The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight, a summary of the day's news, a look at the collapse of the energy giant called Enron, an account of the vanishing energy crisis in California, some differing perspectives on the CIA's going public, and a report on preparing for a smallpox bioterrorism attack.

NEWS SUMMARY

JIM LEHRER: Congressional leaders today called for investigations of the big Enron collapse. The giant energy dealer was on the brink of the largest bankruptcy in U.S. History. It has lost nearly all of its value over disclosures about its financial practices and the collapse of a merger deal. In Washington, Senate Majority Leader Daschle said Congress needs answers.

SEN. TOM DASCHLE: I don't know that anybody knows yet just how this happened and how it happened so quickly. I think we need to find as much information as is possible and make some assessment about whether it's indicative of energy in a larger context and, if it is, what we ought to do about it. But clearly it raises some very serious questions.

JIM LEHRER: We'll have more on the Enron story in a few minutes. In Afghanistan today, the opposition Northern Alliance claimed its forces had reached the outskirts of Kandahar, the Taliban's last stronghold. A senior alliance official reported heavy fighting. A commander with a southern tribe said his forces were three miles from the city's airport. In Washington, a top Pentagon official said he could not confirm those opposition reports.

REAR ADMIRAL JOHN STUFFLEBEEM, Deputy Operations Director, Joint Staff: We take them a little bit softly maybe, into exactly, you know, do you really mean exactly what you say. This is a country where we don't necessarily believe everything that we're hearing, especially when it comes out for the first time. So even with a report like, that that doesn't necessarily tell me that I would expect an imminent attack by northern groups on to Kandahar, the city.

JIM LEHRER: In other war developments, the military confirmed small groups of soldiers from the army's Tenth Mountain Division had entered Northern Afghanistan. They're helping provide security near two airbases. And a handful of Taliban holdouts shot and wounded two Red Cross workers at a prison in Mazar-e Sharif. Hundreds of foreign fighters were killed there in a rebellion earlier this week. In Bonn, Germany, the Afghan political talks moved toward a deal on an interim government, with the exiled former king involved. A transitional administration would operate until a traditional national council is convened in Kabul. Earlier, the Northern Alliance removed a central obstacle by saying it could accept foreign peacekeepers after all during the transition period. Secretary of State Powell today played down talk of an imminent strike at Iraq. On Tuesday, Iraq again refused to allow UN weapons inspections. But Powell said there was no substance to speculation about a U.S. military move. Earlier, he met with Egypt's foreign minister and said the United States had heard the cautions of Egypt, and others, about targeting Iraq.

COLIN POWELL, Secretary of State: Both of us have a common understanding of the nature of that regime and what a danger that regime presents to the region and to the world. And we all want to keep Iraq contained, but at the moment, there is nothing for us to disagree about, in my humble judgment. We will stay in close touch and consultations with our Egyptian friends and our other friends in the region, as we go forward.

JIM LEHRER: Later in the day, the UN Security Council approved a U.S.-Russian compromise to revise sanctions against Iraq within six months. The U.S. wants to ease curbs on Iraq's import of civilian goods, but tighten restrictions on possible military items. A Palestinian bomber killed himself and three Israelis today in northern Israel. Police said the man blew himself up on a bus near a military base. In addition to the dead, six Israelis were injured, two of them critically. Earlier, Israeli forces killed two Palestinians in the West Bank and an Israeli civilian was killed in a drive-by shooting. Prime Minister Sharon said Palestinian Leader Arafat was directly responsible for the violence. He said, "We will act in order to put an end to these acts of terror." Attorney General Ashcroft today announced a plan to help immigrants who aid in the war on terrorism. They'll receive long-term visas that could lead to permanent residency or citizenship in return for information about terrorists. Ashcroft said even illegal immigrants could benefit.

JOHN ASHCROFT: Some visitors may be hesitant to come forward with their information because of their immigration status. They may rest assured that the United States welcomes any reliable and useful information that they can provide to help us save lives in the future. In return, we will help them make America their home.

JIM LEHRER: Ashcroft also announced one of the FBI'S most wanted fugitives is a suspect in anthrax hoaxes. Clayton Lee Wagner allegedly claimed responsibility for sending more than 280 letters to U.S. abortion clinics. He's an escaped inmate from Illinois. Top federal health officials asked Congress today for $3 billion to fight bioterrorism. The head of the Centers for Disease Control said it could cost $700 million just to put a smallpox vaccination program in place. Last night, the House approved $20 billion in antiterrorism funding as part of the defense spending bill. Democrats lost an attempt to add billions more for domestic security, defense and aid to New York City. The bill now goes to the Senate. On the economy, there was some encouraging news today. The Commerce Department reported orders for big-ticket manufactured goods rose 12.8% in October, the largest increase ever. In particular, orders for airplanes jumped more than 200% after falling sharply in September.

FOCUS - COLLAPSING GIANT

JIM LEHRER: More now on the collapse of Enron-- Ray Suarez has the story. (Bell ringing)

RAY SUAREZ: As today's closing bell sounded on Wall Street, shares of Enron traded at 36 cents, continuing a spectacular fall for a giant that only months ago was worth more than $80 a share. Once a poster child for the economic boom of the '90s, Enron is now on the verge of bankruptcy. At Houston headquarters, some of the company's 21,000 employees feared for their jobs.

