The MacNeil/Lehrer NewsHour

INTRO

JIM LEHRER: Good evening. In the headlines this quiet Friday after Thanksgiving, a Soviet defector triggered a gun battle at the Korean border. Three black leaders announced a new U.S. campaign against South Africa, and an earthquake shook parts of Nevada and California. Robert MacNeil is off tonight; Charlayne Hunter-Gault is in New York. Charlayne?

CHARLAYNE HUNTER-GAULT: After the news summary tonight, our table of contents goes like this. We'll be finding out more about the reason behind the South Africa protest from a key player, and we'll have a reaction from the South Africa side. As we anticipate next week's rounds of Salvadoran peace talks, we have a special profile of one of the key players in that arena, Salvadoran President Jose Napoleon Duarte. We'll also get a preview of the second artificial heart transplant, which could happen any moment now, and we examine new concerns about coronary bypass surgery. In the economics department, a big banker and a small banker argue about something called a non-bank bank. And texas and Central America are singled out for special scrutiny by this week's political cartoonists.

LEHRER: There was a shootout at the border between North and South Korea today, two North Korean and one South Korean soldiers died. A U.S. Army private was wounded. The incident was triggered by a 22-year-old Soviet tour guide who made a run through the demilitarized zone from North to South Korea. But United Nations command spokesmen said North Korean soldiers came after him and shooting erupted. North Korean spokesmen said it was provocative, militaristic acts by U.N. troops that started it. At any rate, the Soviet defector escaped unharmed, and was taken to Seoul for a debriefing. The Pentagon identified the wounded American as Private Michael Burgoyne, age 20, of Portland, Michigan.

Charlayne?

HUNTER-GAULT: In Japan who Soviet bombers violated Japanese air space in the southern part of that country. Ignoring repeated warnings, they were pursued by 34 Japanese warplanes. It was the second such intrusion in 11 days, but it was not immediately known whether there was any exchange of fire during the three-minute incursion.

In France, 13 people were killed today when two French air force transport planes collided and crashed on a test mission. The crash occurred in southwestern France, and military authorities say there were no survivors. It happened just before nightfall and the wrecks lay burning about half a mile apart. It was open countryside and no one on the ground was hurt.

More than 10 U.S. diplomats and their families have left Bogota, Colombia, after threats from drug gangs. The threats were prompted by Colombia's pledge to extradite drug traffickers to the United States. So far, six suspects are awaiting extradition. A spokesman for the embassy would not respond to rumors that Ambassador Lewis Tambs was also leaving his post.

Jim?

LEHRER: An embassy sit-in and jail were only the beginning of a nationwide protest campaign against the government of South Africa. That was the announcement today from Congressional delegate Walter Fauntroy and two other U.S. black leaders who spent Wednesday in jail after refusing to leave the South African Embassy.

Rep. WALTER FAUNTROY, District of Columbia Delegate: We believe now that we have no choice but to present our bodies in direct action in protest of these continued repressive policies, that we will be successful in the weeks and months and, if necessary, years ahead. We present this level of the struggle in direct action now, because we believe that the American conscience will respond, that we will achieve the three goals of this Free Africa movement.

LEHRER: Delegate Fauntroy and a South African spokesman will debate it all in a major focus segment in a few minutes.

An area of northern California and Nevada were shaken by a good-sized earthquake today, but there were no reports of serious damage or injury. It measured a six on the Richter scale, and was felt in Las Vegas as well as Fresno, Stockton, Bakersfield and Santa Barbara, and all points in between.

Charlayne?

HUNTER-GAULT: On the New York Stock Exchange prices were sharply up today. The Dow Jones average of 30 industrial stocks rose 18.78 points, closing at 1220.30. Analysts said there was hope of lower interest rates after the Federal Reserve lowered its rate to member banks on Wednesday. And the Christmas shopping season opened today here in New York. The stores were crowded, prices were up and the rush was on. But in other cities around the country retailers sounded a bit nervous about the prospects for a big season. Some of the big chains have been cutting prices and investing heavily in promotions, thus cutting into their profits from both directions. There is also some concern that holiday shoppers will be cautious about their spending because signs of the economy are slowing down. Apartheid: Protest and Response

LEHRER: Our first focus segment tonight is on today's announced new protest campaign against the government of South Africa. The leaders are the three U.S. blacks who were arrested Wednesday at the South African Embassy here in Washington, and one of the three is Walter Fauntroy, the District of Columbia's non-voting delegate to the U.S. House of Representatives.

What are you planning to do, Congressman?

Rep. FAUNTROY: We are planning at this time to move our level of protest and struggle to that of direct action. For many years blacks and whites of good will in this country have been trying to influence this country's policy, and thus the policy of South Africa, to end the political domination and economic exploitation of black people in South Africa, a domination and exploitation which is not only onerous to our principles of this country, but is a threat to the jobs of black and white Americans alike when our corporations and others will be tempted to take advantage of the cheap labor source that is structurally made available by the vicious regime in South Africa.

LEHRER: What kind of direct action?

Rep. FAUNTROY: Well, we will be exercising our First Amendment rights to peacefully assemble, to petition for redress of grievances. And right now that means that in many instances some will be going to jail, to say that until the black leadership that has been in leading nonviolent actions this year in South Africa is released and negotiations begun with them, we will remain in jail.

