The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Tuesday, the East German government resigned to let parliament elect a new cabinet. Soviet opposition groups staged protest marches rivaling the official Revolution Day ceremonies, the U.S. returned $1/2 billion in frozen Iranian assets. We'll have details in our News Summary in a moment. Jim.

MR. LEHRER: After the News Summary we have a 2 part look at change in the Soviet Union, a report from a small Soviet town [Focus - Crusade for Change], and [Conversation] a conversation with a Soviet Magazine editor, Vitaly Korotich. Then comes an update from East Germany [Update - Government Crisis], Jeffrey Kaye backgrounds the Lincoln Savings & Loan scandal and reports on today's congressional hearings about it [Focus - Savings & Loss]. And we close with an Anne Taylor Fleming essay [My Kingdom - For A Car] on the meaning of cars in California. NEWS SUMMARY

MR. LEHRER: The East German cabinet quit today. A government spokesman in East Berlin said all 44 members of the cabinet of ministers resigned. The ministers operate the government for the ruling politburo of the Communist Party. The politburo is to meet tomorrow, there have been calls for its mass resignation as well. Nik Gowing of Independent Television News has this report from East Berlin.

MR. GOWING: Five thousand demonstrators were besieging Communist Party headquarters as a spokesman announced the unexpected mass resignation of the 44 member government. We are the competition was the message demonstrators shouted to the politburo who had been meeting inside all day. For a Communist Party in turmoil, the move was designed as a sweeping gesture to show the millions of protesters now supporting moves for reform. But the party really means business. But the problem is that it's the Communist Party, the politburo, which holds ultimate power in East Germany. The government is merely a rubber stamp mouthpiece for the party. And the demonstrators showed their true feelings for party officials leaving today's meetings. They ignored appeals from a chauffeur to maintain law and order. Technically the parliament which was tonight under guard must approve the resignations. An emergency session has now been demanded. But as protesters left the central committee building, it was the politburo and policy changes being worked on by party officials inside which hold the true key to the directions of reform here.

MR. LEHRER: East German refugees also continued to pour into West Germany today. The Associated Press said the rate was 120 an hour. Robin.

MR. MacNeil: The Soviet Union celebrated the 72nd anniversary of the Bolshevik today, but the celebrations, themselves, made history. The traditional display of military hardware rolled down Red Square although there were fewer weapons than normal. But a few miles away there was an unprecedented counter demonstration. About 5000 people marched peacefully demanding an end to one party rule and protesting such things as food shortages. At today's celebrations, Mikhail Gorbachev acknowledged the economic problems but said turning back from reform would be the greatest mistake. Pres. Bush said today that the democratic changes in Eastern Europe had gone too far to be reversed. At a morning news conference, he also disputed critics who say the administration is moving too slowly and offering too little aid. Former Pres. Carter said yesterday, "I think we're delaying too long in responding effectively to the change that is occurring," adding that the administrations response doesn't match what Gorbachev is doing. Pres. Bush commented, saying, "We have done plenty and the fact that some critics are out there equating progress with spending more money doesn't bother me in the least."

MR. LEHRER: The United States has decided to give Iran its money back. The announcement said $567 million in assets frozen during the Iran hostage crisis will be returned. Pres. Bush discussed the action at his news conference. He said there was no direct connection between the decision and efforts to free the 8 Americans held hostage by pro-Iranian terrorists in Lebanon. But he was asked whether today's action would help.

PRES. BUSH: It's a very good question and I don't know the answer to that. They have made some positive statements. But I don't know whether it'll work that way or not. I hope that they will do what they can to influence those who hold these hostages. We're continuing behind the scenes to try to follow certain rabbit trails there. And so far they ended up at dead ends.

MR. LEHRER: Mr. Bush also served a veto notice on Congress. He said he would veto a $14.4 billion foreign aid bill if it included a provision permitting U.S. funds to be used by United Nations family planning programs. He said he objected to the use of abortions in some of those programs.

MR. MacNeil: The former chief government S&L regulator testified today that four Senators urged him to drop regulations that would have curtailed risky investments by the Lincoln Savings & Loan Association. The government seized control of that failed S&L this year and taxpayers now face a bill of up to $2 billion. Today Edwin Gray, former chairman of the Federal Home Loan Bank Board, told a House Committee that large campaign contributions by Lincoln's chairman, Charles Keating, had evidently made Senators Dennis DeConcini, John Glenn, Alan Cranston and John McCain speak on Lincoln's behalf when he met them in 1987.

EDWIN GRAY, Former Chairman, Federal Home Loan Bank Board: In my opinion, Lincoln devised a scheme intended to cause people to believe falsely that its troubles were the result of a vendetta against Lincoln by its regulators, principally myself at the time. The scheme in my opinion devised by Lincoln and its many lawyers and PR practitioners also was intended to supply the appropriate message to the biggest political recipients of Charles Keating's contributory largess. Senators Cranston, DeConcini, Glenn, and McCain had evidently, I think, somehow been affected by this scheme when they met with me on April 2, 1987.

MR. MacNeil: A spokesman for Sen. DeConcini said the four Senators regarded Gray's accounting of the meeting as totally and completely inaccurate. We'll have more on the story later in the program.

