tv Squawk Box CNBC June 13, 2012 6:00am-9:00am EDT
good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin, reporting live from capitol hill today. let's get you up to speed on this wednesday morning. jpmorgan chase chairman and ceo jamie dimon will face the senate banking committee today. he's expected to apologize for $2 billion in losses and explain how the bank's investment unit was instructed to reduce risk exposure back in december. andrew will have more from washington in a moment. dell announcing it will pay its first ever dividend, a quarterly payout eight cents a share. that's a yield of 2.7%. the founder, chairman and ceo michael dell talked about the dividends on "closing bell ". >> it's something our board has been considering for some time. and with the consistency of our cash flows and the shift that we've made to this enterprise solutions business we feel confident that this is a great
time to return this capital to shareholders. >> right now that stock is at about $12 a share. spain's prime minister is defending the country's request for $15 billion in aid from its troubled bank. vowing to overhaul the country's banking system. we'll have more from london in a moment. but first let's get to washington where andrew is standing by. >> let's walk through what we'll see today. jamie dimon will be delivering his testimony to the senate banking committee. that's going to come at 10 a.m. eastern time. he's going to be trying to explain how the firm's now infamous trading positions went wrong. we have a bit of the testimony in advance. let's go through it and walk through exactly what he may be saying. he's already put out he'll be saying in december 2011 as part of a firm-wide effort in anticipation of new basel capital requirements we instructed cio to reduce risk-weighted assets and
associated risk. to achieve this in this synthetic credit portfolio. they could have simply reduced their existing position. instead, starting back in mid-january it embarked on a complex strategy that entailed adding positions it believed would offset the two ones. this strategy, however, ended up creating a portfolio that was larger and ultimately resulted in even more complex and hard to manage risks. portfolio morphed into something that, rather, than protect the firm created new and poernlly large risks. at the heart of his testimony will be personnel issues. you'll hear a name over and over, ina drew's name, former head of the krichlt o. she was not mentioned in the prepared text but watch what he says about her. he'll tell lawmakers this about the group. personnel in key control roles in the cio were in transition
and risk-control functions were generally ineffective in challenging the judgment of cio's trading personnel. risk committee structures and processes in cio were not as formal or robust as they should have been. cio particularly the synthetic credit portfolio should have gotten more scrutiny from both senior management and the firmwide risk control function. he'll maintain the bank maintains a fortress balance sheet. as for a figure on the total loss from failed hedging strategy, there isn't one yet but don't expect that number to be huge. this is something investors will be watching for throughout the day. he says in his prepared testimony that they plan to be solidly profitable. we'll be getting a lot more about the details of the trade and the real numbers actually on july 13th which they announce their second quarter results. that's a little bit of a
briefing of where we are today. >> andrew, thank you very much. by the way, we're going to be watching all through the day. andrew will be here. he's joining us for all of this. stick around. >> i should say, by the way, becky, we have a number of people coming on, including -- maybe it will be a programming note. we'll be talking to senate banking committee ranking member richard shelby at 8 a.m. eastern time and we'll take the hearings live at 10 a.m. on "squawk on the street" and mary thompson has an exclusive one-on-one interview with jamie. it will be an interesting day to watch. >> that's great. >> excellent. we'll talk to andrew. let's check on the markets this morning. futures after a great day yesterday, crazy, after what happened on monday. but this morning we are looking for a little bit more of the same. kind of a flat indication for the s&p, dow called up about 14
points. as you can see, if you need to see those tiny point moves on a percentage basis, for some reason, there it is. let's check out oil board this morning, because this is interesting. $83.40. it never did get below $80. a lot of people think we're at a point where we're going below $80 or back up over $100. >> opec is trying to figure out how much they're pumping, too. there is some talk with those numbers. >> this whole fraccing and natural gas has changed the whole hydrocarbon peak oil for the world and with the arctic melting. there's $900 trillion of hydrocarbons up there. new shipping waterways to be open for us to go get it. >> scientific global warming. >> the upside, exactly. i'm waiting for the downside. there it is.
1.6. we got below 1.5 for a while. everyone says don't boy bonds, buy stocks but could take a while. there is the euro, which has been stuck around 1.25. did dip below there. gold seems to be stuck at 1600 or so. time for global markets report and this is like a two-fer, the second straight day that becky is so happy and excited because ross westgate is standing -- >> i think ross and kelly should join us together every day. ross decide he doesn't need to slum anymore. >> both of them, yeah. hey, ross, you're all red. >> hey. >> it's not your fault. >> yeah, yeah. could be a little better. it looks worse than it is, actually. we're weighted to the downside, joe, but the losses aren't huge. a little bit less than 73 declines present advances. we had slim gains yesterday, slim gains for european stock. cac was flat as well as the dax.
we have bounced off the session low german bund auction which went surprisingly okay. ftse 100 down. the cac is down 0.2. here's a surprise. in spain the ibex is up 1% at the moment. albeit down near nine-year lows. comment out today from span. ish prime minister, we learned he sent a letter to the eu on 6 of june where he was urging plenty more ecb support. this was prebank bailout but he wanted them to step up their action. he wanted the s&p program to get going. the ecb to buy spanish debt. now, of course, he's been silent. we have draghi talking on friday. as far as spanish bond yield, remember, we spiked to a fresh era fi of 6.86%, somewhere around there. we are slightly lower than that at 6.7%. italian yields are low, 6.1%.
we had a 12-month t-bill auction out of italy earlier. 3.9% for the 12-month money. it was 2.34% in may but they did get all the money they wanted. perhaps no surprise will yield being higher. and a german auction as well this morning. they sold the amount they wanted to, around $5 billion. 1.52. was the yield, pretty much where the cash market is going okay. bid to cover was okay. that was seen as a fairly good auction for bonds, which are pretty offering almost no money really over a ten-year period. 1.5% as well. so, all in all, things may be have gotten as you might have expected. we'll keep our eyes on that spanish yield as well as we go through the session. that's where we stand right now. back to you, joe and becky. >> our guest host this morning, sally, former bank of america,
merrill lynch, global wealth management president and directly of newly launched motif investing. beel hear from the motif ceo later in the program. we are all about jamie dimon and the teflt today. we just heard andrew read from the actual testimony. it seemed to be saying we had some positions on and we could have taken the positions off but instead we decided to hedge. so i guess they had a choice either way. that sounds like he's going down the path of saying this was not in of volcker. is he going to take that stance? >> i don't know what he's going to say but we seem to be having a lot of debate, which a little, to me, how many angels on the head of a pin. was this proprietary trade? was it not? was it a hedge? you know, what was it?
and you take a step back and say, do we care, right? do we care what kind of trade it was? what we care about is maybe the loss. we can make an argument, $2 billion, $5 billion on $120 billion tangible assets? all right, long afternoon. not even a long week. a long afternoon. >> we care because we're implementing some type of volcker rule as part of dodd/frank. >> what is of note is the complexity, the business they didn't know is there. there is no better financial services team out there, one could argue, that tan that j pme jpmorgan team. they said this is a tempest in a teapot, you would guess management would know, they would know. was it complexities didn't work? risk management that didn't work? what was it that didn't work. we're still having this debate
volcker rule not. maybe. >> i get how if i'm a shareholder i definitely care about this but we talked about this before, the idea of a congressional hearing for this in what is something that was a bad trade for the company. i get it, if you're a shareholder you have every right to be upset about this. >> that's what you wonder, is it congressional hearing worthy? is every couple billion dollar loss we'll have from here be a congressional hearing. i can take the other side of the argument. it's so soon after the downturn -- >> i don't think we would be talking about it. >> absolutely. this is a chance for regularities to come back, board of directors to come back and say, did this work the way it was poefd to or not? i think taking a look for a second -- >> unfortunately we're again talking about it in terms of taxpayer money and depositor money because of 2008. had it nothing to do with
taxpayer money. but you have politicians that are able to sort of pretend they're protecting interests of depositors, ma and pa that have accounts at jpmorgan that were at risk because of this or have another t.a.r.p. or tax-funded bailout and they'll use it and conflate the two. >> that's going to the. nth degree. >> really? i think that's the average degree -- >> to the what? >> average degree for car levin -- >> you bring up a nuance with this. i would argue what's going on with europe, deposit are quite a bit safer than some money funds investing in european debt, european bank debt, et cetera. what is sort of interesting here, if you go to a nuance, which is it appears to be all of these deposits that drove the
need to absorb the deposit. >> because they had so much money. >> that's right. people say banks are trying not to make loans, but in the businesses i've run have had responsibility. the issue is people didn't want the loans. >> the valid point chris brought up yesterday, where were the regulators? why did they not see what was happening? >> i agree with that. if the management didn't see it, you have a lot of answers that need to come out for that. >> andrew? >> becky, one of the things i think you'll hear today is a lot about the issue of regulation and whether the regulators should have known it. i think what you'll be hearing out of jamie dimon's mouth on that specific issue is that if the firm itself was dealing with bad information, and i think he's going to say repeatedly they were dealing with bad information, they were then providing that bad information to the regulators. i think in many ways, if you read through the early teflt he's already provided, in many ways he's going to be almost
trying to protect the regulator in saying it wasn't their fault at all. >> wait a second. what happens with that. if the firm is providing bad information to regulators, what does that -- i mean sdshgs that violate anything -- is anybody in bigger trouble for giving them incorrect information? >> there's no question in my mind, one man's opinion that, you know, in a year or two from now, this there will be an s.e.c. suit, a settlement, in terms of internal risk controls inside the firm. i think the other thing you'll hear over and over is this was an individual incident and was related to one -- in many cases, one person. we think of these big institutions having risk controls and systems but this is about jamie dimon's relationship with ina drew. that's what this is about. this is somebody he trusted, perhaps trusted too much, that he had had good experiences
with, made tremendous profits and been very careful over the years. he had never been to a risk-control meeting of hers before. when you think about the trust that was gone -- we talked about it as a personnel issue. this is a personal issue in many ways. >> so, you know, one thing i would add, the former research and bank analyst in me has to come out here because one thing i'd be thinking about if i were an investor or an analyst koovring the stock, is if this business xoo lose a couple billion or several billion or $5 billion in what felt like that, how much was it earning? and as people look at and think about the underlying earnings power of this company, it must have been earning billions of dollars. i read, as you have, it was earning several billion dollars. what does that mean then if this one guy or one group or this one type of trade was earning that, what's the underlying power of the company at all. once we get through it, they fix
it. >> thank you. back to you, andrew, but more from sallie throughout all three hours. >> no, two. i'm getting out of here. >> have somewhere to go? we have news on the home front. the world leader in business news is teaming up for financial news. cnbc is entering a strategic alliance with yahoo! finance that starts today. cnbc will provide content and video that will be featured on yahoo! finance including greater access to cnbc.com, stories across the yahoo network. this will increase the expand of cnbc on the internet. you can guess this is a big way for yahoo to move into it's media strategy. >> content is king.
