captioningponsored by macneil/lehrer productions >> lehre good evening. i'm jim lehrer. president obams first state of the union address. >> ifill: and i'm en ifill. the "newshour" tonight, we' get a preview fr white house advisor david axelrod. and alysis from mark shields and david brooks. >> lehrer: toya halts sales and production of some leadi models--udy woodruff reports. >> ifill: then, laakers had tough questions today fo treasury secretary timothy ithner and his predecessor henry paulson about the bailt for inrance giant i.g. kwamholman covers today's congreional hearing. >>hy shouldn't we ask for your regnation as secretary of the treary?

>> that is yr right, that is ur right to that opinion. >> lehre a paul solman take on e federal reserve, as the fe held ierest rates at a record low th a little country music help. >> ♪ the fed is printing trillions now, but will thei ♪ eorts work? >> ill: and maaret warner talks ray suarez in haiti, where hundredsf thousands of pele are still in need of food and shelter. >> lehre that's all ahead on tonight's "pbs newshr." major fundinfor the pbs newshour is providedy: >> what the world eds now is energy. e energy to get the economy humming agai thenergy to tackle challenges li climate change. what is that energy ca from an energy company? everyday, chevron invests 2 million people, in ideas-- seeking, teachin building. eling growth around the worl to move us all aad. this is the poweof human energy. chevron.

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these instutions and foundations. an.. th program was made possible by the corporati for public broadcasting. and by contributions to yo pbs station from viewers likyou. thank you. >> lehrer:resident obama prepes to deliver his state of thunion address tonight at a crucial time f the nation and his presidency. >> ifill: the address cos as mr. obama reaches e lowest point yein his year-old term in office. >> ifill: the president iled for photograers today, but his apparent good chr did nothg to lessen the stakes f his spee tonight. one year after takinoffice, his apoval ratings have slumped, a last week, his party lost their superajority in theenate. whe house officials say tonight's adess will mark a shift in tone anemphasis, in

response to risi public anger over the statef the economy. >> so long as i ve the privilege oferving as your prident, i will not stop fightingor you. >> repter: the bulk of tonight's spee, aides said wi focus on issues that resote with distressed american like job creation. >> you can expect a contued, sustained anrelentless effort to create goodobs for the american peopl i will not rest until we've gotten there. >> ifill: and in a preview earliethis week, the president is also promed to renew his focus on thelight of the middle class. >> we're going to keep fightg to ruild our economso that hard work is once again rewarded, wages and inmes are once again rising, and the middle class is on again growing. ifill: the president is als pected to direct more tough talk to wall stree- asking congress to helpurb the size of the largest financi institutions. >> we have to enact comm-sense forms that will protect american taxyers and the american economy from ture crises as well >> ifillat the same time, mr. obama will also call for

freeze on some domestic spding in a bid to addresunhappiness with the soaring federal defici but there wi be some new spending, as the preside announces the largt-ever single-year requt for elemenry and secondary educatio health care reform, which ha suffered recensetbacks on capitohill will get its due. but aides saidt will be far from the focus othe presidt's remarks. at the citol today, democrats like congressman john rson of conneccut-- and others-- said they hope the present's words can revilize the party. democratliot engel of new york. >> l's rally behind our presiden the people sent us here to workogether in a bipartisan faction. let's t look at what's best politically for this par or that party, let's lookt what's best for the amerin people.

house minority whip ericantor. >> we wanto see the president listen, learn that thegenda he has promed over the last year just hasn't yided the results. ght now, families across america around the kiten table worried about prospects out employment, e future for their kids. we want to hear some sutions that a akin to what we've been working on for the las12 months. >> reporter: the presidentill address e nation this evening at:00 pm eastern time. >> lehr: and to shields and lcome, mr. axelrod. thanks, gwen. good to with you. >> ifi: we've heard so many times the next speech th president is goingo give, whatever it is, ishe speech of a litime. at makes tonight different? >> well, younow, that is what washington does every spee. it becomes a speech ofhe lifeti. doubt it's an important speech a it's an important speech because aricans have been through a very diffult time and there looking for a sense of what the future wl hold. the present is going to talk about where we've been andhere we're ing and how we create

jobs in this country that pay we, see wages grow, and secure the middle class ain after this very difficult peri we've beenhrough. >> ifill: the president is pected to call for a the-year spending-- freeze on some domestic spending, d, yet also for an increase in educion spending. hodo you balance all that out? >> just likeny family or busiss does, gwen. evybody in hard times has to ke chces. you have to priotize. you have to do withouthe things you can dwithout in order to p for the things do you. educatn has to be a priority for this country because it'so much tied to t quality of life that our young ople will live, analso thcompetitiveness of our country. so we have to make tse investments. but we'rgoing to have to do without some other things. the president will -- and we will be wking about that in our dget message next week. >> ifill: when it cometo prioritizing, did the whit house expend too

