captioning sponsored by macneil/lehrer productions >> lehrer: good evening. i'm jim lehrer. president obama's first state of the union address. >> ifill: and i'm gwen ifill. on the "newshour" tonight, we'll get a preview from white house advisor david axelrod. and analysis from mark shields and david brooks. >> lehrer: toyota halts sales and production of some leading models-- judy woodruff reports. >> ifill: then, lawmakers had tough questions today for treasury secretary timothy geithner and his predecessor henry paulson about the bailout for insurance giant a.i.g. kwame holman covers today's congressional hearing. >> why shouldn't we ask for your resignation as secretary of the treasury?

>> that is your right, that is your right to that opinion. >> lehrer: a paul solman take on the federal reserve, as the fed held interest rates at a record low with a little country music help. >> ♪ the fed is printing trillions now, but will their ♪ efforts work? >> ifill: and margaret warner talks to ray suarez in haiti, where hundreds of thousands of people are still in need of food and shelter. >> lehrer: that's all ahead on tonight's "pbs newshour." 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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and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >> lehrer: president obama prepares to deliver his state of the union address tonight at a crucial time for the nation and his presidency. >> ifill: the address comes as mr. obama reaches the lowest point yet in his year-old term in office. >> ifill: the president smiled for photographers today, but his apparent good cheer did nothing to lessen the stakes for his speech tonight. one year after taking office, his approval ratings have slumped, and last week, his party lost their super-majority in the senate. white house officials say tonight's address will mark a shift in tone and emphasis, in

response to rising public anger over the state of the economy. >> so long as i have the privilege of serving as your president, i will not stop fighting for you. >> reporter: the bulk of tonight's speech, aides said will focus on issues that resonate with distressed americans, like job creation. >> you can expect a continued, sustained and relentless effort to create good jobs for the american people. i will not rest until we've gotten there. >> ifill: and in a preview earlier this week, the president is also promised to renew his focus on the plight of the middle class. >> we're going to keep fighting to rebuild our economy so that hard work is once again rewarded, wages and incomes are once again rising, and the middle class is once again growing. >> ifill: the president is also expected to direct more tough talk to wall street-- asking congress to help curb the size of the largest financial institutions. >> we have to enact common-sense reforms that will protect american taxpayers and the american economy from future crises as well. >> ifill: at the same time, mr. obama will also call for a

freeze on some domestic spending in a bid to address unhappiness with the soaring federal deficit. but there will be some new spending, as the president announces the largest-ever single-year request for elementary and secondary education. health care reform, which has suffered recent setbacks on capitol hill will get its due. but aides said it will be far from the focus of the president's remarks. at the capitol today, democrats like congressman john larson of connecticut-- and others-- said they hope the president's words can revitalize the party. democrat eliot engel of new york. >> let's rally behind our president, the people sent us here to rk together in a bipartisan faction. let's not look at what's best politically for this party or that party, let's look at what's best for the american people.

house minority whip eric cantor. >> we want to see the president listen, learn that the agenda he has promoted over the last year just hasn't yielded the results. right now, families across america around the kitchen table worried about prospects about employment, the future for their kids. we want to hear some solutions that are akin to what we've been working on for the last 12 months. >> reporter: the president will address the nation this evening at 9:00 pm eastern time. >> lehrer: and to shields and welcome, mr. axelrod. >> thanks, gwen. good to be with you. >> ifill: we've heard so many times the next speech the president is going to give, whatever it is, is the speech of a lifetime. what makes tonight different? >> well, you know, that is what washington does every speech. it becomes a speech of the lifetime. no doubt it's an important speech and it's an important speech because americans have been through a very difficult time and they're looking for a sense of what the future will hold. the president is going to talk about where we've been and where

we're going and how we create jobs in this country that pay well, see wages grow, and secure the middle class again after this very difficult period we've been through. >> ifill: the president is expected to call for a three-year spending-- freeze on some domestic spending, and, yet also for an increase in education spending. how do you balance all that out? >> just like any family or business does, gwen. everybody in hard times has to make choices. you have to prioritize. you have to do without the things you can do without in order to pay for the things do you. education has to be a priority for this country because it's so much tied to the quality of life that our young people will live, and also the competitiveness of our country. so we have to make those investments. but we're going to have to do without some other things. the president will -- and we will be walking about that in our budget message next week. >> ifill: when it comes to prioritizing, did the white house expend too

much political capital on health care this year? >>. >> no, i don't think so. the fact is this is a problem that has plagued our country for a hundred years. it's only gotten worse. it's one of those pressures that impacts on families across this country. it's one of the things that's made the middle class less secure. it affects citizens and businesss and government itself. health care reform is absolutely essential. we knew it would be tough. we understood we would have to expend some political capital to try to solve that problem and the president was committed to getting done what should have been done long ago. >> ifill: your problems with the conservatives on the republican side of the aisle are well documented. we don't expect a lot of applause tonight on that side of the aisle but what about the liberals who have said to the president should be drawing a line in the sand on his priorities? what is the president going to say to them? >> well, you can't have it both ways. you can't say has he spent too much political capital and then

