The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight, the news of this day; the latest from John Burns in Baghdad on the shooting incident that killed 15 Iraqi civilians; a look at Sec. Powell's senate testimony today about repairing European alliances after the war; a report on how health officials handled the first case of the SARS virus in the United States; and a Newsmaker interview with SEC Chairman William Donaldson about the big Wall Street broker settlement.

NEWS SUMMARY

JIM LEHRER: U.S. troops had a deadly confrontation with protesters outside Baghdad last night. There were conflicting accounts of exactly what happened, and of how many Iraqis were killed and wounded. Spencer Michels narrates our report.

SPENCER MICHELS: What is known is that U.S. Soldiers shot into a crowd of Iraqi demonstrators last night in the town. Fallujah about 30 miles west of Baghdad. Its predominantly Sunni Muslim backed Saddam Hussein and his now defunct Ba'ath Party. The Americans claimed protestors fired automatic weapons into the air near a school used as a base by the 82nd Airborne. American soldiers said they fired back because they felt threatened.

CAPT. MIKE RIEDMULLER: Our soldiers returned deliberate aimed fire at people with weapons and only at people with weapons.

SGT. SARGON MACKSUD: I saw a white man with a white outfit and he fired. I saw the first muzzle flash out of his weapon. I didn't fire at the first one. I put my cross hairs on him. I was going to wait for the second one. He was given his weapon away to another person so he could retaliate. I put another round in that person. He didn't move anymore.

SPENCER MICHELS: The Iraqis countered saying the demonstrators were students and weren't armed. Their aim, they said, was to get soldiers to leave the school so classes could resume.

MAN (Translated): There was a demonstration of around 100 people. Most were children. They weren't holding guns or weapons, and about 30 people were injured. Many people ran away, trying to escape. I saw the blood. I saw everything. My friend's car was shot up but the soldiers had taken it away so that nobody could see it.

SPENCER MICHELS: The number of casualties was in dispute, too. U.S. Central Command initially said no more than ten were injured, but a hospital spokesman put the number dead at least 13, and said dozens were wounded. The incident was the third fatal shooting involving U.S. troops and protesters in the last two weeks.

JIM LEHRER: We'll have more on this story in just a moment. A U.S. soldier was shot and wounded in Baghdad today, in the latest of a series of ambush attacks. And the army announced it would deploy as many as 4,000 military police and other troops in the Iraqi capital over the next ten days. Their mission is to stop looting and other crimes. U.S. forces have already detained more than 5,000 people in Baghdad for various offenses. An American army sergeant died today in a road accident in Baghdad. The military said first Sergeant Joe Garza of Robstown, Texas, was struck and killed by a civilian vehicle. In all, 138 troops have died in Iraq. Iraq's former oil minister was under interrogationtoday. The U.S. Central Command said Amir Muhammed Rashid surrendered Monday. And the former governor of Basra reportedly surrendered today. A former exile group, the Iraqi National Congress, said he gave himself up in Baghdad. U.S. forces now hold 15 of the 55 most wanted Iraqi leaders. Russian President Putin insisted today on proof that Iraq has no illegal weapons before U.N. sanctions are lifted. He spoke after a Moscow meeting with British Prime Minister Blair. In turn, Blair warned Russia's stance could cause another rift with the United States.

TONY BLAIR: I believe it is possible to have that two-way dialogue and partnership, and I simply say that the alternative, which is the type of standoff we've had diplomatically in the past few months, in the end is in& no one's interest.

JIM LEHRER: In Washington today, Secretary of State Powell said he expects to see a return to international cooperation on Iraq. We'll have more on this story later in the program tonight. The United States will pull out most of its 5,000 troops from Saudi Arabia by the end of summer. The two nations confirmed the move today, as Defense Secretary Rumsfeld visited a major air base in Saudi Arabia. He said with the war over, there's no longer a need for a large American presence on Saudi territory. The U.S. confirmed today it has signed a cease-fire with an Iranian dissident group based in Iraq. The group is on the State Department's list of terrorist organizations. But a White House spokesman said the truce would "enhance security" in Iraq. It was widely reported the Iranian guerrillas would be allowed to fight infiltrators backed by Iran's government. The Palestinian parliament today confirmed a new prime minister and cabinet. In a speech, Mahmoud Abbas rejected terror tactics, saying, "such methods do not lend support to a just cause like ours, but rather destroy it." The vote clears the way for the United States to release a new "road map" for Middle East peace. The World Health Organization lifted a travel warning for Toronto, Canada today. The agency said the SARS outbreak in the city had improved since the warning was issued last week. In Bangkok, Thailand, today, Asian leaders held an emergency meeting on stopping SARS. So far, the disease has killed 355 people worldwide, mostly in China and Hong Kong. Americans' confidence in the economy rose this month for the first time this year. The Conference Board, a private research group, reported that finding today. It said the quick victory in Iraq made consumers more upbeat. On Wall Street, the Dow Jones Industrial Average gained 31 points to close at 8503. The NASDAQ rose nine points to close at 1471. That's it for the News Summary tonight. Now it's on to a tragedy in Iraq; mending alliances; a U.S. SARS case; and Donaldson of the SEC.

