PBS NewsHour; November 21, 2011 6:00pm-7:00pm PST

Captioning sponsored by MacNEIL/LEHRER PRODUCTIONS

>> Woodruff: THE BIPARTISAN CONGRESSIONAL COMMITTEE CHARGED WITH CUTTING THE DEFICIT ADMITTED FAILURE TODAY. GOOD EVENING. I'M JUDY WOODRUFF.

>> Suarez: AND I'M RAY SUAREZ. ON THE NEWSHOUR TONIGHT, WE ASSESS THE STALEMATE, THE BLAME GAME, AND WHAT COMES NEXT, INCLUDING THE PROSPECT OF MORE THAN $1 TRILLION IN AUTOMATIC BUDGET CUTS.

>> Woodruff: THEN, WE TALK WITH CHARLES SENNOTT OF GLOBALPOST ABOUT THE MOUNTING TENSIONS BETWEEN PROTESTERS AND SECURITY FORCES IN CAIRO'S TAHRIR SQUARE AFTER THREE DAYS OF DEADLY VIOLENCE.

>> Suarez: SPENCER MICHELS REPORTS ON THE WEEKEND CLASHES AT THE UNIVERSITY OF CALIFORNIA DAVIS, WHERE POLICE OFFICERS DOUSED STUDENT ACTIVISTS WITH PEPPER SPRAY.

>> Reporter: ATEN CAMPMENTS AND CAMPUSS AROUND CALIFORNIA DEMONSTRATORS AND FACT FACULTY MEMBERS EXPRESSED OUTRAGE AT THE PEPPER SPRAY INCIDENT.

>> Woodruff: WE HAVE ANOTHER IN OUR AMERICAN GRADUATE SERIES. TONIGHT, JEFFREY BROWN EXPLORES THE LINKS BETWEEN A SAGGING ECONOMY AND POOR GRADUATION RATES IN READING, PENNSYLVANIA.

>> Brown: MORE THAN 100 YEARS AFTER THE HEYDAY OF THE READING RAILROAD, NEW CENSUS DATA SAYS THIS CITY IS THE NATION'S POOREST.

>> Suarez: AND MARGARET WARNER HAS A CONVERSATION WITH THE AUTHOR OF "BLACK HAWK DOWN," MARK BOWDEN, ABOUT HIS NEW BOOK ON BATTLING A COMPUTER WORM.

>> Woodruff: THAT'S ALL AHEAD ON TONIGHT'S NEWSHOUR. MAJOR FUNDING FOR THE PBS NEWSHOUR HAS BEEN PROVIDED BY: MOVING OUR ECONOMY FOR 160 YEARS. BNSF, THE ENGINE THAT CONNECTS US.

>> INTELLIGENT COMPUTING TECHNOLOGY IS MAKING ITS WAY INTO EVERYTHING FROM CARS TO RETAIL SIGNS TO HOSPITALS, CREATING NEW ENRICHING EXPERIENCES. THROUGH INTEL'S PHILOSOPHY OF INVESTING FOR THE FUTURE, WE'RE HELPING TO BRING THESE NEW CAPABILITIES TO MARKET. WE'RE INVESTING BILLIONS OF DOLLARS IN R&D AROUND THE GLOBE TO HELP CREATE THE TECHNOLOGIES THAT WE HOPE WILL BE THE HEART OF TOMORROW'S INNOVATIONS. I BELIEVE THAT BY INVESTING TODAY IN TECHNOLOGICAL ADVANCES HERE AT INTEL, WE CAN MAKE A BETTER TOMORROW. CHEVRON. WE MAY HAVE MORE IN COMMON THAN YOU THINK.

>> AND BY THE BILL AND MELINDA GATES FOUNDATION. DEDICATED TO THE IDEA THAT ALL PEOPLE DESERVE THE CHANCE TO LIVE A HEALTHY, PRODUCTIVE LIFE. 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: THE DEFICIT SUPERCOMMITTEE THREW IN THE TOWEL TODAY ON TRYING TO REACH A SWEEPING TEN-YEAR AGREEMENT. THE ANNOUNCEMENT HAD BEEN EXPECTED ALL DAY, AND THE FALLOUT WAS FELT ON WALL STREET. THE DOW JONES INDUSTRIAL AVERAGE LOST MORE THAN 248 POINTS TO CLOSE AT 11,547. THE NASDAQ FELL 49 POINTS TO CLOSE AT 2523. BEYOND THE MARKET EFFECTS, THE SUPERCOMMITTEE'S ADMISSION OF FAILURE LEFT AN UNSETTLED POLITICAL PICTURE. REPORTERS WAITED THROUGH THE DAY AS LAST-DITCH TALKS TOOK PLACE IN THE OFFICES OF DEMOCRATIC SENATOR JOHN KERRY.

>> I THINK IT'S PRETTY IMPERATIVE TO GET DONE WHAT WE... I THINK THERE'S A TIME LIMIT ON THIS. IT'S COMING DOWN TO HOURS.

>> Woodruff: BUT IN THE END THERE WAS NO DEAL. IN A STATEMENT THE PANEL'S LEADERS SAID, "WE ARE DEEPLY DISAPPOINTED THAT WE HAVE BEEN UNABLE TO COME TO A BIPARTISAN DEFICIT REDUCTION AGREEMENT." THE 12 REPUBLICANS AND DEMOCRATS ON THE SUPER COMMITTEE HAD TRIED FOR NEARLY THREE MONTHS. THEIR MANDATE WAS TO FIND AT LEAST $1.2 TRILLION IN DEFICIT SAVINGS OVER TEN YEARS. BY LAW, FAILURE TRIGGERS AUTOMATIC SPENDING CUTS OF THE SAME AMOUNT STARTING IN 2013. THOSE CUTS WOULD MEAN REDUCTIONS IN MEDICAID AND OTHER DOMESTIC SPENDING. AND UP TO $450 BILLION IN THE PENTAGON BUDGET BRINGING U.S. GROUND FORCES TO THEIR LOWEST LEVELS SINCE 1940. PRESIDENT OBAMA WAS QUICK TO LAMENT THE SUPER COMMITTEE'S FAILURE.

>> ALREADY SOME IN CONGRESS ARE TRYING TO UNDO THESE AUTOMATIC SPENDING CUTS. MY MESSAGE TO THEM IS SIMPLE. NO. I WILL VETO ANY EFFORT TO GET RID OF THOSE AUTOMATIC SPENDING CUTS, DOMESTIC AND DEFENSE SPENDING. THERE WILL BE NO EASY OFF-RAMPS ON THIS ONE. WE NEED TO KEEP THE PRESSURE UP TO COMPROMISE, NOT TURN OFF THE PRESSURE.

>> Woodruff: BUT THE PROSPECT OF SUCH CUTS FAILS TO FORCE AGREEMENT. INSTEAD THE TWO SIDES DEBATED WHO IS IS TO BLAME ON THE SUNDAY TALK SHOWS. DEMOCRATS ACCUSE REPUBLICANS OF PROTECTING THE BUSH ERA TAX CUTS FOR THE WEALTHY. NO MATTER THE COST. WASHINGTON STATE SENATOR PATTY MURRAY, A SUPER COMMITTEE CO-CHAIR, APPEARED SUNDAY ON CNN.

>> BUT THERE IS ONE STICKING DIVIDE. THAT IS THE ISSUE OF WHAT I CALL SHARED SACRIFICE WHERE EVERYBODY CONTRIBUTES IN A VERY CHALLENGING TIME FOR OUR COUNTRY.

>> Reporter: ON FOX REPUBLICAN CO-CHAIR CONGRESSMAN JEB HENSERLING OF TEXAS SAID THE REAL PROBLEM WAS DEMOCRATS THE REFUSAL TO BE SERIOUS ABOUT SPENDING CUTS.

>> IT'S A HUGE MISSED OPPORTUNITY. UNFORTUNATELY WHAT WE HAVEN'T SEEN IN THESE TALKS FROM THE OTHER SIDE IS ANY DEMOCRAT WILLING TO PUT A PROPOSAL ON THE TABLE THAT ACTUALLY SOLVES THE PROBLEM.

>> Woodruff: THE STALEMATE OVER REACHING A DEBT DEAL ALSO FORESHADOWS MORE BATTLES IN A SHARPLY DIVIDED CONGRESS. THE TWO SIDES ARE LIKELY TO SPLIT OVER EXTENDING THE PAYROLL TAX CUTS, NOW SET TO EXPIRE AT THE END OF THE YEAR. A SIMILAR FIGHT AWAITS ON EXTENDING JOBLESS BENEFITS FOR THE LONG-TERM UNEMPLOYED. ALSO SET TO EXPIRE DECEMBER 31. WITH NO AGREEMENT POSSIBLE, WE ASSESS THE LEGISLATIVE LOGJAM AND WHERE THINGS GO NEXT WITH THREE PEOPLE WHO WATCH ALL OF THIS CLOSELY. MAYA MacGUINEAS IS PRESIDENT OF THE COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET. HENRY AARON TRACKS ENTITLEMENT AND BUDGET ISSUES AT THE BROOKINGS INSTITUTION. AND NORM ORNSTEIN IS A LONG-TIME CONGRESSIONAL OBSERVER AT THE AMERICAN ENTERPRISE INSTITUTE. WE THANK YOU ALL THREE FOR BEING HERE. NORM, ON THIS I GUESS MOMENTOUS DAY, WAS THIS COMMITTEE DOOMED TO FAILURE FROM THE START?

>> I DON'T THINK IT WAS DOOMED TO FAILURE FROM THE START. I ACTUALLY HAD WHAT HAD TO BE CAUTIOUS OPTIMISM WHICH MEANT MAYBE THERE'S 25% CHANCE OF SUCCESS. BECAUSE THERE'S SOME THINGS THAT DRIVE THEM TOWARDS AN AGREEMENT. THAT INCLUDES DIRE ECONOMIC SITUATION IN EUROPE AND THE POSSIBILITY THAT FAILURE WILL LEAD TO SOMETHING MUCH WORSE. BUT, YOU KNOW, IN THE END THE DYSFUNCTION IN THE SYSTEM AND THE PARTISAN DIVIDE MEANT THAT AN AGREEMENT, A TEMPLATE OUT THERE THAT WE'VE HAD NOW FOR MORE THAN A YEAR FROM THREE SEPARATE BIPARTISAN GROUPS, THEY JUST COULDN'T BRING IT TOGETHER. IT WAS THE TAX ISSUE AND THE REPUBLICANS JUST' INABILITY TO MOVE ON THAT IN A WAY THAT SIMPSON-BOWLS, THE GANG OF SIX, THE THREE GROUPS THAT HAVE DONE THIS HAD SET OUT FOR THEM.

