>> that is a very interesting point. >> and we really ought to given the treasure and lives we have spent over there? >> general petraeus also talks about that, the return on investment and all of that sacrifice. so all of that starts next week in our special report on iraq from the front lines. thanks for watching. i will see you this afternoon. six people have been charged in a $20 million hedge fund insider trading case, including galleon founder rath rajaratnam, employees of hedge fund new castle and others. following earning reports from dow components general electronic, bank of america and ibm. the fda has approved the use of astrazeneca's drug that has improved the cholesterol in patients. i'm courtney reagan. this morning, everyone, and welcome to "the call." i'm trish regan live at the new york stock exchange, where 90 minutes in today's trading, we are off 114 points right now on the dow, as the earnings parade continues. we will talk about these things and just exactly what they mean for you, the investor, right now. morning, larry. >> good morning, trish. i'm larry kudlow. tim geithner said he expects significant growth in the economy. we'll discuss that with two top wall street economists. bruce kaseman of jpmorgan. and i'm melissa france. jpmorgan backing loans with just 3% down. should they require more? the fha says no, that will kill a housing rebound. representative garrett will join us for a live debate. this is "the call" on cnbc. all right. it's all about earnings on wall street this morning. general electric, of course, a parent of this company missed on the top line while bank of america posted a wider-than-expected quarterly loss. on the flip side, ibm and google reporting better-than-expected results but right now the dow is down triple digits, 113 points, better than 1.1%. s&p right now is on the down side by 1.3%, 14 points, 1,082 and nasdaq down 1 1/3%. trish, tough way to end the week here. >> we had a good week though. >> that's true. >> so you got to take the good with the bad. part of the bad here happens to be consumer confidence number. we will get to that momentarily. the other issue, rather the surprise there, because people anticipated a little bit more from the consumer. and the other issue is we're not necessarily seeing all of that top-lying growth that people were really hoping for. the good news is the companies are still beating earnings. i want to bring in bob, who's way over there. >> way over here. >> the e! parent company of this network, certainly didn't have good report. google with good news. >> and let's put up the numbers here. it's no coincidence the three worst performers on the dow are those three stocks reported here today. please note, ibm nearly $6. remember, the dow is a price weighted index so 40%, patricia, of what's going on with the dow is because of ibm's decline here. here's the important thing, yes, bank of america was a disappointment on the bottom line. ibm did pretty good on the top line. ge a little light on the top lying, bank of america, a little light on the top. what does it mean? >> that's the whole ish here. nobody wants to see top-line growth. >> ibm looks pretty good. here's the story on bank of america. the big debate is do you think credit quality is improving? if you don't, you don't want to moechbt of the banks. i find it hard to believe credit quality will not improve in the next six months. interestingly, i know plenty of people on the street who says it will not. >> i will stop you. we were talking yesterday, right here, same time, same place, default in credit cards, we saw american express had a slight improvement yesterday but still pretty significant of the default rate and the other declines. >> good point. delinquency rates are still high. look at the gains we had some some of the other stocks, ibm up 15%. general electric, our parent, 40%. bank of america up 28%. we have some very choppy economic numbers. unfortunately, trish, the numbers today, consumer sentiment numbers, really dropped the market when they came out before 10:00. that was a bit of a surprise on the downside. so the new york fed survey was great, philly survey, eh and michigan survey, not so good. >> here's the story interesting to me. department store in london, now offer gold for sale. and i'm not talking about jewelry here. >> is this a market top? harrods is now selling gold -- not gold bracelets, real gold, gold bullion. and you can buy a whole bar, 12 1/2 kilograms, and what are we going to do next? >> wouldn't it be a rommantic christmas gift. honey, here's a bar of gold. so much for the necklace you wanted. we will head over to scott now. >> despite good earnings from ibm and amd, google as you see is down more than 1%. sheers t so here's the google story. let's go inside the earnings report, paid clicks up 14%. that's when you click on ads and google generates revenue. net income up 27% and ceo eric schmidt making comments. the worse of the recession is behind us. he also said they're optimistic about the