EMPLOYEE: It's a tough day for Enron right now.

SPOKESMAN: It's a tough day for you?

EMPLOYEE: You better believe it.

EMPLOYEE: I got here this morning, and it's the way it's been all week and last week. It's kind of a state of paralysis. Nobody really knows what's going on. And everyone is just prepared to go somewhere else.

RAY SUAREZ: Enron got its start in 1985 as a small natural gas supplier. But as the era of deregulation and Internet technology expanded, the company's business evolved from energy supplier to energy trader. Enron soon became one of the largest traders of natural gas and electricity in the U.S. and overseas, and expanded its business to include marketing coal, paper, plastics, and Internet bandwidth. The company's success was part of Houston's growth. The company paid $100 million for the rights to name Enron field, the home of the Houston Astros. The masterminds behind the company's success-- its chief executives Jeffrey Skilling and Kenneth Lay-- were featured on the covers of business magazines. Lay was also well known as a good friend of President Bush. But negative news for the company began last year. During the height of California's energy shortage, Governor Gray Davis accused Enron and other companies of manipulating the market to increase natural gas prices, a charge Enron executives, who have been staunch advocates of deregulation have denied. In the spring, the company faced accusations of false accounting practices. In August, as the stock began its downward spiral, Jeffrey Skilling resigned after just six months as CEO. Last month, the Securities and Exchange Commission launched an investigation of Enron's business practices. And earlier this month, Enron revealed that more than $580 million in losses over the last five years had been kept off the company's books. And the company reported a third quarter loss of more than $600 million. A way out seemed possible when cross-town competitor Dynegy, Inc., agreed to purchase the company for $9 billion. But yesterday, Dynegy pulled out of the deal and Enron's credit rating was downgraded to junk bond status. Enron shut down its online trading site and halted trading in some of their foreign markets as a result. Executives at Enron announced today that they were continuing talks with banks and creditors to forestall filing for Chapter 11 bankruptcy protection, but would not rule out liquidating the company.

JIM LEHRER: And joining us now for more are Vijay Vaitheeswaran, energy and environment correspondent for the "Economist" magazine; Floyd Norris, senior financial writer for the "New York Times"; and Michelle Michot Foss, director of the Energy Institute at the University of Houston. The institute is sponsored in part by Enron, Dynegy and other energy companies.

Well, Vijay Vaitheeswaran, let me start with you. This is a company that didn't generate electricity, didn't go crossing the world exploring for oil and natural gas. How did it get to be a huge energy company?

VIJAY VAITHEESWARAN: Well, in fact, they do own power plants. They do have hard assets, thousands of miles of pipelines. But in broad-brush, what you say is certainly true, that the lion's share of the company's revenues and profits came from trading, from energy contracts. And they became, over the 15 years or so that Ken Lay grew the company from a very obscure gas pipeline concern, to become the biggest energy broker in the world, something like a quarter of the U.S. electricity and natural gas market. And increasingly, they began to see themselves as a Wall Street firm that happened to have some pipelines attached. And I think that was really when they began to get into trouble.

RAY SUAREZ: Dr. Foss, would this kind of growth have been possible in an era before deregulation and the existence of computer networks?

MICHELLE MICHOT FOSS: Well, certainly not in the way that Enron did it. They saw a path by restructuring energy markets to build wholesale businesses, October ago... Acting as an intermediary to provide energy to customers after arranging for supplies from producers. It's a very important role to play in restructured competitive markets. I think they very quickly saw their growth path in that business and then started to emphasize that as their core business.

RAY SUAREZ: So Floyd Norris, help us understand what happened.

FLOYD NORRIS: Well, a number of things happened. First, they got caught with accounting no one could understand. That had been true for years, but suddenly it began to matter after they took a mysterious write-off to shareholder equity -- that's a balance sheet item -- and explained it very badly. Then it cascaded. This was at heart a trading firm and it was almost like a bank. Many of its contracts called on it to perform years and years later. And people who had contracts with it got worried whether they'd be able to perform, so they started closing down those contracts and demanding Enron put up more money. And it cascaded. It was almost like a run on a bank before we had deposit insurance. They couldn't withstand the pressure, and nobody was willing to put up enough money to bail them out.

RAY SUAREZ: Suarez: So let me see if I understand this. When news started to come out that they had in fact not disclosed large losses, people started to fear that, if they were supposed to sell Enron gas in 2003 or buy electricity from it in 2004, that this might not happen?

FLOYD NORRIS: Yes. Moreover, they had signed contracts that ostensibly would have protected someone from a rise or a fall in the price, so that they might end up owing somebody a lot of money three years from now if prices fell. Now, they figured they were ahead because somebody would owe them the same amount of money if that happened. But of course that's not the way you would look at it. You'd worry about whether you're going to get your money, and people started to pull out. It was very much like a run on a bank, and the takeover offer from Dynegy fell apart. Dynegy got scared. They worried that perhaps other people understood this company was in trouble, and they'd be in trouble if they bought them, and they ran away.

RAY SUAREZ: Vijay Vaitheeswaran, how much of the helium in Enron's balloon was some of that market exuberance of the late '90s, analysts crowing about the company, it having a very popular commercial advertising presence on television, that sort of thing?

