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YOUR MONEY

The Social Investment; JPMorgan's Big Loss; Romney On Auto Revival; Cutting Versus Spending

Aired May 12, 2012 - 13:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


ALI VELSHI, CNN ANCHOR: Welcome to YOUR MONEY. I'm Ali Velshi. Facebook stock will begin trading on Friday. The IPO price is expected to be somewhere around $35 a share. But you have to be in the top 1 percent if you want a crack at that.

For the other 99 percent, you're looking at an initial price that could be $99 or $100. We could talk endlessly about Facebook the company, what it's all about, its growth prospects, how it will manage as a public company.

But the question you should be asking is will you make money if you buy the stock. That is a question I'm proposing to three guys who should know, Ned Riley is the chairman and chief investment strategist at Riley Asset Management, Nadav Baum is the executive vice president at BPU Investment Management and Craig Shapiro is an investor with the Collaborative Fund, which is an early Facebook investor.

All right, so there are four kinds of investors buying for a cut of this IPO. Early stage investors like Craig. They got involved a long time ago. Institutional investors, the people who will buy it before it goes public, high net worth retail investors, relatively rich people who trade often, and then there's everybody else, the average Joe retail investor.

That's likely most of you out there. Starting with Ned, I want to go one at a time. Ned, good to see you, my friend. We'll talk later about whether one should or shouldn't buy this. What do you think a retail investor who gets opt their trading platform at 9:00 on Friday will be likely to pay for Facebook when it opens?

NED RILEY, CHIEF INVESTMENT STRATEGIST, RILEY ASSET MANAGEMENT: You know, you said $90 a share, I said maybe a 50 percent premium. You know, this is one of those situations where it depends on how much stock -- by the way, Craig, I want to congratulate you.

This is incredible. You must be waiting for next Friday. But, you know, as a retail investor, I wouldn't approach the stock on Friday or the next Monday, the following Monday, Tuesday, or Wednesday. I wouldn't go near it, would not go near it.

VELSHI: You think $50 bucks somebody gets it, 50 percent premium?

RILEY: Fifty, $60, you're talking about $6 billion in flow. That's what's it's going to trade. I wouldn't be surprised trades three times in the day. VELSHI: Ned says maybe around 60, do you buy it on the first day? Ned says no. Ned, what do you think that does in a year? Take a guess. Where do you think it goes?

RILEY: I think it will be lower? I think it will be lower than the highest price we see next Friday. Without going into the fundamentals, it's just another new kid on the block that eventually will burn investors and the prices and new offerings and IPOs are absolutely ludicrous.

I mean, look at LinkedIn and the others. They are selling a little higher than the original, but a lot of them haven't. If you look at the history of IPOs, it's not been a good bet to go out there and buy particularly in the opening day.

VELSHI: Interesting conversation, Ned. You and I don't usually talk about stocks you don't like too much. That's interesting. Nadal, come into this discussion. What do you think it opens at? What do you think somebody gets to buy the stock at, at 9:00 on Friday?

NADAV BAUM, EXECUTIVE VP, BPU INVESTMENT MANAGEMET: I think you're going to more in the 70, 75 range when it opens. I think it's going to trade somewhere in that neighborhood all day, maybe it ticks up from there. I have to agree with Ned, that's a tough one to buy on the first trading day.

VELSHI: OK, so you're a no on day one as well. Where do you think it is in a year? I just remind our viewers, Google was almost double, triple a year from the date.

BAUM: Yes, I think that's a good question now. It's really going to depend on a couple of factors. The two factors I would to look at is how are they going to monetize the business. Everyone knows Facebook is a very cool company, 800 million subscribers plus.

How do they monetize the company and what are the market conditions at that point. You know, if the market is doing well and they can monetize, and they can sell ad revenue, I think the stock can go a lot higher from there.

VELSHI: So your guess is probably higher, you know, under normal conditions. It's a good point, though, markets do have something to do with this. It may not be just about Facebook.

Craig, you're one of the early stage investors, a venture capitalist, you get involved in startup companies, some which do very, very well, and return your money. Some of which probably don't do well. So you're hoping for the big one. What do you think somebody buys it out on Friday?

CRAIG SHAPIRO, CEO AND PRESIDENT, COLLABORATIVE FUND: You know, I think it's going to come out strong on the gate, my hunch is somewhere in the mid $40s to $50, I'm not quite as optimistic that it's going to shoot up. The valuation, even where it's pricing at, it's fairly rich, but I think it's warranted. VELSHI: All right, to ask you the question about whether one should buy or not is a tricky question because you were an early investor. You've got Facebook stock. But if you weren't you and it came out at 50 bucks, would you put an order in?

SHAPIRO: Yes and to clarify, I would buy regardless on day one. In fact, you know, I learned a lesson with Google's IPO, which was it felt rich coming out in the '80s. I thought, you know, I'm going to hold off.

