tv PBS News Hour PBS August 12, 2010 6:00pm-7:00pm PDT
captioning sponsored by macneil/lehrer productions >> lehrer: good evening. i'm jim lehrer. general motors posted a $1.3 billion profit today. it's largest in six years. >> brown: and i'm jeffrey brown. on the "newshour" tonight: economic reporter tom shepardson of the "detroit news" and auto analyst george magliano take us through what's behind this turnaround for a company that just a year ago had nearly $13 billion in losses. >> lehrer: public broadcasting reporters in columbus, ohio, albuquerque, new mexico, san diego, california and columbia, south carolina assess the housing market as foreclosures jumped 9% in july. >> brown: spencer michels wraps up his series on cyber security with a spotlight on online
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>> lehrer: there was a pair of big news stories about general motors today. the balance sheet is in the black again and the man in charge is leaving. g.m.'s earnings report marked the second straight quarter of profit for the auto maker. the company made more than $1.3 billion from april through june- - its best report in six years. that's on top of $865 million it made for the first three months of 2010. it was welcome news for a firm that went through bankruptcy protection a year ago, after receiving $50 billion in federal bailouts. >> in short, our goal is to get g.m. back on its feet, take a hands-off approach and get out quickly. >> lehrer: despite that pledge, g.m. was derisively dubbed "government motors." still, the company emerged from bankruptcy in just 40 days. in the process, it shed hundreds
of dealerships, plus its pontiac and other unprofitable lines. instead, it focused on a core group-- chevrolet, buick, g.m.c. and cadillac. fritz henderson was c.e.o. at the time. >> from this point on our efforts are dedicated to customers, cars, culture and paying back the taxpayers. >> lehrer: henderson was replaced last december by ed whitacre, who announced today he will step down as c.e.o. come september first. whitacre had made clear his tenure would be brief, and today, he said, "i believe we've accomplished what we set out to do." the new c.e.o.-- the fourth in just over a year-- will be g.m. board member dan ackerson. he's also managing director of the private equity firm the carlyle group. ackerson will oversee efforts to ramp up u.s. sales and production of new lines, including the chevy cruze, due out next month.
later this year, g.m. begins selling the chevy volt, an electric car that got a presidential test-drive last month. g.m. hopes the volt will help reinvigorate and recast its image. the government still owns 61% of g.m., but the auto-maker plans to file soon for an initial public offering of stock. that could lead to reducing the federal stake later this year. and to david shepardson, who covers the auto industry for the "detroit news." and george magliano an analyst with i.h.s. automotive in new york. david, is it correct to say that g.m. no longer wants to be known as government motors? is that their priority right now, right? >> absolutely. i mean, that label has cost them a fair number of sales, given the anger over bailouts in general and the fact that some of those customers have shifted to ford or chrysler or toyota. i mean, their first priority is to launch this i.p.o. and get
the government out of the business, as ed whitaker said, "we want the government out period." >> lehrer: the i.p.o. meaning... explain what that is. >> meaning as early as tomorrow g.m. will file paperwork to set in motion the public sale of its stock. it's not currently traded publicly, that will allow the government to sell off the first big chunk of its stake. the canadian government owns some stock, too, in exchange for the $12 billion it lent g.m. as well as the former bondholders and the united autoworkers health care trust fund owns about 20% of g.m. >> lehrer: mr. magliano, how did g.m. do it? how did they get to where they were a year ago to where they are today with a big profit? >> well, they put the steps in place to become profitable before the bankruptcy. but the bankruptcy was the catalyst. they were closing plants, trying to divest themselves of brands, trying to trim down their labor force, become a much more global player. they were moving in that direction, but they weren't moving fast enough.
and the big catalyst at the end of the day was the bankruptcy proceeding and the fact that the government ... >> lehrer: all right, we've lost mr. magliano in new york. so pick up the answer there for me, david. >> well, he was right, part of it was before the bankruptcy, the bankruptcy allowed g.m. to shed $30 billion in debt. what it's also done is allowed the company... >> lehrer: because under bankruptcy law it was possible to do all of this. you could reshape labor contracts, you could do all of that they that they could haven't done through negotiation. >> absolutely. and as the promo pointed out, they were also able to get rid of a lot of dealers, too. hundreds of dealers and get rid of unprofitable contracts, they were able to negotiate with the u.a.w. a new long-term agreement that allows them to hire new workers at just $14 an hour, or about $32,000 a year. all these things allowed them to shrink their costs so this company can be profitable at a far lower sales volume.
