captioning sponsored by macneil/lehrer productions >> woodruff: good evening, i'm judy woodruff. president obama met with community bankers today. >> brown: and i'm jeffrey brown. on the newshour tonight: the president called for increased lending to small businesses, and sound financial regulation. >> woodruff: we'll examine the troubles facing small bankers across the country. >> brown: then, big bill, big money: the lobbying behind the health care reform effort. >> woodruff: an encore look at another of john merrow's reports chronicling the challenges facing the public schools in the nation's capital.

tonight, the plans to close schools and fire office workers. >> what we have here is a takeover. it is not reform. it is dictatorship. >> that's right. >> brown: the threat of cyber crime, and what can be done to defend against it. >> woodruff: and the story of picture perfect gifts for military families this holiday season. >> this is a minor thing i'm doing for these people who are doing a huge amount for us. >> brown: that's all ahead, on tonight's pbs newshour. major funding for the pbs newshour is provided by: >> 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.

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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. >> woodruff: small banks took their turn in the presidential spotlight today. president obama invited representatives of a dozen institutions to the white house to hear their concerns and to make a new appeal. the president sounded a familiar message but with a friendlier tone than he had for big banks last week. he told a clutch of community bankers, more lending is the key to recovery. >> there remains enormous opportunities as we come out of this recession for businesses to start growing again and to start hiring again. and everything that we're going to be doing here in the white

house over the next several months is going to be geared towards catalyzing and spurring additional lending, particularly to small businesses, because we feel very optimistic that the worst is behind us and that now is the time for us to seize opportunities. >> woodruff: the nation's 8,000 small banks make more than half of all small business loans under $100,000. but they face precarious times. some 140 have been forced to close this year, the most since 1992. and the federal reserve reports their total loans are down 8% and likely to continue sliding next year. the president made clear again today he thinks most of the blame for all of this with big banks. >> i think it's fair to say that most of these community banks were not engaged in some of the hugely risky activities that helped to precipitate the financial crisis.

>> woodruff: to ease that crisis, the administration plans to pump $30 billion into a new small business lending program. and the fed has tried to help by holding interest rates at practically zero. don gieogio at united northern mortgage bankers in levittown, new york, says business would be even worse without the intervention. >> we are now able to lend because the rates are low so it is helping to make up for all the other people that we cant lend to because they have to repair their credit. so those low rates are helping to keep us open. >> woodruff: in brighton, colorado, donna petrocco's family has been in banking for 40 years. and like many in her business, she argues the real problem is red tape. >> things have changed, the economic conditions have changed, regulatory burden has changed, requirements for reporting have made banking a whole lot more difficult than it used to be. >> woodruff: petrocco says the president is urging banks to lend more, but regulators are holding them back from finding

new customers. >> i can't loan to them because field examiners, our local government, has said i can't make them loans. >> reporter: what do they tell you why you cant make those loans? >> because i have too much real estate secured loans. i have too much in land development and construction loans. >> woodruff: at today's meeting, mr.obama acknowledged some regulations may indeed be getting in the way. >> we are looking to see if there are possibilities to cut some of the red tape. we don't have direct influence over our independent regulators. but we think that the more that we can highlight that in some ways, the pendulum may have swung too far in the direction of not lending after a decade in which it had gone way too far in the direction of getting money out the door, no matter the risk that if we can get that balance right, that there are businesses and communities out there that are ready to grow again.

>> woodruff: small banks hope the president's push to overhaul the financial regulatory system will help. that's in sharp contrast to larger banks, which remain strongly opposed to reform now moving through congress. for more on the meeting and the state of community banks we turn to: matthew gambs, he is chief executive officer of diamond bancorp in shaumburg, illinois and attended the white house meeting today; and karen shaw petrou, managing partner of the consulting firm federal financial analytics, which advises the financial service industry. good to have both of you with us. we appreciate it. matthew gambs, as we said, you were in that meeting today. the president went in or what he said to the cameras was that this was all about getting small banks to loan more to businesses that need it. did he make the case? >> he did. he went around the room. it was a very... a conversation more than a meeting. he went around and asked every person, the 12 from around the country. what i heard was everybody has

a little bit different circumstance. some places have a lot morlon demand than others but there wasn't anybody who was saying they were absent of a willingness to try. i thought your piece said it really well. community bankers, the banks under a billion dollar in size this is what we do. >> woodruff: so when the president says banks your size need to lend more, that the money is not enough... not enough of that money is getting out there, is he right about that? >> he is. i would say in my case in northern illinois, we increased our commercial loans by 55% this year, to $92 million. it's never been a better time to do some of that for some companies but there are challenges that are on community banks to do this. we are small businesses. we don't have large staffs. if we are spending a lot of our time dealing with other issues, we can't go out and find new businesses to lend money to. >> woodruff: karen shaw petrou, how much demand is there for loans right now? >> there's less demand than there was because the economy... when you're in a recession,

