PBS NewsHour - 2008-10-09

Channel: malgent

Transcript

Language: English (original, YouTube automatic captions)

[0:00] online.

[0:10] Good evening, I'm Jim Lara. On the

[0:12] NewsHour tonight, the news of this

[0:14] Thursday led again by the financial

[0:16] crisis as the stock market had another

[0:19] huge fall with additional looks at the

[0:21] economic ripple effects on retirees and

[0:24] on the high-tech world of Silicon

[0:26] Valley. Then a campaign roundup with

[0:29] McCain in Wisconsin, Obama in Ohio, and

[0:32] an update of the worries about the war

[0:34] in Afghanistan.

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[1:55] >> Rising fears of global recession pushed

[1:57] Wall Street into a new freef fall today.

[2:00] The Dow Jones Industrial Average plunged

[2:02] below 9,000, exactly one year since

[2:05] hitting an all-time high above 14,000.

[2:09] The route accelerated late in the day as

[2:11] General Motors faced a possible cut in

[2:14] its bond rating. When it was over, the

[2:16] Dow had fallen nearly 679 points to

[2:19] close at 8579.

[2:22] The Nasdaq fell 95 points to close at

[2:25] 1645.

[2:26] As the losses mounted, a top analyst at

[2:29] one firm said, "We're way beyond

[2:31] fundamentals. This is just pure panic.

[2:34] That's all it is." And stocks around the

[2:37] world also retreated. Major indexes in

[2:40] Europe were off another 1 to 2%. Asian

[2:42] markets were mixed. The worldwide

[2:45] selloff continued despite talk of more

[2:47] government action to end the crisis of

[2:50] confidence. The New York Times reported

[2:52] the US Treasury may buy stakes in major

[2:55] banks under the financial rescue plan.

[2:58] It said the goal is to quickly

[3:00] strengthen banks balance sheets and

[3:02] persuade them to resume lending. Britain

[3:05] announced a similar plan yesterday and

[3:08] today White House press secretary Dana

[3:09] Perino confirmed the idea is under

[3:12] consideration here. It was a part of the

[3:15] rescue package that the president

[3:16] supported and it gives the treasury

[3:18] secretary a range of possibilities and

[3:20] investing in uh banks directly was one

[3:24] of those authorities and secretary tre

[3:25] secret secretary Pollson can use that

[3:27] authority as he sees fit.

[3:29] >> White House officials also announced the

[3:31] president will meet with finance

[3:32] ministers of the world's economic powers

[3:35] this weekend. The group of seven nations

[3:38] will gather in Washington under mounting

[3:40] pressure to take strong steps. In London

[3:43] today, British Prime Minister Brown said

[3:45] they understand the need to act.

[3:48] >> I've been talking to President Bush.

[3:49] I've been talking to the European

[3:50] leaders. We'll have a world leaders

[3:52] meeting very soon. I think we're going

[3:53] to have to get agreement on basic

[3:55] principles that underline a banking

[3:56] system. So, what happens in America can

[3:59] no longer infect because something has

[4:01] gone wrong there uh what's happening in

[4:03] Britain.

[4:04] >> World Bank President Robert Zelic urged

[4:06] coordinated action as well and he said

[4:09] wealthy nations must come to the aid of

[4:11] others. He warned that 28 weaker

[4:13] countries are slipping toward the edge,

[4:16] facing growing poverty and hunger.

[4:19] >> The poorest cannot be asked to pay the

[4:21] biggest price. For the poor, the cost of

[4:24] crisis can be lifelong.

[4:27] Children suffer the long-term

[4:29] consequences from short-term economic

[4:32] shocks, and many never fully recover.

[4:35] >> The situation in Iceland also took a new

[4:37] turn for the worse today. The government

[4:39] seized control of the country's largest

[4:42] bank and halted trading in stocks. The

[4:45] prime minister appealed for calm as he

[4:47] tries to stave off national bankruptcy.

[4:50] We'll have more on the financial crisis

[4:52] right after this news summary. The price

[4:55] of oil hit its lowest point in a year

[4:57] today. It finished near $86.50

[5:00] a barrel in New York after trading below

[5:03] $85 at one point. The slide continued

[5:06] even though the OPEC cartel announced it

[5:09] will meet in November to consider

[5:11] cutting output. In the US presidential

[5:14] campaign today, Democrat Barack Obama

[5:16] targeted Republican John McCain over his

[5:19] plan to buy up bad mortgages. In Dayton,

[5:22] Ohio, Obama said McCain's strategy

[5:25] punishes taxpayers, rewards banks, and

[5:28] won't solve our housing crisis. McCain's

[5:31] campaign fired back that Obama won't

[5:33] spend a dime to help hardworking

[5:35] Americans stay in their homes. We'll

[5:37] have more on the campaign later in the

[5:39] program tonight. There was word today US

[5:42] policy in Afghanistan is under urgent

[5:44] review amid warnings of a downward

[5:47] spiral. It was widely reported a

[5:49] national intelligence estimate warns the

[5:52] situation is rapidly getting worse. The

[5:55] reports raised doubts about American

[5:57] strategy and the Afghan government's

[5:59] ability to cope. In Hungary, Defense

[6:02] Secretary Gates discussed the Afghan war

[6:04] with NATO allies. He called for a new

[6:07] effort against the Afghan opium trade

[6:09] that funds the Taliban.

[6:12] I don't think anyone in the alliance is

[6:14] interested in eradicating crops or uh

[6:17] doing things that involve individual

[6:19] farmers. But if we have the opportunity

[6:22] to go after drug lords and drug

[6:25] laboratories and try and interrupt this

[6:27] flow of cash to the Taliban, that seems

[6:29] to me like a legitimate security

[6:31] endeavor. The Afghan government joined

[6:34] the call for action against drug lords,

[6:36] but Gates said many NATO nations have

[6:39] balked at using their troops in that

[6:41] fashion. We'll have more on Afghanistan

[6:43] later in the program. A roadside bombing

[6:46] in Iraq today killed a top Shiite member

[6:48] of parliament. It raised fears of a new

[6:51] wave of political murders ahead of

[6:54] upcoming elections. The US military

[6:56] warned Iran might use assassinations to

[6:59] influence the outcome. US Army Major

[7:02] General Michael Oats said that is flatly

[7:04] the way some people deal with their

[7:06] political problems here by eliminating

[7:09] their opponents. North Korea took

[7:12] another step closer today to restarting

[7:14] its nuclear weapons work. The government

[7:16] formally barred UN inspectors from all

[7:19] of the main North Korean nuclear site.

[7:22] That could clear the way to reactivate

[7:24] equipment there. Also today, a South

[7:27] Korean newspaper reported North Korea

[7:29] moved 10 missiles to an offshore island.

