Transcripts For CNBC Worldwide Exchange 20120717

gain. the company raised its biggest rival, topping melissa myer to be its new ceo. so welcome to today's program. after a bit of a slow start to the week yesterday, with the retail sales from the u.s., we have a full agenda today. inflation. >> a lot of chatter. >> a lot of libor, more data, bernanke. >> maybe this will excite is market a little bit. we had our seven down monday in a row which tells you more about the market than mondays. >> it's like that song. why i don't have mondays. >> i have to do googling. >> it's an old one. let me remind you what's on the slate. coming up will be questions about libor and the bank's stability report. eclipsed by the rate fixing scandal. turner told lawmakers that investigations into other bank are ongoing subsequent to barclays admission of rate manipulation. >> events over the years was giving us an impression, as we said in my letter about a pattern of behavior which we felt precisely in gaming the system. >> also appearing before uk lawmakers yesterday the former chief operating officer of barclays insisted he's not the fall guy in the libor fixing scandal. he said end he was acting under orders from ceo bob diamond after discussions with the bank of england. >> let's go back to this tucker phone call. did you regard this -- i know there was a misunderstanding, but did you regard it as an instruction from the bank of england or from the public authorities generally? >> from the bank of england. >> when you relayed this as an instruction to the head of money markets, i think you said, did you tell him it was an instruction from mr. diamond or an instruct from the bank of england? >> from the bank of england. >> mr. diamond says you clearly misunderstood this. how could you have misunderstood it? >> well, i only know what i clearly recall from my conversation with mr. diamond. the investigators that have looked at this thoroughly have concluded that there was a miscommunication, misunderstanding, but i can only recall my recollection or i can only state what my recollection of the conversation is. >> his account of events contradicts testimony from mr. diamond earlier this month. >> the note from mr. tucker says that he felt your libor returns could be lower, doesn't it? >> he felt that our libor rates relative to the other 15 posters -- >> could be relatively lower? >> yeah. >> why then on paying 2 of your note to this committee yesterday you said you don't believe you received an instruction? >> i didn't believe it was an instruction. >> what was it a nod and a wink? >> banks are moving to mitigate risks in asia as the global rate fixing probe wide evens. bank of scotland stopped helping singapore's lending rate. similar panels in hong kong too. and reports that bank of america was involved. we're joined by our guest host for the next hour. dave, first to you. what is the, what have we learned from the testimony yesterday? and as we start to think about all the other places around the world where rates are set this way what's the path out of this? >> well, i don't know the answer to the second question. what we learned yesterday was a combination of just the inability of parliamentaryians to get a straight answer. barclays mess has devolved into a he said-he said guessing game. we don't know who to trust. >> this is the point. for a lot of people they lose interest in following ins and outs of who said what. does that make it harder for people to stay interested and the significance of these hearings more broadly? >> that's a legitimate question. i think in some way the barclays scandal will start to move into the rear view mirror. everyone knows what barclays did was bad but they were hardly acting alone. most banks are suspected of having suspected i had bore rates. barclays may have marginally been better or worse. >> this is a systemic failure. just wasn't a group of banks. this was something it appears all regulators knew about. >> i completely agree. when barclays knew what is misleading. the guys responsible for this are gone. it's the british regulators and bank and u.s. regulators what did they know? >> the question comes down to, bear in mind the time scale, everybody is focused on this during the financial crisis when it was low balling libor rates. is someone going to stand up and say look yeah it was wrong but and at the end of the day we were worried about the global banking system collapsing. if people knew that libor rates were lowered but it was to save the banking system then maybe that was fair game. >> no. that's a bogus argument, honestly. first if everyone knows they are low balling the rates it doesn't do anything to protect the banks. just means everybody is lying. the banks were ling to improve their profits. >> is that bogus, due agree? >> i think there are other factors involved at that time. there were very few rates to anchor markets around. an awful lot of rate structure for the whole global market at the time was particularly unclear and at least these rates were giving us an indication of where at least someone was willing to make prices. whether they were manipulated or not it at least gave some framework at a time when there wasn't any. i think it's easy to make some very aggressive accusations about wicked banks manipulating markets, but at least it gave some sort of anchor at a time of huge uncertainty. >> all right. stick around, because in south korea as well we're also seeing a different take on the libor scandal. we have more from seoul. what's happening there? >> reporter: well, it's not a coincidence that we're seeing a rate collusion probe come right on the heels of the global libor scandal that we're talking about. the investigators have vowed to dig up any similar practices that there's a growing suspicion that brokerages have been manipulating cds or certificate of deposit rates. what's looking iffy the stated elevated levels despite falling interest rates the cd rate at today's session was quoted at 3.25%, higher than treasury bonds ma during in three months, a yield of less than 3%. for most of june the cd rate was higher by 25 basis points. 10 brokerages that provide quotations are under investigation. the market will also be checking if there are any spill overs into the banking space as the primary banks that issue these certificates. back over to you. >> meanwhile besides from libor fixing and swap scandals there's also money laundering allegations. hsbc officials are being questioned again with suspected links to terrorism, drugs and money laundering activities. there's suggestion there's a perversely corrupted environment that allows money to move around the world. what's your take on this scandal? >> there's a real confluence of events. british banks are getting nailed by u.s. authorities this month. i don't know if the time is a coincidence. definitely more bad press. there's a risk here that the u.s. authorities, whether it's lawmakers or regulators start to perceive the british banking industry as a lawless despot. i don't think that's fair but it's a danger. >> i just wonder too, as we look at whether the u.s. will pursue criminal charges in some cases how important the collusion element with regards to libor becomes because it's not did you falsely report your own rate but if you can prove the banks worked with one another it elevate the charges. >> in the barclays settlement there's evidence that that was happening. there was e-mail correspond between traders at barclays and former barclays employees that work at other banks and hedge funds that were emailing them say hey can you lion libor and they said yes. there's some limited preliminary suggestions that there's inclusion taking place. i think another question about whether the u.s. authorities bring criminal charges is this political situation because there's a lot of appetite politically in the u.s. to bring criminal prosecutions, this parade, this drum beat of evidence we're seeing about banks doing bad things. >> moving on. foreign investments into china fell. china's commerce minister said it's did you to a drop in the property sector. the eu did jump to 1.6%. >> the international monetary fund has cut its global growth forecast and worn the outlook could weaken further. predicting growth 3.9% in 2013 down from 4.1%. the imf said emerging economies are being hit and believes the crisis could escalate if policymakers don't take sufficient action. >> the key event is ben bernanke delivering central bank semi annual report to congress. he can expect the grilling of a prospect of quantitative easing. and how well the u.s. is coping or not with the slow down in europe. tim, we just saw this sense going into this again, dollar is a little bit weaker, risk asset a bit firmer. any chance he may react to the weaker data with a hint of doing something? what's your own view? >> his job is to try and give a sense of sentiment improvement and confidence to the markets. and my interpretation would be that he's going to reiterate what the fed said in minutes. he's going to outline what the fed could do if conditions deteriorate but hold off saying they are anywhere close to that. they just extended operation twist. granted data has been weak. but there's no reason to take the next leap to further quantitative easing at the moment. tell us about what they might do, give us some clarity on what they are looking for, great, but i don't really see that this is an opportunity for them to say we're on the verge of throwing more liquidity at markets. i expect there's going to be a little bit of disappointment after that. >> i'm struck by the sequence of news events and hearings we have which on the one hand you have the fed, you have ben bern earn pushing doing what they can to support global activity and on the other hand regulators focusing on these key lending rates. is it one hand fighting the other here? >> as your other interviewee was stating, we got a political backlash coming through against the whole financial system and the banking system especially. and there is a risk we get a litigation and regulatory regime which contracts credit creation. what we need now is for the banking sector to allow the credit system to work, to actually give us the opportunity to take all the policy actions that have been made globally and provide