LEHRER: Specifically who do you mean? You're talking about the 13 labor leaders that you mentioned --

Rep. FAUNTROY: Not only the 13 labor leaders. We think that responsive to America's change in policy in the last four years, the constructive engagement policy, which means all carrot and no stick, we've seen an increase in repression in South Africa this year. Students demonstrated in February against the inferior education that they're receiving, and over 134 of them were killed. Later on, Asian and racially mixed leaders prevailed upon their communities not to support the tripartite parliamentary system that was proposed. And it was successful. As soon as it was successful -- 80% of the Asians not voting, 70% of the mixed-raced not voting -- those leaders were arrested under the internal security laws that permit arrest without recourse or without reason. And then, finally, when in protest black leadership, in the labor unions, in the student groups, in the community groups, fashioned a successful two-day strike that had nearly a million people -- black people -- not going to work, they were arrested. And we fear for their lives, these 13 in particular, because under the new security law under whichthey were arrested, already 64 persons have been killed. So we are concerned about that.

LEHRER: Well, in this country who are you going to take direct action against? The South African Embassy again? Who else is there to take direct action against?

Rep. FAUNTROY: Well, there are a number of means -- targets. Obviously the South African consulate, in an appeal to conscience there, to abandon what we call this march toward tragedy, bloodshed and violence, and to change to a policy of national dialogue.

LEHRER: But what I'm getting at is what are the kinds -- for instance, you and three others staged a sit-in at the South African Embassy. What other kinds of specific actions can we look forward to over the next weeks or months?

Rep. FAUNTROY: I think you can expect numerous leaders, black and white together, joining us in that kind of action.

LEHRER: Similar to that?

Rep. FAUNTROY: Here and elsewhere in the country. I think you can look forward to more definitive action opposing this country's constructive engagement policy, action that will flow from an awareness on the part of the American people that this is not just a racial question in South Africa; it's a question of jobs and economic security for us here as well as there.

LEHRER: Thank you.Charlayne?

HUNTER-GAULT: We get a South African viewpoint now from John Chettle, the director of the South Africa Foundation, a private-sector group funded by South African corporations and individuals. Mr. Chettle, what's your reaction, and what do you think will be South Africa's reaction, to the demonstrations Mr. Fauntroy's been describing?

JOHN CHETTLE: Well, I just don't think it makes a very good contribution to the peace of the area. After all, you know, one of the things that has been happening is that the South African government, very belatedly -- and I'm not here to defend the South African government; I represent the private sector -- but very belatedly has been moving to give back some people of color constitutional representation. For the first time we had elections by coloreds and by Indians to go to the South African Parliament. There is now a colored and an Indian member of the South African cabinet. You have trade unions for the first time in 300 years, fully recognized and able to strike. There have been 400 peaceful strikes in the course of the last year. But there are some very disturbing things that are happening. For example, it was reported in The Washington Post just this week that in the course of these disturbances 30 people, black leaders, have been killed by strikers and by rioters. Thirty mayors, deputy mayors and city councilors. One family that refused to heed the stay-away-from-work call was firebombed, and all five members of the family were killed. One of my trustees is a black trade unionist, Lucy Mvubelo, she has had her house firebombed twice. She's a vigorous opponent of the South African government, has always been, but she refuses to accept the call of many black leaders in this country of disinvestment.

HUNTER-GAULT: But what about the kinds of violent activities on the part of the government that Mr. Fauntroy just articulated?

Mr. CHETTLE: Well, it seems to me that we have been highly critical of certain aspects of those. In fact, the entire private sector in South Africa has the freedom, and has exercised that freedom, to criticize the government. But at the same time, if you think about what the British government, shall we say, did in Northern Ireland against the murders and that sort of thing of the IRA, you'll see a very similar pattern of governmental action. Clearly governments have to stop this kind of thing.

HUNTER-GAULT: Well, what, if any, effect do you think Mr. Fauntroy's direct action campaign will have? I mean, one of the things he just said is that they would like to see the labor leaders who've been arrested released from jail and allowed to participate in negotiations. Is this kind of campaign likely to produce that kind of desired effect?

Mr. CHETTLE: Well, one of the things that I think is very sad is that over the years black leaders have regularly engaged in debate with the South African ambassador. Jesse Jackson has been round there on a number of occasions. The South African ambassador was asked by the Reverend Fauntroy for a specific meeting to discuss their views and all that kind of thing. And they had met with them, as they've met with them on many other occasions, and then suddenly they get a phone call to say that this is in fact not an amicable discussion; it's a protest, a stay-in protest.Well, is the South African government, is the South African ambassador going to be prepared to meet with the Reverend Fauntroy and other black leaders again? Is it going to cut off the communication, a very valuable source of communication, that black leaders in this country have? I don't think -- I believe that even now the Reverend Fauntroy may believe that he has not done the right thing.

HUNTER-GAULT: Well, let's just see about that. Jim?

LEHRER: Is that true?

Rep. FAUNTROY: It is absolutely not true. The fact is that we have engaged in discussions year after year. We labored with the Gray Amendment. We brought 500,000 people here last year in the March on Washington, and one of the demands was that we initiate and pass a prohibition on future investments in South Africa so that more of our corporations will not be tempted --

LEHRER: Yeah, but what about his point that you all went to talk and then you had a demonstration and as a result of that the talking's going to stop?

Rep. FAUNTROY: No, the talking is not going to stop and we're not asking that they talk with us. We're asking that they talk with the legitimate leaders of South Africa, black South Africa. Not only those who have been arrested in the past few months, and certainly not only the heads of the labor unions who are not responsible themselves for organizing to kill --

LEHRER: What about that, Mr. Chettle? He doesn't care about talking --

Mr. CHETTLE: Well, you know of the things that I very sorry about is that so little of what is going on actually seems to penetrate through in the media here. For example, there has been for the last 18 months a cabinet committee consisting of seven of the most senior South African cabinet ministers who have been having regular talks with black leaders, and not only elected but non-elected black leaders. And these talks have often been two and three times a week with the view, the prime minister has said quite specifically, to bring them into the political process.