much polical capital on health care thi year? >>. >> no, i don think so. the fa is this is a problem that has plagued our countryor a hundred years. it's only goen worse. it's o of those pressures that impacts on families acss this country. it's one of the thgs that's made the middle ass less secure. it affects citizens and businesss and vernment itself. health care reform is ablutely essential. we knew it would btough. we understd we would have to expend some litical capital to try to solve that problem an the president wacommitted to gettg done what should have been done long ago. >> ifill: yo problems with the consvatives on the republican side of the aisle are well documented. we d't expect a lot of applause tonight on that sidof the aisle t what about the liberalsho have said to the presidenshould be drawing a ne in the sand on his priorities? what is the esident going to say to them? >> well, you can't have it both ways you can't say has he spe too much political capital a then say he hn't drawn lines in the

sand. i think the president ha proven his commitme and determination to deal with this probm. we also have tdeal with the realit of congress and of passing a program that c garner theecessary votes. and you're right-- we ven't had much cperation from the other side of thaisle. one ofhe messages the esident is going to deliver tonight is that well have a responsibility for governing here, and the erican people arlooking to us to work together to lve problems . the republican party can spend another ye sitting on the sidenes rooting for failure. they nd to get in the arena and help solve some probms beuse these are difficult time and it should be a hands on deck. >> ifill: anyet a new gallup poll today sws the president getting 88% approval among democrats, only 23among republicans. what can we do? what can he say to helclose that gap? >> i understand that ts is the hobby rse of everybody in this town. and i don't know i read-- you kn, i read polls, too. the president's views the most importanthing he can do is

tackle the problemfacing this country in an honest, fohright way. and, you know, these number will go up and down. , and yes, partisahip and polarization say big probl. but ultimatelythe problems thateople are worried about are not who's up and who's down but how they pay their bls, how theyducate their kids, whether theyave a job, can they afford their rtgages? d what the future looks like and that's wt we all ought to be focused on. ifill: as long as polarizationemains the kind of problem yoconcede it is, how does the president g to those goals? >> in part, the ameran people are anything to have to stepn and make their vces heard. i think much h been made of th election in massachusetts. i think the most ieresting thing abt it was how much that message seem to be that the were tiredf the hyper-partanship in washinon. th wanted people to work together. they said in tir-- in the polling ey saw after the electi, "we want this new senator, senator brown, toome and work witthe administration with the democrats, solve problems." that's not been e

-- that not en the strategy. that's not the plaook of the republans on capitol hill. and i think that will catcup with them as aolitical matter. t the country needs them to realize that's nothere people wanthem to go. >> ifi: you bring up the election last week, the special election in massachuses. the presidents these next f mohs leading up to midterm elections later this yr , is this going to be a referenduon his presidency >> you guys willecide that. and massachusetts people sd no thpeople who voted for brown said they weren't ting to-- a majority of them said they weren't voting tsend the president a message. but, again, thesare things that frustrate themerican people. th're not interested in the score keeping. theye not interested in who's up and who's dowand the politi. theyust want us to solve problems. th want us to work on the things that they see right i fronof them in their lives on the unemployment problemon the-- yes, theost of health care . on the cost of ecating kids,

on the mortgage cris, and so on. that's where we're going to focus our time. and our attitude is, if you the workif you do the hard work oadvocating for the american people d solving proble, that they will spond. >> ifill: david axeld, senior varies to presidt >> lehrer: ando shields and brks. syndicated columni mark shields and "new yortimes" columnist david brooks. mark, how woulyou state the importan of this speech night? >> i think it's impoant, jim. i think it's a lite bit of a recovery andescue mission on the part of the presiden he's definitely d a rough patch, and sinceassachusetts has been apiraling loss of nfidence in his own party, both sort of eptical, doubtful about his admistration, and maybe the urse, and its ility to stay to course, and here's a partyith a 59-41 margin of majory in the sena, and a 78-vote majority in the house, and ey're

panicking. but most of all, hs got to counicate to people in the cotry-- it's not a washington speech. it's not a speech for the crd in the hl he's g tcommunicate he does, in fact, understand wh they're going thugh, and he's made a differen, and that they are committed to helping peop in this terrible time of in. >> lehrer: do you agree , david, this has it be a speh that goes way bond washington if it works? >> he never breaks a new grounds in these speecs but he talks to people who han't been payings close atntion as professial politics. he sfered a bloody nose. the ssachusetts race , independts-- the major initiatives ofis first year are almost cerinly not going toappen. in states like delare and mis miand illinois the polls are moving again him. does he y i'm just going to keep driving ahe? i'm sically on the right track. or does heay, "i hear you, and wee going to shift course."