>> Woodruff: WAS ONE SIDE MORE CULPABLE THAN ANOTHER HERE.

>> I DO THINK THAT THE ISSUE WAS TAXES. DEMOCRATS HAD SIGNALED A WILLINGNESS TO MOVE ON ENTITLEMENTS WHICH IS THE TRADE-OFF WE'LL HAVE HERE AND ON TAX REFORM. THAT INCLUDED MANY OF THE MEMBERS OF THE COMMITTEE SAYING THEY WERE WILLING TO ENTERTAIN RAISING THE MEDICARE AGE FROM 65 TO 67. IT WAS A SIGNAL THAT THEY COULD REACH THIS KIND OF TEMPLATE, YOU KNOW, SIMPSON- BOWLS. ALL THE OTHERS WERE $4 TRILLION OVER TEN YEARS WITH AT LEAST A TRILLION COMING FROM REVENUES WITH TAX REFORM AND WITH AT LEAST ANOTHER TRILLION COMING FROM THE LARGE ENTITLEMENT PROGRAMS, BUT IT WAS THE INABILITY TO BRING THE TAX ISSUE TO THE FORE, AND ANYTHING MORE THAN SMALL AMOUNTS, THAT KEPT REPUBLICANS FROM GETTING ACROSS THAT DIVIDE.

>> Woodruff: THERE ARE SOME PEOPLE ARGUING TODAY THAT THE COUNTRY IS BETTER OFF WITHOUT AN AGREEMENT. THAT WHAT THEY WOULD HAVE COME UP WITH WOULDN'T HAVE HELPED THINGS, MIGHT HAVE MADE THINGS WORSE. WHAT DO YOU THINK?

>> I THINK THAT IS ABSOLUTELY THE WRONG ARGUMENT. WHAT WE ARE ON TRACK RIGHT NOW IS TO HAVE CUTS THAT COME FROM A SEQUESTER WHICH IS AUTOMATIC SPENDING CUTS NOT DONE THOUGHTFULLY BUT DONE AUTOMATICALLY ACROSS THE BOARDS. SOME OF THE WRONG PARTS OF THE BUDGET. IT DOESN'T DO ANYTHING TO HELP FIX SOCIAL SECURITY. IT DOESN'T DO ANYTHING ON THE REVENUE SIDE. IT'S NOT THE THOUGHTFUL WAY TO FIX THE PROBLEM. WHAT WE SHOULD HAVE DONE IS MOVE FORWARD WITH A BIGGER PLAN THAT WAS BIG ENOUGH TO ACTUALLY FIX THE PROBLEM BECAUSE EVEN A SEQUESTER AT ONE POINT $2 TRILLION WILL STILL LEAVE US FACING TREMENDOUS DEBT PROBLEMS. WE NEED TO DO A PLAN LIKE NORM WAS SAYING THAT HAS ALL PARTS OF THE BUDGET ON THE TABLE. WE NEED TO PROACTIVELY PUT THEM IN PLACE NOT HAVE SOME AUTOMATIC HAMMER THAT DOES OUR BUDGETING FOR US. THIS REFLECTS THIS DYSFUNCTION THAT WE HAVE IN CONGRESS RIGHT NOW.

>> Woodruff: HENRY AARON, WHAT ABOUT THIS ARGUMENT THAT MAYBE WE WOULD HAVE BEEN BETTER OFF WITHOUT ANY DEAL.

>> I THINK THERE ARE THREE THINGS WRONG WITH THE WAY IN WHICH THE DISCUSSION HAS BEEN PROCEEDING SO FAR. THE FIRST IS THAT WE ARE DISCUSSING THE SECOND MOST IMPORTANT PROBLEM THE NATION FACES, NOT THE MOST IMPORTANT PROBLEM. THE MOST IMPORTANT PROBLEM IS THE FACT THAT 20 MILLION AMERICANS ARE EITHER UNEMPLOYED OR OUT OF THE LABOR FORCE BECAUSE THERE ARE NO JOB OPPORTUNITIES. JOB NUMBER ONE SHOULD BE TO STIMULATE THE ECONOMY TODAY. WE DO FACE A SERIOUS LONGER-TERM BUDGET PROBLEM. AND MAYA IS EXACTLY RIGHT THAT WHAT WAS UNDER DISCUSSION IS NOT LARGE ENOUGH TO DEAL WITH THAT PROBLEM. SO WHAT I FEARED FROM THIS DISCUSSION AND THE KIND OF DEAL THAT WAS ON THE TABLE HERE WAS THAT EVEN IF THEY HAD REACHED AGREEMENT-- AND EVERYBODY CELEBRATED THE SUCCESS OF DEALING WITH THE DEFICIT PROBLEM-- JUST TWO YEARS FROM NOW WE ARE GOING TO FACE BUDGET PROJECTIONS JUST AS BAD AS THOSE WE FACE TODAY, IF THAT'S ALL THEY DO.

>> Woodruff: WHAT ARE YOU SAYING THEY SHOULD HAVE DONE?

>> I THINK THE RIGHT WAY TO APPROACH THIS IS TO LOOK FOR A LARGER PACKAGE, AND I THINK THERE'S AN IMPORTANT PARAMETER OR PROVISION THAT SHOULD BE A GROUND RULE FOR THIS DISCUSSION. THE DEFICIT REDUCTION SHOULD CONSIST IN EQUAL PARTS OF REVENUE INCREASES AND SPENDING REDUCTIONS BECAUSE IF WE RELY ON SPENDING CUTS OF THE MAGNITUDE THAT HAVE BEEN WIDELY DISCUSSED, WE ARE NOT OVER THE LONGER HAUL, GOING TO BE ABLE TO SUSTAIN THE MAJOR SOCIAL INSURANCE PROGRAMS IN THE UNITED STATES.

>> Woodruff: BUT IS SOMETHING LIKE THAT, WAS THAT EVER IN THE CARDS WITH THIS SUPER COMMITTEE, MAYA MacGUINEAS?

>> I THINK THE SUPER COMMITTEE GAVE IT A SHOT TO BOTH GO BIG AND GO SMALL. I THINK IF THEY HAD STAYED ON THAT PATH OF TRYING TO GO BIG, THEY MIGHT HAVE BEEN MORE SUCCESSFUL.

>> Woodruff: WHY DIDN'T THEY?

>> I THINK THERE WAS A LOT OF GOOD STARTS IN THE SUPER COMMITTEE. SENATOR BAUCUS PUT OUT A PLAN THAT HAD A WHOLE LOT OF GOOD PROVISIONS IN IT, DID A LOT ON HEALTH CARE AND WAS BIGGER THAN THEIR ORIGINAL MANDATE. WE INCREASINGLY SMALLER PACKAGES. I THINK ANOTHER HELPFUL MOMENT WAS WHEN SENATOR TOOMEY PUT REVENUES ON THE TABLE. IT WAS AN IMPORTANT START TO GET THEM OUT THERE. BUT THEN WE KIND OF PING-PONGED BACK AND FORTH WHERE EACH OF THE DEALS GOT SMALLER AND SMALLER AND SMALLER. WE SAW THINGS TAKEN OFF THE TABLE. WE GOT FARTHER AWAY FROM THE DEAL. I THINK IF YOU'RE GOING TO MAKE ALL THESE HARD CHOICES THE UP SIDE OF IT IS THAT YOU ACTUALLY FIX THE PROBLEM. SO I DO THINK WHEN WE GO BACK TO THIS-- AND WE HAVE TO. WE CAN'T TAKE A YEAR OFF. THEY SHOULD START WITH A PACKAGE THAT IS BIG ENOUGH TO ACTUALLY FIX THE PROBLEM, STABILIZE THE DEBT $4 TRILLION IS WHAT WE'RE GOING TO NEED TO TALK ABOUT.

>> Woodruff: WHERE DOES CONGRESS GO FROM HERE? THERE ARE IMMEDIATE DECISIONS TO BE MADE AS WE REFERENCED A MINUTE AGO.

>> THE FIRST THING THEY'LL DO IS GO HOME FOR THE THANKSGIVING HOLIDAY WHERE THEY'RE GOING TO GET SOME COMMENTS FROM THEIR STON CONSTITUENTS AND A PIECE OF THEIR MIND. ONE REAL QUESTION IS HOW MUCH WILL THAT BLOW-BACK AFFECT MEMBERS OF CONGRESS WHEN THEY COME BACK? HOW MANY OF THEIR CON STIT YEPTS ARE GOING TO STAY, YOU GO BACK THERE AND GET TO WORK AND DO THAT BIG PACKAGE OR FOR MANY OF THE REPUBLICANS ESPECIALLY THIS THE HOUSE FACING PRIMARIES AHEAD, WILL THE FEEDBACK BE, IF YOU RAISE A DIME IN TAXES WE'LL TAKE YOU OUT IN THE PRIMARY.

>> Woodruff: HAVEN'T THEY ALREADY BEEN FEELING HEAT?

>> IT HASN'T BEEN ENOUGH TO CAUSE A RECALCULATION. EVEN AT A 9% APPROVAL RATING FOR CONGRESS, MOST INCUMBENTS ARE STILL MORE WORRIED ABOUT WHERE THE BASE WILL BE THAN ANYWHERE ELSE. AFTER THAT, WHEN THEY COME BACK, WE DO HAVE THESE DECISIONS. THEY GET TO HENRY'S FIRST POINT. IF WE DON'T EXTEND THE PAYROLL TAX CUTS AND UNEMPLOYMENT, THE OBJECTIVE INDEPENDENT ANALYSTS SAY THAT WE COULD CUT GROWTH IN THE U.S., WHICH IS ALREADY PROJECTED TO BE AT A VERY SLUGGISH LEVEL, BY 1-2 PERCENTAGE POINTS. AND WHAT WE NOW HAVE IS YET ANOTHER OF THESE "MY WAY OR THE HIGHWAY" NEGOTIATIONS. THE HOUSE REPUBLICANS HAVE SAID WE WILL NOT EXTEND THOSE TAX CUTS OR UNEMPLOYMENT BENEFITS UNLESS THERE ARE IMMEDIATE OFFSETS. OF COURSE THE IMMEDIATE OFFSETS MEAN THAT THE STIMULUS IS OFFSET ITSELF. AND IF WE GET INTO ANOTHER OF THESE END-GAME NEGOTIATIONS CONGRESS IS GOING TO LOOK EVEN WORSE BEFORE CHRISTMAS.

>> Woodruff: WHAT'S JUST HAPPENED DOESN'T BODE WELL FOR THOSE DECISIONS ON THE UNEMPLOYMENT BENEFITS AND THE SOCIAL SECURITY PAYROLL TAXES.

