The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Friday, the Dow Jones Average plunged 190 points, making this Wall Street's worst day of the year, Senate leaders agreed on a stripped down budget bill. Pres. Bush said he wouldn't mind using force to overthrow Noriega if it could be done prudently. We'll have details in our News Summary in a moment. Judy Woodruff is in Washington tonight. Judy.

MS. WOODRUFF: After the News Summary, we turn first to the sudden drop in the stock market [Focus - Wall St. - Friday the 13th]. Financial analysts Gary Shilling and Michael Harkins and investment writer John Curran join us to explain what happened. Then Pres. Bush and his comments today on Panama and other subjects [Focus - Taking Questions]. We'll hear an extended portion of what he had to say. Next, commentary from our regular Friday political analysis team of Gergen & Shields. Then a News Maker interview with the prime minister of Yugoslavia, and finally Roger Rosenblatt pays tribute to a great competitor [Essay - Gift Horse].NEWS SUMMARY

MR. MacNeil: Stock prices fell sharply on Wall Street today, giving the market the 2nd largest point loss in its history. The Dow Jones Average of 30 Industrial stocks plummeted 190.58 to close at 2569.26, a loss of almost 7 percent. Analysts said the big slide was triggered by news of financing problems in the planned buyout of United Airlines. That followed a wave of computer driven selling caused by news of a September rise in wholesale prices and retail sales. After falling for three months, wholesale prices turned up sharply by 9/10 percent and retail sales rose 1/2 percent, reviving inflation fears. We'll have full analysis of the Wall Street decline after the News Summary. Judy.

MS. WOODRUFF: Republican members of the U.S. Senate put aside their insistence on a cut on the capital gains tax rate long enough today to reach a broad enough agreement with Democrats on a deficit reduction bill. The accord was reached only three days before automatic budget cuts are set to take effect next Monday. But those cuts may not be avoidable despite today's agreement, because in order for the deficit reduction bill to take effect, it also has to be passed by the House and signed by the President.

MR. MacNeil: Pres. Bush said today he still wanted to see Panama's Gen. Noriega overthrown, but defended his decision not to use American troops in the recent abortive coup. At a hastily called news conference answering critics from the right and left, the President said he had seen no fact to persuade him his judgment had been wrong but he didn't rule out force in the future.

PRES. BUSH: I wouldn't mind using force and if it could be done in a prudent manner. So in other words, I 'm not ruling out the use of force for all time. I'm reiterating the fact that it was not proper to use force under the existing circumstances. And I feel more confident in that than I ever have, more confident, not less confident, from anything I have seen.

MR. MacNeil: The President also said he would let the congressional legislation outlawing desecration of the American flag become law. But he would not sign it in order to show his preference for a constitutional amendment. On the congressional votes for expanded Medicaid abortions, Mr. Bush said he was looking for ways to avoid a veto. We'll have extended excerpts from his remarks after the News Summary.

MS. WOODRUFF: In South Africa, blacks planned rallies throughout the country for this weekend to celebrate the planned release of eight prominent political prisoners, many of whom have been in jail for 25 years. There was already one celebration today. Two truckloads of police were sent in to break it up. When the crowd refused to disperse, police fired tear gas. That incident took place outside the home of Walter Sisulu, one of the political prisoners to be released. The government today lifted a gag order on Sisulu's wife, Albertina. She had been prohibited from speaking in public for more than a year.

MR. MacNeil: The American ambassador's home in South Korea was raided today by radical students. We have a report narrated by Roderick Pratt of Worldwide Television News.

MR. PRATT: The students were finally arrested after holding riot police at bay for 30 minutes. Shouting, "Drive out the yankees," the six students were hustled away after causing havoc. They'd scaled the wall of the ambassador's residential compound in Seoul, hurling tear gas at guards. Once inside, they ransacked the living room, smashing pottery and artwork. Amb. Donald Gregg and his wife were woken up by a security guard. They heard the intruders on the other side of their locked bedroom door but they managed to escape to safety.

DONALD GREGG, U.S. Ambassador: We had a few unscheduled visitors in our house this morning. But we consider what happened to be the act of a few individuals.

