MS. KATTY KAYThanks for joining us. I'm Katty Kay of the BBC, sitting in for Diane Rehm. She's visiting WLRN in Miami. The Senate Intelligence Committee grills CIA nominee, John Brennan, over the administration's drone policy. The Justice Department sues Standard & Poor's, and the post office announces plans to end Saturday delivery. Joining me in the studio for the domestic hour of our Friday News Roundup: Politico's Manu Raju, Ruth Marcus of The Washington Post and Greg Ip of The Economist.

MS. KATTY KAYLater on in the program, we'll be opening the phones. The number here is 1-800-433-8850. You can also send us your questions by email, drshow@wamu.org. Of course, we're on Twitter as well, @drshow. Thank you, all of you, for joining me.

MR. MANU RAJUGood morning.

MS. RUTH MARCUSHi.

KAYWow, been a busy week, especially up on Capitol Hill. Let's start with those hearings. We covered them in the show yesterday, of course, the CIA hearings for the next director, John Brennan, and we'll have more of it in our international hour in just a moment as well. But let's look at kind of the domestic implications, Ruth Marcus, of what we heard from John Brennan from the questions yesterday about his fitness for the job.

MARCUSWell, I think it wasn't necessarily as much about his fitness for the job as it is the wisdom of...

KAYThe one with the therapist.

MARCUSThe -- wow, the -- that's a much bigger question and possibly a whole show, but about the wisdom of U.S. policy. And I think it is very productive and healthy in the Democratic sense to have a discussion about the drone policy. I do think that there is a little bit of what I'd call the Casablanca syndrome going on here, which is to say we knew there -- where these drones strikes. The attorney general had laid out the essential policy.

MARCUSSo to have it in this memo -- all credit to my former colleague, Mike Isikoff, for getting the white paper -- but it didn't tell us that much new. Nonetheless, it is really important to have a discussion about this, and I also think really important to have as much access as safely feasible to the underlying legal documents. I have never understood why properly redacted those must be classified, and I really commend Sen. Wyden and the others for pushing for those.

KAYYeah. And at least now there is an open discussion 'cause for so long, we've been told this is so secret. It can even be discussed in the public domain. Of course, drone strikes went on through the Bush administration in smaller numbers and, of course, during the Obama administration, in greater numbers as well, Manu Raju. But it's really only in the last week that it's come so much to the forefront of public attention. And yesterday, we saw that at the hearings, which was much hearings about drone strikes as they were about John Brennan.

RAJUThat's right. I mean, I don't think there's any doubt that Brennan will get confirmed, probably as soon as next week. Really, what this is about is a pent-up frustration from Congress on the way that the CIA has handled a lot of the various sensitive issues it's dealt within the war on terror, and what lawmakers believe is the failure of the agency to keep them in the loop on a lot of these programs, including the drone strike program.

RAJUYou know, Wyden -- Ron Wyden really made an interesting point at yesterday's hearing when he was asking Brennan about where -- which countries do the CIA engage in some of these lethal attacks. And, you know, it was really revelatory because it showed that a member of the Intelligence Committee who gets a lot of the classified information that other members of Congress don't get doesn't even know himself where a lot of the CIA activities take place. So really, that's what it really boiled down to yesterday, was the CIA and its really frosty relationship with Congress.

KAYYeah. Greg, we heard a couple of senators say, listen, we're worried about the overreach of the presidential powers when it comes particularly to the killing of American citizens, and we're even more worried about the fact that you're not keeping us informed. And we hear this again and again from Congress. Understandably, they don't like it when the White House doesn't keep them fully informed about things.

KAYBut talk to me a little bit about this killing of American citizens because I think that's really why we've seen the focus so much more on drones in the last few days because of these reports that Americans are now legal targets, the White House says -- according to the White House.

MR. GREG IPI think that you need to actually expand it a little bit just beyond the killing of American citizens. Clearly, that's what has got the spark going on the Hill. But more broadly, there's also growing concern that the way the drones strikes are being carried is actually hurting the war on extremism because there are some evidence that they create so much anger in the countries that are subject to these drone strikes, that you actually end up improving recruiting for the terrorists' cause.

MR. GREG IPI thought Brennan's interaction with the committee was very interesting in the sense that, optically, it was a far superior performance than Chuck Hagel did when he was trying to explain himself for his confirmation hearing as defense secretary. Brennan, I think, struck the right tone of concern, of sympathy when Ron Wyden said, are you going to tell us more about this or are you going to, like, brief us when there's a killing? And he said, we'll look into that. I'm sympathetic to that idea.

MR. GREG IPHe actually, I think, made a little bit of news when he said that he would very much like to see lethal drone killing moved over to the Pentagon, and a lot of CIA to work more on this traditional area of human resources and on-the-ground work as well. But perhaps, the most interesting policy thing that come out of Dianne Feinstein, the chairman of the Senate Foreign Intelligence Committee, saying that perhaps we should have something equivalent, like a court or some kind of process...

KAYYeah. I think that's interesting.

IP...for approving this...

KAYYeah. I think that's interesting.

IP...similar to the way there is a Foreign Intelligence Surveillance Act Court that approves the wiretaps.