future. they now have the business confidence to invest heavily in the next faze of innovation. how about this, can accord ups the price of target to a street high of $700. the stock is sitting at $550. most of the price targets sit at around $650 but cannacord is $650. semiconductors are weak despite amd. intel is weak. but the weakness is spread across the board. scan disk is another one, sndk, you will see it is off 4% or so. let me end on a high note here. it is cric, china real estate information corporation, an ipo today, the shares are up 14%. they opened at $12. nice introduction for this ipo. there's been eight alone this month. only one priced above the range. this actually priced at the low end of the range at $12. ipos haven't done all that well of late but this one is doing pretty well, larry. it's up 13% right now. cric. back to you. >> scott, thanks very much. now in a cnbc exclusive, treasury secretary tim geithner telling our own maria bartiromo that geithner, he expects a big rebound in the economy. take a listen. >> i'm not an economist and don't forecast. but if you look at what business economists say now, you're going to see the economy growing in a significant rate second half of this year. the rest of this year. positive growth in 2010 at a level that will begin to gradually bring down the unemployment rate. what you will see first is business is creating jobs on net. that will gradually strengthen and then you'll see unemployment start to come down. >> all right. so is the treasury man right? joining me to discuss two very special guests, bruce cassman, economist at jpmorgan and jan has just been given the prestigious lawrence r. kline award for economic forecasting. well done. congratulations on that. tell me, let me ask you if geithner is right? jan, let me start out, we had a strong industrial production number this morning, whether you have cars in or cars out. it looked across the board really strong. i would like to hear your take on it. >> yes, i think the second half of 2009 is going to show some strong gdp numbers. industrial production is growing at a rapid clip. we're getting a lot of tail wind at the moment of the inventory adjustment in the auto street but also more broadly. that's helping across the board. so i think -- i think everything secretary geithner said about the second half is absolutely correct. i do think that while in 2010 we'll still see positive growth, i think it's going to be more moderate, and i also am not quite as optimistic about our ability to bring down the unemployment rates soon. i think we'll still be probably drifting upwards on the unemployment rate for some time to come. >> bruce, you agree with that? there are still a lot of people out there worried about a double dip. >> i don't think we'll have a double dip. i think we're going to have lift and carry. i think we're growing 3 1/2 to 4 now, and we're likely to sustain that. i think the dynamic here is we guest the lift from stimulus. we get the lift a little bit from the inventory dynamic. but that's building incomes, it's starting to build improving financial conditions and ultimately, with that, i think we're going to start to see jobs in a more self-sustaining recovery. it's not going to bring us back to health. 3 1/2, 4 is not good growth against the backdrop of the downturn but i think we're going to be surprised consistently on how solid the economy performs in growth terms. >> jan, what about rising energy prices? is that a threat to recovery? you're up to whatever, 77 bucks today or thereabouts. it's had a nice move. is there a potential energy tax hike on the fledgling economic recovery that could be a threat? >> i think it's a modest negative at this point in terms of the impact on household incomes. i think the bigger reason why i don't quite agree with bruce is that, you know, at the moment we're getting a lot of temporary stimulus from two sources, namely the inventory boost and the fiscal stimulus, it takes two those together. you're probably adding something like four percentage points to growth in the second half of 2009. and that is going to essentially go away over the next year. and then the question is, does the underlying economy improve by four percentage points to make up for the bulk of that stimulus? and i just don't think so. so i have some slowdown in the forecast. >> bruce, what do you think about that point? >> well, i think what we're seeing here is temporary support, but i think the possibility of having continued supports from inventories is very strong here. keep in mind, we're not restocking. we're still destocking at over $100 billion pace in the last quarter, and we're going to continue to see very significant support from policy as monetary policy continues to work through the system. so i think the private sector side of here in a synchronized way globally will keep us at a growth rate that's going to be pretty solid here. even though i agree with jan, some of the things that are helping us now go away. other things start to come