The MacNeil/Lehrer NewsHour

Intro ROBERT MacNEIL: Good evening. Leading the news today, Israel rejected a United Nations resolution opposing plans to deport Palestinians. President Reagan said he planned no withdrawal of forces from the Persian Gulf. The U. S. dollar had another strong day in overseas market. A bitter cold spell gripped the East, forcing thousands of homeless people into shelters. We'll have details in our news summary in a moment. Jim? JIM LEHRER: After the news summary, an Israeli ambassador and a former U. S. official disagree over Israeli policy toward Arab protestors. We look at bank fraud and bank failures with FDIC Chairman William Seidman and a documentary report from Houston. And we close with a Minnesota report about farmers and the laws of bankruptcy.News Summary ROBERT MacNEIL: Israel today rejected a United Nations resolution challenging its plan to deport Palestinians and criticized Washington for backing it. The resolution adopted unanimously by the Security Council last night called on Israel not to deport Palestinians implicated in recent violence. Foreign Minister Shimon Peres said the U. S. vote was a serious deviation from the framework of U. S. --Israeli relations. There were more incidents involving Palestinians in the occupied areas. Israeli troops shot and wounded at least four more Arabs in the West Bank and the Gaza Strip amid growing protests against the planned expulsions. In the town of Qalqiliya, soldiers fired tear gas and rubber bullets to disperse protestors. Troops clashed with stone throwing demonstrators in nearly a dozen other sites throughout the area. Jim? LEHRER: The size of the U. S. force in the Persian Gulf became a public question today. There had been published reports over the weekend that the Pentagon was considering reducing the number of U. S. in convoy escort duty. Defense Secretary Frank Carlucci is in the Gulf now on an inspection trip. He told reporters today in Bahrain that he had made no such decision. And back in Washington, President Reagan was shouted a question about it after a bill signing ceremony at the White House.

REPORTER: Mr. President, are you ordering ships out of the Gulf? PRESIDENT REAGAN: I don't answer questions that have (unintelligible) No. LEHRER: Secretary Carlucci, in an interview with ABC this morning, stopped short of ruling out a forced reduction, saying he would review the situation with Pentagon officials and Mr. Reagan when he returns from the Gulf. There were more encouraging words today about Soviet troop withdrawals from Afghanistan. They came from Soviet Foreign Minister Edvard Shevardnadze at the completion of a two day trip to Afghanistan. He told the Afghan News Agency that he hoped 1988 would be the last year of a Soviet troop presence there. MacNEIL: The U. S. dollar surged on foreign currency markets again today, boosted by reports of a secret agreement by the U. S. , West Germany and Japan to stabilize the currency. The report by the Japanese Broadcasting Corporation was not confirmed but the dollar made big gains against the yen, the British pound and the West German mark. On Wall Street, after gaining 92 points in two days, the stock market showed only a small gain today, with investors reported skeptical that the dollar's rise could be sustained. The Dow Jones average of 30 industrial stocks closed up 6 1/2 points. LEHRER:The cold weather remained a big story today in most of the country. Heavy snow, and/or freezing temperatures, continue to plague much of the midwest and East. The mercury dropped to 10 below zero in Des Moines, Iowa, 35 below in Huron, South Dakota and 14 below in Chicago, where the cold claimed at least one death. A major winter storm left up to 16 inches of snow from the southern Rockies to the Mississippi Valley. Forecasters said the storm is moving east, a second blast of arctic air is expected to hit over the weekend. MacNEIL: Cities in Ohio today prepared emergency measures to provide drinking water as a giant oil spill from Pennsylvania reached their doorstep. The spilled diesel oil was expected to reach Wheeling, West Virginia, 87 miles downstream from Pittsburgh, where the spill occurred, tomorrow. Wheeling rigged pipelines for alternate supplies across the Ohio River. Ohio Governor Richard Celeste declared a state of emergency for communities preparing to cut off water intake pipes. LEHRER: In Los Angeles today, a Federal Grand Jury indicted 9 people for the torture murder of a U. S. drug agent in Mexico. The nine include a Mexican drug dealer and three former Mexican police officials. They are accused of killing agent Enrique Camarena Salazar near Guadalajara, Mexico in 1985. All but two of the nine are in custody in Mexico or the United States. And that's it for the news summary tonight. Now, U. S. and Israeli differences over policy in the occupied territories, bank failures and bank frauds and foreign bankruptcy. U.S.C. Vs. Israel MacNEIL: Our first focus tonight is the U. S. vote against Israel in the United Nations Security Council last night and the Israeli response to the rebuke. The U. S. State Department said the U. N. vote would not affect long term relations between the two countries. The vote was on a Security Council resolution called upon Israel to drop plans to expel nine Palestinians from occupied Gaza and the West Bank. The American vote was the first passed by the U. N. since 1981. After the unanimous decision, Deputy U. N. Representative Herbert Oaken, explained the Administration's position. HERBERT OAKEN, Deputy U. N. Representative: On January 3 the Israeli government announced its intention to deport nine Palestinian civilians whom it has identified as leaders of the recent or other disturbances. The view of the United States is that deportation of individuals from the occupied territories is a violation of Article 49 of the Fourth Geneva Convention which prohibits individual or mass forceable transfers ''regardless of their motive''. The United States further believes that such harsh measures are unnecessary to maintain order. They also serve to increase tension rather than contribute to the creation of a political atmosphere conducive to reconciliation and negotiation. We have therefore voted for the resolution, which calls upon Israel to refrain from carrying out the envisaged deportations. MacNEIL: The Israeli government today voiced its displeasure with the U. S. vote. For more on its reaction, we go to Benjamin Netanyahu, Israel's Ambassador to the United Nations. Mr. Ambassador, before we get to that, is Israel going to go ahead and deport the nine Palestinians it says it wants to? BENJAMIN NETANYAHU, Israeli Ambassador to U. N. : They will appeal to the Supreme Court. If the Supreme Court does not accept their appeals, I will assume we will go ahead with . MacNEIL: Now, on your reaction to the U. S. vote. Israel says its disappointed with the resolution. Did you expect anything else when Washington, for twenty years, has taken a consistent position on deportations from occupied areas. AMBASSADOR NETANYAHU: I think we might have expected this particular position on the U. S. in normal circumstances. But I think what we have here is a pattern by the P. L. O. and others in the Arab camp who try to maneuver, in our judgment, the United States to take part in an anti Israeli campaign in repeated resolutions against us. And we're disappointed, not because the U. N. passed another anti Israeli resolution -- that's a dog bite man story -- but the fact that the U. S. went along with it, that is . . . MacNEIL: That became a dog bite man story. AMBASSADOR NETANYAHU: That becomes a man bites dog story, to a point. I don't think we should magnify that point. MacNEIL: I see. Now, but. . . Well, if you'd expected under normal circumstances that the U. S. would have gone along, as it did in 1980, for example, supporting a U. N. resolution chastising Israel for expelling the West Bank, deporting the West Bank mayors -- had you in the meantime, in the last few days, saying to the U. S. 