The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. Leading the news this Thursday, Sandinista troops launched attacks against the contras in Nicaragua, judges in Colombia went on strike after a judge and a congressman were murdered by drug dealers, and 8,000 East Germans fled to Czechoslovakia after a travel ban was lifted. We'll have the details in our News Summary in a moment. Robin.

MR. MacNeil: After the News Summary, we look at the new developments in the Pan Am 103 tragedy with Sen. Frank Lautenberg and intelligence expert George Carver, then curbing volatility that is frightening investors away from the stock market. We have a backgrounder by business correspondent Paul Solman, then a discussion with New York Stock Exchange Chairman John Phelan, and two big investors, Charles Wohlstetter, and Thomas Allen. Finally essayist Roger Rosenblatt has some thoughts about lessons taught by the disabled. NEWS SUMMARY

MR. MacNeil: The Nicaraguan Army today attacked contra guerrillas following Sandinista suspension of the 19 month old cease-fire. A Sandinista military spokesperson described the fighting as actions against mercenary forces that had been infiltrating on the Honduras border in an area where some 2500 contras are concentrated. Lt. Col. Rosa Pasos denied that any large scale operations were involved, but a U.S. State Department Spokesman said the available evidence indicated otherwise.

RICHARD BOUCHER, State Department: The Sandinistas are launching major military operations, they're sending artillery, they're sending attack helicopters after the contras. That's the important thing to remember right now. We may not have all the details on exactly who they've encountered in these operations but I think the important thing to remember is the Sandinista Army is out looking for these guys with helicopters, with artillery. We believe that the resistance is adhering to a policy of no offensive operations. Their situation in terms of lack of supplies and lack of ammunition would dictate such a strategy.

MR. MacNeil: In Washington, the White House said it is unrealistic to expect the contras to demobilize and lay down their arms when the Sandinista Government. The House of Representatives voted 379 to 29 for a resolution condemning the Sandinistas for cancelling the cease-fire and saying their reason, the alleged contra attacks, was a phony pretext. Nicaragua's Pres. Daniel Ortega however said today there may be a chance to resume the cease-fire. He held a news conference with Nicaraguan Cardinal Obando Ebravo who has often served as a mediator between the government and the Contras. He said he was sending the cardinal to New York next week to observe peace talks on the situation sponsored by the United Nations. Ortega said if those talks are successful he'd be willing to renew the cease-fire. In El Salvador today, leftist rebels said they were withdrawing from peace talks with the government to protest the bombing of a trade union hall. The rebels said it held the government responsible for Tuesday's blast which left 10 people dead. The peace talks were scheduled to resume later this month. The rebels said they would not negotiate until the government could guarantee protection for opposition groups. Jim.

MR. LEHRER: Federal judges in Colombia went on strike today. They did so after a judge and a congressman were murdered, presumably by the drug cartel. The judges in Medillin province said their strike will continue until they get protection from the government. The murdered judge was gunned down as she arrived at her home in Medillin last night. She was hit by at least 13 submachine gun bullets when she emerged from her car to open the garage. A congressman was also killed yesterday as he arrived at his home in Bogota.

MR. MacNeil: Thousands of East Germans flooded into Czechoslovakia today. We have a report narrated by Louise Bates of Worldwide Television News.

LOUISE BATES: Just one day after the East German government relaxed travel restrictions the exodus started again. Already some 8000 East Germans have flooded into Czechoslovakia. 1300 of them have taken refuge in West Germany's embassy in Prague. They're waiting for travel papers to the West. These young people are demanding freer travel and democratic reforms, and they're not impressed with the promises of the new East German leader. Egon Krentz lifted some travel response as a sign of good faith. Their response was to leave. Most of the new arrivals are in their 20s. They say they don't believe that anything will change in East Germany. One said reforms areonly for the outside world. Another said they want reforms without borders. Meanwhile the flood of refugees continued. Some had to climb the fence to get into the compound on Wednesday, because the embassy was closed for the All Saints Holiday. Many fear the exodus will continue with Germany appearing for another influx of refugees at the weekend.

MR. MacNeil: As more East Germans left their country, a group of senior East German political figures left their jobs in what was seen as a major purge of the old leadership. The most prominent was Margo Honecker, the education minister and wife of the Communist Party leader forced out two weeks ago. The others who resigned were leaders of small parties allied with the Communists, Communist bosses in two East German districts, and the chief of the trade union movement. The changes took place as East Germany's new leader, Egon Krentz, was in Warsaw meeting with the Solidarity Government. Following talks with Prime Minister Tadeusz Mazowiecki, Krentz said socialist states must learn from each other so that they can all move ahead.

MR. LEHRER: There was talk today of a cover-up concerning the Pan Am Flight 103 tragedy. Sen. Frank Lautenberg, Democrat of New Jersey, raised the possibility at a Washington news conference. He was reacting to reports West German and Israeli authorities may have warned the United States about a possible terrorist attack on the plane. Yesterday Israeli officials declined comment. Today a West German spokesman denied their warnings were that specific. Lautenberg, who chaired an earlier investigation of the crash, said he now had doubts the full truth was known then.

