The MacNeil/Lehrer NewsHour

INTRO

JIM LEHRER: Good evening. Today's major news stories include fresh attacks on shipping in the Persian Gulf.An overwhelming congressional vote for emergency military aid to El Salvador. Conviction of five Salvadoran National Guardsmen for murdering four American churchwomen. Plus a new charge of a high-level coverup in that investigation. And a vote on the debt limit that will keep the United States government from going belly-up tonight. Robin?

ROBERT MacNEIL: One of the stories we explore in depth tonight is the aftermath of the Salvador trial and the charge that the defense minister, Casanova, covered up the nuns' murder. We discuss that with the congresswoman who disclosed it today and the State Department's man in charge. We have a documentary report on the first real battleground for long distance phone customers, Charleston, West Virginia. We examine why investors are worried about other big banks following the Continental Illinois scare. And we look more closely at the massive new Soviet offensive in Afghanistan.

LEHRER: Three more ships were hit today in the Persian Gulf, two bythe Iraqis, the third in retaliation by the Iranians. Iraq said its warplanes attacked two naval vessels near the important Iranian oil terminal at Kharg Island. The ships were not identified, but Iraqi military spokesmen said there were big ships and they had been accurately and effectively hit. A few hours later Iranian planes went after a Liberian-registered tanker named the Chemical Venture. U.S. State Department officials confirmed the hit, and intelligence sources said the ship was sinking. It was located just 37 miles off the coast of Saudi Arabia. Today's attacks were the first in five days in the Gulf that brought the total on ships of all kinds to 22 since January. And in Washington, the renewed Gulf fighting has renewed Reagan administration interest in selling Stinger antiaircraft missiles to Saudi Arabia. The New York Times said the administration is considering selling 1,200 of the shoulder-fired missiles at a cost of $141 million. Officials say they are talking to Congress about the sale. A similar deal fell through earlier this year.

Robin?

MacNEIL: The House of Representatives today passed more military aid for El Salvador, but turned down President Reagan's request for extra funds for antigovernment rebels in Nicaragua. The El Salvador aid, $61.7 million, was approved by 267 votes to 154, a few hours after five Salvadoran National Guardsmen were convicted of murdering four American churchwomen in 1980. They face up to 30 years in prison for killing three Maryknoll nuns and an Ursuline lay worker and burying them in a shallow roadside grave. The five defendants were heavily guarded as they came and went between the courtroom and their jail cells during the recesses in the trial, which went on for 20 hours. The courthouse is in a provincial capital about 35 miles south of the capital, and it was chosen because it is the court closest to the place where the women's bodies were found. The accused were taken back to their cells when the five-member jury began to deliberate. They were not in the courtroom when the jury came back an hour later and a foreman read the verdicts. All five were also found guilty of destruction of property and of theft.

Salvador's failure to bring anyone to justice until had increased congressional opposition to further aid to El Salvador. Members of Congress welcomed the verdict as a first test of the Salvadoran justice system, but several called for a further investigation into possible involvement of higher Salvadoran officials. A U.S. government report said it was possible that Salvador's defense minister, Carlos Casanova, was involved in a coverup. We'll have more on that shortly.

Families of the four churchwomen said the court verdict was the first victory in a campaign for justice that would only end with the acknowledgment of government involvement in the killings.

In the House of Representatives the new willingness to support El Salador and its new president, Jose Napoleon Duarte, did not extend to covert aid for the contras in Nicaragua. That produced another spirited debate.

Rep. ROBERT MICHEL, (R) House Minority Leader: If we abanoon the contras today, whose turn will it be tomorrow? Korea, Israel or any number of others we could name? It is geostrategically wrong. The Moscow-Havana-Managua axis wants nothing more than to see the Sandinistas gain a victory by default. This will only whet their appetite for more adventurism. And it's diplomatically wrong -- we'll lose whatever leverage we have with the Sandinistas if we turn away from the contras. And finally and most important, it's morally wrong to cut off funds. What kind of moral foreign policy is it that suddenly cuts off aid to those we have urged to fight tyranny?

Rep. MICHAEL BARNES, (D) Maryland: There are ways to do it that are lawful. There are ways to do it that are overt. There are ways to do it that are consistent with the values of our nation. We are a signatory to the Rio Treaty. We are a member of the Organization of American States. They provide mechanisms for the international community to deal with this kind of problem. It is not the answer for the United States unilaterally to hire a lot of guerrillas and send them off to invade another country.

Rep. WILLIAM BROOMFIELD, (R) Michigan: Throughout history of this House there have been moments that not only decide issues but that define the character of this body, and this is one of them. We stand before history and the American people and, yes, the world. And what we decide will stay as much about us as it does about the contras. We don't let down our friends. That's a basic truth of the American character. Are we going to forget that truth?

Rep. JIM WRIGHT, (D) House Majority Leader: Do we have any right to invade and violate the territorial integrity of the government of Nicaragua?' Do we have a right to dictate to them? I think this is a test of what our role is in this hemisphere, and throughout the hemisphere friends are looking. Do we regard ourselves as the good neighbor, or do we regard ourselves as the hemispheric bully with a right to dictate to others, under pain of our financing someone else in a subterranean way to shed their blood to bring down their government if they don't agree with us?

MacNEIL: After that debate the House went on to vote against the $21 million covert aid package by 241 votes to 177. The bill will now go back to the Republican-controlled Senate, which will have to decide whether to insist on the aid to the contras or go along with the House.

Jim? El Salvador: Coverup?

LEHRER: Earlier this week in Washington, El Salvador's new president, Jose Napoleon Duarte, was asked about Defense Minister Casanova, the official accused today of covering up the churchwomen murders. Duarte said he had full confidence Casanova did not do that and said he planned to reappoint him to the defense job when he takes office June 1st. Casanova himself was interviewed on this program last September. Charles Krause, on assignment for us in El Salvador, did the interviewing. Here, through an interpreter, was what Casanova said about death squads in the military.