FOCUS - INCIDENT IN IRAQ

JIM LEHRER: Today's shooting incident in Iraq, and to John Burns of the New York Times. Margaret Warner spoke with him in Baghdad a short time ago.

MARGARET WARNER: John Burns, welcome. There's been tremendous confusion about what happened in Fallujah last night. What can you tell us about how this entire episode unfolded?

JOHN BURNS: Well, I think the reporters, including one of ours, who were at the site would say that it's too early to tell. It's a complicated story. You have the account given by the U.S. forces there, and you have the conflicting accounts given by some of the people who were in the crowd. The key question, of course, is, who fired first? Clearly there was a situation that the American troops felt was threatening. They opened fire. It's very unfortunate and not at all good for the broader American position here. But I think it needs to be said that while the war is in all essentials over, American troops in Iraq still face considerable dangers. Central Command in Qatar tonight issued a statement which listed just in the 48 hours prior to this attack-- if it was an attack on the Fallujah School-- seven separate incidents in which U.S. forces were attacked, six of them... they were attacked with weapons, AK-47s, and one of them where a taxi driver attempted to kill a marine. This is not yet a safe place. People live very much on the edge here, and these incidents unfortunately are of course always likely to happen.

MARGARET WARNER: Is there still a dispute over the number of dead and wounded at Fallujah?

JOHN BURNS: Well, we were satisfied from visiting hospitals and taking accounts from the records of the hospitals and looking in morgues that fifteen were dead and approximately something in the region of sixty to seventy-five injured. I think that's pretty well certain. Of course, it might be higher than that. It's very difficult, always in these situations with the extreme passions that are aroused amongst people, to determine exactly what the truth is. Ian Fisher of the New York Times, who spent the day at Fallujah, described to me the... how the school is pockmarked with rifle fire, indicating that it had been fired on. Of course, you'd have to be a forensic expert to determine when that shooting took place. Was it last night? Was it at the height of all of this, or was there some previous incident? Many, many buildings in Iraq have been hit by rifle fire. It's very, very complicated to tell.

MARGARET WARNER: What can you tell us about Fallujah and why were U.S. troops stationed there?

JOHN BURNS: Well, Fallujah I think is a complicated place. First of all, it's a Sunni Muslim town predominantly, and the significance of that, of course, is that you find much stronger support for Saddam Hussein in Sunni Muslim areas-- they're a minority in Iraq, as I'm sure your viewers know-- than you do in other towns where, in the main, Shiites are a majority. I think it was no coincidence that Fallujah was also a place where Saddam Hussein concentrated some of the more important weapons mass destruction facilities, including a place known in the weapons of mass destruction inspection reports by the United Nations as Fallujah ii, a major chemical weapons plant. Now, I don't wish to suggest that there's any kind of direct connection, only that you do expect, and we have seen, that in places where there is a significant Sunni Muslim population, there are much stronger pockets of support for Saddam Hussein. We're in a very confusing time here in Iraq. The past is not yet dead. The future is not yet born. Iraqis, many of them who were delighted to see American troops arrive, have been deeply disappointed to the point almost of despair by many of the events that have happened since. They see very little signs of the reconstruction that was promised to them. And when they tell us, people like myself, in the streets of Baghdad and other cities, how desperate they are for their schools, their hospitals, their jobs to be revived, it doesn't do much good to say to them, "this is only two or three weeks since U.S. Troops arrived." How the... general garner and his people, General McKiernan and his people, can accelerate this process is not exactly clear to me. But one impression I have is that contrary to what seems to be the prevailing position in Washington, many Iraqis would like to see a stronger American hand here. They're used to strong government. And what they've seen since April 9 is virtually no government. There is an American land forces commander, General McKiernan, who issues a statement saying "we're in charge," but he's not visible. 99.9 percent of Iraqis... to tell you truth, 99.9 percent of all reporters, including American reporters, have never seen General McKiernan. My feeling is that Iraqis want a visible presence. They would welcome it if it was a presence in uniform who not only declared himself to be in charge, but really was in charge, was a presence to whom they could turn and to whom in the end they could hold accountable.

MARGARET WARNER: All right, John, thank you again very much.

JOHN BURNS: Thank you, Margaret.

FOCUS - SHIFTING ALLIANCES

JIM LEHRER: Now, U.S.-European relations after the war in Iraq. That was a major issue at today's Senate hearing where Secretary of State Powell testified. Gwen Ifill has the story.

GWEN IFILL: Members of the senate foreign relations committee this morning sought reassurance from Secretary Powell. They wanted to know that recent disagreements with European allies over the war in Iraq would not shatter decades-old alliances. Committee Chairman Richard Lugar:

SEN. RICHARD LUGAR: Differences over the U.S. approach to Iraq and revelation that some of our allies may have assisted Saddam Hussein's government have chilled relations with long-time friends.

GWEN IFILL: The Senate committee is about to endorse the expansion of NATO, the North Atlantic Treaty Organization from 19 countries to 26. The new members-- Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia-- are all former Soviet satellites. All supported military action against Iraq. Democrat Joseph Biden:

SEN. JOSEPH BIDEN: In fact, the enlargement of NATO has become critical to the integrity of our entire transatlantic relationship. If we go about it the right way, it can also be helpful to our success in post war Iraq.

