The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I m Jim Lehrer. On the NewsHour tonight, our summary of the news; a report on the presidential campaign day; what former Presidents Ford, Carter, Reagan, Bush, and Clinton think of presidential debates, and what polls show about the impact of such debates; plus, looks at another coming presidential election, in Afghanistan; and the growing financial crisis of Fannie Mae, the huge housing lender.

NEWS SUMMARY

JIM LEHRER: Two Italian women won their freedom today in Iraq, along with a number of other hostages. The two Italian aid workers had been seized earlier this month. Two of their Iraqi co-workers were also released today. We have a report narrated by Lindsey Hilsum of Independent Television News.

LINDSEY HILSUM: The pictures all Italy wanted to see, Simona Pari and Simona Torretta released and unveiled. Every moment filmed by al-Jazeera, who were presumably alerted by the hostage takers. The two women were handed over to the Red Cross. "Thank you, thank you, al-Jazeera." Best wishes," she says. They were taken to the airport and are expected to land in Rome later this evening. The family of Simona Pari -- relief beyond words as they waved to the journalists below. Their daughter, her friend and two Iraqi colleagues were held for three weeks until this evening. The Italian and Kuwaiti media reported that a million euros was paid for the women's freedom, half yesterday and half today. The Italian government won't comment. Celebrations in Rome this evening. But when the first flush of joy is over, there will be questions about whether money did pass hands and whether this has implication for other hostages still being held in Iraq.

JIM LEHRER: Later in the day, four Egyptian men were released by their kidnappers. They were taken hostage last week in Baghdad. Across Iraq today, insurgents attacked a military convoy in Basra, killing two British soldiers. A separate attack killed five Iraqi intelligence officers in that city. In Fallujah, U.S. planes again targeted followers of terrorist leader Abu Musab al-Zarqawi. The U.S. military said repeated strikes are hurtinghis network. And in Baghdad, U.S. air strikes hit Shiite strongholds again. Hospital officials said at least one Iraqi was killed. Iraq's deputy prime minister insisted again today that elections will go ahead in January. He said any delay would be a victory for terror groups. The country's top Shiite leader, Grand Ayatollah al-Sistani, warned that so far, conditions have not been set for a fair vote. And King Abdullah of Jordan said extremists would win if elections go ahead amid the violence. He said they're better organized than anyone else. There were new questions today about the upcoming presidential election in Afghanistan. Organizers warned Taliban remnants and others have threatened Afghan refugees in Pakistan to keep them from voting. And the group Human Rights Watch reported Afghan warlords are trying to hijack the election.

JOHN SIFTON, Human Rights Watch: Some of them are making efforts to become democrats and sort of have popular support as such as opposed to threatening people to vote for them, but by in large, most of the factional leaders are using threats, intimidation and bribery to secure support from local populations. That's not democracy and it certainly isn't an atmosphere in which human rights are protected.

JIM LEHRER: The U.S. Ambassador to Afghanistan acknowledged coercion could affect the election outcome, but he also voiced hope.

ZALMAY KHALILZAD: To have the kind of Afghanistan that the Afghan people aspire to, that the international community supports is an Afghanistan in which warlordism is not a feature of the country, and I have to say that I think we've made significant progress in the last several months.

JIM LEHRER: The Afghan vote is scheduled to take place on Oct. 9. We'll have more on the story later in the program. Oil prices traded above $50 a barrel today for the first time. That was despite word that Saudi Arabia will boost production capacity. In New York trading, the price eventually settled just below the $50 mark at $49.90 cents a barrel. Rebels in Nigeria put more pressure on the market, warning they will fight for control of vital oil fields. Democratic vice presidential nominee John Edwards charged today President Bush has failed to hold down oil prices. He said the administration won't do anything to hurt oil company profits. For his part, Vice President Cheney charged again the Democrats' presidential nominee John Kerry is not ready to lead the war on terror. The president and Sen. Kerry did not campaign today. They're getting ready for their first debate, on Thursday night. We'll have more on the campaign right after this News Summary. Remnants of Hurricane Jeanne moved into the mid-Atlantic today, spinning off tornadoes and heavy rains. The storm was blamed for three more deaths in South Carolina and Virginia, and extensive flooding. Nearly two million people remained without power, mostly in Florida. Late Monday, President Bush asked Congress for another $7 billion in storm relief. Survivors of Jeanne faced growing desperation in northwest Haiti today. U.N. officials reported doctors having to do emergency surgery despite a shortage of anesthesia. And thousands of people lined up again for food under the eyes of armed U.N. peacekeepers. On Monday, Brazilian troops fired into the air to stop mobs from looting relief trucks. Jeanne hit Haiti more than a week ago, and killed at least 1,500 people. On Wall Street today, the Dow Jones Industrial Average gained more than 88 points to close at 10,077. The NASDAQ rose nearly ten points to close above 1869. That's it for the News Summary tonight. Now it's on to a campaign report; how debates look to five former presidents; some debates polling history; Afghanistan's elections; and Fannie Mae's problem.