credit to the areas that need it. if you litigate against the banks they are going to have to contract, they are going to have to pull away from the activities that you actually want to engender to give growth back to the global economy. i think it's a big danger. >> we'll leave it there for right now. ahead of bernanke today investors are just positioning themselves here over an hour in trade for european stocks. we are weighted to the upside. very flat session yesterday. as we go through the vigts nfig ftse 100 up .8%. the cac is up half a percent. the ibex is up 1% at the moment. bond auction which i'll talk about in a second. the main stock in focus is alcatel lucent. down 15% coming out with 2012, miss 2012 target. pretty tough second quarter. telecom operators cutting infrastructure spending which means they won't meet their profit guidance. focus on spain and the bond markets because we're going to auction off up to 3.5 billion of treasuries. they are expected to be lower than june. nevertheless 10 year spanish yields are higher ahead of that auction at 6.82%. inflation data out of the uk later, yields from bernanke trading below 1.5%. currency markets, dollar is down across the board. euro dollar up to 1.23. we hit that 1.2160 level back on friday. dollar steady. we were lower than this during the asian session. tokyo holiday yesterday. aussie dollar high at 1.0289. suggests no more rate cuts. monetary easing has been delivered. economy may be respond tight. sterling/dollar pretty steady. that's where we stand right now. what about what's happening in asia. tracey joins us in singapore. >> reporter: investors over here have chose to brush aside those dismal economic data out of the u.s. asia rose across the board in anticipating of that bernanke's testimony later tuesday. in china the shanghai composite rebounded from three year lows. remember china's cabinet hold it's mid-year economic conference as early as tomorrow and analysts are expecting pro growth measures to be announced. major financials were at the forefront of the strong performance with china's big four state-owned banks gaining 1.5% or more. japan's nikkei closed out .4% on its first trading day of the week. investors were encouraged after china's finance minister targeted speculators after the yen hit a one monday high against the dollar. and over in seoul stocks reversed earlier losses, edged higher. oil refiners rose as bargain hunters jumped in on one of the worst sectors this year. the awe australian market up 1% as well extending gains to three consecutive sessions. india sensex is riding the momentum as well. ross, back to you. >> thank you. google's 20th employee, maris is a myers starts as yahoo!'s ceo today. can she change the company's fortune around. smart move? what does it tell you? you can e-mail us at worldwi worldwide@cnbc.com. still to come after the break wild head out to milan as moody cuts the rates of italy's two major banks. more to come. 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[singing] hoveround takes me where i wanna go. call or log on to hoveround.com to find out where a hoveround can take you! . welcome back to the program this morning. moody's has cut the credit ratings of a range of italian banks following last week's downgrade of the sovereign. we have more details on this story. perhaps not too surprising but nevertheless telling move here for moody's. >> reporter: absolutely. it was not a surprise. in fact you can see by how these banks are reacting this was a move that was pretty much in the prize so you are seeing both italy's two largest banks in positive territory today. it's a calm session so to speak here but intesa is up by 1%. moody's did cut italy's government debt by two notches above junk level and these banks here this morning were cut from a3 rating to ba2 with a negative outlook. this is something to watch out for but the market is not hovering on too much. as far as these two large banks are concerned and in general bank exposure has increased by 60 billion in terms of government debt here so of course there's a continued situation that is increasing in terms of government debt exposure. what moody's says the government may be unable to provide financial support to its banks if the situation continues. as far as the treasury they did say that there's solid demand at last auction that did in fact confirm confidence in italian bonds. yields are above 6% level and the spread is hovering at the 490 level. back to you. >> a new study by management consultant warns that profitability at european retail banks is set to drop by 40% as the sector is hit by new regulations. only the least of their troubles. the return on equity for retail bank in germany, france, italy and uk is likely to average 6%. that's of course from the current 10%. dave and rich are still withes us. timothy in singapore. dave we're seeing pretty fundamental change going on here as banks figure out what banks are doing, regulation playing a part of that role. where do you see things headed? >> first of all we've heard this story before. it's worth taking it with the grain of salt. we've heard those guys saying the retail profits are about to disappear. you better hire us to help you find more ways. skepticism is warranted. there's ton of new regulations going into effect. the banks are facing these new rules especially in the uk. they need to stock up on equity and rein in businesses. there's definitely a search for more profitability but they are facing tremendous political pressure not to be mean to their customers basically by charging them. >> is the uk's funding scheme going to work or not? >> i don't know. probably not given the lack of success of these past initiatives. >> the "journal" reporting goldman sachs is focusing on private wealth management. does that go against what they are saying or does that tell us different >> goldman is different. upt n it's not a retail bank. they said they are starting a private bank essentially. catering to super rich individuals and businesses. this is something that is moving in this direction already. this is the first time that they said they are really going to go full board. >> is that as profitable what they were doing in the middle of last decade? >> absolutely not. more profitable than a normal retail bank, wealthier customers but definitely a far cry from the, you know, the huge trading businesses that they were raking money in. >> timothy, is there anything for investors at the moment in the global banking sector or not? is everybody wise to stay away from it? >> i think moving a bank portfolio over to this region makes a lot of sense in the hong kong area there's an awful lot of new creation of wealth in this region and the banking sectors are pretty solid with relatively good regulatory background and the problem in the north atlantic region is that thing regulatory environment is going to get tighter and lock down those potential areas of profitability which is seen as maybe less attractive on a political basis but for investor probably what you want to have. so as an investor in the banks, you probably want to shift eastwards. >> okay. thank you very much for coming in. we spent a lot of time talking about banks. we'll goma crow when we come back. uk inflation data out in just a second. we'll be back. these are the headlines from around the globe. bank of england governor presents the financial stability to british lawmakers in half an hour. will he go off script and answer questions about libor fixes. >> ben bern will off more clues about the economy against the backdrop of slowing u.s. job growth and weak u.s. manufacturing. >> alcatel lucent will miss guidelines. >> google's loss is yahoo!'s gain. in a surprise move the company raises its toppest rival, tapping marissa mayer to be its new ceo. june cpi weaker than expected down .4% on the month and the annual rate running at 2.4, expected to be unchanged at 2.8. tilts lowest sin it's the lowest since 2009. you're seeing reaction on sterling. weaker against the dollar. the rpi down 2%. that's weaker than the forecast 3%. rpi is what we try pay attention to. the rpix which was the old favored measure which i miss down running at an annual rate of 2.8%. that was forecast at 3.1%. so all the key measures of inflation in the uk are lower. all services inflation 3.3%. the biggest down contributions to cpi were from clothing, transport and food. cpi falling more than forecast helped by summer sales in some of those key areas as you see sterling is weaker at 1.5626. timothy rendell is with us. let's get a quick reaction. we have more qe coming out from the bank of england. we're waiting to hear what bernanke does as well. when you see this lower inflation number as well is that something that's going to be pervasive across the globe and investors and is that going to feed through. will we see low commodity prices? >> well, first off for the uk, the inflation numbers are high compared to a lot of the global economy. and the pull back in inflation levels is only to be expected. there's some factors globally as we're having a low growth environment, going to keep pulling inflation pressures to the down side. although we've got some grain commodity inflation at the moment or price rises overall, inflation is not a concern on the cup side globally. in fact, it's concern for some economies on the down side. so i really don't see this as being an issue. what policymakers are really going to be more concerned about is credit growth and growth of their economies. and that needs to be pushed along. so having a low level of inflation in the uk is probably helping the bank of england with its policy stance at the moment. >> all right. and let's move on because we got an auction out of spain today. results are due out fairly shortly. we say rise. i think they will fall back from the t auctions. stephane has all the details out of madrid. what are we looking for? >> reporter: the first time that the country will turn to the market, ross, since the announcement of its new round of austerity measures and if you look at the yields, of course, we are looking at lower yields down a few weeks ago but still attentions are there in the market. the austerity measures didn't ease the tension on the bond market. spanish government will auction between 2.5 and 