Gen. VIDES-CASANOVA, Salvador Defense Minister [through interpreter]: You can rest assured that if tomorrow a member of the armed forces, whether retired or active, is found to be a member of one of those death squads that are causing us so much harm, we will apply to him the full strength of the law. The important thing is to take the first step.We have already taken it. Among the most important steps is a visit to all military and public security groups, have direct talks with the commanders of the different posts, with the chiefs, officers, and even with the troops, and show them that the line to follow, the policy to be followed by the minister of defense, is against the death squads and against any violation of human rights or abuses of power. In that respect I tell them personally that I have never authorized anyone to give an order of that kind, and that if ever a member of the armed forces were to be found in one of those squads, he would be dealt with with the full force of the law.

LEHRER: That interview was first broadcast in September.The member of Congress who first raised the charge of Casanova's involvement in a coverup today was Mary Rose Oakar, Democrat of Ohio. She also voted today against the emergency military aid to El Salvador.

You laised the issue of Casanova as a result of this new report. Is that correct?

Rep. MARY ROSE OAKAR: Well, not only that. I've served as a liaison to the families, for the families to the State Department, and have been privy to some of the evidence given to me, by the way, by the El Salvadoran officials. And I think the Tyler report merely confirmed the suspicions that all of us had that there were higherups involved. We're delighted with the verdict of today's trial, but we feel that's only the first step.

LEHRER: What should be the next step?

Rep. OAKAR: Well, the next step ought to be the President's asking for a full investigation of the defense minister who is named over and over again in the Tyler report, which was released today.

LEHRER: Let's explain what the Tyler report is.

Rep. OAKAR: This was a report commissioned by the administration to be done by a very objective person, retired federal judge, to investigate the murders. And through --

LEHRER: That's retired Judge Harold Tyler.

Rep. OAKAR: Harold Tyler of New York. And through his research, what he did was give a step-by-step process of how they were murdered, which is very painful to read. But also in so doing, very early on in the report he suggested that there was a coverup. He mentions Colonel -- the general, rather, Casanova, by name. He also mentions other authorities by name. And I think what we're saying is, let's investigate whether or not this man, who is the defense minister, then the National Guard head, should be getting our taxpayers' money. After all, if he lied to two presidents, is this the kind of individual we want to get the military assistance? And I think the President ought to call for a full investigation and let's go a step beyond today's trial.

LEHRER: The President of the United States should call for that.

Rep. OAKAR: Absolutely.

LEHRER: I take it your answer to your question would be no, you don't think the government with this man as the defense minister should get U.S. aid?

Rep. OAKAR: Absolutely not, and I did pose that question to President Duarte. I asked him if he was going to retain General Casanova, and he said he had full confidence in him and he was loyal to him and he needed him.

LEHRER: Did you ask him about this thing specifically?

Rep. OAKAR: I certainly did, and I asked President Duarte if he had read the Tyler report. He said he'd never received a copy, and I promised once it was released I would give it to him, and I intend to mail him a copy unless the State Department does it sooner.

LEHRER: Well, is this the reason you voted today against further aid for the government of El Salvador?

Rep. OAKAR: Well, I think that beyond this individual, we have seen the abuse of our military assistance. We have seen the gross violation of human rights. Thousands and thousands of deaths over there, some of which are perpetuated by the military, not only to our citizens but to the El Salvadoran people. Amnesty International came out with a report two days ago that shows unbelievable deaths attributed to these death squads who in turn are directly related to the military government. They're the ones in power. It's not President Duarte who's in power there. That's the whole point. And I think we have to acknowledge that, and when the defense minister -- the most powerful office in El Salvador everyone knows is the defense minister. We wish it were President Duarte; it happens not to be.

LEHRER: So when Duarte said here that he was determined to stop the violence on both the right and the left, you just don't think he can do it, is that right?

Rep. OAKAR: I don't think so, and I also feel in the past it was President Duarte who promised the families, at a meeting which I attended at Archbishop Hickey's residence, he promised those families that from the day he found out about the murders he was fully investigating it. I have to ask the question, did he know that there was an alleged coverup? You know, I hate to think that, because he appears to be a sincere, nice person. But I think the so-called love-in that has happened in Congress in the last two weeks since he arrived and now we have the verdict, which I support the verdict of the guardsmen -- I think it's reversed our vote. The House of Representatives two weeks ago voted almost the opposite in terms of the aid.

LEHRER: They did.

Rep. OAKAR: So obviously he had a certain personal persuasion there. But these hard questions have to be asked. We can't rid our consciences of the manner in which we spend taxpayers' money.

LEHRER: Thank you. Robin?

MacNEIL: The State Department said today that allegations of higher-up Salvadoran involvement in the murders would be pursued with the Salvadorn government. We discuss that now with the State Department official who's coordinated U.S. efforts to improve the legal systems in Central America. He is James Michel, assistant secretary of state for inter-American affairs.

Mr. Michel, you've been very closely involved in all this. Do you believe there was a coverup in the Salvadoran government?

JAMES MICHEL: Let me first of all clarify that I'm a deputy assistant secretary for inter-American affairs.

MacNEIL: I beg your pardon. Yes. Thank you.

Sec. MICHEL: The assistant secretary is Tony Motley.

MacNEIL: Quite right.

Sec. MICHEL: We believe that in 1980 the situation in El Salvador was very different from the El Salvador that we are working with today in 1984. It is clear that at a minimum, the officials in El Salvador within the military who had the responsibility for the initial investigation did not come to grips with this problem. We think this is a matter, as we said earlier today, that warrants further attention, and it is our intention to discus it with the Salvadoran authorities so that the matter can be pursued.