KAYOK. This is a pop quiz, by the way. I didn't tell you. He get confirmed, Greg Ip?

IPI think so.

MARCUSOh, yes.

KAYRuth.

RAJUYeah, without a doubt.

KAYOK. Then, Ruth, let's move on to the next potential war...

MARCUSDo we get graded if it's a pop quiz, Katty?

KAYYeah. I'll grade you at the end on your performance.

MARCUSThank you.

KAYI'm very lenient.

RAJUOn a curve or a letter grade?

MARCUSI don't know. I'm just going to have to be on a curve.

KAYOK. Let's move on to Chuck Hagel, then, of course, the other nominee that's still being debated this week. His confirmation vote was postponed, Ruth.

MARCUSIt was -- there -- I just jump ahead on the quiz. The answer to that one is yes also in the end. But much closer, much more drag out or dragged out, sorry. I think there won't end up being either a filibuster -- a successful filibuster of Sen. Hagel. But the latest postponement has to do with his failure/unwillingness to release information about speeches he's given. He says he's turned over all the available transcripts. But some were off the record. And also, he doesn't have notes of them. And also information about the funding behind groups that he's associated with.

MARCUSAnd there's been a lot of, I think, not entirely fair parallelism between the groups he's associated with and the groups that -- and the Clinton Foundation, when Secretary Clinton was up to be secretary of state, her husband's foundation provided additional information about where it got its donors from. I think there is a very big difference between what's essentially a family foundation and groups that Sen. Hagel was associated with. Nonetheless, this is definitely a troubled nomination, one that will end up, I think, succeeding but not without having drawn some blood.

KAYManu Raju, some Democrats have suggested this is all a bit of a red herring and that it's unfair because Condoleezza Rice, for example, was on the board of Chevron. Other nominees have had financial dealings with firms. So why is Chuck Hagel being dragged over the coals on this one?

RAJUI think it speaks of the controversy of this nomination. I mean, remember, at his confirmation hearings, he didn't exactly get glowing reviews afterwards from Republicans who were really going after a lot of his past statements and his policy positions over the years, namely over Israel or Iran and then over sanctions.

RAJUBut look, they're -- Republicans are kind of in a tough position here because they don't want to block this nomination because it would set a really, they would think, damaging precedent going forward in dealing with future presidents, Republican presidents, cabinet nominees if they were to go that route. But at the same time, they don't want to just give him a free pass. So I think what you're seeing here is an effort to sort of drag this out, see if there's anything other than red flags that come up. But at the end of the day, they'll let this go forward. They'll vote -- they'll just vote no.

KAYYeah, I think I'm right in thinking that 1 percent of presidential nominees for cabinet positions don't get confirmed. I mean, to not confirm him would be a huge deal. But, Manu, how much of these hearings and the controversy surrounding them and his performance already damage his job if he does make it to the Pentagon?

RAJUYou know, he'll have to really reassure folks that he is the right man for the job because a lot of people don't think that's the case. So, you know, I think that time will tell whether or not he's able to steady the ship. He'll have to come before the Senate Armed Services Committee again, and he'll have to testify before the House again, how does he do in reassuring the public that he is the right man for the job, especially after, if it's a very narrow confirmation vote, you know, he'll have to reassure a lot of his skeptics that he, you know, deserves that position.

KAYOK. Meanwhile, Greg -- by the way, when is the vote scheduled? Do we know when they will actually end up voting or they're still deliberating?

RAJUIt hasn't.

MARCUSIt hasn't. It's been the chairman of the Armed Services Committee, Sen. Levin, put it off for a week in the committee.

KAYUntil they say they want all the information.

MARCUSSo sometime -- I think it could lapse into next month.

KAYOK. Greg Ip, meanwhile, there was another nomination. Sally Jewell has been picked by President Obama to head the Interior Department. I love the fact that when he was introducing her, he said that the hardest part of her job will be sitting behind a desk. She's a keen mountaineer, very outdoorsy person. She's had a background in the oil industry. She's also had links with environmentalists and conservationists. Will she get a fairly easy ride at her hearings? And is she the right person for the job?

IPIt's hard to answer either question right away because people were actually taken by surprise by this appointment, and there isn't a lot known about her. Her resume at first glance looks very positive for both those things. As you said, she started her career as an engineer in the oil industry. She spent some time as a commercial banker at the now notorious Washington Mutual.

IPThankfully, it was before they got into all the bad loans that dragged them down. And for the last seven or eight years, she's been running a retailer -- now a co-op retailer -- that is about the outdoors, REI. People were joking is she going to put a climbing wall in the office of the Interior Department as a result.

KAYGreat idea.

IPSo she kicks all the...

MARCUSIf they could spend all that money on redoing bathrooms in various departments, we might as well have a climbing wall.

IPYeah. And it'll help with the first lady's anti-obesity campaign to boot. I think it'll really come down...

KAYPreventive care, we like that. It cuts down on health costs.

IPIf there's going to be an issue, it'll be less to do with the nominee's resume. It'll be more to do with how she explains what the administration's position will be on some of the key controversies over drilling on public land, about steps taken to allow fracking -- that's the extraction of natural gas from shale rock -- to be done in a safe manner. And so that, I think, will be where the sparks will be if there are any.