>> ross levin is the ceo -- >> he's the good looking guy. after -- he had something on his resume and something that wasn't true. you know, what are you hiding with the facial hair? nobody has facial hair in the 2012s, do they? >> i see people. last time you talked to -- the last time we tossed to a guy -- >> he was a california analyst. i'm talking about people in positions of power. >> i think a lot of power has moved to california, into silicon valley lately, jobs act. when we come back, politics of putting jamie dimon on the hot seat. andrew joined by a couple of special guests on the hill. what kind of day should we be expecting for the markets? anything goes. we'll get word from the trading floor. lebron james and the heat were thunder struck. omaha city takes game one of the
nba finals. outplaying miami in the second half. [ male announcer ] citi turns 200 this year. in that time there've been some good days. and some difficult ones. but, through it all, we've persevered, supporting some of the biggest ideas in modern history. so why should our anniversary matter to you? because for 200 years, we've been helping ideas move from ambition to achievement. and the next great idea could be yours. ♪
joining us from the cme is scott of bradford capital management. how long have we had you on our air? >> i don't know. a couple years now, i guess. >> we've been calling you schalady this whole time? you never corrected us. you were way too kind. >> he might have corrected us but we're looking at that jacket, we can't think of anything else. >> we're idiots. >> i don't have time. >> scott, great to see you here this morning. >> okay. >> let's talk about what's happening in europe. we've been watching those yields. in spain and in italy, things have gotten more concerning. you have yields blowing back out. i think 6.83%. there was one of those readings today. that gets awfully close to 7%. that has been the magic number that other nations have needed help with. what do we do at this point? >> i think those yields are frankly, unsustainable. they're already in the red zone.
a lot of danger signs coming out of europe and it's not going to end pretty. at the end of the day we'll have genuine wealth destruction and we'll have a breakup of europe in some fashion or manner. greece, obviously, we got the vote this weekend. doesn't matter what we have going on with all these bailouts and extension of all these loans, is that the politicians are just waiting for a less hurtful answer to what they've got going on out there. as long as they don't have an answer, they're going to continue to string us along with knees loans and bailouts. ultimately, europe will not look the same a year from today as it does right now. >> i've been listening earlier today to "worldwide exchange" and ross had a guest on who came up with idea the world hasn't changed. we knew this two years ago. spain was in big trouble with its banks. the other nations had these massive problems. the oonl thing that's changed is investor sentiment. so, if that's the case, can the markets put enough pressure on the european leaders to really come up with plans quickly and could that make the entire
situation improve much more rapidly than people had been expecting? >> well, you know, my only grave example is if you rewind the clocks back to -- i was in london when sorros was the market and they taught england they can't control what they thought they could control. if markets embrace europe, the markets will tell europe, this is unsustainable and can't go on. with those yields doing what they're doing right now -- i think the bonds and yield markets have been telling us the truth the whole time. the central banks have been involved flooding the markets with cash. you have to put the equity markets aside for a second because that's the hope and dream of what we would like to see happen and look at the bond markets president the bond markets are telling us, it's unsustainable. >> sallie, we know things feel a lot more stressful than they had to this point. what do you think? you've been watching things like this happen for a long time.
>> it's going to be painful one way or another. i almost think about it, are we going to have fire or ice? is europe going to come together from just this monetary union to a fiscal and political union, which will have its own set of painful circumstances. or will there be a breakup? clearly scott is of the view there's one path here. he makes an interesting point again and again and again over time. you see where the bond markets and the stock markets tell you different things. i mean -- >> i didn't listen. >> i saw back in -- believe it, 1987 when the -- you remember the bond markets went well before the he can quit markets. no one remembers that. you saw it in the subprime crisis and you've seen it here again, too. it really pays to watch these bond markets because inflexion points, in periods of real turmoil, they'll tell you where they're going long before the equity markets will. >> that's a scary thought. scott, an excellent point. thank you for joining us today. >> thank you.
coming up, we've got this morning's top stories, including jamie dimon's date with the senate banking city and major garrett going to get behind the politics behind today's hearing and what the committee hopes to achieve. take a look at yesterday's winners and losers. our cloud is not soft and fluffy.
good morning and welcome back to good morning and welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and andrew ross sorkin, reporting live from capitol hill this morning. in the headlines, two key economic reports ahead of us today before we open the stock market. the government will be out with retail sales and producer prices for may. economists think retail sales fell 0.3% last month and they're looking for an 0.8% decline in the producer price index. are you expecting me to say it different the second time? producer price and then ppi? >> yeah. >> no, producer price both times. dow component johnson and onson has gotten regulatory approval for $19.7 billion acquisition of synthes.
expects the deal of the swiss medical device maker to close deal and expect it to boost profits this year. and cnbc, that's us, and yahoo! have announced a content-sharing partnership. cnbc will provide stories and videos that will be featured on yahoo!'s -- yahoo! finance's pages. they'll co-create videos that will appear online as well as mobile devices. >> people don't like your comments about facial hair. >> who still has facial hair? >> ben bernanke. >> any women -- >> guys with facial hair. ben bernanke, a person of power that -- >> you're right. he is. i'll stand by in his case. he's an academic. i'll stand by it. what? i was mainly talking about women with facial hair. >> jim cramer. >> does cramer have facial hair in you're right. forgot about that. >> person of power. take it back. >> it's time to get to andrew in
washington. other than that unibrow you don't have facial hair. >> i don't have facial hair nor do our two guests. we can talk about that in a second. today jpmorgan's jamie dimon will be scaring off with the senate banking committee. tim johnson is going to ask in his opening statement the following -- for a bank renowned for risk management, where were the risk controls? how can a bank take on, quote, far too much risk if the point of the trades was to reduce risk in the first place. joining us now without facial hair, major garrett and our own cnbc's chief washington correspondent mr. john harwood. did you ever have facial hair? >> do vacation beards count? >> i don't know. joe, do -- >> no, no, that's fine. >> just want to clarify. >> i couldn't even pull off a vacation beard. >> you can't?
>> no. >> by the way, joe is throwing a question my way, i'm not ignoring, we can't hear. >> that's right. good to know. >> all within the family right here. they have not -- we hope at some point maybe they can hear you, but maybe not. in the meantime, what do we expect today in terms of what jamie dimon can say and, more importantly, anything substantive we're going to learn? is there something we should look for? >> well, i think jamie dimon will go through a corporate mea culpa. you can see that from his testimony, the short and the long. they can't show all their pogs because they're trying to unwind them. they give too much details they'll be pounced on by competitors. whether or not this is a cause for greater regulation, a tighter, more aggressive volcker rule or as republicans might argue and as ben bernanke implied last week in his testimony, still complicated, as
long as you have substantial capital resefbz, these thing can happen. they're ugly. but they're not necessarily a cause or a case for tighter regulation. >> washington feeder, then? >> yes. and the lines will fall predictably as major suggested. i think one thing happening today is jamie dimon after taking a huge hit to the lobbying position he has taken for -- on behalf of jpmorgan chase, we have two weeks before the regulations get finalized, right? he's salvaging to some degree his own lobbying position by coming here, taking a hit for the team -- >> does he have any standing anymore? >> yes. >> you live here. >> no, of course he does. because as president obama himself said, this is one of the leaders of the industry, somebody that's very competent banker. it's as embarrassing as it is for jpmorgan chase to lose this amount of money, and as
embarrassing as it is for him as a ceo to lose it. he's been endearing the way he stood up and said, hey, we messed up. by doing so, trying to limit the fallout. >> two questions. he has said repeatedly we're going to learn later, i think in july, july 139 when they have their second quarter, more about the actual trades himself. is he doing himself a disservice by not explaining more about those trades in term of the regulatory argument he's making? there are going to be questions today where he's going to say, i apologize, i just cannot answer. >> that's where the interest of his shareholders and larger industry of the industry and regulatory community collide. if he says too much, the pogs will be pounced on by their competitors and losses will intensify. he'll stuck between what he can preserve and keep quiet until they reveal it, and make the case in a regulatory climate that the risk was ours. we screwed it up. but that doesn't necessarily mean we need tighter regulations
or take the volcker rule into macro hedging into a new area. >> by the way, it doesn't necessarily mean we need more regulation. it doesn't mean we need more regulation. >> but when you hear, and one of the things you'll hear a lot about today is ina drew, the head of the cio losses where these losses took place and how he depended on her, his trust in her, his personal relationship with her. what does that say about the larger risk controls at the firm, broadly risk controls throughout wall street? ultimately this is a trust business at some level. >> it says that every system has got holes in it, right? so, the human element, you may have a risk control system set in place, but if you trust somebody and they've got an intuition or people who work for them have got an intuition and follow them, you'll have a problem. >> politicly for the republicans in this conversation, you've already seen some democrats try
to take some shots at the banks, which might be expected. how hard is it, though, for republican side to say, you know what, this was a blip, $2 billion, $4 billion, whatever the final number, we're not going to worry about it. >> it's an argument you have to make in three different layers. first layers, systematic risk, collapse, failure, no, no, calm down. and then say, on top of your anxieties, which i have to say because i'm a politician are legitimate, don't worry. that's a -- several layers of complication for a politician. >> okay. >> but they're going to make it anyway. >> we have to wrap it up and leave it there. thank you for waking up early. major and john, thank you for being here. joe? >> andrew, thank you. we have decided that many times followicly challenged men -- >> don't put me in your group with this. i did not have part of this. >> justin over here. >> isn't it interesting you can lose your hair up here but not
here. >> and they feel the need to show, i can still do it, bernanke, others that are follicly challenged seem to overcompensate with -- they may be overcompensating for a lot. comments, questions -- >> would you eventually grow a beard? >> you know, with me it's kind of like i'm not sure i could. i'm like major garrett down there. >> oh, now the truth comes out. >> that might be part of it. >> it's an envy thing. >> i don't think i could. maybe as i -- when i grow up. >> hit puberty. >> here on squawk, e-mail us. coming up, we'll go behind the walls of jpmorgan. our next guest knows the inner workingsings of the bank so well. how did the trading loss happen? who knew what? when did they know it? answers next. >
welcome back. equity futures this hour have been traded -- now back to single digits, up 14, 16 on the dow, now trading up about 9 points on the day. as you can see, that would be less than a 0.1%. >> good to have that. jamie dimon is set to testify on capitol hill. ahead of that hearing, here's a tick by tick on how the $2 billion trading loss went down.
