Transcripts For CNBC Squawk Box 20100419

that's how uninformed. this made matt taibbi's rolling stone piece suddenly become factual. >> that says something about the degree to which this is going to play on main street. this is hard to explain to regular people who aren't in this business. >> okay. so can i try? >> yeah. >> so here's the issue, as far as i see it. they didn't disclose that paulson was -- >> nobody knew who paulson was. might as well have been pat paulson. he hadn't made any money. >> and the inference is that they cold aca with was this group that supposedly picked these assets that paulson was behind this, as a sponsor, meaning he was going long. that's the argument. the argument is we're the casino operators, what we didn't tell you is that there's not -- we took all the aces out of the deck and this guy over here did it, or the table was built -- >> and on this, oh, he blamed, by the way. >> but the issue is, did goldman at the time, "a," know that. right, because paulson could have been very, very wrong. >> and warren buffett called up goldman sachs three years ago and said listen i found some mortgages which i think are very underpriced, i'm a value guy, i'm going long, and then they found someone on the short side -- >> would we be having this conversation? >> we know who paulson is now because he's one of the people that made, that you can count on one hand, that made $5 billion when housing collapsed. that's why we know who he is. we didn't know who he was. and goldman didn't know everything. >> goldman put its own money in this. goldman lost money, too. want to talk about the investors, it's aca, which lost $900 million and some. it's another european bank. and -- that's the thing that bothers me in all the coverage that's come out on this. they keep talking about the investors who lost money. you're talking about a bond insurer and a big european bank for the most part and goldman sachs. those are the investors who lost money on this. we're not talking about average investors on the street. we're not talking about -- >> i would argue -- >> we're not talking about firemen. >> the most important component of this is actually that the investors did see the component parts. >> right. it's no secret. >> it wasn't that there wasn't disclosure about what the parts were. >> they went to them with a list that paulson had helped select and aca turned down 60% of the offerings that were in that list and came up with their own and put them in. >> we're having trouble finding someone to take the other side of this trade. we'll have barney frank on later. >> i agree with andrew that the question is not disclosing some of those details. >> and do you need to -- >> it's not done normally with cdos. >> traditionally, know. if you understand what a synthetic cdo is, it's a bet on tonight's baseball game. someone has to come out on the other side. >> it's like s&p futures. >> so it is fraud. the question is, it's -- >> what? >> if it makes the fraud -- the word i was -- the thing i was saying, if i knew that paulson had built the craps table, even if i knew all the parts going into the table, if i knew who was behind building the table, and they were trying to raise the table, if they could, would that change my view about whether i wanted to invest. even if i didn't know who he was, but i knew the short seller was on this side of it, that might actually change the way i think. >> maybe. >> or maybe not by the way. >> aren't you forgetting that at the time, in this casino metaphor of yours, every table was winning big. >> right. >> and there were lots of big investors and their table was going to win big, too. >> right. >> which is an example of the greed that was taking place. >> and they were still winning long. >> don't you think that at $150 oil i can tell you that goldman arranged some deals that allowed them to bet on $300 oil which they were forecasting at the time. and also the other side of people who were betting and no one knew it was going to $40. >> isn't there a larger problem here? that seems to have been pointed up which is really they are running a casino. in a whole different way. they are the casino operator. really, really. when you start thinking about a lot of these trades like does this have any value to the larger society, i'm not sure. it really is like playing the role of bookie. if for these type of trades. that mps the big deal. >> not if it was hedging. i mean, if there are a lot of firms involved -- >> i think this is the beginning, because a lot of other firms, whether it be deutsche bank, citi, others who were involved in similar -- >> how about this idea in the "journal" today that goldman was never, they say, given a chance to settle. -- >> i actually don't think it's dirty. what's very interesting about this, this has been going on for 20 months. >> this investigation. >> this investigation has been going on for 20 months -- >> they had it in december, right? >> yes, so it would actually -- >> in black and white, spelled out? >> it started in august of 2008. actually, unfortunately, by the time our article came out, the train had left the station a long time earlier, and they had been back and forth, back and forth with wells notices, responses, and the defense that goldman has made over and over is that they disclosed everything that was material. and that knowing that paulson was on one side or the other was immaterial, and as long as you knew what the component parts were, you could make your own decision. that's what they were saying in -- >> in a private placement, ik bchlt can't figure out whether they want to make this -- >> not to mention the s&p and moodies rated these things aaa. >> yeah, exactly. >> which is a whole other problem unto itself. >> all right. >> we need to book someone who -- >> what i will say, though, is -- >> can wait -- >> can we -- >> hearing this on friday when i first started hearing it, i thought it was a lot worse. >> does anyone have -- >> than i did after spending the weekend reading through it. >> but that's how it always is, right? when you come out with a complaint, you come out with -- >> not always. madoff got worse and worse and worse the further it got worse. enron got worse and worse. worldcom got worse and worse. this is one where i looked at it and thought, wow, this is bad. and i looked at the details and said where's the there? >> i do not think this is completely defensible. it may be legally defensible. but let's just suggest there's a larger issue here and i'm not sure that this -- >> when you're working as an agent, andrew, you're arranging both sides of the trade a lot. >> and i -- >> what would you rather have? an investment banker who is going, whoa, this is going to last forever. i love these profits? don't you want a bank that may have hedged itself like goldman did and not hesitated? >> i'm not disputing that. i'm just suggesting to you that it doesn't look great when you actually are taking the short side of something like this and you aren't disclosing it. and there were inferences, inferences -- >> but they didn't. they were long. >> they were long. >> but -- >> but the whole structure of it was built for others. and the question is whether you should have the -- whether you wanted to know -- >> whether paulson was behind it. >> not necessarily paulson. >> somebody. >> somebody who was shorting it was the one who was picking these particular -- >> so how come the long position -- >> i imagine -- >> mediation -- >> both sides were presold as well. both sides have something to say about what goes in to the portfolio, right? >> typically they do. typically it's always been the long investors. the shorts come in after and say you guys are overvaluing the stuff, and i'm going to take the other side of it. >> well obviously we're going to talk about a lot more -- >> the one reason that it boiled over the weekend, you know where it was on saturday. "new york times." >> really? >> yes. >> can you believe that? >> it wasn't your normal -- one of your normal op-ed writers. >> typo? >> yeah, it was a typo. >> in the "journal." >> lead editorial. >> thanks for having me. >> you're welcome. >> did you read it yet? here. >> some other headlines this morning. federal authorities are reportedly picking up the pace in that criminal investigation of former mortgage giant countrywide and its role in the housing and financial markets meltdown. the "journal" says one of several federal investigations now under way is a criminal probe and a grand jury began hearing testimony about countrywide last year. no details on what charges might emerge. three countrywide executives face a civil lawsuit filed by the s.e.c. last year. treasury secretary tim geithner says he is confident that lawmakers will bridge partisan differences and pass a financial regulation bill. >> what these bills will do, they will make sure, if a large institution ever again manages itself to the point where it can't survive on its own and has to come to the government for support, then the government will put it into receivership. it will wipe out shareholders who will replace mngment and board and we will wind that firm down, dismember it, sell it off so it cannot exist again to make those kind of mistakes in the future. and we'll make sure while we're doing that that the taxpayer themselves are not exposed to a penny of loss. >> the president will be meeting with congressional leaders this week to push for that overhaul. republicans are worried that the bill would expand the government's reach too far into private markets and allow for endless taxpayer bailouts. but this is a battle that is definitely heating up. >> meantime jpmorgan ceo jamie dimon is warning of overregulation in an interview with a german newspaper this weekend he says when profits fall too sharply then capital will move somewhere else. where there's more money to be earned, for example nonregulated markets. the question is, is that what regulators want? dimon is also calling for better banker access. the politicians arguing sometimes executive lack possibilities to demonstrate their arguments to politicians. and supplying them with right facts. it's all very like, you know, it's all very interesting. it's said in a nice way. i wish he'd really say what he means. >> he did. >> just take the gloves off. >> on a conference call -- exactly what he thought. >> you can imagine, trying to -- to a bunch of whatever they are in washington, trying to talk about what you're doing in private industry to the people that are running places at this point, none of them that has ever worked in the private sector. not a single one. >> that's not true. >> that's not true. >> bob corker. >> keep saying it enough. >> i'm talking about the administration. >> that's not true. >> well, who? >> i don't know, give me a minute. >> there's one who went to a hedge fund after he was a -- yeah, rahm. >> larry summers. >> the airline industry is losing at least $200 million a day as a result of travel shutdowns imposed after that icelandic volcano began erupting last week. millions of travelers have been stranded. the eu predicts travel could your honor to maybe 50% of normal levels today. some countries have announced partial air space reopenings. others keeping no-fly decrees in pace. stephane pedrazzi is in brussels this morning at the main air traffic control center for europe. and stephane, a lot of hope among people here, visitors and americans, hoping that the air space begins to open up. >> the situation has improved in the southern part of europe. airports have reopened in spain, in italy, in the southern part of france, but still the main airports in europe are closed. it's the case for london, for paris, for frankfurt. therefore, will be far from the original target, which was to re-establish 50% of flights for today. actually, we will be close to 30% to 35% on league with again 18,000 flights canceled today in europe. the situation will be reviewed later today by the european transport ministers. they will have a meeting to analyze the results of the test flights that were performed over the weekend by european airlines. and they will decide whether or not it's relevant to abate the regulation and to make it maybe more soft than what it is currently. airlines have expressed their kens. they complained about the current situation. they say that it's not sustainable for the time being. that the rules must be changed, because they believe it is excessive. and in europe, it's the regulation is tighter than what it is for instance in the united states. and they argue that there is no problem in the united states with a softer regulation. a ata, the international airport transportation association, criticized european governments for their lack of leadership in the management of the crisis. so we'll have a debate later today after the meeting of these eu transport ministers. for the time being, back to you. >> stephane, thank you for that update. when we come back, ready, set, trade. we will prepare your portfolio for the session ahead. first, though, as we go to break, take a look at last week's winners and losers. all right, welcome back, everyone. once again this morning the futures are under some pressure. this is after trading down by more than a percent friday on all these concerns that came after what we found out about goldman and the s.e.c.'s investigation. at this point you can see those dow futures are still lower. down right now by about 20 points at this point. we'll see where things head through the morning. almost 30 points. in our headlines this morning, u.s. regulators seizing eight more banks. that brings this years tally of failed banks to 51. >> for more on what will move the markets the week ahead, joining us from capstone global markets tim freeman. i think we know what's going to move, at least, today. >> oh, yes, goldman. >> yeah. what do you think people will be talking about? and which side of the debate we were having earlier do they come down on? >> ultimately i think this is going to be a lot of noise, and ultimately, i think goldman will come out a little bit better than what everybody thinks. public opinion is going to swing pretty far against them and wall street as we'd all expect. the headline is, i think, this is going to be a buying opportunity ultimately. they're certainly going to look at other banks. bank of america, merrill lynch was a huge underwriter on this, so were the others. so some of these knock-on trades, people selling gold because they think paulson was involved in this and he's going to have to liquidate gold, are in my mind really overblown. >> you don't think it's a justifiable reason for investors to flee risk assets? >> i don't at all. we had earnings that were knocking the cover off the ball. bank of america turned a profit. we've got other guys coming up this week so we're right in the spate of earnings, big surprises. volatility, when we look at how is the market treating risk prior to this announcement, it was, you know, volatility was collapsing. we were talking about outright money coming in to the marketplace. volatility going to zero. and this market going to the moon. >> can regulators, can they overregulate? is it possible that this financial reform bill could go so far as to crimp the -- crimp wall street and to crimp, you know, the stock market in general? because long-term, i mean, you can just read the front page of your paper again, here, this is emboldened democrats to ratchet up pressure which we knew on friday, knew if you really want to be a conspiracy theorist, i mean, it will ratchet up, there's 41 guys, they only need one, they only need one. and how many guys are going to be able to stand firm in the face of this? >> i'd love the argument to go from, the financials and wall street, and let's talk about the economy. what is good for the economy? and when the economy is good, you know the middle class, everybody participates. wall street is the grease that makes that happen. >> right. you just heard jamie dimon say if it becomes too prohibitive money is going to move elsewhere? >> isn't there some common ground that things are going to have to move differently? i don't want to come down on this that nothing should be done. >> people need to understand derivatives help spread risk around -- >> is there any problem with more transparency? >> we need to have more transparency. >> can i take issue with what you just said? you said it spreads risk and i agree with that to some extent. when you look at what these transactions actually were, synthetic cds. can you explain to me or the viewer what the societal benefit of allowing people to gamble on both sides of that were? >> sure. it's actually very simple. people are able to borrow at lower and lower rates when money is available to the banks. if you walk into jpmorgan or any other large financial