MR. PRATT: The Greggs fled to a neighboring house. Later police uncovered a large cache of weapons, homemade firebombs, a bag of Molotov cocktails, tear gas grenades, bottles of paint thinner and some iron bars. Only one grenade was used and it caused little damage. Embarrassed government officials later condemned the incident as a senseless riot.

MS. WOODRUFF: The prime minister of Yugoslavia met with Pres. Bush today and won U.S. encouragement for adopting economic and political reforms in his country. Prime Minister Ante Markovic is in the U.S. looking for support for his efforts to obtain loans from the International Monetary Fund and private banks in order to ease Yugoslavia's $17 billion foreign debt and to steer the country toward a market-oriented economy. We will have a New Maker interview with the Prime Minister later in the Newshour.

MR. MacNeil: There was more testimony today on abuses at the Reagan administration Department of Housing & Urban Development. Gerald Carmen, former head of the General Services Administration and Ambassador to Switzerland, told a congressional committee that he went directly to then Housing Sec. Samuel Pierce to get a lucrative housing contract from which he stood to gain millions.

GERALD CARMEN, Former Government Official: We have access to our own government. I have access to the Secretary of HUD. I have access to anyone I want. Every American citizen has.

REP. TOM LANTOS, [D] California: The problem is that not every American citizen can call up the Secretary of HUD and get an instantaneous appointment. So don't be so self-righteous about every American citizen having this right. The whole point is that it is people like you and Jim Watt who took advantage of your influence and your personal knowledge of these people that perverted and undermined this program. So if I were in your position, I would be a lot less self-righteous than you seem to be.

MR. CARMEN: May I answer that?

REP. LANTOS: Yes, you may.

MR. CARMEN: I don't think that self-righteousness is exclusively at this end of the table.

MR. MacNeil: Congressman Lantos added that the funding for the Arlington, Texas, housing project in question was approved shortly after Carmen's meeting with Pierce. He said it was awarded even before a formal application was filed.

MS. WOODRUFF: That's it for our summary of the day's news. Just ahead on the Newshour, the stock market tumbles, Pres. Bush on Panama and abortion, Gergen & Shields, the Yugoslav Prime Minister, and a tribute to a great race horse. FOCUS - WALL ST. - FRIDAY THE 13TH

MR. MacNeil: First up, a look at the surprise tumble taken by the stock market today just before it closed. The Dow Jones Industrial Average dropped a 190 points. Almost all of that slide coming in the final two hour of trading. This is the largest single loss on the stock exchange since the October 87 crash of more than 500 points. Here to tell us why it happen and what it means are Michael Harkins, President of Levy and Hawkins, a New York money management firm. Gary Shilling, President of Shilling and Company, an economic forecasting and money management firm also in New York. And John Currans who is the Senior Investment Writer for Fortune Magazine. Gary Shilling, the wires are saying that what triggered this was the announcement that the people trying to buy the United Airlines parent company were having trouble with the financing.Why would such news cause such wide selling on the market?

GARY SCHILLING, Economic Forecaster: I think it was just a trigger. The United Airlines deal has been off an on again. Marvin Davis took a run at it. Then there was a management and pilots union buy out with British Airways. The Department of Transportation criticized that. The unions, it wasn't sure they were going to go along with the deal. Its been on and off. I think this was no more than a trigger mechanism and investors were realizing there is a lot of other problems with the economy that make them nervous about stock prices.

MR. MacNeil: Why do you think Mr. Harkins this would be? Do you agree it was a trigger and why would it be.

MICHAEL HARKINS, Money Market Manager: Gee, no. I think that this is a case of a very large balloon finally finding its pin today. The stock market has been awash with takeover deals and even more takeover speculation for the last three months. And today for the first time ever they've announced that they can't finance a deal. It led to a panic in United Airline stocks but also in stocks of all companies that might be acquired.

MR. MacNeil: Why would it do that?

MR. HARKINS: Because the stock the stock market has a very large takeover favor.

MR. MacNeil: Why would investors in 1000 other stocks care that a United Airlines deal wasn't going to go through.

MR. HARKINS: Because so many other companies have been rumored to be takeover targets but we've seen 20 to 30 percent added to stock prices in the last 8 or 9 months just on the hope that they would be taken over. Now we have a great number of junk bonds defaulting while simultaneously we had a great amount of speculation going on the stock market and finally that incongruity came to an end today.

