BRANCACCIO: Tonight on NOW…

The politics of mercury. Is the administration moving fast enough to reduce mercury emissions from smoke stacks?

HOWSE: Any proposal which is going to leave large amounts of mercury in the environment over a prolonged period of time constitutes an increased health hazard.

BRANCACCIO: What you should know about mercury and the fish you eat.

And 5 days before the handover in Iraq, the long and dangerous road ahead.

AMOS: I think the realities of Iraq have been stunning to people who came here with a plan not in place.

BRANCACCIO: NPR's Deborah Amos.

And why are record numbers of American families losing their homes?

WARREN: We have a lending industry that has changed home ownership right down to its core. It's changed it from something that is stable and a sign of economic security to something that's dangerous and unstable.

Bankruptcy expert Elizabeth Warren.

ANNOUNCER: All that tonight on NOW with Bill Moyers and David Brancaccio, the weekly newsmagazine from PBS.

ANNOUNCER: From our studios in New York, David Brancaccio.

BRANCACCIO: Welcome to NOW. There's plenty in the news we're going to talk about tonight. But first we want to talk about what's literally a kitchen table issue: the food we eat.

This week, the California Attorney General filed suit against the country's three biggest producers of canned tuna saying California law requires them to warn consumers that their cans of albacore and light tuna contain mercury.

Do we need to tell you that mercury is bad for you?

Now the government has been debating for over a decade what to do about the mercury that spews from coal-fired power plants and ends up in our lakes, rivers, and oceans and ultimately in our fish.

But coal does have its benefits. We dig it out of the ground right here in America and it helps reduce our dependency on foreign oil. But with coal comes mercury.

So tonight, as the Bush administration prepares to adopt new national mercury regulations, we look at whether politics will trump public health. Our report was produced by Brenda Breslauer.

BRANCACCIO: Ed Mongin is one serious fisherman. Now that he's retired, he gets out on these Wisconsin lakes nearly every day.

MONGIN: Everybody goes out weekends, take the kids out. Like what we're doing here. This is kind of a way of life for a lot of people.

BRANCACCIO: What does fishing do for you?

MONGIN: You got me. Just love it. Can't tell you what it does for me. Just love it. Like my wife said that you go out there and you don't pay attention to anything else. So I guess so.

BRANCACCIO: Mongin likes to eat what he catches. Fish, after all, is one of the things the diet books say won't kill you.

MONGIN: I guess my wife and I always enjoyed eating a lot of fish and keeping our weight down and stuff, because there's a lot of protein but not much fat. They're supposed to be good and healthy for you. That's what I thought.

BRANCACCIO: But these days, the fishing hasn't had the same magic for Mongin and his fellow anglers. The problem is mercury. You know, quicksilver, the toxic metal that used to be in thermometers? It comes out here. Coal-fired power plants put out 40% of man-made mercury emissions in the U.S. and mercury doesn't just blow away: what goes up comes down. It ends up here — that's a tasty fish. The bigger the fish and the higher up the food chain, the more mercury it can have.

The problem is so bad that the federal government and 43 states have warnings about eating certain kinds of fish. Here in Wisconsin, every one of the states' 15,000 lakes and 57,000 miles of rivers is covered by a fish consumption advisory. A serious problem for a state where the Friday night fish fry is a tradition and recreational fishing is a billion dollar industry.

Just buying a fish license in Wisconsin is a bit of a bummer.

TACKLE SHOP OWNER: Health advisory for eating fish and it'll tell you the ages and what lakes and rivers and streams, how many fish you should eat... BRANCACCIO:Mercury emissions from power plants have never been regulated by the federal government. It took a 1992 lawsuit by the Natural Resources Defense Council and more than a decade for the EPA to finally issue a proposed mercury regulation… in January of this year. Jeffrey Holmstead is the assistant administrator for air and radiation at the EPA.

HOLMSTEAD: We've proposed and plan to finalize this year, a rule that will get by far, the greatest emission reduction from power plants that's ever been achieved in this country or anywhere else in the world.

BRANCACCIO: Sounds like progress but it triggered an outpouring of protest. By law, once a government regulation is proposed, the public has the right to weigh in. It's known as the public comment period. And, in the case of mercury, the comments have flooded the agency. 235 members of Congress, hunters, fisherman and anglers, Indian tribes, and the National Parent Teachers Association, the PTA, have all urged the EPA to adopt swifter and more stringent controls on emissions. Former EPA scientist Martha Keating, now at the non-profit group Clear the Air, has been combing through the public file.

KEATING: We have had over 500,000 public comments from American citizens submitted on this rule saying, "Don't do this rule this way."

BRANCACCIO: They're worried about the mercury.

KEATING: They're worried about the mercury. They're worried about their children basically.

BRANCACCIO: Even the March of Dimes, which hasn't filed comments with the EPA in the 20 years since the lead in gasoline issue, has written in to urge the EPA to withdraw its current proposal and replace it with a more stringent one. It quoted a recent EPA analysis that found — and here's the showstopper — that 630,000 babies each year may be exposed to unsafe levels of mercury.

