captioning sponsored by macneil/lehrer productions >> lehrer: good evening. i'm jim lehrer. the cap on b.p.'s blown-out oil well held steady today. >> brown: and i'm jeffrey brown. on the newshour tonight, president obama called the progress good news, but said a permanent fix is still needed. tom bearden has the latest on the containment, and the reaction from gulf coast residents. >> lehrer: then, we get two views on whether the goldman sachs settlement was a victory for the company or for federal regulators. >> brown: paul solman looks at what happens when private equity firms use borrowed money to buy companies.

>> debt, in my view, is not in and of itself a bad thing. it's when the debt is used to enrich a handful of private equity partners-- that's when it's dastardly. >> lehrer: kwame holman reports on a tension-filled week for the white house and democratic members of congress. >> brown: we get the weekly analysis of mark shields and david brooks. >> lehrer: and margaret warner reports on what a new early test for alzheimer's disease could mean for treatment. that's all ahead on tonight's newshour. major funding for the pbs newshour has been provided by:

and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you.

thank you. >> lehrer: "so far, so good"-- that was the word from the gulf of mexico today. there were no signs of new leaks a day after that ruptured b.p. well was capped. but engineers kept a sharp watch. newshour correspondent tom bearden filed this report from empire, louisiana. >> reporter: underwater cameras at the wellhead showed a relatively peaceful scene-- clear water with no oil leaking. the online video image was being watched, from the gulf to the white house. president obama sounded a hopeful note as he left for a weekend in maine. >> the new cap is good news. either we will be able to use it to stop the flow, or we will be able to use it to capture almost all of the oil until the relief well is done. but we're not going to know for certain which approach makes sense until additional data is in.

>> reporter: at the same time, the president cautioned that the work is far from over. >> i think it's important that we don't get ahead of ourselves here. you know, one of the problems with having this camera down there is that, when the oil stops gushing, everybody feels like we're done. and we're not. we won't be done until we actually know that we've killed the well and that we have a permanent solution in place. >> reporter: for its part, b.p. said it was "encouraged". it said pressure is slowly rising inside the 75-ton cap, and there's no evidence that it's causing any new leaks under the sea floor. in a conference call, company vice president kent wells said, "the pressures we've seen so far are consistent with the engineering analysis work that b.p. has done. it's been a very steady build." still, the oil giant was keeping a close watch on things at its command center in houston. and out in the gulf itself, b.p. c.e.o. doug suttles spoke in alabama late thursday. >> we said 48 hours all along,

>> we'll do lots of analysis to make sure that it looks like everything is as it should be. so, i think it's going to be several more days. we need to be cautious right now. it's a great sight but it's far from the finish line. >> reporter: ultimately, if the cap does hold, b.p. could resume pumping oil up to surface ships. in the meantime, the company said today it plans to resume work on the two relief wells being drilled to plug the damaged well for good. here at the delta marina in empire, louisiana, people are obviously happy that the well has been capped. they're even happier that some of the fishing grounds around here have been reopened. that gives them hope that business might return to normal sometime soon. so far, only recreational fishing grounds have been opened. that's good news for marina manager tony jennings. >> we'll see what happens. i like-- i like that it's capped but we'll find out more tomorrow when people show up to go fishing, hopefully. >> reporter: how will you know they're coming back? >> 5:00 tomorrow morning i'll see if there is a line or not.

>> reporter: the federal closure of commercial fishing waters has not been lifted. that means third generation shrimper louis barthelemy is still unable to fish. he's hoping b.p. will hire him to help with the cleanup. i was supposed to be working within a week, a b.p. representative called me from the boats of opportunity. so hopefully by this week i'll be working. >> reporter: but you really would like to get become to fishing, i guess. >> oh, i would love to be that. i would rather be fishing than anything but it's going to be awhile before we get-- if we don't get out there and get all this cleaned up, we ain't going have no fishing. so we have to put all our efforts to helping these people here clean this stuff up. >> reporter: tammy wolfer is the cashier at the marina store. she and her husband own a shrimp boat, and she thinks it'll be a long time before they can return to fishing. >> probably a good year if we can get back to going good, it will probably be at least a year before i get back. >> reporter: that must be hard to deal with. >> yeah, when i worked five years to rebuilt build after katrina to get that boat back in the water and can't do nothing with it, it's

just sitting. >> reporter: plaquemines parish president billy nungesser echoed what everybody we talked to expressed-- cautious optimism. >> by no means are we finished but we can see light at the end of the tunnel, although that's a mighty long tunnel. we know we're making progress. today for the first day since we started, we will actually take more oil out of the water than's being put in. and that's a good thing. >> reporter: some people are worried that there has been so much bad publicity that it will take a long time to convince people to come back down to take their vacations. >> lehrer: late today, the government's point man on the spill said oil pressure readings at the wellhead are not yet ideal. retired coast guard admiral thad allen said the testing will continue for some hours yet. >> brown: and still to come on the newshour: the goldman sachs settlement; private equity and corporate debt; the democrats' family feud; shields and brooks; and a new test for alzheimer's disease. but first, the other news of the

