captioning sponsored by macneil/lehrer productions >> ifill: good evening. i'm gwen ifill. lawmakers inched closer today toward bipartisan agreement cracking down on wall street. >> brown: and i'm jeffrey brown. on the "newshour" tonight: a senate panel approved a measure regulating the financial tools called derivatives. we get analysis of the bill and what it means for the overhaul effort. >> ifill: then, ray suarez reports from london on the beginning of the end of europe's airport shutdown. >> no one knows how long it is going to take air traffic to return to

normal, and the recriminations have >> brown: we examine the politics, the process and the choices for president obama as he picks a new supreme court justice. >> ifill: kwame holman looks at a new fighter plane under fire far from the frontlines. >> the defense department is embarked on building the most ambitious and complex war plane in u.s. history. the joint strike fighter f-35. but delays and skyrocketing costs have critics saying the program should be shut down. >> brown: and, margaret warner gets an update on general motors as it pays back its government loans. >> ifill: that's all ahead on tonight's "newshour." major funding for the pbs newshour has been provided by:

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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. >> brown: there was movement on the road toward financial regulatory reform today in washington and even some talk of compromise. it came on a day when a key part of the reform package-- regulating derivatives-- advanced in a senate committee. >> i think we are in a good position, i'm very optimistic,

and this is the way that i think legislation should be approached. >> we have to do it now and the time for discussion, the time for consideration privately has passed, and now we have to act. >> brown: that was the tone around the capitol today, as bipartisan efforts appeared to gather momentum on financial reform. just last week, all 41 senate republicans had lined up against the bill. they focused on a provision for a $50 billion dollar fund collected from the banks. it would be used to help dismantle large banks facing failure. republicans charged it would lead to more federal bailouts. democrats disputed that, but white house officials signaled a willingness to work something out. by yesterday, minority leader mitch mcconnell of kentucky was talking up chances for a deal. >> we have an opportunity to do something that was not done in the house of representatives where they produced a bill that had no republican support whatsoever. serious discussions are underway and i think that's a good sign.

>> brown: white house chief of staff rahm emanuel also sounded hopeful on monday, in an interview with p.b.s. charlie rose. >> i think it will be bipartisan, because i think people realize, charlie, that while it's been 14 months, 12 months, and there are still damages from that crisis, that you have a financial system over the last 20 years that raced ahead of where the regulatory system was. >> brown: but the bipartisan road ahead remains uncertain. today, the senate agriculture committee moved to update part of the regulatory system-- imposing curbs on derivatives, but largely on party lines. derivatives are complex financial instruments that allow traders to bet on the direction of prices of stocks and other assets and much else. some derivatives are well-known, like corn futures, and lock in prices for goods that fluctuate in value. more exotic derivatives, including credit default swaps, have been blamed for fueling the

global financial crisis. the senate committee approved strict limits on big banks trading in derivatives. and it required nearly all derivatives contracts to be traded openly on exchanges. the committee's chair, arkansas democrat blanche lincoln, said it would be a "bold change." >> we must bring transparency and accountability to these markets. this is not a partisan issue. i believe every republican and democrat in this body is committed to doing what is right to put our economy back on track. >> brown: the vote was 13 to 8, with one republican-- senator chuck grassley-- joining all 12 democrats. the derivatives measure is expected to be folded in to the broader reform bill. the full senate could begin debate on that measure next week. >> brown: to help us understand more about derivatives and how the bill would change things, we turn to two people who actually understand this world. lynn stout is a corporate and securities law professor at the

university of california at los angeles. she specializes in securities regulation. david skeel is a professor of corporate law at the university of pennsylvania law school. >> brown: lynn stout, i am going to safely assume that most of us don't really get derivatives, so start there. what is the simple definition and what is the problem they've come to raise. >> some particular kinds of of derivatives can be be very complicated for an outsider to understand. i think they make more sense when you boil them down to the fact what derivatives really are are just bets. they're bets between parties over what's goingç to happen in the future. interest rate swaps are bets on what is going to happen to interest rates. if interest rates go up, the party that wins the bet gets money. if they go down, the party at loses the bet makes money. credit default swaps are bets on whether particular bonds, maybe mortgage-backed bonds are going to go up or down in value. because they become more or less risky. if they become more risky, the party that wins the