MR. LEHRER: This was election day in many places across the country. Governors races in New Jersey and Virginia have drawn most of the attention. Also contests for mayor in Cleveland, Seattle, Detroit, and New York City made headlines outside those cities, themselves. Pre-election polls showed the most newsworthy result could be the election in Virginia of Doug Wilder as the nation's first elected black governor.

MR. MacNeil: The first free elections in Namibia began today. It's one of the final steps designed to end South African control and make Namibia an independent nation by early next year. Voters began lining up before dawn to cast their ballots. The elections are designed to select a constituent assembly which will write a new constitution. The black nationalist group known as SWAPO is expected to win the elections which is being supervised by the United Nations. The resultsare expected next week. In the Netherlands, an international conference on global warming ended today with disagreement over how fast to take action. Global warming or the "greenhouse effect" happens when the sun's heat is trapped on earth by gases like carbon dioxide. Many scientists believe that the phenomenon could lead to a dangerous increase in temperatures worldwide. To prevent, it more than 60 nations at the conference wanted a freeze on carbon dioxide emissions by the year 2000. But that was opposed by the United States, the Soviet Union, and Japan in part because they didn't want to be held to a deadline.

MR. LEHRER: Braniff Airways stopped flying last night. The company suspended all scheduled all flights to await the outcome of a bankruptcy reorganization. Braniff filed for a Chapter 11 bankruptcy six weeks ago, but had continued flying some schedules. It was the second time in 7 years Braniff filed bankruptcy. And that's it for the News Summary tonight. Now it's on to a look at perestroika in the countryside and glasnost in the press, an update from East Germany, the Lincoln Savings & Loan scandal and an Anne Taylor Fleming essay. FOCUS - CRUSADE FOR CHANGE

MR. MacNeil: There was dramatic evidence of change today as the Soviet Union marked the 72nd anniversary of the 1917 Bolshevik revolution, Not only were there changes in the traditional display of Soviet military power but there were actually rival demonstrations in Moscow and other cities. We have a report from the Soviet Union by David Smith of Independent Television News.

DAVID SMITH: Revolution Day such a ritual here that what happened this morning in Moscow and out in the country represents a break with history. The Communist Party has been challenged quite openly. While Mr. Gorbachev put a brave face on it he can not ignore the fact that so many are so disillusioned. Just two miles from the grand parade in Red Square thousands marched through the Capitol demanding an end to the Communist Party's monopoly on power. This kind of thing did happen in the early days of the revolution but then the masses could be silenced. What ever can be said of Mr. Gorbachev's dilemma he has given a voice and they want that which the party's not prepared to concede, power. To go back now would be a colossal mistake told the country live from the Kremlin Wall but judging from the mood here and out of Moscow many are not listening. We went north today to the banks of the River Volga three hours from Moscow. To old Russian city of Yaroslav. Here too they were making history. It was as it's always been the army that led the parade in Red Square, mostly followed by members of the Communist Party. But then came the biggest group of all. They are called Norednick Front, the People's Front. They carried banners saying things like its been 72 years on the road to nowhere. And they were drawn, it seems, from all walks of life, all age groups. In the heart of European Russia a freedom movement compared to those we have seen in the Baltics. You don't have to look very hard to find out what is changing attitudes in Yaroslav. Normally the party makes sure the shops are full on this holiday. Yet all that was available this holiday was milk, eggs, and butter, no meat, no fish, not even cheese. In other words, lots to cook with but nothing to cook. It was awful in the eyes of a community that likes a drink is now that alcohol is now washing. If it is available at all. There were parties in Yaroslav this week. And some could afford Vodka twice the price it was a year ago. But the resentment of the depths to which they've sunk is barely concealed.

CITIZEN: [Through Interpreter] There's nothing to buy. We are not starving but that will come.

CITIZEN: I blame the powers to be, the Communist Party.

CITIZEN: We need a multi party system the one party system just doesn't work.

IGOR SHAMSHEV MP, Leader, People's Front: We stand up and cry for freedom and economical development for social changes and so on and people will hear themselves. This is a big role of our movement our peoples party.

MR. SMITH: It's a powerful message in a place like this, because here as elsewhere the local Communist Party can not even claim to be in touch with the people. Today the city's mayor and the city's Soviet took the salute refusing to admit there is a crisis.

VLADIMIR VOLUNCHUNOS, Yaroslav Mayor: [Speaking through interpreter] I see no threat to the Party. We have economic problems like every one else. But we know the way out so I don't think there is a crisis.

MR. SMITH: Pres. Gorbachev couldn't agree with that. Such complacency in the Party is the biggest threat. What today up and down the country has shown is that people know it and that they are no longer afraid to say so.

MR. MacNeil: For a unique view of the situation in the Soviet Union and Eastern Europe we have a conversation with one of the most prominent agents of reform, Vitaly Korotich. He is editor of the News Weekly Agunyuk one of the most provocative and widely read publications in the Soviet Union. First, a short profile of Korotich by Lyndon Macintire of the CBC Journal.