say he hasn't drawn lines in the sand. i think the president has proven his commitment and determination to deal with this problem. we also have to deal with the realitys of congress and of passing a program that can garner the necessary votes. and you're right-- we haven't had much cooperation from the other side of the aisle. one of the messages the president is going to deliver tonight is that we all have a responsibility for governing here, and the american people are looking to us to work together to solve problems . the republican party can't spend another year sitting on the sidelines rooting for failure. they need to get in the arena and help solve some problems because these are difficult times and it should be all hands on deck. >> ifill: and yet a new gallup poll today shows the president getting 88% approval among democrats, only 23% among republicans. what can we do? what can he say to help close that gap? >> i understand that this is the hobby horse of everybody in this town. and i don't know i read-- you know, i read polls, too. the president's view is the most important thing he can do is

tackle the problems facing this country in an honest, forthright way. and, you know, these numbers will go up and down. , and yes, partisanship and polarization say big problem. but ultimately, the problems that people are worried about are not who's up and who's down but how they pay their bills, how they educate their kids, whether they have a job, can they afford their mortgages? and what the future looks like and that's what we all ought to be focused on. >> ifill: as long as polarization remains the kind of problem you concede it is, how does the president get to those goals? >> in part, the american people are anything to have to step in and make their voices heard. i think much has been made of this election in massachusetts. i think the most interesting thing about it was how much that message seemed to be that they were tired of the hyper-partisanship in washington. they wanted people to work together. they said in their-- in the polling they saw after the election, "we want this new senator, senator brown, to come and work with the administration with the democrats, to solve problems." that's not been the

-- that's not been the strategy. that's not the playbook of the republicans on capitol hill. and i think that will catch up with them as a political matter. but the country needs them to realize that's not where people want them to go. >> ifill: you bring up the election last week, the special election in massachusetts. as the presidents these next few months leading up to midterm elections later this year , is this going to be a referendum on his presidency? >> you guys will decide that. and massachusetts people said no the people who voted for brown said they weren't voting to-- a majority of them said they weren't voting to send the president a message. but, again, these are things that frustrate the american people. they're not interested in the score keeping. they're not interested in who's up and who's down and the politics. they just want us to solve problems. they want us to work on the things that they see right in front of them in their lives on the unemployment problem, on the-- yes, the cost of health care .

on the cost of educating kids, on the mortgage crisis, and so on. that's where we're going to focus our time. and our attitude is, if you do the work, if you do the hard work of advocating for the american people and solving problems, that they will respond. >> ifill: david axelrod, senior varies to president >> lehrer: and to shields and brooks. syndicated columnist mark shields and "new york times" columnist david brooks. mark, how would you state the importance of this speech tonight? >> i think it's important, jim. i think it's a little bit of a recovery and rescue mission on the part of the president. he's definitely had a rough patch, and since massachusetts has been a spiraling loss of confidence in his own party, both sort of skeptical, doubtful about his administration, and maybe the course, and its ability to stay to course, and here's a party with a 59-41 margin of majority in the senate, and a 78-vote majority in the house, and they're

panicking. but most of all, he's got to communicate to people in the country-- it's not a washington speech. it's not a speech for the crowd in the hall . he's got to communicate he does, in fact, understand what they're going through, and he's made a difference, and that they are committed to helping people in this terrible time of pain. >> lehrer: do you agree , david, this has it be a speech that goes way beyond washington if it works? >> he never breaks any new grounds in these speeches but he talks to people who haven't been paying as close attention as professional politics. he suffered a bloody nose. the massachusetts race , independents-- the major initiatives of his first year are almost certainly not going to happen. in states like delaware and mis miand illinois the polls are moving against him. does he say i'm just going to keep driving ahead? i'm basically on the right track. or does he say, "i hear you, and we're going to shift course."

and all the indications from the white house is consistency is going to be the watch word. >> lehrer: do you hear the same thing? >> consistency, no mea cull park no i hear you, the year of big government is over and the bill clinton-- that's not going to be part of it. i do think, unlike david, i think that health care, the president-- we love sports metaphors in this town-- they're in the red zone--. >> lehrer: the red zone? >> inside the 20-yard line. >> lehrer: oh, is that right? football, right >> and he said they're on the two-yard line. i think it's fair to say they have brought the legislation 90 yards, 100 yards or more. they have to get something done, and they have to get it done soon. >> lehrer: david, a lot of people have pointed out that while the president has had his problems they're nothing compared to what the republicans have had in the same polls. in other words, when he crops in the polls, the republicans drop even further. and there's a bigger message

than just politics. do you agree there? >> there is a rejection of both partys, though i would say in the general reelect poll in the house it's even which is unprecedented. when you ask people who do you favor most, the republicans, the democrats, or the tea party movement? the tea party movement comes out number one, then the democrats, then the republican. if you're the outparty, you're gog benefit and the tea party movement is a strong movement and as we saw in massachusetts it's not only the pure people who are very anti-government. there are a lot of people who have a fear and distrust for what's going on. and i think another thingt president has to do and i understand will do is talk about the distrust, the corrosive distrust against washington makes it very hard to do anything here. lindsey graham made this point this week. the last couple of years, with immigration reform, we had social security--. >> lehrer: he went through the whole list. >> and they all failed. in a very moving e-mail from a house senate staffers, a democratic staffer, doing health care reform, and it may all come to nothing, and she spent a year doing this. and so