[7:32] In Washington, the State Department

[7:34] urged North Korea to avoid raising

[7:36] tensions. The Nobel Prize for literature

[7:39] was awarded today to a Frenchman, Jeanie

[7:42] Llesio. He's considered one of France's

[7:45] greatest living writers, and he was

[7:47] honored for his novels, children's

[7:49] books, and essays. The committee called

[7:52] him a nomad and praised his writing

[7:54] about exotic places, lost cultures, and

[7:57] ecology. And that's it for the news

[7:59] summary tonight. down the economic

[8:01] crisis for banks, for retirees, and for

[8:05] Silicon Valley. Today in the

[8:07] presidential campaign, and the bad news

[8:10] in Afghanistan,

[8:19] the latest on the financial crisis,

[8:21] Jeffrey Brown begins. Until midafter

[8:24] afternoon, it looked like a relatively

[8:26] calmer day on the stock market. And then

[8:28] yet another dramatic drop took the Dow

[8:30] down sharply. And there was talk of yet

[8:32] another major government move with the

[8:35] Treasury Department considering a direct

[8:36] investment in banks. We look at the

[8:39] latest develop developments now with

[8:41] William P, former president of the

[8:43] Federal Reserve Bank in St. Louis. He's

[8:45] now a senior fellow at the Ko Institute.

[8:47] Hugh Johnson, chairman and chief

[8:49] investment officer at Johnson Illington

[8:51] Adviserss. And Krishna Guha, the US

[8:53] economics editor for the Financial

[8:55] Times. Well, Hugh Johnson, can you tell

[8:58] exactly what happened this afternoon to

[9:00] bring on the drop? It it it dropped from

[9:03] about uh 3 to 4:00 today, about 400

[9:06] points. What happened? Well, we had bad

[9:08] news on General Motors, but I think

[9:09] really what it is is that you have a lot

[9:12] of sort of institutional investors as

[9:14] well as individuals that are sort of

[9:16] prepared to sell or they have it in

[9:18] their mind that they're going to sell.

[9:19] They're kind of hopeful that the stock

[9:21] market's going to rally and they can

[9:23] postpone their selling. But when the

[9:25] stock market doesn't rally, as it didn't

[9:27] do by 2:00, they kind of throw the towel

[9:30] in, if you may, and start to do their

[9:32] selling. There's some institutions such

[9:35] as as mutual funds where they're faced

[9:38] with redemptions from their

[9:39] shareholders, that is, their

[9:41] shareholders want their money back and

[9:43] they have no choice and by the end of

[9:45] the day, they have to sell. So come

[9:47] 2:00, they start to sell and that's why

[9:49] it picks up in the latter part of the

[9:51] day. The sellers have to get out.

[9:52] >> Commission Gu, what would you add to

[9:54] that? who who who is selling and how why

[9:56] so fast?

[9:58] >> Well, as your previous guest said, one

[10:00] of the factors causing this is

[10:01] redemptions out of a stock market,

[10:03] investment funds. But I think there's a

[10:06] wider point here, which is any given

[10:08] amount of selling now is producing

[10:11] dramatic falls in the stock market. And

[10:13] there's a simple reason for that.

[10:14] There's just very little buying interest

[10:16] out there. There's very little interest

[10:18] from end investors, but also the

[10:21] securities firms that normally act as

[10:23] so-called market makers. That's to say,

[10:26] they offer to buy and to sell prices

[10:28] with a spread stocks with a spread

[10:30] between those two prices. Those banks

[10:32] aren't doing the job that they used to

[10:34] do. They don't want to put their capital

[10:36] at risk to the same extent, and they're

[10:38] scared by the extraordinary volatility

[10:41] that bounces up and down in stock

[10:43] prices.

[10:44] >> Mr. Paul, the day started with reports

[10:47] about the Treasury, this uh idea of the

[10:49] Treasury making direct investments in

[10:51] banks. How would that work? I realize

[10:54] it's not it's not finalized yet, but why

[10:57] would they be taking that action and how

[10:59] might it work?

[11:01] >> Well, the fundamental problem we face in

[11:03] the banking system is that uh people

[11:06] don't know whether their banks are truly

[11:09] solvent or not because of all the

[11:10] uncertainty over what their assets are

[11:12] worth. And that means the banks are

[11:15] uncertain about each other as well. What

[11:17] we need is for the banks to become

[11:19] unquestionably solid. Nobody has any

[11:23] concern about lending money to Berkshire

[11:25] Hathaway or Microsoft. Those companies

[11:28] are very very well capitalized and we

[11:30] need to put our commercial banks in the

[11:32] same boat, the same situation. But to

[11:34] stay with you, this kind of direct

[11:36] involvement by the government in the

[11:38] private sector banking system is quite a

[11:42] a philosophical turn, isn't it? In our

[11:45] market system,

[11:47] >> uh yes uh it it is. Um but I think it's

[11:50] necessary. I think the idea would be

[11:53] certainly from my perspective uh from a

[11:55] libertarian perspective, we want to keep

[11:57] the fundamentals of the economy in place

[12:00] and if the government can put capital in

[12:02] for a period of time and withdraw it

[12:04] later when the economy has become

[12:06] prosperous again, then we will have

[12:08] gotten out of this pretty cheaply.

[12:10] >> Krishna, you've been talking to people

[12:12] at the Treasury today. Any any word on

[12:14] how it might work? Would it be

[12:16] voluntary, for example, for banks?

[12:19] The assumption at this point is that it

[12:21] would be a voluntary plan. So it

[12:23] wouldn't be identical to the plan for

[12:25] instance announced in Great Britain this

[12:27] week where they essentially are

[12:29] requiring the biggest banks to either

[12:31] raise more capital from the markets or

[12:33] go to the government and get government

[12:35] capital

[12:36] >> and and why would we do it a different

[12:37] way? Why would we make it voluntary?

[12:38] >> Well, I think there are a couple of

[12:39] reasons here. The first is that the US

[12:42] authorities don't want to take the

[12:44] extreme measure of the government

[12:46] instructing privately owned companies,

[12:49] financial banks here, what they have to

[12:51] do, particularly the healthier ones,

[12:53] ordering them what to do seems a stretch

[12:55] even at this juncture. The second point

[12:57] is that the US financial system involves

[13:00] many more important firms, a much larger

[13:02] number of different banks and other

[13:04] financial firms, some of which aren't

[13:06] even regulated as banks. So, this is a

[13:09] more complicated system. It may need

[13:11] more casebyase treatment, and the

[13:13] government prefers a voluntary approach

[13:15] here.

[13:16] >> Hugh Johnson, this this uh plan was out

[13:18] there this morning when the markets

[13:20] opened. Uh what what do you make of the

[13:22] plan or what do you hear about it in

[13:24] terms of its ability to to turn things

[13:26] around?