VELSHI: OK, so your general view is and this is a key point, Craig, for our viewers. You may still be able to invest in the stock. It may not be important that you invest in it at 9:00 on day one.

SHAPIRO: Absolutely, absolutely.

VELSHI: Did you say you would -- you said it felt rich. You're saying you would or wouldn't buy on day one.

SHAPIRO: I would buy on day one.

VELSHI: All right, let's change that to a yes. There we go. All right, and if I would say the answer to that suggests that in a year you think the stock is going to be higher than it should be, that it came out at.

SHAPIRO: Yes. I think for sure over the long haul, they are a team to bet on. I think the executive team there and touching nearly a billion people is extremely powerful. And Nadav is absolutely right, if they can figure out how to monetize that effectively, there's a lot of room to grow.

VELSHI: Nadav, you and Ned and Craig all have reasons why you think this, so when you see the tweets I get, e-mails I get, seems like people are gambling.

I hear people saying should I cash out this and buy a whole bunch of stock. Nadav, how do you as a retail investor, my viewer, calculate whether it's a fairly priced stock and how much you should put into it of your portfolio?

BAUM: Well, I think it's back to the individual investor, you know, how much risk do you want to take in the portfolio? I mean, for me and my clients, you know, I deal with a retail population that's rather conservative.

I'm going to have to see a couple good quarters of earnings growth and then to continue that earnings. Again, as I mentioned earlier, if you can monetize, it's a great company.

I would agree with the last speaker, their team is as good as any team out there. Google obviously is doing it. I owned Google and Apple for clients in portfolios. I would love to own Facebook and I will own Facebook if, in fact, they can monetize it.

The valuation side I get, but the reality is that there's a lot of momentum. Social media is here to stay. Again, if they can monetize this thing, it's going to be a really good investment, long-term portfolios should own it, if, in fact, we see earnings growth.

VELSHI: Ned, final question to you. You're not hot on the IPO, the tech IPO concept. But if at some point the stock settles into a little range, you said you wouldn't buy it on Friday or the next Monday or the next Tuesday or the next Wednesday. Is there some point you might think this is a good stock to get into?

RILEY: Well, I'd like to see a little optimistic about the switch to mobile. I mean, when they come out and amend the statements and say looks it, it's hurting us already without conversations, I get a little nervous.

I mean, they are telling you all at the outset maybe the earnings aren't going to be good in shorter term. I'm paying 100 times earnings. I don't know what the heck I'm going to pay for it.

What does bother me, I have been a part of so many stocks that had great potential, 1999 and 1998, and went to the ashes. There was no phoenix rising from a lot of those stocks. I'm not saying Facebook isn't the greatest novel idea in the world, a billion subscribers.

But, you know, that also opens up the competition out there. You had the LinkedIns of the world and other social internet type companies. There's no barrier to entrance. Facebook is there. They did a great job. I'm not knocking them for that.

But the competition is going to be intense going forward. Making money, you guys are right. Monetization of the product is going to be really phenomenal. I don't know how they are going to do it if they don't know how they are going to do it now.

VELSHI: Craig, answer those questions. The idea that Facebook, you know, everybody is going mobile, everything is happening on your device. It's tougher for Facebook to get the advertising that's relevant onto a phone.

SHAPIRO: Yes, two things that have me feeling optimistic. One, is in the business that I'm in early stage investing, I see the cap table of a lot of startup companies. Mark Zuckerberg's name is never on a cap table.

That's unlike virtually any other executive founder certainly in Silicon Valley. It shows me that he's laser focused on growing this business.

And the second is, you know, I read yesterday about mark's influence in Bing's redesign, integrating social into the search. He participates in the hackathons at Facebook.

It really shows me that he understands the product and the business and where it's going. Very different story from Yahoo or some of the other businesses that are available to investors.

VELSHI: Craig, thank you so much. It's interesting to me the one -- yes, go ahead, Ned.

RILEY: One comment. Craig, I don't know if you were there or not. But I know another inventor, and I would call Mark an inventor. Another inventor many years ago got laser vision on one particular product and drove the company right into the ground.

That was something called Dr. Lamb back in Polaroid when he had the concept coming out with a pocket camera. Amazingly, 30 years later, he's right. But he drove that company into the ground because he spent so much on the product and he couldn't make it work.

VELSHI: Interesting that the guy who's invested in this, Craig, thinks it will come out at the lowest price. Here is what you've got, 60, 75, 50. Last week, we had Matt McCall saying you may not get it for less than 90 on day one.

Ned and Nadav say don't buy it on day one if you're a retail investor. Craig says yes and Ned thinks it's lower the first day. The two others say yes. Good information, good discussion.