KAYAnd there is a huge debate at the moment as America approaches energy independence, how you marry the extraction of America's energy reserves with an environmentally sustainable policy.

IPOh, absolutely. And the environmental base, which has been a very important part of the -- of Obama's coalition, is not going to give him an easy ride if he wants, you know, for example to send positive signals on any of these things in the future.

KAYOK. Greg Ip is the U.S. economics editor for The Economist. He's the author of "The Little Book of Economics: How the Economy Works in the Real World." Ruth Marcus is also with me. She's a columnist and editorial writer for The Washington Post. Manu Raju is the senior congressional reporter at Politico. We'll be taking more of your questions later on in the program. 1-800-433-8850 is the number. Still a lot of news for us to get to in this news roundup. Stay with us.

KAYWelcome back. I'm Katty Kay of the BBC, sitting in for Diane Rehm. You're listening to the domestic hour of our Friday News Roundup. The phone number here is 1-800-433-8850. You can send us a tweet, @drshow, or an email, drshow@wamu.org. We've got a little bit more of the news of the week to get to with my panel.

KAYThen we'll be taking your questions and opening up the phones. Let's look at what was happening between White House and Congress 'cause it was a busy week here in Washington politically as well, Manu Raju. The House Judiciary Committee held its first hearing on immigration in the new Congress. Do we get a sense of where the fault lines are going to lie?

RAJUAbsolutely. I mean, the centerpiece of the bill that's going to come out of the Senate is going to deal with the pathway to citizenship for the 11 million or so illegal immigrants here in the country. You know, that is the -- one of the must-have for Democrats. It's something that Republicans in the Senate -- some have agreed to as long as it's tied to border security measures. But in the House -- among House Republicans, it's really -- for a lot of those guys, it's still a non-starter. You know, the...

KAYThey think it comprises their re-elections chances.

RAJUThey also did that, and they also have a fundamental philosophical disagreement with that. It's hard to see how they would eventually come over. The House is really going to take this slowly. They're going to watch the Senate act. If the Senate passes a bill, especially with big bipartisan majorities, then it will be very hard for the House to ignore. But if it barely passes the Senate, I think it will be much harder for House Republicans to agree to something that includes that pathway to citizenship.

KAYAnd, Ruth, how is the landscape looking for the scenarios that Manu's laid out? Could this pass through the Senate with big majorities and, therefore, the House will come around to it, or what's the timetable we're looking like?

MARCUSWell, the answer is yes, maybe. As in most things in Washington, we've seen any number of times when the Senate has passed something with a big majority simply to find it stuck in the House because the politics there are different. And I think he used a really important phrase with the phrase fault lines because we're having a little bit of a three-ring circus going on in Washington now.

MARCUSWe're having a very vibrant and an important debate about immigration. We're having a similar debate about guns and possible gun control measures, then we're having a debate about sequestration and the budget. And in each of them, the fault lines are very, very clear. On immigration, it's the pathway to citizenship. On guns, well, it's pretty much anything, but specifically assault weapons is really the line that some folks just can't cross. And on sequestration and the budget, it's new revenue. So we understand the divides on each of those issues. We just don't understand how to get across them.

KAYAnd President Obama met with labor leaders, I think, on Tuesday it was, grip -- Greg Ip.

MARCUSGrip?

IPOh, get a grip.

KAYI knew I was going to do that. Get a grip. Have we seen movement there of unions coming around to immigration reform?

IPRight now, I think what you're seeing is a president try to align them, or at least make sure that they're not working against him. There are a couple of key issues that will determine whether or not we get bipartisan movement on immigration. One of them, of course, is pathway to citizenship. Does that come before or after we step up enforcement of the border? But the other key one, which is about this week's meetings were about, is whether a plan also includes a new, temporary guest-worker program.

IPNow, this is very important to the business community. And it's also is a policy matter important to ensure that if you deal with the illegals in the country now, you do not -- some year later, have a new influx of them. A temporary guest-worker program creates a mechanism for those people to come in a legal way and, therefore, deals with the -- if you will, the moral hazard of allowing amnesty in the present.

IPThe problem is that the last effort to fix this problem in 2007 sank in part because of the presence of the temporary guest worker piece of it, which turned organized labor against the plan. So the president has not yet stipulated whether he's for or against a temporary guest-worker program. But clearly, getting labor not to work against it will be a key part of that.

KAYYeah. And you have seen meetings with labor and big business coming together in a rather unusual alliance, actually, to speak about the need for an immigration reform proposal.

IPYeah. In fact, I think Chuck Schumer, who's one of the key members of the group in the Senate that's working those proposals, basically told them to work together so that he can have something to put in his plan.

KAYOK. Let's talk about sequestration. You mentioned that, Ruth, there are what now, 20 days to go?

MARCUSIt's a tick tock.

KAYI think the tick -- the clock is ticking. Are we getting any further on an agreement to prevent those budget cuts from kicking in?

MARCUSNo.

KAYWill we?

