>> rose: welcome to the program. we begin this evening with the cyprus bail outwith an drew ross sorkin, francesco gary and simon johnson. >> this whole business is a confidence business. the second we decide to do something wrong with the water, we've got a problem. and whenou look a what's happening in cyprus it makes

people anxious. >> rose: we continue with a look at cyber warfare with david sanger of the "new york times." are they better than we are. >> they are higher volume hackers but the sophistication of the attacks on iran would suggest that the united states and israel are probably at the top of the heap right now in terms of skill. the russians are also very good. the iranians are not very good but they are getting better. >> rose: we close this evening with a politicalound up with al hunt of bloomberg view and mark halperin of "time" magazine. >> these a great deal of ferment going on. rand paul came on a legal status for immigrants. some people thought this last election debacle there would be pointing fingers. there's a lot of that that goes on but some of this stuff is

really i think productive for them now. >> rose: cyprus cyber warre and american politics when we continue.

captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: the debt crises in europe is back in the headlines, al eyes are on cyprus the tiny mediterranean nation. with the weekend the population was told by the eu the and the ifm on bank deposits in exchange for financial bailout. but early today the cyprusian government is sparking concern throughout the region. joining me is andrew ross sorkin of the "new york times" and francesco guerrera for financil economic. simon i'll win good you. what's going on. >> well the explanation part is that a number of cyprian banks gambled and lost in a big way on greek debt. they facing big losses and these

banks are big relative to the economy. the economy needs financial assistance from the outside from the european union and i'm afraid the people running the ow presumably th rmanin the first instance have decided greek depositors should take a hit. the way that played out at least over the weekend was all depositors would take a hit of some kind no matter how small their deposit. it sales to be now an attempt to back away from that and focus on people with deposits over 100,000 euros targeting in part russians who hold a large amounts of money, claims on those cyprian banks. >> rose: when that happened what was the talk in the financial community cing you com a couple quotes one from dennis gotman the binging has been shaken to its roots. the banking depends on trust. he wrote a note to his clients

trust that has now been shattered, broken and destroyed. jim o'neal at goldman sachs says astonishing with very little thought of containing. >> bailout 101 is you want to keep the money in the banks. you want to avoid a run on the banks. you want to avoid whe people are standing outside wanting their cash because the second that happens you have a huge problem. i think jim was right. it was astonishing. all of a sudden the solution the this bailout unlike other bailouts which included os stairity and all sorts of other measures, this is about taking money that's in your bank account. that's what this was and they were going to effectively confiscate the money and not just money from people who have uninsured deposits. it would be the equivalent of the fdic and the u.s. saying positsre insured nobody should touch it.

not only were they touching the uninsured part but they were touching the insured pawrltses. if this was about cyprus this wouldn't be a big deal. if they could do this and think about it this way, about cyprus when it starts to come to spain, if it ever gets to spain and starts to come to italy if it ever gets to italy, that that becomes the worry and then you have a run on those banks too. >> rose: is it a real problem is, a likelihood it run on spain and italy. >> i'm taking the position in this column and there are people take ag vy differt position on this that it actually won't create a run. the situation in cyprus is so unique and different and so small and the depositors and the economy are so such a different breed, the idea that there's all of this russian money with all this speculation, you know, that this is a tax haven and that this is money that people have questions about, that the way europe is approaching sigh pruls is not the way you'd awe approach these other countries and if you approach the other

countries this way you crea real problemnd the know that. >>hat brings what happens to the parliament and what impact does that have. >> the cyprian parliament decide the to vote down the bill to confiscate the money from depositors. we don't have a bill or any certainty what's going to happen. most likely recommit to the cyprian parliament and then see what's going to happen to the banks. remember the banks have been closed until thursday morning. today walt the governor of the central bank of cyprus presumely he will know saying it could be a run of ten percentof deposits on the cyprian banks. and that's cause for concern. i think the banks in cyprus make two fundamental mistakes. banking 101 is supposed to boil out. don't lose money you don't have and they did and don't ever mess with deposits because that really does effect the trust in the financial system. that said, i think that because this has become such a cause

celeb it's not going to happen in spain or italy because this is a deterrent against those governments about diagnose anything against the depositors in those countries. >> rose: when the iand others suggested this didn th have some idea this might be the reaction? >> well the indications we have are the imf suggested a levee on the larger depositors, not on people who had deposits below 100,000. and that will be in keeping with standard practice in other situations. the deposit insurance is on the deposits below 100,000. the problem is the greeks bank don't have the kind of subordinated debt that you need in order to write that down as part of a recappization. what they have basically on the liability side of their balance sheet is deposits. going off to the bigger deposits is dramatic, but not unprecedented. it's spreading it cross all deposits really quite shocking and i think unfortunately, they'll end up backing everyone,