institution and said i'd like to take out a loan, they have capital requirements. they only have so much capital. so what cds and other products allow the banks to do is to offer more capital efficiently to home buyers. to, you know, mom and dad at the end of the street, down in virginia beach or down in, you know, wherever, so rates go lower, more money is available, and it allows people to get in to houses, right? this is what got us into this product. so, i credit default swap allows jpmorgan to buy protection against loans that they're on hook for and making to main street. >> it seems to me that regulatory reform, where we have completely dropped things, or with the bond insurers, first of all, who rated this particular transaction aaa, both s&p and moodies, and the municipal bond insurers that got into all kind of other business. municipal bond insurers across the board, not because of municipalities going broke but because they were all of a sudden insures stuff like this. >> exactly. nobody's talking about aca in this process, right? they were the manager of this transaction. they were supposed to be there on behalf of the long -- >> they lost almost a billion dollars on something that they were supposedly experts on. >> i'll tell you the other side, everybody knew who paulson was back in '07 and knew he was the largest short in the housing market that existed. and nobody knew that i was going to be right. again he didn't know that somebody down on one street, you know, these are pools of securities from large geographic areas. >> we can talk about whether or not this is a justified suit till we're blue in the face. but if the government wins, joe's question is, doesn't that -- are financial stocks more vulnerable now than health care stocks were before health care was passed? >> i actually went out. i think the financials were overdone. bank of america was down too much, jpmorgan was down too much. i think goldman was down too much on friday's trading. >> the trading and the volcker rule and capital requirements -- >> they get even more embolden. is it possible that the stuff you hear that even -- they could be cutting off their nose in terms of getting credit flowing again if this financial reg is too -- >> you don't think clients in the end are going to flee goldman? goldman has always been the good housekeeping seal of approval. if i was a board of directors you could never go wrong with bringing in a goldman sachs banker. >> you knew part of that was just how ruthless they were. >> you think this is the tipping point? >> i don't know. thus far nobody has not hurt them at all. i just wonder whether now, if you're that board, you say, well, you know, why do we have -- >> it a liability? >> the guy from morgan stanley, that might seem like the better good housekeeping seal of approval. >> we should get a firm that had no idea this might implode and goldman thinking that the subprime thing might be a bubble. >> again, goldman lost money on this, too. >> i know, i know. but they did much better. >> they lost $90 million. >> they did much better in terms of hedging a lot of their mortgages. >> all that said you'd still be buying financial stocks? >> again i think this is overdone. there's no doubt that main street, that politicians are going to use this to get the financial reform bill passed. i think the timing of this is suspect, et cetera. but i do think ultimately this is going to be overblown. again, to see the move that you saw in gold, i mean, that paulson is a huge gold owner, gold is down huge because he's got liquidate positions. he's not even named in the suit. so, it -- >> one thing that we've got, it is a great -- the u.s. economy is a great economy. and in spite of all this stuff, which still might be okay. i mean, that's -- that's all i can fall back on and hope for. >> you saw -- >> no matter how bad -- >> you saw earnings last week, right? >> no matter how bad everything -- but when you hear the obama rally at 11,000, is it because of -- i mean is it so strong that it continues? or -- >> i mean it's pretty resilient. >> no matter what you throw at it. >> from a trading perspective we're seeing great earnings, solid economic numbers come out. we're seeing money flows come in. credit has gotten very expensive. it just, equities seem to be relatively valued, you know, relatively fairly valued against other asset classes. people worried about housing values in china now. you've got those. so equities seem fairly cheap and we've seen a lot of, you know, outright money, flowing into the marketplace. >> by the time cioffi is out of the handcuffs and no longer doing the perp walk, financial reform will be long passed by then. >> and you don't think that's going to affect the business? >> i do. that's what i'm saying. i think it's going to affect it. i do. and i think that, you know, you're going to -- we're going to mess this up. we're going to overdo what needed to be done. it doesn't matter what i am, right? i'm arguing, you're the only one i'm arguing with. >> i know why you're arguing with me. >> i've got to argue with someone. >> and matt's taken. >> tim, thanks. it's good to see you. >> thank you very much. >> the latest on the case against goldman sachs, including a former s.e.c. insider, and a man who served as ltcm's general council. then in the next hour, barney frank. you read this piece today? the guy you love so much to read? you read him today. i mean -- read it. anyway, but we'll talk to barney frank on what it might mean for regulatory reform. they've served for decades as a golden, tasty sidekick... to the all-american meal. french fries, and our national passion for them, are legendary. classic. iconic. but times change and people want better foods. so cargill helped a restaurant chain create... a zero trans fat cooking oil for their french fries... canola plants... and innovative processing techniques... while preserving their famous taste. because no one wants to give up a classic. this is how cargill works with customers. ♪ good morning. welcome back to "squawk box" here on cnbc i'm joe kernen along with becky quick and carl quintanilla. germany and the uk want details from the s.e.c. about the goldman sachs activities that led to friday's charges of fraud. yesterday, uk's prime minister gordon brown, who has his own problems, accused the u.s. bank of moral bankruptcy. he wants britain's financial watchdog to investigate. goldman has denied the allegations and says it will fight them. meantime, two democrat congressmen we have on a lot, elijah cummings of maryland and peter defazio of maryland are calling on the s.e.c. to investigate all the deals insured by goldman. the congressmen want regulators to probe whether fraudulent conduct by goldman contributed to billions of dollars in aig losses. goldman sachs is vowing to fight the s.e.c.'s landmark case against the firm, even as the s.e.c. turns its sights to similar deals. senior correspondent scott cohn is here with the latest. >> by all respects the lawsuit knocked one of the most powerful terms on wall street on its heels for awhile. now it is fighting back in an unusual point by point rebuttal to the s.e.c. charges. goldman notes its lost money, $90 million. kind of disputes the notion that the firm designed a product that was test continued to lose money. extensive disclosure was provided. aca picked the underlying mortgages, not paulson. yes, they had discussions, but that's typical. and goldman denies it hid paulson's intentions from aca. but the securities and exchange commission is thus far uncounted. this is the first major case brought by a new unit in the enforcement division dedicated to structured financial products and legal experts are betting it won't be the last. >> i will bet you right now we will see at least six to twelve similar actions against other wall street brokerage firms, including possibly goldman sachs again related to the abuses in the structured finance area which was a huge, huge sespool of abuses for the last five or ten years. >> s.e.c. enforcement director robert khuzami said on friday the agency is not done yet trying to prove after some embarrassing missteps that the agency is back on the beat. >> we've got a lot to talk about this. jim rikkerts, former general council, and jacob frankel who is a former s.e.c. attorney and a partner at schulman rogers. jacob, how sound and solid is this case? >> the fact that the s.e.c. is not going to bring a case such as this unless it really believes firmly in the allegations. but, as scott was referencing, goldman has responses. and the fact that the s.e.c. is changing the rules of the game, the way it's bringing cases now, we're going to see more and more goldman type of reactions in the market, where even before a company filed its motion to dismiss, to claim that the s.e.c. does not have a basis for its case we're going to see more and more of this direct retorts actually refuting the s.e.c.'s position. >> what do you mean changing the rules of the game as they go along? how is this different? >> what i mean by changing the rules of the game is typically after wells notice, once the commission makes a decision to actually bring a case there is some discourse. there's an exchange between the party that is likely to be sued, and the commission, often about settlement. what we're beginning to read is that did not occur here. that the s.e.c. just came out, guns blazing, and bring the case against goldman, and it stands to potentially be embarrassed if goldman prevails. >> why change the rules of engagement at this point? >> i think it's what joe was referring to before in terms or scott was referring to before in 2er78s of the s.e.c.'s reputational hit it took with madoff. and sort of the malaise that was sort of perceived in terms of actions for so many years. the s.e.c. really does need to rehabilitate its image. at the same time, it cannot afford a major loss. and losing in a case like this to someone such as goldman really would be devastating to the agency. >> who brought the bear stearns case? >> it was the department of justice. >> they got egg all over their face. that was very similar to this case. >> joe, not only was it similar. i think another critical similarity between the cioffi acquittal in this case was that one relied very heavily an e-mails. excerpted e-mails were all overed indictment and the jury basically, as you said, you know, came back and gave the government nothing, acquitted mr. cioffi and tannin and bear stearns of culpability. here again the s.e.c. is relying, the s.e.c. in turn, is relying on e-mails, we're reading the exerptds but i'm sure there's a much larger picture that goldman is going to put out in its defense. >> much tougher standard of prove in the cioffi and tannin case? it's a criminal case as opposed to civil. >> absolutely. they're we're talking about beyond a reasonable doubt, here we're talking about preponderance of the evidence. even as early as the wells submission that goldman is putting its response, the position its taking before the s.e.c. and i don't think goldman would be hunkering down and taking the public positions that it is, knowing the public relations cesspool that's involved here, if it, in fact, did not believe ultimately it could prevail. >> what other options does it have, given there was no settlement and really no opportunity to settle. they had been talking to each other for the past year and a half. apparently the talks stopped back in september of this year, or of last year, 2009. either you say okay, i did it, you know, we'll pay the fine, or you have to come back. no? >> you have to come back. but at the same time, you know, they're typically is a little bit more of a discord in that wells process, where the party that has been challenged, and put on notice that it is likely to be sued, can say and if you decide to proceed, at that point let's discuss a settlement. it could very well be here that the s.e.c. has just decided to dig its heels in -- >> remember the last time the s.e.c. settled a high profile case, not the bear stearns case, the bank of america case, the judge tried to throw it out. >> the part of the issue with bank of america was also the s.e.c. did not attempt to hold the individual, any of the individuals responsible. here, you have both mr. tourre and goldman who have been charged. so that piece of the settlement, the bank of america analysis, i don't think really fits in here. i think really this is more bravado on the part of the s.e.c. >> i think goldman is in serious trouble here bailesed on goldman's own statement. they said they lost $90 million. first of all it's legally irrelevant. i rob a bank, go to a casino, say i didn't make any money on this deal. the fact i lost it is irrelevant. there are a ton of insider trading cases where somebody traded on inside information, they held the stock too long and lost money. it's completely irrelevant. >> doesn't it go to the idea of them saying, the intense thinking that this is a deelg that's designed to fail? >> i'm not making the point that's absolutely relevant. the second thing they say with private list disclosure. this is not a disclosure case it's a nondisclosure case. when you go down the list of things they say, when they see someone in trouble and start denying things no one's accused them of, they say it's our business practice not to disclose who is on the other side of the trade. the s.e.c. did not accuse them of that. the s.e.c. said you failed to disclose whoever was on the other side of the case, they denied things that aren't legally irrelevant and nobody accused them of. they haven't addressed the case head-on. >> we were talking about this off camera, the idea that they allowed paulson to pick some of the elements of the cdo and didn't disclose that -- >> the cdo is very complicated. failure to disclose a material fact. that's the legal standard. that's what the s.e.c. accuses them. i think the biggest problem here is not the s.e.c. not all the plaintiffs lawsuits that are coming it's reputation. and it's interesting, i've seen two waves of security firm failures. the recent ones, lehman, bear, overbearage and direct assets. the older one, check kiting, junk bond market, reputational things and they were fraudulent. i think goldman looks more like those older cases. >> are you suggesting this could be as serious as those? >> absolutely. i was chief credit officer at the time drexel went down -- >> does that mean goldman's going away? >> i wouldn't predict that. that's possible. >> how possible? >> well, you know, given the example of drexel, i was chief credit officer for primary dealers, said jim you guys do what you want, we're shutting down drexel. i didn't do anything. i was afraid -- bear stearns says jim you guys do what you want but we're cutting off drexel. so i waited. ee vernt usually i called my head trader said shut them down, get our money back. drexel was not in financial distress. they had plenty of cash and it was reputational. that's the issue. >> that was almost at a time when i was going to go to drexel >> can we -- >> everybody there said it's going to be fine. wait a second, jake on, how do we know cuomo doesn't decide to make some political hay here, too? >> we don't know that. we're already seeing activity across the pond, as well. >> he's got an election coming up, too, doesn't he? >> one of the things we've seen in all of these cases, where the opportunity exists for a state prosecutor, particularly one of a high profile to step in, they often take advantage of that opportunity. at the same time i have a hard time believing that in the current economy, in the current times, that the s.e.c. would bring a case thinking, and mindful that there's a potential risk of a firm such as goldman failing. i would disagree with jim on that point. >> you know there's hay to be made politically, and there's hay to be made for the s.e.c., which as you said, jacob, is -- has had a lot of issues. most notably that stanford thing that came out on friday in the midst of all of this that's just stunning if you read it all. but that doesn't mean there's not a case here. it doesn't mean that they don't -- that they're not jumping on something that's ripe to be jumped on. >> i think there's been a lot of furor on all sides. >> i don't think the government wants goldman to fail but sometimes you start a snow ball fight and that's the problem. it gets out of your hands. >> can we go back to the intent issue. you talked about the fact that it didn't matter that they lost money in >> right. it's legally irrelevant. if you try to rob a bank and you fail, doesn't really matter. >> right. >> but in this case, it looks like their intent, their intent was they went long. they went long. >> it's interesting. when the s.e.c. -- >> i would think that they wanted -- >> when the s.e.c. goes through disclosure, they're going to want $1 billion. the fact that goldman had to pay paulson on the other side is goldman's problem. you don't get sort of, it's not a p and o you don't get credit for expenses. >> it was a long investment. they thought the bond would pay off. >> you're right andrew bit it doesn't matter. but it's legally irrelevant. >> but it does get at the idea that, as the s.e.c. alleges, that they were trying to set up a product that was test continued to fail. then they're not only -- they're stupid in addition to being fraudulent. >> well, that's their cost. they picked the right time to come into the market. give me a trillion dollar balance sheet and i'll find losses. we don't know what they made. you have to send a team of forensic accountants in there to figure out what they made. >> jim, thank you very much for coming in here today. scott we'll see you back here later today. and jacob, thank you for joining us. >> still to come, why china is stepping up its fight against property speculation. "squawk" returns on this monday morning.  