captioning sponsored by macneil/lehrer productions >> ifill: good evening. i'm gwen ifill. the political scramble accelerated on capitol hill today as lawmakers approached an endgame on health care reform. >> woodruff: and i'm judy woodruff. on the newshour tonight, a look at where things stand in congress as the house of representatives nears a vote. >> ifill: then, tension deepens between two old allies-- the u.s. and israel-- over the construction of housing in east jerusalem. >> woodruff: plus, two takes on financial reform. first, a report on payday

lenders and the call for their increased regulation. >> petty loans are marketed as a simple, convenient way to get some quick cash before your next payday, but unfortunately the way they're structured really sets most borrowers up for failure. >> ifill: then, senator richard shelby, the top republican on the senate banking committee, makes the case against democrat chris dodd's proposed overhaul. that's all ahead on tonight's "pbs newshour". major funding for the pbs newshour is provided by: bank of america

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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. >> woodruff: the pressure built today on uncommitted house democrats to support health care reform later this week. >> brown: across east jerusalem today, a palestinian "day of rage" and the worst violence in months, as hundreds of stone- throwing youths faced off with

israeli troops and police. the tension had been building since israel announced plans last week to expand jewish housing in disputed east jerusalem. the decision came during a visit by vice president biden, and provoked a diplomatic clash with the united states, which wants a total freeze on the building of settlements. on friday, secretary of state hillary clinton rebuked israeli prime minister benjamin netanyahu during a lengthy telephone call. today, though, she rejected talk of a relationship in crisis. >> oh, i don't buy that. i've been around not tt long, but a long time. we have an absolute commitment to israel's security. we have a close, unshakable bond between the united states and israel. >> brown: at the same time, clinton sought to get all sides moving forward again. >> we are engaged in a very active consultation with the israelis over steps that we think would demonstrate the requisite commitment to this process. i think that we'll see what the next days hold, and we're looking forward to senator

mitchell returning to the region and beginning the proximity talks. >> reporter: the return of george mitchell, the president's special mideast envoy, was supposed to come today. but the administration cancelled that trip as the diplomatic row continued. prime minister netanyahu said sunday he regrets the timing of last week's announcement, but he did not back away from plans to keep building. >> ( translated ): i do not think there is anything to add, but the most important is to emphasize that the state of israel and the u.s. have mutual interests. but we will act according to israel's key interests. >> brown: and today, foreign minister avigdor lieberman said that demands that israel stop housing construction are "unreasonable". in the meantime, u.s. military commanders are raising concerns about ripple effects on american troops fighting two wars in the arab and muslim world. at a senate hearing today, general david petraeus denied a published report that he'd

sought to formally add the west bank and gaza to his central command. but he did say the conflict is a real issue for his forces. >> clearly, the tensions and the issues and so forth have an enormous effect. they set the strategic context within which we operate in the central command area of responsibility. >> brown: the effect on u.s. domestic politics will be felt next week when the top u.s.- based pro-israel lobbying organization, aipac, meets in washington. yesterday, the group denounced the white house reaction to the israeli settlement move, an issue sure to be front and center when both secretary clinton and prime minister netanyahu address the group next week. for more on all of this, we get two views: from david makovsky is a senior fellow at the washington institute. he is the co-author of "myths, illusions, and peace: finding a new direction for america in the middle east." and amjad atallah is the co- director of the middle east task force at the new america

foundation. he is a former legal adviser to the palestinian negotiating team. welcome to both of you. david, starting with you. how serious a rift is this? there's been a lot of undiplomatic talk. what does it add up to? what do you think is going on? >> i think the peak of the crisis has been over the last few days. i think we're in the beginning of the deescalation phase. the set-up piece you just showed, hillary clinton made clear she's not questioning the underpinnings of the u.s.-israeli relationship which is the very reason vice president biden went to israel last week. >> brown: in the first place. >> it was so effective, a pitch-perfect visit. to demonstrate to the israelis that whatever the differences may be, the relationship is very close. it seemed that biden's commitment was thrown into doubt by a spokesman. the state department on friday spoke about a public rebuke of israel and talked about hillary clinton's call to netanyahu and the commitment to the relationship is in