GWEN IFILL: But Sen. Biden also noted that four original NATO members-- France, Germany, Belgium, and Luxembourg, all vocal opponents of the Iraq war-- met today in Brussels -- the purpose of their mini- summit: To discuss establishing their own military command center in Belgium, a separate cooperation agreement less dependent on the United States.

SEN. JOSEPH BIDEN: I'm not particularly concerned about the strategic implications of this meeting but I am however concerned by the extent to which it reflects a dissension, maybe even some disarray in the alliance.

GWEN IFILL: Sec. Powell all but dismissed the possibility of a separate European military alliance.

COLIN POWELL: I will let my European colleagues discuss that one in the course of the next two days. It's only four of the many nations that could have attended.

GWEN IFILL: But the secretary did concede that relations between the United States and close NATO allies remain strained. One example he cited was the bruising debate, just before the war began, over providing military assistance to Turkey.

COLIN POWELL: In the end, we achieved our goal of providing support for Turkey's defense. We would have preferred to make that decision at 19 nations instead of at 18, but France would not permit it. The United States and many of its NATO partners found it regrettable that some members so readily discarded their obligations to support an ally with purely defensive assistance. That's all we were asking for. But they did not follow through on their obligation, in order to press their own agendas on Iraq. Make no mistake-- and I make no mistake about it-- the disagreement was serious, and our delay in responding to Turkey's request damaged the credibility of our alliance.

GWEN IFILL: Powell also recalled the unsuccessful diplomatic battle in the United Nations Security Council over a final war resolution against Iraq.

COLIN POWELL: We can look back at these disagreements and debates with dispassion and against the backdrop of almost half a century of solid cooperation. Such cooperation is not a thing of the past. It is a thing of the future as well.

GWEN IFILL: Powell said 22 countries, most of them NATO allies, are taking part in the United Nations peacekeeping force on the ground in Afghanistan. He said there could be similar cooperation in Iraq.

COLIN POWELL: The president said, along with Prime Minister Blair and other members of the willing coalition, that the United Nations has a vital role to play. We believe that strongly. We are hard at work now trying to structure what that role should be, and how best to get U.N. endorsement of the role that we think is appropriate.

GWEN IFILL: But Minnesota Republican Norm Coleman wanted to know whether nations like France would pay any penalty for their opposition to the war in Iraq.

SEN. NORM COLEMAN: Do you recognize or believe that in fact there should be consequences for behavior, and that those who were not supportive should somehow, as we build this future relationship, that we somehow respond to that in an appropriate way?

COLIN POWELL: It's not a matter of punishing anyone. That's not a word that I've used. We will review all the things we do with France to see whether they are appropriate to the circumstances that have been modified slightly by this disagreement. And we will do that, and there is no secret about this. But on occasion, France has made it quite clear to some of the nations that did support us, especially some of the aspirant or the candidate nations here, that they were going to pay a price for supporting us; made it clear it might affect accession in the EU, and they were lectured rather severely for daring to support the United States. Well, those are consequences. And so, just don't point to the United States that we shouldn't review the bidding, and we should, you know, not consider whether or not there are consequences to be paid for certain kinds of behavior, when at the same time, and almost in the same voice, they are administering consequences to those nations that stood with us.

SEN. NORM COLEMAN: And if I may, Mr. Chairman, Mr. Secretary, being the optimist I am, ending on the positive note...

COLIN POWELL: This isn't personal. It's business.

SEN. NORM COLEMAN: ...I would hope that for the aspirant nations, because they were so supportive, that we do raise our voice with those who may seek to punish them; that we do...

COLIN POWELL: We have. We will not forget that there were small nations, in the face of public opinion, that would have suggested that they sort of duck or just, you know, say nothing, that stood up for us. And they came forward and they said, "we see the rightness of this cause, and we align ourselves with the United States of America." And they received quite a few bricks thrown their way. And the United States will not forget that they stood up with us at a time when we needed people to stand up with us.

GWEN IFILL: Now, for more on the state of U.S.-European relations, we turn to Charles Kupchan, the director of Europe studies at the Council on Foreign Relations, and a professor of international relations at Georgetown University. He was director for European affairs on the National Security Council during the Clinton administration. Robin Niblett is a senior fellow at the Center for Strategic and International Studies in Washington. He's written widely on transatlantic relations. Justin Vaisse is a visiting fellow at the Brookings Institution's Center on the U.S. and France. He's a former instructor at the Institut D'Etudes Politique de Paris. And Thomas Donnelly is a resident fellow at the American Enterprise Institute. During the 1990s, he was a member of the Republican staff on the House Armed Services Committee.

Charles Kupchan, we just heard Secretary Powell say this isn't personal, this is business. So analyze for us what the state is right now of relations between the United States and so many European nations.