HOWSE: The most severe effects are severe mental retardation, cerebral palsy, deafness, blindness. These are untenable risks as far as the March of Dimes is concerned.

BRANCACCIO: Dr. Jennifer Howse is president of the March of Dimes which has been dedicated to protecting the health of babies for more than half a century.

HOWSE: Mercury has the capacity to do developmental, neurological damage to the developing brain of the fetus. This is very serious.

BRANCACCIO: It's also serious for wildlife, according to the Maine Audubon Society, which submitted comments citing concern about loons like these. Recent studies show that loons produced 40% fewer offspring after eating fish from mercury contaminated lakes.

What's more, attorneys general from 10 states have written to the EPA, warning that there's no way its proposal would survive in a court of law.

The thing is, for a known neurotoxin like mercury, the Clean Air Act has a specific set of rules: emissions need to be reduced at each and every power plant by the best available technology. But the EPA's preferred plan lumps mercury in with plain old pollutants where more lenient rules apply.

HOLMSTEAD: Now, people have raised an issue about whether it's appropriate to have cap-and-trade for a toxic pollutant like mercury. And we've done a lot of analysis. We believe it is.

BRANCACCIO: Jeffrey Holmstead says the EPA's preferred plan is more cost effective and efficient. It's called cap-and-trade.

Instead of forcing each and every coal-fired plant to cut mercury emissions, cap-and-trade lets power plants that do a good job controlling mercury sell pollution credits to plants that do a bad job of it, even though it's a toxic element and not run-of-the-mill pollution.

HOLMSTEAD: The Clean Air Act provides us with different approaches that we can use. And we've had a pretty extensive discussion among our lawyers and in my own office and we're quite confident that we have a choice.

BRANCACCIO: And under this choice, mercury emissions might be cut by 70 percent by 2018 at the earliest. That's about the time today's preschoolers go off to college, a ten year delay over the 2008 deadline set by the Clean Air Act. But why wait? Many in the industry claim the technology will not be ready much sooner.

HOLMSTEAD: Right now, there's no any power plant in the country that actually has technology to control its mercury emissions. There's no power plant out there today that has this technology that people are talking about.

BRANCACCIO: What do the states seem to know that maybe the EPA hasn't fully embraced? I know that Massachusetts and Connecticut and New Jersey are permitting plants that reduce mercury by 85 to 90 percent by just 2010. That's a much more aggressive time frame than your proposed rule.

HOLMSTEAD: That it is, but it's a very different situation. Massachusetts, I believe, has nine units that are burning essentially the same type of coal. And we know there is a technology that can do that today. But from a national perspective, we're not dealing with nine units. We're dealing with 1,300 units. And so, our solution needs to be something that actually can be implemented by 1,300 units over the same time period.

BRANCACCIO: But listen to PSEG power, which owns coal-fired plants in three states, before the Connecticut legislature last year as it signed a historic agreement that can achieve up to 90% reductions in emissions by 2008.

BROWNSTEIN: We believe that the levels we are advocating today, coupled with the flexibility mechanisms that are necessary to address existing uncertainties in the performance of comercially available control technologies are fundamentally achievable at any power plant in the United States.

BRANCACCIO: So who's right? The EPA or a handful of individual states and power companies like PSEG power?

HOLMSTEAD: Again, I'm not aware of that statement. But it's inconsistent with what we hear from our own experts and from many other companies.

BRANCACCIO: Speaking of expert advisors, the EPA has stopped taking advice from a bunch of them. Martha Keating had been appointed to the official EPA advisory panel to work on the regulation back in 2001. Until last year, when the panel abruptly got the message that its input was no longer needed.

KEATING: And about two days beforehand, just got an email that said, "Sorry, the meetings' been cancelled. Thanks. We'll be back in touch when we reschedule." And haven't heard from them since.

BRANCACCIO: So Keating wondered if the EPA wasn't listening to its own expert advisors, who were they listening to? She began to search the public records.

KEATING: I began looking to see what had been submitted to the record. And what EPA was using to base its decision on.

I guess there were certain phrases that jumped out at me and I thought, "Well, wait a minute. You know, I really think I've seen that before." And went to my files and started to flip through the documents that had been provided to EPA by Latham & Watkins, and started to just match up sections of the document.

BRANCACCIO: Latham & Watkins is a law firm that participated in the EPA advisory group and represents a number of the power companies that will wrestle with new mercury rules. And when Keating read through the docket, she soon spotted that a number of the firm's arguments had made it into the EPA proposals. In some cases, almost word for word.

KEATING: At first, I was just so surprised. I mean, first, it was the concept, "Oh, yeah. You know I'm familiar with this." And then it was, "My gosh! These really are word-for-word." And I'm, you know, sending emails to my colleagues saying, "Are you reading this? Does it sound familiar?"

But then piecing together the exact wording really was quite a surprise. In many cases it provides the rationale, the basis for decisions that EPA made. And it was wording that was handed to them.

BRANCACCIO: Handed to them by an aggressive advocate for industry. In a September 2003 position paper presented to the EPA, Latham & Watkins argues that "a system-wide or pooled performance standard" — cap-and-trade — would be legal under a novel interpretation of the Clean Air Act.