welcome back. making headlines this morning, beijing announcing fresh steps this weekend to rein in property speculation. policymakers fear red hot prices could lead to a destabilizing asset bubble. you saw the gdp numbers last week, right? >> yep. >> on fire. >> with shanghai real estate out of control. >> we were pointing out that we could have a china expert sitting here just on retainer. because every day last week, everything led back to china. until friday. >> now we need someone -- >> prior to that, every day. >> and andrew. >> all right. coming up we're going to have more on goldman sachs and volcanic ash grounding planes across europe. we will head to the chairs and talk about the stories grabbing our attention this morning. first take a look at today's must-reads. ♪ ♪ all right. we're in the chairs, and all weekend long, this goldman thing was, you know, i was thinking about it. need a little bit of -- do you remember when we had gary bettman in here one time and he walked up behind me. and i said something like, you can't see the puck. or i said something, and he heard everything i said and tried to convince me otherwise. and remember, nbc bought the rights to the title. >> is that when they were in the middle of a strike? >> things were really bad. do you know what i did all weekend? >> watched hockey. >> watched hockey. >> did you really? >> i got the big tv and the high-def channel and i can see everything that's happening and it's the stanley cup. and i'm 54 years old. >> just discovering the joys of hockey. >> unbelievable, you can be one goal behind and you've got 30 seconds. >> and it's a power play and they're coming down. >> i watched the capitals beat the almighty canadiens. >> you saw the devils-flyers? >> i'm hoping for the phoenix coyotes, you know, playing against i think it was the red wings. i watched so many games, i don't know who was who. i needed my mind off of this whole goldman sachs thing. >> it's a beautiful game. fluid, and do you know the leg strength you need to accelerate? tree trunks. >> and they pass using the boards. the guy behind them. they do things that is -- so bettman, i apologize. and i mean, it gave me something to do. and i'm excited about -- there's so many teams now in the stanley cup that i'm looking forward to it getting pared down a little. >> plus, coming off the olympics. >> that's where it started. that was the game that i saw initially. where one of the i wanted the u.s. to win so badly. >> andrew -- >> i was not watching hockey. i was doing work. >> are you a hockey fan? >> i'm not a hockey fan. >> i had that or nba best and that -- final four i'll watch. but, i don't know. >> really? >> kevin garnett suspended for an elbow in the face, game two. ouch. >> so, andrew, you were -- >> i was working. and the thing that i would read or that i have been reading. i would suggest everyone take a chance to read, if you can, is this prospectus. the marketing teal for abacus, it's available on the internet. can you find it by googling the abacus presentation. and focus on the first three or four pages. the small type. because it's all of the disclaimers. and you can read all -- just disclaimer after disclaimer and each one of them, may end up from a disclosure perspective, be the thing that gets goldman off. >> you were doing that, not watching the stanley cup? >> yes. >> very exciting weekend. >> what in the disclosures might get them off this idea of -- >> it said the shorts, there's longs, we may be against you, others may be against you. i mean there's lots of -- you know, don't take this as the final anything. i mean -- it goes on and on. it's page after page. >> future performance or past performance is no guarantee of -- you may not make money, right? >> you may lose a lot of money. >> these are big boys and they had plenty -- i can't say what i really -- there's no upside to defending goldman. >> what i haven't heard you say is whether or not synthetic cdos in general are a good thing. >> right. i think if they, if they come about and find a very viable marketplace, then obviously they're useful to someone. i don't think it's all just a casino mentality. because they're there, even greenspan has backtracked on some of the stuff. larry summers on some of the stuff. but when the market starts and gross to such a huge level, it's obviously is satisfying some need for hedging. >> it's because of making money. >> it's not just casinos. >> it tells you a little bit about how they were working to try to find you. >> a synthetic cdo is referencing, it's a reference to real mortgages. nobody is lending real money. >> so it was just to roll the dice? that's the only reason -- >> by the way for paulson, it was all about rolling the dice, who can we make more money for our hedge funds. >> the bonds already existed. we're just piling more derivatives on top. >> i don't know. do you say we should say no more synthetic? >> i think we need to say no more. or we need to think very strongly about serious regulation of these kind of transactions. >> i think that's the clue, very serious regulation and bringing this stuff out of the dark. >> i have to tell you, i thought i understood synthetic cdos, but having spent the weekend, i say to myself, what's the purpose of all this. >> you're not the only one questioning this. when we come back, we'll get the top stories, plus goldman vows to fight the s.e.c. case. the global markets reacting. we'll get the global story, when "squawk" continues. goldman sacked. the fallout from goldman sachs continues this morning. regulators putting the firm under the microscope. making the case for reform. are the accusations of fraud politically motivated? we'll hear from financial services committee chairman, barney frank. earnings central and health care reform. the cfo of eli lilly will talk about the company's latest quarter and how the president's health care bill affects the company's pipeline. and over europe, iceland's vauk continuing to wreak havoc across the continent. thousands of flight cancellations costing airlines millions of dollars. the economic impact of the eruption and when flights might resume. those stories as the second hour of "squawk" begins right now. all right. good morning, everybody, and welcome back to "squawk box" here on cnbc. i'm becky quick along with joe kernen and carl quintanilla. the latest on the fallout from the charges against goldman sachs, as we count down to earnings from citigroup, which is coming up in about an hour's time. first, let's get a look at the morning's top headlines and the futures this morning continue to be under pressure after all this goldman news we got on friday. right now you're going to see that the futures are still down well below fair value. down by close to about 26 points. also, there's a political storm that is brewing in the case against goldman sachs. the s.e.c. accusing goldman of fraud in the structuring and marketing of debt that's tied to subprime mortgages. pressure building overseas as well, germany and the uk will be seek deeg tails from the s.e.c. about the accusations and the goldman case is now becoming part of the growing debate over financial regulation reform here in the united states. in less than 15 minutes, congressman barney frank will give us his view of the goldman case and how it might affect financial regulation and the debate taking place right now. investors are also eyeing citigroup. with the bank reporting quarterly earnings in just about an hour's time. we'll have the numbers, as well as the instant reaction. and the cloud of ash from the iceland volcano is casting a shadow over europe's economy as well. cancellations of flights in key markets, forcing some to travel by train, at least those are lucky enough to get a seat on a train. our own louisa poison is standing by with the latest. >> reporter: it's a very serious situation for travel and tourism these days. no doubt the european transport association have just told us that they anticipate that this is a worst scenario now than immediately after 9/11. we've heard from the aea this morning indicating that some of the airlines could potentially go bust as a result of this. if it continues. you're looking at approximately $200 million being lost per day by the airlines alone. you look behind me, i'm at st. pancreas international station in london, where you take the euro star to connect to for example, paris and brussels. the line immediately behind me here is a business premiere line. so people who book their business tickets, coming to pick them up in order to take the train to mainland europe. many people attempting to get a ticket here today will be very disappointed. we've just had an announcement overhead saying only in england saying some that the queues have been closed, because some three hours' worth of people in line. and i ran into people saying only in europe would you see lines being closed because they're too long. in the u.s. you would see more people being put into planes to meet the demands that people have. six extra trains have been put in place here from the euro star today. three extra heading to paris and two extra heading from paris to london. one extra from paris to brussels. so euro star, they're doing what they can in order to keep the momentum moving. again, i'm just kind of eavesdropping on this announcement that's being given right now. they're saying that they might be opening the queues a little bit later on this afternoon. but for now, because the queues are so long, they've closed the euro star queues. very inventive methods people using to get from a to b. i know people who have driven from london to switzerland, 15 hours in a car in order to get back. the car-hiring companies are cashing in on it. ferries are cashing in and you're seeing a multitude of additional train services cashing in, as well as the hotels and leisure groups, too. >> we were just talking about, as you were talking, is it true john cleese of monty python. >> he hired a taxi cab to take him to brussels. i forget where he was, but it cost him like $5,000, some huge -- he finally got fed up with waiting. he said forget it, hired a cab. >> the thing is, i know people personally who have done exactly that. but if you weigh it up with the amount that the hotels now are charging, people over the easter holiday breaks with three children, they put aside a certain amount of money to stay at a nice place now they're being told all of a sudden that the price is being jacked up. so the option is precisely to pay a bit more to get back to where you need to go. >> louisa thanks, louisa poison keeping track of the european story in europe. want to talk more about the goldman sachs fallout. we've got three of the biggest financial writers of our time talking about it. roger lowen stein is the author of "the end of wall street." bethany clean wrote "the smartest guys in the room" about enron. bethany, i would love to start with you, you wrote what may be the best piece about goldman for "vanity fair," looking at their strategy and culture. do you think the s.e.c. has the goods? >> it's a tough question. it's goldman's defense is that it shouldn't matter if the devil himself put together the deal. i'm not sure if they would say it that blunt will you. but that's what they think. that the buyer had the to do the due diligence. when i talk to people in the market about the transaction, other sophisticated investors, cdo managers didn't think it was okay. in other words they didn't look at this and say, hey, that's business as usual, no problem here. people were specifically talking about the strategy that goldman used, saying it was a real problem. >> what was different about it? >> the fact that the buyers didn't know that a short seller, somebody who was short the entire structure was involved in selecting the assets. in other words, other sophisticated people weren't looking at that saying, hey, that's the way the works. people were looking at it saying, this is a real problem. >> roger is that true? the notion that a synthetic cdo in some circles is slang for going short. >> i think the question the distinction that bethany just mentioned. was this you know, neutrally picked, these cdos or did paulson go to goldman and say, please design a car that's rigged to crash and it was palmed off that something that was neutrally-selected. >> aca was also responsible for selecting some of these, too. you had the long and the short. >> well they would be a neutral party, well paulson would obviously not be a neutral party. >> but not if you think these things are going higher. >> i want to get something that you brought up earlier in the program. is this a casino. i think the impact on the market and the financial reform is going to be that. of course, this was a casino. there were no real bonds here. nobody was raising money for mortgages or homes or lending. goldman as a bank was really just staging a car race so that some people could bet on whether the car would crash or not. the issue in the suit was, was the car was, were the brakes tampered with ahead of time. the issue for society is, why are we staging car races so that people can bet on whether they'll crash when it does nothing for society. >> isn't the same thing done every morning when we look at the s&p futures? >> yes, i don't think the social utility there, either. i would prefer to see people buy stocks on the merit and not bet on derivative futures. >> the one thing i was going to say, roger is right, using the analogy of cars, with the brakes that are faulty. part of the issue is when you actually read the complaint and go through the emails, there is traffic, there's inferences that goldman is not just not telling the buyers of this. aca, which is supposed to insure the stuff, also didn't really understand paulson's position. in fact in one of the emails, one of the aca representatives asks what is paulson's position. so there is a question. people at that stage wanted to know in terms of how they were going to insure the stuff, how they're going to invest in it. it was a salient point. the fact that somebody was even asking the question at the time, kpr kpranously suggested to me that somebody cared. >> the whole dynamic that was going on. >> the dynamic between them -- >> yes. absolutely. so i think when you go through this, there are issues. there's issues about whether it was moral and right and all those things. legally there's this question of materiality. that's what it is all about. and goldman is obviously saying, the only material facts you needed to know was what was in the cdo, not as bethany said, whether the devil created it or not. >> bethany, i wonder -- you think you call it a holier than thou letter last week. do you think this, they must have known this was coming as they constructed those words, right? >> you know, i'm not sure they did there's a sense that goldman that they were ambushed by this. that they were in discussions with the s.e.c. and maybe something would come of it. think once you get a wells notice, it's a pretty clear indication that the s.e.c. is going to file charges, but i don't think goldman knew the timing of it. i think they thought they were still in discussions with the s.e.c. >> i can just illuminate that point. i know they did not know at all. the talks had cut off really in september. they had actually gone to washington, met with them, had come back with a 41-page brief in response to the wells notice. hadn't heard anything from them for months. had put in a call about a week and a half ago, and did not get a call back. but that was only because they were starting to hear rumors themselves that maybe something was happening. >> roger, separate from the legal question and what may happen there, can goldman with stand the rain that's going to call from a pr standpoint? >> i