LYNDON MACINTIRE: Celebrity can quickly to Vitaly Korotich. He was a prolific but obscure Ukrainian writers during the 60s and 70s. Mikiel Gorbachev spotted in 1986 and persuaded him to move to Moscow to run an undistinguished magazine called Obenyuk. The move opened the door to a privileged lifestyle. More significantly, it gave him a major role in transforming the Soviet media from passive mouth piece for authority to active participant in a revolution. Perhaps it's significant that Agunyuk means "little spark". This is the sharp end of his influence. Each Wednesday afternoon Korotich sets editorial policy. Every decision is politically loaded. Today for example, he's telling his editors that while the dissident Andrei Sakarhov makes good copy it may be unwise to have him on the cover two weeks in a row. Even in glosnost the Soviet Editor must exercise self censorship. But that's improvement over the old fashioned kind. They get 600,000 letters a year from 3 million readers. Since Korotich took over circulation has doubled and probably would double again if he could get enough paper. Readers react to startling stories about slum housing, suicides and street gangs. Stories by and about recently unmentionable people like Sakarhov. And they appeal for help in dealing with an unresponsive bureaucracy. For Vitaly Korotich journalism is a medium for restoring confidence and hope. He has set out to criticize the past and to inspire optimism about the future. It's a crusade and for Korotich the focus is on one man, Gorbachev.

VITALY KOROTICH, Soviet Magazine Editor: I think if I see that somebody builds wall around and Grobachev and somebody want to defend him from the truth my first attempt will be to destroy this wall and to destroy the builders of this wall. I want to have Gorbachev all the time on pressure. He must be seen and he must smell what is in the air.

MR. MACINTIRE: June 30th last year Korotich puts on his other hat as a delegate to a special communist party conference in Moscow he denounced four party leaders from Usbekastan. While state TV technicians tried to figured out where they should point their cameras he handed incriminating files on the floor to Gorbachev who was sitting behind him. It was an audacious move. It invited the wrath of people in the conservative wing of the party. They already considered Korotich to be too big for his journalistic britches. But this incident revealed the extent of his influence within the party. Gorbachev swiftly removed the politicians from Usbekastand and Korotich soon revealed his own political agenda. Late last year he signaled his intention to seek nomination for election to the New Congress of People's Deputies, March 26. After two unsuccessful tries he won the nomination for a Moscow seat only to go to defeat in a second round elimination process in this meeting February. It was a tough lesson in the reality of democracy but in democratic politics there are losers. CONVERSATION

MR. MacNeil: After that defeat Korotich ran for the Supreme Soviet as an independent candidate from his Ukraine and won with 84 percent of the vote. But his new prominence as a politician doesn't mean that he is immune to official criticism. Last month, Pres. Gorbachev angrily lectured Korotich and other journalists about carrying their criticisms of the Soviet System to far. Korotich for one was not intimidated. Only last week Augunyuk published a poll showing that a plurality of Soviet citizens believe Gorbachev's economic policies will not result in any significant change. I talked with Mr. Korotich in New York this afternoon. Mr. Korotich, welcome. How do you react to seeing rival demonstrations in Moscow and Yuroslav and elsewhere on a day that has always glorified the Communist Party?

VITALY KOROTICH, Soviet Magazine Editor: It's impossible to be half pregnant. Now society has force which is going. And people are responsible for their country. For many years only our leaders were responsible for our happiness. Now people think more and it's quite normal and I think it's good, what happened.

MR. MacNeil: Do you agree with the mayor of Yaraslov, that there is no crisis for the Communist Party?

MR. KOROTICH: I think now it is a real crisis. We see the historical process of the deaths of the administrative socialists. It's dying in Hungary, its dying in Poland, it is dying in my country. It will die in other countries. Now is the end of the system which was against the people. And people try to take power back. It's historical and it's quite understandable.

MR. MacNeil: Well, how serious is the pressure now for a multi party system in the Soviet Union? Up till now Gorbachev has been saying the Communist Party could remain paramount and in charge while other groups are allowed to challenge for seats.

MR. KOROTICH: It's two answers first of them. Now we are on the level of pluralism. I think we'll find a situation in which it's possible to discuss your political point of view in the morning and not be arrested in the evening. In the best kind of pluralism in my country there never was. Another thing now our Communist Party claims a million big. And it's impossible to imagine that they'll all like doing twins.

MR. MacNeil: Like twins .

MR. KOROTICH: Like twins, like blood brothers.

MR. MacNeil: Like twins.

MR. KOROTICH: I think all those people are different. In Communist Party now we have two or three big groups of opinions. It is possible to say about conservatives about liberals, about central group and I think it's normal. We are in the process of a democratic changes. It is necessary to be ready for democracy and to be afraid of democracy. It is normal and its necessary to push this process ahead.

MR. MacNeil: It looks to us in the West sometimes as though events and reform in Poland, in Hungary outstripped and moved faster than within the Soviet Union. Is it possible that they are now models for you to follow.

MR. KOROTICH: I think they are, Hungary has its special conditions and in Hungary the dying of administrative socialism started there in 56. After this process is going fast and now I think they are in the post perestroika period, maybe.

MR. MacNeil: The post perestroika period?

MR. KOROTICH: Yes. What's in Poland I don't know. I look at it with great interest but sometimes I feel that they have a lot of people who like to fight for freedom . In my country, we need changes. We are fighting for changes. But we really didn't reach real results. We destroyed old systems. It is necessary to have a half year or may be a little more. But now it's because our bureaucracy really want now to use their last chance. They want to show that the process is going in out country. It's normal process and necessary to treat it in this way.