VIJAY VAITHEESWARAN: Sure. There's undoubtedly a good amount of it was a willingness by, particularly analysts on Wall Street and at the credit rating agencies, willing to believe the Enron story, the growth story. And not too many hard questions were asked about exactly what the figures meant, the small details and how exactly profits were broken out, for example. And so I think now quite a lot of hard questions will be asked of the credit rating agencies, of the auditing company that worked for Enron and signed off on those accounts, which have since been restated, as well as the wall street analysts who just a few months ago were saying, "this company is the General Electric of the next century."

RAY SUAREZ: Well, Dr. Foss, where does this leave other big players in the industry? Are they shaken by bad news from one of their main competitors, strengthened, weakened?

MICHELLE MICHOT FOSS: Well, I think there are two things going on. First of all, because of the scrutiny of Enron's businesses, everyone who is in a similar business is looking to their own financial statements and their own balance sheets to make sure that things are solid and, also, I think, they are all going to do, hopefully, a better job or the best job of communicating their financial results to investors and to all of their public audiences. The other thing that's happening, of course, is that Enron's business is now being distributed to its competitors. So a lot of the companies that operate in the same businesses that Enron operates in are taking up the slack. They're starting to work with some of Enron's customers, they're starting to fill the gaps to ensure that all of the energy supplies that we need in the United States are being met.

RAY SUAREZ: So if you had contracts down the road with Enron, either as a supplier or as a buying customer of energy, you shouldn't be worried tonight?

MICHELLE MICHOT FOSS: Well, no. You have to do your homework. What you need to be doing now is restructuring all of those transactions and working with companies that can fulfill all of the agreements. So you're in a process, as we speak, of renegotiating a lot of those arrangements to make sure that you're working with a company that you think is going to be around and be able to meet all of the requirements that you have.

RAY SUAREZ: Floyd Norris, what about the wider consumer base? I mean if you're just one of those people who's about to put a plug into a wall, how does this affect you?

FLOYD NORRIS: Oh, it probably will have minimal effect on consumers. There are people who had direct deals with an Enron subsidiary. They probably won't be affected very much. The larger significance of this, I think, for a lot of people will be that the energy markets are likely to change. Led by Ken Lay, they vigorously resisted regulation; they vigorously resisted disclosure. They're probably going to get some of each now and it's probably going to be a good thing.

RAY SUAREZ: So Vijay, weigh in on that.

VIJAY VAITHEESWARAN: Sure.

RAY SUAREZ: Do you agree with Floyd Norris that this is something that's going to give states a second look at deregulation and give the industry itself a sort of warning shot?

VIJAY VAITHEESWARAN: Sure. What I would say is certainly Floyd is right in pointing out that the nature of regulation will change, especially in terms of financial disclosures. Now, what brought Enron down was the financial shenanigans of its top officers, not its very successful trading business. The very dubious practices, not necessarily illegal, and we've already gotten a hint of what may come from one of the commissioners at the FERC, the Federal Energy Regulatory Commission, Nora Brownell, who just said in the wake of this chaos that, "When you don't have a ten commandments, it's very hard to have a sinner." And I think that points the way towards something like a ten commandments, proper supervision. And if I may make a point that drawing on experience of competitive markets in Britain and Australia and other parts of the world that have forged ahead with deregulation before the U.S. did, there's often a confusion here and in California especially, competitive markets are not the same as saying no regulation. Deregulation requires a much more vigilant but carefully circumscribed role for the regulator, and I think that was the missing link here in the wholesale markets in the U.S.

RAY SUAREZ: Well, you brought up California. Those of us who were following the California story earlier kept hearing the name Enron popping up, and it made it sound like billions of dollars were flowing into Houston from California ratepayers. What happened? Weren't they making that money?

VIJAY VAITHEESWARAN: A lot of that is actually political hay made by Governor Gray Davis in trying to respond to what was a very difficult situation he inherited. What California did was not deregulation by any stretch of the imagination. It was an approach to market reform that had all sorts of political bells and whistles that kept regulators hand in, in parts and didn't allow companies to compete in others. It's really a muddled approach that should be a warning to everyone in the world: Don't ever do this. Look to other places in the world, again, you can look to Pennsylvania, you can look to Texas, you can look to Britain, that have done this successfully. I don't think anybody will hold California up as a model of deregulation. But it is true that, for part of that time, the companies, not only Enron-- in fact, Enron was not the biggest beneficiary of California. A lot of its rivals in Houston, other power generators, the Los Angeles Power Authority, in fact the state-run -- municipally run power authority made huge amounts of profits that nobody wants to talk about it because it's a government-run entity in California. So the picture as a little bit more complicated and Enron is not a clear villain in the California situation, nor is deregulation.

RAY SUAREZ: Dr. Foss, let's talk for a minute about where this leaves Houston. Enron was a big company in the city's profile, a big contributor to its skyline, the naming rights on the baseball field. What happens now?

MICHELLE MICHOT FOSS: I want to say quickly, by the way, that I agree with Vijay's analysis on this with regard to California and also to point out that Enron is only one of a number of energy producers that operate not only in Houston but in other places. Sure, they were a big corporate citizen here, important to the community in both business presence, as well as a civic presence, major donor in town for a lot of important things, a major donor to higher education, not just us, but universities in Texas, universities across the United States. They were trying to, I think, elevate Houston to its world-class status, to improve quality of life, to make it an attractive place for the kind of talent that they wanted to bring into their company. So this is a very poignant situation for us, to know perfectly well why all of this is happening and, for some of us to have been concerned all along and perhaps to have expected it, but to have to deal with the consequences of this very important corporate citizen having to go through this process is a tough thing around town right now.