Rep. FAUNTROY: Well, I wonder what black leaders they're going to talk to now? Are they going to talk to the heads of the unions, the hundreds of thousands --

LEHRER: Well, let's ask him. What black leaders are you talking about?

Mr. CHETTLE: Well, I'm talking about the black leaders from a very wide degree -- a very wide sphere of activity.

Rep. FAUNTROY: There are millions of black workers who are now represented by union heads. Those union heads have been arrested. The fact is that Nelson Mandela, a gentleman whom the polls show enjoys 86% of the support of black Africans, even though he's been incarcerated for 20 years, and we're just asking that they be released and that meaningful dialogue toward a serious effort to share power -- not dominance on the part of one or the other, but to try the experiment which has resulted in what has happened in Zimbabwe.

LEHRER: Now, what's wrong with that, Mr. Chettle?

Mr. CHETTLE: Well, one of the things that is wrong is, again, that the Reverend Fauntroy is not well informed because, in fact, a State Department study of black opinion in South Africa has just been done to see who they do recognize as leaders, and there is a very wide variety of leaders, and Nelson Mandela, just to quote that particular example, his top popularity rating was 27% in the Wotwatusrand area; that's around Johannesburg.

LEHRER: Well, obviously we're not going to resolve that, among many other things we're not going to resolve here tonight, but what about his basic point, Congressman, that it isn't going to do any good? What you're planning to do is not going to have that influence on the South African government.

Rep. FAUNTROY: Yes. So, in fact, was it said 20 years ago that you'll not get these people to change the system of segregation by sitting in, but our actions pricked the consciences of American people to the extent that they eventually got the body politic, through its government, its House of Representatives and Senate, to --

LEHRER: You're talking about in this country.

Rep. FAUNTROY: In this country. By the same token, I believe that as the American people become aware of the linkage of what's happening in South Africa to our own interests -- interests that were well defined in a Rockefeller study some four years ago -- that are very critical to us, we'll begin to examine this.

LEHRER: That make sense to you, Mr. Chettle?

Mr. CHETTLE: No, because I think that the Reverend Fauntroy just doesn't understand the tumult of change that is taking place in South Africa, which, as a South African, is very exciting. Let me just give one small example. I was back in March of this year, and I went to the Market Theatre in Johannesburg, the largest theater in the country, and there they were giving a play about the tribulations of a black woman confronted by the pass laws, and they were giving it --

LEHRER: By the what?

Mr. CHETTLE: Of the "pass laws," that is, restricting the movements of blacks. They were -- it was entirely acted by blacks except for a couple of walk-on parts by objectionable white officials. It was in Afrikaans, the language of the present government. The audience were middle-class Afrikaners, who gave it a standing ovation night after night, and it was funded by the government.

LEHRER: Is that not progress, Congressman?

Rep. FAUNTROY: I would talk to the students who demonstrated against the system that is designed to keep their educational level at one which prevents them from moving into the mainstream.I would talk to the labor unions whose members insisted that they participate in this strike, and ask if a play before some Afrikaners is progress!

LEHRER: Delegate Fauntroy, thank you very much; Mr. Chettle, thanks to you. Charlayne?

HUNTER-GAULT: There is still more in tonight's NewsHour: a special profile of Salvadoran President Jose Napoleon Duarte and his quest for peace; an argument between a big banker and a small banker over something called non-bank banks; we learn about an upcoming second artificial heart transplant as well as new concerns about coronary bypass surgery; and we find out how some of the nation's political cartoonists sized up taxes and Central America this week. El Salvador's Duarte: Quest for Peace

LEHRER: This Sunday an announcement is due on La Palma II, the second round of peace talks between the government and the leftist guerrillas of El Salvador, who, for the first time in their five-year civil war, sat down to talk last month. Sunday's announcement is to come from the man who started this peaceful phase in El Salvador's history, President Jose Napoleon Duarte. Our special Central America correspondent Charles Krause put together an extensive profile of this man of El Salvador's hour.

CHARLES KRAUSE [voice-over]: Jose Napoleon Duarte has led the fight for democracy in El Salvador for more than 20 years. His bold peace initiative at the United Nations last month demonstrated that he may be his country's only statesman. By all accounts, Duarte is El Salvador's most skillful politician. His October meeting with the guerrillas in La Palma may or may not lead to peace, but regardless, the meeting was a brilliant political move. By seizing the initiative, Duarte caught the mood of most of his countrymen for peace. He also caught his political enemies off guard -- extremists on the right and hardliners among the guerrillas who want a fight to the finish. La Palma reflected Duarte's deepest hopes for a negotiated end to the war. The timing demonstrated Duarte's shrewd political instincts.

THOMAS PICKERING, U.S. Ambassador to El Salvador: When we found out about his proposal we encouraged him with it, but we made it very clear to him that it was his call.

KRAUSE [voice-over]: Thomas Pickering is the United States ambassador in El Salvador.

Amb. PICKERING: We have said to President Duarte we are very much in favor of opening the dialogue. He too has said he is very much in favor of opening the dialogue. We have said to him in the past, "You decide when and under what circumstances you think it is best to do that. You know your government, you know your home power base, you know what the problems are here in the country about bringing people along," and indeed he did it.

