a super fight between hector lom bard and paulo filho. for our entire crew, i'm shawn we lock. thanks for watching bellator 17 from the wang theater in boston. this is hi, everybody. welcome to "the wall street journal report." i'm maria bartiromo reporting today from washington, d.c. he is america's most important banker and one of the country's most important ceos. my conversation with jamie dimon about the future of banking, the consumer and the state of his business. plus, one of the banking industry's harshest critics joins me. noted economist simon johnson, and why he calls america's largest banks a danger to our economy. and competing in business, begins with education. i'll talk to education secretary arne duncan about the future of our schools. no child left behind and what makes a good teacher. "the wall street journal report"

starts right now. this is america's number one financial news program. "the wall street journal report." now, maria bartiromo. >> here's a look at what's making news as we head into a new week on wall street. earnings season is under way. so far big american companies look like they are doing just fine. banking behemoth jpmorgan chase beat analysts' expectations as the technology giant intel. aluminum company alcoa beat estimates for the profits but just missed on the revenue side. commodities prices are rising worldwide and it's starting to show up in the u.s. the producer price index rose 1.1% in the month of december as food and energy prices surged. the core rate, however, which excludes food and energy was flat. up just 0.2%. the markets hit fresh two-year highs on wednesday as concerns about a debt crisis in portugal subsided. there were mixes later in the week. yet another honor for gm's electric vehicle, the chevy volt. it was named north american car

of the year at the detroit auto show this week. the car went on sale last month and lists for about $41,000. but a $7500 tax credit is available. so are the banks back on top? this week, the federal reserve launched a new round of private stress tests on the 19 largest banks to determine their financial health. and whether they can boost investor income by raising dividends amid the signs of hope, jpmorgan chase. the second largest bank in the land kicked off earnings season with a strong report showing a 47% increase in profits. i spoke with the ceo jamie dimon about the health of the banks after two years of crisis, and where he sees the economy today. >> large corporations in great shape. we think middle market companies are in very good shape and they are starting to borrow again. small businesses, we think, are better than they were. and we saw a small business loans go up almost 40% this year. the consumer, our economists think the consumer is half repaired their balance sheet to where they need to be and they'll be done by the end of the year.

even housing is better than it was a year ago. so i look at the landscape ican't see anything that's worse than it was a year ago. and i think that's a very good sign. and i have a deep abiding faith that the strength of america, the entrepreneurs and the work ethic, the capability of the companies, the education, the universities, they will come to the forefront again, and america will get its mojo back and we'll start to grow and everyone will be surprised. i hope it happens sooner rather than later. >> despite all the bashing of banks not lending, we talked earlier, and you were talking to me about the substantial lending that jpmorgan has been doing. >> i am going to read the numbers, if i can. i wanted to bring this because i hear the banks don't lend. so this last year we lent or borrowed or raise forward companies $1.3 trillion. this year 1.4. commercial banking was up $20 billion. mostly middle market companies. small business was up like 3 or 4. consumer is up like 9 which includes mortgages and credit

cards. and it's across the board and global. and i think it's a very healthy thing and a healthy sign. most companies need money, they get it. they may not like what they are getting, but it's really out there. so i urge all of you if you have specific loans and have been turned down, call us up, we'll look at it. we're happy to conduct business with you and see if we can become one of your banks. >> good sell there, jamie. let me switch gears and ask about capital. you were submitting in to regulators. we're waiting in march to get the comments. if you had to operate the business without paying attention to the basil three or what regulators are saying you should have in terms of capital, what would it be? >> we have shown -- we had this presentation and showed using our estimates that over the next three years, that we're going to generate $40 billion, $50 billion of excess capital over basel 3 8%. even higher than they are.

even if you stress that, we did these stress tests ourselves, that we generate $30 billion. we're going to be building up a lot of excess capital. we would like to restart a dividend. the regulators have asked 19 banks to make sure they could handle a highly stressed environment. we're asking for guidance from the regulators about what basis they'll let firms pay dividend, buy back stock or do other kind of things. and we're hopeful that early this year maybe now looks more like the second quarter, that we'll be able to reinstate the dividend. >> does it bother you that you have to check with the feds about when to move on the dividends? >> it was always -- we've always been heavily regulated. we've always accepted that. and it was always true that the federal reserve always had the right to have a bank change its capital decisions. and we just went through the biggest crisis of all time. i think they've appropriately said let's stress it again. let's do it right. let's recheck it. let's cross the ts and dot the is. once those decisions are done