RAY SUAREZ: And what about the 21,000 jobs? Is Houston growing in a way that lot of those people might have a shot at picking up with another company doing similar things?

MICHELLE MICHOT FOSS: Well, in all honesty, it's tough right now. Of course we're feeling the slow pace of economic activity elsewhere in the United States. It also happens we have a lot of other things going on in Houston right now. We have a major airline company that is trying to deal with the fallout from everything in September. We have Compaq and HP struggling with their own merger. We have a soft environment right now for energy prices. A lot of uncertainty about what oil prices will be next year, natural gas prices and so on. It happens that most of the energy companies in town are fully staffed, especially in their wholesale trading and marketing businesses, which is where a lot of the flow of personnel from Enron will come from. Enron has been shedding employees for a while. Anybody who could look to other opportunities has been doing so. It's going to be tough to absorb people who want to stay in the Houston area. But this is a pretty resilient town. We've come off some pretty bad times and have had some really excellent times lately. So I would suspect that, among those Enron employees, we have probably some folks who are going to build brand new energy businesses.

RAY SUAREZ: Dr. Foss, guests, thanks a lot.

UPDATE - POWER CRISIS

JIM LEHRER: As we just heard, once upon a time, not so long ago, there was an energy crisis in California, and the governor accused Enron of being partly responsible for his state's electricity shortage. The Enron angle aside, Spencer Michels updates what happened to the shortage and the crisis.

SPOKESMAN: Over here!

SPENCER MICHELS: Even with the nation focused on terrorism, the electricity crisis remains big news in California; the main fight now is over the price of power. Luckily for Californians, the summer did not live up to its advanced billing. 1,000 hours of blackouts had been predicted. By spring, this mammoth dairy plant had already had its power knocked out several times.

ALAN PIERSON, Land O'Lakes Dairy: We see the problem only getting worse as we go into the summer months when the demand for electricity goes higher.

SPENCER MICHELS: In fact, the problem got better. The weather cooperated, Californians cooperated, and power arrived from in and out of state. Governor Gray Davis, fighting for his political future, gave the credit to God.

GOVERNOR GRAY DAVIS, California: Well, we clearly dodged a bullet. God has been good, and it's been a normal, not a hot summer. We've approved six new plants that are online now, and we had wonderful conservation from the people of California.

SPENCER MICHELS: Californians cut their electricity use 14% during peak periods by turning out the lights or using energy- efficient fluorescent bulbs. Also, the economic downturn, aggravated by the September 11 attacks that cut into air travel, contributed to lower demand for energy. And the six new power plants that came online provided 1,400 megawatts of electricity; construction has begun on a dozen more plants, their permits sped though the state bureaucracy. That's made a big difference, according to Severin Borenstein, director of the University of California's Energy Institute.

SEVERIN BORENSTEIN, University of California: By next summer, there will be substantially more supply on line. We're still going to be a bit short next summer, and if people stop conserving entirely, we could run into trouble, but we're probably going to be okay.

SPENCER MICHELS: Yet the electricity crisis has not ended. Big power users, like Schnitzer Steel of Oakland, are complaining that prices are much too high to keep them competitive. This firm shreds 7,000 old cars a day and sells the scrap steel around the world. The 7,000 horsepower shredder motor draws enough power to light 80,000 homes.

GARY SCHNITZER, Scrap Steel Dealer: We're paying very high rates, and there's an indication it might go higher, that the utility company says, "to come out of bankruptcy, we're going to need even higher rates." That concerns us greatly.

SPENCER MICHELS: Schnitzer says that his firm and others could leave California because of high rates.

GARY SCHNITZER: The impact on business, on large industry, on large power users, has been tremendous. We've had huge, huge increases.

SPENCER MICHELS: But consumer advocate Nettie Hoge of the Utility Reform Network says big firms simply want lower rates.

NETTIE HOGE, Consumer Advocate: Oh, the political pressure is so great. I've never seen such a storm. The whole thing that's going on in Sacramento now is about the big customers wanting cheap power.

SPENCER MICHELS: Many residential users have seen their electricity bills increase as well, as much as 40% if their consumption is high, and those rates won't come down soon. Last winter and spring, with power in short supply, the state had to pay enormous amounts to secure electricity. The Governor, to avoid paying those exorbitant prices on the daily market, entered into long-term contracts for power at slightly lower rates. But according to Hoge, those contracts mean power bills will stay high.

NETTIE HOGE: What we did is we swept it under the rug, and it's going to be with us for ten to fifteen years, because we structurally committed to high, sustained prices for ten to 15 years with long-term contracts.

SPENCER MICHELS: California's Public Utilities Commission recently balked at ratifying those contracts, and may nullify them against the Governor's wishes. That would make it difficult for the state to sell bonds for power.

GOVERNOR GRAY DAVIS: I think we did the right thing. When we did it, we had no leverage in January and February. We got the power to keep the lights on and we thought we got it at good prices in that context.

SPENCER MICHELS: But if you had no leverage, that would seem to be a terrible time to negotiate.