SEN. FRANK LAUTENBERG, [D] New Jersey: I think it's fair to say that we need to get to the bottom of this, we can't hide behind the cloak of security, we can't say that this is secret material. Every citizen in this country has the right to be protected by our government and the truth has to be told. If mistakes were made, no matter how terrible, admission is necessary.

MR. LEHRER: We will have more on this story after the News Summary. Pres. Bush today backed off his push to lower the capital gains tax. The White House released a statement late this afternoon that said Senate Republicans will not try to attach the measure to a crucial budget bill. The statement said Mr. Bush believed the stalemate over the issue must be broken, but he said he was not giving up his pursuit of a capital gains tax cut. House and Senate negotiators also cut a deal today on the defense budget. The final amount was $305 billion. It includes 1.1 billion less for the strategic defense initiative than Pres. Bush requested, and restores partial funding for two projects he wanted killed, the F- 14 D jet fighter and the Marine Corps' V-22 Osprey aircraft.

MR. MacNeil: A formal request was made today for an independent counsel to investigate former Housing Sec. Samuel Pierce. Democratic members of the House Judiciary Committee made the request in a letter to attorney general Dick Thornburgh. The congressman said there was enough evidence to suggest there was major wrongdoing during Pierce's 8 year leadership of the Department of Housing & Urban Development under Pres. Reagan. The appointment of an independent counsel could be necessary to pursue a criminal investigation of Mr. Pierce. This evening the Justice Department called the request a partisan move.

MR. LEHRER: The last edition of the Los Angeles Herald Examiner was published today. The Hearst Corporation announced the paper's demise yesterday. The company said the paper was losing $2 million a month in its unsuccessful fight with the dominant Los Angeles Times. The Herald Examiner was founded by William Randolph Hearst in 1903. It was once the nation's largest afternoon newspaper. The Times is now the only daily newspaper in Los Angeles. There was a friendly buyout in the auto industry today. Officials of the British car maker Jaguar accepted a takeover offer from the Ford Motor Company. The price was set at $2.5 billion. The deal is subject to the approval of Jaguar's shareholders. General Motors was also interested in buying Jaguar, but a GM statement said after the Ford announcement today that it would not bid for Jaguar's shares.

MR. MacNeil: The United Nations today discounted a South African claim that black nationalist guerrillas had infiltrated into the South Africa-controlled territory of Namibia from their bases in Angola. The UN said the evidence was not there. Such an incursion would have violated a plan to make Namibia an independent nation. In South Africa today F.W. DeKlerk had a message for the country's whites. We have a report from Pretoria by Kevin Dunn of Independent Television News.

MR. DUNN: This was South Africa's military might welcoming F.W. DeKlerk as their new commander in chief and the president immediately sought to reassure whites frightened by the pace of his reforms.

F.W. DE KLERK, President, South Africa: I therefore appeal to those who feel threatened by events of recent weeks not to allow their fears to override the need for initiatives towards peaceful solutions.

MR. DUNN: But with an eye on the right wing, he reiterated that the outlawed African National Congress will stay banned unless it stops the arms struggle.

MR. DE KLERK: I want to emphasize one single simple fact. The government cannot unban the ANC whilst it remains committed to violence. The onus is thus on the ANC to demonstrate by its actions that it is committed to a process of peace.

MR. MacNeil: Pres. DeKlerk also said that some of those who participated in last weekend's African National Congress rally may be prosecuted. That's the News Summary. Now it's on to Pan Am 103 developments, curbing volatility on Wall Street, and a Roger Rosenblatt essay. FOCUS - FLIGHT 103 - MORE QUESTIONS

MR. LEHRER: We go first tonight to an update look at the Pan Am 103 tragedy. Two hundred and seventy people died when a terrorist bomb blew up the Pan Am 747 over Lockerbie, Scotland, last December 21st. Yesterday it was reported Pan Am subpoenaed official documents to find out if the U.S. ignored information supplied by Israeli intelligence. Pan Am claims that information dealt with a planned terrorist attack on Flight 103. Israeli officials declined to discount the story, and today Sen. Frank Lautenberg, Democrat of New Jersey, held a Washington news conference with representatives of the victims' families to say there are questions that demand answers. Sen. Lautenberg is with us now from Capitol Hill, as is George Carver, a former official of the Central Intelligence Agency, whose service included much time in West Germany where Flight 103 originated. Sen. Lautenberg, to you first, what concerns you the most about the news of the last few days? What's gotten you aroused?

SEN. FRANK LAUTENBERG, [D] New Jersey: It takes us back to the original review of what took place then, and the question is who knew, what did they know, and what did they do about? So far we haven't had satisfactory answers from FAA even in hearings that I held as chairman of the Transportation Subcommittee & Appropriations. The commission on which I now sit, the Aviation Security Commission, constituted by the President with an executive order, is going to be looking at these things. We owe it to these families and we owe it to Americans who are traveling all over to find out what took place then so we can prevent it in the future.

MR. LEHRER: Well, who has the information that you want?

SEN. LAUTENBERG: That's one thing that we're not certain of yet, but we think that there are places that we can get information, whether it's agencies of our government or agencies of other governments. The rumors now that are out there that there was sufficient information before to at least alert us to the fact that maybe Pan Am 103 shouldn't have taken off that day. But we've got to find that out before we draw any specific conclusions.