[13:27] >> Well, it creates a little bit of

[13:28] concern. you know, the private sector

[13:30] obviously is never very um never really

[13:33] likes the public sector getting involved

[13:35] in the private sector or even if it's

[13:37] just injection of capital, but taking a

[13:40] position that's something just short of

[13:42] nationalizing uh the commercial banking

[13:45] uh industry. So, I think that investors

[13:47] generally feel very very uncomfortable

[13:50] with this move. At the same time, as has

[13:52] been sort of stated, if it's a plan to

[13:55] somewhat nationalize, partially

[13:57] nationalize the banks, buy stock in the

[13:59] major commercial banking uh u companies

[14:03] and then eventually to denationalize or

[14:05] to sell that interest. Uh I think that

[14:07] would go down fine, particularly if it

[14:10] adds enough capital to start the lending

[14:12] process. Again, remember what this is

[14:14] all about is there's deep concern that

[14:16] the lending process is not really

[14:18] working or that companies are not able

[14:20] to borrow uh money in order to do things

[14:23] like uh meet their payrolls, pay their

[14:26] bills and finance their inventory. So,

[14:28] if that helps to do that, that will

[14:30] start to build or rebuild confidence,

[14:33] confidence in the economy, confidence in

[14:35] our credit mechanism. And if that

[14:37] happens, the stock market will

[14:39] stabilize. And so if it if it gets that

[14:41] result, it'll be just fine. It'll do

[14:43] what it is. But we've got to

[14:45] denationalize if we do nationalize to

[14:47] some extent. Mr. P, we've been talking

[14:50] all week about various dramatic moves

[14:52] and then the possible counterintuitive

[14:55] uh results. I wonder in this in this

[14:57] kind of a plan, is there a pro potential

[15:00] problem that banks that might choose to

[15:02] participate would be showing themselves

[15:05] to be unstable and and therefore get in

[15:09] worse trouble?

[15:11] >> Well, given that the plan in the United

[15:13] States presumably would be voluntary and

[15:15] I must say uh the word nationalization

[15:17] is a bit scary and maybe scarier than it

[15:19] should be because if it's voluntary,

[15:21] it's not as if the government is seizing

[15:23] the banks in any way. It's putting money

[15:25] in, making a voluntary investment. Uh,

[15:28] and I think the issue there is that a

[15:30] bank that gets into this that wants the

[15:31] government money ought to do other

[15:33] things such as raising private money at

[15:36] the same time so that it comes out with

[15:38] the capital infusion leaving it with

[15:41] unquestioned and unquestionable

[15:43] strength. That strategy should leave the

[15:46] bank better off and dispel potential

[15:48] concerns that a bank is seeking

[15:50] government aid out of weakness. Now

[15:52] Krishna uh we just heard a report that

[15:54] President Bush is going to speak uh

[15:56] tomorrow morning I think before the

[15:58] markets open. Um every day there's a

[16:01] different action by the government that

[16:03] so far hasn't uh had the intended

[16:05] results. Is there starting to be a fear

[16:08] of I mean is there a potential of the

[16:10] government running out of ammunition in

[16:11] a sense?

[16:13] >> Well there is a real concern among

[16:14] policy makers that they've taken some

[16:16] very big steps in recent days. I mean,

[16:19] let's not forget, it was only on

[16:21] Wednesday that we got an international

[16:23] interest rate cut. It was only a day or

[16:26] so before that that the Federal Reserve

[16:28] said it would buy short-term IUs from

[16:31] companies in less than a week since the

[16:33] federal government with the big

[16:34] Treasury.

[16:35] >> Absolutely. So, extreme steps taken,

[16:38] very little response from the markets,

[16:40] and immediate craving for the next big

[16:42] fix, the next government intervention.

[16:44] That does worry people. Now, it's my

[16:46] understanding at this juncture that

[16:47] President Bush is not intending to make

[16:49] a major announcement in his address

[16:52] tomorrow morning, but of course, the

[16:53] situation is fast evolving. So, no one

[16:56] can be 100% certain. What the president

[16:58] is likely to do rather is to try to

[17:01] explain to the American people that the

[17:03] government is on the case, that it is

[17:05] pursuing a number of strategies that

[17:07] will together contain this credit crisis

[17:10] and make sure we don't have a disastrous

[17:13] economic outcome. And Hugh Johnson, what

[17:15] what is your sense of the government's

[17:16] ability to step in and shape the markets

[17:19] or and and and I guess at some point

[17:22] hope that we reach a bottom? Well,

[17:24] history tells us that um they have to

[17:26] perform what they're doing now, which is

[17:28] adding money or liquidity to the system.

[17:30] And if it it doesn't work, if the credit

[17:33] mechanism doesn't start to work again,

[17:35] if confidence isn't restored, then they

[17:38] simply have to do it again and again and

[17:40] again until confidence is restored. So

[17:42] quite frankly, they have no choice but

[17:44] to continue on this course that they're

[17:46] on. They've been very creative. They've

[17:48] been very aggressive, and I'm hopeful

[17:50] that at some point we'll see the markets

[17:53] stabilize and confidence return. There

[17:55] are actually, despite all of this sort

[17:58] of dark cloud, some silver linings here

[18:01] because it's rare that you see this

[18:03] level of pessimism coupled with what

[18:05] might arguably be a cheap level for

[18:08] equities as well as some, you know, race

[18:11] for the exits type panic selling. When

[18:13] you see that, that's more characteristic

[18:15] or symptomatic of the later stages of a

[18:18] decline in stock prices, not the early

[18:20] or the midstages.

[18:22] >> And Mr. P, a brief last word from you.

[18:24] you've been at the Fed. Where where

[18:25] where where are you now? What are you

[18:26] thinking?

[18:28] >> Uh well, what I want to emphasize a

[18:30] point that we must not lose sight of

[18:32] with all of this turmoil. The underlying

[18:35] productivity of the economy has not been

[18:37] affected. The skills of our labor force,

[18:39] our capital stock is all there. Our

[18:41] factory buildings, our transportation

[18:42] system, all that is intact. And when we

[18:45] can get the financial system

[18:47] straightened out, the mess cleared up,

[18:49] then the inherent productivity of the US

[18:51] economy will show itself again. and

[18:54] growth will resume. A lot of gloom out

[18:56] there, but there are market processes at

[18:58] work as well as the government steps

[19:00] that are going to get us out of this. I

[19:02] don't know when, but it will happen. All

[19:04] right. Uh, happy to end on an upbeat

[19:06] note tonight. William P and Hugh Johnson

[19:09] and Krishna Gupta. Thank you. Now, we do

[19:12] gauge some of the fallout that is

[19:14] already happening from the financial

[19:16] turmoil. We look at the impact on

[19:18] retirement savings and the federal

[19:19] budget with Peter Orzag, director of the

[19:22] Congressional Budget Office. Welcome to

[19:24] you.

[19:24] >> Thank you.

[19:24] >> Now, we just heard that some potential

[19:27] good and I think we're all hoping for

[19:30] that, but you've been looking at the

[19:32] impact already on retirement savings,

[19:35] something that everybody is concerned

[19:36] about. Can you make a general statement

[19:38] about what the impact's been so far?

[19:40] >> Sure. And retirement assets are one of

[19:42] the myriad ways in which financial

[19:44] market turmoil is is going to affect

[19:46] households. Looking specifically at that

[19:49] since the beginning of uh sorry since

[19:50] the middle of last year retirement

[19:52] assets public sector private sector

[19:54] defined benefit defined contribution

[19:56] altogether have declined by about $2

[19:58] trillion or about uh 20%.

[20:01] >> $2 trillion. Yes.

[20:02] >> Now you just there there's different

[20:03] kinds of pension plans. So break it down

[20:06] a little bit. defined contribution that

[20:07] would be the 401ks that people are

[20:09] familiar with right now. Do we know are

[20:11] most of those in stocks or or the

[20:14] majority? How does that work?