bet gets money.ç the party that loses the bet has to pay the money. they're really just bets on the future. sometimes betting can be very economically valuable when it is used as a form of hedging against risk. and sometimes be betting is just speculation. and pure speculation can add risk and lead to institutional failures. >> brown: david skeel, did they go from relatively simple hedges to insurance instruments to something more complex,ç something less regulated. something more risky. >> they absolutely did. i believe one of the major reasons for that is that derivatives can be used in many cases to evade regulations. many of the most complex derivatives are used to get around one form of regulation or another. >> brown: so staying with you, when you look at this measure before the senate now, one of the thing, part of this involves limiting what commercial banks can doç

with derivatives. explain what they're trying to do there in limiting that activity, and what are the pros and cons? >> well, that particular piece of the proposed legislation, which is part of senator lincoln's pack package, is designed to prevent banks from participating in the derivatives market. and the idea is to use lynn's expression that a derivative can be a bet. banks are funded by we guarantee the deposits in banks, and there is a real concern that banks not be enabled by our taxpayer guarantees to place bets. so that would be the up side, or the argument for the regulation. the downside in my view is it is not clear how much it is going to do. banks will -- if they can't deal in derivatives in the banking part of the business, they'll move the derivatives to another part of the business. so the downside m- hemain effect of this part

of the package may be simply to add costs to the banks and its derivatives operations. >> brown: lynn stout, how do you see this particular part of the package? >> i think that there is a lot of strong arguments to be made in favor of this part of the package. essentially what the bill says, now that it has come out of the agriculture committee, is that banks have to decide: are they going to be banks or are they going to be bookies. they don't get to be both.ç i think david skeel has described very well why we don't want our banking institutions necessarily gambling on the side. but i think perhaps even the more important part of the legislation -- and this is really an extremely significant development that many people thought might never happen, is that another part of the proposed legislation would require derivatives that were being used for speculation, and not for true hedging, to be traded only on exchanges or clearing houses,ç where they were in effect

subject to adult supervision. >> brown: explain that a little more for us. that goes to what we saw in our clip, senator lincoln referring to the transparency. what is meant by a clearing house, for example? >> clearing house and exchanges are both simply places where derivative dealers have to go and they have to make their derivative contracts public. and the contracts areç inspected by and guaranteed by whoever owns and manages the clearing house or the exchange. so what it essentially does is prevent these private back-room deals where it is not absolutely clear that both parties to the contract would actually be able to pay off their bets, depending on what happens in the future. so we've had clearing houses and exchanges for certain kinds of derivatives for well over 100 years. they've proven themselves very successful at preventing the kinds ofç disasterous collapses like we've seen with

a.i.g., bear stearns, and lehman brothers. by moving the speculative derivative changing back on to the clearing houses and the exchanges, this bill may do more than anything to prevent a repeat of the disasterous institutional failures we've seen in the last few years. >> brown: and yet, david skeel, this is an area where some of the investment houses and banks have fought against as well. what would you add toç the explanation of the meaning of the exchanges and clearing houses and how it would change things? >> i would reinforce some things that lynn said. i think it is useful to extinguish between the exchange component and the clearing house component. the exchange idea is just the idea that derivatives should be bought and sold like shares of stocks are, like general electric, or microsoft stock is. the idea is if you tradeç them on exchanges, there will are more

transparency and nothing will be taking place in the dark. the role of the clearing house is to guarantee those contracts. so that if either party fails to perform, the clearing house will step in. and this will prevent the kinds of huge disasters that we saw in 2008, in particular. so there are two different kinds of reforms, although they're closelyñi connected. the one wall street is really worried about is the requirement that derivatives be traded on exchanges. and the reason they're worried about it is wall street banks make a huge amount of money from making tailor-made derivatives that would not and do not trade on exchanges. so this threatens to take a weigh any big profit center from wall street banks. >> brown: lynn stout, put this in the larger perspective of the larger overall package. we saw the$ movement here. how does the derivative piece of it fit into the larger package, and do you see the pieces -- all of

the pieces starting to come together? >> i think that the derivatives piece is, if not the single most important piece, certainly one of the most important. i think it is really notable how the bill that is coming out of the senate has got real teeth on it. it is a real reform and addresses the root of the problem. some earlier versions of this bill thatç we had seen come out of banking in the senate looked like reforms, but they were riddled with huge exemptions that suggested they would not be very effective. so if this bill can get through, i think that will be an enormous step in the right direction. there are other strategies that can be adopted to try to prevent a repeat of the disasterous last two years,p those are also being pursued. but i would say this isç probably the single most important piece, even if it is perhaps the piece that is the least well-understood by most people.