>> IT'S REALLY QUITE DEPRESSING. THERE'S ANOTHER ISSUE THAT THE PRESIDENT DIDN'T MENTION IN HIS STATEMENT BUT IS A VERY LARGE SHOE WAITING TO DROP. UNDER CURRENT LAW FEES UNDER MEDICARE ARE SCHEDULED TO BE CUT 27% AT THE START OF NEXT YEAR.

>> Woodruff: THESE ARE FEES TO PHYSICIANS?

>> PHYSICIANS. THAT'S CORRECT. IN PAST YEARS CONGRESS HAS WAIVED THOSE. THEY MAY WELL DO SO AGAIN. BUT THERE'S A PROBLEM. IF THEY WAIVE THEM, THAT IS A SPENDING INCREASE AS RECORDED IN OUR ACCOUNTS. IT MAKES THE JOB OF MEETING THESE TARGETS EVEN HARDER THAN IT OTHERWISE WOULD HAVE BEEN. BUT IT CAN'T BE ALLOWED TO TAKE EFFECT BECAUSE THE CONSEQUENCES, THE MEDICARE PATIENT COULD BE EXTREME DISRUPTION.

>> Woodruff: WHAT DO WE LOOK FOR FROM HERE ON OUT? WE ARE HEADING INTO A PRESIDENTIAL ELECTION CONGRESSIONAL ELECTIONS. IS THERE... THE INCENTIVE THAT NORM ORNSTEIN TALKED ABOUT, IS THAT THERE FOR MEMBERS OF CONGRESS TO MAKE THE KIND OF BIG DECISIONS THAT YOU'RE SAYING NEED TO BE MADE?

>> YOU KNOW, I THINK IT IS BECAUSE I THINK ALL OF THE NATIONAL ATTENTION IS NOW ON THIS ISSUE. I THINK IT'S NOT GOING TO GO AWAY UNTIL WE DO SOMETHING. YOU HEARD THE MERIT. SOME PEOPLE ARE SAYING WE'RE GOING TO HAVE TO FIGURE THIS OUT IN THE ELECTION. THAT WON'T WORK. THAT WON'T BE SOMETHING THAT GOES THROUGH IN THE ELECTION BECAUSE WE WILL END UP WITH A DISCUSSION WHERE PEOPLE PROMISE ABOUT THINGS THEY WON'T DO. I'M NOT GOING TO RAISE TACKS. I'M NOT GOING TO RAISE THE RETIREMENT AGE. I'M NOT GOING TO TOUCH SOCIAL SECURITY AND MEDICARE. THOSE ARE THE THINGS WE'RE GOING TO HAVE TO DO. WE'RE GOING TO HAVE A NATIONAL DISCUSSION ABOUT DOING THAT. THAT MEECHBS THE PEOPLE WHO SUPPORT GOING BIG OR PUTTING A PLAN IN PLACE, MOVING FORWARD NOW IN A BIPARTISAN WAY AND IF WE WAIT UNTIL AFTER THE ELECTION, I FEAR THAT WE HAVE A LOT OF ECONOMIC RISKS THAT ARE STANDING THERE WAITING TO KIND OF MARKET... MARKETS ARE GOING TO PUT PRESSURE ON, WHAT'S GOING ON IN EUROPE IS IS GOING TO AFFECT THINGS GOING ON HERE. THERE WILL BE A GROWING DISSATISFACTION WITH CONGRESS ACROSS THE BOARD.

>> COULD I MENTION ONE AREA.

>> Woodruff: QUICKLY.

>> ONE AREA WHERE I THINK SOMETHING WAS PUT ON THE TABLE, MAYA WAS HAPPY WITH IT BUT I DON'T THINK IT WAS A STEP FORWARD. THAT WAS THE TAX PLAN DURING THIS NEGOTIATION IT WAS PUT FORWARD BY SENATOR TOOMEY AND THE REPUBLICANS. THE PROPOSAL WAS TO CURTAIL TAX EXPENDITURES ABOUT $3 TRILLION WORTH THAT WOULD MOSTLY AFFECT THE MIDDLE CLASS AND ABOUT 85 OR 90 PERCENT OF THAT REVENUE WOULD HAVE BEEN USED FOR CUTTING REVENUES ON THE WELL TO DO. THAT IS PRECISELY THE DIRECTION WE DON'T WANT TO GO IN, A KIND OF DIVISIVENESS THAT I THINK....

>> YOU'RE SAYING TAX REFORM. THAT'S HOW WE MOVE FORWARD ON THESE BIGGER IDEAS OF TAX REFORM AND ENTITLEMENT REFORM AND THINGS WE KNOW WE'RE GOING TO NEED TO WORK ON.

>> Woodruff: 30 SECONDS.

>> TWO THINGS WE HAVE TO REMEMBER IN THE POLITICS. ONE IS IS THE BUSH TAX CUTS ON THE RICH EXPIRE BEFORE OBAMA'S TERM IS OVER. HE HAS SAID HE WILL HAVE AN $800 BILLION TAX INCREASE WITH NOTHING IN RETURN. REPUBLICANS HAVE TO THINK ABOUT THAT. BUT ALSO REMEMBER WE GET TO JANUARY AND IMMEDIATELY WE HAVE IOWA CAUCUSES. THE REPUBLICAN PRESIDENTIAL PROCESS THAT PULLS THE PARTY FURTHER TO THE RIGHT THAT'S GOING TO COMPLICATE THE TASK OF MEMBERS OF CONGRESS TRYING TO REACH A DEAL THAT INVOLVES COMPROMISES THAT THE BASE OUT THERE VOTING WON'T LIKE.

>> Woodruff: MORE TOUGH QUESTIONS AHEAD. NORMAN ORNSTEIN, MAYA MacGUINEAS, HENRY AARON, WE THANK YOU ALL THREE.

>> THANK YOU.

>> THANK YOU.

>> Suarez: STILL TO COME ON THE NEWSHOUR, THE CLASHES IN CAIRO'S TAHRIR SQUARE; THE USE OF PEPPER SPRAY ON A CALIFORNIA CAMPUS; AMERICA'S POOREST CITY, READING, PENNSYLVANIA; AND A POWERFUL COMPUTER VIRUS. BUT FIRST, THE OTHER NEWS OF THE DAY. HERE'S HARI SREENIVASAN.

>> Sreenivasan: A MAN ACCUSED OF PLOTTING TO BOMB POLICE STATIONS AND POST OFFICES IN NEW YORK CITY REMAINED IN CUSTODY TODAY. 27-YEAR-OLD JOSE PIMENTAL WAS ARRESTED AND ARRAIGNED OVER THE WEEKEND. POLICE HAD BEEN WATCHING HIM FOR AT LEAST A YEAR. THEY SAID HE'D BEGUN ASSEMBLING A BOMB. ACCORDING TO INVESTIGATORS, PIMENTAL APPEARED TO BE WORKING ALONE, WITH NO TIES TO OUTSIDE GROUPS. THE NEW RULING PARTY IN SPAIN CAME UNDER PRESSURE TODAY TO SPELL OUT HOW IT PLANS TO RESCUE THE COUNTRY FROM ECONOMIC RUIN. THE CONSERVATIVE PEOPLE'S PARTY CELEBRATED SUNDAY AFTER SWEEPING THE SOCIALISTS OUT OF POWER. UNDER THEIR LEADERSHIP, UNEMPLOYMENT IN SPAIN GREW TO THE HIGHEST IN THE EUROPEAN UNION, MORE THAN 20%. THE INCOMING PRIME MINISTER, MARIANO RAJOY, IS EXPECTED TO PUSH AUSTERITY MEASURES, BUT HE REFUSED TO DISCUSS DETAILS TODAY. THE U.S. IMPOSED A NEW ROUND OF SANCTIONS ON IRAN TODAY. IT'S A JOINT EFFORT WITH BRITAIN AND CANADA TO PRESSURE THE REGIME INTO HALTING ITS SUSPECTED NUCLEAR WEAPONS PROGRAM. THE SANCTIONS WILL TARGET IRAN'S COMPANIES, REVOLUTIONARY GUARD FORCE, AND PETROCHEMICALS INDUSTRY. SECRETARY OF STATE HILLARY CLINTON MADE THE ANNOUNCEMENT IN WASHINGTON.

>> THE TREASURY DEPARTMENT IS FORMALLY IDENTIFYING IRAN AS A JURS DICTION OF PRIMARY MONEY LAUNDERING CONCERN. THIS IS THE STRONGEST OFFICIAL WARNING WE CAN GIVE THAT ANY TRANSACTION WITH IRAN POSES SERIOUS RISKS OF DECEPTION OR DIVERSION.

>> Sreenivasan: EARLIER THIS MONTH, THE U.N. NUCLEAR AGENCY REPORTED IRAN HAS CONDUCTED EXPERIMENTS TO DEVELOP NUCLEAR ARMS. THE IRANIANS INSIST THEIR NUCLEAR PROGRAM IS FOR PEACEFUL PURPOSES. CONCENTRATIONS OF GREENHOUSE GASES IN THE EARTH'S ATMOSPHERE HIT RECORD LEVELS IN 2010. THE U.N. WEATHER AGENCY REPORTED THE FINDING TODAY, AND IT SAID THE BUILDUP OF CARBON DIOXIDE, IN PARTICULAR, SEEMS TO BE ACCELERATING. OVERALL, THERE'S NEARLY 40% MORE CARBON DIOXIDE IN THE ATMOSPHERE NOW THAN AT ANY TIME SINCE THE INDUSTRIAL ERA BEGAN IN 1750. A SEPARATE U.N. REPORT TODAY FOUND THE WORLD AIDS EPIDEMIC IS LEVELING OFF. IT SAID THE NUMBER OF NEW H.I.V. INFECTIONS HAS STABILIZED AT AROUND 2.7 MILLION A YEAR. THAT IS UNCHANGED SINCE 2007. IN BERLIN TODAY, THE DIRECTOR OF THE U.N.'S AIDS AGENCY POINTED TO IMPROVED ACCESS TO DRUGS.

>> THIS YEAR IS A GAME-CHANGING YEAR. IT'S THE FIRST TIME THAT THE CENSUS IS TELLING US THAT IF WE PUT PEOPLE ON TREATMENT EARLY, WE CAN REDUCE INFECTION BY 96%. SO WE ARE DROPPING THE RATE BETWEEN PREVENTION AND TREATMENT.

