MR. FRANK SESNOAnd thanks for joining us. I'm Frank Sesno of The George Washington University and host of facethefactsusa.org -- that's where you can actually get the facts -- sitting in for Diane Rehm today. She's on a station visit, and she will be back on Monday. Former CIA director Gen. David Petraeus testifies before Congress today. President Obama lays out his vision for a second term as big storm clouds gather in the Middle East and negotiations get underway at the White House to avoid the fiscal cliff.

MR. FRANK SESNOJoining me for the domestic hour of the Friday News Roundup: Sheryl Gay Stolberg of The New York Times, Julie Hirschfeld Davis of Bloomberg News and Greg Ip of The Economist. No shortage of news to digest today, folks. So Gen. Petraeus, the fiscal cliff, the Middle East -- you wanted this job, Mr. President. Sheryl, start us off here with this backdrop of what is taking place in the Middle East, which could be war if it generates to that, and what it means for Barack Obama as he starts his second term.

MS. SHERYL GAY STOLBERGRight. I mean, this -- well, really, this is the last headache in a long line of headaches, I think, that the president began confronting right after Election Day. Israeli troops are massing on the border of Gaza. They're threatening a ground invasion. The president has long had a kind of a tenuous relationship with Prime Minister Benjamin Netanyahu of the Middle East, and all of this comes at a time when the president is looking to reconstitute his national security team.

MS. SHERYL GAY STOLBERGSecretary of State Hillary Rodham Clinton is leaving. We have seen within the past week the resignation of his CIA director, Gen. Petraeus, in a sex scandal, which is also consuming Washington. Leon Panetta, the secretary of defense, has signaled that he may not want to stick it out for the entire second term. So the president has a lot on his plate, not to mention that he's got to deal with this looming fiscal cliff, the expiration of the Bush tax cuts and the installation of automatic spending cuts that would go onto effect Jan. 1 if nothing is done to stop that.

SESNOSo, Greg, with potential war on the horizon and, you know, 400,000 Syrian refugees and now Turkey saying, maybe we'll get involved, something that looks very explosive, does that totally distract this administration from these other huge challenges?

MR. GREG IPQuite possibly. I thought it was intriguing. When the president gave his first press conference on Wednesday, he laid out, in brief, his vision for the second term, and it was…

SESNOIt was a laundry list.

IPBut it was also a laundry list of domestic issues. He was talking about manufacturing. He was talking about middle class. He was talking about getting a deal on the debt. No mention at all of foreign policy, very little discussion of foreign policy in the questions afterwards. I think the risk for him here is that, as other presidents have found, is that their desire to get something big accomplished on the domestic front gets overtaken by events on the foreign policy front.

SESNOAnd, Julie, as Sheryl mentioned, as we go into what could be an escalating crisis in the region, this is a president who does not have a great relationship with Benjamin Netanyahu.

MS. JULIE HIRSCHFELD DAVISThat's right. And we just came off of a presidential campaign where the case was made by his opponent, Mitt Romney, that he had not been sufficiently supportive of Israel. That was a knock against him in the campaign. It was -- and actually, if you look at the exit polls, he did lose 8 percent of the Jewish vote between 2008 and 2012. So it's definitely something he has to worry about that may display some of the other big issues that he wanted to focus on and that actually he needs to focus on in the beginning of his first term to be able to accomplish some of his key goals.

SESNOSheryl, if the administration -- if the Obama administration was mobilizing some kind of diplomatic offensive to counter the military offensive or at least to deal with it, what would it look like?

STOLBERGYou know, I don't know. I guess they could send the secretary of state over there. President Obama has yet to visit Israel as president, and this is a sore point in Israel. I doubt that he would go now, but I think that, you know, they are going to need to marshal their resources. They're dealing also with a very different picture in the Middle East than even two years ago. You have Hamas --

SESNOWell, it's not like they have a relationship with the Egyptian president here.

STOLBERGThat's right. You have the Egyptian president, comes from the ranks of the Muslim Brotherhood, which is the parent organization of Hamas. So this is a very delicate situation for the president. And I would add that every American president harbors the dream of peace in the Middle East. This is sort of the elusive dream for, you know, all presidents.

STOLBERGThey all come in saying they're going to try, and really, with the exception of Jimmy Carter, I think nobody has made much progress, and this certainly does not bode well for any progress in the Middle East. And so far, this administration really hasn't made progress there.

SESNOBut what we're seeing here could be a fundamental challenge, not just to peace in the Middle East, but the war in Middle East.

STOLBERGBut war. Exactly. Exactly. And I'm sure there's a lot of nervousness in the ranks at the White House about this.

SESNOFolks, we just know that Gen. Petraeus is up on the Hill. He's had some of his testimony already. So there's been some feedback and some comment on some of this. Congressman Peter King saying that Petraeus had, early on, this ambush, he felt, was a result of terrorism. What's at stake in these hearings? By the way, we should point out that Gen. Petraeus is testifying very much in closed session. So it's not like we're going to get true confessions along the way here either.

DAVISRight. We don't know much of what was said, obviously. I think Congressman King did mention that Petraeus stood by his -- what he has said in the past, which is that he knew almost immediately that the attack was a terrorist attack and not a spin-off sort of inspired a demonstration motivated by this anti-Muslim film.

