The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight: A summary of the news; a Newsmaker interview about North Korea and Iraq with the head of the UN's atomic energy agency; with reaction from Senators Joe Biden and Chuck Hagel of the Senate Foreign Relations Committee; a Paul Solman consideration of the debate over whether stock options are a business expense; and a Terence Smith look at the e-mail revolution.

NEWS SUMMARY

JIM LEHRER: North Korea now has one last chance to comply with international nuclear obligations. The UN nuclear agency issued that warning today in Vienna, Austria. The "International Atomic Energy Agency" demanded North Korea re- admit inspectors and halt its secret nuclear program. The agency head, Mohammed ElBaradei, urged the North to comply.

MOHAMED ELBARADEI: If North Korea were not to cooperate within the next few weeks, then the matter will be reported to the Security Council. So I think there is a very strong message coming out from the board this afternoon that defiance of nonproliferation obligation will not be tolerated and will be taken seriously.

JIM LEHRER: The UN agency did not set a deadline, but ElBaradei said he hoped for an answer in the next few days. We'll speak with him in just a moment. In Washington today, diplomats from South Korea and Japan began two days of meetings with U.S. officials over the North Korean problem. The South Koreans have offered to mediate the standoff. UN officials denied today they are spying on Iraq. Saddam Hussein made the charge in a television address. He complained about inspectors questioning scientists, among other things. He dismissed U.S. threats to disarm Iraq as, "the hiss of snakes and bark of dogs." The U.S. Army has alerted at least 275 reserve units for deployment, ahead of a possible war with Iraq. "USA Today" reported today they may begin leaving this week. It said alerts issued in recent days could involve more than 10,000 troops. Also today, the Navy hospital ship "Comfort" left Baltimore, for duty in the Indian Ocean. The "Comfort" last deployed during the Gulf War. Israel stepped up pressure on the Palestinians today, after yesterday's in suicide bombings in Tel Aviv. 22 people were killed in the blasts, and more than 100 wounded. We have a report from John Irvine of Independent Television News.

JOHN IRVINE: Here burial takes place as soon after death as possible, a religious requirement that helps the country as a whole quickly absorb each attack before there's another. This soldier's funeral was one of 22 necessary following the Tel Aviv atrocity. ( Shouting ) The double suicide bombing wipes out any hope that six weeks of relative calm in Israel heralded a turning point. ( Sirens ) The new year has brought no change. Visiting the wounded, Prime Minister Ariel Sharon pledged that terror would be defeated. He ordered military retaliation, but given the death toll in Tel Aviv, it was a limited response. A couple of metal workshops in the Gaza Strip were destroyed by helicopter gunships. In addition, the Israelis banned Palestinian officials from leaving Yasser Arafat's battered headquarters to travel to London next week for a Middle East conference organized by the British government.

JIM LEHRER: In Washington, a White House spokesman said Israel has a right to defend itself. But he also said the Israelis should consider the potential consequences. Pakistan has told the U.S. Military not to cross the border from Afghanistan without permission. The Pakistani defense minister said that today. Last month, a Pakistani border guard shot and wounded a U.S. soldier along the border. On Friday, the U.S. Military said it reserved the right to enter Pakistan in pursuit of fighters from Afghanistan. House Democrats offered an economic plan of their own today, a day before President Bush spells out his plan. Kwame Holman reports.

KWAME HOLMAN: The Democrats met this afternoon to put the finishing touches on their plan to stimulate the economy. Afterward, the entire Democratic leadership team briefed reporters. Number two Democrat Steny Hoyer said his party's proposals will spur immediate growth without adding to long-term deficits.

REP. STENY HOYER: This proposal, is targeted to those who are consumers, targeted to working families, targeted to those who need help in this flagging economy, and who will in turn spend money to grow the economy, create jobs, and create economic well-being in our country. But it will not, as the oath says, do any harm to long-term health of the American economy because it is targeted responsibly.

KWAME HOLMAN: The Democrats' plan would cost $136 billion over ten years. It would extend unemployment benefits, insuring laid-off workers are eligible for 26 weeks of federal aid; give all workers an income tax rebate this year of up to $300 per person or $600 per working couple. The plan also would cut payroll taxes, give tax cuts to small businesses, and give aid to states to promote infrastructure and homeland security projects. In contrast, according to House Minority Leader Nancy Pelosi, the President's plan would take the country in the wrong direction.

REP. NANCY PELOSI: This is a stimulus package. This is our jumpstart to the economy as opposed to the President's plan of careening off the road, recklessly jeopardizing long-term fiscal soundness for our country.

KWAME HOLMAN: Late this afternoon, President Bush responded, saying Democrats are criticizing a plan they haven't even seen.

PRESIDENT GEORGE W. BUSH: This is the plan that provides tax relief to working citizens. It's a plan that is a very fair plan. It's a plan that recognizes when somebody has more of their own money, they're likely to spend it, which creates more jobs.

KWAME HOLMAN: The President is scheduled to release his economic plan tomorrow in Chicago.