>> Sreenivasan: NEW INFECTIONS HAVE ACTUALLY DROPPED IN SOUTHERN AFRICA, BUT THE VIRUS IS SPREADING RAPIDLY IN EASTERN EUROPE AND CENTRAL ASIA. IN ALL, THE U.N. REPORTED SOME 34 MILLION PEOPLE WORLDWIDE WERE LIVING WITH H.I.V. LAST YEAR. FORMER F.B.I. DIRECTOR LOUIS FREEH HAS BEEN TAPPED TO LEAD PENN STATE'S INTERNAL INVESTIGATION OF A CHILD SEX ABUSE SCANDAL. HE PLEDGED TODAY TO CONDUCT A THOROUGH AND INDEPENDENT INQUIRY, GOING AS FAR BACK AS 1975. FORMER ASSISTANT FOOTBALL COACH JERRY SANDUSKY IS CHARGED WITH MOLESTING EIGHT BOYS OVER A 15- YEAR PERIOD. HE'S MAINTAINED HIS INNOCENCE. THOSE ARE SOME OF THE DAY'S MAJOR STORIES. NOW, BACK TO RAY.

>> Suarez: AND TO THE ESCALATING TENSIONS AND RISING TEAR GAS IN EGYPT. MAYHEM IN CAIRO'S TAHRIR SQUARE, SEAT OF THE EGYPTIAN REVOLUTION. TEAR GAS AND RUBBER BULLETS FILLED THE AIR, THE CLASHES BETWEEN POLICE AND PROTESTORS MOVING INTO A THIRD DAY AND NIGHT. IN ADDITION TO THE KILLINGS, THOUSANDS HAVE BEEN INJURED IN RUNNING BATTLE, THE SURGE IN AND OUT OF CENTRAL CAIRO. A MAKESHIFT FIELD HOSPITAL HAS BEEN BUSY.

>> SOME PEOPLE CAN BRING SYRINGES. SOME PEOPLE CAN BRING BANDAGES. OTHERS CAN BRING COTTON. THIS IS WHAT WE ARE ABLE TO DO.

>> Suarez: MOUNTING POPULAR DISCONTENT WITH EGYPT'S MILITARY GOVERNMENT WAS THE SPARK FOR THE WORST VIOLENCE SINCE JANUARY'S UPRISING. IT SPREAD FROM CAIRO TO ALEXANDRIA IN THE NORTH AND TO SUEZ IN THE EAST. LAST FEBRUARY, THE MILITARY ENDED PRESIDENT MUBARAK'S 30- YEAR RULE AND PROMISED A SWIFT TRANSITION TO CIVILIAN GOVERNMENT. BUT THE HALTING PACE OF CHANGE BROUGHT THOUSANDS INTO THE SQUARE ON FRIDAY, A VOLATILE MIX OF SECULAR AND EVEN MORE NUMEROUS ISLAMIST FORCES CALLING FOR THE MILITARY TO STEP BACK.

>> WE WANT EGYPT TO MOVE ON, WHETHER IT'S RUN BY ISLAMIST SHARIA LAW OR BY A CIVILIAN PARTY BUT WE NEEDY JIPT TO MOVE ON BEFORE IT SINKS TO A POINT WHERE WE CAN'T HELP IT OR SAVE IT FROM DROWNING.

>> Suarez: MARCHES GAVE WAY TO MELEES ON SATURDAY AS POLICE SOUGHT TO MOVE PROTESTORS OUT OF THE SQUARE, EVEN FIRING BIRD SHOT.

>> THE MILITARY AND THE SAME OLD STYLE OF THE OUSTED MUBARAK REGIME ATTACKED PROTESTORS CAMPED IN TAHRIR SQUARE. THEY USED THE SAME FILTHY OLD STYLE OF EGYPTIAN SECURITY AND THUGS. EGYPT HAS NOT CHANGED. IN FACT IT'S GETTING WORSE.

>> THE POLICE FORCE STILL HAS THE SAME OLD REGIME CONTROLLING IT. THE POLICE DIDN'T CHANGE. THEIR TOOLS NEVER CHANGED. THEY STILL USE EXCESSIVE FORCE AGAINST PROTESTORS.

>> Suarez: THE VIOLENCE CAST A PAL OVER THE FIRST PLANNED STEP AWAY FROM THAT OLD REGIME. NEXT MONDAY A MONTH-LONG AND COMPLEX PARLIAMENTARY ELECTION PROCESS IS SCHEDULED TO BEGIN. A PRESIDENTIAL VOTE IS ALREADY BEEN PUSHED BACK INTO LATE 2012 OR 3013. THE SUPREME COUNCIL OF THE ARMED FORCES OR SCAT, WHICH RUNS THE MILITARY, HAS SAID IT WOULD ONLY HAND OVER POWER THEN. THE PROTESTORS SAY EGYPT HAS WAITED LONG ENOUGH AND REAL REFORM MUST COME DOWN.

>> WE NEED A CIVIL PRESIDENTIAL COUNCIL ELECTED BY TAHRIR AND ELECTED BY THE EGYPTIAN PEOPLE. FIGURES THAT ARE POLITICALLY AGREED UPON BY THE PEOPLE SO THAT THESE FIGURES RULE THE COUNTRY AND CREATE A TRANSITIONAL GOVERNMENT AND CONDUCT FAIR AND FREE ELECTIONS THAT WILL LEAD TO A PRESIDENT AND CONSTITUTION.

>> Suarez: IN WASHINGTON TODAY WHITE HOUSE SPOKESMAN JAY CARNEY CALLED FOR SOME PERSPECTIVE AND PEACE IN THE STREETS.

>> IT'S IMPORTANT TO STEP BACK AND REMEMBER HOW FAR EGYPT HAS TRAVELED THIS YEAR. IT'S IMPORTANT THAT EGYPT CONTINUES TO MOVE TO MAKE THAT TRANSITION TO THE DEMOCRACY THAT THE PEOPLE OF EGYPT DEMANDED. AS A RESULT OF THEIR DEMANDS, THEY ENDED A MULTI-DECADE DICTATORSHIP. SO WE URGE AGAIN RESTRAINT ON ALL SIDES AND FOR THE PROCESS TOWARDS THE TRANSITION TO CONTINUE.

>> Suarez: BY TONIGHT THE LARGEST CROWDS YET HAVE FILED INTO TAHRIR SQUARE. SOME CALLING FOR A SECOND REVOLUTION. AS THE CROWDS GREW, THE MEMBERS OF THE INTERIM CIVILIAN CAPITAL APPOINTED BY THE MILITARY SUBMITTED THEIR RESIGNATIONS TO THE SUPREME COUNCIL. FOR MORE ON THIS INCREASINGLY DEADLY MIX OF POLITICS AND VIOLENCE, WE GO TO CHARLES SENNOTT, A VETERAN MIDDLE EAST CORRESPONDENT AND NOW EXECUTIVE EDITOR OF OUR PARTNER GLOBALPOST, THE INTERNATIONAL NEWS WEB SITE. MOST RECENTLY HE HAS DIRECTED A TEAM OF 17 YOUNG EGYPTIAN AND AMERICAN JOURNALISTS IN EGYPT. THEIR REPORTING IS FEATURED ON THE GLOBALPOST WEB SITE. AND CHARLES SENNOTT JOINS US NOW FROM BOSTON. CHARLES, HOW DOES WHAT WE SAW OVER THE WEEKEND AND CONTINUES THROUGH TODAY RESEMBLE AND HOW IS IT DIFFERENT FROM THE MOUNTING REVOLUTION THAT TOPPLED HOSNI MUBARAK?

>> WELL, I THINK WHAT HAPPENED IN JANUARY AND FEBRUARY WAS SUCH AN EXTRAORDINARY MOMENT IN EGYPT'S HISTORY, SO FULL OF HOPE. THERE REALLY WAS A SENSE OF A NONVIOLENT MOVEMENT, LARGELY NONVIOLENT MOVEMENT THAT TOOK TO THE STREETS, TOPPLED A 0-YEAR DICTATOR AND WANTED TO PUSH FORWARD. I THINK WHAT WE'RE SEEING ON THE STREETS TODAY IS THE FRUSTRATION THAT HAS JUST ERUPTED AROUND, AS YOU POINTED OUT, THE SLOW PACE OF CHANGE, THE WAY IN WHICH THE ELECTIONS APPEAR TO BE BEING THWARTED BY THE MILITARY, THE MOVEMENT TOWARD DRAFTING A CONSTITUTION IS ALSO MANY POLITICAL FACTIONS FEEL IS BEING THWARTED BY THE MILITARY. THE MILITARY WHICH WAS REALLY SEEN AS HEROIC DURING THE FIRST DAYS OF THOSE DEMONSTRATIONS THAT TOPPLED MUBARAK IS NOW BEING QUESTIONED. THE FEAR I THINK THAT YOU SENSE IN EGYPT IS MANY PEOPLE ARE WONDERING IF THIS REALLY IS A REVOLUTION AFTER ALL. OR IS IT ENDING UP AS A SORT OF POPULARLY SUPPORTED MILITARY COUPS?

>> Suarez: ARE THE COMING PARLIAMENTARY ELECTIONS IN YOUR VIEW IN JEOPARDY?

>> I THINK THEY ARE. I MEAN I THINK THAT'S BEING DISCUSSED IN EGYPT. WE'VE HEARD THAT ON NATIONAL TELEVISION. SOME OF THE ANCHORS OF THE NIGHTLY NEWSCASTS HAVE SUGGESTED THAT THERE IS A QUESTION IN THE AIR AS TO WHETHER OR NOT THESE ELECTIONS WILL GO FORWARD, STARTING ON NOVEMBER 28, CONTINUING OVER A SIX-WEEK PERIOD. VERY COMPLEX, CONFUSING SET OF ELECTIONS AND RUN-OFFS THAT WILL PUT A NEW PARLIAMENT IN PLACE. THERE'S VERY MUCH A QUESTION LOOMING IN THE AIR AS TO WHETHER OR NOT THEY WILL GO FORWARD. IT LOOKS LIKE FOR NOW THEY WILL. THE MUSLIM BROTHERHOOD, THE MOST POWERFUL POLITICAL PARTY IN EGYPT RIGHT NOW WHICH BY CONSERVATIVE ESTIMATES WILL TAKE 30% OF THE VOTE, IS SAYING THAT IT'S GOING TO DEMAND THAT THOSE ELECTIONS GO FORWARD AND PUSH VERY HARD FOR THEM.

>> Suarez: EVEN IF THEY DO GO FORWARD, THE SELECTION OF A NEW PRESIDENT HAS BEEN PUSHED FAR OFF INTO THE FUTURE. ARE PEOPLE STARTING TO DOUBT THAT THE MILITARY WILL LEAVE? AND LET'S RECALL, I'M ASKING THIS ON THE SAME DAY AS THE... ALL THE CIVILIANS, REMAINING CIVILIANS IN THE CABINET QUIT EN MASS.

