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Analysis, background reports and updates from the PBS NewsHour putting today's news in context.

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    JUDY WOODRUFF: Next: a look at how the White House shapes the presidential image and a possible truce between the press corps and the Obama administration over access to the president.

    NewsHour congressional correspondent Kwame Holman has our story.

    KWAME HOLMAN: These are familiar images to many Americans, all captured by official White House photographer Pete Souza. They show private moments: President Barack Obama speaking with Pakistani activist Malala Yousafzai, or lunching with former Secretary of State Hillary Clinton.

    But many others were taken while news photographers covering the president were excluded, such as during Mr. Obama's Air Force One flight to South Africa with former President George W. Bush.

    Such examples have caused a simmering feud between the White House and the press, with photographers and reporters arguing their access to the president is more restricted than in the past.

    McClatchy Newspapers' senior White House correspondent, Steven Thomma:

    STEVEN THOMMA, McClatchy Newspapers: We expect a small group of journalists, at a minimum, to be allowed into the room in the White House or elsewhere when he's meeting with a foreign leader, when he's meeting with his Cabinet. We are granted access less and less since this White House took over in 2009.

    KWAME HOLMAN: Of course, there are some remarkable moments the press never would be asked to witness. But others are not so extraordinary, and there's the rub, says Thomma, president of the White House Correspondents Association.

    STEVEN THOMMA: Increasingly, as they release their own photos and videos of these events, it underscores to us, as a press corps, that they know these are of public interest.

    KWAME HOLMAN: The tension spilled into White House Press Secretary Jay Carney's regular briefing last week.

    JAY CARNEY, White House Press Secretary: Complaining about this...

    QUESTION: From your end, that you think it's a -- you think this has not been -- is that a fair reading...

    (CROSSTALK)

    JAY CARNEY: I would acknowledge that absolutely we need to -- that we're going to work with the press and with the photographers to, you know, try to address some of their concerns.

    What I can also assure you is that we will not create a day that has never existed, at least in modern times, when everyone in the White House press corps is satisfied with the amount of access they get to the president. That would be, I think, impossible to expect.

    KWAME HOLMAN: Images matter to every White House, according to Martha Joynt Kumar, a political scientist at Towson University who studies the presidency and the media.

    MARTHA JOYNT KUMAR, Towson University: Pictures really send a message to people, that it's something that speaks directly to them. One aspect I think that's involved here in the photographers issue is that the White House photographer is to be a photographer not only of the president, following the president around, but it is of the presidency itself as an institution and giving people a sense of what the presidency is, and what the White House is, how the White House operates.

    KWAME HOLMAN: Administrations have been using the tools at their disposal for years to relay the president's message and shape how he is viewed by the public.

    MARTHA JOYNT KUMAR: Staff -- a president's staff tend to be risk-averse. And nobody wants to be the person who recommended that the president do the press briefing or take pictures that get turned against them, and have the president say, who recommended this?

    (LAUGHTER)

    MARTHA JOYNT KUMAR: So nobody wants to be in that position. If the president is the risk-taker, because they -- a White House -- the White House staff reflects the president. It doesn't complement him.

    KWAME HOLMAN: Mister Obama was the first president to hire an official White House videographer. Arun Chaudhary followed the president from his 2008 campaign until 2011.

    ARUN CHAUDHARY, former official White House videographer: At the White House in the morning, I would probably take a look at the president's schedule, and kind of, from a historical perspective, think, what are the most important things to capture for history?

    I think the president has a lot of back and forth with the media, just like all presidents, and that the issues are fundamentally the same. I think what's changed is the media landscape, the way people get news, the manners in which they are able to access it, and, in general, just the economics of how it all works.

    KWAME HOLMAN: Carney and White House staff met Tuesday afternoon with Thomma and others from the press corps to seek some resolution. The press organization said it was encouraged by the meeting and that they would continue an ongoing dialogue with White House staff.

    The cooperative tone may get an early test. The president leaves Friday for a family vacation in Hawaii, an activity that's given rise in the past to press complaints about access to the president.

     


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    GWEN IFILL: 'Tis the season for political retirements. Three senior members of the House announced yesterday they are heading for the exits, giving each party new opportunities ahead of the November midterm elections.

    We examine the landscape one year out with NewsHour political editor Christina Bellantoni.

    Christina, do these wave, this wave of retirements, if we can call it a wave, does it benefit one party or the other?

    CHRISTINA BELLANTONI: Well, retirements always offer any party an opportunity, because there is a power of incumbency.

    So, Democrats like their chances in Virginia, where Frank Wolf has retired there. He is a longtime Republican. It's one of those growing outer suburbs that are key to Democrats winning in that battleground state. And then you also see in Iowa, which is a longtime swing state, you have got a Republican, Tom Latham, retiring. He's been there for many years, never really ran statewide.

    They thought maybe he would a Senate candidate. Now he is leaving. So both parties see some potential opportunities there. But then, of course, there is Utah, Jim Matheson. And he is a longtime Democrat. And Republicans say this is a very good seat for them. This is one of seven very Republican districts that George W. Bush won, John McCain won, Mitt Romney won. So that is a seat the Democrats aren't going to be able to capture.

    They need 17 seats to be able to reclaim control of the House. That is a long way away.

    GWEN IFILL: And that was always considered to be a long way away, but it doesn't help at all when people decide to retire.

    CHRISTINA BELLANTONI: Not at all. And they don't like defending open seats that they have.

    But the Republicans are actually retiring at a higher rate. It's 11-1 Republican retirements vs. Democrats. And when you talk to the Democratic campaign committees, they say -- they see that as expanding their map. They see opportunities in places like Arkansas, North Carolina, other places in South Florida, some other states like that.

    GWEN IFILL: Well, let's talk about the Senate, because, in the Senate, there are also retirements. And there's also -- there's a better chance of gaining or regaining control for Republicans, perhaps.

    CHRISTINA BELLANTONI: Absolutely.

    So, the Senate, Republicans need six net seats to be able to take control back. Three of those seats might look pretty easy at this point. You have got West Virginia, where Jay Rockefeller, a Democrat, is retiring. You have got South Dakota and Montana. Those are pretty likely Republican pickups at this point. But that's really only three seats they need to win to win control back.

    Now, there are incumbents who are on the ropes there.

    GWEN IFILL: Let's start with North Carolina, Kay Hagan.

    CHRISTINA BELLANTONI: Yes.

    So, Kay Hagan, she's a first-term Democrat. She's close to the president. She has taken some votes that have put her at risk. But it is one of those states that is really changing in its demographics. President Obama won it in 2008, tried to win it in 2012 and came close. The Democrats are really putting a lot of energy there. If she can hold on, it shows the changing demographics of this area.

    GWEN IFILL: And, in Arkansas, Mark Pryor.

    CHRISTINA BELLANTONI: Yes. So, this is a very interesting state, Arkansas.

    It used to be a Democratic state. It has been trending Republican. He's not very popular right now, but he has tried to distance himself from the president as much as he can. There is the power of incumbency, of course, and he is running against a freshman Republican House member, not necessarily that popular, but he is running ahead of Tom Cotton.

    GWEN IFILL: Now, there is also an off-chance that Georgia might end up being interesting, because that is an open seat all of a sudden.

    CHRISTINA BELLANTONI: Yes.

    So, you have Saxby Chambliss retiring. And one of the Democratic stars of the national party this year is Michelle Nunn. They think that she can raise a lot of money. She's the daughter of a former senator, well-known. She's a woman being at the top of the ticket.

    At the same time, there is an interesting governor's race happening with Jimmy Carter's grandson running. And so maybe that's going to be too big-name Democrats that could help things. And Republicans have a very intense primary on that Senate side. You're going to have multiple candidates fighting it out. And that could end up helping the Democrats. It's another state where changing demographics might be states they could pick up.

    GWEN IFILL: I want to step away from all of these seats, because they mean more than just individual races. 2014 could be a real critical election.

    And what are the issues that are driving all these elections on either side?

    CHRISTINA BELLANTONI: Health care remains a big issue actually for both parties. The Republicans think that this is a winning issue for them. They say they are going to continue to criticize the president, hope that his approval ratings continue to go down. In both House and Senate races, they think that if they tie Democrats to the president and an unpopular health care law, that could help them.

    But the president and the Democrats think, well, health care, there's a lot of good things about it. We are going to keep running on that. And the Democratic message is really pointing at Republicans, well, they just want to repeal all of the good things in the health care law. They just want to focus on a broken website and not necessarily the bigger picture.

    So, that will continue to be the battle. It's the third straight election we're running on the Affordable Care Act.

    GWEN IFILL: Yes, it keeps coming back. But is there another -- are there any other issues? Is it spending? Is it taxes? Is it the things we usually are used to hearing about in these kinds of elections?

    CHRISTINA BELLANTONI: There's plenty of that. And Republicans are saying that they are the fiscal stalwarts.

    They are also saying that people like a check and balance on a Democratic administration, so maybe they deserve to keep the divided government. The Democrats are talking about the so-called on women. They're saying that Republicans want to get involved in women's health issues, or take those types of things away from them.

    So you're going to keep hearing those sort of themes that have been effective in a lot of places, including in this last governor's contest in Virginia.

    GWEN IFILL: Now, finally, just to wrap it up, people look at midterm elections and it's usually not good news for an incumbent president. But this is a lame-duck president.

    Does the president's right now rock-bottom unpopularity, at where he is, does that affect what happens in these races and the outcome?

    CHRISTINA BELLANTONI: Both parties will say it depends on where you are looking.

    In the case of Tom Latham we talked about from Iowa a moment ago, they did a poll in that district. President Obama is at 61 percent disapproval there. That matters. But in a state where it's maybe more liberal, it's not necessarily going to matter. The Senate races are probably a little closer to it.

    GWEN IFILL: Christina Bellantoni, you spent a couple years here as our political editor. And now you are leaving us and going off to become editor-in-chief of Roll Call.

    Thanks so much for everything you have done for us.

    CHRISTINA BELLANTONI: Thank you. Miss the NewsHour already.

     


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    JUDY WOODRUFF: Finally tonight: something completely different.

    Correspondent Paul Solman takes a look at a technology that allows adventurous users to explore the latest developments in the world of video gaming.