MARCUSNo. You know, nothing concentrates the mind like a hanging. And in Washington, that means a deadline for really bad things to happen. But the thing that's been remarkable -- and Greg could probably speak to this much better than I can. But the thing that's been remarkable to me, given the impact of -- the threatened impact of sequestration, particularly on defense contractor community, has been the asserted willingness, especially among House Republicans, who you would think would be just up in arms -- pardon the pun -- about these defense cuts to say, hey, look, you know...

KAYYeah.

MARCUS...we don't like sequestration, but that's fine, you know.

KAYWe'd rather have the cuts...

MARCUSWe'd rather have the cuts.

KAY...than save the Pentagon's budget.

MARCUSSo let the defense contractors suck it up. So I think that that is just a looming problem that seems likely to happen.

KAYYeah. Manu, you wrote a piece, I think, this week on Senate Democrats planning to win this fight by calling for deeper spending cuts for corporate jets and for Wall Street.

RAJUYeah. I mean, I think they're going to bring back some of those measures to raise taxes on millionaires. The Buffett Rule, I think, you're going to see as part of the Senate Democratic plan, as well as dealing with other issues to raise some energy, taxes affecting some big oil producers. Those measures are virtually non-starters among Republicans. We're saying that taxes cannot be considered at all in this equation, that we only need to look on the spending side of the equation.

RAJUNow, Democrats --- I talked to Barbara Mikulski yesterday, the Senate Appropriations chairwoman, who is involved in these negotiations. And she said, look, we've already cut enough domestic discretionary spending. We need to focus instead on revenues, and we need to focus on other areas of the budget that doesn't affect some of these areas that have already been hit.

RAJUSo the two sides are really just not even close right now. And it's hard to see how much closer they're going to get before that March deadline. It may take sequestration to go into effect, and then it gets wrapped up into the next round of negotiations, which are March 27, when if they don't act, the government will shut down.

KAYOK. Greg, economists, meanwhile are talking nervously about sequestration happening. What are they saying the impact is going to be in the short term, but also in the longer term if we don't have some sort of resolution before the end of the month?

IPWell, in many ways, the sequester from an economic point of view is the worst of all worlds because it goes after the type of spending, which is really not driving the long-term deficit, which is entitlements for health care, for Social Security, for Medicaid.

KAYSo you're getting cuts but not where you need them?

IPRight. And you're actually eating away at the ability of the government to do some fundamental things, like run the national defense system. At the same time, it's going to hit the economy right now, which is still pretty weak. When the Congressional Budget Office released their annual update of the budget outlook, they thought the economy could slow to only a little over 1 percent growth this year as those heavy cuts hit us.

KAYAnd how is it different from the fiscal cliff 'cause people thought about the fiscal cliff we could over from them it, and we could come back from it. If we go through this deadline and we have sequestration, can't we just come back from it as well?

IPSure. Well, remember the fiscal cliff was not any single event. It was a collection of events. One of them was a possible increase in taxes. We got that out of the way. One was the debt ceiling that's been delayed. And the third piece was this sequester. And it's true that the sequester could kick in for a week, two weeks, perhaps three weeks before both sides cry uncle and come up with some short-term fix.

IPIn fact, I suspect that's probably what will end up happening. But in the meantime, it spreads uncertainty around, especially for anybody who works for the federal government or who does business with the federal government.

KAYOK. We're going to get to more of the news in just a moment. But let's go to the phones. First to David in South Lake, Texas, you've joined "The Diane Rehm Show." Thanks for joining us this morning.

DAVIDThanks for taking my call.

KAYYou are welcome.

DAVIDThe question I have is regarding the whole drone strike policy, and there's two issues that I find surprising. One, that the release of documents by the administration to the committee, basically admitting that they have been withholding against the law, basically of providing these documents to a committee that's supposed to be briefed on them.

DAVIDSecondly, when you think of the overstep of the executive branch historically -- I mean, some biggies are Nixon bombing Cambodia. When you compare -- and then, you know, you've got the tussle of the conservatives with the Clinton administration over Monica Lewinsky. That resulted in an impeachment.

DAVIDBut this is a whole different ball of wax where an American citizen is being targeted overseas with now a justification that as long as there is an imminent threat determined by a group of bureaucrats, not even a panel or a judicial group, that they see fit to kill them with a drone. And we're not having a national debate or a discussion about this. I mean, it just surprises me that this isn't taking more of discussion. We've got sequestration, and we've got gun control...

KAYI -- David, I'm just going to -- I'm going to jump in there because I do -- I think you have a point. David has a point, Ruth Marcus, that, you know, this has not been really part of the national discussion for a very long time.

MARCUSAnd we were talking a little bit off the air about how riled up other folks are, besides David, about the notion of American citizens being targeted. I would just remind everybody. Again, it is not a surprise -- it should not be a surprise, anyway -- that the U.S. government targeted American citizens for killing. We knew that Anwar al-Awlaki was an American citizen, and he was targeted by...

KAYAnd his son was also killed by a drone strike.

MARCUS...and his son -- and was targeted by a drone strike, the son having been essentially collateral damage. I do think that -- I think David slightly overstates the case in terms of -- I don't know if he was getting to the notion that this is an impeachable offense and saying that it's clear that the administration violated the law in withholding documents.