>> brown: that is probably for sure. david skeel, do you see roadblocks still ahead here? >> i'm greatly encouraged in two respects, first that we're talking about derivatives. they are enormously complicated. people even in washington don't like to talk about them. but as lynn said, they really are the heart of the matter. and the second thing i'm encouraged byç is it looks like there may be a little bit of bipartisan movement. i've thought all along that the politics of financial regulation were really different than the politics of health care. and it is looking that that might prove to be true. >> brown: we'll leave it there and watch. david skeel and lynn stout, thank you very much. >> thank you so much. >> thank you for having us. >> ifill: still to come on the "newshour": air travel on the rebound; the president's supreme court options; the pentagon's costly fighter jet and general motors road to recovery. but first, with the other news of the day. here's hari sreenivasan in our newsroom. >> sreenivasan: wall street had a quiet day, even as the financial reform debate

intensified in washington. the dow jones industrial average gained nearly eight points to close just under 11,125. the nasdaq rose four points to close at 2,504. at least 11 people were missing today after an oil rig explosion last night off louisiana's gulf coast. today, the rig was still burning and tilting about 70 degrees. coast guard helicopters helped rescue some of the 126 people who were on the offshore drilling platform. a search was under way for the others. pope benedict the sixteenth has made his first public mention of the clerical sex abuse scandal. last weekend, he met with eight men in malta who said they'd been abused by priests when they were children. the pontiff referred to that session today, during his weekly public audience in st. peter's square at vatican city. >> ( translated ): after the celebration i decided to meet some people who were victims of abuses by clergy. i share their suffering and i prayed with them with emotion, assuring them of church action. >> sreenivasan: the pope did not elaborate on what action is

being considered. a court martial began today for a u.s. navy seal accused in the beating of an iraqi prisoner. petty officer 1st class julio huertas was the first of three seals to be tried in the case. the iraqi man allegedly organized an attack that killed four american security guards in fallujah in 2004. two of those bodies were burned and hung from a bridge. in afghanistan, president hamid karzai postponed a national peace conference until after his visit to washington next month. a spokesman said karzai wants to firm up support for his overtures to the taliban. also today, nato acknowledged four men killed by its troops monday night were civilians. initially, two were described as "known insurgents." juan antonio samaranch, who ran the international olympic committee for 21 years, has died in spain. the cause was heart failure. samaranch presided over the i.o.c. from 1980 to 2001. it was an era marked by political boycotts and opening the games to professional athletes.

his tenure was tarnished by a corruption scandal over giving the 2002 winter games to salt lake city, utah. juan antonio samaranch was 89 years old. 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 jeff. >> brown: the fallout continues from iceland's volcano, as airlines struggle to get hundreds of thousands of passengers back home. ray suarez, still in london, filed this report. >> reporter: we hadn't seen this since last week. jets criss-crossing the sky over london, and more heading up. every two minutes, a jet aircraft gathered speed and headed into the clear blue over london's heathrow airport, after business losses approaching $2 billion, and countless pounds, dollars, and euros spent by stranded passengers who could finally see the end of their very long, and long-delayed trips home almost. steve cook is trying to get back

to new jersey. + i thought i would be able to come over and check in early. and i thought i would be able to beat some of the rush. and to not have everybody be answer my questions is a little frustrating. >> reporter: on the last leg of their journey, the heathrow express train to central london, laura maaldrink and christine haffsten remembered a long and circuitous route home from italy. >> we went from bolia to milano, and from milano to geneva, and from geneva to paris. and we go tomorrow. and we were lucky enough to finally fly today. >> reporter: maaldrink said the unexpected days off were anything but relaxing. >> arranging travel plans, which change daily.so we were q. >> reporter: like many travelers we spoke to across the week, frank ropic, in southern france for business, found information and help hard to come by. >> until we find out what

is going by internet and communication to your colleagues in the u.k. you get told the next flight is tomorrow, and we don't know whether we'll go or not. so there is no notice. no communication. ç >> reporter: as european airports struggled to reduce the mountainous backlog of passengers and freight, there were unexpected consequences playing out. a nissan factory was idled by a shortage of parts expected by air and wounded american soldiers from iraq and afghanistan had to go all the way back to the u.s. rather than military hospitals in germany. and the questions started. did the air travel ban go too far? did european authorities try hard enough to keep limited service operating as the risks were assessed? willie walsh is the chairman of british airways: >> and i can assure everybody that the decisions that have been taken have been taken with safety in mind, and i have no hesitation in saying that we will fly, but we will only fly where we believe it is safe to