backing away from that part of the proposal. >> rose: in terms of all the deposits on 100,000 euros. >> my guess is they will redraw that line in the sand around 100,000. there's already beensome modified proposals. s the problem is the cyprians don't have good alternatives. the europeans are not going to provide them with more than a 10 bib you're -- billion euros they've offered. they need 17 euros total. the russians would be unlikely to give them the loan they need and the terms of the loan would almost certainly be onerous. if you're not going after the high end depositors who are you going to tax. regoing to reduce pensions and lay off public sector workers. all of these choices unpalatable and will go after larger deposits and will -- as a offshore banking center. >> rose: what's the next step. >> the next step is to come up

with a new plan. the plan is probably going to entail what tom was just discussing is you got to get a new line in the sand. the question in my mind is whether you do pursue a greater form of austerity against pensioners and things. there's something very attractive if you're in cyprus to say look there are these other people by the way don't live here but they do power our economy, theussis, this is. les just te that money. there's also something to be said about the riskiness of keeping your money in cyprus for the past six or nine months anyway. frankly we all knew that the cyprus banks were in trouble. so if you were out there and you were paying attention for half a second, anybody who had serious money deposited in cyprus had to be making a gamble, had to be making a bet that they were going to be bailed out. and by the way there's a nice little interest rate in cyprus, four or five percent. it's much better if y're bank of america in the united states. so there's lots of reasons why people were doing what they were

doing but there is going to be said about going after the depositor because in this case follow the money, that's -- and by the way that's the only money that's left. this is one of these very strange countries where there isn't a lot of money, there's not a lot of money in lot of countries but this is so fundamentally different. >> they must have thought there's going to be a victimless crime. the only people going to suffer were a bunch of rich russians putting money there because it was an offshore tax savings. unfortunately ey realid this has really back fired because e trus and confidence issues now affecting everybody in europe, whether they're russians or anybody else. and that's something that unfortunately they should have thought about beforehand. >> rose: back to why this is getting so much attention. >> because of the larger issue. >> i think it shows this calm that has descended over european markets and economy is a fragile i'll calm even something like cyprus a tiny spec in the mediterranean can scare people off. people who thought europe was

out of the woods were wrong. >> ros this is the thin that cause fear. >> yes. and the fact that the imf and the european commission would sign off on a plan that would fundamentally go after depositors at all. >> rose: simon, if in fact that was all only about people who had more than 100,000 euro deposits only those people who would certainly include the russians, would there be talk about this. >> it would be pushed back. andrew -- would be upset. the tax rate if you goup to more than 100,000 y're opens and tax rates according to the imf calculations 15.7%. remember it's not just russians, it's also businesses in cyprus. they have to make payroll, how are they going to do that if you suddenly impose this levee on them. the only parallels, the ready parallels are extreme circumstances in places like argentina for example when they

froze accountants, when they broke the tag against the dollar inhe 2000s. >> rose: how is the overall condition in europe, how wld you describe it. >> at the moment in europe at the micro economic level we have a two-tiered europe. germany is doing very well and everybody else is struggling along. now things are much better than they used to be when the bond deals of spain and italy were much higher than they are now. because the markets are relatively relax. they trust the european central bank to do as they put it whatever it takes to save the euro. now the risk or the collapse of the euro has receded. that doesn't mean europe isn't in good condition. we are looking at two or more years of recession in europe and some countries like spain and itly he and great britain we'll see even more of that. so the situation is very very fragile from the market economic perspective not very good at all. >> rose: i thought we had a frame of mind now that austerity

pushed forward you would have no growth and therefore it was a disaster. >> so they are called into this. so they need austerity to get the budget and the fiscal house in order, and yet every time they push austerity the economic growth takes another knock. it's a very difficult position. you can see it in places like spain and ity. they go one step forward in austerity, two step backwards. and that's also an issue with the social compact there. we've seen in greece and seeing in cyprus that every time there's austerity people don't like it and people protest. so that's a difficult situation. >> rose: how much exposure to europe is there on the part of big u.s. banks? >> it's still, it's still not nothing. i mean, it's scaled back consider me from where it was three, four years ago. but all these banks do alot buness in rope i mean just on that side. and so -- >> rose: they've got the risk under control do you think. >> look, if italy goes under, if