>> I THINK THIS IS VERY MUCH FAITHFUL TURNING POINT RIGHT NOW FOR EGYPT. YOU KNOW, THE MILITARY, AS I SAID WAS SO TRUSTED IN THAT FIRST PHASE OF THE POPULAR UPRISINGS THAT TOPPLED MUBARAK. THE SHOUT IN TAHRIR SQUARE WAS "THE PEOPLE, THE ARMY, ONE HAND." THE DRAMATIC CHANGE THAT'S HAPPENED IN THE NINE MONTHS SINCE THEN IS REALLY EXTRAORDINARY TO SEE THE MILITARY SLIDE IN PUBLIC OPINION, TO SEE THE WAY IT'S REALLY CRACKED DOWN ON PROTESTS THAT HAVE ERUPTED. THE WAY IT'S IMPOSED MILITARY TRIBUNALS, THE WAY IT'S REALLY TRIED TO EXERT ITS CONTROL AT ONE POINT SORT OF USING SOME OF THE LEVERAGES OF POWER TO SUGGEST THAT THEY WOULD BE IMMUNE TO TRANSPARENCY AND NOT PUT UNDER THE SAME LEVEL OF SCRUTINY OF CIVILIAN CONTROL, UNDER A CONSTITUTIONAL GUARANTEE, SORT OF SETTING UP A MILITARY STATE WITHIN A STATE. GENUINE FEARS, I THINK, BY MANY ASPECTS OF THE POLITICAL OPPOSITION. THE RELIGIOUS MUSLIM BROTHERHOOD AND ALSO THE SECULAR MOVEMENTS AND THE MORE LIBERAL PARTIES ARE TOGETHER, I THINK, IN THEIR EXPRESSION OF CONCERN ON WHAT IS THE ROLE OF THE MILITARY GOING FORWARD IN EGYPT?

>> Suarez: YOU'VE GOT TEAM OF YOUNG REPORTERS. WHAT ARE THEY TELLING YOU ABOUT THE MOOD ON THE STREETS OF THE COUNTRY?

>> WE HAD ON AN EXTRAORDINARY CHANCE TO WORK WITH THESE YOUNG CORRESPONDENTS. THERE WERE 16 OF THEM. EIGHT OF THEM WERE EGYPTIAN. EIGHT OF THEM WERE AMERICAN. ALL OF THEM WERE EXTREMELY TALENTED. WHAT THEY LEARNED IN SORT OF FANNING OUT ACROSS EGYPT AND LOOKING AT ALL THESE DIFFERENT ASPECTS OF ART AND ECONOMICS, OF LOOKING AT THE TOURISM SECTOR, TRYING TO REALLY GET AT THE, YOU KNOW, THE SORT OF EVERYDAY STORIES, THE HUMAN NARRATIVES OF EGYPT. I THINK WHAT THEY HEARD WAS A CREEPING CYNICISM, A SENSE THAT FEAR... THAT THIS REVOLUTION IS SLIPPING AWAY FROM THE EGYPTIAN PEOPLE. WE WERE REALLY HEARING THAT THROUGH THESE REPORTERS. OPEN HANDS INITIATIVE, WHICH PROMOTED THIS, WHICH SUPPORTED THIS PROJECT, REALLY LOOKS FOR PEOPLE-TO-PEOPLE UNDERSTANDING. AND THE REPORTING THAT THE EGYPTIANS AND AMERICANS DID TOGETHER REALLY WAS INTERESTING TO SEE HOW IT DEEPENED THAT SENSE OF GETTING TO THOSE HUMAN STORIES. AS I SAY, I THINK THE MOST ENDURING THEME THAT CAME OUT OF THEIR REPORTING WAS A FEELING THAT THE REVOLUTION IS SLIPPING AWAY AND THAT THE EGYPTIAN PEOPLE ARE IMPATIENT ABOUT CLAIMING IT. AND NOT ALLOWING THE MILITARY TO IMPOSE ITS WILL BUT TO REALLY PUSH FOR DEMOCRACY. SO I THINK VERY MUCH A FATEFUL MOMENT IN EGYPT'S HISTORY RIGHT NOW.

>> Suarez: THE UNITED STATES HAS STEPPED VERY GINGERLY SINCE THE EARLIEST DAYS OF THE ARAB SPRING. WHAT'S THE AMERICAN STAKE HERE IN WHAT HAPPENS NEXT, WHATEVER IT IS, IN EGYPT?

>> I THINK THE STAKES ARE QUITE HIGH. I MEAN, IF YOU THINK ABOUT EGYPT AS THE MOST POPULOUS COUNTRY OF THE ARAB WORLD, IF YOU THINK ABOUT THE EXPRESSION THAT THE ARAB WORLD IS A TENT WITH TWO POLES, SAUDI ARABIA AND EGYPT, HOW THIS PLAYS OUT IN EGYPT IS OF TREMENDOUS IMPORTANCE IN TERMS OF WHAT'S GOING TO HAPPEN IN THE ARAB SPRING, WHAT KIND OF PRECEDENT WILL THESE ELECTIONS SET? I THINK ALSO A TREMENDOUS CHALLENGE TO U.S. FOREIGN POLICY HERE. YOU KNOW, AMERICAN FOREIGN POLICY HAS TALKED ABOUT DEMOCRACY IN THE REGION. IT'S BUT FAVORED STABILITY. AND IT'S TALKED ABOUT SUPPORTING THE POPULAR WILL OF THE PEOPLE BUT IT'S VERY WARY OF THE MUSLIM BROTHERHOOD. I THINK THAT OUR IDEALS RUN RIGHT UP AGAINST SORT OF THE WILL OF THE PEOPLE IN EGYPT. I THINK WE'RE GOING TO HAVE TO REALLY THINK THIS THROUGH. YOU KNOW, AS AMERICAN PEOPLE WILL HAVE TO THINK IT THROUGH BUT I THINK THE U.S. GOVERNMENT AND FOREIGN POLICY ADVISORS HAVE A VERY TOUGH EQUATION ON THE STREETS OF EGYPT RIGHT NOW. THERE NEEDS TO BE SUPPORT FOR A NATION'S DEMOCRACY BUT OF COURSE THERE ARE GREAT REGIONAL CONCERNS NOT THE LEAST AMONG THEM WHAT WILL HAPPEN IF AN ISLAMIST GOVERNMENT DOES EMERGE. WHAT THE MUSLIM BROTHERHOOD AND THE MORE SORT OF EXTREME FRINGE OF THE ISLAMIST MOVEMENT THERE TAKE CONTROL OF THAT PARLIAMENT AND SHAPE THE CONSTITUTION IN A WAY THAT IS NOT TO THE LIKING OF THE UNITED STATES? WHAT ABOUT RELATIONSHIP... THE RELATIONSHIP WITH ISRAEL AND THE CAMP DAVID ACCORD? ALL OF THESE QUESTIONS ARE BOUND UP IN WHAT'S GOING TO HAPPEN IN EGYPT AND WHAT'S GOING TO HAPPEN IN THIS NEXT ELECTION.

>> Suarez: CHARLES JOINS US FROM BOSTON WITH GLOBAL POST. GOOD TO TALK TO YOU, CHARLES.

>> THANK YOU.

>> Woodruff: AND TO PROTESTS HERE IN THE U.S., WHERE THERE WAS CONTINUING CRITICISM TODAY ABOUT THE WAY OFFICIALS AT A PUBLIC UNIVERSITY IN CALIFORNIA DEALT WITH AN OCCUPY GROUP THIS WEEKEND. NEWSHOUR CORRESPONDENT SPENCER MICHELS HAS OUR REPORT.

>> Reporter: IT BEGAN ON FRIDAY AFTERNOON AT THE UNIVERSITY OF CALIFORNIA DAVIS. STUDENT PROTESTORS LOCKED ARMS ON THE QUAD. WHAT HAPPENED NEXT WOULD SEND THIS WEB VIDEO VIRAL THROUGHOUT THE WEEKEND. POLICE IN RIOT GEAR BEGAN TO PEPPER SPRAY THE DOZEN OR SO OCCUPY DAVIS DEMONSTRATORS AT CLOSE RANGE. NEARBY CROWDS SHOUTEDED AT THE OFFICERS AS THE ORANGE MIST DOUSED THE FACES OF THEIR PEERS. AUTHORITIES SAY PEPPER SPRAY IS AN INFLAMMATORY AGENT THAT RENDORS PEOPLE INCAPACITATED BUT ONLY TEMPORARILY. UNIVERSITY OFFICIALS REPORTED THAT AFTER THE PEPPER SPRAYING, NINE STUDENTS WERE TREATED AT THE SCENE AND TWO WERE TAKEN TO HOSPITALS. TEN WERE ARRESTED. THE VIDEO SPARKED OUTRAGE. TWO UNNAMED OFFICERS WERE PLACED ON ADMINISTRATIVE LEAVE PENDING AN INVESTIGATION. AND UNIVERSITY CHANCELLOR LINDA KATAHY TOLD LISTENERS TODAY ON A CALL-IN SHOW THAT SHE DISAGREED WITH THE WAY THE OFFICERS ACTED.

>> THEY WERE NOT SUPPOSED TO USE FORCE. IT WAS NEVER CALLED FOR. WHAT THEY SAW ON THE VIDEO HAS BEEN HORRIFIC. IT'S NOT REALLY REPRESENTS... AS AN EDUCATOR, AS A HUMAN BEING I FELT I WAS FILLED WITH OUTRAGE.

>> Reporter: THE ORIGINS OF THE INCIDENT BEGAN AFTER STUDENTS SET UP AN ENCAMPMENT ON THURSDAY TO RALLY AGAINST TUITION INCREASES AND SUPPORT THE LARGER OCCUPY WALL STREET MOVEMENT. MANY STUDENTS CAMPED OVERNIGHT AGAINST UNIVERSITY POLICY. ON FRIDAY CAMPUS POLICE CAME TO FORCIBLY EVICT THE REMAINING DEMONSTRATORS. THAT'S WHEN THE OFFICERS USED THE PEPPER SPRAY. CAMPUS POLICE CHIEF ANET WAS PLACED ON LEAVE BY UNIVERSITY OFFICIALS THIS MORNING. YESTERDAY, HOWEVER, SHE WOULD NOT COMMENT ON WHETHER THE OFFICERS ACTED APPROPRIATELY.

>> IT'S A VERY FLUID, DYNAMIC SITUATION. THESE ARE SPLIT-SECOND DECISIONS. AS POLICE IN GENERAL, WE DO THE BEST WE CAN. WE'RE HERE TO SERVE AND PROTECT. I KNOW SOME PEOPLE, MANY PEOPLE, ARE VERY DISAPPOINTED AND/OR SHOCKED BY WHAT THEY SAW. BUT I THINK THIS INVESTIGATION WILL HELP EITHER... WILL BRING THIS TO A CLOSURE, WE HOPE. WE'LL FIND CLOSURE WITH THIS INVESTIGATION.