question. that's what set it off. i think we saw what secretary clinton today... i think the white house are working the phones with israel. when the news magazines or others write about this whole thing they'll find out that vice president biden trying to solve this too. he was at the start of it. he might be at the end of it. it's going now in a downward, the crisis is past its peak. >> brown: what do you say, amjad atallah, is it past its peak or something more serious? >> the public part of it is past its peak. david is right about that. the administration administration doesn't benefit from fighting with israel fighting publicly everyday especially when there's a major health care vote coming up and other issues are at stake. it hasn't resolved any of the underlying disputes. >> brown: it represents something nor serious. >> netanyahu put his finger on it in the clip you showed where it says israel followed... israel will follow its key interests. he defines those key interests in the way that contradicts

the way the united states defines its key interests. what the united states hasn't been able to figure out is how to bridge the gap between israel and the united states on fundamental differences on national security. if netanyahu is convinced that he must keep east jerusalem. if he's convinced he's going to build to palestinian territory in the west bank, then that is going to challenge america's perception of what a two-state solution looks like and it's going to challenge what america needs to create context ally in the region. >> brown: it certainly looks as though the obama administration has pushed back really hard. clinton says she's talking about steps that would demonstrate ... is the obama administration right to be upset, a? and b, to be demanding concrete steps now? >> i think it's absolutely right to be upset. there's no benefit in politics to being upset unless it serves a tactical advantage. the united states... this isn't an emotional issue. this is about a clear-headed

difference of opinion about what national security for the united states means and what it means tore israel. the united states has to find a way of bridging that gap with israel. now israel continually has told the united states, no, publicly. and has not paid any consequence for it. if i were benjamin netanyahu's advisor i would say keep doing it. as long as you can get away with it, your poll numbers inside israel with the right wing constituency go up. the united states offers you no consequence. so the united states is in a position, i think, where it needs to put up or really shut up. if the united states isn't prepared to apply consequences to israeli misbehavior even when it applies to u.s. national interests, then the united states is going to be in a worse position than if it never asked for it in the first place. >> brown: your response. >> i disagree with amjad. i think, you know, ... i don't agree with the netanyahu government on every point but it has agreed to a qualified settlement moratorium more

than any of its predecessors for a 10-month period, reduced check points, all but... it was at 41. now it's down to 14. and i think the the key is to keep our eye on the ball. to solve this problem not to deal with the symptoms. that's through the proximity talks which will be a transition to direct talks. >> brown: explain that. the proximity talks are a way of getting towards the much larger deeper issues. >> the reason why we're having these talks where mitchell is shuttling between jerusalem and ramallah, a 15-minute car ride, is precisely because of the advice that says if we only in america take a tougher position, that we blow the whistle on netanyahu more than we blow the whistle on the palestinians, we'll win good points with the palestinians. i think that approach in 2009 drove us into a ditch. we haven't gotten out of it. could you imagine that we'd be in the second year of an obama administration and there's no direct talks? the israelis are ready for direct talks tomorrow morning. >> brown: how is this being

seen in israel right now over the last few days and how does it tie into internal israeli politics. >> it fits into a broader context where they feel a certain coolness of the obama administration which is why biden was sent over for this fence-mending mission. he hasn't visited there. he's gone three times to the middle east. there's been issues here in that relationship. i think it's also stylistic that obama's demeanor is that he's cerebral and detached. it's not the instinctive guy like bill clinton who will hug you and feel your pain. there's a lot of different stylistic differences here. they feel it's premeditated on the part of this administration, that the way to get closer to the arabs is to get away from israel. i think that interpretation is somewhat alarmist and the administration wants to keep its eyes on the ball. i think they mess up tactically. amjad and i may agree on that but for different reasons. the main event is to ensure that you come out of this crisis with these talks invigorated and that they transition to direct talks to