MR. MacNeil: I'll come back to that in a moment. I just want to ask you on Eastern Europe how do you read the pace of events in East Germany. Are the Communists there going to be able to resist or are they going to be dragged in to pluralism too? What do you think.

MR. KOROTICH: They must go into pluralism first. I like what is going there. Another thing I am afraid of what is going there because in Germany two armies, American and Soviet are too close. And they are afraid that those changes which are going in the presence of foreign armies which are standing there and which are equipped by nuclear arms. I think if Soviets and American are sent of Germany now I think they might. But sometimes I'm afraid that one stupid colonel can push the button in those conditions. And I don't know what it'll be, too close Soviets and Americans are standing there and it's necessary to be very responsible in this situation.

MR. MacNeil: But you don't think the Communists in East Germany what ever they may wish are going to able to hold the line against the pressure.

MR. KOROTICH: No, they changed. They changed. Their government resigned.

MR. MacNeil: The cabinet resigned today.

MR. KOROTICH: Resigned. And now practically they must start the process of changes we have in our Country. They opened the borders anyway. They start to be a normal country.

MR. MacNeil: A year ago when I talked to you in Moscow, you said that you thought Gorbachev had perhaps a year to show that something changes. A year later in economic terms nothing has changed. Those people we saw in Yaraslov they had on the week of the celebration of the revolution no meat, no cheese, no fish. They said how long can it go with no change? No positive tangible change.

MR. KOROTICH: Nobody knows. Gorbachev always answers that he don't like people who name dates of the results. He likes only the rate. But now it's possible to say that we have results. First results in democracy. What we have now is results. But we haven;t resolved the economy. What can I tell you.

MR. MacNeil: Is that typical what we showed in Yaroslav.

MR. KOROTICH: In Moscow, everywhere. You see I think that for many years capitalism was a good student and studies a lot from the Russian revolution. Now it's our turn. I think we must study something from your experiences and understand. And now we start to be humanity, it is possible to understand that we have common problems, common lessons. And we try to do something. But it's not easy to rebuild our system. Because we destroyed the old and don't build new. We only start this process of changes.

MR. MacNeil: And, in fact, the destroying of the old systems of production and direction from Moscow have made it worse for the time being. Is that correct?

MR. KOROTICH: Of course, of course, of course, made it worse, and especially because all the bureaucracy stay in their positions. They still rule and they don't want to resign. And now really serious reflection to do something with our policy.

MR. MacNeil: Boris Yeltsin, whom Jim Lehrer interviewed few weeks ago here, said recently that Gorbachev has another year and he's going to fall if he doesn't produce change in a year if he doesn't produce change?

MR. KOROTICH: I think Gorbachev cannot fall.

MR. MacNeil: Can't fall?

MR. KOROTICH: I think strategically Gorbachev is a winner. Its possible to stop him. Its possible to over turn him but it is impossible to stop the process of changes. Call those people whom we see today to go under the same banner same demonstration and same way as they did before. They will never do it only under a convoy. And I think that Gorbachev can be stopped as always. But I think it's impossible to stop the process of changes. It is impossible to postpone those changes. But Gorbachev is a winner strategically.

MR. MacNeil: A year ago he lectured you and others to me more constructive and less critical about perestroika. Recently he did again in stronger terms. Is it likely that he is going to turn his back on glasnost on openness of freedom of speech to save himself politically?

MR. KOROTICH: I don't want to fight with Gorbachev and discuss this.

MR. MacNeil: By discuss with him you mean argue.

MR. KOROTICH: Argue with him, excuse my English. But I understand that in mine country as in your country only one kind of over turn is possible right wing. Left wing over turn is impossible in my country. And if I'll try to push Gorbachev and try to be with those who push him from his seat, new men could come in his place terrible right wing men not new Gorbachev. And I think Gorbachev really wants to unit the society. Society is terribly divided, into national group, into political group. In to many many kinds of people who want quite different thing. And, I think now Gorbachev wants to something with that. But it is not to easy to call us together. But now it's too late. I think that we are really divided now.

MR. MacNeil: Are you in personal terms as pessimistic as people in that poll that your magazine published that perestroika can't produce significant results?

MR. KOROTICH: No I am not pessimistic. I am a well informed optimist. You see I know something and those people don't believe because our people believe in miracles. They believe someone will come, wizards come and we'll have everything. Our productivity is three or four times less than yours. A lot of people think that something will happen and we'll receive everything. I think Gorbachev wants from people only one thing. Too work harder. We must now reconstruct the mechanism. We do it but each mechanism with low productivity means nothing.

MR. MacNeil: Let me ask you finally there is a debate going on here today. Former President Carter among says that Pres, Bush is not responding quickly and effectively enough to what is happening in your country and Eastern Europe. Pres. Bush disputes that. What do you think looking at from your point of view?