You still have to make your own decision as to whether you put your money into the stock. Guys, thanks very much. I appreciate it.

Coming up later in the show, Mark Zuckerberg courts Wall Street billions and he does it in that hoodie. Is it a sign of the times or immaturity?

But up next, it's been four years since financial crisis, Wall Street betting bigger than ever. It seems the lessons were not learned. There's no one better qualified to answer that question than my next guest.

Sheila Bair is credited with saving the banks during the last financial crisis. She's up next. You're watching YOUR MONEY on CNN.

(COMMERCIAL BREAK)

VELSHI: JPMorgan Chase is the country's largest bank. It's also one of the banks that emerged from the financial crisis of 2008 in relatively good shape. Throughout the crisis, JPMorgan made a profit every quarter.

CEO Jamie Dimon has led Wall Street's war on regulating the banks, but his stunning announcement after the closing bell on Thursday that JPMorgan has lost $2 billion in trades over the past six weeks and could face an additional $1 billion of losses made some jaws drop on Wall Street.

(BEGIN VIDEO CLIP)

JAMIE DIMON, CEO, JPMORGAN CHASE (via telephone): A new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored. The portfolio has proven to be riskier, more volatile and less effective as an economic edge than we thought.

(END VIDEO CLIP) VELSHI: The admission by Dimon and the bank will hurt JPMorgan's reputation as one of the best risk managers among the big banks. What does it say about our financial system overall?

Sheila Bair is credited with saving the banks during the last crisis. She is the former chair of the Federal Deposit Insurance Corporation, is currently a senior adviser of the Pew Charitable Trust. Sheila, good to see you again.

SHEILA BAIR, FORMER CHAIRMAN, FDIC: Thank you.

VELSHI: There are a lot of things going through my head on this. But when I heard it, it took me back to September of 2008 when I had to struggle to understand this thing about credit default swaps and AIG and how they were engaging in this business of in insuring themselves against risk without regulation. And I thought, is this happening again?

BAIR: Well, no. I don't think it's happening on a broad scale. I would attribute Jamie Dimon for being very clear and owning up to the fact that his bank made mistakes. That was a nice contrast of some of things we saw in 2008 when you saw a lot of CEOs getting up there saying it wasn't my fault, it was the market, other banks were doing it, et cetera.

So he deserves at least credit for owning up to the fact that this is -- appears to be something particular to his institution. They made some serious mistakes. It does make you wonder though that this clearly is one of the best managed larger banks in the country.

That this kind of thing can happen. What's going on with other institutions? It really does raises broader questions about whether they are just too big to manage.

VELSHI: It brings us back to the question of regulation. That's now a big deal. Senator Carl Levin has already said it's the banks that are too big to fail that are now, again, we're learning engaging in risky behavior.

Tell me not about the regulatory -- not about regulation themselves, but regulators. This is always a problem where the banks are going to hire the highest price people who can work their way around the stuff. And regulators find it very difficult to keep up with this kind of financial engineering.

BAIR: They do, which is why I've been the top of my reform list has always been getting a lot more capital into these banks. You are always going to have unexpected losses. You're always going to have bank managers, even well managed banks.

Things happening at those banks are stupid and generating unexpected losses. If you have a thick capital cushion to absorb those losses, you're going to be able to stay ahead of it.

But trying to, you know, micro manage institutions or even with, you know, hordes of examiners going in there, hordes of regulators saying you can do this, you can't do that, things are always going to fall through the crack.

So first and foremost, we really need to get capital levels up. They have been increasing. They need to increase more. I think also regulators need to put a high priority on simplifying these banks, their legal structures, dividing commercial banks from the securities firms.

Having intermediate boards and managers here to provide more direct specialized oversight of these institutions, I think that would be a tremendous boon to better management and also I think that would help shareholders also understand what's going on inside of these institutions.

You know, I was speaking to a fairly sophisticated investor group recently before all this came out obviously. I said to them, I said, raise your hands, who in this room understands what's going on inside JPMorgan Chase.

Not a one of them raised their hands. So I think shareholders also have an on us to put more discipline and find out what's going on inside of them.

VELSHI: We should tell our viewers because I imagine not many of them would understand the highly complicated world of credit default swaps.

BAIR: Right.

VELSHI: This was done by what was called a proprietary trading desk. All of the investment banks have them. But in the old days, investment banks made their money by matching up investors and people who needed money. These trading desks, they are something -- a relatively new creation. They have traditionally made a lot of money for the banks.

BAIR: Well, they have. Obviously, this is the core of what the Volcker rule is trying to get at is to ban a bank taking directional bets on the market just to generate profits not to accommodate a customer, but to generate profits for itself.

It appears, again, I'm still learning about this -- it appears that this was a hedge or what they call an economic hedge, a hedge designed to protect JPMorgan Chase against broader economic risks confronted in the market.