MR. LEHRER: Last night we ran on this program in our News Summary a story about this latest, the Pan Am charge or the Pan Am subpoena said that Israeli intelligence had some information specifically about 103 and an official of the Israeli government was asked about that yesterday and he just said no comment and walked away. Do you have anything to add to that?

SEN. LAUTENBERG: No, not really. I can't account for Pan Am's action. That's going to be a court action. We really owe it to everyone involved to let that sort itself out through that process. But the commission that I'm on is gathering together to get its information out there. We have to have a report back to the President by May of next year and I expect that we're going to cover this kind of information at that time.

MR. LEHRER: Senator, you said at your news conference earlier today that the securities agencies of the United States, I'm paraphrasing, but that the security agencies of the United States owed it to the American people to come forward and tell them whatever what was involved, no matter how embarrassing or how awful that information might be. Why is that?

SEN. LAUTENBERG: My gosh. We lost 270 people in the air and on the ground, innocent victims. There is a suspicion that there was a preferential notice to some State Department people. That so far seems untrue, but we owe it to them and we owe it to those who are going to travel in the future to make certain that they know that their government has done everything in their power to protect them. Right now there is a huge question overhanging us and we can't let that go unresolved for the reasons I've discussed with you.

MR. LEHRER: But, Mr. Carver, intelligence agencies of the United States as well as intelligence agencies of all countries are very reluctant to do what Sen. Lautenberg wants them to do.

GEORGE CARVER, Former CIA Official: Well, they're reluctant, Jim, to spread out information in great deal, because they want to protect sources and methods that they might need to use to prevent another tragedy. I think the Senator, I agree with everything that he wants to accomplish, but the two operative words in this comment are rumor and suspicion. After a tragedy, there's always a swirl of rumor. Pan Am's lawyers have every interest in trying to assign the U.S. Government the blame and I think we have got to be very careful to separate rumor from fact and not run off madly in a variety of directions until we're absolutely sure what we're talking about.

MR. LEHRER: Would you expect that if Sen. Lautenberg's commission continues to press for information that eventually whatever information that the U.S. Government may have on these questions will eventually come out?

MR. CARVER: The Senator and I probably differ on this. I suspect that whatever information the U.S. Government has has probably already come out. I'm not a government official and haven't been for many years. But I do not think there was the kind of hard warning that has been alleged in the press, not I hasten to add by the Senator. Because if it had been, [a] I think it would have been heated and [b] that fact would have come out before. Now, Jim, I know a little bit about this thing because of the system for coordinating warnings of potential terrorist activities in Germany among the U.S. authorities, the many German authorities at state and local level and various allies such as Israel is basically a system that I designed and set up when I was there in the late 1970s. And the systems are manned by human beings. They can always break down. Mistakes can be made, and I'm not denying, and the Senator is absolutely right, if error is found, it should be surfaced. But I think it very unlikely that there was a hard advanced warning that was simply sat on and not passed along. And I think it even less likely that any such warning or the fact of any such warning has been successfully covered up since then.

MR. LEHRER: Senator.

SEN. LAUTENBERG: That's Mr. Carver's judgment. And it's really not fair of him to talk about a process that he invented that's in place, ready to take care of this. Obviously something went wrong. There were notices out there by the German government, by the British government, and even by FAA. The question is was the notice specific enough, was it heeded seriously at the time? I had a hearing during which Mr. Salazar, the chief of security for FAA, appeared. And he denied at that time that any advance information was there that would have been significant. I think that maybe they've rethought that. We can't just close it up by saying, okay, that's the process. Listen, there are going to be investigations that continue now, especially with new information if it's reliable, by the Congress. They're going to take the option of looking, themselves, at this. While we at our commission do our work, others are going to be looking at it.

MR. LEHRER: Mr. Carver, under the process or the way you understand the process may still operate, what is considered a legitimate piece of intelligence information direct that might involve a terrorist attack on an airplane?

MR. CARVER: Jim, that is always a judgment call. There's an awful lot of chaff of warnings all the time and you have to try to separate out the nuggets of hard fact. If you get something that is specific within a narrow time frame or dealing with a specific target, you certainly, it is incumbent upon you and incumbent upon everybody else in the loop to see that that information is passed along to the people directly affected and checked out. But with all due respect to the Senator, I do not know of any positive allegations of anything that have yet come out that was separable in advance without the wisdom of 20/20 hind sight from the other information and constituted a hard warning.

MR. LEHRER: Let me ask you then, Mr. Carver. Has there ever been a case where this system worked to prevent such a tragedy that happened over Lockerbie, Scotland?

MR. CARVER: I can't certainly say, Jim, that it prevented an airline hijacking, no, or a bombing. During the three years that I was in Germany, intelligence officers' greatest triumphs are things that don't happen, and during those three years, there were no successful attacks against any American target. Now they might not have happened anyway, we might have just been lucky. But I like to think that some of the effort that we made on grounds of prevention paid off.

MR. LEHRER: Yes.