[20:15] >> The something like twothirds of the

[20:17] assets that are in 401k plans are in

[20:19] stocks. And actually one problem is that

[20:21] many too many workers are overinvested

[20:23] in a single stock like their own

[20:24] employer stock which is not a wise

[20:26] investment strategy.

[20:27] >> Not sufficiently diversified.

[20:29] >> Not sufficiently diversified. Yes. But

[20:31] even for those who are diversified, they

[20:33] suffer when if you're in a diversified

[20:35] stock fund, when the stock market goes

[20:37] down, your retirement assets decline.

[20:39] >> The other another kind is the defined

[20:41] benefit plan, right? This is company

[20:43] explain the difference and what's

[20:45] happening to those people.

[20:46] >> Sure. In a defined benefit plan, the

[20:47] company owes you something in

[20:48] retirement, $10,000 a year. And if

[20:51] there's not enough money there, they

[20:52] need to make up for it. So what will

[20:54] happen now given that the assets in

[20:56] those plans has have declined is the

[20:59] companies need to put in more money. And

[21:00] that will come out of either their

[21:02] shareholders, their workers, or they'll

[21:03] try to pass it along to their consumers.

[21:06] >> So, companies are hurting because of the

[21:08] economy because everything we've just

[21:09] been talking about, but they still have

[21:11] to put money into these pension plans.

[21:13] >> That's correct. They're given some time.

[21:14] They can spread it out over time, but

[21:15] they will have to make up the

[21:16] difference.

[21:17] >> And what about public uh plans? Public

[21:19] plans have also suffered something like

[21:21] uh more than the $300 billion decline

[21:23] and their state and local governments

[21:24] will have to uh make up the difference

[21:26] again based on it'll be borne by either

[21:30] state and local government workers or

[21:31] taxpayers.

[21:32] >> Now the practical impact of this is the

[21:35] potential that people will have to look

[21:36] at working longer.

[21:38] >> Well, what where well go ahead.

[21:40] >> I was just going to basically if you're

[21:42] if you have say a 401k plan and it goes

[21:44] down you only have three choices. You

[21:46] can save more now to try to make up for

[21:48] it. You can spend less once you're

[21:49] retired or you can work longer. Those

[21:52] are the three choices.

[21:53] >> What has been the trend?

[21:54] >> The trend in retirement age has been a

[21:57] decline through the 1970s and ' 80s and

[21:59] then it's reversed a little bit so that

[22:00] we are now uh a little bit working

[22:02] longer and that may well be reinforced

[22:04] by by the decline in the stock market.

[22:08] >> I want you to put on your other hat now

[22:10] which is the budget watcher. Um, is

[22:13] there any question at this point that

[22:15] the budget deficit will be much larger

[22:19] than one we had thought?

[22:21] >> There's no question the budget deficit

[22:23] is going up. It was increasing even

[22:24] before the most recent turmoil. Uh if

[22:27] you add uh a the potential for a

[22:30] significant recession and uh the

[22:33] operations of the federal government and

[22:35] trying to stave off the financial

[22:37] turmoil, we could be seeing a deficit

[22:39] this year of $750 billion or more

[22:42] >> compared to what what was your most

[22:44] recent?

[22:44] >> Last year it was a little under $450

[22:46] billion.

[22:47] >> And and and give us some perspective. I

[22:50] mean I know in the past we always talk

[22:52] about this

[22:53] >> visa v GMP, right? So, when is it scary

[22:56] and when is it not scary?

[22:57] >> $750 billion would be about 5.5% of the

[23:02] economy. That's a big number. It's not

[23:03] the largest ever, but it's it's it's a

[23:06] big number.

[23:07] >> What are the variables? I mean, we're

[23:09] talking every night about the potential

[23:11] plans in which the government gets

[23:13] itself involved. Right. So, I know

[23:15] there's a lot of variables out there

[23:16] about what could happen or what the

[23:18] government could be on we the taxpayers

[23:20] could be on the hook for. Um when you

[23:22] think about the uh budget implications,

[23:24] what are the main variables that you're

[23:26] thinking about?

[23:26] >> Well, for example, the announcement that

[23:28] the Treasury Department is now focusing

[23:30] on injecting equity into banks rather

[23:32] than just buying rather Right. Exactly.

[23:34] Rather than just buying assets could

[23:36] change the numbers a lot. If we buy an

[23:38] asset at a fair price, if we buy

[23:40] something for a dollar and it's worth a

[23:41] dollar, there's no net impact on the

[23:43] budget. If we instead inject capital

[23:45] into a bank, there may well be a more

[23:46] substantial effect. So, it will depend

[23:48] on what we wind up doing. and we still

[23:50] don't know exactly what we're going to

[23:52] do.

[23:52] >> Now then the next of course major

[23:54] question is what kind of impact would

[23:56] these kind of deficits have on

[23:58] government spending.

[23:59] >> Well we were even before this we were on

[24:01] an unsustainable fiscal course. And you

[24:03] know one thing we need to remember is

[24:05] it's we're lucky that we have the

[24:07] maneuvering room now to issue lots of

[24:09] additional Treasury securities and

[24:11] intervene aggressively to address this

[24:13] crisis.

[24:14] >> Wait a minute. Explain that. Lucky in

[24:15] what sense? that we just have the money

[24:16] available

[24:17] >> that people are still let willing to

[24:18] lend to us. If in 20 or 30 years we

[24:21] continue on the same path with rising

[24:22] healthcare costs and rising budget

[24:24] deficits, we would reach a point where

[24:26] we wouldn't even have that ability. And

[24:28] so if another crisis like this one hits,

[24:31] we would then not have the maneuvering

[24:32] room that we currently have to address

[24:33] it in a prompt way. But even even in the

[24:36] next year say uh when you look at

[24:39] various things that are talked about oh

[24:40] the health care system that's one you've

[24:42] studied a lot there are implications for

[24:45] any possible reforms or programs that

[24:48] any might anybody might want to

[24:49] implement. I think it's going to be very

[24:51] likely that uh early next year and into

[24:53] much of next year, most of the economic

[24:55] policy discussion will be surrounding

[24:57] the financial markets and so it's going

[24:59] to be hard to get other topics on the

[25:01] agenda, not just for fiscal reasons, but

[25:03] also just because we're all human beings

[25:05] and there's a limited amount of time and

[25:06] attention that can be given to different

[25:08] topics.

[25:08] >> We heard we've heard the candidates

[25:10] asked about this and my colleagues Jim

[25:12] and Gwen have both asked them in in the

[25:14] debates they moderated about the the

[25:16] implications.

[25:18] You're saying there's there's no doubt

[25:20] that whoever takes office, they'll have

[25:23] to deal with this.

[25:25] >> We had to deal with it. We we we have to

[25:28] deal with our long-term fiscal problems.

[25:29] We had to deal with them before this uh

[25:32] financial crisis occurred. All the more

[25:34] so as we emerge from the crisis, we

[25:36] better get our hands around the fiscal

[25:39] course that we're on again. primarily

[25:41] because if we don't, we're going to wind

[25:42] up with a crisis that's even worse than

[25:44] today's and we won't have the ability to

[25:47] address it in any sensible way.

