PBS NewsHour; August 2, 2012 3:00pm-4:00pm PDT

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>> Woodruff: THE CIVIL WAR IN SYRIA CLAIMED A HIGH-PROFILE DIPLOMATIC CASUALTY TODAY, IN KOFI ANNAN. THE UNITED NATIONS ENVOY ANNOUNCED HE'S QUITTING, AS FIGHTING RAGED ON IN DAMASCUS AND ALEPPO. WE BEGIN WITH A REPORT NARRATED BY INIGO GILMORE OF "INDEPENDENT TELEVISION NEWS."

>> IS THIS WHAT'S LEFT OF THE SU BUSH IN NORTHERN DAMASCUS. ITS LOOKS LIKE IT'S BEEN SMASHED BY A TSUNAMIMENT LOCALS SAY THE SYRIAN ARMY BOMBARD HEAD THIS AREA FOR DAYS AND THEN BROUGHT IN THE BULLDOZERS. BUILDINGS CHEWED UP AND SPAT OUT. 100 ITS MORE LIVES GROUND INTO THE DUST. ACROSS THE OTHER SIDE OF THE CAPITOL IN THE SOUTHERN SUBURBS SCENES OF AUSTERITY AS HUNDREDS GATHER TO MORNING YET ANOTHER MASSACRE. WHILE MANY ARMY UNITS HAVE BEGUN DEPLOYED IT TO ALEPPO, THE REASON I'M HAS CONTINUED TO TRY TO CRUSH OPPOSITION IN DAMASCUS. WITH HEAVY CLASHES AGAIN ERUPTING ACROSS THE CAPITOL. SOME OF THE MORE THAN 50 CIVILIANS KILLED HERE APPEAR TO HAVE BEEN EXECUTED. ALLEGEDLY BY SOLDIERS AND MILITIAMEN. AS SYRIA HAS PLUNGED FURTHER INTO BLOODY CHAOS, THE INTERNATIONAL COMMUNITY HAS APPEARED IMPOTENT. TODAY A FRUSTRATED KOFI ANNAN HAD A MEETING WITH THE SYRIAN PRESIDENT, ANNOUNCED HE WAS RESIGNING AS THE UNITED NATIONS PEACE ENVOY FOR SYRIA. HE BLAMED BOTH THE REGIME AND THE REBELS FOR REFUSING TO IMPLEMENT HIS PEACE PLAN.

>> ALL OF WHICH IS COMPOUNDED BY THE DISUNITY OF THE INTERNATIONAL COMMUNITY. AT A TIME WHEN WE NEED, WHEN THE SYRIAN PEOPLE DESPERATELY NEED ACTION, THERE CONTINUES TO BE FINGERPOINTING AND NAME CALLING IN THE SECURITY COUNCIL. YOU HAVE TO UNDERSTAND AS AN ENVOY, I CAN'T WANT PEACE MORE THAN THE PROTAGONISTS, MORE THAN THE SECURITY COUNCIL, OR THE INTERNATIONAL COMMUNITY FOR THAT MATTER.

>> Reporter: STRONG WORDS FROM A DIPLOMAT REFLECTING THE DESPAIR OVER THE SEEMINGLY INTRACTABLE SYRIAN CONFLICT. U.N. MISSION HAS BEEN SIDELINED AS WORLD POWERS CONTINUE TO ARM AND FINANCE THE OPPOSING SIDES. WITH FIGHTING SPREADING ACROSS SYRIA. RUSSIA AND CHINA HAVE BEEN OUT OF STEP WITH THE SECURITY COUNCIL. IN LONDON PRESIDENT PUTIN SAID HE REGRETTED ANNAN'S DEPAR TURE BUT OFFERED NO NEW INITIATIVE. THE PRIME MINISTER TOO HAD LITTLE TO ADD, THOUGH HE LATER CALLED ON THE U.N. TO RAMP UP THE PRESSURE ON THE SYRIAN REGIME.

>> THE CURRENT POLITICAL PROCESS ISN'T WORKING, HASN'T WORKED. AND WE NEED TO BE TOUGHER.

>> Reporter: NO SIGN OF THAT IN ALEPPO TODAY AS REBELS AND PRESIDENT ASSAD'S FORCES CONTINUED TO POUND EACH OTHER'S POSITIONS. AND TONIGHT WITH THE U.N. MISSION IN TOTAL DISARRAY, REPORTS THAT THE FIGHTING IS AGAIN IN TESTIFYING AND THE DEAD CONTINUE TO PILEUP.

>> Brown: JOINING US NOW IS COLUM LYNCH, WHO COVERS THE U.N. FOR THE "WASHINGTON POST." AND RANDA SLIM OF THE MIDDLE EAST INSTITUTE. SHE'S MET WITH MEMBERS OF KOFI ANNAN'S TEAM AND HAS REGULAR CONTACT WITH THE OPPOSITION INSIDE SYRIA.

>> Brown: WE START WITH YOU, THE NEW DIPLOMACY WAS TO THE GOING WELL BUT WHAT HAPPENED HERE. WAS THERE A FINAL STRAW THAT LED TO KOFI ANNAN'S DECISION?

>> WELL, I THINK THAT EVERYBODY HAS ANTICIPATED THAT HE HAD REWOULD RESIGN, IT WAS JUST A MATTER OF TIME. THE FINAL STRAW WAS THE VETO IN THE SECURITY COUNCIL LAST MONTH. IT WAS A CLEAR INDICATION THAT THE BIG POWERS WERE SPLIT ON THIS ISSUE. THAT THEY WEREN'T GOING TO BE ABLE TO AGREE ON A CONCERTED APPROACH TO RESOLVING THE CRISIS. AND I THINK AT THAT POINT KOFI ANNAN JUST DECIDED THAT IF I DON'T HAVE THE BACKING OF THE BIG POWERS THAT'S-- THAT THERE'S NO WAY WE CAN APPLY PRESSURE ON THE PARTIES TO CALM AND CEASE SHOOTING AT EACH OTHER.

>> Brown: COLUM, THE LANGUAGE WE HEARD, FAIRLY STRONG LANGUAGE, FINGERPOINTING, NAME CALLING IN THE SECURITY COUNCIL. HOW UNUSUAL IS THAT AND WHO IS HE CALLING OUT HERE WHO IS HE TALKING ABOUT?

>> WELL, I GUESS HE'S TALKING ABOUT, WHAT'S INTERESTING, IS AFTER THE SECURITY COUNCIL MEETING THIS AFTERNOON ON SIR ATRUSSIAN AMBASSADOR AND THE FRENCH AMBASSADOR WERE EXCHANGING INSULTS. THE RUSSIAN AMBASSADOR WAS COMPLAINING ABOUT THE FRENCH DECISION TO PULL ANNAN'S DEPUTY BACK FOR A JOB IN THE PENTAGON IN THE MIDDLE OF THE NEGOTIATION. THOUGHT THAT WAS KIND OF UNDERCUTTING THE DIPLOMACY. THE FRENCH AMBASSADOR RESPONDED THAT THERE WAS A STUPID REMARK, THAT IT WAS UNFAIR TO SAY THAT-- TO, YOU KNOW TO SAY THAT THIS WAS A POLITICALLY MOTIVATED DECISION. THIS IS A HIGH LEVEL FRENCH, YOU KNOW, INTERNATIONAL DIPLOMAT AND HE WAS NEEDED AND WANTED BY THE FRENCH GOVERNMENT. SO IT CONTINUES.

>> Brown: RHONDA SLIM WHAT DO YOU THINK IS BEHIND THIS DECISION BY KOFI ANNAN, WHAT'S GOING ON?

>> I THINK I AGREE WITH COLUM IN TERMS OF HE REALIZED HE DOESN'T HAVE THE BACKING OF THE INTERNATIONAL COMMUNITY ANY MORE, WITH POINTING THE FINGER AT THE DISUNITY INSIDE THE NATIONAL SECURITY-- INSIDE THE SECURITY COUNCIL. HOWEVER, I WOULD LIKE TO ARGUE HERE THAT HIS PLAN WAS, IN A WAY, I MEAN WAS DEAD ON ARRIVAL. PARTLY BECAUSE AS HE POINTED IN HIS RESIGNATION LETTER TODAY, THE PROTAGONIST IN SYRIA, WHETHER IT'S THE REGIME OR THE OPPOSITION, WERE NOT ON BOARD. THE REGIME ON ONE HAND WAS NOT WILLING AND NOT READY TO GO WITH THE POLITICAL TRANSITION PROCESS. HIS ONLY PLAN, THE ONLY PLAN WAS TO SOLVE THIS CONFLICT LITERALLY BY FORCE. AND ON THE OTHER HAND THE OPPOSITION, THE FACT THAT THE PLAN DID NOT CALL EXPLICITLY FOR ASSAD TO STEP DOWN AS A PRECONDITION FOR THE POLITICAL PROCESS TO BE LAUNCHED, DELIGITY MYED THE PLAN IN THE EYES OF THE OPPOSITION, ESPECIALLY IN THE ACTIVIST INSIDE SYRIA WHO ARE NOW THE MOST IMPORTANT PLAYER.

>> Brown: SO YOU MET WITH-- WE HAVE A LOUD-- WELL, OKAY THERE IT GOES. I THINK THAT'S BETTER. WE HAD A LOUD NOISE BEHIND YOU. YOU MET WITH MEMBERS OF KOFI ANNAN'S TEAM. WERE THEY-- DID THEY BECOME AWARE OF THIS PROBLEM THAT YOU WERE JUST REFERRING TO? WHEN DID THEY-- WAS THERE A GROWING FRUSTRATION THAT YOU COULD SENSE?

>> I MET WITH THEM EARLY JUNE AND COY SENSE THE FRUSTRATION THEN. AT THE TIME THEY WERE STILL HOPING THAT THEY ALONG WITH THE ARAB LEAGUE WILL BE ABLE TO BRING THE SYRIAN OPPOSITION TOGETHER AROUND A COMMON PLATFORM. AND THIS ALSO DID NOT COMMON, YOU KNOW, EVENTUALLY THIS DID NOT COME TOGETHER AS WE ALSO IN THE ARAB LEAGUE MEETING, WHICH FAILED IN BRINGING THE SYRIAN OPPOSITION TOGETHER, THEY WERE ALSO, OF COURSE, FRUSTRATED AT THE TIME BY THE FAILURE OF THE-- OF RUSSIA OR BY UNWILLINGNESS OF RUSSIA TO BACK RESOLUTION THAT WILL BRING CONSEQUENCES ON ASSAD FOR VIOLATING THE PLAN, THE PEACE PLAN.

>> Brown: NOW COLUM LYNCH, THE OBVIOUS QUESTION, WHERE DOES THIS LEAVE THE DIPLOMATIC EFFORT IS THERE ANYWAY TO PICK UP THE PIECES. IS THERE ANY PLAN BEHIND THE SCENES TO TRY TO MOVE FORWARD AT ALL?