>> Reporter: THE INCIDENT ALSO HAS SPARKED A NUMBER OF CALLS FOR THE CHANCELLOR TO RESIGN. BUT OVER THE WEEKEND, THE CHANCELLOR SAID SHE SAW NO REASON TO DO SO.

>> I DON'T BELIEVE THAT IT IS APPROPRIATE FOR ME TO RESIGN AT THIS POINT. REALLY I DO THINK THAT I HAVE VIOLATED THE POLICIES OF THE INSTITUTION.

>> Reporter: IN A MOVE OF SOLIDARITY, PROTESTORS FROM OCCUPY SACRAMENTO GATHERED IN DAVIS TODAY, SUPPORTING THE U.C. STUDENTS. THE CHANCELLOR IS GIVING THE TASK FORCE 30 DAYS TO ISSUE A REPORT ON FRIDAY'S CONTROVERSY. HERE IN SAN FRANCISCO, 80 MILES SOUTHWEST OF DAVIS, DEMONSTRATORS REMAIN IN A DOWNTOWN PLAZA WHERE THEY'VE BEEN FOR WEEKS. OVER THE WEEKEND POLICE REMOVED 12 TENTS FROM IN FRONT OF THE FEDERAL RESERVE BUILDING. THEY MADE SIX ARRESTS. IN ADDITION, SOME OF THE DEMONSTRATORS BLOCKED MARKET STREET TEMPORARILY. ACROSS THE BAY, OCCUPIERS IN OAKLAND RALLIED AT A DOWNTOWN PARK ON SATURDAY. THAT DEMONSTRATION ENDED SUNDAY MORNING WITHOUT INCIDENT.

>> Suarez: NEXT, WE TURN TO OUR SERIES ON THE HIGH SCHOOL DROPOUT PROBLEM. OVER THE NEXT 18 MONTHS, THE NEWSHOUR IS JOINING WITH OTHER PUBLIC MEDIA TO EXAMINE CONSEQUENCES AND SOLUTIONS. IN TONIGHT'S REPORT, JEFFREY BROWN LOOKS AT HOW ONE CITY'S STRUGGLE TO REGAIN ITS ECONOMIC FOOTING IS TIED TO PROBLEMS IN ITS SCHOOLS. IT'S ALL PART OF OUR SERIES CALLED "AMERICAN GRADUATE."

>> JUST REMEMBER WE'RE MAKING THESE POSTERS AND HITING THE STREETS LATER ON REMINDING PEOPLE THAT TODAY IS ELECTION DAY.

>> Reporter: THESE HIGH SCHOOL STUDENTS AND THEIR FELLOW CITIZENS IN READING, PENNSYLVANIA, MAY HAVE NEEDED A REMINDER OF THE CITY'S MAYORAL ELECTION RECENTLY BUT THE CRITICAL ISSUES WERE CLEAR.

>> IT COULD BE LIKE AN INNER INDUSTRY BUT IT'S NOT. THE CITY IS POOR. THE STREETS ARE MESSED UP. EVERYTHING IS MESSED UP.

>> THERE'S NO MONEY. EVERYBODY IS GETTING LAID OFF. EVERYBODY'S... THEY DON'T KNOW WHAT TO DO.

>> Brown: WHAT DOES THAT MAKE YOU FEEL ABOUT YOUR OWN FUTURE?

>> YOU HAVE TO MOVE OUT OF READING TO GET A FUTURE.

>> Brown: DO YOU FEEL YOU HAVE TO MOVE OUT?

>> THAT'S HOW I FEEL.

>> Brown: IT HASN'T ALWAYS BEEN LIKE THIS. THE CITY WAS FOUNDED BY GERMAN IMMIGRANTS IN A RIVER VALLEY ABOUT AN HOUR NORTHWEST OF PHILADELPHIA AND HAS LONG ATTRACTED PEOPLE SEEKING JOBS AND A BETTER LIFE. MORE THAN 100 YEARS AGO READING WAS A SYMBOL OF INDUSTRIAL POWER, HOME TO THE READING RAILROAD, IN ITS DAY ONE OF THE RICHEST CORPORATIONS IN THE WORLD. TODAY THOUGH READING IS A DIFFERENT SORT OF SYMBOL, A NEW CENSUS RECKONING MAKES IT THE POOREST CITY IN THE NATION. MORE THAN 41% OF READING'S POPULATION OF 88,000 NOW LIVE BENEATH THE POVERTY LINE. LESS THAN 22,000 DOLLARS FOR A FAMILY OF FOUR. THIS IS A CITY THAT HAS SEEN NUMEROUS INDUSTRIES COME AND GO. STEEL MANUFACTURERS, TEXTILE MILLS, RETAIL CENTERS. READING WAS HOME TO THE FIRST OUTLET MALLS IN THE 1970s. THERE'S ALSO BEEN A HUGE DEMOGRAPHIC SHIFT IN THE LAST 20 YEARS WITH AN INFLUX OF LATINOS, MANY OF THEM IMMIGRANTS ATTRACTED ON THE LOW COST OF LIVING IN READING. THAT'S CAUSEDED A POPULATION TO RISE EVEN AS JOBS WENT AWAY. WERE YOU SURPRISED WHEN THE CITY, WHEN THOSE NUMBERS CAME OUT SHOWING THE CITY WAS THE POOREST IN THE COUNTRY?

>> NO. I SORT OF KNEW IT WAS COMING. IT'S JUST GETTING MORE DIFFICULT FOR A LOT OF FAMILIES TO MAKE ENDS MEET.

>> YOU SEE ALL THE BUSINESSES LEAVING AND STUFF CLOSING DOWN. IT WAS INEVITABLE.

>> Brown: AT A BOYS AND GIRLS CLUB IN ONE OF THE POOREST AREAS OF THE CITY, DOLORES AND MANNY SEE THE EFFECTS OF POVERTY FIRSTHAND. EVERY AFTERNOON THE CENTER PROVIDES TUTORING, RECREATION, AND HOT MEALS FOR CHILDREN AGE 5-18 WHO AREN'T OFTEN GETTING THEM AT HOME AND THEY'RE PROVIDING SOMETHING ELSE. A MESSAGE THAT IF YOU WANT A BETTER LIFE, YOU NEED TO STAY IN SCHOOL.

>> SOME LIVE IN THE PARTS OF THE CITY WHERE IT'S TOUGH SO THEY HAVE A LOT OF PEER PRESSURE, A LOT OF PRESSURES FROM THEIR COMMUNITY.

>> Brown: NOT TO GO TO SCHOOL.

>> NOT TO GO TO SCHOOL. LIKE WALKING TO SCHOOL THEY SEE DIFFERENT, SOME OF THEIR FRIENDS THAT DON'T GO TO SCHOOL AND GET CAUGHT UP IN SOME OF THE STUFF GOING ON ON THE STREETS.

>> WE WANT TO TELL THEM THAT YOU DO NEED THAT DIPLOMA. WE DO WANT YOU TO FURTHER YOUR EDUCATION.

>> Brown: TO GET A JOB.

>> ABSOLUTELY.

>> Brown: IT CAN BE A VICIOUS CYCLE. PLAYING OUT HERE IN READING AND IN OLDER INDUSTRIAL CITIES ALL OVER THE COUNTRY. YOUNG PEOPLE SEE JOBS LEAVING TOWN AND DECIDE THERE'S LITTLE POINT IN GETTING AN EDUCATION. AND THE COMPANIES THAT MIGHT LOOK TO MOVE HERE SEE A WORK FORCE THAT ISN'T READY FOR MANY OF TODAY'S WORKPLACE NEEDS.

>> A NEIGHBORHOOD THAT IS REFLECTIVE OF JUST ABOUT EVERYBODY....

>> Reporter: WILLIAM BENDER IS A PROFESSOR AT NEARBY KUTZTOWN UNIVERSITY AND SERVES ON THE MAYOR'S POVERTY COMMISSION.

>> I THINK IT'S VERY WELL KNOWN THAT EDUCATION IS ONE OF THE KEY PREDICTORS OF A PERSON NOT FALLING INTO POVERTY. IF A PERSON HAS ACCESS TO QUALITY EDUCATION, COMPLETES EDUCATION, IT'S LESS LIKELY THAT THE PERSON IS GOING TO FALL INTO POVERTY. THE CITY OF READING DROP-OUT RATE IS SIGNIFICANTLY HIGH. SOME ESTIMATES THAT IT IS APPROACHING 50%. THAT'S NOT A GOOD STATISTIC FOR US TO BE DEALING WITH.

>> Brown: BUT IF QUALITY EDUCATION IS AN ANSWER, READING STRUGGLES TO OFFER IT. THE PRESIDENT OF THE READING SCHOOL BOARD SAYS THE SYSTEM HAS MANY CHALLENGES. ONE OF THE BIGGEST IS MEETING THE NEEDS OF LATINO STUDENTS.

>> WE HAVE TO BE HONEST ABOUT WHAT IS HERE NOW DEMOGRAPHICALLY IN THE CITY OF READING. WHEN YOU HAVE AN INFLUX OF LATINO POPULATION, CURRENTLY THE READING SCHOOL DISTRICT HAS A GREATER THAN 70% LATINO POPULATION. HAVING SAID THAT, A NUMBER OF OUR YOUNG PEOPLE HAVE JUST COMING FROM OTHER COUNTRIES SO THEIR ABILITY TO SPEAK ENGLISH MAY NOT BE TO THE POINT THAT WE NEED THAT TO BE.

>> Brown: MONEY FOR NEW PROGRAMS THAT MIGHT HELP IN AND AFTER SCHOOL IS HARD TO COME BY. TO AVOID BANKRUPTCY, READING IS OPERATING UNDER A STRICT FINANCIAL PLAN WITH THE STATE WHICH CALLS FOR PROPERTY TAX HIKES, PAY FREEZES AND BUDGET CUTBACKS. AND STATE BUDGET CONSTRAINTS RECENTLY PROMPTED THE GOVERNOR TO CUT K-12 EDUCATION SPENDING BY $900 MILLION STATEWIDE. $17 MILLION FROM THE READING SCHOOL BUDGET.

>> PUBLIC DOLLARS ARE BEING SPREAD ALL ACROSS THE TABLE. WE'RE HAVING TO SCRAMBLE FOR SOME OF THE DOLLARS THAT ARE LEFT. WE JUST HAVE TO KIND OF THINK OUTSIDE OF THE BOX AND LOOK AT WAYS IN WHICH WE CAN ENTICE OUR YOUNG PEOPLE TO WANT TO LEARN, TO WANT TO STAY MOTIVATED, TO WANT TO STAY EDUCATED AND DOING MORE WITH LESS.