JIM LEHRER: On Wall Street today, stocks rallied on reports the President would call for ending the tax on dividends. The Dow Jones Industrial Average gained more than 171 points, or 2%, to close at more than 8773. The NASDAQ rose 34 points, nearly 2.5%, to close at 1421. A number of governors were sworn in today, amid tough times. In California, Democrat Gray Davis began a second term. Aides said he'd call for tax increases and spending cuts to deal with a budget deficit of $35 billion. In Minnesota, Republican Tim Pawlenty faces $4.5 billion in red ink. He said today it's an opportunity to redefine state government. And in Wisconsin, Democrat Jim Doyle warned that his state's deficit could top $4 billion. Governors also took office in Arizona, Idaho, Nevada, and Wyoming. Former House Democratic leader Dick Gephardt has joined the Democratic Presidential field. He made his announcement in a written statement over the weekend. In it, he said: "On nearly every issue of importance to the country President Bush is leading the country either down the wrong path, or not leading at all." Republicans today chose New York City to host their Presidential convention in 2004. Governor George Pataki said the decision sends a message that "New York is back," after the 9/11 attacks. Democrats will have their convention in Boston. Eleven police officers went on trial in Miami today in a series of shootings that killed three black suspects. The officers were all Hispanic. Prosecutors said guns were planted to make it appear the suspects were armed. The trial began as John Timoney became Miami's police chief, pledging to end department corruption. He's a former Philadelphia chief. That's it for the News Summary tonight. Now it's on to handling the nuclear problems with Iraq and North Korea, Senators Hagel and Biden, what are stock options, and what is e-mail doing to us.

NEWSMAKER

JIM LEHRER: North Korea and Iraq, the International Atomic Energy Agency has the responsibility for monitoring the nuclear weapons programs of both countries. Ray Suarez talked earlier today with the head of that agency.

RAY SUAREZ: Director General ElBaradei, welcome back to the program.

MOHAMED ELBARADEI: Thank you very much, Ray, for having me.

RAY SUAREZ: As of today, what are you asking the North Koreans to do?

MOHAMED ELBARADEI: Well, Ray, what we are asking North Korea to do today is come into full compliance with their nonproliferation obligations, and specifically allow us to go back to North Korea, allow our inspectors to be back to oversee the nuclear facilities in North Korea, allow us to clarify the undeclared enrichment program, allow us to verify that we have seen all the plutonium they have produced; so, in sum, come clean insofar as their nonproliferation obligation, make us confident that they have declared all the nuclear materials they have and they are using it for peaceful purposes. The message is clear to them: If they do that, Ray, the international community is ready to cooperate with them. If they continue the policy of defiance, then there is no deal, then nobody is willing to negotiate with them under duress or under nuclear brinksmanship.

RAY SUAREZ: Well, what happens if they either ignore you or outright refuse, does the IAEA have any enforcement power?

MOHAMED ELBARADEI: Well, the enforcement power lies with the Security Council. I think under our charter if North Korea or any other country were to be judged in noncompliance with its nonproliferation obligation, then we are bound to report to the Security Council and then the whole question goes to the Security Council, and it is then up to the Security Council to decide what would be the next step. Our role, Ray, is an early warning; our role is to verify that countries are living up to the nonproliferation obligation. If we find a case of noncompliance, we raise the red flag, we make an early warning, and we report the matter to the Security Council. We do not have an enforcement measure ourselves, but we rely on the Security Council.

RAY SUAREZ: Does today's communication to the North Korean government include any time frame for compliance?

MOHAMED ELBARADEI: Well, the resolution asks me to report back to them, to the board of governors, our executive body, as a matter of urgency. So I have transmitted the decision to North Korea. I expect them to report back to me or to respond in a matter of days, or weeks at the most. If they do not, then I'll have to go back to the board of governors, and the board then will report the issue to the Security Council. So it's a fairly urgent situation. I think North Korea understands the urgency of the situation, and it's a question of weeks and not months.

RAY SUAREZ: North Korea has been kind of open in public about some of the things, some of the moves that it's made in the past couple of weeks. What is the nature and extent of the things that they're doing that violate current agreement?

MOHAMED ELBARADEI: Well, they are under the current agreement, Ray, supposed to have our inspection on the ground, supposed to have our cameras and seals attached to their nuclear facilities for us to make sure that all their activities are devoted to peaceful purposes. They threw out our inspectors; they removed our cameras; they removed our seals and therefore they are running their nuclear activities completely without any international oversight, and that is a basic noncompliance with their nonproliferation obligation. They also said that they are going to start the reprocessing plant, which will produce plutonium. If they do that without international oversight, that's not only a matter of violating their international obligations, but it's a matter of at least concern, because plutonium can be used directly to manufacture nuclear weapons.

RAY SUAREZ: Well, these agreements were put in force back in 1993 and '94. Until now, how were the North Koreans doing? Were they in compliance until very recently?

MOHAMED ELBARADEI: Until very recently, they were in compliance in part, Ray. They were in compliance in the sense that they allowed us to verify that all the nuclear facilities are not operating. We were verifying what was called the freeze of their nuclear activities. That was part of the agreed framework between the North Koreans and the UN 1994 framework agreement. So they were in part in compliance with their obligations, however, we were not allowed until all throughout this year to verify how much plutonium they produced in the past. They were supposed to come into compliance with that part of their obligation when they received a major part of the reactor that they were promised under the agreed frame work. So they were in partial compliance, I would say. Now they are in total noncompliance.

RAY SUAREZ: Well, for its part, the government in North Korea says that it has security concerns, that it's been threatened by outside powers, and that during these years other parties have not met their obligations under the treaty so they felt free to breach because they needed to, for instance, generate their own power. How do you answer North Korea's concerns in these matters?