SEN. LAUTENBERG: I'd just like to say that Mr. Carver has an excellent record of involvement of information. But he did admit that he hasn't been in touch with this lately. And for him to make a blanket comment that as far as he knows, there was no information available, that's not fair. It's not fair. The fact is that there are those who have been working very closely on this matter who do have suspicions about information that was available. And we owe it to the American public, particularly to the families of the deceased, to find out what the truth was.

MR. LEHRER: Mr. Carver, when it comes down to it as a professional, former professional in the intelligence community, weighing these kinds of priorities, the need, as Sen. Lautenberg says, for the victims, the families of these victims, the American people, to know about these things vis-a-vis something that might foul up an intelligence source, where would you draw the line? Would you always draw it on on the intelligence source side?

MR. CARVER: It's hard to make blanket statements. You have to in this area be very careful to keep continually distinguishing between information and suspicions, as everyone knows. I would, if I had to make a judgment choice, would err on the side of protecting an asset or process or system or penetration or technique or whatever that might enable me to prevent future tragedies rather than surfacing it in connection with a tragedy that had already happened and no matter how tragic was nothing I could do anything about. Now that's a judgment call and how I would make a specific judgment on a specific situation, or for that matter, how the distinguished Senator would, is something I don't think either one of us can see in advance.

MR. LEHRER: Senator, let me ask you just in general terms, if somebody from the U.S. Government came to you and said, Senator, okay, here's the information that you want, however, if this information comes out, if you tell the family of the victims, if you tell anybody, it's going to do this, this, this as far as fouling up future intelligence to prevent these very things, what would your reaction be?

SEN. LAUTENBERG: My reaction would be to look at it very closely. I don't think we have any right to dismiss information of ineptitude or callousness or carelessness. We have to know. And I think that our government owes it to these families and to future travelers. Mr. Carver's point, the fact is we have to learn about this so that we can intelligently deal with the process in the future. Perhaps we need a consolidation of intelligent sources. There are so many departments involved, whether state or CIA or NSC or FAA or FBI. We've got a lot of people doing things and even now a criminal investigation continues. So I think that it's critical that we get this information out and that we don't dismiss it, forgive me, and I'm sure you didn't mean that, Mr. Carver, as something in the past that we can't do anything about. There's a lot of anguish out there. These families are still grief stricken. It's not a year yet and they want to know what happened. They also want to be able to carry their case to the courts.

MR. LEHRER: Gentlemen, thank you both very much.

MR. MacNeil: Still to come on the Newshour, reforming the stock market and a Roger Rosenblatt Essay. FOCUS - WALL ST. - TAKING STOCK

MR. MacNeil: Next tonight we look at the wild up and down swingson Wall Street and what can be done to tame them. Three weeks ago the stock market plunged nearly 200 points and left a lot of investors calling for measures to curb that kind of volatility. Today the chairman of the New York Stock Exchange, John Phelan, announced a five part program designed to do just that. In a moment, we'll talk with him and get reaction from big investors. But first a backgrounder that explains exactly what problems these new rules are meant to fix. Black Monday, October 1987, the Dow Jones Index lost 508 points. On Wall Street, and in Washington, that one day erased the confidence that five years of a booming bull market had built. In the weeks after the crash, small investors pulled their funds out of the market, convinced that owning stocks was too risky for them. The reason was that the big players, professional money market managers controlling billions of dollars in pension funds, insurance funds and other money, have one big advantage over the small investor, program trading. It's a strategy that depends on computers programmed to buy and sell millions of dollars of stock at lightning speed and on the fact that a lot of professional money managers hedge their bets between two different stock markets, Chicago and New York. In Chicago in something called the futures market, a money manager puts a small bit of money down for the right to buy the stock at a given price in the future. At the same time, that trader can buy the same stock in New York. And when there's a difference between the prices in the two markets, the money manager buys on one market, sells on the other, and makes a profit. Our special Business Correspondent Paul Solman explained program trading for us after the '87 stock market crash.