MR. KOROTICH: I like what President Bush is doing now. He is enough serious. When he came to Europe a lot of people expected that it would be a golden rain immediately. He told them I wish you the best good by. May be it was only kind of answer because provocative American President is a dangerous thing. I think now when Gorbachev and Bush will meet somewhere in Mediterranean it will be interesting talk and I believe that it will be talk about Eastern Europe too. It is to dangerous place. Now process of changes are going. I tell you that administrative bureaucratic socialism is dying in our eyes. Of course resistance will be very strong. It's necessary to wait a little and understand that we start to be humanity we are you and now is dying the most terrible totalitarian system which was. And we try to build something humanistic and it is not to easy.

MR. MacNeil: Mr. Korotich thank you very much for joining us. UPDATE - GOVERNMENT CRISIS

MR. LEHRER: In East Germany today, the 44 members of the Cabinet called the council of ministers resigned. In a farewell statement the cabinet said our socialist fatherland needs everyone. They pleaded with East Germans not to flee to the West. An estimated 28,000 East Germans have crossed in to West Germany since Saturday. We have a report by Nik Gowing of Britian's Independent Television News.

MR. GOWING: These typical buildings in East Berlin are crumbling after 40 years of Communist rule just as the social and economic fabric of East Germany is crumbling at a rate potentially devastating for a state whose very justification is the success of socialism. Outwardly it is business as usual but as the community shows the lifeblood of East Germany is draining away with each young skilled person who flees to the West. Thirty thousand have left the country in the past 4 days. One hundred and ninety thousand since the start of the year. The closed shutters are one of the few clues to the scale of the exodus. Here a fish shop whose managers disappeared a few days ago. This grocery shop should have open today. People presume they have gone West too. The Bako Bakery which supplies a large part of Berlin is still working but it is rumored that up to 100 workers have left. No bread was made yesterday because of a break down and a key repair engineer has disappeared and it is presumed that he has left too. For those left behind there is the anxiety of disappearing colleagues at work, disappearing friends at home. A visibly worsening economic situation aggravated by labor shortages. And then the big question should they go to?

CITIZEN: It is very hard for us now because so many people have gone. Production has been hit. In the factories there have been lots of changes. The bosses keep coming to us to work over time. A lot of the production staff is gone. In the mechanical section there is only 5 people left.

MR. GOWING: Before last weekend's new exodus the situation had already become bad enough for East Berlin to ship in several hundred Vietnamese workers to fill laboring and semi-skilled jobs. Some told me they hated the work. They do not like the way they are treated here either. Now after 10,000 conscript soldiers have been drafted in to man the faltering public transport system and to fill factory jobs.

MR. LEHRER: The cost of the refugee flood from East Germany and the East Block nations is beginning to also mount in West Germany. Today the Bonn Government said it would spend 4.3 billion dollars to build apartments for refugees. FOCUS - SAVINGS & LOSS

MR. LEHRER: Next more on the story of Lincoln Savings & Loan of Irvine, California, and its owner, Charles Keating, Jr. The federal government took over Lincoln in April, following repeated charges of mismanagement and fraud. It was the largest savings & loan takeover in U.S. history, and may end up costing American taxpayers more than $2 billion. The investigation by the House Banking Committee involves among others five U.S. Senators who lobbied regulators on Keating's behalf. We have excerpts from today's committee testimony after a backgrounder by Correspondent Jeffrey Kaye of public station KCET-Los Angeles.

MR. KAYE: In 1984, Keating's American Continental Corporation, ACC, bought Lincoln and it's 29 branch offices in Southern California. Lincoln plowed its depositors' investments into a portfolio containing a high proportion of junk bonds and raw land. American Continental attorney James Feder explained why.

JAMES FEDER, American Continental Lawyer: The intent was to operate the business of Lincoln and Lincoln subsidiaries in the most profitable manner and engage in the type of lending activities which would make a return for the investors and the depositors of ACC and Lincoln respectively.

MR. KAYE: Lincoln Savings was a major player in the speculative Phoenix land boom of the mid 1980s. But eventually the boom went bust. The available signs that now punctuate the Phoenix landscape bear testimony to the area's over development. Lincoln's chief investment in raw land was 30 miles southwest of Phoenix. The ambitious plan was to develop a new town called Estrella. The company put in roads, sewers, and electrical lines. With the government takeover of Lincoln, the Feds are now in charge of a development that lags way behind Keating's grand projections of as many as 1000 residents by the end of this year. There are only four homes in Estrella, no yacht club on the man made lakes, and on the site of the planned golf course, the only holes are inhabited by ants. American Continental's James Feder blames the government for Estrella's lack of success.

MR. FEDER: It's been stopped. The point if when the government took it over, they stopped it. And when you stop something in mid- stream, certainly the potential value of it can be looked upon to decrease.

MR. KAYE: Government investigators charge that Estrella wasn't just a risky investment; it was part of a massive fraud. They cite this real estate in Hidden Valley which adjoins Estrella. The government charges that Keating insiders bought and sold the property to themselves in order to increase Lincoln's taxable assets. According to the government, Lincoln funneled almost $1 billion to Keating's American Continental Corporation, claiming they were for tax payments. But instead of being passed on to the U.S. Treasury, millions of federally insured dollars went to Keating and other executives of American Continental, which is now in bankruptcy.