actually solve this conflict and not just complain about it. >> brown: what about the wider... let's widen this out a little bit. we just saw general petraeus. a little bit unusual i think public airing from a military leader to kind of tie the lack of progress, i think he said, it has an enormous effect is the quote on the larger region. what is he saying? what's he getting at? >> he's said what everybody who has served in the u.s. military or served in iraq or afghanistan has noted. which is that everybody in afghanistan, everybody in iraq, everybody in any area that the united states is operating in actually cares about palestinians as much as americans care about israelis. we don't have to say it's right or wrong. we care about israelis for a host of historical and religious reasons. and they do as well. the problem is, of course, that every time there's a conflict between the palestinians and the israelis, it has spillover effect. it has spillover effects everywhere. it's not a pan see a. solving the arab-israeli

conflict won't make all of our problems go away in the middle east. it increases our leverage and political capital to address those challenges. the military has begun to say publicly what they've said privately for so long because there's been so much frustration that the consequences of our failure to resolve the conflict-- and here i agree with david. the goal is to end the conflict. the goal is not to fight with israel for the next year over whether they're going to build an east jerusalem or not. we've wasted one year negotiating with israel on settlements that was a wasted year. werb have been negotiating with israel only over the terms and the parameters of a permanent status agreement. >> brown: how does this particular rift or to the extent that it is a testing of the relationship between the u.s. and israel, how does that play into the wider issues that the general and others have raised. >> i i think that this is a very contested point that general petraeus raised today because, look, amjad and i would agree and nobody serious believes that if you solve

this conflict it unlocks all the other or any conflicts in the middle east. we agree there. where our disagreement is is whether this will fundamentally make a difference in the way america is perceived. i mean we all would agree, i would think, that if people are shooting at americans in iraq or afghanistan it's because of the local conflict. they don't say there was progress on the arab-israeli front. no shooting today. that's not the issue. i would argue that there is like 20 layers there. this might be one out of 20. and it should be resolved for its own... reason but it's not decisive in these other theaters. we should solve it for its own reasons. i would agree with amjad that it is evocative in the region but to a point. i think we have to be careful not to be carried away with it. we want to solve it because we also want to take a hand out of the extremists. do any of us think that al qaeda will go away if this issue is solved?

they never cared about this issue at all. they're a johnny-come-lately to this question. >> brown: how would you see this, the testing here, the particular rift playing out in this larger question? >> i think the united states right now there are two narratives in the middle east. one says that the united states can solve the problems of the region, can be a force for stability and will end the arab-israeli conflict through peaceful means. there's another narrative that says only through violence are the palestinians ever going to be free. the united states was trapped by israeli interests and can't defend itself. the united states should be opposed as well. those two narratives are fighting with each other. whether we succeed in ending the arab-israeli conflict or not will determine which narrative is the dominant one for the imagine jorlt of people of the middle east. ... majority of the people of the middle east. >> brown: we'll leave it there with the narratives converging or diverging. we'll see. thank you both. >> now, the other news of the

day. here's hari sreenivasan in our newsroom. >> sreenivasan: the federal reserve kept short-term interest rates at record lows today. the central bank pledged again to maintain those levels for an "extended period," perhaps as long as six months. a fed statement also said business spending is rising , but consumer spending has been held down by high unemployment. wall street took the fed announcement mostly in stride. the dow jones industrial average gained more than 43 points to close at 10,686. the nasdaq rose more than 15 points to close at 2,378. another major auto recall is in the works over brake problems. this time, it's honda. the company today recalled 410,000 odyssey minivans and element small trucks from model years 2007 and 2008. honda said the brakes can feel "soft" and eventually lose power. federal regulators have reported three crashes, with minor injuries. the president's top economic advisers took some heat today over jobs and the economy, from both parties. at a house hearing, republican jerry lewis of california charged the administration is spending and taxing too much. and democrat marcy kaptur of ohio complained the president's

aides were "out of touch" as unemployment in parts of ohio tops 15%. >> we have more cities poor in this country than any other state now. our food bank lines are growing longer. 25% of our food banks and food shelters turned away people last year. people are becoming desperate. i am their representative. i cannot politely sit and listen to this and not feel compassion for them and expecting some from you. >> sreenivasan: but treasury secretary timothy geithner insisted president obama has worked hard to spur growth. >> this president acted with enormous care and force and speed. some of you have never seen in this country or any other country around the world facing a country like this. worked to enact again in remarkable speed the most powerful set of support for a crisis you have ever seen before. those things were difficult to do.