MR. SOLMAN: Of all the investors in the market these days, the most important is the modern money manager. We've had Ken here flown in from Toys "R" Us to represent him. All right. Now let's watch our money manager in action. Not only has he got a computer but also a computer program designed to take advantage of the futures market. It keeps a lookout for any sharp downturn in the stock market. As soon as that happens, the program automatically pre-sells baskets of stock in the futures market. Programs like these are called portfolio insurance, since they supposedly ensure the money manager against a crash. Now should the stock market drop even further, then the program automatically pre-sells some more. Thus, if there is a real crash, the money manager's protected. He transferred his risk in the futures market. No wonder then that our money manager is smiling. He thinks he's ensured himself against catastrophe because his computer program can get him out ahead of the crowd. But what happens if too many money managers are using the same computer program in the futures market? According to some, that's what happened on Black Monday. Here's the scenario. Event No. 1, the stock market falls sharply due to bad economic news on a variety of fronts. Event No. 2, the money manager's computer program sees the drop and automatically pre-sells a number of baskets of stock in the futures market as insurance against a crash. Event No. 3, the stock market continues to plummet. Event No. 4, the computer program kicks in again and pre-sells some more on the futures market. This is just what the program was designed to do. Our money manager is one step ahead of the stock market, unless too many money managers have the same computer program, which all pre-sell on the futures market at the same time. If that happens, then there could be panic selling on Wall Street and in Chicago simultaneously. And in fact there was. The stock market had been driven up in part by euphoric money managers willing to risk more than usual because they had insurance in the futures market and could get out here ahead of a stock crash. Now when it came time to get out, the futures market crashed too. And so the whole purpose of portfolio insurance that a money manager could reduce his risk in the cheap and efficient futures market was defeated. But there was another class of investor. He was smiling too. And why is this man smiling? Because he is an arbitrageur and always makes a profit. Here's how it works. Say corn's selling for $2 a bushel on one side of town, $3 a bush on the other side of town. The arbitrageur is the person who buys for 2, sells for 3, and locks in the difference as a profit. This guy does the same thing between the futures market and the stock market, buying and selling exactly the same thing whenever the price between the two fluctuates. That's all this fellow does, whether with corn, gold or anything else, he capitalizes on temporary price differences between markets. When the Chicago Mercantile Exchange began offering futures contracts on baskets of stock, the arbitrageur, or simply arbitrager as many pronounce it, had a new investment opportunity, standardized baskets of stock. He would program his computer to monitor two markets at the same time. All he was looking for was a significant enough price difference between the actual baskets of stock in New York and the futures contracts on those same baskets in Chicago. Generally the two markets move in tandem, but every once in a while the prices diverge significantly, and when that happens, arbitragers instantly buy in the cheaper market, you can see that the futures market here has fallen further than stocks, and at the same time, the arbitragers sell in the market where prices are higher. Here it's the stock market. So by buying and selling exactly the same thing simultaneously at different prices, the arbitragers make a small profit which multiplied by millions of dollars invested comes out to a large profit. This is the strategy that is referred to as program trading.

MR. MacNeil: Fears about the dangers of program trading remained and in the months after the crash, the major brokerage houses agreed to suspend some but not all of their activity in program trading. Although four commissions recommend sweeping changes, only a few were enforced. Primarily the New York and Chicago Markets adopted circuit breakers that forced trading halts to curb big price swings in these markets. Even so, those changes made little difference to small investors who by and large stayed out of the market and deprived American companies of badly needed capital. On the volatile Wall Street exchanges American companies have raised $20 billion so far this year. Compare that to the relatively stable exchange in Tokyo. Investors there have provided Japanese companies with more than five times that, $110 billion. Meanwhile, just a few months after they agreed to stop, the big firms quietly got back into the profitable business of program trading. So on Friday the 13th this October, when the market plunged by nearly 200 points, program trading was a prime suspect. But this time there was a difference. Several large institutional investors also got scared by program trading and urged the brokerage firms to quit. In the past week, bowing to pressure from those unhappy with the volatile stock prices, four big brokerage firms have cut back on program trading and three have pulled out entirely. Today John Phelan, the chairman of the New York Stock Exchange, called on brokerage firms to curb their program trading. Mr. Phelan joins us from the floor of the stock exchange. Mr. Phelan, welcome. What exactly, what measures exactly are you taking today to curb the volatility you're concerned about?

JOHN PHELAN, JR., Chairman, New York Stock Exchange: Well, we had a board meeting today and a result of the board meeting, we took two basic actions. One was to put in some measures to slow down the markets when this volatility occurs, and that is a short-term measure. And then we took a long-term measure to say that volatility in the market is not only program trading, but it's a whole lot of other actions by both active and passive managers, and we would form a blue ribbon panel headed by a major corporate leader to take a look at what can be done to curb excess volatility in the market over the long-term.

MR. MacNeil: Volatility that is not related to program trading?

MR. PHELAN: That is correct. Because that is just as much of a danger over the long-term as program trading is seen to be over the short-term.

MR. MacNeil: Okay. Let's examine the short-term measures that you're seeking. Describe them. What are you recommending and how will it change things in the short-term?

MR. PHELAN: One, we're recommending that the firms restrain from doing proprietary trading in programs. And two we're --

MR. MacNeil: What does that mean, proprietary trading?

MR. PHELAN: It means for their own account, and trading for their own account, and doing the arbitrage and other strategies that they do in order to make money for the firm trading account. Secondly, we've asked them and we're asking their customers who do this kind of programming to refrain during times of excess volatility from doing it in a de-stabilizing way. In other words, don't cause more selling pressure into the market but see if you can reverse and be a buyer rather than a seller in that, or if you can't, to refrain during these periods of volatility. Third, we are going to publish weekly rather than monthly all the program figures and who is doing program trading to kind of enforce by public exposure and sunlight the names and the information about program trading. It is that report which we've done on a monthly basis which has let a lot of customers of all these people who are doing that become very annoyed with them and to ask them to cease and desist before we have come out with that. So we think that public disclosure is a very very import of this enforcement of this voluntary refraining. And fourth, for the individual investor which is linked to the third one, because when we've asked them to refrain from program trading, we have got three break points. At 30 points down in the Dow, we are going to stop allowing programs into the system for 15 minutes, collect all those orders, and then expose them to the market and indicate them out where there are enormous imbalances, so that both individual investors and institutional investors can respond to that imbalance. One of the things that's been said is that these things go so rapidly that nobody knows when they're going to happen and only people that are on the inside of the market have a chance to respond to that. So these measures to slow down the market is to allow everybody to have a chance of that. That will occur again at 75 points when we'll slow the market down for a half an hour, collect all those orders that come through the program system only, and then do the same kind of indication, and at 100 points, which is the same break as the Chicago MERC has in a circuit breaker, we will collect them for an hour coming through the system and then radiate them out. What we're trying to do is to slow down these periods of illiquidity, bunch all the orders together, put that information out and make it public, and then allow everybody, both individual and institution, both active and passive managers, to respond to that, and hopefully bring liquidity back into the marketplace.