3.5 bonds. the results are due shortly. there's a gain in the market on thursday for 2 to 3 billion euros which makes it 6.5 billion euros this week. ahead of these two auctions the spanish finance minister gave an interview. in this interview it says clearly that the european debt market is not working properly because of the slow decision-making process in the eurozone, in this interview he said that there's no debt operation between the nations in the eurozone, basically italian investors are buying italian debt, spanish investors are buying spanish debt. he believes international investors should have confidence in spain. back to you. >> turning now to what's happening in the global economy here's one way to gauge. there's no rise in rio tinto iron ore output. the ceo says expansion projects will continue despite the global volatility. meanwhile smaller rival, jumped 42%. still sharp growth has been overshadowed in cost overruns. and steven pierce said the firm is look at openings to raise a billion dollars in extra funds. analysts say the cash crunch is likely to fuel speculation that fortescue is the next biggest play in the mining space. >> as the world's largest pure play iron ore producer, the share price is often seen as a barometer for global growth and with 25% correction in the past three months that barometer has been showing no shortage of signs of high pressure. according to some analysts things could change. >> we got a price tag of $7 on fmg and we expect that to be realized in the next few months. >> key to the company's success is a plan to triple it's iron ore out put by next year. an ambitious goal. that's been attracting the attention of some prominent short sellers who has singled the stock out as a value trap. >> we think fortescue is a high risk play. and it's a relatively high cost producer. it's in the higher half of the cost curve. >> fortescue could attract attention of other larger investors. it's seen as a one stop shop. anglo american and glencore are expanding theirs. it's an intriguing prospect that has one major flaw. the company's founder and largest shareholder andrew forest. >> if he were to sell the question is what we would do with the mining and my guess is he would start another mining company. >> one thing that's certain fortescue's future hinges on the cost of iron ore. >> if you take a view that things will go back to something more closely resembling historical prices, then you can only draw one conclusion about this stock in my view that price is key. >> it looks likes fortescue could be showing the pressure for some time to come. okay. joining us now for more from sidney. there's a lot of key risks. do you nevertheless or because of these risks you expect consolidation to continue? >> yes. kelly, good morning. we certainly do see that there are potential signs that there may being a greater consolidation. in fact embedded in what you just reported on fortescue is the increase of cost for developing the new capacity that they are looking to bring in into next year, raising theirual capacity to 71 million tons up to 155 million tons for next year. that $600 million overrun or expected additional cost is one of those key risks we talked about in our report, the ability to bring those project expansions on under cost or at least on schedule and within those cost envelopes. that increasing amount of organic growth exposure they have to increasing costs is actually making with present equity valuations maybe some of the acquisition route as opposed to the new production route looking much more attractive. we think we'll see strategic acquisitions occurring. >> to what degree do you expect resource nationalism which is one of the main risks you highlight this move globally turn inward to reverse globalization and some aspects. do you expect that to stand in the way of some deals that otherwise might to be done? >> look it becomes a relative thing. for instance some of the thing we've seen recently in indonesia stopped some investment going in and indonesia made some changes requiring further beneficiary of investment and put limitations on foreign ownership. that's representative of a couple of countries that's taking that next step further. they still represent a number of alternative investment destination, so the competition for capital and where that investment might be is probably more influenced by what's happening in resource nationalism than actually scaring it away in total because if everybody is doing it it goes into the cost base, it will go into the ultimate price that consumers of these raw materials will pay for. >> question i think now from our guest host. >> tim rendell here. hi. i want to ask about nationalism. >> i'm sorry, i'm having trouble hearing the question. >> can you hear me okay? >> no, i can't. >> don't worry, oil pick it up. i want to talk about, if we got an industry that plans greater production than the market warrants and dealing with higher costs who are the producers that are is going to win in this environment and who will lose out? >> well if you look at iron ore we had historic high prices. while there's a lot of focus on prices dropping down from the high levels of the 140 level, fortescue is lower quality iron ore, you're talking about producers that have cash cost somewhere down in the $50 range. there's a very significant margin that exists for iron ore producers today. while there may relative degrees of profitability most of the larger producers today still have such significant margins that even price decreases that we're seeing and might be predicted in the future shouldn't impact them tot schoolly. one of the reasons that rio's results in terms of production has held up so well and what fort escue is doing is china is the balance of this. everything being produced is being sold to china and china is providing the buffer. >> we got some breaking results on spain's latest debt auction. we appreciate your time. mike eliot. spain t-bill auctions, 2.6 billion, 12 month bills. they sell 2.4 billion at the previous auction. the bid to cover 2.2. similar amount. and .96 of 18 month bills. they sold a little bit more. the bid to cover on that 3.7 versus 4.4. i'm still waiting for the yields. we don't expect the yields to come down. the 18 month treasury bill maximum yield, the 12 month, 3.99%. that's lower than in fact -- we knew it would be lower. i'm trying to work it out with the grain market yesterday. it was 3.99, yesterday it was 3.5. higher. the 18 month yield 4.35, it was 5.3. lower than june. slightly higher actually than the secondary markets were suggesting yesterday on those yields. >> the bid to cover on that 18 month has come in a bit from the last time spain auction bid. people are showing up but not as enthusiastically. >> general motors reports losses in europe. according to the "wall street journal" which shows gm fired its european chief and ceo of its unit. opal is likely to choose a chief executive at a board meeting today. >> peugeot's decision to cut its plant and cut 8,000 jobs will save the company 108 million euros. peugeot has warned their manufacturing division is burning through 200 million youroos month and their first time operating loss was close to 700 million euros. so joining us now to get an understanding of what's happening in the global auto sectors, head of automotive research at credit suisse. we heard so much about the strength of the auto sector in the first radiator the year. what's happening now >> the situation will continue to be extremely tough in europe. competition in the mass market segments are huge. and we believe that over capacity is around 25% to bring back the mass market in europe to a more break even level. you got to understand that rough lui 60% of the cars that are being sold in europe are sold at a loss. >> 25% over capacity. so what happens? how does the sector continue to shrink to what demand currently is? >> the very sad truth, obviously, for many people involved is that more plants have to be closed. but i also think this is not the only part of the solution. we have too many brands in europe that are competing at irrational prices and if you have too many players, obviously everybody is trying to keep capacity up and running so, cutting capacity is just one part of the answer. >> and we're clearly seeing a political response here, political tlomt this story, auto sector being such a big employer. is that preventing the sector from making needed corrections in toward get back to profitability? >> we've seen that in other industries that they are declared to be systematic relevant. the same applies to the auto industry. i always struggle to understand why, you know, say 3,000 job losses at a car manufacturing plant cause such a huge media and political outcry whereas we have suppliers in other companies disappearing every day unnoticed. so i think the industry is too political, the whole debate is too geared up. that's why we personally at credit suisse believe we need a czar to coordinate an industry wide restructuring. >> will that happen? >> i don't know. we've seen what happened in the u.s., the u.s. took out roughly 25% capacity. the industry is now profitable at a much, much lower volume level. we've seen pricing restored, inventories restored. so i think the european politicians should take an example, looking at what happened in the u.s. and take similar action. >> such a big difference isn't there between what carmakers are reporting in sales in europe and what they are reporting elsewhere in china. what are the ratios going to look like. if you like at the germany luxury makers, what will it took like car sales in emerging markets versus western european car sales. >> if you look at the profit stream even for good makers like bmw or volkswagen, 75% of the markets come from outside of europe. exports to china, to u.s. to other emerging markets is huge. that's where german carmakers are generating 14%, 15% margins easily. this is helped by favorable currency and in europe it's a barely profitable business even for the better players. >> thanks for that. we're looking at the weaker euro and going -- >> that's true. that has been a key benefit, i think. still to come on the show, yahoo! has appointed former google executive, marissa mayer as its new ceo. will she be able to reverse