spain goes under, no. i think then we're going to have some problems. i don't want to suggest we don't have problems. if spain were to have a run run on the bank, you name your big u.s. bank. >> rose: it's less likely today. >> less likely today. but we're not out of the woods yet and that's why the story is important. >> rose: because you're not out of the woods. and this will think and cause people, it almost has to do with confidence. >> this whole business is a confidence business. that's all it is. we're all zipping from the same cup and the makes them nervous. >> rose: what do you think -- >> i think they've played an important role this all of these conversations perhaps by the way more so than the regulators have in terms of really actually lookinat these issues and bringing them to the fore. maybe simon has a caveat if you

don't believe we have enough enforcement or account baility all the thingsance argue that's been done you still haven't seen what some people think of the accountability they want. >> rose: simon enough accountability and do we have enough regulations? >> well, we're only beginning to get any kind of accountability. i would emphasize not just the role of senator -- but also senator mccain let's a bipartisan investigative committee that's uncovered some remarkable misdeeds and apparently misstatements to in1r0rsz on -- investors on the part of j.p. morgan chase. the risk including the critical consent of bank capital, j.p. morgan was gaining their regulatory capital measures by justing the risk is measured in retrospect or arguably at the time didn't seem reasonable. now you throw in a cyprus-type situation or one of the other scenarios that andrew was outlining and ask how is that going to affect the various

risky assets and valuation of risk on these mega bank balance sheets. we have no transparency. the regulators have very little insight into that. that's what the occ conceded last week in the run up to and at the hearings, mccain hearings. i'm afraid our financial system in the united states is still extremely vulnerable because we haven't really had reform. >> rose: that's the reason i asked the question. do you agree with that. >> i think so. the most troublesome aspect of the j.p. morgan case is this is supposed to be the best in class. best bank, the best ceo and they missed dlars 6 billion loss. and they actually missed it twice. when it hands and when newspapers including owshz started reporting. that's the troublesome aspect. there's a silver lining, even having lost more than $6 billion on this, they actually had record profits. so financially they're in good shape. the problem is that we don't far whether we should have

confidence in them to be able to -- >> rose: you said it's all about confidence. >> if there's tranparency and you don't really know an you're looking athe box and not su at's going on which i think was the great lesson of hearings. by the way not the tranparent see that the public had but the regulators had and potentially the banks withholding information. all of that goes to this fundamental issue you talked about. >> you see the share prices not trading where theyshould be because they don't trust the banks. >> rose: the share price of banks. >> the share price of the banks because they're trading below because they don't trust the management. >> rose: turning now to another subject which is the suainability the kind of maet wve bn seeing. wh areour friends, what were the people you cover on wall street say? depends on how you talk to. >> depends on who you talk to. warren buffett will tell you we're on a run. we interviewed alan greenspan he

believes we're on a run, bill miller believes we are in the beginning of big run. i think that may all be true but it may not be a straight line. and one of my great worries as a journalist and professional skeptic is that when you start to think about the kind of real economy numbers at we' going to start to see over the next couple months as a result of this sequester and other things, you might see headlines which are not all that positive. so the extent there are retail investors who say i missed the train, jumping on the train and all of a sn they see bad numbers they jump off the train or they're going to hold on for a little bit. i think it's going to be a little bit of a rocky road and i still believe the great disconnect between the stock market what you see those numbers at the end of the day and the real economy numbers are profound. and i think we have not fired out how ix that disconnect and what that all means. >> rose: explain that to me. why is it such a variance and why haven't we figured it out?

>> well, we still have remarkable unemployment in this country. and to me it's all about unemployment. >> rose: it has to do with -- >> what's happened is, i mean it's technology. but right now the stock markets are betting on what the future of the world looks like in a year and-a-half and by the way, they don't really care so much about unemployment per se. unemployment will get better but that's not the fundamental issue it's about profits. and compiesre figuring out clever ways to profit despite some of these other problems in the economy. >> rose: that an unjustified optimism do you think, simon. >> charlie i think it's all about the federal reserve which is ironic of course because the federal reserve messed up on pretty much over domain since 2007. but now the fed is more powerful than it's ever been in it's 100 year history and it's with regard to the asset prices and the unemployment picture and to the extent they contue to press on vario or back away

from various dimensions of quantitative easing. the fed is driving asset prices, it's having this huge influence over the economy and the seven people on the board of governors of the federal reserve have inordinate influence over what's happening. and it is striking and amazing in this context that they still haven't appointed a vice chairman for supervision, a job created by the dog frank financial reform legislation. i don't know why they haven't filled thisacay. it's an unconional delay and i proposed the white house immediately nominate sheila bear. shes one who can speak to the macro economic issues and the financial asset potential bubble and regulations they've been discussing in the show so far. >> rose: used to run fdic. >> that's correct. >> rose: when you look around at where the weaknesses might be in the global economy, are what are they? when are the questions. >> the unknown variables that we know. so the knowns are europe unless