>> IT LOOKS PRETTY STARK. I MEAN THE FRENCH AMBASSADOR SAID THE DIFFERENCES IN THE COUNCIL ARE IRRECONCILABLE. THERE IS SORT OF-- MOST OF THE COUNCIL MEMBERS ARE SAYING THAT THE LOGIC, IT'S MOVING TOWARDS MILITARY LOGIC. WE'RE SEEING WHAT IS UNFOLDING IN ALEPPO TONIGHT. THE TOP U.N. PEACEKEEPING CHEF TOLD THE COUNCIL THAT HE FOUND-- HE THOUGHT THAT THE PARTIES, HE IS CONVINCED THAT THE PARTIES ARE PREPARING FOR ONE LAST FINAL BAT NELL ALEPPO. SO I THINK THAT THIS IS MOVING AWAY FROM A DIPLOMATIC TRACT TO THE MILITARY TRACT AND MAYBE, YOU KNOW, AFTER THIS PLAYS OUT THEY MIGHT BE ABLE TO KIND OF RETURN TO THE DIPLOM-- DIPLOMACY DOWN THE ROAD BUT IT WILL BE A DIFFERENT GAME THEY ARE TALKING ABOUT THEN.

>> Brown: RANDA SLIM, DOES ALL THAT HAVE ANY IMPACT ON THE GROUND OR IS-- ARE WE WAY PAST THIS DIPLOMACY AT THIS POINT?

>> YOU KNOW, THE ACTIVISTS ON THE GROUND ARE WAY PAST THIS DIPLOMACY. I THINK ALTHOUGH THE REVOLUTION STARTED AS A NONVIOLENT UPRISING, BUT FACED WITH THE BRUTAL CRACKDOWN BY THE REG SEEM-- REGIME AND THE INABILITY OF THE INTERNATIONAL COMMUNITY TO BRING ANY KIND OF PRESSURE ON ASSAD TO ABANDON THE MILITARY APPROACH TO WHICH HE AND HIS ADVISOR ARE WEDDED, I THINK THE NARRATIVE FOR NONVIOLENCE INSIDE THE OPPOSITION CAMP LOST TRACTION. AND THIS CAME ESPECIALLY AFTER THE ASSAULT IN HOMSES EARLY THIS YEAR. SO THE BELIEF NOW AMONG ACTIVISTS, ESPECIALLY AMONG REBEL FIGHTERS IS THAT THIS WILL HAVE TO BE SETTLED MILITARILY IN THE FIELD. AND THAT'S WHY THEY KEEP CALLING ON THE INTERNATIONAL COMMUNITY TO ARM THEM.

>> Brown: AND RANDA, ONE MORE THING IN OUR LAST MINUTE HERE, BECAUSE THERE WERE TWO OTHER REPORTS TODAY. ONE FROM REUTERS THAT THE PRESIDENT HAD SIGNED A DIRECTIVE ALLOWING THE CIA TO HELP REBELS AND THE OTHER FROM McCLATCHY THAT THE ADMINISTRATION NOW MADE IT LEGAL TO COLLECT MONEY IN THE U.S. TO SEND TO THE REBELS. WHAT MANY DETAILS OF THIS, ON BOTH THESE STORIES ARE STILL UNCLEAR AT THIS POINT. BUT WHAT DOW MAKE OF THOSE REPORTS?

>> I THINK WHAT IS HAPPENING IS THAT THE UNITED STATES, AT SAD ADMINISTRATION IS TRYING TO FEEL ITS WAY THROUGH THE MAZE OF THE SYRIAN REBEL CAMP, IF WE CAN SAY SO. IT IS A VERY DYNAMIC ENVIRONMENT RIGHT NOW INSIDE SYRIA. WE ARE SEEING ARMED FACTIONS APPEAR TOGETHER SURFACE, EMERGING ALMOST ON A DAILY BASIS. AND I THINK THE UNITED STATES THROUGH THE ORDER THAT YOU REFER TO WHICH-- WHICH ENABLES THE CIA AND OTHER U.S. AGENCIES TO PROVIDE SUPPORT TO RIB EL-- REBELS, SHORT OF ARMED SUPPORT, LABEL THESE AGENCIES AND THE ASSAD ADMINISTRATION TO REALLY DO SOME SORT OF A TRIAGE PROCESS AMONG THE DIFFERENT REBEL FACTIONS TO FIND OUT WHO IS THE INFLUENTIAL, WHO IS THE NOT INFLUENTIAL WHO IS THE GOOD GUY, WHO IS THE BAD GUY. AND START TO DEFINE WHAT ARE THE-- WHICH ARE THE PARTNERS WE WOULD BE WORKING WITH. IF EVENTUALLY PRESIDENT OBAMA DECIDES TO UP THE ANTE ON OUR INVOLVEMENT AND STEP IN THE FREY OF ARMING THE REBELS.

>> ALL RIGHT, RANDA SLIM, COLUM LYNCH, THANK YOU BOTH VERY MUCH. >

>> Brown: YOU CAN TRACK THE HISTORY OF THE SYRIAN CONFLICT, INCLUDING DIPLOMATIC EFFORTS TO END THE FIGHTING IN A TIMELINE ON OUR WORLD PAGE.

>> Woodruff: STILL TO COME ON THE "NEWSHOUR": THE CANDIDATES SPAR OVER A TAX REFORM PLAN; A BIG DAY AT THE OLYMPICS FOR TEAM U.S.A.; CALIFORNIA'S WATER WARS AND AN INSIDER'S INDICTMENT OF THE BANK BAILOUT. BUT FIRST, THE OTHER NEWS OF THE DAY. HERE'S HARI SREENIVASAN.

>> Sreenivasan: THE EUROPEAN CENTRAL BANK TODAY SIGNALED IT WILL TRY TO DRIVE DOWN HIGH BORROWING RATES FOR DISTRESSED COUNTRIES, ESPECIALLY SPAIN AND ITALY. BANK PRESIDENT MARIO DRAGHI SAID THE PL INVOLVES PURCHASING GOVERNMENT BONDS, BUT HE GAVE FEW SPECIFICS. INSTEAD, DRAGHI SAID POLICYMAKERS WILL WORK ON A DETAILED PLAN OVER THE COMING WEEKS. MARKETS HERE AND ABROAD WERE DISAPPOINTED THAT THE EUROPEAN BANK TOOK NO IMMEDIATE ACTION. ON WALL STREET, THE DOW JONES INDUSTRIAL AVERAGE LOST 92 POINTS TO CLOSE NEAR 12,879. THE NASDAQ FELL TEN POINTS TO CLOSE AT 2,909. DROUGHT CONDITIONS GREW EVEN WORSE IN PART OF THE PLAINS STATES OVER THE LAST WEEK. A GOVERNMENT REPORT TODAY SAID KANSAS, MISSOURI, NEBRASKA AND OKLAHOMA ARE ESPECIALLY HARD HIT. MEANWHILE, THE U.S. HOUSE PASSED A REPUBLICAN DROUGHT BILL TO HELP LIVESTOCK PRODUCERS. DEMOCRATIC MINORITY LEADER NANCY PELOSI SAID IT WOULD MAKE MORE SENSE TO PASS A COMPREHENSIVE, FIVE-YEAR FARM BILL, AS THE SENATE HAS DONE.

>> MAKE NO MISTAKE. WE SHOULD BE VOTING ON A FARM BILL NOT A DROUGHT BILL. I HAVE GREAT SYMPATHY FOR THE NEEDS OF OUR CATTLEMEN AND THOSE WHO ARE SUFFERING FROM THE DROUGHT. BUT I THINK AT THIS BILL IS JUST ANOTHER INDICATION OF DOING SOMETHING THAT DOESN'T MEET THE NEEDS OF THE ISSUE THAT OUR ECONOMY REQUIRES.

>> Sreenivasan: ON THE REPUBLICAN SIDE, HOUSE SPEAKER JOHN BOEHNER SAID IT WAS TODAY'S DROUGHT MEASURE, OR NOTHING AT ALL, BECAUSE THE FARM BILL IS STALLED.

>> THE HOUSE IS PRETTY WELL- DIVIDED. YOU'VE GOT THE LEFT CONCERNED ABOUT REDUCTIONS IN THE FOOD STAMP PROGRAM. YOU'VE GOT THE RIGHT WHO DON'T THINK THE CUTS GO FAR ENOUGH IN THE FOOD STAMP PROGRAM TO BRING IT INTO COMPLIANCE WITH WHAT THE LAW HAS BEEN. AND FRANKLY I HAVEN'T SEEN 218 VOTES IN THE MIDDLE TO PASS THE FARM BILL.

>> Sreenivasan: THE CURRENT FARM BILL IS SET TO EXPIRE AT THE END OF SEPTEMBER. THE HOUSE'S DROUGHT BILL IS NOT EXPECTED TO SURVIVE IN THE SENATE. LEGISLATION TO PREVENT CYBER ATTACKS ON CRITICAL INDUSTRIES WILL HAVE TO WAIT. SENATE REPUBLICANS BLOCKED A FINAL VOTE TODAY. THEY ARGUED THE BILL WOULD MEAN NEW REGULATIONS THAT INCREASE COSTS WITHOUT DOING MUCH TO REDUCE THE RISK OF ATTACKS. DEMOCRATS SAID THE BILL IS NEEDED NOW TO PROTECT EVERYTHING FROM POWER GRIDS TO WATER SUPPLIES. BOTH SIDES SAID THEY'LL WORK ON A COMPROMISE, AFTER THE AUGUST RECESS. AFGHAN SECURITY FORCES KILLED FIVE INSURGENTS IN A PRE-DAWN RAID IN KABUL TODAY. OFFICIALS SAID THEY'D FOILED A PLOT TO LAUNCH A LARGE-SCALE ATTACK IN THE CAPITAL. THE RAIDING PARTY FOUND CARS FULL OF EXPLOSIVES AND A COMPOUND FILLED WITH WEAPONS AND AMMUNITION AT THE SITE. WHEN THE INSURGENTS RETURNED, A GUN BATTLE ERUPTED THAT LASTED SEVERAL HOURS. SEPARATELY, TWO NATO SERVICE MEMBERS WERE KILLED IN A BOMB ATTACK IN THE SOUTH. SIX COALITION TROOPS HAVE DIED IN THE FIRST TWO DAYS OF AUGUST. IN EGYPT, A NEW PRIME MINISTER AND CABINET FORMALLY TOOK OFFICE. PRIME MINISTER HESHAM KANDIL ASKED EGYPTIANS TO RALLY BEHIND HIS NEW GOVERNMENT. FOUR CABET POSITIONS WENT TO MEMBERS OF THE MUSLIM BROTHERHOOD. BUT FIELD MARSHALL HUSSEIN TANTAWI WAS KEPT ON AS DEFENSE MINISTER, A SIGN THAT THE MILITARY STILL WIELDS GREAT POWER. THOSE ARE SOME OF THE DAY'S MAJOR STORIES. NOW, BACK TO JUDY.