remember, g.m. lost almost $90 billion between 2005 and 2009. that's like some small countries' g.d.p. it's a lot of money. that was when the market was selling $16, 17 million vehicles a year. now g.m. can be profitable. today booking $2.2 billion in the first six months even though auto sales are relatively low, although up from last year. but all these changes they've made and the new leadership has had a big impact where they are. >> lehrer: picking up on your word "shrink," is the scale of everything more in sync now in? in other words the scale of their labor force? the scale of the plant s. is that more in sync with what they can produce and sell and all of that? >> absolutely. a big problem g.m. had for years is underutilization of their capacity. they had lots of factories that were only working on one shift. factories that... they were shutting factories for a few weeks in the summer.
this year they didn't shut nearly as many factories. they said their utilization was 93% versus last year about 40%. so... >> lehrer: that's a huge change, is it not? >> part of that was related to the bankruptcy because they shut down for a month so the numbers are a little bit skewed. but you have the new management team coming in and running this company like it hasn't been run in decades. >> lehrer: how much of all of this... of the good stuff is... should be credited to ed whitaker? >> part of it. certainly the product portfolio, the new products like the cruise you mentioned. these are products that were launched or the development under rick waggner two c.e.o.s ago. but he deserves a lot of credit for focusing the mission on simplicity, keep it simple, the mantra g.m. has is deliver, sign, and sell the world's best cars. also accountability. people who don't do the job or he doesn't like, ed whitaker has been able to move out or shift or basically push out the door.
>> lehrer: yes, mr. magliano, you're back now. >> good to be back. >> lehrer: david shepardson finished your sentences for you. but let's pick up on what i was talking about david right now which is how much of the positive stuff right here should be given to ed whit dismer in other words, the credit for it should be given to ed whitaker? >> i think he gets a lot of credit for pushing it through. and number one, he changed the corporate culture or start to change the corporate culture in g.m. g.m. was known for bureaucracy, slow-moving, very inbred and, you know, bringing somebody in from the outside. he really shook things up. he caused a lot of consternation but he got the job done and got them moving in the right direction and the bankruptcy, as we said before, enabled him to get out... close down a lot of those plants that were totally unused and now they can match production to sales which makes it that much more profitable. they don't to give the vehicles away like they used to in past when they were just sitting in
the dealerships and they couldn't sell them. that's a big change. >> lehrer: whitaker, of course, came out of the communications business. he had been the c.e.o. of at&t. didn't know anything about cars. how was he able to do that? what did he bring to it that was able to produce this kind of result? >> i think what you need at the top is leadership. you don't need a quote/unquote car guy. you saw it with alan mulally but he had a lot more manufacturing ... >> lehrer: he's the head of fort, right? >> yes, and basically you need a guy on top to set the direction to get people moving and then to put good people down below that know the business and to really let them do their job. and that's what he did and that's what we expect from the new c.e.o. >> lehrer: now, the government involvement in this. david, is there any direct government involvement in the operation of general motors at this poi? >> no. i think it's pretty clear that the obama administration, general motors, you know, the
administration is not running general motors for the simple reason that they don't want to be accused of making decisions for environment or other political reasons like where to put plants. i mean, if they open the door and started running general motors as an arm of the government, it would make it far more difficult for the administration to get out of the company. and i think, you know, over the last 18 months we've seen no evidence that the government has actually stepped in and picked the paint colors or something. >> lehrer: mr. magliano, what's the word within the industry about the new products that general motors has already produced? we talked about some of them in the introduction. is general motors... has general motors got its product act together? >> it's getting its product act together. when bob lutz was doing the product development or heading up that team in general motors, they got high marks for the new products and the aggression in the new products. but at the time, gasoline prices were relatively low.
they shot up and now they had to rethink where they were going and the new cruise is their number one big shot in the compact or small car arena and this is going to be a big test for them. and the jury is still out. it's an improvement over the replacement that they had before, the cobalt, which was a very bland vehicle. this is much more upscale. but it's going to go head to head with the focus which just came out which ford has and that's a pretty upscale small car as well. of course you've got the stalwarts outs there, the civic and corolla in that class. so it's a tough segment to compete in. so we have to see what happens. >> lehrer: and in that regard when we look ahead to see what is going to happen, general motors is not out of the woods yet, is it? >> no. they're off the operating table, but still there's a long way to go. they're going to have to keep working on costs. we've got a new union contract coming up. and they have to keep working on product. and the name of the game in the
industry is product, product, and more product. you can't hound on that enough and it's... that's why you've got to sell the best cars and trucks in the business. and then they've got to keep doing that. they've got to keep doing it to survive. >> lehrer: based on your reporting, david, the people who follow this industry would agree with you, right? >> yeah. i think g.m. is in the best shape it's been in certainly ten, 20 years. the company has lowered its costs, it's bringing out new products, it's a very competitive market, as george pointed. there's lots of new vehicles, lots of competitors, all over the globe. but g.m. is in a very good spot but it still has a lot of work to do in europe and north america to be certain. >> couric: gentlemen, thank you very much. george magliano, sorry about the technical problems but we got it all in anyhow. thank you very much. >> thank you. >> lehrer: still . >> brown: still to >> brown: still to come on the "newshour": rising home foreclosures; cyber threats; a war-crimes trial at guantanamo and chinese investment in greece. but first, the other news of the
day. here's hari sreenivasan in our newsroom. >> sreenivasan: former illinois governor rod blagojevich will have to wait a while longer to learn his legal fate. the jury in his federal corruption trial sent word today that it is not close to finishing. blagojevich appeared upbeat this morning, as he entered the federal courthouse in chicago. he's accused of trying to sell an appointment to the u.s. senate seat vacated by president obama, and of trying to use his office for personal gain. but after deliberating for nearly two weeks, jurors told the judge that it has been slow going. they reported they've reached decisions on just two of 24 counts, without saying what they decided. they've discussed 11 more counts, but appear deadlocked on some. and, they have not yet gotten to 11 counts of wire fraud. the judge then told the jury to resume deliberations. blagojevich is 53 years old. if he is convicted on all counts, he could face $6 million in fines and 415 years in prison.