they were unpopular but they were essential. >> sreenivasan: still, the chair of the president's council of economic advisers, christina romer, warned unemployment is likely to stay high for some time to come. mexican president felipe calderon visited the border city of juarez today after a surge in drug killings. over the weekend, two americans and a mexican with ties to the u.s. consulate in juarez were gunned down in two separate ambush shootings. the f.b.i. has joined mexican authorities in investigating the murders. protesters in thailand used their own blood today in a bid to force new elections. members of the "red shirt" movement poured gallons of blood in front of the prime minister's office in bangkok. the group includes supporters of the ousted prime minister thaksin shinawatra, and pro- democracy activists. thailand has been in political turmoil since 2006. more than 100,000 people marched in bangkok on sunday. u.s. troops in afghanistan face a major restructuring. a spokesman said today u.s. general stanley mcchrystal will have firmer central control.

he's the overall nato commander in afghanistan. "the new york times" reported mcchrystal wants to rein in special forces, mainly to cut down on civilian casualties. the nato spokesman denied that report. pepsi-co announced today it's removing all full-calorie, sugary drinks from schools around the world in the next two years. it would be the first soda maker to do so worldwide in both elementary and high schools. coca-cola has said it will no longer sell its drinks in primary schools around the world, unless parents or school districts ask. tiger woods returns to tournament golf at the masters next month. he confirmed it today in a statement. woods has not competed since disclosures last fall of his multiple infidelities. also today, sony music and the late michael jackson's estate announced the largest recording deal ever for the artist's work, worth $250 million. the seven-year agreement includes songs never before released, plus jackson's music catalog. 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 judy. >> woodruff: the pressure built today on uncommitted house democrats to support health care reform later this week. and democrats floated a new voting strategy that republicans quickly condemned. newshour congressional correspondent kwame holman begins our coverage. >> holman: health care dominated another day at the capitol, as house democratic leaders worked to nail down a majority of 216 votes. the effort included an hour-long caucus meeting this afternoon. later, house speaker nancy pelosi said she expects party whips to round up enough votes. >> we have a massive whip operation, and we'll be ready when it is time to go to the floor. >> holman: until recently, leaders said they would begin by approving the measure the senate already passed, a bill that many house democrats have strongly criticized. part of the difficulty facing democratic leaders is that some of their members don't want to

vote for the senate bill before changes are made to it. to address that, the speaker is considering a plan that would have the house pass those changes, and once that happens, the senate bill would be "deemed" to have been passed as well. the speaker defended the concept, known as a "self- executing rule". >> we have, as i said to you before, several options available to us. and we've asked the parliamentarian and the rules committee to tell us what our options are. and they've given us some. and i didn't hear any of that ferocity when the hundreds of times the republicans used these methods when they were in power. >> holman: but house republican leader john boehner argued today the strategy will never "pass the smell test" with the public. >> listen, i don't care what trick they try, it's not going to work. this will be the biggest vote that most members will ever cast. you can't hide from it. and the american people will

never accept some trickery to try to make this bill become law. >> holman: and indiana republican mike pence called on democrats either to act directly on the senate bill or begin anew. >> let's have a good, long debate about that bill that passed the senate on christmas eve, with all its backroom deals and its public funding for abortion and its individual mandates and its tax increases. but if you don't have the votes, let's scrap the bill, let's start over. >> holman: but the democratic chair of the house rules committee, louise slaughter, insisted the so-called "deem and pass" rule is entirely appropriate. >> it has been done here since the 1930s, over and over again. most people, i think, in the house at this point have voted for something exactly like it or very similar during their congressional career. it's really too bad that this kind of misinformation is made out so readily by people who absolutely know better. >> holman: and maryland democrat chris van hollen accused