>> Woodruff: WITH FEWER THAN 100 DAYS TO GO UNTIL THE NOVEMBER ELECTION, PRESIDENT OBAMA AND GOVERNOR ROMNEY SPENT TODAY CAMPAIGNING IN BATTLEGROUND STATES, TRADING BARBS ON TAXES AND THE ECONOMY. FOR THE PRESIDENT AND HIS REPUBLICAN CHALLENGER, THE DAY'S STAGE WAS A IR OF KEY STATES AND THE INTENDED AUDIENCE, THE MIDDLE CLASS. MITT ROMNEY STUMPED IN GOLDEN, COLORADO-- HIS FIRST CAMPAIGN EVENT SINCE RETURNING FROM A WEEK-LONG OVERSEAS TRIP. ROMNEY ARGUED AGAIN THAT THE PRESIDENT'S POLICIES HAVE FAILED THE MIDDLE CLASS.

>> I KNOW HE WILL BE ABLE TO SPEAK ELOQUENTLY AND DESCRIBE ALL THE GREAT THINGS HE'S DOING AND WHAT HE'S GOING TO DO, BUT LOOK AT THE RESULTS. AND YOU LOOK AT THE RESULTS AND IT'S BEEN A DISAPPOINTMENT. HIS POLICIES HAVE NOT WORKED. THEY HAVE NOT GOT AMERICA BACK TO WORK AGAIN. MY POLICIES WILL WORK AND I KNOW I UNDERSTAND THAT IT'S SMALL BUSINESSES THAT CREATE JOBS IN AMERICA, THAT PEOPLE CREATE JOBS, NOT GOVERNMENT, AND I'M GOING TO GET AMERICA WORKING AGAIN.

>> Woodruff: THE ROMNEY CAMPAIGN ALSO WENT UP WITH A NEW TELEVISION AD HIGHLIGHTING ECONOMIC TROUBLES IN FLORIDA, AHEAD OF THE PRESIDENT'S VISIT THERE TODAY.

>> BUT UNDER PRESIDENT OBAMA, 8.6% UNEMPLOYMENT, RECORD FORECLOSURES, 600,000 MORE FLORIDIANS IN POVERTY. HE FOCUSED ON OBAMACARE INSTEAD OF JOBS. BARACK OBAMA, WHAT A DISAPPOINTMENT.

>> Woodruff: THE OBAMA CAMPAIGN COUNTERED WITH ITS OWN NEW AD. IT ATTACKED ROMNEY FOR PAYING JUST 14% OF HIS INCOME IN TAXES IN 2010, AND CHARGED HIS TAX REFORM PROPOSAL FAVORS THE RICH.

>> NOW HE HAS A PLAN THAT WILL GIVE MILLIONAIRES ANOTHER TAX BREAK AND RAISES TAXES ON MIDDLE CLASS FAMILIES BY UP TO $2,000 A YEAR. MITT ROMNEY'S MIDDLE CLASS TAX INCREASE: HE PAYS LESS, YOU PAY MORE.

>> Woodruff: THE PRESIDENT HIT THAT SAME THEME DURING AN EVENT THIS AFTERNOON IN ORLANDO.

>> THEY HAVE TRIED TO SELL US THIS TRICKLE-DOWN TAX CUT FAIRY DUST BEFORE. AND GUESS WHAT? IT DIDN'T WORK THEN AND IT WILL NOT WORK NOW. IT IS NOT A PLAN TO CREATE JOBS, IT IS NOT A PLAN TO REDUCE THE DEFICIT, IT IS NOT A PLAN TO BUILD OUR MIDDLE CLASS, IT IS NOT A PLAN TO MOVE OUR ECONOMY FORWARD.

>> Woodruff: MR. OBAMA AGAIN HIGHLIGHTED A STUDY BY THE NON- PARTISAN TAX POLICY CENTER THAT CONCLUDED ROMNEY'S PROPOSAL WOULD PROVIDE LARGE TAX CUTS TO HIGH-INCOME HOUSEHOLDS, AND INCREASE THE TAX BURDENS ON MIDDLE AND/OR LOWER-INCOME TAXPAYERS. BUT ERIC FEHRNSTROM, A TOP ROMNEY ADVISER, CALLED THE REPORT, QUOTE, "A JOKE" AND RAISED QUESTIONS ABOUT ITS IMPARTIALITY AND METHODOLOGY. THE SHARPENED DEBATE ON TAX FAIRNESS UNDERSCORES THE IMPORTANCE BOTH CAMPAIGNS HAVE PLACED ON MIDDLE-CLASS VOTERS. A RECENT "NBC NEWS-WALL STREET JOURNAL" POLL GAVE MR. OBAMA A 16-POINT LEAD ON ROMNEY WHEN IT COMES TO WHO WOULD BETTER LOOK OUT FOR THE MIDDLE CLASS. FOR A CLOSER LOOK AT WHAT EXACTLY IS IN THE ROMNEY TAX PROPOSAL, AT THE HEART OF THIS POLITICAL FIGHT, WE TURN TO BILL GALE OF THE TAX POLICY CENTER. HE IS A CO-AUTHOR OF THE REPORT IN QUESTION. AND SCOTT HODGE OF THE ALSO NON- PARTISAN TAX FOUNDATION, HAS A DIFFERENT READ ON THE ROMNEY PLAN. WE THANK YOU BOTH FOR BEING WITH US.

>> THANK YOU.

>> THANK YOU.

>> SO BILL GALE TO YOU FIRST, JUST QUICKLY. HOW DO YOU RESPOND TO THE ROMNEY ADVISOR WHO CALLS THIS ASSESSMENT A JOKE AND QUESTIONED ITS IMPARTIALIALITY AND METHODOLOGY?

>> WELL, FIRST THING, LET'S BE CLEAR, THAT'S A SHOOT THE MESSENGER KIND OF ANSWER. IF THEY HAD A SUBSTANTIVE RESPONSE TO OUR ANALYSIS I PRESUME THAT THEY WOULD MAKE A SUBSTANTIVE RESPONSE. LAST FALL WHEN WE PUT OUT ANALYSIS OF THE OTHER REPUBLICAN CANDIDATES' TAX OPTIONS THE ROMNEY CAMPAIGN LIKED OUR ANALYSIS A LOT AND SAID VERY NICE THINGS ABOUT US. SO IT SEEMS LIKE THEIR OPINION OF US DEPENDS ON WHETHER WE'RE REPORTING ON WHAT THEY DO OR WHAT SOMEONE ELSE DOES.

>> BILL GALE LET ME ASK YOU WHAT IN A NUTSHELL DID THE TAX POLICY CENTER CONCLUDE ABOUT WHERE THE TAX BURDEN FALLS, ASSUMING THE ROMNEY PLAN WERE ENACTED.

>> THANK YOU. WE DID A VERY STRAIGHTFORWARD EXERCISE. WE SAID GOVERNOR ROMNEY WANTS TO CUT RATES BY 20%. HE DOESN'T WANT TO RAISE THE RATE ON CAPITAL GAINS OR DIVIDENDS OR OTHER SAVING INVESTMENTS. BUT HE WANTS HIS REFORM TO BE REVENUE NEUTRAL. THAT MEANS YOU HAVE TO RAISE THE REVENUE SOMEWHERE ELSE. WE TOOK THE MOST OPTIMISTIC OPTIMISTIC WAY, THE MOST PROGRESSIVE WAY TO RAISE THAT REV-- REENOUGH. AND WE SHOWED THAT EVEN UNDER THOSE CIRCUMSTANCES, THERE WOULD BE A BIG TAX CUT FOR HIGH INCOME HOUSEHOLDS AND A TAX INCREASE FOR MIDDLE INCOME HOUSEHOLDS.

>> Woodruff: THAT'S BOILING IT DOWN TO A GREAT DEGREE.

>> YES, AND WHAT I WANT TO EMPHASIZE IS IT'S A MATTER OF ARITHMETIC IT IS NOT SOME INCREDIBLY FANCY CALCULATION. IT'S SIMPLY THAT IF YOU CUT TAX RATE FORCE HIGH INCOME HOUSEHOLDS YOU LOSE SO MUCH REVENUE THERE THAT YOU CAN'T MAKE IT UP BY SHUTTING DOWN THE TAX EXEMPTION STUFF THAT HIGH INCOME TAX HOUSEHOLDS HAVE.

>> Woodruff: SCOTT HODGE WHAT DO YOU MAKE OF THE ANALYSIS FROM THE TAX CENTER.

>> I THINK YOU HAVE TO BE FAIR AND WHAT BILL AND THE BROOKS CENTER HAVE DONE IS A PRETTY REASONABLE ASSESSMENT BUT YOU HAVE TO UNDERSTAND IT IS NOT AN ANALYSIS OF THE ROMNEY PLAN. THE ROMNEY HAS ONLY SET OUT SOME VERY BROAD PARAMETERS IN TERMS OF WHAT HE WOULD DO IN TAX POLICY, IN TERMS OF CUTTING THE INDIVIDUAL RATES ALL BY 20%, CUTTING THE CORPORATE RATE BY 10 PERCENTAGE POINTS. BUT WHAT BROOKINGS DID WAS ACTUALLY FILL IN A LOT OF THIS UNKNOWNS WITH THEIR OWN ASSUMPTIONS. AND THEN ANALYZED IT. SO THIS IS NOT TECHNICALLY AN ANALYSIS OF THE ROMNEY PLAN IT IS ONE OPTION FOR HOW TO GET FROM HERE TO THERE. THERE ARE MANY WAYS IN WHICH ROMNEY COULD FILL OUT THE DETAILS OF HIS PLAN. THEY FROM, OF COURSE, NOT FORTHCOMING WITH THAT BECAUSE THEY WOULD LIKE TO KEEP TOY A BIG PICTURE APPROACH. SO WE HAVE TO BE VERY CAREFUL ABOUT READING TOO MUCH INTO THIS. IFOLOGICAL IS NOT THE ROMNEY PLAN.

>> Woodruff: SO FILLING IN A LOT OF A SUCH SHUNS.

>> LET ME RESPOND TO THAT. IT'S CORRECT THAT GOVERNOR ROMNEY HAS N SPECIFIED ALL THE DETAILS OF HIS TAX REFORM PLAN. HE HAS SPECIFIED THE GOODIES, THE TAX CUTS BUT HE'S NOT SPECIFIED HOW HE WILL PAY FOR THEM. IF HE WOULD DO SO --

>> HE MAY NOT EVEN PAY FOR THEM. HE MAY DECIDE THAT WE WILL CAP REVENUE NEUTRALITY.