a federal judge has delayed resuming gay marriage ceremonies in california, until at least next wednesday. the same judge ruled last week that a voter-approved ban on same-sex unions-- known as proposition 8-- was unconstitutional. today's ruling gave opponents of gay marriage more time to ask a federal appeals court to intervene. wall street struggled again today, and ended with a third straight losing session. the dow jones industrial average lost nearly 59 points to close below 10,320. the nasdaq fell 18 points to close at 2,190. and the price of oil dropped for a third day falling below $76 a barrel. it's down almost 8% in the last week. the u.s. senate has given final approval to $600 million for more agents and equipment along the mexican border. the voice vote came in a brief special session in a nearly empty chamber. it was only the second time since 1970 the senate has reconvened during an august break. the legislation now goes to president obama for his signature.
the president of pakistan visited the country's flood zone today more than two weeks after the crisis began. he toured areas around the city of sukkur in the south, where many refugees say they had no warning of the flood danger. we have a report from jonathan miller of "independent television news." while we were filming, president asif ali zardari arrived on his first visit to flooded areas since the catastrophe enveloped pakistan two weeks ago. the only t.v. cameras accompanying the president were from state t.v. it was a carefully staged managed event. he briefly got out to look at the water before being briefed by provincial officials. the government has said it will
compensate flood victims, but what's on offer won't match the value of homes, livestock and lost crops and, as i discovered, there's another problem, banditry, for which part of sindh is notorious. >> (translated): i am chief of my tribe. when we escaped, we were robbed of everything we had. a truck driver took pity on us and brought us here . >> reporter: when the flood came i was preparing meals for the children, i just ran with them but we were robbed. i still don't know what happened to my husband. >> reporter: it's a pretty grim camp wedged between a busy road and the canal and it's open to the elements. it's also a very unhealthy place. people are sick. there's no hygiene to speak of. today save the children warned that if this health crisis in sindh is not tackled fast, millions of children will contract deadly diseases.
>> sreenivasan: more than 1,500 people have died in the pakistan floods, and the u.n. estimates as many as seven million need assistance. today, a u.s. navy ship carrying helicopters and 1,000 u.s. marines arrived off karachi, to boost relief efforts. hundreds of angry villagers in eastern afghanistan protested today, after an overnight raid by u.s. troops. protesters blocked a main road for several hours, burned trucks, and shouted "death to the united states." the villagers accused the soldiers of storming a family home and killing three innocent brothers. nato insisted those killed were insurgents, who pointed their weapons at the troops. iraq may need u.s. forces for another ten years. that warning came today from the country's senior general. he said the iraqi military might not be able to maintain security on its own until 2020. the u.s. officially ends its combat role in iraq this month, drawing down to 50,000 troops. under current plans, all of them are expected to be gone by the end of 2011. those are some of the day's major stories. now, back to jeff.
>> brown: and we turn to housing: its impact on millions of americans and the national economy. >> brown: the news on the home front today was less than encouraging. it showed a new surge in foreclosures. the private firm realty-trac reported re-possessions rose 9% from june to july. all told, almost 93,000 homes were taken over by lenders. realtytrac also estimated more than one million u.s. households will lose their homes to foreclosure this year. the obama administration has created several programs to try to help people stay in the their homes, but with only limited success. in its latest step, the government yesterday announced it would provide $3 billion in housing aid. $2 billion of that will go to federal grants in states with the highest levels of unemployment aimed at providing bridge loans for homeowners to pay their mortgages. for a barometer of where housing stands across the country we turn to four reporters for public media. karen kasler is bureau chief for
ohio public radio in columbus. gene grant is a correspondent for the public television station knme in albuquerque, new mexico. erik anderson is an editor and anchor for kpbs public radio in san diego, california. and mark quinn is producer and anchor of "the big picture" on south carolina's e.t.v. let me get you all in here first on the foreclosure problem and today's report. karen kasler, you start. what are you seeing in your area? >> well, this this report, the realty track report, 13,5111 foreclosures and filings in ohio in july. that's a 27% increase over june. and one in 376 ohio homeowners received a foreclosure notice in july. what i couldn't believe, though, in this information was a 68% increase in the amount of sheriff sales in ohio. so ohio's housing problems, we've been in the top five or top ten for years. it's obviously stale problem.