they'll take another huge cloud off the economy and another sign we can go back to business as usual. >> you recently were able to pick up really strong franchises in the depressed time. bear stearns and wamu. is there interest in terms of acquisitions in europe given the fact we're seeing such upset for the european banks? >> the most important thing for us is always organic growth. use your capital, build your business. more bankers. more products, services. after you do that, and after you do it well, you can always think about acquisition. i think the chances are probably rather low in europe, but i wouldn't rule it out totally. >> in the u.s., the same suntrust seeps coming up. what's stopping you from aquiring sun trust. are they not for sell? >> i'm not going to talk about any particular company. merges are take two. we may want to do something. it's like a marriage. the other person has to say yes, too. if it's something that makes sense and the other party thought we'd be a good merger candidate, we have the wherewithal and the money. >> of course, you had real weak

players around you. but now those weaker players are getting stronger. they are back in fighting form. whether it's bank of america/merrill, citigroup. where's the leverage? still investment banking the big opportunity? is it that fortress balance sheet? >> you know, i think it's a good thing that all the competitors are back. i always tell people, we've always had tough competition. and assume we're going to have tough competition. i think it's good for the world you have people fighting, competing. eventually indian banks, chinese banks, european banks. so we're getting geared up for a global competition, not just in the u.s. i think all our businesses can grow and compete. now we have to do it the old-fashioned way. better products, better services, better pricing. in the united states we'll open 100 branchs in the united states this year. we have hired 10,000 people, net in the united states in 2010. i'm really proud that we never stopped doing what we should do. grow, order clients, obviously

earnings move up and down a little bit. we'll keep on doing more of the same. >> my thanks to jamie dimon. up next on "the wall street journal report," a man who uses the word dangerous to describe jamie dimon. i'll talk to noted economist simon johnson and get his reaction to my interview. find out why he says the people that run america's largest banks need to be watched. and the leader the president has charged with reinvigorating our nation's schools. arne duncan, secretary of education, will be with me. as we take a break, take a look at how the stock market ended the week. [ male announcer ] you're at the age where you don't get thrown by curve balls. ♪ this is the age of knowing how to get things done. ♪ so why would you let something like erectile dysfunction get in your way? isn't it time you talked to your doctor about viagra? 20 million men already have. ♪ with every age comes responsibility.

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welcome back to washington, d.c., today. simon johnson is the former chief economist at the international monetary fund, a professor at mit and co-author of "13 bankers" which is out in paperback right now. he's also a harsh critic of america's major banges and the people who run them. simon, good to have you on the

program. >> let's begin with jamie dimon, the chairman and ceo of jpmorgan chase who you just saw interviewed earlier. you have written on your blog on the website the baseline scenario, quote, jamie dimon is, by far, the most dangerous banker of this or any recent generation. why? >> because he's very good at his job. he's very good at running a big bank. he will make it bigger. he'll make it more global. he said that very, very clearly. we can't handle the state of these big global banks. i'm not saying it will fail on dimon's watch. he'll run it well for four, five, six years. he'll hand it over to someone else and just like when citigroup was handed over from sandy wild to chuck prince, that's when things started to go wrong. that's when i suggest things will start to go wrong with jpmorgan. >> can you make that claim for sure seeing that just chuck prince didn't have any experience in banking in terms of running a global business? the major banks already pass government stress tests in 2009. the company undergoing around round if they want to increase

their dividends. do you think they are rigged so the banks will all pass or, what about all these stress tests we're going through? >> the stress tests are too weak. i don't think they are rigged in any cheating sense. i thing federal reserve has the wrong concept. they aren't thinking enough about the global problems. the european debt crisis coming. the problem these banks are going to encounter in the retail market in the united states. the likelihood of a second dip. you need a lot of capital. a lot more equity financing. u.s. banks lost 7% of risk weighted assets in this cycle. 7%. you can't go -- if you go with basel of 8% or 10%, the capital requirement including the buffers, that's not enough to handle a 7% loss. >> i don't know that i agree necessarily with too big to fail but it's too connected to fail. that's really the issue, right? it's not necessarily that big companies are bad. it's that when you are connected to so many other institutions around the world and actually able to bring down a system. >> size is definitely matters. but it's obviously about the leverage. it's about how you are connected to people. being a huge over-the-counter derivatives trader, which is