SESNOWhat's the significance of that?

DAVISWhat's at stake, really, is the credibility of the administration and the credibility of the intelligence that they had to work with. We're talking about -- there's a lot of Republican criticism. We heard Sen. John McCain and Sen. Lindsey Graham come out and very harshly criticize U.N. Amb. Susan Rice saying they'd block her nomination if President Obama tried to nominate her as secretary of state because they think she went out on TV shortly after the attack and lied about what she knew.

DAVISNow, many people who are familiar with the situation say that she was reflecting what the best intelligence was at the time, but we saw this play out under President George W. Bush when many members of his administration, including his secretary of state, Condoleezza Rice, went out and said what she knew to the intelligence at the time, which we now know was tragically false. So I think we're dealing with a situation where the credibility of the administration and the intelligence community is again very much on the line.

SESNOGreg, what do you expect to come from these Benghazi hearings?

IPWell, I think a lot of it will be trying to determine exactly when the CIA's own views on what went on changed because this is crucial to determining the credibility of Susan Rice and an entire administration in how they change their views. Now, what we've seen, at least of the lead talking point, that supposedly the intelligence community did prepare for Susan Rice, is that everything she said there was we think it was a response to a spontaneous demonstration. There might be extremist elements.

IPWe're going to watch as things develop. And that continued to be the administration's line for a number of days after that. And it took five or six days for the intelligence community to actually amend that even as they were getting information from people in the field as soon, you know, much sooner than that, that their own views were changing, that the extremist element was stronger there. It's going to be very important especially if the president chooses to nominate Susan Rice as his secretary of state.

SESNOSheryl, let me ask you a question that I've heard a lot of people articulate this week, which is there's an awful lot of noise and an awful lot of screaming and yelling about did they know it was a terrorist attack, didn't they, you know, is Washington getting all carried away or the media getting all carried away. Why does this matter?

STOLBERGWell, I think it does matter, as Julie said, because it's the credibility of the administration. If it is true, as Peter King said this morning, that Gen. Petraeus testified that he always thought it was a terror attack, then why did the administration say at first that it was the result of a spontaneous uprising?

STOLBERGWhy did the CIA give Susan Rice talking points that said, you know, this -- the current intelligence suggested it was spontaneously inspired and evolved into a direct assault? We've now got two conflicting stories here, and I think it is important to resolve them to determine the truthfulness of the administration's early accounts.

SESNOJulie.

DAVISThere also is a pretty sizeable political element here where in the last weeks of the presidential campaign, a lot of Republicans ceased on what happened in Benghazi and the differing explanations and the evolving explanations that the administration gave and tried to use it as a real cudgel against President Obama and to make it a real -- to boost Mitt Romney.

DAVISNow, Mitt Romney didn't cease on it at the one foreign policy debate they had, but a lot of Republicans after the election still feel like that was kind of swept under the rug. You know, we had Hurricane Sandy, Superstorm Sandy. And it was the final weeks of the campaign, and they feel like it wasn't sufficiently litigated. And it's possible there was some cover-up that never actually got any real attention. So they really are not willing to let go of it.

STOLBERGYeah. I also think there's a signal here about what relations between Republicans and the White House are going to look like in the coming months. And...

SESNOIs there a mystery there?

STOLBERGWell, no. But, I mean, despite the, you know, they're hitting back hard. They're coming out of this election in which they suffered a defeat. And they did lose some seats in the House and they didn't regain control of the Senate as they hoped, and they are, you know, coming out swinging on this. And this is an area where they see an opening.

SESNOSpeaking of coming out swinging, the president did that in his news conference, Greg, with his defense of Susan Rice as U.N. ambassador, defending her from John McCain and Lindsey Graham, who were saying, no way she would be confirmed if you put her up as secretary of state. And if you, the president said, have a beef, take it out with me. Those were fighting words.

IPThere was a real flash of anger there in those particular words, a very, you know, firm, strongly worded Obama, you know, perhaps the kind of person that many of his supporters wish they had seen a little bit more of on the campaign trail. It is interesting because as you were saying, Lindsey Graham and John McCain were very forceful in their condemnation of Susan Rice, saying they would do anything in their power to block her confirmation as the secretary of state.

IPThe interesting thing or the delicate thing for Obama is even though he said his decision to nominate her will not depend on what they're saying, he needs guys like Lindsey Graham and John McCain if he needs to get a variety of deals done in the Senate. He would probably need Lindsey Graham to do something on taxes. He'd probably need John McCain to do something on immigration. So he can't just ignore their feelings and those relationships.

SESNOJulie, what are these early tea leaves looking like to you?

DAVISWell, it's not looking particularly hopeful, at least on the foreign policy side. This is usually an area or has been an area traditionally where, you know, politics stops a little bit. There hasn't been a secretary of state nomination battle that I can remember in recent years where Republicans really went to the mat to try o deny the president his secretary of state nominee.

DAVISI mean, I do think that Republicans are trying to figure out right now how to be the loyal opposition, how to be opponents without being seen as disagreeable or somehow mean-spirited or as obstructionist. And that's part of what we're seeing play out here. They want to make sure that people know they're willing to stand firm. They have to find a way to do it that appeals to the public in a way that the election seem to indicate it. It didn't in the last two years.