in the picture in way that's offset them. >> jan, i hear the point about the government. one thing that we hear over and over again is that the consumer can't recover and go out and spend until they have jobs, and the economy can't recover without the consumer. they don't go and buy stuff, businesses can't hire people. it's a cyclical catch 22 kind of argument. how do you see -- how do you answer that? >> i would say that, you know, to some degree, the labor market is a lagging indicator. and i do agree that as the economy improves in the second half of this year, that is also going to show up in the labor market numbers. so i also expect a move towards positive employment growth in 2010, just not to the sort of degree that would be necessary to start pushing down the unemployment rates. >> so what about the consumer? >> that is the catch-22, where weakness in the consumer means more weakness in the labor market and, you know, there's no way that can ever change. that i think would be an overstatement. >> bruce, what about the other data point today, the michigan consumer survey? it came in light, okay. now, i'm not sure i understand the significance of this all the time. i understand people are depressed about unemployment and the lack of jobs and very important. on the other hand, stocks, which are consumer sentiment indicator, are rising. how do you read that? how do we integrate that with the rest of the evidence you're looking at? >> i think this was a disappointing report but it doesn't change the trajectory here, which is towards improvement, and i think the improvement in consumer confidence is going to continue on trapd baa trend basis here. levels of confidence is continuing with a 1% in consumption, which is where we are right now, a big improvement from where we are. the trajectory is important, getting away from choppiness month to month. i think we are seeing improvement. we will continue to see improvement. and it will be fed by the improvement we were talking about in terms of the economy and the labor market. >> jan, retail sales, even excluding cash for clunkers on cars, retail sales looked pretty good in september, jan. i wonder if you saw any consumer improvement there. >> yeah, it was a better data line. it's a fairly noisy indicator from month to month but i think in general, the retail numbers over the last month or two have been -- have been a little better. so we'll see what it means going forward. i suspect that we'll still find that the consumer is quite sluggish, but not declining. i think it's very, very sluggish growth and consumption, so i actually don't think that i'm very far away from growth on that at the moment. >> interesting insight. thanks to both of you for joining us. we appreciate it. >> thank you. a quick programming note -- catch maria bartiromo's full exclusive interview with treasury secretary tim geithner today on "the closing bell" at 4:00 p.m. eastern on cnbc. we've got new developments on the insider trading arrests surrounding some prominent hedge fund managers. david faber is standing by. he's straight ahead with the details on this one. if you thought this week was busy for earnings, wait until you see who's on deck for next week. we will break it down for you and get the latest on the bank of america conference call. you're watching cnbc first in business worldwide. how much do you pay when you buy a stock? does the rate change depending on how often you trade or how much you have in your account? at td ameritrade, there's only one price for online stock trades--$9.99. now matter how often you trade. no matter how much money you have in your account. straightforward pricing from td ameritrade. independence is the spirit that drives america's most successful investors. welcome back, everyone. we have breaking news for you. six members, including the founder of the hedge fund galleon group, have been charged with insider trading, raking in as much as $20 million in illegal profit. cnbc's david faber has the latest for us. >> thanks, trish. this is a wide-ranging investigation that has apparently been going on for quite some time. as you said, involving as its center, raj rajaratnam, the founder of galleon, $3 billion hedge funds, big player in the technology area, huge commission generator to wall street, by the way. and widely respected. hedge fund manager worth over a billion dollars, arrested this morning, or taken into custody this morning by the fbi at his sutton place apartment, according to sources. he will be arraigned later today. in the complaints -- two complaints, it appears the u.s. attorney's office, along with the fbi and s.e.c., are charging that mr. rajaratnam was at the -- was the beneficiary of material nonpublic information from a variety of sources, and a number of other individuals associated with his trading in quite a few different stocks have also been charged. goes back to a basic idea being that either he hired some people and asked them about their previous employer and whether they had inside