'don't do it this time because it will send inappropriate signals' hoping that the U. S. would change its mind. . . AMBASSADOR NETANYAHU: The answer to your question is, yes, we did exactly that. But I must tell you that we didn't find a completely unreceptive ear to our argument that what is being done here is a stage for conducting political propaganda against Israel in the Security Council. It's been used that way before and It's being used for that purpose right now. Having said that, I think that there is a lot of magnification and distortion and exaggeration, as Mr. Edmund, the State Department's spokesman himself said, about an alleged Israeli American rift to those who are looking for that proverbial wedge, I don't think there is such a rift. For the information of your listeners and viewers, the U. S. worked very hard to soften this resolution and, indeed, toned it down, and I think that the basic alliance between the two countries is such that despite our specific difference on this particular point, I think that the United States sees eye to eye with us on the need to, not to send the wrong signals to the extremists, to the P. L. O. The U. S. has not changed its policy in that regard. MacNEIL: It is being widely reported by American reporters who are on the scene in the West Bank and Gaza that, far from having instigated these demonstrations over the last few weeks, that the P. L. O. is playing catchup in this case, is trying to run along behind and catch up with what's going on in the West Bank and that the idea that it is behind the demonstrations is just wrong. AMBASSADOR NETANYAHU: Well, you know, the actual beginning of this thing was indeed an accident that happened in Jabalya? On the date following this accident, where an Israeli truck driver ran down by accident a few Arabs, the P. L. O. newspaper, and its broadcast, said 'this is all an act of revenge by Israel for something that happened a day earlier, it was done by a brother of an Israeli stabbed to death in an Arab market. ' And they began to inflame this. They also have a system of network of operatives in the field who are systematic inciters. There's no question that they're involved in this. To say that all of it is the P. L. O. 's part -- no. To say that a lot of it is -- yes. In fact, having rounded up this network of inciters, we see a reduction, not a disappearance, but a significant reduction in the level of violence instantaneously. MacNEIL: Okay, we'll come back. Jim? LEHRER: An American response now to the Israeli response. It comes from retired U. S. diplomat Roy Atherton, who held several key Middle East posts, including Assistant Secretary of State for the Near East, Special Middle East Negotiator, and U. S. Ambassador to Egypt. Mr. Ambassador, was the U. S. vote correct and proper last night? ROY ATHERTON, Retired U. S. Ambassador to Egypt: Yes I think it was. LEHRER: Why? MR. ATHERTON: Well, there's been a lot of talk about the signals that we send and I think we have to ask what kind of a signal would we send if we had opposed that resolution given our consistent position for twenty years that deportation of inhabitants of the occupied territories is contrary to international law, contrary to the Fourth Geneva Convention. We have, as has been pointed out, in 1980, just about seven years ago, where we took exactly the same position on an analogous resolution, supported a resolution which deplored Israel's expulsion of the mayors and called for their return. If we had changed that position I think it would have sent a signal to the whole world that the United States was not consistent, was not standing on a very firm position on this particular issue. And I think one has to look at it in terms of a very specific issue. It has nothing -- it doesn't say anything about the broader question of it was right and who's wrong and the whole peace process. I think there's enough blame to around there for everybody. But on this specific issue we have to be consistent, it seems to me. LEHRER: And it should be read in its most narrow sense, then? MR. ATHERTON: No, I don't think it should be read in the narrow sense. Obviously, what's happening in the West Bank and how Israel deals with it, how the world reacts, how the United States reacts, all have significance for the future of the Arab Israeli peace process and it would be very narrow minded to abstain to all of that. What I am saying is that this is a very clear cut issue. So often these issues come before the United Nations and there are ambiguities. Very often, I think, we have a very good record of opposing what we have considered one sided resolutions, where Israel is criticized and no note is taken of the fact that there are two sides to the story. This is a very clear cut issue on which we have a long, consistent position, and it seems to me, we could not have done anything else but what we did. LEHRER: What about the danger that Ambassador Natanyahu just suggested, that the United States is being maneuvered by the P. L. O. and others of like mind to get onto an anti Israeli bandwagon situation? MR. ATHERTON: Well, there's no question but that the P. L. O. is trying to draw advantage from the position we've taken. That is not, however, the intention of the American position. We did not do this to send a signal to the P. L. O. that would encourage them to be tough. We've taken a very consistent position that the P. L. O. as well as other parties have to induce new flexibilities into their positions to try to get the peace process started. And if this is read as a signal of any change in that U. S. position, that would be a misreading. We didn't do this to toughen the P. L. O. We did this just to send a signal to the whole world, including the Arab world and Israel, that the United States has certain principles that it stands on. LEHRER: What is your reading of the situation on the ground there as far as the P. L. O. 