The Volcker rule, at least as currently proposed, may have actually allowed this. But a lot of advocates have been saying the fed and other regulators need to narrow the hedging exception in the Volcker rule to make sure those hedges tightly correlated to underlying risk that they are trying to hedge.

If you have a good hedge, you shouldn't have this happen. If you have a loss on one side, you should have a gain on the other to offset it. So a $2 billion on one side of a hedge is quite problematic and it's going to lead to a lot of questions and hopefully a tightening of the hedging exception on the Volcker rule. VELSHI: And you have an article coming out in "Fortune" about the discussion we've been having over the last several weeks about interest rates and what the fed will do.

I'm going to tweet that out to our viewers and we'll continue that conversation. Sheila Bair, always great to see you. Thank you very much.

BAIR: Nice to see you.

VELSHI: Coming up next, could Governor Romney's about face brag about saving the auto industry cost him the key battleground state of Ohio and maybe the election?

(COMMERCIAL BREAK)

VELSHI: Republican presidential candidate Mitt Romney told an Ohio TV reporter last week that he can, quote, "Take a lot of credit for the recovery of the U.S. auto industry."

(BEGIN VIDEO CLIP)

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: There was the UAW and the president that delayed the idea of bankruptcy. I pushed the idea of a managed bankruptcy. Finally, when that was done and help was given the companies got back on their feet. So I'll take a lot of credit for the fact that this industry has come back.

(END VIDEO CLIP)

VELSHI: Romney was a vocal opponent of bailing out the auto industry. In 2008, he wrote a "New York Times" opinion piece entitled "Let Detroit Go Bankrupt."

In it he wrote this, "If General Motors, Ford and Chrysler get the bailout that their chief executives asked for you can kiss the American automotive industry goodbye," end quote.

Well, the government shelled out $81 billion to GM and Chrysler. Ford didn't take any money and that money s credited with helping them through bankruptcy and many experts contend avoiding liquidation.

Potentially saving millions of jobs in places like Michigan and Ohio where auto is king. Now perhaps Democratic strategist and CNN political contributor James Carville summed it up best.

(BEGIN VIDEO CLIP)

JAMES CARVILLE, CNN POLITICAL CONTRIBUTOR: I mean like today this auto bailout thing, I thought it was an onion headline when I first saw it.

(END VIDEO CLIP)

VELSHI: Joining me now from Washington is, CNN's chief national correspondent John King. John, I have a thesis I want to run by you. Mitt Romney has already lost the election because of this.

Voters in Ohio, auto workers and union members are alienated by his stance on the bailout. You know, John, because you spend a lot of time in Ohio like I have. It is GM country in large part.

They will hand that state to President Obama and without Ohio, probably Romney doesn't get to the White House. What do you think?

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: You're absolutely right about the last part, without Ohio Romney most likely doesn't get to the White House. No Republican has won the White House in modern times, Ali, without carrying the state of Ohio.

If you do the math, how do you get to 270? For Mitt Romney, he has to have Ohio. Yes, there are other ways, but it's much harder. So he needs to get Ohio. He needs Florida.

You're right. Auto is king in Ohio. It's the number two state only behind Michigan, largely a General Motors state, about 75,000 jobs in the state that are tied to the auto industry, not just manufacturing, but the parts and supply chain and all that.

Look Governor Romney needs to get off this. He makes the point that they shouldn't have gotten the money up front from the government that the unions got a sweetheart contract out of that deal, and if you had just gone straight into bankruptcy without the government aid, they would come back.

Would have, could have, should have, this is not a winning argument for him. He needs to have a broader economic argument to win the state of Ohio, to do well in Michigan, to win elsewhere. He has to get away from the auto industry bailout and more to the fact to make his case.

That in his case higher taxes, more regulation or putting the economy in a straight jacket and keeping the other recovery from blossoming. If he's debating the auto bailout between now to November, it's a losing proposition.

Even if and he did this just last night in another interview, he's trying to convince himself he's right on the facts he's not ongoing to win that one.

VELSHI: You know, unionize workers make up about 12 percent of all workers. They are shrinking in number, but they're a still a force. Would it be better or is it too politically dangerous for Mitt Romney to change course on this and say, you know what, what I said in 2008 was wrong.

KING: He's not going to do that. We know that he's had that chance. Throughout the primaries, this came up. I've asked him about it, in some of the debates, if he was going to change his mind, he's had his change.

And again, his point is, yes, in the end they did go through a bankruptcy. He says they should have done that first. They should have the bailout in. Again, you're arguing the semicolons and the middle paragraphs.

In the big picture, the auto industry is back. President Obama will travel to those states, surround himself with those workers. It's a fascinating dynamic because if you look at American politics, go back to Ronald Reagan, those Reagan Democrats, a lot of them were those union auto workers.