information that he might be able to trade on. he relied on others from other companies and other people who spoke to insiders at other companies and traded on non -- on material nonpublic information that was provided to him. the fbi apparently has been tapping mr. rajaratnam's cell phone. they have a cooperating witness who is quoted numerous times in the complaint, not by name but simply by the initial c.w., and they rely on both the cooperating witness and what seems to be very voluminous records of phone conversations to allege mr. rajaratnam was the beneficiary of insider trading that benefited his hedge fund to the tune of $20 million. which, by the way, is pocket change to be honest with you, for a lot of these large hedge funds wh funds. when you think about $20 million versus $3 billion, that is not a large of money. nonetheless, this case is absolutely going to -- has already shocked much of the hedge fund industry, and is certainly sending shutters through the industry because at its heart is something that, well, frankly, a lot of hedge funds through the years have kind of done, which is try to get information from anywhere you can, from anybody who might have it, try to get an edge. in this case, of course, it appears, or at least it is the allegation of the u.s. government, that mr. rajaratnam and associates crossed the line. >> any idea, david, how they might have been tipped off? how authorities came to discover this alleged, i should say, knowledge of his wrongdoing? >> very good question, trish. i don't know the answer. at 1:00, there will be a press conference. certainly we may get more information back then. it does appear again that the allegations go back to trades that took place in early 2006. as i said, there is a cooperating witness. but specifically how it came to be that they focused on mr. rajaratnam for such a period of time, we don't know. >> how long was it they focused on him? >> it appears at least it's been for a year, if not more. perhaps as much as two or three given that they are citing trades that took place back in the early '06 time frame. obviously, they could have done an investigation that led them to those trades based on what they heard from the cooperating witness. but it does appear this investigation has been going on for quite some time given they're going back to january 2006, at least, from lodging a number of the insider trading allegations. >> david, right at the back end of your report you were mentioning how other hedge funds and this insider trading thing is always around. there's always a fine line, i think you would agree. >> yes. >> what is raj's defense? have they said anything about this? do we hear anything on their side of the -- >> don't know a thing on this point. many of the people in his firm, larry, and i was calling over there this morning because i was starting to get wind of this story before we were able to get it from the u.s. attorney, they had no idea, i don't believe, about this. now, i can't say that -- >> never saw it coming? >> no. and i'm sure they are simply trying to figure out what do we do? what's going to happen to the future of this hedge fund, a significant hedge fund, at this point. but, larry, there's fine line. things are not -- >> tricky. >> -- the way they used to operate 10, 15 years ago when there were a handful of hedge funds. a lot of them traded on what they called fancy information. that's no longer the case but elements of that still exist in the injury. >> back when they took a $20 million profit. as you pointed out, it's not a ton of money in the extreme of things in terms of the numbers they were dealing with. is this profit they were putting in their own profits or profits they were trying to make for clients? >> it was profit of the hedge fund itself, trish, it would appear. profits that accrued to the hedge fund, but, of course, 20% of those profits would have gone to the managers of the hedge fund, as the typical of the hedge fund industry. i actually don't know specifically what the performance fee was at galleon. i'm sure it was at least 20%, if not more. larry, mark kurland is a well-known name. >> i confess, old friend of mine, years and years ago, former partner of mine at bear stearns. research director and then he ran bear stearns as asset management. very smart guy, very aggressive guy. what do we know on that side? >> new castle, money management firm of which he's associated and a lady named danielle chiesi, mr. kurland, and then a gentleman who i believe is not associated, robert moffatt, specific to trading it would seem in amd, at least by mr. rajaratnam but also by -- by new castle. that's about all i want to say right now. these are voluminous filings here. i have read them through once but it does appear that, that was specific to kurland's involvement, trading in akamai and amd by new castle and theth by rajaratnam as a result of information that chiesi may have come across from someone on the inside at those companies. >> david, we know you will continue following the story. we appreciate you giving us all of this information right now. thank you very much, david faber. up next -- i'm heading to earning central for the details of bank of america's conference call and a look at the names on the radar for next week. and a new push to change housing policy in america. should the government raise minimum down payments for home buy buyers? we'll discuss both sides coming up in today's "call of the wild." 