>> breaking news, jpmorgan calling a conference call to address losses. chief investment office has significant mark to mark losses, $2.4 billion possible. >> self-inflicted. we're accountable. >> it's an embarrassment for the company. he was quick to point that out. >> three top executives involved with jpmorgan's $2 billion loss are set to leave the bank. among them, ina drew, chief investment officer, one of the highest paid execs. >> justice department opening an investigation into the $2 billion trading loss, coming on the same day they hold the shareholder meeting. >> violates our own principles in terms of complexities of rick. >> the wall street jourm reporting two shareholder lawsuits are been filed against the bank against trading losses claiming jamie dimon misrepresented risk to
investors. >> our focus is on whether the company's public disclosure and financial reporting is accurate in light of what the press has teed up as what did they know and had when did they know it? >> jamie dimon will be before the senate banking committee wednesday before-b thabout that and growing trading loss. >> joining us is sharon oe hall ran, a professor at school of international and public affairs at columbia university and thank you for being here. >> thank you. >> so, if you were able to talk to jamie dimon today, what questions would you ask? >> basically, how do you take the lemon and make it lemonade? that is, how -- if you can write these regulations and the rules that are coming down, how would you do it to prevent this from happening again? his response should be i need simple, clear, rules and regulations that i can comply with and prove to my regulators that i'm in compliance.
i think if he hammers on that point he can say, we will work with you and get these rules and regulations right. >> what's wrong with the rules and regulations that have been proposed to this point? you're in favor of regulation but clean and clear regulation. >> pro market regulation that focuses on disclosure, transparency, being clear on how they can implement it and following up with strong and textive compliance. right now, if you look at the volcker rule of being proposed, over 300 pages, every exception under the sun you could possibly come in with. it's going to be gamed. therefore, if it's -- unless it's concise and clearly stated how the banks need to regulate and how the regulators can regulate them, it's going to be ineffective. >> there are some questions even before we get to any of these new regulations about what happened this time around and when the regulators were there the whole time, how they didn't know any of this was happening. andrew indicated earlier that part of the problem could be that the regulators were given wrong information. that the managers at jpmorgan
didn't know the correct information and they were passing on incorrect information to the regulators. how do you even -- i mean, something like this can't be fixed if the people at the top of the bank don't know what's happening. >> there's a couple of things going on. one, there is ambiguity as to what pieces of information have to be disclosed. let's set that aside. >> let's talk about the rules as they exist today. >> therefore, the banks knowing what they need to disclose is difficult. it is -- you see lots of time them arguing what pieces of data, which agency, so on. i think there is ambiguity now in the implementation of those rules. that needs to be cleared out. second, what you do see is, in fact, at jpmorgan, just in publicly available information, there was a real shuffling of a lot of key players going on over the last two years, institutional players. a man was like musical chairs, the person without the seat was forced out or left.
this had a lot of implications on one, such as direct reports up to jamie dimon. you also see they change their risk metrics and how they use it, so what's the information they were evaluating their own risk internally? third, it really made accountability and oversight difficult within the institution itself. >> but there's -- you know, there's a lot of that going on on wall street. historically has. you can't have a system that rests upon people staying in their jobs forever. >> i think that's correct. therefore, what you need to do is establish internal systems of reporting, of disclosure that's clear and concise across the institution, that they can then hand to their own internal supervisors so that they know they're in compliance. if you look at the matrix of what an institution needs to do to be in compliance at all these different levels, it's very complex. >> oh, it's complex, no doubt about it. now, you talk about wanting simple and clear regulation. >> that's correct.
>> does dodd/frank qualify? >> i would say exasperate many of the trends we've seen building up over the last 50 years. in fact, it increases the number of overlapping jurisdictions of the agencies. creates in addition more veto gates and that is agencies have to sign off to do actions. at the same time, it politicizes the process, moves authority from the independent agencies to the more political cabinet level agencies like the treasury. that just makes the system even more dysfunctional. >> but we have to be realistic. we're going not going to repeal dodd/frank, are we? >> no, but can be clear about the sources of information, a common depository where each of the information comes. these are all mechanisms that can be done through rules in the existing framework. >> sharyn, andrew sorkin in d.c. i'm curious, when you think about whether regulators should have been able to spot the risks
involved in this trade, should they have -- i ask in the context that jpmorgan and other big banks are making loan every day, to corporations and to individuals. i don't expect, and maybe i'm wrong, that even on some of the biggest loans, that regulators are testing the loans themselves, let alone these trades. >> i do believe they have a standard and country tear yeah to meet. should they have known about this risk? you're correct they're only going to be able to act on the information they're given. if the information they're given is faulty, either because of faulty risk metrics or changes in those standards that they haven't been informed about, that, in fact, will limit their capacity. we also have to understand that the agencies themselves are kind of hamstrung in the ways in which the regulations set up their ability to do their job. again, they need different types of approvals to do this.
they need overlapping -- they have overlapping jurisdictions. this makes their functioning difficult. we also see just right now the cftc, their budget is being proposed to be cut. therefore, the resources that are available to these agencies to do their job is also limited. >> we want to thank you for coming in and joining us today. we appreciate your time. >> thank you very much. also a programming note for you. we will be talking to senate banking committee ranking member richard shelby coming up at 8 a.m. eastern time. and as you can see, the dimon hearing live at 10 a.m. eastern time on "squawk on the street" followed by mary thompson exclusive one-on-one interview with jamie dimon. our coverage of today's much talked about hearing is just getting started this morning. still to come, an hour with famed financial analyst mike mayo. and the ranking member of the senate banking committee, he'll be asking the questions, richard shelby. we'll find out what he plans to ask jamie dimon at 8 a.m. eastern. optionsxpress, where you can trade your favorite products,
all in one account. keep watch on the markets. or use our exclusive tools to help find ideas. it's powerful, easy-to-use technology for trading stocks, options, and futures. keep trading whether you're at home, in the office, or on the go. optionsxpress, the broker smart traders deserve. open an account today at optionsxpress.com.
read this and i can't see any way around it. eventually i feel like europe is going to have more to do months from now and jamie dimon and what he has to say today. it reminded me how many big banks in europe own sovereign debt, bank yield is one thing, there's huge -- >> that's why this is a different banking crisis than ours was. >> it's combined with the sovereign debt crisis. >> i think a couple of things. you think about the damaged balance sheets and what you see here is the banking damaged balance sheets moving into the government balance sheets and those are taking on real risks. >> the banks keep the government afloat in many cases. >> that's right. there's a circular reference to the whole thing, particularly when you don't have economic growth to bail people out. the other thing is we were talking about how the circumstances haven't changed or the facts haven't changed but the markets have got i don't
know nervous. i remember when i was here earlier in the year, the bull market was going again. we sort of had merger monday. people were at the greece is this big, it doesn't matter. which reminds me is subprime debt is this big, it doesn't matter but what matter is the ripple effects from it, the dominos falling. you can easily see the dominos falling. >> the prospects for any type of growth or gains in employment in spain -- >> of course people aren't getting paid in greece. you've got a lot of stuff. >> they may be eventually writing stuff on paper ious. >> when we come back, much more from sallie krawcheck and david cody joins us from the business
[ male announcer ] this is corporate caterers, miami, florida. in here, great food demands a great presentation. so at&t showed corporate caterers how to better collaborate by using a mobile solution, in a whole new way. using real-time photo sharing abilities, they can create and maintain high standards, from kitchen to table. this technology allows us to collaborate with our drivers to make a better experience for our customers. [ male announcer ] it's a network of possibilities -- helping you do what you do... even better. ♪
dimon's day on the hill. a look at what could happen beyond the politics live from the nation's capital. >> getting back on the job. >> it's finally time to have a president who is in touch with what's happening in america and i am. i'll bring back america's strength. >> honeywell's ceo and david cote on creating opportunities for growth. >> and when investing goes social. a sneak peek at what could be the future of trading as the second hour of "squawk box"
begins right now. ♪ ♪ good morning, everybody. welcome back to "squawk box" on cnbc. i'm becky quick along with andrew ross sorkin and joe kernen. let's get to your morning headlines. dell is going to be paying its first ever dividend. they're going to be paying a 8 cent yield. a chinese government visor said the annual gdp growth rate could fall below 7% for the second quarter. he said that will happen if the weak economic activity persists. u.s. air ways is reportedly
planning to file paperwork for a pos merger with amr. they think getting regulatory approval in advance of the bid would remove a major element of uncertainty. you think? let's look at the futures. you're going to see a flat line. dow futures up by 1.2. s&p is down this morning. joe? >> andrew, what building are you? down there? >> we are in the dickinson building. we're looking for three things. the first will be the disclosure issues, what did jamie dimon know, when did he know it. we're going to go back to that april 13th quote, tempest in a tea pot and then of course the may 10th disclosure it was no
longer a tempest in a tea pot. we'll see lots of questions on that issue. we'll also get a lot on policy, what does this mean to regulation, to the volcker rule and hedge, how important was it to jpmorgan. and the last piece is for investors, a lot of people will try to read between the lines and what the second quarter may look like. we'll hear those numbers on july 13th. i would point investors today in this in jamie dimon's opening statement. he said our team has made real progress in greaseively aaggres analyzing, managing and reducing our risk going forward. he's also saying that they will be profitable, solidly profitable this quarter.
some birdies suggest to me if we all read between the lines here, that the quarter may not be as bad as some people are predicting. joe, back to you. >> it's one of the senate office buildings, andrew? we're just trying to place you physically. you're on capitol hill, right? >> we're on capitol hill. >> in one of the senate office buildings. >> you've been here before. it's quite beautiful. we're in the russell building. i said dickinson. >> dirkson. >> dirkson. we don't have a lot of people here with facial hair.