    It's part of his ongoing coverage Making Sense of financial news.

    PAUL SOLMAN: It was a 20-year-old named Palmer Luckey who would finally make science fiction dreams come true.

    Working in his parents garage, he cobbled together a headset out of ski goggles, smartphone and tablet parts to create a just-like-real-life gaming experience. Then, hoping to raise $250,000 to take his invention to market, he turned to the crowd-funding Web site Kickstarter.

    PALMER LUCKEY, Oculus Rift: So join the revolution. Make a pledge. And help up change gaming forever.

    PAUL SOLMAN: Within days, he had 10 times what he needed, as gamers went gaga over the goggles.

    PALMER LUCKEY: Games are something I'm really passionate about. And the problem was, there was nothing that gave me the experience that I wanted, the Matrix, where I can plug in and actually be in the game.

    PAUL SOLMAN: The Oculus Rift headset is still just a prototype. To see how far virtual reality will actually go, we visited Stanford University's Virtual Human Interaction Lab.

    JEREMY BAILENSON, Stanford University's Virtual Human Interaction Lab: This is the best virtual experience you can have in the entire world right now.

    PAUL SOLMAN: Lab founder Jeremy Bailenson is a technologist and a psychologist.

    JEREMY BAILENSON: Virtual reality is basically two things: tracking your body movements and sending new information to your eyes and ears based on those movements.

    PAUL SOLMAN: To make that happen, all you need are eight cameras to track the positions of all your body parts, accelerometers to monitor your head's rotation, dozens of speakers for sense-around sound, maybe a floor plate that vibrates with bass frequencies, all run by a roomful of computers.

    JEREMY BAILENSON: The job of these machines is going to be to continually change what you see, what you hear, and what you feel on your skin as a function of how you have moved.

    PAUL SOLMAN: Vivid graphics don't trick the brain, says Bailenson; movement does.

    JEREMY BAILENSON: It's nice to have good graphics, but what's critical is very accurately tracking the position of your head, your hands, and your body. And so, in this lab, we track your hand position to an accuracy of one-quarter-of-one-millimeter. And we do it 200 times a second.

    It's the accuracy and the temporal frequency that's important. And for V.R. to work, we have got to show you different stuff as a function of you turning your head. And when you bend down, the world needs to change. And when you put your arm up, you need to see your arm.

    PAUL SOLMAN: And when you're immersed in a simple graphic version of the very room I was standing in...

    JEREMY BAILENSON: OK. So what I want you to do is look down. And now, Cody, can you...

    PAUL SOLMAN: Oh! Oh, my God. Oh, my God. Now, I'm not going to be able to walk across it.

    JEREMY BAILENSON: OK. You don't have to. We can -- if you want to...

    (LAUGHTER)

    PAUL SOLMAN: I literally won't be able to do it.

    JEREMY BAILENSON: You don't have to. Would you like a room that's less scary? We can put you in one.

    PAUL SOLMAN: Yes.

    Now, the point of airing this sequence is not to humiliate me, though it manages to do a pretty good job, but to show how absolutely transformative this new technology might be. V.R. is already used professionally for everything from vehicle design, to flight simulation, to surgical training, to psychotherapy.

    And when it does hit the consumer market, it won't be just for games. Can't make it to Florence this year, or maybe ever, to see Michelangelo's most famous statue? Want to duck the crowds? If you can't come to the David, the David can come to you.

    JEREMY BAILENSON: And open your eyes.

    PAUL SOLMAN: Oh, my God. That's unbelievable.

    How about seeing the David in a completely new way, like being the David?

    JEREMY BAILENSON: Step into David. Share his body space.

    PAUL SOLMAN: Oh. Holy smokes.

    In case you're wondering, it's not just your trepid reporter who had such violent reactions.

    WOMAN: Oh, my God!

    (LAUGHTER)

    PAUL SOLMAN: Though non-video game geezers do seem especially susceptible.

    WOMAN: Oh, lordy.

     

    PAUL SOLMAN: This Oculus Rift trial user is actually not far from David at the moment, in the countryside of virtual Tuscany.

    WOMAN: Oh. Oh, I can't believe it. It's really beautiful.

    PAUL SOLMAN: And think how common online video chats are becoming, and what they will be like in virtual reality. We saw an early example last year with futurist Ray Kurzweil.

    RAY KURZWEIL, futurist: It's not that different than what we have today, just much more powerful.

    PAUL SOLMAN: And why limit those chats to the living, asks virtual reality pioneer Jaron Lanier?

    JARON LANIER, "Who Owns the Future?": There's also this funding of sort of fake immortality, where you create media effects or sort of fake ghosts of people who've died, so that other people can interact with them as if they're still alive.

    A generation or two from now, this will be part of our experience, in the same way that movies, and literature, and video games already are.

    PAUL SOLMAN: Force for good? Force for ill?

    JARON LANIER: Every new capability that people achieve can go either way, and no amount of technical prowess can make people better.

    You know, that's something that has to come from a different sensibility, a moral sensibility, an ethical sensibility, and that's not a problem we can solve in the lab.

    PAUL SOLMAN: Let's hope it's a problem we can solve in real life, though.

    Oh, my God.

    Or in whatever might take its place.

     


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    Waiting in Line Shoppers wait in line at Target on the Thanksgiving Day holiday in Burbank, California, November 22, 2012. Photo by Photo by Jonathan Alcorn/Reuters

    Between Nov. 27 and Dec. 15 data from 40 million credit and debit cards might have been stolen from 1,797 Target retail stores, according to security blogger Brian Krebs who broke the story Wednesday. Target announced on Thursday that the corporation resolved the issue on December 15.

    The theft is the second largest card-security breach on a U.S. retailer.

    The U.S. Secret Service is investigating the security breach. The security blog Krebs on Security said that investigators believe that the data was obtained via software installed on card readers at checkout lines.

    No one knows how the checkout machines were compromised, said Molly Snyder, spokeswoman for Target.

    "It is very clear it is a sophisticated crime," she said.

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    REUTERS/Jason ReedIn addition to announcing the beginning of tapering, the Fed on Wednesday strengthened their commitment to keeping the federal funds rate low. File photo courtesy of Jason Reed/Reuters.

    While the Fed decided Wednesday to begin gradually unwinding their purchase of mortgage-backed securities and Treasuries, they reaffirmed their commitment to keeping the federal funds rate near zero not simply as long as the unemployment rate remains above 6.5 percent (as they've communicated in the past) but likely "well past the time that the unemployment rate declines" below 6.5 percent. In our extended conversation with former Fed economist Catherine Mann, whom we featured in our preview of the Fed's decision, Mann explains how much of the Fed's stimulus ends up back at the Fed.

    Catherine Mann: Ultimately, the objective of tapering is for the Federal Reserve to not be purchasing U.S. Treasuries in the market, other than what they would normally have for their operations. Normally they have about 500 billion. Now they have trillions.

    Paul Solman: But these trillions that they've added to the balance sheet are all sitting back at the Federal Reserve because the banks have taken the money and redeposited it to the Federal Reserve for a quarter of a percent interest rate.

    Catherine Mann: Yes, exactly. So that has been one of the -- shall we say, the leakages -- between what the objective of the U.S. Treasury purchase program was and what has been the outcome. We have to remember that there were two objectives of the quantitative easing or two channels through which quantitative easing was supposed to work. One channel is the wealth channel and that is the one that we've observed being very effective. Stock market wealth goes up and so people who own stocks feel wealthier and they go out and spend.

    MORE FROM CATHERINE MANN: Why the Fed's Low Interest Rates Are Driving Dollars Abroad

    The second channel through which quantitative easing is supposed to work is to provide additional liquidity to banks, and those banks are supposed to offer credit to businesses. Now that particular channel has not been very effective, precisely because the banks have not done much in the way of lending. Yes, there's been some more lending for mortgages, commercial and residential, but there's been very little additional lending for so-called "industrial loans" to small businesses, and to businesses in general, who do depend on banks in order to expand their inventory.

    Paul Solman: Isn't that because the Federal Reserve has been paying banks to redeposit the money at the Fed?

    Catherine Mann: Well, so there is this issue of the interest on borrowed reserve or interest on excess reserves, where banks have to hold some reserves at the Federal Reserve; that's a requirement of our banking system. It's to provide the stability that you're sure that there's at least some reserve there against your deposit. Now the 25 basis points, the quarter of a percentage point that banks get when they hold excess reserves at the Federal Reserve -- it's on reserves above and beyond what they need to hold.

    Some people say that these excess reserves are merely because banks are concerned about the riskiness of their portfolio. The other point of view, of course, is that in today's very low interest rate climate, 25 basis points is actually a pretty good return -- better than you can get anywhere else.

    Paul Solman: I ran into a president of a bank in Rhode Island who told me, why not? That's why we're doing this, because we're getting 25 basis points, a quarter of a percent, for nothing, no risk at all.

    Catherine Mann: Yep, no risk at all. Right, and if we think about the credit channel, you're talking about making a loan to an enterprise, a business, and it's a very risky proposition to do that right now. Why? Because that loan is going to be for some period of time, let's say it's three years. Now we're pretty sure at this point that, in the next three years, interest rates in general are going to be going up. The Federal Reserve has committed to tapering; we think it's going be some time in 2014, that does mean interest rates are going to start to rise.

    Paul Solman: And historically interest rates have been higher than they are now?

    Catherine Mann: Right, so we are in a very low interest rate climate. So if you are a bank and you make a loan today at a low interest rate to a borrower, you know that that loan is not going to be worth it in a couple of years, when the interest rates in general are higher. Even if you give that business a floating interest rate loan...

    Paul Solman: A variable rate.

    Catherine Mann: ... a variable rate loan, so as interest rates go up kind of generally, they will go up for that borrower too; well that borrower is now in a riskier situation then they were when you lent [to] them at very low interest rates.

    Paul Solman: They might not be able to pay you back?

    Catherine Mann: They might not be able to pay you back. So banks are looking at this and they're saying, "Well I certainly don't want to make any longer term loans." I'll just keep it at the Federal Reserve.

    Paul Solman: Do you think the interest on excess reserves policy -- offering a quarter of a percent to banks to redeposit their money back at the Fed -- was a sensible one?