republicans of debating process and not substance. >> it would be interesting to ask them whether they're as concerned about the rules and procedures insurance companies use to go about denying people health care as they are about the current debate we're engaged in. >> holman: still, not all house democrats are comfortable with trying to bypass a direct vote on the senate bill. pennsylvania's jason altmire voted no on the original house bill last november. >> i think it's our job as a representative to go on record. this is the biggest policy agenda in the last 40 years, more than likely, and for the american people not to know where their representatives stand, i think, is crazy. you have to do this in a way that is transparent and open for the american people to accept the result. >> holman: president obama has been pushing for final passage of the health care bill to uncommitted democrats in private white house meetings. >> kill the bill! >> holman: but pressure from the other side was on public display today. a group of "tea party"

protestors visited capitol office buildings, attempting to sway members away from voting for the health care bill. john beatty is from wilmington, delaware. >> i came down here to stop the bill. i believe the bill in its present form is bad government. we need to stop and start over, and have smaller, targeted bills to save money and insure more people. >> holman: the spotlight remains on the house tomorrow, when the rules committee is to take up changes to the senate bill. lawmakers are also still awaiting a cost estimate from the congressional budget office. >> ifill: so, as the continuing health care debate boils down to the tactics and politics of process, we take a closer look at what's on the table now, with mary agnes carey, a correspondent for kaiser health news, a not-for-profit news service focusing on health policy and politics; the headline could easily be democrats pass health care

reform without voting. why are they willing to take that risk? >> a lot of health members don't like the senate bill. they don't like the deal for nebraska to pay medicaid in perpetuity for that state. they don't like the high cost... the tax on the high cost health insurance plans, the cadillac tax. what they would rather vote on is their package of changes to the bill. they're trying to set it up in a way where the self-executing rule as your correspondent was talking about that the senate bill would be deemed as passed. those house members don't have to take a vote on that bill. to reconcile bills between the house and senate, the senate bill has to be passed. >> ifill: and signed by the president as well. >> right. >> ifill: they don't trust the senate to do what they've agreed to do. that's part of this as well. the house members. >> that is part of it as well. that will be the next step played out if the house has a vote, if they want to have possibly this week. so if the structure is set up in a way where the senate bill is passed and if the house

approves a pangage of reconciliation fixes we still haven't seen them. we still haven't seen the cbo score. not quite sure when that will happen. it goes to the senate. there is great distrust between democrats in the senate and the house over this very issue. >> ifill: louise slaughter, the chairwoman of the house rules committee, says this has happened a lot before. is she right? >> she has talked about that. it has been used to raise the debt ceiling, used to ban smoking on flights. it's been used for other bills. democrats have used it. republicans have used it. the point of discussion here is, is this bill too big and too public to do something like a self-executing rule even though the rules allow it? >> ifill: is this about for some members i guess ducking a potentially unpopular vote or is it about forcing... getting this done and this is the only way you're going to force it. >> i think it's about both. they dislike the senate bill. they don't want to have to vote on the senate bill. time is of the essence. congress is scheduled to go on a two-week break at the end of

next week. the senate still has to act on a package of reconciliation if it passes the house. it could take quite a bit of time to do that. republicans don't like the bill. they promised to fight the bill. so time is definitely an issue here. >> ifill: does it worry any democrats, these waivering democrats, that they may be using this method giving republicans a weapon with which to beat them about the head in the fall? >> right. because i think if it goes the way that it looks like it's going to go, the republican opponents will still say that you passed that senate bill and you passed the reconciliation package. you passed this mammoth in their words a mammoth health care package which is going to hurt america. i don't know if quite sure how that will play out. i think republicans will do that. democrats will come back and talk about what's in the bill, how it will benefit people. they feel it's in the best interest of the public and that voters will like the elements of the bill and that that's what voters will focus on, not the process. >> ifill: they believe that voters will forget about process once the bill is