>> i've seen a picture -- >> you never have, have you, andrew? have you ever dried? >> i tried to do an edgar brothman once but it doesn't come in well enough. >> i saw a picture of you with a 'stash you could have cued the porn music. >> i was the cable guy or the pizza delivery guy that comes to the door. >> this is a very high level intellectual discourse, isn't it? >> now that we've raised it to this level, becky's going to -- let's get to sallie krawcheck. >> let's do that. our guest host is sallie krawcheck. she's a director of the newly launched motif investing. sally, you have been writing a lot lately. you've weighed in on blogs and op-ed pieces in the f.t., you
have a piece in the harvard business review. you make some great points where you lay out that everything we're watching has to come back to responsibility for the boards. we go through these periods where we realize boards of directors have to go more pro active. >> it's the responsibility of management. you do have board oversight. the harvard business review piece started as a memo to poure board. memo to board, your job is unbelievably hard and the complexity of these institutions and the number of businesses they're in, and we're in this phase of fighting complexity with complexity. so you try to take a step back and say, hey, guys, there are some tools you can use if the goal is to reduce risk, what are some of them? one i've talked about is we've
gone to paying managers in stock. if you're getting stock, you want it to go up. if you want it to go up, you take risk. if you buy a fixed income instrument, you become more risk averse. if we want to reduce risk, rather than spend the time on every last detail, which they have to, is there a comp middlesex thmix by doing that. >> that turns an entire idea on its head that we how the we had to pay ceo and managers in stock compensation so they would have the very same at heart at shareholders, so they'd have skin in the game. >> but it doidn't work in the finance institution. i don't think anyone would say
organization, xyz didn't have enough stock. the real question is how do you reduce the risk tolerance, if that's what the goal is. if the goal is to have the banks take less risk, paying more in stock may not be the thing to do. >> one of the headlines we just talked about, briefly mentioned, is that there's a chinese official out saying today that growth could be slower than expected for the quarter, it could come in at 7% versus the 7.9%, which was already going to be the slowest growth we've seen in very long time. if things are really rapidly slowing down in china, what does that mean in terms of of the reverberations around the globe because you talk all the time about how it's the little things but then it's the wave effect that kind of comes around. >> it's all going the same direction. you have this sense -- and not unusual in a recovery from a balance sheet downturn, a financial down thereto thetutur
we've seen. it's barely there, the united states, europe clearly. i don't worry as much about china because there's such inherent underlying growth to it but it doesn't help. >> maybe europe is affecting china at this point, too. >> it's all one big simultaneous equation. >> in recent pieces that i've read, no one worries really about anything below 6% in china. unfortunately the consensus is 7 1/ to 8. all these trades are on and things are set up that do not count for a below consensus in china. these guys are saying -- i don't know if it's going to be 6 but some government officials in the know -- >> some were implying 7. >> if there is 6, those are not
in any markets anywhere. >> and markets are all about expectations. we're accumulating tough news, which you're seeing in our markets. there's a reason it's so volatile now. >> and we talked briefly off camera about what you used to sort of -- and literally you were riding herd over the thundering herd, right, over all these guys, they must have 20,000 now at merrill lynch. >> 17ish. >> i said thank god for wrap fees, which i didn't have -- they were just starting. what would they do if they didn't have a percentage of assets as their compensation now? there's nothing going on in the individual investor, retail investors space. >> yes and no. the individual investor is pulling back and what's going on with facebook is yet another little piece of evidence as to how dangerous it can be and, oh, gee, that 10 to 12 years we're
in the equity markets, they've essentially gone nowhere. >> you would have thought assets managers -- >> if we sat here 10 or 12 years ago and laid out this environment, we would have said all these businesses would have been out of business, there would be imagimargin compressioe compression, and some would be kbon. the financial advisers have done a great job of changing with the times and saying it's not all about the stock and asset appreciation, it's about planning and the holistic picture. >> that sounds like a roundabout way of saying where are all the customers? how do the customers get it and care of? >> if you survey the clients, they say it's important to me,
it's about up in seven or eight on the list. >> number one is return of capital. >> number one is return of phone calls believe it or not. the number one reason people leave their adviser is because my phone call wasn't returned fast enough. which is another way of saying take care of me, take care of me, help me through the volatility, maybe sure i've planned and i do have return of capital. something like two third to three quarters depending on the survey of individual investors want capital preservation. >> that's since 2008, right? >> do we have enough historical precedence going back to the 19th century and the early 20th century and the stock market crash in '29? will this come back someday and there will be people interested in individual stocks and it will be look that again or -- >> it depends. >> don't tell me that. >> well, it does. so if you're 35 years old and
i'm just a touch over that age, just a tij over, if you're 35 years old, if you made your first stock investment when you were 23, 24, 27, not on do you have nothing good, you look at all these wall street firms and you have a certain view of them because of the downturn and media around them. >> that's the worst thing can you have at that age if you decide not to start investing. >> what is your most important impression? your first impression. >> rarely is it permanently different. there will be another one. like real estate we write that off for decades at a time and then it comes back. >> but enough decades you're actually dead. >> comment, questions about anything you see here on squawk, e-mail us at firstname.lastname@example.org.
and you can talk to us at twitter. you can't say anything. it like a lien. what good is it? >> twit sfer. >> yes. >> i love it because you can't get in too many trouble. >> i can. >> still to come, taking up a key role at blackrock. that and much more from sallie krawcheck coming up. >> still to come, honeywell's ceo talks taxes, business conditions and the state of the nation. "squawk box," where business leaders turn first. with the spark cash card from capital one,
olaf's pizza palace gets the most rewards of any small business credit card! pizza!!!!! [ garth ] olaf's small business earns 2% cash back on every purchase, every day! put it on my spark card! [ high-pitched ] nice doin' business with you! [ garth ] why settle for less? great businesses deserve the most rewards! awesome!!! [ male announcer ] the spark business card from capital one. choose unlimited rewards with 2% cash back or double miles on every purchase, every day! what's in your wallet?
yahoo! finance and cnbc.com. we'll have to call mr. dan lobe, who i don't know if he put a good word in for us or not. given that whole big proxy fight. >> and the new guy who we like. >> ralph levinson. >> yeah, yeah. >> interim ceo, maybe the ceo to stay. >> this is a good thing because you know what the word is? >> what? >> content. >> content is king. >> sumner redstone said it best. you're right. >> i'm going to produce some really good content right now with cote. we also and i
got a little bit of a chill. i'm going to try to elicit something again today. do you think can i do it? >> you always can. i'm always ready for it. when you said the new young guy, my ears perked up. i thought maybe you were talking about me. >> i am talking about you. >> tell us what's happening down there. if i gave you three things that businesses want, i think you could come up with it and that would just about cover it if it was the cliff and energy policy, tax policy, in order, the cliff and energy policy and maybe one
other thing and we'd be rolling again, i think. >> i'd say that's right and i would make that third thing trade. >> and we could almost -- can you do any good down there, with the business roundtable? >> yes, you can because when you start with your first question is anything happening, the answer is of course not, nothing's happening. that's part of the reason why business has to have a strong voice and say what needs to be happening. it's pretty simple. if you take a look at standard of living in a country, it comes from business and government needs to both regulate and enable and we need to focus on the enabling side in addition to regulation so that business can do what it does. and right now we're not seeing the kind of progress that we need to to create that enabling kind of structure, if you will, and that's why we need to address the debt, we need an energy policy and we need to address trade. >> do we need either a keynesian
stimulus, additional keynesian stilless in the form of a big private stubtier buildout? is there any way we can make that work where it doesn't become politicized and we waste money on this evenings that aren't an effect of use of capital? >> i'm more concerned about if we would just address our debt and europe would address their debt, that would do more for job creation and creating a dynamic economy than anything else they could be doing right now and the discussion about anything else is just kind of a side show relative to what has to happen on the debt. and spending and tax reform. >> we disagree -- in this country there's a huge amount of disagreement on that issue then because any stimulus or they call it investing, you know, that's infrastructure stuff, they don't call it spending. they call it investing. and they want to do it and that will add to debt which seems to be counterproductive to what
you're saying we need to address right now. these are clear cut differences on a way forward, aren't they? >> i would say there is such a thing as good spending and i'm in favor of infrastructure spending, math and science education. that stuff we should be doing, that's part of the enabling that government ought to do. however, we kind of forget that we have to accomplish two seemingly competing things at the same time. you have to enable and you have to regulate. you have to reduce spending in the long term on things that are more like transfer payments, you need to increase spending in the short term to make sure we don't create the kind of economic problem that we could have. we need to be able to do both. >> hey, david, it andrew ross sorkin here. last time we talked to you, you stopped me in my tracks because i asked you what the effective tax rate should be and you said zero. >> i thought you might ask about that? >> he's scarred. >> what should be the rate, though?
realistically, i don't think we got there in that part of the conversation last time. >> i would run directly to simpson-bowles, which i think is still the right kind of model. if you look at the top model, the top rate is the same for capital gains, individual and corporate. you go to a territorial system and you loper the rate by eliminating a lot of deductions nap would do more to create a simple system and focus people on what they should be, which is very more competitive instead of focusing on how to structure for taxes. >> what do you want to do with trade? i guess there's still a lot of stuff we haven't really done, right? we haven't brought it up. >> i'd argue that it seems like as a society we've been arguing about whether trade is good since the phoenicians were running the mediterranean. it seems like every century we end up having the same arguments and at the end of the day trade
is good for both sides. if you take a look at -- if could always find the pieces where somebody was negatively affected. that's part of doing two seemingly competing things at the same time but trade is a good phenomenon and we ought to be encouraging it. if you look at europe, what south america is doing, what china is doing, everybody is creating more free trade agreements than we are. we need to get started and remember we're now in an economy that has at least 4 billion people participating. it's not like it was 20 years ago when there were only a billion. >> while we look to the problems we're have here at home, you look to europe and to china and there are big concerns there. as a businessman who deals around the world and has operations around the world, what's happening now with the goebbe global economy, how concerned are you and what have you seen over the last month or two if.