three years of losses at the company? we'll leave you with a view of the executives that have headed the group since it was founded in 1995. we'll be right back. . you are watching "worldwide exchange". google's 20th employee marissa mayer starts her first day as yahoo!'s ceo today. she's, in fact, pregnant as well. try that one on for size. can she turn yahoo!'s fortunes around and take on her former employer. what tuning? tweet us or e-mail us as worldwide@cnbc.com. reach us directly at kelly evans or ross westgate. >> marissa mayer being named ceo of yahoo! of course marissa mayer one of the most senior executives at google. she's been in charge of the look and feel of google, virtually everything you touch on google, the home page, the search screen, the gmail, google news, google images and google maps, it's a surprise move for marissa mayer to leave google. as i said she was the 20th employee of that company. she will be joining yahoo!. there was an expectation that ross levinson the current interim ceo who took over after scott thompson left that company after questions of his resume, he would become the ceo but today the big surprise across silicon valley is marissa mayer will take that role. the big question is whether she's up to the challenge and recruit the talent that's necessary. and whether they will be able to revive the fortunes of yahoo! which has been under question. back to you. >> timothy rendell is still with us. timothy your reaction to this news. is this telling for these companies? what do you make of it? >> i think it's intriguing that we're getting some cross fertilization in the market. to show people can move from one tech company to another shows they are established business, they are growing from young aggressive or immature companies into companies that have stature and i think it's healthy that we can see this cross move. >> is that at that reason to invest or a reason to stay clear? >> i think still a lot of growth potential. i'm a bit worried about some of the social networking aspects, over saturating the markets. i've unfortunately been out of the whole facebook investment process. maybe i'm the wrong person to ask about that. >> if you've been out of the investment person process maybe you're just the person to ask about that. nevertheless i want to get your broader thoughts on investment strategy here while we have you on the program. put tech in perspective for us in what you are saying to clients in terms of investment strategy at the moment. >> yeah. we're much more a defensive profile. we still see that global growth momentum is low. it's slowing. we don't see it as tailing off in an aggressive fashion. we're looking for to it bottom out during this current quarter. we've come from a lower peak in growth profiles in the first quarter of this year than the previous couple of years. but momentum is not ascending. we're defensive. we're looking at countries offering yield. so still very much on a yield and safe haven basis at the moment. we need to get some definite response prs the europeans to give us clarity about what they are doing, how they are going to recapitalize the banks. i thought it was interesting what your previous guests of saying about the owner sanction in europe. it needs to be recapitalized and reconstructed the banking sector in europe as well they need to second lie date and reform. that's is going take some time and going to depress overall activity in europe. the other thing we're looking for is what sort of a push are we going to get from the chinese, how quickly can the investment profiles that they already have in place but just weren't coming through the system are going to kick off demand across the whole region and asia. and also into australia. that's going to be critical. that can come through then i would suggest we should be looking at the manufacturing sectors of the asian economy as areas to get involved with, big boost on things like housing in china, big boosts on the rail network which was announced about ten days ago and given another fill up over the weekend. those are areas that could give us a drive and i think they are probably a better bang for the buck than the tech sector in the near term. >> you qualified that by saying if we get these measures. how likely is it? >> pretty likely. the emphasis how quickly they are going to come through in terms of boosting production levels in china. the ifs on whether we'll get a policy is more to do with europe. so the policy moves, the initiatives on build investment are there in china they just need to be pushed through. the authorities over the last month or so have said and made it clear now that they really want to push this along. and it's how quickly that comes through in creating final demand that is going to be the real killer for us. >> that was an impressive answer. >> it was. thank for that. timothy riddell joining us. >> bank of england governor could be asked about libor as he goes before parliament today and we'll bring you that live testimony. don't go anywhere. welcome to "worldwide exchange". this i'm kelly evans. >> i'm ross westgate. >> better news for boe governor as intlaflation drops on uk, financial stability could get hijacked on questions about libor. >> ben bernanke may offer more clues on the economic stability. snoous senate panel to question hsbc over its handling of $15 billion funds. >> google's loss is yahoo!'s gain. tapping marissa mayer to be its new ceo. okay. waiting for king to testify. before i tell you what's going on i'll bring you up to speed. economic sentiment indicator, expectations minus 19.6. weaker than the 16.9 we had in june. kind of what we were looking for. looking for it to be around 20. current conditions 21.1 lower than the 33.2 in june. the economic expectations forecast around 20, current conditions are forecast at 29.5. current conditions have certainly seen a bigger fall than we might have expected and they say the economic expectations fall is for the third month in a row. the decline in economic expectations for 2012 they say is flattening out gently. this is a survey of pretty much investors in germany. very much swings around with whatever the prevailing market sentiment is. just enough to take the dax down from its session highs and euro/dollar, dollar has been weaker across the board pretty much ahead of testimony from ben bernanke later. meanwhile we're waiting for mervyn king to testify. the hearing is scheduled to present bank of england latest stability report likely to be overshadowed by the libor scandal as king faces on what he did or didn't know about the rate fixing. he did have some better news, kelly ahead of this hearing. annual cpi falling down 2.4%. it was forecast to stay unchanged at 2.8. so the bank has been under pressure for failing with its inflation targets for a long period of time, they've restarted qe but now seems to be going their way on that score. whether the libor stuff goes his way we have to wait and see. >> we'll bring that as soon as we hear from the governor. let's check markets. we have some green here across the board important temple university as we look to roll from monday to tuesday. given history that may be enough. dow jones pointed higher by 35 points for the open. nasdaq higher by 11. s&p 500 higher by five points. european markets though also give a sense of the sentiment across the board. ibex 35 is up 1% at this point. this after an auction of spanish desht raised more money than expected and at lower yields than last time. cac in paris up less than half a percent. only the ftse 100 is the major force and down 0.01%. quick check of bonds. my favorite. we'll see how the curve is pointing. the u.s. ten year is one that got a lot of attention yesterday as the five erfell to a new record low. that ten year at 1.4757%. uk just slightly higher. spain, 6.845%. we're seeing yields on the ten year rise even though the auction of 12 and 18 month bills went off somewhat better than expected. in germany, 1.245 is the yield on that. so that's moving back up a little bit. kind of a mixed picture. euro/dollar up 0.15%. just show you these pictures here from the treasury secretary meeting here in london. mervyn king along with others are about to appear here and it's about financial stability but we do believe many members will be asking about what he knew about libor fixing, and the role, of course in barclays. let's hear what he has to say here. >> decided he should himself resign and i'm reading from the uncorrected transcript. i thought that was a nominal decision but i thought it was a decision that surprised me. had you made it clear in your conversation at barclays that you were referring in your expression of concerns about barclays to the chief executive? >> oh, yes. absolutely clearly the discussion i had with marcus agius was about the position of bob diamond. i said i'm sure you are considering whether you can continue as ceo and i said let me be clear, we are, have not found anything against bob diamond so we're not in a position, we are not giving an instruction or direction that we do not consider him fit or improper or appropriate to do this job, but you have to think about whether he, and it was very clearly he, was the right person both to lead the substantive change which was regarding the culture, given his association with some of the things in the past, and i also stressed and i think it is an important thing that it needed to be, they needed to think about whether they thought he was capable of leading that substantive change substantively but also whether the external world will perceive that because i think perception is part of the reality in these circumstances and something they have to take into account. and i put it, i said you have to think about whether that is something which bob diamond will find impossible to do and as i said last night he said or simply too difficult to do. so i was -- it was absolutely clear we were talking about the role of bob diamond. >> well, you may not always be brief but i think it's fair to say you're always clear. was there any stop at all for a reasonable man to misunderstand what you were saying? >> no. we were talking about bob diamond. it was clear. one thing i said, one thing you have to think about is whether bob as a brand is just, you know, hold