captioning sponsored by macneil/lehrer productions >> lehrer: good evening. i'm jim lehrer. the stock market surged today as corporate earnings reports came out stronger than expected. the dow jones industrial average was up by almost 2%. >> brown: and i'm jeffrey brown. on the "newshour" tonight: the good news was tempered by other data that showed sinking homes sales and rising claims for unemployment benefits. we sort out the mixed picture with greg ip of "the economist." >> lehrer: we have the latest on the tropical storm threat to activities in the gulf. as senators roger wicker of mississippi and bill nelson of florida debate the offshore

drilling moratorium. >> brown: spencer michels reports from louisiana on the controversy over the use of chemical oil dispersants. >> the key question that scientists are trying to figure out is whether oil dispsants in the deep ocean do more harm than good. >> lehrer: ray suarez gets two views on the legal challenges to arizona's immigration law. >> brown: and paul solman examines the housing slump in spain, as he continues his reporting on europe's economic troubles. >> see these four big towers? they are beautiful and they were built just before the crisis so they are empty. >> lehrer: that's all ahead on tonight's "newshour." major funding for the pbs newshour has been provided by:

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and by contributions to your pbs station from viewers like you. thank you. >> lehrer: good corporate earnings reports helped fuel today's rally on wall street. caterpillar, 3m, u.p.s. and a.t&t all did better than expected. that helped push the dow jones industrial average up by 201 points to close at 10,322. the nasdaq rose 58 points to close near 2246. those broad-based gains more than made up for losses on wednesday. the stock market's surge came as other parts of the economy were headed in the opposite direction. the economy's leading indicators fell in june, the second decline in three months. at the same time, sales of existing homes slid more than 5%. and the inventory of vacant

homes was the largest in a year. on the jobs front, new claims for unemployment insurance were well above expectations last week. with that in mind, the house of representatives today gave final approval to extending benefits for the long-term unemployed through the end of the year at a cost of $34 billion. house speaker nancy pelosi said it shouldn't have taken so long. >> imagine that today we're finally taking up unemployment insurance. republicans in the senate have stood in the way of so many initiatives including unemployment insurance until now, unemployment insurance is not only important because it's part of our compact with the american worker, it's important because it's job creating. >> lehrer: but house republican leader john boehner said it's one more big spending bill that's dragging down the economy. >> for 18 months, we've had a government that believes that change is only possible by

passing 2,000 page trillion dollar monstrosities one after another. americans are still asking the question: "where are the jobs?" and all president obama has to offer them is more stimulus spending, more debt, higher taxes and more job killing regulations. >> lehrer: the chairman of the federal reserve, ben bernanke, weighed in as well. at a house hearing, he warned against major spending cuts or tax hikes for now. >> in the short-term, i would believe that we ought to maintain a reasonable degree of fiscal support, stimulus for the economy. there are many ways to do that. >> lehrer: bernanke said if a new recession threatens, the fed could take its own stimulus actions- buying government debt or trying to spark new lending to business. for a closer look, greg ip, u.s. economics editor of "the economist" magazine. greg, welcome. corporate earnings, they were higher than expected. what happened? why?

>> well, the story of the last few months is that corporations have actually been reporting earnings that are better than analysts have expected but often the market has not taken that well. because when you dig down you find that a lot of that improvement is because of cost-cutting. we know that employment has been weak. and one reason why is that companies, when they meet their sales targets are doing it by making their workers more productive rather than hiring more. the other thing especially true today with companies like caterpillar and ups is the strong sales are not in the u.s. you but if places like china and india. the bottom line is the market is doing well but that is not necessarily a great sign for the economy. over the last month, even though we had a good day today t only kind of like takes us back to where we were, you know, a few weeks ago. it's basically one step forward, one step back. the market overall is telling us that it a sluggish outlook for the u.s. economy. >> lehrer: and so when the market goes up like that, it's always a mistake to read that as anything other than the fact that the market went up today, is that right. >> that's right. that the sellers had less convictions than the buyers today. you kind of have to watch

the trends over time. i mean, the encouraging thing here is that after a very rough spring when things in europe were really alarming people and we were worried about going back in a recession, is that there has been stability not just in the stock market but in the borrowing market, the credit markets. and so there isn't a strong sign of going back to a recessionment but we also don't see the evidence that we are having a strong recovery either. >> lehrer: those three number, the leading economic indicators, they are not terribly positive, are they? >> no. and unemployment insurance claims kim out today. they went up. again, a number that is very volume difficult-- volatile from week-to-week but tell us over the last month or so that very little hiring going on out there. >> lehrer: and housing too, the housing figures were not terrific. >> yes, now surprisingly housing numbers were bad but not as bad as people had expected. what we saw there was that the government had basically artificially stimulated sales for the home buyers tax credit which expired a couple months ago. we knew this tluf was coming. >> lehrer: how do you read what bernanke is saying. he said it today, said the same thing yesterday to a