day. here's hari sreenivasan in our newsroom. >> sreenivasan: the bears were back on wall street today. stocks tumbled after a survey of consumer sentiment fell sharply, and after earnings by big banks and google disappointed investors. the dow jones industrial average lost 261 points to close below 10,098. the nasdaq fell 70 points to close at 2,179. for the week, the dow lost 1%; the nasdaq fell nearly 1%. federal authorities announced the largest ever crackdown on medicare fraud today. it involved charging for treatments and therapy that never happened, and for medical equipment that wasn't needed. the alleged scams totaled $250 million. 36 people were arrested in raids across five states from florida to texas. they included several doctors and nurses. attorney general eric holder and the health and human services secretary kathleen sebelius made the announcement at a health care fraud summit in miami. >> with today's arrests we're putting would-be criminals on notice. health-care fraud is no

longer a safe bet. it's no longer easy money. if you choose to engage in health-care fraud, you will be found. you will be stopped. and you will be brought to justice. >> sreenivasan: medicare fraud costs the government between $60 billion to $90 billion a year. cleaning up the problem is supposed to help to pay for the president's health care overhaul. west virginia is getting a new, temporary u.s. senator. governor joe manchin today tapped carte goodwin, his former general counsel. he's 36 years old. goodwin will succeed the late robert byrd, who died last month at the age of 92. the state legislature is likely to call a special election in november. goodwin is expected to step aside so that governor manchin can run for the final two years of byrd's term. apple moved today to address the so-called "death grip" problem with its latest iphone. users have reported that holding the phone with your bare hand can obstruct part of the antenna and muffle the signal. apple c.e.o. steve jobs announced buyers will get free protective cases to fix the problem.

he spoke at company headquarters in cupertino, california. >> we're not perfect. we know that. you know that. and phones aren't perfect either. but we want to make it-- make all of our users happy. and if you don't know that about apple, you don't know apple. >> sreenivasan: jobs also said only five of every thousand i-phone users have reported any problems, and he complained, "this has been blown so out of proportion that it's incredible." those are some of the day's major stories. now, back to jeff. >> brown: and we turn to the fallout from that record settlement between investment giant goldman sachs and the s.e.c. goldman sachs had emerged relatively unscathed from the mortgage market collapse. but in some quarters, its eye- popping profits during the financial crisis made the firm a symbol of excess, culminating in a scathing congressional hearing this spring... >> there's no doubt that their behavior was unethical.

>> brown: ... and a major case of civil fraud filed in april. yesterday, goldman agreed to settle that matter. the securities and exchange commission announced the investment bank will pay a record $550 million in fines and compensation to investors. robert khuzami, the s.e.c.'s director of enforcement, called the settlement a "stark message to wall street." >> there will be a heavy price to be paid if firms violate the principles fundamental to the securities laws-- full disclosure, honest treatment, and fair dealing. and those principles do not change, regardless of how complex the product or how sophisticated the investor. >> brown: goldman was accused of selling securities tied to sub-prime mortgages, but not telling investors it had consulted with a client who was betting the investments would fail. yesterday, the company admitted to having made a "mistake," but in a statement added:

"the firm entered the settlement without admitting or denying the s.e.c.'s allegations." still, khuzami hailed the outcome. >> today's settlement sends a powerful message of deterrence and accountability. >> brown: the s.e.c. is continuing its case against fabrice tourree, a goldman executive accused of shepherding the disputed transaction. and a federal criminal investigation against the company remains to be resolved. in the meantime, the settlement in the civil case must be approved by a federal judge. we assess the outcome of all this now with lawrence mcdonald, managing director at pangea capital management, a private investment fund management company, and author of the book, "a colossal failure of common sense: the inside story of the collapse of lehman brothers"; and john coffee, a professor of securities law at columbia university. he has served on advisory boards in the past to the s.e.c. and the new york stock exchange. >> so lawrence mcdonald, it's a complex subject but a simple question to start.

who won this? >> goldman sachs won it i could have sworn i saw the c.e.o. of goldman sachs doing a cartwheel down park avenue last night. i mean quite frankly, 550 million dollar fine is less than their charitable contributions in 2009. and it's also less than the bonus pool of their top executives. so it's a big win for goldman sachs. >> brown: john coffee, what do you see? >> well, i disagree. every settlement is a compromise and both sides had to give in at an intermediate position. i think the sec got what they most needed. the sec chose here to vindicate a principles more than to maximize the penalty. and that was sound. if you go back to april, in this case was brought, most of the industry was protesting that the sec was pushing the envelope and there was no obligation to make the disclosures the sec wanted. yesterday goldman did admit quite clearly that it made a mistake and that it made inadequate disclosure to its investors, and that it not

told them that they were really designing the portfolio that they said was designed by someone else. secondly, that that is the principles. they vindicated that, and that would be the template for future settlementsment now in terms of the money, i understand this does not satisfy the pop liss anger that is out there. but this probably covered most of the investor losses that 250 million in the restitution fund will go to the principal european banks an if they think they have more loss these can easily sue because goldman is now very vulerable given the admissions it made. finally f this case had gone to trial, i don't believe the federal judge hearing the case, even if the sec had won, would have imposed a higher penalty. the sec got as much as they might get at trial but using their leverage because goldman really needed a settlement. >> brown: mr. mcdonald what about that, especially the part about the printion. they won the principles is what professor coffee said? >> well, professor coffee is right in the sense that the sec really needed victory here. they did not want to go 15