Language that is pretty darn close to that ended up in the federal register where the EPA's proposals were published. Its just one of more than a dozen examples that Keating uncovered.

BRANCACCIO: Did that surprise you?

KEATING: Yes, it did. Yes, it did.

BRANCACCIO: Keating wasn't the only one who said they had that reaction. Jeffrey Holmstead, the man in charge of the EPA's proposed mercury rule, claimed he was too.

HOLMSTEAD: I was surprised. Ordinarily in a case like this, we would say, "You know, this was a suggestion that came from industry. And we're putting it out for public comment." In this case, it wasn't drafted by the EPA staff. It came in during the interagency process. And we had no way of knowing that it should've been attributed to a specific industry.

BRANCACCIO: It's just that I think people would expect that industry would be a robust participant of any rule-making that involves their industry. Just, you wouldn't expect industry to be seen as writing the language.

HOLMSTEAD: No. I think that's correct. And it's something that I know both the Administrator and I were concerned about.

BRANCACCIO: In what may be just coincidence, it turns out that before Holmstead came to the EPA to run the air office, he worked as an attorney at Latham & Watkins, the same firm that wrote that language adopted by the EPA.

BRANCACCIO: You used to work at Latham & Watkins?

HOLMSTEAD: Yes. No, no. I absolutely… I and one of my close colleagues here were both at Latham & Watkins. But Latham & Watkins represents many industries. And this language didn't come in through me or through my colleague. It came in actually without our even knowing about it.

BRANCACCIO: So, I shouldn't worry about a conflict?

HOLMSTEAD: No. There's no conflict. It's certainly something people have tried to make hay out of. And I think that's unfortunate. And that's why I say, "Gee, I wish that someone had told me that this was an issue." And we would've said, "Here's an idea that's come in from an industry, and we ask for comment on it."

KEATING: I think it's a pretty dramatic illustration of the influence that certain industries can have in this process. That they can reach the high levels of these administrations and have their positions not only known, not only meet with them, but to have their positions, in fact, adopted, just the way they would like them to be.

BRANCACCIO: Yeah, by the way, did any of your language ever show in the EPA rulemaking?

KEATING: No. Not a word. Not a word, I'm sorry to say. No.

BRANCACCIO: After uncovering the Latham & Watkins language, Keating continued her journey through the public record. And she soon found something else.

KEATING: On this page, again, the word "confirmed" where it says, "Mercury poses confirmed hazards to public health." The word "confirmed" is circled, and the notation, "Get rid of," is noted.

BRANCACCIO: The White House Office of Management and Budget was actually editing the EPA's language on the health effects of mercury.

KEATING: This page has to do with health effects. And talks about pregnant women and children. And the effects on the developing fetus. I'll read it to you. It starts as, "In pregnant women, methylmercury can be passed on to the developing fetus. And at sufficient exposure, may lead to a number or neurological disorders in children." And here's the line that's deleted, "These disorders can lead to learning disabilities, delayed development, and in severe cases, such as acute poisoning, cerebral palsy."

BRANCACCIO: Crossed right out.

KEATING: Crossed out.

BRANCACCIO: By the White House Office of Management and Budget?

KEATING: That's correct.

BRANCACCIO: Does the White House's Office of Management and Budget have the authority to, I don't know, downplay the health effects of mercury like this?

HOLMSTEAD: I don't think there was… first of all, this is the typical process that we and every agency always follows. And it's not just the Office of Management and Budget. But it's all of the federal agencies who are involved in this. And my impression is that there were people who thought that our original draft overstated the certainty with which we knew some of these things. So, I was not directly involved in many of those conversations.

But scientists from all the agencies were. And so, that's a pretty common practice, is to make sure that what we're saying is really fully defensible.

BRANCACCIO: The line that got crossed out was, "These disorders can lead to learning disabilities, delayed development and in severe cases such as acute poisoning, cerebral palsy." You're personally okay with that being taken out?

HOLMSTEAD: Well, I honestly don't know what the studies are on cerebral palsy. It's not been a big issue. And so I don't know in that case.

I can tell you that the major concern that we have is developmental effects in children who are exposed when they were in utero. And so as to, I guess. what I can say is our scientists must be okay with that. Or they wouldn't have agreed to take it out of the package.

BRANCACCIO: But enough questions have now been raised about the proposed rules and how they were crafted that the EPA's inspector general has launched an investigation. For many, however, the core concern here is not procedure. The concern is the health of the nation's children.

BRANCACCIO: The worry is when you look at, for instance, the EPA has its own advisory panel on children's health. And they say that the EPA proposed rule does not go as far as is feasible to reduce mercury emission from power plants and thereby does not sufficiently protect our nation's children. Again, the 630,000 babies at risk to mercury, how do you reconcile these experts' on children's health view with, ultimately, the direction you're pushing?

HOLMSTEAD: Well, we share their view. This, in and of itself, is not going to solve the problem. This is a piece of a much bigger strategy. And so our job, faced with a specific industry, which is a significant emitter, is to control them as quickly as we can, as efficiently as we can. And that's what we're doing. But I think we would agree with them that this doesn't completely solve the problem of children that are exposed to elevated levels of mercury.