and all the inditions from the whe house is consistency is going to be the watch word. >> lehrer:o you hear the same thing? >>onsistency, no mea cull park no i hear you, the year of b government is overnd the bill clton-- that's not going to be part of it. i do think, unlike david, i thinthat health care, the president-- we love orts metaphors in ts town-- they're inhe red zone--. >> lrer: the red zone? >> inside the 20-yard line >>ehrer: oh, is that right? football, right >> and he saidhey're on the twyard line. i think it's fair to say ty have bught the legislation 90 yards, 100 yards or more. they have to g somethingone, and they have toet it done soon. >> lehrer:avid, a lot of people he pointed out that while the presidenhas had his problems they're nhing compared to what t republicans have had in the same polls. in other words, when he crs in the polls, t republicans drop even further. anthere's a bigger message

than just politics. do you agreehere? >> there ia rejection of both partys, though i wou say in the general reelect poll in th house it's even which is unprecedented. when yousk people who do you favor most, threpublicans, the democrats, or the tea rty movement? the tea party movent comes out number one, thenhe democrats, th the republican. you're the outparty, you're gog benefit d the tea party movement is a strongovement and as we saw massachusetts it not only the pure people who are very anti-vernment. there e a lot of people who have a fear and distrust for what's going on. and i think another thingt president has to dand i understandill do is talk about the distrust, thcorrosive distrust againstashington makeit very hard to do anything here. ndsey graham made this point this week. thlast couple of years, with imgration reform, we had socialecurity--. >> lehr: he went through the whole list. >> and ty all failed. in a very moving e-maifrom a house senate staffers, a decratic staffer, doing health care reform, andt may all come toothing, and she spent a year doing this. and so

,un, it's just depreing th we can't seem to get any reform passed. >> lehrer: and, of coue, the y word here is "we." it isn't just obama. it isn't jt those people. 's everybody, right? >> it's everybody, jim, but answer to your qstion, he's speang right now to a nation that h contempt for washington, d.c. mean, quite unlike anything i've seen in the pt with the possib exception of the watergate years. and by a 7-1 marginn the "wall stet journal"/nbc poll, t marity of people think special intest has too much influence over legislation d at the same time they aske a grt question-- the democrats in congress trying tpush through legiation without birtisan compromise. two tone, people agree to that. reblicans in congress are ying to block democratic leslation without bipartisan coromise. two to one, peopleegree on that. there is aertain pox onoth

your houses,oth your parties d i think that's something h has to address. >> lehrer : do you agree with that, he's got to take tt on? he has ttalk about the stalemate and polarizati in a very direct almostttack mode, to t republicans, not to the public? >>e has to talk about the distrust, and heas to, frankly on substanve grounds adjust to the distrust. if people don't trust you do big things you have to figur out how to slowly build th trust and frankly i thght he ould have done that january 2009, acowledge what country you're in and slowly build there. he's going tdo some ofhat tonight. he's gng to talk about greater transparency in governme. i'm not sure that'going to get you ere. i ink they need some success so people casay to themselves, washington helped re, helped there, and then we'lthink about the big policies. >> lehrer: do you agrewith thatmark, there's nothing in here for the presidentust whe about this polarization. he's got to figure out a w to deal with it, right? and he's got to tell people, hey i ow it's there and i have to do something aboutt.

>> i agree with, that m, and i think he h to celebrate. the have been successes, but i think he has to celebratthose. i mean, the economic improvements that ve been made with the legislation , the law hamade a difference. but the problem in talking to demoats is , they want the president-- they want hito be more pasonate and mbative. they wt him to be more biexprz more partisan. they want m to be more flex ani believe morepecific and more asserti. i don't know iyou can do all of that in one speh. >> lehr: he's the master speech maker. is that at this is about tonight? >> i don't think so. i think ople want to, again, ha a sense of trust in government. i think he'soing the right thing by the having the ending freeze on diretionary spendi. i understand the objections at we will still ve to stimulate the economy, but i thinkhat vid axelrod said, every fami does it. wehould do this. i think th stabz bond that vernment is basically workin cord to the normal , sponsible rules of life, and think it's an approprie thing.

's sigling we're going to have a discrionary spending eeze. it won't he a big budget impact b as a sim billion to rebuild the trust, i thinkt's the right thing to do. >> lehr: mark, everybody went to briefings today at e white house abt the speech and all that sort of stuff. i wento one where the derlying word was, as long a there's 10% unemplment in this cotry, that is the onlyssue that people care about, r understandableeasons. , and jim, again, this is a prlem for the white house, for the administration. voters believe that -- that the administration has spent re time and the government i washington on heth care than it has on jobs. and jo and the economy are th overriding nber one tranendent concern of voters . a job is aour-letter word that is one that's rely welcome in this country rightow, and for every job, there are six pple looking for it tay. >> lehre we'll hear what the president says and we' hear what you a say about it later this evening. ank you.