they he anothermajor flare up d of cose the middle east and canada. the worst situation over there. the other thing to see the fed is now going to perform an act it's never performed. it has to try to get out of the unprecedented simulus they pumped into the global economy without messing up the global economy. they em -- themselves don't know how to do it. that's another big issue and it may not happen this year but it will happen at some point. and then of course the u.s. economy. the u.s. economy's crucial. in order for the world to grow. euro has to go so the economy has to continue in this trajectory of stable solid growth and bring down the rate of unemployment. >> rose: do you expect, has the president engage in a different kind of shall we say diplomacy with congress we'll more likely kind a bargain between the republicans and democrats on taxes and spending.

>> that's always going to go down to the wire. i wouldn't expect anything before. the question there is whether the negotiates going down to the wire will spook the markets or not. the markets have been remarkably sillient. we went through a sequester deadline. the dow hits an all time high during this. >> rose: why was that? >> because i think the fed trumps everything. money cures all. >> it's all about the fed. i'm a skeptic on the grand bargain. i don't think there's a passing game here. there's going to be a ground game and it's going to be, we're going to go yard by yard and we may get little species of this but the idea everyone's going to come together and get a plan i think is going to be tough and i think all eyes go straight back to ben bernanke. >> rose: and whoever his succesr is. >> verintesting beuse that comes in the beginning of 2014. >> rose: thank you. >> thank you. >> rose: thank you simon. >> thank you. >> rose: nato is due to publish a handbook this week to apply international law to the

realm of cyber conflict. it seeks to protect civilian targets such as hospitals and schools in a full blown cyber warfare. follows reporting which has linked the chinese military to u.s. government and corporate computer network. chie these government officials have strong nied the cims. meanwhilthe unedtate have established a new cyber command led by general keith alexander. he testified before the arms services committee last week. this is an offensive team that the defense department would use to defend the nation if it were attacked in cyber space. joining me now from washington to discuss the developing battle ground david sanger of the "new york times." welcome. >> great to be back with you. >> tell me why security experts are saying this has become if not our biggest national security threat th one erging wi the most concern for them. >> well it's certainly our newest and it may be among the

urge else as it's an issue of consider debate. it's urgent because there are cyber attacks on the united states, mostly on u.s. corporations that take place every single day. but these are mostly attacks to sweep up vast amounts of intellectual property. whether it's an automobile design, the design of a gas pipene, could be any kind of commercial information that chinese or other companies might find useful. that isn't really at the center of the biggest national security concern. the biggest national security concern is what happens if a foreign power or a foreign hacker, a non-state actor manages to get into critical infrastructure which could be the utilities, the cell phone network, the air traffic control network. all things that president obama discussed in his state of the union address. >> rose: with the financial

system. >> the financial system as well, if they were going in to manipulate it as opposed to simply steal data. so you have to be a little bit careful here when using the phrase cyber car of intellectual property theft which is new technology on an old approach and actually going in to affect infrastructure which is the biggest worry. >> rose: do they believe that the chinese have a program that is designed for them to have the capacity to invade our, all the list of things that you just suggested in terms of vital systems of which if they were compromised would bring the country to a halt. >> this is the big mystery because almost all of the invasions of cyber space that we have seen from chinese sources,

including those sources who are believed to be linked to the people's liberation army, have pretty much been in the area of intellectual property. and of course you have to remember that the pla is invested in many corporations in china so they have a vested interest in stealing industrial secretes for example. on the other hand some of the attacks have made you think that the chinese are preparing for that day that they might have to go, feel to defend themselves or an offensive operation that they would have to go into critical infrastructure. that's a very interesting case volvina cadian subsidiary of a larger firm that runs the gas pipelines that run down through the north america and many into mexico and latin america. they had a very large invasion and theft of their intellectual property which has been traced back by corporations and others

to a, to the steps of unit, of a pla unit in shanghai that is believed to have been involved in takingf this material. and the mystery is were they simply trying to get the intellectual property how to run a gas pipeline or trying to figure out how to turn on and off the gas pipelines that run through north america and we don't know the answer. >> rose: well when jack wood goes over there as he is doing the new secretary of treasury, when top donald and the security advisors talks to the chinese what's the conversation? >> when mr. donilon came a speech in new york a few weeks ago for the first time sort of laid out what the american demands wod be . e nue is they fully investigate the attacks that are chinese origin on american corporations. now the chinese have always said that they are a victim of cyber attacks, that they do not