FOCUS CAMPAIGN DAY

JIM LEHRER: President Bush and Sen. Kerry spent the day preparing for Thursday night's debate, while their running mates did the campaign work. Kwame Holman has our report.

KWAME HOLMAN: Today Vice President Dick Cheney made his third campaign trip this month to Iowa, appearing at an invitation-only event at the grand river center in downtown Dubuque. With wife Lynne at his side, the vice president explained why he believed this election is so important.

VICE PRESIDENT DICK CHENEY: I really believe, as I have often said, that this election could not come at a more crucial time in our history. The enemy we face now is every bit as intent on destroying us as were the axis powers in World War II. In the words of the 9/11 Commission which reported a few weeks ago, "the enemy is sophisticated, patient, disciplined and lethal." This is, to put it quite simply, an enemy we must destroy. And George W. Bush is our commander-in-chief and that's exactly what we're about.

KWAME HOLMAN: Vice President Cheney went on the list several Bush administration successes in the war against terror.

VICE PRESIDENT DICK CHENEY: In Afghanistan, we've ended the Taliban regime. In Iraq, Saddam Hussein, of course, is in jail. We've broken up terror cells around the world and captured or killed thousands of terrorists. We're helping the peoples of Afghanistan and Iraq now to build democratic governments because we know that free nations will not be breeding grounds for terror. These are not easy tasks. But despite the worst predictions of the pessimists, we are succeeding. Afghanistan's first democratic election will be held Oct. 9. And Iraq will have elections next January.

KWAME HOLMAN: The vice president also argued that John Kerry's record as senator and as presidential candidate make him unqualified to the commander-in-chief.

VICE PRESIDENT DICK CHENEY: In his 20 years in the Senate and two years on the presidential campaign trail, Sen. Kerry has given every indication that he lacks the conviction necessary to prevail in the war on terror. (Applause) during the 1980s, Sen. Kerry opposed Ronald Reagan's major defense initiatives that brought victory in the Cold War. In 199 1, when Saddam Hussein occupied Kuwait, and stood poised to dominate the Persian Gulf, Sen. Kerry voted against Operation Desert Storm. After the first bombing of the World Trade Center in 1993, Sen. Kerry proposed to cut the intelligence budget by $6 billion, a move so radical that even Ted Kennedy wouldn't support it. In the present conflict, he has shown endless vacillation and indecision. He makes repeated changes in direction that seem to be in response to his own standing in the polls or his most recent campaign advisers. Now, with 35 days left in the campaign, and just in time for the debates, Sen. Kerry says he has a plan for Iraq. Yet the plan he announced is not a plan. It's an echo of the strategy that President Bush laid out many months ago. President Bush has said: Now is the time and Iraq is the place in which the enemies of the civilized world are testing the will of the civilized world. We must not waver. Sen. Kerry's continued wavering in this campaign, opposing the war but claiming the president's plan as his own, calling himself an alliance builder, then belittling America's closest friends shows an agenda, not of conviction, but of political opportunism, and his record establishes that he is not prepared to lead America in the war on terror.

KWAME HOLMAN: Meanwhile, the man who would-be vice president spoke at a rally in Pittsburgh on the campus of Carnegie Mellon University. Sen. Edwards fired back at the charges being leveled at John Kerry by the Bush-Cheney ticket and its allies.

SEN. JOHN EDWARDS: When you listen to our opponents, you know, as they engage in some of their fear-mongering, which you've heard over the last few weeks, you know, you heard the vice president say a couple weeks ago that if you didn't vote for George Bush and Dick Cheney, and there were another terrorist attack somehow it's your fault. Right? Remember hearing that? Then we had the speaker of the House, who joined this choir, suggesting that al-Qaida wanted John Kerry to be elected president. Then most recently, just a few days ago, they put out a new attack ad against John Kerry where they show a picture of Osama bin Laden, images from the World Trade Center and suggest that John Kerry will not keep you safe. Well, let me just say this in very simple language: For them to exploit one of the great tragedies in American history for personal gain is wrong, and the American voter needs to say that it's wrong come November.

KWAME HOLMAN: Sen. Edwards made note of today's New York Times report that thousands of hours of terrorism-related recordings intercepted before and after the 9/11 attacks have yet to be translated by the FBI.

SEN JOHN EDWARDS: That's how far behind they are, 120,000 hours of tapes that have not been translated. We don't know what's on these tapes. We don't know what information was there that could keep the American people safe all because this administration has not kept up to date. They have not done their job. The one thing I can tell you is when John Kerry is our president, we will make sure that we have the translators to get the information we need to keep this country safe.

KWAME HOLMAN: Mr. Edwards argued the Bush administration's fight against global terrorism has been woefully inadequate.