BRANCACCIO: The utility industry says even if its reductions reached 90%, there are other sources of mercury out there. Pregnant women still wouldn't be able to eat all the fish they want. But power plants are a big place to start, say people like Ed Mongin.

MONGIN: Whatever is going on with those smoke stacks, I think they should just do what they can to stop it.

BRANCACCIO: After reading a READER'S DIGEST article about mercury last summer, Mongin asked his doctor at the VA to test his mercury level, given all the fish he eats.

MONGIN: I thought, "Well, nobody I know I got mercury around here because it's…" Like you see, we've got the books that tell you you got it. I just thought, "Well, I think I'll just ask my doctor to do a mercury check on me for the heck of it because if anybody's got it I got it." Because nobody is eating more fish than I am and I know that so…

BRANCACCIO: The tests showed that his blood level was more than seven times the EPA safe limit. Doctors want tests to come back at less than 6. Mongin got a 44.

MONGIN: And he says, "You have mercury way too high. Way too high." I said, "Well, I suspected it might have been."

BRANCACCIO: When Mongin quit eating fish for three months his level went down. But he says he can't help himself and he now cheats a bit. He's a catch-and-eat man, after all. He worries about his pregnant daughter-in-law and grandchildren who also fish on these Wisconsin lakes.

MONGIN: If we can do anything about it, let's do it. If we can't do it for this generation, let's start doing it for the ones after us.

This is a way of life that could be lost forever, the eating part could be gone. Generations after us are not gonna be able to do what we're doing.

I've got a message to Bush. I support you. I agree with you on most subjects. This one I'm 100 against. I think we should do whatever we can to get the environment cleaned up as fast as we can. If it costs a few bucks, so be it. That's my message. Hope he gets it. Make sure he gets it.

BRANCACCIO: You can send your message to the administration. The public comment period on those proposed EPA mercury regulations ends this Tuesday. To find out how to contribute, go to our Web site at pbs.org.

BRANCACCIO: There's more to come on NOW. Why homeowners — the foundation of the middle class — are in trouble.

WARREN: Since the year 2000, we have seen a 45% increase in the number of people who just can't stay in their homes. They can't continue to make the payments.

BRANCACCIO: Bankruptcy expert Elizabeth Warren.

BRANCACCIO: Next Wednesday, 468 days after American bombs began to fall over Baghdad, the US will transfer power back to the Iraqi people. Don't expect a lot of pomp. President Bush, Secretary of State Powell and Defense Secretary Rumsfeld will lie low that day, under the radar, aware that the situation represents a political liability.

Here to talk about what will happen on June 30th is an astute and intrepid observer of Iraq. National Public Radio's Deborah Amos has been covering the Middle East since 1982. She's made four trips to Iraq since the invasion last year. She joins us via satellite from the rooftop of the Palestine Hotel in Central Baghdad. Deb Amos, welcome to NOW.

AMOS: Thank you, David.

BRANCACCIO: Deb, handover in just a couple of days, it's not the mood that you would have expected. It's not the mood that Iraqis would have wanted if they were hoping that the U.S. military action would have led to a change in government, is it?

AMOS: David, there were so many expectations 14 months ago. And they simply have not been met. As the Coalition Provisional Authority pulls out of town, they don't really have control of the airport road, the road that they will have to drive down to leave this town.

They have not been able to bring electricity… anything more than pre-war levels. Security in the country is worse than it was right after the regime was toppled. There have been no elections in the country.

The city council has not been elected. There are so many things that are left to be done, so many promises that were not kept and expectations have been lowered. There was an internal poll that the CPA put out a little while ago. And it said only ten percent of Iraqis believed that they were safer because coalition forces were in the country.

I mean, it's an astonishing figure when you think that that was up in the 50's and 60's somewhere about nine, ten months ago. We've had the Abu Ghraib prison abuse scandal. It has sunk American credibility to lows that are just astonishing when you're here.

It's made the ability to talk about human rights almost impossible. Because Iraqis will say, "You call Abu Ghraib human rights?" And so they leave on a very, very somber note. I think that that is why the ceremonies on June 30th, first of all, have been kept under wraps. And that is for security reasons. There is great fear that the insurgency here will try to upstage events.

BRANCACCIO: You know, we sprinkle the word "insurgents" throughout these conversations like ketchup. Who are the insurgents? Are they nationalists trying to drive America out? Are they terrorists with different aims? What is the best word to describe who is perpetrating this violence?

AMOS: It's a complex mix. You have Islamic militants. You have ex-Baathists. You have people who maybe didn't have an allegiance to Saddam before the war but don't like being occupied.

You have nationalists who had an uncle or a brother end up in Abu Ghraib and has decided to take out revenge on the US soldiers that he sees. You also have organized groups who have connections to al-Qaeda. We've seen that in Fallujah, the terrorist cells, as the military calls them. And they have been going after them three times in a week.

BRANCACCIO: You and I were talking here on television in April. And I asked you, "Are you going back to Iraq?" You said, "Yes." You called it, this handover, the Super Bowl, the finals. You said what was shaping up was a revolutionary act by an administration who believes that to bring democracy to the Middle East will improve U.S. security. Nothing like it in the last 100 years you thought. Is that, in fact, what you're gonna end up covering?