below the water. i don't know if i used that phrase. whether the bob in the brand is something that won't work. there can be no doubt that we were having a conversation about whether bob diamond was the person both substantively to lead the change which was required, and i may have stressed this that they also have to consider this whether the external world would believe that was the case even if they believed that was the case because that's an important factor in these circumstances. >> so you were handing the chairman of barclays a revolver and you were telling him to go and shoot his chief executive? >> no, i don't think that is quite right. i think that's an arresting way of putting it. i think i was doing precisely what i said i was doing. the issues you have to think about as a board. >> on the basis of what you said, those where is the scope for the bullet to miss? >> i think if they had really come back with a compelling answer as to why they believed that bob diamond was right, we might have been convinced about that. i have to say and i said last night to you that at the end of that conversation, i had discussed in advance with andrew bailey what i would say and i rang him fairly immediately afterwards and i said look, i'll be quite surprised if the net effect is not that bob diamond resigns. >> so you thought that you probably had handed over a revolver. >> thought the most likely result would be that bob diamond would result. in fact what he did he did take the revolver and decided to shoot himself. yes. and as i said last night i think that was an honorable thing to do. i think mr. agius thought it was the right thing to do. it was not what i was expecting him to do. and i have to be blunt, i did not think it was the most sensible decision in the circumstances. but we were not informed before hand of his intention to do that, indeed actually i think it came out that it had actually leaked out already even before he completed the full discussion with his board or something like that. but it leaked out and i saw it as a fait accompli. >> give you are the regulator, the governor of the bank got involved? >> i think it's completely -- >> why weren't you -- i didn't ask you that. i asked you why, i asked you the appropriateness. why didn't you take this through this process through to its conclusion? why did the governor of the bank become involved? >> on the monday, the governor and i had a conversation. the governor was of the opinion that he should also have a meeting with mr. agius and in fact mr. rake and i thought that was a sensible thing to do. the governor has regular meetings and always had regular meetings with the chairman and chief executive of major banks. this was also an issue, by the way, of our appropriate approach to this issue, which we had discussed, the governor, myself and andrew bailey on the thursday, actually when we were doing the rehearsal for the f pc press conference on the friday, we had decided the appropriate line that we should all take at that time and you'll see that reflected. >> for additional background. my question is quite direct which is why did you not handle this situation to its conclusion as the chairman? >> thought it was appropriate for the governor to see mr. agius and to put over a message as well and it was a message which -- >> why? >> -- the governor and i discussed. >> he has no regulatory authority? >> the role of the bank of england in terms of the need for banks to feel that they have the confidence of the bank of england i think is something which has continued despite the regulatory change of 1997. i think it's appropriate. i think it is -- one of the reasons why we're absolutely right to do what we got to do next year and bring regulation back next to the bank of england into the bank of england because i think that tissue of whether the bank of england as a liquidity provider to the banks has confidence in the banks is integrally linked with the appropriate regulatory stops. i don't see a prop with the governor of the bank of england choosing to see the chairman and chief executive, if they want or the chairman in this case in order to express a point of view, a point ever view which we had discussed during the course of the afternoon and fully agreed on. >> that was a long reply. >> i hope it was clear. >> clearer than some of your earlier reprice. let's have one more go. you are the regulatory. you have the statutory authority to perform this function. but you pass to it a body that does not have the statutory to do this. >> let's be clear. neither i nor the governor were giving a regulatory instruction. that's clear. that's been clear from both of us were giving a consistent message that they needed to think very clearly about whether bob diamond could have the confidence not only of the market but of the external world to make the substantial change and that we were not certain that that was the case. >> at obfuscating the sense of point that once you had turned up with this revolver in hand it was perfectly clear what you were expecting him to do with it and you just told us that. even though you don't like the image, in fact what was going on. you're the regulator with the authority to make those sorts of remarks. aren't you? >> it's not our authority except in positions where we have found somebody to be not fit and proper to actually give a direction. >> this is refuge in technical -- >> no, it's also worth saying the role of the governor, i think is -- >> what other institutions do you think might go around telling chief executives of major institutions that -- >> well none other in the financial space than the fsa or the bank of england. it should fall between the fsa and the bank of england and i think i would stress is the fact that the fsa became the regulator in 1997 did not change the legitimate role of the governor of the bank of england in having a point of view on the confidence of the bank, the bank of england in the leadership of the major banks given crucially the bank of england has to decide whether it is willing to provide liquidity support for banks. >> i don't think it bears pursuing that line ever questioning further. before you took this decision to make these points to marcus agius, what process took place in the fsa to consider the correctness of the decision? what government process? >> it was entirely based on conversations between myself and andrew bailey. >> was there a meeting. a subcommittee of board? >> no, we did not do it in that fashion. >> why not? >> i think it's reasonable in these circumstances for the most senior regulator, the person directly involve as was described yesterday in the statement to the board in february and myself to make a decision which let's be clear if it had been a direction, if we were finding him not fit and proper then we would have had to go through a legal process. given that's not what we were doing we were encouraging them to think very clearly about the challenge. it's reasonable for us to make that decision. >> if you do it through the power of direction you should use a formal route but if you don't do it through the power of direction it's reasonable to make remarks like this to a chairman informally, is that your view? >> i think it would have been very odd if i did it myself without discussing it in considerable depth. i agree. if hit been a formal direction i think it would have been essential to have a formal process. >> lord turner, to have confidence in the decisions that you're taking, but what about some successor which will be in the bank at some future time, who may -- >> okay, you've been hearing more testimony from lord turn e-been called back in front of the treasury select committee to talk about this decision surrounding trying to get bob diamond to step down. we'll go back when he moves on to mervyn king. why he got involved to get bob diamond involved. in some ways this is a great news story. of course, actually what does it mean for investors? >> well, i think investors now are looking at the banks and saying, you know, if you go back to the start of this sort of century, bank are pretty safe. most people held banks for solid dividend yields and they kind of did sensible things, took deposits in the morning, lent in the afternoon and didn't do a lot of other things. actually were the back bone of the sort of society. then they got carried away and you could argue when labor took all regulation away from the bank of england and the banks went crazy and even now the gdp of the country say 100, that some of the bank branches in the uk are 450, four and a halftime gdp. contrast that to america it's .6. massive difference. we're sitting here watching -- i'm sure figures have gone through the roof on this last section, listening to the testimony. but the point is that people want to get back to the situation where they actually under how banks worse. >> how do they do that? to your point if bank assets or the size of the banking industry is four and a half times of the economy any shrinkage will have negative, at least near term implications on growth. so, you know, if you're bringing -- you're in a pickle. >> you shrink back to what you know. basically if you got all these overseas activities, so if you're barclays and you got lehman's investment bang and you're bank of scotland you got other things, lloyds, people shrink back to their own economy. >> can you go back from 450 to 100. can you get one to one between the size of your banking sector and the size of the economy. >> more importantly is looking at the relationship between deposits and loans because, you know, if you have -- if deposits equal loans then actually the banks only lending the money they are taking in, they are not relaying on the wholesale markets barring from inflationary banks. the last time deposits and loan were in balance was in, at the end of 1999. >> where are they now? >> if you look at it now. world bank of scotland. even the gdp, at least they've been funded by retail deposits. lloyd's still has some work to do. and barclays. the banks are going back to what was traditional banking. >> okay. let's just dip back in, mervyn king is now answering some questions. >> why did you, in practice, you can argue, you can dance on the head of a pin about fitness and prove den but in practice you were