>> ifill: and stilto come on th"newshour": toyota pulls the plug on so of its top models; treasury secretary geithr is grilled out the a.i.g. bailout; the pros and ns of the fedel reserve's interest ra strategy and the hury and homeless in haiti. t first, the other news of t day. here's hari sreenivasain our newsro. >> sreenivas: the push for curbing big bankin the u.s. d europe dominated the world econic forum today. the nual event convened in davos, stzerland and the president of barays bank in britain rned against measures that fce downsizing. >> i've seen no eviden, i've seen no acemic study, i've seen nanalysis that suggests th shrinking banks or making albanks smaller or more narrow is t answer. >> sreenivasan: but fren president nilas sarkozy attaed the behavior of major banks,n his keynote address. he said it "morally indefensle" when companies destroy jobs a wealth, but make huge prits. >> ( anslated ): the job of a

bank is t to speculate. is to analyze credit risks, it is to aess the capacity of borrowers toepay their loans >> sreenivasan: in rect days, wall seet took a dive after president obamproposed curbs on bank investing and bank size. today, the market nished with a gain. the dow jones dustrial average added nearly 42 points to close at 10,236. the nasdaq rose more tha17 points to close at 2,221. thgovernment of yemen is pledgingo carry out economic and potical reforms. the promise came at an internationaconference in london. secretary of ste hillary clintosaid instability in yen is now "an urgent national security priority" f the u.s. e called for a partnership. >> the yemeni ople deserve the opportunity to dermine their own future, not leaving eir fate to extremists who incite

violence a inflict harm. toelp the people of yemen, thefore, we have to do more but we have to work in conjunction with theovernment of yem. hover, the government of yemen mustlso do more. >> senivasan: the airliner bombing plotn detroit has been traced back to yem. u.s. oicials say the suspect-- omar farouk abdulmutlab-- was trained by al-qaeda elements there. "the washiton post" reported toy u.s. teams have stepped up opations with yemeni forces-- killing six region al-qaeda leaders in recent eks. taliban rces have rejected an afghan plan to get theto stop fighting. in an internet stament, the grouwarned financial incentives won't wor itaid the only solution is for foreign troops to withdr. but in germany, chanceor angela merkel said it would wrong to set a date to thdraw. >> ( tranated ): it is very, very imptant that a signal be sent to the taliban. evenhen all afghan forces have been trained, the internatnal community will see tit that this armand police are able to rvive.

otrwise the taliban can hope to attack immediately when the police and security rces are not properly paid, and trefore not motivate >> sreenivas: merkel met with afghan president hamid kzai, on the eve of international coerence on afghanistan in london. in afghanian, 11 suspected taliban militants re killed in an air and ground rike by nato and afghan fors. former hondun president manuel zelaya went back io exile toy-- this time, in the dominican reblic. the leftist leer was ousted in a coup lasjune, but he returnedo honduras in september and holeup in the brazilian embassy. his departure toy came hours after the w honduran president -- porfirio lobo-- was swo into office. authorits in peru today worked to rescue hundreds of toists stranded at machu picc. the ruins of the inc citadel are world nowned. least five people havbeen lled after five days of heavy rain triggered mudslidesnd widespread floing across the ea, in the andes mountains. in all, some 2000 ople were

trapped, inclung 400 americans. u.s. officials deploye helipters to help with evactions. the are some of the day's main stories. i'll be back at the d of the progm with a preview of what you'll find tonight on the "newshr's" web site. but for now, back to jim >> lehr: nearly two-thirds of toyota's product linp in the u.s. was in limbo todaover a safety scare. judy woodrf has the story. >> reporr: instead of putting new yotas on display at the lot last night, employeeat a texas dealership werbusy taking them off. toyota ordered dealers nationwide to stop sellingight ofts models. it also halted pduction of thosvehicles at six north american plants,s of february fit. the move was unpredented, an the culpriwas a faulty part made by a u.s.upplier, causing gas pedals to stick andrivers to lose control. >> it'kind of surprising

because, you know, toyota is ally popular, really famous terms of their dependenc >>eporter: the vehicles in question include the camry america'best selling car-- as well as the corolla, matx and avalon. trucks and s.u.v.s are on th list too, with the rav, highlander, tura, and sequoia albeing pulled off dealer lots >> you know it's a little frustratg because i'm here to sell cs but at the same token i don't want to put mething on the road that's not going toe safe. >> reporter: toyota saidt's had new reports of cidents or injuries. but last week, irecalled the same eight models-affecting more tn two million cars and trucks. tota has not said why sales were not haltethen. yota became the world's biggest tomaker in 2008-- beating out neral motors. but two years earlie questions had arisen aut quality after tal accidents in japan.

in the u.s., toyota first noticed gas pedal problems tee years o. anlast year, the company recaed four million vehicles in the.s., saying floor matsere pinning aclerators to the floor. now, it turns out,emoving the floor mats dn't solve the proble >> we continue to fi evidence from a viety of consumers who come tus with incidents that cann be explained by a floor mat. >> reporter: the auto mar said today american worrs will stay the job, but the company's bottom line stds to take anher severe hit. last year, toyota suffer its first-ever annual loss. >> woodruff: for moron this sty we turn to jessica caldwell, a nior automotive analyst with eunds.com, a consumer w site. jessica caldwellthank you for beg with us unprecedented, is that because never before have this many carseen taken off