MacNEIL: The Tyler report, which was released today, says that they -- I haven't got it in front of me -- but words to the effect that people in the Salvadorn military did everything they could to conceal the identities of the killers of these women.

Sec. MICHEL: It was Judge Tyler's conclusion.

MacNEIL: I meant to go on. Is that your conclusion?

Sec. MICHEL: I haven't reached that conclusion. Judge Tyler has reached the conclusion that the initial efforts were deliberate in their failure to reveal information that the investigators knew to be true. It seems to me, as I said, at a minimum, that the investigators did not come to grips with the issues.

MacNEIL: Let me ask it this way. Do you believe, with all your knowledge of it, and does the department believe, that we've really gotten to the bottom of this now, we know who's responsible for the killing of those four American women?

Sec. MICHEL: We believe we know who was responsible for the killing. We are not sure we know whether after the killing there was a deliberate effort to conceal the identity of the murderers and whether, if so, there was action that could be taken under Salvadoran law about that dereliction.

MacNEIL: Does that mean that you and the government, the administration, believe that those five National Guardsmen acted entirely on their own in killing those women?

Sec. MICHEL: Yes. And that is also the conclusion that was reached by Judge Tyler.

MacNEIL: But no higher Salvadoran official ordered the killing?

Sec. MICHEL: That's right.

MacNEIL: I see. Now, what form is your further inquiry with the Salvadoran -- the Duarte government going to take, and what will satisfy you?

Sec. MICHEL: Well, I think that President Duarte has clearly expressed his commitment to restoring a functioning legal system within El Salvador. And we have offered our support for that. We believe that the question is whether there is a violation of Salvadoran law, and our pursuit of this matter with the government of El Salvador will be to urge them to continue the kind of vigorous and competent effort that has marked the final stages of the investigation and prosecution in the case that was decided today.

MacNEIL: You heard what Congresswoman Oakar just said. Do you think it's appropriate, with the questions raised about his prossible involvement in a coverup, that General Casanova should hold such a sensitive post and be, in effect, the administrator of more American military aid?

Sec. MICHEL: I think that General Vides-Casanova is a patriot. I believe that he has been in the forefront of the efforts to bring professionalism and greater responsibility to the military. He's taken a number of important and courageous steps to advance the objectives we all share. With respect to the Tyler report and what it says, I think it's important to bear in mind what it does say and what it does not say. What the Tyler report says is that the initial investigators were subordinates of then-Colonel Vides-Casanova, and for that reason it is possible that they informed him and that he had guilty knowledge of a coverup. It does not say that he had such knowledge, and indeed the Tyler report says that Judge Tyler and his colleagues in preparing the report had no proof. Let me just say, I would not wish to be held to the standard of presumptive knowledge of everything that a subordinate did was fully and thoroughly reported to me. I think that that is even a more difficult standard to impose when the actions of the subordinates are actions of wrongdoing. So I don't think the Tyler report in any way constitutes a reason for a lack of confidence in General Vides-Casanova.

MacNEIL: Thank you. Jim?

LEHRER: You disagree, Congresswoman?

Rep. OAKAR: Absolutely. First of all, when one engages in a coverup -- and let me read from the Tyler report. It says "The first reaction of the Salvadoran authorities to the murder was tragically to conceal the perpetuators from justice." Then it goes on to describe a colonel who was the perpetuator. Then it -- this is the exact quote. "We believe as well that it is quite possible that Colonel Carlos Casanova, then head of the National Guard, now a general and minister of defense, was aware of and for a time acquiesced in" -- acquiesced in -- "the coverup." And then it says that "The coverup was shattered when embassy personnel started to come up with names."

LEHRER: U.S. Embassy personnel.

Rep. OAKAR: That's right. Now, what we have to ask is this. Why would he engage in a coverup? Was he -- did he give the order? I mean I think there's a lot of unanswered questions to that, and for us to -- our American taxpayers to vest all their hard-earned money -- and we've almost given a billion dollars over the last three years to El Salvador, which is astronomical compared to what we used to give. We've vesting a good portion of that money directly to this individual who lied to the American people, in effect.

LEHRER: Mr. Secretary?

Sec. MICHEL: I think that the conclusions are overdrawn. The report of Judge Tyler -- and you're reading from the summary at the beginning of the report, I believe --

Rep. OAKAR: Well, it's his language.

Sec. MICHEL: -- explains the rationale for his conclusion later on in the body of the report. In the summary he says he believes it is possible, and that is all he says.

Rep. OAKAR: Quite possible.

LEHRER: But the word possible is used.

Sec. MICHEL: And in the detailed body of the report, several pages later, he explains why he thinks it is quite possible. He says that it is because the officer charged initially with the investigation reported directly to Vides-Casanova. There's one other thing in the report that I think should be brought out, and that is that it was then-Colonel Vides-Casanova who ordered the arrest of the five defendants who were convicted today.

Rep. OAKAR: After.

Sec. MICHEL: And it was Colonel --

Rep. OAKAR: Tell 'em when he did it.

Sec. MICHEL: And it was in April of 1981. And it was Colonel Vides-Casanova who caused their dismissal from the National Guard and turned them over to the civilian authorities. He has been supportive of the prosecution throughout the history of this case. That --

Rep. OAKAR: Well, let's read from the report. "When the embassy learned the defendants' names" -- and before that it indicates that they want to him and gave him the names -- "it pressed Salvadoran authorities to arrest them. At that point, Colonel Casanova, then director of the National Guard, ordered the arrests of the men." Only when our embassy put that kind of pressure. I mean the least our government should do is ask why he engaged himself in this coverup.

Sec. MICHEL: But you're presuming that he did.

Rep. OAKAR: It's very, very clear, I think.

LEHRER: Let me ask you this, Mr. Secretary.Have you or any other officials of the United States government confronted Defense Minister Casanova with this charge directly and said "Hey, General, did you do it or didn't you?"