KRAUSE [voice-over]: Duarte's peace initiative was a gamble, but a calculated one. It came as a surprise but, looking back, the clues were there. The groundwork for a meeting with the guerrillas was laid during Duarte's presidential campaign 10 months ago. As a candidate he promised peace. He vowed to bring El Salvador's notorious death squads under control, and he promised other changes to promote human and political rights in a country that for 50 years had been ruled by military dictators. In short, Duarte promised to create a functioning democracy, then to enter into a dialogue with the guerrillas to test their real intention. Duarte explained his thinking to us last March during the election campaign.

JOSE NAPOLEON DUARTE, President of El Salvador: If we go out and try to solve the causes of the problem -- not the symptoms, because the guerrillas in the mountains is only the symptom, is the result, but not the cause. So if we go out to solve the causes of the problem, if we reduce the possibilities of death squads, if we reduce the possibilities of abuses of authority, if we can give this kind of security, and if we make the reforms that we have made, and if we have given the opportunity for the people to make the decision through democracy, then we are solving, we are confronted with the problem of liberty, security and justice. Then the guerrillas will have to understand that they can have the space, the political space available for them, that they will have the same security that the rest of the people will have, the then we will be able to call -- with the moral authority we'll have, to call upon them to leave the arms and to come back and to incorporate themselves in the process.

KRAUSE [voice-over]: When Duarte took office last June, direct talks with the guerrillas would have been politically impossible. Both the military and their traditional allies on the extreme right viewed negotiations as disguised surrender. So to improve the prospects for his peace initiative, Duarte undertood a series of trips abroad. In Washington his objective was to obtain more economic and military aid from Congress, which he did. In Latin America and Europe his objective was to undermine sympathy for the guerrillas and to win international backing for his government, which he did. Duarte was welcomed as a legitimate democratic leader. His success abroad helped him at home to overcome the military's long-held suspicions of him.

Pres. DUARTE: They were suspicious because they were told for 50 years and for the last 23 years -- and for 50 years that everybody who talks about justice, that everybody who talks about democracy, anybody who talks about the army self, it was a communist. And for the last 23 years, because -- since I've been talking I've been the center of all the attacks.So the whole process has been to give in the minds of the military people that I was communist, that I was against the army, that I was their enemy, that I was going to destroy them, so and so. But now they have learned different.

KRAUSE [voice-over]: Since he became president six months ago, Duarte appears to have forged a close working relationship with the military. In a country with no tradition of civilian control over the army, Duarte's asserted his role as commander in chief. But he's avoided confrontation. Again, Duarte's made good use of his political skills. He's convinced the military that he's not a threat, and he convinced the powerful officer corps to at least let him begin negotiations with the guerrillas.

But Duarte's had only limited success in another key area -- convincing the military to end its ties to El Salvador's death squads. The biggest change so far has come at the Treasury Police. Its new commander, Colonel Rinaldo Golcher, has disbanded Treasury's intelligence unit, which was the center of death squad activity. But the use of political terror by the right has not ended, even with the changes at the Treasury Police.

Maria Julia Hernandez, head of the Catholic Church's human rights office, told us the terror has been reduced but not eliminated since Duarte became president. She showed us pictures of some recent victims killed by the death squads. The murders continue, she says, especially in the countryside.

At the national university we talked with labor leaders. They refused to have their faces photographed by our camera, because they too claim the use of terror continues against them. And we talked to Guillermo Ungo, one of the guerrilla leaders who met with Duarte last month in La Palma.

GUILLERMO UNGO, guerrilla leader: The death squads are not dismantled. Not a single officer, not even lower-ranking officers -- I'm talking about officers, not soldiers, not national guards -- has been punished, not even prosecuted. I would say that it has been some changes but not enough, not substantial changes, but the situation remains the same. And you cannot play with cosmetics. Cosmetics don't last long.

KRAUSE [voice-over]: Duarte is particularly sensitive to these charges because he too has been a victim of political repression. In 1972 he ran for president in an election which many believe he won. But the military refused to honor the results. Instead they jailed and tortured him. Then the military forced him into political exile for seven years. Now that he's president, elimination of the death squads is one of Duarte's top priorities. He knows the guerrillas will have a legitimate excuse not to lay down their arms as long as the death squads exist.

Mr. UNGO: He's calling us to participate in a process where he knows we are going to be killed. And he has not prosecuted them. He has not punished them. Changes in the army have taken place for decades, but changes are not enough to dismantle a killing machinery.

Pres. DUARTE: I cannot say that the death squads are eliminated. That would be a lie. Now, we are working to eliminate them. I am sure that the American people will understand that we cannot make miracles overnight. But we are working hard to do it.

KRAUSE [voice-over]: Duarte is also working hard to reactivate El Salvador's war-torn economy. But critics on both the right and the left complain that he's better at politics than administration. Francisco Quinones ran against Duarte in this year's Presidential election. He's conservative, a member of one of the country's wealthiest families.

[interviewing] How would you rate his government so far?

FRANCISCO QUINONES, conservative politician: Let's give him a "C." Let's give him a "C" for effectiveness, and let's probably give him a "B" for effort. But, in other words, we haven't seen too much practical results of his government yet.

KRAUSE [voice-over]: Workers on strike at San Salvador's sports club have the same complaint. Most of them are Christian Democrats, members of Duarte's own party. They earn only about $100 a month. They told us that all Duarte's government has done for them so far is declare their strike illegal.