MR. MacNeil: Are you saying that if a small investor wanted to sell 100 shares because he'd heard over the radio that the market was going down, that those slowdown periods would let him get his 100 share sale order through the system in competition with a 2 million share sale order by one of the program traders?

MR. PHELAN: Yes, absolutely because we have established an express route for individual investors and it's like an express route on the highway for buses. That individual order would come shooting down the system, bypass all the program orders, come right to the head of the line for execution. As a matter of fact, that was in place on October 16th of this year and 96,000 individual investor orders went right to the head of the market, ahead of everybody else, and accessed the pricing mechanism. That was triggered by an up or down of 25 points in the Dow. We're now going to take it down so that is available as soon as the market opens so that every individual in this country who wants to come into that market goes right down the express route to an execution.

MR. MacNeil: The other measures are voluntary but you're doing this whether the big investors like it or not.

MR. PHELAN: Absolutely.

MR. MacNeil: So that's going into effect. Now won't it run against human nature to ask big investors voluntarily to buy shares when the market's going down and their natural instinct to protect their investors and themselves would be to sell them?

MR. PHELAN: Yes, but all these large investors and institutions are really managing money basically for major corporations in the United States. And the major corporations in the United States, and I've talked to 1500 chief executives over the last 18 months, are very dissatisfied with the volatility in the market, and are very concerned that that excess volatility is driving out investors and I think they were willing to work with the exchange over a period of time to see if we couldn't integrate both active and passive managers.

MR. MacNeil: Why are you making this in the form of voluntary requests? Why not do what the Brady Commission recommended and make mandatory curbs on this kind of trading?

MR. PHELAN: We do not have the power. I mean, Congress would have to say that that type of trading is illegal. We cannot tell our firms what they can and cannot do. What we can tell them is if you're going to do it, you have to abide by certain rules. And what we're saying is if you come in through our systems and the market is in a period of volatility, we're going to slow you down so that you don't get in and out like a flash and disadvantage everybody else, we're going to tell everybody else about the imbalance that you've occurred, so that they can react to it, and at the end of the week we're going to tell everybody in the world what you've been doing in that marketplace.

MR. MacNeil: You say that and your last statement suggests this, you say that there are other causes of volatility than program trading. And yet program trading is the sort of popular villain at the moment. Are you in reaction to all the hostility to program trading, are you just sort of going with the wind here and making it the scapegoat?

MR. PHELAN: No. We're not making any judgment on it. What we're saying is there is the perception at least, if not the actuality that program trading causes excess volatility in the market. So we're speaking to a short-term solution to that. But if you were to ban program trading tomorrow, because of a lot of other portfolio strategies that are in the works and in the universe today, both used by active and passive managers, and because of massive flows of investment funds that flow in and out of this country as well as our markets that you are going to have periods of sharper liquidity in the marketplace. So if we had no program trading, we would still put these measures in effect so that when you had those periods of illiquidity, you slow down the market so everybody has a chance to, one, know what's going on, and two, to react to them in some way. So these measures would in whether we had program trading or not.

MR. MacNeil: You yourself called attention earlier this week to the danger that the stock markets here were become inefficient, undermined, as raisers of capital for American industry. How much do you attribute the fear of the small investor of program trading to the state of affairs, the lack of capital coming in, and how much do you think these short-term measures are going to do to correct that fear?

MR. PHELAN: I think the fear is not only for the individual investor, but a lot of people in the active management business. And I think that if this fear continues over a period of time, that confidence will be lost in this marketplace. And at some point in time when we've stopped leveraging up our corporations on our society and they swing back because they must raise more equity in this market, this market will not be, this equities market will not be able to serve them, and they're likely to go overseas to Tokyo, where the markets are more stable and where there's ample capital to do this. So I think it's absolutely essential not only in the short-term but in the long-term to curb this excess volatility and allow a marketplace in where the individual investor, the active manager, and the passive manager can live together, and that we don't have the kind of volatility, and we serve the capital raising function as well as the asset management function.

MR. MacNeil: Well, Mr. Phelan, thank you very much for joining us.

MR. PHELAN: Thank you very much for having me.

MR. MacNeil: We turn now to two views on program trading and to the measures just announced by Mr. Phelan. Charles Wohlstetter is chairman and founder of Contel Corporation, a telecommunications firm based in Atlanta. He is forming an alliance of New York Stock Exchange listed firms opposed to program trading. Thomas Allen is president of Advanced Investment Management Incorporated, a Pittsburgh-based firm that manages a billion dollars in pension funds, some of it in program trading. He joins us from public station WQED in Pittsburgh. Mr. Wohlstetter, what's your first reaction to the measures Mr. Phelan's just outlined?