people are hunkering down and not expanding. but that isn't to say there isn't demand and small business lending in particular would help to restart some segments of the economy if there were more credit available than there is right now. >> woodruff: how much more room is there for the small banks like mr. gambs' bank to do more? >> it's a balancing act because as one of the... the bankers in the piece pointed out, there are problems in the small bank sector particularly in commercial real estate. and the problem often in small banks is that they have all their eggs in one or maybe two baskets. in one of them is fragile, the bank can be fragile too. and we learn the hard way in the s & l crisis that when banks are trouble you need to be really careful and not let them get in any deeper so it's a tricky balance. >> woodruff: mr. gambs, how much... why has... why have

small banks gotten so much into commercial real estate because we read that is a big area. the shoe is left still to drop in that area. >> when you think about it, it makes sense, right? i live in chicago which i have the luxury of being a diverse economy. we have manufacturing, most of what i do is in cni lending, manufacturing, the people own the business. >> woodruff: i'm sorry. cni. >> commercial and industrial. lines of credit, equipment. when you think of people who make stuff. i say if you could punch holes, bend metal we loan money to you. now that's expanded to people who design clothes or people who bake cakes. entrepreneurs have a wonderful spirit about them and they fill really well into community banks but where i grew up in western colorado predominantly you did two things. you built homes or you lent money to restaurants and bars. so, you know, if that's what you do in your town, that's what you do. i think you hear from bankers who said that's what the woman in brighton, colorado, if you're the front range of colorado it's not surprising

to hear that. it's also economies of scale. if you only have.... >> woodruff: is that the balance that karen petrou was just describing? >> i think as you grow your institution if that was the only thing that was going on in your economy, your economy would do that. no different than if you were a banker outside detroit michigan not surprising that you're probably concentrating on people who build things in the car industry. >> woodruff: karen petrou, if that's what's going on, if you do have clearly some banks doing well but others in hot water, what is the remedy here? the white house is saying, lend more. we'd like to see the regulatory agencies lean on you a little less. >> it's a balancing act, as i said. it's important to remember that banking isn't like any other business because we back it with the fdic and with other supports through the federal reserve. so when banks take risks we as tax payers take risks along with the rest of the economy. and the president, i think, recognizes

that to encourage more lending needs to be very carefully done so that banks don't go out too far and expose themselves to losses which they can't absorb. >> woodruff: is that something that a bank like yours is able to do? >> i think that never before, you know, i think you've found in the last two years who is good at this and who isn't. you know, it is a risk business. i mean that's why we charge interest. that is the element to it. but when you have never had a situation where so many people are failing at once and if there is not a place for these loans to go, i mean you're caught in a situation now where you've identified the problem but there's not a remedy to that problem. so now that's where we're kind of stuck. given those choices i think what the president is asking us to do is to accomplish, i mean, he said it in the top of the piece of his statement. never has there ever been a better opportunity to do this. as a community banker i look at the landscape now and very excited about the opportunity. >> woodruff: if that's the case, karen petrou, what is to

stop these bankers from doing exactly what the president is asking? >> where there's opportunity they should go for it. i think the community banking franchise is a terrific one. you know your community. nobody knows it better. you can do things that the big banks can't but you have to do it carefully. small banks need risk management. some don't have it. they need internal controls. some don't have it. they need discipline. some don't have it. and that's where i think we have to be careful. the economy is not out of the woods yet. taking risks right now is dangerous. >> woodruff: when the president said today that the regulatory pendulum may have swung too far, we heard him say in the direction of not lending, how can the white house persuade the agents, the regulatory agencies to pull back? they don't have direct oversight over these agencies. >> that's a good thing. we don't want politicians telling regulators whom to favor when. this should be a disciplined

decision based on real risk not short-term goals. i know their policy objectives here. more lending is a very important one but we need to be really really careful. >> woodruff: what do you look for, matthew gambs, as somebody who is out there on the front lines, what do you look for from this administration and from the regulatory agencies. >> consistency. you hear this a lot. you fear that your regulators are saying one thing and you hear the president of the united states say another. you know, we recognize or i recognize that i'm in a regulated business. i recognize the fact that there's a responsibility that i have to the communities that we serve. but we are a for-profit institution at the end of the day. i mean, we have a responsibility to our shareholders to give them a return. if the pendulum that he was talking about swings so dramatically to a point that small businesses can't afford this, the risk management , the tools that you would have to do just to understand it. that's what we talked a lot about today. be consistent not asking for