different congressional committee? >> the federal reserve has lowered their outlook for the economy this year. although they haven't really lowered it for next year. but not by very much. and it's a bit surprising given how bad the economic data is. they believe that the economy has essentially entered a self-sustaining phase and that even though things are a little tough out there, the financial system is so much healthier than it was a year ago that should carry us forward. but there is another sort of subtext here too which is that if the economy does get a lot worse, there's not a lot the fed can do. i mean remember, they've already lowered short-term interest rates to almost zero. they could do a few more unorthodox things. they've already bought almost $2 trillion worth of bonds of treasury bonds and mortgage bonds. they could buy more. but the fact of the matter is we're in the unusual situation where the federal reserve, to whom we usually turn for help at times like this doesn't have a lot of resources. >> lehrer: so when he says we might do a little something hear or there, it is very little, right. >> very, very little. >> lehrer: and the stimulus, in terms of the other

branches of government, there's very little talk about a new stimulus package. so what we have is what we are going to get and it's going to have to be natural growth is that correct? >> that's basically it i mean if you think back to february, the president had a budget that envisioned over $200 billion of new stimulusment and here we are, relieved that we got $34 billion in unemployment insurance benefits, which by the way, is a fraction of the stimulus we will lose as the previous stimulus program expires. and as some of the bush tax cuts which expire at the end of this year go up. vow in that kind of tricky situation of fiscal stimulus actually turning from a positive for the economy, to being a bit of a negative. at a time when we don't really have the federal reserve with a lot of ammunition to help out. some, to be sure, but not a lot. the beting is that the economy does have this sort of natural organic growth to it. it can survive these challenges. >> lehrer: and so what happened on wall street today, this quote, surge,

should be seen as not a sign of anything beyond that, right? in other words, they read the same numbers that we just talked about, that people on wall street and yet the market went up today. but that shouldn't be read as an indication of that, correct in. >> not until a kind of like breaks out of this range it has been in the last month or two. i mean the markets will eventually smell it if things are getting alot better. by the way, there are positive signs. for example the crisis in europe seems to be easing. tomorrow, friday, we'll get the results of so-called stress tests on european tanks am people are increasingly confident there won't be a disaster in the european banking system. so perhaps nay month or door we will have put this thought patch behind us. >> lehrer: okay, greg, good to see you again, thank you. >> okay. >>rown: still to come on the "newshour": tropical storm fears in the gulf; an offshore drilling debate; the controversy over dispersants; arizona's immigration law goes to court and the spanish housing bust. but first, the other news of the day. here's hari sreenivasan in our newsroom. >> sreenivasan: long-time congressman charles rangel will face multiple ethics charges in the u.s. house. the announcement today means

the veteran democrat will be tried before a house ethics panel. the charges stem from his financial, tax and real-estate dealings. but rangel said he's ready to defend himself. >> i feel extraordinarily good that my supporters over 40 years will be able to evaluate what they come up with. and i don't have any fear at all politically or personally what they come up with. >> sreenivasan: rangel stepped down last march as chairman of the powerful ways and means committee. senate democrats gave up today on an energy bill to cap carbon dioxide emissions. the measure would have charged utilities and other industries that contribute to climate change. today, senate majority leader harry reid said he cannot muster the 60 votes needed to advance it. president obama has now apologized to shirley sherrod, a former agriculture department official in georgia. she had been fired this week over race-tinged remarks at an n.a.a.c.p. event. they later proved to be taken out of context.

white house senior aide david axelrod told the "newshour" that the president spoke to her this afternoon. >> he called her simply because he wanted to express his regret over what happened. she was done a great disservice by the admin, by the naacp, by the news media, by everyone involved. there was a rush to judgment that was unfair and maligned a good person. the president felt strongly that he wanted to say that to her personally, and they had a good conversation. >> sreenivasan: earlier, sherrod said the president had not experienced some of things she has had to contend with in life. she has not said if she will accept a new position with the a.g. department. a nato helicopter went down in southern afghanistan today-- killing two u.s. troops. the taliban claimed it shot down the helicopter in helmand province. nato said the cause was still under investigation. at least 50 americans have died in afghanistan this month. in iraq, four prisoners linked

to al-qaeda have escaped from a prison outside baghdad. the u.s. handed over the site-- "camp cropper"-- to the iraqis last week. the country's justice minister announced the escape, but gave no details. other iraqi officials said the prisoners had help from a guard. secretary of state hillary clinton urged vietnam today to improve its human rights record. she was in hanoi to mark the 15th anniversary of normalized relations between the u.s. and vietnam. clinton welcomed the improved ties, but said the communist government must allow free speech. >> vietnam, with its extraordinary, dynamic population, is on the path to becoming a great nation with an unlimited potential. and that is among the reasons we expressed concern about arrest and conviction of people for peaceful dissent, attacks on religious groups and curbs on internet freedom. >> sreenivasan: clinton also promised increased help with the