MARCUSI do think two things. First of all, there is always a push-and-pull between the legislative branch and the executive over access to documents. I think it's really important for Congress to insist on maximum access. And I think that it is also -- that these -- Brennan -- these moments of confirmation hearings are very useful moments to dislodge documents and to spark national conversations, and I think, in that sense, the Brennan confirmation is serving a very useful function on both scores.

KAYOK. Let's go to Bivi (sp?) in Fairfax, Va. Bivi, you've joined the conversation.

BIVICan you hear me?

KAYYes, I can hear you fine.

BIVIThank you for taking my call. I had a quick question for the panel...

KAYYes.

BIVI...especially Manu, on immigration. I know the larger immigration bill has a part where it addresses the concern for the STEM graduates -- science, engineering, technology, math -- trying to accelerate the permanent residency in the country. So any updates, any news from that?

RAJUYeah, that's one key aspect of the negotiations going on right now among eight senators, how to deal with high-skilled workers and increase the visas, a number of visas that would go to a number of these workers, especially folks who were educated here in universities and are trying to get permanent residency afterwards.

RAJUThe only real update is that it's a very big priority among all these folks in the room, as well as from the business community. And, you know, it's one of the few measures that really has a lot of support on the immigration issue. I think you can rest assured that that'll be a major part of this legislation, and if that fails, that at least they'll be -- try to move on a piecemeal basis.

KAYYeah, it's kind of why you have big business pushing so hard for comprehensive immigration reform because they really want these high-skilled workers. I'm Katty Kay of the BBC. You're listening to "The Diane Rehm Show." And if you'd like to join us, do call 1-800-433-8850. You can send us an email as well to drshow@wamu.org.

KAYLet's get to more of the week's news. There were new questions raised this week, Ruth -- I know that you're interested in this one -- about Sen. Robert Menendez' relationship with a major donor who is under investigation by the FBI. What more did we learn?

MARCUSWell, the story just gets curiouser and curiouser, and I say this as a proud Jersey girl myself. This -- what we learned is more information about the senator's relationship with a Florida ophthalmologist who has given some $700,000 to his campaign and associated Democratic groups. Even in Washington, that's still a lot of money. And two things -- well, more than two things -- have happened.

MARCUSFirst, the ophthalmologist's office was raided by FBI agents accompanied by folks from CMS, which is the agency that oversees the Medicare program, suggesting that there's a Medicare fraud issue up there. Second, The Washington Post and others reported that Sen. Menendez had intervened with CMS officials on behalf of -- at least according to Menendez' office -- to ask questions about CMS' queries about this doctor.

MARCUSI believe they asked him for some $8 million -- which, even in Washington, is still real money -- back on billings he had made that they question. Meanwhile, if that wasn't enough, there are also some issues about the senator's trips to the Dominican Republic.

KAYI'm just wondering how you're going to phrase this, Ruth.

MARCUSI'm going to be very, very...

KAYGood.

MARCUS…NPR-ish 'cause I wasn't even going to get into that part. The senator's trips to the Dominican Republic with this ophthalmologist -- and he repaid for two private plane flights, something close to $60,000. And Sen. Menendez is not a man with a lot of cash on hand, which he said he had simply neglected to reimburse previously for the flight. There are some other very intriguing questions, shall we say, about what exactly happened and who the senator might or might not have consorted with. How is that for being...

KAYAnd we should say that the senator denies that there was any untoward consorting going on.

MARCUS...during these trips. I could go on, but I think this boils down to there's a lot of smoke around Sen. Menendez. Interestingly, the Senate majority leader, Harry Reid, came out this week and said he wasn't concerned at all about the senator. Maybe he knows something I don't know, but wow.

KAYManu, does this affect his possibilities of becoming chairman of the Senate Foreign Relations Committee now that John Kerry has gone to the State Department?

RAJUNot at the moment. I mean, he still has a hold on the -- his gavel in the committee. I mean, the fact that the Senate Ethics Committee exists gives people like Sen. Reid and other senators some cover because they can say, look, the Ethics Committee is investigating it. We're not going to do anything or say anything or -- until the Ethics Committee is done with its review. And what we know historically from the Ethics Committee is that typically does not go as far as a lot of folks may like.

RAJUWhat it would probably end up doing is a public letter that publicly criticizes the senator for his conduct. I think that's the best that Menendez can hope for right now. Of course the FBI is also investigating this whole situation. You know, whether this leads to any serious criminal charges, I don't know, and it's impossible to know right now, but that's really his biggest concern.

KAYOK. I want to get to more on the economy before we take another quick break. Greg, this week, the U.S. government sued Standard & Poor's over the whole mortgage fiasco in the 2008 financial crash.

IPYeah, this is fascinating because, of course, we're talking about events that are now five or six years in the rearview mirror. A number of government inquiries have already determined that the excessively optimistic ratings that these credit agencies assign to mortgage-backed securities were a primary cause of the financial crisis. People bought mortgage-backed bonds that were more risky than anybody realized. But there's also been criticism that, until now, no serious government regulatory action had been taken against the agency.