[25:48] >> And as we were just talking about, there

[25:50] could be more to come in terms of

[25:51] government pro government rescue type

[25:54] plans, right?

[25:55] >> There could well be more to come.

[25:56] >> All right, Peter Ozac, thank you very

[25:58] much.

[25:58] >> Thanks for having me.

[26:07] and to the impact of the crisis on

[26:09] venture capitalism in Silicon Valley.

[26:12] NewsHour correspondent Spencer Michaels

[26:14] reports.

[26:16] >> 22 stories above San Francisco Bay in a

[26:19] conference room of the venture capital

[26:21] firm Cross Link. A software entrepreneur

[26:24] is pleading his case for financing in

[26:26] troubled times to a couple of the firm's

[26:29] partners. And what are the milestones

[26:31] that you think you could achieve in what

[26:32] time frame? How long would the million

[26:34] five last? What are the milestones you

[26:35] could achieve?

[26:36] >> Yeah. Yeah.

[26:37] >> I would say the million five would last

[26:41] about I'm going to be a little

[26:42] conservative because I always know that

[26:44] things don't quite work the way you

[26:46] expect them to. 9 months.

[26:48] >> Ashuk Nora Sim's new venture called

[26:51] Cinch is an online service for

[26:53] businesses to reward customer loyalty.

[26:56] He has been through economic downturns

[26:58] before and survive. And he thinks he and

[27:02] Silicon Valley, which has been a major

[27:04] growth engine for the American economy,

[27:06] will survive the turmoil on Wall Street.

[27:09] But the good news is that it doesn't

[27:12] translate into the doom and gloom

[27:14] scenario that is there in the general

[27:16] economy. That's my belief. But I'm not a

[27:18] venture capitalist. But from an

[27:20] entrepreneurs's point of view, I'm not

[27:21] hitting the panic button. While the

[27:23] venture capitalists Nara Simhan is

[27:25] asking for money are being more careful

[27:28] than before, Peter Rip, a general

[27:30] partner sees some bright spots for the

[27:33] tech sector.

[27:34] >> It's the sector where the where the US

[27:36] is still still has an advantage on a

[27:38] worldwide basis. So in the short term,

[27:40] yes, everyone's vote is is going down in

[27:42] the water, but but ultimately the growth

[27:45] sectors tend to recover faster.

[27:48] Still, Nara Simhan, like many in Silicon

[27:50] Valley, fears some consequences,

[27:53] including a slowdown in business and a

[27:56] possible drying up of credit.

[27:59] >> It's not that people are not going to

[28:00] invest, it's they're going to be more

[28:02] selective about where they invest. I've

[28:04] heard some guys kind of still in a

[28:06] paralysis mode. It'll probably take them

[28:09] another couple of weeks and two more

[28:10] partner meetings to figure out, you

[28:12] know, where their heads are really at.

[28:14] Venture capital, unlike bank credit, has

[28:17] not dried up, says Peter Rip, because it

[28:20] comes from wealthy individuals and large

[28:22] institutions like pension funds. The

[28:25] National Venture Capital Association

[28:27] reports only a small drop off in venture

[28:30] investments last quarter. Even so, RIP

[28:33] predicts VC money will become scarce for

[28:36] older, mature companies. Where we're

[28:38] looking for new investments is typically

[28:41] in very early stage companies that have

[28:44] a gestation period that will grow for

[28:46] many years and don't need revenue in

[28:47] 2009. By the time the recovery happens,

[28:50] they'll be they'll be intercepting a

[28:51] booming economy.

[28:53] >> So what happens to the companies that

[28:54] aren't in that category, latestage

[28:56] companies that that you probably don't

[28:59] want to invest in right now? What's

[29:00] going to happen?

[29:01] >> They they evaporate. It's it's a boom

[29:03] and bust cycle. The concept that the

[29:06] gloomy economic news may not hit Silicon

[29:08] Valley hard is fairly widespread.

[29:12] Despite drops in high-tech stocks,

[29:14] that's still what many valley spokesmen

[29:16] are saying publicly. And

[29:18] >> I think they're delusional.

[29:19] >> John Fiser, who has run three of his own

[29:22] startups, sees big trouble ahead. He now

[29:25] teaches business at the University of

[29:27] San Francisco.

[29:28] >> I don't think Silicon Valley is

[29:30] insulated. I think fundamentally the way

[29:32] that Silicon Valley has traditionally

[29:34] made money in the form of selling stock

[29:37] to the public in an initial public

[29:38] offering or in the form of companies

[29:41] merging has changed due to a lack of

[29:44] access to capital. For example, in last

[29:46] quarter there wasn't a single venture

[29:48] capitalled initial public offering.

[29:51] >> Even with financing from venture

[29:53] capitalists, Fiser says Silicon Valley

[29:55] still depends on credit. the uh life

[29:58] cycle of a startup company credit in the

[30:01] form of debt financing to buy equipment

[30:03] uh to uh uh sometimes meet payroll

[30:06] whatever the circumstance may be plays a

[30:09] critical role. All of these businesses

[30:11] startup venture capital Silicon Valley

[30:13] alike need access to credit to survive.

[30:16] >> Still Fischer's pessimism is the

[30:18] minority view among Silicon Valley

[30:20] entrepreneurs whose optimism is

[30:22] legendary. Every two weeks at 8:30 a.m.,

[30:26] a couple of dozen young high-tech CEOs,

[30:29] startup company founders gather in

[30:31] downtown San Francisco to exchange ideas

[30:34] and to listen to a speaker.

[30:36] >> Hey everyone.

[30:38] >> This time it was Adoi, a veteran player

[30:41] in the high-tech world who operates the

[30:43] website the funded.

[30:46] >> The reality is it doesn't affect the

[30:48] startup world today that much. The

[30:50] economic meltdown is a result uh of

[30:53] banks overleveraging their various

[30:56] equity positions. A lot of corrective

[30:58] measures have been put in place that

[31:01] won't allow that overheating to happen

[31:04] again.

[31:04] >> Ressie sees the rest of the economy's

[31:07] troubles as a chance for new companies

[31:09] to make money.

[31:10] >> There there tons and tons and tons of

[31:13] potential new business opportunities

[31:16] that were closed to startups.

[31:19] uh you know as soon as as little as um

[31:22] you know 3 weeks ago. If you're in

[31:25] lowcost goods and services you're seeing

[31:27] a spike in demand because people are

[31:30] looking to save money. So other

[31:33] companies are are having difficulties

[31:35] for sure but there are also

[31:37] opportunities in the market.

[31:38] >> The young CEOs mostly agreed but many of

[31:41] them have already seen changes. Fisel

[31:44] Keshi is depending on angels,

[31:46] individuals who supply very early

[31:49] private money.

[31:50] >> We were counting on an angel round of

[31:53] funding and I had a couple angels lined

[31:54] up and just in the past couple weeks,

[31:56] you know, after they committed, they're

[31:58] sort of on the fence and I think just

[32:00] because of the psychology of a lot of

[32:03] high netw worth individuals, you know,

[32:06] having seen a pretty big decline in

[32:08] their personal assets, we need some

[32:10] money to uh push it to the next level.

[32:12] And that's the money that seems to be

[32:13] going away right now.

