>> lehrer: good evening. i'm jim lehrer. defense secretary gates calls for an in-depth review of the military's "don't ask, don't tell" policy. >> ifill: and i'm gwen ifill. on the newshour tonight, joint chiefs chair mullen tells congress lifting the ban is the right thing to do. margaret warner reports. >> lehrer: then, a debate over the president's proposals to pull the plug on human space flight; >> ifill: an update from haiti on some of the earthquake's

youngest victims; plus a tom bearden report on how haitian orphans are adapting to life with their adoptive parents in colorado. >> he's gone through an earthquake. he's on basically planet mars. he's ready to smile at any moment. it's amazing. >> lehrer: and paul solman talks to the c.e.o. of the bank of new york. >> no bank should be too big to fail. that is my view, and that is our industry's view. capitalism works. darwinism works. >> lehrer: that's all ahead on tonight's "pbs newshour." major funding for the pbs newshour is provided by: pacific life.

bank of america this is the power of human energy. and the william and flora hewlett foundation, working to solve social and environmental problems at home and around the world. and with the ongoing support of these institutions and foundations.

and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >> lehrer: civilian and uniformed leaders weighed in today on lifting the ban on gays in the u.s. military. margaret warner has the story. >> warner: it was a watershed moment in the u.s. military. at a senate hearing today, the chairman of the joint chiefs of staff, admiral mike mullen, said it's time to end the ban on gays in the ranks. >> speaking for myself and myself only, it is my personal belief that allowing gays and lesbians to serve openly would be the right thing to do. no matter how i look at this issue, i cannot escape being troubled by the fact that we have in place a policy which

forces young men and women to lie about who they are in order to defend their fellow citizens. for me, personally, it comes down to integrity-- theirs as individuals, and ours as an institution. >> warner: the hearing was called after president obama pledged in last week's state of the union address to eliminate the current policy, known as "don't ask, don't tell". >> this year, i will work with congress and our military to finally repeal the law that denies gay americans the right to serve the country they love because of who they are. ( applause ) >> warner: current law forbids the military from asking recruits if they are gay, or actively hunting for them in the ranks. but gays who openly declare their status or engage in homosexual conduct are subject to being discharged. at today's hearing, defense secretary robert gates said he's ordering a year-long study of the practical impact and issues involved if the law is repealed. >> the question before us is not

whether the military prepares to make this change, but how we best prepare for it. we've received our orders from the commander in chief and we are moving out accordingly. however, we can also take this process only so far, as the ultimate decisions rests with you, the congress. >> warner: armed services committee chairman carl levin said it was high time congress did so. >> we should end this discriminatory policy, because ending it will contribute to our military's effectiveness. to take just one example-- dozens of arabic and farsi linguists have been forced out of the military under "don't ask, don't tell" at a time when our need to understand those languages has never been greater. an army is not a democracy; it is a meritocracy where success depends not on who you are, but on how well you do your job. >> warner: but arizona republican john mccain said he was dismayed at gates' and mullen's attitude. >> i'm deeply disappointed in

your statement, secretary gates. i was around here in 1993 and was engaged in the debates. what we did in '93 was look at the issue, looked at the effect on military. then we reached a conclusion, and then enacted a law. your statement-- not whether we make change, but how we best prepare for it. it would be far more appropriate to determine if repeal of this law is appropriate and what effects it would have on the readiness and effectiveness of the military before deciding on whether we should repeal the law or not. and fortunately, it is an act of congress, and it requires the agreement of congress in order to repeal it. >> warner: illinois democrat roland burriss insisted that repeal of "don't ask, don't tell" was a question of basic fairness, just as it was letting blacks serve with whites decades ago.

we can go back to president truman who took the audacity to integrate the services. at one time, my uncles, members of my race, couldn't even serve in the military. and we moved to this point where they're some of the best and brightest that we've had. >> warner: alabama republican jeff sessions disagreed, and questioned whether the pentagon review will impartial, given that the president, gates and mullen have already spoken. >> if it was a trial, we would perhaps raise the undue command influence defense. and i think we need an open, objective, and a fair evaluation. a lot of things that have been said, i wouldn't note, that are not accurate, at least in my

view, at least misrepresent certain things. >> warner: while the review is underway, gates said, the pentagon is looking at what it can do under existing law to ease enforcement. >> we can raise the bar on what constitutes a reliable person, and on whose word an inquiry can be initiated. overall, we can reduce the instances in which a service member who is trying to serve the country honorably is outed by a third person with a motive to harm the service member. >> warner: though secretary gates said it wasn't a question of whether, but how the policy would be repealed, the tone of today's hearing showed how emotional an issue this remains. and the same range of reactions were expressed by members of the audience. aubrey davis is director of the service members legal defense network, which advocates for gay military personnel. >> we applaud the statements we heard from secretary gates and admiral mullen. we look forward to them on this process, this study group.