>> i'm very concerned and have been for months. it almost seems like democracies around the world are in gridlock, the u.s., europe, india. everybody's in gridlock. there seems to be this brinksmanship that needs to occur before they could make a decision. europe could drag the whole world down. one of you was mentioning that earlier and i completely agree. it's very interconnected. in europe we've been see deeg cliens in order rates since the end of last year. china, long cycle order continue to do well, short order, still high single digits. we were up 20% in the first quarter of china. i this think there will be loosening as they get into a leadership position. and in the u.s. it's the debt. we got to address the debt. >> so you've got romney today. and tomorrow obama. it should be interesting. i want to hear about the reception of romney versus obama.
with scottrader streaming quotes, any way you want. fully customize it for your trading process -- from thought to trade, on every screen. and all in real time. which makes it just like having your own trading floor, right at your fingertips. [ rodger ] at scottrade, seven dollar trades are just the start. try our easy-to-use scottrader streaming quotes. it's another reason more investors are saying... [ all ] i'm with scottrade. mcallen, texas. in here, heavy rental equipment in the middle of nowhere, is always headed somewhere. to give it a sense of direction, at&t created a mobile asset solution to protect and track everything. so every piece of equipment knows where it is, how it's doing or where it goes next. ♪ this is the bell on the cat. [ male announcer ] it's a network of possibilities --
tdd# 1-800-345-2550 we're hitting new highs. tdd# 1-800-345-2550 the spx is on my radar. tdd# 1-800-345-2550 and i'm on top of it all with charles schwab. tdd# 1-800-345-2550 tdd# 1-800-345-2550 i use streetsmart edge and its tools like... tdd# 1-800-345-2550 screener plus. tdd# 1-800-345-2550 i can custom build my own screens tdd# 1-800-345-2550 or use predefined ones to help me find tdd# 1-800-345-2550 possible trading opportunities quickly. tdd# 1-800-345-2550 i can also bounce my ideas off their trading specialists - tdd# 1-800-345-2550 on the phone or face-to-face. tdd# 1-800-345-2550 and i can trade wherever i want, whenever i want. tdd# 1-800-345-2550 tdd# 1-800-345-2550 the kicker? tdd# 1-800-345-2550 i pay $8.95 a trade. tdd# 1-800-345-2550 that's a deal in any language. tdd# 1-800-345-2550 hey... a breakout on a head and shoulders bottom! tdd# 1-800-345-2550 that's what i'm talking about. tdd# 1-800-345-2550 open an account and trade up tdd# 1-800-345-2550 to 6 months commission-free.
tdd# 1-800-345-2550 call 1-866-222-5638 tdd# 1-800-345-2550 and start trading today. [ male announcer ] we began with the rx. ♪ then we turned the page, creating the rx hybrid. ♪ now we've turned the page again with the all-new rx f sport. ♪ this is the next chapter for the rx. this is the next chapter for lexus. this is the pursuit of perfection.
welcome back to "squawk box," everybody. in our headlines this morning, jpmorgan ceo jamie dimon is set to testify before the banking committee this morning, answering questions about the recent $2 billion trading loss. >> economists are looking for a 0.1% in retail sales for may and a drop of 0.8% in last month's producer price index. also mortgage applications jumped by 18% last week. that's according to the mortgage bankers association. applications for both new purchases and refinancing surged. the average 30-year mortgage rate is at 3.88%, just above last week's record low of 3.87%. >> phillip hilderbrand, former chairman of the situation
national bank is joining blackrock as vice chairman. our chief economist, steve liesman joins us with more. >> there was a lot of speculation over who would land the former situation banker. phil joins us now for an exclusive interview. good morning, phil. >> good morning. >> let's talk about what you're going to be doing at blackrock and hedge fund experience to bear will. >> i'll be seeing the most significant relationships with the most important institutional clients but i also intend to get very much engaged in terms of the strategy of the firm, the executive committee and i certainly intend to engage very much on the market side to help our clients in the future deal with this very difficult market environment we're facing at the moment. >> now that you're out of the official position you're in, can you tell us what the secret plan
is to save europe that you've not been able to talk about at this point? >> steve, if it's secret, by definition i wouldn't know about it. but i do think we can -- it seems to me there are two issues really, one is short term and one is long term. in the short term it is essential that somehow the leaders and the policy makers in europe manage to stabilize the banking system. what we're seeing right now is very troubling,the fragmentation of the banking system, banking conditions within the eurozone, that's a terrible development and it seems to me it's the most important priority in the short term. in the longer term it's very important that particularly under the leadership of germany and france the leaders themselves begin to map out the longer term journey towards more fiscal integration, which clearly seems to be increasingly on the agenda as an answer to the terrible problems we're facing in europe.
>> is it clear to you given what's happened with spanish yields and with italian yields that this spanish bailout is not sufficient right here? >> i think, you know, the recapitalizing the spanish banks is one element but a lot of questions remain unanswered. i think the key issue, it seems to me, is to really find out how bad, how the valuations of the balance sheets of these banks. unless you know what's in the balance sheets, you won't know how big the problem is and any recapital sags effort will fall short. as we saw in the case of the stress test in the u.s., when we had to rescue ubs in spitzer land, you need to know what's in the balance sheet. it seems a very positive development to suggest supervision goes to the ecb and the ecb has the credibility to ascertain the needs in terms of recall tallization of these banks. >> how about from a policy
standpoint, phil? is there more you believe that ecb should be doing? >> i think the best thing a central bank can do is to stale stai within its legal mandates. to the extent we're seeing a slowdown in the global economy, a decline in inflation pressures even further, a decline in oil price, headline inflation is coming down, these types of things will open up room within the mandate but i certainly think it's very important that the ecb sticks to its mandate. we also shouldn't lose site -- there are some adjustments going on that people forget, the southern economies, exports are growing and all of the southern economies, unit labor costs are declining very rapidly in greece alone. we've seen an 11% decline in labor costs so the relative improvement in greece is quite substantial here. so these adjustments are happening. >> despite those adjustments, phil, are you certain or
confident that the eurozone is going to stay together as a monetary union? >> i think that has to be the basic assumption here. if we are talking about extreme scenarios, you're looking at essentially undoing 60 years of history, 60 years of the european integration process that has been very successful, has brought lot of prosperity. so i think we have to assume that the leaders will manage to do what is necessary to keep the project on the road. >> phil, one other thing, speaking about currencies, you had an issue with a trade before that was made by your wife. you were cleared by three different investigations of that trade under the existing rules but i wonder if you have any regrets. >> well, i have -- look, i have a regret that i'm no longer governor of the central bank. at the same time that chapter is now closed for us. my wife and i said from the beginning we're going to exercise full transparency,
we've opened up all our accounts, audits have been done extensively, government audits, private audits. it's clear there are no breach of rules. for us the subject is closed. i'm excited about joining blackrock. new opportunities open up in life and that's the way it goes. >> thanks for joining us this morning. the question is do you replace bob dahl, larry fink. i don't know whose place you're going to take here. >> well, let me get started first. >> don't worry, we'll create a brand new spot for him. >> bob dahl is retiring. that's an obvious answer. larry fink stays, bob is gone. i mean, i don't -- anyway. >> when we come back, alternative exchange traded funds. how motif is looking to change the way investors think. and at the top of the hour, a
thorn in the side of wall street banks. analyst mike mayo has issued numerous calls to sell the sector. ♪ i'm making my money do more. ♪ i'm consolidating my assets. i'm not paying hidden fees or high commissions. i'm making the most of my money. and seven-dollar trades are just the start. i'm with scottrade. i'm with scottrade. i'm with scottrade. and i'm loving every minute of it. [ rodger riney ] at scottrade, we give you commission-free etfs,
no-fee iras and more. come see why more investors are saying... i'm with scottrade. come see why more investors are saying... you want to save money on car insurance? no problem. you want to save money on rv insurance? no problem. you want to save money on motorcycle insurance? no problem. you want to find a place to park all these things? fuggedaboud it. this is new york. hey little guy, wake up! aw, come off it mate! geico. saving people money on more than just car insurance.
. welcome back to "squawk box." some news on the home front this morning, cnbc forming a strategic alliance with yahoo! finance. that means cnbc content and video will be featured on yahoo! finance's site along with content sharing. we are also going to have original co-branded online programs for yahoo! finance and for cnbc.com. >> our next guest has just launched a platform that brings a social aspect to investing. joining us is the founder and ceo of motif investing, a new startup that's centered on the premise of investing in idea. sallie krawcheck also happens to be on the board of the company, a new board member. welcome. thank you for joining us. >> thank you for having me. >> social investing, how did you
come up with this idea and how does it work? >> i think the social part is not the big story here. i think the big story is how do you take ideas? motif investing is focusing on investing ideas. where they struggle is figuring out to envest in ideas. we solve that problem by creating motives, a stock people can buy with a single transaction, customize it, tweak it on its own and on twitter as well. today we just launched an all-american motif. we have one called discount
nation. these are companies that have grown sales even while the whole retail sector has dropped and it's beating the s&p by about 25 points now. >> when did you come up with that motif in. >> about six months ago. every week we launch two, three motives. we were just talking about about our facebook motif. if you were to take the most liked companies on facebook -- >> this is not buying into facebook -- >> no. and we launched it prior to the facebook ipo but take the most liked companies in facebook, if you like weighted them, you would have beat the marketly 42 points. >> andrew has a question as well. >> i'm curious if there's been a
mo motif that hasn't worked out as well as you hoped? >> we don't promise performance. you invest in an idea and a motif that didn't do well was chinese solar. that's got i don't know crushed this year because there's been a drop in solar prices. so it is about picking the right idea and we're focused on empowering individuals to pick those ideas and empower them and give them performance they pick well. if they don't do well, the motif won't do well. >> andrew, there's a too big to fail motif. >> there is? >> what's in there? >> how's it doing? >> it's down 4, 5 points against the s&p. but these are the companies, the banks, that the government has said are systematically too big to fail.
if you believe these really are too big to fail, this should do well -- >> is he calling it too big to fail? >> there's a royalty situation here. my lawyers will talk to him after the show there. >> what's interesting about this is how people think conceptually i want continue to vest behind the aging baby boomers, behind emerging markets. if you have a financial adviser, the adviser can help them do that. if they don't have a financial adviser, if you go on to some of these sites, it's tremendously difficult to do this. so this to me is a little bit of peter lynch meets a less angry jack vogel. >> how do you put these things together? do you have analysts behind the scenes, do you have an adviser behind the scenes? >> we're not picking stocks. we build indexes.
we create a so mamatic index ofl the stocks and pick a subset of 20 to 30 stocks that tracks the bigger index. if you think about it, the reason this relates to jack is we're disrupting the whole economic model of investing. if you think about an invest hoar that an has $100,000 to put to work, if they have an adviser, they're paying a percent. if your expected return over the next two years is 3% or 5%, you're paying most of that in fees. >> how do you make money? >> by selling these mote testifies by 9.95. you. >> you can short motives, can't you? >> we're due to announce -- >> i mean, if you have u.s. solar, if you have u.s. batsry.