sending a message of a very similar nature. we just had a discussion on that and lord turn certificate in agreement. why did you change your mind five days later and apply pressure and get involved in applying rush for bob diamond to go? >> i don't think it's dancing on the head of a pin. there's a difference between legal question and whether someone is fit or proper which is for the fsa to determine and the events that led up to the conversation that i had with the chairman and senior independent director. on the sunday late afternoon, early evening, i discovered that the chairman had resigned. i, first of all, wanted to find out whether either lord turner or the chancellor had been involved in discussions that led up to that and i discovered that all three of us, in fact, had learn from the bbc website of the resignation of the chairman which i found rather odd. >> also we're very concerned that the old man got shot. >> well i felt the consequence of that was that the firm was now in a very difficult position and although as lord turner said it was an honorable decision of mr. agius to resign he had inadvertently put any perspective new chairman in an impossible position because they would either have to deunanimous removal of the chief executive to take the job or buy into the chief executive with serious worries down the road with further inquiry, possible criminal prosecutions and who knows whatever else may be revealed which would mean if the chief executive were subsequent try to depart it would have tarnished the reputation avenue incoming chairman. i thought they had not thought through the consequence of this and indeed it turns out when i had the meeting on the monday that the board, on the friday night had discussed the position of the chairman in his absence, probably, and actually asked him to stay on. so the board itself was taken aback, i think, when mr. agius resigned and as lord turner intimated this leaked out and became a fait accompli. so i decided the proper thing for me to do to have a conversation with the chairman and senior independent director precisely because, and i made it very clear to the two of them, i was not speak being for the government, though i did inform the chancellor i was having a meeting, but i made it clear to the chance lower that i was not speaking on behalf of the government or on behalf of the fsa as a regulator but i wanted the chairman and senior independent director to be conscious of a concern which the regulators had raised. lord turnerer and andrew bailey shared with me for many months their concern about barclays. if you read lord turner's letter of april to agius it could hardly be clearer. very powerful and strong letter and when i met the two of them it became clear to me that they hadn't taken on board the loss of confidence of the regulators in the executive management. and the point of my meeting with them the office say look you really need to understand the depths of the concerns of the regulators have about the executive management and i want you to go away and reflect on that. >> why didn't you say when consulted fine to be consulted, i agree with the course of action, lord turner, get on with it. why did you allow yourself to be dragged into this when you have no statutory authority? >> because, i think, what had happened over many months is that the board at barclays had been in something of a state of denial about the concerns of the regulators and i wanted to make sure that they understood those concerns had been shared with the bank. they weren't just the kind of comment made in one letter or a meeting, there was genuine and deep concerns and they ought to take it seriously. >> seems to me whatever the merits of this, we do need urgently some governance put in place both in the fsa and in the bank to offer some protection against arbitrary meetings of this type taking place. >> i don't share that view. >> what governance is in place in the bank? >> this was not a decision. >> did you discuss this at all with anybody else in the bank? >> discussed with it our chief legal adviceor. i couldn't discuss with it my two deputy governors. >> even the deputy governors were not involved. >> couldn't be. it would have compromised mr. tucker because of the nature of the allegations that were made. >> what about the chairman of the court? >> no. >> so nobody. there's no -- nobody who -- >> the chief legal advisor. i spoke to lord turner and mr. bailey. >> just another gaping hole for the bank? >> no, it's not. not at all. you don't need a governance situation in order to have a conversation. >> it's not just a conversation. hi, what's the weather like. this is about handing someone a revolver and go off and shoot his chief executive. >> there was no suggestion. i don't like these firearm analogies and they are false. the question was left absolutely with him. i made it clear. i finished the meeting by saying i would like you to make clear to the board that the regulators have expressed these concern and the board as a whole needs to know they are very concerned and have lost confidence in the executive management. i did not know what the outcome of that meeting would be. it was left to them to discuss it with their board. >> when we asked you why the run up to the crisis over both northern rock and problems over rbs and the take over, you told us that you had the bank's position heavily was s circumdescribed and something clearly or rated and had no statutory authority. >> that's not true. i spoke to our chief legal advice to determine carefully what i could and could not say. the world has changed. we'll now be the regulator. >> i was talking did -- >> i can finish. >> we are talking about now. >> i'm trying to explain. let me finish. what has changed is in the past 18 months the regulatory part of fsa has worked very closely with me and others in the bank to move towards a new regulatory framework so we are already involved. prior to 2010 i would not have felt able to carry out this conversation because i would not have known nothing about the letter lord turner sent or the conversation andrew bailey sent or the concerns they had that had been building up and i would have had no basis of information in which to carry out that conversation. now we have been fully informed and we've been involved in these conversations and i think all of us involved have built up a genuine concern that it is possible to sail close to the wind once, if you sail close to the wind twice, maybe even three times. when it gets to four or five times it becomes a regular pattern of behavior you do have to answer questions about the nafr investigational skills of the captain on the bridge. that's what lord turner and andrew bailey made clear to the board. it seems to me the result the chairman resigned the members of the board had not fully understood the nature of the concerns and i thought it would be helpful to make sure they did understand. >> the scope of misunderstanding is infinite in this libor scandal even this conversation which you've told me, lord turner left no room for doubt. seems to have generated a good deal of confusion. it sounds as if the confusion is that on the part of the regulated community in this case. >> that's absolutely false. the barclays board and it was truly my meet go to was deeply reluctant to face up the concerns that lord turner and andrew bailey suggested. they thought they would tough it out. they were not convinced the regulators lost confidence. i put it to them very clearly and the senior independent director said to me until today we have not, i as senior independent director had not been fully ware of the loss of confidence of the regulators and the executive. >> lord turner just told us that he made it absolutely -- >> to mr. agius. i'm referring to the views of the senior independent director who said we have not realized until today how serious the concerns -- >> that's clear. that means there was a failure of communication between the senior independent director and the chairman of barclays. >> that's for others. i can't answer to that. >> which is just another part of the sorry tail of miscommunication. >> we'll continue monitor that. says barclays is in denial. he's been questioned by lawmakers. other headlines we're following today. >> ben bernanke may offer more clues about future fed policy when he was the before congress on the economy against the backdrop of slowing job growth and weak u.s. manufacturing. >> u.s. senate panel is to question hsbc of its handling. >> yahoo!'s gain is google's loss. tapping marissa mayer to be its now ceo. we been listening to testimony in the uk where we've been hearing from lord turner, the fsa, regulator, handing over many powers of the bank of england. they have been concentrating questions on who knew what and who said what to whom around eventual dismissal of bob diamond. now they moved on from that and now talking about the libor submissions and treasury secretary's geithner's emails as well. let's listen a little bit -- i think -- we'll come back to it in a second. apparently mervyn king said he solicited e-mail from geithner is what he's talking about only bore worries. so we'll get into that in a second. kelly, a lot of other things going on. >> yahoo! has reached inside google's ranks plugging marissa mayer to be its new ceo. mayer joined google in 1999. known as employee number 20. overseen its maps and local search business. she had been on the short list ofia loo's board. she will become the company's sixth ceo and tells the "financial times" she wants to restore yahoo!'s stature as a tech innovator. yahoo! reports earnings after the close today but mayer will skip that conference call. joining us from hong kong principal of ibc asia-pacific. claus, is this a game change are for yahoo!? >> well it certainly be. they've gone through so many ceos they need a home run or try depending on where you from. but they do seem to have made a good hire with marissa mayer. she's from a strong background. has a strong engineering background and one of the stars at google. the big question, of course, is what will the board let her do. i think the investors in general will be very happy with the appointment of marissa mayer, but they still have questions about the board and how much interference she will have the