MR. MacNeil: How do you see it, Mr. Curran What do you see as the role of the United Airlines news today?

JOHN CURRAN, Investment Writer: I agree with what has been said. takeovers have been a driving force in the valuation of stocks the entire course of this bull market. One thing I would point out that in 1987 just prior to the October crash one of the things that people pointed to as a probable cause for that was talk on the Hill that there was going to be a move to limit the deductibility of interest. Somebody was tinkering with the engine that was driving the stock market. This happened again this week when the UAL deal ran into trouble.

MR. MacNeil: And there have been other problems with those junk bonds. Junk are those very high interest bonds that are floated to finance some of these big takeover deals.

MR. SCHILLING: I was going to say that's the point. There's nothing new about the problems with junk bonds. The Campeau Empire of U.S. Department Stores is virtually disintegrated and there have been other problems on the street.

MR. MacNeil: But it's new in the last few months is it not?

MR. SCHILLING: It's new in the last few months, but to say somehow this was news to investors today that there were big troubles with junk and therefore the takeover stocks I think is just neglecting what has been happening in recent weeks.

MR. MacNeil: Okay. So you said you think that it is also partly the effect of news on the general economy. So let's start with the news today. Retail sales up, 1/2 half percent in September wholesale prices up nearly a whole percent. What effect did that have you think?

MR. SCHILLING: When you couple that with the statements by Federal Reserve Chairman Alan Greenspan,that basically said the Fed isn't going to ease until inflation is out of the way. Here we see an economy which is a little stronger than people thought and inflation higher and it says the Federal Reserve isn't going to ease. as long as the Federal Reserve remains tight the more likely there is to be a recession. On top of that we've seen in the last 10 days interest rate increases in Europe and Japan suggesting that they are tightening their monetary policies and of course those increases meant to arrest the dollars climb did not so. So it suggests more of the same and a worldwide recession. And finally earnings have shown very disappointing for the 3rd quarter and we think that is a prelude in lot weaker earnings in the recession we see ahead.

MR. MacNeil: How much of an effect of the general economic news that Mr. Shilling sees in today's sell off?

MR. CURRAN: That certainly has unnerved the market in recent weeks. Two things push the market up either lower interest rates or higher earnings.

MR. MacNeil: Or takeover fevers.

MR. CURRAN: Or takeover fevers. In the last couple of months it has become apparent that earnings in 1989 were not going anywhere. The over all expectation has been for flat earnings in 89. Which means there is nothing pushing the market up on the earnings side. So investors have begun looking at the interest rate side and they've began discounting or expecting a decline in rates. As that became apparent that was not going to happen investors began to back off.

MR. MacNeil: Do you agree with that?

MR. HARKINS: I don't mean to be contentious, but no, not a bit because interest rates were down sharply today. At 10 o'clock the stock market was up. At ten minutes to 3 the stock was barely down and United said it couldn't fund its takeover deal. Thirty minutes later capital markets in the United States were virtually seized with panic. You couldn't sell anything or any market. Dollar trading almost came to a complete stock. So I think that is completely junk bond related and what has been remarkable.

MR. MacNeil: In other words, investors don't care about the inflation factor or the interest rate factor?

MR. HARKINS: They have not cared about that for many months. What they have cared about is takeover fever and today takeover fever broke.

MR. MacNeil: Do you want to comment on that?

MR. SCHILLING: I think what is interesting about takeovers in that sense is like the nifty 50 stock the narrow market orientation of the early 70s in the sense that investors are telling you by what they are investing in what they are not investing in. In other words, by this narrow concentration, investors in effect are saying that they are very suspicious of the broad market and therefore the general economy. When people only want to buy a few things they are saying there is something wrong with everything else.

MR. MacNeil: Many of those supposed takeover targets, many of those things they are buying have been takeover targets?

MR. SCHILLING: As a matter of fact, there has been a tremendous and I agree with you on that there has been a tremendous concentration on that. But what I'm saying is when you concentrate on such a narrow focus which has nothing to do with the aggregate economy. Investors are in effect saying there is something very wrong with the rest.

MR. MacNeil: Mr. Schilling raised the question and he sees, as a forecaster, he sees, I thought all this worry had gone away about recession. Certainly people who come on this show have stopped talking about recession. You have raised it again. Recession fear underlying all of this?