>> we have motives -- >> take it down a notch. >> we have motives that are -- >> we have a motif called drug patent cliffs. you want to go long the generic drug makers but short the branded drugs losing patent. >> natural gas is $2. you want to spend 20 on something? you've got to be able to short it. >> thank you very much. >> it's been great having you. >> coming up, final thoughts from our guest hose sallie krawcheck. full coverage all day, right here on cnbc. >> in the next hour of "squawk box," mike mayo previews jamie dimon's testimony on capitol hill. and richard shelby joins us
live. "squawk box," where business and politics collide. re's big news. presenting androgel 1.62%. both are used to treat men with low testosterone. androgel 1.62% is from the makers of the number one prescribed testosterone replacement therapy. it raises your testosterone levels, and... is concentrated, so you could use less gel. and with androgel 1.62%, you can save on your monthly prescription. [ male announcer ] dosing and application sites between these products differ. women and children should avoid contact with application sites. discontinue androgel and call your doctor if you see unexpected signs of early puberty in a child, or, signs in a woman which may include changes in body hair or a large increase in acne, possibly due to accidental exposure. men with breast cancer or who have or might have prostate cancer, and women who are, or may become pregnant or are breast feeding should not use androgel. serious side effects include worsening of an enlarged prostate, possible increased risk of prostate cancer, lower sperm count, swelling of ankles, feet,
or body, enlarged or painful breasts, problems breathing during sleep, and blood clots in the legs. tell your doctor about your medical conditions and medications, especially insulin, corticosteroids, or medicines to decrease blood clotting. talk to your doctor today about androgel 1.62% so you can use less gel. log on now to androgeloffer.com and you could pay as little as ten dollars a month for androgel 1.62%. what are you waiting for? this is big news.
sundae. >> it's because of the new laws bloomberg has proposed. there will be push back. >> chinese solar. anybody in their right mind wand to buy chinese solar. can you work on this? can board members decide? >> no. >> how do you summarize what we're listening for today with jamie? >> well, i think it's an important day. i think it's an important day for the industry as well. while we can debate whether this loss raised to congressional worthy or senate hearing worthy, it is an important day because passions still run high around financial services regulation and this is really our first test of where we stand. you hope to say post the crisis but in the recovery from the
crisis. >> what could come out of this? i mean, is there a risk for the industry as a whole coming out of this? >> i think this exact thing, you know, if something dramatic is said but we sort of know what's going to happen. we've seen jamie's prepared testimony. we know what the general state of play is on these things. i think the question here is do we see at some point another round of regulation, where we determine what we've done did or didn't work. >> don't you think this should be viewed in the prism of the election? everything should be on hold for the next five months to see how things play out. >> good luck with that. >> we may not be sitting here analyzing every bank trade that goes awry. we don't analyze bank loans that go awry. this wasn't taxpayer money, depositor money. there's no reason for the
government to be that involved without dodd frank, right? >> absolutely. besides loss itself, it's a long afternoon. it's not a killer but this is a piece of evidence, another piece in the mosaic to look at and to me, you know, the biggest issue is the fact that this management team, it took them a while to get their arms around it. and the other this evening for me is aput my bank analyst hat back on, investors ask if this could lose $2 billion, $3 billion, $4 billion, $5 billion how much is this making and what is it telling but the underlying earning power of the banks? >> it's been two months to the day that dimon made his tempest in the tea pot remark. he's not going to be saying a lot in front of them because they're still looking and investigating. what does that tell but
complexity if they're still looking over a month later to figure out what happened? >> well, they may have it now. but the weeks that passed, the mythology has grown up -- on wall street there's an unspoken mythology that those ceos were somehow lacking, this one wasn't properly trained, this one was sort of a do-do, this one didn't have his eye on the. this is as excellent and outstanding a ceo as you get in any industry. for some of the other banks, well, the technology wasn't up to snuff. that wasn't a view people had of jpmorgan. so holy komoly, what's that say? we're trying to regulate comp x complexity with complexity through dodd-frank. hello! was it a priority trade or not? who gives a you know what about that.
the issue is the loss and the fact of the complexity, they couldn't find it. >> we want to thank you very much for joining us for the last two hours. it's been a pleasure talking to you this morning. we hope to talk to you soon. andrew, down to you. >> okay, coming up next we're going to be continuing the coverage of our big story, jamie dimon testifying and talking about his company's trading loss. plus senator richard shaelby will talk to squawk before he grills mr. dimon. it's owl and the next hour of squawk. don't go anywhere. >> if you're just >> if you're just tuning in, you're two hours too late. >> is it congressional hearing worthy? is every couple billion dollar loss we're going to have from here be a congressional hearing worthy event?
>> government needs to regulate and enable and we need to focus on the enabling side in addition to regulation so that business can do what it does. >> it is essential that somehow the leaders and the policy makers in europe manage to stabilize the banking system. i think what we're seeing right now is very troubling, banking conditions within the eurozone, that's a terrible development. >> the third hour of "squawk box" starts right after the break. 3q
jpmorgan's jamie dimon testifying on the hill today. >> let's walk through what we're seeing today. >> andrew is live on the hill. our guest host is mike mayo. we'll talk to senate banking committee ranking member richard shelby. plus veteran bank executive richard large, former president of bank one. the final hour of "squawk box" begins right now. welcome back to "squawk box" here on cnbc, first in business
worldwide. i'm joe kernen along with becky quick. andrew is in washington today covering our story. jamie dimon facing the senate banking committee today. he's expected to apologize for $2 billion in losses and explain how the bank's investment unit was instructed to reduce risk exposh year way back in december. andrew will join us with senate banking committee ranking member richard shelby. you can watch the hearing live on cnbc at 10:00 a.m. eastern followed by mary thompson's exclusive one-on-one interview with jamie dimon himself immediately following the hearing. >> also we have two key economic reports ahead of the opening bell. the government will be out with retail sales and producer prices for may. economists are looking for retail sales to have fallen by 0.3% last month and looking for an 0.8% decline in the ppi.
we've been watching the futures this morning and they have come down. basically looking at a flat line. in our global headlines, spain's prime minister is defending the country's quest for $125 billion in aid for its banks. marianno rajoy. as a result the yield on the spanish ten-year bond hitting euro era highs of 6.86% yesterday. that is close to the 7% level at which borrowing is said to be unaffordable in the long term and at which we've seen other countries come looking for bailouts. european equities are relatively flat as well. we have a new partnership for your favorite business network. cnbc is entering a strategic
alliance with yahoo! network that starts today. cnbc will feature content and video on yahoo!. we'll have original co-branded online programs for yahoo! finance. seems to make sense, you match up distribution and content. >> two big names in business. >> our guest host for the next hour is mike mayo and author of "exile on wall street." it's great to have you on a day like this. don't pull any punches today about the stuff you say. you don't have to worry about getting cut off with an analyst call or anything like that, speak your mind. first let's send it back to andrew in washington with a special guest. hey, andrew. >> thanks, joe, appreciate it.
turning back to the much anticipated grilling of jamie dimon later this morning, one of the things he's going to say this "this portfolio morphed into something that rather than protect the firm created new and potentially larger risks. woo dough belie we do believe this to be an isolated event." senator shelby joins me now. you will be helping leads questioning odd. is that mea culpa from what you saw in the testimony he's already provided ahead of the hearing going to be enough? >> oh, no. i think what we need to do dpirs is let mr. dimon, along with the regulators, if they ever get their stuff together, explain what went on so we can decide was this gambling or was this
managing a risk? did the management of jpmorgan really now what was going on or were they in the dark? we don't know that. >> you you are one of the only, if not the only, republican to vote against glass-steagall. how does this affect the volcker rule? >> dr. volcker said when he testified before the banking committee that he knew what it meant when he saw it but he couldn't define it, whatever it is. well, the regulators haven't defined it yet. so the volcker rule is not in place yet. i believe that if you look at the atall the bank failures, most of them have failed because of lack of capital. we've closed about 500 banks.
i don't know of one yet that has failed because they've been trading. trading is risky but making loans is risky, too. >> does this loss deserve a hearing? people talk about what these hearings can sometimes tune into. it's not a loss that impacted taxpayers, it's a private business. how do you think about that particular issue? >> well, i believe it warrants a hearing because no one knows what's really happened and it's been in the news so much. you're absolutely right, it do not threaten the capital structure, all the regulators asked the question last week. they've taken a lot of $80 billion still standing, that's strong. my interest is making sure the taxpayers don't pick up the tab, that we don't bail out people. >> not in this context but other con ebbs? >> absolutely. >> senator, a lot of viewers are
pointing out and i'm not focusing this on you or your party or anyone in particular but they're pointing out that the federal deficit is running at $2.3 b per day for the fourth consecutive year congress is not entitled to hold hearings on other shortfalls. maybe this will humble congress to act. it nice that you're so concerned with jpmorganshould there be hearings on what is happening in congress and the deficit for the country, too? who would preside over them? >> you put things in perspective. the number one issue in this country is the debt and growing debt in this country by far. you're absolutely right. the hearing on jpmorgan and their loss pales in comparison to that. but since jpmorgan has been in the news so much, i think maybe we can put some things to rest if we can find out what happened. maybe this isn't a news thing.