    Catherine Mann: So this is a controversial issue now. I think we need to go back a little bit in time and recall that the Fed is used to not paying interest on excess reserves and was given the authority to do that just right as the financial crisis was breaking. And so that was when they implemented the interest on excess reserves. They wanted to have this tool because it's yet another tool where they can adjust the attractiveness to the financial institutions of having more reserves or less reserves, so it adds to their tool chest for managing the money supply and managing credit in the economy.

    MORE ABOUT THE FED: Inside the Sanctum: How the Fed's Open Market Committee Decides What To Do

    Paul Solman: And managing the solvency of banks.

    Catherine Mann: And managing the solvency of banks. So you can understand why they wanted to have the tool. Now the question is whether or not this tool as it was implemented throughout this financial crisis, and aftermath, has exacerbated the problems with the credit channel. A bank can decide, "Do I want to give a three-year loan to a risky borrower, or do I want to get 25 basis points at the Federal Reserve? I'm really risk averse right now. I don't really want to lend to anybody so I'd rather take my 25 basis points." So I believe that at the margin, this has affected the credit channel, the effectiveness of the credit channel.

    Now, it is also the case that [for] very short-term money market funds, it has been been important for their continued solvency and their continued operations to have access, and eliminating the 25 basis points on excess reserves might have had deleterious effects on money market behavior. So that has been the argument for why the 25 basis points has been an important component of ensuring the full functioning of all components of the financial system, not just banks, but money markets as well.

    Paul Solman: But the main purpose of having interest on excess reserves was to bolster the banks, no?

    Catherine Mann: Yes.

    Paul Solman: To make sure the banks would have enough in reserve should there be another possible collapse, or run on the banks, whatever?

    Catherine Mann: Right, well it's as I say, a strategy that ensures that the banks get a little bit extra for holding extra reserves at the Fed. And to the extent that extra reserves ensure that the banking system remains sound, there's a positive argument for that.


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    South Sudanese seek shelter at UN compounds as fighting intensifies in Juba http://t.co/72iqu4kHZHpic.twitter.com/mYpgZ4Xadd

    — The Guardian (@guardian) December 19, 2013

    Read more: U.S. suspends embassy activity in South Sudan

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    We've found your reading for the rest of the week and we wish we could say it's from us, but it's not. Businessweek published Wednesday their list of the stories they wished they wrote in 2013.

    "I felt so many things while reading @natashaVC's @BuzzFeed story" - @atmccannhttp://t.co/PYk0sNlLB5http://t.co/JiPOIeJf2Q

    — Businessweek (@BW) December 18, 2013

    "The 2013 Jealousy List," includes 41 stories and one book. Businessweek staffers gave a brief description of the story and their reason for being jealous of the story.

    Emily Biuso chose "Harper High School, Part One and Part Two,". The pieces tells the story of violence at Chicago's Harper High School, where 29 students have been shot.

    "Three reporters spent five months inside the school, recording the lives of students and staff as they pay tribute to deceased friends, attend pep rallies, and explain why they try to stay inside as much as possible. It is a feat of immersive reporting," Bluso wrote.

    Also on the list is "Planet Money Makes a T-Shirt" which followed the making of a T-shirt in a five-part series that appeared via NPR on the radio and online.

    "It did the one thing I want most from any media I encounter: It made me smarter in the fastest, most enjoyable way possible. We must kill Planet Money and consume their bodies so as to absorb their power," Sam Grobart wrote in choosing the series.

    And many, many more. We're jealous of the idea for "The Jealousy List." What was your must read or watch story of 2013?

    H/T Bridget Shirvell

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    BREAKING: New Mexico's highest court declares same-sex marriage legal

    — The Associated Press (@AP) December 19, 2013

    On Thursday, New Mexico's highest court declared it unconstitutional to deny a marriage license to same-sex couples.

    In November, Illinois joined 15 other states and Washington, D.C. in legalizing same-sex marriage.

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    Job seekers wait on line Photo by Emile Wamsteker/Bloomberg via Getty Images.

    Disappointing unemployment and housing reports released Thursday initially depressed stocks after Wednesday's rally.

    Initial claims for state unemployment benefits rose to 379,000 last week -- almost a nine-month high, according to the Bureau of Labor Statistics. The rate of home re-sales fell to the lowest point in nearly a year and was the third straight monthly decline, according to the National Association of Realtors.

    Wednesday's tapering announcement sent the Standard and Poor's 500 Index to a record 1,810.65 and the Dow Jones Industrial Average to a record 16,167.97 at the close of trading. Unlike earlier this year, when the threat of tapering spooked markets, Wall Street seemed to interpret the Fed's gradual taper as a vote of confidence in the economy, especially after the unemployment rate dropped to seven percent in November.

    The difficulty of adjusting for seasonal volatility may account for some of Thursday's disappointing unemployment data. According to the National Association of Realtors, rising mortgage rates and a smaller supply of housing have impacted affordability, especially for first-time buyers.

    H/T Simone Pathe

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    Pope Francis and NSA leaker Edward Snowden can argue over who rightly deserves the title "Person of the Year," but many of the year's big stories involved younger people.

    From drone strikes and cutting edge medical research, to Hollywood talent and European immigration, youth from around the world challenged us to view their issues more compassionately and unite across ideological lines. We look back at some of the year's top young newsmakers.

    Malala Yousafzai

    No other young person captured the world's attention in 2013 like Malala Yousafzai.

    The young Pakistani advocate for girls' education made international headlines in 2012 when she was shot by the Taliban while on her way to school. After recovering from the injury, she showed that she would not be silenced by terrorist threats, and used her "second life" to take her message to the world stage.

    "Today you can see that I'm alive," said Yousafzai in February during her first interview since surviving a Taliban attack.

    In July, Yousafzai celebrated her 16th birthday by delivering a speech at the United Nations, promoting universal mandatory education around the world as a way to improve the status of women.

    "The extremists are afraid of books and pens," she declared. "The power of education frightens them. They are afraid of women. The power of the voice of women frightens them...That is why they are blasting schools every day. Because they were and they are afraid of change, afraid of the equality that we will bring into our society."

    The U.N. designated Friday, July 12 as "Malala Day," but the 16-year-old said it was a day for "every woman, every boy and every girl who have raised their voice for their rights."

    Jack Andraka

    Cancer research is a daunting field of study. So when 15-year-old Jack Andraka developed a pancreatic cancer screening tool that is more than 90 percent accurate and costs only 3 cents, the world took notice.

    After a family friend passed away from pancreatic cancer, Andraka decided to learn more about the deadly condition. "Armed with teenage optimism, I began reading everything I could online about pancreatic cancer and how it is detected," he wrote in an editorial for PBS NewsHour Extra, the educational resource site for the NewsHour.

    "Through my journey I learned that with the Internet anything is possible, and that it doesn't matter what your age, gender or race is -- it's your ideas that count."

    BatKid

    Here he comes!!!! #SFBatkidpic.twitter.com/PhF85F4Mw3

    — Make-A-Wish Bay Area (@SFWish) November 15, 2013

    Thanks to BatKid, a.k.a. 5-year-old cancer patient Miles Scott, the streets of the "City by the Bay" were made safer on Nov. 15, with a little help from the city of San Francisco and the Make-A-Wish Foundation, which grants wishes to children suffering from life-threatening illnesses.

    Scott thought he would just be buying a Batman costume, his favorite superhero, during a trip into San Francisco. Instead, he was surprised by a police escort who took him on an adventure around town to capture notorious villains from the Batman comics.

    Thousands of fans and volunteers lined the streets of the city to cheer BatKid on his mission, and millions more joined them via Twitter. Even President Barack Obama chimed in with support on Twitter, and recorded a Vine message congratulating him for saving Gotham.

    Scott has been battling leukemia for most of his life, but his disease is now in remission and he is expected to live.

    Quvenzhane Wallis

    This year, Quvenzhané Wallis became the youngest actress ever to be nominated for the Academy Award for Best Actress for her performance as "Hushpuppy" in the film "Beasts of the Southern Wild."

    Born in Houma, La., Wallis was just 5 years old when she auditioned for "Beasts of the Southern Wild". Since auditions for the role of Hushpuppy were only open to 6 to 9-year-olds, her mother lied on the initial paperwork to allow her daughter to audition. When director Benh Zeitlin saw her audition, he immediately recognized her as the best pick for the strong and independent young character.

    Since then, Wallis also appeared alongside Chiwetel Ejiofor and Brad Pitt in the critically acclaimed 2013 film "12 Years a Slave."

    Nabila Rehman

    As the world celebrated Malala Yousafzai for standing up for girls' rights in the face of Taliban attackers, another young Pakistani girl was testifying before the United States Congress on behalf of her grandmother, who had been killed in a U.S. drone attack.

    Nabila Rehman had been working in a field with her 12-year-old brother Zubair, who also testified that day, and her grandmother Bibi when they heard the buzzing of drone above them.

    "As I helped my grandma in the field, I could see and hear drone overhead but wasn't worried because we're not militants," Zubair Rehman said. "I no longer like blue skies. In fact, I prefer gray skies. When sky brightens, drones return and we live in fear."

    "Everything was dark and I couldn't see anything, but I heard a scream," said Nabila Rehman. "I was very scared and all I could think of doing was just run." Rehman also drew a picture of the drone attack and showed it during her testimony to illustrate her point.

    "What did my grandmother do wrong?" she asked.

    Leonarda Dibrani

    Although she didn't make front pages in the United States, 15-year-old Leonarda Dibrani, a Roma (also known as Gypsy) girl living in France, sparked mass protests when French police pulled over her school bus as her class was returning from a field trip, detained her and then deported her to Kosovo.

    "I'm frightened, I don't speak Albanian," she told AFP news from the Kosovan town of Mitrovica. "My life is in France. I don't want to go to school here because I don't speak any of the local languages. I had freedom there. I do not want to stay here."

    The deportation sparked protests in Paris and around the country. Al Jazeera reported that French students have disrupted about 50 schools since the incident. The protesters demanded that Dibrani and others like her be allowed to return to France to continue their studies.

    The case highlights the discrimination that Roma populations face within the European Union and conflict over immigration policies in Europe.