do so. >> reporter: running to keep his job as british prime minister, gordon brown defended the caution, and the ban. >> we never would have been forgiven if we'd let planes fly and there was a real danger to people's lives. we've had discussions with the manufacturers of planes. we've had discussions with the air safety authorities and we've had to make sure it was safe to fly in particular zones with a low level of ash, but not a complete absence of ash. >> reporter: by the afternoon, the equivalent of the secretary of transportation in the british cabinet, lord adonis, conceded british and european authorities may have been too cautious, in the shutdown, and need better information about the risks involved in flying near, under, and over volcanic plumes. the director general of the airlines organization, the international air travel association, giovanni bisignani, says the fault lies with the way the european union makes decisions. >> reopening the airspace of the u.k. was a big step forward but

the situation continues to be an embarrassment to europe. why? because they were late in taking decisions. why? because after 20 years we are still discussing over a single european sky. europe has to take the leadership in speeding up certain kinds of processes. >> reporter: bisignani called the losses devastating, and said european governments should help airlines bear the costs. for now, the big carriers in and out of europe are predicting days of delays until they're back on schedule, and passengers are finally where they need to be. that may involve extra flights, and loosening of noise-related restrictions on nighttime flights. this is piccadilly circus in central london. there's an old saying, that if you stand here long enough, everyone in the world will walk by once.

after the skies over britain were once again opened to the world that has at least a better shot at being true. >> ifill: now, president obama launches his search for a new supreme court justice. >> i think we've got some terrific potential candidates. >> ifill: the president offered that optimistic assessment as he gathered senate leaders to discuss his next supreme court nomination. >> i'm confident that we can come up with a nominee who will gain the confidence of the senate and the confidence of the country, and the confidence of individuals who look to the court to provide evenhanded justice to all americans. >> ifill: court watchers say the president's short list has now grown to ten potential nominees. among them: current u.s. solicitor general and former harvard law school dean elena kagan. three federal appeals court judges: diane wood, merrick garland and sidney thomas.

and former georgia state supreme court chief justice leah ward sears. judiciary committee chairman patrick leahy said he hoped the new justice would tip the balance away from narrowly divided opinions. >> we have right now a very, very activists, conservative activist supreme court. the number of decisions-- whether it's ledbetter or citizens united-- decided by a one vote margin, i think this does not reflect the american people, but reflects more of a partisan agenda. i would hope the president's nominee can get us back away from that and reflect the american people. >> ifill: republicans released a statement pledging to review any nominee's record "diligently and respectfully." but the president indicated he is hoping to replicate the relatively smooth process that confirmed his last pick, justice sonia sotomayor. >> i think it's very important, particularly given the important

cases that may be coming before the supreme court, that we get this process wrapped up so that a new justice can be seated and staffed and can work effectively with his or her colleagues in time for the fall session. >> ifill: the president's choice could be announced next month. the court's fall term begins in october. now, for a broader look at the president's choices and the face of the court to come, we are joined by emma coleman jordan, professor of law at georgetown university law center. she has helped the american bar association evaluate the records of past supreme court nominees. tom goldstein, an attorney, supreme court analyst and founder of scotusblog.com. and eugene volokh, professor of constitutional law at ucla law school, and publisher of the conservative blog "the volokh conspiracy." >> ifill: welcome to you all. emma jordan. the president used the word "confident" like four times. he is confident in the

supreme court con fint in the and senate. does he have reason to be? >> i think he has to be. justice soniaç sotomayor's nomination went relatively smoothly with no real surprises or areas of distraction. and, more importantly, he has a health care law. so the supreme court nomination is not in the same category of politics as the health care law is. but, certainly that success is something that would be in his mind as he goes forward to count the votes. and the issue will be counting the votes for the democrats. can he haveswhom all of the dems in the senate are going to be happy. >> ifill: gene volokh, let's step back and talk about the issues on the table here. we know this is a different circumstances than when justice stevens was confirmed, and even different from when

justice sonia sotomayor was confirmed. how is that? >> it is really about the politics. the issue here is the politics. here you have a republican party which thinks it has a good shot at making very substantial gains in november, possibly even flipping one or both chambers. you've got an administration that certainly doesn't want that to happen. now given the republicans past statements that they're not going to endorse filibusters, or that they oppose filibusters of supreme court nominees -- these are statements during the bush administration -- i don't think the republicans are going to filibuster. i think it is pretty clear that the president is goçnpthat he needs to get to get the person confirmed. the real question is: century what cost in november. to what extent will the republicans portray this as emblematic as the liberal democrats being out of touch with the