something special or to be treated any different but recognize that our challenges might be a little different than citibanks or chase's. given the right opportunity we can probably get the job done faster than anyone else in the marketplace today. >> woodruff: how realistic is that, karen petrou? >> i think it is realistic for some institutions. matt's is a great one. there are many others out there but we do have some very, very weak community banks west maybe a thousand of them. we have a lot of troubled banks out there. those are the banks we need to watch with care and not encourage them to go out too far too fast. or that the fdic which is already in tough condition will have even more losses. none of can afford that. >> woodruff: a word of warning. karen shaw petrou, good to see you and matthew gambs, we appreciate you joining us. thank you both. >> brown: now, for the other news of the day, here's hari sreenivasan in our newsroom. hari.

>> sreenivasan: the end appeared in sight today for the us senate after 25 days of debating health care reform. newshour health correspondent betty ann bowser reports. >> reporter: it was the news debate-weary senators had been waiting to hear for weeks. majority leader harry reid announced late today, the final vote on the democrats' health care reform bill is set for 8:00 am on christmas eve. >> the yays and nays are mandatory under the rule. the clerk will call the roll. >> reporter: the word came hours after democrats prevailed again on 3 more test votes by a 60 to 39 margin on each one. following those votes reid addressed the rancor that had grown as debate moved closer to christmas, urging both sides of the aisle to "try and get along". >> mr. president, i said after the senate opened today, and i'll say it again, because of the long hours, there is a lot of tension in the senate and feelings are high.

and, that's fine. everybody has strong feelings about what we've done and what we have left to do. but, i would hope that everyone would go back to their gentlemanly ways. >> reporter: republicans had used every procedural maneuver in their play book to slow the bill down, at one point pushing final action to christmas eve night. they relented today to accelerate the schedule, but they kept up their criticism of the bill itself. south dakota senator john thune. >> this is not over yet. they may have 60 votes today, but it's a long ways from the finish line. and the american people are going to have the opportunity to weigh in when every one of our senators goes home over the holidays and hears directly from them. >> reporter: at the white house this afternoon, president obama said he's delaying his planned holiday in hawaii, as he awaits senate action.

>> i will not leave until my friends in the senate have completed their work. my attitude is if they're making these sacrifices to provide health care to all americans, the least i can do is provide encouragement and last minute help in the meantime, democrats >> reporter: in the meantime, democrats defended the dealmaking they had to use to coral the 60 votes they needed, for passage, the chairman of the health committee iowa senator tom harkin said: "the principle of this bill overrides everything." >> sreenivasan: tomorrow night on the newshour jim lehrer will have an interview. republicans have picked up another vote in the u.s. house. freshman democrat parker griffith of alabama announced today he is switching sides. he opposed the economic stimulus package and health care legislation, and had one of the most conservative voting records of any house democrat. democrats still control the

house by a substantial margin. in economic news, re-sales of existing homes soared in november to the highest level in nearly three years. the national association of realtors said it was due to low mortgage interest rates and a federal tax credit. the housing data helped wall street rally. the dow jones industrial average gained more than 50 points to close near 10,465. the nasdaq rose 15 points to close at 2,252. negotiations intensified today for a prisoner swap between israel and hamas. the islamic militant group that rules gaza has offered to release israeli army sergeant gilad shalit. he was captured more than three years ago. in turn, israel would free 1,000 palestinian prisoners. but hamas complained the israelis were dragging their feet. >> this deal has various aspects and the resistance is working on them but i can tell you that the ball is in the israelis' court because of their stubbornness and not accepting the conditions of

our brothers in the resistance. >> sreenivasan: offers and counter-offers went back and forth through german mediators. and israeli defense minister ehud barak said getting shalit back was a "top priority". >> the israeli government and certainly we who sent the chief of staff and i view it as the utmost ethical and command obligation to make any reasonable and possible move in order to bring gilad home not at any price but any possible and reasonable move to bring him home. >> sreenivasan: wire service accounts said israel has balked at releasing palestinians convicted of killing israelis. a heavy dust storm in the western u.s. today triggered a fiery highway pileup. at least four people died in the burning wreckage on interstate 10 near casa grande, arizona. one of the vehicles was a tanker truck that exploded. several people suffered severe burns. 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 website. but for now, back to jeff.