    Maria, the Greek Roma girl

    In another case involving Europe's Roma population, Greek police charged a Roma family with abducting a blonde, blue-eyed girl (whose complexion was fairer than the rest of the family) who they claimed to have adopted from another Roma woman. Maria, as the girl was known, was removed from her home and tested for a DNA match to her parents.

    Her biological mother, a Bulgarian Roma woman, stepped forward to claim Maria as her daughter, a claim verified by the DNA test. She said she had left her daughter with the couple in Greece because she was too poor to take her out of the country, but denies receiving money from the couple in exchange for Maria.

    Besides highlighting immigration issues within the mobile Roma community, the case also sparked discussion about what family should look like, especially as interracial and blended families become more common.

    Kid President

    In early 2013, Kid President, a.k.a. 9-year-old Robby Novak released "A Pep Talk from Kid President to You." His video went viral, racking up more than 30 million views and gaining some celebrity fans along the way.

    Since then, President Obama collaborated with his kid "counterpart" for an interview and a promotional video for the White House Easter Egg Roll. Kid President also gave a TED Talk and interviewed notable figures as diverse as U.N. Secretary General Ban Ki-moon and Beyonce.

    Sarah Murnaghan

    Ten-year-old Sarah Murnaghan sparked a debate over American organ transplant rules after she was initially denied a life-saving lung transplant because of her age. By policy, children 12 and older receive priority to receive adult lungs.

    Through a media campaign organized by her parents, a U.S. district judge temporarily changed national policy and ordered Sarah and another 11-year-old be placed at the top of the transplant list. Sarah received her first double lung transplant in June, but after it failed, she received a second, successful pair of lungs.

    Sarah's parents say they will continue to fight for children who are excluded from adult transplant lists because they are too young. But despite the positive result, many doctors are worried about the implications of the ruling.

    "The size of the donor and of the recipient is critical. Lungs vary in size primarily according to height, gender and age. The courts are clearly poorly equipped to adjudicate this kind of decision," Dr. Malcolm DeCamp of Northwestern Memorial Hospital told the Chicago Tribune.

    Dr. Scott Halpern of the University of Pennsylvania was also concerned about the presence of media in making medical decisions. "People might rightly ask whether it's fair for lungs to be allocated to people who can create the biggest media splash," he told ABC News.

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    JUDY WOODRUFF: A security breach at the height of the holiday season has exposed millions of Target shoppers to data theft. The retail chain said today that some 40 million credit and debit card accounts may be affected. It urged cardholders to monitor their statements for suspicious charges. We will get the details and explore the risks right after the news summary.

    The U.S. economy turned in some lackluster numbers today. Home sales fell in November for the third straight month. And first-time claims for unemployment benefits last week were the highest since March. On Wall Street, the Dow Jones industrial average gained 11 points to close at 16179. The Nasdaq fell nearly 12 points to close at 4058.

    From Moscow today, a surprise announcement. After a lengthy news conference, Russian President Vladimir Putin announced that he will pardon the man who was once his leading opponent. Oil tycoon Mikhail Khodorkovsky has been jailed on corruption charges for more than a decade. We will have a full report on the Putin news conference and reaction later in the program.

    The president of Ukraine had his own session with reporters today and defied his opponents at home and abroad. Viktor Yanukovych announced plans for partially joining an economic union led by Russia, despite weeks of protests against the move.

     In a televised interview, he also criticized Western officials who've visited Kiev and supported the protests.

    PRESIDENT VIKTOR YANUKOVYCH, Ukraine (through interpreter): It is very important that no other countries interfere in our internal questions and that they do not consider that they are the masters here, anywhere, on this square or anywhere else. I am categorically against anybody coming and teaching us how to live here.

    JUDY WOODRUFF: Yanukovych challenged those leading the protests to wait for elections if they want to change Ukraine's government.

    Security forces in Egypt today intensified their crackdown on key figures in the Arab spring uprising. Mohamed Adel led a youth movement in the drive to oust then-President Hosni Mubarak. He was arrested this morning. Meanwhile, two of Mubarak's sons were acquitted on corruption charges. A former prime minister was cleared as well.

    A jury in London has convicted two men in the sensational daylight murder of an off-duty British soldier. The two were self-declared soldiers of Allah inspired by al-Qaida.

    We have a report from Lucy Manning of Independent Television News.

     LUCY MANNING: Lee Rigby, a British soldier who had gone to war for his country, the men who murdered him, who called themselves soldiers of Allah, who thought their war was on the streets of Woolwich, the shocking pictures from that day, a scene so ordinary, as a woman walks by with her shopping, yet so unbelievable, Michael Adebolajo, blood on his hands, hatred from his mouth.

    MAN: The only reason we have killed this man today is because Muslims are dying daily by British soldiers. And this British soldier is one. He's an eye for an eye and a tooth for a tooth.

     LUCY MANNING: Moments earlier, they had been waiting for a soldier to kill. That soldier on his final walk was Lee Rigby. In his Help for Heroes top, he walked down the road outside the barracks, and as they spotted him, they accelerated and hit him.

    It wasn't enough for them just to knock Lee Rigby over. The actual details are too graphic, but in the middle of the day, they repeatedly stabbed and slashed Lee Rigby's neck, and that still wasn't enough. They then dragged his body into the road.

    They wanted martyrdom to go to paradise. Instead, they will go to jail. Lee Rigby's family dignified, yet clearly still traumatized, shed more tears in court as they heard the words guilty.

    PETE SPARKS, detective inspector: "This has been the toughest time of our lives. No one should have to go through what we have been through as a family. We are satisfied that justice has been done. But, unfortunately, no amount of justice will bring Lee back."

    LUCY MANNING: But there are questions about the murderers. Both had already been in prison and they were known to the police for a number of years, Michael Adebolajo taking center stage at an Islamist demonstration.

    And he claimed to have been approached by MI5 as recently as this year, so were they missed? Parliament is now investigating.

    JUDY WOODRUFF: Part of a London theater collapsed evening during a performance, injuring more than 80 people. Seven of the injured were seriously hurt. Several had to be rescued from beneath piles of plaster, wood and dust. There was no word on the cause.

    In Iraq, Shiite pilgrims were again the target of suicide bombers today, and at least 36 were killed. The attacks came as thousands of people made their way to the Shiite city of Karbala for a major Muslim holiday. At least three bombers struck at different points along the route. Al-Qaida and Sunni Muslim insurgents often target Shiites on the pilgrimage.

    U.N. investigators say that the Syrian military and its allies are systematically seizing people who are never heard from again. A report today said that thousands have been taken away. Separately, Amnesty International reported that rebels linked to al-Qaida have tortured and killed people at secret prisons in Northern Syria.

    President Obama commuted the sentences of eight convicted drug offenders today. In a written statement, he said their prison terms were unduly long under a law that treated crack cocaine more harshly than powder cocaine. A more recent law has reduced the disparity. Before today, the president commuted just one sentence in his five years in office.

    New Mexico is now the 17th state to legalize gay marriage. The state Supreme Court ruled today that it is unconstitutional to bar same-sex unions. New Mexico law never directly addressed the issue, but until recently, county clerks historically denied marriage licenses to gays and lesbians.

     


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    GWEN IFILL: The retail chain Target confirmed that hackers breached tens of millions of credit card and debit accounts at the height of the shopping season, just before Thanksgiving and right up until Dec. 15.

    The theft occurred when people swiped their cards in store, not online. The retailer confirmed that customers' names, credit card and debit card numbers and security codes were stolen. It's the latest in a series of major breaches in recent years.

    We explore them with Steve Surdu of Mandiant, a cyber-security firm.

    How did 40 million accounts get compromised?

    STEVE SURDU, Mandiant: Well, we don't know the details at this point in time. They're still investigating.

    But, obviously, information had to be siphoned off from the organization. Attackers almost certainly came in from outside, put software in place that allowed them to aggregate the information over time and then remove it, so that they could use it.

    GWEN IFILL: Put software in place in each individual store or at some central server?

    STEVE SURDU: That's also unknown. Either one is possible.

    In order to have as much of impact as they have had with 40 million cards, it would seem likely that they have had access at the centralized part of the organization in the central network that maybe allowed them to reach into the individual point-of-sale systems, or at least distribute the software from that central point into many point-of-sale systems.

    GWEN IFILL: And an inside job, perhaps?

    STEVE SURDU: Not likely.

    There are a lot of situations like this that we have seen over time. And it's never been an insider, not in our experience. And we have dealt with hundreds of these situation.

    GWEN IFILL: Well, let's talk about these kinds of situations. You say that this happened before. This is only unusual in its size?

    STEVE SURDU: Yes.

    I don't know if it's's unprecedented, but in the past breaches like the TJX breach.

    GWEN IFILL: Which is T.J. Maxx stores.

    STEVE SURDU: Yes.

    Hannaford. There have been other, not just retail breaches, but breaches of financial institutions, payment processors, that are similar, in that the attacker came in from the outside, aggregated information and removed it.

    GWEN IFILL: Let's talk about hardware for a moment. Why does it make a difference that it happened with people who swiped their cards? Would it have happened if you just handed your card over in some other way?

    STEVE SURDU: Just handed your card over, I guess...

    GWEN IFILL: To the cashier, say.

    STEVE SURDU: Well...

    GWEN IFILL: They're going to swipe it too, I guess.

    STEVE SURDU: Yes. You're not going to get -- in order to do this on a large scale, it has to be automated.

    GWEN IFILL: And so what period of time are we talking about here? We heard from before Thanksgiving until December 15. But it wouldn't -- would it take longer get that many, or is it just because the shopping season is in full swing?

    STEVE SURDU: Well, it's high volumes now, so this is the right time to do it.

    I think it's still really early in the investigation. My guess, because it sounds like they only said they were able to contain it as of the 15th, my guess is they discovered it relatively recently, put the brakes, the stops on whatever activity was going on, and I think now they should be deep into an investigation, which may take a considerable amount of time still.

    GWEN IFILL: Now, a lot of the people who are watching this story who perhaps have just gotten home from doing a little Christmas shopping are thinking to themselves, who is liable? Who gives me back my money if I have fallen victim to this?

    STEVE SURDU: Well, the card brands make sure that the individual consumer doesn't have that type of liability.