>> brown: mark quinn, let's go to columbia, south carolina. what are you seeing? >> this is something just emerging in the headlines. we did not have a huge housing boom like states like florida and nevada and california so we didn't have a huge housing bust. but as unemployment has continued to drag on here over the last two years now, two years into the great recession, we're seeing a lot of people with un'm moment benefits expire. those are the folks having real problem. so just now in the last several months many of our major metropolitan areas like greenville spartanburg, columbia reporting more foreclosures. >> brown: gene grant in albuquerque, something new or something still lingering out there. >> i would say something still lingering, not so much new, that's for sure. where we sit out here, we've got one out of 675 homes have had foreclosure filings. that's certainly not like you're hearing from our guests we just heard in ohio and other places, nevada, florida. but it's still relatively problematic.
we've got other 3,800 homes here statewide in foreclosure. when owe factor in other economic pressures that are out there, for jobs and everything else, particularly construction jobs, it starts to get sticky. but we're tolding tight compared year to year, july '09 to july '10 and we're doing a little bit better than last month, just under a percentage point on foreclosure filings. but as you've said, the rest of 2010 for us here in new mexico is going to be pretty dicey. >> brown: well, eric anderson, california, of course, has been an epicenter of the foreclosure problem. give us an update. >> well, here in california, what you find is that foreclosures are actually down sharply from just a year ago. more than half of the sales here in san diego county a year ago were involving foreclosure activity and now that number is down to about a third. so that picture is getting better. and in addition to that, when you look at notices of default, the foreclosure is kind of the end of this housing process.
the notice of default is sort of the beginning when people first start to have trouble. they start to miss that payment. those notices of defaults are down sharply as well. two reasons for that. one is as that mortgage companies are starting to be a little bit more flexible in working with the existing owners that run into trouble and they're reworking some mortgages. and also there are more short sales in the market as well. so still distressed properties and still foreclosures going on, there but not quite so much as we had last year. >> brown: karen kasler, let's booeden many out a little bit the issue of home sales and prices. >> well, yesterday we got some good news that the national association of realtors announced the u.s. city with the highest jump in home prices this spring was in ohio, in actron, a 36% jump over a year ago. and all of our cities, cleveland had an 11.5% jump, columbus had a 9.5% jump and cincinnati had a 1.2% jump. so home prices are actually increasing.
but we still have a lingering problem. our unemployment rate is a point above the national average and ohio just received the third-largest allocation of the hardest-hit funds from the u.s. treasury to help unemployed homeowners to pay for their mortgages. that's hoping to help some 35,000 ohioians to stay in their home. so while home prices are moving up, we have a long way to go because we have been involved wh n this at the beginning. we didn't make the headlines some of the other states like california and florida and nevada did but we've been here for quite a while. >> brown: is there any sense to why home prices are edging up or at least stabilizing? >> well, i think when you start to feel like there's a bottom there, maybe there's an opportunity to move up, maybe that's it. there are some pockets of stability in ohio, in columbus where i am we have a lot of government, we have ohio state university, we have a lot of very stable employment here. but the rest of the state is pretty widespread. we have huge swathes of the state with unemployment levels
above 10%, above 14% in some areas. >> brown: mark, when you said you haven't felt bottom the way they have in ohio, what is happening to values there and sales? >> well, one of the things karen brought up that i hear over and over again in the real estate market in south carolina is consumers looking for stability. we've had a lot of people here who do work in the government sector, it's being slashed, wondering if they'll have a job next year. not the best time to go out and purchase a new home. prices have remained pretty stable across most of south carolina, but there is a huge dropoff in terms of the amount of sales. charleston just this week reported that home sales there down 37% compared to last month. so there's a lot of inventory out there and it's a great time to buy but there's a lot of people not willing to get out there and write that check just yet. >> brown: gene grant, land prices, home prices, what's happening there? >> it's all a big jumble. for us out here, going from last
year, july '09 to july now, we've got a 14% decrease in pending sales and a 24% decrease in close sales in what's tied to that, what's stitched to that is our average home prices are actually dropping. july of last year it was $196,000, it's gone down to $186,000. also for the average sale price, a $10,000 drop as well. and i think all those factors those other folks just spoke about are very much in play here. we have a lot of government and federal employment and all that kind of thing. but we're downsizing in that... in those areas. we've got a big, big budget crunch here. we're shedding employees at state, city, and all levels of government, county government. and so for a lot of home buyers out there, the sense is i'm getting in my reporting is folks are holding back. they're waiting to see what's going to happen a little bit to see how much maybe some of the new federal programs, of course,
the $26 billion that was just passed last week and it's coming to new mexico like other places. a little more stability for teachers, for some other folks. how that plays out in home buying is still yet to be answered. >> brown: erik anderson, are people able to sell a home if they want to or are they sitting there on the market? >> well, there is activity on the market. people are selling homes, people are buying homes. but the way the analysts kind of look at the situation is is that sort of trawling along this plateau. we have the peak in '05, the market crashed in '08, we've kind of bounced back just a little bit and now it's kind of holding steady. a little bit up one months, a little down the next month. no real change. a couple factors are contributing to that. one is this idea of a jobless recovery. companies that shed jobs during the recession, during the hard times are not replacing those jobs now that the economy is getting better. without that additional employment in the area it makes it tougher to buy a job. it also puts more stress on the people who own homes and may have lost a job.