what jpmorgan chase is. their service was much smaller than jpmorgan but its failure -- it seemed like a very specific thing but somebody who say big marketmaker n cause enormous disruption. and the bigger you are, i'm afraid the more damage you cause when you fail. >> what about the broader economy? let's switch gears and talk about where we are here. what's your sense of the state of the economy. do you think that we could use more stimulus? where are we in the recovery? >> i wish i could endorse more stimulus. our fiscal position is so weak coming off what we did over the past ten years. we don't have the space for it. i was quite completely opposed to the bipartisan consensus the end of last year which said we had a big deficit, let's cut taxes. i understand the u.s. dollar is still a safe haven. people tlook the u.s. when times are tough. once the europeans sort themselves out, which i think they'll do in the next year or so, the u.s. will not be this guaranteed safe haven. we'll have a lot of pressure. >> you are talking about $13

trillion in debt and you really can't keep borrowing forever. are you concerned at all about inflation on the horizohorizon? >> not in the united states. the pressure of commodity prices will be a factor in emerging markets. but in the u.s., providing there isn't a big shock to oil prices, i think that inflation is going to remain under control. i don't think that the various easing measures that the fed has taken are going to have a big headline effect on inflation. >> president hu from china coming to town. you think china's currency, the yuan, will be one of the world's reserve currencies in 20 years? replacing the dollar? >> that's a conservative estimate. i think it's going to be one of the world's reserve currencies much quicker than that. competing with the sdlr the way i would put it. it's going to be a question whof has the most sound policies. who has a fiscal stance that you believe in. people will a say let's look in 2020 or 2030, china, united states, euro zone. who do we feel has their fiscal accounts on a sustainable basis and we'll have to compete with the chinese authorities if we

want global dollars to come to us. if we don't want those global dollars we'll have to make big adjustments in this country. >> what about europe? how great of a concern is the debt crisis? >> the europeans will sort their way out but only after a go through a crisis. they have a political decision-making progress. there will be problems with portugal, spain, belgium is a question mark right now. the europeans need to sort this out but they won't until they are forced to, which i think is going to happen in the next three quarters. >> simon, good to have you on the program. we appreciate it. simon johnson here with us on set. up next on "the wall street journal report," getting to the head of the class. how do american classrooms compare to the rest of the world. the plan for teaching students how to compete in this new global economy. global economy. and become a fan on

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when it comes to educating american children for a global economy, are we closing the achievement gap or leaving children behind? my next guest kicked off 2011 guy calling for a rewrite of the elementary and secondary education act, also known as no child left behind. joining me is the secretary of education, arne duncan. mr. secretary, it's wonderful to have you on the program. >> thanks for having me. >> thank you for joining us. it's good to see you. let's discuss how american students compare with their peers globally. of course, we all know that things are changing everywhere and this is really a global situation.

in december, the oecd, organization for economic cooperation and development released the results of a 2009 international assessment of 15-year-olds in 34 countries. can you talk to us about the results? >> well, i think those results and others which i'll give you speak to why i feel this huge sense of urgency. we have to educate our way to a better economy. so on those results, they are from oecd. we've been jointly here in washington with them. our 15-year-olds were 25th internationally in science. 25th. 23 f you look at the drop-out rate in this country, 25%. that's a million young people leaving our schools for the streets each year. as you well know, there are no good jobs in today's economy for high school dropout. none. college graduation rates. just one generation ago, we led the world in college graduates. in one generation we've flat lined. nine other countries have passed us by. we're simply not getting the job done. other countries are outeducating us. as the president said, those countries have outeducated us are going to outcompete us long term. we are fighting for our country. >> some of this starts at home.

we know that. but after home, then we move on to teachers. that's really the critical component here. so can you make better teachers? can you attract higher caliber candidates to the job? >> absolutely. and in education, as in business, as in every other sector, talent matters tremendously. three great teachers in a row in the average child is going to be a year and a thoofl two years ahead of grade level. three bad teachers in a row and that average child will be so far behind they'll never catch up. we have a huge opportunity here. we have a baby boomer generation moving towards retirement. about one-third of our nation's workforce, about a million teachers are going to retire in the next couple of years. and our ability to attract and retain great talent over the next four, five, six years is going to shape public education for the next 30. it's an absolute generational shift. so we're putting a ton of time and energy and attention into thinking about how we attract that next generation of phenomenal leaders. i'm traveling the country talking not just to college students but also high school students about the idea of becoming teachers. to me it's a real call to service. if you want to make a difference