rounds and take a chance at hearing from the judges. so they needed a victory. and if you think back to that 2007 period, goldman sachs was heading toward an iceberg at 160 miles an hour so, is lehman brothers so, is bear stearns. they hit a right full rudder and when they did, when they hit that right full rudder they missed that iceberg but they were laying off a lot of toxic products to their clients. and on the global lecture tour that i've been on all over the world, the biggest question that i get is what is wrong with wall street. there's too much proprietary trading. in other words, years ago goldman sachs didn't trade for their own account as much as they are today. today upwards of almost 70% of their profits are traded for their own account, trading almost against customers. that has to stop. >> so what are you saying what do you make, the company didn't admit fault but they did say they would change some of these practices. what does that mean to you?

>> well, the good news is here these 21st century financial products that are such a, you know, so complicated that people don't understand, a and a lot of them, i was on the trade flooring in lehman brothers in 007, and these products were coming out every week it was mazing to be there. every week there was a new invention, a new product. and i think going forward, wall street firms will think very carefully and there will be a very closely scrutinized origination product, a process of these new products. >> well, john coffee, the word that the sec enforcement officer used was a deterence to the rest of wall street. is he right? is there a case for that? >> i won't say that this is a financial deter enter. but 1 billion dollars wouldn't have been a financial deterrent. even $billion wouldn't have been the kind of deterrent that would have caused goldman to stop in its tracks. i think, however, the reputational loss here is humbling. goldman has been embarrassed

there were many european clients that may not want to use its services because it's particularly been the your pen investors who were disadvantaged. and i think any time you have this kind of reputational penalty, it's going to change your internal practices. but i agree with the other speaker. there are immense new conflicts of interest arising in these complex derivative transactions and in these kind of synthetic derivatives particularly. and in that world, i don't think we yet have a good handle on whether these firms are adequately monitoring their conflicts of interest. >> and do you expect now that c.e.o. lloyd blankfein and other top officials will stay in place? what do you make of that? >> well, i -- >> i think-- . >> brown: hold on, let me ask professor coffee first. >> oh, excuse me. >> pie guess is that he probably will. you have to give something up. the sec got what they wanted, was gold pan's concession they made a mistake and didn't make full discloseure. they did not demand any executive depar ture. and quite-- departure and

quite frankly a don't think the sec sen titled to ask the c.e.o. to be the vicarious-- for conduct by staff 10 or 15 levels lower. if the shareholders want to replace mr. blankfein, more topower to them. they don't seem to want to i don't think the sec can go after people who don't seem to be have in a conscious way involved in the transaction. >> brown: you wanted to weigh in on that one? >> well, yeah, one of the things i talked about in my book, the colossal failure of common sense, the inside story of the collapse of lehman brothers is during that period of our c.e.o., our c.e.o.'s tenure was about 15 years. so it was almost like a monarchy. at goldman sachs during that same 15 years where we had one c.e.o., they had almost, i think they had six. so you had a real change at goldman sachs. goldman sachs tends to, you know, when they run into difficulties, they tend to change the top management team. i think mr. blankfein's days could be numbered only because they'll try to put a good face forward and the

public backlash of wall street and goldman sachs still might linger. and they might use that card to move forward. >> brown: now lawrence mcdonald, what do you expect next going forward? i mean do we look for the sec to bring some cases against other companies for similar practices or was this sort of the top of the wave here? >> there is no question, goldman sachs was actually a third-tier player in these kind of synthetic cdos. other firms were much more active. and i think you'll see things there in terms gfing after the other firms on these toxic products. but more interestingly, i can give you-- i can break some news tonight. behind the scenes i think the big fish that the sec wants is lehman brothers. lehman brothers bankruptcy is ten times the size of enron. it's bigger than enron, worldcom, adelphia combined. i'm hearing behind the scenes the sec, the fbi and the justice department are

active going after lehman brothers executives and i think the lehman brothers executive team have been interviewed in the last several weeks. so i think that could be the big fish, kind of what is behind curtain number 3. >> what do you see john coffee. do you see a strong new enforcement measures from the government? >> there's no question that the sec has a more activist, more zellous enforcement decision than say three or four years ago. the real problem, however, is that the sec right now is the most overworked agency in washington and in yesterday's legislation, they got required to conduct maybe 30 or more studies, plus adopt rules in 25 to 30 different areas. and they didn't get the budgetary reform these were hoping for. so they don't have the full funding they want. and they're going to be working a 24 hour a day regime at the sec over the next year. so i think there will be further enforcement cases but i have to say that their time going to be divided among many, many different responsibilities. >> brown: that's something we've talked about, you have talked about on this show over the years is just this

resource question, right, for the sec. >> that is the critical question. it takes money to litigate. and that's why you have to settle because you can't afford to take every case to trial. >> and in the meantime lawrence mcdonald, before we end, what happens to goldman sachs, they go on, do you think possible shake-up at the top, but what happens? >> well, they move forward. and it's a breath of fresh air that they can kind of put this behind them. you know, they're the best and the brightest. that's the firm everybody strifes to really challenge. i mean they have the most market share in all the big product lines. so i think now that they can put this behind them, i think that the business will be back to normal and most of the product lines. but you know, getting back to the sec, i have to say in 2007, mary schapiro admitted recently, and she's the head of the sec, we only had 27 people overseeing these big investment banks. and i think it's a breath of fresh air to see more talent