>> brown: and still to come on the newshour: making tough decisions in the washington, d.c. schools; shoring up computer networks and fighting cyber crime; and sending holiday photos to u.s. troops overseas. that follows a conversation about the big money behind the health care reform legislation. gwen ifill has our look. >> ifill: when the senate votes out its version of health care reform thursday morning, hundreds of millions of dollars will have been spent lobbying for and against it. the center for responsive politics finds the health care sector spent nearly $400 million on the effort during the first nine months of this year. that includes lobbying congress, federal agencies and the white house, high-priced persuasion practiced by hospitals, doctor groups, nursing homes and other players. not included in that figure: another $122 million spent by the insurance industry during the same period. for more on how the money was spent and what results it did or did not produce, we turn to dave levinthal of the center for responsive politics, a not-for-

profit group that tracks money in politics. nice to have you here. some people say unless you're at the table you're on the menu and that is what drives lobbyists to do what they do. how much money was really spent and on what? >> overall, you've had $2.5 billion spent on lobbying in general. and a good portion of that has been spent on health care reform legislation. it's just taken so long for this to develop. months and months and months. you've had so many different entities that have had an interest in it. you talked about health care, but that industry alone is just only one of the several industries that have actually spent money to lobby the federal government. the u.s. chamber of commerce, for example, has spent a ton of money potentially tens of millions of dollars on health care reform. when you add it all up, it could potentially be one of the most if not the most biggest lobbying efforts ever on a single piece of legislation that the united states has ever seen.

>> ifill: how does it compare? there has been big big lobbying efforts in washington on trade and on deficit reduction even. on all kinds of issues. why is health care so much more expensive? >> you could go defense, tort reform and even the health care lobby of 1994. what's happened this time though is you've had a piece of legislation that literally since barack obama has come in office has been in play. the issue certainly has been. when you have so many different entities that are vying for a piece of this pie, are trying to control the trajectory of this legislation, are trying to insert this or take out this and in the process lasts literally a year, that's when you have these dollar figures that are really unprecedented. >> ifill: what do you get for that money? if there's this much money floating around in washington presumably being spent on varying things what do they buy with it? >> access. access is critical in this. if you come to the door of the capitol and you knock on it

and you don't have some money in your hands often times you're not going to get allowed in. if you do come in and you have, for example, working on your behalf former members of congress or former high-ranking congressional staffers that's certainly going to help your case. so many chripts who employ lobbyists are hire being people who have worked in congress before because they know the system. they know the players. and they are intimately familiar with the issues so all three of those things put together are very expensive but they also can definitely pay dividends for the people who are hiring the lobbyists. >> ifill: what is inherently wrong with that? isn't that what we're supposed to have, people who represent us, people who speak for us in washington and places where power is practiced? >> well, if you pull out your copy of the constitution or go online and look it up, it says in the first amendment of the constitution that you have the ability to petition your government for redress of grievances. well, what does that mean?

that means that you have the right to lobby. by that, of course, most people would argue that at least at its face value that there is nothing wrong with lobbying. but what the founding fathers probably didn't anticipate when they were writing the constitution is 3.3 billion dollars spent on lobbying as was the case in 2008. so you have a situation where a lot of people feel like lobbyists and the people who hire lobbyists, really they have taken over the process. if you're sitting at home in nebraska or california or new york or florida and you don't have health insurance, if you don't have two dimes to rub together, then you're going to be in a much more compromised position. you're going to be completely unable when it comes down to it to lobby at the level that , a, pfizer is lobbying at, the chamber of commerce is lobbying at. any of these large companies that are spending millions of dollars to lobby. >> ifill: some voices get heard and some don't. >> the richest voices get heard. the voices that are already

powerful , that are already very strong in this debate and they're becoming ever mower so because of the money they have to put behind their efforts. >> ifill: is there anyway to draw a really clear line between the money that is spent and action that happens actually in the bill, something that lives in this bill that wouldn't otherwise live in it, things that are taken out because lobbying money is spent? >> one issue that's come up just in recent weeks in earnest is the issue of, for example, prescription drugs from foreign nations. and this has become a big issue for a lot of people because they very much would like to be able to buy their drugs from canada or israel or mexico or other countries, european union. and get them at a much reduced rate than they would if they were buying them at the drugstore in the united states. and the pharmaceutical companies came in and said we have grave concerns about the safety of these drugs. that may be a very legitimate concern. the white house said it may be a legitimate concern but a lot of people are thinking, no, this is not what this is about. this is about profit. profit motive.