    If you contact your credit card organization, your issuing bank as quickly as possible if you see fraud charges, you're always indemnified from that. So that shouldn't be an issue that anyone needs to worry about.

    GWEN IFILL: Is the store itself, is the chain itself responsible?

    STEVE SURDU: Well, responsible -- ultimately, they would have financial obligation to the card brands.

    There typically would be fines if they were found to be in breach of the payment card industry security standards.

    GWEN IFILL: And what responsibility do consumers have to make sure that -- to protect themselves, or is there anything they can do at all to protect themselves from this kind of intrusion?

    STEVE SURDU: In this type of situation, there isn't much a consumer can do. They're really putting their confidence in the institution they're dealing with.

    And all they can do is check their cards, their statements to make sure that, if they see inappropriate activity, they respond to it quickly.

    GWEN IFILL: Are you saying that even after all the hacking episodes we have seen, we have survived, that technology is such that there is no way to protect against something like this happening?

    STEVE SURDU: Oh, there are many protections. There are many different things that you can do to ward off it.

    But there aren't any guarantees. You can't ever say that you're absolutely secure. Security is an asymmetrical type of issue, where you can protect yourself in thousands of different ways, and the attacker only needs to find one way in.

    GWEN IFILL: Well, get -- just give me an example of one way to protect, for the company to protect its consumers.

    STEVE SURDU: Yes.

    A company typically would perform assessments of their environment to determine whether they had vulnerabilities the attackers could take advantage of in their Web sites, so they would test them to see if they have problems. They would evaluate their computers to see if they configured them inappropriately, because there are known ways to take advantage of systems, so they would be self-inspecting those types of things.

    GWEN IFILL: So the very first thing that happens is, is there is self-inspection from the retailer or, as I saw today, the Secret Service gets involved in this?

    STEVE SURDU: The Secret Service would be involved to help them investigate, but wouldn't be there to help them defend themselves.

    Many -- almost all major organizations have full-time security staffs, where they are always looking at their environment and trying to make sure that they're up to date on their software, that if they find a problem, they fix it. But it's a tough thing. The larger the environment, the more difficult it is to find and resolve the issues.

    GWEN IFILL: OK.

    Steve Surdu from Mandiant research, thanks for helping us out.

    STEVE SURDU: Thank you.

     


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    JUDY WOODRUFF: Russian President Vladimir Putin presided over his annual news conference today, and despite the marathon session with reporters, he held back the most news-making announcement until after it was over.

    The tightly choreographed event attracted hundreds of Russian journalists, with some holding signs and even stuffed animals and dolls, hoping Putin would notice and call on them. But the Russian leader saved his biggest headline until the four-hour-long news conference finally ended, announcing he will pardon the jailed oil tycoon Mikhail Khodorkovsky.

    VLADIMIR PUTIN, Russian President (through interpreter): He has already spent more than 10 years in jail. It is a serious punishment. He refers to circumstances of the humanitarian nature. His mother is ill. And I think that, bearing in mind those circumstances, it is possible to make that decision, and I will soon sign an order about his pardon.

    JUDY WOODRUFF: Khodorkovsky was once the wealthiest oligarch in Russia, but he was arrested at gunpoint in 2003 after criticizing Putin and funding opposition parties. He was convicted of tax evasion and embezzlement, in cases widely viewed as part of Putin's campaign to silence critics.

    Today's pardon announcement was coupled with amnesty for two members of the punk rock band Pussy Riot, jailed after an anti-Kremlin protest at Moscow's main cathedral, and for 30 crew members of a Greenpeace ship who protested Russian oil drilling in the Arctic.

    VLADIMIR PUTIN (through interpreter): It is not a revision of the court's decision; this is a general decision about the amnesty, which covers them as well. It is not connected to Greenpeace or to this particular band. It is not my decision, but the decision of the State Duma.

    JUDY WOODRUFF: All of this as Putin is trying to tamp down criticism of Russia's record on human rights and political freedoms. The Russian president also tried today to ease strained ties with Washington. He denied Russian intelligence has pumped Edward Snowden for information since the National Security Agency leaker was given asylum in August.

    VLADIMIR PUTIN (through interpreter): We do not work with him and have never worked with him. And we don't bug him with all those questions as to what was being done in relation to Russia or how it was being done at the agency he worked for.

    JUDY WOODRUFF: Putin also said he believes U.S. surveillance efforts are needed to fight terrorism if there are clear ground rules.

    But on Iran's nuclear program, he warned that new American sanctions against 19 Iranian companies could hinder progress toward a comprehensive agreement.

    VLADIMIR PUTIN (through interpreter): As for sanctions, I'm certain that this is a counterproductive decision. It will not lead to anything good in terms of final agreements on solving this issue.

    JUDY WOODRUFF: At the same time, Putin defended Russia's agreement to offer a $15 billion bailout to Ukraine as merely helping a partner in need.

    VLADIMIR PUTIN (through interpreter): This is not linked, neither with the protests, nor with talks between Ukraine and the European Union. We just see that Ukraine is in a difficult state, and it is necessary to support it, and we have this opportunity to support them financially.

    JUDY WOODRUFF: Putin's news conference comes as Russia prepares to host the Sochi Winter Olympics in February and just over a week after he was criticized for shutting down a state news agency, which attempted to include the voices of the country's opposition in its coverage.

    The exact timing of the release of Khodorkovsky and the others is still unknown.

     


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    JUDY WOODRUFF: Now, to help us understand what's behind Putin's announcements, I'm joined by Dimitri Simes. He's president of the Center for the National Interest, a foreign policy think tank. And Angela Stent, she is director of the Center for Eurasian, Russian and East European Studies at Georgetown University. Her latest book is "The Limits of Partnership: U.S.-Russian Relations in the 21st Century."

    Welcome to you both.

    Angela Stent, to you first. Why the Khodorkovsky pardon?

    ANGELA STENT, Georgetown University: Well, I think it reveals two things.

    One of them is that Putin clearly doesn't feel threatened anymore by Khodorkovsky, so he doesn't have to keep him in jail. And I think there's a lot of baggage to that. It's been 10 years.

    But I think, secondly, it has to do with all of the things that we heard about in your important, the upcoming Sochi Games, the criticism Russia for many of the things that Putin has done recently, but particularly the so-called homosexual propaganda law, which has people really riled up about what will happen at Sochi about the treatment of athletes.

    And so I think this a gesture to show that Russia listens to some of the outside world's concerns, that it isn't just imprisoning people, it isn't negative, and it's supposed to symbolically show that Russia and that Putin himself has become more open to some of these issues.

    JUDY WOODRUFF: Dimitri Simes, how do you read what he said, what he has done for Khodorkovsky?

    DIMITRI SIMES, Center for the National Interest: Well, first, Angela, in my view, is exactly right.

    But to put things into perspective, Khodorkovsky was supposed to be released in August is, so now he will be...

    JUDY WOODRUFF: This coming August.

    DIMITRI SIMES: This coming August, after 10 years in jail.

    So now he will be released a few months earlier. It's very good in terms of public relations for Putin, but it doesn't change much. The Pussy Riot, they will get the...

    JUDY WOODRUFF: Pussy Riot, this is the punk rock women's group, music group.

    DIMITRI SIMES: Exactly, which had an interesting performance, very provocative in the main Russian Orthodox Church, and were arrested for that.

    But, anyway, they're now under amnesty, but they would be released anyway in March. So Putin got a lot of publicity, but he conceded very little.

    JUDY WOODRUFF: So you are saying that it's not that big a deal, what he's done with these pardons?

    DIMITRI SIMES: That is not that big a deal.

    Angela, I think, again is right, saying that Putin wants to look reasonable and demonstrate that Russia is a country of law. Sometimes, the level of Russian repression is overstated in the United States and the West in general, so Putin wants to look sensible and calibrated.

    JUDY WOODRUFF: Angela Stent, do you see the -- what he did with regard to the members of the Pussy Riot band and the Greenpeace members, members of the Greenpeace group, as all as a part of the same effort to improve relations, public relations?

    ANGELA STENT: It certainly is.

    And I agree with Dimitri. Their sentence, their term was coming to an end in a couple of months. Let me just say about Khodorkovsky there were rumors last week that a new case was going to be brought against him and that he wouldn't be released in August, as he's supposed to be.

    So one of the things that Putin has done is to push that back and say, no, no, there won't be another trial, and, by the way, I'm magnanimous and I'm releasing him now. Yes, the Pussy Riot is the same thing. These young women have been in jail, under really pretty bad conditions, particularly one of them, who is in a very nasty labor camp and has blogged about it.

    Again, he looks magnanimous. It's a P.R. gesture, but as Dimitri says, they would have been released anyway, those two women, in a couple of months.

    JUDY WOODRUFF: So, Dimitri Simes, this was a four-hour-long news conference. He covered a lot of territory during that time. He also talked, as we said, about Edward Snowden, about what the NSA, the U.S. National Security Agency, is doing.

    He basically seemed to be defending whatever they're doing. At the same time, it's something that is dealing with a lot of controversy here in this country.

    DIMITRI SIMES: Well, he is defending their existing practices. And he also is engaged in a delicate balancing act.

    He is very tough in defending Russia national interests as he understands them. He would, frankly, be fully prepared to challenge the United States on Syria, as he had done before.

    JUDY WOODRUFF: On Syria.

    DIMITRI SIMES: Certainly on Iran, when he said that he is opposed to sanctions, particularly unilateral American sanctions.

    But, at the same time, he wants to appear reasonable. And he particularly wanted to make clear that he can work with President Obama. Angela and I were at an event with Putin several months ago. And Putin went out of his way to be magnanimous toward Obama. That was after Obama was not able to attack Syria.

    He wanted to say, no, Obama had choices, he made courageous choice, principled choice. He doesn't want to create an impression that the Russian leader cannot work with the president of the United States.

    JUDY WOODRUFF: Angela Stent, why is that?

    ANGELA STENT: Well...

    JUDY WOODRUFF: Go ahead.

    ANGELA STENT: Well, I would say that is after making a decision to give Snowden temporary political asylum, which made sense, a wonderful propaganda coup for him, saying that the United States has no right to criticize Russia for listening to its own citizens' phone calls, since the United States does that itself.