at the sec and a more robust team looking at these big, big giant pieces of risk. >> all right, lawrence mcdonald, john coffee, thank you both very much. >> thank you. >> thank you >> lehrer: now, a second story about investment companies, this on private equity firms and the companies they buy. newshour economics correspondent paul solman explains. it's part of his ongoing reporting on "making sense of financial news." >> reporter: new york city's times square where tourists still flock despite a terrorism scare this spring. but business reporter josh kosmin is spooked by incendiary device of a different kind, debt bombs. especially from companies like these, that were taken over by private equity firms. kosmin who has written a book on private equity, the buyout of america sees a lit fuse almost everywhere he turns. especially in times square.

>> two of the four biggest record companies are owned by private equity firms. emi and warner music. they both have a lot of debt. emi's close to bankruptcy. >> reporter: because it was purchased, says kosmin with too much borrowed money. as was clear channel. >> they own over a thousand radio stations and they own a million billboards throughout the world. they are very much struggling . >> reporter: as is another private equity acquisition just around the corner. >> on 42nd street we see a m.c. theatres, the biggest movie theatre chain in the country. it's struggling with too much debt. >> private equity haunts many a street in new york, including 57th, home to some of the biggest pe firms and they certainly are private says kosmun. >> hollow management: -- appall owe management run by leon black and silver lake partners. there is not even a direct ory. there is radio these guys bring limited partnerships, pension funds to close the deal to collect money from them. and the pitch is give us your money, we'll then use

that to buy a company, not bring too much of it down, we'll borrow the rest. we'll zip up the company. it will be more profitable. we'll sell it to other investors. we'll all make out. >> yes, most of the country's pensions are severely underfunded. they need to find ways to increase their rate of return, especially right now with interest rates basically zero. so they get attractive by this pitch. >> reporter: the problem says kosmin is that what private equity firms borrow, the companies they buy have to pay back. and in the last decade, private equity has bought a huge chunk of corporate america. >> since 2000 they've bot companies that employ one out of every ten americans in the private sector. that's about 10 million people. >> reporter: and many pe-owned debt-riden firms are now hurting for cash. >> the boston consulting group last year predicted half of their companies would default. let's say the companies that go bankrupt end up laying off a quarter of their people, a third, you know,

you can easily get to more than a million people it that's a lot of people. >> reporter: in fact, says kosmin, half of the s&p-rated firms that went bankrupt last year, besides banks, that is, were private equity acquisitions. including chrysler, sim inns, 6 flags and "readers' digest" where retirees including executives had their pensions slashed by a debt-driven bankruptcy. can gord-- ken gordon was president. >> i've lost 80% of my total pension. >> reporter: did you ever imagine you might not see that money? >> not in my wildest dreams. >> reporter: same for former editor in chief ed thompson. >> i lost about $75,000 a year. >> reporter: what was your reaction. >> anger. how could they have screwed up this company to the point where they have to go through bankrupt seize. >> when you begin to see these people taking over, it's like predator drones are coming in. >> reporter: jane, head of international advertising it lost about a third of her pension.

>> am i crying poverty, no, i'm not. but it certainly-- it was something i felt i had earned. it was something i thought was going to keep going. and it stopped. >> reporter: others are near poverty, however. stanley eng el does bart was a writer for the famous "mi joe's body part" series including the pancreas. >> although i don't get big press notices, my role is critical in digestion. >> reporter: he lost half his $15,000 annual pension. money he had been using to pay for medical bills resulting from a fall. >> medicare and my supplemental insurance always has a certain amount that they don't cover. so they kept doing scans on me of various kinds. and all kinds of specialists were called in. and the bills began piling up. >> reporter: which if you had your full pension, would you have been okay. >> my pension, i would have been able to take care of it. >> reporter: none of the pe

firms involved in this story with readers digest or with any other company we've mentioned would agree to an interview. but the prave at equity councils doug last lowenstein here on the right did. >> private equity isn't perfect. it does a lot of things well. and like anyone else, occasionally it makes a bad investment. s in's it it's that simple. >> reporter: well, not really says josh kosmin. consider hugo boss, the high-end men's clothing label that epitomizes the costs of private equity, he says. even at a profitable firm. >> premier london based buyout shop bought hugo boss in 2007. paid a very high price for it. the company borrowed more than $2 billion to fund the acquisition. credit crisis happens, luxury good sales fall for everybody. >> reporter: yet behind the scenes, they had paid themselves a $400 million dividend out of that $2 billion it had hugo boss borrow. as a result says union president bruce reiner.