's complicity or blame for what has happened on the West Bank and Gaza, for the violence, for the rioting? MR. ATHERTON: Well I think the Ambassador is correct that the P. L. O. has tried to take advantage of the situation but there is, quite apart from P. L. O. manipulation, there is an undercurrent of tension, of ferment, after twenty years of occupation, a new generation that has come of age since Israel's occupation in 1967, is beginning to boil over. There's a lot of spontaneous combustion in this situation, in my opinion. LEHRER: You saw the statement on the tape that Mr. Oaken made in the U. N. last night, and his position, what he said was that you, Israeli actions -- the deportation actions specifically -- are not helpful toward resulting in a peaceful solution to that. You agree with that . . . MR. ATHERTON: I agree with that. I think this simply gives additional arguments to the people who would like to oppose the peace process. LEHRER: I mean, we're playing into the hands of, I mean the Israelis are playing into the hands of . . . MR. ATHERTON: Well, the extremists. There are extremists on both sides of this issue. There are extremists on the Arab side, there are also those in Israel who do not want to at least go down the peace process that most of the world is now exploring, namely, an international conference. So I think creating this kind of atmosphere in the West Bank and Gaza, the deportations feed it, simply strengthens those who say there is no prospect for peace therefore why even start down that road. LEHRER: Mr. Atherton, thank you. Robin? MacNEIL: How about that, Mr. Ambassador, that the deportations inflaming the situation? AMBASSADOR NETANYAHU: I think quite the contrary. What's inflaming are the network of professional insiders, many of whom, by the way, have records of murdering and bombing people to death. The problem we have is what to do about it. Now under the same Geneva Conventions that are being touted in our case -- by the way, we're the only country who's actually applied any of the provisions of the Geneva Convention to date -- we have the option of, for example, taking the more extreme cases and putting them on trial and then put the death penalty on them. We don't want to do that. We don't want to incarcerate them for life either. We're not concerned right now with the question of punishing these particular people. What we're trying to do is restore calm and tranquility to the areas. That's the first order of government. And in order to do that we want to take away these people from this territory. We don't believe that is against international law. We believe it actually coheres with it. We have a difference of view with some people but our intention here is very clear. Our intention here is to restore calm and tranquility and nothing more. MacNEIL: Do you think it will do that, Mr. Atherton? MR. ATHERTON: I happen to think that this particular type of measure will have a contrary or counterproductive effect. I wouldn't question for a minute, and I think it was in Ambassador Oaken's statement, that Israel has the responsibility to preserve law and order in the occupied territories. So we're not having any differences on that issue. The difference is really over how one does it and this particular measure of deportation we have considered illegal and counterproductive for twenty years and that's a very consistent position and I think one that we have to stand on. AMBASSADOR NETANYAHU: Well, you know, of course there is a question that arises that if this is the consistent American position, since Jordan applied these very same measures -- beginning, by the way, with the British mandate rule in 1945 -- why didn't we have Security Council meetings, why didn't we have condemnations of this practice earlier? And I think there is a lack of consistency here, there is a double standard when applied to Israel, particularly when its very clear that what we want to achieve is (a) that tranquility, but second, since you mention the larger question of how to achieve a resolution of this conflict, you cannot really proceed to the second without solving the first. You cannot get to the negotiating table under Molotov cocktails and under bombs. You want to restore that peace and that calm. MacNEIL: Let's look for a moment at the reason for the Molotov cocktails and the bombs. It is traditional, for any government in the position yours is in at the moment where civil disturbances, whether in an occupied territory or within its own territory, to say they're being fomented by some particular group. It's just always done that way. AMBASSADOR NETANYAHU: That doesn't make it untrue, as you know, and when it is true, and it is true in this case. MacNEIL: No, but Mr. Atherton's point, that there is -- his words were 'a lot of spontaneous combustion there' -- is that recognized by your government, is that agreed to, there is a lot of spontaneous combustion after twenty years of occupation? AMBASSADOR NETANYAHU: Well you know the traditional, the answer to your question is, I would answer it, the question -- there is some spontaneity but there's a lot less than you think. What the people are normally signalling, I think you're trying to imply, is this: you're saying there's frustration that's come about because of lack of political progress and this breeds frustration and this breeds violence and terrorism, etc. I would argue more often the case the opposite takes place. That is, that the men of the gun, terrorism and violence, prevent political progress. And that's the cycle that we find ourselves in. You talk about frustration, I can tell you we're frustrated too. For twenty years we've been trying to reach a political settlement on this and I'm afraid to take issue, I'm afraid I have to take issue with Mr. Atherton, everybody in this room wants peace. Everybody wants direct negotiations. We may have some differences on how to proceed but I wouldn't call the people who differ on the idea of an international conference extremists. That does, that applies to half the people of Israel at the very least. MacNEIL: Mr. Atherton? MR. ATHERTON: If I implied that those who oppose an international conference are extremists I certainly did not mean to imply that. What I am saying is that there has been no visible progress towards peace for, really since the Egyptian Israeli peace treaty. There is frustration, there are new ideas in the air, the international conference has achieved a great deal of international support, it is supported, as I think the Israeli Ambassador would agree, by about half of the government and about half of the population of Israel, it is supported broadly in the international community and I think the fact that it is not going anywhere because, among other reasons, there is a paralysis of the Israeli government on how to move forward on the peace process adds to the frustration. It isn't that Israel doesn't want peace, I would acknowledge that I think that everyone in Israel wants peace. Its what you're willing to pay to get the process towards peace started. MacNEIL: That's true, isn't it? I mean, within the coalition government there's pretty much a stalemate on this question. There's an equally strong or equally weak support for moving ahead with an international conference . . . MR. ATHERTON: There are other ideas as well. This is one of the ideas. But there's no question about the desire or the need . . . MacNEIL: Is he right about political paralysis within . . . AMBASSADOR NETANYAHU: No, I wouldn't say that. There's disagreement on this particular point. There are agreements on many other things. But I would like to get back to a more fundamental question and that is, why are we not moving for twenty years? Why do we not have a movement? After all, Israel has called for direct negotiations, its offered one plan after another over twenty years, we cannot find