Poverty, fear and injustice are still very much a part of life in El Salvador six months after Jose Napoleon Duarte became president. But on balance he's probably brought his countrymen, young and old, more hope than at any time during the last five years of civil war.

Pres. DUARTE: I think that we are in the beginning of democracy. This means that it's not strong enough yet to support itself. We have to nourish it, take care of it. We have to defend it every day. So I think that this is our task. If we fail after 150 years of personal control of the country and 50 years of dictatorship, you see that this is a very weak situation. But if we win, if we strengthen the democracy, if we can handle this to the second president and this second president also can manage democracy, then we'll be safe. Non-Bank Banks: In Whose Interest?

LEHRER: Our next focus segment is about the offspring of a loophole -- non-bank banks, banks that are not really banks, but on the other hand really are. The loophole is in the federal bank laws which prohibit interstate banking -- a bank in Nebraska, say, from opening a branch across the border in Kansas. As a result of the loophole, though, major banking and other corporations are now opening what are called limited-service banks in various states. The comptroller of the currency has already approved 89 such applications in 16 states, and 300 others are pending. It is a development that has many people upset, few more so than the smaller banks, represented by Kenneth Guenther, executive director of the 7,800-member Independent Bankers Association of America.

What's the problem with interstate banking, Mr. Guenther?

KENNETH GUENTHER: It's more than a problem of interstate banking. There are two major, major problems.We have the strongest financial system in the world. Because of that financial system, which is characterized by great diversity, our economy is the strongest economy in the world. That financial system has had one tenet that goes back 120 years, to 1864, and that tenet simply stated is that a bank should not be allowed to own a shoe store and a shoe store should not be allowed to own a bank. This is the issue of the separation of banking and commerce. This makes our system very, very unique. The comptroller of the currency, in 1982, approved the first breach in this wall between banking and commerce. He authorized a furniture store in California to go into the banking business via this non-bank bank loophole. The second issue is the issue that you just mentioned, which is interstate banking. Again, our public policymakers have put in place a system of law that resulted in a very strong diversified financial system -- 1,500 banks, 20,000 credit unions, 4,000 savings and loans. Through the non-bank bank loophole you are giving the large financial institutions a window to do something that they cannot do and which the Congress has not authorized by federal law. Our problem is that fundamental changes in the financial system that has served us so very, very well should be carried out by the Congress, not by one unelected official operating under regulatory authority.

LEHRER: Some would suggest that your major concern is you want to be protected from competition. Is that not the case?

Mr. GUENTHER: Jim, the world of competition and being protected from competition has left us many years ago. I think you go to any small town, you go to any city, you have a wide range of financial institutions where you can do your business. Here what the policymakers have protected is, let's keep some local institutions that care about the local scene and whose only interest is in promoting the local scene. And before we open the door for the New York institutions or the Shanghai institutions or the London institutions, let's make sure that the rules of the game are fair.And just one footnote: we believe in the free enterprise system. Seventy-one of my banks have failed so far in 1984. This test of failure is not being applied to your larger, money-center banks who are trying to exploit this loophole. Continental was not allowed to fail.

LEHRER: Thank you. Charlayne?

HUNTER-GAULT: Among those who don't quite see it the same way as the smaller banks are the bigger bankers. We have one with us now to tell us why. He is Robert Douglass, executive vice president in charge of legal affairs and strategic planning at the Chase Manhattan Bank in New York. Mr. Douglass, why do you favor the non-bank banks?

ROBERT DOUGLASS: Well, Charlayne, we favor the non-bank banks because we see it as an opening to expand into interstate banking activities. I think that's what the issue is all about. Non-bank banks -- you can call it a loophole if you will, but this is what the law permits, and the Congress has had at least four years to look at this so-called loophole, but they have not, for one reason or another, closed it. So it's an opportunity for a bank like Chase to be able to move our operations into other parts of the United States where we can serve consumers. And we feel that we can do a good job and we should be permitted to do that.

HUNTER-GAULT: But aren't there already savings and loans institutions and all the other ones you just heard Mr. Guenther describe that are already doing that? I mean, why is this necessary?

Mr. DOUGLASS: Yes, but we would like an opportunity to serve those same communities. We feel that we could bring better rates for depositors, competitive rates for our loans, better assistance and, frankly, in some states added employment, which I think is important. And we want to do that. We want to expand in the United States. We think this is the most attractive market in the world, and unfortunately, as a result of over 50 years of very archaic banking laws, we've not been permitted to expand except on a piecemeal basis around this country.

HUNTER-GAULT: But Mr. Guenther says the reason for that is the whole fundamental way that the banking and commerce laws were drawn, that there should be this separation of banking and commerce.

Mr. DOUGLASS: Well, he is referring to those institutions who have formed non-bank banks, which are not banks themselves. He's referring to brokers, insurance companies, retailers and so forth who've gotten into this business. And I must say I think he makes a point about those outside the banking industry who are trying to provide bank-like products.

HUNTER-GAULT: But I think he was also talking about you, I mean, because also one of the things he said was that -- I mean you meaning the big banks -- that these big banks come in and they kill off any kind of local -- kill off the local scene. They're in effect foreign to these small-communities and their small community interests.

Mr. DOUGLASS: Well, I've heard the argument, but it's pretty hard to accept. In states like California and New York we have small banks living right alongside some of the largest institutions in the world and doing very nicely. And those who serve their consumers properly, those who offer them attractive rates, are going to keep the business. There'll be some dislocations; there always is in deregulation. But I think we have to keep our mind on what are we trying to do?We're trying to develop a rational banking system that serves the consumer, not that protects any particular group of bank or institutions.