    He could have not given him asylum. He did. After that, obviously, President Obama decided that he was not going to go and have a summit with President Putin. And, in fact, since Snowden has been in Russia, tremendous damage has been done to the United States' relations with its European allies, I mean, the worst for a very, very long time.

    And these are all revelations that come from Snowden. So, yes, I would take with some skepticism the claim that they -- the Russian government has not been working with Mr. Snowden. But, to put that aside, the damage has been done. All the documents -- documents are still being leaked.

    And so it's quite easy for President Putin to say, well, he wants to work with President Obama. I don't think he's going to find much of a response there, because it's quite clear that the White House has taken -- made its own conclusions from what happened earlier this year.

    JUDY WOODRUFF: A couple more things I want to ask you both about, but before I do, Dimitri Simes, was there any -- did you get any new sense today of whether Russia is going to be willing to work more with the U.S. or Iran, on the nuclear -- trying to get rid of their nuclear program, and on Syria?

    DIMITRI SIMES: Well, Putin clearly didn't yield anything of substance on either of these two issues.

    But, in my view, if you want to understand Putin's new flexibility, to the extent there is flexibility, you have to look at one figure, 1.4 percent. That is the level of Russian GNP growth, new, lower figure than anyone expected in 2013. Putin's foreign policy ambitions are great. His economic development imposes a straitjacket on what he has to accomplish.

    So, reluctantly, he has to display some common ground with the United States.

    JUDY WOODRUFF: Angela Stent, what...

    ANGELA STENT: I...

    JUDY WOODRUFF: Go ahead.

    ANGELA STENT: Well, I was just going to say, and, yet, with that very low growth rate, he has just now promised $15 billion from the national welfare fund to President Yanukovych, who may or may not spend it wisely.

    So, one understands the political reasons behind this, but this is going to be some economic burden on a Russia whose economic outlook for the next decade is not good, as Russian economists themselves have said.

    JUDY WOODRUFF: Angela Stent, we know, as we reported just a few days ago, Putin closed down one of the state-run media organizations. How free today, finally, is Russian society under Vladimir Putin?

    ANGELA STENT: Well, in some ways, there are still freedoms, clearly. People have personal freedoms.

    They can travel. And they can, by the way, leave Russia and go and live somewhere else, which, of course, they couldn't do before. The Internet is still pretty free in Russia. Print media, there are very critical print media. There's one radio station that is very critical. Electronic media are controlled by the government, and are going to be even more so since the abolition of the RIA Novosti news agency.

    So there are some freedoms, but they have clearly been curtailed in the last couple of years.

    JUDY WOODRUFF: So -- and, Dimitri Simes, so are we to understand that it is going in the direction against freedom under Putin?

    DIMITRI SIMES: I think it is quite contradictory.

    Even the Russian electronic media, there are several different stories. If you are talking about cable channels, they are almost completely free. And you have -- some of them, they have owners which are very critical of Putin. They call Putin a crook, a tyrant. TV channels, which belong to the government, they are much more constrained, but, even there, you hear a lot of critical opinions.

    I would say Putin is making two steps forward, and one-and-a-half steps back.

    JUDY WOODRUFF: All right, we hear you. That is a measurement we can all understand.

    Dimitri Simes and Angela Stent, we thank you.

     


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    GWEN IFILL: There's been a lot of talk about the politics behind the bipartisan budget agreement.

    We take a closer look now at the devil in those details.

    Senate Democrats were happy today to tout the budget deal headed to the president's desk.

    Budget Committee Chairwoman Patty Murray said, the agreement was about more than just funding the government.

    SEN. PATTY MURRAY, D-Wash.: We showed the American people that members of Congress can work together, that we can listen to each other and get into a room and talk frankly without trying to hurt each other politically. Secondly, by breaking through the partisanship, we finally ended the seemingly never-ending cycle of lurching from one crisis to the next.

    GWEN IFILL: The budget plan averts another government shutdown like the one this past October that lasted for 16 days. It also gives the Pentagon some relief from automatic spending cuts and restores billions of dollars to domestic programs, including scientific research.

    The $62 billion price tag will be paid for in part by scaling back benefits for military retirees under the age of 62. But, already, there is talk from both sides about finding the money somewhere else instead.

    The deal won nine Republican votes yesterday, but others, including Tom Coburn of Oklahoma, argued it does more harm than good.

    SEN. TOM COBURN, R-Okla.: But I want to describe who it's a compromise for. It's a compromise for the politicians. It's not a compromise for the American people, because what it really does is increase spending and increase taxes.

    GWEN IFILL: At the White House, aides to President Obama released a statement after the vote, saying, in part: "It's a good first step away from the shortsighted, crisis-driven decision-making that has only served to act as a drag on our economy."

    The agreement now awaits the president's signature.

    Now here to walk us through some of the lingering debate about the budget deal is Lori Montgomery of The Washington Post.

    Welcome back, Lori.

    LORI MONTGOMERY, The Washington Post: Thanks for having us.

    GWEN IFILL: So, does this deal mean that all those sequester cuts that we talked about, those across-the-board budget cuts have been permanently eased?

    LORI MONTGOMERY: No, in fact, they have not been permanently eased.

    This is a very modest deal. And Paul Ryan and Patty Murray said from the outset that they weren't going to try to solve all the world's problems. So what they have done is for the current fiscal year, they have walked back half of the sequester cuts. So $45 billion goes back to the agencies, $45 billion in cuts stays in place.

    Next year, there is a slightly smaller relief from sequester. And after that, sequester stays put. So Republicans have won something, in the sense that they have maintained the spending caps that will reduce spending for the next 10 years.

    But, in the short-term, for now, there's going to be a big boost in spending for domestic agencies and the Pentagon that they hadn't been expecting.

    GWEN IFILL: So when you raise -- when you raise that cap and you talk about domestic spending for the Pentagon, there are other agencies which I imagine benefit as well. Somebody got a benefit out of this.

    Among them, for instance, during the shutdown we heard a lot about the National Institutes of Health, and children being turned away from medical trials. Do they now get more money?

    LORI MONTGOMERY: Well, see, all of that has yet to be decided. And it's been a little like premature celebrating around here. We have all been saying, oh, this avoids another government shutdown.

    In fact, they have yet to -- they have to pass another bill to avoid a government shutdown...

    GWEN IFILL: Oh.

     

    LORI MONTGOMERY: ... which could still happen on January 15. I mean, in a rational world, it wouldn't because Republicans and Democrats have now agreed, OK, here's the number, this is what we're going to spend on these things this year.

    But they still have to, like, apportion out all this extra money that they have just decided to spend. And that will happen over the next month. And they will pass that bill, hopefully, when they get back in January.

    GWEN IFILL: But the way things look now, for instance, we say somebody benefits, somebody pays. Are military retirees paying? There has been a lot of talk about that this week.

    LORI MONTGOMERY: Yes. So this is by far the most controversial pay-for in this package.

    This package doesn't give away any of the extra money, but it does identify all of the savings that allow us to spend more now. So, those $85 billion in cuts, fees, airline passengers will pay more. There's a bunch of stuff. But by far, the group that is yelling the loudest and getting hit most dramatically are military retirees.

    Civil service workers, non-military workers will also see a reduction in their pensions, but that's just for new employees. In the case of military retirees, if you are currently retired, and you're under the age of 62, you will see a 1 percent knockoff of your cost-of-living increase.

    GWEN IFILL: So, for instance, we know a lot of military people, especially here in the Washington area, who retired after 20 years in the military. They weren't even 50 years old yet, and they're the ones who would be targeted in something like this.

    LORI MONTGOMERY: Exactly.

    And so the argument is, well, these people are still of working age. They're under the age of 62. They can retire as young as 38, 40, and many of them go on and currently have second careers. So, you know, they can afford to give away a 1 percentage point reduction.

    But the argument on the other side, and it's been coming primarily from the Republicans in the Senate, but I think Democrats are starting to concede, OK, maybe you have a point, is that these people have planned their lives around these benefits, and they see it as a breach of trust for them now to take a hit, you know, sort of retroactively.

    GWEN IFILL: But isn't there a defense authorization bill that is going through as well and it also has its protectors? Is the Pentagon one of those uncuttable agencies?

    LORI MONTGOMERY: Well, the Pentagon is seeing its share of cuts. It's not getting all of its money back. It's getting half of its money back this year.

    But there's also a commission dedicated to military pay and benefits, which is -- you know, we talk about Social Security. That's almost nothing compared to cutting the benefits of our active-duty an retired military men. And that commission is supposed to report next year, because entitlements, you know, retirement and health care is eating the Pentagon alive, as it is in so many other parts of the country.

    GWEN IFILL: If this stays in place, is there any way to calculate how much the average retiree would have to pay extra?

    LORI MONTGOMERY: It's not -- it's what they don't get. So...

    GWEN IFILL: Right. It's a little backwards.

    LORI MONTGOMERY: Yes.

    So, they would -- this year, for example, the cost-of-living increase was 1.5 percent. They would have seen a 0.5 percent increase instead of a 1.5 percent increase. And it can add up to real money. The union that represents military officers has said that this could be a hit of like $70,000, $100,000 if you are in that sort of doughnut hole from age 40 to age 62 for the entire period.

    GWEN IFILL: Let's talk a little bit about another area of the budget that this might affect real people, assuming it stays in place as it is now planned, which is payment to Medicare providers. This is not -- we don't necessarily know how much of this might trickle down to the actual patient. But doctors and clinics might be -- have to pay more.

    LORI MONTGOMERY: So the real danger here, this is another thing that is already in place. This is a part of a sequester that will not be relieved.

    And what it does is, it cuts across-the-board, a two percent reduction in payments to providers of all types, hospitals, nursing homes.

    GWEN IFILL: And that was a part of the original across-the-board cut?

    LORI MONTGOMERY: And it stays in place and it's not going it away.

    So what this agreement does is it says, we would like to continue the sequester for Medicare providers for two more years, in 2022 and 2023. It's a huge chunk of money. You know, it's way out in the future. The complaint about this is, it may never happen so we may never see those savings. But, you know, the danger of making these kind of cuts is really, you know, whether doctors choose not to treat Medicare patients.