lasting consequences of agent orange. the u.s. military made wide use of the defoliant during the vietnam war, but it has since been linked to cancer and birth defects. computer maker dell will pay $100 million to settle federal claims of fraudulent accounting. the securities and exchange commission had brought the civil charges. it said dell fixed its books to meet wall street targets for its earnings. the s.e.c. said dell also failed to disclose large payments from intel in exchange for not using equipment by a rival firm. for the record, intel is an underwriter of the "newshour." the ancient site at stonehenge in southern england haa ney discovered neighbor. archaeologists reported today they've uncovered the foundations of a second ceremonial monument a few hundred yards away. it was apparently a wooden version of the iconic stone circle. the main stonehenge site dates back 3,500 years. those are some of the day's major stories. now, back to jeff. >> brown: and we turn to the latest in the gulf with a new storm brewing and a continuing debate over drilling.

a steady, gray rain fell over the caribbean today-- signs of a budding tropical storm that could cause havoc with oil spill operations in the gulf of mexico. forecasters said the system was on track to reach the gulf by saturday. there, it could grow into the second hurricane of the atlantic season. the first-- hurricane alex stayed 500 miles away from the oil spill site, but still curtailed cleanup efforts for nearly a week. the focus today, was on the cap that's contained the gushing oil for a week. in louisiana, b.p.'s chief operating officer, doug suttles, said the cap had made a huge difference. >> just to give you some sense of that-- the week before we got the cap and stack on, we were seeing skimming volumes everyday approaching 25,000 barrels. everyday since we've had it on they've dropped, and yesterday we only skimmed 56 barrels. the advancing storm could force ships and crews to flee, though, leaving the cap unattended. b.p. and government scientists

consulted on whether they'd have to open the cap-- relieving the pressure and letting oil flow into the sea again. but this afternoon, retired coast guard admiral thad allen announced the cap will stay closed. >> we will conduct surveillance to the extent that we can but if we cannot, we are prared to leave the well unattended during this particular event. that doesn't mean we won't reassess it if we have a new event. >> brown: with an eye on the weather, b.p. has already halted work on a relief well that's designed to stop the flow of oil permanently. just days before it was set to be completed. and on the surface, skimming boats halted operations and headed for shore. in dauphin island, alabama, b.p. temporarily cut back the number of boaters who've helped in the efforts. >> basically it's a safety issue. we just make sure there are no boats out that are gonna get caught in the storm, anybody get hurt. safety is our top priority. >> brown: crews along the gulf coast also worked to remove thousands of feet of booms ahead of the storm. captain rick adams-- near pensacola, florida-- said choppy waters will destroy the gear.

>> it'll break the anchors, it'll pull it out... and more than anything, it'll tear it up, and then it's useless. >> brown: there were also new disclosures about safety concerns on the "deepwater horizon" rig before the april 20 explosion that triggered the spill. the "new york times" reported the platform's owner, transocean, conductea confidential survey of workers there in the weeks before the blowout. employees said they "often saw unsafe behaviors on the rig", but feared reprisals if they reported mistakes or problems. separately, the "times" reported "many key components including parts of the blowout preventer had not been fully inspected since 2000." but transocean defended its operation of the rig, and said the parts in question were minor. at a hearing in kenner, louisiana on the causes of the disaster, b.p.'s well team leader john guide acknowleed the company knew of transocean's record. do you know if transocean was

behind on the scheduled maintenance on the "deepwater horizon"? >> there were some issues some issues that were behind schedule. >> brown: since the disaster, the obama administration has pursued a moratorium on deep- water drilling. a federal judge struck down one attempt as too broad, but interiorecretary ken salazar recently announced a revised six month moratorium. at a house hearing today salazar was criticized by republicans for that decision. >> makes no sense to me to cut off the drilling in gulf, when you've not had any real problems except for this one catastrophe. and i just don't understand why the administration is taking this carte blanche approach? >> brown: but democrats defended the moratorium. >> the fact is that this was an environmental disaster, and that we should look at regulation

appropriately and i think it's veryppropriate that the administration take the steps to ensure that all the wells are safe. >> brown: for now, the moratorium is tied up in federal court and no deepwater drilling is happening in the gulf while the legal case is debated. two gulf state senators join us to discuss the moratorium and more: democrat bill nelson of florida and republican roger wicker of mississippi. senator wicker, the revised moratorium would allow some drilling to resume with various previceos but the opposition to it has to the gone away, why not? senator wicker, i'm afraid we're-- senator wicker, my apologies, we're not hearing you.