if people are able to buy drugs at $20 instead of $200, then your large pharmaceutical companies are going to be losing a lot of money as a result of that. >> ifill: let me give you another example. we've been hearing a lot this week about the last-minute deals that were cut on capitol hill and back room dealing to get the 60 votes for this health care reform bill. how do we know or how do you prove that any of that dealing that went on had anything to do with what lobbyists were... the pressure they were exerting and how much of it was just a senator from montana representing the small hospitals in his state because they are his constituents? what's the difference between the small hospital associations speaking to him and getting this or him just representing his constituency? >> ultimately sometimes you don't know what the effects have actually been by the lobbying efforts. that's because the laws as they are on the books right now as they're written by congress itself doesn't allow you to find out, for example, who has actually lobbied whom. if you want to find out, for

example, if a lobbyist for a large health-care firm has gone in and spoken to max baucus or joe lieberman or this senator or that congressman, you're not going to be able to find that out because it's not federally required for the client of the lobbyist to disclose that. >> ifill: does that lack of transparency automatically suggest malfeasance or any bad action? >> not at all. we wouldn't suggest anything of the sort. but what lack of transparency does is it gets people less information to draw conclusions from. unfortunately, we can't see exactly what the interactions have been in their entire tee. as far as we're concerned if there's a lack of transparency or not as much transparency as is possible when these very important public processes are taking place and public decisions are being made, then the public has less information to go on. >> ifill: there's nothing illegal about anything that we're seeing that you've been able to chronicle?

>> it's not an abraham off situation. and congress to its credit in 2007 tightened its rules to make sure there was more transparency and in a lot of people's opinion did a great job making sure that those types of travel and trips that were being taken and lavishing congressmen with this and that would be done. but, yeah, there's still a long way to go a lot of people would feel. >> ifill: the center for responsive politics, dave leaven thaul, thanks for joining us. >> thank you. >> brown: for the record, we invited several health care lobbying groups to join our conversation, but they declined. a spokesman for the pharmaceutical industry told us they opposed re-importation of drugs for a number of reasons including concerns over counterfeiting and tainted products. he said: "there's no way for the f.d.a. to guarantee the safety and efficacy of medicines brought into the u.s. outside of its control." and he added the industry's "profits are necessary to fuel research and development of future medicines." >> woodruff: now the next chapter in our series on changing the public schools of washington dc.

this week, we are revisiting a few reports filed by john merrow, the newshour's special correspondent for education, on the ups and downs of chancellor michelle rhee's efforts over the past three years. tonight, we go back to february 2008 a point at which rhee encountered resistance to some of her plans to move faster. >> what do we want? our voices heard! when do we want it? now! >> reporter: unions in washington dc are upset with schools chancellor michelle rhee. >> what we have here it is not reform, it is dictatorship! >> reporter: parents have their problems with her, too. >> reporter: even grandparents are angry. >> i'm telling you, you are not

interested in real input from parents >> reporter: what goes through your head, when there , people are yellin' at you like that? >> i don't take that personally. those people feel passionately about their schools and about public education, and, frankly, we need more of that. >> reporter: she's likely to get more in the months ahead. michelle rhee came to office in june promising to make washington dc a national model of urban school reform. now, seven months into the job, her controversial plans to close 15% of the city's schools and fire central office workers at will have stirred up a storm of protest. that raises a question: is michelle rhee trying to do too much, too fast? >> the time for dramatic change begins today. >> reporter: this man doesn't think so. washington's mayor, adrian fenty

hired her. >> the person who says that they're going to come in, shake things up, change the system, challenge the status quo, that's exactly what i want, because i don't want to be mayor of the >> reporter: rhee wasted no time getting started. weeks before the first day of school, she discovered thousands of textbooks and supplies - not in classrooms where they belonged, but gathering dust in a warehouse. she got them delivered to schools in time for opening day, and then went after the cause of the problem, the district's central office, long criticized for its inefficiency. rhee asked the city council to pass a law giving her the power to fire central office employees at will. >> for children at the

classroom level. >> reporter: but pushback against rhee's proposal was immediate. at city council hearings, five labor unions spoke against the plan. >> i come before you as an advocate for the more than 4,000 teachers that we have in d.c. public schools. >> reporter: even though teachers would not be affected, teacher union president george >> reporter: even though teachers would not be affected, teacher union president george parker joined in. >> we believe that all workers should have due process rights. i think the chancellor's legislation reaches a little too deep. >> reporter: do you think chancellor rhee is in any way anti-union? >> let me say this. her statements in the past have not been very favorable to unions. >> reporter: rhee's request for the power to fire office employees at will became an ongoing battle, one that the city council wouldn't decide until january. in the meantime, rhee tackled

another complex problem: a deficit of $100 million. >> we spend more per pupil than almost any other urban jurisdiction does. and that's partially because we have a lot of our resources and money going into facilities that are a quarter full or a half full. >> reporter: in the past 10 years, enrollment has dropped by 27% for example, this school was built for 400 students. it has 83. >> so we're essentially running twice as many schools as we ought to be. >> reporter: based on studies of enrollment decline and neighborhood change, rhee's office developed a plan to close 15% of the schools under her control. she wanted to inform council members about her plan before going public, but someone leaked the list, and so the council read about it in the washington post. what did that do to you and to this plan and to your relations with the council?