but a lot of people think there is. jamie dimon may not be able to answer some of the questions that are going to be asked or he's going to try to reflect them around the size of the trade, in part because he's trying to get out of that trade and the cost incurred if he actually explains it to the public might increase. how are you and your cole oogs going to respond when he says, look, i can't answer that. >> well, if he says he can't answer it, doesn't have the knowledge base -- >> i think he is going to have the knowledge base. he's not prepared to answer it. >> if he says he can't answer it because it's proprietary. >> is that something that you country could happen? >> absolutely. >> one of the big questions is should the regulators had been
able to support. >> one other question. do we think that regulators should be able to spot risk like this but in essence micromanage all of the risks in these institutions. a bank like jpmorgan, bank of america, they're making loans every day, big loans. >> absolutely not. they cannot manage all risk. they should look at the overall structure, how banks are run and make sure they don't visit the taxpayer. in order, that's my thing, that they've got adequate capital. there's going to be risk with making loans and dealing with drif tips always. >> if there was one question you were desperate to get from him it was what? >> i'm not desperate to get anything. i would be interested in seeing what really happened, you know. >> how political is it going to get? i noticed some of the comments coming out of the other party last night in reference to some
of the testimony that mr. dimon is going to be giving, much more critical. do you think it's going to divide long party lines tonight? >> i think what we need to do is not jump on jpmorgan about find willing out what happens. people take risks, sthiems they get republic ward for it and sometimes they don't. >> if somebody it s to blame, is there certainly you think will come out of this, something substantial? will we see volcker change out of this? will we see an element of dodd-frank change out of this hearing? >> well, i voted against -- worked against dodd-frank. i voted -- i would vote to repeal it now. it's got a lot of bad stuff in it. a lot of democrats will say if we didn't have dodd in place, had volcker in place, this
wouldn't have happened. that's nonsense. >> given that you voted against glass-steagall the first time, why are you against the volcker rule now sp. >> i didn't say i was against the volcker rule. i said they haven't defined the volcker rule. the regulators haven't defined the volcker rule. it's not in place. let's see what they came up with. >> i do agree there can't -- i think that the legislation are about picking out firms subject to systemic risk. >> there was a piece in the financial times if jpmorgan were to fail, what would ultimately happen and the argument in the article was that actually, the system would be fine. do you buy that? >> according to what regulators said last week, they could lose 80 billion and still be standing
under the press p stress test. >> right. jamie dimon has been hailed by one of the great risk managers in this system. how does it change your view, if it does at all of him. >> the record speaks to that he's been a good banker. i'm not here to defend him. everybody makes a mistake. that's a huge organization. the question is ded he have in place a system to know what was going on. >> do you think from what you've seen this far that the disclosure of jpmorgan has been appropriate, the tempest in a tea pot comment and on may 109 they came out with this $2 b loss. your views? >> if you have a thousand cuts,
you can still go. if you have one cut and that's it and that's what they thought to begin with, i don't think they've had a thousand cuts but they have more than one. it's crisis management. >> senator shelby, thank you for joining us this morning. >> andrew, thank you very much. we're going to be watching the dimon hearings live at 10 a.m. eastern. that will be followed by mary thompson's one-on-one interview with jamie dimon. still to come, mike mayo. we'll talk to him in a few moms. and in the next half hour, a former
eastern time on capitol hill. our guest host is make mayo, banking analyst and author of "exile wall street." my question is every bad business model or every bad risk taken by a company bank or otherwise, is that congress's problem? >> well, to put this in con tech, $2 billion lost is not a big number at jpmorgan when you have $2 trillion in assets. if you want to talk about proprietary risk in the banking industry, you know what that number is? $13 trillion. >> congress could get really busy if they started monitoring all 13 trillion of every move that a bank makes, right? >> and you know how much money jpmorgan has lost over the last
three years per each quarter, $5 billion. you know how they lost that? the old fashioned way by making loans. $2 billion or $5 billion, that's not significant to me. what is significant two others more than any item. number one is jpmorgan's risk model. they restated value at risk and doubled from what it was before. never before has jpmorgan's risk model had a number that high. it's doubling what it been the past self years and greater than in the investment bank and they made the change in one part of their company without making it in other parts of the country. >> why do you think that happened? >> i'm not sure. i asked the question in the conference call and didn't get a sufficient answer. >> what did they say when you asked? >> they said we make these thanking all the time.
the whole premise for the big financial conglomerate mod els is we're going to combine the infrastructure, whether it's expenses or human resources. os oh, by the way, risk management. the risk structure was not consolidated the way it should be. >> you think this is more than a problem of just a one-off fad trade, something that got out of control. you think this is more indicative of a problem at the bank as management level and structure? >> we can't blame this just on one trader. you can't say the cio didn't follow instructions. there's many levels of risk oversight, there's head of the unit, internal audit, external audit, the regulators. it's not life threatening by itself but it leads you to say if it could happen, what could happen if it wasn't caught in
time. w why why did he say this was a tempest in a tea pot? did he not do his homework? was he getting complacent? >> i would love to see your reself-report and owl all these questions so could i determine whether whether toy buy, sell or keep jpmorgan. this is all very interesting. what went wrong this company. i see all these things are great great for a stock market analyst to put into a research report. why is it carl levin's problem? >> tell me why it extends to a systemic problem that we all need to worry about as taxpayers other than the financial crisis is still fresh in our mind so every little hiccup we're thinking, oh my, god, we're
going to need another tarp. that's not the case. >> do you want to know the reason? >> yes, i want to know the reason. tell me why these guys are down there blowating. >> last time we were here you said you wish michael moore didn't have a leg to stand on. if you don't punish those who should be held accountable, everybody will get punished. >> don't you get punished by the stock price going down? >> then if we get ceo compensation in order. i understand thousand all these things work but i don't see the crony capitalism here at play, do you? is this too big to fail a reflection of these guys -- a reflection of populist anger. a lot of time ainge ser miss directed and not actually directed at the right thing ps. >> we can debate whether it the business of washington, d.c. i would say what i call the
triangle of tragedy. >> let's look at this. do we have a chart or something? >> i gave something to you guys. there you go. >> wow. >> you look at any column you want. the bottom three are the triangle of tragedy, city corp, bank of america and you look at their stock price versus the banks and stock market on an absolute basis. can you draw the triangle of tragedy from park avenue citigroup's to times square, morgan stanley. but those are the management teams and ceos that should be held more accountable. last time we were on we talked about citigroup. you still haven't heard an answer from citigroup -- >> is that the mention column
you should have here, compensation? >> last decade citigroup ceos got paid more than anyone bank and they made the worst investments anywhere. >> i know you love that triangle of tragedy, don't you? >> i love the triangle of tragedy and i don't think that jpmorgan is part of that triangle. i have one dimon related question. you talked about whether he was complacent and whether he relied on bad information. i'm curious of your view of this, i think he's repeatedly going to say i was complacent. i key pended and trusted on people i shouldn't have and it was my fault. and on many levels, it was his fault. he had not done all his homework
and he didn't ask all of the questions. if the answer ultimately is change your analysis of the situation? i'd look at the overall track record but the overall career. if i look at jamie dimon's stock price performance since he's been at jpmorgan, he still has over 2 third of the investors. >> after a certain number of years, maybe they're taking things for granted and trust their underling too much. ultimately we may find out there was fraud within jpmorgan, if there was a material misrepresentation, something was withheld. he was given wrong information. so that's still to be found out. >> i should tem you, because
i've been doing a lot of work down here talking to a lot of people, the one thing have i heard repeatedly is they do not believe at the moment that there was a fraud or intent enternl liver even to defraud other people. there wasn't necessarily someone in london having meant to defraud somebody in new york. >> you still need to explain to me why this gives michael moore a leg to stand on or occupy wall street. >> retail says coming up. stick around. if you are one of the millions of men who have used androgel 1%,
there's big news. presenting androgel 1.62%. both are used to treat men with low testosterone. androgel 1.62% is from the makers of the number one prescribed testosterone replacement therapy. it raises your testosterone levels, and... is concentrated, so you could use less gel. and with androgel 1.62%, you can save on your monthly prescription. [ male announcer ] dosing and application sites between these products differ. women and children should avoid contact with application sites. discontinue androgel and call your doctor if you see unexpected signs of early puberty in a child, or, signs in a woman which may include changes in body hair or a large increase in acne, possibly due to accidental exposure. men with breast cancer or who have or might have prostate cancer, and women who are, or may become pregnant or are breast feeding should not use androgel. serious side effects include worsening of an enlarged prostate, possible increased risk of prostate cancer, lower sperm count, swelling of ankles, feet, or body, enlarged or painful breasts,
problems breathing during sleep, and blood clots in the legs. tell your doctor about your medical conditions and medications, especially insulin, corticosteroids, or medicines to decrease blood clotting. talk to your doctor today about androgel 1.62% so you can use less gel. log on now to androgeloffer.com and you could pay as little as ten dollars a month for androgel 1.62%. what are you waiting for? this is big news.
welcome back, everybody. we're just a few seconds away from retail sales and the ppi. rick santelli is standing by at the cme in chicago. rick, take it away. >> well, the survey says may retail sales down 0.2, matching expectation and ppi head line is down a full percent, dropping more than the 1/2% expected. food and energy up still up 0.2% so we can certainly see where the negative aspect coming from, they're coming from energy and directly from the rebound and the dollar of late. year over year inflation, core, expend and energy 2.7 and
retails tail .4%. take out autos and gas it's down 1%. so there is no good news bad news. i know that the kmoodity prices slash inflation equation is important but probably more important down the road for any sustainable inflation. commodity prices are down. that could never be a negative in my opinion. the retail sales position isn't bad. a base or so in treasuries. back to you. >> hey, rick, we've been watching what's been happening ands prices for spanish and italian, the bond market rach elling things up.
in we're also looking at italy, the highest borrowing costs they'vein ten years in the last six months andgot us to talking about who is right here, is the stock market right, is the pocket? >> well, you know, i do pud some credibility into thence owing from a globally tied world but i think the effects can be money mied here or there. the issue -- i think various points equities will be somewhat positive. the kret it markets gone through this entire ordeal in there's
oneans that we look for. even answer that aren't bat answers get vilified. i was talking about maybe back some of their bonds with gold and that go oh, gold. >> you have to use something other than sovereign debt. this is a din banking industry than we were looking at here in the united states when we faced our troubles back in 2008. the double part of this is the banks are holding all the sovereign debt that people have serious questions about. >> absolutely. and it isn't going to go away. any viewer out there, u.s. huge amount of debt, the huge amount of loans, all is friend have
co-trieco we're going to have loans one way or another. >> let's get it our guest host. we talked about jpmorgan but what about your broader take on the banking industry and which of the banks you actually like at this point. >> as a reminder, we feel the current environment for banks is a lighter version was taken place in japan. who thought the ten-year treasury deal would be where it is today. this wi i think you're going to see more banks stretching for revenue growth when it's just not there and then they'll mess up. the one bank that we like here is wells fargo. we've liked it all year.