the lots? >> right, judy. i think-- u know, i think really the unpcedented comes from the fact they're stping sales. so this is gng beyond a vehie recall. this igoing beyond problems in production. this is , you ow, consumers gog to the democrat that cannot buy these investigati , and it's-- and it's su a wide variy of vehicles, too. i think at's when you wanto throw out that wd "unprecedent." really haven't seen anythin like this in the indusy, ever. >> woodruff: the eight modelwe mentioned , 20052007, 8, 9, and , why is this just surfacing now? >> there he been grumbling for pastew years and i think the ne report earlier kind of alluded to it. yoknow, was it a floor mat issue? was it an acceletor issue? i think really what's co out now is that we ju don't know, you ow, and they're trying to isolate that problem rightow. so it's not just one thing. it seems like it's been a lot of things that have kind of

snowball into the predicament we are in today. >> woouff: they haven't isolated the problem? they talked about a partthe accelerator dal. >> it seems at came out today is they have really piointed a part but in terms of how that part plays into the rger production, w-- you know, how it works with the electronic system i think those questions are still up in thair right now. so it looks like they may ha an inkling of whe it's going, but aso the fix and the process of fixing all those millions of cars, i ink that's really still t.b.d.. >> wdruff: i'm reading today thcompany that makes at least one of these parts, c.s. corporation based in elkrt, indiana, they say they don't know of any incident wre's people have finitely been hurt in accidents. is it connected tohis company? >> if you read betweenhe lines it lks like that kind of where it all leads to at company, but i saw the me report you did, and it look kind of like

th, you know, were not take responsibility there there was a lot , think, hints of the-- or membrance, i should say, of the ford and fistone debacle many years ago. but i think-- you ow, really at thend of the day, there isn't an answer and therisn't a fix. >> woodruff: so whatre people who n these cars or driving these cars and trucks supped to do? >> yeah, that's a od question. will be you know, wee getting th a lot from the consumers on our side. and it's--f i own this car, can i evenrive it to the dealer to get it fed? and the answ is, you know, we dot know what the answer is. , you know, at thend of the dait's a gale. of course, younow, no one wantanyone to be injured out there. i thk, you know, there have been sns, if yo- if you feel faz your accelator has been sticking don't drivet. but 's a lot of people throughou affeed, and a lot of peop need tse cars for their everyday life. whyou don't want to really suggest ople don't drive therj

you don'want to suggest them to drive them if they're not gog ve a safe experience. >> woodruff: so toyota hasiven wh kind of guidance on that? >> they really haven said a lot. i think finally toy they finally gave dealers se guidance earer. i haven't seen exaly what they're talking pointsere yet, as far as how to deal withome of the customers coming in wh all thconcerns. some of the customers wepoke wi said they called their dealer and they didn'teally get a solid respon in terms of what they ould do. right no- you know, the alers are having a hard time trying to pin down t problem which vehiclthis applies to. think a lot of it has to do with where does the car co from? so the dealers themselves have to research the origin it's not 100% clear athe dealer level, either so, you know, wee kind of waing to see some direction from toyota far as where to oceed from here. woodruff: we quoted the obama administration's sretary of transptation saying the administration had to ask toyota

or insist that ty not only recall thesenvestigation but that they stop makinthem. doe know how much pressure the government hado put on toyota? >> you know, they definite put some pssure on. i n't think toyota has hinted to theact that was the case, but, of cour, the reports ming out from the government said that was. it definitely a big step, stopping productio and stopping sal and, like you saiddealers having to put these cars away and not se them. so, you know, again, i thi domz really a safety iss that's been builng for some timeow. so somethingramatic needed to happen and something nee to be reversed, and it looks le this is really e outcome of it. >> woodruff: and finally jessica caldwell, at does it believe this is going toean fothe toyota brand? >> well,ight now, you know, it definitely doesn't look go. therhave been so many grumblings from nsumers for mont now dealing with the rells about, "hey, i thought toyota wasbout quality, was about reliability." and that certainly doe't seem

to be the case today. you know, we'vseen companies bounce back from some thing like this. i think tylenol comes to md, again, ford and fistone come toind. and, you know, if anyonean do it, i real think it is toyota in terms of the car mpanies out ther they have, you know, ver adnced manufacturing systems at-- you know, that could probably producears with the corrt parts if needed much faster. but in the sht term, i think their reputation has dinitely taken a t. but in tms of five, 10 years from now , will peoe still only remeer this? i think story from other companies suggests that they won't. woodruff: we'll be watching it-- for theidizcome and beyond. jessica caldwell with edmunds.com, thank youery much. >> thank you, judy. >> ifillnow, two of the leading architects of e gornment's response to the financial cris returned to capitol hill today. both theurrent and former treasuryecretaries got an earful from democratand publicans about their role i the bailout of iurance giant a.i.g. "newshour" cgressional corresndent kwame holman

has our report >>eporter: amid rising public anger about e bailouts of financial institutns, treasury secretartim geithner was caed before the house gornment reform and oversight committee to explain the govement's 2008 rescue of insurance giant a.i.g. geithner said the was no choice. >> decidg to support a.i.g. was one of the mosdifficult choices i have ever be involved in in over years of public service. the steps that were taken we motivated solely by what we belie to be in the public interest. we did not act becse a.i.g. asked for help. we did not a to protect individual institutions. we acted because the consequences of a.i.g. fling would haveeen catastrophic for our economy d for american families and busesses. at the height of the finanal crisis, the federal reserv- working wi the treasury-- loanedig $85 billion.