think this looks ugly for goldman. and i think that the whole notion that they are an investment bank protected by the fed, an institution that the government has under its apron strings -- this makes them look very much like basically a nasty hedge fund. and i think people in congress and others will wonder why is this a protected institution? what is really different -- why aren't they sort of just another john paulson? why are we protecting a firm like goldman sachs? i don't -- it makes a social utility a question, very murky and hard to see. i don't think it looks good for goldman. >> do you think this calls into question -- this existential? >> i recall the john goodfriend example, whose firm was accused of much, much less. he waited -- he didn't stonewall, he just waited to disclose a trader's lie to the treasury and he had to resign. i've been surprised that goldman has been so head in the sands about it. on the other hand, i'm surprised that the s.e.c. broke with practice and in a sense each side has, is facing the other with a very loaded gun. >> last question, bethany, does blank fine survive? >> there's some discussions about how big a deal this is and whether gary cohen becomes the first sacrificed. on the point of public opinion, it's funny. enron became the symbol of everything that was rong in the california energy markets, despite the fact that enron arguably didn't cause the california energy crisis. and i think goldman risks becoming the sail thing in this housing collapse. a former enron buddy of mine send me an email over the weekend, saying does the fab five replace grandma willie? it's a good question. >> it would be ironic that the firm that called everything right, the most, ends up being the sacrificial lamb that ends up going away. >> there you go. >> roger, bethany, thank you so much for your time. andrew is here for the rest of show. treasury secretary, timothy geithner, addressing questions that lawmakers will pass a financial overhaul bill that protect taxpayers from financial bailouts. >> well the banks are going to be on the hook for paying the cost of any future price. that's a simple basic proposition and i think that's something you're going to see democrats and republicans agree on, which is basic thing of fairness, why should we put the american taxpayer in a position ever again where they should have to use a penny of their money to pay for the mistakes of banks. >> the fraud charges against goldman sachs becoming a part of the financial regulatory debate. representative barney frank is a cham of the financial services committee and we want to introduce our guest host today, mark standee, co-founder and chief economists at moody's.com. >> ideology aside, whenever we have you on, we talk about all kinds of different things. one thing we're always struck with, given the average person in congress, you know your stuff about a lot of this stuff. and we're always left with wow, he's got a great grasp of this thing. in your opinion, do you think it rises to the level of fraud with goldman sachs? >> it would wrong for me to comment. you have a pending case, i'm not just a private citizen obviously, chairman of the committee. the s.e.c. and the prosecutors condition influenced by what i say. so i think out of basic fairness here, says -- you know, don't comment. >> is there some way we can do it, where you're not actually, just a private citizen? i think it's important to -- >> fraud is a pretty legally potent term. >> i the s.e.c. used it here. and the timing, there's a lot of eyes raised by the timing with what congress is trying to do right now as well. >> i think that's unfair to the s.e.c. these things can't be done on a dime. i don't think anybody could have known exactly when this was happening. >> it certainly didn't hurt, no. >> no, but i don't think that was the motivation. however we evaluate what's happened, it reinforces the need for much of what we were doing in several capacities. you begin by the original loans that were made. because we have a risk-retention, i think 100% securitization was part of the problem. we in our bill in a bipartisan way, said no more statutory requirement that you get a rating from the rating agencies, because we want to encourage people not to rely on them, but to do their own diligence. you've got greater -- openness on derivatives, you've got a feud uribery responsibility for people ultimately selling these. so i do believe there were a number of things in the bill that deal with it we've been told, when you're dealing with the rich and the sophisticated, they don't need any protection. well, they do need protection. and let's make it clear, even if you don't have a great deal of sympathy for them, because nobody put a gun to their head and said, why don't you make a stupid purchase. they're not just playing with their own money, they're playing with other people's money. and the societal impact of their error can be very great. so i think it reinforces our view that you can't just leave the rich to their own devices. >> too bad it just can't fail. that's the one thing, if you could do dthat in this bill, if the german or uk government wasn't involved. but the s.e.c., almost giving its stamp of approval, to brand goldman as the poster child of what caused the financial meltdown. >> what we do in the bill, much of this people should go back and look at the speech that hank paulsen gave in march of 2008, because that's a lot of what we're doing here. he and bernanke stressed in the fall of 2008. they had this terrible dilemma, where they could either pay none of the doubts, or they were going to pay all of the debts. and one of the big things that hank asked for that we finally do in the bill is say no, you don't have 0 to pay all of the debts. two things happen, you pay none of the debts of the institution until you put it to death. the secondly, the regulators, as the fdic can do, sheila bare is had a major role in advising us. they'll pay only what they have to pay to avoid chaos. nobody is going to be clean, but they have to get paid. >> congressman, to me this goldman sachs case brings up a larger issue about synthetic cdos and derivatives. i'm curious as to what your view is as to if you think there's any societal benefit as about synthetic cdos. >> what i've said to conceptualize what we're trying to do is the financial sector is to be the means to the end of productive activity. of all the financial sectors this intermediary, their job is to gather up money from people who have got money sitting around and make it available to will put it to use producing goods and services. what's happened is to a great extent, for some institutions, the means became an end to itself. and no, i don't think it was socially useful. we're not trying to outlaw it. that would be going too far. but when people tell me the effect of risk-retention on securitization. when they tell us that the effect of that will be to diminish the activity by, my answer is good. that's an unintended good consequence. >> mr. chairman, does the timing of the case, even though you don't think it was politically motivated, does it not improve the chances of financial reform happening on the hill? >> it does. although i must tell you i thought they were pretty good, anyway. >> 41 republicans didn't think so. >> well, 4 is republicans said at this point they were going to sign this letter. i don't believe, myself, that all 41 republicans are going to vote no on this. i had this issue last year, that we were being overshadowed by health care. so there wasn't a lot of public involvement. i think public involvement is going to drive people to vote for it. there was this issue that republicans have raised about the fund being raised from the financial institutions, beforehand. which again, sheila bear has, based on her experience with the fdic, you need. that's not essential to the bill. i thought it made sense, that's why i supported it, to have money on hand, not for the taxpayers. if that were the only obstacle, i don't think it would survive. the test then will be of the republican leadership, whether they really just are following a kind of a total deregulatory theory. many, there were many republicans, i know i worked with in the house, who thought what happened with lehman brothers was perfectly acceptable. that's the price you pay for free enterprise society. i don't think that every single republican is going to subscribe to that viewpoint. >> chairman, last week we spoke with senator shelby, who said we shouldn't see any bailouts at all. despite all the headlines we see, that this is a very acrimonious debate. that behind the scenes, the officers and staffers are still talking with each other. at this point does the things and do the democrats have the upper hand? is this going to be the bill they want with all the inclusions they want? >> not all of them. there will be some changes. preet existing fund, if people think that's a problem, is essential, that needs to be a draw-down. i agree with nor shelby, there should knob bailouts. there are none in this bill and i am frustrated by a willingness on the part of some of my republican colleagues, to just tell lies about it. the fact is that to money can be expended under the bill that passed the house and under senator dodd's bill. no money can be expended to pay any of the debts until the institution is put out of business. we specifically repealed the authority, section 133 of the federal reserve act, under which the feds bailed out aig. once you put the institution to death, you fire everybody there, you wipe out the shareholders' equity, you then pay some of the debts. by the way we have in our bill an amendment that said you can give secured credit as a haircut, which many thought was a sacrilege. so we're not bailing out anybody. the question is, do you do what you did in lehman and pay nobody at all with the chaos, and again, sheila bear says that's not the way you put a bank out of business. you, you can wind up costing the society more so this notion that there were bailouts is a flat refusal to read what's very explicitly in the bill. >> congressman, this is mark sandy, to broaden the question just a little bit. there's a lot of moving parts in financial regulatory reform, it's very confusing. if you had to put one thing at the top of the list, that you think we need to get done, what would that be? >> it's hard to just do one. but i say i feel very strongly that risk retention and securitization is a major part of it. 30 years ago, most loans were bhad to people who were expected to pay back the lender. and i think as we have transitioned to a situation in which most loans were made by people who then tend to sell the loan and not get paid back, that that discipline eroded. and there are no -- substitutes that i can think of for a failure by hundreds of thousands of originators with millions of loans, not to make the loan right. the only two, the second one would be what hank paulsen stressed, the ability to in where an institution got overcommitted and pay some of the debts. and the third would be to impose capital requirements on anybody, whether aig or any of these now underregulated institutions so they don't get to that point in the first place. >> we've been all over the map in terms of trying to identify what the real, what the top sticking point is in passing legislation. first it was consumer protection agency. now all the attention is on derivatives. do you think goldman's case centers attention on any one of those aspects of the bill? is it derivatives? >> no, a little bit derivatives. but i think it centers on the need for regulation. again remember, our regulation up until now with regard to hedge funds, hedge funds were left to register under the s.e.c. under this bill. bill donaldson, a republican appointee tried to do it, was repudiated by the bush administration and they walked back from it. it was the one regret i have. i filed a bill to do it. i told by my colleagues i was putting them on the spot, so i agreed to withdraw it. i think the basic, the rule was, the way we regulate hedge funds was, i think if you had $1 million to invest, then you weren't in the need of protection. the theory that the buy side needs no protection, that because you've got sophisticated wealthy buy side people, you don't need any kind of regulation of the transactions, i think is, is the major piece that falls. i don't see how anybody can argue that after this. >> let me ask you this, chairman. we've got some leading bank ceos talking about what would happen with maybe overshooting on regulation. you've now got the real possibility that this goldman sachs, that, the tip of the iceberg. that there are other firms that the s.e.c. goes after. isn't there some way that wall street becomes so hampered by your efforts at, which are obviously well-intentioned. that it ends up constricting credit and adding to the unemployment rate? i mean can you tread lightly on this side of the aisle? >> it's theoretically possible. first i have to say what alan greenspan said when he was asked by a republican. isn't it true if you cut taxes the right way you'll increase government revenue. he said congressman, that's theoretically possible, it's never happened in my lifetime. the notion that we overregulate the financial industry. i can't think of any examples of it. i don't think there's anything in the bill we have now that does it i agree with andrew sorkin says, to the extent that there's a diminution of the kind of mirror activities, then that's a good result. i don't see anything we're doing, that will impact the credit. the one argument some people made well with securitization, if we have to retain 5% of the risk, insurance has a risk retention, that hasn't hurt. andy have one group of people who do mortgages come to us and say, well, if we have to hold 5% of what we lend, that will cause us a real problem. we've got a business. i said well, they said, well we don't have any capital. i said okay, so in other words you don't have any money and we're going to prevent you from lending the money you don't have, we want to do that. but as i look at what we are doing, no, i do not think that that's the case. in fact, look, we've been telling the regulators and others, we want to see credit extended in reasonable ways. so i agree, it's a theoretical possibility. no one has pointed to anything in the legislation that's pending in my judgment that does it. including the consumer agency. that's been very misinterpreted. nothing in the consumer agency constricts credit. >> the s.e.c. -- i don't want to call it a stamp of approval. but it certainly is going to involve german officials and officials in the uk to try to seek some type of compensation. i mean can this -- can this damage goldman or the entire industry here in wall street, to the extent that we become less competitive globally? >> no. not it we do this right, and i think we are. from the beginning there has been an understanding that this has to be done internationally. i've spent more time for someone who has got basically a domestic responsibility in congress, i've met with the eu commissioners, with charlie mcgreevey and the successor, with the european parliament committee, the canadians and the japanese, i know even more that's being done at the international level. yes, if you didn't coordinate it, it would be a problem. we've had in the past fears about a race to the bottom. i was after enron, when i was about to become chairman, i was told we were going to lose everybody, a lot of people in america, because they were going to go to england for the light touch of the financial services authority. and lord turner, the chair has since said explicitly, the era of light touch is over. so i do think this is going to be down in a coordinated way. we understand capital is the most mobile thing in the world. but i think you're going to see fairly uniform regulation. >> chairman franks, thank you for your time this morning. mark standee will be with us for the rest of the show. if you have any comments or questions about anything you've seen here on "squawk" this morning, anything we've been talking about that you want to weigh in on. email us at squawk@cnbc.com. still to come, the cfo of eli lilly on the company's quarterly results, up next, the market musings from our guest host, mark zandy and the cfo of eli lilly. aflac is not more benefits at greater cost to your company insurance. aflac is not how do i fit it in my company's budget insurance. aflac is help protect and care for your employees at no cost to your company insurance. with aflac, your employees pay only for the coverage they want or need. and, the cost to you - nothing at all. if all you know about us is... duck: aflac! ...then you don't know quack. to find out why more businesses provide aflac, visit getquack.com. on