,un, it's just depressing that we can't seem to get any reform passed. >> lehrer: and, of course, the key word here is "we." it isn't just obama. it isn't just those people. it's everybody, right? >> it's everybody, jim, but in answer to your question, he's speaking right now to a nation that has contempt for washington, d.c. i mean, quite unlike anything i've seen in the past with the possible exception of the watergate years. and by a 7-1 margin in the "wall street journal"/nbc poll, the majority of people think special interest has too much influence over legislation. and at the same time they asked a great question-- the democrats in congress trying to push through legislation without bipartisan compromise. two to one, people agree to that. republicans in congress are trying to block democratic legislation without bipartisan compromise. two to one, people degree on that. there is a certain pox

on both your houses, both your parties and i think that's something he has to address. >> lehrer : do you agree with that, he's got to take that on? he has to talk about the stalemate and polarization in a very direct almost attack mode, to the republicans, not to the public? >> he has to talk about the distrust, and he has to, frankly on substantive grounds adjust to the distrust. if people don't trust you to do big things you have to figure out how to slowly build that trust and frankly i thought he should have done that january 20 2009, acknowledge what country you're in and slowly build there. he's going to do some of that tonight. he's going to talk about greater transparency in government. i'm not sure that's going to get you there. i think they need some success so people can say to themselves, washington helped here, helped there, and then we'll think about the big policies. >> lehrer: do you agree with that, mark, there's nothing in here for the president just to whine about this polarization. he's got to figure out a way to deal with it, right? and he's got to tell people, hey i know it's there and i have to do something about it.

>> i agree with, that jim, and i think he has to celebrate. there have been successes, but i think he has to celebrate those. i mean, the economic improvements that have been made with the legislation , the law has made a difference. but the problem in talking to democrats is , they want the president-- they want him to be more passionate and combative. they want him to be more biexprz more partisan. they want him to be more flex and i believe more specific and more assertive. i don't know if you can do all of that in one speech. >> lehrer: he's the master speech maker. is that what this is about tonight? >> i don't think so. i think people want to, again, have a sense of trust in government. i think he's doing the right thing by the having the spending freeze on discretionary spending. i understand the objections that we will still have to stimulate the economy, but i think what david axelrod said, every family does it. we should do this. i think that stabz bond that government is basically working accord to the normal , responsible rules of life, and i think it's an appropriate thing.

he's signaling we're going to have a discretionary spending freeze. it won't have a big budget impact but as a sim billion to rebuild the trust, i think it's the right thing to do. >> lehrer: mark, everybody went to briefings today at the white house about the speech and all that sort of stuff. i went to one where the underlying word was, as long as there's 10% unemployment in this country, that is the only issue that people care about, for understandable reasons. >>, and jim, again, this is a problem for the white house, for the administration. voters believe that he-- that the administration has spent more time and the government in washington on health care than it has on jobs. and jobs and the economy are the overriding number one transcendent concern of voters . a job is a four-letter word that is one that's really welcome in this country right now, and for every job, there are six people looking for it today. >> lehrer: we'll hear what the president says and we'll hear what you all say about it later this evening. thank you.

>> ifill: and still to come on the "newshour": toyota pulls the plug on some of its top models; treasury secretary geithner is grilled about the a.i.g. bailout; the pros and cons of the federal reserve's interest rate strategy and the hungry and homeless in haiti. but first, the other news of the day. here's hari sreenivasan in our newsroom. >> sreenivasan: the push for curbing big banks in the u.s. and europe dominated the world economic forum today. the annual event convened in davos, switzerland and the president of barclays bank in britain warned against measures that force downsizing. >> i've seen no evidence, i've seen no academic study, i've seen no analysis that suggests that shrinking banks or making all banks smaller or more narrow is the answer. >> sreenivasan: but french president nicolas sarkozy attacked the behavior of major banks, in his keynote address. he said it's "morally indefensible" when companies destroy jobs and wealth, but make huge profits. >> ( translated ): the job of a