however, i do think that a year is too long. >> warner: but secretary gates said this needs to be fully considered. >> i think it does, and it has been considered for some time. in fact, the military has been studying this for 50 years. >> warner: elaine donnelly, head of the center for military readiness and a longtime foe of gays in the military, was dismayed. >> the most disappointing part of the hearing was the way secretary gates and admiral mullen, admitting their would be problems by repeal of this law, still stated that they are prepared to move ahead anyway. >> warner: secretary gates and admiral mullen said they are going to wait to hear what the service members and their families have to say before they actually act. >> no, they said they are already prepared to move ahead. they support, personally-- admiral mullen made that clear,

and secretary gates said he agrees with the president. so, as senator mccain said, they have already made up their mind; they are putting the cart before the horse. >> warner: there was also a difference in reaction to gates's suggestion that d.o.d. may ease the current discharges of service members who are outed by third parties. and new york senator kirsten gillibrand said it's perfectly proper for gates to exercise that discretion, under existing law. >> what he's saying is, right now, they can enforce the policy differently, that will result in less people being dismissed. for example, there are third parties who are outing former partners, people they don't like, for retaliation or for inappropriate reasons. that has to stop. he thinks that's very immoral and very divisive. >> warner: elaine donnelly vehemently disagreed. >> to suggest that the circumstances under which it becomes known that a person is homosexual makes a difference is, i think... i don't think he is carrying out his duty as

required by his oath of office. the secretary of defense is required to enforce the law, and the law says that homosexuals are not eligible to be in the armed forces. >> warner: in the years since, 11,000 to 13,000 troops have been discharged under the policy. the yearly discharges have dropped in recent times, as the military was stretched fighting two wars. pentagon figures released yesterday showed 428 service members were let go in 2009 for being openly gay. that's down from 619 the year before, and 997 in 1997. chairman levin told reporters after the hearing he'd like to see that number close to zero in 2010, and would support a congressionally mandated moratorium on discharges while the pentagon review is underway. >> lehrer: now, the other news of the day. here's hari sreenivasan in our newsroom.

the man is said to be cooperating again with the f.b.i.. wire service reports late today said omar began talking with agents last week. the reports quoted a law enforcement official who said he's provided useful telligence. he spoke briefly to investigators after he allegedly tried to blow up a northwest air liners flight. he had refused to say more once read his legal rights. u.s. drone aircraft fired at least 17 missiles into pakistan today, near the border with afghanistan. residents and security officials said at least 14 militants were killed. the targets were several militant compounds in the north waziristan region along the border. it was the heaviest drone assault ever, in terms of the number of missiles fired. and it came as the pakistani taliban continued to deny that their leader, hakimullah mehsud, has died of wounds from a drone attack.

president obama's new budget drew fire today from both sides of the aisle. plans to use $30 billion from the bank rescue program, "tarp," to help small businesses. that prompted a heated exchange. >> remember, the purpose of tarp was to address problems in our financial markets. one of the... and it has been remarkably successful in bringing credit spreads back down to normal levels. one of the lingering problems in our financial markets is access to credit for small businesses. it's why in this budget.... >> no, no, no. let me read it to you again because you don't appear to understand the law. the law is very clear. the monies recruit from the tarp shall be paid into the general fund of the treasury for the reduction of the public debt. it's not for piggy bank because you're concerneded about lend to go small businesses. >> this could require.... >> and you want to get a political event when you go

out and make a speech in nashua new hampshire. >> sreenivasan: that was a reference to the president's appearance today at a town hall meeting in new hampshire. but the senate committee's chairman also took aim at orszag. democrat kent conrad of north dakota said proposals for reducing future deficits are well short of what's needed. >> as the recovery takes hold, we then must pivot and deal with the long-term debt. and the place where i'd fault this budget is i don't see the pivot. i don't see the pivot. i don't see the focus on bringing down that long-term debt. i don't see us getting below, as i look at the numbers, 5% of g.d.p. in the next ten years. >> sreenivasan: in response, vice president biden said the administration understands how serious the deficits are. he told msnbc, "if we don't do something about it, they could and may become a national security issue." there was fresh evidence today toyota's huge recall is hurting business.