an Arab interlocutor. Now there are two reasons why we cannot find an Arab interlocutor. One, most of the Arab world still rejects the very idea of real peace with Israel, real unconditional, direct negotiations to have peace, in this boundary, in that boundary, just to accept Israel not by fact, the fact that it exists, but by dint of its right to exist. And the second reason is that there are some Arab leaders who deviate from that position but for them to come out and say so and to argue coexistence and peaceful negotiations is for them very dangerous because they could be put to death and many have been put to death. So the same . . MacNEIL: You're saying the frustration on the West Bank and the Gaza strip is the fault of Arab leaders. AMBASSADOR NETANYAHU: I'm saying that the conditions, of course, the very conditions that exist here are the conditions that were brought about by the people who launched the war of extermination in the first place in 1967 from these very territories that were under Arab hands. And now they say 'we refuse to negotiate a political settlement. We just want to orchestrate international pressure on you to get out so we can come back in to try to exterminate you again. ' That's not a formula for peace. MacNEIL: Mr. Atherton? MR. ATHERTON: I'd have to differ, I think, with the Ambassador a bit. First of all, I said earlier that there's enough blame to go around as to why the peace process is bogged down and I really don't think it's very fruitful to get into an argument about who did, who should have done what in the past. We are in a situation where it is not getting better, where there is this ferment in the occupied territories, where every avenue for peace, I think, has to be explored, where there is a great deal of support for the approach under the umbrella of an international conference. It seems to me that the ingredients are there for continuing ferment and unrest and that we have to, all of us, look for ways to go beyond what has been tried in the past, and that's beyond the slogans of the past, and I'm afraid that I'm hearing here a great many slogans of the past. AMBASSADOR NETANYAHU: I thought I had been hearing the same things. MacNEIL: Mr. Atherton, let's move it on to another area in our last couple of minutes. Suppose that the demonstrations are, at least to the degree that you believe, spontaneous combustion and they continue and grow as such demonstrations tend to do, at least when they're being paid the attention these are by the international media, and Israel continues to try and restore order in the manner it's been doing. What happens MR. ATHERTON: Then, I'm afraid, that the problem will go on and on and it's not, it seems to me, going to be permanently suppressed by force alone. I fully agree the occupying power, Israel in this case, has the responsibility to try to preserve law and order. The question is how to do it. We, as a government, have taken a strong position against the use of lethal force. I think to Israel's credit it has been moving toward less than lethal force as a way of controlling it. The argument on this particular issue in the Security Council is really a very narrowly focused argument. It's the argument over deportation as a method of trying to defuse the situation. Our judgment as a country has been that it has the opposite effect because it is seen broadly as a violation of an international agreement. MacNEIL: Let me get a final answer from the Ambassador. What policy does your government have beyond controlling and restoring order in the West Bank and the Gaza Strip, what other manner or way does it have to approach this situation? AMBASSADOR NETANYAHU: It's a very simply thing. It's called negotiations for a political solution. Our whole problem is that the people who would negotiate are afraid to come and negotiate. The reason they're afraid is that because they're terrorized. To the extent that we send signals to the Security Council or in other ways to the P. L. O. that says 'It's okay, continue to have the Molotov cocktails, you'll get the approval and Israel will be condemned by the world community. That, to the extent that that happens, we move further away from peace and I think we have to reverse that trend, and rapidly. MacNEIL: Mr. Ambassador, Mr. Atherton, thank you for joining us. Jim? LEHRER: Still to come on the NewsHour tonight, bank fraud and failures and bankruptcy laws for farmers. Troubles in the Banking Business LEHRER: Troubles in the banking business is where we go next. One hundred eighty four banks failed last year in this country, the most in one year in the last 50 years. Fraud by bank managers and employees was one of the causes. We will look at it specifically in a few moments with a report from Houston. But first, a bank failure's overview from the government's chief bank regulator, William Seidman, the head of the Federal Deposit Insurance Corporation. The FDIC insures consumer deposits in the banks and then picks up the pieces and the tab when a bank goes belly up. The 1984, or the 184 failure count for 1987, was released yesterday by the FDIC. Mr. Chairman, welcome. Why so many failures in 1987? WILLIAM SEIDMAN, Chairman, FDIC: The primary cause is that there are certain areas in this country that are in near depression in their economy. This affects the weaker banks and over half of the bank failures take place in three states -- Louisiana, Texas and Oklahoma. LEHRER: All related to oil? MR. SEIDMAN: Well they were related to the general economy and those, that is the oil patch, and the oil patch is suffering. LEHRER: Well what happened to these banks? Were they just poorly managed, did they just become overcome, or is it hard to generalize, or give me some specifics? MR. SEIDMAN: Well I can say this, that first, times are rough. The weaker managements fail. So that's number one. Two, there's at least fifteen to twenty percent of the bank where some fraud was indicated as part of the problem, and third, banks are now operating in a much more competitive manner because of deregulation, and that certainly had something to do with it. LEHRER: How was that? How does deregulation . . . MR. SEIDMAN: Well, the banks used to be able to regulate it both on what they could pay in interest and what they could charge and if you have that kind of regulation in the sticks it's tough to fail. LEHRER: In other words, they had a form of protection? MR. SEIDMAN: They had a form of protection which was simply not possible to continue in the kind of economy we've had over the last ten year. LEHRER: Alright, now what about the other fifty percent that are not in Texas, Oklahoma and Louisiana? What's the, what's . . . MR. SEIDMAN: They are primarily west of the Mississippi. Twenty three states had no bank failures. Most of those are east of the Mississippi. And those were also in states where there were economic problems related to agriculture, primarily in the midwest where they have been through a near depression but are starting to recover. But the same kinds of things took place. The economy affected the banking system. LEHRER: Is this something we should be worried about? We, meaning all of us? MR. SEIDMAN: Well, I think we have to put it in perspective. Looking at it overall, we have almost 14,000 