AMOS: Well, there was once a Chinese leader who said, when asked about the French Revolution, how it turned out. He said, "It's too early to tell." I think that we will say that about June 30th. There are so many questions about the kind of country this will be after the turn over of sovereignty.

And we also have to call this a limited sovereignty. The Americans will control $18 billion worth of aid coming here. That is a big club over an Iraq government. There'll be 130,000 foreign troops in Iraq. That will also compromise in some ways sovereignty no matter what they do, even if they stay out of the towns.

And I think even Iraqi government officials understand that the handover is symbolic. That sovereignty is not complete and will not be complete for some time. These are very shaky institutions of democracy that have been set up over the last 14 months.

There's so much left undone that will have to be done by the Iraqis themselves.

But that's the key in all of this. After June 30th, it is the Iraqis that will have to step up to the plate. And that's what they have the chance to do next week.

BRANCACCIO: What actually changes next week?

AMOS: Well, they will have control over their foreign policy. They will be able to pay salaries out of an oil budget. They will be able to hire and fire. There will be no more American advisors with the vast powers that they had to run this country.

Those people are packing up, leaving, going back to the States. There are some advisors who will stay here. I had the Transportation Minister say to me, "I think I'll keep my American. He had some good ideas. He works hard."

But he will stay only in a true advisory capacity. He will not have the kind of powers that he did pre-June 30th. So, there are some powers that the Iraqi government will have. It is clear that both the Iraqis and the Americans have agreed that they want to put an Iraqi face on security.

That is what they are working towards.

BRANCACCIO: And one of the big symbolic acts next week will be a different type of handover. A handover possibly in handcuffs of former Iraqi leader, Saddam Hussein.

AMOS: This idea seems to have come from the Iraqis themselves, from the Prime Minister, who wants this to be one of the symbols of handing over sovereignty. Because how do you convince Iraqis about what sovereignty means? They're going to wake up on June 30th and certainly on July 1st, nothing really much will change in their lives.

They'll still worry about a car bomb on the way to work. They'll still worry that their relatives could die in some terrorist attack. Nothing much will change for them. So, how do you convince them that there's been a handover, that something has happened?

And so, the prime minister came up with this idea that what they would do is have an American soldier hand over the prisoner Saddam Hussein to Iraqi policeman. And he would put the cuffs on him at that moment. And that would be broadcast.

And for an older generation who have lived the longest time under the rule of Saddam, that will be an amazing moment for them. And as one government official said to me yesterday, it is a moment when accountability begins for a population who have wanted Saddam to have to answer for why he put them through three wars, why mass graves, why he had the policies that he did.

BRANCACCIO: One man who will accrete new power on that day is Iraqi Prime Minister Ayad Allawi. And there's been some very interesting reporting here in the states that came out today. The Washington Post and the Wall Street Journal have been looking into Mr. Allawi's background, his connections with the CIA and they draw a portrait really the term strongman is used. He's a person who with a tendency, it seems from this reporting to act with an iron fist.

AMOS: Iraqis do understand that about Ayad Allawi. And those who know him from his medical school days tell a story about him being a very young and militant Baathist and showing up one day in the early '60s, when the party was becoming stronger in this country, showing up in class with a machine gun dressed in khakis and telling people not to take their exams. They were having a strike.

Unfortunately, for Mr. Allawi, there was the military right across the street. And tanks surrounded the medical building. And he spent a year in jail. So, he was behind his class in graduating.

Ayad Allawi is a tough guy. He broke with the Baath regime. He went to London. Saddam tried to have him killed. They attacked him with axes in his home. It took him almost a year to recover. He's been through a lot. And in the last week you can really see him beginning to take the reins of power. He's not waiting for June 30th.

He has made numerous appearances on television. Now you see Prime Minister Allawi talking about cracking down on the insurgents, cracking down on terrorists, promising that he's going to take tough measures when he is fully in charge on June 30th.

BRANCACCIO: And that message, "I am going to be tough," does that resonate among ordinary Iraqis?

AMOS: I think that Iraqis want to hear that kind of talk. In the past couple of weeks, the death toll for Iraqis has been extraordinary. I mean, if you think about the numbers of funerals every day in this country from violence and you multiply that by large families, everybody has been touched here by the violence.

Iraqis are tired of it. They are angry about it. They are furious about it. They want somebody to do something. They believe the Americans cannot stop it.

They don't understand the country well enough. They don't understand the language, the nuances. They don't recognize a Jordanian from a Syrian from a Saudi from an Iraqi. Iraqis will tell you over and over again that they can do a better job. They are going to have to. It is going to be their job after June 30th.

BRANCACCIO: Let's talk about democracy. Have the seeds of democracy been planted? Are you talking to Iraqis who actual envision a governmental system there in which Shias share power with Sunnis, with Kurds?

AMOS: I think certainly, administration officials, Pentagon officials, have lowered their expectations. It was what was on offer 14 months ago. I think the best quote of the week is from a member of the CPA who said, "I am a Neo-con mugged by reality." I think the realities of Iraq have been stunning to people who came here with a plan not in place.