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that's what i was looking up. it weighs about -- it weighs about a ton. >> wow. >> per in. so it's 1,000 tons of money if you did it at one. >> so you're saying physically it would be very difficult to lose. >> that's a lot of money. >> or to find. i burned up a lot of my time and i have a lot of stocks to talk about it. it's really good. we have to take this thing day by day. so monday will be a big day. we have bbt begin etga net, sma but important, and apple will be reporting after the close. one of the few actual revenue growth year-on-year stories but oppenheimer is saying buy on the disappointment there that ti will be out. worst performer in the semiconductor index. tuesday, we go to coke, pfizer and we will call it five-dow tuesday. maybe that's all you need to remember on that particular one. and then yahoo! coming after the close. caterpillar is the hottest stock in the dow, up 58% this quarter. that will be very, very interesting to watch on tuesday. wednesday, more down names that keep rolling. boeing will be out. >> wells fargo, that's a big one. >> that's a big boy, no question there. and amgen will be interesting. that stock had a huge jump in july. they had a big, positive test result on their breast cancer drug, but the stock's been dead money since then. we'll have to take a look at amgen. at&t is going to be a very interesting play here. that stock is down 5% so far in october. worst in the dow. so she's got cold feet going into earnings season. >> i love u.p.s. that tells you about shipping, whether the consumer's back, whether they're buying and selling stuff, whether businesses are restocking. that's a good one. >> it's been hot. had a great, great run. american express will be very interesting. jpmorgan comments about the credit markets in the foreseeable future. guess what the hottest stock in the dow is year to date? that bad boy right there. >> it ran away from you, american express. >> which is just as well with the money calculation. >> thank you very much. interviewing. trish, over to you. >> thanks so much, guys. coming unnext -- the earnings hits and misses keep on coming. how do you invest now? we will help you sort through it with a bull and bear, larry. and raising down payment requirements for home buyers. the federal housing agency doesn't seem to like it. we'll discuss it in today's "call of the wide" on a huge debate. welcome back. market off 104 on the dow as i look at it now. as we get deeper and deeper into the earnings season, the question on everybody's mind, where do you need to put your money in light of the earnings coming in? we want to ask our bull right next to me. and our bear don lekas, ceo at leader capital. scott, you and i were talking during the commercial. one thing i found interesting is here you are, our bull for the day. and yet you didn't really sound like a bull. one of your points was that people should be thinking about taking a little bit of money off the table right now because you're not so certain this earnings season will be the blowout earning season that will cause this market to move higher. >> we had a big move going into earnings season and we have seen very strong reports. intel came out. there was great, great guidance and it opened up and traded down ever since. goldman saks traded great and lower ever since. basically this move somewhat has been priced in for now so we need to build a base up here and prove that the market held higher before we extend particularly into the end of the year. >> so what is the timing look like? we are talking about maybe extending into the rest of the year. should people be taking their money out for this quarter and sort of hold tight and see what next quarter looks like? >> i think there are times to be fully invested in your core positions and time to take profits. so if we do pull in like we had during a few times over the course of the uptrend, that quarter and a half trend, you can re-enter. because if you take profits and it starts going against you, investors get nervous. so if you book some profits and hold some for the longer term, you can add cash fold trades to your portfolio and also stay invested. >> good strategy. go ahead, larry. >> let me ask you, with some exceptions, are these earnings disappointing? are we getting the kind of blowout blockbuster stuff we wanted? it just seems to me the animal spirits on earnings are not as good as they were a few days ago. i want to ask you. >> well, i think they're very disappointing. it goes back to our primary thesis, larry