SEN. JOHN EDWARDS: If you look at what's happened in Afghanistan, we went in, this administration, they went in, got rid of the Taliban, but now this t country is returning back to its pre-Taliban condition, lots of parts of the country are under the control of warlords, drug lords. Their heroin, opium production is way up again. And the result is it's once again becoming place where terrorist groups might thrive. Don't hear much about Osama bin Laden anymore, do you? Not from this administration. Well, we will not take our eyes off the people who perpetrated the attacks of Sept. 11. We will make sure that we go after these people relentlessly. (Applause) We're also not going to allow what's happened under this administration, which is went into Afghanistan, toppled the Taliban and very quickly shifted attention, right, to Iraq, which I m going to talk about in just a minute, but while all this is going on, remember President Bush giving his speech. He said that there was an axis of evil. Remember that? The axis of evil, he said, was Iraq, Iran and North Korea, right? Well, what's happened with Iran and North Korea? Do you hear George Bush talking about Iran and North Korea? What's happened with Iran and North Korea is Iran's moved forward with their nuclear weapons program. Creates an extraordinary risk of instability to that region of the world in the Middle East, and North Korea's moved forward with its nuclear weapons program -- going from one to two nuclear weapons up to as many as eightor ten nuclear weapons. Both of them are moving forward and the threat is growing every single day.

KWAME HOLMAN: Sen. Edwards rallied supporters this evening in new jersey and is scheduled to campaign through west Virginia tomorrow. Vice President Cheney was expected to speak at another rally in Au Clair, Wisconsin tonight before traveling to Minnesota for campaign events tomorrow.

FOCUS DEBATING LESSONS

JIM LEHRER: Now, what five former presidents think about presidential debates, based on their own experiences. I talked with Presidents Ford, Carter, Reagan, Bush, and Clinton for a documentary we produced for PBS four years ago. Here's another look at some of what they had to say.

JIM LEHRER: Generally, Mr. President, do you think these debates should be a required part of the program process, the presidential election process?

RONALD REAGAN: I'm inclined to lean that way, yes because the contest is finally therefore there before... the people have a right to know all they can in comparison to make a decision. But if the debate is concentrated then on the major issues and the views of the two individuals on those issues, then it is of service to the people.

JIM LEHRER: Was it something you looked forward to, something you dreaded? How did you feel about debating?

RONALD REAGAN: Well, I didn't dread it, and having gone through a couple of elections with regard to the governorship, I saw some value in them. It was a chance for a contrast between the positions of the two individuals, and this is what the people should be voting on.

JIM LEHRER: You had three debates with Jimmy Carter in 1976, and it was your decision to have these debates. You were the incumbent president. Take me through your decision to do this.

GERALD FORD: Well, first, all of my political life, I believed that debates between candidates were important. I firmly believe that debates are in the public interest. So when we got to 1976 -- and as you may recall, I was 30-some points behind in the polls-- I had to do something to overcome the 30-some points I was behind. So that's why, in my speech accepting the Republican nomination, I challenged Governor Carter to a debate.

JIM LEHRER: Is there a connection between the ability of a person to debate and his or her ability to function as president of the United States? Is it a good measurement?

GERALD FORD: Well, you can get various answers on that. The tough decisions that a president has to make in the Oval Office are, in a way, related to the capability of a person to do well on television. On the other hand, the capability of a person to project favorably on television enhances that person's odds of being elected so he can serve in the Oval Office.

JIM LEHRER: Why? Why are they important?

JIMMY CARTER: There are very few opportunities really for the nominees of the two parties to demonstrate to the American people their capabilities and to let the news media -- who might be the interrogators, I presume -- bring to the forefront issues that might actually be significant once a president is in office.

JIM LEHRER: Do you think there is a connection, then, between debating skill and being president of the United States?

JIMMY CARTER: Yes. There is certainly a connection. And I think to get the public on your side, or to explain a difficult issue, or to acknowledge a mistake, or to spell out a circumstance is very important. And I think if a president can't communicate well, then, in some ways, that president is handicapped in doing a good job.

JIM LEHRER: And a debate would expose that to the American people.

JIMMY CARTER: I think so. And it also... it also makes the candidates realize how important this ability to communicate is.

JIM LEHRER: You've participated in one vice presidential debate and five presidential debates. Generally, what kind of an experience was it for you?

GEORGE BUSH, SR.: Ugly. I don't like them.

JIM LEHRER: Why not?

GEORGE BUSH, SR.: Well, partially, I wasn't too good at them. Secondly, there's some of it's contrived -- show business. There's a certain artificiality to it, lack of spontaneity to it. And, I don't know, I just felt uncomfortable about it. In the big league debates-- I mean, in the big-time debates-- those big-time things, it was tension city, Jim.

JIM LEHRER: Do you think they should be a required part of the process?

GEORGE BUSH, SR.: No.

JIM LEHRER: No?