JOHN MEEK, Federal Thrift Regulator: [October 31] We were documenting that Mr. Keating and his family had taken at least $34 million in salaries, bonuses and stock sales from Lincoln and ACC. As it became apparent to us in the fall of 1988 that ACC was nothing more than a financial pyramid that was about to collapse, we couldn't help but wonder how the subordinated debtholders, the widows and orphans, the moms and pops, would feel about being suckered into financing the lavish lifestyles of the Keating family and other ACC officers and employees.

MR. KAYE: One widow who helped finance Keating's enterprises was Shirley Lampelle of Tuston, California. She's part of a class action lawsuit involving 23,000 people who invested $200 million in American Continental's subordinated debentures or junk bonds. The bonds were sold through Lincoln offices and were uninsured.

MR. KAYE: $30,000 and what did you think you were investing in?

INVESTOR: Lincoln Savings.

MR. KAYE: Not American Continental?

INVESTOR: Well, I went into a Lincoln Savings Bank.

MR. KAYE: All the references here are to American Continental Corporation.

INVESTOR: It didn't mean anything to me at all. It just didn't mean anything.

MR. KAYE: Why not?

INVESTOR: Because I was at Lincoln Savings I guess. I don't know. I wouldn't expect to walk into Sears and find Penney underwear.

MR. KAYE: In 1986, examiners from the Federal Home Loan Bank in San Francisco began an investigation. They were shocked by their findings.

MICHAEL PATRIARCA, Federal Thrift Regulator: [Oct. 26] Fraud, insider abuse, risk taking beyond all bounds with insured deposits that went unchecked by a board of directors and outside auditors until the losses were truly extraordinary.

MR. KAYE: As the investigation dragged on, Keating pulled strings. He was a generous contributor to political campaigns. Among his beneficiaries were U.S. Senators Dennis DeConcini and John McCain of Arizona, California's Alan Cranston, and John Glenn of Ohio. In April 1987 at the request of Keating, the four met with Edwin Gray, then chairman of the Federal Home Loan Bank Board. They discussed the lengthy probe of Lincoln. One week later, the same four Senators joined by Sen. Donald Riegle of Michigan, another Keating beneficiary, met with regulators from San Francisco, including William Black, and Michael Patriarca. They felt the Senators acted as Keating's advocates.

MR. PATRIARCA: My distinct impression having spent a couple of hours in the meeting was that they were the ones giving the answers, they were not the ones looking for the answers. I supervise the largest banks in the country and I can tell you for a fact there aren't any of the largest banks in the country who could get two Senators in a room together to argue with its regulator about the examination. I think that this meeting is an example of this some extraordinary political influence, the likes of which I'd never seen in my career.

MR. KAYE: Despite any pressure they felt, the San Francisco regulators declared that Lincoln was being operated in an unsafe manner and they recommended that the government take it over. But M. Danny Wall, the new chairman of the Federal Home Loan Bank Board, took them off the case. Wall transferred responsibility for Lincoln to Washington, D.C. Regulators there eventually reached the same conclusion as their San Francisco counterparts and Lincoln Savings was seized.

REP. HENRY GONZALEZ, [D] Texas: [Oct. 17] Almost 24 months and up to $2 billion of losses after the action had been recommended by the San Francisco bank. A $2 billion mistake surely requires a full explanation even in the secret world of the Home Loan Bank Board. The answers vary about why the cops on the beat were pulled off in the middle of the night.

WILLIAM BLACK: Clearly, we were shot in the back by the bank board as we battled to protect the taxpayers in the Lincoln matter. Lincoln got the veto right over as I said who could negotiate, who could examine it, and ultimately over who could supervise it. No other institution in America, bank, savings & loan, credit union, has ever obtained this to our knowledge.

MR. KAYE: Danny Wall defends the two year delay in seizing Lincoln. He told reporter Jeffrey Brown that San Francisco examiners did not produce enough evidence to warrant a federal takeover of the institution.

M. DANNY WALL, Federal Thrift Regulator: The results of the first examination were inconclusive and insufficient to justify a receivership or conservatorship action on the part of this agency. And while we agreed that the San Francisco staff, that there was smoke, we couldn't find the fire. And they hadn't found it. The only way to do so was to pursue another examination, get more information.

MR. KAYE: Was Charles Keating allowed to pick, in essence, allowed to pick his own regulator?

MR. WALL: No. I don't believe that I was the recipient or the beneficiary of political pressure or political influence that was inappropriate.

MR. KAYE: The five Senators who met with regulators, the Keating five as they've been dubbed, have denied wrongdoing. Donald Riegle has returned $76,000 he received from Keating & Associates. Dennis DeConcini has given back 48,000 raised by Keating. John Glenn received more than $34,000 from the Keating Group and has not returned it. Alan Cranston got 47,000 in campaign contributions. And private groups he founded received $850,000. Cranston has not returned any money. John McCain has paid back more than $13,000, the cost of trips he and his wife took to Keating's home in the Bahamas. But McCain has no plans at this time to return the more than $100,000 that Keating and his circle contributed to his campaigns. He does feel that he and the other Senators who took Keating's to the regulators were in error.

SEN. JOHN McCAIN, [R] Arizona: But the appearance of five Senators meeting with one regulator clearly is if not improper certainly a bad appearance. And that's why I have said consistently that I had a lot of very strong misgivings about attending a meeting because of that.