[32:15] >> Still, to be an entrepreneur, you have

[32:17] to have confidence.

[32:19] >> So, you're talking to a bunch of people

[32:20] who are super optimistic that in fact,

[32:22] even in an enormous economic downturn,

[32:25] that we're going to somehow make it to

[32:26] the other side. I think if we can help

[32:28] promote that optimism and if we can sort

[32:31] of spread the uh

[32:35] the calm, we can actually make it

[32:37] possible for the entire market not to

[32:40] freak out as we're all going through

[32:41] this because we're all in this together.

[32:44] >> Despite that optimism, one new survey

[32:46] says confidence among venture

[32:48] capitalists is the lowest in four years.

[32:51] And while opinions diverge sharply on

[32:53] how hard Silicon Valley will be hit,

[32:56] most agree that some changes are coming

[32:58] to this dynamic sector of the American

[33:01] economy. When they will occur and how

[33:03] profound they will be are the topics of

[33:06] tabletop conversation throughout the

[33:08] valley.

[33:17] Now on the presidential campaign today,

[33:19] as candidates continue to make their

[33:21] case in the battleground states,

[33:24] NewsHour correspondent Homeman reports.

[33:28] >> Three and a half weeks before election

[33:30] day, the major presidential nominees are

[33:32] burning up the campaign trail and

[33:34] lighting up the airwaves, spending

[33:36] unprecedented millions on mostly TV

[33:39] advertising to saturate a handful of

[33:41] toss-up states. Barack Obama was in Ohio

[33:44] today, a state that went for George Bush

[33:47] four years ago. But recent polls there

[33:50] show Obama reversing a September slide,

[33:52] and he's now neck andneck with John

[33:54] McCain as the focus of the race has

[33:56] shifted to the economy. If you've

[33:58] invested your life savings in the stock

[34:00] market,

[34:02] or if your pension has invested in the

[34:06] stock market, if you got a 401k, you've

[34:08] probably watched a good chunk of your

[34:11] savings disappear.

[34:14] It's a now a 101k. It's not a 401k. It's

[34:18] a 101k.

[34:19] >> Obama spoke in Dayton this morning

[34:21] criticizing McCain's new proposal to

[34:24] stem the housing crisis through

[34:25] government buyouts of bad mortgages.

[34:28] >> Senator McCain actually wants the

[34:30] government to pay the full face value of

[34:33] mortgages on the books even though

[34:35] they're not worth that much anymore.

[34:38] So banks wouldn't take a loss, but

[34:40] taxpayers would take a loss. It's a plan

[34:43] that would guarantee that you, the

[34:45] American taxpayers, would lose by

[34:48] handing over $300 billion to underwrite

[34:51] the kind of greed and irresponsibility

[34:53] on Wall Street that got us into this

[34:54] mess.

[34:55] >> Obama also ratcheted up his critique of

[34:58] McCain's temperament and tied it to the

[35:00] Republican nominees plans to address the

[35:03] housing bust.

[35:04] He's ended up with a plan that punishes

[35:06] taxpayers, rewards banks, and won't

[35:09] solve our housing crisis.

[35:13] But th this is the kind of erratic

[35:15] behavior we've been seeing out of

[35:16] Senator McCain. You remember the first

[35:18] day of this crisis, he came out and said

[35:21] the economy was fundamentally sound.

[35:24] Then two hours later, he said we were in

[35:26] a crisis.

[35:29] I don't think we can afford that kind of

[35:31] erratic and uncertain leadership in

[35:34] these uncertain times. 400 miles away in

[35:37] Wauaaw, Wisconsin, McCain and running

[35:40] mate Sarah Palin focused on the problems

[35:42] of the economy, but also on their

[35:44] problems with Obama.

[35:47] McCain defended his plan to help

[35:49] homeowners with troubled mortgages and

[35:51] the institutions that lent them money.

[35:53] He also pinned the blame for the recent

[35:55] economic tumult on the Democrats.

[35:58] >> Senator Obama was happy to bail out Bear

[36:01] Sterns, AIG, Fanny May, Freddy Mack, his

[36:04] pals there, and the Democrats in

[36:06] Congress that refused to reform Freddy

[36:09] Mack and enact legislation to stop this

[36:12] crisis. But he's opposed to us helping

[36:14] the homeowners of America. An audience

[36:17] member asked McCain why he wasn't making

[36:19] more of Obama's association with former

[36:22] 1960s radical William Ays. Obama served

[36:26] with heirs on a charitable foundation

[36:28] board in the 1990s.

[36:30] >> We don't care about an old washed out

[36:32] terrorist and his wife who still uh at

[36:35] least on September 11th, 2001 said he

[36:38] still wanted to bomb more. Uh you know

[36:41] that's not the point here. The point is,

[36:44] Senator Obama said he was just a guy in

[36:46] the neighborhood. We know that's not

[36:49] true. We need to know the full extent of

[36:52] the relationship because of whether

[36:54] Senator Obama is telling the truth to

[36:56] the American people or not.

[36:58] >> I'm mad. I'm really mad.

[37:01] >> Several McCain supporters angrily

[37:03] criticized Obama and news outlets for

[37:05] failing to be tough enough on the

[37:07] Democratic candidate. Palin said she

[37:10] shared their frustration. It's dangerous

[37:12] territory. Whenever I suggest that

[37:15] mainstream media perhaps isn't asking

[37:18] all the questions, you guys have to help

[37:20] us do that.

[37:26] And then one more thing.

[37:29] And then one more thing.

[37:32] I know when my impatience through

[37:34] interviews or anything else shows. I

[37:37] know when that happens that some of you

[37:39] may think that I'm just trying to

[37:41] provide job security for Tina Fay. Well,

[37:48] no. It's because I am like you AND I

[37:53] WONDER TOO WHEN WILL THE QUESTIONS be

[37:55] asked and when will we get the answers?

[37:59] Meanwhile, Democratic vice presidential

[38:01] nominee Joe Biden campaigned in swing

[38:03] state Missouri and gave his analysis of

[38:06] the McCain charges.

[38:07] >> You know what they're going to try to

[38:09] do? They're going to take the lowest

[38:11] road to the highest office in the land

[38:13] and hope it works again for them. But

[38:16] that's exactly exactly what they're

[38:18] doing now. And think about it. A recent

[38:21] survey shows that 100%

[38:24] of John McCain and Sarah Palin's ads,

[38:27] campaign's ads, 100% are negative. I

[38:31] guess when you vote with Bush 90% of the

[38:33] time, you have to go negative 100% of

[38:36] the time in order to make a point.

[38:38] >> The rising number of on the stump

[38:40] attacks on each candidate's character

[38:42] has been mirrored over the airwaves

[38:44] where the McCain and Obama campaigns

[38:46] combined to spend a record $28 million

[38:49] last week.

[38:51] Twothirds of that battleground state

[38:53] spending was by Obama, says Evan Tracy,

[38:55] head of the nonpartisan campaign media

[38:58] analysis group.