the company reported sales fell 16% in january, as it stopped selling eight models to fix problems with gas pedals. taking advantage of toyota's troubles, ford sold 24% more vehicles in january than the year before. general motors saw a 14% increase. nissan's numbers were also up, by 16%. but chrysler was down 8%. for the record, toyota is a pbs newshour funder. wall street had another good day, helped by encouraging numbers of home sales. the dow jones industrial average gained 111 points to close near 10,297. the nasdaq rose almost 19 points to close at 2,190. the crew of a regional airliner made critical errors before crashing near buffalo, new york, last february. the national transportation safety board panel released the findings today. the continental flight was operated by colgan air. it went into a stall and dove into a house, killing all 49 people aboard and one man in the house. investigators found the pilot

should have been able to recover, but did the opposite of what he should have done. the president of iran said today his government is now willing to send uranium abroad for enrichment. mahmoud ahmadinejad said iran has no problem meeting the u.n. demand. he also said iran may be willing to trade three jailed american hikers for 11 iranians held in u.s. prisons. relatives of the americans-- shane bauer, sarah shourd and josh fattal-- have said they were hiking last july when they strayed across the border from iraq. iranian officials have indicated they might be charged with spying. those are some of the day's main stories. i'll be back at the end of the program with a preview of what you'll find tonight on the newshour's web site. but for now, back to jim. >> lehrer: and still to come on the newshour: haitian orphans find a home in colorado; and a big banker talks about big banks. >> ifill: that follows our look at the obama administration's decision to change nasa's priorities and the potential consequences.

we begin with some background. >> it's one small step for man, one git leap for mankind. >> ifill: more than 40 years after astronauts first landed on the moon, those initial steps still represent a crowning achievement for american space flight. president kennedy first articulated the goal in 1961. >> i believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth. >> ifill: when the moon flights ended, president reagan set the bar even higher. >> tonight, i am directing nasa to develop a permanently manned space station and to do it within a decade. ( applause ) >> ifill: not even disasters like the loss of the space shuttle "columbia" in 2003 derailed the dream of space

travel. president george w. bush in 2004. >> our third goal is to return to the moon by 2020, as the launching point for missions beyond. >> ifill: but in the budget he proposed yesterday, president obama cancels those plans, which would have cost taxpayers $100 billion by 2020. instead, he calls for spending $6 billion over five years to focus on research and commercial development of rockets, robotics and other space-related technology. at a senate hearing today, the president's budget director, peter orszag, defended the cuts. >> there is a new course being charted for the future of human space flight that involves more advanced technologies, longer range r&d, investments in technologies that will help us leap-frog existing technologies and allow us to have human space flight to different parts of the solar system. >> ifill: but senator bill

nelson of florida argued americans may not be able to get into space at all without help. >> if those commercial rockets don't work, then for the foreseeable future of the next decade or so, we're going to be reliant on the russians just to get to and from our space station. >> ifill: nelson said he will oppose the cuts. other senators whose states depend on the space industry can be expected to follow suit. for a closer look at what the president's budget might mean for nasa and the future of human space flight, we get two views: michael griffin was nasa administrator under president george w. bush. he is now director of the center for systems studies at the university of alabama at huntsville. and bretton alexander is president of the commercial space flight federation, a business group committed to developing private sector space travel. welcome to you both. mr. griffin, as we look at costs versus benefit as we do when we consider budgets, is ending human space flight, at least for the moment-- for the time being-- the way to go? >>

not in my opinion. i think the contribution of human space flight to the posture of america in the world and the technology and industrial base that we have today more than pays for itself. >> ifill: you were at nasa when the constellation project as it was called the george w. bush project we just referenced was authorized. do you think that in the end that project was unsustainable? >> not at all. it's called unsustainable because the budget that nasa was told it had was continually eroded by both the office of management and budget in the bush administration and two congressional continuing resolutions. if you keep cutting the budget, you can make anything unsustainable. >> ifill: your basic problem here or you think the basic problem here is that you think it was underfunded all along. >> which is exactly what the august teen committee pointed

out. the budget we had starting out on the program was adequate to do the job. the budget that we wound up with just a few short years later was not. i'm quite grateful to norm augustine for pointing that out. i guess the best hope i would have now is that the congress would fix that problem rather than creating new problems. >> ifill: bretton alexander, as you look at what the president's decision has done or might do to human space flight especially what's your first reaction? >> well, i think this is a long overdue change for nasa. it's a paradigm shift away from government being the only ones that can do human space flight, that it's so special that it has to be government. we don't let the government do our health care. we don't let the government fly our airlines. so, the government isn't the only ones that can do human space flight. with all due respect to administrator griffin, the orion program, the aries program that he referenced, both of those got all the