GEORGE BUSH, SR.: No, I think you ought to do what's best to get you elected. And if that's best that you have no debates, too bad for you all debate-lovers, because I really think a candidate should be entitled to that. If there was a guy that stuttered and couldn't say... couldn't finish a sentence, I was the guy who just said English was my second language, so maybe I'm a little... (laughter) no, but if you're somebody that looks lousy and has a handicap in speaking and yet is a brilliant contribution as a public servant or an academic, or whatever, I mean, why should that one thing be mandatory-- a place were he's going to come out less well than the opponent who might be a great, big, fine, deep-voice professional debater and absolutely impossible to be president? So why should a person be burdened with that... that decision to have to debate? I mean, that s my view. Do what's best to get you elected and try be a good president. Now, part of that is taking your case to the people in various ways. I mean, I don't think you shouldn't have some contact with the American people through public performance, but put me down as negative.

JIM LEHRER: Trained observer that I am, Mr. President, I figured that out, but here you sit, as one of the most successful politicians in modern U.S. History, and yet one of the major vehicles that people use to get elected you despise.

GEORGE BUSH, SR.: I don't know whether it helped me or hurt me get elected I'd like somebody to show me it helped me to get elected, then I might change my mind, but I don't think so. I don't think so.

JIM LEHRER: As an institution, how important are these presidential debates to the process?

BILL CLINTON: I think they're quite important because, on the whole, they give you the best chance they can get to take the measure of a person under some fire, and to hear people probing their ideas, to see the way they think, and the good thing about the press debates, that is where the members of the press are asking the questions, is they give a reasonable chance for the differences on the critical issues to be made clear. Secondly, they force you to come to terms with what you really believe, because you get in a big fight in a debate, unless you're the world's greatest actor, it's hard to sit there and defend a position in a convincing way that you don't really believe. So even if these debates don't change many votes, having to do them-- and knowing that if you blow it, they will change a lot of votes-- forces people who wish to be president to do things that they should do. And I am convinced that the debates that I went through, especially those three in 1992, actually helped me to be a better president.

JIM LEHRER: Margaret Warner takes it from there.

MARGARET WARNER: Now, an historical analysis of the impact presidential debates have had in past campaigns, we get it from Andrew Kohut, president of the Pew Center for the People and the Press.

Well, Andy, we heard what the former presidents thought of these debates, but you have studied the polls before and after past debates. What does history tell us about when a debate can be decisive?

ANDREW KOHUT: Well, generally debates are decisive when it's a close race or when the lead has gone back and forth. Now, the two... we've had eight presidential elections where debates were held in modern times. In six of these presidential elections, the debates had a measurable impact on the campaign and the candidate's standing. The two we would exclude would be 1984, the blowout election, Reagan-Mondalel and in '96, the blowout election, Clinton-Dole. In all the others, we saw a real material effect on the race, and in some cases, they played... the debates played a crucial role in the way voters made up their minds.

MARGARET WARNER: Give me a couple examples.

ANDREW KOHUT: Well, I think the best example is 1980. The American public was down on Carter. They couldn't quite figure out Reagan. There was concerns about whether he was a legitimate leader. He had been a movie actor. Was he too conservative? And the polls went back and forth. I was with the Gallup Poll then. I remember just before the final debate at the end of that campaign, Carter had pulled even. And then there was this debate, and Reagan made a good showing. People could say, we're comfortable with this alternative because we're down on Carter. We don't think he's performed well.

MARGARET WARNER: And that takes us to the other common thread of decisive debates.

ANDREW KOHUT: And that is personal character. I mean, in these debates, you get the largest collection of audience, of any campaign event, larger than the conventions, larger than the primary season, and the public looks for clues about the candidates that tell them who they are, what they're like, and if there are questions about their character, they get resolved. A good example of that was in 1988 when Governor Dukakis was... there were doubts about his strength of character. He answered a question about what he would do in terms of the death penalty if his wife was murdered and raped. And that took him out of the election. The public came to the view that he wasn't tough enough; he wasn't strong enough on crime.

MARGARET WARNER: So it is a risk for either candidate in a tight race that if he makes a gaffe or sort of confirms a negative impression about him, it can actually be decisive negatively?

ANDREW KOHUT: That's right. It's also an opportunity. President Bush did reasonably well four years ago relative to Vice President Gore when Gore actually won the debate. People said in the polls he scored the most points, he did a better job, but they didn't like Gore's presentation as much as the way President Bush handled himself.

MARGARET WARNER: And then there s always the famous one -- we heard George Bush, Sr., say how he considered them ugly, he didn't like debates. He had a bad experience in '92.

ANDREW KOHUT: Yes. He looked at his watch and seemed detached if not a little taken away with what was going on, and that sort of tied into the notion that President Bush didn't understand the needs of people and how concerned they were about the economy. It really wasn't a good experience for him.

MARGARET WARNER: And it was worse because it was the town hall debate, wasn't it, the one were voters were directly asking the questions?

ANDREW KOHUT: That's right. It seemed as if he were saying, I have better things to do. I'm sure he didn't feel that way, but that's what came across.

MARGARET WARNER: Now, would you say both the elements he said are important, that is a very close race and one where there are doubts about personal qualities, are present in this week's debate?