a.i.g., turn paid more than $60 billion to ban and compans such as goldman sachs. goldman ld contracts with the inrance giant to protect againslosses worth billions. as the financial crisis worsened, tal government aid to a.i.g. swled to $180 billion dollars. at the time of the initi loan, geiter was president of the new york federal resve. >> more than year removed from that terrible week of seember 2008, i believthat the govement strategy, and it was the government stregy, was the best of available tions. >> reporter: t oversight committealso criticized the government'secision to allow a.i.g.'s creditorso be paid in full-- even though a.i.g. wa insolvent. and members fromoth parties expressed anger th the public initially was notold about those payments >> were you invoed in any diussions with a.i.g. or was

your staff involved ere you diussed what a.i.g. should or should not disclosto the public >> i had no ro in making those decisis but as the record shows and the record beforthe committee shows, a lar number of people at t federal reserve bankf new york and the federal reservboard in washington pled a very active role in thinking tough those difficult choice >> rorter: geithner said he withdrew from cisions involving a.i.g. and other matts before the new york fed once he was nominated to be treasury sretary by president obama in november 2008. bumany committee members still were skepticalbout his role in the bailout and some critized his overall performance. republican jn mica of florida. >> i believe eher you made a bad decisionhere or in fact therwas an attempt to cover up one of the biggest baiuts, backdoor bailouts,n history.

now you'veried to frame it as you did it, you diit in the interest othe people and the failing of theystem. m telling you i believe thes are lame excuses. either you were in chargand d the wrong thing or you participated in thwrong thing. to me, it appes that when you were being confirm, a lot of coroversy surrounded you not paying your taxes. you gave lame excuses, i belve u're giving lame excuses no.. and final questn is, why ouldn't we ask for your resignatioas secretary of e treasury? >> that is your right, thais your right to at opinion. i have wked in public service all my life. i have never been a potician. i ve served my country as carefully as i cannd it is a great privilege to mto work with this presidt to help repair the dage that was here when he took oice.

>> reporter: and several mbers rejected geithner'contention that forcing wall street fir to accept cuts in paymentsould only have caused defaults d an even worse csis. ssachusetts democrat stephen lynch. >> you could havdone the right thing by thoseeople, by the amican taxpayer, because their money was being t into this deal... and it just stinks to thhigh heaven what ppened here. >> reporter: mcy kaptur-- democrat of ohio-- was among those who suggested geithn was too commodating to wall street. geithner fired back. >> cgresswoman, you are suggestinghe people who were involved in this wernot acting in the public intest and you were suggestinthathey were working r the private terest, not the public intere. and thats not true. i would never-- and i lieve none othose individuals would ever-- be partf any decision like that. >> reporter: by the end of t day, geithner sa he wished he had known more about the paymentso banks at the time.

later,he committee heard from geithner's predessor, rmer treasury sretary hank paulson. he too dend any involvement with the decision to maksure a.i.g.'s banks and counterpartiesere paid but said the rescue was crical. >> if a.i. had gone down. we'd had situationain st. companies woulnot have been ab to raise money, pay employees, eloyees not pay bills, 10% uemoyment. i lieve we would have had 25% unemployme. reporter: paulson faced skepticism as ll. cliff stearns is a replican om florida. >> hers the problem i think a lot us are having. mr. geithner says he w not involved wh the counterparty negoations. you're saying u were not inlved.

oh yes, you ard a little about . buon november 6, when they gave $62 billion to alof these parts that came in and looted a.i.g.all of you guys say "i knew notng about it." d yet it appears that this happened. >> reporter:he power of the growing backlash agast assistan to wall street may get another test tomorw when federal resee chairman ben bernanke is pected to face a senate vote on confirmation a second term. lehrer: next, a second economy story. this o about the fine line the federal reserve is wking. the fed annound today it plans to keep interest rates arecord low vels of near zero for an extended period of tim our economics correspondt, paul solman, examinethat strategy as pa of his continuing reporting on king sense of financial ns. >> ♪ as we go through this recession ♪ >> repter: investment advisor jon shaynender his nom de country, merle hazard,n the

deral reserve's monetary mistrations to revive the economy. >> ♪ it's a mini-great depression ♪ our markets went bersk the fed is printing trlions now, but will their effort work? ♪ >> rorter: will fed policy, that is, made every six eks in this room, pull us out of e doturn so prices, wages and consumers don't art drooping ain? the extreme ca it's looking to avoi japan these past 20 years and its so-called grea flation. >> we're terriblpoor. a w class. woing poor. >>eporter: or might the fed, by printg too much money in order to keep interest rat low anthe economy ticking, ultimately be driving us in e very opposite direction:oward inflation? the extreme example of the moment: hyperinflationy zimbabwe.