>> WHERE IS YOUR SISTER.

>> Reporter: ANGEL SAYS UP TO NOW, READING'S OVERSTRETCHED SCHOOL SYSTEM HASN'T DONE THAT.

>> I THINK THE MOST MEANINGFUL BARRIER THAT THE INSTITUTION HAS CREATED IS THE LACK OF MOTIVATION OR INSPIRATION TO GIVE YOUNG PEOPLE TO WANT TO STAY IN SCHOOL.

>> THANK YOU, GUYS FOR DOING.

>> Reporter: HE IS FOUNDER OF THE CHARTER SCHOOL THAT JUST OPENED IN READING THIS FALL IN A FORMER FACTORY BUILDING. IT SERVES 200 STUDENTS WITH A PLAN TO DOUBLE IN SIDES NEXT YEAR. ITS MISSION: TO ATTRACT AND MENTOR THOSE AT RISK OF DROPPING OUT FOR WHO ALREADY HAVE BUT ARE WILLING TO GIVE IT ANOTHER TRY.

>> I DROPPEDED OUT OF MY SCHOOL MY 11th GRADE BECAUSE I GOT PREGNANT, BECAME LAZY AND DIDN'T WANT TO DO ANYTHING.

>> Brown: BEFORE THAT, WERE YOU INTO SCHOOL OR YOU DIDN'T CARE MUCH ABOUT SCHOOL?

>> I HAD GOOD GRADES. MY 9th AND 10th GRADE YEAR I HAD GOOD GRADES.

>> Brown: YOU STARTED BY TELLING ME YOU MADE BAD DECISIONS EARLY ON LEAVING SCHOOL.

>> YES.

>> Brown: NOW WHAT? ARE YOU CHANGING THAT?

>> YES, SIR. ANY MAN CAN CHANGE. ANYBODY CAN CHANGE. YOU CAN'T JUST CHANGE SOMETHING OVERNIGHT. IT DOESN'T HAPPEN OVERNIGHT. YOU HAVE TO KEEP WANTING IT AND KEEP GOING FOR IT AND KEEP TRYING TO DO IT.

>> I WAS ONCE ONE OF THOSE YOUNG PEOPLE. I DIDN'T SEE LIGHT AT THE END OF THE TUNNEL. IT WASN'T UNTIL I CAME ACROSS A GREAT MENTOR THAT SAID YOU CAN ACHIEVE THESE THINGS. YOU CAN DO GREAT THINGS. IT STARTED CLICKING. I STARTED REALIZING, WOW, YES, I CAN. SOMEONE ELSE BELIEVES IN ME.

>> Brown: IF FURTHER PROOF WAS NEEDED ABOUT HOW HARD THIS WILL BE, IT CAME JUST A WEEK AFTER OUR VISIT WHEN ONE STUDENT WAS KILLED IN A NEARBY NEIGHBORHOOD AND IN A SEPARATE INCIDENT A YOUNG MAN WHO WAS SO OPTIMISTIC THAT HIS LIFE HAD CHANGED WAS ARRESTED FOR A HIT ANTED RUN ACCIDENT AND POSSESSION OF A HANDGUN. WE HAD SPOKEN TO ANGEL. HE KNEW HIS SCHOOL STILL TO PROVE TO GET RESULTS BUT HE BELIEVES IT HAS THE ADVANTAGE. IT'S ALSO CREATING PARTNERSHIPS WITH LOCAL COMPANIES LIKE CARPENTER TECH, A STEEL MANUFACTURER STILL IN THE AREA.

>> CAR-TECH IS BASICALLY SAYING, HOW CAN YOU GET KIDS TO PASS THE MATH AND SCIENCE ASSESSMENT EXAM? CAN YOU WORK WITH US AS AN EMPLOYER? FORTUNATELY AT THE CHARTER SCHOOL WE HAVE THAT FLEXIBILITY TO WORK WITH EMPLOYERS TO LOOK AT A WAY THAT WE COULD INTEGRATE OUR CURRICULUM WITH THEIR NEEDS AS IT RELATES TO PERFORMANCE AND SKILLS.

>> WELL, THIS IS OUR COMPUTER INTEGRATED MANUFACTURING STATION.

>> Reporter: BONNIE SPADE DIRECTS A HIGH-TECH TRAINING PROGRAM AT READING AREA COMMUNITY COLLEGE. ITS GOAL IS TO TAILOR LEARNING TO THE NEEDS OF LOCAL COMPANIES. EVEN ONES YOU MIGHT NOT THINK OF AS HIGH TECH. LIKE HERSHEYS.

>> THIS IS JUST A SMALL EXAMPLE OF THE SOPHISTICATION THAT'S GOING ON IN MANUFACTURING RIGHT NOW. IT IS AMAZING WHEN YOU ACTUALLY GET TO SEE HOW PRODUCTS ARE MADE AS SIMPLE AS A HERSHEY KISS NOWADAYS.

>> Brown: HUGE SOPHISTICATION AND TECHNOLOGY ALL FOR A LITTLE HERSHEY KISS.

>> THAT'S RIGHT.

>> Brown: THE KEY SAYS SPADE-- AND THIS WAS THE MOST OPTIMISTIC THING WE HEARD-- IS THAT THERE ARE DECENT-PAYING JOBS AVAILABLE AND THERE COULD BE MORE.

>> A LOT OF THE FOLKS THAT HAVE WORKED IN AN INDUSTRIAL DISCIPLINE OR A MANUFACTURING DISCIPLINE ARE AGING. BABY BOOMERS. WE'RE SEEING A FAIR NUMBER OF RETIREES. THE PIPELINE THAT WE'RE HOPING TO EMERGE INTO THESE TECHNICAL POSITIONS WE NEED TO RAMP THAT UP. WE NEED MORE YOUNG PEOPLE TO WANT TO WORK WITH THEIR HANDS, TO WANT TO BE SMART, TO HAVE REALLY, REALLY GREAT MATH APTITUDE.

>> Brown: SPADE'S NEW PLAN IS TO CONNECT BUSINESSES DIRECTLY WITH AREA HIGH SCHOOLS.

>> I CAN GO OUT THERE AND TALK TO HIGH SCHOOL KIDS AND PARENTS ABOUT THE DEGREE OR THE PROGRAMMING THAT I OFFER. I CAN TELL THEM ABOUT THE GREAT JOBS THAT ARE OUT THERE. BUT IT GOES A WHOLE LOT BETTER IF I'VE GOT THE HERSHEY PEOPLE, THE CARPENTER PEOPLE, THE PEP RIDGE FARM PEOPLE THAT ARE RIGHT BEHIND ME GOING, "AND GUESS WHAT? THIS IS THE JOB YOU'RE GOING TO GET TO DO. THIS IS WHERE YOU CAN GO WITH THIS. THIS IS THE CAREER PATHWAY YOU HAVE. IF YOU WANT THESE TYPES OF PEOPLE AND YOU WANT TO GET THESE KIDS ENGAGED, NEED TO GET A LITTLE BIT OF SKIN IN THE GAME. I THINK MANUFACTURING IS START TO GO LISTEN TO THAT.

>> Brown: UNTIL AND UNLESS THAT HAPPENS, MANUFACTURERS MAY... MAKE CLEAR THEIR NEEDS, SCHOOLS MOTIVATE THEIR STUDENTS AND TOGETHER THEY SHOW A YOUNG PEOPLE THE PATH FORWARD. THE VICIOUS CYCLE THAT IS PART OF READING'S NEW AND UNWANTED STATUS AS THE NATION'S POOREST CITY IS LIKELY TO CONTINUE.

>> Suarez: AMERICAN GRADUATE IS A PUBLIC MEDIA INITIATIVE FUNDED BY THE CORPORATION FOR PUBLIC BROADCASTING.

>> Woodruff: FINALLY TONIGHT, THE STORY OF A POTENT COMPUTER WORM. MARGARET WARNER HAS OUR BOOK CONVERSATION.

>> Warner: IN NOVEMBER, 2008, COMPUTER SECURITY EXPERTS BEGAN DETECTING A NEW HIGHLY SOPHISTICATED COMPUTER WORM. THEY CALLED IT CONFICKER. ULTIMATELY IT INVADED AT LEAST 12 MILLION COMPUTERS WORLDWIDE. THE STORY OF THE CAMPAIGN TO DEFEAT IT IS CHRONICLED IN A NEW BOOK, "WORM: THE FIRST DIGITAL WORLD WAR. THE AUTHOR IS JOURNALIST MARK BOWDEN. HE ALSO WROTE THE BESTSELLER "BLACK HAWK DOWN," ABOUT THE 1994 U.S. RAID IN SOMALIA THAT WENT AWRY. WELCOME BACK.

>> THANK YOU, MARGARET.

>> Warner: EVERY DAY WE'RE HEARING ABOUT A NEW VIRUS OR WORM. WHAT MADE CONFICKER SO SPECIAL THAT YOU WROTE AN ENTIRE BOOK ABOUT SNIT.

>> WELL, IT DEMONSTRATED A VERY HIGH LEVEL OF SOPHISTICATION IN A NUMBER OF DIFFERENT AREAS. BUT WHAT REALLY INTRIGUED ME BASS THE GAMESMANSHIP THAT WENT ON. THE PEOPLE WHO WERE TRYING TO DEFEAT IT WOULD MAKE A MOVE TO SHUT IT DOWN. WHOEVER THE MYSTERIOUS CREATORS WERE OF THIS BOT-NET WOULD MAKE A COUNTERMOVE TO STAY ALIVE. IT GOT, YOU KNOW, IT REALLY BECAME A CHESS MASS AT THE CUTTING EDGE OF SOFTWARE TECHNOLOGY.

>> Warner: YOU HAVE TO EXPLAIN WHAT A BOT-NET IS.

>> BEFORE I STARTED I DIDN'T KNOW WHAT A BOT-NET WAS EITHER. A BOT-NET IS AN ILLICIT NETWORK OF COMPUTERS THAT ARE ALL UNDER THE CONTROL OF A REMOTE OPERATOR. SO YOU AS THE COMPUTER USER ARE LIKE CAPTAIN KIRK SITTING IN THE CONTROL TOWER OF YOUR ENTERPRISE SPACESHIP. AND THE STARSHIP ENTERPRISE. AND UNBEKNOWNst TO YOU, THERE IS SOMEONE WHO ACTUALLY HAS CONTROL OF YOUR COMPUTER. IN THE CASE OF A BOT-NET, IN THIS CASE UP TO 12 MILLION COMPUTERS INTER-LINKED WHICH IS EFFECTIVELY OWNING A SUPER COMPUTER.