we'll try to adjust the microphone. you can hear me, senator nelson. >> i can. >> brown: let me go to you first while we adjust this explain. you have supported the moratorium from the beginning. explain the benefits that you think would come from it? >> well, the question is do we want another disaster. and i don't think we do. and as testimony thereof, look at what has happened today four major companies other than b.p. announced that they were putting together a task force so that they would have safety equipment in place that could immediately come in. for example, one of the things that they're going to develop is it would be like a big bell that would go down over the blowout preventer and anchor in the sand of the sea bed and that would immediately stop the

oil from spewing out. that is another indication that people realize that we really have a safety problem in this deepwater drilling. and until we have some comfort through this investigation for this very deep water, not the shallow water, the deep water, i think we ought to hold off and make sure we are safe. >> brown: senator wicker, have we got your microphone fixed. >> can you hear me okay. >> brown: yes, i hear you very well. apologies for that. so explain the opposition to the moratorium. >> well, we've had 42,000 wells over 60 years. this one major incident shouldn't shut down the petroleum that we need and also the jobs that gulf coast families need. there are new safety standards in place since this blowout. and i think they should give us a comfort level. the new endeavor that

senator nelson spoke about should make him feel even better about resuming this. but the practical matter is our economy needs this oil. our gulf coast families need the jobs. and a moodies study just the other day said actually the economic devastation from the more for-- moratorium could be more than actually from the oil spill itself. >> brown: senator wicker, just to say with you, if not a moratorium what do you want to see from the federal government at this point. how heavy a hand. there's a lot of talk about what kind of regulation, what would you like to see? >> well, i support the new safety regulations. new regulations about different kind of cement, new regulations about the casing. and i think as a matter of fact, most of the oil companies, not b.p. but most of them had been adhering to these without incident over time. so i feel good about that new step. and i think it will probably provide

for less of a chance of this one 1 in 42,000 incident happening again. >> brown: senator nelson, what about go nag regulatory route, and also what about, of course, the jobs argument which is much of the opposition to the moratorium is based on? >> well, the jobs argument is a legitimate question. and we are always in a question of trade-offs. what is more important and by the way, this is a modified moratorium. and it's not going to go on forever. and it certainly in everybody's interest to get the moratorium over quickly. and yes, that task force, roger, is developing this new device but it's not ready. so the question is, what is the, in the trade-off. where is the greatest danger. and i think we need to just

buy a little more time even though it is going to sacrifice some jobs. >> brown: and senator wicker, as we listen to this, is this largely about the dictates of your individual states. we're talking about balancing trade-offs here. tourism, perhaps on one hand. oil industry and jobs on the other. >> well, we're all interested in tourism in mississippi too. we have balanced oil production and tourism in the gulf coast with the exception of florida for decades now. but i think you just had someone on right before us who is not from the gulf coast at all. this is a very important part of the united states economy. and there's no sense in a six month moratorium causing more loss than the oil spill itself when we now have new safety regulations and new precautions that should prevent this in the future. we don't quit flying planes when there is an aircraft crash.

and we shouldn't cut off this very vital part of our economy because of this very serious and tragic incident. >> brown: senator nelson, let me turn to one other subject that has been continuing throughout this, that is the accord facial between the federal government and state and local government. times of coordination and getting along and other times of real tension. where do you assess the situation right now? >> well, to begin with, the command and control was not there. and local officials were not getting the information and in the case of florida officials, they were not getting reimbursed. over the course of time, that has improved. and so the whole situation is functioning better. now we're in a situation assuming that the oil stays capped and then the relief well is successful, what we are in is scoop it all off the surface and then let's get to the big unknown. and the big unknown is how

much oil is underneath, what do we do about it, and what is going to be the ultimate affect on the health of the gulf. >> brown: senator wicker what is your assessment of the federal versus state and level governments? >> well, i don't disagree with which much what bill just said. big bureaucracies don't work very well. and the department of the interior, the department of homeland security and the coast guard haven't worked very well in this instance. it tushs out b.p. is a big bureaucracy too and the communication has just been terrible. and certainly there's an opportunity for lessons learned from this too. there was not the communication between the spotters. we were so slow in getting those skimmers out there in the boom. a lot of this oil that is now in the shores of florida and mississippi and other state kos have been prevented with earlier action. and i don't understand why except that whenever i see a big bureaucracy i don't have

really great expectations. >> brown: now we were just talking about tourism. and late this afternoon the white house announced that there's going to be some high-level tourists to the gulf to your state, senator nelson. president's family will be down there. i assume that's welcome news? >> indeed, it is. i didn't know it you are telling me the news. and i hope that they thoroughly enjoy some of the world's most beautiful beaches. i want to point out that when you compare roger and my state, he has an infinitesimal amount of coastline compared to the coastline of floor dapp. same thing when you compare the amount of beaches. and so when you start evaluating whether or not you want to have drilling out there in the gulf that is potentially not safe, we don't think the trade-off is worth it until you know and you ha done your safety checks. >> brown: and a brief last word from you, senator, senator wicker.