HUNTER-GAULT: Mr. Guenther, how about that? It's the consumer that Mr. Douglass and his big banks are concerned about, he says.

Mr. GUENTHER: The consumer, I think, is very, very well served by the present system that we do have. There have been a lot of complaints I think recently about the fees or the increased fees that are being charged by banks, fees charged if you bounce a check or something like that. Congressional testimony has indicated that the fees and the bounced check charges of the major money-center banks are far higher than the fees charged by my banks.

HUNTER-GAULT: All right, let me just get Mr. Douglass to respond to that.

Mr. DOUGLASS: Well, let me say this. First of all, in terms of rates, the rates offered on deposit products in the New York market, for example, have run anywhere from 50 to 100 basis points ahead of rates offered to consumers in other parts of the country.

HUNTER-GAULT: What do you mean, basis points?

Mr. DOUGLASS: A half of a percentage point, or up to three-quarters or one-half or one percentage point higher rates. And that's real money in the consumer's pocket. And those rates are offered in a competitive market like New York and are available in the rest of the country if we're permitted to move out. Sure, there are higher costs associated with banking services, and one of the reasons, as Ken knows very well, is that for a long time the low rates paid to depositors subsidized the other activities of the banks. Now that banks are paying money-market rates for the deposits, they've got to charge the real cost of some of these services. And I'd like to make one other point. It isn't just the big banks who are interested in these non-bank banks. Some of Ken's member banks themselves all around the country -- there are 320-some applications, and they aren't all from the very large banks.

HUNTER-GAULT: Mr. Guenther?

Mr. GUENTHER: The chairman of the Federal Reserve system, who is responsible for the safety and soundness of our financial system, and really the world financial system, again has testified over the past two years that the exploitation of this non-bank bank loophole threatens the safety and soundness of our financial system. The developments that we have happening here by regulatory fiat are uncontrolled, opposed by the Federal Reserve system; they are going to be tested in the courts. We do not accept the fact that they are legal. And the Congress -- and I have letters, tens of letters from senators, governors, the minority leader of the House of Representatives, saying don't allow a fundamental part of our economic system to be changed in such a haphazard manner. You are playing with the very lifeblood of our strong, functioning economy.

HUNTER-GAULT: You think Congress is going to be able to -- you said earlier that Congress hadn't moved to do anything about it, and yet Mr. St. Germain, who is chairman of the House Banking Committee, and Senator Jake Garn said they are going to try to close that loophole and make it retroactive to last year. Are they going to be able to do it? Are you going to fight it or what?

Mr. DOUGLASS: Well, they may very well try, and we've heard this for well over a year, that we'd have a moratorium, and then we're going to set certain dates beyond which no one could open these non-bank banks. Frankly, as long as the law is on the books and permits us to go out into other communities to serve people in this country, we are going to take advantage of what is on the law, what is part of the law in this country.

HUNTER-GAULT: Well, we'll just have to see what happens when the Congress takes this issue up. Mr. Guenther in Washington, thank you for being with us, and Mr. Douglas in New York, thank you for being with us.

Mr. DOUGLASS: All right, thank you very much. The Heart Beat: New Implants

LEHRER: Next the focus is on hearts and developments this week on two very different ways of treating those that are sick. Judy Woodruff is in charge. Judy?

JUDY WOODRUFF: Jim, earlier this week doctors in Louisville, Kentucky, announced they are ready to perform the world's second artificial heart implant in a human being. All they need now, they said, is the right recipient, and the search is narrowing quickly so the operation could take place any day. The same two doctors who were key to the world's first artificial heart operation two years ago on Dr. Barney Clark are teaming up again for the second implant. They are Dr. Robert Jarvik, who designed the artificial heart that will be used, and Dr. William DeVries, who will head up the surgical team. Both of them sat down for interviews this week with correspondent June Massell.

JUNE MASSELL: Do you think that the artificial heart itself contributed to Barney Clark's death?

Dr. ROBERT JARVIK, artificial heart inventor: I think it contributed to his life. You know, the final cause of death with him was a cascade of events that really came from his severe, pre-existing emphysema. And there was no direct relationship to either the heart or the support equipment. On the other hand, if he had not been treated, we all believed he would have died within a matter of days.

MASSELL: How is this heart you're using this time different from the one you used in the Barney Clark operation?

Dr. JARVIK: It's fundamentally the same. There is a different valve used, but that is really a relatively minor issue.

MASSELL: What does the different valve do?

Dr. JARVIK: We believe it increases the safety of the system, because the metronical valve is stronger than the valve we previously used.

MASSELL: No animal that has been implanted with an artificial heart has lived longer than 10 months. Does that give you concern that a human being really couldn't live a very long time with your artificial heart?

Dr. JARVIK: It makes us realistic, and it makes us say that we don't know. I do not think the fact that the animals have not lived longer is relevant to what the potential is in humans. So I am very confident that there is a real possibility of what is considered very long-term survival. A patient that lives a year or two versus a life-expectancy of perhaps a few weeks, I consider that very long-term survival.

MASSELL: Do you expect the second patient to live longer than Barney Clark?

Dr. WILLIAM DeVRIES, artificial heart surgeon, Humana Heart Institute: That all depends on the case. If we ended up getting a patient that's as sick as Barney Clark, I suspect he may or may not. The advantage the next patient has is that we're better prepared at taking care of that patient than we were when we met Barney Clark, just from the experience of the 112 days with Barney Clark. So with that in mind, I would say probably the patient will do better.