>> they look around to cut costs and they find a factory in cleveland where they are paying workers the sum of $12 an hour. the workers have health care. and a pension. if a few paid holidays and can live. and they decide we can find workers who can make that for less. >> we will fight this fight until we secure and save these jobs. >> reporter: when premiera threatened to shut down the only boss plant in the u.s., unicam ras were there to capture the reaction. >> i received a letter and i was kind of shocked when i read what it said about closing up. because i had-- i don't know what else to do. it's the only job i've ever had. >> they don't care about us. so i'm mad. >> are we ready to fight to save these jobs. >> yes. >> reporter: it is the mo of many a private equity firm says bruce rainier. >> they leverage a company, put much too much debt on the books of the company making the company long term unstable. they take money out of the company. they squeeze the company in

ways that hurt it. >> reporter: not surprisingly douglas lowenstein disagrees. >> private equity is like-- is like-- is like buying a house that needs renovation. you improve it, you strengthen it. you make it a betary set and then you try and turn around and sell it for more money that is the essence of private equity. if you do the opposite, you lose money. >> reporter: and yet sometimes the deals work says bruce rainier. as with blackstone's purchase of hilton hotels. >> that in my view is not-- debt in my view is not a bad thing. if the borrowed money is used to build the business, it's when the debt is used to enrich a handful of private equity partners like in the premiera case. that's when it's dastardly. >> they're getting those fees for identifying investments that they can make on behalf of their investors that they can invest in, add value to, and sell for a profit. and that requires a significant infrastructure. so getting fee income for adding all that value is entirely reasonable.

>> reporter: but the main danger says kosmin is that the firm's boss and private equity deals now owe so much, they threaten the economy as a whole. >> $700 billion becomes due between 201 and 15. it's a lot of money. in that period 2012 to 2015, the government is going to have to refinance on its own about $00 billion, investment grade companies, better rated-- than these guys are going to have to repay about $1.2 trillion. so su have a huge debt wall coming in this country and these guys will be at the bottom of the list because these are the companies that are the weakest. >> but private equity owes just 2% of all the debt in america doug lowenstein insists within the economy is dynamic. the economy is improving. as the economy improves, companies are stronger. and these firms are in much stronger shape. >> reporter: but at least for now hugo boss will still be making suits in cleveland because the unions bruise reiner worked out a deal.

>> by an overwhelming vote, our members ratified a union contract at the hugo boss plant in cleveland that will keep this plant open and keep the jobs in ohio. >> reporter: the workers, however, who used to average $12 an hour will now make $10, and 20 next year, 10.-- 10.20 next year, an 10.40 in 2012 while the company continues to pay back the $2 billion premiera borrowed to buy it. for the workers, a costly victory, to pay off debt they never incurred >> brown: now to politics-- the president's spokesman kicked off the week by highlighting just how tough this election year is shaping up for his party, and congressional democrats swiftly made their displeasure known. newshour congressional

correspondent kwame holman reports. >> holman: for the white house, the week ended better than it started, with b.p.'s successful capping of the gulf oil spill and senate passage of the financial reform bill. the president touted the legislative victory yesterday afternoon. >> because of this reform, the american people will never again be asked to foot the bill for wall street's mistakes. there will be no more taxpayer- funded bailouts, period. >> holman: the beginning of the week did not go as smoothly for the administration. in an appearance sunday on nbc's "meet the press," white house press secretary robert gibbs was asked if the democrats' majority in the house was in jeopardy in november. >> i think there is no doubt that there are a lot of seats that will be up, a lot of contested seats. i think people are going to have a choice to make in the fall, but i think there is no doubt there are enough seats in play that could cause republicans to gain control. there's no doubt about that. >> holman: that angered some house democrats, who responded

that the obama administration had fallen short in its efforts to help members win re-election. in a closed-door caucus meeting tuesday night, house speaker nancy pelosi reportedly rebuked gibbs for his comments. and those concerns were only stoked by publication of an abc news/"washington post" poll this week that said voters favored republicans over democrats in the battle for congress. as the story persisted, gibbs looked to reframe the matter, predicting at wednesday's press briefing that democrats would hold onto their majorities in both houses. >> there are a whole host of issues that will be worked on in the next couple weeks that will highlight the choices that voters will have. and i think... i think in that choice, we are going to do very well. and i have said throughout this, i think we will retain the house and the senate. >> holman: by thursday, it seemed the white house and pelosi were on better terms, although she still lamented gibbs's comment. >> the president's message that we are not going back is the message of the democrats in

congress, as well. so i don't see a problem. i think the comment was unfortunate. >> holman: meanwhile, house republicans looked to take advantage of the spat. their leader john boehner went so far as to say a "full-scale civil war" had erupted among democrats. >> lehrer: and to the analysis of shields and brooks-- syndicated columnist mark shields and "new york times" columnist david brooks. full scale civil war among democrats and the white house, mark? >> i think it may have been stated a little strongly but i was reminded of words of mo udal of democratic congressman from arizona, and briefly a presidential candidate in 1976 who said when we democrats organize a firing squad, we begin by forming a circle. and i think there was something of that to this. >> lehrer: is it real? >> it is real. it's real on the part of the house democrats. and look at it from their perspective. i mean barack obama is not