which is that the cost of capital, meaning the interest expense to corporations, is going to continue to weigh very heavily on them. for example, alcoa came, they earned 4 cents. had they not had any debt, which i know some corporations have to have a little bit of debt, their earnings would have been five times better. if you look at ge this morning. okay, they earned $ 2.4 billion but they paid $4.5, almost $5 billion in interest. we think interest expenses will continue to weigh on corporations. conversely if you look at companies like going well no debt, intel, very good earnings. it shifted, those company that's had leverage could generate a lot more cash flow and earnings, that shifted. i think if you're going to be in the equity markets or fixed income, i think you have to be a little discerning here, and so that will be our view. >> i want to ask quick, we will be up with a minute left and one thing i know we want to get in this discussion is oil. how might that affect the market? certainly it will have an effect on the consumer one would assume as we move into these colder winter months and we are seeing oil flirt with higher and higher levels. i'll start with you on that, scott. what do you think? >> from a trading standpoint, it was a possible trade this week as it broke out of the range above $75. it also helped oil stocks, which also helped the stock market. but if oil continues to really trend higher and get to the 90, 95, it will scare off the consumer. it will be like an extra tax they have to pay instead of going to the grocery store, they have to spend the money on oil. >> right. and you get that plus the unemployment rate. what does that mean for the stock market? >> it means that we need time to figure out whether or not we can sustain these levels to move higher and you have to be very strategic in your investing because this recovery will take place and can be sustained but it's going to take time. so you really need to be -- >> the reason oil's up -- the reason oil's up is because of weak dollar, pure and simple. there's no getting around it. the dollar will go lower. ultimately as we said before, it will putted fed in a reactionary position to havavto raise rates to support the currency. >> and what will that rate -- >> that will be another problem for the market, along with the royal problem. >> that's just where i was going. you answered it. the oil tax and the inflation will cause the fed to come in sooner and you're saying that's a negative for stocks. >> i think big time, larry. we think rates go to 7, 7 1/2% by 2011. again, the fed will be behind the eight ball on that. >> i have scott laughing over here. >> wow. scott, that ten-year rate are you talking 7% on the ten-year bond? >> no, i'm talking 7% on fed funds. >> no kidding? by 2011? >> by 2011. >> no kidding. >> that's never happened in your lifetime. >> hold on. >> holy cow. >> a year and a half ago they were at 5 1/4. don't know why that's so laughable. >> that's very laughable. >> i'm not laughing at anything you say. this is a very interesting thesis that we probably need scott to weigh in on that. >> i think we do before we go. >> i think that's a little far fetched and a little unreasonable to predict. but they will start raising rates as this recovery starts to sustain itself as other countries start to raise rates. that will help the dollar. by no means -- >> i would also like to say "business week" recognized us for calling the market in march. we said the market would go to 9,600. this is a technical move up. people should take money off the table and going into fixed income. if you go back to 2000, the year 2000, the dow was at 10,000. it's at 10,000 now. you basically in ten years haven't made money. you have taken money off the table gone into fixed income here. >> i agree. have you to time this market and we are in the same spot we were ten years ago and we are a technical trading firm. >> good luck on timing markets. >> well, okay. >> sit there and wait ten years and be at the exact same spot. >> we will leave it there. nobody wants to be the same they were ten years ago. >> 7% fed funds rates, trish. >> i know. i'm not saying it's wrong. i'm just saying i haven't heard that aggressive before. >> larry, i appreciate that. >> all right. thanks, guys. i appreciate it. have a terrific weekend. a quick break. and then "call of the wild." >> are down payments on loans too low? 