MOHAMED ELBARADEI: Well, I answer North Korean concern by saying that you may have concern, security concern, economic concern, allegations or claims that others have not lived up to their responsibilities or their obligations, but the resolution to that is not through throwing the towel, by complete defiance -- by trying to engage the other parties in a dialogue, try to respect your part of the deal, and try to talk to the others and make sure that you will also respect the part of the deal. A policy of escalation, a policy of nuclear brinksmanship, a policy of total defiance will clearly not lead to an agreed solution. It simply polarized the situation, and that's what's happening today. What we need to do is get back the parties to the negotiating tables, get the North Koreans and the U.S., the Japanese, the South Koreans, and everybody else to the negotiating table, and the first step that needs to be taken is for North Korea to say we are ready to comply with our international obligation, but we also need you to do the same and not to say we are completely renouncing every obligation, we are completely adopting a policy of defiance, because nobody no member of the international community is willing to negotiate under duress, and that's what North Korea is doing now trying to blackmail. And you would understand that no other country is ready to sit and negotiate under these kinds of situations. So the chance now is to convince North Korea that a policy of compliance and not a policy of defiance is much more conducive to a solution of its perceived problem and that's what we are trying to work on right now, Ray.

RAY SUAREZ: Is North Korea a signatory of the nuclear nonproliferation treaty?

MOHAMED ELBARADEI: Yes, they are, Ray. They are signatory to the nuclear nonproliferation treaty for over 15 years. They have a safeguard agreement with the agency under the nonproliferation treaty since 1992, and that's why we are concerned, because they are violating their obligation under the nonproliferation treaty.

RAY SUAREZ: Well, when a state violates, goes into breach, neglects its treaty obligations, does that take off the pressure on other countries in the neighborhood? Is one country processing these fuels, for instance, a destabilizing force in an area that sometimes is home to great tensions?

MOHAMED ELBARADEI: Yes, of course, -- I mean, the whole nonproliferation regime is based on mutual confidence that all the neighbors commit themselves not to make nuclear weapons. If one of the neighbors decides to renounce their obligation -- decides to go the nuclear weapon route -- that clearly creates a situation of instability in the region. And that's why you see all this concern in East Asia, in Northeast Asia. Because of the situation in North Korea, Japan is very much concerned, South Korea is very much concerned, and the solution is not for more countries to try to employ nuclear weapons; the solution is to get North Korea and everybody else to abide to abide by their international obligation not to develop nuclear weapons. I think security, regional and global, is much more enhanced by an environment where nuclear weapons are not acquired, are not depended on, and not used as a threat to settle international disputes.

RAY SUAREZ: At this stage, what's the difference between the IAEA's posture toward Iraq and North Korea, and what's the difference between the situation on the ground in the two countries?

MOHAMED ELBARADEI: Well, I think there is some difference, Ray. In Iraq right now we are on the ground; we are doing an inspection. Iraq is cooperating at least in terms of process, in terms of opening doors to us, in terms of allowing us to do what we want to do. North Korea is completely shutting up its doors. We are not allowed to go back; we do not have any inspection in North Korea. So the situation we have one situation of a country cooperating, another of a country in complete defiance; these are two situations which are obviously different. People, however, sometimes ask the question: why are you subjecting Iraq to a strict regime of sanction and not North Korea, and the answer to that, that the situations are quite different in many ways. Iraq has been subject to sanction because of its policy in the past of invading Kuwait, because of its use of chemical weapons against Iran. In North Korea, with all that policy of defiance, North Korea has not used its force outside its borders, have not used any of its weapons of mass destruction, and, therefore, the international community would like to give North Korea one more chance to come into compliance, but clearly, if it does not comply, if it continues the policy of defiance, I do not see any option but referring the matter to the Security Council and there again the Security Council might decide on more enforcement measures similar to what has happened in the case of Iraq.

RAY SUAREZ: You mentioned that Iraq is from your point of view cooperating with the inspections. President Hussein has basically called your inspectors "spies," says they're doing intelligence work for people who are preparing to attack the country. Does that change the nature of what's going on from the point of view of the IAEA?

MOHAMED ELBARADEI: No, it doesn't, Ray. I think we hear a lot of accusations from different quarters at different times, but for us, our job is clear. It's to do an impartial, objective, thorough inspection and to be able to report to the Security Council of what we see in terms of Iraq's acquisition of weapons of mass destruction, nuclear weapons, and in our case we will continue to do our job in a professional and thorough way. We are used to people accusing us of being biased, of being spies, but we know what we are doing, and we are confident that we are doing our job in a professional and objective way, and that's how we intend to proceed.

RAY SUAREZ: Director General Mohamed ElBaradei, thanks again for joining us, sir.

MOHAMED ELBARADEI: Thank you very much, Ray, for having me.

JIM LEHRER: Still to come on the NewsHour tonight, Senators Biden and Hagel, stock options as money, and your e-mail.

FOCUS DUAL DILEMMAS

JIM LEHRER: More now on North Korea and Iraq from two members of the Senate Foreign Relations Committee; The outgoing chairman, democrat Joseph Biden of Delaware, and Republican Chuck Hagel of Nebraska. The UN is going to give North Korea one more chance, Senator Biden. How serious is this thing getting?