Unions traditionally back Democrats, but maybe they own guns, maybe they're conservative on social issues and so they voted for Republicans in the part, Romney needs some of their votes. He needs some of their votes.

So he can't be arguing about their job today. He has to make the argument about the broader economic conditions and make his case that he would give you a better growing economy and create better auto jobs and more everything jobs.

If he's debating this bailout to November, you put it, in one state it could turn the election. Without that state he probably can't win.

VELSHI: I suspect we'll both be spending a lot of time in Ohio in the coming months. John King, our chief national correspondent, always excellent political analysis. Thank you for that.

Stephen Moore is an editorial writer for the "Wall Street Journal" joins me now. Stephen, I have to say James Carville put it well. It did seem reading Mitt Romney had taken some credit for that did seem like an article out of the onion.

STEPHEN MOORE, THE WALL STREET JOURNAL: Well, look, I think it was a dumb thing to say, Ali. But I disagree with you and even with all due respect to my buddy John King. I still think that the auto bailout was an economic loser and more importantly a political loser.

Now you're right. There are a lot of auto workers in the state of Ohio as obviously there are in Michigan. But, you know, let me tell you, I live in the battle ground state of Virginia. Ali, do you think that the auto bailout is very popular in the state of Virginia or another battle ground state North Carolina?

So I would make the case that for Mitt Romney to win this race, what he has to say, look, the other guy, Barack Obama, is president bailout. If you want free market policies and end to bailouts, elect me. I think that's a very populace line that Mitt Romney could take.

VELSHI: But, you know, Stephen, the auto industry exists. There are plants in every state. Frankly, the auto bailout was more detrimental in your communities because of car dealerships and things like that, because of advertising and things that they did.

I'm not sure that anybody looks back on the last four years and says this was a mistake. Do you really believe the whole thing was a mistake despite what it said about what government's role is? Put that aside for a second, it did work. The auto industry is back.

MOORE: Right, there's no question about that. I agree with you entirely. The auto industry is back. It's booming right now. In fact, the big percentage of the GDP growth we have last month was the result of auto sales and auto productions.

You're right about that. Look, where I disagree with you, I just think the American people outside of Washington, D.C. and New York where you live think that the word bailout is a four-letter word. I just don't think it's a very popular policy to say we're going to bail out every failed company.

What are we going to do, General Electric, CNN, every Fortune 500 company every time they get into trouble so, by the way, one other point I think is important in this, Ali, the auto company that's doing the best right now is Ford. Ford did, as you said --

VELSHI: The one that didn't take any money.

MOORE: They didn't take any money at all. What I objected to and what a lot of people object to is the way they went about the bailout as well. As you know the people who really got shafted in that deal were the bond holders.

Essentially what I think the president did was he put the interest of the union members ahead of the bond holders. By the way, who are those bond holders? They're me and you and anyone with a pension fund.

VELSHI: Yes, that's a good point. All right, Stephen, good to see you. As always, thank you for a robust discussion. Stephen Moore with the "Wall Street Journal."

They use the auto industry as an example, what was the right thing to do, bail them out or cut off their life line? Same debate, same debate in Europe as here, austerity or more spending.

(COMMERCIAL BREAK)

VELSHI: From Paris to Washington and seemingly everywhere in between it's the big question, is it time for governments to spend more or save. It seems there's no magic formula. Stimulus can produce growth. Austerity can produce growth. Cutting taxes can produce growth.

Now austerity happens when governments cut back on spending in order to get debt under control, but voters generally tend to dislike cuts because they get less. So governments typically don't impose austerity in many cases until its almost too late.

That was the case in Greece and to some extent in France. People in both countries pushed back last weekend and voted out their pro austerity leaders.

On the other hand stimulus is when the government pumps money into the economy in order to stimulate demand and aid business. The Obama administration used stimulus in 2009, as you know. But at the same time the federal government ramped up spending, state and local governments cut back. In effect we tried stimulus and austerity at the same time. Ben Barber is a distinguished senior fellow at Demos and Will Cain is a CNN contributor. Let's all agree on something. The debate actually isn't austerity versus growth, which is how it's been painted in France.

Those two things aren't necessarily opposites, but let's talk about the best way to grow and economy. That is where economists -- and Americans disagree. Take a look at this, guys.

A recent poll from CBS News and the "New York Times" finds that 56 percent of Americans believe spending more and raising taxes will stimulate growth, 37 percent say we should lower taxes and cut spending instead.

Those are opposites. Well, Governor Mitt Romney -- Governor Mitt Romney supports Paul Ryan, the budget chief's ideas in terms of cutting the budget. They represent in an American context the austerity side of things to some degree. Has austerity ever created a job?