banks. If 184, that's 184 more than we want to but it doesn't jeopardize the system. The FDIC, which insures them, is sound. With all these bank failures we'll about break even today. We have $18 billion in resources. So I don't think one should look at it as jeopardizing the system. LEHRER: Now what do you mean by break even? MR. SEIDMAN: I mean that this year, given the receipts that we have from the premiums we charge banks and our income . . LEHRER: You don't work like a regular insurance company in that respect? MR. SEIDMAN: We are considered to be a regular insurance company. The only thing we don't have is a big sales force because the banks sort of have to have our insurance. LEHRER: Right. So the receipts, it means that the banks have paid you all a certain amount of money in premiums . . . MR. SEIDMAN: That's correct. About a billion and a half dollars. LEHRER: Okay. And the amount of money you've paid out this year . . . MR. SEIDMAN: Well, we've got a billion and a half on our capital, on our investment with the U. S. Treasury so we have a little more than $3 billion which comes in and at the end of the year we'll have $3 billion, a little more than $3 billion that goes out, so we'll have about what we started with. LEHRER: So the 184 failures up to this point have not, how much has it cost the taxpayers? MR. SEIDMAN: It costs the taxpayers nothing because the taxpayers -- there's no federal money from the budget put into our agency. We operate solely on the premiums we charge the banks, plus the interest we get on our investment. LEHRER: Have you done any projections or guess work, or whatever -- I'm sure you wouldn't call it guess work -- any projections (I'll stick with my first word), any projections on what the situation's going to be like in '88? MR. SEIDMAN: Well, I'll accept (unintelligible) guess. LEHRER: Okay. MR. SEIDMAN: But our best thinking now is that we may see some small improvement over this year. We may have a few less failures. Unfortunately we don't see any dramatic improvement. Our best gig is how many banks we have on our so called problem bank list. Those are banks which we've identified as perhaps being a problem in the system. There are something just under 1,600 on that list. It has been the same for practically all of '87 so it's hard to predict if we're going to see a substantial improvement. LEHRER: Define a problem bank for me, sir. MR. SEIDMAN: Well, we do bank examinations, the controller does bank examinations, and at the end of that we rate the bank from 1 to 5. One is where you want to be and five is where you don't want to be. Those are identified as 4 and 5, because they have problems with their portfolio of loans, with their systems, with the way their management is performing, are the banks that we're concerned about as probable or, not probable failures but probable troubled bank. LEHRER: Now what do you do about those 1,600? MR. SEIDMAN: Well we, and the controller and the regulators, go into those banks. We try to straighten out what they're doing. If we can't do it by talking to them we order them to straighten it out. We order them to put more capital into the bank. Those are our principal concerns in terms of the cost of the insurance money. LEHRER: Does the average bank customer do business with banks that aren't on that 1,600 list? MR. SEIDMAN: Well we don't publish that list so that the average customer will not know whether a bank is on that list or not. I think, well, one of the problems is that people tend to take a rating by the government when there's something of major importance, and that could really undermine those banks, and we don't think that's a wise idea. But we have just put out an order that all bank make their statements available to the customer. There'll be a sign in the lobby that says if you want to find out about this bank ask this way, we'll give you the statements. And I think that customers would be wise to look at that. LEHRER: But how would they know what that means? What kind of statement are they going to get? Are they going to get a bunch of numbers? MR. SEIDMAN: Well it is a bunch of numbers and there, they may need some help in looking at that statement. After all, if they have less than $100,000 in the bank they're insured and the fact of the matter is that they really don't have to worry about that bank as far as their deposits are concerned.

LEHRER: You're going to take care of them. MR. SEIDMAN: We're going to take care of them. LEHRER: Okay. Mr. Seidman, don't go away because we're going to talk about fraud and Texas, as you said, was the state hardest hit, one of the states hardest hit by bank failures in 1987 and while the down turn in that state's economy was the major reason, so was fraud. And we have a report from Dan Gifford, of Public Station KUHT in Houston.

DAN GIFFORD:20Failures of banks or savings and loans are tempted to all look alike. Why? Regulators move in, the regulators move out. Tears are shed. The locks are changed. Then explanations are given. JOHN NORRIS, FDIC: The insurance covers the first $100,000 in each account. Any amounts that were in excess of this would be uninsured. However, they would have a right, a claim against the receivership. GIFFORD: The reason that failures tend to sound alike as well -- bad loans caused by a bad economy. Especially in Houston and other parts of Texas, where the double whammy of an oil bust and a real estate bust have left the financial debris of failed lenders hidden behind impressive facades. Fraud is suspected of being the real culprit at many lending institution failures. Houston's Justice Department fraud chief, John Smith: JOHN SMITH, Justice Department: The FBI tells us that of the 14 recent banking closures here in Houston, that they have had criminal referrals from the FDIC or the FSLIC in seven of those cases, so they think that there may be fraud in about fifteen percent of the closings. GIFFORD: Prime examples, Mayland Savings & Loan in Houston, with more than $100 million in losses at last count for possible insider deals and account looting, Western Bank Corp. and three subsidiary banks: $250 million in losses accounting for possible insider deals and officer bribes; Bank of North America: alleged insider deals on loans and a possible murder plot to cover them up. Total losses at this time: unknown. All the activity assures that these and some twenty other Houston FBI agents will probably be busy for years sifting through financial records trying to piece together evidence of forgeries, misrepresentations, muddy arithmetic and various schemes in suspected fraud cases. Meanwhile, federal case loads are getting heavy. In Dallas, a federal task force has gotten indictments in a number of large fraud cases while in Houston federal grand juries issued almost three hundred subpoenas in 1987 for financial crimes. The Grand Jury indictments that are landing defendants in courtrooms like this one are for crimes that very few people really understand. After all, financial fraud isn't the same thing as a simple bank robbery. There aren't any guns or scruffy suspects or pictures of the actual event that maybe a security camera caught. These crimes are complex, they're difficult to explain, often taking years to investigate. Sometimes they're