GOVERNOR GRAY DAVIS: Well, but it was either that, or all the lights would go out starting January 19. Keep in mind these generators, whose greed knows no bounds, charge so much money that charge so much money that PG&E is in bankruptcy.

SPENCER MICHELS: Pacific Gas and Electric, the state's largest utility, spent so much money buying electricity, it asked for court protection from its creditors. But the bankruptcy has not had much effect on the public so far. Robert Glynn, Jr., is chairman and CEO.

SPENCER MICHELS: To a layman, going into bankruptcy means you're broke. You would think that would have a major effect. Has it?

ROBERT GLYNN, CEO, PG&E: There are billions of dollars of unpaid bills that are... and creditors who are owed that money that are waiting for our company to exit bankruptcy in order to get paid. So that clearly represents unfinished business that needs to get taken care of.

SPENCER MICHELS: Meanwhile, the state is still trying to get the federal government to order refunds from generators who sold power at high prices.

GOVERNOR GRAY DAVIS: We've got to get the federal government to finish the job. They owe us $9 billion in refunds. They're trying to wiggle out of it.

SPENCER MICHELS: Davis has a new agency to help in stabilizing prices and supplies: The state power authority. Legally, the state could now produce and sell power, but probably won't. Even consumer groups aren't pushing for that.

NETTIE HOGE: We weren't asking for state ownership. We're asking for investor-owned utilities to be regulated so that an essential commodity could be delivered at a fair and reasonable cost.

SPENCER MICHELS: But legislators voted to deregulate electricity in 1996, an experiment now generally viewed as a disaster. Still, utilities like PG&E don't want re-regulation.

SPOKESMAN: There will continue to be a strong deregulatory, more market-based and less regulatory-based framework.

SEVERIN BORENSTEIN: In some ways, we're back to square one with deregulation. We need to now decide what sort of deregulation, if any, we're going to have in California.

SPENCER MICHELS: The energy crisis may have eased, but it has not gone away. And, in fact, it's already the main issue in next year's governor's race.

JIM LEHRER: This week the California Power Authority decided to hold up 31 proposed energy projects because the power they could produce may not be needed by next summer. Still to come on the NewsHour tonight: Something new for the CIA, and waiting for smallpox.

FOCUS - NOT-SO-SECRET MISSION

JIM LEHRER: Now, the very public death of a CIA Man in Afghanistan. Kwame Holman begins.

KWAME HOLMAN: Like the U.S. Military, the Central Intelligence Agency sends personnel into harm's way, but often in secret wars. And for many who die serving the CIA, There's no public acknowledgement. Dozens of stars memorialize the dead at the agency's Virginia headquarters; only about half are identified for the public. Yesterday the Afghan war resulted in very public recognition by the CIA that it had lost one its own. In a press release, the agency praised Johnny Michael Spann, a 32-year-old former marine who worked for the agency's secret espionage division. Yesterday Spann's father called his son a hero.

JOHNNY SPANN, CIA Agent's Father: We recall him saying, "someone has got to do the things that no one else wants to do." That is exactly what he was doing in Afghanistan. He gave his life in the line of work, in the line of duty, during a prison riot near a fortress at Mazar-e Sharif. (Gunfire)

KWAME HOLMAN: The riot began Sunday when Taliban prisoners rebelled against their northern alliance captors. Spann reportedly was interrogating prisoners, but the details of his death are unclear. A German TV crew shot these pictures of a man describing a possible American casualty.

MAN: There's hundreds of dead here, at least, and I'm not... I don't know how many Americans are dead. I think one was killed. I'm not sure.

KWAME HOLMAN: In recent days, the Pentagon confirmed that CIA personnel are working with military Special Forces in Afghanistan. CIA agents reportedly are operating unmanned surveillance planes that carry anti-tank missiles, and assisting anti- Taliban commanders in the North and South. Last week, Defense Secretary Donald Rumsfeld said CIA and military units both report to the U.S. Central Command.

DONALD RUMSFELD: The CIA, just to get it right up on the table, has had individuals in the country. They have been working very closely with individuals we've had in the country, and they've been doing a darn good job.

KWAME HOLMAN: Praise has not been unanimous for the CIA. The agency was criticized for failing to anticipate the September 11 attacks. On that day, Richard Shelby, the top Republican on the Senate Intelligence Committee, told the NewsHour the tragedy "was not an intelligence success."

SEN. RICHARD SHELBY: And if it's not a success, it's a failure. What intelligence is about is timely information. If we don't continue to improve our situation with intelligence gathering and preventing terrorist attacks, we're waiting for the next attack.

KWAME HOLMAN: Since the attacks, the CIA has received much attention-- some of it satirical-- for its new recruitment drive directed at people with Afghan language skills and knowledge of Central Asia. The agency says applications from college students and others are seven times higher than a year ago. Last month, President Bush approved an order for the CIA to use "all necessary means" to destroy Osama bin Laden and his network.

JIM LEHRER: Margaret Warner takes it from there.

MARGARET WARNER: For more, we turn to James Risen, investigative reporter for the "New York Times"; Larry Johnson, a former counter terrorism officer at the CIA; And Ted Gup, author of "The Book of Honor: Covert Lives and Classified Deaths at the CIA" Jim Risen, beginning with you, tell us more about this CIA Operative who was killed. What kind of a mission was he on?