friday, our scott cohen joins us here at the desk with the latest on that, hey, scott. >> hey, carl, defrts in cases like this are typically careful in their public statements, saving their arguments for court. but goldman sachs with a 140-year-old reputation on the line has come out with guns blazing, not just the instant response on friday that the charges are unfounded, but an unusual point-by-point response issued moments after the markets closed on friday. that firm lost money on the deal, how would that have happened if goldman rigged the game? the extensionive disclosure was provided to investors who were the most sophisticated in the world. one of the investors, the now-defunct aca management picked the underlining mortgages. and goldman denies it mislead anyone about john paulson's interceptions in the deal. one s.e.c. attorney said goldman's aggressive defense means the company thinks they can beat this. >> i don't think that goldman would be hunkering down, taking the public positions, it is, knowing that the cesspools involved here. >> the s.e.c. is expanding its probe. others note for the most part goldman's defense doesn't address the heart of the s.e.c.'s complaint, that aca picked the mortgages in close consultation with paulson. and goldman kept the extent of paulson's involvement secret. so they're clashing. >> it's a very interesting case, a lot of different debagts back and forth this morning. drug maker, eli lilly, earning $1.18 for the first quarter, eight cents above expectations, it lowered guidance for the year to account for the impact of health care reform. joining us exclusively on cnbc is the cfo of eli lilly, derrick rice, how are you? >> very well, good morning. >> i guess the headline here is that the 2010 results are, you're forecasting a little bit lower, $4.40, to $4.55, had you been $4.65, to $4.85. you didn't take 35 cents off. you've got some improvement in the underlying business. yet the $400 million revenue cut has to do with all of these companies are talking about, a change in prescription drugs for seniors or something, right? >> we had a very strong start to the year with our first quarter results. and as you stated, our eps was $1.18 for the first quarter. that included a negative impact of 12 cents due to the impact of health care reform. but the $1.18 was really driven by, you know, strong revenue growth of 9%. we were able to translate into the bottom line. as it relates to our guidance for the year, due to our strong start to the year, we increased the top range of our range five cents, and the bottom, 10 cents, before accounting for the negative impact of health care reform. >> talk about how it is affecting you. even your ceo, john linklighter said even though you're going to have to take some of these charges, or your revenue will be impacted. that seniors in the medicare system will be able to benefit from some of these provisions and it will actually help lilly down the road, won't it? >> while the legislation is not perfect, it does offer improved benefits for seniors, as well as greater than 30 million americans in the u.s. who are currently uninsured. however, it does come at a substantial cost to lilly and our pharmaceutical peers. us specifically, for this, for 2010, it is an impact we estimate to be around $350, to $400 million. and that gross to 6 hurn million to $700 million, in 2011, when the provisions kick in. >> in terms of expectations for your key drugs, zyprexa, zim ballota, up 13%, are those the two drugs that are driving the gains you're seeing? >> we had strong revenue growth across the entiredy of our portfolio. we actually had four products, cealis, zim zynbalta, so we've had a very strong volume-driven revenue growth profile for the first quarter. >> our mike huckman is a pharmaceutical reporter, he's always got things to talk about with lilly in terms of upcoming drugs in the pipeline and the prospects for those. update us on the most important developments in your pipeline, whether it be diabetes, or things for the central nervous system. where are we? >> well clearly, one of the most important drugs in our pipeline is bydurion, which we're partnered with amalyn. we received a response letter from the fda. we expect to submit our response to that by the end of this week. and as we've announced here today, we've recently submitted for regulatory approval in europe. so we continue to make good progress on the regulatory front with that product. in addition to that, we also are waiting decision on the chronic pain indication for zynbalta. we expect to have an advisory committee sometime in the second half of this year. >> any upcoming patent expirations that we need to know about, to factor in our numbers? >> well everyone knows that in 2011, we have the patent expiration for zyprexa and in 2013 we have zymbalta. but if i bring you back to our portfolio, not only in addition to byduryon as well as zymbalta, today we have 68 molecules or medicines in the clinical stages of development. the most in the history of the firm. >> very good, we appreciate your time this morning, mr. rice, good to see you. >> thank you. >> we'll see you later. still to come this morning, more on the fallout from the goldman sachs case. plus, a business wi week for earnings. this morning we still have citigroup coming up, in about 20 to 25 minutes. plus late they are week, coca-cola, dmcdonald's and american express. zd all right, we've got a big week of engs aherd, while investors are still reels from the news of the goldman sachs charges. joining us is richard bernstein and our guest host today, mark zandy, the chief economist and co-founder of moodies.com richard, what do you think of the s.e.c. going after goldman. not just does the case stand, but what does it mean for the broader market? >> there's the legal side, i'm not the legal expert. i'll skip that. i think from an investor point of view, i think the best thing that will come out of this, one way or the other is we're going to get more transparency in the financial markets. i mean that's ultimately what's going to happen here. whether goldman is guilty or not doesn't bother me. we're going to get more transparency. i think more transparency in the financial markets is always good. and i think that will be very bullish as we go down the road here. >> maybe we'll get some clarity a little sooner by the idea that this spurs financial regulation and we see, we're going to know exactly what we're talking about? >> exactly. you've had a couple of guests on this morning who have been saying what i've been saying for quite sometime, the transition mechanism from the financial economy to the real economy has broken down. the financial institutions simply begin to lend to other financial institutions and that was their business. maybe this will curtail that and push them back towards lending in the real economy. i would argue that's great for the u.s. economy. >> can i follow up? what does it mean for the banks. transparency is great for the system. joe has been arguing this morning that some of this transparency may end up hurting the banking system itself in terms of its profits. >> i think that's inevitable. i hate to disagree with joe. but i think it's inevitable. >> i think you're agreeing with me. >> i'm agreeing. >> that's horrible. >> not that sophisticated of a thought, rich. >> i don't think there's anything wrong with that necessarily. >> well you love the big banks. we pay you at cnbc. >> i think you know, my argument is that the bigger financial institutions have less of an interest in lending in the domestic united states and supporting the u.s. economy. i think as we go down to smaller financial institutions they are, as many people have pointed out, more locally based. i think we're in the process of seeing that transition from the big financial institutions dominating the scene to the smaller financial institutions as a group. >> wait you think the big banks are start going to get smaller? >> no, i think in terms of their power and importance in the terms of the overall economy, i think that's going to diminish. there's going to be more transparency, i think that's going to shrink their emphasis, relative to, not that they're going to be big, but relative to the emphasis of smaller financial institutions. >> like a bernstein and company might start rising as the others start falling. >> their loss is someone's gain. >> mark, do you agree with that? are we going to start to see the pendulum swinging back the other direction? >> to smaller banks, smaller institutions? no, because i think we live in a larger global financial institution. >> now sound like the financial services forum, right? >> my view of this whole discussion of too big to fail, i think that's misplaced, because we will always have too big to fail institutions. we need to prepare for the possibility. and the idea that we need a fund to prepare for the possibility, that i think is exactly right. i think at the end of the day, if we don't have large, big, integrated financial institutions, we're not going to be able to compete. and ultimately the too big to fail risk will go overseas, because these institutions will come in, buy up our institutions and the risk will be outside our borders and we can't control it i think at the end of the day, we will have big institutions, they will be too big to fail and we've got to figure out how to manage that. >> i wasn't saying transparency, necessarily and i was also quoting you know someone like a jamie diamond or a bank ceo. and i don't mean that transparency necessarily is is what causes things to be constricted. just the overshoot and the you know, we know how bureaucrats operate. >> joe, we haven't even got a piece of legislation, how can we possibly overshoot. >> i just assume they're going to screw it up. >> and one other point you made -- >> they'll fight last year's battles they'll prevent the last bubble from happening so a new one can inflate. >> brought up the point with barney frank, we're opening up the potential for legal action by germans, italians. at the end of the day, we need their dollars and we need them to be confident that when they come in, they get a good deal. >> we had some of their dollars, paulson made some of their dollars, now they might be headed back that way. >> look at the issues you got hit in the goldman deal, the abacus deal, rbs, institutions that are important to us, right? and they got -- >> well not as important as our own. they have a big ash cloud over them. >> is you made a comment about fighting yesterday's war. that's part of history. every bubble is followed by regulation. if you look at i've been regulated by the securities act of 1934, securities act of 1934, investment act of 1940. these were all backward-looking regulations, but they weren't so bad and kept the system relatively stable going forward. it's when we started doing away with some of those, the system got more unstable. >> you sound -- >> when you talk about financials and you talk about leverage. >> when you talk about sarbanes oxley, wouldn't you think that would help a little bit? >> no, i would think that glass-stegall would be more important -- >> do you think it would be good to bring back glass-stegall at this point? >> i would see nothing wrong with that. my personal opinion. >> dan is going the other way. >> no, i think we need to regulate better the origination process. so when you make a mortgage loan, you have to have some rules of the game, you have to have a down payment. if you say this is my income, this has got to be your income. those simple things. and if you goat that right, then the system will be a lot better. >> if you, if the underlying asset is a good asset, well underwritten and regulators are looking -- >> but that gets back to the idea of being able to fob it off on someone else. >> but the problem, there's no good way of doing that. >> why not keep 5% like the bill has right now? >> in effect, a lot of those institutions had that risk, anyway and still maig made the mistake. it blew up in their face. they retained the risk. >> would be better if the person you lent the money to had an address, had some income. >> now you're arguing for regulation. >> i'm arguing that the lending standards that have been around forever, that were totally abandoned, that something that simple, without all this other crap -- >> i want the address of the lender, too that's my issue. i want the address of both. >> you should have a previous address before he buys his new house. >> you don't want to roll that back, at least you have to have immense transparency so you can completely look through. and i think that's one of the issues going on in the goldman case, is not so much was it fraud or not fraud. obviously we all have bns. but that there was no transparency. that is ultimately what this is all about. >> i guess the question becomes, they did not disclose that paulson was going short. but did paulson know aca was long? because their point is that you know, we've got people on both sides of every trade we do. and we don't necessarily disclose their positions all the time. >> right. well there's nothing, there's nothing wrong with, with you know, not, there's always an counter-party, that's what makes the market. there's always somebody buying and selling. i think that's different from what's being alleged in this complaint. is that you know, it's not quite caveat emtor. when you have fraud involved, caveat emtor falls apart. that's what's underneath this and that's what's such a big deal. >> you said you weren't making the judgment if it was fraud or not. >> i'm using the word complaint. >> the issue is that we're even discussing it is possibly fraud. that's the problem. if we're talking that it's fraud. you know, who knows what the merits of the case are. but if we're even talking about it -- there's a slot of smoke everywhere and the fact that there's smoke is the problem. it's not conducive to a well-functioning financial system. we need to clean up the smoke. even if there's no fire, the fact that we're discussing it is a problem and the fact that we won't get the global investors to come in. >> the problem we haven't discussed is whether it turns criminal and whether that's the next leg of this. >> or whether tourre does give up bigger fish. >> the guy on msnbc? the guy with one name that -- >> is it a different tourre? >> a different tourre. >> we talk about fraud at this table and we talk about it in the civil context. typically what happens is sometimes the s.e.c. goes first and somebody jumps in after. >> that's incredible. >> richard, thanks very much for coming in mark's going to be with us for the rest of the show and andrew is sticking around, when we come back, we're just minutes away from citigroup's results, we'll have the numbers which are going to be a big focus for the financial sector this morning, especially after the goldman sachs fallout. and later this morning, senator judd gregg talks regulatory reform and goldman sachs, he'll be our special guest at 8:30 eastern. talking about stocks to watch, lilly reporting $1.18, eight cents above expectations. the revenue number was a little light. and the numbers for the year come down slightly due to health care reform. amalyn pharmaceutical comes in slightly below. halliburton reported first quarter earnings of 23 cents a share. revenue in line with expectations. as well. and hasbro reporting first quarter net of 26 cents, well above expectations. on revenue that was also above expectations. yeah, that's good for hasbro. >> some toymakers have had their problems lately. are you psyched for earnings, earnings week? this is the big one the next couple, right? >> they tried to to do something last week with the e team and both of us said, without the team, we're not going to be part of that. and you are the -- >> you're ready to get back to work. >> you're young, you're still ascending -- >> i'm not tired after three hours of tv like you? >> tired and jumping around, having to go to the bathroom. >> andrew ross sorkin has been with us for the last couple of hours, he'll be stepping away. but before you do, we've got citigroup's earnings that are coming out probably at the top of the hour, that's when we're expecting them. does this matter after everything we've been talking about with goldman, because bank of america -- >> i think to the markets it's going to matter. >> bank of america had great earnings -- >> i think people are going to be looking for citi to do well. i think if they don't, that could be another leg down. if they come out ahead of the gate, you're right, you're seeing goldman stock i think is up in the early hours here? so i think people are digesting this news. and are taking it in and trying to figure out where they -- >> it's down again. >> it's down again. before it was up and now it's down