carried out solely by crooked officers and other insiders, but just as often, with the help of well dressed, articulate scam artists that know how to appeal to those officers' sense of greed and vanity to steal huge amounts of money from this country's financial institutions. A case in point, the man the FBI agents have in their car, previously convicted con man, J. R. McConnell, who allegedly pulled off the largest bank fraud in U. S. history, stealing $162 million through an elaborate borrowing scam. Total losses from his deals top $1 billion, with more indictments expected as soon as investigators figure out how he did it. ED PANKAU, Private Investigator: Be it super salesmanship or a class of criminals that never goes to jail, we're talking about civil criminals, people that don't violate the criminal statutes but they cause more damage and destruction. GIFFORD: Ed Pankau is a former Internal Revenue Service organized crime agent who now specializes in financial crimes as a private investigator. He finds that old style crimes, like embezzlement, still draw jail time, while many newer frauds don't. He says most con men aren't even caught. They just move on to where the pickings are better. ED PANKAU: Well, the money right now is in New England. Providence, Rhode Island, Boston, Massachusetts, Hartford, Connecticut have had escalating financial values and have become the current place where all the business deals are being done. So the money is there now but I think that they're at the peak of the curve and it's next going to go to Atlanta or the Florida area again, where they were depressed 12 years ago, they're now the up and comer in the financial flow. GIFFORD: Private Investigator Rob Kimmons, a former Houston police officer, says con men usually can't do their deals without inside help from corrupt lenders. ROB KIMMONS, Private Investigator: We've had, for instance, one director that had eighteen corporations and then the savings and loan that he's on the board of directors of has provided the funding for these different corporations and often times they're just shell corporations and money is being funnelled through them. GIFFORD: Yet a common ploy, insiders funnel money through a finder's fee scam. Apartment developer Ron Marr ran into that one when he needed money to keep his company afloat. In a complex scheme, Marr was required by the lender to buy some overvalued foreclosed property and to borrow more than he really needed in order to get a low interest rate. That excess borrowed money, plus Marr's own collateral cash, ended up in the loan officer's pocket as a finder's fee, he says, for making the loan. RON MARR: -- was, they made off with several hundred thousand dollars of our money, we wound up with a bunch of worthless property that was loaded with debt. GIFFORD: Scams are a sensitive subject among lending officers. These bankers at a Houston conference on government audits are like any others. They're under tremendous pressure because of deregulation and increased competition to produce profits for their companies. Texas Banking Commissioner Ken Littlefield says that the fallout from that post regulations free for all could easily shake consumer confidence, something that hasn't happened yet. KEN LITTLEFIELD, Texas Banking Commissioner: I would just add to that that, you know, the bank failures that we've had in Texas have been, the businesses have been transferred to another bank in a very orderly fashion. Generally depositors don't lose any money with that, certainly no depositor that's up to $100,000 has lost any money, and the public has really reacted very well. We rarely see any depositor run off or any kind of panic. So I think the public still have a basic trust in the system, that the system works, the deposit insurance system is sound for banks, and they generally don't take their money out. GIFFORD: University of Houston Banking Professor Pat Horvis is a former director of research and assistant to the chairman for policy at the Federal Deposit Insurance Corporation. He thinks there's a tendency to assume criminal activity when lending institutions fail these days, a holdover from earlier times when it may have been true because banking profits then were virtually guaranteed. PAT HORVIS, University of Houston: The only way you could really lose money in the banking business was by doing something crooked and hence it was easy on the basis of looking at the results, if a bank went bust it was a good bet that there was something crooked involved. Now we've got a situation where the economy is much less favorable than it was. We have a number of institutions that have failed because of bad luck in the economy, and because, in part perhaps, there was mismanagement or incompetence. But it's very hard to distinguish on the basis of the results whether the people were good guys or bad guys. GIFFORD: Scott Woodward, head of the Justice Department's Criminal Division in Houston says that investigators and prosecutors are careful to separate one situation from the other. SCOTT WOODWARD, Justice Department, Houston: There are badges of fraud that clearly distinguish between those people who have criminal intent and those people who, through some sort of bad business judgment, have found themselves in difficulty. That is not the case in the bank fraud cases that we indict and prosecute throughout the country. In those cases I think it's safe to say there are clear indications of criminal intent. PETER RIGA, Former Law Professor: We are graduating, for all practical purposes, a bunch of legal and financial barbarians. GIFFORD: Peter Riga, former law professor, who sees the fast buck attitude as a part of today's business school training. He's written extensively on ethical issues. PETER RIGA: It is no longer the barbarian that wears a leopard skin suit and goes about with a big club. The barbarian is someone who is untutored in the philosophy and ethics of what he does and the dimension of the work he does that affects on people. And consequently these barbarians wear Brooks Brothers suits and write with a ballpoint pen, but they are barbarians nonetheless because they don't take into account or consideration what these things do to real people. GIFFORD: Investigators agree. They're seeing a more pervasive attitude in the financial community for looking out for number one. ED PANKAU: I found that there's a great difference in the con man and the crooks, so to speak, that I investigated ten or fifteen years ago, both as a federal agent and in this firm, as the people there are today. They're much younger, they're more mobile, and they've grown up without that Christian work ethic of believing to try and do good and to work hard. GIFFORD: But where others see an ethical difference, Professor Horvitz sees naivete that's never been through hard times. Prof. HORVITZ: Those that remember the thirties, and they're pretty much gone from the banking business now, were much more cautious and conservative in their general attitudes. Those who are running bank now haven't been through that and the view, particularly in places with an optimistic, booming culture like Texas where things are always going upwards and onwards, that you might make a little mistake in a loan judgment today but the