[38:59] >> Right now, the majority of their

[39:00] spending is going into television

[39:02] advertising. It's touching about 15

[39:04] states right now. And where you really

[39:06] see Barack Obama's financial advantage

[39:08] showing up is in these dayoverday media

[39:10] buys. His spending right now is

[39:11] eclipsing $3 million a day. Senator

[39:14] McCain's are slightly over a million

[39:16] dollars. In a number of media markets,

[39:17] Senator Obama has a four and five to one

[39:20] advantage as far as spots on the air and

[39:22] dollar spent.

[39:23] >> And Tracy says the campaigns are turning

[39:25] out ads nearly instantaneously, such as

[39:28] this one from Obama today, assailing

[39:30] McCain's new mortgage bailout plan.

[39:32] >> McCain would shift the burden from

[39:34] lenders to taxpayers, guaranteeing a

[39:36] loss of taxpayer money. Who wins? The

[39:39] same lenders that caused the crisis in

[39:41] the first place, putting bad actors

[39:43] ahead of taxpayers. We can't afford more

[39:46] of the same.

[39:46] >> McCain's ads focus on taxes, which he

[39:49] claims would rise under Obama and on

[39:52] Obama's character.

[39:53] >> How extreme.

[39:54] >> But when pressed, how does he defend

[39:57] himself?

[39:58] >> They're not telling the truth.

[39:59] >> I hate to say that people are lying, but

[40:02] here is a situation where folks are

[40:04] lying.

[40:04] >> Mr. Obama, we all know the truth.

[40:08] >> McCain has got had to go a lot more

[40:09] negative all for two reasons. one, he's

[40:12] trailing the polls, but the second

[40:13] reason is negative ads cut through

[40:15] better.

[40:16] >> People are more inclined to listen to

[40:18] negative ads. So, right now, he's doing

[40:20] them both out of strategy and necessity.

[40:22] Senator Obama's been a little more

[40:24] positive, but you know, don't let you

[40:26] know, don't be fooled into thinking that

[40:27] he's entirely positive. And both

[40:29] campaigns are producing more web- based

[40:31] ads than in previous elections, hoping

[40:34] they'll be picked up by cable news, but

[40:36] also to supply what Tracy calls tomatoes

[40:39] for the food fight between committed

[40:41] partisans on both sides.

[40:43] >> Barack Obama and domestic terrorist Bill

[40:46] Ays friends.

[40:47] >> The McCain campaign released this web ad

[40:50] today about Obama associate William.

[40:53] >> They realize that there's sort of

[40:54] partisan media. There's a blogersphere

[40:56] that is hungry for content and the

[40:58] campaigns have been the enabling

[40:59] girlfriends for that years.

[41:01] >> At the rate that two campaigns are

[41:02] putting out advertising, together

[41:04] they'll easily set a spending record of

[41:07] close to 1 billion

[41:08] >> dollars by election day.

[41:17] >> And finally tonight, new warnings about

[41:19] the war in Afghanistan. Judy Woodruff

[41:22] has that story.

[41:25] Taliban and al-Qaeda attacks in

[41:27] Afghanistan have surged this year, and

[41:30] so have coalition deaths in a war that

[41:32] entered its eighth year this week. Since

[41:35] this past April, US and coalition deaths

[41:39] in Afghanistan outnumbered coalition

[41:41] military deaths in Iraq. 610 US troops

[41:46] have died in Afghanistan since the

[41:48] US-led invasion.

[41:51] In the United States, Afghanistan has

[41:53] become a campaign issue as both

[41:56] presidential candidates have called for

[41:58] more troops for that theater. The steady

[42:01] increase in violence also has raised new

[42:04] doubts among America's allies that the

[42:06] fight can be won. This week, a French

[42:09] diplomatic cable leaked to the French

[42:12] press quoted Britain's ambassador to

[42:14] Kbble. It read, quote, "The current

[42:17] situation is bad. The security situation

[42:21] is getting worse. So is corruption and

[42:23] the government has lost all trust. He

[42:26] added, "Afghanistan might best be

[42:29] governed by an acceptable dictator." The

[42:32] quotes were later denied by the British

[42:34] government. But Britain's top military

[42:37] commander in Afghanistan bluntly told

[42:40] the Sunday Times this week, "We are not

[42:42] going to win this war." Last week, the

[42:45] US commander in Afghanistan, General

[42:48] David Mckieran, called for more troops

[42:50] on the ground.

[42:51] >> We need more resources. It's not a

[42:53] question though of just military

[42:55] resources. It's a question of more

[42:57] civilian resources, more governance,

[42:59] more economic aid to uh Afghanistan and

[43:02] more uh regional stability as well.

[43:04] >> Over the next several months, the US

[43:06] plans to increase its troop numbers from

[43:09] the current 33,000.

[43:12] Relations between the United States and

[43:14] Afghanistan have been strained in recent

[43:16] weeks after a US military air strike on

[43:20] August 22nd killed dozens of civilians.

[43:24] >> They were children, old men and women

[43:26] who were killed. There's no one among

[43:28] these dead who are Taliban.

[43:30] >> The US military originally reported

[43:33] between five to seven civilians died.

[43:36] But yesterday, a military investigation

[43:39] spurred on by this amateur video

[43:41] confirmed 30 civilian deaths.

[43:45] >> Afghan President Hamemed Carzi has said

[43:47] the deaths undermine his government and

[43:50] the international mission.

[43:51] >> We cannot tolerate civilian casualties,

[43:55] not even one. Therefore, the right

[43:57] mechanism

[43:59] has to be established foolproof to avoid

[44:03] civilian casualty. The US apologized for

[44:06] the incident. Defense Secretary Gates,

[44:09] who was attending a meeting of NATO

[44:11] defense ministers in Budapest this week,

[44:14] urged allies to send extra troops.

[44:17] >> We need a better coordinated uh effort

[44:20] between the civilian economic uh

[44:23] development and reconstruction efforts

[44:26] uh and the security efforts. Uh we need

[44:29] to have the Afghans in the lead.

[44:32] There is, I think, broad support for

[44:35] expanding the Afghan army and doing that

[44:38] um as quickly as possible.

[44:41] >> Altogether, there are nearly 51,000 US

[44:44] and NATO troops in Afghanistan. Now,

[44:47] NATO commanders are seeking up to 12,000

[44:50] more.

[44:52] Today, the New York Times and other

[44:54] newspapers reported that the Bush

[44:56] administration and the intelligence

[44:58] community have mounted fullscale reviews

[45:00] of the war in Afghanistan. For more on

[45:03] that, we turn to New York Times reporter

[45:05] Mark Misetti. Mark, it's good to see you

[45:07] again. What prompted these reviews?

[45:10] >> Uh, the situation that's that's bad and

[45:12] getting worse. uh the Bush

[45:14] administration a few weeks ago announced

[45:16] this sort of comprehensive review inside

[45:18] the National Security Council that's

[45:20] designed to sort of be a soup to nuts uh

[45:22] examination of the policy what's going

[45:24] right what's going wrong at the same

[45:26] time the intelligence uh agencies have

[45:29] been putting together what they call a

[45:31] national intelligence estimate about the

[45:33] situation in Afghanistan it's in draft

[45:36] form but our story today talked about

[45:38] how its conclusions are pretty dire uh

[45:41] they describe a bleak situation not only

[45:43] rising violence, uh, tremendous

[45:45] corruption inside the central government

[45:47] in Kbble, as well as the booming heroin

[45:49] trade that's kind of fueling this

[45:51] corruption. So, it's, um, it's it's a

[45:54] pretty, uh, bleak situation at this

[45:56] point.