CHARLES KUPCHAN: I think we're in a very fluid period. Where both United States and various European countries are tying to take stock, figure out how much damage has been done, figure out where the Atlantic Alliance can be repaired. I think it's particularly fluid in Europe because the French, the Germans, the Belgians and others are saying we probably can't go back. We he done damage to the alliance here that may mean America's days as Europe's protector are coming to an end. We need to take steps to do more for our own defense. That leaves what is called the donut alliance, the smaller countries in the rim land of Europe to make some critical choices. Will they continue to back the U.S. to ensure that the U.S. stays put? Will they be fearful that the U.S. is ending its days as Europe's guarantor and then throw their lot behind the Franco-German coalition? But my own opinion is that we are entering a brave new world here that the Atlantic alliance as we've known it is coming to an end and that there will be bumpy days ahead across the Atlantic.

GWEN IFILL: Tom Donnelly, brave new world?

THOMAS DONNELLY: Very much so but not something that we should fear particularly. Another thing we learned from the experience of the last couple months is that when it comes to actual deployable military power, the European great powers aren't so great. The ability, the difference between the British forces to cooperate with our forces and to deploy and sustain themselves and what the rest of our former or our current NATO partners can do, the German army in particular, which used to be the rock of NATO is really quite substantial. If we have to get new partners and new places who can do new things, that's okay. That doesn't mean that NATO is dead. It's just different. That's all.

GWEN IFILL: Justin Vaisse, does France remain one of those new partners or one of the old partners or a partner at all?

JUSTIN VAISSE: I think it pretty much remains so. I'm a bit struck by Secretary Powell's statement because when you study on the ground and I've done that in recent weeks when you study on the ground all the issues that are important for France and for the U.S. and for the Atlantic alliance in general, be it Afghanistan, the Balkans, but also the important fight against terrorism, the cooperation between France and the U.S. remains very strong and people on the ground are cooperating on a day-to-day basis, exchanging information, tracking al-Qaida network, et cetera. So I see that some would like to see it spill over from one issue which was Iraq to others but on the ground for the moment it has still not been a sort of bad spillover.

GWEN IFILL: But when you hear Colin Powell, Secretary Powell sayas he did today talk about consequences, specifically in reference to France, do you fear or worry or are you in any way concerned that there's going to be a fundamental change in the relationship?

JUSTIN VAISSE: Not, not really first because as I said the two nations need each other. France needs the U.S. - U.S. cooperation, et cetera, but the U.S. also needs French cooperation especially for the fight against terrorism and other issues. That's one thing. On the second thing there was a meeting of the principals at the White House last week. What came out of it was that they wanted to impose sanctions or retributions and personally I really don't care much about that. Except I don't think it's a very good way to start again a relationship on a pragmatic basis. And the problem is that they didn't find many ways to punish France because we are so intertwined and our interests are so close that this could easily backfire against the U.S. and not even talking about the example and I think the bad example that it's setting for other countries-- I think of Turkey, North Korea -- South Korea or I don't know, Mexico-- when they see that if ever they oppose in one way or the other the U.S., it would be like the Warsaw Pact that they will be punished. I don't think it sets a very good example and a very positive one. I'm not sure they would go very far.

GWEN IFILL: Robin Niblett, what is your sense of the state of relations right now?

ROBIN NIBLETT: You've got to notice that the UK is part of the donut that Charlie was talking about before. Therefore, the ability for Europe right now to be able to set up an alternative defense poll without the UK firmly integrated, which is the main purveyor of military forces, is going to be extremely difficult. So I don't hold out huge hope that the mini-summit is the beginning of some new, brave new world certainly in terms of U.S. and European defense capability. It's really an effort for them to move the bull gently forward another step. The important thing to notice, I think, is that it's very difficult to build European integration in defense matters around the Franco-German cooperation. Franco-German cooperation has been the engine of internal European integration but to use that same engine for external integration would be very difficult indeed. And the UK has to play a key role in that.

GWEN IFILL: So does that mean that NATO remains no matter what happens a vital part of this?

CHARLES KUPCHAN: I think NATO remains a vital part at least in name, but if you open the door and say what's going on inside, I'm not sure that it will remain the centerpiece of American security policy or European security policy. I'm somewhat less optimistic than Justin in the sense that I think what we've seen is a break with the... between the U.S. and Europe on first-order principles, questions of war and peace. Should we attack Iraq? We parted company. And now I think what you're seeing is France, Germany and Russia begin to say, are we going to follow through the next step? Are we ready to really contemplate life after Pax Americana? I'm not sure they want to answer that question yet, Germany in particular.

GWEN IFILL: What do you mean by a next step; what might that be?

CHARLES KUPCHAN: To really say we are going to have to have our own independent military, we're going to have a command structure outside of NATO. We will take decisions without consulting Washington first. For Germany, that is historically revolutionary. They have been under the American security umbrella for forty/fifty years now. Theyare now debating this. Some of Germans didn't want this mini-summit to take place because they want the ill will to disappear. But one of the things that's quite remarkable now across the political spectrum in Germany, Schroeder's stance of let's stand up to America, let's take matters into our own hand is very powerful. It's uniting Germany politically. That I think speaks volumes because it has a very clear anti-American tone to it.

GWEN IFILL: Tom Donnelly, is there any room for NATO if this anti-American tone were to take hold?