and then there's the tight financing. people are... great rates out there if you can find them, but people are having a tough time getting the financing they need to buy the homes. the banks aren't being as loose with the money. for example, a lot of the refinances a year ago were requiring about a 20% equity stake before you can do the refinance. now that's up to 30%. makes it a lot tougher for a homeowner looking at a low appraisal and not much equity to get that lower rate that would help them pay their mortgage or to buy or sell a house. >> brown: karen, i want to build a little bit more on this whole connection between housing and the broader economy to the extent that construction, home building are often major seconders for local economy. what do you see happening? >> well, our home prices, actually our home sales statewide were up 14% according to the national association of realtors and our home price
average was just below $147,000. so ohio's home prices are a little bit lower, i guess, than the nationwide averages. but a lot of what's driving ohio right now is the unemployment rate. as i said, we've got big areas of the state which have unemployment rates that are much higher than the national average and the high zest in clinton county where d.h.l. moved out of the area about a year ago and 16.8% unemployment in that area alone. so there's a connection here. and in cleveland we have the problem with the urban unemployment in that that area. in cleveland you see whole areas of communities where there will be one two homeowners on a street and every other house on the street is boarded up, everything of value has been stripped out. one homeowner told me the concrete steps in front of a house had even been stolen. so there are huge areas where the foreclosure impact has hit really hard. >> brown: marc quinn, do they make that connection where you r r, the housing slowdown and holding back the potential for
growth in your region? >> well, absolutely. there were an awful lot of jobs tied to the housing sector when the great recession hit. when it did toward the end of 2008 the start of twine, our unemployment rate in south carolina skyrocketed. it was the third-worst in the country, almost 13% by some estimates if you counted the underemployed. a lot of economists told me it was over 20%. they attributed that to the slowdown in the housing market. there was so much growth that was going on in our coastal regions, places like myrtle beach in charleston that once that stopped and once that came to a halt an awful lot of people were looking for work. so there was a close link between housing and unemployment in our state. >> brown: gene grant, how does that play out in the statehouse? how does this play out when you get to budget issues. >> it's very interesting. we've got a governor's race, of course, and that's been the topic for both of our candidates and for governor richardson, our governor currently, you know,
he's so much concentrating on getting those budget issues correct with the legislature, not kicking the can down the road which we've done the past few times in our legislature and what's happening is just like those folks just said, employment in the construction industry is not unlike a lot of western cities where you've got a big footprint, a big spread, a lot of roof top communities. and when things were going well a few years ago, there were plenty of jobs for those folks and now that there are not, there's a cascading effect. it's affecting so much so many industries: suppliers, subcontractors, anything you can imagine connected with construction are being heavily impacted and those jobs are not necessarily replaceable. when you talk about restrain restraining... retraining and that kind of thing, that's a difficult throw when you talk about construction. so until and if this market comes back, far lot of construction folks they could
end up a lot like... last week paul zoll mono's report on 99 weekers, those folks that run out of unemployment benefits and you don't know what's going to happen. >> brown: all right. we'll have to leave it there. i want to thank you all four very much. karen kasler, gene grant, erik anderson and mark quinn. thanks a lot. >> lehrer: now, the final story in our cyber security series. "newshour" correspondent spencer michels reports on the problem of online crime. >> reporter: if you could play an a.t.m. like a slot machine, this would be hitting the jackpot. at the recent black hat cyber security convention in las vegas, computer expert barnaby jack showed how to do it. his demo was so controversial that it was delayed a year so the manufacturers could come up with a fix, but plenty of other security loopholes remain. >> i didn't give away the cookbook recipe to allow anyone
to suddenly go and break into these machines, but i think the reason i showed this is i want to raise awareness of these issues. the flaws are actually in the code that the manufactures come up with. >> reporter: the problem of cyber crime is not limited to a.t.m. machines, last year, the fbi reported, more than half a billion dollars was lost to internet thievery. other estimates are much higher, but it's hard to measure because banks are reluctant to acknowledge their losses. >> you know, this is a touchy topic because a lot of banks don't really want to talk about the fact that they have this vulnerability. >> reporter: terry austin, c.e.o. of guardian analytics, a company that designs software to protect banks from cyber crime, says that his banking clients privately tell him that the threat of being hacked is getting worse. >> as we get into the security departments and talk with the executives at banks, they begin to acknowledge how serious a problem it is. >> reporter: that's partly
because more and more people do their banking on line-- almost a third-- and it's partly because the crooks are getting more sophisticated and more organized into crime syndicates. but joe menn, who writes for the "financial times" talked to a group of bankers about the problem. >> the banking industry has got itself in a bit of trouble by telling everybody how safe on line banking is. that may have been true a while ago; it is not true now. >> reporter: the american bankers association-- acknowledges it encourages on line banking--because customers can check their own accounts on line to discover fraud. but finding fraud quickly is not easy. cyber criminals often use malicious software designed to infiltrate a computer system without the owner's consent and steal from customers' bank and credit card accounts, without their knowledge. >> half of all credit card numbers are in the hands of organized criminals according to the justice department.