>> messed everything up. hold on. let me finish. >> reporter: rhee scheduled six weeks of community meetings to give people a chance to voice their opinions of their plan which would require transferring about 5,000 students to different schools. but many felt the meetings were too little too late. >> six weeks, especially when 2 are the christmas vacation, is not enough time for a serious process of getting parental input. ( applause ) its not enough time for council members to deal with this. i mean that's pretty much a gut issue in the community. >> reporter: michael is an education policy analyst. >> my sense is they have to be a little bit more careful in

the future in terms of getting by-ins from some of these interests. feelings are bruised, uh, in the community. i think there's growing, uh, resistance in the city council. >> this is nonsense. >> reporter: the unions saw this as their opportunity. with the city council vote on rhee's legislation to fire central office workers fast approaching, a coalition of d.c. labor unions spent $20,000 on a radio campaign linking that issue to the school closings controversy. >> the motion passed. >> reporter: the city council gave rhee the power to fire central office employees at will. rhee and fenty were not surprised. rhee and fenty were not surprised.

>> obviously people say, "you're moving too fast. you're trying to push too much right now." and those people we respect their opinions tremendously. but when you're out in the neighborhoods of the district of columbia talking to regular people, they're saying, "you know, go faster. fix things. do more. >> reporter: the city council, saying, "slow down." >> mm-hm. >> reporter: the union saying, "hey! slow down." >> mm-hm. >> reporter: certainly have some parents, not all, maybe, but some parents, saying, "slow down." you have mayor adrian fenty saying, "faster. faster." >> hundred miles an hour. that's what he likes to say. >> reporter: and its the speed rhee prefers. >> i'm living what i think education reformers and parents throughout this country have long hoped for, which is, somebody will just come in and do the things that they felt was right, and everything else be damned. >> so far, so good. but there are storm clouds gathering. and they ought to be cognizant of those storm clouds, and not underestimate them.

>> reporter: the storm is brewing. have you done anything that you regret? >> you know, i'm a very unusual person in that, in my entire life, i don't have any regrets. >> reporter: recently, rhee announced that six of the 23 schools she had intended to close would be spared, but she added four new ones to the list. >> woodruff: that report was back in 2008. michelle rhee has closed a total of 25 schools so far and plans to close another next year. but her battles with the union are not resolved yet. and we'll see more about how that played out when john's series continues later this week. >> brown: next, theft and security in cyberspace. a frontpage story in today's "wall street journal" details a couter attack against financial giant, citigroup, that may have resulted in the theft of millions of dollars. the company has denied the

attack took place. but the journal says the fbi is investigating and linking the crime to a russian cyber gang. and in washington today, president obama named a new national cybersecurity coordinator. howard schmidt will oversee the government's efforts to secure its own computers and work with companies in the private sector. we look at all this now, with: and james lewis, director and senior fellow of the "technology and public policy" program... at the "center for strategic and international studies" here in washington. >> brown: let's start with the report of the attack on city group. not a lot of details we don't know here. how common are attacks on financial institutions? >> they're more frequent than you might think. 10 to 12 a year is one number i've heard. about in this range. you know, 10 million, maybe more, maybe a little less. this is not that unusual. >> brown: in this case they're talking about, they're pointing to this russian cyber gang. what or who is that?

>> you know, the russians have some tremendously skillful hackers. crip to go rafers, mathematicians, not a lot of work there for a while in russia. so lot of them went into hacking and the main reason you find them in the former soviet union is because it's a sanctuary. they're not going to be arrested. so it's a beautiful crime. lots of money. no risk. >> brown: no risk because there's nobody trying to stop shut it down. >> every once in a while one of them gets caught. the main rule you have to know if you're a hacker in russia is don't take vacations in the west. >> brown: in this case, in the report, supposedly it took place over the summer or before. how do these things get found? how do they get stopped in. >> you know, if they come from overseas, some u.s. government agency, whether it's the f.b.i. or nsa, will see them coming in. one of the problems we have is that n.s.a. is the best at monitoring traffic from outside from foreign sources.