the president, of course, took some flack when the family went up to maine after asking americans to visit the gulf. here he is, i think it's in the middle of august they are going to be going to the gulf region. >> well, we welcome them to the gulf. and we don't have as much coastline as bill has in florida, but it's mighty nice and i will be down there this weekend enjoying it myself with my family. >> brown: all right, senator roger wicker, senator bill nelson, thank you both very much. >> thanks. >> thank you. >> lehrer: on the spill, there are also questions about some of the substances that are being used to break up the oil in the gulf. "newshour" correspondent spencer michels reports from near buras, louisiana. >> reporter: churning his 21- foot boat through the waters near the gulf of mexico, 60 miles south of new orleans, capt. ryan lambert is angry. his fishing guide service is essentially dead in the water, because of the oil spill. and he's even more worried that chemicals sprayed into the gulf waters to disperse the oil--

nearly two million gallons-- will haunt this amazingly beautiful and bountiful bayou country for years. >> it's done exactly what they want it to do, it's sinking the oil out of sight, out of mind. you know that's... that's dispersant is to disperse it and to sink it down. when it goes under how long are we going to have to clean it up? how many years will it come in because it'll be coming from the depths. >> reporter: but not everyone shares lambert's fears. at the farmers market in new orleans, you can still find shrimp -- fresh caught and for sale. the shrimp seller here --whose husband catches the fish she markets -- was thankful for anything that helped get rid of the oil that was ruining their business. >> i'd like to see the oil gone which everybody want to do it, but i really don't have the information as far as the dispersant on good or bad. as long as it doesn't hurt, anything, it's fine with me. >> reporter: but some shoppers say it will hurt marine life. >> i think it's horrible. i think they should stop it. and i don't see how... how the

president doesn't have the, the authority to stop b.p. from using this stuff? >> reporter: why? >> it's toxic. >> reporter: but how toxic is unclear. spraying chemical dispersants has slowed considerably since the well was capped, but the longer term effects are not known. a product with the catchy name of corexit is what's being used- - made by a company, some of whose executives have ties to b.p. on their web site, the illinois firm, nalco, posted this video to show how corexit works by breaking down the oil. >> our advanced technology efficiently and safely disperses oil in the open sea and in fresh water applications, where it can be consumed by micro organisms. >> reporter: the value and potential danger of dispersants are widely debated. at a senate hearing last week, environmental protection agency chief lisa jackson explained the dilemma she faced in deciding to

allow their use. >> because there are scientific unknowns, we had to make decisions that are a series of tradeoffs. and basically, in common language, it was either nothing or in moderation. and my best judgment was that it should be in moderation, but we >> reporter: luann white is a toxicologist at tulane university in new orleans, and she's convinced that corexit-- used on the surface-- is better than leaving the oil to foul beaches. she says that headlines about its toxicity are overblown. >> there's a lot of misconceptions about the dispersants because there's been a lot on television, on radio, in the newspapers calling them being highly toxic. while i wish we were in a situation where we didn't have to use dispersants, they are not the most toxic compound. they're metabolized. they're broken down very well by various organisms. and what that means is that our

bodies can handle them. as you can see, this is oil with corexit, etc. >> reporter: some scientists-- like david valentine at the university of california at santa barbara-- agree that the dispersant is doing more good than harm at least on the water's surface. >> petroleum is far more toxic than the corexit and it's... it's far more likely to accumulate in seafood and pose a problem. in my opinion, the decision to use corexit was probably the correct decision. ultimately, it's keeping oil from getting on the beaches and it's done, it's minimizing the impact on the shore environment and the economic impact. >> but he is not totally endorsing the use of dispersants, since never before has corexit been applied in such volume, and at such depth. the oil and dispersant don't

make it to shore, but they remain in the deep ocean. and he's uneasy about it. he has spent several weeks aboard a research vessel in the gulf, right near the site of the spill, gathering data about the chemical's effects in the deep sea. >> it seems that there's been far too much added at over 750,000 gallons in the subsurface alone over a million gallons at the sea surface, that those quantities are never envisioned for this... for this kind of compound. and so they're, i think we have a far different, different issue and potential problems that may arise from the sheer quantity applied. >> reporter: what is not known for sure and yet what scientists disagree about is the effect of dispersents way under the surface of the water. the temperature is lower; the pressure is higher; and no one knows exactly what the effect on marine life could be. that's what marine biologist and environmentalist david gugenheim wants to know. as he collected samples of water, and oil and animal life

in and near the gulf, a flock of spectacular pink birds passed overhead. >> those birds, the roseate spoonbills are a perfect example of what we're worried about because even... even if we assume that dispersants are not toxic, all of that oil, being dispersed throughout the ecosystem is entering the food chain at many different levels and those animals eat small mollusks and crustaceans that are in the mud, it's getting into their system and it accumulates in the tissue over time and can kill them. and the other part of the ecosystem, the real invisible part of the ecosystem is the deep ocean and the, the water column where all of this oil is being dispersed at depth a mile deep and can affect a huge geographic area. >> reporter: film maker and oceanographer jean michel cousteau is convinced the dispersants pose a real danger. he says his own teams have