SESNOYou're listening to "The Diane Rehm Show." I'm Frank Sesno, sitting in for Diane today who's off on a station visit. Coming up, more on domestic politics, the newly elected -- reelected administration and implications from around the world.

SESNOAnd welcome back to "The Diane Rehm Show." I'm Frank Sesno, sitting in for Diane today. We're taking a look at the Friday News Roundup with Sheryl Gay Stolberg of The New York Times, Julie Hirschfeld Davis of Bloomberg News, congressional correspondent of Bloomberg News, and Greg Ip, U.S. economics editor for The Economist.

SESNOSheryl, in the middle of all the hearings that are going to be taking -- and discussions that are going to be taking place up on the Hill with respect to Benghazi and Gen. Petraeus testifying today, Leon Panetta, the defense secretary, is ordering his Joint Chiefs to review ethics training for senior officers. What's that about, and is this just a part of the ripple effect of this whole Petraeus scandal?

STOLBERGWell, I think it is part of a ripple effect. But, you know, in particular, Gen. Petraeus and Gen. Allen, who have gotten caught up in this scandal, have done some surprising things. For instance, both of them wrote letters on behalf of Natalie Khawam, the sister of Jill Kelley, who is the woman who received the threatening emails that sparked this whole investigation. They wrote letters on behalf of her in a custody dispute. And there's some...

SESNOAnd what was that all about?

STOLBERGYes, there's some real questions about why they were doing this. I saw the letters this week in my report, and Gen. Petraeus signed his letter -- David Petraeus, U.S. Army general, retired. He did not sign as CIA director, which I found very interesting. The letterhead was like a...

SESNOWhat's that suggest to you?

STOLBERGIt suggests to me that he didn't want, in some way, to be seen as using his position as an administration official on behalf of this woman. But...

SESNOSo does that let him off the hook?

STOLBERGBut, well, no. I mean, nonetheless, he's still David Petraeus. Everybody knows he's CIA director. Everybody knows that he is a retired four-star general. Gen. Allen, commanding troops in Afghanistan, what business did he have getting involved in this custody dispute? So apart from the whole sex scandal and the craziness of this thing, I've often thought this is like "Real Housewives" meets "Homeland" or something. It's just -- the whole thing is nutty. And it just keeps...

SESNOSeems to me the ratings are pretty good, unfortunately.

STOLBERGIt just keeps getting nuttier with shirtless pictures of FBI agents and et cetera. But really, at the heart of it is a question of the conduct of our military, the conduct of our highest-ranking civil servants and…

SESNOWell, and now the inspector general may be looking around at this.

STOLBERGExactly.

SESNOJulie.

DAVISWell, now the CIA is also doing exploratory, they call it, review of Petraeus' behavior in this matter, not so much about the extramarital affair, which he has copped to and his biographer has reportedly admitted, but whether he used his position, his security detail, his access to a plane, any of that to -- for personal use in a way that was unethical.

DAVISAnd I think there's a real question here and a danger for the administration if it's seen either in the military or the CIA or what have you that there is some sort of culture of sexual impropriety or even just personal improprieties trying to -- people trying to use their senior positions in this administration to help their friends and get along themselves better personally.

SESNOAnd, Greg, Leon Panetta tells reporters he can't rule out the possibility that the Taliban, way over in Afghanistan, are listening to this soap opera as well and will be able to put it to some sort of propaganda use. That's not something that you think about every day when you see this unfold.

IPNot at all. You know, you think about what's happened in this country in the last three or four years, virtually every institution has fallen to disrepute. One of the few in which the public still has very high confidence is the military. And what we've seen from something that started with a few harassing emails has basically rippled out and mushroomed into a much broader look at the ethics of people that have been held in very high regard.

IPSecretary Panetta is launching this inquiry not just because of the issues regarding Gen. Petraeus and Gen. John Allen, but there have been a variety of officers who have been implicated in misuse of government funds and so on. Just this week, he ordered the demotion of the head of the -- the former head of the U.S. Africa Command after an investigation regarding his use of government funds. So I think there are broad implications for an institution that the public has traditionally held in extremely high regard.

SESNOAnd we're going to be going to your phone calls and your questions in a few minutes. If you want to call in, it's 1-800-433-8850. Or you can send us an email at drshow@wamu.org. Folks, President Obama held his first post-election news conference the other day. He spoke about the fiscal cliff as you mentioned.

SESNOHe spoke about Benghazi and defended his U.N. ambassador. He spoke about Gen. Petraeus, immigration. He even mentioned climate change. You started to talk, Greg, about getting a sense of where he's going in the second term. Is there a vision here? Is there a theme here, or is this just a laundry list of stuff?

IPIt sounds to me very much like the vision he's been enunciating for four years. I mean, at one point, he was asked, you know, Mr. President, what do you think your mandate is? He said my mandate is to help the middle class, full stop. He reiterated a number of policy directions. He's gone in that direction, helping research and development, education, manufacturing -- getting manufacturing back.

IPAnd then, of course, he dwelled at length on the fiscal questions and then -- and in his view, the necessity of a deficit solution that involves higher taxes. So it looks like a souped-up version of what he basically has been saying for several years. He obviously feels very vindicated by the election results.