Sec. MICHEL: This was discussed with embassy officials and Judge Tyler. Judge Tyler interviewed General Vides-Casanova. In that interview, as the Tyler report indicates, General Vides-Casanova displayed a lack of specific recollection about the reports of the subordinate to him. So he has denied any involvement in the coverup. And as I say, his actions in this case, once the identity of the suspects was developed by the embassy -- and it is true that the initial Salvadoran investigation was at least ineffective in identifying the culprits -- once the efforts of the U.S. Embassy identified the suspects, it was General Vides-Casanova who ordered their arrest and turned them over to the civilian court for trial.

LEHRER: Am I misinterpreting what you're saying if I were to say that the position of the State Department at this point is that "All right, General Casanova may or may not have been involved in a coverup back in 1981, but let's get on with it now; he's done well since, and not do what Congresswoman Oakar is saying"?

Sec. MICHEL: No, that's not fair. I think the difference is that Congresswoman Oakar says that there is evidence of General Vides-Casanova being involved in a coverup. I'm saying there is only an inference which led Judge Tyler to say it is "quite possible."

Rep. OAKAR: Well, the difference, frankly, is that I say that the President ought to order a full investigation and instead of relying on Judge Tyler to ask the question or whether he recalls or doesn't recall -- which, by the way, I don't recall was in this report -- the President and the State Department and certainly I will forward a letter to him -- ask the hard questions. Were you involved in a coverup? If so, are the American people going to believe that you will be the chief perpetuator of our funds, you will be the one to be use our funds and military cents, more than anyone else, more than the president of that country? We have a right to ask those questions. And we'll be saving a lot of lives, it seems to me, if we indeed make sure that the abuse of taxpayers' money doesn't take place in El Salvador. We've already lost 40,000 El Salvadoran lives in the past few years, and possibly our weapons were used even in the case of the murdered victims.

Sec. MICHEL: Oh, I think not, but the charge has been denied. There is no --

Rep. OAKAR: By whom?

Sec. MICHEL: By General Vides-Casanova.

Rep. OAKAR: When was it denied, specifically?

Sec. MICHEL: In the context of the discussions that were held with him last fall.

Rep. OAKAR: By?

Sec. MICHEL: Embassy officials and Judge Tyler.

Rep. OAKAR: I see.

Sec. MICHEL: And the Tyler report says that there is no proof of his involvement. I think that -- I'm sorry, I know that our time is short, but I would like to say that I do think that we want to look forward to the rebuilding of an effective judicial system --

Rep. OAKAR: I do too.

Sec. MICHEL: -- within El Salvador.

LEHRER: On that note of agreement we're going to leave it. Congresswoman, Mr. Secretary. Thank you. Robin?

MacNEIL: Czechoslovakia announced today that 10 nations of the Communist bloc agreed to hold their own summer games as a substitute for going to the Olympics in Los Angeles. All 10 have previously withdrawn from the Olympics. The games will take place in various cities in the Eastern bloc. The announcement, which was made in Prague, Czecholslovakia, did not give the schedule.

In Vienna, the Communist powers of the Warsaw Pact today formally rejected a North Atlantic Treaty Organization rroposal to end the stalemate in the talks on reducing the number of troops in Europe. The Western proposal suggested a new way of counting the number of soldiers on each side, but the East said the idea was all shadow and no substance. Ironically, President Reagan issued a statement today urging the Soviet bloc to make a constructive response to the NATO plan.And in another context, his administration's sincerity in calling for arms control was questioned in a NATO staff report. The report, which was published in Brussels, said American complaints about Soviet cheating on arms agreements cast doubt on the usefulness of future negotiations on arms control. That report will be submitted to a session of the NATO legislators beginning in Luxembourg tomorrow.

Jim?

LEHRER: There was one of those uniquely Washington-style coincidences of timing this morning. Yesterday, Democrats on a House subcommittee issued a report strongly suggesting William J. Casey, President Reagan's 1980 campaign manager, knowingly received illegally acquired Carte campaign documents, and then remembered less than the truth about it. Casey is now the head of the Central Intelligence Agency, and today's White House schedule had President Reagan set to speak at groundbreaking ceremonies for a new CIA building at Langley, Virginia. Would Mr. Reagan show up? Would he mention the debate papers charge? Would he support or back off Casey? Here on videotape are all the answers.

Pres. RONALD REAGAN: Your work, the work of your director, the other top officials have been an inspiration to your fellow Americans and to people everywhere. I wanted to come here today not only to dedicate this new building, which will assist greatly in better coordinating and consolidating CIA activities, but to pledge to you my continued support and bring to each and every one of you the heartfelt thanks of the American people. You remain the eyes and ears of the free world. You are the tripwire over which the totalitarian rule must stumble in their quest for global domination. Though it's sometimes forgotten here in Washington, the American people know full well the importance of vital and energetic intelligence operations.

LEHRER: No, he mention the debate papers case at all. One of the toughest Democratic critics of Mr. Reagan and his administration's ethics resolved a problem of his own today. Senator Howard Metzenbaum returned a $250,000 finder's fee he received after the sale of a Washington hotel. Metzenbaum said the fee-taking had been legal and ethical, "but I have been in public life long enough to know reality and perception can be easily confused." Metzenbaum, chief critic of Attorney General-designate Edwin Meese's financial dealings, was paid the money for introducing the owner of the luxury Hay-Adams Hotel to a prospective buyer last year.

Robin?

MacNEIL: There are more major segments to come on tonight's NewsHour. There was nervous selling of some big bank shares on Wall Street today. We examine why. Elizabeth Brackett reports on the opening battle in the long distance phone war. Judy Woodruff examines the latest Soviet military attempt to crush Afghan resistance.