on the ballot in 2012. two-thirds of the senate is not on the ballot. >> lehrer: 2010 you mean. >> 2010, yeah, not until 201. >> lehrer: yeah. >> 235 of them are. and they have done all the heavy lifting in this two years. i mean they not only passed everything that the president really gave as a priority item, but they passed it in the form which he asked for it, in a tougher form, if anything, than had to go to the senate. they had to wait while the senate went through all of its-- whatever wah tonight call it, dance and pretend. >> lehrer: pros is. >> process. and anything that got 60 votes, then they had to then swallow and vote for. and there is a real perception that among a lot of house democrats, that the white house, particularly the political operation of the white house, they don't charge the president but they certainly charge the staff with this, that they don't see 2010 loss of

control of the house by the democrats as being that damaging to the president's re-election chances in 2012. and i think, so i think there's a certain sense. plus if you think about it, i mean the president has not been involved in house fund-raising to the degree that certainly the vice president has. i mean he has done more fund-raisers for barbara boxer, the senator from california than he has for the house democrats. so i think there is an understandable resentment. >> lehrer: understandable resentment. >> yeah, i guess semi understandable. house members always feel not respected compared to the senate from the white house. that was true when the republicans had control. it's true now. but i guess i would say what did they expect? i mean this was entirely predictable. they passed a series of bills that were major pieces of legislation but which were unpopular. i think the strategy from a lot of democrats was we're going to take our hits but over the next generation we'll have health care, we'll have financial reform, we'll have the big spending that comes out of the stimulus. we'll have all the stuff but we'll take hits. that is the calculus we're going to make.

it has been obvious for a year or two that this stuff was unpopular and would cost democrats in the fall. >> lehrer: unpopular you mean in the larger country. >> in the larger country. so this was the decision made, and so the country has reacted as the way it was obviously going to react from the past year, people were very suspicious of the increase in spending and the increase in the role of government and they're going to take it out on the democratic party. now you could argue if you are a democrat it's worth it. we're going to do badly this time but we have these major pieces of legislation, but that's the deal. i'm not sure there is anything the white house could do short term campaigning, not campaigning that will really change that dynamic. >> do you think gibbs said something wrong? we just heard what he said. >> i think a, it was obviously true. i mean i would say if you walked around king street in washington and said will the republican -- >> that is where the lobbyists are. >> even normal people. >> they would say yeah, i would say right now most people expect the republicans to take over. in the last week or two there has been some sense maybe even the senate. so, a, it was true. b, i think was politically smart. if you are running as the white house and democrats should be running against the scary prospect of

speaker boehner, you have got to say here si a chance of winning. so i thought its what smart on both levels. >> no. >> i don't think it was smart on both levels. i think first of all, you have now put it out there. and speaker boehner and his lieutenants predictably had a major fund-raising meeting with the k street lobbyists and fund-raisers saying look, the democrats are already admitting that they are going to lose the house, a real prospect of it. >> lehrer: so get on board. >> that's right. come back to david's first point where i really disagree. they passed these, they were controversial, they were difficult they were what the house democrat, i think have been most surprised by, is the stay of communications on the part of the white house. they have-- this has been a failed communications effort. >> rooney: whose fault is that. >> right, you've got to begin with the communicator. the successes-- the successes of the program, the idea that barack obama has meant what he said and said what he meant, he said

he was going to do all the things he did on health care, on the stimulus, on the financial regulation, he's fulfilled his promises. he carpied through. what they didn't understand or never grasped was they somehow let this debate get away. that the president who was such a compelling communicator in the campaign has creeded the communications debate. he has not dominated the debate on any of these issues. they passed controversial items. they expected, quite frankly, that he could make the case and would make the case. now i understand that this is all in the context of an economy where 10% unemployment, which does dominate people's concerns. >> lehrer: what do you think about the communicating? >> i don't think it really mattered. i'm always very suspicious that it is always a message problem. i think it is almost never a message problem. john boehner didn't suddenly become a great communicator. barack obama didn't suddenly become a brad communicator. the reason the democrats are in trouble is first the reason mark mentioned that unemployment is still very

high, the economy is still terrible and maybe trending down. so that's one. but two we had a country that was-- that has no faith in government, 22% of the people think the government does the right thing most of the time. we saw an increase in the role of government in area after area. second, a country that had just come out of a big debt caused recession or fiscal crisis. and we piled on debt. those two things were bound to scare the country and they have. and i don't think the messaging really made a difference. >> the president, and this is a criticism from democrats everywhere, he has run against washington being broken. now that is great if you are an outsider challenger candidate as he was in 2080 seeking the white house. once are you there and are you the head of the democratic party and the democratic administration controlling the house, the senate and the white house, for you to continue to say that washington is broken, now you're an incumbent and are you trying to run for re-election of the house and your main voice, the loudest voice in your party, the dominant voice in the national debate is saying

washington's broken. you are-- . >> lehrer: are you talking about your own people. >> exactly. that's ectly right. i mean democrats are the government. and they are the government party. and running washington being broken saying i'm so thrilled to be outside of washington, be away from washington, that's great for ronald reagan. that's great for an anti-government conservative it doesn't work for a leader of the democratic party. >> i do think that messaging, if i were a house democrat i wouldn't be angry at that messaging. obama's tendency is to transended differences within washington rather than stick with his team. he is a more transending figure than a partisan figure so i have been struck by a semi active semi disloyalty down on that nonetheless i still don't think it really made that huge a difference. people didn't need to be persuaded to dislike washington these days. >> it isn't just communications as an art. i mean the health-care bill was handled so badly. that it became a process fight for so long. we still didn't know what the white house stood for so