bank is not to speculate. it is to analyze credit risks, it is to assess the capacity of borrowers to repay their loans >> sreenivasan: in recent days, wall street took a dive after president obama proposed curbs on bank investing and on bank size. today, the market finished with a gain. the dow jones industrial average added nearly 42 points to close at 10,236. the nasdaq rose more than 17 points to close at 2,221. the government of yemen is pledging to carry out economic and political reforms. the promise came at an international conference in london. secretary of state hillary clinton said instability in yemen is now "an urgent national security priority" for the u.s. she called for a partnership. >> the yemeni people deserve the opportunity to determine their own future, not leaving their fate to extremists who

incite violence and inflict harm. to help the people of yemen, therefore, we have to do more but we have to work in conjunction with the government of yemen. however, the government of yemen must also do more. >> sreenivasan: the airliner bombing plot in detroit has been traced back to yemen. u.s. officials say the suspect-- omar farouk abdulmutallab-- was trained by al-qaeda elements there. "the washington post" reported today u.s. teams have stepped up operations with yemeni forces-- killing six regional al-qaeda leaders in recent weeks. taliban forces have rejected an afghan plan to get them to stop fighting. in an internet statement, the group warned financial incentives won't work. it said the only solution is for foreign troops to withdraw. but in germany, chancellor angela merkel said it would be wrong to set a date to withdraw. >> ( translated ): it is very, very important that a signal be sent to the taliban. even when all afghan forces have been trained, the international community will see to it that this army and police are able to survive.

otherwise the taliban can hope to attack immediately when the police and security forces are not properly paid, and therefore not motivated. >> sreenivasan: merkel met with afghan president hamid karzai, on the eve of an international conference on afghanistan in london. in afghanistan, 11 suspected taliban militants were killed in an air and ground strike by nato and afghan forces. former honduran president manuel zelaya went back into exile today-- this time, in the dominican republic. the leftist leader was ousted in a coup last june, but he returned to honduras in september and holed up in the brazilian embassy. his departure today came hours after the new honduran president -- porfirio lobo-- was sworn into office. authorities in peru today worked to rescue hundreds of tourists stranded at machu picchu. the ruins of the incan citadel are world renowned. at least five people have been killed after five days of heavy rain triggered mudslides and widespread flooding across the area, in the andes mountains. . in all, some 2000 people were

trapped, including 400 americans. u.s. officials deployed helicopters to help with evacuations. those are some of the day's main stories. i'll be back at the end of the program with a preview of what you'll find tonight on the "newshour's" web site. but for now, back to jim. >> lehrer: nearly two-thirds of toyota's product lineup in the u.s. was in limbo today over a safety scare. judy woodruff has the story. >> reporter: instead of putting new toyotas on display at the lot last night, employees at a texas dealership were busy taking them off. toyota ordered dealers nationwide to stop selling eight of its models. it also halted production of those vehicles at six north american plants, as of february first. the move was unprecedented, and the culprit was a faulty part made by a u.s. supplier, causing gas pedals to stick and drivers to lose control.

>> it's kind of surprising because, you know, toyota is really popular, really famous in terms of their dependency. >> reporter: the vehicles in question include the camry-- america's best selling car-- as well as the corolla, matrix and avalon. trucks and s.u.v.s are on the list too, with the rav-4, highlander, tundra, and sequoia all being pulled off dealer lots. >> you know it's a little frustrating because i'm here to sell cars but at the same token i don't want to put something on the road that's not going to be safe. >> reporter: toyota said it's had no new reports of accidents or injuries. but last week, it recalled the same eight models-- affecting more than two million cars and trucks. toyota has not said why sales were not halted then. toyota became the world's biggest automaker in 2008-- beating out general motors. but two years earlier, questions had arisen about quality after fatal accidents in japan.

in the u.s., toyota first noticed gas pedal problems three years ago. and last year, the company recalled four million vehicles in the u.s., saying floor mats were pinning accelerators to the floor. now, it turns out, removing the floor mats didn't solve the problem. >> we continue to find evidence from a variety of consumers who come to us with incidents that cannot be explained by a floor mat. >> reporter: the auto maker said today american workers will stay on the job, but the company's bottom line stands to take another severe hit. last year, toyota suffered its first-ever annual loss. >> woodruff: for more on this story we turn to jessica caldwell, a senior automotive analyst with edmunds.com, a consumer web site. jessica caldwell, thank you for being with us unprecedented, is that because never before have

this many cars been taken off the lots? >> right, judy. i think-- you know, i think really the unprecedented comes from the fact they're stopping sales. so this is going beyond a vehicle recall. this is going beyond problems in production. this is , you know, consumers going to the democrat that cannot buy these investigation , and it's-- and it's such a wide variety of vehicles, too. i think that's when you want to throw out that word "unprecedented." we really haven't seen anything like this in the industry, ever. >> woodruff: the eight models we mentioned , 2005, 2007, 8, 9, and 10, why is this just surfacing now? >> there have been grumbling for past few years and i think the news report earlier kind of alluded to it. you know, was it a floor mat issue? was it an accelerator issue? i think really what's come out now is that we just don't know, you know, and they're trying to isolate that problem right now. so it's not just one thing. it seems like it's been a lot of things that have kind of