>> Warner: AND THEN IT WOULD HAVE THE CAPACITY TO PENETRATE OTHER VERY IMPORTANT NETWORKS? IS THAT THE DANGER?

>> SURE. I MEAN THERE'S TWO WAYS TO HAVE A SUPER COMPUTER. ONE IS TO BUILD ONE THE SIZE OF A HOUSE. AND THE OTHER IS TO TAKE MILLIONS OF SMALL PERSONAL COMPUTERS AND LINK THEM ALTOGETHER. AND WHEN YOU HAVE A COMPUTER WITH THAT MUCH POWER, YOU CAN CRACK CODES. YOU CAN BREAK IN TO COMMERCIAL DATA. YOU CAN STEAL MONEY OUT OF BANK ACCOUNTS. YOU CAN ALSO LAUNCH WHAT'S CALLED A DENIAL OF SERVICE ATTACK LARGE ENOUGH THEORETICALLY TO CRASH THE INTERNET ITSELF.

>> Warner: YOU SAID "WHOEVER THE CREATORS WERE." PEOPLE WHO TRIED TO DEFEAT THIS NEVER FIGURED OUT THE CREATORS.

>> WE STILL DON'T KNOW. I THINK THE F.B.I. MAYBE DOES KNOW. BUT THEY HAVEN'T BEEN ABLE TO APPREHEND THEM. THE INTERNET IS A GLOBAL PHENOMENON. THERE IS NO SUCH THING AS A GLOBAL POLICE FORCE. YOU KNOW, THERE ARE DIFFERENT LAWS IN DIFFERENT PLACES. THIS IS SORT OF THE WILD WEST PERIOD OF THE INTERNET. SO SOME PLACE LIKE THE UKRAINE IS FAMOUS FOR HAVING VERY LIBERAL LAWS. GOVERNING, YOU KNOW, THINGS LIKE MAL-WARE.

>> Warner: WHICH IS MALICIOUS SOFTWARE.

>> YES. SO SOMEONE CAN HOLE UP IN KIEV AND LAUNCH SOMETHING LIKE THIS. IT'S SUSPECTED THAT THIS CAME FROM THE UKRAINE. AND WHOEVER WAS BEHIND IT IS STILL VERY MUCH INVISIBLE.

>> Warner: TELL US ABOUT THE TEAM THAT DECIDED TO TRY TO GO AFTER IT. THEY WERE BASICALLY VOLUNTEERS, RIGHT?

>> RIGHT. THEY CALLED THEMSELVES THE KABAL AFTER A WHILE BUT THE TRUTH IS FLR VERY FEW PEOPLE IN THE WORLD WHO REALLY UNDERSTOOD WHAT WAS GOING ON HERE. AND THE NATURE OF THE THREAT. SO FEW THAT THEY BEGAN WORKING TOGETHER ON THEIR OWN TO TRY AND STOP THIS THING. ONE OF THE INITIAL PARTICIPANTS NAMED RICK WESTIN WHO LIVES OUT IN SAN FRANCISCO LITERALLY WAS GOING AROUND WITH HIS CREDIT CARD BUYING UP ALL OF THE DOMAINS THAT THIS BOT-NET WAS USING TO CONTACT ITS CONTROLLER IN AN EFFORT TO SHUT IT DOWN. HE WAS BASICALLY SHELLING OUT HIS OWN CASH. THAT'S HOW AD HOC THIS EFFORT WAS.

>> Warner: YOU SAID IT IS STILL UP AND OPERATING. IS IT UP AND OPERATING BUT NEUTRALIZED OR IS IT DOING DAMAGE?

>> IT IS NOT NEUTRALIZED. THE CREATOR OF THE BOT-NET BASICALLY EFFECTIVELY OUTMANEUVERED THE KABAL BUT I THINK WHAT THE KABAL DID WAS IT MANAGED TO ATTRACT SO MUCH ATTENTION AROUND THE WORLD, THIS PARTICULAR ENTERPRISE, THAT THE CREATORS ARE PROBABLY A LITTLE BIT WARY OF USE IT FOR ANYTHING, OF DRAWING ANY FURTHER ATTENTION TO THEMSELVES.

>> Warner: YOU KNOW THERE IS QUITE A CONTROVERSY-- IT CAME UP IN SOME OF THE REVIEWS YOUR BOOK-- THAT THIS WHOLE THREAT WAS HYPED. SOME PEOPLE IN THE INDUSTRY THINK IT WAS TOO MUCH THE SKY WAS FALLING. IT NEVER DID. WHAT DO YOU SAY TO THAT?

>> I'M AN OLD NEWSPAPER REPORTER MYSELF SO BELIEVE ME I UNDERSTAND HOW THIS WORKS. MOST OF THE FOLKS WRITING ABOUT THIS WHEN IT HAPPENED IN 2009, 2008-2009, DIDN'T REALLY UNDERSTAND WHAT WAS GOING ON TO BE HONEST. AND WHAT YOU HAVE A TENDENCY TO DO AS A REPORTER IS YOU ASK THE EXPERT, WHAT'S THE WORST THING THAT COULD HAPPEN HERE? OF COURSE THEY SAID THEORETICALLY THE WORST THING THAT COULD HAPPEN IS IS THIS BOT-NET COULD LAUNCH AN ATTACK THAT COULD CRASH THE INTERNET ITSELF. THAT BECAME THE HEADLINE. ON THE DAY IT BECAME ACTIVE A LOT OF MEDIA OUTLETS PREDICTED THAT THE INTERNET WOULD CRASH AND THE WORLD WOULD END. WHEN IN FACT THE PEOPLE INVOLVED IN THIS WOULD HAVE SAID THEY DIDN'T THINK THAT WAS A LIKELY OUTCOME. THAT DOESN'T TAKE AWAY FROM THE FACT-- AND I FIND IT KIND OF ALARMING-- THAT SOMEONE CAN WAKE UP TOMORROW IN KIEV AND DECIDE TO CRASH THE INTERNET. BELIEVE ME NOWADAYS WE HAVE SO MANY OF OUR VITAL FUNCTIONS IN THIS COUNTRY BOTH COMMERCIAL, GOVERNMENTAL, IN SO MANY WAYS IF WE LOST THE INTERNET IT WOULD BE CATASTROPHIC.

>> Warner: HOW WOULD YOU KNOW IF YOUR OWN LAPTOP WAS A PART OF THIS?

>> THE ONLY WAY YOU WOULD KNOW UNLESS YOU'RE REALLY GOOD AT THIS THING IS BY DOWNLOADING SOME SOFTWARE FROM A CONFICKER WORKING GROUP TO DIAGNOSE WHETHER OR NOT YOUR COMPUTER IS IS INFEKED. IF YOU'VE BEEN DOWNLOADING YOUR MICROSOFT SECURITY UPDATES-- BECAUSE THIS AFFECTS WINDOWS OPERATING DM SYSTEM-- YOU DON'T HAVE ANY WORRIES. YOUR COMPUTER WILL NOT BE INFEKED BUT THE PROBLEM HERE IS NOT WORRYING ABOUT WHAT IS GOING TO HAPPEN TO YOUR COMPUTER. THE CONFICKER WORM DOESN'T WANT TO HURT YOUR COMPUTER. IT WANTS TO USE YOUR COMPUTER. IT'S REALLY MORE NETWORK SECURITY PEOPLE WHO ARE IN THE DRIVER'S SEAT HERE. THEY HAVE TO MAKE THAT THEIR NETWORKS ARE CLEAN AND ARE PROTECTED.

>> Warner: MARK, THANK YOU VERY MUCH.

>> YOU'RE VERY WELCOME, MARGARET. THE DEFICIT-CUTTING SUPER COMMITTEE ADMITTED FAILURE. THAT MEANS THE GOVERNMENT WILL FACE $1.2 TRILLION IN AUTOMATIC CUTS IN 2013. THAT NEWS DISAPPOINTED THE STOCK MARKET. THE DOW INDUSTRIALS LOST NEARLY 250 POINTS. PRESIDENT OBAMA ALSO VOICED DISAPPOINTMENT AND WARNED HE WOULD VETO ANY EFFORT TO RESCIND THE AUTOMATIC CUTS. AND AND THERE WAS NEW VIOLENCE IN CAIRO, EGYPT, AS PROTESTERS AND POLICE BATTLED FOR A THIRD DAY. THE PROTESTERS ARE DEMANDING THE MILITARY CEDE POWER. ONLINE, WE TALK WITH A REPORTER COVERING THE PROTESTS IN CAIRO. HARI SREENIVASAN EXPLAINS. HARI?

>> Sreenivasan: GLOBALPOST'S JON JENSEN HAS BEEN ON THE FRONT LINES OF THE LATEST CLASHES IN TAHRIR SQUARE. THAT'S ON OUR WORLD PAGE. ON OUR MAKING SENSE PAGE, PAUL SOLMAN ANSWERS A READER'S QUESTION ABOUT THE IMPACT OF CHANGING TAX RATES ON CONSUMER SPENDING. AND HOW WILL THE HEALTH CARE INDUSTRY BE AFFECTED BY THE FAILURE TO REACH A DEAL ON THE DEFICIT? WE GET ONE VIEW FROM MARY AGNES CAREY OF KAISER HEALTH NEWS. ALL THAT AND MORE IS ON OUR WEB SITE, newshour.pbs.org.

>> Suarez: AND THAT'S THE NEWSHOUR FOR TONIGHT. ON TUESDAY, WE'LL LOOK AT WHERE THE REPUBLICAN PRESIDENTIAL CANDIDATES STAND ON FOREIGN POLICY ISSUES. I'M RAY SUAREZ.

>> Woodruff: AND I'M JUDY WOODRUFF. WE'LL SEE YOU ONLINE AND AGAIN HERE TOMORROW EVENING. THANK YOU, AND GOOD NIGHT. MAJOR FUNDING FOR THE PBS NEWSHOUR HAS BEEN PROVIDED BY:

>> I MEAN, WHERE WOULD WE BE WITHOUT SMALL BUSINESSES?

>> WE NEED SMALL BUSINESSES.

>> THEY'RE THE ONES THAT HELP DRIVE GROWTH.

>> LIKE ELECTRICIANS, MECHANICS, CARPENTERS.

>> THEY STRENGTHEN OUR COMMUNITIES.

>> EVERY YEAR, CHEVRON SPENDS BILLIONS WITH SMALL BUSINESSES. THAT GOES RIGHT TO THE HEART OF LOCAL COMMUNITIES, PROVIDING JOBS, KEEPING PEOPLE AT WORK. THEY DEPEND ON US.

>> THE ECONOMY DEPENDS ON THEM.

>> AND WE DEPEND ON THEM.

>> BNSF RAILWAY.

>> INTEL.

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