    GWEN IFILL: Well, so the one thing that we know is true about all of this is, this is maybe a temporary patch and we might be facing another challenge very quickly. What happens next?

    LORI MONTGOMERY: OK, so, first, we have to pass the funding bills and actually keep the government open, you know, per this agreement by January 15.

    But then, on February 7, we hit the debt limit again because the last deal we made to reopen the government after we shut it down in October said, we will suspend the debt limit, but only until February 7. So we have got this new potential debt limit conflict coming.

    Republicans in the House are saying, you know, we really don't want a lot of fuss. It's an election year. We would like to get through this easily. This modest bipartisan budget compromise could be a model. Maybe we can do this again.

    But you have got all those Republicans in the Senate who are facing Tea Party challenges. And you are starting to hear from the Senate, oh, no, we want to fight, we want to cut spending again. So...

    GWEN IFILL: Back on the merry-go-round once again.

    (LAUGHTER)

    LORI MONTGOMERY: Exactly.

    GWEN IFILL: Well, I hope you and all the other reporters up on Capitol Hill get a little time off over the holidays to prepare for the next round.

    LORI MONTGOMERY: Thank you. I hope so too.

    GWEN IFILL: Lori Montgomery of The Washington Post, thanks.

     


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    JUDY WOODRUFF: This week, North Korea's supreme leader, Kim Jong-un, embarked on his third year as head of the isolated kingdom, after a week that has raised questions about his intentions and his country's stability.

    Today, Joint Chiefs Chairman General Martin Dempsey, commenting on Kim's execution of his high-ranking uncle, said: "These kind of internal actions by dictators are often a precursor to provocation." Defense Secretary Chuck Hagel called it concerning to everyone.

    Tonight senior foreign affairs correspondent Margaret Warner takes a closer look at the erratic 30-year-old.

    MARGARET WARNER: NBA Hall of Famer Dennis Rodman returned to Pyongyang today to renew what he calls his basketball diplomacy and his curious friendship with Kim Jong-un, North Korea's young leader for the past two years, who remains a mystery to the outside world.

    The visit comes a week after Kim staged a theatrical and deadly power play. He had his uncle and presumed mentor Jang Song Thaek arrested in public, tried for treason and executed. Kim's summary dispatch of his high-ranking relative perplexed and disturbed foreign governments and longtime observers.

    Secretary of State Kerry spoke on ABC last Sunday.

    SECRETARY OF STATE JOHN KERRY: It tells us a lot about, first of all, how ruthless and reckless he is, and, well, he is spontaneous, erratic, still worried about his place in the power structure, and maneuvering to eliminate any potential adversary or competitor.

    MARGARET WARNER: Yet, on Tuesday, a smiling Kim was front and center, marking the second anniversary of his coming to power after the death of his father, Dear Leader Kim Jong Il. Early Western hopes that the younger Kim Jong-un might govern differently haven't been borne out, says Joel Wit of the U.S.-Korea Institute.

    JOEL WIT, Johns Hopkins University: One of the narratives when he took over was, because this guy seems to have been educated in Switzerland, is younger, he might be more likely to pursue reform in North Korea. And, of course, that hasn't proven to be true yet.

    VICTOR CHA, Center for Strategic and International Studies: The way he moves around with his wife socially, his interest in things like basketball and ski resorts and amusement parks, so, in that sense, quite different.

    MARGARET WARNER: North Korea's economy is in desperate straits, yet Kim hasn't moved toward the market reforms embraced by his fellow communist neighbor China. But Kim is not different on issues that matter, says Victor Cha of the Center for Strategic and International Studies.

    VICTOR CHA: Two years in government, no sign of economic reform, any serious economic reform.

    MARGARET WARNER: Do you think he's a serious person?

    VICTOR CHA: You know, it's really hard to say and, at least in policy, doesn't seem to be interested in the things that the country really needs, whether that's food or energy or hard currency or some sort of economic growth.

    MARGARET WARNER: While much is not known about Kim Jong-un after these two years, two trends in his leadership appear clear and worrying: the internal instability revealed by the way Kim's uncle was purged and executed, and North Korea's ongoing buildup of a nuclear weapons and missile arsenal that could threaten the world.

    On the day Jang was killed, a state TV newscaster recited a litany of shocking charges against him.

    NEWSCASTER (through interpreter): The accused Jang committed hideous crimes, such as attempting to overthrow the state by all sorts of sabotages and despicable methods, with a wild ambition to grab the supreme power of our party and state.

    VICTOR CHA: There's an incredible admission of infighting in the country and factionalism, which has -- has been completely unheard of in North Korea, that are two incredible admissions for a country that tries to keep a very public profile of them having everything under control.

    MARGARET WARNER: Kim's ostensible enemies weren't named, but this former North Korean military, intelligence and Workers' Party official who defected to South Korea just before Kim Jong-un came to power offered some insights.

    We agreed to conceal his identity and name.

    NORTH KOREAN DEFECTOR (through interpreter): Military officers generally were outraged that they had to accept Kim Jong-un as the new leader. Do they think the military is all stupid? Discontent among the military elites began soon after Kim Jong Il demanded we transfer our allegiance to his son. The feeling of betrayal turned into anger.

    MARGARET WARNER: Military and party officials scorned Kim for his inexperience, the defector said, and his rudeness to subordinates.

    NORTH KOREAN DEFECTOR (through interpreter): His father had more confidence and so was more relaxed, because he earned the power. But Kim Jong-un didn't have the chance to learn and prepare for the leadership. This is why Kim Jong-un heavily relies on intelligence officers to control and spy on his people, so to suppress dissent.

    MARGARET WARNER: Jang was the ideal target, the defector said, for Kim to eliminate a potential rival and offer a scapegoat for two years of little economic progress.

    NORTH KOREAN DEFECTOR (through interpreter): The ruling elites became very disappointed at the new leader, and the dissent began to set in. Jang Song Thaek perfectly fit for the bill as the scapegoat. Everything can be blamed on him, and spare Kim from criticism for not delivering the powerful nation he promised.

    MARGARET WARNER: Victor Cha found the whole episode unnerving.

    VICTOR CHA: Instability in North Korea, I think, would be probably one of America and the region's worst nightmares, because we don't have any sense of how things progress or happen inside the regime, because they do have a stash of nuclear weapons and fissile material, that I think it would be a big concern if there were some sort of instability inside the country.

    MARGARET WARNER: Kim Jong-un has continued his father's nuclear and missile programs, following the warhead tests of 2006 and 2009 with one of his own this past February. It's estimated that North Korea has between six and nine nuclear warheads.

    JOEL WIT: Those programs have a lot of momentum behind them.

    MARGARET WARNER: What about proliferation?

    JOEL WIT: Right now, we don't see any signs of it, but what I would argue is, as their stockpile grows of nuclear weapons, as their missile capabilities grow, the chances that they will be exporting the kinds of technologies we don't want them to export will grow also.

    MARGARET WARNER: Victor Cha says the North's missile program is a particular danger.

    Would you say that North Korea now, when you talk about missile capability, is more or less threatening than it was two years ago?

    VICTOR CHA: It's certainly more threatening. The last major test they did was successful in terms of putting a payload vehicle into orbit, which is something that they have been trying for years to do and they had not been capable of.

    Secretary Gates two years ago said that he believed North Korea could pose a threat to the U.S. homeland within five years. So that is within the term of this president. So, I think there's good cause to be concerned.

    MARGARET WARNER: All this has caused deep worry in neighboring South Korea among the public.

    MAN (through interpreter): Kim Jong-un was educated in Europe, so I thought he could be more open, more flexible. But he's worse than his father, and so I'm very disappointed. He's really cruel.

    WOMAN (through interpreter): Looking at the way he's killed his uncle, I think he's not just bluffing. Many of my friends are in the army, and when I talk to them, they tell me how scared they are. They talk about there could be war any time. So, it does scare me.

    MARGARET WARNER: And it also alarms those in government. After the uncle's killing, new South Korean President Park Geun-hye warned of the danger of a new provocation from the North.

    RPESIDENT PARK GEUN-HYE, South Korea (through interpreter): We cannot rule out emergencies such as reckless provocations. Considering the gravity and unpredictability of the current situation, the government, army and civilians, the entire nation should be thoroughly prepared.

    MARGARET WARNER: Practicing the sort of vigilance the South has been forced to maintain for decades, and with this new, untested leader to the North, there's no end in sight. 


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    GWEN IFILL: Finally tonight: more fallout from the Detroit bankruptcy story. Residents now face the prospect of losing art masterpieces owned by the city itself.

    Jeffrey Brown fills in the picture.

    JEFFREY BROWN: It's one of the country's great museums now in a most unusual and potentially dire situation. The building and several thousand works of art in the collection of the Detroit Institute of the Arts are owned by the city. And the city manager overseeing the bankruptcy has said it's possible that some those works could be sold to pay off creditors.

    Our colleague's at Detroit Public Television produced a documentary about the museum and its plight.

    In this excerpt, museum director Graham Beal and others argue against such a move.

    GRAHAM W.J. BEAL, Detroit Institute of Arts: We were the first art museum in America to acquire a van Gogh in 1920. We were the first art museum to acquire a Matisse in 1922.

    We have the finest collection of Italian sculpture in the Western Hemisphere. We're still the only major art museum to have a department of African-American art.

    The argument more is -- tends to be, well, you have got four van Goghs. You know, why don't you just sell one of those, because you have still got three? It's a total failure of public trust to do that. It's the most damning admission of failure.

    There's no precedent of a city selling a collection in that way. There would be the argument from the attorney general that you can't liquidate that stuff. It doesn't belong to the city, in the way that a fire engine does. It belongs to the public. That's why money was given. That's why works of art were given. And we're going to stop you from doing it.

    HEASTER WHEELER, Assistant County Executive, Wayne County, Mich.: Imagine a facility like the DIA that embraces and celebrates European art and African-American art and Latin or Hispanic art and Asian art and Arab-American art. That's the uniqueness of the American experience, is the fact that everybody's here and everybody's welcome.

    WOMAN: These are things that, again, you can't buy nowadays. If you didn't have them, there's no way you could buy them.

    JEFFREY BROWN: Just today, Christie's completed its report for city manager Kevyn Orr on some 2,800 city-owned artworks, setting a value for them at between $450 million and $870 million. The auction house also presented Orr with several other options that could avoid selling the work.