conduct cyber attacks. so to get them off of the talking point and into an investigation would be a big deal. the second question is would the investigation be for real and would they report any real answers. and then the u.s. wants to get involvedn a conversationith the inesabout how you set up rules of road so that it's clear where the limits are of how countries use cyber space and whether or not they conduct a tax. that's harder than it looks because unlike the nuclear world, unlike even the drone world, a lot of cyber weapons are in the hands of private parties, including corporations and including teenage hackers. teenage hackers and corporations don't sign arms controls agreements. >> re: i'm looking at a quote from both -- and james clapper who warned congress that a major cyber attack on the outs could triple the infra structure

and economy and such attracts now pose the most dangerous immediate threat to the united states even more pressing than an attack of global terrorists. that comes from you. >> the element of their testimony in congress a week ago when they were doing the annual threat assessment was that for the first time that i caneca in rent times, terrorism did not rank as the number one threat this was listed. there was a brief moment in 2009 when the director of national intelligence at the time denny blare made the case that the global financial instability could be an overall threat. that didn't even make the list this year but cyber was number one. now the other interesting thing is the general alexander in some testimony in congress the same day said that he had set up within the national security agency and cyber command, he ru both, 4 tes at were

supposed to get involved in both protecting the united states and cyber space considered to be a new territory to be defended. but 13 of those teams he said were for purely offensive operations. and this was the first time that we have heard him describe the united states as ptting together offensive attacks still not acknowledged by the u.s. were olympics games which was an attack on the iranian nuclear enrichment plant. the u.s. -- stuks ness was the variant and the multiprogram u.s. had run with israel to do multiple attacks on the iranian facilities. started in the bush administration and then was

expanded in the obama administration. but the obama administration, like the chinese, hasot admitted to having offensive cyber warriors so it's hard to imagine how we're going to have an honest conversation with the chinese about limiting these activities if neither country will even admit to owning weapons. >> rose: how much of the hacking comes from the united states and has nothing to do or is not even in any way monitored by the u.s. government? >> well hard thing to know becauset's very difficult to collec statistics thi aa. the u.s. government says that unlike the chinese, they do not do any hacking in order to steal corporate secrets. they're not out hacking on behalf of american companies. they only participate in operations that are focused on

defending and that include the critical infrastructure. the infrastructure of the united states isn't in government hands it's mowly in private hands with a few ceptions and ey're having a hard time dng that. >> rose: are the chinese better at hacking than we are. >> they are certainly higher volume hackers but the sophistication of the attacks on iran would suggest that the united states and israel are probably at the top of the heap right now in terms of skill. the russians are also very good. the iranians are not very good but they are getting better and they have created a cyber core of their own partly in response they say to the american attacks. and they are believed to have been behind the big attack on saudi aram co-the biggest producer in saudi arabia. >> rose: having brought up iran. did the president say anything new in these interviews with

israeli journalists. >> i think he did. the interviews were not focused on cyber but rather on the iranian program. and for the first time, the president put a time frame out there of how long he thought it would be before the iranians had a nuclear weapon. and he said that he thght the u.s. had a yea o ,nd th he went on to say that he doesn't want to allow the iranians to get that close. he doesn't want to bring it in that close. now, that estimate runs a little bit longer than what you hear from the israelis, and i think one of the big questions is the president arrives in israel is whether he and prime minister netanyahu can enlight them. >> rose: the secretary of defense leon panetta pooth that time frame on it. >> he put that time frame on it a year ago. >> rose: leon pa netty is one who says he does not believe and

he has no evidence that the iranians have made a decision to go forward with a nuclear program that would deliver nuclear capability. the president seemed to say the very same thing, that there was no knowledge that they had, that a decision had been made. >> the president and the director of national intelligence, james clapper all said the same thing last week, which s no decision to go aheadn a nuclear weapon. and that's a different thing, charlie, than saying no decision to go ahead with a nuclear capability. and one of the most common theories about what the iranians may be up to is that they may be working to develop all the elements of the capability which is to say the fuel, the weapon or weapons design but not do the final screwdriver terms on this so they can stay technically within the nuclear non-proliferation treatment. and that means tt ey could dela th decision phaps