IPSo, apparently, there's a lot of sense that the Justice Department feels that it needs to show itself as tougher. It was actually negotiating with S&P for quite a while over a settlement said to be in the billion-dollar area. S&P didn't want to go, said it's too much money. So now they're going to go to court. Justice Department says, we're going to ask for $5 billion. But there's a couple of interesting wrinkles to this case. First of all, Justice is suing them in civil -- in a civil action, not a criminal action.

IPThe burden of proof is much lower for a civil action, which does suggest that their case may not be as strong as they would like it to be. And S&P has said that a lot of the emails, which looked quite bad, in the complaint filed by the Justice Department, have been taken out of context. It will be interesting to see how this case unfolds and whether it will be as easy to win as Justice thinks.

KAYOK. I have questions about this Standard & Poor's suit. After the break, we'll get to those. 1-800-433-8850 is the number. Stay with us for more here on the domestic news roundup.

KAYWelcome back. I'm Katty Kay of the BBC, sitting in for Diane Rehm. You've joined me in the studio with Manu Raju from Politico, Ruth Marcus from The Washington Post, Greg Ip of The Economist. We're here for the domestic hour of the Friday News Roundup. We've got some very good emails that I want to get to in just a minute.

KAYBut first of all, Greg, I had a quick follow-up question on Standard & Poor's which we were just discussing before the break. The real issue here seems to be whether there was a conflict of interest at the ratings agencies who were paid by the same companies whose bonds that they were rating prior to 2008. Why has it taken so long for the government to decide to bring a suit against them?

IPIt's a very good question. I suspect that they've been working on this for quite a while like more than a year, and there's a lot of information...

KAYYeah, but we're talking about five years now.

IPIt may also be an issue that they've worked their way through others cases. They only have so many resources. And, by the way, one of the implications of this is that the mere fact that they've gone after S&P and not, for example, Moody's, doesn't mean that they will not, at one point, pursue action against some of these other cases.

IPBut to go to the first point you said, you're absolutely right. This revolves not just around the presence of the conflict of interest but did the presence of that conflict caused S&P to override their own best judgment and apply ratings to securities if they knew we're actually worse off. And that's where it's really going to come down to, the jury interpreting the different evidence and the context around that evidence that both S&P and the Justice Department will put forward.

KAYHas that system been changed now?

IPThe ratings?

KAYDoes S&P -- yeah, the ratings agency and the conflict of interest, has that been fixed?

IPI can't say offhand, but S&P did say in their response to the Justice Department that they have brought in new guidelines with respect to how they can rate a lot of these instruments.

KAYOK. We have an email here, which I think is interesting, from Dawn, who writes to us, "Brennan couldn't get confirmed in 2009. Why is he considered so much less toxic now?" What has shifted, Manu?

RAJUYou know, I think there's -- the Democrats have 55 senators in their caucus. The Republicans are, you know -- though it's difficult to block a nominee for such an important national security post, particularly one who doesn't really have a smoking gun in his portfolio, it'll be hard to block him. I think you all can expect a fair amount of Republicans who'll support him especially the hawkish Republicans who do support a lot of the tougher policies including the drone policy that the Obama administration is taking.

KAYRuth.

MARCUSWell, Brennan, as I recall, was not formally nominated four years ago, and it was because, really, the feelings and the emotions about issues like torture were so much more raw back then, and it had to do with his service during Bush administration and the degree to which he was implicated in, questions like water boarding.

MARCUSAnd so the issues that he had during -- four years ago were issues of criticism from the left and the degree to which the president, having been elected on issues like closing Guantanamo, stopping torture, releasing torture memos, wanted to sort of muck things up with his base by promoting Brennan. And so he kept Brennan in-house, if you will, at the White House.

MARCUSAnd so I think after four years of Obama, some of those -- I mean, obviously with things like "Zero Dark Thirty," the torture debate has been revived, and it's still obviously a very emotional debate. But some of that has dissipated after four years of Obama versus Bush. And so that's allowed the Brennan nomination to go forward.

KAYOK. And Kevin writes to us from New Mexico, "Using drones lets us pull back our ground troops to a vulnerable, expensive and more deadly than drones. Also, drones are more accurate and cheaper than bombers which do far more damage." We were talking about this in the break, Ruth. It's basically part of the argument of why this has not been on the front pages and why there was not a huge amount of opposition to drone usage in the country.

MARCUSThere's -- I'm not a military expert, but there are a lot of fantastic -- including keeping troops safe -- attributes that drones have. The question is both, as Greg mentioned, the foreign policy implications of using them and, second, the oversight implications: What is the authority? Where are using them, and who are we using them against, and who is overseeing those decisions? And those are really important questions despite the value of drones.

KAYOK. Greg, this week, we had a new report from the Congressional Budget Office. What did it have to say about the short-term deficit and the long-term American debt?

IPYes. Well, it's kind of a good news-bad news story. I mean, the headline out of it was that for the first time in five years, the deficit will come in under $1 trillion this year. Now, it sort of speaks to something when that's considered progress. But nonetheless, numbers are actually pretty good. They think the deficit this year will be something on the order 5 percent of GDP. It was 10 percent when Obama took office, so it's fallen in half. And moreover, they say it'll fall to 2.5 percent based on current law in a couple of years. That's more -- that's where it was before the crisis. So that's a good news story.

KAYThis is because of extra revenue?