we never knew what the product was of the health-care bill until a year and a half into it. and all the rest of it was the process back and fourth. and you know, i think that's a failure of white house leadership. i really do. >> rooney: what about this ongoing or this relatively new split among democrats, the deficit of course, is a republican issue but now some democrats, particularly moderate and blue dog democrats are saying wait a minute, we have a deficit problem. at the same time there are other folks saying yeah, but forget about it we've got to down employment benefits. we've got to do another stimulus package. is that a breaking point partially breaking point among democrats as well. >> this is an ancient fight in the democratic party. of course i think president obama would have been better off if he had governed more like president clinton, more with those centrist democrats but for him the political problem right now is he set aside the liberal base without wants some of the bigger spending programs. he's going to try to win back some of the independents for whom the debt a big problem.

he has these two competing tendencies which is the problem for both parties and i'm not sure quite how he does both. it's interesting to see what is happening around the country, by the way, you are getting weird results over the past week. harry reid the ma sdwrort leader suddenly has a 7 point lead on a relatively weak opponent. meanwhile in wisconsin, and in california, the republicans are doing surprisingly well. so you are seeing even with this, i think a national wave, are you seeing a lot of local variation too on issues like debt and other things. >> do you think the debt to deficit thing is a national issue that is going to have traction for 2010? >> yes, i think it is i don't think anybody has an answer for it i mean-- . >> lehrer: something to talk about. >> it's something to talk about, something toed ares and i think there is a real anxiety and understandably so. we're talking about interest on the national debt being 5% of the total gdp. >> and people get that, people understand it. >> yeah that just is crowding out all sorts of other things whether it is education or research, anything else.

i mean that really is infrastructure. i think it is a problem for democrats but i think the biggest thing, jim, is joblessness. i mean people being out of work and the sense that the economy, we're to the going to go back to where we are. i mean they are keep saying jobs aren't coming back. i think that is, boy, i think that's a killer. >> then there is afghanistan. are you feeling, either of you kneeling, both of you feeling that that may come back also as an issue politically? >> well, if you look to what has happened first in the polls and i think generally the mood, it's certainly negative in the last couple months. >> public support, what president obama has doon that is all trending down. there's a sense that things aren't working. i would say one thing i do think is work. first we have a very first class leadership team with petraeus and madus. what happened this week is giving some of the local villagers some police poer with. i think that is a risky thing to do but i think is the right thick to do in a potentially very good sign.

>> want a thoughtful serious republican like richard lugar starts to question what is success, how are we defining success, you've got to tell us, you know, what success looks like what victory or achievement looks like, and the administration witnesss cannot answer before the foreign relations committee, i think that tells you that there is erosion of support. >> do you think there is going to be a debate about it before we're threw, about this whole thing, whether the united states should still be there or whether the war, and its campaign. >> i don't because i think it is in the republican's interest to watch the democrats, basically, basically argue among themselves. house democrats, there is a hemorrhaging of support for the white house administration. >> . >> lehrer: so how do they handle this? >> well, i mean, they'll talk b who is going to raise the debate. i don't think the public-- a republican isn't. i mean i think if it continues, jim --. >> lehrer: i was thinking about picking up on what

lugar, also john mccain has been raising some questions too about how the conduct of the war -- >> but if you look at the polling the republicans are more with the president than the democrats who are against him on this issue. so it cuts cross ways in this election season. >> i don't see democrats raising it unless they want to get daylight. the president's numbers continue to fall, then it becomes a self-interest of some democratic candidates to establish further daylight and afghanistan may be one place where you seek to do that. >> of course the casualtys are up. >> everybody who knows anything is predicting they're not only going to continue, they're going to go up as well. and that, of course, affects public opinion. >> and as many of the people who are there saying we're doing what we can, maybe there is not enough pickup from the locals. and so that leads to a sense of fatalism which leads to fatalism about so many issues, including the economy. we don't seem to really get traction. >> can't seem to get progress. >> b.p. was the one piece of good news.

>> yeah, yeah, the gap. >> that's a plus politically. >> lehrer: the gap, i mean. >> no, no it's a police politically for the administration because that had taken the oxygen out of the room. now you can get back to the economy and the jobs and what you are trying to do. thank you both very much >> brown: finally tonight, the possibilities of earlier testing for alzheimer's disease. margaret warner has the story. >> warner: more than five million americans suffer from the debilitating effects of alzheimer's disease. currently, doctors diagnose the degenerative brain disease by tracking the progression of dementia or memory loss as revealed by the patient's behavior and the results of cognitive tests. but this week, for the first time in 25 years, medical experts proposed revamping the

diagnostic tools and categories to detect alzheimer's at its earliest stages, when there are few, if any, symptoms. the new diagnostic tools, which were presented at the alzheimer's association meeting in honolulu this week, would include: so-called "biomarker" tests, including brain imaging methods like m.r.i.s and pet scans, as well as spinal fluid tests to detect changes in the brain. using the information from the new tests, researchers are also proposing new criteria that would diagnose alzheimer's in three stages: a new category called preclinical, before any symptoms appear; the second stage of mild cognitive impairment; and lastly, the most advanced form of the disease, alzheimer's dementia. researchers believe the new guidelines and tests could help detect the disease as it's developing in a patient, a decade before obvious symptoms appear. and that, they say, could double