[Video Postcard -- Belle Plaine, Kansas]

LEHRER: The new head of the Federal Aviation Administration today declared the nation's airways safe. Admiral Don Engen, at a Washington news conference, disputed recent statements to the contrary. A Ralph Nader-backed consumer group recently charged air travel in the northeastern U.S. has become hazardous. It cited 28 instances of serious errors being made by air traffic controllers that almost resulted in tragedy. The issue of safety has been on the front burner since President Reagan fired 11,000 air controllers who were on strike. But here's what Admiral Engen said about it today.

DONALD ENGEN, FAA Administrator: I can assure you that the system that is in being in the United States is in fact safe. It is. We're just going through a traumatic period after the controllers' strike and we're fighting our way back. Safety is a state of mind, and as long as there is just one person driving down one road, or one person flying one airplane, there can be an accident, unfortunately. And we see it in the home, we see it in the skies. So people cause accidents. Accidents don't just happen. Accidents are caused by people. And what we need to do is to monitor and measure people's performance and prevent accidents.

LEHRER: Admiral Engen said he was hopeful all of the restrictions imposed after the 1981 air traffic controllers' strike could be lifted by the end of this year. Robin?

MacNEIL: Both houses of Congress today approved a $30 billion increase in the national debt limit, before the midnight deadline. Treasury Secretary Regan had said that without the approval, federal checks might bounce and the government might default on securities. Bank Stocks Dip

MacNEIL: Wall Street had another nervous day. For the sixth day in a row the Dow Jones average of 30 industrial stocks declined, today by more than 10 points, closing at its lowest level in a year, 1103.43. Contributing to that decline was another scare for the banking industry. Major bank stocks fell sharply during morning trading, with Manufacturers Hanover and Chase Manhattan Bank down more than three points each. The U.S. dollar also fell sharply on foreign exchange markets. Citicorp and J.P. Morgan both fell more than two points. Most stocks, with the exception of Manufacturers Hanover, recovered their early losses by the end of the day. But the downturn shocked Wall Street and the banking community, which has been badly shaken by the financial troubles of Continental Illinois. Rumors of that bank's possible collapse caused depositors to withdraw billions of dollars from Continental last week. Only a multibillion-dollar government-backed rescue plan halted the outflow of dollars and stabilized the Chicago bank. To give us a reading of why bank stocks were off today and to provide an update on the Continental situation, we talk with John Lyons. Mr. Lyons is president of a New York bank consulting firm and a former federal bank regulator.

First of all, Mr. Lyons, what do you think caused the selling of bank stocks today?

JOHN LYONS: Early this morning there was a rumor attributed to London to the effect that the New York banks in particular, one of the banks that you had indicated, Manufacturers Hanover, had lending problems that went well beyond what had been reported publicly to the shareholders.

MacNEIL: Is there any truth in that rumor?

Mr. LYONS: There is no truth to it, and to indicate to the world how preposterous now some of these rumors are becoming, the Manufacturers Hanover is probably one of the safer institutions in the country. As a matter, just a month ago the Federal Reserve Board of Governors approved the largest acquisition that a United States bank has ever accomplished with the Manufactures Hanover Trust Company.

MacNEIL: You say it's one of the safer banks. I mean, what does that mean nowadays?

Mr. LYONS: Well, it's one of the banks that has a --

MacNEIL: Does that mean so safe that nothing can happen to it?

Mr. LYONS: That's not true of any bank. But it is a bank that is far, far less susceptible to the runs that we saw last week on the Continental Illinois. They have a very, very large retail banking base to support them.

MacNEIL: Is there anything malicious in these rumors? Can somebody profit by them?

Mr. LYONS: Well, it's beginning to appear that the rumors are malicious, and I think singling out an institution like the Manufacturers Hanover Trust Company is lending credence to the fact that these rumors are in all likelihood malicious and someone is in fact trying to profit from them.

MacNEIL: Because in the case of that bank, it would be so farfetched. .

Mr. LYONS: It is farfetched.

MacNEIL: Well, how could somebody profit from it?

Mr. LYONS: Well, you have --

MacNEIL: Give us an example of how.

Mr. LYONS: Well, you have buying and selling in the stocks of these institutions, and if, for instance, some institution were to sell an enormous number of shares of Manufacturers HanoverCorporation, and then, in effect, advance a rumor such as this, the stock would plummet, as indeed it did, and the institution that sold the stock would then go in and buy the stock at a much reduced price and make an enormous profit.

MacNEIL: I see.

Mr. LYONS: It's known as short selling.

MacNEIL: Yeah, short selling. Do you have any reason to believe that's what's been happening in these?

Mr. LYONS: I have no clear evidence but I'm beginning to suspect it.

MacNEIL: I see. Now, in the case of Continental Illinois, when these rumors began, very big depositors, some of them foreign, withdrew -- they got scared and started to pull money out. Did anybody start doing that today to these banks?

Mr. LYONS: Not that we're aware of, although reports on that probably won't come out until tomorrow.

MacNEIL: I see.

Mr. LYONS: Now, the case of Continental Illinois, the rescue plan that was put into effect last week apparently worked, because Continental Illnois' deposit flows have reversed themselves.

MacNEIL: Meaning money's flowing back.

Mr. LYONS: Money is flowing back in. They have in fact paid down over $2 billion in the monies that had been advanced them by the Federal Reserve.

MacNEIL: Meaning paid back. They were lent -- they were given credit of $2 billion --

Mr. LYONS: That's correct

MacNEIL: And they paid that back.

Mr. LYONS: They have paid back the Federal Reserve.

MacNEIL: I see. Is Continental completely out of the woods now?

Mr. LYONS: Not completely. Clearly the rescue package that was put in place by the government has stopped any need for any depositors or creditors to worry about Continental. But the long-term solution for Continental, which is in fact a merger partner -- that is yet to come and there have been actually few developments with respect to finding merger partners for Continental.