SEN. JOSEPH BIDEN: I think it's very serious. I think that we seem to be a bit bereft of a policy here. None of this policy of I think what they call a creative containment or whatever the phrase was, Jim, the administration is talking about, it rests and relies upon the cooperation of South Korea, Japan and to a lesser extent but importantly China and Russia, and they don't seem to want any part of this policy of isolation. And the bottom line here, Jim, is that they're going to be able to produce in a very short time another half a dozen nuclear weapons. If they get that plutonium uncorked, it's stuff that they can sell, they can, the very reason we're going after Iraq in part is to make sure that weapons of mass destruction don't get in the hands of terrorists, and North Korea proliferators. So I would say this is urgent.

JIM LEHRER: Senator Hagel, the world used a while ago was "blackmail," that North Korea is in the process of blackmailing us and the rest of the world. Do you agree, is it that kind of thing that's happening?

SEN. CHUCK HAGEL: Well, I'm not sure I'd use blackmail, Jim. As Senator Biden said, this is a very serious situation. I think where we are today working through the International Atomic Energy Agency obviously tomorrow will be important here with the South Korean presidents national security advisor in for consultations, South Korean government has been involved over the weekend in these consultations. The process that we are now following is the correct process. Blackmail, I'm not sure is the appropriate term. But the fact is, as President Bush said today, that we want to settle this peacefully, diplomatically, and I believe the present course of action is the correct course, and that is through the United Nations, and with our allies, and with those nations there in that region of the world that would be most affected by a nuclear North Korea.

JIM LEHRER: But, Senator Hagel, have I missed something, or hasn't the president also said that the United States will not negotiate with North Korea because to negotiate with North Korea would in fact be blackmail?

SEN. CHUCK HAGEL: Well, the President said today, Jim, and you probably sawsome of the transcript, that if North Korea would comply with a couple of the requests here that the I AEA is asking them to comply with, our partners, our allies, our friends in that part of the world, then the President said dialogue would be in order. We should sit down. I think we are going to have to sit down. And I think we should handle it just as Colin Powell has been handling it, carefully, quietly, let's get all the players, those affected, in a room. We are doing that, and find a way out of this. But it is serious. And in the end, Jim, your attribution of blackmail may in fact be the case, but I'm not sure I would attribute it to it at this point.

JIM LEHRER: Senator Biden, going back to what you said, the policy doesn't seem to be working in some way. Now, what is on the table now apparently is that South Korea has said, hey, we'll mediate this, we'll mediate between you the United States and they North Korea and the rest of the world. Does that make sense to you, is that possible?

SEN. JOSEPH BIDEN: Well, it's possible, but what it really says to me, Jim, is that South Korea isn't going to be any part of this idea of total isolation of North Korea. And that creates a gigantic problem for us. I mean, we have sort of two negotiations here. One is to have a common position with South Korea. And it seems to me that to end up in discussions with the North, does not mean we negotiate, but what is necessary, I believe, is for the North to demonstrate that they put something on the table first. I believe that the way out of this is if through South Korea or through China or any other interlocutory they were to allow the UN inspectors back in, if that's done, then there's reassurance that we will sit down and talk with you, I think that is not a negotiation, that's just common sense. But this is, I'm not sure if it's blackmail or not, Jim, because I'm not sure how stable the northern regime is. Thinks an incredibly isolated regime, who I think many times is their own worst enemy in their calculations; they miscalculate so often. And the only conflict that's worse than one that's intended is one that's unintended. So there's back channels moving here, according to the administration, the secretary. I hope they are active. But the bottom line is, we're going to end up having at some point, however we construct this, having to sit down with North Korea and say, look, there's a way out of your total isolation to join the world, but these are the conditions upon which you have to meet. But until we talk, the only option left is, there aren't many what do you do, do you strike North Korea if they continue to produce or produce additional nuclear weapons with South Korea opposes it? You know, there's not many other options.

JIM LEHRER: Do you agree with that, Senator Hagel? The question has always been do this or else. What's the or else here, those of us being in the United States and those who support us are saying to North Korea, what are the other or elses?

SEN. CHUCK HAGEL: Of course that's the trap you can find yourself in very quickly. And that's, I think, where the President does not want to drift to, because if you play the "what else" card, then you're going to have to produce something. And we don't want to do that. And for all the reasons you know and Joe and I think most of us understand, when you've got 37,000 American troops trapped between South and North Korea, and all the other consequences that could develop here if this isn't handled right we've got a pretty serious situation on our hands. So as Joe laid it out, and I think that's essentially where the President is, is we do want the dialogue, and we I believe are going to have to have that communication. The last thing we want to do or should do in my opinion is try to isolate North Korea. They are very dangerous, they're unpredictable, and they have a past behavior pattern that's a bit erratic. That is not good news for any of us. So I think we keep the emotions down and keep working the channels.

JIM LEHRER: And you feel that's where we're headed? You feel good about it?

SEN. CHUCK HAGEL: I don't know if I feel good about it, Jim, but I think that's where we headed. I think if we stay steady and resolved here and handle this in a wise way with our allies and partners over there, we can find a way out of this. But just as you said and as Joe Biden said, if you get into a corner where you've got to play the "what else" card, then that's when this becomes very dangerous.