JAMES RISEN: Well, he was killed while he was trying to interrogate prisoners at the fortress in Mazar-I-Sharif. And it's believed that there was another CIA officer with him at a time at the time. Beyond, that it's a little unclear whether there were other Americans in the area, whether there were any Special Forces working with them. But it appears that his main job at the time was interrogation of Taliban and possible al-Qaida operatives.

MARGARET WARNER: Now, he's been described as a paramilitary officer with one division within the CIA Explain that and what does that mean?

JAMES RISEN: Well, he was a member... He was based within the CIA -- they call home basing, where you are... You start your career in one division, especially in the directorate of operations, which is the clandestine espionage arm of the CIA You begin in one...usually a regional division or, in this case, a paramilitary division. It's called the special activities division. But he had been sent or transferred, at least temporarily, to the counter terrorism center of the CIA for action in Afghanistan. But both the special activities division, which is primarily the paramilitary arm of the CIA, and the CTC, the Counter Terrorism Center, have officers in Afghanistan working both to interrogate prisoners, to provide logistical and intelligence support both to the Special Forces and to the anti-Taliban rebels, and to act as a liaison with other intelligence services in the region.

MARGARET WARNER: You've covered the intelligence community for quite some time. Have you ever received a press release before announcing publicly, identifying the death of an agent?

JAMES RISEN: No, not like this. This was a surprise to me, and I think it was... It was unusual. It's not unprecedented, but I think the CIA decided to announce his death because it had been widely reported already and some of the reports had been somewhat garbled, suggesting that he was a CIA contractor, when in fact he was a staff officers. And I think the CIA decided that, because there was so much attention already on the incident and because it was well known that they have officers in the country, that they thought it was okay to announce this.

MARGARET WARNER: Ted Gup, what did you make of this very public acknowledgement? You've written widely-- that's are what your book is all about-- about the men and women who have never been identified publicly who died in the line of duty.

TED GUP: Right. I think Jim Risen is right in his read on this. I would caution that we not read too much into this disclosure. I don't think that it represents a sudden break with tradition or policy at the agency, a sudden rush towards revelation and openness. I think that the reason that his identity could be revealed was not only because it was somewhat compromised by the media, because in the past others have been out, so to speak, by the media in life and in death. And the agency has not owned up to it. But in this case, I think he was purely paramilitary in his functions, as opposed to the sort of clandestine case officer working in an embassy who has a long-running relationship with foreign nationals, running them as agents, getting intelligence and documents and such. So in this case, exposing his identity, I think, did not run the risk of endangering foreign nationals who are who were reporting to him. I think he was in country a brief time. He had only been at the agency for two years, and so I think they could afford to disclose his identity without those other ramifications.

MARGARET WARNER: Well, Larry Johnson that's what, in fact, the CIA spokesman said yesterday, no threat to national security. How do you see it?

LARRY JOHNSON: Boy, you talk about being dead wrong, and it's amateur hour at CIA. Number one, they have now put Mr. Spann's family at risk in the United States. I grieve for that family, and my prayers and tears go out to them.

MARGARET WARNER: You mean you think they would be targets?

LARRY JOHNSON: Well, they're definitely targets now because you've identified them. It is unprecedented to identify the family. One of the reasons you don't go out and identify case officers, and this man was a case officer, he was not an agent. Agent had paid traders for other countries. He was a case officer in the tradition of CIA. But the virtue of CIA is supposed to be clandestine and covert. You know you've blown it when it's on the front page of the "Washington Post," the "New York Times" and on the Jim Lehrer NewsHour. In my experience, when there have been CIA individuals that someone could report on, the media has always been responsible about protecting that. What is unprecedented now is not just CIA, When you have Secretary of Defense Rumsfeld announcing that the CIA is operating there, by doing this, they're showing, one, they don't understand clandestine operations; number two, you put... Mrs. Gup should be worrying about grieving for her husband, and the father of her children...

MARGARET WARNER: You mean Mrs. Spann.

LARRY JOHNSON: I'm sorry. She should be grieving for, that instead, now she needs to be seriously concerned about her security. I've had people over there, "was this man over there torturing Taliban?" There are radical extremists still in this country and if they believe this man was torturing, it's not beyond them to target his company. And they they'd better put a 24-hour detail with that familiar Rhode Island he's a brave American, he's a hero but the thrust of CIA Is it's to be done in the dark, not on the front pages.

MARGARET WARNER: Ted Gup, your reaction to that. I mean do you think this family is in danger do you think this was really amateur hour?

TED GUP: Well, I don't think it's amateur hour. I am a little reluctant to quarrel with Larry because he's got years of experience in the field. But it's not without precedent. I do remember a former director of Central Intelligence going to claim the body of a fallen clandestine officer, I believe in what was the Soviet Republic of Georgia, protecting Shevardnaze. Perhaps he could elaborate on that and distinguish between that case and this one.

LARRY JOHNSON: That's a very good point. What you didn't have then and what happened yesterday at CIA, they sent an internal memorandum around identifying the man, identifying where the family lives. That never happened when I was there. And this is not just my reaction. I have talked to several current chiefs of station and former chiefs of station who served in the most sensitive posts. The common denominator, as well as military special operations that are highly classified, everybody had the same phrase, "Their jaw dropped, they couldn't believe it, because the other thing here is Mr. Spann didn't need to die. He was put out in the field too early without enough senior heads around him to keep him alive. He was a brave man doing what he... You know, hard charging, but he did not have the assistance. This was a failure at leadership at CIA as well.