MacNEIL: They were talking very confidently last week about finding a buyer for Continental, perhaps a foreign bank or concern. Is it proving more difficult than --

Mr. LYONS: I think it is proving difficult, and I think many in the business would have expected that it would prove difficult. There is a great deal of difficulty, and particularly if you're a bank that has public shareholders. You have an institution now that has been carved up rather badly, and if it continues to lose money, you put it together with yourself and your shareholders will suffer as well. And that's a very difficult judgment for a large bank to make.

MacNEIL: Just finally, if such large banks are so vulnerable to rumors, malicious or not, does that mean that all this could start snowballing one day and you could have a real crisis?

Mr. LYONS: What I'm concerned about, and I suspect many other people are concerned, that there's no substance to it but nonetheless, we have a very, very fragile system.

MacNEIL: Mr. Lyons, thank you.

Mr. LYONS: Thank you.

MacNEIL: Jim? Phone Wars

LEHRER: There's a campaign for votes under way in Charleston, West Virginia, that has all the heat of a real political campaign. But it's a business contest among long distance phone companies for customers, the first of its kind in the country, the first of thousands still to come between now and 1986. That's when all phone users in the country must have equal access -- equal access not only to AT&T's long distance service but also to those of MCI, GTE's Sprint and other competitor service as well. Then each customer, in accordance with the schedules and rules of its own local phone company, can decide which company is toget their business. The people of Charleston are the first to choose in what many are calling the New Hampshire primary of the telephone business. Elizabeth Brackett, on special assignment for us, has this report from the trenches.

ELIZABETH BRACKETT [voice-over]: The door-to-door effort in Charleston is well under way. The phone banks have been in operation for weeks. No, all this effort is not for the upcoming West Virginia primary. Instead, it's the battle for the hearts, minds and monthly long distance telephone service for close to 34,000 customers in Charleston, West Virginia. On July 15th, Charleston will become the first city in the nation to provide equal access phone service. That means all long distance carriers will have the same access to long distance lines that AT&T does now. For the consumer that eliminates the need to dial a 12-digit access number when using a company other than AT&T. Given this new access, the competition among the major long distance companies is fierce.

BARRY TOSER, district manager, Sprint: Charleston is extremely important because we want to use this as a testing ground for the other cities that we're going to be involved in very soon. So we feel if we come out of Charleston, if we're very successful here in Charleston that we will be able to carry that into the other cities as well.

BRACKETT [voice-over]: The race for the $42 billion long distance market began in earnest after the court-ordered breakup of Ma Bell last year. AT&T is battling all comers. The newer companies attempting to make a dent in AT&T's 92% share of the long distance market. The carriers are spending millions in their battle for Charleston's business. Phone company ads are running as often as eight times a day on Charleston TV stations.AT&T sells experience, with the help of well-known faces.

CLIFF ROBERTSON [AT&T commercial]: Calling anywhere, anytime, long distance operators, and over a century of commitment. That's AT&T. The more you hear, the better we sound.

BRACKETT [voice-over]: AT&T's competitors sell cost savings, with the help of well-known faces.

BURT LANCASTER [MCI commercial]: But AT&T and MCI don't cost the same. MCI costs up to 30, 40, even 50 percent less. It matters a great deal which company you choose.

BRACKETT [voice-over]: The advertising campaigns are not only on TV but on the radio and in newspapers as well. All this attention is new for Charleston residents.

MARY LOU McJUNKIN, store owner: I think it's exciting. I think for once it's good coverage for us.We often seem to be in the national news for the wrong -- highest unemployment and the coal industry being out of work. So I'm pleased that we were chosen.

BRACKETT: It it this $10 million computer behind me that will enable Charleston to become the first city in the country with equal access. Similar equipment is in use in other parts of the country, but here it is this equipment plus Charleston's particular calling patterns, both urban, rural, business and home, that give the city its head start on equal access.

[voice-over] But the wealth of information the long distance companies have put out in the battle for the first equal access customers has confused many Charleston residents. Susan Walter, the mother of two teenage boys, spends about $70 per month in long distance calls but has not made up her mind on a long distance service.

SUSAN WALTER: It's so complicated. We've never had to make a choice on how you phone anybody. Just pick up the phone and you dial and then you get billed for it eventually, and that's understandable. But when they're now telling us that we have an opportunity to have eight different corporations making our phone calls for us.

BRACKETT [voice-over]: Even the governor's wife, Sharon Percy Rockefeller, says she is uncertain about how to both save money and get good-quality phone service.

SHARON PERCY ROCKEFELLER, West Virginia First Lady: Well, I'm equally confused, quite frankly. I'm relatively knowledgeable about the communications industry and yet I find that I'm confounded by this set of proposals. I've looked each one over from the various companies, and the questions that I have are not so much what they propose to do better, but what aren't they telling me.

BRACKETT [voice-over]: The long distance carriers say they are trying hard to clear up the confusion.

Mr. TOSER: It's a whole new process, a whole educational process to explain everything that's going on. And we want to act as consultants and explain all these different areas to people so they have a better understanding of what's going on now.

BRACKETT: As well as sell your product.

Mr. TOSER: Absolutely.

BRACKETT [voice-over]: But the same questions keep popping up. Businesswomen in a neighboring town asked their local phone company representative, Cam Sellers, to speak at their morning breakfast meeting.

CAM SELLERS, Chesapeake & Potomac Phone Company: A lady asked me this the other day. She said "Oh, Cam, what am I to do?"

BRACKETT [voice-over]: Since the local phone company is required to provide the equipment to switch all long distance calls to the long distance carrier of the customer's choice, it must remain neutral in the battle for long distance service. Still, Sellers tries to provide some answers.

Mr. SELLERS: As of January the 15th, anyone who has not chosen to go with another carrier will continue to be AT&T customers on that basis.

BRACKETT [voice-over]: Consumers also find answers at booths set up in the local shopping mall.