JIM LEHRER: Speaking of getting dangerous and where we're headed, Senator Biden, on Iraq, the International Atomic Energy Agency, the International Atomic Agency said today that their inspectors thus far had found nothing, had found no smoking guns. Does that important, does that mean anything at this stage of the game?

SEN. JOSEPH BIDEN: Well, I don't think it's important in terms of whether or not he has weapons of mass destruction in fact. I think it's important in terms of world public opinion, international community, what kind of support we would get from moving absent a smoking gun . He still has not accounted for the materials that the world knew he had before the inspectors left, that in and of itself is evidence of the fact that he either still has them or isn't telling us how he destroyed them. But I do think, Jim, internationally, for the United States to be able to move in with 100 plus thousand forces into Iraq, there is going to be a need for some further evidence that he is in violation of the commitment made to the UN in the early 90s. And I think we're getting to the point where we're going to have to risk the loss of sources by sharing some information with Hans Blix and the inspectors, in order to be able to accomplish that.

JIM LEHRER: Do you agree, Senator Hagel?

SEN. CHUCK HAGEL: Well, I'm not sure we're there yet. It may well be that that's what it will come to. But I think we should play this out. The next event here is January 27th, when Blix reports to the Security Council of the United Nations. Let's let this process work up until then. Then we'll probably have to make some kind of decision. But it should be in unison with and coordination with under the auspices of the Security Council of the United Nations.

JIM LEHRER: Senator Hagel, what do you say to those folks who are saying increasingly, commentators on this program and elsewhere, wait a minute, every day, in fact today I reported in the news tonight, I reported in the news summary, call-up of more reservists, more elements from the first marine division are moving toward the Gulf -- the buildup of U.S. forces and people are saying, there's no way in the world the United States is going to commit that kind of money and resources and not eventually use them no matter what the inspectors come up with. What do you say to that kind of talk?

SEN. CHUCK HAGEL: Well, I still believe, Jim, maybe I'm one of the few left or the only one left, that war is not inevitable. Obviously for the President to show a strong hand, he has to marshal that forward deployed force and do what he's doing. Now, this gets us back to the North Korean question, where we're talking about the what else or where else, because once you have that kind of fire power and that kind of force structure in that part of the world, then you are going to have to do something with it. And our word, our credible is at stake here. But I would prefer to think right now that the President is showing a very strong hand that he is willing to do what we need to do if it comes to that. I hope with the United Nations Security Council to disarm Saddam if there is no other resource.

JIM LEHRER: Senator Biden, is Senator Hagel alone in thinking that --

SEN. JOSEPH BIDEN: No, I'm still one of those who thinks there's a possible we can avoid war. The cost of committing these forces and bringing them back without using them is considerable. But the cost of the war is considerably more. And so I think the President still would like to avoid a war. But I quite frankly don't think that since it takes so much time to move these forces, he has a whole lot of option. I might argue whether or not he should be doing it now or in a month. But that's sort of Monday morning quarterbacking, I'm not a military man; I'm not going to second guess that judgment. But I do believe that the President has to be prepared to demonstrate the capacity to use force if in fact there's noncompliance, although it is costly. I mean, I would be very happy if the end result of this was, quote, we wasted the money and didn't have to use those forces, because no matter how much that cost, it will cost considerably more, and we may need to, but it will cost considerably more to go to war.

JIM LEHRER: Senator Biden, Senator Hagel, thank you both very much.

SEN. CHUCK HAGEL: Thanks, Jim.

SEN. JOSEPH BIDEN: Thank you, Jim.

FOCUS SHARING THE WEALTH

JIM LEHRER: Now stock options. More than 100 companies already have agreed to voluntarily treat options as an expense in the wake of corporate scandals, but should it be mandatory? Our business correspondent Paul Solman of WGBH-Boston reports on that debate.

PAUL SOLMAN: As you drive through Silicon Valley these days, the landscape seems a little lonely. At least 25% of the office space in and around San Jose is now vacant-- some tens of millions of square feet. The dot.com bomb has cleared out building after building, eliminating some 100,000 jobs in the process. The signs of the times: "Painted over" or "up for grabs." Small wonder, then, that at a recent luncheon meeting of the San Jose Super Rotary Club, they weren't just chowing down, but bonding...

SINGING: God bless America...

PAUL SOLMAN: ...In defense of life, liberty, and the pursuit of happiness.

SINGING: My home sweet home.

PAUL SOLMAN: Happiness, however, was not the theme of the rest of the afternoon.

T. J. RODGERS, CEO, Cypress Semiconductor: They're attacking us right now. They're attacking the fundamental wealth creation mechanism that made Silicon Valley.

PAUL SOLMAN: T.J. Rodgers is the defiant, libertarian CEO of Silicon Valley's Cypress Semiconductor. The way he sees it, politicians in Washington are out to kill the goose that laid their golden egg with a pernicious accounting change we'll explain in a bit: The expensing of stock options.

T. J. RODGERS: If you look at the per capita income in San Jose, it's higher than California, it's double the per capita income of the United States. Why is that? Well, we're successful because the way we share the wealth is with stock options.