CHARLES WOHLSTETTER, Chairman, Contel Corporation: My first reaction is that Johnny Phelan and I were members of different exchanges at the same time. We were both specialists on the floor, as his father was with me. And I can remember that specialists such as our own firms could be managed by the governors of the exchange in such a way that if something was going to open up, the stock was going to open up because of vast selling pressure, we could not open it less than at more than $2 a share down and we'd have to get permission of a governor to do it. Now I don't honestly believe at all that the stock exchange has to ask the Congress to micro manage the stock exchange.

MR. MacNeil: He isn't suggesting that yet, although he has in other things. Right now, how do you react to what he has just suggested, these restraints or voluntary restraints he's asked for on program trading?

MR. WOHLSTETTER: Nonsense. These voluntary restraints will last until somebody goes to sleep. As long as the temptation is to make money and to do it without trying too hard and without really taking large risks, I don't know that human beings are capable of resisting such temptations.

MR. MacNeil: Mr. Allen, how do you react to what Mr. Phelan's described?

J. THOMAS ALLEN, Investment Manager: It seems that although he seems to indicate otherwise, that he's bowing to public pressure to do something regardless of the theoretical or academic basis on which that decision is made. I think Mr. Phelan recognizes that volatility comes from a variety of sources, and we would argue that index arbitrage is not a volatility inducer, but quite the opposite.

MR. MacNeil: You say it is not a volatility inducer.

MR. ALLEN: No, it isn't. In essence in order for a market for widgets to trade at a dramatically difference price from one minute to the next, it's going to occur because a single large investor has either bought or sold a great deal of widgets. If that widget happens to be the S&P 500 Index, if a large investor decides that he's going to --

MR. MacNeil: Excuse me a moment. The S&P, the Standard & Poor's 500 Index is one of those baskets of shares that are, that Paul Solman was describing in our backgrounder.

MR. ALLEN: Absolutely. That's a very popular form of index arbitrage and it's one that we practice for institutional customers. If the S&P 500 Index is trading in two places, one in New York and one in Chicago, and a very large investor decides that he's going to liquidate some of his position in the S&P 500, he's likely to go to the place where he can get his execution done fastest, quickest, and with the least amount of cost. That place until recently has been in Chicago, not in New York. And when those prices drop in Chicago much as you would in any financial asset, people who are motivated like ourselves to own the cheapest form of that asset have to take advantage of an opportunity to own it cheaper someplace else.

MR. MacNeil: But if people like you can in making a decision like that, in carrying through a decision like that, can sell a very large block of shares or investment in the basket of shares in an instant by computer, doesn't that help exacerbate the volatility of the market by changing the price dramatically, causing it to rise or fall very dramatically?

MR. ALLEN: It moves the price of the market from one market to the next. The reality is that the market has already dropped in a place that's more speedy at recognizing price changes than New York. New York's operation structure is such that it takes far too long for investors to get real information about where prices are trading at a given instant.

MR. MacNeil: Let me get the view of Mr. Wohlstetter here. You believe that program trading is, does contribute to the volatility in the market, the big ups and downs.

MR. WOHLSTETTER: I think the major problem is that if it doesn't create the volatility itself, it exacerbates it. Because a lot of theprogram trading can take place in a very short time frame and trigger the so-called "safety valve".

MR. MacNeil: Even if that's so, why isn't Mr. Allen right that traders should be allowed to buy and sell as they would any commodity when they see, when there's a market for it and they can get a better price for it, whether they're trading 500,000 shares or 10 shares? Why shouldn't they be able to do that?

MR. WOHLSTETTER: Well, because I don't think that anyone has the right to do things that affect themselves favorably or unfavorably if in so doing they affect a large body of people very badly. For example, let's assume that a corporation has just made the purchase of another corporation and requires financing and in the normal course of events and in all the years that I spent there, you were reasonably sure that over a sensible period of time the market would retain a certain level. Well, along come these insane 190 point drops. Now when did that happen before? Not certainly at any time, not during the '29 crash, never until we have program trading. Now I want to finance, but my market has changed. The price that I've agreed to pay is no longer the same price and now I may have to wait four, six or eight months, and one of the officials of the exchange when faced with a question like this had a fine answer. He said, well, I think the public has to get used to the idea that there are going to be these very volatile swings and they'll have to grit their teeth and just wait for the aberration to pass.

MR. MacNeil: Let's go back to Mr. Allen. If the kind of trading that you defend, Mr. Allen, and that you practice, is driving out a small investor, isn't that ultimately going to destroy as we heard Mr. Phelan say the purpose of the market, which is to raise capital for American industry?

MR. ALLEN: Well, there's no question what value the capital markets have to our society. I think it's erroneous at best to claim that someone trying to own a widget cheaper from one market to the next is causing our society to lose its ability to raise capital for private enterprise. There is no question in my mind that arbitrage is a legitimate function of anyone holding a financial asset. A person owning a certificate of deposit at their bank, when that particular certificate matures, if he can get 1/4 percent higher yield at a bank that he thinks is of similar credit quality, he's going to not roll his CD over and go to the bank with the higher yield. People make those decisions every day of their lives. Large institutions, I'm afraid, have to make the same kinds of decisions. If you own a large exposure to the stock market and you see that that exposure can be held more cheaply and for a profit at some other location and out of all your transaction costs, you have a very strong motive to own that in the cheaper market.