SESNOJulie, on the other side of the equation, the Republicans are trying to figure out what they're going to do now that the election is over. And I thought it was fascinating to see the comments of Gov. Bobby Jindal from the GOP governors' gathering. And he was asked a number of questions about the future, and he said -- and I'm quoting here -- "we need to stop being a dumb party, and that means more than stop making dumb comments."

SESNOHe was referring to these Romney comments that have come out in the last few days about Obama won the election because of these gifts he gave to various groups. And he then he went on to talk about the big change. He says, in the face of losses, we have to make changes. We need to modernize our party. We don't need to moderate our party. Former Gov. Haley Barbour said, somewhat indelicately, I thought, we've got to give our political organization a very serious proctology exam. We need to look everywhere. I'm not sure I want to go there.

DAVISWell, I mean, Haley's comments, I think, it really does indicate this sort of feeling of just crisis that some of these Republicans are feeling right now that, you know, this election, not only did they get beat, but they got beat in a way that if you talk to the Romney campaign, if you talk to many of the campaign operatives in the Republican -- on the Republican side, they just didn't see coming. They had the census data just like the Obama campaign did.

DAVISBut it's very clear that they were unable to make their case in the way that they thought they were going to be able to make it. What's interesting about the Jindal comments, he said the -- he talked about the dumb party actually before Mitt Romney made his latest remark about gifts. He said it again afterwards. But I think the -- he was initially referring to some of the Senate candidates who made comments about legitimate rape and, you know, pregnancies resulting from rapes being God-willed, which cost them their elections and cost Republicans the Senate.

DAVISI think there's a lot of soul searching going on over -- or has been going on in Vegas over at the Republican Governors Association. They see it as their role to kind of resurrect their party and really do a lot more outreach, not necessarily change their positions, but really try harder to message more effectively to a broader segment of the electorate. And that includes Hispanics. That includes Asians. That includes African-Americans. They feel like they have been seen as a narrow-minded party, and they need to change that somehow.

SESNOSheryl.

STOLBERGYeah. I think the Republicans are sort of waking up to the fact that they cannot be the party of white men, that this is not a path through election. If you look at the tallies of the votes, President Obama won women 55 percent. He won the gay vote 3-1. Nine out of 10 black people voted for Obama. He took 60 percent of the youth vote. He took 71 percent of the Latino vote, the fastest growing minority in the country, which is another reason you're seeing the president talk about immigration reform.

SESNOSo Wisconsin Gov. Scott Walker put it this way. It's not that our beliefs are wrong, he says. We're not doing an effective enough job articulating those beliefs. So, Greg, is it just about communicating and articulating?

IPWell, I don't think it is. And I think that what was striking about the Republican governors running away from Romney's comment -- if you look at the policies that Romney, you know, disparaged as gifts -- he talked about Obamacare being a gift. He talked about forgiveness of student loans being a gift to young people, the stuff on deferred deportation being a gift to Hispanics.

IPSo these are all actually pretty consistent with Republican Party positions. And people like Scott Walker saying, there's nothing wrong with our position, it's the way we communicate them. But if it's the case that they're losing because those positions are more popular with the voters that they want to get, then it suggests that they do have to actually change the position, not just talk about it differently.

SESNOWell, it's easy to assume that from the kind of popular discussion. But the fact also is that there are 30 governors who are Republicans. It's the first time they've had that much of a margin in 12 years. So it's clearly not all bad for the Republican Party. The message is working in a lot of places. They stand for enough growth and opportunity, presumably at the state level for people to be signing on there and plenty at the federal level. Julie.

DAVISWell, I think -- I do think that that's part of the reason why the governor see it as their role now to help re-round the party and to help figure out a way to communicate the message. You know, I did think it was interesting, as Greg said, that all the comments that came out of Las Vegas this week did not indicate that they feel they have to really change their position on anything, with the possible exception of immigration reform, which I do think you're going to see a lot of movement on.

DAVISThey're going to have to find a way to get away from this discussion that they've been having for the last more than four years about amnesty. And we have to -- you know, Mitt Romney talked about self-deportation, just basically making it so hard...

SESNORight, right.

DAVIS...in this country for illegal immigrants that they will have to or want to leave. So they -- so that will change, I do think. But in -- at the state level, as you're pointing out, it's a different game. I mean, they have executive power. They have -- they -- there's a lot -- they don't have to -- there's not a lot of give and take over will taxes be cut. They have much more of an ability to balance the budget than the president has in Washington or that the Republicans in Congress have to force that to happen here.

SESNOSo, Sheryl, here's what I hear. I hear one group, one strain saying it's just a communications problem. We have to moderate our message. I hear another strain saying, no, we have to deal with immigration and get part of the big tent here, and then we're competitive in the -- you know, most of the rest will fall in place. And then I hear another strain saying, no, we actually have to fundamentally change elements of what we stand for.

STOLBERGWell, this is the fight that we're going to see playing out. But on the immigration, I would say, particularly, you're -- you are hearing an important strain, i.e. John Boehner, saying, we've got to deal with immigration reform. Right off of the election, literally the next day, he said immigration reform is an important issue that I think ought to be dealt with. The issue's been around for too long.

STOLBERGIt's important for us to secure our borders and our -- enforce our laws, but a comprehensive approach is long overdue. And, you know, this election kind of was a smack down for the Tea Party caucus. So, in a way, it strengthened John Boehner's hand, within his own caucus, to keep them in line, and you may see something coming out of that.