actually law, whatever is in that bill. >> right. the majority lead er in the house made a very interesting comment about when they passed the medicare prescription drug bill in 2003 republicans left the floor vote open for three hours. they were speaking to the packed room of reporters. they said we also talk about that. we remember that but the public doesn't. that's not what people are talking about. so that if in fact the health care bill is as popular as democrats hope it with voters they think this won't be an issue for them. >> ifill: that's a big if it seems to me at this point because the polls are such in conflict. let's talk about timing. there's a deadline which is looming in this. which is what is forcing a lot of this. >> there is a deadline. the president postponed his trip to indonesia and to asia to the end of the week to try to be here to put more pressure on house democrats to vote. speaker pelosi has also said that she's confident when they bring it to the floor that they will have the votes and it will take the time they need. but again let's remember this two-week break. if this bill does not pass at least in the house before that

break starts, members will go home for two weeks and then it usually takes a while to kind of get the steam back when they come back. you're talking about mid april before the senate consideration would begin. and then again if the house doesn't pass it they have to return to it after that break and so that really pushes the calendar back. >> ifill: the president leaves for this foreign trip on sunday afternoon. this is just another do-or-die moment for health care reform. >> it certainly could be. >> ifill: it could be or it couldn't be. we never know. >> every time you set a deadline they blow through it. we'll see what happens. >> ifill: thank you. >> thanks for having me. >> ifill: still to come on the newshour: the debate over regulating payday loans; and senator shelby on financial reform. but first, this is pledge week on public television. we're taking a short break now so your public television station can ask for your >> thanks you for watching tonight's edition of "the newshour." hello, i'm david ginder with patrice pasquel.

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industry. first, ray suarez on the push to rein in big lenders who fill the gaps left by big banks. >> suarez: after the financial crisis, the debate over financial reform focused on big banks and the securities markets. now, concern is growing about the need for a new agency to regulate financial companies that deal directly with consumers, like the booming payday lending business. the bill unveiled by senator chris dodd yesterday would give a new consumer protection agency the authority to oversee those kinds of lenders, and other smaller but important actors in the financial system. >> we not only want to be able to deal with the mortgages and the brokers and servicers that were at the root of so much of the problems we're facing, but also to get into the non-banks, the larger entities as well, particularly. and we're letting... talking about large entities where these problems occurred, payday lenders and other operators that are big. >> suarez: those lenders offer small, short-term, high-interest

loans, typically 400% on an annualized basis. the cash covers the borrower's expenses until the next paycheck arrives. payday lending took off in the late 1990s. there are now over 22,000 storefronts nationwide. more than 19 million u.s. households have taken out payday loans worth more than $35 billion. loans are also available online. carol stewart is with advance america, the biggest payday lender in the country. she acknowledges her industry is under scrutiny, but says it provides a valuable service. >> our consumers use this product because it is a bridge between paychecks for them. there will be something that comes up-- maybe they need a new tire for their car so they can get to work, maybe a child needs medication to take care of them, maybe they do need to pay that late fee. and so, customers use it as a bridge, as a way to get from paycheck to paycheck, to be able to make ends meet.

>> suarez: but consumer advocates like leslie parrish of the center for responsible lending say the industry preys on customers who can least afford expensive loans. >> unfortunately, the way they're structured really sets most borrowers up for failure. basically, you are dealing with a family that is already living paycheck to paycheck and has a financial shortfall, and you're telling them they need to pay the loan back, in full, in two weeks. and for most families, that's a very hard thing to do. what we do see, unfortunately, is the average borrower takes out nine payday loans a year, and those are generally taken on a back-to-back basis because they really couldn't pay that first loan off successfully. >> suarez: there are variations in some states, but here's how a payday loan typically works: a borrower writes a post-dated check to the lender for the amount of the loan plus a fee, usually about $15 to $20 on a $100 loan. the lender agrees to wait until the client's next payday before cashing the check. the borrower gets the cash immediately. on the maturity date, the