ANDREW KOHUT: Well, we certainly have had a very close race for much of the campaign here. The two candidates are in a horse race. We now have the polls mostly showing a Bush lead, but there is a Bush lead not because Bush is... the public is completely contented with him, but because people have concerns about Kerry's character and his strength of leadership, and they'll be looking at that.

MARGARET WARNER: And, finally, Andy, I know you polled recently on this. What are voters telling you about how likely they are to watch? How many people are likely to watch this first debate?

ANDREW KOHUT: 62 percent said they're very likely to watch. That's up from 43 percent four years ago in a comparable survey. This is going to be a very big audience, especially the first debate. They generally attract more interest. This is a high-stakes election. This could be one of the defining moments of the campaign if not the defining moment of the campaign.

MARGARET WARNER: Andy Kohut, thanks so much.

JIM LEHRER: Still to come on the NewsHour tonight, the Afghanistan elections, and the Fannie Mae scandal.

FOCUS ELECTIONS UNDER THE GUN

JIM LEHRER: Ray Suarez has our Afghanistan story.

RAY SUAREZ: More than ten million Afghan citizens have registered to vote in the country's first democratic presidential elections.

SPOKESPERSON: Do you know who is the president in Afghanistan?

RAY SUAREZ: Now set for Oct. 9, the elections are part of a long-term plan approved by Afghan leaders right after the 2001 war that ousted the Taliban. But increasing violence already has forced two delays. Much of the violence this year, which has led to the deaths of 25 U.S. soldiers, 39 international aid workers, and 12 election workers, has been attributed to revived elements of the Taliban. That violence came not only in the dangerous countryside, but also in the capital, Kabul. Ten people died at this site last month, three of them Americans. It was the deadliest attack in Kabul in two years, and targeted an American security company which provides bodyguards for interim Afghan President Hamid Karzai. Karzai himself and his vice president came under attack several weeks ago while campaigning at a school in Gardez in eastern Afghanistan. Their helicopter never landed, narrowly escaping a rocket launched from nearby. But Karzai kept on campaigning, here with an opponent in northern Afghanistan.

HAMID KARZAI (translated: Two competitors for the presidency are here to open a road construction project. Where can you find more success than in this?

RAY SUAREZ: Karzai faces 17 opponents in upcoming elections. The strongest is his former education and interior minister, Yonus Qanooni.

YONUS QANOONI (translated): We want the new Afghanistan to be an active part of the international community, and we want the new Afghanistan to be an acceptable country to the world.

RAY SUAREZ: To bolster security before the vote, the U.S. announced it will send up to 1,100 additional troops, bringing the total number of American troops on the ground to more than 18,000. They serve alongside a NATO-led force of 8,000. Secretary of State Colin Powell:

COLIN POWELL: There's no reason for these elections not to go forward. We are putting some additional troops in. In our conversations with President Karzai, there wasn't... there was not the slightest suggestion that the security situation would keep the elections from going forward.

RAY SUAREZ: Some of the new troops will beef up patrols along the Afghan border with Pakistan, as they seek out al-Qaida fighters and Osama bin Laden. Even as the country tries to develop a modern political system, longtime warlords and their militias joust for power as they have for decades. Human rights groups warned the militias are using force and intimidation against thousands of prospective voters. The election takes place in a ravaged economy amidst a revival of the country's biggest cash crop, opium poppies. Half of Afghanistan's gross domestic product, some $2 billion, is generated from narcotics trafficking, and much of that money flows back to local warlords.

RAY SUAREZ: For more, we get two views. Ishaq Shahryar was Afghanistan's ambassador to Washington from June 2002 to 2003. He was also a delegate at the Bonn Conference in 2001 that established Afghanistan's political road map. Nazif Shahrani is a professor of anthropology at Indiana University in Bloomington. He has written extensively about Afghanistan, and has spent the last three summers there. Professor Shahrani, is Afghanistan ready to hold an election a week from Saturday?

NAZIF SHAHRANI: I wish it were. I think this is the wrong time, and under very inappropriate security conditions for an election. When democratic exercises are held under inappropriate circumstances, unfortunately they do more harm than they do good. And this may be one of those cases in the case of Afghanistan today.

RAY SUAREZ: Mr. Ambassador, how do you feel on that same question? Is your country ready to hold elections a week from Saturday?

ISHAQ SHAHRYAR: I think it's extremely important and knows hold the elections. We're following the timetable and the rules and regulations and bylaws that were set up for the Bonn Conference last October. We should have had the constitutional Loya Jirga convention and then the presidential convention was supposed to take place in June of this year but has been postponed twice and now Oct. 9. It's very, very important that this election should take place because it's important that we are planting the seed of democracy in Afghanistan. And we should not allow the terrorists and the Taliban to interfere in this election and the election should go forward. Regardless when we're going to have it, this problem will exist until we eliminate the need of democracy.