THOMAS DONNELLY: I think if NATO didn't exist we'd have to invent something like it. There's not just the NATO go to war alliance. There's also the institutional training and equipping alliance. And the cooperation that we achieved with the British and others, in fact, during the Iraq War was a product not simply of bilateral military cooperation but of years and years of training and common practices within NATO and again whether Germany is going to sort of head in a different direction or come back into NATO, as we used to know it, is a separate issue as whether some sort of NATO which includes new partners who are brought up to NATO standards and are really more useful in the kinds of military operations that we've seen for a decade is a quite different question.

GWEN IFILL: Is NATO an expanded NATO or a NATO as it is currently configured as important as it once was?

JUSTIN VAISSE: Probably not especially when it was this bulwark against the USSR; however, I'm not that pessimistic. For example, NATO has agreed to take over in Afghanistan the peacekeeping duties, and I think that's a very significant step forward. And there are talks now about Iraq, the possibility of involving NATO in peacekeeping in Iraq. So as for the U.S. to share the cost of it, also the dangers and we have seen just today that there were of course dangers in trying to restore order and stability in Iraq. So I wouldn't go too far. I think that... and I pretty much agree with you that any way for building a real European defense capacity, the U.K. is absolutely key to that. And nothing could be done without it. The real military power now in Europe are basically the UK and France and Germany to a much lesser extent. So all the progress that has been made in European defense has been through the Franco- British axis rather than an axis with Paris and Berlin, so this is really key to the future. I'm not so sure that it will endanger NATO in the long term.

GWEN IFILL: Robin Niblett, Justin Vaisse makes the point that in fact that there are so many other things which the alliance, whatever it's called NATO or otherwise, has to cooperate on, that this split cannot remain, cannot sustain itself. What do you think of that?

ROBIN NIBLETT: It becomes a question of terminology. I would agree that ultimately the threat around which any alliance, an integrated alliance which is what was remarkable about NATO it was an integrated alliance with integrated military command.

GWEN IFILL: You're speaking about NATO in the past.

ROBIN NIBLETT: That NATO I would argue I don't think will exist in five to ten years time in the sense of it being organized, a group of countries organized around the same mission. What you're ending up with I think are allies who are sharing a common infrastructure, an infrastructure of command, an infrastructure of training, a decision-making forum within which the United States, one of the few fora that it has, where it can really discuss security issues directly with Europe, an important tool in order to beable to confront all sorts of challenges around the world. That's the main thing from the U.S. point of view, the threats are not in Europe anymore. They're in all corners of the world. And I think NATO has taken some remarkable steps already. We mentioned already in Afghanistan, may be going to Iraq. It's enlarged. It's undertaken a lot. The problem is Iraq has accelerated the pace. It's finding it very hard to keep up.

GWEN IFILL: If the challenges are in other parts of the world, does that mean what we will see in the future instead of conventional international alliances like NATO or the United Nations, we'll see more of this ad hoc whoever is willing to sign n for the deal, like the willing coalition that Secretary Powell referenced? Are we going to see more of that?

CHARLES KUPCHAN: I think that's probably the picture that we'll see recurring. One of the things that the United States is now contemplating is reducing its troop presence in Germany, getting rid of the heavy armored divisions, favoring small deployments perhaps in Bulgaria or Romania, Poland. They would be basically leapfrogging over to the Middle East. And one of the questions here is... that we have to grapple with is, is Europe going to participate in that? Are we going to have a partnership where we share the burdens? The problem is Europe for now doesn't that capability. In some ways Europe is stuck in a no man's land. It is too strong to remain under America's thumb. That's why many Europeans are basically telling us to basically buzz off. But they're too weak to be a serious partner. And in my own view Europe has to get stronger, get more military, get more interest in projecting power before the relationship gets better because then Washington will take Europe seriously. Then you can have a partnership that's based more on equality than on inferiority.

GWEN IFILL: Too strong to ignore, too weak to....

THOMAS DONNELLY: Too hot, too cold. Look, there is wisdom in what Charlie says but I'm more optimistic about the long term. Surely the British military participation in Iraq War was significant and substantial. They had a mission, and they were sort of left to themselves to do it. That was great. We didn't have to watch over them, make sure them didn't get in trouble, et cetera. And any additional capability to an overstressed American military force which, after all, has global responsibilities is value added. So the ability, especially of the Eastern Europe states who in many ways have jettisoned their Warsaw Pact military past will actually be quite militarily useful contribution to American operations both in the Middle East and elsewhere.

GWEN IFILL: We have very little bit of time left. Briefly, are you optimistic about the future of the Atlantic alliance first Justin Vaisse?

JUSTIN VAISSE: Yes and just to get back to your point on the coalition of the willing when you take one year ago there was this huge operation in Afghanistan and what you saw was actually a sort of coalition of the willing where European countries including France and Germany were taking part because they were sharing a common view of the problem and a common goal in the sense not only forces but also jet fighters, et cetera. And the public opinion was even in Germany was pretty much behind it. And so what I see here in Iraq is a major rift that has developed that is not bound to last for very long. So I would remain optimistic.

GWEN IFILL: Okay. We're going to have to leave it there. Sorry. We're all out of time. We'll talk about it off camera. Thank you.

