still when. and that question mark outhere he housing market is -- >> is huge. >> yeah. destabilizing for all risk-based markets. >>ood to talk to you. we'll see you later. you're looking at i liv picture of t moscow where

president and russian president dmitry medvedev are meeting at the kremlin. this is the first of a few stops the president has this week. he'll move to the g-8 in italy later on. a high-profile meeting with a country that u.s. presidents have had a difficult time, joe, getting their arms around. makes you think of president bush saying he looked into the eyes of putin at the time, right, and saw his soul. >> if the president tries looking in this guy's eyes ear goes to look over the top of his head. which is good see to see. our american president kind of towering over addition. >> he is tall. they're going to review some text, apparently -- >> he is tall. >> thank you. thank you for that acknowledgment, brian. go ahead. i'm sorry. >> they are going to review some text for some potential nuclear arms agreements. i don't think we're going to get anything too concrete done today but they'll review some of that. >> at least not out of me. >> the conflict in georgia, nato

aid for force foss in afghanistan, and, fction being we'll be watching the president's height -- >> didn't you think was tall? >> he is super tall sdmrau know how important that is in the past for a president. >> it is. a tall man. >> reagan, bill clinton -- >> lincoln. >> lincoln. thank you, don. i've got don here with me trying to give us all this substance. coming up, california handing out ious to pay its bill. jane wells get your hands on an iou. does it actually say iou on it? >> no. it says registered warrant and the ironic thing, unlike regular state checks the iou is dark green being even though it's not really money. on top of the state crisis, l.a. is a half billion in debt, has to provide a massive police presence for the michael jackson funeral tomorrow. l.a. and other cities could be rced to lend state money.r) we . we speak rpms soouan zip by other ca.

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california's democratic and republican leaders failing again to agree on a plan to deal with a nearly -- this is hard to say -- $26 billion budget deficit. jane wells has more on this state of crisis. you're close to it out there, jane. >> well, yeah, i am.

the governor met with legislative leaders yesterday. they're not clear if they're any closer to a deal. earlier there was optimism a solution was close but we've seen such optimism come and go before. this is the first ious. this is what what they look like. they're also called registered warrants. most banks will only cash them through thursday. if you don't cash them before then or if you get an iou issued after that, are to wait until october. now they're backing off raising cigarettes and oil which is a deal-killer for governor. now governor is thinking about cuts to education, which begs the questions forks no more taxes and budget cuts how are they going to cover the budget gap? one issue back on the table is forcing local governments to lend the state $22 million. the more ious go out, more than $3 billion this month, if it goes on that long. >> we're having to issue ious to

businesses that do -- that have contracts with state agencies and departments for products and services. we're have to issue them to the student aid commission in lieu of pell grants that go out to college students to pay for their tuition and books. >> basically, thousands of people left out in the cold. the state needs to issue ious to some to serve -- to conserve cash to pay others. like it has to pay for education, debt payments and payroll but most state employees are being forced to take off a third unpaid day a month. according to the l.a. times, the governor is open to the idea of televising closed door budget negotiations like a reality show so voters can see what really goes on. can those officials be voted off the island? by the way, guys, i know private contractors who supply state prisons and hes the prisons he works most closely with say their credit cards have been yanked and they don't know how they'll buy supplies. >> yikes. >> this is just unbelievable.

the idea of these ious going out. what happened thection? >> well, they did issue ious for two months in 1992. this isn't the first time it's happened. who knows -- they say they're close but the longer this goes on, the more ious will have to go out. even though they're redeemable august 27bd, that's assuming the stay has money to pay them. if this goes on all summer, i don't know. >> schwarzenegger says he doesn't want to reach out to the federal government for a bailout, but is that something that could resurface? >> it could. the federal government has made it very clear, it has no intention of helping california. at least it has said that so far. if you help california then you have 49 other states lining up. many state are angry for the federal government for bailing out companies like aig and the auto industry. do you guys want to bail me out? >> can you get back to that on

us when it gets serious out there and -- >> only the seventh biggest economy, jane. >> you keep talking. you'll work it out. >> seventh biggest in the world. >> i'm sure you guy can handle this. can't you -- >> i think we need to televise it and make it pay fer view. >> there you go. >> you should have been saving in the hard -- in the slush times, jane. i hate to say that to you -- >> no, no, that's what i did. personally, i'm in great shape, joe, but the state takes enough of my money, i would prefer not to give it anymore. >> that's the other problem, no one wants to live that. are your hair getting cleaner? >> i've never been healthier. >> financially, healthwise, the weather's great. >> traffic's nice? >> it's wonderful out here. >> all right.

>> good tofu. >> michael jackson. >> oh, boy. all right. thank you, always fun. as jane mentioned, california is hardly the only state facing a fiscal crisis. illinois governor pat quinn vetoed his state's budget saying it would still leave illinois $9 billion in the red. joining us is illinois state treasur treasurer. what happens although this point. ? he's not even calling them back in for an emergency session. do we wait until the 14th? >> we have enormous challenges here in illinois. we have a budget shortfall of $9.2 billion, we have unemployment at 1.2%, unfunded pension liability of over $75 billion, which is the largest in the united states. and we also have a backlog of unpaid bills of $2.8 billion worth of payment cycle, about 99