RAY SUAREZ: Well, there is a brand-new human rights report that says the election is going forward under threats, intimidation, bribery, there s been bombings close to the capital, killings of registrars and election workers. Is it so important to have this vote on the day it's been rescheduled for that it's worth it to go forward even with these kinds of things going on in the country?

ISHAQ SHAHRYAR: As I said, regardless when we're going to have it, these enemies of democracy and enemies of Afghanistan is trying do that regardless when are we going to hold it. I believe the security is beefed up and the country is ready for the elections, and elections should take place, yes.

RAY SUAREZ: Professor, isn't so it important for a country getting on its feet like Afghanistan, as the ambassador suggests, with problems, with threats, you go ahead and have the election anyway?

NAZIF SHAHRANI: I think the Bonn agreement had assumed that this administration would have improved the security situation, it would have prepared the conditions for elections by now, almost three years, the administration unfortunately has failed to do those things, and under these circumstances, holding this election, if it is meant to bring some additional legitimacy to President Karzai in the country, it may not do that simply because it's creating a situation where people will question the validity and the legitimacy and the fairness of this election, and under these conditions, unfortunately, it will serve exactly the opposite purpose for what it is intended. Maybe this election is, some Afghans say, really for the United States, for President George W. Bush. As we heard earlier, Vice President Dick Cheney praising the election in Afghanistan, and it's not really for the people of Afghanistan and for the benefit of the people of Afghanistan.

RAY SUAREZ: But you heard the ambassador suggest that whenever you hold these elections, and they've been rescheduled twice, there is going to be this kind of attempt to threaten, to intimidate, so you can't... can you postpone them indefinitely?

NAZIF SHAHRANI: Well, actually, this will be the second election to -- essentially for President Karzai. He's favored by the United States, by the international community, and he's very likely to win the election. He was, in fact, the only person that the emergency Loya Jirga wrote it for and became the president in a way he has a great deal more legitimacy in the first election, and I'm not sure whether this new election is going to improve his legitimacy in the country anymore, and it probably will raise more questions. So we should have really... if we had elections under these circumstances, it would have been best to have the parliamentary election and not the presidential election. We still don't have any representation from the people to make policy for the country. We only have this one person, President Karzai, and his team, who have basically done everything for the last three years, and he already had a vote and there was note no need far second vote at this time.

RAY SUAREZ: Mr. Ambassador, you heard the professor suggest that if the vote is troubled, it won't even give President Karzai, if he's the eventual winner, the kind of legitimacy he's looking for from this vote.

ISHAQ SHAHRYAR: I would like to take issue with the professor. The issue is that it's not just in Afghanistan, in the world we're facing an enemy, an invisible enemy that we are going to be facing for years to come. Even the election of this country has been threatened with violence that might take place, terrorists might do things. We're not going to in this country postpone the election. President Karzai has proven to be a wonderful leader, a good leader. He's kept the country going for the last two years. A tremendous change has been taking place in Afghanistan since he's taken over. He has the popular support of 75, 80 percent of the country. These slogans, political slogans that people are using, that this election is for the election of this country I totally take issue with that and it is wrong. It is political advantages of opponents of Karzai trying use in their favor. So the election has to go forward, and President Karzai has a 75, 80 percent support of the Afghan people.

RAY SUAREZ: Is it still clear to you, professor, that Hamid Karzai will be the winner if the election goes ahead on Oct. 9? He's got 17 opponents.

NAZIF SHAHRANI: Well, 17 opponents and the field is extremely uneven. He is the only presidential candidate who is being flown by the United States army helicopters to campaign. He's the only presidential candidate who is being safeguarded by the U.S. Marines, and other people do not have even the means to fly to different parts of the country to campaign, but other people are brought... in fact, delegations are brought from all over the country to the palace so that he could speak to them and campaign. So the situation really is totally in favor of President Karzai, and he will win. I don't have any problem with President Karzai. It's just I'm saying whether this election is going to add anything to his credibility, indeed he has a problem of credibility amongst his own tribesmen, amongst the Pashtun population of Afghanistan. His life has been targeted twice, once in Kandahar and recently in Paktia. He needs to do more to raise his credibility amongst his own tribesmen, the very people who support the Taliban.

RAY SUAREZ: Well, Ambassador, one of the things that your council in Bonn tried to put together was the idea of an Afghan government for oral Afghans rather than a regional or a tribal government. But with the breakdown of the voting into sectional, ethnic, language area interests, is that kind of government going to actually emerge when this process is done, or will there be an Afghan idea about the country?

ISHAQ SHAHRYAR: Well, Afghans always... in the end, the bottom line, they're Afghans. You have to realize the country has gone through war, destructions and so forth for the last 22 years, regardless of who was the leader, we faced these challenges. President Karzai has shown tremendous leadership. President Karzai is a patriot. He has the interests and hearts of all Afghan people in Afghanistan. Whatever he is doing he s trying to put the country together and he's doing a tremendous job. I think this election, he's already been a legitimate interim president He's been a transitional president, and he's going to be legitimately elected by a majority of the Afghan people, the next president of Afghanistan.