boar. we know she's known for attention to detail forks use on design as well and used it as a sign for services that google had. not just search. it's something they needed at google. they needed somebody to get them back to basics. and the types of service they should be offering. >> what does this mean for google sign google? >> marissa mayer just saw a good opportunity and went for it. i don't think the impact on google will be any, will be significant. they got a huge talent pool themselves and they fine i want very easy to hire people. yahoo! has been facing brain drain in the last few years and only gotten worse lately and marissa mayer will probably be in a position to reverse that and start attracting new talent and design and development talent that yahoo! needs. >> i was wondering if andy has a view on the implications of this move. >> i think one person to try and turn around the fortunes of yahoo! when the life of google and these other firms are long way ahead is asking something. >> they have to do something. >> something. where they actually fit in the framework now. google has a search engine and apple is doing the same thing. yahoo! having been the sort of leader, e maim address to hunt somewhere stems have just disappeared on myspace. you can have put a fantastic person on myspace but could they turn it around given what facebook has done. when you path good person into a bad business it's a bad business that tends to keep its reputation. >> claus, do you agree? >> the question is this more significant than hiring one person. it could be there's lots of conditions attached for marissa mayer to actually accept the job and that could be that they will perhaps not be looking at short term gains in the next few seasons or quarters but defining what the company is. it's a company limbo for the last few years. they've tried to become a media company but i don't think they had a clear vision of what a media company was or what type of media company they were. other areas that they used to be strong in, search, the train has left the station. they are not on it any more. that's one of the thing we have to see with marissa mayer. i sincerely hope she doesn't make yahoo! into another google. she has to focus and help management and the whom company focus on where their place s-what they want to do, what type of service they want to offer in the future. >> claus, thanks very much for your time. >> treasury select hearing has moved on and back into the libor scandal. paul tucker is currently speaking and moved on the earn males and discussions they with timothy geithner. he said discussions only bore in 2008 were not framed in the context of misreporting. new york fed to deliver misreport diagnose not raise alarm bells about dishonesty. mervyn king said he advised timothy geithner to right to him with the new york fed's libor recommendations in 2008. he said tucker had urged the british banks to have a wide ranging consultation only bore as well back in 2008. the bank of england had various meetings with the bba only bore improvement. didn't appear to have any impact. suit certa but certainly a lot of pressure being applied. i look at all of this and you look at the key players. where does it leave regulator structure particularly in terms of generating investors confidence in the system, in the banks themselves and actually in the uk? >> i think, you know, if you go back, regulation in '87, in those days, it was a light touch but everyone knew the rules. everyone kind of played by the rules and things western that complicated. it's only with this great explosion in the financial sector and the fact that the labor party took the regulation away from the bank of england, created the fsa, et cetera so, you had two regulators trying to do the same job and things falling in the cracks in between. now because everything has gone wrong the regulators have rubbed their hands boys and girls now is the time to go out and employ thousands and thousands of people and we're going to check everything. so regulation has gone completely over the top. now, i accept that you got to having regulators. but people are going to lose entrepreneurial zeal if you like if regulators just try to control everything. >> not more regulation, smarter regulation. >> you need more of it, top down sort of regulation. you need someone in there saying 125% mortgage is mad. let's cut it straightaway. >> we'll leave it there for a time being. we'll give you a sense of what we expect. federal reserve ben bernanke will kick off day one of his semi annual testimony on the economy at 10:00 a.m. that's the first leg of this today. bernanke is expected to express concern about recent data and continued high unemployment. but stop short prove avoiding a timetable on further fed easing. joining us now is former dallas fed bank president, currently a fellow at policy analysis. good morning. bob what do you expect to hear from the chairman today? >> just about what you said. i don't think he's going to announce any new programs, but he will give a comprehensive review of the economy and, unfortunately, he's going to be describing an economy that has gotten weaker over the last several weeks and months. and at the same time the inflation rate has come down further, so in the context of the dual mandate it seems like he's getting closer to the circumstances where some sort of additional easing will be needed. however, i doubt that it would be announced in testimony. they will wait, i think, if they do it to do it at an foc meeting. >> we've now seen a three month span of decline. typically happens around the time that the economy is falling into recession. second quarter projections have been taken down below 1% in some cases. how troubled are you about the situation, the u.s. is presently in? >> pretty much. the last two gdp numbers were weak. the 3% gdp number in the fourth quarter was only 1.1 if you take out inventory accumulation. so we already had two quarters of gdp that's really below 2%. and if this one comes in below 1% or even below 2%, it will be three in a row. we've also had three bad employment months in a row in addition to the three retail sales months in a row. so it's accumulating. >> how much more accumulative data do we need before we get further action then? >> well, i don't know to the extent that they count what they did in extending operation twist to be meaningful. we have that. however, by definition that is sterilized and doesn't add to the assets of the fed's balance sheet. i think the most important thing for the fed to do is to make sure that those assets don't shrink. there's been no real net growth in fed assets over the past year. operation twist didn't cause it to grow and we want the money supply, it's finally gotten to growing after a long time where it didn't. we want the money supply to gradually increase, we want bank lending to continue to pick up. and that's what quantitative easing could do. people say you don't need quantitative easing because interest rates are already very low, are just looking at one aspect of monetary policy interest rates. i was brought up on milton freeman economics and the money supply to me is the most important part of monetary policy. >> don't you think we just need a complete rethink rather than spending all this money in america on welfare, et cetera, et cetera, we're better off pouring it into infrastructure and, i hear what you said about milton freeman surely it doesn't seem to me that quantitative easing is working and we need to get back to old fashion keynesian economics to pay people to build a road and we need infrastructure and saying okay let's get the economy working that way and increase the money supply? >> well, i think you're right that the problem with the recession is aggregate demand and we do have infrastructure needs. it's cheap for governments to borrow right now. the dilemma we have what we need to do to stimulate the economy will make the fiscal situation and what we do for the fiscal situation will weaken the economy. it's a delicate balancing act. we need to put fiscal measures in place and put entitlement reforms in place that will work over the next several years. rather than have much -- we don't need any austerity right now. 10% recession. >> i want to invest in a company that's capable of growing its top line so generating a level of profitability and cash, reduce their debts and give me a bigger dividend. seems to me, you know, at least the u.s. government is trying to sort of grow its top line, where every where else the tax revenue is falling. do you think the way they are growing or trying to grow it will achieve or run into a wall slightly later than european economies? >> well, i don't think our politicians and fiscal authorities are doing very much. we have the fiscal cliff looming at the end the year, as you know where we're going to get automatic arbitrary spending cuts and we're going to have a massive tax increase if they don't do something to modify and moderate that. it's brinksmanship, playing chicken. not a good way at all to conduct policy. >> appreciate all of your thoughts on that this morning. unfortunately, not the best news in the world, ross on the u.s. economy. but if you're just joining us you're watching "worldwide exchange" this morning and these are your headlines. bank of england governor says barclays was in denial about regulators to concerns as he's questioned over the central bank's role in the libor affair. some clues on future fed policy may come from chairman ben bernanke's testimony before congress later today and yahoo! names former google executive marissa mayer as its new ceo. >> mervyn king and other members are testifying. we have an extraordinary spat developing between the governor of bank of england and timothy geithner. mervyn king said geithner had no evidence of misreporting although he said barclays was understating borrowing cost. nobody at new york fed gave us any evidence of wrongdoing. this is after paul tucker says he wasn't sure he addressed his mind to what geithner meant by deliberate misreporting of libor. let's listen into more of this developing discussion. >> whether it was at that meeting or a bilateral with mr. geithner i no longer remember but everyone had been concerned about the behavior of libor because