MASSELL: What kind of candidates are you looking for? What are the criteria?

Dr. DeVRIES: We're basically looking for a patient that is in end-stage heart disease but his other organ systems are not involved with the disease. In other words, someone with healthy lungs, healthy kidneys, healthy liver, healthy head, healthy brain, and with a good family support system or someone that's going to help him through it. The patient has to be above 150 pounds, basically, to fit the artificial heart, so we're requiring a fairly large chest, and then essentially not be a candidate for a heart transplant. If someone is over 50 years of age, they are not a candidate for a transplant because they don't do well with immuno-suppressive drugs. So many of the patients we're looking at are 55, 56 or older than that. They're not candidates for transplant.

MASSELL: The patients that you're interviewing, what are they saying to you? What are their expectations?

Dr. DeVRIES: These patients are medical failures. In other words, they've had everything they can do and they're not doing well. They can't -- they aren't responding to drugs. They're kind of grasping at a last straw type of thing. They're very difficult patients, very hopeless patients, and we're dealing with a situation where the expectations of being treated with this really rise to the occasion. They come up and they feel like there's a second chance. The Heart Beat: Bypass Questions

WOODRUFF: Of course total heart replacement, whether with an artificial or another human heart, is always a treatment of last resort. For most people with heart problems, doctors are able to use more conventional treatments, like drug therapy and the surgical procedure that has become almost commonplace in recent years, bypass surgery. This week two of the most comprehensive and long-awaited studies of bypass surgery were released and, significantly, both contain the same message. About 10 years after the surgery, some bypass patients may be in as serious shape as they were when they first had it. Here to explain what the studies concluded is Dr. Eugene Passamani. He is associate director of cardiology for the National Heart, Lung and Blood Institute and an expert on long-term consequences of bypass surgery.

Dr. Passamani, let me begin by asking you to sum up for us the findings of both of these studies.

Dr. EUGENE PASSAMANI: Judy, these are two very important studies which appeared this week in the New England Journal. They bear on the decision of whether or not to have bypass surgery and once an individual has had it, how he should handle himself thereafter. The first study was authorized by Lucien Campeau and his colleagues at the Montreal Heart Institute. It's an interesting study which sought to answer the question, what happens to bypass grafts 10 years after they're put in place? Dr. Campeau and his colleagues had published earlier followup at five to seven years, and this paper summarizes what the grafts look like at 10 years and actually contain some interesting and fairly surprising findings. This is a small sample, I should say, 82 patients who were submitted to angiography; that is, a special test that outlines the blood vessels and grafts. At 10 years, one-third of these patients had closed grafts. Actually, one-third of the grafts were closed. An additional one-third had narrowing in those grafts which was related to arteriosclerosis. So that left 40% of the grafts, which at 10 years were as good as they were when they were put in place.

WOODRUFF: So that says what? That after 10 years --

Dr. PASSAMANI: There are problems, and let me pursue it just a little bit further. There were two other aspects to the study. The second piece they looked at was the intrinsic ungrafted coronary arteries; that is, with each operation not all of the arteries are necessarily bypassed. In the ungrafted arteries in these patients, 50% have shown some evidence of worsening. Well, to sum it up then, in these 82 patients there were only 15 patients, or 18% of them, that had arteries and grafts that were as good as they were a year after they were put in place, leaving 67 that had experienced worsening in the grafts, the arteries or both. One final piece that they looked at was they compared the two groups -- those that stayed the same and those that got worse, and asked were there something different. And the only thing they were able to come up with in this small sample was the patients that had worsening in the grafts seemed to have more abnormalities in their blood fats.

WOODRUFF: So the -- I don't mean to be rushing you along, but the bottom line was that there was a problem with patients after 10 years and, briefly, the other study concluded what?

Dr. PASSAMANI: The other piece, the other paper was reported by Dr. Catherine Detry [?] and her colleagues at the Veterans Administration long-term study of bypass surgery, which reported 11-year outcome in the surgically and medically assigned or analyzed patients. There are many pieces in there, but the important piece and the one that relates to the Montreal study is at seven years the annual survival, or the annual mortality rates in the surgical patients took a bit of a dip. That is, prior to seven years the mortality rates were on the order of 3%, and after seven years they ran up to about 5%. Now, there are --

WOODRUFF: The important part?

Dr. PASSAMANI: There are about a million patients in this country who've had bypass surgery, and there are a couple of things that they ought to bear in mind. There is cause for concern in these studies, but I don't think alarm. That is, the studies were small and they were done a decade ago. That is, these surgeries were done in the course of bypass surgery. The bottom line is that bypass surgery does not necessarily correct the physiology in patients that led to coronary disease in the first place, that there needs to be additional things done in those patients, such as modification of risk factors.

WOODRUFF: All right, then for whom is this information important? For everyone who has bypass surgery? Are they now to conclude that after 10 years there may be blockage in those veins that were grafted?

Dr. PASSAMANI: Well, as I said, this is a small study and we always run into the problems of inference, that is, do these 82 patients represent a sensible sample of everybody who had it? And I think there is cause for concern here, and patients -- one of the surprising things that we found in our National Heart Institute study of bypass surgery is that after surgery, patients don't change their habits very much.

WOODRUFF: But what about those that do?

Dr. PASSAMANI: Well, I think that's the hope, and I think there's fairly strong evidence that if they do that they probably can keep those grafts and arteries.

WOODRUFF: In other words, those who stop smoking, who eat a good diet, who get lots of exercise --

Dr. PASSAMANI: Who get their blood pressure treated, who get their blood fats lowered, probably won't experience as dramatic a change as these patients, but we don't know that for sure.