RAY SUAREZ: But will the power of the warlords decline as a result of the creation of a national government? Will President Karzai through this election get the kind of power it's being suggested he needs to be the leader of all the country?

ISHAQ SHAHRYAR: An attempt is already being made. Some of the regional leaders and warlords have been displaced and the national government is appointing governors in those states. This process is already taking place. Step by step, everything is relative. Relative to two years ago, Afghanistan has made tremendous progress. The seed of democracy is being planted in Afghanistan. This is the first time in the history of Afghanistan that we are holding an election. This is the first time people are registering in the history of Afghanistan to vote. This is quite significant. I'm not going to say this is going to be a perfect election. I m not going to say this is the western style of democracy. It is the foundation and seed of democracy has been planted in Afghanistan and all Afghans should be proud of.

RAY SUAREZ: Professor Shahrani, quick response?

NAZIF SHAHRANI: Oh, I think the idea of holding elections is wonderful, and only if they're under the right circumstances. When it's not in the right circumstances, as I ve said earlier, it really does more harm. His credibility will be questioned simply because this vote, of 17 other people also representing various ethnic communities, various interest groups in the country, and it will divide... the vote will be divided along ethnic lines. He may win, but ultimately there will be questions about the fairness and validity of the vote as such. And, unfortunately, this will not help building democracy in the country as much as one hoped. We should have had the parliamentary election. That's what the country needs, the parliament, to speak for the people and also make policy for the future of Afghanistan, not one man president.

RAY SUAREZ: Professor, Mr. Ambassador, thank you both.

NAZIF SHAHRANI: Thank you.

ISHAQ SHAHRYAR: Thank you very much.

FOCUS SHAKEN GIANT

JIM LEHRER: Finally tonight, the financial giant of the American housing market finds itself under fire. Jeffrey Brown has that story.

JEFFREY BROWN: Fannie Mae is one of the largest financial institutions in the country, and it impacts millions of Americans who take out home mortgages. But it is also perhaps one of the least understood of our major institutions. Fannie Mae is a publicly traded company, but it also has a government charter: To help spread the risk of making loans and to help make those loans available to more Americans, including low and middle-income earners. Its business, buying mortgages from banks and then reselling them, has grown tremendously, and today Fannie and the smaller Freddie Mac own or guarantee roughly half of the $7.9 trillion of U.S. mortgages outstanding. In recent years, though, a lively debate has grown as to whether Fannie Mae is too big. And last week, a federal regulator found that Fannie Mae had painted a false picture of some of its finances. Yesterday, the company agreed to significant changes in some accounting and management practices. And here to walk us through this story is Stephen Schurr, U.S. market editor of the Financial Times newspaper. Steve, welcome. I want to start by explaining a bit more about Fannie Mae. I see it described as quasi- company and quasi-government agency. How does that work?

STEPHEN SCHURR: Yeah, it's a strange, nebulous terrain. Essentially, Fannie Mae is what's known as a government- sponsored entity. It is a publicly traded company that also has a federally chartered mission. That mission is to help spread the dream of home ownership here in America. And to do that, they get certain benefits that other publicly traded companies don't get from the government, such is the ability to borrow at a lower interest rate. And, of course, because it's not under the sum of a big bureaucratic government, it's a publicly traded company, it's theoretically more nimble and has the ability to act more as a creative company would. Of course, its critics would say that this intersection of government and Wall Street isn't the best of outcomes because you... their contention would be that Fannie Mae and its smaller sibling, Freddie Mac, get certain benefits in federal largess which allows them to outrun their competition, but it also enriches a few of the executives rather than spreading its mission.

JEFFREY BROWN: Well, give us a sense of... how does it make its money?

STEPHEN SCHURR: In one sense, it's very simple. They essentially sell bonds and then use the proceeds to buy up mortgages, which, in effect, provides liquidity for the housing market that enables more individuals to buy homes. But that's where the simplicity ends. They have a trillion dollar mortgage portfolio, and it's not the easiest accounting ledger to make heads of tails of.

JEFFREY BROWN: I guess it makes a little bit on each mortgage loan?

STEPHEN SCHURR: That's exactly right. It makes a small amount of money on the spread between interest rates on the loans that it... on the bonds that it sells versus the mortgages that it buys. But when you add up those very small amounts into a trillion dollar portfolio, you're talking about serious money, usually on the order of several billion dollars in earnings in a year.

JEFFREY BROWN: Tell us what this government regulator found in its report last week.

STEPHEN SCHURR: It's a regulator that few people know of, at least until this past week. It is the Office of Federal Housing Enterprise Oversight. Its primary mandate is to ensure the safety and soundness of Fannie Mae and Freddie Mac and other GSE s, government sponsored entities. The findings come after an eight-month investigation into Fannie Mae's accounting, and the investigation is still under way. And among the various findings in the report are that Fannie Mae used an improper "cookie jar"-- that's their word-- of reserves to...

JEFFREY BROWN: "Cookie jar" is a technical term?