SESNOI'm Frank Sesno from The George Washington University and facethefactsusa.org. You're listening to "The Diane Rehm Show." And if you'd like to join us in this conversation, as we look back at the week and look ahead in terms of what it means, please give us a call at 1-800-433-8850, or you can send an email to us at drshow@wamu.org. I'm going to go to the phones in just a minute.

SESNOGreg, here's one for you. In this conversation that Mitt Romney had just this last week as -- and he hasn't had a big sit-down or an interview to kind of tell the world what he makes of his loss and how he processes that. You know, he talked about these gifts. What do you think he was saying? What does it mean for the way he exits the stage?

IPI think that he exits the stage with a -- something of a cloud over his head. You know, if you'll recall, one of the low points of his campaign was the infamous secret video of him referring disparagingly to the 47 percent of voters because they would -- that would never vote for him because, essentially, they were mooching off the government. They weren't paying taxes.

IPAnd the comments he made here were very much in that sort of spirit, and I think it takes away from the more positive image he'd managed to build subsequent to some of those debates. And it's certainly not going to make any friends for him with the rest of the Republican Party, as we saw from the reaction of the governors. It also, you know, at the margin, kind of hurts Paul Ryan, his running mate, who is perhaps the front-runner for 2016.

SESNOLet me go to the phones here. We've got Paul on the line with us from St. Louis, Mo., I believe it is. Hi, Paul.

PAULHi. Thank you. My comment -- and I guess I have sort of a question at the end -- is, in the last election, Republicans, I think, unfairly pounded Democrats for supposed cuts to Medicare, and I see their proposal now as a trap for Democrats in 2014. Republicans are demanding that Democrats agree to cuts in Medicare and Social Security in exchange for an extension of the middle class tax cuts, essentially holding the middle class hostage in order to force Democrats to agree to these cuts.

SESNOSo you think it's a setup.

PAULRight. And I just -- to me, it seems like Democrats would be stupid to agree to these demands because Republicans are going to pound them in 2014, just like they did this year, only next year, next time...

SESNOInteresting point. So -- and what's your question out of that?

PAULWell, basically, are Democrats stupid enough to walk into this trap? 'Cause this is a trap that Republicans are setting for them because they will have voted for these cuts. And now, in 2014, they can say, see, we told you they were going to vote for Medicare cuts, and we were true. We were not lying because they did vote for these cuts that we're demanding they vote for, but we're going to demand -- they'll have some truth in 2014.

SESNOOK, Paul. Thanks a lot. I'll ask Julie since, you know, you hang up in -- you know, on the Hill a lot. You're a congressional correspondent for Bloomberg. How stupid are the Democrats, the party, to vote?

DAVISI think they may just be that stupid. I mean, you have -- we have to keep in mind that the House majority on the House side has gotten more liberal in this last election. So there is a lot of resistance to any changes to Social Security and Medicare, and particularly the ones that Paul is referring to. So it's not as if there won't be a fight over this.

DAVISBut they also know that if they're going to get a deal on their other priorities, including allowing taxes to rise on the wealthiest taxpayers and have some more say over how the other spending cuts get made in social programs that they also care about, they're going to have to come to the table with something.

DAVISPresident Obama was quite close last summer to a deal with John Boehner to make some changes to Medicare that were not, you know, draconian cuts, but they were, you know, means testing and some of the ideas that both parties, really, have embraced, the senator of both parties have embraced in the past several years. And I think if there's going to be a deal on this fiscal cliff in the short term or a grand bargain on lowering the deficit in the longer term, that is going to have to be part of the mix. It was on the table last summer, and I don't think it's coming off the table.

SESNOGreg.

IPAnd also the point of view of the White House here is that, yes, spending cuts will have to be part of this deal. They have already conceded that point. It leaves open the question of what kind of spending cuts. The result of the election makes it clear it won't be vouchers for Medicare. It won't be block grants for Medicaid. The Democrats do feel they've won on that. But there still might be negotiating room, for example, on retirement age for Medicare.

IPPossibly -- there might have been possibility of change to Social Security the way they index the benefit. That's probably off the table. In terms of cuts to health care, Republicans hate the fact that Obama is always going after -- the Democrats are always going after provider rates, but they may have to accept that that will be where most of the trimming takes place.

SESNOSheryl, President Obama and House Speaker John Boehner begin their meetings today. What do you expect from this discussion, dialogue?

STOLBERGI think -- I mean, I think it will be polite and civil. I think both of them recognize the political realities coming out of the election, and I actually think both of them really do want to get to a deal. As Julie mentioned, they came quite close in 2011, and John Boehner was really being tugged by that Tea Party caucus, which is now weakened. So Boehner's hand, in ruling his own caucus, is strengthened going into these talks.

STOLBERGAnd I do think that, genuinely, they feel that they can work together. And they also know that neither side can afford to have the economy go back into recession, which is what many economists are predicting if we go over the so-called fiscal cliff.

SESNOBut John Boehner has drawn a very bold line around tax rates.

IPIt'll be interesting question whether he's able to hold that line because, in the initial sort of Kumbayah moment after the election, there was talk maybe we could do this just by closing loopholes. But the president has been pretty clear he thinks that's unlikely. Don't get enough money that way.