they have a culture of not stretching for risk and they have an expense saving program that gets them extra lever to pull if revenues aren't quite as softly as they did. >> what is it, the thankle of that i am? >> it does not kwusify what's taking place. it does not justify what is taking place. no one is held accountable. it explains it but doesn't justify it. but does what happened with jpmorgan prove that the volcker rule is needed and appropriate or not? >> i think there's a lot of merit to the volcker rule. i'm not sure what happened to
jpmorgan further justifies that. banks always have deposits in excess of loans temperature that's as old as banking. and treasury -- how much they hold -- 6% of bank securities today are in treasuries. this is an industry issue when it comes to increed is r risk fifth of the balance steet ply ot. >> would it be better to juts have big capital requirements and ret banks trade their own account? or would it be all right to not even try to wreck late this activities which is in a burt worth. i like more capital.
and the ultimate goal is what i call a safe bank. a safe bank is in's's. >> i guess after '308, it is a new cap ships. strong balance streaks, table earnings machine, you rp a nice dividends dream in a low rate environment, everybody wants to owe banks and rel lateor and tack pairs are happy, too. it lowers the cost to capital. valuation goes up and even if i'm right and this is the slowest growth decade, the stocks can still do okay as long as the risk is reduced and importantly the perception of risk is reduced. that's where all that corporate govern sans stuff comes, in the triangle of tragedy because the infielders need to hoped the worst performing banks and companies more accountable. at that point we're at a tipping
point. 600 letters to their company that they invest with saying we want to talk to you more and make sure you're representing us, the shareholder. >> you're smart. you should go run a bank or go help them with something. you're mauch smarter that. >> what was his name? >> zach. >> osh,am. that was the ownibook, you read book, didn't you? >> coming up, bank one, they were talking about bank one. next up, we'll get perspective on jpmorgan's bad debt. tdd# 1-800-345-2550 the 5-day moving average just crossed above the 20.
tdd# 1-800-345-2550 we're hitting new highs. tdd# 1-800-345-2550 the spx is on my radar. tdd# 1-800-345-2550 and i'm on top of it all with charles schwab. tdd# 1-800-345-2550 tdd# 1-800-345-2550 i use streetsmart edge and its tools like... tdd# 1-800-345-2550 screener plus. tdd# 1-800-345-2550 i can custom build my own screens tdd# 1-800-345-2550 or use predefined ones to help me find tdd# 1-800-345-2550 possible trading opportunities quickly. tdd# 1-800-345-2550 i can also bounce my ideas off their trading specialists - tdd# 1-800-345-2550 on the phone or face-to-face. tdd# 1-800-345-2550 and i can trade wherever i want, whenever i want. tdd# 1-800-345-2550 tdd# 1-800-345-2550 the kicker? tdd# 1-800-345-2550 i pay $8.95 a trade. tdd# 1-800-345-2550 that's a deal in any language. tdd# 1-800-345-2550 hey... a breakout on a head and shoulders bottom! tdd# 1-800-345-2550 that's what i'm talking about. tdd# 1-800-345-2550 open an account and trade up
modestly add to profits. previously it said it expected the takeover to be a small are drog -- to be a drag on earnings. >> joining us is long-time veteran of the banking industry richard lodge. wow, there was a cio back then? >> yes. >> you didn't have this kind of money to play around with, did you? >> exactly. hi to watch myself. i didn't know what they did or why they did it but i do know why we did our stuff. >> why? >> well, our main concern at the bank was to reduce or equalize the interest rate risk in the bank. we didn't really -- i shouldn't use the word care but we really didn't spend much time trying to
figure out how can we make our bonds go up because if they went up in price, then meant the rest of the bank was going down. when the loans went up, our bonds went down. so the year that you bring up where we took that loss, what we failed to recognize is that the loans in the bank went up and you cannot just take a part of the bank out and say look at that, that's bad. >> and that goes to your point, joe, back then you lost $200 million back in 1994 but had you gains elsewhere in the bank and your point is with jpmorgan, they might have two or three or $4 billion lost in one place, they had gains elsewhere, why are you micromanaging how this is dissected. it's like going to warren buffett, where you have these stocks that are loser, go ahead and sell those stocks.
>> exactly. >> of all the event, the one that looms large ses what happened to bank one because you had a great three-decade career, successful, this was the premiere bank two decades ago, they had the banger of the year, like jamie die monday has been banker of the year, reassurance and then the losses. the parallels from two decades before are incredible. so when i bring this up to you now, do you think you did anything wrong or did the market get wrong and politics overruns the situation? >> nothing wrong in my view. the world believed because we had the loss that the bank had a loss. you add it all up and we had a loss. that wasn't true. you add it all up and we had no loss. you cannot take a part it have and say look at that, they had a
loss. that just doesn't make sense. >> there's a difference in sovereign debt and making investments and then trying to hedge whether i economy source in europe more than it source -- isn't that different than a bank hedging its interest rate risk? this is like a ceo on steroids now. >> pretty much. >> there's three things that could happen. one is an offensive hedge, meaning it's a hedge and me made some bets with it or, third, they became so large they became -- and everybody said they need to hedge that, it's fine. andrew, do you want to talk about this? >> i want to talk about this. it was related to what dick was
doing. back then did your group consistently turn a profit and were you one of the highest paid people in the bank? ina drew was getting paid $14 million, and for a reason. not because necessarily she was a brilliant hedger but because she hads will was a good profit center. >> i wasn't paid enough, i can tell you that. to answer you, we didn't believe that because we had the losses in our bond portfolio, that didn't mean that we made a mistake. it may have meant and i think this did mean that the interest rate -- that the interest rates were going up. and when you've got a primarily, my became, they go up --
>> they should be near zip. tease what we believe she had. just taking a look at jpmorgan, we talked around this issue and mike faded go ahead and hedge igs it doesn't like, rather than just sell the underlying asset? >> well, in their case they have so much of it, they can't get rid of it. who is going to buy it on the other side? for our our positions were generally small. we were not a large bank. so the positions that we had, we could sell whenever we chose to. >> dick, if you're right, that means that jpmorgan and all of the monetary banks are too big to hedge, right? >> perhaps. perhaps. i don't know what to say because i don't know what they do. >> hey, dick, do you think this
is going to happen again and if so why? >> rates are going to go up and rates are going to go down. we're always going to have the issue of what's the rate positions that are in the world, what's that going to do for banks? or no do the for banks. so it's going to come around again absolutely. that doesn't mean, though that, we've got a crappy banking group. that doesn't mean that at all. and that's what i don't get is why the world believes that just because you have a loss in your body portfolio that the wirld is going to come to an end. >> now more to come from our guest host mike mayo. >> when we come back, wall street's takes on ceo jamie dimon's testimony mod.
we were upmost of the earlier session, premarket session, adding to yesterday's gains. but now we have turned and are headed a little bit lower. the world leader in business news is teaming up with the leading online destination for financial news. cnbc is entering a strategic alliance with yahoo! finance starting today. cnbc now becomes the premier business and finance contest partner for yahoo!. cnbc text and video will now be featured on yahoo! finance pages. that will greatly expand the reach of cnbc.com and cnbc and yahoo! will produce co-branded online programs as well. this will also expand cnbc's outreach on the internet. i want to hear what our friends at "squawk on the street," i'm sure they're excited. let's get down to the new york stock exdhang. melissa, jim and david join us now. content and you guys, how much content do you guys manufacturer
in any given day? this is just more distribution. it's great for now and yahoo! >> my clips on "mad money" have only been on cnbc.com. it's not allowed to be on yahoo!. i've always felt "mad money" is kind of buried. won't be buried on yahoo! >> same for "fast money." same for squa"squawk on the str" joe, you're excited about more eyeballs. >> i wonder when you hit that one button for yahoo! stock, bye bye, bye! >> i've always felt what's missing at yahoo! is a little depth and a little fancy video. suddenly they got it. >> that's one way to describe it. have you ever heard -- have you heard some of the discussions we've been having? i'm so confused now about what i
think of this -- of this hearing down there. i ask a question of senator shelby. you look at what congress has on its plate. and i understand that mike mayo's point is that maybe wall street was never held accountable, therefore there's still a lot of populous anger so we can explain why this is happening. but i don't know whether it really justifies what's happening. if we have a deficit of $2.3 billion every single day and all these guys in congress are all down there pointing fingers, it gives them -- they feel better about themselves for not doing their jobs with budgets and everything else. is it really justified? >> i heard your interview. i thought it was very funny. senator shelby, what are you talking about? i really felt he didn't seem to understand the gist of your question at all. which is that jamie dimon is good fodder. but the u.s. government's not. i think he was kind of stunned by it, joe. it was one of those moments where i think he said, well, i don't know. i guess we do have a big
deficit. it was kind of shocking. >> it was like, fair point. moving on. >> he's often puzzled, shelby. >> we stumped him. you know what, joe. to your point, i think it's a fair one. it would be one thing if jpmorgan had suffered a mortal blow. >> or lost client money. >> the numbers are big. don't get me wrong. but -- >> it's like you're making the leap. you're making the leap to taxpayer being damaged or deposits being damaged. the leap is this wide, but they don't care. they're making it anyway. >> it's theater. you know that. maybe there is an element of it that will result in education for those senators asking the questions. one can always hope. final thoughts from our guest most, mike mayo, right after this. fidelity's etf market tracker shows you the big picture on how different asset classes are performing, and it lets you go in for a closer look at areas within a class or sector
our guest host today has been mike mayo, banking analyst at clsa. we talked about a lot of things. you think basically when it comes down to it it's the risk setup at jpmorgan that has you scratching your head a little bit? >> i can't explain why they had a change in their risk model that doubled the amount of risk with one restatement where that new level is double what it's
been the last several years, higher than what's in the investment bank. the change was made there and not other parts of the firm. it doesn't pass my smell test. something weird, strange, inappropriate was done with that risk model. that's my gut feel. i need to look at some of the specifics that come out of the hearing. >> again, you've brought that question up. you haven't felt like you got a complete answer any time that you brought it up? >> that was the first question i asked of jpmorgan management on the conference call. i do not feel satisfied with the response so far. >> you should just be glad they let you on the conference call at this point. most of the places don't let you on anymore, do they? >> i've recommended jpmorgan as a buy. i have it as a sell. i've been on both sides of the most of the companies i cover. i do try to be balanced here. >> you're just like a knife. mike the knife. you go through the stuff. god forbid if you're the ceo not ready for a closer look by mike mayo. great having you. >> i'm worried you're going to be