>> by december, you needed hundreds of thousands dollars to buy bread. by janua, a loaf of bread and things like tomatoes were costing millions. april, it was billions. >> reporter: merle hazard pu the fes plight as starkly as possible. >> ♪ inflation odeflation? tell me, if you can ♪ will we bome zimbabwe or will we be jan? ♪ >> repter: now over the past year or so, e fed has been far more worried about deftion and depression. so it's voted to cree more than a tllion's worth of new money. and this is where it all takes place. >> reporter: the new york d's brian sackack in july, doing the bidding of the d.cfed: to create as much as it tooto get the economy back off the m. the directive that the federal open market coittee gave to the trading desk he at the ny fed w to purchase up to $1.75 trillion.

>> reporter: $75 trillion which the fehas since used to buy bonds om banks. they, in return, havbeen getting electronic money: federal serves. buyi or sellinbonds is how the fed tually does its main job: managing intest rates. the more dolrs created to buy up bonds, the lowethe interest ra the government is forced pay on the bonds. the lower thinterest rate, the easier it for people and businesses to borrow andpend. since the fed's digital doars e hopelessly untelegenic, we're stuck with ts us mint we're stuck wi this u.s. mint otage instead. but the rates have bn near zero for aear now, and that has itics like john taylor issuina warning. >> h should the centl bank - - the fed in our country set the interestate so as to get e best performance possible? >> reporter: in his intructory economics course at stanrd a few wes ago, john taylor exained his so-called taylor rule: a formula whicguides the fed when setting intert rates.

>> and basically says thatf inflation is ring they should raise the inrest rate; if the economy is going through cession, they should c the interest rat and more importantly by how mh. >> reporter: the keys those last three words: y how much." tayl's rule is an actual equati. >>s the federal funds rate, "p" is the inftion rate, "y" is the rl g.d.p. gap. >> reporte a bit of a slog for a ws show but simple in its effect: restraining the fefrom creating too much ney when, li now, it keeps interest tes at rock bottom lows. so, e problem with the fed is: ye you stimulate the economy when itsn the doldrums; but you n get carried away. >> absolutely. and we he... and we saw in the greainflation period in the '70s we t carried away, we just had interesmuch too low compared to what they uld be. >> reporter: that wathe era in which fed chrman paul volcker famously choked off the ney supply to hike ierest rates and ended the great inflion of the '70s.

for decadethereafter, claims johnaylor, the fed had followed a moderate cour. then suddenly, around the ar 2000, the fed began to devia, keepininterest rates too low for tolong, ending in the crh of '08. >> if were to think about why after two decades ofood peormance starting with volcke going through most of greenspas term, why there was a deviatn? i think it's really trying tdo too much iyou like. things were rking well and if you're doing well you try do better. >> reporter: try to do betr by osting the economy with chea money, thus seing the stage for the inevable bust. the busts are terrible and more the boom getsut of hand the worse the bust will be >> reporter:o it is really true that thhigher you fly the farther you fall? ( laughs ) >> in geral. ( laughs ) >> reporter:nd that, taylor argues, is the wor today: that the fed is again keeping rat too w for too long, fueling new bules and a future collapsethis time perhaps an

u.s. dolr itself, given all inflationary collapse of t u.s. dollar itselfgiven all the new dollars outhere. the fed, of cour, has an answerdon't be ridiculous. if we raise rates right now, says fed chairman bernke, we choke off the recoveryand head back down towardeflation, deprsion. >> however, ashe recovery strengthens, the time willome wh it is appropriate to begin withdrawing the unecedented netary stimulus that is helping to support econoc tivity. r that reason, we have been giving careful thoht to our exit strategy. we are confident that weave all the tools necessary to withdr monetary stimulus in a timely and effective w. >> reporter: as tohat the fed willo next. >> a hints, just between us, on where interest ratemight go? ( laughter) >> well, they can't go mh further down! >> rorter: so is bernanke right, or john taylor? in the end, as alws for the fed, it's the same olduestion, the me old song. >> ♪ inflationr deflation?

the choice is looking im ♪ i wonder what john ynard keynes would say ♪ if we asked himnflation or deflation ♪ tell me if you n. ll we be zimbabwe, or will w be japan? >> repter: the answer the fed is betting on: neither. >> teenaged rl was rescued alive in port-au-pnce today 15 days after the ethquake. she was trapped in t rubble of a house. u.n. officials estimate up to. meanwhile,.s. and french troops worked to re-open t

port-aprince seaport. at would relieve the overloa at the clogged aport. ray suar is in haiti where hundreds othousands are still strugglingo simply exist. margaret warner spoke with h earlier toy. hi, ray,t's good to see you. we're two eks into this crise. where do things stand fo ornary haitians when it comes to the basics of life, l's say food, for example. >> suare there is food. there'a lot of aid flowing in, but a lot of people are ving short rations. it's not like peop are going days withoutating. but e food that might normally feed a fily of six is ibstead feeding 12 or 14 people. you meet a lot of people whore hungry. they'll comeight up to you on the street and tell thatou. sohile theres food aid, the's food in evidence being sold on the streets. there are markets sort o springing upn corners and at tersections. but 's not sufficient. and people are not eating in a way that's optimal. >> warner: we'reearing reports