>> HE SAID HE WANTS IT TO BE REVENUE NEUTRAL.

>> Woodruff: MEANING MONEY IS NOT RAISED-- THAT TAX ARE NOT RAISED.

>> MEAN ON NET THE AVERAGE TAX CUT IS 0. SO WE TOOK ITS OPTIONS THAT HE SAID HE WANTED AND THEN WHEN WE FILLED IN HOW TO PAY FOR THAT WE DID THAT IN A WAY THAT-- THAT FILLS IT IN MOST BY TAXING HIGH INCOME HOUSEHOLDS, OKAY. SO IF ROMNEY WANTS TO FINANCE HIS TAX CUTS WITH SPENDING CUTS, THAT'S GOING TO BE EVEN MORE REGRESSIVE BECAUSE SPENDING CUTS GO LARGELY TO LOW AND MIDDLE INCOME HOUSEHOLDS. SO WE-- WE MADE WHAT IS THE MOST OPTIMISTIC ASSUMPTIONS IN THE FILLING IN PART. AND STILL CAME OUT TO THE CONCLUSION THAT I MENTIONED.

>> Woodruff: WHAT ABOUT THAT EXPLANATION.

>> WELL, ONE OF THE MOST INTERESTING ASPECTS OF THE STUDY IS THAT IT REALLY CONFIRMS HOW PROGRESSIVE OUR CURRENT INCOME TAX SYSTEM IS. AND WHAT THE STUDY UNFORTUNATELY DOESN'T SHOW IS HALF OF ALL AMERICANS PAY NO INCOME TAX WHATSOEVER. AND THE VAST MAJORITY OF INCOME TAXES ARE PAID BY THE TOP. IN FACT, A RECENT CBO STUDY SHOWS THAT THE TOP 20% OF TAXPAYERS PAY 94% OF ALL INCOME TAXES. AND SO THEY ARE CORRECT. IT'S MATHEMATICALLY IMPOSSIBLE TO CUT ALL TAX RATES WITHOUT SOME WHAT BENEFITTING THE RICH BECAUSE THE RICH ARE THE ONLY ONES PAYING INCOME TAX. MEANWHILE WE HAVE HALF OF ALL AMERICANS PAY NOTHING INCOME TAXES WHAT SO EVER. AND BENEFITTING FROM ABOUT $100 BILLION IN REFUNDABLE TAX CREDITS EVEN THOUGH THEY PAY NO INCOME TAXES SOME WE'RE GOING TO HAVE TO HAVE A BIG DECISION HERE ON TAX REFORM. DO WE PUT SOME OF THOSE NONPAYERS BACK ON THE TAX ROLLS AND HOW MANY SHOULD AVOID PAYING TAXES.

>> Woodruff: WHAT OTHER, WHAT MORE INFORMATION WOULD YOU HAVE NEEDED, BILL GALE, IN ORDER TO MAKE A FULLER, A MORE COMPLETE ANALYSIS OF THE ROMNEY PLAN.

>> THE GOVERNOR WOULD SIMPLY HAVE TO SPECIFY HOW HE WANTED TO PAY FOR THE RATE CUTS THAT HE WANTS. HE HAD SPECIFIED THAT HE DOESN'T WANT TO RAISE DIVIDEND AND CAPITAL GAINS TAX RATES. BUT HE HASN'T SPECIFIED ANY OTHER WAY OF PAYING FOR THE TAX CUTS.

>> AND WHAT'S YOUR SENSE OF WHY HE HASN'T DONE THAT?

>> WELL, BECAUSE THE MORE DETAILS YOU PUT OUT THERE, THE MORE ROOM THAT YOU HAVE FOR OTHERS TO SHOOT HOLES IN IT I THINK WHAT WANTS TO DO, AND I'M NOT A SURROGATE FOR THE ROMNEY CAMP BY ANY MEANS, I THINK WHAT THEY ARE TRYING TO DO IS STAY WITH THE BIG PICTURE AND TALK ABOUT THE BIGGER ISSUES HERE. AND THAT THEIR BELIEF IS WHEN YOU CUT MARGINAL TAX RATES YOU SEE ECONOMIC GROWTH. AND THEY HAVE A LOT OF RESEARCH BEHIND THEIR BELIEF IN THAT. AND I THINK THAT THAT IS THE MESSAGE THAT THEY ARE TRYING TO PULL.

>> DOES THAT SHOW UP IN YOUR ANALYSIS.

>> WE DO HAVE-- WE DID ANALYSIS ALLOWING A GROWTH EFFECT. A GROWTH EFFECTS OF REVENUE NEUTRAL TAX REFORM CAN BE VASTLY OVERSTATED. CONGRESSIONAL BUDGET OFFICE, JOINT COMMITTEE ON TAXATION HAS DONE ANALYSIS SHOWING RELATIVELY SMALL EFFECTS. IN 1986 WE HAD A BIG REVENUE NEUTRAL TAX REFORM. WE DIDN'T GET A BIG GROWTH EFFECT OUT OF THAT. AND THE ANSWER IS BECAUSE THE NET, THE REASON WHY IS THAT THE ESSENTIALLY THE AVERAGE MARGINAL TAX RATE DOESN'T END UP CHANGING THAT MUCH IN THE REVENUE NEUTRAL.

>> Woodruff: RESPOND TO THAT.

>> THERE ARE LOTS OF WAYS TO GET FROM HERE TO THERE AND IF YOU DESIGNED IT IN ONE WAY WILL YOU GET POORER RESULTS. IF YOU DESIGN IS IN A MORE PROGROWTH MANNER YOU CAN GET VASTLY BETTER OUTCOMES.

>> BILL GALE, DOW AT THE TAX POLICY CENTER PLAN TO DO AN ASSESSMENT OF THE OBAMA TAX REFORM PLAN?

>> WE HAVE DONE ASSESSMENTS OF THE PRESIDENT'S BUDGET EVERY YEAR WHEN IT COMES OUT. IN FACT ASSESSMENTS ARE MUCH MORE DETAILS THAN AN AND EXTENSIVE THAN THIS PARTICULAR PAPER THAT CAME OUT YESTERDAY. WE HAVE DONE THAT FOR REPUBLICAN CANDIDATES, TAX REFORM PLANS. WE WILL CONTINUE TO ESTIMATE ANYTHING WE CAN GET OUR HANDS ON, BASICALLY.

>> Woodruff: ALL RIGHT, WE ARE GOING LEAVE IT THERE. SCOTT HODGE, WE THANK YOU VERY MUCH WITH THE TAX FOUNDATION, BILL GALE WITH THE TAX POLICY CENTER. GENTLEMEN, THA YOU.

>> Woodruff: YOU CAN WATCH BOTH CANDIDATES IN ACTION ON THE CAMPAIGN TRAIL TODAY. WE'VE POSTED THEIR FULL SPEECHES ON OUR POLITICS PAGE.

>> Brown: WE HEAD BACK TO LONDON TONIGHT FOR AN OLYMPICS UPDATE ON WHAT TURNED OUT TO BE A SIGNIFICANT DAY FOR THE AMERICAN TEAM. AS ALWAYS, A SPOILER ALERT: HERE COME SOME OF THE DAY'S RESULTS. DAY SIX OF THE OLYMPICS BROUGHT NEW TRIUMPH FOR A DIMINUTIVE AMERICAN GYMNAST. 16-YEAR-OLD GABBY DOUGLAS WON THE WOMEN'S INDIVIDUAL ALL- AROUND-- THE FIRST WOMAN OF COLOR EVER TO CLAIM THAT TITLE. IT WAS HER SECOND GOLD MEDAL OF THE GAMES. U.S. SWIMMERS HAD ANOTHER BIG DAY: REBECCA SONI WON THE WOMEN'S 200 METER BREASTSTROKE, WITH A WORLD RECORD TIME; TYLER CLARY TOOK THE MEN'S 200 METER BACKSTROKE, WITH FELLOW AMERICAN RYAN LOCHTE WINNING BRONZE. AND MICHAEL PHELPS INCREASED HIS ALL-TIME RECORD HAUL OF OLYMPIC MEDALS TO 20-- TAKING GOLD IN THE MEN'S 200 METER INDIVIDUAL MEDLEY. LOCHTE WON SILVER IN THAT EVENT. ALSO MAKING HISTORY WAS KAYLA HARRISON WHO WON THE UNITED STATES' FIRST GOLD IN OLYMPIC JUDO. BRITAIN, TOO, HAD MORE CAUSE TO ENJOY THESE GAMES.

>> I THINK GREAT BRITAIN WILL GET A GOLD MEDAL IN THE ROWING. HOPEFULLY, WE'LL GET SOME OTHER GOLDS. I THINK IT WILL GET BETTER AND BETTER.

>> Brown: AND IT DID. BRITISH ATHLETES WON EVENTS IN SHARPSHOOTING AND MEN'S CYCLING TODAY. THE HOST COUNTRY CLAIMED ITS FIRST GOLD OF THE GAMES YESTERDAY, IN WOMEN'S PAIR ROWING. AND TOUR DE FRANCE HERO BRADLEY WIGGINS FOLLOWED WITH GOLD IN THE MEN'S INDIVIDUAL TIME TRIALS. WIGGINS TWEETED LATER THAT HE WAS GETTING DRUNK TO CELEBRATE AND WAS DEFENDED BY THE HEAD OF THE BRITISH OLYMPIC ASSOCIATION.

>> YOU KNOW A NUMBER OF PEOPLE HAVE COMMENTED, I THINK WRONGLY, THIS MORNING THAT HE WASN'T ENTITLED TO GO OUT AND REALLY ENJOY HIMSELF YESTERDAY EVENING. I AM OF THE GROUP WHO SAYS HE'S ABSOLUTELY THOROUGHLY ENTITLED TO HAVE A FANTASTIC PARTY AND CELEBRATE. NOBODY DESERVES IT MORE.

>> Brown: NOT CELEBRATING IS CHINESE BADMINTON STAR YU YANG. SHE AND SEVEN OTHER PLAYERS WERE DISQUALIFIED YESTERDAY FOR TRYING TO LOSE, TO GAIN WEAKER OPPONENTS IN FUTURE ROUNDS. TODAY, YU POSTED AN ONLINE MESSAGE THAT READ: "THIS IS MY LAST GAME. FAREWELL BADMINTON WORLD FEDERAON. FAREWELL MY DEAR BADMINTON." THE CHINESE TEAM'S COACH HAD ALREADY APOLOGIZED ON STATE TELEVISION.