WILL CAIN, CNN CONTRIBUTOR: Yes, man, what kind of question is that. Does North Korea have more jobs than South Korea? Who has a more vital economy? If Cuba privatize fill in the blank, created jobs. If you ask me, does austerity ever create jobs? That's the logical input of that kind of argument.

VELSHI: The logical input of that argument is austerity should ultimately create jobs.

CAIN: Yes, and by extension does the private sector create jobs. I think at this point, we all clearly know the answer to that. The real answer to your question is though, it depends, right? It depends on the scenario you find yourself in.

If you find yourself in a scenario where you have high public debt and low private debt as we did after World War II, then, yes, austerity would make sense. The private sector would take off and we did after World War II.

But if you had the reverse, if you had high private debt, indebted society and low public debt you'd have a hard time arguing for austerity.

In Europe you have a tough situation, you have both. Bond holders are like, look, you may need to borrow the stimulus, but we don't trust you anymore. In the United States, it's more complicated. We might have some room in the short term, but the long term seems pretty clear --

VELSHI: Just to be clear in Greece the voters have said we don't want austerity. But the people upon whom they depend to lend the money have said we don't care what you want, you're not getting the money if you don't do it.

So Ben, help me out here because in times when private enterprise doesn't do what Will has described, does it not fall to the government to fix that?

BENJAMIN BARBER, DISTINGUISHED SENIOR FELLOW, DEMOS: Well, you haven't talked in Europe about the third partner in the negotiation and that's the European Bank, that's the IMF and that's Germany. The Greek leaders are not saying screw what the Greek people think. They are saying, we are going to get screwed by the bank if we don't do the conditionality that they are asking for.

So they don't like it and in fact, what's happened with the socialists, we're in the going to do it anymore. It's not working. Even Merkel is saying, I know we want to talk about the U.S. it's very important.

Because we're in a situation right now where America is trying to be more like Germany and Europe was for the last few years and Europe is trying to be more like America is supposed to be. But the answer is does government have a role?

Of course, it has a role. The federal government is the institution of last resort in times of crisis. If this isn't a crisis, the recession that we're in, the problems we're having, if it doesn't have a role in getting jobs moving, stimulus, tax increases if that's necessary

In cuts, in the more fat parts of the budget, not the kids, not food stamps, but then the federal government isn't doing its job. You know what, 55 percent of the American people agree with me.

VELSHI: Will doesn't.

CAIN: I do not. It is not the federal government's role to create jobs. It's the federal government's role to create conditions for job growth. Historically, we're clear conditions are low tax, low spending, clear confident low regulation environment as possible, as possible. That's the best conditions for growth in the private sector the best engine for job growth history has ever shown.

BARBER: Will and I agree on that. But let's take Detroit, perfect example, difference between the parties. Romney said let's have a structured bankruptcy. Obama says fine, everybody agrees with that. Who pays for it?

Romney said let the market pay for it and there was no money in the market. Bain capital didn't put anything and nobody had money. The only people who could fund that -- was the taxpayers and the federal government.

That has now -- first of all the government has been repaid everything. The taxpayers got back their money. Second of all, we have a world in which American motor companies are very, very competitive, and in which 800,000 plus jobs were saved in Detroit.

That's the feds intervening. I agree with Will, they didn't create those jobs, but they acted in ways that allowed those jobs to be recreated and saved Detroit. That's exactly the kind of thing the government does brilliantly. VELSHI: All right, the thing that most everybody agrees on whatever we do we want job creation. Europe worse than it is here, but it's bad here. I think the next thing people concern themselves in this debate between austerity and non-austerity are taxes.

So when we come back that's what we're going to talk about. Is it time to cut or raise taxes?

Later, some rare insight into Mark Zuckerberg. We'll look at the man who remains an enigma.

(COMMERCIAL BREAK)

VELSHI: Compared to Europe we're discussing the best way to grow the economy here in the United States. Will Cain and Ben Barber are back with us.

President Obama wants to raise taxes on the wealthiest Americans. He wants to cut corporate taxes and close some loopholes that will allow some companies to pay a much lower rate.

Governor Romney says we need to make the U.S. tax code flatter, fairer and simpler, like President Obama he wants to reduce corporate taxes, but to an even lower rate.

So Ben, how do we lower taxes to stimulate growth without at the same time killing the economy because the government doesn't have enough money to do what it has to do?

BARBER: Well, as always, the question is revenues from whom austerity for whom. My problem with the present discussion with Republicans is that it's austerity for kids, austerity for the poor, austerity for the disabled. They are all cut back in the budget proposal passed yesterday in the House.

It's more money for defense, which is already 56 percent of discretionary spending in America. More than half the budget, where the next 17 armies don't make, including China and France and Germany don't put in as much as we do, that's a full 26, 27 percent of the budget.