in the community, shape the lives of children, help shape our country, there's no greater calling than becoming a teacher. >> can we pay the competitive salary to actually attract those people? >> well, i don't want to just pay everyone more honey, although teachers are absolutely underpaid. we need to reward excellence. what we're seeing now say series of innovative new teacher contracts in places like here in washington, d.c., in places like baltimore, where grade 28, 29, 30-year-old teacher can make $100,000. that did not used to be the case. that used to be never -- after 35 years in the profession. what young people today want, they want to be held accountable, to be challenged. they want to be rewarded for excellence. you are starting to see really great movement from unions, from management where we're starting to recognize and reward excellence. we're starting to build better career ladders. where we do tharkts i'm convinced we're going to attract and retain entirely different caliber of talent. >> race to the top. $4 billion interstate competition for government grants in education. since the recipients were announced last year, some of the

states have had a change in governorship. does this create a problem? it may be a change in policy. can the politics threaten what you are trying to do? >> i don't think so. this thing has been extraordinarily successful. there's a huge amount of momentum. $4 billion. less than 1% of the total spent -- we spent $650 billion. we've seen more change in the past 18 months than the previous decade combined. 40 states today working on raising standards, truly college and career ready standards for every single student. they are stopping dumbing down standards, stopping lying in children and families. we've seen about three dozen states remove barriers to innovative schools and charter schools and things like that. when i got to washington i didn't realize we had laws on the books in some states that prohibited -- it was against the law to link student achievement with teacher evaluation. all those laws have been eliminated. it's been an amazing progress and that progress is going to continue. i'm absolutely convinced. >> and the fact is that the amount of attention being paid to education in the private sector really has increased

substantially. so whether it's mark zuckerberg, bill gates donation to schools, mayor bloomberg appointing the former ceo of hearst to run the new york school system. what's your take on business people without classroom experience? can the interest match the scope of the challenges facing urban school districts? >> we need everyone to be part of the solution. we need great teachers, principals. we need to challenge parents. but the business community has a tremendous altruistic interest but a tremendous self-interest in seeing a much better educated workforce. we need that next generation of workers and leaders for our businesses here. and we need that next generation of consumers for the businesses. so the business community has to play. we've seen some remarkable partnerships in our innovation fund. about $650 million of money to reward excellent and innovation at the local level. the business community came in with a 20% match. $130 million. that's never happened before where the federal government and the public sector -- the private

sector partnered in such a unique way. very real dollars. that's gone beautifully well. i'm really challenging the business communities to step up, demand reform, to be part of the solution. we need their voice at the table. >> mr. secretary, great to have you on the program. good luck with everything. i know the entire country is rooting you on and wishing you the best. congratulations. >> thanks for the opportunity. >> on the progress so far. >> secretary arne duncan. up in, a look at the news this upcoming week that will have an impact. and if you thought the magazine industry was in its final chapter, think again. affect wheat output in the u.s., the shipping industry in norway, and the rubber industry, in south america? at t. rowe price, we understand the connections of a complex global economy. it's just one reason over 80% of our mutual funds beat their 10-year lipper average. t. rowe price. invest with confidence. request a prospectus or summary prospectus with investment objectives, risks, fees, expenses, and other information to read and consider carefully before investing.

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for more on our show and our guest, check out wsjr.cnbc.com. you'll also find a link to my blog, investor agenda.cnbc.com. hope you will check it out. now a look at the stories coming up in the week ahead that may move the markets and impact your money this week. we get earnings reports from investment banks goldman sachs, morgan stanley and the major bank citigroup and bank of america. we'll also get earnings from apple, ibm, google and general electric. ge the parent of the company that produces this program. monday is martin luther king jr. holiday. all u.s. markets will be closed in observance. wednesday, chinese president hu jintao visits president obama and attends the state dinner at the white house. and december's number of new residential units under construction will be out on wednesday as well. thursday, the nation's realtors will report on existing home sales for the same month. finally today, don't be surprised if your magazine is feeling a little heavier these days. the number of advertising pages

is growing again. magazine ad revenue is up for the first time in three years. rising 3% to $20 billion, according to the publisher's information brewer pope "people" magazine led the list with $1 billion in ad sales while food network magazine, a joint venture between hearst and food network grew the most, 174%. that will do it for us for today. thanks for being with us today. my guests next week, former imclone ceo sam waksel. he's returned to the pharmaceutical industry after four years in prison for securities fraud. each week keep it here where wall street meets main street. i'll see you aga