again, is that from all this happy talk at the table? >> perhaps. >> i imagine, listen, i think the narrative for the next several days, in the markets and in at your dinner table around this country, is going to be still be around goldman. and i don't know how you're going to get away from it. >> i guess the questions are, how many more deals like this are there out there? >> and i suspect there are going to be more. the s.e.c. said on friday, i was down in new orleans with the head of the s.e.c. who was down there, enforcement, i was with david faber. i think there are going to be more cases to be brought that are going to be similar. this is not the first time this has happened. it wasn't just goldman sachs. there will be others and that's going to be a larger question as to again about synthetic cdos and its value. and whose side and what are the disclosures and in an environment where both sides are buying and selling, who's playing fair and who's not. >> andrew, thank you so much for joining us this morning. when we come back, the case against goldman. we'll find out where the rating agencies were doing this. and the politics behind this, senator judd gregg jumps in as the battle for financial regulation reform rages on. the case against goldman sachs. the fallout, rippling across the financial industry, and others may be caught up in the s.e.c. net. the case for financial regulation reform. >> i do think this is going to be down in a coordinated way. we understand capital is the most mobile thing in the world, i think you're going to see fairly uniform regulation. we jump to the senate side of capitol hill. senator judd gregg of the banking committee on the timing of the s.e.c. charges. and, citi on the clock -- the banking giant about to check into earnings central. will it follow the lead of bank of america? "squawk box" begins right now. welcome back to "squawk" here on cnbc, first in business worldwide. our carl quintanilla, our guest host, mark zandy, chief economist at moodies.com. and in the meantime, we're about 90 minutes away from the opening bell. waiting for results from citi. a lot of talk this morning surrounding goldman sachs. but citi is coming out with their earnings in a couple of minutes. meantime we'll move ahead with some headlines. >> let's take a look, our top story as you probably know is goldman sachs. >> first quarter of 15 cents a share, better than the break-even than people were expecting, $25.4 billion in revenue is well above the $20 billion that people were expecting and once again, i think if we were to take bank of america and jp morgan and find out how they beat expectations and find out the percentages, they'd probably be about the same. this is in line, i think with what we saw from bank of america and jp morgan. and maybe we shouldn't be surprised. on on a bank this size. that chris whalen is here. we want to -- senior vp, managing director of institutional risk analytics, this is what you would have expected, don't you think? >> a good quarter, good revenue number. citi has done more housecleaning than the other large banks. so of the top three, they'll be the first high upgrade. you've got to throw roses when it's due. and they've sold a lot of the business, they still have losses to deal with. you will still see that. but i think citi because they had the gun to their head early, has been forced to do more. and i think frankly, jp is still the one i am looking at in terms of catching up on reserving. they take a different posture, obviously. but i think citi, you know, good for them. $25 in revenue is a beautiful thing. >> we should welcome david faber to you as well. we'll be watching these today? >> sure, we'll be watching the citi numbers, taking a look at that and obviously what you've been talking about on the developments on goldman sachs. >> what's going to dominate the conversation? i assume goldman by a long shot? >> i think so. i think for the remainder of today and probably you know, we'll see what developments there are of course, if the story stays sort of static, maybe it kind of dies as the week goes on. of course we won't have a court case here for, your case is as good as mine. a year and a half is possible. who knows. >> where do you come down to the "journal" says this is it. this is -- far from being a smoking gun of the financial crisis, it looks like a water pistol. >> well you know, the s.e.c. has been investigating this for quite sometime. if they chose to bring this case as their first case, because they thought it was their strongest, you have to sort of wonder a little bit it seems somewhat tenuous in the sense of, listen, i mean you know, the synthetic cdo market, i spent a decent amount of time trying to understand cdos a few years ago when we did our documentary and when i wrote my book. and when you run into what synthetic cdos are, and you ask the larger question of whether the market should ever have existed, i would answer, probably not. why do we need a synthetic cdo market. >> it wouldn't exist if it didn't need to exist. >> well these are securities that are deceptive by design. they are, depending on the political winds, it's either innovation or it's fraud. >> then we should accuse wall street of fraud. >> if you had a tighter regulatory regime and somebody really on top of it, perhaps they would have said earlier, what are you guys doing, in '08 or even '07. i don't know. because i don't think that the market should even have existed. but the fact is it did. these were not registered securities, they were sold to sophisticated investors. goldman acted as a marketing agent. why was it different than any other transaction. i asked khuzami, the enforcement director of the s.e.c. he said that paulson was able to buy a lot more of them than anybody else. it wasn't like others weren't participating in this market. if you wantsed to short the housing market, you could short a piece of rmbs. you could choose in a lot of ways what you wanted to do and a lot of people did. they saw, hey i see a lot of loans dominated by a particular mortgage broker here, i know they're going to go bad. the difference with paulson is he was able to do it in 800 million increments or $1 billion. and in that way perhaps, the s.e.c. claims it was a clear violation. because he was able to put the entire portfolio together as opposed to it being put together piecemeal. >> but that's not the complaint, right? >> he didn't put it together, either. he made the recommendations and the aca and went back and rejected about 55 or 60% of that and chose their own things to put back into it. >> i don't mind what paulson was doing. >> that's why paulson was in charge. >> i mind the fact that it was a 140-a deal with no disclosure. >> the question was that paulson know that aca was going long on this deal? >> i can't recall from the news reports. but the point to me is this -- everybody at the table deserves to have the same degree of information. whether you're talking about servicer information for the collateral or the positions of the parties the you need to have this stuff out in the daylight. >> what if aca was long -- >> wall street start odd inform doorways of lower matsen and people used to write down what was said and what was trade and circulate it on carbon paper. we've gone backwards. >> why would it have made a difference? he wasn't paulson then. >> if i'm the buyer of the securities, i know that john paulson wants to be short the structure. >> who's john paulson? >> he's a smart guy. >> you didn't know it then. >> he was actually an outliar back then. >> in hindsight, we knew all of these things were going to blow up. back then we didn't. >> my point you should have the transparency. it doesn't matter -- >> there's been no other -- >> in the real over-the-counter market for agencies, treasuries, corporates, the buy side sees everything as a dealer. when you show them an offering, they know what you paid for it, they know where it came from. so why is this different? >> i don't know. >> why do we have different rules for this market? >> if you're an rkb who claims to be an expert in eval witnessing credit and you've got a ratings agency and both are allowed to look at everything they're doing -- here's a guy named paulson who at that point hadn't even made his money. he was a mergers and acquisition arbitrage. >> here's a guy who is betting against it i'm betting against it. others are betting for it. >> if you're designing a system that was going to work well for the economy, for the broader question, would you design a system that you have to disclose. all the people involved, all the people involved in this transaction, everyone should know about it? that's a better system. >> but then it also extends, you could say it in the broader stock market, where investors are making bets long. >> but you can see it. >> this, the only way that you construct a synthetic cdo is by having somebody short on the other side of it, correct? so by it's very nature -- >> you know that somebody is betting against it. >> you needed to know it was paulson? i don't know. >> do me, this just illustrates another issue, which is that there's a lot of institutional clients out there who do not have the capacity to assess these opportunities. the german banks, the public-sector entities and whether or not this stuff is illegal doesn't matter. >> and whether it wassal in there, it's very much unclear any of them read it or understood what a synthetic cdo was. i traveled all the way to norway, these people didn't know what the they can they bought. they frankly thought they had bought corporate cdos, but the point is they bout synthetic cdos. but the point is there were investors all over the world who been pulled in by the machine that was wall street to buy -- >> consumer ignorance -- >> call it fraud. is there a fraud? >> there's a difference between consumer ignorance and omissions, yes? >> yeah. >> so the people in norway may have been ignorant. but it doesn't mean that the sellers were misleading. >> there's lawsuits all over these things that go back years. you know, right, exactly. how will that ultimately end up? is it buyer beware and the of course the ratings agencies played such a significant role, because people would look at page 1 and say, oh, aaa. >> buyer beware only works if everyone has equal access to the information. we have sttechnology to give everyone daily information. think moodys pays for it? >> the reason these things came up is because rates were held low for so long, right? this is a way to chase yield and not very much yield at that. >> we don't have enough real work for wall street to do. they have to manufacture opportunities, manufacture speculative profit. >> it's a $12 trillion mortgage market and we needed to create a synthetic one? that at the end of the day, i come back to a point i've made before and others have. which is this market probably should never have existed. were it not for how incredibly smart people are on wall street. >> i don't think we should be in that decision-making process. that's not part of the decision-making process. if you have the appropriate level of leverage, if you have the appropriate level of liquidity and you underwrite property, let the market figure out what it wants to do. joe would be right. >> creatable -- >> we didn't, we had a lot of leverage, we didn't have liquidity requirements, we didn't have transparency. >> why are you wrecking blue star? because it's wreckable. if it's creatable, it's creatable. >> there's another wall street movie coming out. >> that you're a big part of, in fact. i had to pay new york taxes. i had to pay some new york taxes because of the wall street deal. >> you're going to be quoting that one soon. >> the other one is 25 years old. >> i'll see what he says. see if gordon has any good quotes. >> these are people that have had it very easy for a long time. they forget how odd this country can get during times of economic stress. and that's one of the things i see here. it's not so much that this stuff is illegal or not. that doesn't matter. it's the percent separation of unfairness. look at the reaction of the uk chancellor. the other thing i found really notable, david riley had a neat comment in the "journal" today about the fact that goldman didn't disclose the wells notice. >> that's it. >> i think you should have put it out there. >> well you know, that's up to a corporation. we've had plenty of corporations that, and i've gone over that, not under any obligation to disclose a wells notice. sometimes we find out, often they don't disclose a wells notice in fact. so -- >> i guess that's why you get the reaction like you got on friday in the stock market. >> and then you've got choffey, the poor guy, handcuffs, it all fell by the wayside, the entire case. and that -- you saw the emails, talk about smoking guns, the emails that -- >> what is the chance here, one of your gefrts said, you talked to about -- >> did you say poor guy? >> choffey? >> yeah. >> i did say poor guy. he was putting together -- you. >> because he wasn't convicted, he's an angel? >> not saying he's an angel. >> you feel badly for him? >> i do. >> he got off. >> the great criminal here are the folks at the federal reserve board who have been encouraging the otc market for decades. and who helped create this ghetto for the banks to compete with fibro, you told that story. that's where this came from. eve smith tells this story beautifully in her book, e-conned. we have to focus on the fact that the traders are running things now. if we had bankers running things, they wouldn't let you take advantage of a big client this way. if the traders are running, it's day by day. you don't care about relationships. settle that would be the larger, you know, what people say about goldman sachs. is as well. that the bank has changed in terms of its culture. they would argue with that of course. being led now by traders as opposed to by the bankers. >> by the time this, we find out what really happens here, he all your financial reform will all in law by then. and all 41 republicans will have all switched because they couldn't possibly maintain -- >> barney frank made me feel better talking about that this morning. >> you already have wall street completely -- >> there's larger questions about financial reform. i don't know why you assume necessarily it's a bad thing. i mean by the way, as the individual investor who is sitting there reading the newspaper ever going to feel good about wall street? >> once again, it's wait, it's the way that it's eventually going to come to fruition. the 41 guys are probably going to stay pretty solid. >> the republicans have been a disaster this year. >> got a tea party there? >> when they start playing by the same rules that the republicans are. >> i can't stand it when they start playing hardball, i can't stand it. >> thank you very much for talking with us. up next, we'll be talking about how investors are reacting to citi's results just out. plus, how do the ratings agencies play into the whole case against goldman sachs? we have just the man to answer that question, shaen egan, ratings director for egan jones. welcome back to "squawk," futures still negative as the market awaits what may happen down the road with goldman sachs. shaking off the worst decline for the markets in two months from friday. meantime, we've got citi group numbers. compared to analysts estimates of a break-even quarter. ceo says he's grateful for the support of u.s. taxpayers and the company could not have recovered without that help. so where does the rating agencies fall into the fray when it comes to the s.e.c.'s charges against goldman sachs? front and center at least if you ask sean egan, the managing director of the independent ratings firm, egan jones. and joining us also is mark zandy from moodys.com. sean, you think the ratings agencies are more culpable than goldman in this case. >> absolutely. they rated the underlying securities at the bbb level and they weren't near that. and furthermore, it should not have been anywhere near investment grade, either. >> but aca needed to know that john paulson was in there. and ikb couldn't look at this stuff and figure it out for themselves. >> aca should have done its own due diligence. that's simple. the rating firms should have done their own due diligence. >> so what did goldman have to disclose to prevent fraud? >> i don't think that there's a significant failure in -- my own personal opinion. i don't think there's a significant failure in the disclosure. that paulson, you don't know for sure that paulson is going to go long or go short in this case. you know, and furthermore, if you take the position that you have to know both sides of the trade, dos that mean if somebody's selling china, etf, that you have to announce all the investors that jim chanos is shorting