but they prevent our laws prevent them from intervening. in this case it was discovered while it was in progress but too late to stop. >> brown: to stop it, was it easy or hard? >> we don't know if it was citibank but we do know that some large bank was hacked this summer. to stop it is relatively hard because these are very skillful criminals. they've taken weeks if not months to prepare. >> brown: how do they fit into this larger universe of hackers or thieves? i mean is this world expanding or are people getting more sophisticated? is it, in fact, a range of sophistication from amateurs up to real professionals? >> you know, i don't even worry about the amateurs anymore. the top of the league are nation-states. countries that are hostile to the u.s. and engage in cyber espionage. fabulously skillful. lots of money. second tier are the sort of high-end cyber criminals we've

seen in these bank incidents very often from the former soviet union. also very skillful. not as good as the big countries but up there at the top of the league. it goes downhill from there all the way down to some kids. but one of the problems we have is that it's getting easier to do this. if you saw the story last week about someone, an insurgent in iraq, who bought some off-the- shelf software and was able to hack into u.a.v.s, that's the path we're on. >> brown: now the white house announcement today naming howard schmidt to head the cyber security effort. what exactly should he... what does a person like that do? what does that job entail? >> howard has a real opportunity here. his job is pick one. he's the conductor for the orchestra. he's the coach for the soccer team. his job is to coordinate the efforts. there's been some good efforts in the last few months undertaken by the obama administration. at defense, at f.b.i., even at state. >> brown: is that the team or

the orchestra members to use your analogy? who is he coordinating? >> throw in commerce and you have pretty much the lot. we're talking about the national security agencies, the technology agencies, and they're the people who are trying to come up with solutions. howard needs to make sure that the solutions are consistent and implemented coherently. that's a big job. >> brown: and how tough is it to core rail that bureaucracy of different players. >> it depends. if the president is behind him, he'll be able to do it. so that's the main thing that has to come across. this is a presidential priority. i think it is. it's still going to be hard. agencies don't like being reeled in. this is the normal drill in washington. i think he'll be able to pull it off. >> brown: in fact, president obama had talked about this doing this as early as may and then there were reports that it was taking a while to fill the position or to figure out who the person would report to. >> there's a dispute in the white house and in the administration.

i think that slowed things down. some people think it's best to leave the internet alone. let it be the wild west. let it continue to have a limited role for government and the internet community will find its way out of this problem. i don't happen to agree. i'm not sure where howard comes out on this. >> brown: why don't you agree? >> because we've tried letting the internet community solve this. we've tried seeing if it was a self-organizing global common. hasn't worked. it's just like the wild west. time to move in the marshals. >> brown: now you talked about the top tier, i think was what you said. governments. >> right. >> brown: you're talking about cyber spying? >> yeah. this is a new form of espionage. the internet is god's gift to spies. it just is so helpful. you don't have to go there physically. you can break in from 3,000 miles away. fabulously easy. a lot of people have put a lot of effort into it. the first case i know about was in 1984

. the soviet union breaking into d.o.d. and university computers here in the u.s. some places they've been doing this for decades. >> brown: what does mr. schmidt do about that? >> we have a problem here as a country because the only people who can really compete with the intelligence agencys of big foreign countries are at n.s.a.'s but we're all with reason a little nervous about getting n.s.a.free reign in cyberspace. we're going to have to sort out things internally. what do we want d.o.d.and d.h.s.to do. what do we want s.b.i.to do while recognizing it has the capabilities to play at the top of the league. >> brown: let me ask you briefly to come back full circle to the financial institution, whatever it was. is it something that average citizens have to fear? >> no. >> is it something that any of us should be recognize something. >> we need to fear it.

a long-term cost to our economy is very damaging. the risk of the financial system, the greater the net, the loss of intellectual property. we pay for research. other countries get the benefit. that's not how to be competitive. right now i do on-line banking. i don't worry about it. if you're a consumer you're probably safe but as a nation we're at risk. >> brown: all right. james lewis, thanks so much. >> thanks. >> woodruff: finally tonight some very special holiday greetings complete with family photos and sent overseas. newshour correspondent tom bearden has the story. >> it wasn't this windy at our house. >> reporter: shortly after dawn on a tuesday morning, temperature in the low 30s. >> keep logan covered up, though >> reporter: a young family meets with a photographer for a family portrait. not in a nice warm studio, but in the garden of the gods park in colorado springs, colorado.