observed how tiny droplets of oil and dispersant linger under water, where they can be injested by marine life. we talked with him near his headquarters in california after he returned from the gulf. >> our team took the risk of getting in the water and it was burning their skin and they had headaches and they came out, but we saw that it was everywhere which means what? i means that when you have wind, storms, waves, you can put all the booms you want, it goes underneath and it reaches the critical environmentally sensitive reproduction branch which are the marshlands. >> reporter: for geo-chemist david valentine, there is plenty of work ahead, including studying the impact on the oil- eating bacteria that usually help clean up oil spills. >> we're trying to pull out what the impact of the corexit might be on the bacteria and its capacity to degrade the oil. >> reporter: and, he says, there

more questions than answers. >> we went into this knowing far less than we should have. nobody had their eye on the ball. the oil companies didn't; the federal government didn't; nobody had prepared in any way for this sort of event to occur. coming out of this were going to coming out of this we're going to be slightly more prepared. >> reporter: it could take months or years before scientists know the effects of dispersants. even b.p. executives have acknowledged, much is still unknown. and, fishermen like ryan lambert are convinced they'll have to cope for years with the aftermath of what's already been sprayed. >> brown: next: the legal battle over arizona immigration law. and to ray suarez. >> suarez: the first showdown between the u.s. department of justice and the state of arizona over the state's high-profile

immigration law went before a federal judge in phoenix today. protestors gathered outside the court house as justice department lawyers argued for an injunction to prevent the new law from taking effect next thursday. the law makes it a state crime to be in the country illegally. and requires local law enforcement officials to check the immigration status anyone they encounter while enforcing other laws, where reasonable suspicion exists that they are illegal immigrants. in all, seven federal suits have been filed against arizona governor jan brewer since she signed the legislation in april. now two different legal views. kris koback of the university of missouri-cac-40 kansas city school of law helped to author the bill and steven gonzalez of the phoenix school of law. and professor gonzalez, let me start with you. on what dow base your contention that the law is unconstitutional? >> well, good evening from phoenix, ray. there's a couple of problems,

i think, very serious problems with the act. but the biggest defect, i think, is that it tends to, in fact t boldly usurps federal power. the constitution in the united states gives the power of naturalization and to set policy on protecting the national borders and related issues to congress, to the federal government. and in this situation, we have a state, one state, in effect, trying to seize that power. and if you think about it, if that is permitted to continue, then there's a danger that all other states will try to do it. and the states are never going to agree. so it essentially threatens the federal order and the supremecy of congressional power here. >> suarez: professor koback, you are co-author of the bill. what do you make of that line of argument? >> well, if i might initially point out, the law doesn't make it a crime to be in the state illegally. the law says if you are not carrying certain registration documents that the federal law already required you to carry then you will be committing a

state misdemeanor. but as far as the claim that it usurps federal authority, the courts of the united states, including the supreme court of the united states have not so held. the supreme court has two precedents on this issue, one from 1976 and one from 2005 and they both support what arizona is doing. the court has held that states pay pass laws to discourage illegal immigration within their jurisdiction. and the u.s. courts of appeals, and i've argued many cases around the country on this specific question, have also held that state and local police may make immigration arrests without being preempted by congress. indeed, congress has passed numerous statutes to encourage state and local police to make immigration arrest. so far from usurping federal authority, the arizona law, because it is drafted to be perfectly concurrent with federal authority t actually is not preempted and, indeed, encouraged by federal statute. >> suarez: professor koback, you heard professor gonzalez say that the constitution specifically uses language to assign to itself the authority to regulate these matters.

does it? >> yes. and of course the constitution gives congress what's called plenary power to regulation-- regulate immigration. however, preemption is when congress pushes the states off the field. and preemption does not occur just because congress is given the poer with. congress has to take an act that deliberate and that is recognizable and is very distinct to say we don't want the states on the field. and the courts have held, including the united states supreme court, that no such act has ever been passed by congress. that's why all the precedence strongly support arizona in this case. >> suarez: professor gonzalez, what do you make of that idea, that it's concurrent, not in conflict with federal law? >> well w all due respect to professor koback, i could not possibly agree or disagree more. in simple terms, we have to look at it this way. the constitution gives some powers to the federal government and some powers to the state government. now it is true that on occasion there is some gray area but there is no gray area here it congress, most

of the laws that i believe professor koback refer to are delegated authority by congress to the state. in this situation -- >> that's not correct. >> in this situation-- in this situation the state of arizona has just taken upon itself to assume and take over a national policy here. so that is certainly not concurrent. that is the seizing of power. the fundamental problem here is that this is federal supreme power and congress has, in fact, acted as the justice department's complaint in this case has set forth, there's a legion of federal legislation regulating how the federal government regulates immigration and naturalization. how individuals should be treated. and what has happened here is that by setting up this scheme, arizona said well, we don't quite agree. it's one thing if congress gives the authority or delegates the authority to the state. it's quite another thing if the states just say we want to do it. for example, one of the dangerous precedents that