SALES REPRESENTATIVE: We have a lot to offer you. We'd appreciate you staying. We'd love to sign you up today.

WOMAN: Not today. I'd better think it over.

BRACKETT [voice-over]: And in the reams of mail coming into their homes. The state's consumer advocate says after consumers have waded through all the hype, there is an intelligent way to make a decision on long distance service.

BILLY JACK GREGG, consumer advocate, Public Service Commission: We urge them to look at their phone bills for the past three months, find the two or three cities that you call the most. Invariably it's going to be where your friends and relatives live, and you'll find you call them three or four times a month. Call all the people that offer phone service and ask them for rates to those two or three cities you call the most at those times. And then just sit down and see how it compares.

BRACKETT [voice-over]: Gregg says that the local businessperson in Charleston has been even more bombared at work than at home. That's because in terms of company profits, the long distance carriers' real battle is for business accounts.

NANCY ROCKETTS, store manager: I've been contacted by all the major telephone companies, and there have been followup telephone calls, massive mailings, salesmen coming into the store, and it's really been quite overwhelming and I think quite interesting.

BRACKETT [voice-over]: Potential business customers have been invited to attend seminars like this one put on by AT&T.

SEMINAR LEADER: Now, essentially we want to recognize us for being the best company in the industry.

BRACKETT [voice-over]: The competing long distance companies have also spent hundreds of hours on face-to-face sales calls. This telemarketing communications salesman pushes his company's strategy of reselling AT&T lines at lower rates.

SALESMAN: And once you have totally all the data at hand, and once you see what they're offering and what we're offering, there'll be no question in your mind to come with us.

BRACKETT [voice-over]: After July 15th the long distance carriers will begin to focus their sales pitch on other areas of the country as equal access begins to become available nationwide. Though it is unlikely that consumers in Minneapolis or Alameda, California, the next towns up, will find the decision on long distance service any clearer than Charleston residents have.

Ms. WALTER: The literature they send is very slick and it's very pretty, but I don't necessarily believe it, and I want to see -- I want to get quotes from everybody, which takes time. I don't have the time to call all these corporations to provide a simple service. You know, I'm thinking of just not using that crazy phone.

LEHRER: That report was by correspondent Elizabeth Brackett. Robin?

MacNEIL: New evidence that most professional boxers suffer brain damage was published today in the Journal of the American Medical Association. And the Journal said in an editorial that at least blows to the head should be forbidden. Last year the Journal called for a worldwide abolition of boxing, but today it said that in the meantime, punches to the head should be put in the same category as blows below the belt. The Journal said 11 boxers have died since a South Korean was killed in January 1983 in the episode that prompted the Journal's campaign. Today's Journal also published an article reporting that 87% of the professional boxers studied in a New York investigation showed brain damage that could only have been caused in the ring.

Jim? Afghanistan: New Soviet Push

LEHRER: Finally tonight, we look again at that far-off place that slips in and out of focus for most Americans, that place called Afghanistan. Judy Woodruff reports. Judy?

JUDY WOODRUFF: Jim, the four-and-a-half-year-old war entered a new round last month when the Soviets moved to crush their principal opponent, rebel leader Ahmed Shah Masood, who has been harassing the Soviets from his stronghold in the Panjshir Valley. The Soviets reportedly used high-level bombing, heavy artillery and liquid fire, a tarlike substance that explodes into flame when touched, all to try to subdue the rebels. Their progress in the campaign is uncertain. Early reports that they had captured Masood have been discounted. More current information says the Soviets have gained control of half of the strategic valley. Yesterday a dispatch from New Delhi said that Soviets are seeking a ceasefire with the rebels. Well, to update this story we turn to Abdul Rahim, the chief political officer for the rebel group fighting in the Panjshir, and to Selig Harrison of the Cafnegie Endowment -- he's a noted expert on Afghanistan who recently returned from a trip to the capital city of Kabul, where he met with Afghan leader Babrak Karmal.

First of all, Mr. Rahim, have the Soviets taken control of half of the Panjshir Valley?

ABDUL RAHIM: The question is not -- I mean the controlling is the outcome of the fighting. And when somebody calls a controlling, they've not controlled the valley, still the fighting is going on. And the Soviet forces are in the base of the valley and the mujaheddin and the resistance, or the side villas in the mountainous strategy points, and the fighting is going on and the Soviet have a very high casualties outside Panjshir. At the beginning, in the first week of the fighting, about more than 2,000 forces of the Soviet with Afghans have been killed. And also inside Panjshir, more than 500 of these soldiers have lost their legs and have been injured.

WOODRUFF: So you're saying they don't have control of half of the valley, as they're claiming.

Mr. RAHIM: Sure, they don't have control of Afghanistan yet.

WOODRUFF: All right. Well, what is the status of the rebels at this point? Are they -- how would you describe their ability to hang on at this point?

Mr. RAHIM: I don't know how you are using "rebels." The resistance, they have good morale, with the high morale. they have the support of all Afghan people. And they have captured a lot of equipments and some equipments from Soviet, but still we don't have [unintelligible] and effective weapons that could bring enough pressure to withdraw the Soviet forces from Afghanistan. And we are getting more experience of war and we have organized with our fronts, and the hope of losing Afghanistan is completely finished. The only question is remaining that when the Soviets will withdraw their forces from Afghanistan.

WOODRUFF: Why do you think they're asking for a ceasefire now, as these reports are saying?

Mr. RAHIM: These are -- means they have defeated.I mean, I have not confirmed yet from the Panjshir and from Gamaiat headquarters in Peshawar they have requested, but this is the things that, you know, they are just going and killing people and doing destruction and then coming back to their bases. So this is a trick. They are not honest in their ceasefire, they are not honest in their negotiation, and we don't trust on them. If there'll be any future ceasefire, something, we'll be talking, politically about all Afghanistan.