culture on same-sex marriage, such as under god and the pledge of allegiance. i don't think they are things that will defeat the nomination this way, but i think they're goingç to be trying to make the argument, as makes perfect sense for them to do so, the argument that the administration is appointing somebody who is out of step with the american public. and that's what i think the administration is going to be thinking about when it is deciding whom to nominate. they want somebody to whom those arguments will have the least possible traction. all of the options are very competent options, and they're probably going to be quite liberal. the real question is: who could be sold at minimum political costsw november. >> ifill: tom goldstein, the president was asked about abortion, and he says he will not apply litmus tests. and it is written in the books that every president has to say a some process. is it hot button culture issues or are there other issues that will influence the president's speeches.

>> i think we have to separate the question of the substance of the issues. the president as a constitutional lawg# scholar and accomplished lawyer, who knows a ton about these issues, cares a lot about the substance. as to the politics, it is certainly the case the administration won't do something that would generate a thermo nuclear war in the senate and make it easier for the republicans to make real progress in the mid-term elections. but i think they did that by not putting the most liberal candidates on the table. pam karlan, very respected on the left, isn't being talked about in the short have i think they believe will not generate enormous controversy and would not generate significant political hay for the republicans in the mid-term election. >> ifill: one of the issues that keeps coming back in general in washington is this issue of executive power. and the court will have a lot to say about that.

how much could that influence the way the president decides, who he decides to pick on this. issues that will come before this court that executive power certainly is an important one. and all of the short list nominees, the people who are being talked about on that short list, are people who have a track record in various previous roles on executive power. so he'll be able to choose, if that is a high priority. but i would like to say, there are some sleeper issues, and some issues that ought to be considered, and i'm certain that the president andç his advisors will be looking at those as well. and that is, every nominee presents the president with a chance to launch a narrative. a narrative that suits the times of the country. so we remember the story of justice thomas rising from pinpoint. we know about rut ruth bader ginsburg.

>> ifill: and justice sonia sotomayor. >> sonia sotomayor. economic pain, and the country is going through a period of dislocation because of the activities of wall street. there is likely to be cases that come before the court that are equal -- equally important to every person in the country that has to do with questions of economic responsibility and accountability. a decision announced just today written by justice sotomayor is a decision in which theç countrywide mortgage firm was collecting a debt, and they vial lateed the -- violated a provision of the debt collection act. the question there is whether or not the violation of that statute should have a mistake of law exception. without getting into more detail about that, that is a very important case because foreclosures and the whole process of foreclosures are economic

problems that are affecting áe country and to the extent he has a chance to choose among a very qualified group of candidates for this nomination, he can choose personal narrative or their experience or legal experience. >> ifill: or he can choose between confirmability or vulnerability. which side do you think he ends up in his particular climate? >> well, i think thatwhoever ho nominate, with perhaps very, very few exceptions, is going to be confirmable. the real question is political vulnerability, to what extent this will undermine the democratic party for november. whoever he appoints could be on the court for 20 years. some of the candidates can be on the court for 30 years or more. and the question is: to what extent will he say i want somebody who is going

to have the liberal -- probably igç his case quite liable -- legacy i would myself prefer for a very long time. or do i appoint somebody who is going to come through and help the democratic party, or at least not hurt them much in november. i think that's the tradeoff. it is ultimately a political decision as, in fact, appointments to the court generally are. >> ifill: tom goldstein, you wrote an article in february in which you predicted thatç justice stevens would retire. you predicted he would be replaced by elena kagan, who is now at the top of everyone's list. and you predicted she would be seated on this court in october. want to take any of that back? >> no, thank you. i think that is probably where the betting money ought to lie. we're talking about somebody -- >> ifill: why? >> well, to ug eugene's point, she doesn't have a

track record thatagainst her. she was on the harvard law school faculty, building up that side of the faculty. she has experience in building bridges between the left and the right. she is really respected. somebody who is the dean of the harvard law school. what none of the candidates had -- because i thought the professor's point was excellent -- what none of the candidates have is that deep personal history, that sonia sotomayor had and justice thomas did. so the president doesn't yet, on his list, have soinarrative of the concern about the court being too conservative, being out of touch with individuals. the citizens united case being too conservative and too pro corporation to the eventual nominee. elena kagan doesn't solve that problem, but she has a lot of other characteristics in her favor. >> ifill: who else, on or off the list do you think could rise to satisfy that narrative question? >> well, i think the question has the opportunity andç will