>> ( translated ): MOST IMPORTANTLY, I THINK, IS WE DIDN'T TAKE EACH COMPETITION SERIOUSLY AND FOLLOW THE OLYMPIC SPIRIT OF HIGHER, FASTER AND STRONGER AS PROFESSIONAL ATHLETES. WE DIDN'T FULLY DEMONSTRATE THE FIGHTING SPIRIT OF THE CHINESE BADMINTON TEAM.

>> Brown: ALSO GAINING SOME UNUSUAL ATTENTION TODAY: A HORSE NAMED RAFALCA, TAKING PART IN THE FIRST DAY OF TEAM DRESSAGE. OWNER ANN ROMNEY, THE PRESIDENTIAL HOPEFUL'S WIFE, SAID SHE WAS THRILLED AS MARE AND RIDER TURNED IN THE BEST U.S. SHOWING. MORE ON THIS DAY'S EVENTS NOW WITH CHRISTINE BRENNAN. SHE'S COVERING THE GAMES FOR "U.S.A. TODAY" AND ABC AND JOINS US AGAIN FROM LONDON. DO CHRISTINE, A BIG MOMENT, A HISTORIC MOMENT FOR GABBY DOUGLAS. TELL US WHAT YOU SAW THERE TODAY.

>> JEFF T REALLY WAS SOMETHING. FOR THE FIRST TIME EVER THE WOMEN'S ALL-AROUND COMPETITION IN GYMNASTIC TESS OLYMPICS, YOU COULD ARGUMENT MOST LUCRATIVE, THE MOST FAMOUS OF ALL OLYMPIC GOLD MEDALS AND THE WIN CERT MOST FAMOUS OLYMPIC GOOD MEDALIST POTENTIALLY FOR THE FIRST TIME GOES TO A WOMAN OF COLOR, AN AFRICAN-AMERICAN, GABBY DOUGLAS WITH A STELLAR PERFORMANCE. SHE JUST DIDN'T FLINCH. SHE TOOK THE LEAD RIGHT OFF THE BAT ON THE VAULT. NEVER GAVE IT UP. THE RUSSIANS KEPT TRYING TO GET CLOSE. AND GABBY DOUGLAS WAS JUST DOMINATING. JUST LIKE THE U.S. TEAM, TWO DAYS EARLIER, GABBY DOUGLAS PERFORMED INDIVIDUALLY JUST LIKE THAT TEAM DID WITHOUT A MISTAKE. AND TO THINK ABOUT THIS FOR A MOMENT THIS IS THE GOLD MEDAL THAT MARY LOU RECEIPTON DID, OF NASDAQIA LUKIN FOUR YEARS AGO AND NOW IT BELONGS TO GABBY DOUGLAS WHO ONE YEAR AGO, MOST OF US HAD NEVER HEARD OF. SHE HAS HAD A METEORIC RISE THROUGH THE SPORT, TOUGH AS NAILS COMPETITOR. SHE TOLD ME A FEW MONTHS AGO, SHE SAID BRING IT ON, I LOVE THE PRESSURE. AND WE HAVE SEEN A TERRIFIC ATHLETE, VERY SMALL IN STATURE BUT HUGE IN HEART AND CONFIDENCE. AND I THINK IT'S A GREAT BREAKTHROUGH WIN NOT ONLY FOR HER BUT FOR THOSE WHO LOOK AT THE SPORT AND KIND OF SEE THIS EASTERN EUROPEAN OR LILY WHITE DOMINANCE OF GYMNASTICS. NO MORE. GABBY DOUGLAS IS GOING TO BE A VERY DIFFERENT AND VERY POPULAR CHAMPION.

>> Brown: GREAT STORY THERE IN GYMNASTICS. AND NOW TO SWIMMING WITH THE STORY LINE UP TO TODAY HAD BEEN WELL, A SOMEWHAT MORE MORTAL MICHAEL PHELPS BUT THERE HE WAS TODAY AT THE FINISH LINE.

>> YES, I THINK MICHAEL PHELPS HAD SAID ENOUGH IS ENOUGH. AND HE DECIDED HE WAS GOING TO DO SOMETHING ABOUT IT AND HE WON ONE OF HIS SIGNATURE EVENTS. THE 200 INDIVIDUAL MEDLEY BEATING RYAN LOCHTE WHO SINCE WINNING THE 400 IM ON THE FIRST NIGHT OF SWIMMING, JEFF, RYAN HAS KIND OF GONE DOWNHILL A LITTLE BIT. AND WHERE PHELPS HAS HAD AN UNEVEN OLYMPICS AS WELL. LOCHTE HAD A TOUGH DAY AND ABOUT A HALF HOUR AT THE SWIMMING POOL HE WAS TRYING TO WIN TWO GOLD MEDALS, INSTEAD A BRONZE AND SILVER, 2900 BACKSTROKE, ONE OF HIS BREAD AND BUTTER EVENTS. HE FINISHED A DISAPPOINTING THIRD, WAS CAUGHT AT THE END BY AN AMERICAN TYLER CLAIREY AND HALF HOUR LATER SO NOT A LOT OF TIME TO BREATHE AND REST. AND KIND OF GEAR BACK UP. MICHAEL PHELPS TOOK HIM ON IN THE POOL AND BEAT HIM. AND I THINK FOR PHELPS, WE SAW THE COMPETITIVE SPIRIT THERE. THIS IS A GUY WHO HAS GOT THE MOST MEDALS IN HISTORY, AND EVERYONE IS SAYING THE GREATEST EVER, BUT HE HADN'T WON AN INDIVIDUAL EVENT HERE. AND MICHAEL PHELPS IS A VERY PROUD MAN. AND HE GOT THAT INDIVIDUAL GOLD. AND COULDN'T HAVE BEEN HAPPIER TO BEAT LOCHTE IN AN EVENT WHERE THEY ARE BOTH EXCELLENT.

>> Brown: NOW LET ME MOVE TO A LESS EXCELLENT STORY, I GUESS. I'M VERY CURIOUS ABOUT THIS BADMINTON STORY IT IS OF COURSE A SPORT THAT RARELY GETS MUCH ATTENTION. HOW MUCH OF A STIR HAS IT CAUSED THERE.

>> OH, IT'S BEEN A HUGE STORY. I WROTE ABOUT IT YESTERDAY. FIRST OF ALL WHOEVER WOULD HAVE THOUGHT THAT BADMINTON WOULD GIVE US ONE OF THE GREAT CONTROVERSY OF THE OLYMPICS. BUT HAVING SAID THAT, WE CAN LAUGH AND SMILE BUT IT'S REALLY NOT A JOKING MATTER. I MEAN HERE WERE EIGHT ATHLETES, EIGHT WOMEN AS IT TURNS OUT WHO CAME TO THE OLYMPICS TO TRY TO WIN GOLD AND INSTEAD FOUND THEMSELVES TRYING TO LOSE BECAUSE OF FORMAT OF THE COMPETITION THAT THEY WOULD BE BETTER OFF IN THE NEXT ROUND FACING A WEAKER OPPONENT IF THEY LOST. WHICH OF COURSE SAY REAL PROBLEM FOR THE BADMINTON FEDERATION. I THINK THEY SHOULD CLEAR THAT UP FOR THE NEXT FOUR YEARS. NONETHELESS, JUST HITTING, SERVING RIGHT INTO THE NET, LIKE A FIVE-YEAR-OLD IN THE BACKYARD PICNIC, AND IT REALLY, WHEN YOU THINK ABOUT THE OLYMPICS WE HOLD OLYMPIANS TO A HIGHER STANDARD, JEFF, THE DRUG TESTING IS MUCH HARDER, MUCH TOUGHER THAN MAJOR LEAGUE BASEBALL OR THE NFL. THESE ATHLETES DROP INTO OUR LIVE FORCE A COUPLE WEEKS EVERY FOUR YEARS AND THEN DISAPPEAR. THEY NEVER OVERSTAY THEIR WELL COME I THINK WE SHOULD DEMAND MORE OF THEM. AND IF AN NBA TEAM TRIES TO LOSE TO GET THE TOP DRAFT PICK OR NFL TEAM RESTS ITS STARTERS WE'RE USED TO THAT. BUT IN IS DIFFERENT. THIS IS THE OLYMPICS BUT FOR THEM TO REALLY KIND OF DESECRATE THE SPIRIT OF THE OLYMPIC GAME, I THINK WAS ABSOLUTELY THE RIGHT THING TO DO FOR THEM TO BE KICKED OUT OF THE GAMES. ALL EIGHT OF THEM, THEY ARE GONE. BUT THAT STORY, THERE IS STILL A BIT OF BUZZ ABOUT IT NOW A GOOD 24 HOURS LATER.

>> Brown: AND FINALLY LET'S END ON A HAPPIER NOTE WHICH IS THE HOST COUNTRY HAD A VERY GOOD COUPLE OF DAYS. TELL US ABOUT THAT AND WHAT HAS IT DONE T MUST HAVE RAISED THE EXCITEMENT LEVEL THERE.

>> I THINK WE WERE ALL GETTING A LITTLE WORRIED ABOUT THE BRITS TO BE HONEST WITH YOU. THEY HAD NOT WON A GOLD MEDAL IN THE FIRST SEVERAL DAYS OF COMPETITION. AND YOU WATCH THE BBC HERE OF COURSE AND IT'S EXCELLENT COVERAGE. BUT THEY'RE HOMERS JUST LIKE U.S. NETWORK SAY HOMER. THEY'RE CHEERING FOR THEIR OWN AND THAT MAKES PERFECT SENSE. THE WAY THAT WE HAVE ACCUSED OTHER U.S.-- SO HERE THE BRITS ARE TALKING ABOUT THEIR SILVER OR THEIR BRONZE. AND FINALLY THEY GOT THE GOLD IN THE WOMEN'S ROWING YESTERDAY. AND THEY WERE THRILLED. AND THEN BRADLEY WIGINS OF COURSE THE TOUR DE FRANCE WINNER CAME THROUGH BIG TIME FOR THEM IN CYCLING YESTERDAY. AND THEN THREE MORE GOLDS TODAY. AND BRITAIN IS NOT GOING TO WIN THE MEDAL RACE THAT WILL BE THE U.S. OR CHINA. I'M NOT A BIG FAN OF THE MEDAL RACE PERSONALLY. I THINK IT IS ONE OF THE MOST OVERRATED THINGS IN SPORTS BUT NONETHELESS IT IS HERE TO STAY AND EVERYONE COUNTS IT UP AND THE U.S. IS DOING QUITE WELL AS IS CHINA. BRIT-WILL BE DOWN THERE OUT 10th OR SO. BUT THE FACT THAT THEY HAVE GOT NOW SEVERAL GOLD MEDAL CAN CHEER. THE BBC IS BREATHING EASIER AND SHOULDN'T WE ALL BREATHE EASIER IF THE BBC IS HAPPY.