funding that they had expected and more under the previous administration. in the end, their costs were billions of dollars over cost and many years behind schedule. the augustine committee pointed out that they would require at least $50 billion more over the next 100 years or excuse me over the next ten years in order to get to... back to the moon. then we would get there about a decade late. the problem with that is that it was unsustainable. it was a monolithic program. all the money was going into one massive effort. i believe that it collapsed under its own wait. >> ifill: the augustine commission was a ten-member panel appointed, former astro gnaws and others, who made this report last september. part of what that augustine commission panel came up with, administrator griffin, this idea, the handwriting on the wall that we saw happen

yesterday in the president's budget was inevitable. was it not inevitable? >> not at all. frankly i would characterize it as a faith-based initiative. but before we continue on that vein, i have to refute brett's facts. the air yo space corporation-- and i'm quoting -- found that the program is largely on track and within the original funding profile. the air space corporation was hired by the augustine committee to make a cost assessment. quoting salary ride, the program comes pretty close to performing as nasa advertised it would. nasa's planning and development of constellation was actually pretty good. it is completely incorrect to say that aries and orion received the funding that it was stated that they would receive. >> ifill: let me ask you.... >> exploration funding was cut by $12 billion just in the time that i was administrator. >> ifill: let me ask you this, mr. griffin, to follow up on

your point. pretty good in this time of deficits and spending priorities, competing spending priorities, was "pretty good" going to be good enough? >> it was actually excellent. it's more than good enough. let me point out that in this time of deficits and spending priorities that nasa fits within the domestic discretionary portion of the budget. you could cancel the entire domestic discretionary portion of the budget, all of it, and not close the deficit. the domestic discretionary portion of our budget is one-8th of our total spending. >> ifill: how about that? >> well, i think we disagree on the facts and what the augustine committee said. they did say it would require $50 billion more over ten years just to get to where we had planned to go. i think this administration.... >> that is correct. >> what this administration has done is add money to the five-year budget plan that they have been proposing last

year. adding $6 billion. in the human space flight portion of that budget, they've taken a bold new approach. they've taken away from one monolithic program to go back to one destination and changed it into a technology program, the development game-changing technologies in order to make exploration cheaper, more cost effective and safer and more rapid in the near term. >> ifill: let me ask you both. i'll start with you, administrator griffin, assuming for a moment that this is a big assumption because as we know budgets sometimes congress gets to say a word or two and it might not turn out the way the president has planned. assuming for a moment that his proposal actually happens. what are the consequences for not only human space flight but the future of nasa? >> well, i agree with brett that it would be a pair a time change for nasa. it would take the agency from being a mission-oriented organization, which i happen to believe is the right approach, to a technology

sponsor. i don't believe that's the right function for nasa in our society. now that's a philosophical disagreement that i have with brett. i respect his opinion, but i simply don't agree with it. so that would be the long-term change for nasa. >> ifill: let me ask you do you think that there is any room for a public-private partnership as nasa goes forward? >> of course i do. i'm a primary sponsor of commercial space flight. it's something that i believe will happen and must happen in time. it's simply that i... as i often say, we manage to have military aviation and civilian private aviation exist in the same country. i personally do not see why commercial operators cannot develop their capability without deciding that they have to take down nasa's capability to do space flight. >> ifill: as someone who represents commercial operators, i'll start with

that and work back to the question about the future. >> i think what the administration has done is say that we do need a paradigm shift in human space flight. bringing the private sector into it will bring efficiency into it. it actually, what they are planning to do is have commercial companies develop vehicles. these are the same commercial companies that traditionally act as contractors to nasa. the major aerospace companies in the u.s. that have been the industrial base that have built all the space craft for the last 50 years. with new entrants as well that have other ideas and innovation working together and hand in hand with nasa, we're talking about developing space craft to go to the international space station. that is a far simpler mission than going back to the moon, going to mars or going somewhere else. that's why it can be done quicker, more cheaply. the simple fact of the matter was that with the old program we were not going to be going back to the moon for well more than a decade.

we were going to be relying on the russians to get to the international space station for the better part of this decade if not longer. >> ifill: aren't we going to be relying on the russians and china anyhow to get a seat on their, whatever their shuttle would be. >> we have an arrangement to get... to ride on the russians, but we don't have to do that, you know, for as long as if we bring commercial providers in to focus on the simple mission of going to the international space station rather than focusing on the mission to go back to the moon. >> ifill: bretton alexander, michael griffin, thank you both very much. >> thank you. >> thank you. >> lehrer: the senator flew on the space shuttle columbia in 1986. >> lehrer: now to haiti, three weeks to the day after the earthquake. thousands still live in tents, many don't have enough to eat. u.n. officials today called the

security situation "volatile." meanwhile, doctors and nurses are coping with the injured, among them, many children. emma murphy of independent television news has that part of the story. a warning-- the images are disturbing and difficult to watch. >> reporter: he's too young to say what haiti's earthquake did to him, but his tormented eyes offer a clue. a look at his mutilated little body tells you the rest. the child is only two, but mckinley's mother will never again feel her baby cling to her, both his arms now gone. at two months old, this little girl will never know life without a disability-- a leg lost along with her family home. port-au-prince's hospitals are packed full of children like this, a tragic generation who'd hardly learned what to do with their limbs before they lost them. childhood has never been easy in haiti.