probably focus on the dynamics of persuasion. who, among the potential nominees, is experienced in building bridges and persuading those who have a different point of view? remember, the next justice is going to have the opportunity to persuade a swing justice, justice kennedy. and that is going to require both cognitive intellectual ability:interpersoa real deep mastery in history and the supreme court jurisprudence. so the dynamics of persuasion will be very important. i think that candidates that lack one element, perhaps they don't have the powerful narrative, but if they've got that ability, proven track record to persuade, i think that will be a strong point. >> ifill: i have a short moment, eugene for one final question. the litmusç tests, are they dead?

>> they're alive and constant. they apply them because views and particular issues matter a great deal to those people who have a voice in it. there is a lot of denial of it going on, but the fact is that a justice who has views on certain issues that are unacceptable -- excuse me, a potential justice -- will not get nominated. >> ifill: eugene,ç emma, and tom, thank you all very. >> thank you. >> thank you. >> thank you. >> brown: >> brown: next: to the saga of a u.s. military plane that was designed to do "more for less," but is now hitting headwinds. congressional correspondent kwame holman has the story. >> reporter: it may look like any other fighter jet at the river naval air station, but the joint strike fighter taking shape here is the pentagon's cost least andç

some say riskiest bet ever. it has come under fire from both republicans and democrats in congress. >> i think the american people, if they knew about this, would be shocked about how long it has taken to do this plane and get it into the air. >> somebody needs to be healed accountable. >> reporter: a major selling point for the f-35 is it would save money. the pentagon plans to produce one aircraft that could be used by three branches of the military, as well as by america'sw3 allies, instead of developing different planes for each branch of service. it would be stealthy and could perform a variety of missions, such as bombing heavily defended targets and supporting troops on the ground. it would take off and land in three different ways. the marine corps version would fly off short runways and land vertically. the navy's would fly off aircraft carriers likeç their current fa-18. and the air force could

take off from traditional runways like liar f-18. >> there is lots of second order and third order of designing a common family of airplanes. >> reporter: tom is an executive at lockheed martin. he says by sharing common parts and production, the cost to build and operate the airplane could be kept low. >> the whole purpose behind f-35 was toç integrate those requirements and develop a family and lower the total cost of recapitalizing the individual services. >> reporter: the military's current plan is to buy 2443 of the lightning tube for an estimated $333 billion, making it the pentagon's most expensive weapons program. by some accounts, it could end up replacing 95% of the u.s. combat air fleet. much of it now aging and needing to be replaced.ç plans for eight allied nations to buy more than 700 planes also were

tauted as a way to share the costs. its supporters claimed the f-35 was positioned to become the future of manned combat aviation. >> the production costs have skyrocketed from $59 million to as much as $112 million per plane. a 60% to 90% increase in the last eight years. research and development costs also have ballooned 40%.ç the pentagon blames the escalation on changes to the f-35's design and production schedule. recently at a hearing of the senate armed services committee, missouri democrat claire mccatkill vented her frustration. >> i need somebody to do an estimate on the problems associated with this program. i need to know who's fault it is. this is too big to fail, this program. and we're going to push money across the table. we're going to pushç back timelines, we're going to push money across the table. and i need to figure out -- i think we all need

to figure out who's fault is it? >> reporter: bill suiteman, a journalist and author says the pentagon and defense contractors underestimated the challenge of building such a complicated aircraft. >> when the fighter program got started, the people who were running the program believed very possible to make three versions of this aircraft that would be simply different in the way they took off and landed. it looks like the aircraft is rather more difficult to manufacture than they hoped. >> reporter: the version of the f-35 for the marine corps is particularly complex and problematic to build, and that leads to cascading difficulties for the entire program. pie>> the most difficultç design by far is the marine corps aircraft. it has a completely separate compulsion system