WOODRUFF: Mr. Harrison, do you agree with Mr. Rahim's interpretation of the military situation right now?

SELIG HARRISON: Well, in the Panjshir I do agree. I think that this is a very strong guerrilla movement in that particular area. They can go into the caves, up into the hills, and it's not going to be easy for the Russians to extinguish all resistance in that area. But I think the picture he gave us of the overall situation is rather misleading. The Russians are in a very strong position now because for the first time they've begun to get their act together in the sense that they have an army that is now not suffering desertions at the rate that it was before. They're beginning to hold together an army command structure. You'll remember when they -- of Afghans, when they first came in, you'll recall, in 1979, they faced an army that was decomposing, and a lot of the stories we've heard since have described the Afghan army that the Russians are building up as a useless force.But my impression in Kabul, from a number of sources, is that the desertion rate is dropping; the Russians are unifying the Afghan Communist Party under the leadership of Mr. Karmal; the factionalism that has immobilized the party for the past four years has gradually been declining as they've been introducing a new network of leaders, many of them trained in the Soviet Union, who weren't in the earlier factionalism. So they've got a party. It's getting very large now. They use that Communist Party to control the army, to control the secret police, to control the paramilitary forces, and they're beginning to coordinate all these forces. And what we've been seeing in this whole offensive, which is far from limited to the Panjshir, is a coordinated effort in which the Soviets and the Afghan forces move in. Usually the Afghan army does most of the ground fighting, and the Soviets give them artillery and air cover.

WOODRUFF: Well, I want to ask Mr. Rahim to respond to that. But if all that's the case, why are they asking for a ceasefire right now?

Mr. HARRISON: Because that's their entire political strategy: to try to deal with warlords in various parts of the country, and create a situation in which their regime in Kabul, which is rather solid, coexists with various groups around the country in areas where they can't establish their administrative control and where they hope to work out a kind of coexistence.

WOODRUFF: All right. Mr. Rahim, what about the picture that Mr. Harrison's just painted, which is very different from what you were saying?

Mr. RAHIM: Yes. In one point I agree with Mr. Selig Harrison, that he mentioned that the Soviet have strengthened in Afghanistan. But it doesn't mean that they are winning. It means that we do not have enough effective weapons that could bring any pressure on the Soviets to force them to come to this negotiation. But it doesn't mean that the Communist Party or the Babrak Karmal, those people are nothing right now in Afghanistan. He has seen only Kabul. I mean, he is talking -- the source that Mr. Selig Harrison that I know are those people who are Communists. Of course, the Communists, what they will tell you, always we are hearing the same thing that you're saying -- I mean the same voice that I hear from you, I heard from the Soviets in their propaganda. It is a shame for you; you should -- I mean in the United States you should realistically see the picture of the war and the things. The Soviets and the Communist Party, if they unify, then they -- I mean what is the meaning of 3,000 or 10,000 to be unified or not? The real power who is running the war is the Soviets, and the Soviets in Kremlin, they are united.

WOODRUFF: All right. Mr. Harrison, he's saying that the sources for your information were the Communists who are running the country?

Mr. HARRISON: Well, that's not completely true, and when you go to Kabul you talk to dozens of observers of all kinds who are very close to lots of information coming into Kabul, who have access to sources within the government and who are watching the situation very closely, and trying to make an objective appraisal. I've, of course, been interviewing many resistance leaders, including Mr. Rahim, for the past four years. And I think one of the problems we've had is that we sympathize with the resistance; we want to see the resistance do well; we don't like the atrocities that the Soviets are committing in Afghanistan; and so we tend to believe what we get from resistance leaders who are trying to win support for their cause. But we have to balance it with a little bit of realism of the kind he's asking for, which requires looking at both sides and looking hard facts in the face. And the hard fact is that in the last four years the resistance has not built a political organization, a unified political organization that can compete in establishing control over the areas where it is successful militarily. And during this period the Russians are building a strong administrative --

WOODRUFF: Let's ask Mr. Rahim to respond.

Mr. RAHIM: This is good point, that you have shown your sympathy. You have shown your sympathy toward unification in our factions. So you should do your job as a journalist to be helpful for our cause for our unity, instead of saying something for the benefit of Karmal doing propaganda for the enemy -- those people who are killing and killing of people and destruction in Afghanistan. You are criticizers, all right, that we should be unified -- and we are taking the step and we have succeeded.

WOODRUFF: Mr. Rahim, rather than attacking Mr. Harrison, one last quick question. You were saying that it would make a lot of difference if the rebels' resistance was getting more weapons. Are you saying that that's the fault of anyone in particular? For example, we know that -- are you saying that the United States should be doing more? What specifically are you saying?

Mr. RAHIM: I am saying that to those people, that the Afghan people are not fighting only for Afghans, for Afghanistan; they are fighting for the freedom of the whole world and for the freedom-loving people. So my request is for the freedom-loving people to support the good, effective weapons will mean the answer for the question of Afghanistan.

WOODRUFF: Thank you both, Mr. Harrison, Mr. Rahim, for being with us. Jim?

LEHRER: Again, the major news stories of this day. Iran and Iraq exchange ship attacks, Iraqi airplanes hitting two unidentified ships near Iran's major oil terminal at Kharg Island. Iran then retaliating by attacking a tanker off the shore of Saudi Arabia.

Several developments on El Salvador. A jury convicted five National Guardsmen of murdering four U.S. churchwomen. But critics say the involvement of higherups is being covered up. And the House approved emergency military aid for El Salvador.

Also, Congress voted to raise the national debt limit and thus averted a temporary closedown of the federal government tonight. Finally, Czechoslovakia announced that 10 Communist nations will hold their own summer games in a number of cities.

Good night, Robin.

MacNEIL: Good night, Jim. That's our NewsHour tonight. We will be back tomorrow night. I'm Robert MacNeil. Good night.