>> Brown: ALL RIGHT, CHRISTINE BRENNAN IN LONDON, ONCE AGAIN, THANKS SO MUCH.

>> THANK YOU, JEFF.

>> Brown: AND WE ARE HAVE MORE STORIES ON-LINE WHO TALKS ABOUT THE WRONG LOAD FOR RAY LA HAR ISON WHO WON THE GOLD IN JUDO AND REPORTERS NOTEBOOK MOMENT FROM HER COVERAGE TODAY.

>> Woodruff: NOW, CALIFORNIA'S WATER WARS ARE BACK AS THE STATE STRUGGLES TO TRANSFER A VITAL RESOURCE FROM WHERE IT FAL TO WHERE IT'S NEEDED. "NEWSHOUR" CORRESPONDENT SPENCER MICHELS REPORTS FROM THE SACRAMENTO-SAN JOAQUIN DELTA-- THE AREA SOUTH OF SACRAMENTO WHERE MOST OF THE STATE'S WATER CONVERGES AND AN AREA THAT'S CRUCIAL TO NEW PLANS.

>> Reporter: AT THE CENTER OF A CENTURY-LONG DEBATE OVER CALIFORNIA WATER IS THE DELTA-- A JUMBLE OF RIVERS, SLOUGHS, CANALS AND ISLANDS SURROUNDED BY LEVEES. IT'S THE SPOT WHERE THE WATER AND SNOW THAT FALLS ON THE SIERRA NEVADA MOUNTAINS ENDS UP, ON ITS WAY TO SAN FRANCISCO BAY AND THE PACIFIC OCEAN. IT'S A BEAUTIFUL AREA FOR FISHING, BOATING AND FARMING. THE LAND IS FERTILE. THE WATER IS PLENTIFUL. FARMERS CAN PUMP RIGHT OUT OF THE SACRAMENTO RIVER FOR FREE AND THE CROPS ARE ROBUST. MUCH OF THIS WATER IS PUMPED ACROSS THE DELTA AND SENT TO WHERE THE PEOPLE ARE: IN THE ARID AND POPULOUS SOUTHERN PART OF THE STATE AND TO SOME PARTS OF THE SAN FRANCISCO BAY AREA. BUT RESIDENTS OF THIS HALF-A- MILLION ACRE WATERY LANDSCAPE, IN NORTHERN CALIFORNIA, ARE CONCERNED THAT THE STATE AND FEDERAL GOVERNMENTS ALONG WITH POWERFUL, THIRSTY INTERESTS FURTHER SOH. SOME OF THEM CORPORATE FARMING OPERATIONS WILL DIVERT MORE OF THEIR WATER AND RUIN THEIR LAND AND THEIR LIVELIHOODS. ROGENE REYNOLDS' FAMILY HAS FARMED THE DELTA FOR TWO GENERATIONS. SHE'S ACTIVE IN A GROUP CALLED RESTORE THE DELTA.

>> WATER IS GOLD. WHEREVER YOU TAKE IT, YOU PROSPER. PEOPLE WITH MORE MONEY THAN SOME OF US OUT HERE ARE INTERESTED IN TRANSFERRING THE WATER AWAY FROM US. AND THE STATE POLICY SEEMS TO BE FAVORING THEM OVER OUR REGION.

>> Reporter: WHAT WORRIES REYNOLDS IS A PLAN PROPOSED BY GOVERNOR JERRY BROWN AND U.S. INTERIOR SECRETARY KEN SALAZAR TO BUILD TWO WIDE 35-MILE-LONG TUNNELS UNDER THE DELTA, SO THAT MUCH OF THE WATER FROM THE SACRAMENTO RIVER WILL BYPASS THE DELTA, AND WILL FLOW BY GRAVITY DIRECTLY TO MASSIVE PUMPS, AND THEN WILL BE SENT SOUTH. IT WILL BE USED TO IRRIGATE CROPS AS WELL AS TO SUPPLY CITIES IN SOUTHERN CALIFORNIA. THOSE PUMPS HAVE EXISTED FOR DECADES, MAKING SOME RIVERS FLOW BACKWARDS, KILLING MILLIONS OF FISH AND DEGRADING THE HABITAT BY ALLOWING SALT TO INTRUDE FROM THE BAY. THOSE ENVIRONMENTAL PROBLEMS HAVE PROMPTED COURTS TO RESTRICT THE FLOW OF WATER. AND THAT HAS CAUSED SOUTHERN WATER USERS TO COMPLAIN THAT THEIR SUPPLIES HAVE BECOME UNRELIABLE AND ERRATIC. SALAZAR SAYS FIXING THE SYSTEM WITH TUNNELS IS A MAJOR REASON THE FEDERAL GOVERNMENT IS INVOLVED.

>> EACH YEAR HAS BROUGHT MORE UNCERTAINTY. UNCERTAINTY FOR THE FARMERS AND FOR THE FISHERMAN AND FOR THE FAMILIES ACROSS THE STATE WHO RELY ON THE WATER TO SUSTAIN THEIR LIVELIHOODS.

>> Reporter: THE GOVERNOR SAYS THE NEW PLAN-- THE BIGGEST TUNNEL IN THE COUNTRY, LONGER AND WIDER THAN THE CHUNNEL BETWEEN ENGLAND AND FRANCE-- WOULD BE A GREAT IMPROVEMENT, EVEN IF ALL THE DETAILS HAVEN'T BEEN WORKED OUT.

>> THE PROPOSAL IS A BIG IDEA FOR A BIG STATE, FOR AN AMBITIOUS PEOPLE THAT SINCE THE GOLD RUSH HAVE BEEN SETTING THE TRENDS AND THE TONE FOR THE ENTIRE UNITED STATES SO THIS IS

>> Reporter: BESIDES IMPROVING RELIABILITY OF WATER DELIVERIES, THE PLAN ENVISIONS RESTORING THE DELTA BY IMPROVING THE DANGEROUSLY DECLINING FISHERIES AND BY RESTORING FLOODPLAINS AND TIDAL MARSHES.

>> THE PROPOSAL BALANCES THE CONCERNS OF THOSE WHO LIVE AND WORK ON THE DELTA, THOSE WHO RELY ON IT FOR WATER, AND THOSE WHO APPRECIATE ITS BEAUTY, ITS FISH, WATERFOWL AND WILDLIFE.

>> Reporter: BUT A COALITION OF DELTA RESIDENTS, ENVIRONMENTALISTS, SPORTS FISHERMEN, NATIVE AMERICANS AND POLITICIANS SAY IT'S A BAD DEAL. CALIFORNIA CONGRESSMAN JOHN GARAMENDI REPRESENTS PART OF THE DELTA.

>> THIS IS PLUMBING BEFORE POLICY. THIS PROPOSAL DOES NOT DEVELOP ONE GALLON OF NEW WATER. BUT IT DELIVERS PRECIOUS WATER THAT THE DELTA NEEDS, THE FISH NEED, THE FARMERS NEED, THE CITIES IN THE DELTA NEED-- DELIVERS THAT WATER TO THE PUMPS SO IT CAN GO SOUTH.

>> THIS IS NOT THE FIRST, AND PROBABLY WON'T BE THE LAST MAJOR, UGLY DISPUTE OVER CALIFORNIA WATER. IN 1982 VOTERS TURNED DOWN A PLAN TO BUILD A CANAL AROUND THE PERIPHERY OF THE DELTA TO MAKE IT EASIER TO MOVE NORTHERN WATER SOUTH. DOUG HEMLY HAS BEEN IN THE TRENCHES OF THE WATER WARS. HIS FAMILY HAS LIVED AND FARMED ALONG THE SACRAMENTO RIVER SINCE 1850.

>> THE PROPOSED VOLUME THAT THEY'RE SAYING THEY WANT TO TAKE THEORETICALLY WOULD SUCK THIS DRY, AND YOU WOULD BE ABLE TO WALK ACROSS IT.

>> Reporter: ARE YOU KIDDING? I MEAN, SUCK THIS SACRAMENTO RIVER DRY?

>> THERE'S 14,000 CUBIC FEET PER SECOND FLOWING BY HERE. AND THEY WANT TO PUT IN PUMPS THAT WILL SUCK OUT 15,000 CUBIC FEET PER SECOND.

>> Reporter: OF COURSE, THEY'RE NOT SAYING THEY'RE GOING TO SUCK THIS DRY.

>> WELL, I THINK IF THEY DON'T WANT TO SUCK IT DRY, WHY BUILD IT SO THEY COULD SUCK IT DRY? IT DOESN'T MAKE SENSE.

>> Reporter: STATE OFFICIALS SAY FACILITIES ARE ALWAYS BUILT TO CONVEY MORE WATER THAN NEEDED, FOR YEARS WHEN THERE'S A SURPLUS. BUT, THEY SAY, THERE WILL BE HARD LIMITS ON HOW MUCH IS EXPORTED, AND THAT THE CAPACITY MAY BE LESS THAN FIRST ANNOUNCED. STILL THE DELTA PEOPLE REGARD THE PLAN AS A GIVEAWAY. ROGENE REYNOLDS, ALONG WITH CONGRESSMAN GARAMENDI, SEES THE MAJOR CULPRIT AS THE WESTLANDS WATER DISTRICT, A LARGE FARMING AREA ON THE WEST SIDE OF THE SAN JOAQUIN VALLEY, WHOSE FARMERS IRRIGATE WITH DIVERTED WATER.

>> FOLLOW THE MONEY. AND THAT'S ALL I CAN REALLY SAY ABOUT IT. THEY'RE POWERFUL MONEY INTERESTS IN TAKING THE WATER OUT OF HERE. IT'S A TRANSFER OF WEALTH PURE AND SIMPLE. AND THE EXCUSE OF REVITALIZING THIS DELTA IS JUST THAT, AN EXCUSE.

>> Reporter: NOT SO, SAYS TOM BIRMINGHAM, THE GENERAL MANAGER OF WESTLANDS.

>> THIS IS NOT ABOUT WESTLANDS' WATER DISTRICT. IT'S PORTRAYED THAT WAY BY A LOT OF PEOPLE BECAUSE THEY THINK THAT'S THE EASIEST WAY TO DEFEAT IT. BUT IT'S A PROGRAM INTENDED TO BENEFIT THE ENTIRE STATE OF CALIFORNIA. THE PEOPLE WHO FARM IN WESTLANDS' WATER DISTRICT ARE FAMILY FARMERS IN EVERY SENSE OF THE WORD. I CANNOT NAME A SINGLE CORPORATE AGRIBUSINESS THAT OPERATES IN WESTLANDS WATER DISTRICT. AT ONE TIME THERE WERE, THEY WERE THERE. TODAY, THEY'RE GONE.