borrower is expected to repay the loan. if they don't, the lender cashes the check. >> so you're going to repay that loan one way or the other, and you have money that day to repay your loan because you've just gotten paid. the problem is, a day or two later when you're buying groceries or paying for health care expenses, your money has run out. >> suarez: but carol stewart says borrowers fully understand how these loans work. >> our customers are educated about the decisions that they make. and from my experience-- i'm in the stores a lot and i see customers, and they're schoolteachers, they're nurses, they're civil service workers, they're people making educated decision about the credit options that they have out there. >> suarez: currently, states regulate the payday lending business. in fact, 15 states and the district of columbia ban them outright. but many consumer advocates argue a federal regulator is essential. dodd's bill would create a consumer protection agency to be housed under the federal reserve and could write rules and

regulations for payday lenders. president obama made the case for a new regulator during a weekly radio address this winter. >> this agency would have the authority to put an end to the misleading and dishonest practices of banks and institutions that market financial products like credit and debit cards; mortgage, auto and payday loans. >> suarez: the industry argues that's not necessary. >> we think what's out there works. we really think that those 37 states that now highly regulate this industry is what works right now, and because we're highly regulated, we do play large role as the government affairs side in ensuring people are educated about us. >> suarez: if a final bill is passed later this year, there's a good chance payday lenders will have a new regulator, one way or another, since the house bill calls for similar measures. >> woodruff: and now, we take a look at the broader bill proposed by democratic senate banking committee chairman chris dodd yesterday.

we spoke with him last night. tonight, we get the views of republican richard shelby of alabama, the ranking member on the banking committee, and he joins us from capitol hill. senator shelby, thank you for being with us. you have said that you and senator dodd are concept ally in agreement on i think 85 to 90% of the bill? do you think you'll eventually be able to sign on completely. >> i hope we will, judy. of course, when i say we're concept ally 85-90%, that doesn't mean that we've agreed on every word or every phrase. it has to be worked out. but we continue to talk. i think from too big to fail to derivatives, even a consumer finance products agency , i don't believe we're that far apart. we've got to tweak a few things. we can do this. i believe if the democrats and senator dodd really want a

bill, we will more than meet them halfway. >> woodruff: what are the main things that are keeping you from agreement right now? >> well, a lot of things are just basically ... have not been worked out like we're still negotiating the language of derivatives. we're still looking at some of the language that's been proposed by senator dodd on "too big to fail" because we want to make sure that nothing is too big to fail in this country. we don't want to go through the horror story that we went through just a year-and-a-half ago. there are other things, but the consumer finance product finance agency, we have talked to democrats, senator dodd, about creating it, housing it, giving it rule-making authority. but we believe that it ought to have some kind of coordination with the safety and soundness regulator because sometimes they could be at cross purposes. but we're all consumers.

we don't want anybody exploited in this country. states regulate a lot of things today. will the federal government regulate them in the future? we're not sure yet. but the main thing is to create a level playing field for all consumers . >> woodruff: let me ask you about that consumer financial protection agency. at you know senator dodd is proposing to put it under the umbrella of the federal reserve bank. you have previously said you had a problem with that. i think that's what you're saying is the case. now you believe it should be regulated by agencies that regulate the banks. but as you know consumer advocates say that's a conflict of interest. for the same agencies that regulate the banks to also be overseeing the interest of consumers just doesn't fly. how do you answer that? >> well, judy, first of all, that's not true. the agency that regulates a bank for safety and soundness,

i believe, should have some input into what a free-standing or a separate entity dealing with consumer issues would have because both of them would have intact on the well being of this bank. i believe that a safety and soundness issue, that is the credit worthiness of this bank, is important to all of us. we've lost several hundred banks. we're probably going to lose... i hope we don't lose any, but 300-400 this year. safety and soundness is important to all consumers. but the other issues are important too. i think you have to have a balance. that is what we're trying to do. >> woodruff: how do you explain the vigorous opposition of these consumer advocates who i think would argue that you're arguing more in favor of the bank. they're arguing for consumers? >> well, i represent no banks. i own no stock in any financial institution. i am not beholden to anybody dealing with this. but i think you have to have a balance between sound banking