PAUL SOLMAN: Stock options: To their defenders, perhaps the greatest recent innovation of free market capitalism. To their detractors, like those in Washington, an unnecessary corporate device that has been widely abused. To those who favor them, options are simply granting employees the right-- that is, the option-- to buy stock in the future at a bargain price, usually today's price of, say, $9.50 a share. Then, when the stock goes up, you can exercise your option by buying the stock at the low option price and immediately selling it at the new market price, thus pocketing the difference. Options supposedly motivate workers, like these at the Foundry, a Silicon Valley complex of medical device start- ups. The simple reason is that with stock, the workers become part owners of the company, get to share in the wealth they supposedly help create. And for recruiting executives, especially at new firms, venture capitalist Bob Pavey, who's invested here at the Foundry, says options have become a must.

BOB PAVEY, Venture Capitalist: We need to be able to attract talented executives who have built things before and know what they're doing. And to be able to get people to give up the... the big company perks and all that other kind of stuff, they need to have a piece of the action, they need to have a share of the ownership.

MARK DEEM, Engineering Director, The Foundry: Going into to the right carotid artery.

PAUL SOLMAN: One of Bob Pavey's top executives is Mark Deem, who's developing a new catheter to remove blood clots from the brain. Deem himself needs to hire talent away from established competitors on a limited-- some might say a bare bones-- budget.

MARK DEEM: And they've got matching 401(k)s and a workout room and all the other big company perks. What do I have to offer? Here's a lower salary with a huge risk that in two years the company won't exist and you'll have to go fight to get back into a big company. Why would they do it? I mean, why... why would anybody?

PAUL SOLMAN: "Why would anybody" at any of these firms, from the top to the bottom? Kara Liebig works for Mark Deem.

KARA LIEBIG, Business Manager, The Foundry: Come on, let's be realistic. There's got to be something at the end of the tunnel. So, that is the light. It's, you know, what fuels all the innovation. It pushes people to work harder, to be more creative, because the payoff is there for everybody.

PAUL SOLMAN: But in that case, options skeptic Graef Crystal asked a group of money managers recently, "how do you explain the fact that options don't actually seem to correlate with better company performance, at least when it comes to CEOs?"

GRAEF CRYSTAL, Former CEO Pay Consultant: You know, with all those stock options, at the very time that options reached their acme of size, what happened to the market price? Not only is there no correlation, in fact, there's a negative correlation. If options were so great, if anything, the technology companies stock should have weathered the storm and gone up. But in fact, they're the ones who are the hardest hit of all.

PAUL SOLMAN: And worse still, say critics, as options grew to account for some 80% of CEO pay in recent years, they helped fuel the great accounting frauds like Enron. That is, executives had an incentive to goose their short- run stock price and cash in their options quickly, and thus to monkey with the financial statements. Starting in 1998, when Enron's stock began to defy gravity, CEO Ken Lay exercised options on hundreds of occasions, pocketing over $200 million in gains. His successor, Jeffrey Skilling, exercised more than $100 million worth of options, many of them just before the company tanked. But why were executives given such huge options grants to begin with? According to Graef Crystal, it's because companies treated stock options as if they weren't an expense, didn't cost their companies a dime.

GRAEF CRYSTAL: There's an ancient dictum in accounting: "Never measured, never managed." And this is what we have with stock options, because people just... they just think they're funny, funny money. You know, there's no charge to earnings, so just give them out.

PAUL SOLMAN: Which leads us to the big current policy proposal that the granting of stock options should now be an official expense on the company's books. In Silicon Valley, this idea made T.J. Rodgers even more defensive.

T.J. RODGERS: You've got the government running business. And if they're allowed to get away with what they want to do, they will turn the switch off on the economic engine that runs our valley.

BRETT TRUEMAN, University of California, Berkeley: I can't believe that there are people in Silicon Valley who still think that stock options shouldn't be expensed.

PAUL SOLMAN: Brett Trueman, the head of accounting at Berkeley's Business School.

BRETT TRUEMAN: There is no question that those stock options are a compensation to employees. Clearly, they like getting them. If they didn't, I'm certainly happy to take them off their hands. And so that means that current stockholders are giving up something of value to them. So there's no question at all they're an expense.

PAUL SOLMAN: So why are they having such a problem with what to you seems so obvious?

BRETT TRUEMAN: Oh, it's very clear why they're having a problem. They do not want to tell stockholders how much they've been spending on options to date. That's why they say that when options are expensed, they're going to cut back on the options.

PAUL SOLMAN: On this point, T.J. Rodgers, in a sense, agrees. Congress is considering legislation to expense options in ways that would make them seem very expensive.

T.J. RODGERS: They are going to pass laws that, in effect, will make stock options so expensive to give out that we won't be able to given them to our people.

PAUL SOLMAN: That is, Rodgers argues, at tech companies especially, treating options as an expense could wipe out reported profits. Consider the potential hit to computer chip-maker Intel's bottom line.

T.J. RODGERS: Intel has estimated that their earnings would be reduced from $2.0 billion to $0.24 billion a quarter. Well, you can only imagine what would happen to Intel's share price.

PAUL SOLMAN: And at Rodgers' own company, chip maker Cypress, losses of about three dollars a share in 2001 would have increased to more than four dollars a share. It's not just Silicon Valley companies that would be affected, though. In corporate America as a whole, options now account for some 15% of total shares of stock. But that's one reason famed investor Warren Buffett supports expensing them: Because they're such a thick slice of the total. And then there's Federal Reserve Chairman Alan Greenspan, another supporter of expensing.

PAUL SOLMAN: Why does Alan Greenspan support the expensing of options?