but what of these little ones, their missing arms, their missing legs? and they are facing a most uncertain future. jean harity is a nurse with the irish charity m.p.h. with the earthquake compounding grinding poverty, she is now trying to find people to sponsor children like these. >> they don't know what the future is. they don't have any homes. there's rubble. if they get a wheelchair, where would they put it, in the middle of the rubble? if they get crutches, how would they hobble around on bricks and mortar? >> reporter: any chance of mobility depends on prosthetics experts like al ingersoll. he's returning to the workshop for the first time since the quake. >> wow. some parts look okay, some parts look totally unusable. hopefully, we can get a plan put together quickly and get something reopened.

this was about 75% done. it even has the shoe on it already. makes you wonder if she survived. ♪ >> reporter: and yet, in the midst of the tragedy, an example of enduring spirit. darlene is 24. she sung her way through the loss of arm and leg, inspiring those who have treated her. >> i've never seen a girl like her, because even though she has been amputated an arm and a leg, she has dreams, she wants to move forward. she knows it is going to be hard. >> reporter: her dream is to be a nurse-- a nurse who will treat children without limbs and know all too well the challenges of their lives. >> lehrer: and a second story about haiti's young people, this one from the u.s. newshour correspondent tom bearden reports. >> reporter: a steady stream of haitian children have been arriving at airports all over

the u.s. in the last two weeks, bound for new homes with adoptive parents. some had been living in damaged orphanages, sleeping in tents or on the ground. ten-year-old guerdie has her own bed now, and it's a very long way from a tropical caribbean island. there's snow in the front yard of her new home in grand junction, colorado, a farm and ranching center on the western border of the state. >> we were at the airport when she first saw snow. and we walked outside, and my nieces and nephews were with her, and she kind of looked at it. and she grabbed it and picked it up, and she had this puzzled look on her face. i don't think she had any idea what it was. >> reporter: jane yamaguchi and her husband kirk are guerdie's new parents. she arrived just over a week ago with 31 other children from a port-au-prince orphanage called the house of the children of god. her birth parents died when she was an infant, and she was raised by an aunt for several years. but the time came when the relative could no support her, and she was placed in an orphanage.

guerdie is the yamaguchi's second adoptive child. they brought gracie to the u.s. from china when she was just a toddler. kirk yamaguchi has spent the last several years trying to convince other people that they too ought to adopt foreign children. yamaguchi is the senior pastor at valley view vineyard church, an evangelical christian church with about 2,500 members. >> and there are others in this room that god may be calling you to adopt or to be foster parents. that you can answer that call. and maybe there's a child out there that's crying out for a mommy and a daddy. and he's calling out to you. >> reporter: some, like greg and jessica stevens, have responded. they brought two-year-old jamesley here a few days after guerdie arrived. how is he adjusting to life in the united states? >> he's smiling. that's how he's adjusting. he's doing tremendous, he really is. as my husband put it to me last

night, he's gone through an earthquake, and he's basically on planet mars, and he's ready to smile at any moment. so it's amazing. >> reporter: unlike the members of two idaho churches who were arrested in haiti this week for trying to take children out of the country without documentation, these parents were in the midst of a long and expensive process to conform to the multitude of regulations imposed by both the haitian and u.s. governments. the yamaguchis started a year ago, and were expecting to wait a lot longer. >> they said it could have taken a year and a half to two more years for us, which would have been an almost three year process. >> so how did all that get compressed? >> well, after the earthquake basically, the... i'm not sure what government agencies did what, but basically the department of homeland security decided that they would issue humanitarian parole visas to these children that actually had to be in the process of being referred to a family. >> reporter: last week, the haitian government stopped all adoptions that weren't already

legally underway before the earthquake, fearing that, in the chaos, children would become victims of human trafficking. the prime minister now personally signs off on each adoption. several children's welfare organizations applauded the move. diana myers is vice president for international programs at save the children. she says it's vital to know who is and who is not an orphan. >> if a child seems to be separated or seems to possibly have lost a parent or both parents, we want to work with the community there to give them a chance to be reunited. we all know that children recover fastest if they're able to be with family, if they can be with extended family and other relatives. >> reporter: the yamaguchis worked with denver-based chinese children adoption international. lily nie and her husband josh founded the agency in 1992, and have since placed some 9,000 chinese children in all 50 states and 15 foreign countries. they became interested in haiti before the earthquake, partnering with the house of the