half of all computers have some form of malware on them. it's the worst stuff that steals your financial passwords and the like. >> reporter: hacking into some else's computer is relatively easy for experts. at mcafee security systems, candace worley and technician bruce snell showed us how a hacker can install malware on a computer without the owner even knowing about it. >> we'll just attach it to an email and we'll send it over to candace, and it'll come from, you know, somebody that she recognizes as an old friend. okay, i'm going to drag the attachment in the email to my desktop. it's going to open that screensaver because i'm thinking i'm getting a cool new screensaver i can install on my laptop. >> reporter: and now, all of her keystrokes can be seen by the criminal. >> i can pretty much do whatever i do at this point. i can see what's she's typing on her screen, and i can really take control of her computer. >> reporter: with that control, the crooks have access to passwords and bank account numbers.
terry austin says criminal gangs have developed a way to move the stolen money out of the country. >> they'll often set up a network of what we call mule accounts. these are people who have been hired to work from home to transfer money in and out of a bank account, and then it's whisked offshore. >> reporter: in his book "fatal system error", menn says the organizers have become local heroes at home. >> the people in charge are definitely in eastern europe; most likely in the ukraine; there is less societal disapproval for crime against people in other countries, particularly the west. and we use credit cards more, we have fatter bank accounts, we're logical targets. >> reporter: the vulnerability of our financial information has national security implications, says melissa hathaway, who led a cyber security review for president obama. >> i think our economic security is our national security, and to the extent that anybody can make
the commerce infrastructure unstable, that's going to jeopardize really everybody's economy. >> reporter: stealing information via computer has become an international sport with a big payoff, as chris paget showed another way thieves get information and eventually money. he set up antennas on a 29th floor las vegas hotel balcony to demonstrate how credit cards and passports, embedded with wireless transponders called r.f.i.d. tags can be read by crooks. >> these things can be read at very long distances. people can be tracked, they can be identified, you can find out all kinds of information about them from these r.f.i.d. tags that are being issued to you by the government, by stores, and products you buy all over the place. >> reporter: but hackers don't just use computers to gain access to information, as was made clear in this contest at the defcon hackers convention. here, contestants like shane macdougall showed how they could
get crucial information on cyber security simply by phoning employees at large firms and convincing them to divulge company secrets. macdougall called a large auto maker. >> what's the code on your antivirus software. >> you know, pretending you are doing a survey, pretending you are internal audit, pretending you are external audit. it could be coming up dressed as a carrier into the front desk or you know like you were a sprinkler inspector. there are so many ways you can pretext yourself into a company, but basically social engineering is lying. >> reporter: well, do you think it works most of the time? >> it works all of the time. i mean, whenever you couldn't get in past the firewall, or hack your way in, you could always social engineer your way in. >> reporter: defending against smooth talkers is a matter of training, which experts say is often lacking. defending against cyber crime, which is more technical, has become big business. for years, computer owners have
used anti virus services like mcafee or norton to protect against malware. mcafee's candace worley, said her firm processed 17 million pieces of malware last year, and the threat is changing. >> it's a constant game of cat and mouse, right. we build a better mousetrap, the hackers basically create a better mouse. and so it's a constant process of evolving our technologies to address the new types of attacks that they create, so by the time we believe we've caught up with everything they could do, they create something new. >> reporter: but some security experts question whether its possible to keep up with the bad guys, especially for individuals trying to protect their own computers. guardian analytics c.e.o. terry austin says computer bank robbery often takes place without banks even missing the money at first. austin's firm has designed a system to detect suspicious
activity using changes to a customer's usual patterns. >> we saw a fraud attempt, nearly a million dollar wire transfer, where the fraudster broke into the account with stolen credentials. they set up some new payees, some people to receive funds, and they tried to execute wire transfers to those new payees. luckily, we saw it before they could get any money out. >> reporter: but fraud detection systems like that, and more traditional virus protection services face a continuing battle. and for his part, writer joe menn thinks it's a losing battle. >> if i had to bet, i would bet that it's going to run wild and forever, and it's going to destroy the internet as we've come to think of it as a place that is safe to do business, safe to do financial transactions, safe to put your sensitive business materials in the cloud and access it
remotely. it's really, really bad. >> reporter: others say that by talking about cyber crime and figuring out what the criminals are up to and how they work, security may be possible. the administration and the industry say they are working towards that goal. >> brown: next, a new trial at guantanamo. margaret warner has the story. >> warner: the u.s. military commission trial beginning today is notable for being the first to test new ground rules designed by the obama administration. the accused is omar khadr, a canadian citizen accused of throwing a grenade that killed a u.s. delta force soldier at an al qaeda compound in afghanistan in 2002. khadr was 15 years old at the time. for more on what happened in court today, and the significance of the case, we turn to "toronto star" reporter michelle shephard. she's been covering it for years, and wrote the book: "guantanamo's child: the untold story of omar khadr."