T. J. RODGERS: Alan Greenspan has never started a company, never created a job. He's been an academic all of his life. So, Alan Greenspan runs around in Washington giving speeches so, what would he know about the economy other than changing an interest rate that he happens to control?

PAUL SOLMAN: Now Rodgers may sound a tad, single-minded. So when he finished his rotary speech, I stepped in with a quick question.

PAUL SOLMAN: How many people here would want options to be expensed when they're issued? I'm not voting, I'm just... ( laughter ) ...showing you how to do it. One, two, three, four. How many people do not want options expensed when they're issued?

PAUL SOLMAN: Despite Silicon Valley's united front, however, the pressure is on to expense options, deduct them from profits. So then, the big final question: Why do public companies care so much about the expensing issue?

What difference does it make if every investor already...

T. J. RODGERS: Well, I think Intel cares if their quarterly reported earnings drops from $2 billion to $0.24 billion by a factor of ten.

PAUL SOLMAN: But sophisticated investors know that it's just a paper...

T.J. RODGERS: But sophisticated investors aren't all of the investors, and other investors don't understand it.

PAUL SOLMAN: At last, then, the key to the anti-expensing argument: That unsophisticated investors will be discouraged by lower reported profits.

BRETT TRUEMAN: But the reality is that the SEC and other regulatory bodies are looking to help investors who aren't necessarily very sophisticated.

PAUL SOLMAN: To Berkeley's Trueman, the opponents of expensing have it exactly backwards: Unsophisticated investors need a full and clear accounting.

BRETT TRUEMAN: And to do that, you need to put important information on the major financial statements, the balance sheet, and the income statement, rather than sort of hiding it in a footnote where a lot of investors, smaller investors, less sophisticated investors wouldn't be able to ferret out the implication of that information.

PAUL SOLMAN: And why, in the end, does it matter economically?

BRETT TRUEMAN: Without giving investors that information, they might instead think this company is more valuable than it really is. And that's bad for the economy, because what you want in the end is for companies to be correctly priced so that money in the capital markets flow to those companies that are most profitable.

PAUL SOLMAN: Of course, the folks in Silicon Valley also want the money to flow. It's just that they're afraid it won't if profits suddenly seem to vanish due to an accounting change that could frighten the economically faint of heart.

FINALLY YOU'VE GOT MAIL

JIM LEHRER: Finally tonight, the e-mail revolution. It not only connects us all, it may also be changing us all. Media correspondent Terence Smith takes a look.

TERENCE SMITH: It's a whole new language.

BOY: There's g2g. And that means "got to go."

GIRL: L.O.L. For laugh out loud.

TERENCE SMITH: With an avalanche of acronyms and a sea of new words, electronic mail, or e-mail, and its progeny, instant messaging and text messaging, are changing the content and rhythm of the English language. This revolutionary new means of communication came into general use less than a decade ago. Today, an estimated 90 million Americans routinely use e-mail.

PATRICIA O'CONNER: We're all sitting down and writing hundreds of little letters every week.

TERENCE SMITH: Patricia O'Conner is co-author of a book about e-mail entitled, "You Send Me." She says e-mail, still in its "Wild West" stage, encourages language that sounds nasty, brutish, and short.

PATRICIA O'CONNER: The result is that even people who are very... ordinarily very nice people, can come across as brutes in e-mail, quite unintentionally.

TERENCE SMITH: With its "to", "from" and "subject lines," she says e- mail is the ideal breeding ground for rudeness.

PATRICIA O'CONNER: If I met you on the street and we knew one another, we wouldn't walk up andjust, bam, start a conversation in the middle of nowhere. There would be a greeting, there would be some sort of pas de deux between us, then we'd explain ourselves, and then there would be a leave taking. Even animals do this when they run into one another -- ( Laughter ) dogs on the street.

TERENCE SMITH: So it's faster, but not as civil?

PATRICIA O'CONNER: Yes. We have the impression that we don't have the time to look again at something, to choose our words carefully, to introduce ourselves, explain ourselves, take leave at the end. We do have time for those things, what we don't have is the patience.

TERENCE SMITH: The statistics on e-mail are staggering. Estimates run as high as three trillion messages a year in North America alone. E-mails to and from businesses have grown exponentially as well, with the average employee sending about 20 e-mails daily and receiving about 30, not all of them wanted.

VOICE: You've got mail.

TERENCE SMITH: Because of their speed, e-mails seem almost ephemeral, but they are not. Wall Street wizard Jack Grubman learned as much when his private e-mail boasting of his influence over stock ratings, came back to haunt him as part of a government securities investigation.

SPOKESMAN: People in an e-mail will say things that I don't think they would ever say on the phone.

TERENCE SMITH: News organizations-- the NewsHour included-- say viewer mail has increased dramatically as e-mail's popularity has grown. Leroy Sievers is executive producer of ABC News' "Nightline."

LEROY SIEVERS, Nightline: I have no idea if they're representative or not, but it also just gives us a window of what some people are thinking.

TERENCE SMITH: Does the e-mail have an impact on the editorial product?

LEROY SIEVERS: We don't change our editorial sense of the story based on the e-mail. The one thing I do do -- and the one that really brings people out is whenever we do the Middle East. And my thing is as long as we are getting e-mails from people who are pro-Palestinian saying we are biased, and as long as we are getting e-mail from people who are pro-Israel saying we are biased, I figure we are doing okay.