children of god. nie agrees that all parties need to be very careful with international adoptions. >> can you imagine if they're just separated from the parents or relatives, then they may still have a chance to have a family in their own country? in that case, we shouldn't take those children away from their country. >> reporter: helping children maintain contact with their culture is one reason yamaguchi wants his church members to adopt more haitian children. >> so the vision that we had is that if we had a number of these children adopted in our church community here, we can keep them in relationship with each other. and where they could continue to have some sense of identity. i don't know if you guys have noticed this, but if you look around the room, most of you are all white folk. ( laughter ) and there ain't many asians here, either. we're gonna work on that, too. ( laughter ) and so we wanted to have them

here so they can stay connected. and still keep a piece of that identity with each other. >> reporter: some organizations have expressed concerns about interracial adoptions. most of the haitian children seem to be going to white families. the yamaguchis share that concern. >> we know there's gonna challenges with guerdie being raised in a community like grand junction that's 90% white. and so we're quite aware of that, and we want to be able to talk to guerdie and address those issues with her, and be able to expose her to opportunities where she can be connected to her culture still. >> i know a lot of agencies would like to see the children to be able to stay in their country if they can, and i agree with that, that's a great thing. but a country like haiti-- if there's a choice between a child living on the street, maybe not getting much more than some rice and beans for one meal a day, or coming to live with a family that's a white family, i would still rather see them have a loving home. at least it gets them to a place

where these children aren't going to die. >> reporter: about two dozen more children in the adoption process still remain in the port-au-price orphanage. their adoptive parents in colorado hope they will be allowed to leave any day now. >> ifill: now, dealing with the problem of "too big to fail" banks. president obama has proposed that large commercial banks should be banned from engaging in certain kinds of private investment and trading activity that could benefit the banks themselves. former federal reserve chairman paul volcker is credited with pushing that plan. today, he testified before the senate banking committee. here's a bit of the case he made. >> commercial banking is a risky business. now the question is whether you want to, in effect, provide a subsidy or provide protection when they're lending to small business. when they're lending to medium-

sized business, when they're lending to homeowners, when they're transferring money around the country. those are important continuing functions of the commercial bank in my view. i do think that these are getting public support. i do not think speculative activity falls in that range. they're not lending to your constituents. they're out making money for themselves and making money with big bonuses. why are we... why do we want to protect that activity? >> lehrer: now we >> lehrer: now, we get another perspective on the big banks, as seen by one of the leading c.e.o.s from that industry. newshour economics correspondent paul solman has the latest in his series of stories and conversations on the future of wall street. it's part of his ongoing reporting on "making sense" of financial news. >> reporter: the bank of new york, founded in 1784, making it the country's oldest. its constitution written by

alexander hamilton, its shares in 1792, the first to be traded on the new york stock exchange. several centuries later its merger with pittsburgh's mellon bank in 2007 made it the world's largest firm managing assets for clients and returned it to prominence as one of america's 15 biggest banks. qualifying it just a year later for $3 billion in troubled asset relief program, tarp, funds. it has since paid back the treasury with interest. nova scotia-born robert kelly, now 55, is the bank's ceo. after a career spent mostly at toronto dominion bank. he reportedly turned down the ceo job of bank of america last month. robert kelly, welcome. >> thank you very much, paul. welcome to our bank. >> reporter: first the president's proposal to tax the banks to get the money back from tarp. >> one of my worries would be that

for the less healthy banks who are still trying to rebuild capital and profitability, will they reduce lending because of this tax? will they reduce the number of people they employ to help their bottom line? will they try to pass the costs on to customers? it doesn't feel constructive to me in many ways. >> reporter: what about the proposal to separate trading for your own account, like a hedge fund, from the deposit taking function of a bank that you can't do both? >> i don't think propriety taer trading was the essential problem with the economy. the banks didn't have enough liquidity. i actually think having a limited number of really big financial institutions in this country is a good thing. firstly, many businesses in the nation need really sophisticated, complicated products for them to be more successful. >> reporter: give me an example. >> many of them say... want to

raise money in china to be able to be more successful over the long term. wouldn't you rather that business go to american banks than to foreign banks? many of the big, big international corporations based here in the united states want to move money around the world very easily and simply. you can't do that with small banks. you need big, successful, sophisticated profitable banks with lots of capital. >> reporter: economies of scale. are there really economies of scale? >> there are huge economies of scale in retail banking. because you can take, whether it's a network of ten branches or a thousand branches, it basically takes the same sort of computer systems and accounting and human resources infrastructure to run a big system as a little system. it doesn't add risk to the system. it actually reduces risk because you're diversified across a lot more geography.