SESNOMore on that and more of your calls when we come back. A quick break. You're listening to "The Diane Rehm Show."

SESNOAnd welcome back to "The Diane Rehm Show." I'm Frank Sesno, sitting in for Diane today. As we go through our Friday News Roundup: Sheryl Gay Stolberg, the Washington correspondent for The New York Times, Julie Hirschfeld Davis, the congressional correspondent for Bloomberg News, and Greg Ip, the U.S. economics editor for The Economist. Greg, how likely is it, do you think, that we go over the fiscal cliff?

IPI don't think it'll happen, but I don't think anybody has strong conviction around that. I would say that people have sort of three broad scenarios in mind. One is a small deal now that gets us past the fiscal cliff but kicks everything else down the road a number of years, a small deal that gets us past the cliff but also includes the elements of a so-called grand bargain that's hammered out in the coming year that fixes entitlements and tax reform for the coming decade.

IPThe third option, the least appetizing, is that they don't come to any agreement and those tax rates shoot up at the end of the year, the sequester kicks in and a whole variety of other things happen that, you know, basically push the economy into recession early in 2013.

SESNOLet me go to the phones now. You can join us at 1-800-433-8850, or an email, drshow@wamu.org. And let me go to -- let me see, where did you go? -- Mark, Grand Forks, N.D. Hi, Mark.

MARKYeah, there's one issue that's completely missing from this conversation of the fiscal cliff and that would be the short-term threat to the budget posed by the continued existence of too-big-to-fail banks. And Diane Rehm's Facebook page has links to Democrat Sherrod Brown setting a CBO report that estimates the taxpayers will have to cough up $8.6 trillion to prep up failing banks.

MARKAnd there's another link there to former International Monetary Fund chief economist Simon Johnson, currently MIT professor, who says that there's a short-term budgetary risk for another financial crisis that, in addition to the $8.6 trillion, will cost taxpayers $5.6 trillion. And he says this should be scored in the budget because both CEOs of J.P. Morgan and Goldman Sachs have estimated another crisis will happen in three to seven years. But yet this is completely omitted from this conversation...

SESNOAll right. Well, let me turn to Greg from The Economist because you're the guy to bring this in. If there are these other ticking time bombs and those are liabilities down the road, why aren't we talking about them, and why aren't we counting them in?

IPMost of the people who have looked at the situation think the odds of another big bank going down anytime in the next few years are pretty low. They have been forced to build up their capital buffers to guard against losses. They're taking -- making far few risky loans. And another important consequence of the election, the Republicans and Mitt Romney had campaigned on repealing the Dodd-Frank law. And one thing they hated in particular was, in fact, the fact that these so-called too-big-to-fail banks would be specially designated and undergo additional, more rigorous regulation.

IPThe election has determined that Dodd-Frank will be the law of the land. And, in fact, that is one reason why the stocks of banks fell quite sharply after the election. That's bad news for bank stockholders but is probably good news for the economy as a whole 'cause it limits the amount of risks they're going to be taking.

SESNOJulie, I want to turn to another issue in sort of the domestic political equation, which is kind of interesting, and that is the senator who was elected from Maine, Angus King, is an independent. Now, how does that affect this very important balance of power as these super sensitive and important negotiations are getting underway?

DAVISWell, I mean, he is an independent, but he will be caucusing with the Democrats, he announced. So it gives Democrats likely another vote on many of the issues they care about. But it also gives him a lot more power in the upcoming fiscal cliff or the upcoming deficit debate that will happen next year, whatever happens during these fiscal cliff talks, because he will -- he has said, I'm caucusing with the Democrats, but I'm not going to be a party line Democrat. I'm an independent, and I will vote with whichever party I think is right.

DAVISThe other thing that Senator-elect King has vowed to do is to push for filibuster reform, which would really change the way the Senate operates and a lot of senators think in a good way. There are a lot of the more senior members of the Senate who don't want to see this happen, but in fact, what we've seen in the last decade or longer is the Senate become really a dysfunctional institution where it takes 60 votes or a supermajority to do almost anything including just get on to a bill to be able to debate it. So I think Sen. King will play a role in that battle.

SESNOSheryl.

STOLBERGYeah, I think -- and I think there's an appetite in the Senate for it. You've heard other senators, Sen. Tom Harkin especially, advocate for filibuster reform. And I completely agree with what Julie said. As a former congressional correspondent, the Senate is becoming increasingly dysfunctional. We have increasingly seen situations where they go to the brink whether it's over judicial nominees or something else, and that needs to end.

SESNOBack to the phones, and Joanne joins us from Florida. Hi, Joanne.

JOANNEHi.

SESNOGo ahead with your question.

JOANNEOK. Well, it's not really a question, but you were talking about the governors, the Republican governors before. And I think what it is -- they got in in 2010 along with a lot of Republicans saying that they were going to create jobs. And what they did instead, they got in and all they did was fight this war against women in every state where the Republicans got in and do their best to prevent people from voting so that Romney could get in.

JOANNEAnd the other thing is I did vote for President Obama because -- and one of the reasons is I do not want anything to happen to our Social Security and Medicare. And I think that if we had a great country, we should be able to take care of our senior citizens regardless if it's a little more money, and I think that people...