MARGARET WARNER: Why do you think it was released?

LARRY JOHNSON: Because the CIA has decided that they're in a public relations battle. They are correctly under the gun for the intelligence failures of the 11th. There are some severe problems with inside, and the notion that they're competing with special operations for press coverage, the only way they get access like that and the kind of access that Bob Woodward has provided on the front pages of the post-is because people at George Tenet's level have given the thumbs-up.

MARGARET WARNER: Do you think that's possible, Ted Gup, that that was the reason for doing this?

TED GUP: Well, I think it's possible that certainly the agency's concerned with its image. It's just suffered the largest intelligence problem in decades. They didn't disrupt it. Which is the motto of the counter terrorist center. On the other hand, there are about 79 stars on the wall at CIA headquarters, of which 40 are disclosed, not just by George Tenet, but by most of his predecessors. So this is not as unprecedented as it may appear to be, and many of those who died before were killed in somewhat similar circumstances. Larry, I'd love to know what your thought is on that.

MARGARET WARNER: But let me stick with this particular case, if I could -- and go back to Jim Risen. Jim Risen, just back to the CIA's role in this particular war, what do you think it says about this war that the first casualty, as you wrote today, is a CIA officer, not a uniformed soldier?

JIM RISEN: Well, it does underscore the extent of the CIA'S involvement in the campaign. And this... I think going in to... After September 11, I think everyone realized that this would really largely be an intelligence war because of the nature of the fight against terrorism. It's not a conventional military operation in that sense. There is almost two parallel campaigns going on. One is a military operation to break the Taliban's military hold on Afghanistan, and the other is to catch and either kill or capture the leadership of al-Qaida and a few Taliban leaders, as well. And so that second goal, which is really the ultimate objective of the campaign, is largely an intelligence and law enforcement and only indirectly a military operation. And I think that's why the CIA... the CIA has most of the government's institutional knowledge about al-Qaida at the Counter Terrorism Center. And so it makes a lot of sense that they would be kind of the brains behind the operation here.

MARGARET WARNER: Pick up on that, Larry Johnson. What do the CIA people bring that, say, the special ops military special ops forces don't?

LARRY JOHNSON: Well, let's look back into history because I don't want to compromise what's going on now. When the CIA operation in Afghanistan against the Russians where you support another force so they can fight, the CIA brings a broad array of capabilities to support both paramilitary operations and intelligence. In the case of Vietnam, we saw a different role for the CIA, where they were conducting some operations, but it was under military cover. I'm not compromising anything. That's in public. But that's really the model you ought to go after. But what you have here right now are two competing groups, and just a quick plug: Ted did write a wonderful book and people should read it. I mean it deals with some of these issues, but this is one where right now they still haven't sorted out who's in charge, and you've got CIA itself leading the charge saying, "hey, look how wonderful we are, what we're doing." That's ridiculous.

MARGARET WARNER: A brief final word now, do you think it's a more enhanced role for the CIA? Is this part of the new kind of war?

TED GUP: Well, once more, it's not unprecedented. The first casualty in Somalia in 1992 was CIA, and although he was listed as a Defense Department employee, Larry Friedman was CIA. He was the first casualty in that conflict. And I think that you will see the CIA in this kind of lead position again and again.

MARGARET WARNER: All right, thank you all three very much.

FOCUS - FIGHTING SMALLPOX

JIM LEHRER: Finally tonight, the bioterrorism threat at home. This week health officials announced new measures aimed at smallpox, one of history's deadliest diseases. Our report is from Susan Dentzer of our health unit, a partnership with the Henry J. Kaiser Family Foundation.

SUSAN DENTZER: Until it was eradicated in 1980, smallpox had long been one of humanity's most terrible scourges. The successful campaign in the 1960s and '70s to wipe the disease off the face of the earth was led by Dr. D.A. Henderson. He now heads the new Office of Public Health Preparedness at the U.S. Department of Health and Human Services.

DR. D.A. HENDERSON, Director, Public Health Preparedness, Health & Human Services: Smallpox throughout history has been one of the worst of all of our pestilential diseases; more greatly feared over the centuries than plague or yellow fever or cholera. And actually, it killed many, many times more people than any of those organisms.

SUSAN DENTZER: The disease was spread from person to person, usually as droplets expelled from an infected person's nose or mouth. Ten to fourteen days after infection, victims developed severe aching pains, headache, and fever, followed by a rash that eventually produced the characteristic pockmarks of the disease.

DR. D.A. HENDERSON: About 30% of the people die of the disease, and this occurred in Europe, let's say, under fairly good conditions of medical care, and it occurred at that rate in India and Pakistan, Bangladesh, places where they have less adequate standards of care. There is no therapy, and so once the individual gets the disease, he survives or dies.

SUSAN DENTZER: In the wake of the success of the global eradication campaign, there are now only two official repositories of the smallpox virus, whose scientific name is variola. One is at the Centers for Disease Control in Atlanta, another is in Russia at the inauspicious-looking Institute of Virus Preparations in Moscow. But in the early 1990s, the United States learned of an extensive effort that had been under way for years in the former Soviet Union to develop special stocks of the virus for use as a weapon of mass destruction.