I say let's take fat off the defense budget, leave the money for the kids and raise revenues marginally in places people can afford it. Right now we're asking people to -- families to give up food stamps, kids to give up school lunches while we refuse to tax millionaires. That to me is absurd.

VELSHI: Will, it's interesting the amount of extra defense spending in the budget would top $2 trillion. Our polling shows Americans find it jaw dropping. For everything we're talking about, it does seem like a strange priority.

CAIN: It's a source where you can find government cutbacks. I do agree the Department of Defense -- your original question about taxes is interesting. I'm going to borrow a phrase from the father of stimulus John Maynard Keynes. He talked about stoking animal spirits, getting consumers brave and ambitious and motivated to spend and invest in society. How does that apply to the tax code? I would offer you the best way to stoke animal spirits, to get people ready to move, invest, spend, is to simplify this tax code.

I want to curse before I say tax code, to simplify. You could both raise revenues and create a more conducive environment for growth by simplifying this tax code, dropping rates, getting rid of loopholes, you could end up with more tax revenue and higher growth.

VELSHI: You've seen my copy of the tax code, 73,000 pages, binders and binders.

CAIN: Stretches across the room.

VELSHI: Everybody has to get together.

BARBER: That's not on the table.

CAIN: At the end of the year, tax and spending cliff by the end of the year, packed into the last two months of this year.

BARBER: A country that wants to raise defense spending on the backs of children, the disabled and those most vulnerable in society is really barbaric. I think that's why 56 percent of Americans say we've got to get a little more funds coming in so we don't have to cut the kids, we don't have to cut the disabled.

We don't have to make horrendous cuts to make it impossible for poor people to go to emergency rooms for treatment. That's where the cuts are coming on. We're not doing anything on that part of the budget that has fat in it.

I'm not talking about cutting back on defense operations for things we're involved in, I'm talking about carrier fleets, nuclear weapons developed for the cold war, for which there's no use, and for which we spend billions every year in maintenance. I'm talking about cuts that will not affect America's capacity to fight wars.

CAIN: There are rooms for cuts in the Department of Defense.

VELSHI: OK. You see, I love it when you guys agree.

All right, can you imagine a world in which the Tea Party joined forces with "Occupy Wall Street?"

(BEGIN VIDEO CLIP)

ROBERT REICH, PROFESSOR OF PUBLIC POLICY, UNIVERSITY OF CALIFORNIA, BERKELEY: I think we're on the verge of a political movement that says, essentially, we're going to take back the economy, take back democracy. We're not going to let the big guys run everything.

(END VIDEO CLIP)

VELSHI: That seems like odd bed fellows. I sat down with former Labor Secretary Robert Reich next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: "Time" magazine named Robert Reich the ten most effective cabinet secretaries of the last century for his time heading the Department of Labor under President Clinton.

His new book, "Beyond Outrage" is dedicated to "Occupy Wall Street." Now whether you agree with, despise or are simply confused by "Occupy" movement, it has raised the volume in the debate over fairness in the upcoming election. So I had a very simple question for the Secretary Reich, what is fair?

(BEGIN VIDEOTAPE)

REICH: When somebody has asked themselves is the economy fair, what they are asking themselves, am I doing better, am I working harder, am I seeing the results of my work?

Also are the gains from growth being distributed in such a way, people at the top like CEOs, my company, my CEO earning $25 million, $30 million, my job is on the line, my benefits are decreasing, my median wage is decreasing. That feels unfair to me.

VELSHI: Right.

REICH: And that sense of unfairness cannot help, but in fact somebody's attitude --

VELSHI: The problem is it then becomes subjective, right? What is fair? How much should that CEO be earning? Where do we figure the way to figure it out?

REICH: Two ways. One, we can look in the past and say it's wildly different than what it was over 50 years. We can also look at the economy raw. I mean, the problem is that when you have the top 1 percent getting so much of the economy. There's not enough purchasing power in the rest of the economy to keep the economy going.

The top 1 percent would do better with a smaller share of a rapidly growing economy than the current large share of an economy that's basically struggling to grow.

VELSHI: Would that happen if we distributed economic wealth better? I know that's a touchy topic, but if more 99 percent got more of the money, would they employ more effectively. In other words, we'll be seeing more economic growth.

REICH: We would because the demand side of the equation is the problem. Most business people agree that the reason they're not hiring, the reason they're not expanding is because there's not enough consumption.

There are not enough consumers who have enough money in their pockets. So if we did that, had a distribution of gains from growth, again not a zero-sum gain just distribution similar to what we have in the '50s, '60, and early 1970s, we'd have a more robust economy.

VELSHI: Let's talk about the fact that in this country, there are people on the left and people on the right who feel that the rich have stuck it to them. that there's power that's too concentrated and there's wealth that's too concentrated.