SESNOWell, Joanne, let me stop you and ask you, when you say you don't want anything to happen to Social Security or Medicare...

JOANNEWell...

SESNO...what exactly do you mean by that? Don't touch it at all in any way, shape or form?

JOANNEWell, OK, there is a lot of fraud that they can definitely go after, and there is, you know, a lot of -- in the hospitals, things like that.

SESNOSure.

JOANNEMedical is much too expensive...

SESNORight.

JOANNE...and I'm sure there's things that can be changed about that. There are things that can be changed (unintelligible).

SESNOAll right. Well, let me ask the panel about that. Julie, Greg, Sheryl, there are serious real things that are going to be on the table, whether it's home health care, how much you actually can get in your home, whether it's your co-payments, whether it's the amount of income tax that people pay to support these programs. Are there certain things that are almost certainly going to happen to Medicare regardless?

IPYes. One of the interesting things, going back to the first point the caller made that I thought was interesting, especially in a state like Florida where everybody thought that the Republican Medicare plan, which was to convert it to vouchers, would be a vote killer. In fact, it wasn't. The Republicans still want to see your vote handily in Florida and elsewhere. And for those who worry that the demagoguing of Medicare reform means it'll never change, that was, in some sense, encouraging because it suggests that for both parties, it will not kill them politically to do something with Medicare.

IPObama already has a number of fixes in his various budgets. He has a -- an independent panel that was part of Obamacare that's meant to get a control of costs. He's proposed raising deductibles for more affluent seniors. And I think that that sort of more means testing is probably of the flavor of what we'll see coming out of the negotiating -- negotiations as we -- if they do actually lead to Medicare reform.

SESNOIs there a new space to do something here, Julie? Or as we just heard from the caller, aren't people, when they start seeing the details of this, going to push back very hard because people are going to start to realize that when you're done talking about this sort of global -- well, we've got to cut 2 percent or whoever, that it's affecting what their doctor is going to get paid so maybe their doctor doesn't want to take Medicare patients anymore or what they're going to have access to, whether it's services or cost?

DAVISWell, I think there will be a lot of pushback and there always is. And we saw the last time a president tried to really tackle entitlement reform, when George W. Bush went after Social Security, I mean, there was a huge public backlash, but that, we have to remember, was inspired, in large part, and built up by Democrats in Congress who did not want to see it happen. They were able to gin up a very forceful public backlash.

DAVISSo the only way this is going to happen is if both parties hold hands and take the jump together, and that's all anyone is talking about. There is no way that Republicans are going to force these changes on Democrats or vice versa. And as the caller -- a few callers ago mentioned, they're not going to campaign in it -- on it on the next election if both parties have voted for it. So that's really -- the only way it can happen is if they can plausibly say these are center -- centrist ideas that both parties are embracing for the good of the program so that it lasts for our future seniors.

SESNOSheryl, we heard Mitch McConnell this past week, Sen. Mitch McConnell lay out some pretty stark territory. But you're -- you've been doing this and listening to this kind of conversation for a long time. What did you hear from the various voices that gave you either pause that this is going to be very hard to do to find this space or some degree of encouragement that maybe the equation has changed post election?

STOLBERGI think we're hearing sort of signals from both sides that they're willing to deal. For instance, President Obama has said, you know, he absolutely wants these tax cuts to expire for the wealthiest 2 percent of Americans. Republicans say, no, no, no. We cannot, you know, no tax cuts, no tax cuts.

STOLBERGBut we heard -- we're seeing signals from Democrats and even the White House that they'd be willing to accept something less than a return to Clinton era tax rates where the upper bracket was 39.6. The current bracket is 35. That the White House is willing to give a little bit, that maybe they can find some compromise in between. So we are seeing those small signals.

SESNOSam joins us by the phone now from Buffalo, N.Y. Hi, Sam. Go ahead.

SAMFirst of all, I want to thank you for your informative guests that you have. Your screeners said to me I make my points very short. I have two comments. Comment number one, you should not deal with the people up to six years ago. If somebody insulted George Bush, they would call it treason and hang the guy up.

SAMLook at what happened to the Dixie Chicks. The day after the election, these Republicans insulted the president. I'm -- I voted independent. I write in in Buffalo, none of the above. All right? I write into my election things. The second issue I have, let there be a collapse. Nothing is going to happen United States' economy. I think your guests are (unintelligible)...

SESNOLet -- wait, let me establish it. What collapse?

SAMIf they're talking about this economic collapse if the bill doesn't go through.

SESNOAh. So let him go off the cliff.

SAMWell, let him there because we're a global economy. Nothing is going to happen to the United States. Look at what they're talking about European economy. The tax...

SESNOOK. Well, Sam, I'm going to stop you there because what you've just said is so provocative and so interesting, I want to turn it right over to Greg here from The Economist. I can't think of anybody else I want to dump this one on because Sam is not alone. There are people, who say, go off the cliff. You know, there are much bigger issues. We will survive this. It'll be ugly, but we will survive it. But don't be held hostage to something artificial. Is he right?

IPWell, you can imagine a scenario where you go off the cliff and it's not catastrophic. If they're close to a deal and if one side capitulates within weeks of going off the cliff, no, that would not be death to the U.S. economy.

SESNOMark Zandi, head of Moody's Analytics, the chief economist there said, maybe they go off the cliff for a few weeks.