booming of the economy that would work that out a year or so down the road. GIFFORD: At fist blush, it's very easy to get the notion that the kinds of financial crimes people are being accused of here in Houston are somehow unique to Houston, and maybe to Texas. But Justice Department officials we spoke to said that's not the case. They also said that the kinds of crimes we're seeing here and servicing here are the results of the boom that went bust, exposing the paper trail, a lesson to be learned by other parts of the country that are now riding high. LEHRER: Again, to FDIC Chairman, William Seidman. First of all, to that point, do you agree that the lesson from Texas and Houston is one that there are others who are booming now should pay attention to. Mr. SEIDMAN: I certainly do and I agree with the point that when bankers get overenthusiastic, believing that what goes up will go up forever, an atmosphere is created which allows them to get into real trouble, including lack of vigilance about fraud. LEHRER: Where would you put fraud on the list of causes of the bank failures? Mr. SEIDMAN: Well, we find fraud in about 15% of the . . LEHRER: Fifteen? Mr. SEIDMAN: Fifteen. One five percent of the banks that fail and it is not always the primary cause but it was present so if I had to put a number on it I would say that banks that fail have somewhere around ten percent. LEHRER: What about the point that was made in that tape about what's causing that now. One of them was just the attitude of people looking out for number one, naivete of the some of the younger folks who didn't go through the Depression -- what's your reading on that? Mr. SEIDMAN: Well, that's a hard thing to read, but I think that some of the attitude that affected Wall Street got into some of the people in banking, a relatively small percentage who took the view that, you know, if you could get away with it it was alright. LEHRER: Get away with what? Mr. SEIDMAN: Really not fraud in the criminal sense but using the bank for the benefit for themselves as insiders. Really, a greater problem for us in terms of cost to us as an insurer, are those who favor themselves. They may not criminally do anything but they give themselves low cost loans, they don't really put up collateral that's worth what it's supposed to be -- in other words they use the bank for their own benefit. LEHRER: And they used to not do that? Mr. Seidman: Well, that's always been present in the system but as we're seeing more bank failures and investigate it we're finding more and more of that. We're looking for it all the time. Let me make clear, it's a relatively small percentage of the people in banking but they're the ones that cause the trouble. LEHRER: And who are these people? I mean, how do they get into banking in the first place and is there any system in place that can root them out or do you just have to wait . . Mr. SEIDMAN: Well, they're all the people that very often you'd least suspect. They're people who've been in banking for ten years, there are people who got involved in drugs or got involved in gambling or something -- in other words, if we could find a label to find those people our job could be very much easier. LEHRER: Are there any telltale signs that the average consumer can look at his or her own bank and say 'Hey look, something's wrong here', or is it just so . . . Mr. SEIDMAN: I think it's very difficult. We have a list of telltale signs for our examiners. We call them our red flags. LEHRER: Like what? Mr. SEIDMAN: Well, if they go in and see numerous transactions between a director of the bank and the bank . . . LEHRER: Outside director? Mr. SEIDMAN: Yes, this is an outside director, and it seems an unusual number -- if we see transactions for little banks going to foreign countries. I mean, we have a whole long list of things that says 'this should alert you' and then we have a special squad, if he finds something that looks suspicious to go in and really go in to it. LEHRER: Special squad? Mr. SEIDMAN: Of examiners. LEHRER: Oh, uh huh. And they go in -- when does the FBI get involved? Is it a . . . Mr. SEIDMAN: Well we have an agreement with the FBI and when we find something that we think indicates a possible criminal offense we notify them, they keep a file and we work with them to develop the case. LEHRER: Would you agree with the private investigator who said it's moving to Providence, Boston, and then it's going to go to Atlanta and then to Florida because that's where the books are? Mr. SEIDMAN: Well he knew more about that then I do. I don't think that we have any evidence of that now and I hope he's wrong. LEHRER: You don't put out any fraud alerts that . . Mr. SEIDMAN: Only in individual cases where we find some firm that defrauding the banks. But we don't have any evidence of something like that in those areas. LEHRER: Are there people that you all watch, these floating con men that20were talked about at the first . . Mr. SEIDMAN: We try to identify them and when we do, we notify our banks and our supervisors. LEHRER: Okay. But you say it's not something to get too alarmed about. Mr. SEIDMAN: I think it's not anything that jeopardizes the whole system. It is something that is costly to our insurance fund and we certainly want to correct it. But it isn't challenging the viability of the system. LEHRER: Bill Seidman, thank you very much. Final Summary MacNEIL: President Reagan signed the new Farm Credit Bill to bail out the system that lends money to farmers. We have another story from that troubled area tonight, the story of Jim and Mary Ahlers. They're a southwest Minnesota farm couple at the centre of what could become a landmark Supreme Court case. It's a case that could change the way bankruptcy laws are applied to farms and small businesses and it's scheduled for argument next week. Our report is from Fred Sam Lazaro from Public Station KTCA, Minneapolis St. Paul. FRED SAM LAZARO: The name St. Paul has for generations been associated with successful farming. In the southwest community of Fola, in fact, just a few years ago Jim Ahlers posed in a full page newspaper ad for the local bank. As recently as 1978, by his own banker calculations, Jim Ahlers was worth well over a million dollars and today, from all appearances, this farmstead -- 200 hogs, 560 acres of prime agricultural land and a recently remodelled home -- still paints a picture of prosperity for Jim and Mary Ahlers. But today the Ahlers are more than broke. In Bankruptcy Court two years ago the same bankers put their net worth at minus a half million dollars. JIM AHLERS: Turned out to be a paper world, I think. LAZARO: It's a paper world about which Jim Ahlers admits he knows little, but it's one that against most prevailing legal advice, he chose to fight. JIM AHLERS: I guess I couldn't do it if something's risky. But I guess it's worth something fighting for or trying to save, I mean, that's your way of life when you're 51 years old your ? working days are over, you know, pretty much, you're getting to slow down. What do you do? LAZARO: Jim Ahlers not only succeeded in keeping the banks from foreclosing on his farm, he also provoked what's being called a landmark test of U. S. bankruptcy law. JIM AHLERS: I didn't expect anything like that, really. I never