>> reporter: scholar simon johnson: no study can find economies of scale above $10 billion. on this the experts agree, he writes. why not cap the size of any bank and say 1% of g.d.p.? >> well, these are economists versus people who actually run businesses. >> reporter: but you come from a biased point of view. bank of new york and mellon merged just a few years ago. you're obliged to say that. >> to some degree that's true. i'll tell you another reality. if bank of new york and mellon were separate during this downturn, we would have been in a lot worse shape than we were ultimately. >> reporter: we the country or we the bank? >> both. >> reporter: you did lose a quarter of a billion dollars in 2008 on your proprietary trading. >> not proprietary trading. our business is very simple model. asset management and security processing. security processing is the majority of our company. it tends to have a lot of cash

that's very sticky with it. and so we tend to .... >> reporter: meaning? >> meaning a lot of clients give us deposits, and it tends to stay with our company for quite a while. we have to do something with those deposits. you can buy treasurys that are essentially riskless or you can buy very high quality securities, for example. the he can equities are fairly risky so we don't buy stocks but we do buy bonds. we bought triple-a rated bonds which turned out to be not triple-a. if we want to be kind about it, perhaps they're triple-c. >> reporter: doesn't it make sense as public policy to protect an institution like yours and you call yourself a critical infrastructure company to the world economy from buying mortgage-backed securities? >> well, i really want to protect our company too. so does our board of directors and our shareholders want us to do that. our regulators also want us to do that. >> reporter: what's the rationale for a bank being so

big that it would have to be bailed out by the u.s. government? >> no bank should be too big to fail. that is my view and that is our industry's view. capitalism works. darwinism works. >> reporter: but banks were bailed out. banks were deemed too big to fail and they were in fact bailed out. >> they shouldn't be in the future. let's talk about that. the worst ones are now gone. if you think about the mortgage providers like countrywide and wamu and the investment banks that just weren't up to reality of a really tough recession, whether it be the bear stearns or merrill lynch or lehman brothers . the worst-run institutions are gone. >> reporter: people would dispute that. many banks-- i don't need to name them for you-- were on the brink or perceived to be on the brink. the government stepped in and saved them. >> right. so going forward in my view and in our view, no company should be too big to fail.

so what that means is you should allow them to fail. the question is how do you do it without it impacting the rest of the banks in this country as well as create a global financial crisis. >> reporter: that's where we were the last time around. >> exactly. what has to be done now is what we need is we need a wind- up authority so we don't have something like lehman. >> reporter: but right now isn't your bank, bank of new york-mellon too big to fail? >> no. >> reporter: would the government really allow a company which is, in your own words, critical to the infrastructure of the country, to fail? >> if that ever occurred which would be extremely unlike in the stockholders' view as well as the debt holders view because we're viewed tass strongest bank in the nation. what they could do is they could come in, take us over and just continue to run us our wind us down. my expectation is they could do it at zero cost to the nation. >> reporter: are you saying no banks out there are too big to fail? >> i would say no.

if you get the right systems in place, more capital, more liquidity, better regulation, wind-up authority. >> reporter: yes but right now we don't have those things. right now there are no banks in america that are too big to fail? >> there are several banks that are problematic still in the nation. that is solvable. >> reporter: you understand that people are furious at the banks. >> um-hum, yes. >> reporter: do you understand why? >> i think so. i'm a pretty good listener. i've had lots of opportunity over the last couple of years. a lot of people get it that it wasn't just about banks and it was also about government and individuals and other things like that. but we're taking the brunt of it. we should. you know what? i don't think that anger is going to dissipate until the unemployment rates have gone down in this country. i must say banks create a lot of value. you think about how much simpler and easier it is for you to do banking versus 10 or 20 years ago.

you can get access to your money through debit cards, credit cards, through the internet , through any means that you can think of. you can do it anywhere in the world. you can travel around the world and do your banking anywhere today. you could not have done that ten years ago. is that a more efficient, better system for the nation? yes, it is. >> reporter: what is the most important lesson you learned from the crisis? >> really understand the risks you're taking. >> reporter: robert kelly, thank you very much. >> my pleasure. thank you very much. >> lehrer: paul gets a different view in his next conversation, with former reagan administration budget director david stockman. >> ifill: finally tonight, how technology has reshaped warfare. the pentagon has used remote- controlled drones in the iraq war, in afghanistan, and today, to search out an elusive enemy along the border between afghanistan and pakistan. it is warfare launched from thousands of miles away. tonight's "frontline" looks at this phenomenon as one part of a massive transformation of modern

society through digital media and technology. producer rachel dretzin narrates this excerpt. >> from air-conditioned rooms on this air force base in the desert outside of las vegas, pilots fly unmanned aerial vehicles, or drones, that execute missions in iraq and afghanistan. >> other aircraft, airspace, altitude. looks like we're by ourselves out here in sector three. >> airmen here are required to wear flight suits to work, even though they sit 7,500 miles away from the battlefield. it's one way of reminding these men that they are fighting a real war. >> every so often, you have technologies that come along that rewrite the rules of the game. yet we don't talk about it.