IPBut I think what they're missing is that if you actually get to the end of the year and there's no prospect of doing a deal, people in the markets, people in corporate boardrooms will be getting very nervous that they will never get to a deal. We've already seen the stock market sell-off since the election, primarily because of concern that the two sides have hardened their positions and there isn't a ready solution. If that fear becomes reality, I think you're going to have to prepare for much more damage in the economy.

SESNOSheryl, I was in New York a couple of weeks ago. I'm hearing loud and clear from investment bankers and others, who may or may not be the heroes of the country at the moment, but they were saying, what's killing business right now is the uncertainty.

STOLBERGThat's exactly right, and that's what business people have been saying all along is that they want certainty. They want to know how much they're going to have to pay. They want to know what their tax rates are, what their payroll tax rates are. And the other thing I would argue is that this Dec. 31 deadline is good for Congress. I covered Congress. They always do everything at the last minute. This will happen at, you know, midnight on, you know, on New Year's Eve or before. But I would predict that they will reach some kind of deal not to let this cliff occur.

SESNOI'm Frank Sesno, and you're listening to "The Diane Rehm Show." And if you'd like to call us in our few remaining moments, 1-800-433-8850. Or send us an email to drshow@wamu.org. Julie, you're going to be there 'till midnight and much later at the very last stroke before the clock rings?

DAVISWell, I hope not, but as Sheryl says, that is Congress' MO. And I think the other side of that is they rarely anymore do anything difficult without a deadline like that. So I think it is good for them that they have a date certain by which this has to be done. Now, what we've seen in this debate in the last year and a half or so is that even when they have a deadline, like they did last summer with the debt ceiling breach, sometimes they figure out a way to kick it down the road.

DAVISBut I think that Greg is right that there is not going to be a lot in tolerance in the markets for much other can-kicking this time around because folks really feel like this is an opportunity for them to deal with this. And if they missed it, it may not get dealt with at all.

SESNOFolks, final few minutes here, and I'd like you to reflect on an email that we got from Jean from Chapel Hill, N.C. and several like it. She writes, "I can't remember when I've been so disturbed with the actions of senators." And she comments on John McCain, Lindsey Graham in particular, who she says are out to get the president. "What has happened to us?" she says.

SESNONow, obviously she is disturbed at McCain and Graham, but the tone of Washington is what I want to ask you about broadly, one side out to get the other or whether something can actually get done. What are you thinking, seeing, hearing as you cover these stories and get this sense of tone from the Hill and beyond?

IPI guess they don't see a lot of signs that it's going to change. The election was extremely divisive. We spent some time in the past hour talking about the Republican Party's soul-searching, and they themselves don't seem to blame their own policies. We saw Mitt Romney explain his own loss in terms of the president doing divisive things. So if people were hoping that this election would be, you know, a head-clearing moment where everybody would -- where all the pent tension and polarization would basically ebb away, I don't think it's happened.

SESNOAnd, Sheryl, how about on the Democrat side? Are they more inclined to move and compromise than they were? Or are they reinforced by their "mandate?"

STOLBERGYou know, I think, as President Obama said in his news conference, he has no elections. He knows about the sort of the second-term curse and the overreach of the second term. When President Bush was elected for a second term, he said I have capital and I intend to spend it. Julie noted earlier that he spent that capital on Social Security reform and he got whacked.

STOLBERGSo I think -- but I still -- I think that this is -- honestly, one of the biggest disappointments of the Obama administration was that President Obama campaigned in 2008, promising to change the tone in Washington. He quickly found that he was unable to. And for those of us who live and work here, there is almost a sense of sadness at the kind of divisiveness that we see and the lack of civility in our politics.

SESNOBut, Julie, how about this, and that is that the mood that's coming and the message that's coming into Washington from a country is get something done -- Fine, you can have your differences, but get something done -- and that there is pressure on that? There are lot of groups that are trying to weigh in. Fix the debt is one. We've raised millions of dollars to lean on these folks to do it.

SESNOThere's a new group called The Can Kicks Back because the can has been kicked down the road so many times. And this is young people who are trying to mobilize across the country saying, fix this. Isn't there some chance that this sentiment would be heard?

DAVISWell, absolutely. And, I mean, I think if there was a mandate that both sides agree on from the election, it was that people want them to work together in Washington to actually get something done. On the other hand, you see there is a partisan divide on this. Stan Greenberg, a Democratic pollster, had a statistic in his post-election poll, saying that 90 percent of Democrats thought that folks should work with Obama, 60 percent of independents, but 30 percent of Republicans, so that doesn't bode very well for the prospects of compromise.

SESNOIt has been a very busy week, apparently to a very busy new presidential administration. Sheryl Gay Stolberg, Julie Hirschfeld Davis, Greg Ip, thank you all very much for joining us on this Friday News Roundup.

STOLBERGThank you.

DAVISThanks, Frank.

IPThank you.

SESNOI'm Frank Sesno. You're listening to "The Diane Rehm Show."

ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Denise Couture, Susan Nabors, Rebecca Kaufman, Lisa Dunn and Jill Colgan. The engineer is Erin Stamper. Natalie Yuravlivker answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is drshow@wamu.org. And we're on Facebook and Twitter. This program comes to you from American University in Washington, D.C. This is NPR.