I think the last year has taught them a lot about how politics works in Iraq. In the last two weeks, we have seen Iraqis emerge with an Iraqi version of politics. You can see them actually demanding their own choices for the new government in the offices of president and prime minister.

But, whether that is the beginning of democracy, it is really not me to say. Whether those institutions have been planted in Iraq, I think that we won't know for some time to come.

BRANCACCIO: Well, Deborah Amos, National Public Radio in Baghdad, take care of yourself.

AMOS: Thank you, David.

BRANCACCIO: Next week on NOW, while people around the country worry about making ends meet, one small group of Americans is enjoying better and better pay and pension benefits: the lawmakers we send to Congress.

SEPP: Most private sector pensions do not offer automatic yearly cost of living adjustments the way congressional pensions do.

BRANCACCIO: The congressional gravy train, next week on NOW.

BRANCACCIO: Next Wednesday, June 30th is also a landmark day for the U.S. economy. With all the headlines that pour in from Iraq that day, watch carefully and don't miss the expected bulletin from the guardians of interest rates at the U.S. Federal Reserve who are expected to raise rates for the first time in four years.

This week, the man who will shepherd that decision, Alan Greenspan, was sworn in for his fifth term as chairman of the Fed. It was a low-key affair: the deed was done in a house in Colorado. Okay, it was former President Ford's house. Current Vice President Dick Cheney was in attendance. And that's Greenspan's wife, NBC correspondent Andrea Mitchell. She held the Bible.

But for a guy whose power rivals the President's when it comes to matters of the pocketbook in America, you'd expect a little more, I dunno, fanfare.

The hike in interest rates should be the first of many, aimed at keeping at bay something we haven't seen for a while, at least until this year… inflation. Under these new conditions, lots will change including the price of a mortgage.

New figures show sales of new homes surged to record highs in May, ahead of the rate hike, which could change that trend. This makes the time ripe for a conversation with Elizabeth Warren. She is a leading expert on bankruptcy and middle class debt. She teaches at Harvard and has co-authored 3 books. Her latest is THE TWO-INCOME TRAP: WHY MIDDLE-CLASS MOTHERS & FATHERS ARE GOING BROKE.

We began with topic A: Chairman Greenspan.

BRANCACCIO: Fed chairman, a new fifth term. I guess he's looking out for the American people. He's run this economy quite effectively over these many, many years.

WARREN: Well, I think we need to be clear about who Alan Greenspan's constituency is. You know, he talks a lot about the economy, but he also talks about families. And when he talks about families, Alan Greenspan, for all of his sober demeanor, writes happy-face speeches about families.

He says, "They're doing great, they're doing great, they're doing great." But, you know, if you do a word search on those speeches, they're really kind of amazing. There are all sorts of words that never appear in them.

Words like "childcare," and "health insurance," and "affordability of mortgages." Instead, what Alan Greenspan focuses on when he talks about the health of the American family is whether or not they'll be able to continue to make the payments on those outstanding credit cards, and outstanding loans. Because if they can keep making the payments, if they can keep a shoulder to the wheel, then it means the banks are safe. Ultimately, Alan Greenspan's constituency is just the banks. Just keep those banks safe, and that means everything is happy.

BRANCACCIO: But you see, Chairman Greenspan does think we can make the payments by and large. He's been asked about this at recent appearances. And he's not that worried about household debt, or that it's too much, or that we might be getting in over our heads.

WARREN: You know, I don't understand what Chairman Greenspan is reading in terms of the data. Let's talk about what's happened to families, not in the long past, just since the year 2000. Since the year 2000, credit card defaults, that is people who are not making even the minimum monthly payment, up 55 percent.

Home mortgage foreclosures — people who desperately want to keep up the payments on that one asset, because if you don't, it means you're out on the street — up 45 percent. And bankruptcies, the ultimate declaration of financial death that I can't make it anymore, up 33 percent.

What was the number one New Year's resolution this year?

BRANCACCIO: What was it?

WARREN: For the first time ever, overtaking "Lose weight," it was "Pay off some debt. I've got too much debt. I'm in trouble. I'm worried whether or not I can make my basic payments."

Alan Greenspan, our national economic leader, has stood up for the last four years and told Americans, "Borrow against your house. If you can't close the gap at the end of the month, just borrow against your house." Now, he never called it borrow against your house.

He said fancy things like, "Tap your home equity." Which sounds like some kind of dance, or, you know, some clever financial thing to do. But what it really was is borrow more money against your house.

And bet your house that you can continue to make all those payments. Do all that just as a way to make it to the end of the month. To put groceries on the table. To make that house payment. To keep the lights on.

That's really scary financial advice for someone to be giving American families. And what frightens me is millions of American families have taken that advice.

BRANCACCIO: Why is it so bad, though, to take out a second mortgage, home equity loan? I'm from northern New England, from very prudent stock. A lot of skepticism about debt from the tradition that I come from. But, you know, the houses around me are rising in price. And it makes sense that I should be able to harness some of that rising real estate value. And, get access to the capital.