IPIt's because the economy's getting better, that's throws off extra revenue. A lot of the stimulus programs that had unfolded in the early part of the Obama administration are now expiring. And also, there have been several deficit reduction deal struck in the last few years.

KAYOK. And to this fabulous news, we then add sequestration. And what happens?

IPSo their forecast says -- it assumes that sequestration happens. The bad news is that even if that happens, and we've talked about why that would be a bad thing, the deficit still starts to head up again within the 10-year window because of these pressures from entitlement. And moreover, if you look at a scenario where the sequester is not allowed to happen and a variety of other tax cuts that are very popular continue to be extended, the picture is that much more troubling, that even though the short-term picture's gotten a lot better, the long-term picture is still very troubling.

KAYBut if we have sequestration and growth declines because of it, wouldn't the deficit go up because of that so you'll have lower tax revenues?

IPYou will have lower tax revenues than you otherwise would, but the deficit probably will still get smaller, unless you have a series of unexpected events layered on top of that that pushes back into recession. But as we were talking about earlier, I think the paradox of the sequester is that it hits the wrong type of spending, and it doesn't really do much beyond the 10-year window where all the threat people and economists worry about lies.

KAYExcellent economics lesson for the morning by Professor Greg Ip. Thank you very much, Greg. Manu, what are the political implications of this report?

RAJUYou know, I think that we're back to where we were before. I mean, the Republicans say that, you know, we are done with the whole tax debate. We need to focus on the entitlements that are sucking -- that are adding so much red to the deficit that, you know, this report sort of underscores the problems with Medicare, et cetera. And they're having to continue to push that line.

RAJUJust remember, I want to point out that this is the first time the CBO has done this type of forecast since the fiscal cliff compromise. That was a reach right at the beginning of the year, and, of course, that, as we know, permanently extended most of the Bush tax cuts, but it has permanently extended all those tax cuts and then increase folks who -- the tax on folks who make more than $450,000 a year.

RAJUThat affects some of the long-term revenue projections for this country, as well as, you know, in the long-term, we're looking at a debt that could go up an extra $9 trillion over the next decade. We're still going to be faced with the same fight over whether revenue should be included in the grand bargain deal, and right now, there's nowhere close to resolution.

KAYOK. We have an email here from Devta who writes -- Dev, actually, who writes, "I think your panelist --" he thinks it was you, Raju, but I think it might've been Greg "-- just repeated a talking point about it is the entitlements that are causing the deficit now. Can you specifically address the following points? One, social security does not contribute to deficits. As a matter of fact, it is in surplus. Two, Medicare contributes only as much to deficit as the Department of Defense."

IPWell, you have to distinguish between what's causing the deficit issue now and the deficit issue 10 years from now. It's true that for most years in recent past, Social Security has thrown of more payroll tax than its cost in terms of benefit. But if you look at the aging of the population, that is not going to be true 10 years from now.

MARCUSAnd it's not currently true.

IPI think, in fact...

MARCUSThe last couple of years, I believe, it's not true.

IPThank you, Ruth. In fact, yes, that is absolutely right. I think in the last few years, in fact, Social Security has actually been a net negative for the budget balance. And on Medicare, the situation even more so is that over the coming year, it's dealing not just with the aging of the population but its relentless rise in health care cost.

IPI do want to add parenthetically, though, one of the interesting bits of the CBO report was that they do acknowledge that health care costs in recent years have not been rising that much. And that actually gives a little bit of comfort to the administration which has been very resistant to wholesale change these entitlements. They want to see if there's something happening on the cost front, perhaps because of some of the innovations in the Obamacare laws that's actually meaning to bend the curve on health care.

KAYWell, that would be a real godsend because if we carry on, of course, having the same level care that we're having at the moment at the same cost rate and the baby boomer start aging, hitting 70 and getting sick, that's what everyone's concerned about, Ruth, right?

MARCUSYes.

KAYThat's the big bubble that we're all waiting for.

MARCUSThat's the big bubble. And the big question is what to make of this decline in the rate of growth -- not to sound too Washingtonian -- of health care costs. You know...

KAYBecause there are only three options: either we bring down the cost of the care, we have less care, we raise revenue.

MARCUSYeah.

KAYThat's what -- if all these people are going to get older, right?

MARCUSYes. And, you know, the emailer raised this question of entitlement as talking points gets back to the question that you asked about what are the political implications of the CBO report. The political implications of the CBO report are that each side and each aspect of this budget debate picks up the point that it wants to make. So those who don't believe that entitlements are a problem picks up this point. Those who believe we can have sequestration pick up this part of the train. So it's like the blind men and the elephant meets the CBO.

KAYOK. I was either kind or unfair to Dev, depending on how you say it. In brackets, he said, just repeated a talking point, brackets are lie, to be blunt. Dev is wearing his political colors on his sleeve. Let's go to Raul in Dallas, Texas. Raul, you've joined "The Diane Rehm Show."

RAULHi, guys. How are you doing?

KAYWe're doing great. You have a question for my panel?

RAULYes. Actually, this is about the immigration. Me and my wife came here about almost 21 years ago. And we came here. We finally graduated from here, and we have degrees from American University over here in computers and science. But over the years, back -- immigration law, we had H1, and it just got denied and just got denied.