those securities? it seems like that doesn't make sense whatsoever. >> let's get back to the insurance eight. to the bond insurers. we spoke with chairman frank this morning and asked him, how this is going do play out in financial regulatory reform. he said the bond insurers are not going to necessarily be required any more. would that solve the problem? to just basically get them out of the picture? >> i don't think -- i don't think that's right approach. you know, there was a check here. and we're doing victory laps. we had aca rated at b-minus when this deal was done. that view was widely known, the deal never would have happened. so we had some problems with aca, it's very obvious to anybody doing the analysis at the time. that there's some significant problems. we view the insurers as facilitating the transaction. you know, they make it easier for people to assess the underlying quality. they're standing behind. they're back-stopping some losses. so i think the insurers are fine. the structure of using financial insurance makes perfect sense. with every financial fraud, as i mentioned, there's normally a false assumption. and in this case, the assumption was, that these were truly investment-grade credits, they're nowhere near that. at the same time, don't throw out all subprime mortgages, all day. our view that there's no bad child, there's no bad bonds. there are just misrated bonds. we can deal with subprime all day, home equity all the time. just make sure that you rate it properly. and you price it properly. and that didn't happen here. >> well, but let's not forget, when it comes to subprime and alt-a. there was a great deal of fraud in the underwriting process itself. by the way, the rating agencies, i would fwhot expect to get that granular. >> there should have been some spot-checking, if you checked every one out of 20, saying where are the documentation, are the houses really there, are people living in them? it's very simple. it's really, the rating firms are stepping into the shoes of the old-time banker. checking to make sure that the underlying transactions are there. that it is being underwritten properly. actually before you had three levels of check. you had the local credit officer, the head of the credit committee and this state or federal bank examiner. here it's the ratings firms that are stepping into that. >> we all know how poorly the rating agencies perform when it comes to structured products of all types. >> now people know that they didn't know it in 2007. >> the idea that you could have 80% of a cdo-rated aaa. when it's made up of bbb or ccc rated, it became a huge revenue stream for all of these firms. and yet by the way, when it comes to financial regulatory reform, it's not clear that the rating agencies are taking much heat at all. >> they're not. and by the way, some people say how do you take bbb-rated cred it's and make them aaa? it's possible. if it's structured properly. if in fact bbb-rated credits are really bbb, it's really easy. so there's no intellectual leap to make that happen. it's simple. >> how do you regulate accurate bond ratings? >> well you have to make sure that the incentives are properly aligned. if the, if the structure, which is in place now and has been, is that you get a $4 million fee for saying these are aaa or aa, and if you don't go along with it, you get nothing. that's a problem. i think ultimately, what will happen is that the investors, either the market will continue to be shut down, okay. which is what we have right now basically. or the investors will get smart and say, listen, we want to make sure there's at least one party in there protecting our interests. it's starting to happen. >> sean, you say this is the watershed event of the financial crisis, the s.e.c. suit against goldman. but you think that the ratings agencies are more culpable than goldman. is it misdirected? is it misguided? how is it going to play out? >> even if investors had the information, that paulson had future information on what paulson was going to do, which by the way, is hikely likely that no one had advanced information. he won't pull the trigger until he pulls the trigger, for goodness sake. you know, we don't see that as a big problem. also we don't see the problem of goldman premarketing. you know, they need both sides of the deal. of course they premarket on the short side. they premarket on the long side. otherwise there won't be any cash to pay the other side. >> they'll be remembered because of this watershed event as the poster child -- it just gives legitimate seed to the "rolling stone" piece. >> goldman is an easy target, they're big, they're strong, they've been beaten up in the media. >> they didn't say they were sorry. you know -- don't, yeah there's a lot that goes into that. that hubris. >> do you think the synthetic cdo, there should be a real market for those as well? >> definitely. there's, well, i think he's wrong. >> it's no the clear to me, i don't understand you know, you could have had, is it possible you could have had a market in which you and i decided on a reference piece of paper and i think i want to go long, carl, and you want to go short. we decide to do that. >> i want to go long, carl. why does he have to be wrapped up into some sort of new structured product? >> he's a big boy. he can decide what he wants to do. my view is -- you know, it's just another level of, of development. you know, first it was wealth was in the land. the landed gentry. then it was that wealth was in the securities. then it was wealth is in the knowledge. >> why do i need a derivative of a derivative of a derivative. you're talking about a mortgage and a mortgage-backed security, and a cdo into a synthetic cdo, to a cds. >> it's no the that hard to deal with it. the problem is -- >> it sounds pretty hard to me. >> the brokered dealers are in the business of matching up buyers and sellers. you know, the party that wanted to go short and a party that wanted to go long. what's so wrong about, if there wasn't the physical, what's so wrong about making a derivative? just make sure that the transaction is balanced. >> and it's rated properly. you got it now. >> david's point, is there a line at which we separate what's necessary -- >> it's creatable. >> in the financial innovation, right? there's going to be a product where even you will argue that we don't need that. for the good of the country, we do not need it. >> futures on human organs, something like that. >> sure, and if you don't have the underlying information, okay. that's probably where it starts to break down. but we're developing and maybe we're a little bit ahead of ourselves as of two years ago, that's information is being pushed out there. that -- that wasn't the core problem here. the core problem with any financial collapse, is that there's a poor assumption. >> but what was the assumption? >> the assumption is that these were really good credits and they're far from it. >> what was the benefit of having this market? in other words, what was the ultimate benefit? you know you didn't have mortgages being made any more in '07. things had already dried up. >> i think that's a dangerous place to go. what's a benefit of you're spending $5 on a pizza when you should spend $6 on a salad? >> i think wall street -- many argue that wall street exists to raise capital, it allocate capital. and to -- >> dispurse risk, risk disburgs. >> of course, that didn't happen. >> well it did but it was inappropriate. >> because the underlying asset wasn't underwritten well and we had too much leverage and not enough liquidity in the marketplace. it wasn't the fact that we had this derivatives market. it just wasn't regulated well. >> i have some concerns about the regulation side. typically, the regulators are two steps behind and don't understand the underlying instruments. i have much more confidence -- >> they understand a 30-year fixed-rate mortgage. and you know if you don't have a down payment you've got a problem. you know if you say i make $100,000 a year and you only make 50, that's a problem. >> and there's nothing inherently wrong about an alt-a or a home equity loan. >> no. >> nothing whatsoever and taking the next step, there's nothing wrong with a synthetic cdo. >> that's a few steps down the road. that's not the next step. >> it's no the that hard -- it's really not that hard to understand. >> but you can't sit there and legislate that away. >> exactly. >> how do you know that. >> you two are arguing the same point. >> the regulation isn't the right place to go. i think actually the market is cleansing itself. >> i didn't have to say a word. i can just let sean talk for me. >> the market is cleansing itself. but we'll go back to the fact that the market wouldn't exist had it not been for the efforts of the u.s. government to save it if we had a real market economy, the market would have cleansed itself and nobody would have paid a dollar to save it. >> i'm not going to be able to promo your new show. >> can you talk about this on your show? >> thank you, sean. >> thank you. when we come back, did the s.e.c.'s case against goldman wake up the bears? should investors run for cover? or is this a buying opportunity? we'll charge into that in the next half of "squawk." with fidelity, you can take your trading around the world, because now you can trade u.s. and foreign stocks online, in 12 markets, 24 hours a day, all from the same account, and settle in u.s. dollars or the local currency. plus, we'll guide you with international research and realtime quotes, so you can diversify your portfolio, wherever -- whenever. and we'll be on call around the clock, while you trade around the globe. fidelity investments. turn here. hi, ellen! hi, ellen! hi, ellen! hi, ellen! we're going on a field trip to china! wow. 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[ female announcer ] the new classroom. see it. live it. share it. on the human network. cisco. did all right. welcome back to "squawk box." as you can see, the futures are below fair value, down by about 35 points. we'll see where things head through the morning. we've been watching this fallout from goldman sachs and that continues. also we're keeping an eye on shares of citigroup, after the dow component's quarterly report now originally the bid ask had been higher. but at this point it looks like it's about in line. numbers came in much better than expected. citi actually earned 14 cents a share. analysts were only looking for a break-even quarter. also revenue was above expectations, that's much the same as we saw from jp morgan and bank america last week. citi's ceo says that the company would not have been able to improve fortunes without the assistance of taxpayer aid and that it's very grateful for that ep had but as you can see right now, the bid ask is right where the stock closed on friday. and toyota will agree to pay a record $16.4 million fine. the agreement is expected to be signed later today in washington. paying the fine will not shield toyota from a possible legal liability down the road. and thousands of travelers remain stranded this morning, as much of european air space remains closed for a fifth straight day. officials are still concerned about the impact of the ash that spewed from a volcano in iceland. by the way, that shutdown is costing the industries millions of dollars approaching a $1 billion at this point and industry observers say some european airlines may go out of business as a result. >> wow. there's a lot of -- did you see that? >> ash? >> incredible. >> cnbc senior economics reporter steven liesman joins us with breaking news on the goldman sachs case. cnbc has learned that a former top lieutenant to john paulson told government investigators that the multibillion-dollar hedge fund struck only one deal of the type that's the focus of the securities and exchange commission's case of alleged fraud against goldman sachs. he told government attorneys that paulson struck only one customized subprime dlats ralized debt obligation against goldman sachs that had a third-party or collateral collection agent. goldman did more than one abacus style deal with goldman but this is the only one that had the third party central to the allegation of fraud in the case. in addition, pellegrino told investors that paulson approached other banks with doing such a deal. but the since-failed aca was the only one, prooi assumably. these revelations raise questions about how widespread this particular practice of alleged fraud was on wall street. pellegrino left paulson in late 2008. so his testimony to investigators would not cover any period after he left. but according to pellegrino, paulson did only one deal with goldman ant did not do others with this neutral third party. however the "wall street journal" reports that the s.e.c. is investigating whether other failed mortgage deals on the street may have included elements of fraud. pellegrino was one of a number of sources interviewed by government investigators in the case and the s.e.c. had thousands of pages of other documents so there's no allegation that paulson or pellegrino did anything wrong here and goldman denies any wrongdoing in the case. so define this the way as we understand it. this was a very specific type of deal, and what we can report this morning, is that paulson did only one such deal with goldman and did not do this particular kind of deal with other people. it's interesting to ask the question, why they needed these mutual, neutral third parties. because i think at the beginning of '07, people were getting hip to the idea that subprime was going down and the only way to actually put one of these together. d it's also actually a much more efficient way to short the market to get a whole bunch of failing cdos into a single package rather than to get them as paulson was also doing. shorting the names. >> emails from goldman people saying the cdo business is dead, we don't have much time left. >> what were the transactions that paulson pursued that were different? in other words just shorting, getting cds on various pieces of rnbs? >> right, single-name stuff. guys -- >> it wasn't like just paulson was doing it? >> no, others were doing it as well. it's worth pointing out that a lot of the stuff we're dealing with today, were the result of what this industry did as it was declining. a lot of the worst mortgages, a lot of the worst paper was done at the tail-end of this as you see in every one of these bubbles as a struggling industry. you know, tried to keep itself alive. so this may be one of those last few deals. i mean there may be others that come out of the works. where xxx bank did a deal for another hedge fund investor of a similar type. but so far, our understanding is that this guy who was really in the know here, testified to government investigators, that only one deal with a collateral selection. >> are you suggesting that this is more damning because this was so specifically different? or is it, does it make goldman look better because it wasn't widespread? it wasn't a common practice? >> you know, carl, i haven't thought about the implications of all this, as much as i know trying to report the news. but i think all of those things could be true, right? that on the one hand it's very damning because they had to do something to make it look better. that's one potential part of this thing. the other thing is that it helps goldman in the sense that it's not broader than this. it also helps the street in that the initial sense, the initial testimony -- we will see if others, and i cannot preclude that, the "journal" says on the front page today, this they're looking at other deals. >> they're definitely looking, they've been looking for a long time. >> i was also told, david, they were looking at goldman for two and a half years. that was part of what i was -- >> people were raising questions about these deals when we were doing our ground work on our documentary "house of cards" in late '07, early '08. people were raising questions about these deals in the cdo market. >> specifically focusing on goldman while bernie was writing all of those options. now, we've got these covered. off to antigua again, woo woo. >> we'll see if this gets broader, years later they read the paper. the s.e.c.'s complaint against goldman comes at a crucial time on capitol hill as congress gets ready to take on financial reform. congressman barney franks spoke to us earlier this morning on "squawk." >> when people tell me that the effect of risk on securitization. when they tell us in a the effect of that will be to diminish activity, my answer is good, that's an unintended good consequence. >> here now with his reaction to the case, senator judd gregg, ranking member of the budget committee, member of the banking committee. senator, good morning. you really want to jump into