WARREN: Hey, New England has no corner on the market on prudence. I'm from Oklahoma, and we are every bit as prudent as you New England types. But think about what happens when you load up more debt on your house.

Just you are rolling the dice at the table in Las Vegas. And here's how you're rolling it. You're rolling it that your income's going to continue to go up. That nothing serious is going to go wrong in your family that's going to make it hard to make those payments.

Someone's going to get sick, you're going to lose a job, you're going to be without health insurance. Someone's going to get divorced. None of those things are going to happen to you. And here comes the third one, the one you hit on.

Home values are going to continue to rise. Does anyone have any memory? We know that home values fell just 20 years ago. They eventually recovered, right? But there are periods when they go down.

Let's talk about Ronald Reagan's presidency, that's been in the news recently. Do you remember what was happening? The home values in the early 80's? When interest rates go up, home values go down.

And then here comes the real hooker. And when mortgage foreclosures start in earnest, it doesn't just affect the person who's been foreclosed against, it affects everybody up and down the block.

When banks take homes away in foreclosure, housing prices for the entire neighborhood drop.

BRANCACCIO: I want to stay on the subject of house prices for just a moment. In a way it's a real window into the health of the American family, to get a sense of their relationship to their mortgage, their relationship to their own house.

The big news now is that interest rates are going up in a couple of days. It's not going to be much right? I mean quarter-percent next week. Maybe by the end of the year, three-quarters of a percent.

I got online, did the math. If you have adjustable rate mortgage that's three and a half percent now, and it goes up three-quarters of a percent, you're only going to be paying $64 more a month. Are we overstating the effect of rising interest rates? They're at 46 year lows right now, what do we expect?

WARREN: What's happened in this last big wave of re-financings, and purchases, is that an increasing number of families have moved over to adjustable rate mortgages. And, the reason has been that that was the only way that they could qualify for the mortgage at all. That is, it's only when the payment is pegged at its lowest possible point that they can afford to pay.

BRANCACCIO: So they're right at the edge of being able to buy the house.

WARREN: That's right. So, you have to remember, adjustable rate mortgages, sure, they're spread throughout the economy. There are rich people with them, and poor people with them, and people in the middle with them. But they are concentrated in the hands of people who don't have the $64. Those are the people who disproportionately today have adjustable rate mortgages.

BRANCACCIO: I'm always struck though by just how much of a mortgage Americans seem to be able to buy. I've seen statistics. We figured out, somehow, how to buy these expensive houses. Maybe we'll continue to innovate in order to avoid the crisis that you see.

WARREN: Well, you know, what a mortgage company will lend you to buy a house, and what you can afford, are two very different numbers.

BRANCACCIO: They're not looking out for me when I'm trying to make that decision?

WARREN: What they're looking out for is to make a profit. God bless them. That's what they're there to do. They want to make a profit. And the way they make the best possible profit is to put you in the largest possible mortgage that you, by scraping and scratching, can make just a few payments.

And then they pass that mortgage off to someone else. Put it into a risk pool and move on. They're off selling the mortgage to the next guy. You know, always before mortgage brokers had to take a hard look at whether or not you were going to be able to make those payments in good times and in bad.

They wanted to see that 20 percent down payment. Indeed, in 1980, you know what the median first-time buyer down payment was in the United States? 18 percent. That's what people put down when they bought a house. So they were financing about 82 percent.

BRANCACCIO: Well, I'm making the face, because nobody puts down 18 percent anymore.

WARREN: Today, the median is less than three percent.

BRANCACCIO: The median, the typical…

WARREN: Half of the people in the United States, when they buy their first home, are putting down less than three percent of the house value when they buy. Now think how much equity that leaves you with. Right? That doesn't leave you with enough equity to pay the real estate agent's fee if you end up having to sell it if you can't pay for it.

BRANCACCIO: But it gets people into the house.

WARREN: Oh, it absolutely gets them into the house. The question's going to be, can they stay in the house when they get into financial trouble? Let's keep in mind, let's go back to an important number. And that is home mortgage foreclosures.

Since the year 2000, we have seen a 45 percent increase in the number of people who just can't stay in their homes.

BRANCACCIO: But, you know, Elizabeth, our man Alan Greenspan, when asked in public about, "Are you worried about debt load?" He said, not so worried because financial services industry has come up with innovative approaches that ameliorate the effect of a down turn.

WARREN: But look at what his innovative approaches are about. They're about owing money for an additional ten years, an additional 20 years, an additional 30 years. They're about people losing what is the number one retirement plan in America.

You know, we have to stop and remember. 50 percent of all Americans don't have a single dollar of retirement savings put aside. Through their company, or themselves privately. What is the number one retirement plan in America? My brother's retirement plan. You get your house paid off, and you count on living in it for the rest of your days. And if something goes wrong, you know that you've got an asset that you'd be able to sell.

BRANCACCIO: Yeah, or you do sell it and buy something smaller.

WARREN: Or you do sell it and buy something smaller. That is America's retirement plan. Alan Greenspan has talked Americans out of their number one retirement plan.

And we're starting to see the effect of that. We're starting to watch the numbers grow of people who are 65 and don't have their homes paid off. People who are 55 and still owe 20, 25 years on their mortgages.