JIM LEHRER: Still to come on the NewsHour tonight, an American SARS story and the head of the SEC.

UPDATE - COPING WITH SARS

JIM LEHRER: Now, a look at the first case of SARS in this country, and how the public health system responded. Our report is by Susan Dentzer of our health unit, a partnership with the Henry J. Kaiser Family Foundation.

SUSAN DENTZER: Kurk Lew and his 11-year-old daughter Amanda are U.S. citizens from Virginia. They still retain strong ties back to Lew's native China. In January they returned there for a visit, taking along Lew's 72-year-old aunt. It was the aunt's first visit to her native land in 20 years.

KURK LEW: She was very, very healthy, and she walked... she visited a lot of places, you know? So she was never tired. She was so excited because she has seen so many new things there, you know, since the last time she went back there.

SUSAN DENTZER: But the joyful homecoming soured when Lew's aunt became ill in the midst of the trip.

AMANDA LEW: Somewhere along the way she got a flu-like... flu-like symptoms. And then when she got back to her hometown, she was tired, and she ate barely anything.

SUSAN DENTZER: The aunt's condition continued to deteriorate once she was home in Virginia. Lew telephoned his own father back in China.

KURK LEW: My father said, you may want to take some precautions, you know, because there was an epidemic they called atypical pneumonia going on, and you may want to watch her, you know, more carefully.

SUSAN DENTZER: Days later, the aunt was taken by ambulance to this Virginia hospital, where she spent ten difficult days. She's now fully recovered, but did not want to be interviewed on camera. Public health experts believe her illness was America's first probable case of the disease now known as SARS.

KURK LEW: You want to take a quick trip and then all of a sudden you catch this type of thing and then it's... then you almost... I would say almost die, you know. Because, you know, she feels very, very lucky.

SUSAN DENTZER: Aside from luck, Lew's aunt benefited from a speedy response from health care providers and the public health system.

DR. JULIE GERBERDING: This is one of the ways that we track the global epidemic.

SUSAN DENTZER: Dr. Julie Gerberding, who directs the U.S. Centers for Disease Control and Prevention in Atlanta, says that's one reason the U.S. has so far experienced many fewer SARS cases than other countries.

DR. JULIE GERBERDING: We've taken very broad steps to contain the spread once we have a suspicious case, and our public health officials have done an excellent job of casting that broad net so that we have done everything we can to isolate people as early as possible.

SUSAN DENTZER: Global disease experts say the SARS virus first appeared in China last fall, in the southern province of Guangdong. From Guangdong, a few key individuals inadvertently transmitted the virus to many more people in other parts of China and the rest of the world. Public health experts have dubbed them "super-spreaders" or "hypertransmitters." For example, almost all SARS cases in Canada can be traced to an elderly Chinese immigrant. She apparently contracted the disease in a Hong Kong hotel, and died soon after returning to Toronto. But infected members of her family transmitted the highly contagious disease to health care workers. Public health experts say they don't know why some people are super-spreaders and they say other factors may explain the phenomenon. But for whatever reason, they say, Kurk Lew's aunt was not one. Had she been, things could have turned out quite differently. Karin Kerby is a nurse at Loudon General Hospital in Leesburg, Virginia. She was in charge of the emergency room on Monday February 17, when Lew's aunt arrived at the hospital.

KARIN KERBY, RN, Loudoun General Hospital: I was made aware of a woman that they were moving into a room who had a bad pneumonia, and what I was told was this woman needed to be in a room, to be on oxygen, because she had a bad pneumonia.

SUSAN DENTZER: For several hours, the aunt lay in a bed in this emergency room. At that point, no extraordinary precautions were being taken against the spread of disease. Eventually a worried Lew, having learned that his aunt was at the hospital, telephoned Nurse Kerby there.

LEW KERBY: I said, well, my aunt went to China, and there was an epidemic going on there and they called it atypical pneumonia. And I said, you know, there is a possibility that she might have caught it.

KARIN KERBY: I had read in the newspaper the week before a little article about a pneumonia that was atypical in China that had a high mortality rate. So I put that knowledge together with what he was telling me, and red flags went off.

SUSAN DENTZER: The emergency room staff launched a series of steps initially drawn up for responding to possible instances of bioterrorism. They first called the local Loudon County public health department. Dr. David Goodfriend is the director.

DR. DAVID GOODFRIEND, Loudoun County Public Health Dept.: Our staff, in consultation with the hospital, made sure that she was put in an appropriate isolation precaution so that no one else in the hospital, no other patients would potentially come in contact with her until we had a chance to work her up and make sure that she couldn't spread any infection to other people.

SUSAN DENTZER: That meant putting Lew's aunt into a special room equipped with so-called negative pressure air flow.

KARIN KERBY: Someone with a respiratory ailment usually can spread that ailment through droplets or through some sort of an airborne vector. So by turning on the ventilation system, it at least began the process of taking the infection from the rest of the emergency department.