or triple the number of americans diagnosed with alzheimer's. >> warner: for the latest on these alzheimer developments we turn to creighton phelps, director of the alzheimer's disease center program on the national institute on aging it helped put together the expert panels that are recommending these changes. and creighton phelps, welcome. what is driving these proposed changes now to both the testing and the categories of alzheimer? >> the science has really grown immensely since 1984 when these original guidelines were first written. and so we wanted to update them and to include signs that relates to the underlying biology of alses alz-- alzheimer disease and how that man fists itself in clinical symptoms and see if we can link that up a little tighter than it's been done before. >> warner: so what do these tests, say, the different brain scans or the spinal taps, what can it tell you

about the brain relevant to alzheimer's that you couldn't tell say 10 or 15 years ago? >> we now have imaging techniques such as something walled pittsburgh compound b which allows us to see the amy lloyd protein that occurs in the brains of alzheimer's patients. what-- we were a bit surprised to find out is that when we started imaging people who haven't been diagnosed with alzheimer who receive some changes in the brain that related to the alzheimer changes like the deposition of the amy lloyd protein. >> where are we now product broadly speaking in our understanding of alzheimer, both the causes and progression and how would this help advance that? >> this factors such as genetic risk factors will help us find groups of people that may be at higher risk. and we would moon ter them to he is if these changes develop until the time they get alzheimer disease. and once again, this is a

research project. and won't be applied clinically, in a wide spread way until after this has been validated. but if we can link that up to the risk factors and the final appearance of the disease by using these biomarkers, it will be a big step forward. >> warner: currently there are no drugs on the market at all that actually affect the right of progression of the disease, are there? >> no, but there are many ideas and some drugs under development in clinical trials that are doing just that. looking at the biology of the disease, finding points where interventions could be placed to see if we could stop it, or to at least slow it down. >> warner: to so for an individual patient what would be the advantage. i mean until there is some kind of drug that actually does some help, what would be the advantage of knowing early? >> that's controversial. there is some advantages

because it allows patients and families to plan. if you know for sure you're going to get the disease, then will you start doing things a little differently, perhaps, then would you have otherwise. putting your affairs in order, get pog percent of attorney arranged so that when are you no longer competent, someone else can help take care of you. you can help both in the legal and financial and also health care. >> warner: is it fair to say there are downsides? >> well, the downsides are that it's a difficult thing to deal with for some people. and there are those who don't want to hear this. and also, the downsides of knowing this earlier is probably going to put some pressure on the health-care system to take care of more people because more people will be identified than were in the past. >> warner: so is one of the objectives here, though, that you are going to generate a larger pool of

people at an earlier stage who are at least available to take part in the clinical trials? in other words, that you will be able to test these drugs at an earlier stage of the disease? >> that's exactly what we hope to do. >> warner: you want to expand on that just a little bit. >> what we are hoping to do is to validate with these biomarkers the fact that symptoms are showing and in turn, we'll look at the imaging. and that adds to our certainty of what's going on and that they are on their course to alzheimer. it's those kinds of patients that we would want to choose for interventions so that we-- because we are learning the natural history of the disease. we would then like to intervene as quickly as possible when we recognize what that is. >> warner: mr. phelps, thanks so much. >> my pleasure. >> lehrer: again, the major developments of the day: there were no signs of new leaks a day after that ruptured b.p. well was capped in the gulf of mexico.

but engineers reported pressure readings were not yet high enough to declare the effort a success. the bears were back on wall street. the dow jones industrial average lost 260 points after disappointing news on consumer sentiment and corporate earnings. and the governor of west virginia appointed a former aide as a temporary successor to the late u.s. senator, robert byrd. the newshour is always online. hari sreenivasan, in our newsroom, previews what's there. hari. >> sreenivasan: mark shields and david brooks check in with the rundown tonight for a post-show chat. you can keep tabs on b.p.'s broken wellhead on our live video feed, plus find images, blogs and other reporting from the gulf. we've followed the buzz about antenna problems with apple's iphone 4. we talk with c-net editor kent german about how the tech world reacted to steve jobs' press conference today. plus, "art beat" marks the 50th anniversary this month of harper lee's landmark novel "to kill a mockingbird." jeff talks to author and filmmaker mary murphy about the book's lasting power and popularity. all that and more is on our web site, newshour.pbs.org.

jeff. >> brown: and that's the newshour for tonight. i'm jeffrey brown. >> lehrer: and i'm jim lehrer. "washington week" can be seen later this evening on most pbs stations. we'll see you on-line, and again here monday evening. have a nice weekend. thank you and good night. major funding for the pbs newshour has been provided by:

and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. captioning sponsored by macneil/lehrer productions captioned by media access group at wgbh access.wgbh.org

rozat k. sabich. and they're gonna charge me. don't be seen with me, man. they' your own autopsy notes? you dictate them you may stop answering questions at any timnt? any feeling that you might be a political scapegoat? is now in session, the honorable larren l. lyttle, judge, presiding.