this thicket? >> having listened to you this morning, i thought a couple of your guests were just really interesting. mr. egan there, his points, i thought were right on. >> what is your thinking on the case so far? >> well, i'm not really sure that we need to get into the case. i think that's really up to the s.e.c. and goldman and the other legal eagles that are going to be involved in this. i'm a little interested in the timing of this. how could it -- >> judd, could it be anything, honestly. can an administration tell the s.e.c., we've got -- this would be really good if you could do this before next week when it goes to the floor? that's impossible, isn't it? >> let's absolutely hope that could not possibly happen, because it would undermine the integrity of the s.e.c. and yet for it to come out at this point, just before the senate moves to this bill and really, it's tang intelligeenti bill itself. it's talking about too big to fail, derivatives, consumer, reorganizing the regulatory structure. this is a very, as i understand it, i don't understand it that well. this is a very targeted issue on a specific action that one firm took. and the firm's denied that there was anything wrong. >> judd, all they know is that goldman sachs caused the financial crisis and we need to rein these guys in. and you need to vote for it, mr. republican. >> that's the big problem, joe, overreaction by a congress in the face of anecdotal evidence. and that happens all the time in the congress. however, if we do it this time, if we overreact on this, we're going to fundamentally harm the ability of the guy on main street to get credit. we'll reduce our credit markets and the viability of our capital markets. >> judd, what's an overreaction? an actual piece of proposed legislation that you think would do that? >> the kendjorski language in the house which essentially says, if you're too big, you're bad. >> where the government can decide to go ahead and make you divest things without you having done anything wrong? >> right, becky. you're setting up a group of people in washington who should decide who should get to what sides and how the economy should be handled from washington. and if a company is large, that doesn't necessarily mean they're bad. in fact large is good in many ways. we need large financial houses that can follow our american firms around the world and can give us an international presence and we need them to be strong. the question is if a large firm overextends itself and gets into serious problems. at that point the american taxpayer should not be on the hook to bring that firm out of its problems. the firm should suffer whatever consequences the market forces on it. but we do need large firms, we should not have a language that says a group of people in washington is going to dissemble firms because they're too large. do we go on to walmart because they don't have unions? do we go on to coca-cola because they have sugar in their drinks? it's an absurd concept but it's this rampant panderism taking over washington that says anything big is bad. >> but senator they make cars that can go 300 miles per hour, right? you can't sell those and drive them on the road, it would not be safe. >> you can sell them, you just can't drive them at 300 miles per hour. in fact, i imagine joe has a lamborghini that goes 180 miles per hour. >> close, in his dreams, he does. >> i don't work for goldman. >> i'm talking about safeguards, though. there is such thing as a reasonable safeguard, right? >> oh, absolutely. we need to restructure the financial regulatory atmosphere, there's no question about that. but we've got to be careful we don't do another sarbanes oxley, where we essentially force people offshore and we undermine our competitiveness in the national arena. there should be two goals for us here. the first goal is that we address systemic risk. so we do as much as we can in the area of regulatory action, which will allow us to anticipate to the extent we can, a systemic risk situation. and take action to try to correct it before it occurs. and the second goal should be as we're doing that, as we rear structuring our financial systems, make sure that america remains the most competitive and the best place to create capital and get credit. because that is really -- if you look at the uniqueness of the american economy, one of the key uniquenesses of our economy and the fact that we are so resilient is the fact that you can get capital reasonably easily and you can get credit at a reasonable price. and we can't do something that fundamentally harms that structure. so i'm -- i do strongly support reregulation and restructuring our regulatory atmosphere. i just hope we don't overreact out of anecdotal events, such as what we're seeing today. >> senator, what would you do about the derivatives market, specifically? what is it about the derivative markets look to be dysfunctional. what is it you would do to, to influence that? >> well, dysfunctional is too broad a term to apply to the derivatives market. but there are significant improvements you could do in the derivatives market. one, to the extent you want more transparency and you want more liquid tid and margin behind the counter party so using clearing houses more effectively is one step if you've got a legitimate customized product for a commercial end user, they should be exempt from a clearing house. but everything else to the extent that can go on at a clearing house, should go on. the issue at drif difficults, when you do you shift from clearing house to exchange? >> hey, judd, what do you see happening, they don't make the bill even stronger and they turn some of the 41 or they make it, they go for broke and put a lot more stuff in it and still try to get one guy. >> i think that we have almost agreement on too big to fail with the corker-warner language. on derivatives with the work that senator jack reed and i have done. on the consumer agency, with the work that richard shelby and senator dodd are doing. and on the issue of how we're going do reorganize the chairs on the deck of regulation, through the work that all of us have been doing. i, i think we're basically on the cusp of a major kbree hen comprehensive agreement. if we would just stand back, think calmly and be mature about this approach, instead of political. >> now with the debate on case we can make it a truly bipartisan bill, right? i'm kidding. >> i hope you are. >> he's not. >> senator thanks for your time, senator judd gregg. being said in jest, right? coming up, making sure your money is safe. the goldman news on friday sent the markets for loop. but is this just a speed bump from the bulls? or is there more to be concerned about? we'll find out next on "squawk." welcome back to "squawk box." the futures have been under pressure all through the morning. at this point they're still down by more than 25 points below fair value. we'll see what happens. but even positive news we got from citi earlier, better-than-expected earnings didn't do much to shake things off. there's a lot of concern based on everything we were talking about friday with goldman sachs. let's get more thoughts on the markets after the goldman sachs case prompted us all. joining us from new york, barry knapp, barclays head of u.s. portfolio and mark zandy, chief economist and founder of moodys.com. barry, if you look for not necessarily bloggers who want to make a name for themselves but most people would say, that was a watershed event and that's going to usher in a 10, 15% pull-back in the averages, do you see it that way? >> that definitely would not be our base case. i surely hope that senator gregg is correct and that we do wind up with a rational bill. in its current set-up, it looks, it looks pretty draconian. but the base case would be no, chances are, we, you know, this really impacts the 2011 financial regulatory reform. i mean probably impacts the 2011 and 2012 outlook. if senator gregg is correct and we do get compromise on all these issues, we probably shrug this off. but however, in its current construct, if you think about where the financial sector, those financial sector earnings we've gotten so far, bank america, jp morgan, citibank and a regional or two, it's pretty clear that the home lending business, commercial real estate businesses are in still in continued bad shape. credit card businesses getting better. and investment bank something getting better. but in its current construct, financial regulatory reform with the new derivatives legislation being introduced by blanche lincoln. the resolution authority, you know, what he was, what senator gregg was alluding to, the ability to just unwind a company almost arbitrarily around a capital structure, consumer protection, all of these things would hit at the part of businesses that are going well right now. so it could potentially, if it went through as it is currently constructed, and they got a couple of republicans to cross the line, it could be enough. but i would probably put about a 25% chance on that. >> that was the point. on friday, we were the news hadn't broken on goldman sachs on our show. we were focusing on bank of america's results in light of jp morgan's strong results, in light of ge capital's better results. and then this hit broadside, and you just wonder right as the banks are, they're looking pretty good, they're on the comeback trail. and here now there's the spector of overregulation. >> i don't think we should lose sight of the fact that underlying credit quality is now improving quite substantially. if you look at delinquencyings on credit cards, auto loan, even first mortgages, 30, 60-day delinquencies are falling, and this is in the face of 9.7% unemployment so once we start to get job growth and unemployment starts to come down i think we can see some substantial improvements. i think the banks have some tailwinds behind them because of the improving credit quality. >> all right, barry, it was interesting, we had greece, we had interest rates going up over 4%. and you know, i think we had seven out of eight days had been higher. that was the first time, and maybe it was a one-day phenomenon, but 120, 130 points, for a while it looked like it was going to get out of hand. you don't think we'll measure that day for maybe the most recent highs in the s&p? >> it could be from a shorter-term perspective. i would say the common theme across the capital markets, and not just the equity market, has been growing acceptance of the idea that we are having a strong recovery. the fed doesn't buy into it yet. but if you look at things like you know, the performance of consumer discretionary stocks, or then look into the cmbs market and what's going on with some of these, you know, the lower-rated, a-rated type cmbs bonds, they've almost gone parabolic. it's just this acceptance of what mark was talking about. that you know, credit looks like it's turning and the economy is getting stronger and so a the although of this stuff so, a lot of this stuff had a big, sharp move higher. there's definitely scope for pullback on that and i think that's what made the market so vulnerab vulnerable. again, we've been saying we don't think earnings season is going to be as favorable as everyone expects, but that's sort of a short-term, you know, factor within the broad trend, which is things are getting better. we still think the one factor that stands out there that could cause, you know, a more sustainable recovery is the fed getting hit over the head with the labor data and starting to tighten. that's at least another month away before they start there. >> barry, you'll be with us for the rest of the show. did you work on -- remember when george c. scott walks out and there's a big flag and he says something? have you worked on that? because we want to take a shot of him and have you talking, but we didn't give you the text, actually. >> i was there when the carthineogens fought the -- >> that's it, that's it. that's better than your george -- >> i can't even come close. >> carl. you do a great barney frank. >> not on air, i don't. >> and mark zandi -- >> no, no, no. >> no, no, no, i'm just saying you'll be with us, too. relax. i'm talking about -- no. >> mine's already in tathers. all right, up next, we've got the stock of the day. will it be citi, goldman or maybe another name coming down the home stretch. and tomorrow, bank of america's divisions are driven by the global wealth division. we'll talk exclusively with sallie kraw check about that coming up at 7:30 eastern time tomorrow. welcome back, everybody. our guest host today is mark zandi. he's the chief economist at moodieseconomy.com. and mark, we haven't even gotten a chance to get your take on the economy this morning because we've been so focused with goldman sachs and the rest. does anything that's happened over the last week change your idea of where this economy's headed by the end of the year? >> no, no. i think by the end of the year, a different perspective on this. i think this is therapeutic, actually, at the end of the day, because we need to restore confidence in the financial system. without a well-functioning system, we can't have a flourishing economy, the market's not going to grow. and sometimes the s.e.c. will get it right, sometimes they will get it wrong, who knows? but to get through this at the end of the day, i think we'll lay the foundation for a better financial system and a better. >> to restore public confidence, does there have to be a scapegoat, somebody offered up for blood? >> i don't think there necessarily has to be a scapegoat, but there needs to be a view, a perception that in reality, that policymakers are on the case and are scouring the financial system for any kind of wrongdoing, and that, ultimately, at the end of the day, making the changes that are necessary so this kind of stuff doesn't go on in the future. >> okay. all right. mark, again, is going to be with us for the rest of the morning. >> we have several candidates for the stock of the day, but there can only be one winner. we have the name next. stock of the day. it has to be citigroup. i guess we're back on reporting the financials. we got a little sidetracked on friday after we did bank of america. great interview with moynihan. then all hell broke loose. >> yeah. >> anyway, citigroup 14 cents a share, well above expectations from break-even. also, revenue, $25.4 billion on versus -- >> joe, fixed income markets there, revenues up and they also cut expenses a lot, down 6% year over year -- >> is he getting it done? >> that's what we've been hearing from a lot of analysts over the last month. >> amazing. is that like the $5 stock it was back in the '80s? that is for $50? >> or the $5 on friday for $40? >> it's been great having you, david. thanks for the help. >> sure. >> and to you. you also have a book coming out? >> "paying the price." >> out? >> end of the year, after the fiscal commission -- >> so, you're still in the throes of writing? >> yeah. i was just talking about that. painful, very painful. >> do you have kids? >> three. >> oh -- >> why? >> because it's hard to write a book when you're kids. >> oh, they're great. they leave me alone. they're writing it for me. >> actually, they give you -- >> you learn to ignore them. >> make sure you join us tomorrow. "squawk on the street's" coming up next. in tingling color, from the financial capital of the world, this is it. we've been waiting for this all morning. "squawk on the street" begins right now. good morning, everybody. i'm mark haines. >> tingling! and i'm erin burnett. that's an unusual and rather nice effervescent phrase. >> fluorescent. >> like your tie. citigroup posts a $4.4 billion profit in the first quarter, mark, and the ceo, vikram pandit, says the bank's on track towards sustained profitability. he's still cautious on the economy, but he did note without taxpayer help, the firm would not be where it is right now. >> it's nice of him to at least give a nod to the taxpayers. >> that's right. >> citi shares up on the news, as you can see. i didn't catch where citi is. goldman sachs, bid lower this morning after dropping big time friday. that as european regulators now say they may take a crack at the wall street giant after the s.e.c. presses its fraud charges. you know on friday that was the one angle i forgot about. i expect -- >> european union. >> i expect action from cuomo. >> right. >> civil suits. i never thought of the europeans. >> yes. now, cuomo's an interesting case, you know, because he has political ambitions and a lot of these guys are going to donate to him. so, there are many, many stories. but goldman right now is the carry-on and the vultures are ripping away at the flesh. futures right now are trading lower. we are off the lows of the session, though. europe is lower across the board. obviously, part of that is the