and as cold as it was, they took off their coats, because they wanted the best picture possible. >> ok, we're gonna get this done quick >> reporter: the photographer is jay dickman, one of hundreds of professional photographers who volunteered for a project called "portraits of love." >> i've covered wars before, but this could do it. >> reporter: a veterans support group, soldiers angels, joined forces with pdma, a professional photographers organization, to take pictures of military families and send them to loved ones overseas in time for the holidays. portraits aren't what dickman normally shoots. he's a pulitzer prize winning national geographic photographer with an international reputation. >> rylee, you are looking perfect, lean back against your dad my older son's in the military, gavin, he's a chief warrant officer, he's been deployed three times to iraq. so when they asked me if i could do this, it was, 'of course.' this is a minor thing i'm doing for these people who are doing a huge amount for us.

>> reporter: major george hammar was lucky enough to be able to get in on his family's picture. he was home on a two week leave from his duty station in kala gush, in northeastern afghanistan. >> pretend this is fun >> reporter: hammer put on his best dress uniform for the portrait. his wife joy cradled his three week old son logan while he held five year old rylee. logan was born while hammar was in afghanistan. he had seen him for the first time just four days earlier. what's it like to give birth with your husband thousands of miles away? >> that was hard. and one of the hardest things was figuring out what i was going to do with her for the birth. because i had to figure out how i was going to get myself to the hospital, who was going to take care of her, he was able to call in right as i gave birth so he got to hear

his first cry. >> i got a play by play from joy's mom. >> reporter: dickman has been to war himself. he won his pulitzer photographing the war in el salvador. his son is currently stationed in fort lewis washington, and dickman went there earlier this year to photograph families. his son helped out. dickman says his son made an offhand remark that really brought home how important photographs are to soldiers far from home. >> when he would go outside the wire, kind of into harm's way, he had a picture of his wife in his breast pocket, and she was close to him and he could pull that picture out and have that connection immediately. >> yeah, i do that too. i've got pictures of us when we went to disneyworld this last year, i keep them in a little book that i keep in my cargo pocket so its always close to home, or close to my heart. >> reporter: it must be hard. >> oh yeah. it's real hard. i mean you're far away and there's not much, you kind of

feel helpless. >> okay, i think you all are done, >> reporter: while the hammar family put their coats back on, the second family of the day came skipping down the path. >> can you sit right here? >> reporter: mary beth dye's husband, major denton dye, is on his second deployment, and has been gone for six months. >> look here, look here, oh, that was pretty. >> reporter: the dyes have four children, six year old morgan, five year old avery, three year old kelsey, and three-month old preston. >> he hasn't been able to see his son yet. he was born in september and the opportunity arose that we could send him a picture of our family and let him know that we're doing well back here. >> bring it up a little higher, look at me right here >> reporter: mrs. dye, herself an army reserve major, says the family works hard to cope with the long separations. >> little things, we've made dolls of daddy that they get to

hug and sleep with at night, they're called their daddy dolls. let them do a project and be able to mail to daddy, things like that. so we do what we can to help the kids stay in touch with him and have the feelings and know that he misses them and that they miss him and that it's ok to miss him, but we go on with life and keep them busy and everything else. >> that is it, we have got it done. woo. that's an exercise. >> reporter: over 400 volunteer photographers in 45 states started taking these portraits in september. the industry group estimates that as many as 4,000 families took part. the pictures will be shipped to overseas stations in time for the holidays, where they will adorn everything from tents to foxholes, humvees to aircraft, anywhere american service members might find themselves a long way from home.

>> brown: again, the major developments of the day. president obama appealed to small banks to make more loans and help the recovery gain momentum. prisoner swap to free a captured israeli army sergeant and about a thousand palestinians. and senate leaders agreed to and senate leaders agreed to schedule a final vote on the democrats' health care reform bill. it will take place at 8:00 am on christmas eve. the newshour is always online. hari sreenivasan, in our newsroom, previews what's there. hari. >> sreenivasan: on our web site tonight, amy walter from the hotline explains the wheeling and dealing that went into the senate health care bill. find our interview with amy on the rundown. there's more about small banks, including the tale of community outrage in chicago after the seizure of the park national bank by the fdic in october. and on art beat, sneak a peak into the mind of movie maker tim burton. his drawings and sculpture are on exhibit at the museum of

modern art in new york all that and more is on our web site, newshour.pbs.org. judy. >> woodruff: and that's the newshour for tonight. i'm judy woodruff. >> brown: and i'm jeffrey brown. we'll see you on-line, and again here tomorrow evening, with jim lehrer's exclusive interview with president obama at the white house. 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 is that energy came from an energy company? everyday, 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.

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