could happen here is that, let's say just for for example, hawaii, california or florida says okay, arizona, if you can set policy, we can too. arizona can't say well, every other state has to follow our policy. so what if florida or california just says well, we like immigration. we want to open up the borders more. we need more workers. then you've got chaos. and that's the reason why the framers of the constitution made this a federal power. >> suarez: let me jump in there professor koback, until recently, before the passage of this law sb 1070, the obama administration and before that the bush administration was using local law enforcement in various states to assist on immigration law enforcement. is that an example of the kind of delegated, complementary, coop rative power that professor gonzalez was talking about? and is that different from what's going on in the arizona case? >> there are two different

types of power, delegated and inherent power. but professor gonzalez is incorrect to state that this-- that the prior examples of supreme court precedence involve delegated power. in fact, they did not. the 1976 case of the supreme court held that california could pass a statute out of the blue, penalizing state-- employers within the state who are knowingly hiring illegal alien workers. that was not delegate pod we are. now is correct to say that the bush administration did use the so-called 287 g authoritsection 287 g of the immigration nationality act to effectively deputize certain jurisdictions, more than 60 of them across the country to give their law enforcement officers federal ice poers with if you will. and the obama administration has radically scaled it that back, by the way. but 287 g authority is entirely separate from the inherent authority that every law enforcement officer across the country has to make an immigration arrest. the fourth, fifth, 8th, 9th and 10th circuits have held held that police, state and local police officers have inherent authority though

make immigration arrests and the united states supreme court held in 2005 that they also have the authority to make inquirys about a person's immigration status. so it is very well established that state and local police can assist the federal government in enforcing federal immigration laws. and i want to correct one other thing that was said, and that is that somehow arizona is creating its own immigration policy. far from it. the arizona statute reflects, is a mirror image of federal law and simply says we would like to help ensure that federal law is enforced because it very expensive, $2.7 billion a year costs to illegal immigration and has criminal consequence. many police officers, of course, have been killed by illegal aliens. you have the murder of robert crentz down by the border a few months ago. they are saying we simply want to help enforce existing federal law. it is not a new regime by any stretch. >> suarez: so professor gonzalez if i could get you to respond briefly to those points that professor koback made. >> well, that's really an admission, ray, that the problem here is that the

states do not have the authority to take that power and, for example, set national immigration policy or declare war. these are federal powers that are not state powers. >> suarez: so even if they are complementary t is just not in arizona's power to do so? >> nor in any other state. >> suarez: we'll be watching the court case in arizona. gentlemen, thank you both for joining us. >> thank you. >> thank you, ray. >> lehrer: and finally tonight, another of our stories on europe's economic troubles. "newshour" economics correspondent paul solman has been reporting on the consequences of the debt crisis in greece. tonight he turns to spain, which could face even bigger problems following a housing boom gone bust. the series is part of his continuing coverage on "making sense of financial news." >> and the winner in south

africa, the first african world cup is spain! >> reporter: spain's first ever world cup win set off a riotous fiesta, which lasted for days. a welcome break from what spain's become known for in the past year: its debt. the world's worry has been that greece's troubles could spread here. but the stakes are much higher: spain is the ninth largest economy in the world. the ripple effects of a debt crisis here: a global deluge. so what's the problem and how likely is the flood? for answers, we began at the madrid home of old friends: journalists jose soler and american wife, ana westley, together since 1968 when spain, still a dictatorship, was dirt poor. >> spain, when i first arrived here, was really third world. >> reporter: today, it's a rich country with its own problems. >> this is not greece, this is not portugal or ireland.

we have three years ago, four years ago, five years ago surplus. we were growing, double than any european country. now what happened we have double crisis. we in spain, we do everything exaggerated! european has a crisis, we have two crises! okay? >> reporter: in spain, soler explained, there was both a financial crisis and a housing crisis. >> we built double number of houses than the average in europe. so now when this financial crisis came and the growth was down, declining, we stopped construction and this created much unemployment. so we have 4.5 people, million people without a job. >> reporter: that's 20% unemployment! but spanish government debt is just 53% of g.d.p., says jose, much lower than greece. >> we are no worse than the united states, allow me to say that! but of course you can lower your deficit, nobody can say anything to you, but we are in europe and we have to do everything to be

in balance with france, with germany, all our partners in the e.u., you know. >> reporter: to be in balance, with the e.u., spain is cutting public sector wages and freezing pensions to lower deficits and avoid default so investors will keep lending. the time bomb here is private debt: double g.d.p., mainly real estate loans held by cajas, regional savings banks. the fear: interest rates rise, adjustable-rate loans fail, the banks do too, the government rescues, its debt explodes. touring the outskirts of madrid, real estate loans already looked shaky enough. >> most of the houses that were building two years ago, they have stopped. you will see how many half-done houses are all over. it's a big, big crisis in construction. >> reporter: back towards the heart of downtown, more evidence of spain's real estate overhang. >> see these four big towers? they are beautiful and they were