snowball into the predicament we are in today. >> woodruff: they haven't isolated the problem? they talked about a part, the accelerator pedal. >> it seems what came out today is they have really pinpointed a part, but in terms of how that part plays into the larger production, how-- you know, how it works with the electronic systems, i think those questions are still up in the air right now. so it looks like they may have an inkling of where it's going, but as to the fix and the process of fixing all those millions of cars, i think that's really still t.b.d.. >> woodruff: i'm reading today the company that makes at least one of these parts, c.t.s. corporation based in elkhart, indiana, they say they don't know of any incident where's people have definitely been hurt in accidents. is it connected to this company? >> if you read between the lines it looks like that kind of where it all leads to that company, but i saw the same report you

did, and it looked kind of like they, you know, were not take responsibility there. there was a lot of , i think, hints of the-- or remembrance, i should say, of the ford and firestone debacle many years ago. but i think-- you know, really at the end of the day, there isn't an answer and there isn't a fix. >> woodruff: so what are people who own these cars or driving these cars and trucks supposed to do? >> yeah, that's a good question. will be you know, we're getting that a lot from the consumers on our side. and it's-- if i own this car, can i even drive it to the dealer to get it fixed? and the answer is, you know, we don't know what the answer is. , you know, at the end of the day it's a gamble. of course, you know, no one wants anyone to be injured out there. i think, you know, there have been signs, if you-- if you feel faz your accelerator has been sticking don't drive it. but it's a lot of people throughout affected, and a lot of people need these cars for their everyday life. why you don't want to really suggest people don't

drive therj you don't want to suggest them to drive them if they're not gog have a safe experience. >> woodruff: so toyota has given what kind of guidance on that? >> they really haven't said a lot. i think finally today they finally gave dealers some guidance earlier. i haven't seen exactly what they're talking points were yet, as far as how to deal with some of the customers coming in with all the concerns. some of the customers we spoke with said they called their dealer and they didn't really get a solid response in terms of what they should do. right now-- you know, the dealers are having a hard time trying to pin down the problem , which vehicle this applies to. i think a lot of it has to do with where does the car come from? so the dealers themselves have to research the origin. it's not 100% clear at the dealer level, either. so, you know, we're kind of waiting to see some direction from toyota as far as where to proceed from here. >> woodruff: we quoted the obama administration's secretary of transportation saying the administration had to ask toyota

or insist that they not only recall these investigation but that they stop making them. do we know how much pressure the government had to put on toyota? >> you know, they definitely put some pressure on. i don't think toyota has hinted to the fact that was the case, but, of course, the reports coming out from the government said that was. it's definitely a big step, stopping production, and stopping sales and, like you said, dealers having to put these cars away and not sell them. so, you know, again, i think it domz really a safety issue that's been building for some time now. so something dramatic needed to happen and something needs to be reversed, and it looks like this is really the outcome of it. >> woodruff: and finally, jessica caldwell, what does it believe this is going to mean for the toyota brand? >> well, right now, you know, it definitely doesn't look good. there have been so many grumblings from consumers for months now dealing with the recalls about, "hey, i thought toyota was about quality, was about reliability." and that certainly doesn't seem

to be the case today. you know, we've seen companies bounce back from some things like this. i think tylenol comes to mind, again, ford and firestone come to mind. and, you know, if anyone can do it, i really think it is toyota in terms of the car companies out there. they have, you know, very advanced manufacturing systems that-- you know, that could probably produce cars with the correct parts if needed much faster. but in the short term, i think their reputation has definitely taken a hit. but in terms of five, 10 years from now , will people still only remember this? i think history from other companies suggests that they won't. >> woodruff: we'll be watching it-- for theidize come and beyond. jessica caldwell with edmunds.com, thank you very much. >> thank you, judy. >> ifill: now, two of the leading architects of the government's response to the financial crisis returned to capitol hill today. both the current and former treasury secretaries got an earful from democrats and republicans about their role in the bailout of insurance giant a.i.g. "newshour" congressional correspondent kwame holman

has our report. >> reporter: amid rising public anger about the bailouts of financial institutions, treasury secretary tim geithner was called before the house government reform and oversight committee to explain the government's 2008 rescue of insurance giant a.i.g.. geithner said there was no choice. >> deciding to support a.i.g. was one of the most difficult choices i have ever been involved in in over 20 years of public service. the steps that were taken were motivated solely by what we believe to be in the public interest. we did not act because a.i.g. asked for help. we did not act to protect individual institutions. we acted because the consequences of a.i.g. failing would have been catastrophic for our economy and for american families and businesses. at the height of the financial crisis, the federal reserve-- working with the treasury--