RAULAnd finally, we have our kids over here, American citizens, but we've been hoping that since the last time Obama administration came would be some kind of immigration bill, but it wasn't. So my question was, if -- actually, if there is any point (unintelligible) it do to get to pass the Senate and the House. And in the meantime, if we go back to our country, are we going to be eligible in that long, exciting way to come back over here and (unintelligible) that law?

KAYOK. Raul, your line is not very good. I think I caught what you're saying, so I'm quickly going to précis it. Raul has been here for 21 years. He's had kids here who are Americans. He's applied. He's got a tech degree. He's applied for an H1 visa. He hasn't got it. His question, Manu, is, if he goes back home, will he able to come back again under this new law?

RAJUYou know, the law has not even -- legislation hasn't even been drafted yet. We're really talking about a five-page outline, and it has got to be turned into a very detailed legislative proposal. I think the hope among the folks who are drafting this is that it doesn't force folks to go back into their home countries, that they could actually stay here and access the existing legal immigration system and speed it up in a way that there isn't such a backlog.

RAJUOf course, that is all easier said than done. It's going to be a very difficult process. But this idea of going back to the country and coming back to the United States, I think that's, you know, not really part of the discussions right now.

KAYAnd we do have other callers waiting with questions about this law, what it means for people, whether they will be able to come back into the country. If they're already in the green card process, how does it affect the timeline? The answer is we don't really know because we don't know what the law is. But, of course, an awful lot of people are interested in this immigration reform and what it means for them personally and for their own lives. Let's go to another quick story in just a moment.

KAYI'm Katty Kay of the BBC. You are listening to "The Diane Rehm Show." And if you'd like to join us, do call 1-800-433-8850. You can also send us your emails -- we'll be reading those -- to drshow@wamu.org. And let's look at what's happening with a couple of Republican governors, Ruth, who seemed to be moving more to the political center on the issue of expanding Medicaid.

MARCUSI'm not sure I would call it the political center. I would just call it a common sense, logical decision. So there -- a bunch of things occurred with the new health care law. One of them was that it was offered what the states what I consider to be a terrific deal. If they expanded eligibility for Medicaid, the program for the poor, to those at up to 138 percent of the poverty level, the federal government for most of the initial years would pick up all or most of the costs of that expansion.

MARCUSThe federal government and the states kind of share the costs of the Medicaid with the federal government paying a little bit more than half, I think, for most of the states. The Supreme Court, in upholding the health care law, said that the question of whether the states would participate in the program had to be entirely up to the states that the federal government couldn't essentially bully them into accepting the expansion by threatening to withhold their Medicaid funds if they didn't accept it.

MARCUSSo the open question has been, will governors, Republican governors in various states decide voluntarily -- 'cause it really is up to them -- to participate in this Medicaid expansion? And what we've seen interestingly are two Republican governors who you would not have necessarily expected to say, yes, sign us up, saying, yes, sign us up. The first was Jan Brewer, the governor of Arizona, not exactly a flaming liberal.

MARCUSAnd the second, quite interestingly, is governor of Ohio John Kasich, who decided this week -- not just not a flamingly liberal but a very interesting governor and one who served in Washington and very involved in budget questions. And he said this week that he wanted to accept the Medicaid expansion and that, in fact, studies in Ohio show that it will save the state money over the long run by expanding the program.

MARCUSSo I think that is good news both for the Obama administration and for the citizens in those states where Republican governors have agreed to do the logical thing, which is accept this great deal from the federal government.

KAYAnd, Greg, my understanding is that the Republican governor of Michigan, Rick Snyder, has also suggested that he might be prepared as well to accept this expansion. This comes after he had said that he was at risk of being primaried by a more conservative Republican.

IPI think that's right. I think, in fact, there are now six Republican governors who said that they will accept or rather indicated that they will accept the expansion. Interestingly -- I think, Ruth, you touched on this -- but what they're finding is notwithstanding the conservative view that Obamacare is a bad thing and will stick them with a lot of unwanted costs. These governors are also facing pressure from their own hospitals and providers to accept this expansion because both providers are having their fees cut by Obamacare, and they need the extra patience to make up for that.

KAYOK. Last story we just have to get to. No more mail on Saturdays. I'm thrilled most of my mail is junk that come through my front door. But I understand, Ruth, that a lot of people are upset about what the U.S. Postal Service is proposing to do.

MARCUSA lot of people are upset about it. I have to count myself in the Katty Kay category which is I think we just need to get into the 21st century. We don't, you know, I've been watching a lot of "Downton Abbey," and, you know, you see the mail coming there. It seems to come 18 times a day, but that was their only way of really communicating before the phone got installed. Hello, 21st century. I think we can live without Saturday mail.

KAYYeah. And until we all get into "Downton Abbey," I'm afraid we're going to have to rely on email. Ruth Marcus, Greg Ip, Manu Raju, thank you all so much for joining me.

RAJUThank you.

IPThank you.

KAYI'm Katty Kay. You've been listening to the domestic hour of the Friday News Roundup. Do stay with us. We'll have more in international hour. Thanks for listening.