michelle, welcome, thanks for joining us. before we get into what happened in court today, i gather that as we speak now, just in the last few minutes, there's been a dramatic development. >> well, that's right, margaret. it was the a rather emotional ending to what has been a dramatic day of testimony and opening arguments in the omar khadr case. just a few minutes ago, omar khadr's military lawyer, army lieutenant colonel john jackson collapsed in the courtroom and was taken from the courtroom to a navy-based hospital here. we're not sure of his condition right now. as he was taken out on the stretcher, he did seem to... he had regained consciousness by that time and he was talking. so we hope he's okay. and as i said, it was quite an ending to what had been already an emotional day. >> warner: i understand there's quite a bit of international media attention there. why is there so much attention to this case? what's significant about it ? >> well, this case is very
significant for two reasons. one, it's the first that's going forward under the obama administration and it's seen as a test case for the military commissions. so in many ways it's not just omar khadr on trial here but the system itself. omar khadr's case in particular is interesting because he is a canadian detainee, he's the last we were earner here. but what make this is kase significant even more so and has drawn a lot of criticism is his age. he was 15 at the time of capture in afghanistan when the pentagon accuses him of throwing a grenade that killed a u.s. soldier. >> warner: in order, he was a child under most definitions of the law. >> international law experts have denounced this trial as the first of a child soldier since world war ii. >> warner: okay, so tell us what happened. what unfolded in court today? >> well, today began with opening arguments, and we heard from our first couple of witnesses, soldiers that were at the fire fight that day.
and the opening arguments before a jury of seven members really set out, i think, what we're going hear over the course of the next few weeks. there's two portraits, very different portraits, of omar khadr. the prosecution contends he's a trained al qaeda terrorist and that he threw a grenade that killed the delta force soldier. his lawyers maintain that he was a 15-year-old kid thrown into battlefield by a father and he should not be in this forum being prosecuted. >> warner: did the defense attorney raise the issue of whether he'd been accuse ord mistreated? >> he did and i think that's going to come up again during the trial. the judge has admitted statements that omar khadr made to interrogators and they will be heard at trial. his lawyers had tried to get those statements thrown out as products of torture. so i think the defense is going to try to prove that before he spoke to his interrogators he was, in fact, tortured at both the bagram air base and in guantanamo.
>> warner: now, khadr was in court today. what was his demeanor? >> well, omar khadr came to court today in a suit and tie. that's very different from the prison garb he normally wears in court. he was very attentive, he was listening to the witnesses, he was looking at the jury members. and the widow of delta force soldier christopher spear was in court for the first time today. it was the first time she was able to see omar khadr and the first time he was able to see her. >> warner: and what greater legal protections does he have under these new ground rules that the obama administration designed? >> well, the ground rules were changed so that statements that were made under cruel, inhumane, and degrading conditions would not be admited into court. under the bush administration, those could be admitted as evidence and as long as the statements were not obtained under torture. that was a significant change. however, as i mentioned, those statements are going to be
admited into court as the judge didn't find those conditions applied here. >> warner: now, you mentioned the issue of his age. has that been litigated before this trial? in order, has there been any judicial review about whether he can be tried for a crime allegedly committed when he was 15? >> in pretrial hearings, his age was repeatedly brought up during motions in which they tried to have the charges dismissed. the military commissions act does not stipulate age as a factor and when the obama administration amended those rules, they did not put age in as well. so what prosecutors have said is that while age may be a factor during sentencing, during the trial it won't be an issue . >> warner: finally, shank this trial expected to take and what kind of sentence would he face if he were to be convicted? >> he faces a sentence of life in prison if he were convicted. we anticipate this trial will
last anywhere from three to five weeks. >> warner: michelle shephard of the "toronto star" thank you so much. >> lehrer: finally tonight, one more snapshot from "newshour" economic correspondent paul solman's recent trip to greece. tonight, he reports on what's behind china's growing presence there. it's all part of his ongoing coverage of "making sense of financial news." >> reporter: the port of piraeus, greece's largest, circa 1960. a time when dock workers could and would take a little break whenever the mood struck. >> a model of inefficiency then and even now. a midsize cargo ship can take a week to unload in piraeus, compared to just days in rotterdam, europe's largest port. many in the shipping industry blame greek workers. >> greeks in the last generation have been spoiled. >> reporter: nicos vernicos family has run tugboats in piraeus for generations. and he doesn't think the greek economy will reform on its own.