days. people aren't getting paid. these are vendors and social service providers that aren't getting paid. what we have at the end of fiscal year 2009 is a 10% drop, almost a 10% drop in state revenues of $2.3 billion. so and to kind of top it all off, not only is 2010 going to be even worse, but there is no budget in place and the general assembly and governor aren't seeing eye to eye. and as of today, we are if you could -- functioning without a budget which is extremely disconcerting. it will only make challenges worst. >> you warned us about the unfunded liability for the last six months your state has been facing. if things are getting worse and worse, how much of a surprise did this come to you and other people who are there? >> well, it's not a surprise. again, these problems didn't happen overnight. obviously, we're dealing with the greatest recession we've seen since the great depression. but you're talking about years of mismanagement, poor

leadership, skimming the pension funds, sort of kicking the can down the street, skimming the -- we have something called the fund sweep where they take money at the end of the budget year, end of fiscal year and basically sweep the funds out of special account. you have the map-making, right decisions in springfield. here we are, $75 billion in debt with our pension system alone. and, again, that's -- that comes after years and years of neglect. >> what has to happen? you think services need to be cut? i think taxes need to be raised? >> so here we are with the challenge. the problem, as all of you know too well here in illinois we've got elected officials who are either in jill or who are heading to jail or, you know, not doing a good job. so you have not just politically but on the streets here in chicago and across the state, when state government finally asks people to make some

sacrifices, more sacrifices and possibly pay more taxes, there's a complete level, a complete distrust on the heart -- on behalf of the citizens of their elected officials. they don't believe that money will be used efficiently. they don't believe services will be streamlined and they don't believe their taxpayer dollars are going to go for the right reasons. so this is the reason we're in this stalemate right now. >> two things you would do -- three things you would do immediately? >> i think try to do the simple things. for example, we had a proposal out of our office to combine pension -- the investment functions of the state's pension fund which would save $50 million a year. over the next ten years we would save, you know being pab $1 billion which would not cost the state one penny. second thing you need to do is make sure there are no more fund sweeps, skimming of the system. at tom point there has to be some revenue enhancements.

what you have to do is make sure you meet right away, you get a budget passed and make sure -- again, these are a crucial social service providers that are getting chopped away. until they're away to make sure they keep their jobs and services running -- >> so you would raise taxes? >> well, i think -- before we get to taxes the other thing we should definitely do is put a capital bill in plan. we have an opportunity here invest in infrastructure, to create a couple hundred thousand jobs. it's something legislature has passed and now being stalled by the governor. that's crucial, especially as the summer months wane down. as much as i hate raising taxes, we are at a point now when you have $9.2 billion, we cut everywhere, i just don't see another way around it without finding new sources of revenue. >> when's the last time the state had a surplus? >> well, that's the problem that was discussed earlier in california, that there was never responsible leadership. so when times were good and

money was coming in the door and tax levels were strong, there w never really a serious rainy day fund. people in springfield never really planned for the future. here we are when times are grave and times are tough, there's nothing there. as a matter of fact, when times were good they did more borrowing than you can possibly imagine. now not only are we dealing with the budget shortfall, we're paying interest on short-term and long of h term borrowers, tension obligation bonds. again, a lot of horrible decisions have been made in the state of illinois over the past 10, 15, 20 years. >> alexi, sounds like there's a lot going to be happening over the next couple of weeks. thank you for the update on that. >> thanks for having me. when we come back, regulation to watch and next steps for bank of america. so you can be a sclined trader. by selecting from eit advanced triggers, your order gets ecuted, even when you'reusy.

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banking on america. two-minute drill is just ahead. first, though, before a break, take a look at gold prices this morning. you're going to see that they've come down rather significantly, down $9.40 to $921.60 an ounce. "sawk box" will be right bk. ce toss me

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time for the "squawk" two-minute drill with don powell. let's talk about the current chair. political star in rising, sheila bair. are you surprise with the job that she's done? >> you've got to realize that they are to protect the fund. they're more defensive. i think she's done a good job of making sure that that's her role and safe and soundness is an important issue. she hassish shusz as relates to this mortgage crisis. i think she was out front about that issue. i think she -- i think she's independent and i think the nature of the fdic, you've got to be independent. i think it's critically important that you're independent. i think she's shown that streak. she has the will to make tough decisions. so you know, time will tell. >> i mean, i just wonder how, does she get reappointed, does she serve the rest of her term?

that was what we asked her, 11? >> i can't remember. but i don't know. time will tell. i don't think she focuses on that today. i think she focuses on making sure the funds are protected, which the fund dollars are now down below $15 billion. it's like 26 basis points of the insured. >> will we do anything in regulation or will we get backed down with health care? >> no, we're going to do something. i'm not sure it will be like what's out there right now? there's no question that we'll do something as relates. >> people say we need -- even chuck schumer says we need the single heads of fannie. you need to not worry about politicizing things. >> well, i think that's an issue that's going to be debated in the future. i can sure get in that camp easily. but at the same time perhaps there should be a choice. my concern is that always i love independence in regulators. i think it's critically important. but also that has to be some way -- there's got to be some type of oversight and checks and

balances on that. that's critically important. i think at the end of the day, it may take a year, but we'll get something done. >> do you think the financial system is on the mend either way? >> i think the financial system is on the mend. i think it's much slower than what people would like for it to happen. i think marketplace, yielding the capital dollars for these large institutions, the last six days, was huge. i think it was critically important that that occur. i think capital is going to be important. i think also as going forward in the regulatory regime we need to look at a lot of things besides just the structure, accounting issues. we've got some accounting issues that are not good. the mark to market as we talked about. rating agencies, that's not good. capital, we've got to make it very simple. brian was talking earlier about equity, equity, equity. >> don, thank you. >> make sure you join us tomorrow. "squawk on the street" is coming up next. supply management will