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(backbeat swells) there, now that sounds perfect. welcome back, everyone. halliburton posting a 61% drop in earnings hurt by weak north american natural gas activities. take a look at this. shares are on the rise this morning, up 3%, $30.74, the latest trade there. melissa? >> the federal housing administration is backing low income mortgages with as little as 3.5% down. meanwhile in today's "wall street journal" points out that existing loans backed by the fha are going bad at a rate of 20% to 30%. is the fha making the same mistake all over again? should it raise the down payment? yes, since representative scott garrett, who is spoensoring the legislation to do just that. no says former hud administrator howard mitchell. thank you both for joining us. i want to read this to both of you. we just this second are getting a statement from the fha. they say they continue to believe there are better ways to manage their risks than to increase the requirement -- this refers to the down payment. there is in fact no data to support the claim that raising the down payment would impact risk and performance in any measurable way. scott, do you buy that? >> no, not whatsoever. i have seen the data on this as far as performance when you have a low down payment, higher down payment. and statistics show that you -- the higher the down payment, the better the performance of that loan. i don't know what they're talking about. >> howard, what do you think? >> let's put it in perspective. bank of america announced a $1 billion loss in the third quarter on consumer loans. fha's loss this year, zero. by the way, fha's loss for 75 years, zero. and during that period -- >> howard, can i challenge you from the peter wallson article -- and i have covered this story -- fha default rates year on year, last 12 months, 76%. and even in the fatter period, in the mid-2000s, those default rates were 20% to 30%. they moved to 76%. howard, my friend, what are you talking about? >> i don't agree with those numbers. the current default rate at fha, 1 1/4% cumulative rate. some of the numbers you're talking about are 30-year claim rates and not default rates. the main point is this, larry -- >> we're looking at "the wall street journal" today. it says they will suffer default rates 20% on 2007/2008 loans. you're saying that's a lie? >> those are not default rates. they are claim rates. the current default rate overall is 1 1/4%. in 75 years, fha has not cost taxpayers a dime. they had a down payment lower than the current require for most of that period. down payments are important. they're only one risk factor. >> why is the omb director saying that's not the case when he said it was between $15 billion and $20 billion that this is what the fha will cost the government? >> there is no cost thus far to the government, and according to fha's numbers -- >> he's wrong as well? >> there's a $30 billion capital reserve fha has today and if every loan went bad that is troubled today, and they had no new premium income, they would still be able to pay those claims for five years. fha is basically sound. people are running around with their hair on fire, making claims that just aren't true about fha at this point. >> so the omb is wrong. peter wallson is wrong, fha is wrong -- the fha is the only one right. >> let me ask congressman garrett. i've covered the fha story. they're on the verge of bankruptcy according to a lot of people. their own reports are showing a large spike, i'm telling you 76% default rate is occurring. while we're at it, what is wrong with an old-fashioned 20% down payment with income documentation and so forth? why is it, as peter asked, that we keep giving away these cheap loans backed by the government to people who really can't afford it? >> i agree with you. i wasn't even thrwilling to go t far. actually when we roll in the down payment, it actually goes down to 2 1/2%. i'm not going up to 20%. we're just going at 5% down payment. >> here's the problem with going from 3 1/2% to 5%, every risk analysis shows there's no real material difference in risk. but what it does do is close the door to qualified borrowers. keep in mind the fha is serving a market that the private market has abandoned. last year in 2008, fha had a 20% market share. they did 51% of all of the loans to african-americans. 45% to hispanics. the private market is not serving. those are qualified borrowers who would be shutout if you raise the down payment. there are other risk factors that are far more important that fha doesn't do. no stated income, no piggyback loans, no investor loans. those are the problems that brought the private market to its knees and fha is not in those markets. >> i thought this was a subprime crisis. isn't that the way this all got started rolling notice first place? >> fha doesn't do subprime. that's a misstatement. they do not do subprime loans. >> all right, my friend, howard, my friend, you say qualified buyers. i hate to give an opinion, you're the guest, but i say that is a big issue. fannie mae, freddie mac, fha, there are a lot of housing experts and financial experts, howard, a lot of them -- you may disagree with them -- >> i do disagree. >> but they were never qualified buyers throwing money at people. that's why hard-headed fiscal guys like xots garrett have stepped into the breach. you're telling me he's essentially saying nothing's wrong scott. would you respond to that? i haven't heard a single criticism from you, howard, on this point. how respond, please? >> obviously, there is something wrong. the article in "the wall street journal" is