>> we need foreign investment, and especially we need the chinese. >> reporter: for years, the chinese presence here was restaurants and small shopkeepers in the seedy part of athens. >> not any more. greece is courting china in a big way-- wooing chinese tourists to come visit that other ancient civilization and chinese investors to pump cash into its antiquated state-owned utilities, train lines and most importantly, its ports. in june, chinese shipping giant cosco took full control of the major container dock in piraeus, just southwest of athens. in return for a 35 year lease, the chinese have pledged to spend hundreds of millions dollars on upgrades, to link having opposed the deal when it was first suggested a few years ago, the cash-strapped socialist government now embraces it. prime minister george papandreou.
>> we are one of the biggest, if not the biggest shipping country in the world. and now we have attracted important investment. the port of piraeus, which is a traditional port in the mediterranean but it was a declining one and now will become the basic hub for all chinese produce to come to the european union. >> reporter: tugboat tycoon vernicos, just back from the shanghai expo, is rooting for the chinese to succeed. >> as a tug operator in the piraeus ports... >> reporter: of tugboats. >> of tugboats. i'm proud that i am their servants. and everybody who is doing business with them here in europe is very happy with them in greece. >> reporter: well, not exactly everybody. >> you can see here the investment from greek government that will help cosco. >> reporter: in the industrial wastelands west of athens, the greek government has laid the groundwork for another hoped-for chinese investment: a sprawling new distribution center where cargo from piraeus would be put
on trucks and trains bound for points north. leonidas vatikiotis, a journalist who has a ph.d in economics, says the privatization plan will benefit china, but not greece. >> first of all, we are worried about the employment. the problem is that the employment will not be increased and the very little employment will be made, it will be with very, very low salaries. >> reporter: in fact, as part of the deal, 500 union workers at the piraeus port were either pensioned off or moved into other jobs, allowing the chinese to bring in cheaper non-union local workers. but greece's deputy prime minister, theodoros pangalos, said that was not necessarily a bad thing. >> the practice of the chinese up to now is absolutely correct, as far as it regards the way they pay the people working for them. and also, they have a good labor relation.
so i think they want to have a good presence here. >> reporter: but vatikiotis had another concern. >> very big black market. in such a big investment nobody knows what's coming into the port and where does it goes. >> reporter: is there not a concern that goods will be smuggled into a port like this once the chinese own it? >> no, i don't think there is a risk. this has to do with organization of the port and don't forget the workers are greek. even the top management is greek. so they cannot organize smuggling. forget it. >> reporter: not now. i'm talking potentially years from now. >> potentially years from now we are going to lose our economic leadership. >> reporter: we, the west. >> the west exactly, yes. >> reporter: to china. >> to china. >> reporter: so we better be friends with them. >> exactly. i believe that we will not be able to compete.
>> reporter: not the most appealing argument for foreign investment, perhaps, recalling as it does the cynical so-called golden rule of the world economy: he who has the gold, makes the rules. >> brown: again, the major developments of the day: general motors posted its best profit in six years, as c.e.o. ed whitacre announced he's stepping down. a federal judge delayed resuming gay marriage ceremonies in california until at least next wednesday. and numbers for july showed a new surge in home foreclosures. the "newshour" is always online. hari sreenivasan, in our newsroom, previews what's there. hari? >> sreenivasan: on paul solman's "making sense" page, find all of his reports from europe and more follow up to his story on the so-called 99ers' who've been out of work for over 99 weeks tonight, the story of an unemployed woman facing years of condo fee payments on her foreclosed home. and there's more from our "cyber security" series-- watch a breakdown of some of the digital loopholes that allow online banking fraud. plus from our politics unit, a
q&a with historian richard norton smith on tensions between the political left and democratic presidents. how does the obama administration's relationship with the liberal establishment compare with president's past? all that and more is on our web site, newshour.pbs.org. >> lehrer: and again to our honor roll of american service personnel killed in the iraq and afghanistan conflicts. we add them as their deaths are made official and photographs become available. here, in silence, are nine more.
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