KEN ALIBEK, Former Deputy Director, Soviet Bioweapons Program: It could easily manufacture up to 200 tons of smallpox biological weapon a year. Believe me, it was a tremendous amount.

SUSAN DENTZER: Ken Alibek was formerly second in command of that Soviet, and later, Russian, bioweapons effort. He defected in 1992 and now runs a Virginia-based government contracting firm. He says the deadliness of Russia's stores of smallpox virus almost defies imagination.

KEN ALIBEK: You know, it's difficult to just to tell something without scaring people, but you know, 200 tons... You can imagine. 200 tons could destroy the entire world population several times over.

SUSAN DENTZER: In a book he wrote on the subject, Alibek says the Soviets also perfected ways to manufacture and spread the virus: For example, loading it onto nuclear warheads and ensuring that it could disperse readily through the air. And Alibek is one of many who suspects the Russians have continued the program, opening up the possibility that poorly- paid Russian scientists could deliver the virus into dangerous hands.

KEN ALIBEK: If a scientist working with smallpox is making somewhere between $50 or $100 a month, isn't it enough? Of course, it's not enough. There are many dealers, arms dealers in the former Soviet Union. They sell and buy everything, from conventional weapons to nuclear materials, and now it's obvious, of course, that there is a market, believe me. There was and there is and there will be a market of biological... biological agents.

SUSAN DENTZER: And in fact, that market for smallpox virus and other biological agents could be huge. Recently the U.S. Government accused Iraq and at least five other countries of violating a 1972 global convention prohibiting the production and use of bioweapons. The government called Iraq's program in particular "a serious threat to international security." Even if Iraq and other rogue states are producing smallpox virus as a bioweapon, there's considerable debate over how likely it is that a bioterrorist group could mount a successful smallpox attack. Henderson of HHS is a skeptic, albeit a cautious one.

DR. D.A. HENDERSON: My personal feeling is that smallpox is much more difficult to get a hold of than anthrax. It's more difficult to handle. It would be more difficult to distribute. So that the risk of smallpox being released in the population is less than anthrax, but it is not zero. And that's what worries us.

SUSAN DENTZER: So given the risks, Henderson says the nation has no choice but to prepare to respond to a smallpox attack, first by stockpiling ample supplies of vaccine.

DR. D.A. HENDERSON: With smallpox, you can vaccinate after the individual has been exposed to the virus. Let's say you are exposed today. We can vaccinate you two to three days later and protect you against smallpox.

SUSAN DENTZER: And indeed, this week, the Centers for Disease control unveiled a smallpox response plan that envisions just such an approach. Consider what would happen if a handful of smallpox cases showed up in several hospital emergency rooms in a major city like Boston. Federal, state, and local responders would quickly draw a ring around those cases, focusing first on all the people those victims had come in contact with over the previous two weeks. All of those people and their family members would be inoculated with anti-smallpox vaccine, and possibly quarantined at home or in specially designated hospitals while they were still infectious. If that didn't stem the outbreak, officials would proceed to vaccinate and quarantine wider circles of people until the epidemic was halted. Today there are at least 115 million Americans who have never been vaccinated for smallpox. Most of the rest were vaccinated so long ago that their immunity has waned or worn off completely. And although no preventive mass vaccinations are currently planned in the absence of a smallpox attack, government officials have concluded that protecting the population mandates accumulating enough doses for every American. So yesterday the government announced plans to build a massive stockpile of anti- smallpox vaccine. A total of 209 million doses of will be purchased from a joint venture between a British company, Acambis, and a U.S. firm, Baxter International. In addition, researchers are now testing to see whether a stock of roughly 15 million doses that the government has on hand could be stretched to 77 million doses or more. If so, that could create a total stockpile of 287 million doses of vaccine. Dr. Carol Tacket is Professor of Medicine at the University of Maryland.

DR. CAROL TACKET, University of Maryland School of Medicine: What we're doing here is taking the existing vaccine and diluting it one to five and one to ten and giving it to volunteers and see if those volunteers have what we call a take. The take is the local reaction that occurs at the site of vaccination. After about four days, there is a little red bump that turns into a little vesicleor blister and that eventually makes a crust and a scab which separates and then the vaccine is left with a little scar at the site of vaccination. And at the end of that process almost everybody who has a take is then immune to smallpox.

SUSAN DENTZER: Dr. Anthony Fauci of the National Institutes of Health told members of Congress today that results so far have been encouraging.

DR. ANTHONY FAUCI, National Institutes of Health: And our experiments over the years tell us that take rates coincide very well with the production of antibodies that you'd like to induce. So it isn't final yet, but things are looking quite good. We will have those results in their final form by the end of January, the very beginning of February.

SUSAN DENTZER: The huge store of newly produced smallpox vaccine is expected to be in place by the end of next year.

RECAP

JIM LEHRER: Again, the major developments of this day: Congressional leaders called for investigations of the Enron collapse. In Afghanistan, the opposition Northern Alliance claimed its forces had reached the outskirts of Kandahar, and the Afghan political talks in Germany moved toward a deal on an interim government. We'll see you online and again here tomorrow evening with Shields and Brooks, among others. I'm Jim Lehrer. Thank you and good night.