excellent. when he points out it is because of government intervention, government policy that over two-thirds of the subprime loans have been either been dictating by the cr raise or financed by the fha or bought by the fha or gses. >> let me ask congressman, how many stated loans did fha make last year? the answer is zero. how many investor loans do they make? zero. those are the loans that created trouble and subprime loans. fha's not in that market. >> they're losing money hand over fist. the debate, howard, the debate is whether they have to get a replenishment of their credit lines, whether they're going to go bankrupt. that's the debate. the guy's been testifying before congress acknowledging that he's in a heap of trouble. you're saying -- this is like one of these soviet rewrite history things. the commissioner himself is saying he has big problems. >> the commissioner is saying he has risk based on economic risk. no one is immune from lower house prices in this market. fha has big market share and face big market risk. raising the down payment is going to shut people out without improving their risk profile. >> real quick. >> this one place i agree with barney frank. barney frank on another area says we should have 5% skin in the game for the banks issuing loans. why shouldn't it have down payment here as well of 5%? >> i can't buy a house without 20%. i can't buy a house without 20%. i'm being discriminated against. >> it's the american dream. not the american right. >> good point you just made. >> they do say the fha loan is the new subprime. i can't tell you how many realtors have said that to me. but we're going to move on here. a quick break and a look at the american consumer and whether there are signs of strength that will boost retailers as we quick lay approach the holiday shopping season. in the meantime, reality is straight ahead on "the call." using nanotechnology to convert plants into components. the first-ever hs hybrid. only from lexus. someday, the driver will get to choose how efficient or powerful their car will be. the first ever hs hybrid. only from lexus. the most fuel-efficient of all luxury vehicles. welcome back to "the call" with your daily realty check. i'm diana olick. they should rise back 20% with a drop in management properties. that according to the mcgraw-hill report. that could create land-buying opportunities said a new report from john burns real estate consulting. it could also make banks with high exposure unlikely to lend to builders. and in a interview with maria bartiromo, tim geithner did not rule out an extension of the first-time home buyer tax credit. he's looking at programs set to expire and added there is a good case for extending them. check back with the realty check up at 2:50. until then go to the block realtycheck.cnbc.com. trish? despite a fall this morning realtors are cautiously optimistic, believe it or not, about the upcoming shopping holiday season. cnbc's jane wells is here with that one. >> sentiment may be down but analysts are trying to keep hope alive. the international council shopping center says same-store sales are on the rise. they were up 1% last week from the week earlier and a year ago. surveys suggest consumers have more money to spend. deloitte's consumer index rising four months straight. using consumer flash flow as a prediction they look at four factors. tax burden, which continues to fall, real wages rising because of lower prices. initial unemployment claims, which are falling and real home prices where declines are slowing. but given this new lower number, what now? >> what is not quite there yet is the customer's willingness to spend. so they have wherewithal but not necessarily the willpower to actually go out and spend. >> a survey by the mdp group finds they plan to spend 30% this year. 59% plan to spend the same and 4% from '08 and 11% plan to spend more. and look at what's back, apparel. ah, remember those. it's been two years since the gap has run tv ads, but now plans to go back on the air starting next month and also open its first gap store in china in 2010. the stock benefitfoed from rece upgrades. when we talk about strong holiday shopping, new positive projections from market research about halloween. sales could end up 4% higher this year at $6 billion in large part because halloween will be on a saturday. more parties. so people are buying smaller pumpkins this year. finally, speaking of pumpkins, bad weather caused a shortage for pumpkin pie filling. libby said they should restock soon and there will be plenty in time. back to you. >> thank goodness. a quick break and we're back with details on today's market action. and a list of stocks to watch as we head into afternoon trading. you are watching cnbc first in business worldwide. to stay on top of my game after 50, i switched to a complete multivitamin with more. only one a day men's 50+ advantage... has gingko for memory and concentration. plus support for heart health. 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