Yet we can't make that into a broader political movement. For some reason you've got people in the Tea Party who have that view as many of the Occupiers do. Why does that not become -- if this is that southeast of a problem, why has it not created greater cohesion in terms of political force?

REICH: I think it will. I've talked to a lot of Tea Party members who say they're outraged by the bailout on Wall Street and all the subsidies that going to the oil industry or to big agriculture or insurance.

We want government to get out of the job of providing tax base subsidies. A lot of people on the left say the exact same thing. I think of the overlap there. A lot of people on the right in terms of Tea Partiers say the problem is not the size of the government. It's who government is for.

It's the amount of money, big money, that is controlling government. A lot of people on the left say exactly the same thing. I think we're on the verge of a political movement that says essentially we're going to take back the economy, take back democracy, we're not going to let the big guys run everything.

(END VIDEOTAPE)

VELSHI: Former Labor Secretary Bob Reich.

Coming up next, eight years ago he had no car, no job, and no house. Today, Mark Zuckerberg is ranked number nine on "Forbes" most powerful people list and number 35 on their billionaire list. But how badly does Facebook need Mark Zuckerberg to sell itself on Wall Street?

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VELSHI: Mark Zuckerberg, the face of Facebook meeting executives in a hoodie this week. Some find it cool, hip, the new thing. I don't what he thinks about this. He's the CEO of Business Insider. He wrote this week's cover story for a New York magazine on Zuck.

At least Mark Zuckerberg showed up in New York. He blew off his meetings in Baltimore, Boston, and Philadelphia. Henry, this stock is likely going to sell itself.

I'm hearing all these rumblings about people who think he's unorthodox. He should put a tie on, and all that kind of stuff. First of all, do you think it's going make any difference?

HENRY BLODGET, CEO, BUSINESS INSIDER: No. I think it's going sell itself. You're absolutely right. It's a great company. Great growth prospects. Everyone has been excited about it for a long time. However, very symbolic moment, the hoodie moment and it's gone viral. Everybody's talking about it. It's the culture clash between Silicon Valley and Wall Street. Part of Wall Street's frustration is their frustration with Facebook, which is that Mark Zuckerberg has full control of the company.

He really doesn't care about Wall Street. Wall Street knows that. That's not common. Most people suck up to Wall Street.

VELSHI: The putting on a jacket and tie might have said you're important.

BLODGET: It might have been I think a polite gesture. You're asking for $10 billion. Maybe you could put on a jacket.

VELSHI: All right, the bottom line, a lot of these start-up companies as they start to do well far earlier than Facebook got into this and the hiring of a grown-up, are there some people worried he's not that?

BLODGET: What's interesting, that was the model in the 1990s, the quirky founder with the bad hair and the sandals. They can't run a company and so let's bring in a professional CEO. A lot of the companies lose their way.

The classic example is Apple. They dispense with Steve Jobs and almost went bankrupt. The new one is you keep them and build great professional underneath them and that's Sheryl Sandberg.

VELSHI: She's widely lauded. But the bottom line is if you're teaching the young guy something, it might to some it's symbolic, teach him to put a tie on.

BLODGET: That's right. And to Mark Zuckerberg, I have said very clearly that my mission here is a social mission, not a business mission. If you were not listening to that, that's your tough luck. And I'm not going to alter my routine to suck up to you.

VELSHI: All right, I think most investors will either get past it or not. Nobody who thinks this company is going do really well is going to invest in it because of a hoodie or because of the presentation, but what they might do is be concerned over the amount of control he's going to wield over this company. Should they be?

BLODGET: Absolutely. This is a bet on Mark Zuckerberg.

VELSHI: Sure.

BLODGET: I think most investors generally sort of have an illusion of control that they don't actually have with most companies, but in this case, there's no illusion. He has 57 percent of the voting control. Anything he wants to do, he can do. You can scream, but that's it. As long as he'll listen to your screaming, he'll be fine.

VELSHI: So most retailers are used --

BLODGET: They have no control anyway, so it's not really that different. I think to sort of bolster Mark Zuckerberg's view at this, he has seen a lot of companies ruined by CEOs making short-term shortcuts to please Wall Street, boost this year's earnings by firing people and cutting investments.

He's saying I don't ever want to be forced into doing that. If you buy it into, it could work very well for you, but not in the short term.

VELSHI: Henry, good to see you as always. Henry Blodget is the CEO of Business Insider, editor-in-chief of Business Insider as well.

Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday at 1 p.m. Eastern and Sunday at 3 p.m. Eastern. Stay connected to us 24/7 on Twitter. My handle is @alivelshi. The show handle @cnnyourmoney.

I read every single one of those tweets and if you're nasty enough, I'll leave a reply to you. All next week, we'll be focusing very closely on Facebook. Stay tuned to CNN. Have a great weekend.