MR. HARKINS: No, I don't think there is too much recession fear. I think there might be trouble in the dollar next week because I think is going to show to our foreign allies who provide so much capital to the United States that his was a much more rickety structure propping up American stock prices than they had imagined. And perhaps the strangest thing of this falls capital markets has been that we have almost seen a default daily in junk bond we continued to see banks sign up to renew junk bond deals. It made no sense suddenly people have seemed to come to their senses in one hour this afternoon.

MR. MacNeil: Recession possibilities?

MR. CURRAN: Well, our economists are certainly not forecasting recession but I think to go back.

MR. MacNeil: To use the phrase we've heard on this program a lot the economy was going down, down, down until these recent figures but it was going to have a soft landing. But it was going to have a soft landing?

MR. CURRAN: Well, a soft landing is great so long as you have interest rates coming down and this is where I would like to go back to the point I made previously. The expectation of lower rates as earnings expectations began to become more and more disappointing. Investors began to turn towards lower rates as their justification for being in the stock market. As it became apparent that the decline in rates was over, you had a lot of investors become uneasy about their future prospects.

MR. MacNeil: Quickly around on this, the stuff we're going to be discussing in a moment the battles in Congress over the deficit. All that kind of thing. Any effect on investor sentiment.

MR. HARKINS: No, I don't think that will be have an effect although I can't stress enough that next week we are going to find out whether our foreign friends like the idea of watching their dollar investments evaporate 7 percent in the course of an hour.

MR. MacNeil: I will come back to that in a moment what is going to happen next week. The deficit reduction, so called deficit reduction talks in Washington?

MR. SCHILLING: The street has no confidence in Washington's ability, as a matter of fact most people would agree with Representative Rostenkowski that it would be better to go to the Graham Rudman limits. They are likely to do more cutting than the smoke and mirrors the administration and congress are considering

MR. MacNeil: Do you want to add to that?

MR. CURRAN: I agree. I think a lot of big investors have stopped reading the deficit reduction stories in the newspapers. There is really nothing going on there, nothing serious, and until some thing serious begins to happen the market is not going to take it seriously.

MR. MacNeil: Okay. Has the market spent its anxieties or come Monday morning is the selling wave going to continue and you have hinted the crucial thing may be big foreign investors.

MR. HARKINS: It's never wise to make forecasts, particularly about the future when it comes to the stock market, However, I think that this must shock the Japanese and the Germans and I mean certainly in the last few weeks we've seen people throwing away German bonds and throwing away Japanese bonds in order to participate in American takeovers. They may change their minds next week.

MR. MacNeil: What do you think is likely, in a case like this, where there is one big gulp after some slow selling over the last week. What's likely to happen when it reopens?

MR. SCHILLING: Well, for some internal reasons the stock market will open lower on Monday. The cash market has to catch up with the futures and that is a long story in it self. I think from there it will depend upon two things. One is how people read the events over the weekend and I think that more and more people will conclude that the glass is half empty and draining and not half full. And then finally I would agree that what foreigners do and we want to see may be we all ought to stay up late Sunday night and watch how the Tokyo market opens.

MR. MacNeil: I see. What would you say in a situation like this is likely to happen on Monday?

MR. CURRAN: Well, fortunately, the rest of the World was asleep when this happened so we didn't have to deal with it today. I was on the phone with people at Nomura just before coming over here.

MR. MacNeil: That is the very big Japanese Investment House.

MR. CURRAN: That's right. And their people in New York were on the phone with the big investors in Tokyo. They did not seem unnerved by this. The mood among Japanese investors seems to be generally bullish because their return in U.S. stocks has been enhanced by the rise of the dollar. So even though they are going to suffer a loss today they generally had good news to look back on over the last 6 months.

MR. MacNeil: But with the West Europeans raising their interest rates in order to bolster their own currencies and therefore help to push the dollar down. Will some of that mode of the higher dollar be gone?

MR. CURRAN: It certainly will and even though foreigners have been buyers of U.S. stock, recently the rise in interest rates overseas is going to make that go back a bit. I don't think, however, you are going to see a knee jerk reaction by foreign investors next week.

MR. MacNeil: So none of you wants to go out on a limb here. There may be big selling on Monday. There may not be. Is that it?