WOODRUFF: All right, what about for those who are out there who may have to make that awful decision at some point in the future -- do I go with surgery, if I have an option, or don't I? What is does new information tell them?

Dr. PASSAMANI: The issue of whether and when to have bypass surgery is a topic that's been intensively studied for the last 15 years. There have been three major randomized trials comparing medical therapy with surgical therapy, and I think a consensus is beginning to form. It is clear that patients who have severe angina, who are limited by it, ought to have the surgery. It's a remarkable operation that takes patients who couldn't walk to their garage and gets them back on the golf course. In patients who are mildly symptomatic, there are now small groups who are being identified who indeed ought to have the surgery because it appears that surgery prolongs life, and a listing of those is included in the major studies -- those patients who have a narrowing of the left main artery, a variety of other risk factors.

WOODRUFF: But for those in between, that's the tough decision?

Dr. PASSAMANI: It's a very tough decision, and the implication of these studies are you ought to choose very carefully as to when you have the operation.

WOODRUFF: And you think there will be, what, as many, more, fewer bypasses as a result of this, or can you predict?

Dr. PASSAMANI: Well, we are running into changing questions here. There's a new procedure called PTCA, which is going to be applied, and a variety of other things. Last year there were 191,000 operations done. I'm told this year that there are fewer.

WOODRUFF: Dr. Passamani, thank you for being with us on this very complex subject. Jim?

LEHRER: Again, the major news of this day.

At the border between North and South Korea a young Soviet tour guide decided to defect.It prompted a gun battle between United Nations and North Korean soldiers. Two of the North Koreans and a South Korean were killed. An American Army private was wounded.

An earthquake that registered six on the Richter scale rumbled parts of Nevada and northern California, but there were no reports of injuries or serious damage. Charlayne? Poking Fun

HUNTER-GAULT: It is, of course, Friday, and that means it's time for our regular look at how the week's global and not-so-global issues have been treated by the nation's political cartoonists. Grist for their drawing pens this week was provided by Central America and taxes.

ADMINISTRATION OFFICIAL [Wright cartoon, Miami Herald, Tribune News Services]: This is a tax increase. If it looks like a duck and walks like a duck, then it must be a duck. Thankfully, we here in the Reagan administration have a much better plan for reducing deficits. It's called tax reform. [points to duck]

Pres. RONALD REAGAN, demonstrating backward deficit chart [Bill Day cartoon, The Commercial Appeal]: Here you go, proof that we've turned things around.

Pres. REAGAN [Oliphant cartoon, Universal Press Syndicate]: That's just a harmless little tax reform snake. He's not going to hurt you. Come on, get going.

OLIPHANT BIRD: Sometimes confused with the deadly tax adder.

NARRATOR [Toles cartoon, The Buffalo News, Universal Press Syndicate]: The U.S. negotiates with Honduras:

PENTAGON OFFICIAL: The U.S. wants to build two large new bases in Honduras and to conduct large-scale war games there in December. Now, you say you want the U.S. to --

HONDURAN OFFICIAL: -- U.S. to ex --

PENTAGON OFFICIAL: -- pand.

HONDURAN OFFICIAL: Eh?

PENTAGON OFFICIAL: Expand!

HONDURAN OFFICIAL: Expand!

PENTAGON OFFICIAL: You want the U.S. to expand another base --

HONDURAN OFFICIAL: -- expand another base.

PENTAGON OFFICIAL: And --

HONDURAN OFFICIAL: And --

PENTAGON OFFICIAL: Increase military --

HONDURAN OFFICIAL: -- uh, aid?

PENTAGON OFFICIAL: RIGHT! Increase military aid. And maybe throw in some advanced fi --

HONDURAN OFFICIAL: Fiberboard?

PENTAGON OFFICIAL: Fighter planes!

HONDURAN OFFICIAL: Fighter planes.

PENTAGON OFFICIAL: Boy! And they say these aren't tough negotiations!

HONDURAN OFFICIAL: And how 'bout some of those $600 hammers?

CIA AGENT, talking to self in mirror [Pett cartoon, Lexington Herald-Leader]: You've been a naughty boy. I know. You should never have circulated that manual. I'm sorry. I have no choice but to put this reprimand in your file. [drops reprimand in wastebasket] I deserve it.

Pres. ORTEGA, [Basset cartoon, Atlanta Journal, United Features]: You're about to attack us.

Pres. REAGAN: Nope.

Pres. ORTEGA: Yes, you are.

Pres. REAGAN: Nope.

Pres. ORTEGA: I know better.

Pres. REAGAN: Nope.

Pres. ORTEGA: You're tricking me.

Pres. REAGAN: Nope.

Pres. ORTEGA: You've given orders.

Pres. REAGAN: Nope.

Pres. ORTEGA: That's a lie.

Pres. REAGAN: Nope.

Pres. ORTEGA: Our Soviet arms bother you?

Pres. REAGAN: Yep.

Pres. ORTEGA: INVASION!!

Pres. REAGAN, trailing bomb from open-cockpit plane [Margulies cartoon, Houston Post]: Go on, Nicaragua, make my day!

PILGRIM [S. Kelley cartoon, San Diego Union, Copley News Service]: Any last words?

TURKEY: You are what you eat.

HUNTER-GAULT: Good night, Jim.

LEHRER: Good night, Charlayne. Have a nice weekend. We'll see you on Monday night. I'm Jim Lehrer. Thank you and good night.