that actually supports the aircraft where it is taking off and landing. >> reporter: lockheed admits there have been setbacks, but the idea of building one plane with three variances is sound. he says it will be equipped with the latest electronics to fly over highly defended areas and will be easier to operate and maintain than txeç aircraft it is replacing. >> yes, we've had cost growths and schedule growths over time. but there is a long-term proposition that is absolutely unique, not been attempted before, and it carries through in many areas, rather than just the cost and acquisition. >> reporter: but winslow wheeler disagrees. >> the crawft is out of control, but they're pretending it supportable. >> reporter: wheeler focused onç defense issues. he says the joint strike fighter was doomed from the very beginning, that it will never be affordable and should be cancelled. >> we're only part way

through this thing. we have another five years of testing and development to go. we have only begun to learn about the problems. and so by the time this thing is done, it will be a recordbreaker in terms of nightmares in costs, scheduling, and performance. >> reporter:ç bill sweetman says the skyrocketing cost overruns jeopardize the whole foundation for the f-35. >> the idea to buy one airplane and a lot of them, you bring down the unit cost. if they can't do that, then the whole economic basis for this program is in peril. >> reporter: the pentagon recognized last fall that flight testing, manufacturing problems, and cost overruns were getting more serious. inç february, defense secretary robert gates fired the f-35's program manager. >> the progress and performance of the f-35 over the past two years

has not been what it should. >> reporter: in march, the pentagon increased the budget and extended the schedule for the f-35, for the fourth time since the program began. billions more will go to improved softe software and to flight test more plans and to target the number of f-35s to be delivered in the next five years will be reduced by a quarter. testifying before the house appropriations subcommittee, defense secretary gates says the cost estimates for the f-35 long have been too optmistic. >> part of the program we have faced in this program is overly rosy forecast. >> reporter: officials say a new independent team put in place next year now is providing more realistic estimates.ç >> your band of uncertainty decreases over time as you mature the weapons system. >> reporter: the acting program officer of the f-35 says the new cost

estimates are likely to be more accurate than previous ones. >> i would say that 10 years ago we had a pretty wide band of uncertainty, cost, schedule, performance. we have a much narrower band of uncertainty now. i can say going forward, i can look you in the eye and say let's talk a year from now and let me showç you what we delivered this year. >> reporter: the g.a.o.says its hot exhaust may damage runways and flight decks on ships. and heat buildup inside the aircraft may impede its ability to operate in hot environments. such issues are to be fixed while new planes are being built. hundreds of f-35s are to be built by the end of 2015. bill sweetman says that could ç lead to more costs and delays. >> the early aircraft have problems in them that you haven't found yet because you haven't done the testing yet. it goes back essentially into another

factory and gets rebuilt at a later standard. and that is economically a nightmare. it's very expensive. it's not the way you want to do things. >> reporter: critic winslowinslow wheeler's prediction@5m that it will never be able to fulfill its mission because it is too fast, thin-skinned, and lightly armed to support troops on the ground. >> the history of multi-roll fighters even for single services is terrible. they do nothing well. in effect, we'll be giving our combat forces a second-rate combat tool. they'll learn to live with it. some of them will learn to love it. some of themç won't. if we're lucky, we'll never face a really competent air force in the lifetime of this thing. >> reporter: but the public confidence about the f-35 program expressed by the pentagon and

lockheed martin has never been higher. >> this is not an airplane that we're going to be flying today in combat. it is an airplane that our children and grandchildren will be flying in combat. so we're designing and building an airplane for the future, not for today. >> do you want more turnaround here. >> reporter: muchç more on who is right about the nation's most expensive new weapon will be known in the next few months. >> ifill: finally tonight, the road back for general motors. margaret warner has a look. >> warner: last year, in the wake of the financial crisis, the u.s. government poured $52 billion into g.m. to help the company survive and then emerge from bankruptcy. today, g.m. finished paying back the loan portion of that money-- $6.7 billion. the loan repayment came five years ahead of schedule. c.e.o. ed whitacre announced the news today at an assembly plant in kansas city, kansas.

>> when g.m. accepted tax payer loans last year, we pledged to use those funds to restructure this company to reinvest in people and plants, to create jobs and bring outstanding new vehicles to market. g.m.'s ability to pay back loans ahead of schedule is a sign our plan is working. >> warner: the federal government still owns 61% of g.m. stock, which was issued in return for the other $55 billion of last year's bailout. for more on all this, we are joined by david shepardson of "the detroit news." welcome back, david. >> thanks, margaret. >> why isñi g.m. so eager and able to repay at least the loan portion right now? >> i think it is too things: one, it is the perception gap. they really want to move beyond the bailout. this was deeply unpopular, bailouts in general, and the auto bailout is really unpopular.

and they lost some sales to ford motor company that didn't accept loans. and this is about shifting the tenure, and things had gone better during the bankruptcy restructuring. and they don't need thisí'3 $6.7 billion for a rainy day between now and june 30th. >> so what does this say about the fundamental health of general motors? >> they're in much better shape than they've been in decades, really. during bankruptcy, they were able to wipe out a lot of debt. they shrunk to a smaller size to make a profit. they added more incentives, and did more fleet sales. as a result, they got to a point where they weren't making any money. >> andu! they shed some important costs associated with their labor force and retiree force. >> they wiped out all of the retiree benefits, and made a one-time payment.