MR. KAYE: Keating insists that he played by the rules and was victimized because he lobbied long and hard to ease the restrictions on thrifts.

CHARLES KEATING, JR.: I find it appalling if not outrageous that a federal agency sweeps into Phoenix with a team of strangers authorized to confiscate an attempt to operate a business they know nothing about, and particularly anguished about the fact a few nameless bureaucrats who ostensibly charged with enforcing our laws and regulations have misused their position of authority and have attacked my leadership of American Continental Corporation and Lincoln Savings & Loan, a subsidiary of our great --

MR. KAYE: This morning the House Banking Committee began the fourth of its series into Lincoln. Charles Keating was scheduled to be the lead off witness but he requested and received a two week postponement, however, Edwin Gray, the former chairman of the Federal Bank Board, did appear.

EDWIN GRAY: True venture capitalists take risks, big risks, on their own money. Charles Keating's idea apparently of venture capitalism was to take risks on money backed by the taxpayers and the taxpayers lost. My re-regulatory policy and my philosophy and the proper role of thrifts ran counter to Lincoln's philosophy. Charles Keating was used to getting his own way and I stood in the way as his regulator by virtue of the safety and soundness regulations that we were pursuing at the Bank Board.

MR. KAYE: Gray said he found the Reagan administration, particularly chief of staff Donald Regan, standing in his way as Gray tried to regulate an industry intent on bucking regulation.

MR. GRAY: In the fall of 1985, Donald Regan and Charles Keating were operating on concurrent tracks. They both despised my regulations and regulatory approaches. Within several weeks of each other, Donald Regan was seeking to fire me even though I had a four year Senate confirmed term as a member of an independent regulatory agency, and Charles Keating was trying to get me out of the job by hiring me. I now learn that he thought I was worth a $300,000 a year salary to get me out. Donald Regan who proclaimed himself often as the chief economic spokesman for the administration and who was in a position by virtue of his role to help the Bank Board get more examiners, as we had around 700, didn't lift a finger to help us, despite our pleas. We were called upon by law to look after the safety and soundness of a $1 trillion industry with our hands tied behind our backs, in effect, because we didn't have enough people. I sometimes felt as though I were a sheriff without a gun.

MR. KAYE: Gray said he was also incensed by the White House placement of a Keating crony on the Federal Home Loan Bank Board.

MR. GRAY: Donald Regan engineered a coup on Mr. Keating's behalf. As Congress was leaving in 1986, right at the end of the session, Donald Regan boldly named one Lee Hinckle to a recess appointment on the Board and in a Republican slot. Now Lee Hinckle was one of Charles Keating's politician contributor group. He was an attorney for Lincoln. We had millions of dollars in loans from Mr. Keating's financial empire. Mr. Hinckle was now in place to change things at the Bank Board. Let me just finish by saying that back in 1984 and early 1985, in my opinion, Lincoln devised a scheme intended to cause people to believe falsely that its troubles were the result of a vendetta against Lincoln by its regulators, principally myself at the time. Senators Cranston, DeConcini, Glenn, and McCain had evidently I think somehow been affected by the scheme when they met with me on April 2, 1987.

MR. KAYE: Chairman Henry Gonzalez asked Gray if any of those Senators were instrumental in getting Lee Hinckle appointed to the Federal Bank Board.

REP. GONZALEZ, [D] Texas: What about this story that there was a trade-out between the Senator from Arizona and Mr. Regan, the chief of staff, on the matter of the vote on the contras?

EDWIN GRAY: One of my fellow regulators since I have been gone told me that he understood that the appointment had been made in return for a vote by Sen. DeConcini on the contra vote, contra funding. But I can't verify that.

MR. KAYE: One of the reasons the Senators got involved in the first place was Keating's opposition to Bank Board regulations restricting speculative investments.

REP. LEACH: It was an egregiously weak regulation.

MR. GRAY: Absolutely. And I said it at the time.

REP. JIM LEACH, [R] Iowa: And everybody in this committee ought to understand that what the regulation says is only that an institution could put a minimum of 10 percent of its assets into direct speculative investment. If they wanted to do more, they just simply had to get regulator approval.

MR. KAYE: The most heated exchange came when Committee member Carroll Hubbard of Kentucky rose to the defense of the four Senators.

REP. CARROLL HUBBARD, JR., [D] Kentucky: I'm a friend and an admirer of John McCain, John Glenn, Dennis DeConcini, and Alan Cranston, but you say on Page One, your fifth paragraph of your prepared testimony, Senators Cranston, DeConcini, Glenn, and McCain had evidently bought off on the scheme when they met with me on April 2, 1987. The receipt of very substantial gifts from Charles Keating and his associates had long since put them in the right frame of mind to give great credence to and yes, to embrace the notion that there was somehow a vendetta against and a feud between Lincoln and its regulators. When enough money flows, it's apparently easy to be gullible. That's heavy stuff, Mr. Gray. This is part of a letter from Dennis DeConcini to you on June 2, 1989. "There is little relationship between the meeting you describe and the one we held. Your recollection of the meeting is so distorted, it's to bear no resemblance to fact." If these four Senators were here today and could defend themselves, they would say to the whole world, do you believe us or this man named Ed Gray. Let's quote the New York Times again, this is from December 6, 1986, "In response to an investigation by the Office of Government Ethics, Ed Gray repaid nearly $26,000 to a fund maintained by the 12 regional Federal Home Loan Banks. $13,868 was for a private plane that was chartered from Indianapolis to Monterrey, California, for Mr. Gray to visit his father in 1984." Quoting from the Los Angeles Times in your home state, "In his first year as chairman of the Federal Home Loan Bank Board, Mr. Gray spent nearly $50,000 to redecorate his office, way over the budget."