indefinitely about whether to actually build a weapon. that would be a very different path than say the north koreans have taken which is to go ahead and test. >> bruce: if there would be a determination that they were prepared to have the capacity but not the final go ahead, would that be enough to satisfy the rest of the world? >> well, it's a very interesting question, charlie, to which we do not know the panse. because the israelis, whenever they have talked about iran and said iran cannot be alwed to ha a nlearapability. they can't live with them just being a few screwdriver turns away. president obama has been very careful. he has only said he would not allow iran to get a nuclear weapon. and it sounds like they're splitting hairses but they're talking about two different things. if the red line for the israelis is a capability the iranians may be close to that. if it's a weapon it may be

pretty far from that . >> rose: let's north korea and the new secretary of defense saying we want to have the capacity to stop the north koreans if they decide to make an attack on the united states. do we have that technology now? >> what we have no is about 30 anti-missile batteries set up n alaska just south of fair banks and in california. and their success rate is pretty limited, charlie. when they are tested against dummy warheads, they hit about a little over 350% of those -- 50% under those ideal conditions. i would not call this a fabulous deternal. at the same time by bolstering it adding 14 over the next few years, they're trying to signal to the north koreans that the u.s. is serious about this but more importantly signal to the chinese that unless they can

bring north korea under control they're going to see more anti-missile systems which of course the chinese think it's also designed to stop them and they could well see more american naval presence right off the korean peninsula which puts them right in china's territory. so part of the messaging here is to say to the chinese he's got to get more involved. other interesting things you've seen in the past 24 hours, charlie, the u.s. running b-52 flights over south korea. just a way of reminding the north they have all kinds of way to reinforce a deterrent against north korea. >> rose: just back to the question of cyber warfare. the secretary of the treasury we talked about tom dawn lynn but not about jack. does he carry with him some new message from the administration or is have a reiteration of what tom donilon said in his speech

to new york. >> i'm assuming it starts with a reiteration. i don't know if there's a deeper message there because he didn't talk about what his message will be going and hope when he leaves china. but i think many people i've spoken to in the the administration take the view that this is going to be a long run conversation with chinese. and that they are going to have to constantly come back and say to the chinese that cyber attacks which have been sort of a side show for a few years have now moved to the center of the relationship. and that if the u.s. and china are going to make progress on a range of economic and trade issues, this issue is going to have to be addressed. and i don't think you can con vince the chinese leadership in one meeting or two or three it's going to take many. >> rose: what's interesting is finally on china the new president of china in his speeches he talks about the china dream. you did get a sense that there

is a consciousness of the role that they may want to play internationally that they had not spoken to in the past. >> that's right. it's been spoken in more detail than i have from past chinese leaders about this bigger role for china in the world or at least in the region. and so i think what the obama administration is trying to do at this point is tailor their message to sayhese ber attacks are motherly going to undermine that dream because they will make american and other foreign companies less willing to invest in china with the technology that china most wants. they're going to be afraid it will be stolen. and that this will poison the well for that investment. and the question is can he win that argument. first of all does he believe it and secondly could he win it in the internal competition inside china. his predecessor hu jintao never havery goo control over the

military. and the military desome degree was running its own foreign policy. one of the big things we're looking to understand about ping's government over the next year or two is whether he can bring the pla under his control. he's already been head of the military commission which is really the most powerful role there. it took hu jintao a few years before he got named to that post. >> rose: david sanger thank you as always. >> thank you, charlie. >> we look at politics the republican and democratic party. the republican national committee comes in the way of political conference where republican leaders met to discuss the future of their party. report contained an endorsement of comprehensive immigration reform and extensive discussion of social issues. the gop has struggled to define itself since the loss in the

2012 presidential election. joining me to help me understand this from washington al lent fr boomberg view andark halperin from "time" magazine. i'm pleased to have both of them back on this program. i begin with this al. as you know i've been in rome watching the new pope be selected. so i've been there getting religion and i've sort of lost sight what's going on in washington. give me an update of what i have missed. >> there's no white smoke coming out of the rnc building yet charlie i will tell you that. >> rose: what about the whitehouse. >> or the whitehouse. there's a great deal of ferment going on in the republican party right now which i think by and rge is healthy. there's a cole caveats now but the previous report on immigration i think a lot of things are happening. rand paul today came out for at least legal status for immigrants. so i think some people thought after this last election debalk backal will be pointing fingers and there's a lot of that going

on. some of this stuff i think is productive for them now. putting a paper together the way actually doing some of this stuff. for instance it says we can't be a party of universal purity. yes we can all agree on that. it may be harder when they get to the caucuses. >> rose: are you watching or seeing each of the possible canned dates in 2016 staking out safety on particular issues like immigration and other points so that they want to make sure that they're in the cutting edge of where the party might be. or where the election might be. >> in some sense they're actually trying to lead that right wing base. i think rubio and to some extent paul on the questi of immigration ar tryingo do that i think it's too early to stake out any serious positioning. they're all doing everything they should do. they went to cpack. everyone who was invited.