TERENCE SMITH: E-mails have also become a vital part of the government's historical record. The Clinton administration, for example, generated an overwhelming 40 million e-mails. The National Archives is currently working with the staff of the San Diego supercomputer to figure out how to preserve them as the software on which they were written becomes obsolete. But overall, e-mail's most lasting effect may well be on language.

JESSE SHEIDLOWER, Oxford University Press: You'll generally talking about C.C.-Ing someone.

TERENCE SMITH: As a verb?

JESSE SHEIDLOWER: As a verb. You will say things like "offline" meaning "inaccessible," "unavailable," not only in a computer sense.

TERENCE SMITH: Jesse Sheidlower is principal North American editor of the "Oxford English Dictionary." He says e-mail has spawned any number of new words and phrases, like "chat room" and "snail mail," and the term for that junk mail of the Internet-- unsolicited, unwanted e-mail.

JESSE SHEIDLOWER: "Spam" is one of the best known and widely used words that have come almost directly out of e-mail. You have spam, you have "spam filtering," you have "spammers," you get "spammed," and anyone who's done any kind of e-mail knows that this is a real problem.

TERENCE SMITH: What's the derivation of the word spam? Does it have anything to do with the tinned meat?

JESSE SHEIDLOWER: Only indirectly. It ultimately stems from a Monty Python routine.

ACTOR: I don't like spam.

ACTOR: Spam spam spam spam...

JESSE SHEIDLOWER: Where a bunch of Vikings are eating in a diner basically shouted out...

ACTORS: Spam spam spam spam...

JESSE SHEIDLOWER: Drowning out any other conversations so that you couldn't communicate, and it's a reference to that.

TERENCE SMITH: E-mail is also changing punctuation, says author Patricia O'Conner.

PATRICIA O'CONNER: An emoticon is a little face made of punctuation marks. You have to look at it sideways.

TERENCE SMITH: Sad. Happy.

YOUNG MAN: Like, when you are not talking to someone in person, you need the smiley face just to show the kind of tone you are using.

TERENCE SMITH: But with the dots, dashes, and smiley faces now common in e-mail, O'Connor worries Americans will forget why punctuation really exists.

PATRICIA O'CONNER: Punctuation has really taken a beating in e-mail. It changes meaning. That's what punctuation is all about. It's not supposed to be decor.

TERENCE SMITH: Among the younger set, e-mail offers a way to avoid social interaction altogether. For 18-year-old Dorothy Nederman, for example, it's a convenient way to connect with former boyfriends, without, of course, really connecting.

DOROTHY NEDERMAN: You won't talk to them for a while, and then, you'll just decide, well, perhaps I will e-mail them and see how they are doing without actually having to talk to them.

TERENCE SMITH: E-mail and text messaging are beginning to eclipse that traditional teenage pastime, phone chatter. At least seven million text messages are zipping between phones everyday.

GIRL: I text message during school, because I can't use my phone during school.

SPOKESMAN: Are you tired of the flab around thumb?

TERENCE SMITH: One AT&T wireless commercial spoofs a British study that suggested that thumbs are actually evolving as a result of incessant text messaging.

WOMAN: With all the text messaging you are going to do with AT&T wireless, your thumb is going to need that extra strength.

TERENCE SMITH: Wireless phone companies see the explosion of text messaging in Europe and Asia as the precursor of things to come in the U.S.

SPOKESPERSON: We are promoting text messaging.

SPOKESPERSON: Free posters...

TERENCE SMITH: Cingular wireless gives the uninformed a guide to the abbreviated language of text messaging. The unanswered question: Will it make short communication even shorter?

GIRL: SUP, which is like "was'up," which comes from "what's up?" What's going on kind of thing.

TERENCE SMITH: Jesse Sheidlower has no problem including many of the new acronyms in English dictionaries.

JESSE SHEIDLOWER: If words like NATO or FBI are in the dictionary, there is no reason why BTW Or AFAIK can't be in the dictionary.

TERENCE SMITH: Sheidlower and O'Conner say not to be alarmed. Historically, as technology has changed, so have manners and language. Society has somehow survived. Is this a revolution?

PATRICIA O'CONNER: With language, there are revolutions going on all the time. When telephones were first installed, there were protocols about when to telephone, about how to answer, how to ring off, about what kinds of things you would talk about on the telephone, and what kind things you wouldn't. I don't think e-mail is going to stay rude and blunt and as barbaric as it is. I think its going to evolve.

TERENCE SMITH: From where you sit, is this the end of civilization as we know it?

JESSE SHEIDLOWER: No, not at all. I mean, from where I sit, it is the beginning of civilization because, again, what you see here is people communicating in writing at a scale that they haven't done before. And this is great.

TERENCE SMITH: And so, dear viewer, TTFN -- Ta-ta for now.

RECAP

JIM LEHRER: And again the major developments of this day: The UN nuclear agency gave North Korea one last chance to comply with international nuclear obligations. On the NewsHour this evening, the agency head ElBaradei said North Korea cannot blackmail the world to get the aid it wants. Israel stepped up pressure on the Palestinians after twin suicide bombings killed 22 people Sunday. And House Democrats offered their plan to stimulate the economy. We'll discuss that tomorrow night, along with the economic proposals President Bush is to present tomorrow. We'll see you then, and online. I'm Jim Lehrer. Thank you and good night.