[45:56] >> But, as you write in your report today

[45:58] in the Times, there's been bad news

[46:00] coming in for the last two years on

[46:01] Afghanistan. Why the review now?

[46:05] Well, I think that uh the administration

[46:08] uh in its sort of twilight months is

[46:10] trying to to write the ship before they

[46:13] leave office. Uh there's been a lot of

[46:15] criticis criticism in inside the the

[46:17] Bush administration that not enough

[46:19] attention has been paid not only to

[46:21] Afghanistan but to the al-Qaeda safe

[46:23] haven in Pakistan. While there was so

[46:25] much attention paid to Iraq, um there

[46:28] was uh someone I talked to who covers

[46:30] Afghanistan policy in the Bush

[46:31] administration said, you know, the only

[46:33] good thing about hitting rock bottom is

[46:35] that things start to move and right now

[46:37] things are moving with this review. So,

[46:39] uh there is some um concern that that

[46:42] there there was some people kind of

[46:44] asleep at the switch.

[46:45] >> So, Mark, tell us what what you found uh

[46:47] what you've learned about what's in this

[46:50] intelligence report that contributes to

[46:51] this as as you put a downward spiral.

[46:54] Yeah, they they they describe

[46:56] Afghanistan as in a quote downward

[46:57] spiral. And uh beyond the the violence

[47:00] that's been pretty well documented, the

[47:02] rising violence, some of it which is uh

[47:04] attributable to the safe haven in

[47:05] Pakistan, uh there is also a very uh a

[47:09] real indictment, I think, of the

[47:10] corruption inside the central

[47:11] government. I think that um this is

[47:13] leading to some rethinking in the Bush

[47:15] administration about exactly um how to

[47:18] uh not only spend US money but also to

[47:21] focus US efforts. I think there's a lot

[47:23] more attention now to looking local,

[47:24] looking even at the tribal level,

[47:26] dealing with tribal leaders, possibly

[47:28] arming tribal militias um as a way to

[47:30] deal or to arrest the encroachment of

[47:33] the Taliban. This is something they've

[47:34] resisted for some time. They wanted to

[47:36] build up central institutions um you

[47:38] know, the army, the police force, the

[47:40] central government. Now there's a

[47:42] question about whether uh they need to

[47:44] to look to look at the vast swaths of

[47:47] Afghanistan that are not uh at all

[47:49] governed by Mr. Carzai's government.

[47:51] Well, I want to ask you about some of

[47:52] those fixes, but but to back up just a

[47:54] bit, uh how much does are these is this

[47:57] review looking at why it's gotten to

[47:59] this point?

[48:00] >> Well, I think that it's a it's a lot of

[48:02] it. I mean, they try to sort they try to

[48:04] assess uh you know, the reasons for the

[48:07] violence, uh the reasons for the

[48:09] corruption. If you look at the

[48:10] corruption side, there's no question

[48:12] that the drug trade is a large part of

[48:16] uh what's fueling this corruption at the

[48:18] central government and at the provincial

[48:20] level. There are some estimates that the

[48:22] drug trade basically accounts for 50% of

[48:24] Afghanistan's GDP right now. So that's a

[48:27] huge problem in terms of the violence.

[48:30] Um there is not only the the question of

[48:33] the al-Qaeda safe haven in Pakistan and

[48:35] the Taliban safe haven in Pakistan, but

[48:38] the the Taliban has also been able to

[48:40] basically establish a base of sorts in

[48:43] parts of Afghanistan that coalition and

[48:46] American troops have not been able to

[48:48] secure and to hold. So these are some of

[48:50] the reasons for the the situation as it

[48:52] is

[48:53] >> and and how much is is in what you were

[48:55] able to find out about the number of

[48:57] troops. There's been a big debate here

[48:58] in this country about that. What what

[49:00] what were you finding uh in terms of

[49:02] what you learned?

[49:03] >> Well, the the uh the troop issue uh

[49:05] certainly is front and center in the

[49:06] United States right now. As as you

[49:08] reported, President Bush has authorized

[49:10] more troops. General McKieran has says

[49:12] he wants more. Um, and you also talked

[49:15] about how Secretary Gates has been going

[49:17] kind of hatinand to European capitals,

[49:19] asking for more troops. This is the

[49:21] exact same thing his predecessor, Donald

[49:22] Rumsfeld, did. They've been trying to

[49:24] get bigger European commitments of

[49:26] troops and money um really since

[49:29] September 11th. Um, there is some anger

[49:31] that that some of those commitments that

[49:33] were made early after September 11th

[49:34] were never followed through on. So, so

[49:37] they they feel like they need uh

[49:38] American troops in in part because they

[49:41] recognize they're not going to get uh

[49:43] the commitments from Europe.

[49:44] >> Mark, you write today uh that some in

[49:47] the CIA say they think it has taken the

[49:49] White House too long to address this.

[49:52] Tell us what you what you found in that

[49:54] regard.

[49:55] >> We've done a lot of reporting this year

[49:57] uh about the sort of growing problem of

[50:00] Pakistan and the worsening violence in

[50:02] Afghanistan. And you would for several

[50:04] months, especially over the summer,

[50:06] you'd hear a tremendous frustration that

[50:08] this is not front and center uh on the

[50:10] agenda of the White House, that this is

[50:12] getting worse. And yet obviously Iraq is

[50:14] is a big focus and that and that it it

[50:16] would take some major possibly

[50:19] cataclysmic event to again shift the

[50:21] focus to Afghanistan and Pakistan. Um

[50:24] and we saw to some extent a shift this

[50:27] summer uh when President Bush was

[50:29] presented with intelligence that

[50:31] Afghanistan spy service was complicit in

[50:34] an attack on the Indian embassy in

[50:35] Kabell which I think anger the president

[50:38] as well as some sort of high-profile

[50:41] attacks in Afghanistan and Pakistan.

[50:43] This this pushed President Bush to

[50:45] authorize uh unilateral American strikes

[50:48] by special operations troops inside

[50:50] Pakistan. Um, so you're seeing a shift

[50:52] in policy over the last month or two,

[50:54] but a lot of people, as I said, think

[50:56] that this comes a little too late.

[50:58] >> Well, and and coming back to the points

[51:00] uh the point you started to make a

[51:02] minute ago about what what fixes uh are

[51:05] emerging from this. You talked about uh

[51:07] refocusing on the tribal areas. Come

[51:10] back to that point and and help us

[51:12] understand that.

[51:13] >> Well, in in Afghanistan, I think there's

[51:15] an increasing focus on uh how do you

[51:18] protect people? How do you protect the

[51:20] the Afghan population if the government

[51:22] can't do it with the army or the police?

[51:24] Can the tribal leaders do it? It's sort

[51:25] of the classic counterinsurgency

[51:27] doctrine. It's worked in places in Iraq.

[51:29] If you have uh people protected, they

[51:32] turn away from insurgents. So have

[51:34] better