that the food distbution is somewhat chaoticnd many people are being left out. have you seen that >> suarez: today , our ewshour" crew was near a warehousthat was bringingn aid, and often in a situation like is , wo moves very quickly by informal bush telegraph, and ere was a large owd waiting to get into an industriapark to try to get work today. word spread through the crow that that warehouse was abouto start distribung food, and the crowd en masran to that place and jaed the entrance and tried mob the trucks and the police phed everybody ase, got them to wa in a line-- in ct, all they were doing was transporting good to t them ready for diribution. there was not going to be an distribution. but the police controlled e crowd boy getting them into ne as if there was going to b there's a lot waiting on line going in this country right now. >>arner: is that also the case with the money thastarted

flowing back io haitian frgz their relatives abad? that is, it's come g in but they're having trole getting accesso it? >> suarez:t is a problem beuse the banking system in the capital is in a ambles. and the businesses tt handle those wi transfers, like western union, are in many cases not open orf they are open, only able handle a few cuomers at a time. when you approach these wir transfer places, everywhere around port--prince, if you can find theopen, there's a lti-hour line sttching out the door and a crowd tt goes way down t block. there is very little money ving through the economy rig now. pele can't get their hands on the moy meant for them from their relatis overseas, and becausso many people are out of work there's no wag being paid. so it's like the cculatory system szing up. there's ju not enough money movinghrough an economy that's ready to spring to life. >> warner: and wt about

shelter, ray? president preval issd an international appealarlier this week for 200,0 family-sizedents. is tt going to be enough? >> suarez: well, there a already mplaints from people on the ground that tse hundreds of thousands tents are ar't going to be enough, and if you accept the guf some figure of some oneillion peopleut of shelter either beuse their homes have been destroyed outrig or they sustaineenough damage or cause in the aftershocks people will not occupyhem, yes that numbers short. but the more dturbing part is, as i mentione more than two wes into this tragedy, the tents are very little evidence. you can get antibioticfrom halfway around the world, e syringes, gae pad, sneakers, hirts, but the tents that ar saido be on their way are just not here , and at's happening in that space of time, that

delay, is that the tporary shelters tt people are cobbling togher out of the scraps they can find othe street are boming semipermant. they're getting corrated tin roofand wond walls. and once that happen you get the worst kind of sanitation, the worskind of water supply, the worst kind of draige. instead of a formal ttlement, a tent camp air, tt city, if you will, being set , you get something a little more ndmade and homede and much harder to ke healthy, clean, and sdweez and it's going to art raining heren a couple of weeks, and those place where's people a camping out in t public parks and plazas of th city are going to be cities of miry when that heavrain begins. >>arner: finally, with the vernment so overwhelmed, and it seems t u.n. even. whened, w are ordinary haians making do? suarez: well people know people who know peop who know people we

were cering the leader of a local business orgization trying tget his factory back up and running, and he rels on the roads that head out of hti because the rts are so damaged he's tryg to get his good east into the dinican republic to have them shipped out by a dominicafreighter. wh's happening is, in contact with t people who run the heavearth-moving equipment, that earthoving equipment that is usuallysed for road repair is right now being useto clear debris. they're finding a lot body in the debrerk so he was ked to locate body bags. he located bode bags from a u.s. government source anhad to get a atbed truck to head over to the airport to get to the body bags to give to the ro crews, and he's goingo get some scratcback in the other direction, getting his stuff east out of here on the road it's a network of connections being made by ll phones.

peopleou know cahelp you through ople they know. at's what you do when there' no government around >> warner: a lot of ingenuyy. ray suarez, our man in haiti thanks. >> suarez: good to talk toou, margaret. >> lehr: again, the major develoents of the day: president obama preped to deliver hifirst state of the union address at aow point in his esidency. and the federal serve again heldnterest rates near record lows. the ewshour" is always online. harireenivasan in our newsroom previews what's ere. hari? >> sreenivasan: have a convsation with ray about the plight of amtees and others criticly injured in the earthqke. more of merle hazard satirical recession songon paul solman's "makg sense" page. and just before tonight's ste of the union address. you can watch a tavis smey special reportn secretary of state hillary inton, who has completed her fit year on the b. >> you see how tough the j is. oh, want to end where we can you imagine yourselfoing alfour years, and if asked, doing it f another four years? >> no, i really can't, mean, its just...

>> no to what, all four or eight? >> the whole eightthat would be very challenging. >> senivasan: then, you can watch the president's speech li on your pbs station, or on our b site. we'll have analysis as well a place to pt your own comments and reaction vios. we also ha a conversation with nte chinni of patchwork nati onresident obama's popularity in different comnities across the united states. all that and moris on our web si, newshour.pbs.org. gwen? >> ill: and that's the "newshour" for tonight. i'm gwenfill. >> lehrer: and i'm jim lrer. we'll see yoon-line and here later tonighfor the presidens state of the union address. and again on the "newshour" tomorrowvening. for now,hank you and od night. major funding for e pbs newshour is provided by:

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