thought I was worth anything, I mean, if we make eleven and try to get ahead or put a little away . . . LAZARO: It was in trying to get ahead that Jim Ahlers eventually fell far behind. In the 1970's with land values skyrocketing, Ahlers borrowed money and expanded his farm. He planned to parcel it out to help his sons to get started in farming. By the early '80s the market for Ahlers' grain and livestock softened. Interest rates on his loans began to go up and the value of the land, the collateral for the loans, began to go down. Ahlers had to take out a second mortgage just to continue operating and by the spring of '84 he cashed in a life insurance policy to buy seed and fertilizer for his crop. JIM AHLERS: Then by along we got the crop out, that's when I got the foreclosure papers served on me. That was a bad day. I got on the phone and well, our oldest boy got out and got after us. MARY AHLERS: I talked to Carl . . . JIM AHLERS: Yeah. But anyway . . MARY AHLERS: . . . the lawyer we had, and he said well, you might as well give them everything, he says . . . JIM AHLERS: . . . about ten percent. MARY AHLERS: And so then our oldest boy came by and he wanted to know what was the matter, he could tell or something, so I told him and he said no, you're going to call the Famine organization in South Dakota and let them help you and so we did. LAZARO: The farm activist group called Famine put theAhlers in touch with Bill Needler. He's an attorney based in Chicago, but on any given day he is more likely found in an airport on his way to a bankruptcy hearing. WILLIAM NEEDLER, Attorney: My recollection was it was a fast meeting, a fast discussion, urgency to get this thing drafted, then sign it and get it up to the court. LAZARO: The Federal Bankruptcy Court agreed with the creditors. It saw little hope the Ahlers would ever recover enough to pay off their debts. An appeal to the Federal District Court read the numbers the same way. But with little to lose, the Ahlers appealed again, this time they succeeded. JIM AHLERS: (Unintelligible) made this ruling that if I can swing it I should be a farmer (unintelligible) It stands to reason, I think. But I didn't understand (unintelligible) protection and all this stuff. I'm not too sure I do yet. I'm not too sure I do yet, you know. LAZARO: To help understand the Ahlers ruling by Appeals Court Judge Gerald Haney, Attorney Needler uses the precedent of a Texas car dealer's battle against General Motors Acceptance Corporation. Mr. NEEDLER: At the time, in 1979, you couldn't give away a Chevrolet. We had 500 of them, let's say. But the fact that they were on this dealer's lot in Abilene, Texas and he was trying to market those and he had them in a marketing program would give that asset more value to General Motors Acceptance Corp. than if they were just sitting over here in inventory, in their inventory. We had the service to go with it, we had the warranties to go with it, we had the sales organization to go with it and by having this business there working on those cars added value to those cars over what they would be if you just took them to the auction. LAZARO: Judge Haney made it easier. Mr. NEEDLER: And he put it in a very easy vernacular to understand. He said that basically it's Jim Ahler's skills in working the land that he can capitalize and add value to the land. LAZARO: In other words, the Appeals Court increased the value of the Ahlers' land. This, in turn, improved their debt to asset ratio, allowing them to continue farming while rescheduling their debt, a so called Chapter 11 bankruptcy filing. Judge Haney also allowed the Ahlers to suspend monthly payments to their main creditors, the Federal Land Bank in St. Paul and Norwest Bank in Worthington, Minnesota. Further, the bankers were allowed no say in the debt reorganization plan. Buck Moore is a Vice President and Norwest Bank: C.P. 'BUCK' MOORE, Vice President, Norwest Bank: The rules that we have been playing by, you know, in bankruptcy or in reorganization, they were rules that were set down a century ago by Congress. This changes the rules. We get into a, we get into an arrange -- an agreement with the farm and we make a loan on the assumption that it's going to be treated a certain way. Then when we get into a bankruptcy and the rules are changed . . . Mr. NEEDLER: The more you liquidate then the more you drive down the value of the land, the more Jim Ahlers that you kick off the land, the more equipment that's sold, the more auctions there are the further down the prices go. LAZARO: Needler says that after sharing in farming's prosperity in the 1970's banks simply want to bail out of no longer lucrative agriculture. Mr. NEEDLER: They actually sent their people out with farm clothes on, and they come to the farm to borrow more money. That changed overnight. And they made a decision, apparently in the board room, no more farm loans. Mr. MOORE: We believe that agriculture has been and is the underpinning of the economy of the Great Plains and that it's going to be here and we're going to be a major player in that field. There are twenty five or thirty percent that wanted to expand, that wanted to grow, they wanted to bring their families in, which is admirable. If they didn't change, if they didn't do something different. And that load continued heavy in their cost state up there and income went down here and they're waiting for it to get better and it ain't gonna get better. DARYL BRUNS: I mean as long as he's out there and still fighting for survival we've all got a chance. LAZARO: Daryl Bruns owns the grain elevator in Iona, Minnesota, and like the banks, is a creditor of Jim Ahlers. Ahlers owes Bruns about $3,000 for livestock feed. But while the Appeals Court decision is a setback for the banks it offers hope for Bruns and other struggling small town merchants. As unsecured creditors they'd get nothing in a foreclosure. Mr. BRUNS: It might take a long, long time for Jim to be able to pay me but if anybody could do it or will do it I'd say Jim would, yes. Mr. AHLERS: Well, I'll keep going. Who know, you know? It can get bad just as it can get good, you know. Just as good as it can get bad, I should say. It's -- I'll sure try to get my way out of it. LAZARO: While there are few people willing to predict what lies ahead for agriculture, the facts between Ahlers and his creditors is now being reviewed by the Supreme Court. At stake is a reexamination of the century old Bankruptcy Code, a decision whether farm skills can be used as an asset in lieu of capital, and finally, whose expertise ways most, farmers, bankers or judges when a court determines who gets a second chance in bankruptcy. MacNEIL: Jim and Mary Ahlers say they'll be making their first visit to Washington next week to hear their case argued before the Supreme Court. Recap LEHRER: Again, the major stories of this Wednesday. Israel rejected a U. N. resolution condemning its decision to expel nine Palestinians from the occupied territories and criticized the United States for supporting that resolution. And the price of the dollar advanced for the third day in a row on foreign currency market. Good night Robin. MacNEIL: Good night Jim. That's the NewsHour tonight and we'll be back tomorrow night. I'm Robin MacNeil. Good night.