governor christy was not invited but they're trying to reach out, they are traveling to states. doing everything they should be doing but i don't think it's terribly consequential right now as far as that's concerned. >> rose: what do you think of the republicans and what they are doing. >> there are very few people in the party who do say we've got lot of big problems. we've got two cateries o problemsepublins s. es t kind of fundamentals blocking and tackling nuts and bolts whatever metaphor you want to use how to make the party more modern and technologically proficient to go up against what is perceived to be accurately the superior democratic effort built by the president. >> rose: what's the division within the party. >> well i think there's a couple things. one is there's individual issues where there are still broad divisions, gay rights, immigration. how unyielding to be on trying to make a compromise with the president on fiscal issues. there's some big issue differences. but then there is the question of sometime. and how you, i said just a moment ago appeal to the senator of the electorate bringing your

party to the senate. convincing your party that hey i stand for x which is out of step with a lot of you but x is how we win elections and it's a reasonable position. that fakes a really strong person to do. while all the people who talk about potential candidates with strength there's not one to do this right now. >> rose: does rob port's announcement change anything about the dynamic of same sex maiage because the polls tionwide sw no58% of the people support him. >> polls are moving that way faster and more dramatic than issue i after covered. you have many prominent republicans come out in support of gay marriage in the last few weeks. the reason i think this matters is not for the general public initially because rob portman is not known to the general public although it matters to me a lot i think because he's extraordinarily well-known and well liked by people in the elite circles in the republican party. governor romney considered him as his running mate, and i believe theeaction to rob

portman habeenxtraordina. the ha bee some voices who condemned him and condemned his decision but you hear many prominent republicans being extraordinarily muted including the cpac and what they're saying in reaction to what he's done. they don't agree with him -- >> rose: it would have been different four years ago. >> when dick chainy did it -- >> rose: portman cited cheney and saying go with your conscious. >> look i can't emphasize enough. for insiders it is hardfor any reblican insider who knows ron portman to say a negative thing about him because he's so extraordinarily well liked and beyond reproach on his conserve fifth credentials on a range of issues. when the history of this is written and when you did an oral history we are moving inexorably to broader accent tons of gay marriage in this country. in the republican party rob portman's decision is part of what raises the consciousness of a lot of republicans who say

because many of them fit this category. privately i can accept this or i'm for it publicly i don'think can becae of where the party is. >> rose: anything to be said, al, about conversations about foreign policy and whether the party is on foreign policy and where it might want to be on foreign policy. >> i think foreign policy other ran the rand paul filibusters and the drones foreign policy is sublimated to other issues. we can go to that if you want. i think mark is absolutely right. i think rob portman is one of the most impressive figures in american politics. i think it was terribly important what he did. you know that previous report said the party has to be both inclusive and welcoming or we're not going to track young people. for all the tack about latinos and asians which is quite real the pier has a huge problem with -- party has a huge problem with young people. they can improve the infrastructure and social media and digital and all that.

but as long at they are not welcoming and inclusive on social issues like gay marriage they'll have a terribly difficult time. i think the leaders are pretty much there now. can they bring the followers with them. >> rose: has the psident been able to changeany republicans minds because of the recent effort to charm the inventories as it has -- charme fences. >> i think he's had conversations with the defense hawks, with the grahams and mccanes they're willing to make a deal. they don't constitute a large enough block yet in the republican caucus. he's made a tinney bit of progre there but otherwise no. >> rose: do you think the president suggested at one time there was a story in "the washington post" that the president's looking to 2014 and therefore he's going to drive a very hard bargain thinking that republicans will be blamed and

it will give him a chance to win a majority in the house. >> i think that exaggerates both their position. there's some truth to it and also the wisdom of that position. n fact they end up in chaos and it hurts the economy, you lose 750,000 jobs, guess what. thpresident gets blamed more than congrs. publicansave a trible brand name problem to begin with. but if the economy starts to go south again, if unemployment starts to come back again, creep up again, i think that's going to go down to the disadvantage of the president. >> i can imagine a scenario what they end up doing is hope the economy gets better because i think the big ig dynamic right now truly no one wants to do a fiscal cliff deal when the economy's bad because all the long term calculations are much worse you base it the grace projections. it's going to be for the president to go to his party and say we need to change