loaned aig $85 billion. a.i.g., in turn paid more than $60 billion to banks and companies such as goldman sachs. goldman held contracts with the insurance giant to protect against losses worth billions. as the financial crisis worsened, total government aid to a.i.g. swelled to $180 billion dollars. at the time of the initial loan, geithner was president of the new york federal reserve. >> more than a year removed from that terrible week of september 2008, i believe that the government strategy, and it was the government strategy, was the best of available options. >> reporter: the oversight committee also criticized the government's decision to allow a.i.g.'s creditors to be paid in full-- even though a.i.g. was insolvent. and members from both parties expressed anger that the public initially was not told about those payments. >> were you involved in any discussions with a.i.g. or was

your staff involved where you discussed what a.i.g. should or should not disclose to the public? >> i had no role in making those decisions but as the record shows and the record before the committee shows, a large number of people at the federal reserve bank of new york and the federal reserve board in washington played a very active role in thinking through those difficult choices. >> reporter: geithner said he withdrew from decisions involving a.i.g. and other matters before the new york fed once he was nominated to be treasury secretary by president obama in november 2008. but many committee members still were skeptical about his role in the bailout and some criticized his overall performance. republican john mica of florida. >> i believe either you made a bad decision there or in fact there was an attempt to cover up one of the biggest bailouts, backdoor bailouts, in history.

now you've tried to frame it as you did it, you did it in the interest of the people and the failing of the system. i'm telling you i believe these are lame excuses. either you were in charge and did the wrong thing or you participated in the wrong thing. to me, it appears that when you were being confirmed, a lot of controversy surrounded you not paying your taxes. you gave lame excuses, i believe you're giving lame excuses now... and my final question is, why shouldn't we ask for your resignation as secretary of the treasury? >> that is your right, that is your right to that opinion. i have worked in public service all my life. i have never been a politician. i have served my country as carefully as i can and it is a great privilege to me to work with this president to help repair the damage that was here when he took office.

>> reporter: and several members rejected geithner's contention that forcing wall street firms to accept cuts in payments would only have caused defaults and an even worse crisis. massachusetts democrat stephen lynch. >> you could have done the right thing by those people, by the american taxpayer, because their money was being put into this deal... and it just stinks to the high heaven what happened here. >> reporter: marcy kaptur-- democrat of ohio-- was among those who suggested geithner was too accommodating to wall street. geithner fired back. >> congresswoman, you are suggesting the people who were involved in this were not acting in the public interest and you were suggesting that they were working for the private interest, not the public interest. and that is not true. i would never-- and i believe none of those individuals would ever-- be part of any decision like that. >> reporter: by the end of the day, geithner said he wished he had known more about the

payments to banks at the time. later, the committee heard from geithner's predessor, former treasury secretary hank paulson. he too denied any involvement with the decision to make sure a.i.g.'s banks and counterparties were paid but said the rescue was critical. >> if a.i.g. had gone down. we'd had situation main st. companies would not have been able to raise money, pay employees, employees not pay bills, 10% uemployment. i believe we would have had 25% unemployment. >> reporter: paulson faced skepticism as well. cliff stearns is a republican from florida. >> here's the problem i think a lot of us are having. mr. geithner says he was not involved with the counterparty negotiations. you're saying you were not involved.

oh yes, you heard a little about it. but on november 6, when they gave $62 billion to all of these parties that came in and looted a.i.g., all of you guys say "i knew nothing about it." and yet it appears that this happened. >> reporter: the power of the growing backlash against assistance to wall street may get another test tomorrow when federal reserve chairman ben bernanke is expected to face a senate vote on confirmation to a second term. >> lehrer: next, a second economy story. this one about the fine line the federal reserve is walking. the fed announced today it plans to keep interest rates at record low levels of near zero for an extended period of time. our economics correspondent, paul solman, examines that strategy as part of his continuing reporting on making sense of financial news. >> ♪ as we go through this recession ♪ >> reporter: investment advisor jon shayne under his nom de country, merle hazard, on the

federal reserve's monetary ministrations to revive the economy. >> ♪ it's a mini-great depression ♪ our markets went berserk the fed is printing trillions now, but will their efforts work? ♪ >> reporter: will fed policy, that is, made every six weeks in this room, pull us out of the downturn so prices, wages and consumers don't start drooping again? the extreme case it's looking to avoid: japan these past 20 years and its so-called great deflation. >> we're terrible poor. a new class. working poor. >> reporter: or might the fed, by printing too much money in order to keep interest rates low and the economy ticking, ultimately be driving us in the very opposite direction: toward inflation? the extreme example of the moment: hyperinflationary zimbabwe.