because it's costless to us. >> drones have the capacity to strike with extraordinary precision, and at no cost to american lives. the number of drones has multiplied in recent years, and the pentagon is clamoring for more. >> the risks are all one-way. in today's wars, right now, the pilot gets to do all the shooting and never gets shot at. and that creates a very different attitude than somebody who is both dealing out risk and is accepting risk. >> room, ten hut! >> the biggest risk that we accept is that feeling of detachment from the aircraft. you need to be able to think through a three-dimensional problem that's located 7,500 miles away from you.

it's a real live aircraft, real live weapons, doing a real mission. i try to ensure that people understand there are people who are counting on us to do the mission. you can fly in afghanistan one day, and the very next day, you're flying in iraq. though they're physically located here, they need to think in their mind that they are in theater, because that's where the business end of that cockpit is. you're no longer sitting at creech air force base. get in that mindset. when you step in that g.c.s., you are in the fight. >> we have a single individual on the roof, on the north corner of that four-sided building. >> the planes' cameras can surveil their targets from up to nine miles overhead. >> one time, we had intel that, there was a bad guy riding around on a motorcycle, if you will. and he was just riding around, and he stopped at two or three different playgrounds, and he's playing soccer with all these kids, you know. and he's living his life. he's doing his normal, everyday

life. and then, you know, sure enough, at the end of that ride, though, we found him at a meeting of bad people. and it ended up resulting in a strike. so you end up seeing what happens. copy that, we got eyes on 'em. three-zero-five rifle, time of flight 15 seconds. that's ten seconds. five, four, three, two, one, and splash. >> they do take a lot of care about civilian casualties. it is very much on their mind. but there's no way for them to really tell. all they see is the bomb going into that building, and it blowing up. they don't necessarily see what happens afterwards. a drone can't dig through the rubble and see what the consequences of that hellfire missile was. they can't.

>> ifill: "frontline's" "digital nation" airs on most pbs stations tonight. >> lehrer: again, the major developments of the day: the top u.s. military officer, admiral mike mullen, urged congress to agree to let gays serve openly in the ranks. and defense secretary gates announced a one-year study on how best to make the transition. wire service reports said the nigerian man accused in the christmas day airliner attack has begun cooperating again with the f.b.i. the newshour is always online. hari sreenivasan, in our newsroom, previews what's there. >> sreenivasan: there's more about how technology is changing our world. watch a rundown interview with "digital nation" correspondent douglas rushkoff to hear his thoughts while working on the "frontline" documentary that explores how technology affects our daily relationships with one another, how we learn, and even our ability to wage war. join the debate over whether banks should be allowed to get too big to fail. ask follow-up questions to paul solman on his "making sense" page. on "art beat," hear an interview

with a photographer who has documented the lives of veterans injured in the iraq and afghan wars. and a reminder-- you can listen to the newshour on your way to work or at the gym by downloading our podcasts. just click on the "subscribe" button at the top of the homepage. all that and more is on our web site, newshour.pbs.org. gwen. >> ifill: and that's the newshour for tonight. i'm gwen ifill. >> lehrer: and i'm jim lehrer. we'll see you online, and again here tomorrow evening. thank you and good night. major funding for the pbs newshour is provided by: >> what the world needs now is energy. the energy to get the economy humming again. the energy to tackle challenges like climate change. what if that energy came from an energy company? every day, chevron invests $62 million in people, in ideas--

seeking, teaching, building. fueling growth around the world to move us all ahead. this is the power of human energy. chevron. >> this is the engine that connects abundant grain from the american heartland to haran's best selling whole wheat, while keeping 60 billion pounds of carbon out of the atmosphere every year. bnsf, the engine that connects us. bank of america pacific life. and the national science foundation. supporting education and research across all fields of science and engineering. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for

public broadcasting. and by contributions to your pbs station from viewers like you. thank you. captioning sponsored by macneil/lehrer productions captioned by media access group at wgbh access.wgbh.org to providing service to

its auto insurance customers for over 70 years. more information on auto insurance at geico.com or 1-800-947-auto any time of the day or night.