entitlement programs. easier for the republicans because that has to be less. there's a scenario where the president homes the economy gets better, puts off the grand bargain, makes progress on immigration and energy, deals with gun control however it gets dealt with and thin waits to do a grand bargain deal after the mid terms on the hope that his party has success in the mid terms and he can strike a deal on better economy and more favorable terms in congress. >>ose: i thought that's exactly wh i sa. will not make a decision now and will have a hard bargain. the only thing we seem to differ is whether the republicans will be blamed. >> i didn't mean to say i disagree with you except to say it's not giving up on the next year and-a-half because you do, immigration and energy. the president's got his eye on his big promises and immigration and energy are two of the big promises. if he can move along on fiscal stuff, get a sense of where the bargain lies on tax reform, corporate and iividual, gets a

sensof h omacare is working and what an overhaul of obamacare would mean. he can move those things along. get immigration and energy out of the way. there's only so much bandwidth at any given time. get those out of the way so they are not dealt with and get the fiscal stuff after. >> rose: the economic advisor of the president was here and he's been part of the negotiations. this has been in the press as well so i'm not disclosing anything but he said that the president was surprised that the republicans he talked to did not know or were not aware of what he had been prosing i terms of entitlement reform budget issues. what do you make of that? >> well he hasn't talked about it much publicly and i suspect there's a bit of game of telephone between speaker boehner and others who the whitehouse have talked to and the rank and file even some of the senior people he's met with. and unless they hear it out of his own mouth i suspect this don't really focus on the r ealities of the things he's

offered which again are part of any grand bargain if there's one for sure. >> rose: suld the prident go furer than he has, has he gone further than the republicans assumes he has. >> second question yes. the first is i think the challenge is sequencing this because you can only do this deal with tax reform and with entitlements reform. and getting those through the so-called regular order, not a grand bargain with the leaders in the room but through the committee process is a very challenging thing to do. >> rose: al speak to this, please. >> i think tax reform is dead. i never thought it could happen. it's not going to happen now. it might do many things and might close a few loopholes in order to cut some kind of a deal wi the whiteouse but that's the best they can do. look, i don't disagree with mark but i think the danger of waiting two years is centerfold. first of all you have the sequester which almost everyone agrees is bad policy and bad economics. so therefore if you just leave stht -- that in place for the next two years there's some

peril in that. and secondly i do think that the argument that you're going to have much a much more supportive congress in 2015 really goes against history. and i'm not sure whathe esidentains if that is his game plan. i think there's some people who say that will have to be our position because we can't get anywhere with republicans. but i don't think the effort is going to stop. immigration will be a big achievement. i think they'll get it. energy i'm not so sure about, they'll get a mini gun deal background checks. i'm not quite sure that that, though, really means that they can't, that they shouldn't focus on the budgetary stuff because that really does dominate. >> rose: so what if the president said and you heard this from me before. what if the president says i will lay out everything i do in terms of entitlement reform and gets the democrat party in the house and the senate behind him. i'm going to make a bold step here and put the ball in their court. would that have consequence?

>> well he's certainly done that privately. when he spoke to the congressional democrats in private meet, this week he says we ought to do entitlement reform now because it will be a much better deal than if you wait and do it under republican president. if you look at his proposals, he's right. he's prosed meansesting. mark's right he didn't want the public to know bit. there's a real balancing act here that the only way he's going to get republicans to give on renews and some won't is to do really serious suggest stanive entitlement rea form. >> rose: why isn't he there,. >> the fear the democrats have they put it out here and we're going to mean test saryns and change the adjustment for social security and guess what it's like losing the football. republicans say fine do that we ait touching faxes. and he see weloseur sue and we don't get any legislative victory. >> the problem is when speaker

boehner says i'm no longer sitting with the president face to taste. al is certainly right the major tax reform came after. that requires an extraordinarily strong president with the confidence of the other party. but it's hard to see how you make the numbers add up both mathematically in terms of political compromise without tax reform. republicans are going to insist on lower rates if they're going to give in on some of these coorate looples. ere uld a mini deal that gets you past the sequester, the triages to after the mid terms where the president can see if he's got a stronger or weaker hand. al is right history suggests he has a weaker hand. he has a lot of confidence the choices that allowed him to win re-election under circumstances can be framed going forward if republicans refuse to give in and that his superior mechanics with this outside group he has can help him somehow keep the senate and maybe take back tax. >> rose: thank you, mark. thank you albert. >> thank you charlie, thank you mark. >> rose: i miss seeing you

guys but rome was extraordinary time. >> you didn't miss us a lot when you were in rome, charlie. [laughter] captioning sponsored by rose communications captioned by media access group at wgbh access.wgbh.org