>> by december, you needed hundreds of thousands of dollars to buy bread. by january, a loaf of bread and things like tomatoes were costing millions. by april, it was billions. >> reporter: merle hazard puts the fed's plight as starkly as possible. >> ♪ inflation or deflation? tell me, if you can ♪ will we become zimbabwe or will we be japan? ♪ >> reporter: now over the past year or so, the fed has been far more worried about deflation and depression. so it's voted to create more than a trillion's worth of new money. >> and this is where it all takes place. >> reporter: the new york fed's brian sack back in july, doing the bidding of the d.c. fed: to create as much as it took to get the economy back off the mat. >> the directive that the federal open market committee gave to the trading desk here at the ny fed was to purchase up to

$1.75 trillion. >> reporter: $1.75 trillion which the fed has since used to buy bonds from banks. they, in return, have been getting electronic money: federal reserves. buying or selling bonds is how the fed actually does its main job: managing interest rates. the more dollars created to buy up bonds, the lower the interest rate the government is forced pay on the bonds. the lower the interest rate, the easier it is for people and businesses to borrow and spend. since the fed's digital dollars are hopelessly untelegenic, we're stuck with this us mint we're stuck with this u.s. mint footage instead. but the rates have been near zero for a year now, and that has critics like john taylor issuing a warning. >> how should the central bank - - the fed in our country-- set the interest rate so as to get the best performance possible? >> reporter: in his introductory economics course at stanford a few weeks ago, john taylor explained his so-called taylor rule: a formula which guides the fed when setting interest rates.

>> and basically says that if inflation is rising they should raise the interest rate; if the economy is going through recession, they should cut the interest rate, and more importantly by how much. >> reporter: the key is those last three words: "by how much." taylor's rule is an actual equation. >> is the federal funds rate, "p" is the inflation rate, "y" is the real g.d.p. gap. >> reporter: a bit of a slog for a news show but simple in its effect: restraining the fed from creating too much money when, like now, it keeps interest rates at rock bottom lows. so, the problem with the fed is: yes, you stimulate the economy when its in the doldrums; but you can get carried away. >> absolutely. and we have... and we saw in the great inflation period in the '70s we got carried away, we just had interest much too low compared to what they would be. >> reporter: that was the era in which fed chairman paul volcker famously choked off the money supply to hike interest rates and ended the great inflation of

the '70s. for decades thereafter, claims john taylor, the fed had followed a moderate course. then suddenly, around the year 2000, the fed began to deviate, keeping interest rates too low for too long, ending in the crash of '08. >> if i were to think about why after two decades of good performance starting with volcker, going through most of greenspan's term, why there was a deviation? i think it's really trying to do too much if you like. things were working well and if you're doing well you try to do better. >> reporter: try to do better by boosting the economy with cheap money, thus setting the stage for the inevitable bust. >> the busts are terrible and more the boom gets out of hand the worse the bust will be. >> reporter: so it is really true that the higher you fly the farther you fall? ( laughs ) >> in general. ( laughs ) >> reporter: and that, taylor argues, is the worry today: that the fed is again keeping rates too low for too long, fueling new bubbles and a future collapse, this time perhaps an

u.s. dollar itself, given all inflationary collapse of the u.s. dollar itself, given all the new dollars out there. the fed, of course, has an answer: don't be ridiculous. if we raise rates right now, says fed chairman bernanke, we choke off the recovery, and head back down toward deflation, depression. >> however, as the recovery strengthens, the time will come when it is appropriate to begin withdrawing the unprecedented monetary stimulus that is helping to support economic activity. for that reason, we have been giving careful thought to our exit strategy. we are confident that we have all the tools necessary to withdraw monetary stimulus in a timely and effective way. >> reporter: as to what the fed will do next. >> any hints, just between us, on where interest rates might go? ( laughter) >> well, they can't go much further down! >> reporter: so is bernanke right, or john taylor? in the end, as always for the fed, it's the same old question, the same old song. >> ♪ inflation or deflation?

the choice is looking grim ♪ i wonder what john maynard keynes would say ♪ if we asked him inflation or deflation ♪ tell me if you can. will we be zimbabwe, or will we be japan? >> reporter: the answer the fed is betting on: neither. >> teenaged girl was rescued alive in port-au-prince today 15 days after the earthquake. she was trapped in the rubble of a house. u.n. officials estimate up to. meanwhile, u.s. and french troops worked to re-open the

port-au-prince seaport. that would relieve the overload at the clogged airport. ray suarez is in haiti where hundreds of thousands are still struggling to simply exist. margaret warner spoke with him earlier today. hi, ray, it's good to see you. we're two weeks into this crise. where do things stand for ordinary haitians when it comes to the basics of life, let's say food, for example. >> suarez: there is food. there's a lot of aid flowing in, but a lot of people are living on short rations. it's not like people are going days without eating. but the food that might normally feed a family of six is ibstead feeding 12 or 14 people. you meet a lot of people who are hungry. they'll come right up to you on the street and tell that you. so while there is food aid, there's food in evidence being sold on the streets. there are markets sort of springing up on corners and at intersections. but it's not sufficient. and people are not eating in a way that's optimal. >> warner: we're hearing reports