>> Reporter: NO ONE KNOWS EXACTLY HOW MUCH THE WHOLE PLAN WILL COST: $14 BILLION IS JUST FOR BUILDING THE TUNNELS. BUT OPPONENTS SAY OPERATING THE SYSTEM, FINANCING IT, AND MAKING IMPROVEMENTS IN THE DELTA COULD BRING THE PRICE TAG TO $50 BILLION, OVER THE NEXT DECADE, SOME PAID FOR BY WATER USERS, SOME BY TAXPAYERS. THE PROBLEM SAYS JEFF MICHAEL, AN ECONOMIST AT UNIVERSITY OF THE PACIFIC, IS THAT THAT THE STATE HAS REFUSED TO DO A COST BENEFIT ANALYSIS. SO HE DID ONE ON HIS OWN.

>> THEY HAVEN'T PRODUCED A FINANCIAL PLAN THAT MAKES SENSE, THAT PASSES ANY KIND OF SCRUTINY OR HAS ANY DETAIL IN IT.

>> Reporter: WHAT DID YOU FIND?

>> I FOUND THAT THE PROJECT HAD AN AVERAGE OF $2.50 IN COST FOR EVERY $1 IN ECONOMIC BENEFITS TO THE STATE OF CALIFORNIA. IT'S A TERRIBLE INVESTMENT. IT HAS TO BE ONE OF THE WORST INVESTMENTS EVERY CONSIDERED FOR A MAJOR INFRASTRUCTURE PROJECT IN THE STATE.

>> ANY PLAN OF THIS MAGNITUDE IS GOING TO DRAW MANY LEVELS OF CRITICISM, CONCERN AND QUESTIONING. SO WE'RE TAKING THEM ALL. AND NO ONE CAN EVER SAY WE HAVEN'T STUDIED ENOUGH. AND I FIND IT IMPRESSIVE THAT DESPITE SPENDING HUNDREDS OF MILLIONS OF DOLLARS STUDYING THIS DAMN THING, PEOPLE WILL SAY, "WELL, YOU HAVEN'T STUDIED IT ENOUGH." WELL, WE WILL STUDY, BUT WE WILL TAKE ACTION.

>> Reporter: THE GOVERNOR'S PLAN -- SOME SAY HE WANTS IT TO BE HIS LEGACY-- WILL BE STUDIED AND FLESHED OUT, WITH CONSTRUCTION DUE TO START IN TWO YEARS, AND COMPLETION IN 2026.

>> Woodruff: ON OUR WEBSITE WE HAVE MORE FROM SPENCER MICHELS AND OUR PARTNERS AT KQED ON HOW THE CALIFORNIA DELTA SHAPED A STATE'S HISTORY AND ITS LANDSCAPE.

>> Brown: FINALLY TONIGHT, CONTINUING QUESTIONS ABOUT THE GOVERNMENT BAILOUTS AT THE HEIGHT OF THE FINANCIAL CRISIS. TOMORROW'S JOBS REPORT WILL PROVIDE THE LATEST SNAPSHOT OF HOW THE ECONOMY IS FARING. A FORMER GOVERNMENT WATCHDOG SAYS SOME OF THE KEY DECISIONS MADE IN 2008 ARE STILL RESONATING NOW. "NEWSHOUR" ECONOMICS CORRESPONDENT PAUL SOLMAN HAS THE STORY. PART OF HIS ONGOING REPORTING: "MAKING SENSE OF FINANCIAL NEWS."

>> Reporter: NEIL BAROFSKY WAS A 38-YEAR-OLD U.S. ATTORNEY IN NEW YORK, PROSECUTING COLOMBIAN DRUG LORDS AND DOMESTIC HOUSING SCAM ARTISTS WHEN PRESIDENT BUSH CHOSE HIM, IN THE FALL OF 2008, AS SPECIAL INSPECTOR GENERAL TO OVERSEE TARP, THE TROUBLED ASSET RELIEF PROGRAM. A LIFELONG DEMOCRAT, BAROFSKY WAS RETAINED BY THE OBAMA ADMINISTRATION. THE JOB AS TOP COP AT TARP MEANT GUARDING THE $700 BILLION BAILOUT FUND FROM FRAUD. BUT IN HIS TWO-YEAR TENURE, BAROFSKY CLASHED REPEATEDLY WITH TREASURY OFFICIALS IN CHARGE OF THE PROGRAM, WHO HE SAYS UNDERCUT OR IGNORED HIS EFFORTS TO HOLD BIG BANKS ACCOUNTABLE FOR WHAT THEY DID WITH TAXPAYER DOLLARS. HE'S NOW WRITTEN A TELL-ALL ACCOUNT OF HIS DISILLUSIONING YEARS IN D.C., BAILOUT, HIS ATTEMPT TO DISILLUSION READERS AS WELL. WE SAT DOWN WITH BAROFSKY AT NEW YORK UNIVERSITY SCHOOL OF LAW, WHERE HE NOW TEACHES AS A SENIOR FELLOW. NEIL BAROFSKY, WELCOME.

>> Thank you.

>> Reporter: WHAT ARE YOU TRYING TO ACCOMPLISH WITH THIS BOOK?

>> THERE'S SO MUCH ANGER OUT THERE, YOU KNOW ON THE LEFT, ON THE RIGHT, OUPY, TEA PARTY, THAT RECOGNIZE INTUITIVELY THAT THERE'S SOMETHING WRONG WITH OUR FINANCIAL SYSTEM AND I WANTED TO WRITE THIS BOOK SO PEOPLE COULD UNDERSTAND THAT THEY'RE RIGHT, AND GIVE THEM THE ACTUAL EVIDENCE, THE ACTUAL ANECDOTES OF WHAT HAPPENED IN WASHINGTON, AND HOW MUCH THEIR GOVERNMENT HAS BEEN SERVING THE INTEREST OF WALL STREET OVER THE INTEREST OF THE TAXPAYERS WHO FUNDED THEIR BAILOUT.

>> Reporter: WE HAVE THE TROUBLED ASSET RELIEF PROGRAM, HUNDREDS OF BILLIONS OF DOLLARS WHICH IS GOING TO SUPPOSEDLY FIX THE PROBLEM AND SAVE THE ECONOMY, AND WHAT WENT WRONG WITH THAT IN YOUR VIEW?

>> WELL, ORIGINALLY WHAT TARP WAS SUPPOSED TO DO BASED ON WHAT CONGRESS PUT INTO THE BILL, WHAT TREASURY PROMISED, WAS TO DO MORE OF COURSE THAN JUST SAVE THE BANKS BECAUSE WHEN THE BUBBLE BURST IT JUST WASN'T BAD ONLY FOR THE BANKS, IT WAS REALLY BAD FOR MAIN STREET AND THERE WAS A HUGE PROBLEM WITH FORECLOSURES ACROSS THE COUNTRY. SO WHERE TARP WENT WRONG WAS THEY DID THE FIRST THING WHICH WAS HELP PREVENT A COMPLETE FINANCIAL COLLAPSE BY SAVING AND THEN LATER PROTECTING THE LARGEST GIANT BANKS, BUT THEY DIDN'T DO ANYTHING ELSE.

>> Reporter: BUT ISN'T IT A GOOD THING THAT THE BANKS WERE SAVED? WE ARE NOT FACING FINANCIAL ARMAGEDDON, AND IT'S BECAUSE ARGUABLY, THE FINANCIAL SYSTEM WAS SAVED, WAS BOLSTERED BY, BY PROGRAMS LIKE THE TROUBLED ASSET RELIEF PROGRAM.

>> THE FACT THAT IT'S A GOOD THING THAT THE BANKS DIDN'T GO DOWN AND TAKE THE ENTIRE ECONOMY DOWN WITH IT, DOES NOT ABSOLVE RESPONSIBILITY THAT TREASURY WAS GIVEN AND THE ADMINISTRATION WAS GIVEN TO DO MORE THAN JUST SHOVEL HUNDREDS OF BILLIONS OF DOLLARS INTO THE BANKS; MONEY THAT ENDED UP YOU KNOW IN THE EXECUTIVES POCKETS EVEN THOUGH THEY DROVE THESE INSTITUTIONS INTO THE GROUND. AND IF YOU THINK THAT IT WAS GOOD THING, ASK ALL THOSE PEOPLE WHO ARE UNEMPLOYED, ASK THE MILLIONS OF PEOPLE WHO'VE UNNECESSARILY BEEN FORECLOSED, AND A POTENTIAL TEN MILLION THAT STILL MIGHT BE.

>> Reporter: WELL, BUT YOU WERE THERE CARPING ABOUT HOW TARP WAS BEING RUN AND IN THE VIEW OF TREASURY, YOU WERE SOMEBODY WHO WASN'T HELPING RESTORE THE CONFIDENCE THAT THE SYSTEM NEEDS TO PROCEED IN RECOVERY.

>> I DIDN'T TAKE AN OATH OF OFFICE IN ORDER TO CHEERLEAD BAD POLICIES AND TO TURN AND LOOK AWAY WHEN, WHEN THEY DID THINGS THAT HARMED, ACTUALLY HARMED PEOPLE AND PROTECTED THE BANKS INSTEAD OF WHAT THEY WERE SUPPOSED TO DO.

>> Reporter: BUT YOU SAY BAD POLICIES. THE POLICIES WORKED. THE GOVERNMENT FOR EXAMPLE GOT PAID BACK. YOU KEPT WORRYING ABOUT FRAUD IN THESE PROGRAMS, AND THE GOVERNMENT HAS GOTTEN ITS MONEY BACK, HASN'T IT?

>> NO! I MEAN TARP, IS STILL, TREASURY ITSELF IS PROJECTING I THINK ABOUT $70 BILLION IN TARP LOSSES.

>> Reporter: IN FACT, TREASURY IS PROJECTING THAT TARP WILL ULTIMATELY COST $60 BILLION, MAINLY FOR PROGRAMS TO HELP STRUGGLING HOMEOWNERS IT SAYS. AS FOR THE $245 BILLION OF TARP FUNDS SPENT ON BANKS, TREASURY SECRETARY TIM GEITHNER INSISTS THEY'VE ALREADY TURNED A PROFIT.

>> RIGHT NOW, IT IS $20 BILLION WE EARNED FOR THE TAXPAYERS, VERY CAREFULLY DESIGNED.

>> $20 BILLION THAT IS THE INTEREST ON THE MONEY.

>> ON THE BANK INVESTMENTS. MOST OF IT IS BACK IN THE TREASURY.

>> Reporter: ON CHARLIE ROSE LAST WEEK, GEITHNER DISPUTED BAROFSKYS MAIN CLAIM AS WELL, THAT TREASURY PUT WALL STREET BEFORE MAIN STREET.