>> we heard ed whitaker say we promise to use this money to fundamentally restructure. how much of their improved health is due to the cost-cutting you described and theu! product line cutting, how much to the restructuring of the company? >> i think it is a bit of both. ed whitaker took over in december. he basically retooled the entire management team. they brought in a new c.f.o. from microsoft. but we're not seeing any new products from this new management team. but what they are doing is focusing on the vehicles. getting costumers to go back to the showrooms and look at g.m. vehicles. because too many=) americans don't even go to a g.m. show when they're thinking of buying a car. >> how are they doing that? >> they got rid of four brands. they dropped hummer, saab and saturn, and they're putting more marketing resources into these four

brands, and they put more money into research and development and interiors, to basically compete better against the foreign imports. >> and they have this new volt, chevy volt coming out?ç >> that's the halo car. they're only going to sell 8,000 or 11,000 the first year. they want people to come in and look at the vehicle that will get 40 miles in electric power. and another one of the high mileage traditional cars. like the toyota prius. the prius gets a lot of people to go into the toyota showrooms, but a lot by the camry or corolla. >> how much did he change the management.ç when he came in september, he ousted a company insider. and whitaker doesn't come from autos. he comes from telecom. so did he really change the culture? did he live up to his promise we want to eliminate the bureaucrats

see -- burke se bureaucracy of s company. >> exactly. they didn't interact a lot with the rank-and-file workers. and whitakerç goes down to the cafeteria, the company headquarters, and mixes with average workers. he is not a car guy. he did very well at at&t. he understands the numbers. he gives executives assignments and says get it done or i'll move you out. he is not going to put up with failure. >> how much do you think the news today reflects, again, g.m., versus improved fortunes forç the u.s. auto industry as a whole? >> the good news is people are buying cars. the auto sales rate is going up substantially. two million units a year over last year. as a result, chrysler, which also got a government bailout reported some good news they had a first quarter

operating profit of nearly $200 million. i think it also reflects across the board that people are feeling better about buying vehicles and about, you know, the economy as añi whole. >> and there was a new poll today showing that americans have a more favorable view of american cars again? >> isn't that surprising. a lot of that is driven by toyota's problems with sudden acceleration and their p.r. disaster. but i think it reflects on giving american auto companies a chance. >> when do you think g.m. will be able to sell their stock publicly so the government can unload our huge share? >>ç it will take the government probably two years to sell all of that stock in separate sales. we're going to be part of g.m. as taxpayers for a while to come. >> david shepardson, thanks so much. >> thanks. >> brown: again, the other major developments of the day: a senate committee voted to regulate financial derivatives. there was also talk of possible compromise on broader reform.

and hundreds more flights took to the air over europe, but airline losses from volcanic ash topped $2 billion. a correction: in our remembrance of civil rights icon dorothy height last night, we said she received the congressional medal of honor. in fact, it was the congressional gold medal. we regret the error. >> brown: the "newshour" is always online. hari sreenivasan, in our newsroom, previews what's there. hari? >> sreenivasan: a follow up to last night's story on homeowners walking away from their mortgages. watch a web-only video about negotiating with lenders. that's on paul solman's "making sense" page. ray posted another blog and a video update from london. we keep up with jim lehrer on the road talking about his new novel. his latest dispatch comes from new york city. plus on "art beat," jeff talks to the executive director of the newly opened tribeca film festival about the changing business of movie-making. all that and more is on our web site, newshour.pbs.org. jeff? >> brown: and that's the "newshour" for tonight. i'm jeffrey brown. >> ifill: and i'm gwen ifill. we'll see you on-line, and again

here tomorrow evening when we'll have an interview with white house economic adviser larry summers. thank you and good night. major funding for the pbs newshour has been provided by: monsanto. producing more. conserving more. improving farmers' lives. that's sustainable agriculture. more at producemoreconservemore.com.

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