regulations and sound banks, banks that will be here for the consumer and what a free- standing or an independent agency would put on them. i think you have to have a balance. that's all we want. i think that's a fair proposition. >> woodruff: let me ask you about the story we just heard reported by ray suarez. that is senator dodd proposes to extend federal scrutiny to these so-called payday lenders, putting them under federal regulation as well as under the scrutiny of some states. where do you come down? >> well, i haven't argued about the scope of the consumer finance protection agency. i think what we need to do is to decide where it's going to be housed. is it going to be at the fed? will it be at the fdic? is it going to be treasury wherever it is. secondly that it should have some kind of coordination with the safety and soundness regulator. that's what's important. >> woodruff: and how does that connect to these payday loans?

>> well, i think it connects to everybody. if you have bad actors and you have people that are being exploited anywhere in america, we should have a level playing field. we shouldn't put up that with that. >> woodruff: federal regulators for the payday lenders? >> if that's part of the scope. if that is what happens at the end of the game, that's the way it will work. >> woodruff: senator, another part of this is this plan would instruct the federal regulators to study and then enforce the so-called volka rule, the proposal by the former chairman of the federal reserve that would put a ban on deposit-taking banks from trading for their own account. what is your view of that? >> well, i like the spirit of the volka rule. i was at the hearing. i have a great respect for dr. volcker. i was the only republican that voted against the repeal of the law on the banking committee. i know a little about it. i've asked the question to banking committee, do the regulators today have the

power to enforce that? in other words, to do anything that they have to do with a bank that will keep it safe and sound? some people believe it is. but if they don't have that power, we ought to give it to them. >> woodruff: where are you right now? >> i just said that. i said if it's deemed that the regulators don't have the power and need the power, we ought to give the regulator every tool in the world to make sure that the banks are safe and sound and are run well, managed well, and are still around. >> woodruff: in general, senator, you know, there's a debate about whether this bill that senator dodd has proposed is too tough or not tough enough on the banks. what do you think at this point? >> well , i think it depends. we can legislate all day. but ultimately it's going to be in the hands of the regulator to regulate the banks. they've got to be diligent. you know, i haven't been a big

fan of the job that the fed did in regulating the holding companies or the fdic or the comptroller of the currency. they all this shortcomings. the question is, as we accentuate that we don't want to go down that road of failure again. we don't want to hit the tax payers again on "too big to fail." the regulators are going to have to step up and do the job. i have never known any financial institution that was well capitalized, well managed, and well regulated that failed, judy. >> woodruff: senator, finally, how urgent is it, do you believe, that congress address this whole question of financial reform? senator dodd, i believe, said today that congress should not be allowed to adjourn this year without dealing with this question. >> well, i hope we can do this. i would like to see us pass a substantive, good deal, far- reaching, to deal with derivatives, too big to fail,

the consumer protection agency and so forth. if we do this together, we can do it. if we fight and leave blood on the floor, it might not happen. but we're close to getting together. i hope we will. >> woodruff: senator richard shelby from the banking committee, thank you very much. >> thank you. >> ifill: again, the major developments of the day: house democratic leaders hunted votes for a health care overhaul, floating a new strategy to bypass a direct vote on the senate bill. many house democrats oppose parts of the measure. and the federal reserve left a key short-term interest rate unchanged. the newshour is always online. hari sreenivasan, in our newsroom, previews what's there. hari. >> sreenivasan: there's more on the health reform push. we talk to politico's white house editor, craig gordon, about possible consequences of the overhaul effort on the midterm elections. and on financial reform, joshua green of "the atlantic" stopped by "the rundown" to discuss his recent profile of timothy geithner and how the treasury chief's views on financial reform have been shaped by his time in washington. and there's a reporter's

notebook from ray suarez on his recent reporting trip to peru. ray looks at the peruvian economy and how it has changed in the last two decades 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. >> woodruff: and i'm judy woodruff. we'll see you online, and again here tomorrow evening. thank you and good night. major funding for the pbs newshour has been 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 in people, in ideas-- seeking, teaching, building. fueling growth around the world

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