MR. MacNeil: Do you agree with Mr. Wohlstetter, that the voluntary measures Mr. Phelan has announced are going to last only until somebody goes to sleep?

MR. ALLEN: I think the measures that Mr. Phelan have announced are in response to pressure from members of his exchange and the small investor whom a great deal of the members of the exchange serve. And in our view, the small investor has often tolerated higher costs than he should.

MR. MacNeil: Are you yourself going to observe these voluntary restraints?

MR. ALLEN: Well, I don't think it would be prudent to speculate about when and how these restraints are going to fall. But we'll certainly abide by any hard or even soft regulations that the exchanges want to promulgate. I think our feeling is that arbitrage is theoretically and in practice no source of volatility and a very legitimate exercise for anyone seeking very small profits.

MR. MacNeil: Mr. Wohlstetter, we have just a few moments here. Do I understand you correctly? You would like to see program trading just flat banned, is that right?

MR. WOHLSTETTER: There's no excuse for it. I think that if you want to get the public back in this market, and I think there are only 22 percent now as opposed to 56 percent a short while ago, you'd better quit it because it doesn't serve a function that furthers the welfare of this country. It doesn't help corporations raise money. It doesn't help us increase the Gross National Product. It doesn't help us compete with the people we have to compete with in the world.

MR. MacNeil: I have to leave it there. Mr. Wohlstetter, and Mr. Allen, thank you both for joining us. ESSAY - STRENGTH OF SPIRIT

MR. LEHRER: Finally tonight, essayist Roger Rosenblatt welcomes a group of Americans to full and equal citizenship.

MR. ROSENBLATT: Now that civil rights protections are about to be extended to America's disabled, what will they bring, these people with disabilities, to society at large? They have lobbied hard to be allowed to contribute to the country after all. Soon Pres. Bush is expected to sign into law The Americans With Disabilities Act, thus enabling citizens with epilepsy, cerebral palsy, AIDS, blindness, deafness, and any other affliction to join the national workplace as fully empowered members. No longer will an employer be permitted to disqualify a disabled applicant on the grounds that his company's adjustment to the disability will be too expensive or inconvenient. The expense, it turns out, was always exaggerated. The Americans with Disabilities Act like the Civil Rights Acts of the 1960s and 1970s will say to the reluctant employer, figure it out, but do it. The law now says these people are Americans with every American's rights at their disposal. So the law is good for the disabled, but is it good for us too? I mean, what benefit does society get out of including in its company those who used to be set aside in the mind as the blind, the lame, and the halt? Is society not supposed to notice that a deaf office worker must either take her messages in writing or use an interpreter, that a desk must be raised on blocks to accommodate someone in a wheel chair, that a blind worker needs a cane to guide her? Is the public's role not to turn its head in wonder and sympathy? Impossible. Inevitably, we will wonder and sympathize and take into account millions of strangers in our midst who just as inevitably will affect and change the midst they enter. First, they will change society because society will sympathize. There are those among the disabled who say that's a bad idea, we don't want your sympathy. Too bad. They will get pity and sad looks and there but for the grace of God, whether they like it or not. But the wonder will be there too. It's there when everyone watches a quadraplegic descend from a specially outfitted automobile doing a hundred small necessary movements before heading off to work. The patience required of each operation, the strength of will exhibited, though muted, the training it took to do all that, you say to yourself why didn't they just lie down and die. But the disabled seemed to have learned something worth knowing and worth sharing, that in some clear and direct way an affliction is a gift, a test of exactly how much courage one really has, a test of being human. In a poem called "The Leg" about the loss of same in the war, Carl Shapiro wrote this line: "The amputation becomes an acquisition." The part that is missing from the body is, in fact, present in another form, insight out of blindness, awareness out of deafness, grace out of paralysis, the wonder of a Ray Charles, of the deaf actress Marlene Matlin -- the equal wonder of the anonymous epileptic who braces himself against the fates every moment. For a long time people in this society were persuaded that society should not bend over backwards to help the disabled. They take up too much time and they get in the way. But American society was designed not to bend over backwards, not for the benefit of others but for its own invigoration. With The Americans With Disabilities Act comes a new parade of citizens like immigrants off the boats, on wheels, on canes, on crutches, on machines, bringing with all their foreign strangeness a basic instrument of enlightenment. People are welcomed into America to do America good. The good the disabled bring consists of the encouragement of admiration, of kindness, and of the cognizance that every new difference makes us more equal. RECAP

MR. MacNeil: Again, the main stories of the day, Sandinista troops attack contras on the Honduran border, judges in Colombia went on strike after a judge and a congressman were murdered by the drug dealers, and 8000 East Germans fled to Czechoslovakia, while their government purged old liners. Good night, Jim.

MR. LEHRER: Good night, Robin. We'll see you tomorrow night. I'm Jim Lehrer. Thank you and good night.