SUSAN DENTZER: Kirby and other members of the hospital staff also took other precautions. They donned special gowns, gloves, and respirators, or face masks, to enter the isolation room. They then discarded those protective coverings and scrubbed up as they left. All these steps may have helped to prevent hospital workers from becoming sick, as had already begun to happen in Canada. Dr. Antonio pastor is an infectious disease specialist who was called in to treat Lew's aunt. He told us that her chest x-rays revealed clouded areas of the lungs.

DR. ANTONIO PASTOR, Infectious Disease Specialist: We put her on oxygen, we gave her fluids-- she was also dehydrated-- and put her on a combination of very potent antibiotics, and, you know, she started to respond very quickly.

SUSAN DENTZER: SARS is viral; why did the antibiotics work?

DR. ANTONIO PASTOR: It's very possible that she had this viral infection with a superimposed bacterial infection. So her immune system pretty much responded well to the viral infection, the SARS, but then she had this superimposed bacterial infection, and that's why I think the antibiotics were so beneficial to her.

SUSAN DENTZER: Chinese physicians whom Lew had contacted back in Foshan also e-mailed suggestions about how they had treated local pneumonia patients. At the CDC in Atlanta, officials were especially worried that the aunt's illness could be a case of avian influenza, caused by a virus that had spread from birds to humans.

DR. JULIE GERBERDING: Just in February we also had two patients die in Hong Kong of avian influenza, and that was a great concern and a major focus for us at that time.

SUSAN DENTZER: The CDC asked the hospital to test Lew's aunt for signs of the flu virus as well as for other illnesses. They also asked the county health department to check with anyone she'd come into close contact with since returning to the U.S. Several of those people had some symptoms and were tested, but all tests came back negative. After ten days at Loudon General, Lew's aunt was released. She spent several more weeks at home recuperating. In mid-March, just about the time she was feeling back to normal, the World Health Organization issued its first global health alert about the existence of SARS. The Lews, meanwhile, are grateful that things went as well as they did.

KURK LEW: Well, the disease over there can spread here, you know, just a day, you know, and I just cannot imagine what would happen if my aunt... the problem was not cured, you know, and then what happened to the people around her-- the nurses, the doctors and so on, you know. It could have been much, much worse.

DR. JULIE GERBERDING: In the United States we've been lucky in that the cases that were identified after the WHO put out the health alert have been very quickly isolated and we've seen very little spread to health care workers maybe because we use good isolation precautions but I think there's also an element of luck in all of this.

SUSAN DENTZER: Now Gerberding and other public health experts are trying to improve the public health system's response to SARS even further, just in case their luck doesn't hold out much longer.

NEWSMAKER

JIM LEHRER: The CDC reports there have been 52 probable cases of SARS in the United States to date but no deaths.

JIM LEHRER: And now finally tonight, the big Wall Street settlement, and a Newsmaker interview with the chairman of the Securities and Exchange Commission. Ray Suarez has that.

RAY SUAREZ: After months of investigations into one of the largest scandals in Wall Street history, regulators announced yesterday they had reached a settlement with ten of the nation's largest securities firms. The investigations included conflict of interest charges, and found that several firms, such as Merrill Lynch and Citigroup's Salomon Smith Barney, had violated investors' trust by giving overly optimistic advice. Regulators also uncovered numerous e-mails showing some Wall Street analysts promoted stocks of lesser quality, just so their companies could win investment bank business. Yesterday's settlement includes a number of reforms designed to change the way those firms conduct business in the future. They include paying a collective penalty of $1.4 billion to the government; mandating that stock research and analysts are kept strictly separated from the influence of investment bankers at Wall Street firms, which must also be monitored independently; and requiring the firms to provide investors with three sources of independent research. We get more on this deal and its impact from the chairman of the Securities and Exchange Commission, William Donaldson. Welcome to the program.

WILLIAM DONALDSON: Hi, Ray.

RAY SUAREZ: At the announcement of the settlement, the chairman of the New York Stock Exchange, Dick Grasso, said investors do not expect a guarantee of profit but they expect and deserve a guarantee of fairness. Does this get us closer?

WILLIAM DONALDSON: Well, I think it does. I think that as a result of this settlement hopefully we're going to get a restoration of the integrity of investment research that is aimed for the benefit of investors and not for the internal benefit of the investment banking divisions.

RAY SUAREZ: Once a lot of this wrongdoing was turned up, how was the decision made to go after the offenders in this way, with civil rather than criminal proceedings, with a solution where nobody had to admit any wrongdoing, for instance?

WILLIAM DONALDSON: Well, the admission of wrong is a normal or rather the lack of admission of wrong is a normal thing in a civil suit. These are not criminal suits. I think that when the malfeasance was uncovered, you know, investigations began on a number of firms and we found a number of infractions.

RAY SUAREZ: Two analysts in particular came up and their names were mentioned often during the whole trajectory of this case - Henry Blodgett and Jack Grubman. They were named again in the settlement but didn't the problem with analysis and its relationship on other parts of these investment houses go much further than these two analysts?

WILLIAM DONALDSON: Well, the issue here is that the analysts were basically putting out recommendations that they didn't believe in. In other words, they were putting out recommendations to buy the stock when, in fact, they did not think the stock was a good investment. Why did they do that? Because they were trying to incur favor with the investment banking side of the business and trying to develop investment banking business; they were not serving the public in their recommendations.