Or in 30 years when you're just finishing mortgage payments, 15 years after you've tried to retire. Trying to manage mortgage payments at the same time you're trying to live on social security. We've, literally, as a country, mortgaged our future.

BRANCACCIO: We better then pray that wages are going up, to help meet these demands. The statistics show that wages are going up a little bit since the beginning of this year, something that the President can boast about.

WARREN: Well, the long-term trends don't look good. If we go back 30 years, fully-employed male's wages adjusted for inflation have moved off their starting mark by less than one percent.

BRANCACCIO: Over how long?

WARREN: Over 30 years. They've basically stayed the same for a fully employed male. Now, women's wages have gone up, because women have gotten their educations and… right, there's been a real change in the workforce.

But for men, adjusted for inflation, it has stayed effectively flat. For families since 2000, it's actually gone down about 2.8 percent. There's just been a slight decline for families.

BRANCACCIO: The effects of the recession?

WARREN: The effects of the recession.

And I think what the landscape shows is the middle class is under assault in a way that has not happened before in our history. Stagnant wages, rising costs, wildly rising debt. It's in everyone's interest to turn that back around.

And the ways we turn that back around is partly we share some of that wealth with folks in the middle. With the folks who work. And partly we bring our debt industry back under some control. It's been effectively deregulated now since the early 1980's. It's never had the opportunity in our history to get out there and make the kinds of loans and sell the kinds of loans that it's been selling for nearly 25 years.

And we're starting to see the costs associated with an industry run wild. The time is upon us to think about a little more regulation again. And to think a little more about the workers and the employers being engaged in the same enterprise. I don't think that's so crazy. I think that's where we've got to go if we really believe in the heart of America.

BRANCACCIO: Elizabeth Warren, Harvard University. Thank you very much.

WARREN: My pleasure.

BRANCACCIO: There was Professor Warren with the challenges facing our economy. How about some opportunities? Economists will tell you that the only institution in America with a license to print money is our aforementioned central banking system, the Federal Reserve. Inflation can spike when a central bank allows too much money to be printed. Well I'm here to tell you about another bunch of folks with a license to print money. Commercial television stations. Better yet, commercial television stations in Florida during an election year. You might've thought all those millions George W. Bush, John Kerry and the other candidates are raising were going toward meeting citizens and making speeches across the country.

Well, think again. Much, if not most, of that money will go into the pockets of television stations. The nonprofit Alliance for Better Campaigns reports that "In competitive races for federal office [in the last election], television advertising accounted for more than half of all political spending."

This time around, if you take all the national, state and local races combined, candidates will spend close to 1.5 billion dollars on television ads. That's a 60% jump from 2000!

How do Bush and Kerry's handlers decide exactly where they want to buy the ads? Well, that's a science. Or an art form. Or maybe a crap shoot. Whatever. The late night talk shows feature a lot of Kerry ads, in a quest for the younger and the hipper. On COPS, you'll see Bush ads in pursuit of the white male vote. Watch OPRAH or JEOPARDY, you'll see ads from both candidates, mostly about healthcare and education because they think they can reach seniors and stay-at-home moms, who supposedly care more about these things than the rest of us.

I told you it was a science.

And TV ad spending has really heated up in the so-called "battleground" states.

One of them, Florida, occupies an especially warm place in the heart of the body politic. That's the place where Bush beat Gore — or Gore beat Bush, depending on who's counting. Nobody wants a close race there this time around. If millions and millions of dollars can change just a few people's minds, the thinking is, let's spend it!

Now, let's say you lived in Tampa, Florida, a swing-city in a swing-state. Bush and Kerry have spent more than 7 million dollars on ads in the Tampa Bay area since March. That's 2 million bucks a month, and it's likely to rev up as the election draws near.

And the good news about money and media corporations doesn't stop there. The trade magazine VARIETY reported this week that mega-media companies Time Warner, News Corp, Liberty Media, Comcast, Disney and Viacom have an unprecedented amount of cash on hand — 21 billion dollars in cash and liquid assets. In fact, they have so much, continues VARIETY, that the "Trouble is, nobody knows what to do with all the dough."

Much of that "dough," is generated by the deregulation those same corporations have helped create. I think they call that "synergy."

Meanwhile, as the cash has flowed in, the jobs have flowed out. Disney has laid off more than 4,000 people since 2001; Time Warner, almost 3,500.

Oh, and one last thing. Many mega-media companies own lots of those local TV stations, the ones raking in all that money from political ads.

Just how many TV stations megamedia companies can own has been a matter of fierce debate. It all goes back to that pesky issue of the airwaves — they belong to you and me, the public.

You'll remember last year the FCC opened the doors to let big media own even more television and radio stations in the same market. But yesterday, a federal appeals court shot down the new FCC regulations, saying commissioners hadn't made a good enough case for the changes. The court stated the FCC's formula for ownership requires us to quote "abandon both logic and reality."

Public interest groups called the decision a big win for keeping media viewpoints diverse.

That's it for NOW. I'll be back next week with Bill Moyers, who'll be back from vacation. I'm David Brancaccio.

BRANCACCIO: Connect to NOW online at pbs.org..

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