>> OF COURSE, OUR JOB WAS TO PROTECT MAIN STREET, THE ECONOMY, THE AVERAGE AMERICAN FROM THE FAILURES IN THE FAILING FINANCIAL SYSTEM. THAT'S WHAT WE DID AND THAT IS A JUST AND NECESSARY THING. TO HAVE LET IT BURN WOULD HAVE BEEN MUCH MORE DAMAGING TO MAIN STREET, THE AVERAGE AMERICAN THAN WHAT WE DID. LOOK AT WHAT EUROPE IS GOING THROUGH NOW. AND ASK YOURSELF: CAN YOU FIND AN EXAMPLE OF SOMETHING AS EFFECTIVE AND POWERFUL AS THE STRATEGY WE DESIGNED OVER THAT PERIOD OF TIME? I DON'T BELIEVE YOU CAN FIND AN EXAMPLE OF THAT.

>> I'M NOT FOR ONE SECOND SUGGESTING THAT IT'S NOT A GOOD THING THAT OUR FINANCIAL SYSTEM DIDN'T COLLAPSE, BUT THE FLAWS THAT WERE, EXISTED BACK IN 2006, 2007, 2008 HAVE GOTTEN EVEN MORE SEVERE. THE BANKS ARE NOW 20-25% BIGGER BECAUSE OF GOVERNMENT POLICY THAT SAW PROBLEMS WITH TOO-BIG- TO-FAIL BANKS AND DECIDED TO MAKE THEM EVEN BIGGER.

>> Reporter: SO HOW CAN IT BE THAT THERE HASN'T ACTUALLY BEEN EFFECTIVE LEGISLATION TO BREAK UP THE BANKS?

>> THIS IS EXACTLY THE PROBLEM, THIS IS WHERE THE FINANCIAL INTERESTS HAVE CAPTURED THE GOVERNMENTAL INSTITUTIONS. THE BIGGEST DISILLUSIONMENT WAS SEEING HOW OUR ELECTED OFFICIALS AND OUR APPOINTED OFFICIALS WOULD PUT THE INTERESTS OF THE GIANT FINANCIAL INSTITUTIONS, THE BANKS, BANKS THAT THEY HAD PREVIOUSLY WORKED FOR, OR BANKS THEY HOPED TO RETURN TO GO WORK FOR ONCE AGAIN, OVER THE INTEREST OF STRUGGLING HOMEOWNERS AND OVER THE INTERESTS OF THE BROADER ECONOMY. IT'S A PROBLEM THAT OUR LEADERS, AND THESE WERE DEMOCRATS AND THESE WERE REPUBLICANS, ALL CATERED TO THE INTERESTS OF FINANCIAL INSTITUTIONS OVER THAT OF THE AMERICAN PEOPLE. THAT TRANSCENDS POLITICS.

>> Reporter: AND IS IT BECAUSE THEY HAD WORKED FOR THE BANKS IN THE PAST, AND HOPED TO WORK FOR THEM AGAIN THAT THEY WERE IN YOUR TERM CAPTURED BY THE BANKS?

>> I THINK THAT'S A LARGE PART OF IT AND I DON'T EVEN MEAN THIS IN A MALEVOLENT WAY, LIKE THEY'RE EVIL PEOPLE BECAUSE THEY WORK FOR A BANK. LOOK, TO DO THIS TYPE OF PROGRAM YOU'RE GOING TO NEED TO HAVE SOME PEOPLE OF COURSE FROM THE FINANCIAL INDUSTRY, IT WOULD BE CRAZY NOT TO. BUT YOU ALSO HAVE TO RECOGNIZE THAT WHEN YOU SPEND DECADES, YEARS ON WALL STREET, AND COME TO THE GOVERNMENT, YOU DON'T SUDDENLY CHECK EVERYTHING THAT YOU'VE LEARNED, YOUR APPROACH AND YOUR IDEOLOGY, AT THE DOOR. YOU BRING IT WITH YOU. AND THAT'S ONE OF THE REASONS WHY I BELIEVE THERE WAS SUCH, THIS VIEW, THIS DEFERENCE TO THE BANKS AND THIS BELIEF WHAT'S GOOD FOR THE BANKS IS GOOD FOR THE COUNTRY, AND THAT WE DIDN'T NEED THE TYPES OF PROTECTIONS THAT I WAS ADVOCATING BECAUSE OF THAT CORE IDEOLOGY.

>> Reporter: SO WHAT'S GOING TO HAPPEN? WHERE ARE WE NOW?

>> IF WE DON'T CHANGE OUR WAYS, IF WE DON'T DO SOMETHING ABOUT THE SIZE OF THESE BANKS. WE'RE GOING TO END UP IN ANOTHER FINANCIAL CRISIS. AND BECAUSE WE DON'T HAVE AS MUCH POWDER IN THE KEG BECAUSE OF HOW MUCH MONEY WE'VE SPENT, AND BECAUSE THE BANKS ARE BIGGER NOW, ITS GOING TO BE A BIGGER, MORE DEVASTATING FINANCIAL CRISIS.

>> Reporter: YOU ACTUALLY THINK THAT'S GOING TO HAPPEN?

>> I DON'T THINK IT, I KNOW IT'S GOING TO HAPPEN IF WE DON'T STOP THIS. RISK IS GOING TO PILE UP IN WAYS THAT WE DON'T EVEN IMAGINE, AND IT WILL BLOW UP AGAIN.

>> Reporter: NEIL BAROFSKY, THANK YOU VERY MUCH.

>> THANKS FOR HAVING ME.

>> Woodruff: AGAIN, THE MAJOR DEVELOPMENTS OF THE DAY: KOFI ANNAN RESIGNED AS U.N. ENVOY TRYING TO MAKE PEACE IN SYRIA. HE BLAMED THE ASSAD GOVERNMENT, THE REBELS AND THE U.N. SECURITY COUNCIL FOR FAILING TO STOP THE VIOLENCE. AND AMERICAN ATHLETES STRUCK MORE GOLD AT THE LONDON OLYMPICS, WITH BIG WINS IN GYMNASTICS AND SWIMMING. WILL THE MARS ROVER FIND SIGNS OF LIFE WHEN IT LANDS NEXT WEEK? HARI SREENEVASAN HAS OUR SCIENCE THURSDAY STORY.

>> Sreenivasan: MILES O'BRIEN ASKS, ARE WE ALL MARTIANS? DID LIFE ON EARTH ORIGINALLY COME FROM A MARTIAN METEOR? LEARN ABOUT PAST EFFORTS TO FIND LIFE ON THE RED PLANET, AS NASA PREPARES FOR THE "CURIOSITY" ROVER LANDING. AND TUNE IN TOMORROW EVENING FOR HIS REPORT ABOUT THE MARS MISSION. PLUS, THE NEXT INSTALLMENT OF THE "FOOD FOR 9 BILLION" SERIES -- AN ANIMATION ABOUT THE HIDDEN COSTS OF HAMBURGERS-- COMES FROM THE CENTER FOR INVESTIGATIVE REPORTING. WATCH THAT VIDEO ON OUR WEB SITE. ALL THAT AND MORE IS AT newshour.pbs.org. JEFF?

>> Brown: AND THAT'S THE "NEWSHOUR" FOR TONIGHT. I'M JEFFREY BROWN.

>> Woodruff: AND I'M JUDY WOODRUFF. WE'LL SEE YOU ONLINE AND AGAIN HERE TOMORROW EVENING WITH MARK SHIELDS AND DAVID BROOKS, AMONG OTHERS. THANK YOU AND GOOD NIGHT. MAJOR FUNDING FOR THE PBS NEWSHOUR HAS BEEN PROVIDED BY: ♪ ♪ MOVING OUR ECONOMY FOR 160 YEARS. BNSF, THE ENGINE THAT CONNECTS US. AND BY THE ALFRED P. SLOAN FOUNDATION. SUPPORTING SCIENCE, TECHNOLOGY, AND IMPROVED ECONOMIC PERFORMANCE AND FINANCIAL LITERACY IN THE 21ST CENTURY. 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. Captioning sponsored by MacNEIL/LEHRER PRODUCTIONS Captioned by Media Access Group at WGBH access.wgbh.org

>> THIS IS "BBC WORLD NEWS AMERICA." FUNDING FOR THIS PRESENTATION IS MADE POSSIBLE BY THE FREEMAN FOUNDATION OF NEW YORK, STOWE, VERMONT, AND HONOLULU, NEWMAN'S OWN FOUNDATION, AND UNION BANK.

>> AT UNION BANK, OUR RELATIONSHIP MANAGERS WORK HARD TO KNOW YOUR BUSINESS, OFFERING SPECIALIZED SOLUTIONS AND CAPITAL TO HELP YOU MEET YOUR GROWTH OBJECTIVES. WE OFFER EXPERTISE AND TAILORED SOLUTIONS FOR SMALL BUSINESSES AND MAJOR CORPORATIONS. WHAT CAN WE DO FOR YOU?

>> AND NOW, "BBC WORLD NEWS AMERICA."

>> THIS IS "BBC WORLD NEWS AMERICA" REPORTING FROM WASHINGTON. KOFI ANNAN CALLS IT QUITS ON HIS MISSION IMPOSSIBLE TO END THE CRISIS IN SYRIA. WHAT DOES IT MEAN FOR THE FUTURE OF THE CONTINENT? SO MUCH FOR GIVING THE EURO A BOOST, AFTER PROMISING TO DO WHATEVER IT TAKES, THE EUROPEAN CENTRAL BANK IS APPOINTS THE MARKET. IT WAS BUILT AS A TOOL IN THE POOL. TONIGHT, MICHAEL PHELPS STRIKES GOLD IN HIS FINAL MATCH UP WITH A FELLOW AMERICAN RYAN LOCHTE. WELCOME TO OUR VIEWERS ON PBS IN AMERICA AND ALSO AROUND THE GLOBE. IT MIGHT BE THE TOUGHEST JOB DESCRIPTION ON EARTH BUT THE U.N. IS LOOKING FOR A NEW ENVOY TO SYRIA AFTER KOFI AND THEN ISSUED HIS RESIGNATION. HE SAYS HE WILL STEP DOWN AT THE END OF THE MONTH BUT TOOK A PARTING SHOT AT THE U.N. SECURITY COUNCIL, SAYING THAT THEIR DIVISIONS MADE HIS MISSION EVEN MORE IMPOSSIBLE. FIGHTING CONTINUED BETWEEN SYRIAN GOVERNMENT FORCES AND REBELS OF DAMASCUS AND ALEPPO. OUR DIPLOMATIC CORRESPONDENT REPORTS.

>> FIVE MONTHS AGO, KOFI ANNAN WAS GIVEN A HERCULEAN TASK, TO MAKE PEACE BETWEEN SYRIA'S PRESIDENT AND OPPOSITION REBELS DETERMINED TO BRING HIM DOWN. IT TURNED OUT TO BE A MISSION IMPOSSIBLE AND TODAY