built just before the crisis so they are empty. >> reporter: yet another example, a complex 30 miles south, built during the boom by francisco hernando, whose parents greet visitors to the project, 13,000 mostly empty apartments. only about 3,000 were ever sold, many to speculators now trying to unload them. the few residents try to put a positive spin on things. >> you go out of your apartment and it's the country. all pure air. it's the country. >> reporter: that's the country? >> they were planning to build more apartments there but they stopped there. >> reporter: still, spain's got a million or so empty new houses, their prices plummeting. that'd be seven million in the u.s., adjusted for population. commercial property: just as bad. >> we are waiting for better times, no. >> reporter: hotel developer raul garcia began building las tablas, the would-be jewel in

his family's crown of properties, in 2004. the anchor was to be a new banking complex going up next door. because of the lack of finance >> they stopped suddenly in 2008 because of the lack of finance even from the banks. the banks themselves, they didn't have enough finance to raise and finish their works. >> reporter: the cranes on siesta augured poorly for the chic hotel, as did the credit crunch that hit spain. >> we couldn't finish it. the bank we were working with 35 years, 40 years-- they didn't give us this small part just to finish it. 2008 was very hard, a very hard year. very hard. >> reporter: spanish hotel chain, n.h., chipped in to nish the trendy hotel. but business isn't exactly booming; and it's nearly busted the once-rich garcias. raul's father, theo, put all his savings back into the company. he's now struggling to get by on a public pension. >> we don't have the good life,

because there is no income to the family. >> reporter: despite the losses and liquidity problems, the garcia's hotel remains open. but with interest rates higher than when they borrowed the money, their adjustable rate loan could sink them. in barcelona, developer miguel baro owns 50 units, has sold one in four years, is renting the rest at half the cost of his mortgage, also variable rate. >> it isn't possible to continue like this. under spanish law, we can only run losses for two months. after that, we have to declare bankruptcy. >> reporter: how many other developers are in the same situation you are here in spain? >> i don't know. maybe 50,000 companies. >> reporter: thus the fear: real estate bankruptcies bankrupting the local banks. note the for-sale signs even in madrid's main plaza. banks desperate for a government

handout-- a bankrupt spain. that's an incredibly modern, interesting house. >> yes, i would say so. >> reporter: from bank economist jose escrivas perch, 12 miles from madrid, things don't look so dire. built in 2004 for about a million dollars, his house is down 30%. but, he says, not to worry. >> the spanish debt is not a particularly acute problem, it's more an issue of credibility or expectations. but that's always true! >> it also matters the amount you need to refinance over the next few months or quarters. so when you look at the figures, you don't get particularly concerned. you don't... >> reporter: nor does barcelona banker jordi gual fret. >> the spanish economy is solvent. we can make-- can repay all the debts. the public debt is not that large. the private debt is a bit bigger. most of the debt is locally hold, it's not hold abroad.

>> reporter: mikel abasalo, however, is a spanish investor, running his own fund. >> there's no precedent in history of a country in such a position that has not defaulted. at a certain point, cajas and the spanish banks will have to recognize those losses and my take is that government will have to step in and inject funds to, not to let the financial system to collapse. so to me it doesn't make much difference if the debt is owed by the real estate guy or if its owed already by the government. it will end up owed by the government. >> reporter: so, is spain solvent, or months from collapse? british economist and twenty year barcelona resident, edward hugh. >> there's just too much at stake for everybody, not just here in spain, not just in southern europe, not just in the european union, in the g-20. i mean, everybody is going to break their necks to make sure that this kind of situation

doesn't arise soon. >> reporter: if not soon, many here wonder if collapse may happen eventually. and what might happen to spain if it does? we'll look at that in the last in our series on the european crisis. >> brown: again, the major developments of the day: the stock market surged as corporate earnings came out stronger than expected. the dow jones industrial average gained 200 points. a house investigative panel announced democratic congressman charles rangel of new york will face multiple ethics charges. and b.p. and federal officials decided the cap on that ruptured gulf oil well will stay closed and un-monitored, if a tropical storm forces ships to evacuate. the "newshour" is always online. hari sreenivasanin our newsroom, previews what's there. hari? >> sreenivasan: there's more from spanish journalist jose soler featured in paul's report. on "the rundown," spencer michels continues his reporting on b.p.'s oil dispersants.

he also posted video of an impromptu debate at a new orleans farmers market over off- shore drilling. you can watch a conversation with reporters from pbs stations in idaho, oklahoma and california comparing local housing and employment concerns. and on "patchwork nation," the economic view from detroit. 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. we'll see you on-line and again here tomorrow evening with mark shields and david brooks, among others. thank you and good night. major funding for the pbs newshour has been provided by: and by the alfred p. sloan foundation. supporting science, technology, and improved economic performance and financial

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