STEPHEN SCHURR: (Laughs) Exactly. I think we can all understand what a cookie jar is. In any event, they used this cookie jar to keep certain money in key to make sure that their earnings growth was as smooth as possible, which Wall Street likes. But, of course, FHEO found that this was an artificial smoothing of earnings that flies in the face of generally accepted accounting principles.

JEFFREY BROWN: Explain what you mean, though, by "smooth." That means that, instead of a lot of bumps in the road, it keeps a steady...

STEPHEN SCHURR: Yeah, that's exactly right. The course of corporate earnings never runs smooth except on the balance sheet of certain companies such as Fannie Mae, where you see a very steady, uninterrupted pattern of growth quarter over quarter, year over year. And when you re talking about a company that manages literally trillions of dollars in mortgages that are very vulnerable to movements in the interest rate environment, you would expect that there would be a fair amount of zigging and zagging in terms of the earnings that they bring in. But the numbers that they've reported, what are called the core numbers, exclude some of this volatility, have been remarkably smooth.

JEFFREY BROWN: Okay, and what are the other... some of the other things that the report found?

STEPHEN SCHURR: Well, some of the other issues and one of the most contentious right now is that the company has deferred reporting certain expenses in a timely fashion in order to meet certain bonus compensation targets that ended up causing the top officials to reap multimillion dollar windfalls because they effectively hit the numbers that they were hoping to make. And, of course, if that's the case, that poses real challenges for the executives in charge.

JEFFREY BROWN: Now, what's at stake here? I mean, once these findings are put out there, why is this important? What do we take from it?

STEPHEN SCHURR: Well, I think Americans need to understand the important role that Fannie Mae plays in the economy, not just in the housing market. We all indirectly benefit from the liquidity that they are engaged to provide, but, of course, if there are accounting issues and if there are unfair windfalls to some of the top executives, one has to really seriously question if the current structure passes on its as much to individual homeowners as it should. The other important thing to recognize is that Fannie Mae has become so large that some folks, including Alan Greenspan, have questioned whether or not they pose a risk to the U.S. financial system if there were to be some excessive risk in their... in their portfolio, which remains largely a black box to most... even the most sophisticated folks on Wall Street.

JEFFREY BROWN: So yesterday, Fannie Mae, after some negotiations with the regulator, agreed to some changes. Tell us what it agreed to.

STEPHEN SCHURR: Well, first and foremost-- and this is the most important component of it-- they agreed to raise their capital surplus by 30 percent. And what that really means is... FHEO, the regulator, said, "these numbers aren't quite clear us to. We're a little concerned that you're not adequately capitalized to deal with changes in the economy." So Fannie Mae...

JEFFREY BROWN: This is like having money for a rainy day if something bad happened.

STEPHEN SCHURR: That's exactly right, yeah. So, essentially, the company agreed to raise its capital by 30 percent, which is going to pose some operational challenges for the company. They've also agreed to make some recalculations to how they account for some of their relatively complicated portfolio. And they've also agreed that they're going to... this is, by the way, Fannie's board of directors. They've agreed also to take a closer look at the operational structure of the company to make sure everything is on the up and up.

JEFFREY BROWN: And there's some potential consequences for the leadership?

STEPHEN SCHURR: That's exactly right. One of the things that's interesting about Fannie Mae is, it's long been a political power house in Washington in addition to being a long-time favorite on Wall Street. It's run by Franklin Raines, who was on the short list for Al Gore's vice presidential candidate in 2000. And if the initial findings that FHEO has come out with mushroom into more substantial findings as the investigation continues, one really has to question whether he's going to remain in this post.

JEFFREY BROWN: So, what does happen next? I know the FCC is conducting an investigation. Congress has talked about looking into this. What do we look for the next?

STEPHEN SCHURR: What we're looking for is continued findings from FHEO. Next week, the House Financial Services Committee is holding hearings into what's going on at Fannie Mae and try to bring some of the issues to light. We're going to be looking to see what happens to the top management. We're going to look and see if all of the accounting scandal issues are going to mean that next legislative session Congress decides: "You know what, we're going to push forward with the plan to install a stricter regulator over Fannie Mae and Freddie Mac."

JEFFREY BROWN: Okay, Stephen Schurr of the Financial Times, thanks very much.

STEPHEN SCHURR: Thank you.

RECAP

JIM LEHRER: Again, the major developments of the day. Two Italian women won their freedom in Iraq, along with a number of other hostages. Human rights activists warned warlords may try to control the upcoming presidential election in Afghanistan. And oil prices traded above $50 dollars a barrel for the first time. Later tonight on PBS, Nova begins a four-part special called "Origins." It's on how the universe began, and why it's a place where life exists. Please check your local listings for the exact time.

JIM LEHRER: And, once again, to our honor roll of American service personnel killed in Iraq. Here, in silence, are five more.

JIM LEHRER: We'll see you online and again here tomorrow evening. I'm Jim Lehrer. Thank you, and good night.