    Mark Stryker covers the arts for The Detroit Free Press and joins us now.

    Well, Mark, we just heard some of the arguments against selling the art. How much pressure is there to at least look at selling some of it, and where is it coming from?

    MARK STRYKER, The Detroit Free Press: Well, there's extraordinary amount of pressure to look at selling the art.

    The fact is, the city does own the art, which is unusual. Most civic museums are not literally owned by the city. They're independent nonprofits. But, here, the collection is owned by the city. And that makes it a city asset, which means, in bankruptcy, it's vulnerable to sale. And you have creditors, including city pensioners and retirees, who are pushing for a sale, as well as bondholders, to recover more of their losses.

    Kevyn Orr, the emergency manager, has been charged with restructuring the city finances. He has to find money. There's a big pool of it at the DIA. He needs to put together a plan that creditors will accept and that the judge in the bankruptcy court will approve. And he doesn't think he can do it without monetizing the art in some way.

    And so he's essentially told the museum he wants $500 million from them, however he can get it, whether selling or some other mechanism.

    JEFFREY BROWN: Well, so Christie's took a look at some of the work, right, just a very small percentage of the actual collection. Tell us what they found.

    MARK STRYKER: Well, Christie's looked at about 5 percent of the total collection of those 66,000 roughly works. So we're talking about 2,800 works. These were workings that were bought directly by the city, mostly in the 1920s, when the city was flush with auto cash.

    And what they found was as much as almost $900 million worth of art. Most of the value is included in 11 really standout, signature works in the museum. These are things like Bruegel's great The Wedding Dance, which they valued at $100 million to $200 million -- $100 million, rather, to $200 million, and van Gogh's remarkable self-portrait, which was valued somewhere between $80 million and $150 million, the Matisse, the window, a Rembrandt painting, an extraordinary Michelangelo drawing, Degas, Monet and the like. These are among the top works.

    They valuated -- essentially, they gave, in the report, line-item individual values for everything in the museum that was city-bought, over $50,000 -- worth more than $50,000.

    JEFFREY BROWN: And Christie's, I saw also, as have others in recent months, offered some alternatives, I guess, for what could take place. What else is on the table as possibilities?

    MARK STRYKER: Well, the most frequently cited kind of alternatives for sale are things like using the art as collateral for loans, trying to rent parts of the collection, trying to -- maybe some sort of a scheme where wealthy patrons would buy the art, and then loan it back to the city -- rather, loan it back to the museum.

    All of these things, though, the museum would argue, and much of our reporting, frankly, at The Free Press has borne out that all of these kinds of things with would still leave the art vulnerable to sale. It would still put in jeopardy the collection. It wouldn't raise nearly the kind of money that people think it might.

    And one of the most important factors here in Detroit is that there is a tri-county tax millage, property tax that funds the museum, and right now accounts for about 70 percent of the museum's budget. And if there is any art sold or a move to monetize in any way, the counties have said they would repeal the tax. And that effectively could shutter the museum. So, it's a very delicate, very difficult situation for the museum.

    JEFFREY BROWN: Now, you know, I know that all of this has the museum world, and I mean outside Detroit, in a state of outrage over the possibility.

    How much pressure is -- from the outside is being felt in the city? And what kind of response is there?

    MARK STRYKER: Well, the pressure outside is not nearly, I think, the issue as the pressure inside.

    I mean, the fact is that the emergency manager needs to get a deal. And he has to put together a plan that the judge will approve. The emergency manager, by the way, in this case is the only one who can sell art. The judge, neither -- in a municipal bankruptcy, neither the judge nor the creditors can literally force the sale.

    But they can put pressure on Orr to monetize the art and can put pressure on the judge to deny a plan if they think it's not fair. And then, among the city residents, you know, you have different factions. There is a great outpouring of support for the museum. But at the same time, there are folks, particularly city pensioners, who represent maybe 20,000 or so of the 700,000 people in the city.

    And those pensions for those retirees and municipal fire and police are at risk. And people think that, if it comes to art or pensions, you should go with pensions.

    JEFFREY BROWN: And, Mark, just in a word or two in our last seconds here, when -- do we know when a decision will be made or some kind of deal made?

    MARK STRYKER: Well, there are two things.

    One, the emergency manager has said he wants to have a plan in place, or submit a plan by early January. At the same time, we have a side mediation going on with members of national local foundations trying to raise money for the museum that might create a way out, where the foundations would put up as much as $500 million. It would go to pensions. And that would take the art off the table.

    JEFFREY BROWN: All right, Mark Stryker of The Detroit Free Press, thanks so much.

    MARK STRYKER: You're welcome. Good to be with you.

     


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    Why is one arm of the government buying loans from another? The U.S. government isn't a monolith, former Fed economist Catherine Mann explains, and the Fed is often a counterweight to what's happening in the rest of the government. Photo illustration courtesy of Flickr user Donkey Hotey.

    It's been a big week for the Fed. On Monday, the central bank celebrated its centennial. On Tuesday, the Fed's Open Market Committee commenced a two-day meeting to decide whether to wind down their monetary stimulus program. And on Wednesday, Fed chair Ben Bernanke gave what could have been his final press conference, explaining the committee's decision to taper the Fed's purchase of mortgage-backed securities and Treasuries by $5 billion each.

    Having been center stage all week, the Fed's waiting to see when Congress will approve their new chair. In an effort to limit debate time on Janet Yellen's confirmation vote, Senate Majority Leader Harry Reid, D-Nev., reportedly met with Sen. Rand Paul, R-Ky., who had threatened to debate her confirmation for the maximum 30 hours unless the Senate considered a bill to publicly audit the Fed's operations. The Senate is now expected to confirm Yellen when they return from recess in January.

    The delay in approving Yellen is a recent, even if fairly innocuous, example of how holdups in other parts of Washington impact the Fed. Congress' intransigence has been a repeated headache for the Federal Reserve, but the recently struck bipartisan budget deal may have given the FOMC more latitude than they had in September, for example, when talk of a debt ceiling default and government shutdown were eating away at economic confidence.

    To explain more about how the Fed interacts with its Washington neighbors, from the U.S. Treasury to Capitol Hill, here is the last of our extended conversations with former Fed economist Catherine Mann, whom we've also spoken to about banks redepositing Fed stimulus back at the Fed and about how quantitative easing has increased the flow of dollars abroad.

    Paul Solman: People I know, very sophisticated people, think it's nuts that one arm of the government, the Federal Reserve, is buying loans that are issued by another part of the government, the U.S. Treasury. What's the defense of that, the left hand buys from the right hand?

    Catherine Mann: Well the objective of the Federal Reserve is sustained long term growth, 2 percent inflation, unemployment below 6.5 percent and positive and robust GDP growth. The means by which we get there is by having lower interest rates. Regionally, what the Federal Reserve does most of the time, up until 2008 anyway, is to focus on just the very short-term interest rate that banks borrow from each other, the Fed funds rate. That is still what they control, but they've also used quantitative easing to bring down long-term interest rates.

    MORE FROM CATHERINE MANN: What Happened to the Fed's Trillions? They're Back on Deposit...at the Fed!

    The other part of the government, which is the one that's issuing the bonds -- well, the Fed doesn't have any role to play in terms of the taxing decisions, the expenditure decisions, the budgetary disagreements. If the government is helping the Fed, if the fiscal climate and the politicians are either helping or hurting, [the Fed] responds to the consequences. The Federal Reserve has to look at the economy's behavior and act accordingly.

    Paul Solman: So the Federal Reserve, in that sense, is a counterweight to what's happening in the government?

    Catherine Mann: Let's go back to the September Federal Open Market Committee meeting. A number of people expected at the September meeting for the tapering to start. At that point, the August numbers had been looking pretty good and so the sense was September would be a good time to start tapering. Of course, in the end, they did not taper. There are lots of theories about why, but my view going into that was that the probability of a debt ceiling debate was very high -- it was already starting, with negative consequences for the economy -- and a shutdown [was also probable]. We can look in the historical data for what happens to consumer behavior, to business behavior: consumers stop spending, businesses don't invest when they think the government, the fiscal side, the politicians are going to have a big fight about the debt ceiling, maybe even default. And the consequences for the economy of a shutdown -- people were talking about, is it going be a half a percentage point on GDP, it might even be 1.5 percentage points on GDP...

    Paul Solman: Shrinkage.

    Catherine Mann: Shrinking as a consequence of these shenanigans going on between the Republicans and the Democrats. So the Federal Reserve in September, looking at the economy going forward, beyond their FOMC meeting, [asked,] "Do we want to add the negative consequences of potentially higher interest rates that would come from the tapering?" And so the decision was, "We don't want to add more fuel to the shrinking of the economy that we're already getting from what's going on with the debt ceiling debate, the continuation of the sequester, the shutdown..."

    Paul Solman: So it's foolish to think of this being just one government -- the United States government. These are two completely separate parts of the government, you're saying?

    Catherine Mann: These are two completely separate parts of the government, and the Federal Reserve has to be responsive to what the consequences for the economy are of what happens in the other side in Washington... well, further down Constitution Avenue, under the big dome.

    How does the Fed reach their policy decisions? Paul Solman simulated a meeting of the Fed's Open Market Committee to find out.


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    Photo by Andrew Harrer/Bloomberg via Getty Images

    President Barack Obama will hold an end-of-the year news conference at the White House Friday afternoon. He is likely to face questions about the rough roll out of his health care law and his trouble passing big legislative initiatives like immigration reform through a divided Congress.

    Video streaming by Ustream

    We will live-stream the president's remarks about 2013 at 2 p.m. EST in the player above.

    At the end of his fifth year in office, Obama's job approval and personal favorability ratings have fallen to around the lowest point of his presidency.

    Obama will depart later for his home state of Hawaii for his annual Christmas vacation trip. It's the first time in his presidency that his departure plans have not been delayed by legislative action in Washington.

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    As a schoolboy in the Soviet Union, Mikhail Baryshnikov grew up reading the works of celebrated Russian writer Anton Chekhov. A few of those short stories resonated with the legendary dancer, who, at 65, he is starring in "Man in a Case," an experimental play adapted from two of those tales.

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