this was something that, the particular concern was dollar/libor not so much sterling/libor, but dollar/libor. through the period of '07 and ultimately through october of '08 it was moving up and down a great deal. libor was like the temperature of a patient. it was how you measured the health of the system. so it was so volatile in moving up and down that everyone was thinking of ways in which they could introduce policies that would bring libor rates back down to where they normally were in relation to official policy rates. so we had a conversation bba we want them to carry out a consultation, we would like to you submit thoughts and ideas that you have about the future of libor to the bba or to us and we'll make sure that there's a full discussion of that. >> okay. you mentioned concerns and volatility, talked about bringing libor rates down closer to the official borrowing rays. that's quite important. are you saying there was a policy desire shared across central banks to bring libor rates down? >> this is like the temperature when a patient is sick you want to bring the temperature of the patient down. but there's a world of difference between trying to think what measures you can adopt to bring the temperature of the patient down and actually tempering with a thermometer. yes the libor rate was demonstrating that banks were very reluctant to lend to each other and there were times in september of '07 and october of '08 where banks were unwilling to tloend each other where libor was almost non-existent. >> there's a difference between seeing this measure is faulty when banks are not lending to one another and policy desire to bring interest rate of libor, those are two different things. the first is let's measure what's -- >> absolutely. >> the second is a policy desire. >> i think because the height of libor was a measure of a sickness of the patient. and after '07 initially as we went through end of '07 beginning of '08 libor came down which seemed to be a reflection, banks were having fewer funding problems, easier for banks to get funding, banks ease i ee ee lend. there were several episodes of this. it illustrates the issue wasn't liquidity it was an underlying concern about the capital position of banks and really the problem was solved only after the recapitalization of the banks here and in the united states and europe which brought the whole thing back down under control. right through this period, libor was used as just like a thermometer. what is it telling us about the health of the banking system. >> i want to read a little bit from the fed's website documents that they published on friday because what we're trying to get to the heart of here is what were these concerns and where is the reliability or misreporting for some reason and the fed says, as market strains intensified to better understand the nature and extent of potential problems of libor, analysts in the markets group, as the markets group. fed gathered more in depth information on april '11 an nachlt from market group inquiried barclays employee in detail. he explained barclays was underreporting its rate to avoid the stigma associated with being an outlier with respect to its libor submissions relative to other participating banks. they go on to say analysts in the markets group then reported on these questions in a briefing report and the briefing note cited that banks were underreporting borrowing rates to avoid signalling weakness. this report was circulated to senior officials and the new york fed, federal reserve board governors and other federal reserve banks, u.s. department of treasury and so on. so it looks like from this that the fed had picked up that barclays were engaged in underreporting their rates. why didn't that send more of a red flag warning going into the uk? >> that was never shared with us. if they had regulatory concerns they would have shared it with the regulator. the federal reserve bank of new york has overlapping relationships with two bodies in the uk, the bank on policy questions and the fsa on regulation. >> it says here new york fed officials also met with representatives from the british bankers association to express their concerns and establish in greater depth the flaws in the libor setting process. the new york fed analysis culminated in sale recommendations to libor which was finalized in late may and in june. mr. fwit quigeithner emailed th governor of the bank. what it says here is that the fed was worried, the fed found out from barclays it was underreport, the fed discussed this with the british bankers association and then emailed you. >> don't know if the federal reserve said to the bba they were concerned about misreporting and falsifying submissions. that certainly is not what they said to us and they didn't pass any of that information to us. >> okay this discussion continues about what the bank of england was told by the new york fed and timothy geithner at the time. it's an extraordinary discussion going on who knew what when and why didn't you raise red flags when the fed told you. >> let's contrast this story to jpmorgan and the whale. $5.8 billion drying to corner derivative markets. that's far more i want to be a regulator than what's going on here. >> on what basis. >> how do you let someone have control of this. let's put it in context. one person or department talking bets in the market. here we got someone saying we may have sent the wrong letter in libor but 16 other people sending it in and we took out the top ones. >> that's why we expect much more to come in. we want to bring in steven wood into this conversation. steven, good morning. we're turning our attention the u.s. trading day. an extraordinary event going on here in britain. what are you focusing on? >> well, i think we're still trying to get back to fundamentals. you had a great conversation, the libor investigations rage in the uk. but we got earnings season. we got a slow down in these economies. i think you were discussing it earlier. i think from our perspective is getting our clients to look at long term strategic discipline. volatile environment. the economy is hitting a soft patch in the united states and what that will mean for long term investors is our focus right now. >> steve, what's your best call? >> i think our best call is probably not overreact a the short term information. not over retook the election coming up. we have a fiscal live. a lot of issues facing us right now. ultimately they will be resolved in a meaningful way. not overly optimistic but meaningful cogent way the fiscal cliff coming up. we're looking at a globally diversified portfolio. u.s. equities we like. we're advising our clients to look at the u.s. as a core base camp and then diversify globally. for those who have three to five year time horizon and looking into emerging markets, commodity space, globally diversified portfolio as return it becomes more difficult to find. go further afield to fine it and hang on the as much as you can. right now our call is be at policy and risk assets, don't overreact, and kind of look through the fundamentals. ultimately picking better stocks in this environment. >> steven how might fed testimony or fed future action might adjust your investment strategy? >> well i think the market will like to hear some liquidity talk coming out of mr. bernanke. you had bob on earlier, i'm a big fan of his. there's a couple of ways to look at quantitative easing. one is will it create a stabilization process or this huge positive. where we are at right now, stabilizing the patient counts for an awful lot. the fed will look at that. it will take a number of years to work through. this deleveraging process, still a few more to go, be our assessment. so i think the fed can do a lot more in stabilizing the patient. the fed can print money. that it can do. ultimately you need people. >> cut you off there. we're at the end of the program. we appreciate your thoughts. thanks for staking with us. >> "squawk box" is up next. here in europe we continue coverage of the treasury select committee and testimony from mervyn king. . >> great tv. stay with us. >> if you're in europe we're sticking around. let's go straight back out to that, big argument going on here about whether the new york fed told the bank of england that there was something wrong in the libor market and how wrong it was and why they didn't respond. >> with the scandals where no one saw it because the games weren't being fixed just if there were three balls and 17th over somebody else had made a bet interest and i was very truck and surprised when reading these three reports in changing libor by one basis point were the kind of rigging people were interested in. you would never have noticed that. >> now that we know it was done have you got to the bottom of how it was done. in other words, have you at the bank of england assessed how one trader could manipulate lie for the benefit of their book and what they stood to make from that or have you assessed that they would have had to collude with other banks. >> we're not an investigative body. that's the regulators job. we've only seen these allegations or reports for two weeks now. i want clearly does raise concerns and the regulatory bodies which wish to think carefully about the monitoring of individual transactions. as i say, it is to my mind, my conclusion is that a system based on self-reporting and submissions of the rate that people think they can borrow at is their own judgment is that one that clearly can be manipulated by collusion between the submitters and people trading in almost any other -- >> governor, if you'll forgive if you haven't assessed how it was done how do you know these other markets were not manipulated as well. >> it's only two weeks since these reports landed. >> you've known about it for a considerable amount of time. >> not at all. good morning, fed chairman ben bernanke speaks the whole world listen. we'll appear before a senate banking committee. there is a new ceo atia moop she's a familiar face in silicon valley and she's not 40. quarterly results from goldman sachs, coke and johnson & johnson as "squawk box" begins right now. >> good morning. i'm becky quick along with joe kernen and andrew ross sorkin. >> ben bernanke heading to t

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