that the food distribution is somewhat chaotic and many people are being left out. have you seen that? >> suarez: today , our "newshour" crew was near a warehouse that was bringing in aid, and often in a situation like this , word moves very quickly by informal bush telegraph, and there was a large crowd waiting to get into an industrial park to try to get work today. word spread through the crowd that that warehouse was about to start distributing food, and the crowd en mass ran to that place and jammed the entrance and tried to mob the trucks and the police pushed everybody aside, got them to wait in a line-- in fact, all they were doing was transporting good to get them ready for distribution. there was not going to be any distribution. but the police controlled the crowd boy getting them into line as if there was going to be. there's a lot of waiting on line going on in this country right now. >> warner: is that also the case

with the money that started flowing back into haitian frgz their relatives abroad? that is, it's come ing in but they're having trouble getting access to it? >> suarez: it is a problem because the banking system in the capital is in a shambles. and the businesses that handle those wire transfers, like western union, are in many cases not open or if they are open, only able to handle a few customers at a time. so when you approach these wire transfer places, everywhere around port-au-prince, if you can find them open, there's a multi-hour line stretching out the door and a crowd that goes way down the block. there is very little money moving through the economy right now. people can't get their hands on the money meant for them from their relatives overseas, and because so many people are out of work there's no wages being paid. so it's like the circulatory system seizing up. there's just not enough money moving through an economy that's ready to spring into life. >> warner: and what about

shelter, ray? president preval issued an international appeal earlier this week for 200,000 family-sized tents. is that going to be enough? >> suarez: well, there are already complaints from people on the ground that those hundreds of thousands of tents are aren't going to be enough, and if you accept the figuf some figure of some one million people out of shelter either because their homes have been destroyed outright or they sustained enough damage or because in the aftershocks people will not occupy them, yes that number is short. but the more disturbing part is, as i mentioned, more than two weeks into this tragedy, the tents are very little in evidence. you can get antibiotics from halfway around the world, the syringes, gauze pad, sneakers, tshirts, but the tents that are said to be on their way are just not here , and what's happening in that space of time, that

delay, is that the temporary shelters that people are cobbling together out of the scraps they can find on the street are becoming semipermanent. they're getting corrugated tin roofs and wond walls. and once that happens, you get the worst kind of sanitation, the worst kind of water supply, the worst kind of drainage. instead of a formal settlement, a tent camp air, tent city, if you will, being set up , you get something a little more handmade and homemade and much harder to keep healthy, clean, and sdweez and it's going to start raining here in a couple of weeks, and those place where's people are camping out in the public parks and plazas of this city are going to be cities of misery when that heavy rain begins. >> warner: finally, with the government so overwhelmed, and it seems the u.n. even. whened, how are ordinary haitians making do? >> suarez: well people know people who know people who know people. we

were covering the leader of a local business organization trying to get his factory back up and running, and he relies on the roads that head out of haiti because the ports are so damaged he's trying to get his good east into the dominican republic to have them shipped out by a dominican freighter. what's happening is, in contact with the people who run the heavy earth-moving equipment, that earth-moving equipment that is usually used for road repair is right now being used to clear debris. they're finding a lot of body in the debrerk so he was asked to locate body bags. he located bode bags from a u.s. government source and had to get a flatbed truck to head over to the airport to get to the body bags to give to the road crews, and he's going to get some scratch back in the other direction, getting his stuff east out of here on the roads. it's a network of connections being made by cell phones.

people you know can help you through people they know. that's what you do when there's no government around. >> warner: a lot of ingenuityy. ray suarez, our man in haiti, thanks. >> suarez: good to talk to you, margaret. >> lehrer: again, the major developments of the day: president obama prepared to deliver his first state of the union address at a low point in his presidency. and the federal reserve again held interest rates near record lows. the "newshour" is always online. hari sreenivasan in our newsroom previews what's there. hari? >> sreenivasan: we have a conversation with ray about the plight of amputees and others critically injured in the earthquake. more of merle hazard's satirical recession songs on paul solman's "making sense" page. and just before tonight's state of the union address. you can watch a tavis smiley special report on secretary of state hillary clinton, who has completed her first year on the job. >> you see how tough the job is. oh, i want to end where we can you imagine yourself doing all four years, and if asked, doing it for another four years? >> no, i really can't, i mean, it is just...

>> no to what, all four or eight? >> the whole eight, that would be very challenging. >> sreenivasan: then, you can watch the president's speech live on your pbs station, or on our web site. we'll have analysis as well as a place to post your own comments and reaction videos. we also have a conversation with dante chinni of patchwork nation on president obama's popularity in different communities across the united states. all that and more is on our web site, newshour.pbs.org. gwen? >> ifill: and that's the "newshour" for tonight. i'm gwen ifill. >> lehrer: and i'm jim lehrer. we'll see you on-line and here later tonight for the president's state of the union address. and again on the "newshour" tomorrow evening. for now, thank you and good night. major funding for the pbs newshour is provided by:

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