MR. GRAY: So what?

REP. HUBBARD: It's just to tell a lot of people that as you sit here and impugn the integrity of four longtime U.S. Senators who are not here to defend themselves that you are not without some fault, as would be true of any of us in this room. The bible tells us that, in effect.

MR. GRAY: You know, then I'm not supposed to tell the truth of what happened in that meeting?

REP. MARY ROSE OAKAR, [D] Ohio: Take the meeting in which the Senators attended April 2, 1987. Could you just go by the, through that meeting point by point?

MR. GRAY: Sen. DeConcini said that they were concerned that they were there and had concerns about their friend from Lincoln, didn't use the name Keating. He seemed to be speaking on behalf of the others. And as I say, they didn't raise any objections to what he was saying. And he said he was very concerned, we are very concerned about this rule that you have adopted on direct investments, concerned that it might be unconstitutional. Note of course, that several weeks earlier Lincoln Savings had sued the Bank Board in federal court on the grounds that the regulation was illegal, and he said that he felt we should wait until we could determine whether the regulation was legal, and therefore he wanted me to withdraw the regulation until we could find out whether it was legal. I'm just telling you what he said. And he said in turn that they would get their friend to make more home loans.

MR. KAYE: The four Senators stand by their assertion that no deal was offered. Shortly after the meeting with the Senators, Gray left the Federal Bank Board and was succeeded by M. Danny Wall. Wall and Charles Keating are scheduled to testify before the banking committee in two weeks. ESSAY - MY KINGDOM FOR A CAR

MR. MacNeil: We close tonight with an essay. Armed with a poll and a dream, Los Angeles writer Anne Taylor Fleming has some thoughts about what cars in Southern California are really all about.

ANNE TAYLOR FLEMING: When asked what he missed about Los Angeles, a friend who'd moved East, said, "You're not going to believe this, but what I miss most is driving." We laughed. After all, this is why people say they leave here, to escape the bumper to bumper, air befouling, tension causing freeways. But you can hardly call them freeways anymore because they're seldom,if ever, free. But that was the idea, high speed freedom of unparalleled, unhindered miles, a daily automotive high. Just get in your car, turn it on, tune into your stereo or tape deck and drop out. That's what my friend missed, that sensation of being free, alone, incubated in your own little fast rolling world with no one to bother you or hinder your thoughts, even if you're driving to the market to pick up a quart of milk. It's the ultimate tuneout time, the scenery a kaleidoscopic backdrop to your daydreams. It's the kind of time that you can't duplicate on foot because then you're prey to immediate sensations, be it a cool wind or the smell of a pizza, or the bark of a dog, sensory distractions. In a car, there's none of that, providing you haven't succumbed to the domesticating touch of a telephone. Funnily enough, for all the attention given them, car phones haven't caught on big out here. In a recent Los Angeles Times poll, only 4 percent of drivers said they had one. Only 31 percent said they'd like one and the other 64 percent said nix, not for them. They get it. They don't want that interruption, that connection with their regular lives. The whole point of driving, as my nostalgic friend pointed out, is disconnection. That's why we Angelinos also resist any attempt at making us carpool. The very word sends shutters through the local soul, conjuring up a bunch of scrunched together, pinched face, pin striped commuters. No, that's definitely not us. And of course cars are our personalized symbols of status. From Jags to jeeps, cars telegraph our self-images to the passers-by, a silent shout from late to lane. It's not just a matter of money. People with a lot of money can choose to underplay it, go four-wheel drive rustic, in fact, one of the hot trends of the moment, a kind of Old West escapist fantasy in the middle of the city, a nod to times past before these vehicles of ours had yet to besmirch our paradise. In that same LA Times poll over 40 percent said that cars had ruined the city. But did that mean they'd gladly give them up or double up, or better yet, take a bus or walk a couple of blocks? No way. 83 percent said they hadn't been on a bus in over a year and 20 percent said they hadn't walked four city blocks in the past 12 months. We just don't get it or we do get it but we don't want to get it if it means giving up our cars. They're our pleasure, our passion, our turtle shells. Sometimes if you're on the freeway late at night, cruising along unhindered at full speed, sun roof open to the night, maybe even a star or two visible, the old thrill comes back and you feel as if all is right with the world, or at least with the city, and you could just drive forever. RECAP

MR. LEHRER: Again the major stories of this Tuesday, the East German cabinet resigned amidst growing demands for political reform, pro-democracy demonstrators staged counter Revolution Day ceremonies in Moscow, and the United States agreed to repay $1/2 billion in frozen assets. Good night, Robin.

MR. MacNeil: Good night, Jim. That's the Newshour tonight and we'll be back tomorrow night. I'm Robert MacNeil. Good night.