RAY SUAREZ: But by concentrating on these two particular cases, does that let off the hook the many other analysts who were found to be involved in the same kind of behavior?

WILLIAM DONALDSON: No, no, no, no. There were ten firms where the infractions were found, and the infractions were different in different firms. But the total net effect of the thing was that the integrity of research was compromised.

RAY SUAREZ: How was the amount of the fine arrived at? Some people writing and commenting on this latest settlement say that $1.4 billion is tiny compared to the amount that these buy recommendations drove up the market and tiny compared to the cumulative loss of people who bought the stocks on these recommendations.

WILLIAM DONALDSON: Well, $1.4 billion is not tiny in anybody's language. I think the thing to remember is that these are the largest fines that have ever been adjudicated by the SEC in the whole history of the SEC, Number One. Number Two is that the varying amounts depended upon the seriousness of the infractions. Number Three is I think that this may not be the end in terms of people going after these firms in terms of civil suits outside of the regulatory mechanism.

RAY SUAREZ: So the information that was generated in the course of this investigation is now available to other parties who want to sue?

WILLIAM DONALDSON: Exactly.

RAY SUAREZ: How do you break up parts of companies that had become pretty chummy and pretty close to each other, trading, investment banking and research weren't seen as separate islands in a big ocean but rather enmeshed in many of these companies --

WILLIAM DONALDSON: Right. Well, there are a whole series of rules that have now been put into place having to do with the way research analysts are compensated. They will now be compensated strictly based on their own performance and by the management of the research division. They will not... the investment banking divisions will have no say in how an analyst is compensated. There will be independent monitors inserted in each firm who will monitor the quality of the research and make judgments on that. Research analysts will sign their research. The research materials that will go out will have at the bottom the fact that the company may be doing investment banking business with the company being researched. And last but not least, the research will offer research to clients from independent sources so that if the client wants to get research on the same company from an independent source, that will be made available to him. $400 million of the settlement will be devoted to paying for that independent research.

RAY SUAREZ: So it sounds like the investor, the individual investor sitting in front of a computer screen at home will be able to find out about more of these relationships, have more transparency but a year from now how will you know whether these new rules are working?

WILLIAM DONALDSON: Well, we will monitor this very closely. I think that the... hopefully in addition to having eliminated the conflicts inherent in research under the current system, the quality of research will improve as it's an independent entity, unrelated to being a handmaiden to the investment banking side of the business, hopefully the quality of research will go up and the payment for research will really be worth something as opposed to being used for other purposes.

RAY SUAREZ: Do you expect to see a few more sell ratings now that some of these relationships will be prohibited?

WILLIAM DONALDSON: Yes I do. I think there will be much more unbiased research that will call it either way, good or bad.

RAY SUAREZ: Are there new rules involving the relationships of executives in these companies to their own departments?

WILLIAM DONALDSON: Yes, there are. The reporting relationship is such that the research group will report to its own management and the structure will be totally encased so that there's no... the only thing influencing the compensation of the research analyst will be the quality of his research, his or her research.

RAY SUAREZ: And are there new rules also involving initial public offerings because some shenanigans had been found involving those, new stock issues that people were interested in buy?

WILLIAM DONALDSON: Well, the rules have been carefully revised and defined so that the research analyst will be able to assist the company in determining the quality of the company to be underwritten, but the research analyst will not be allowed to be a promoter of that company. The research analyst won't be able to go on so-called road shows and help sell the product. The only relationship will be helping the underwriting team to determine the quality of the company but it stops there.

RAY SUAREZ: And this will empower the individual investor how?

WILLIAM DONALDSON: Well, it will empower the individual investor hopefully in terms of the quality of the research and the independence of the research. Of course the real important thing at the end of the day is the quality of the research. In other words, we've taken away the conflicts that were inherent in the processes that exist right now, but then the quality of what's said remains to be seen. I hope that this will result in a much higher quality of research.

RAY SUAREZ: And to the companies that cheated, is the possibility of further regulation always there as sort of a warning? Is there something probationary about this agreement?

WILLIAM DONALDSON: Well, I think the financial penalties are, as I said earlier, extreme and high. The potential penalties coming from the private sector are there. I think perhaps one of the greatest things that this will result in is the hurt to the reputation of these investment banking firms. And I think that the people who manage those firms are going to be very much interested in rebuilding their own reputation. So I think there's sort of a moral overtone that's inherent in this whole process.

RAY SUAREZ: Chairman Donaldson, thanks for talking with us.

WILLIAM DONALDSON: Nice to be with you.

RECAP

JIM LEHRER: Again, the major developments of this day: U.S. troops shot at protesters outside Baghdad late Monday. The Iraqis claimed at least 13 people died. The military disputed that count, and said the Iraqis fired first. And a suicide bombing killed several people and wounded dozens early Wednesday in a beachfront area in Tel Aviv, Israel. Hours earlier Palestinian lawmakers confirmed a new prime minister who called for an end to terrorism.

JIM LEHRER: We close with two more additions to our continuing honor roll, in silence, of American military personnel killed in Iraq.

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