MR. HARKINS: The Congress has been very lax in curbing junk bond speculation and I hope that Congress gets serious about curbing the excesses in this. I hope that we don't have to watch these things go on periodically.

MR. MacNeil: Can I quickly ask you, since the '87 crash, they've introduced something called circuit breakers. If it falls as I understand 250 points in a day everything stops. Will those work if it continues?

MR. SCHILLING: That's what happened today. And that is why I said the market will probably open lower on Monday because the circuit breakers in effect created a discontinuity, a gap, that needs to be filed on Monday.

MR. MacNeil: More sell orders than could be filled?

MR. SCHILLING: In effect between the futures and the regular cash market. I would think the market is going to open lower and if I had to flip a coin I'd say it would come down on the side of further sell offs because I am convinced that these cumulative problems with profits and the Fed not easing and foreign interest rate increases. All these things are pointing to a weak enough economy that sooner or later if we are right there is a recession investors have to sell stocks. They always do.

MR. MacNeil: We have to leave it there on that cheerful note. Mr. Curran, Mr. Shilling, Mr. Harkins thank you.

MS. WOODRUFF: Still ahead on the Newshour President Bush faces reporters. Gergen and Shields, the Prime Minister of Yugoslavia and an Essay about a great horse. FOCUS - TAKING QUESTIONS

MS. WOODRUFF: Pres. Bush is next tonight. He met with reporters this morning for the first time since the aborted coup attempt in Panama. He fielded a range of questions from the U.S. role in Panama to abortion. And the possibility that he may veto a Bill Congress passed earlier in the week which expanded medicaid coverage for rape and incest victims. We will talk with Gergen & Shields about these issues. But first here are some extended excerpts from today's news conference beginning with Mr. Bush's assessment of his own Administrations response to the Panamanian coup attempt.

PRES. BUSH: I have not seen any fact in all the reports that have come out that would make me do something different in terms of the use of force and I would reiterate that. Now in terms of procedures. I'll simply say anytime we can make improvements so much the better. But there has not been an intelligence gap that would have made me act in a different way. And I repeat that. And there's been endless interviews and discussions and stories many of which are false that have come out as what we were asked to do or not to do. But I've seen no fact that would make me change my view and I've seen allegations that we had, when I said I wanted Noriega to get out there, that that implied use of force. I hope I would never be reckless enough as Commander and Chief to make a blanket commitment to the use of force with out knowing the facts regarding some coup attempt. We want to see Mr. Noriega out, I'll repeat that. I've been very heartened by the reports from various leaders in our Hemisphere about what Noriega should do. But I don't see any serious disconnects at all. And if we can fine tune our crisis management system so much the better. And I think that's what you're reading about now.

TERRY HUNT, AP: Mr. President, Democratic Leaders in Congress are urging you not to veto legislation that removes a ban on federal financing of abortions for the poor. House Speaker Foley says your position is terribly harsh on the poorest most vulnerable American women. Will you let that legislation become law.

PRES. BUSH: My position is well known and well stated and right now there is some negotiation and discussion going on. I have not read the conference language, so we're going to be meeting with some of the various most interested Congressional parties on this see what can be resolved. I am not looking for any conflict over this. I'm not going to change my position any but lets see how those negotiations come out and we will start discussing that today but I have not changed my position.

MR. HUNT: You're leaving it open about whether or not you would veto it.

PRES. BUSH: Because I'm told Terry that the conference language may be able to avoid a veto on my part. Yes Lesley.

LESLEY STAHL, CBS News: Mr. President, In other words you are willing to negotiate or accept a compromise that in some ways that would allow federal funding for abortions in cases of rape and incest.

PRES. BUSH: I've already said what I am willing to do that discuses the conference language.

MS. STAHL: Are you willing to compromise?

PRES. BUSH: I've already I am not willing I have already told you my position.

OWEN ULLMAN, Knight-Ridder: Let me ask you a question about your position. Can you explain why you believe it is alright for women who can afford an abortion on their own that in cases where they are raped or in cases of incest that is permissible but that for poor women who can not afford it is not permissible to help them get abortions in cases of rape and incest?

PRES. BUSH: Owen, the only answer I can give you on that is to go back to the original Hyde amendment and to the position that I took and will stay with and to some there might be a contradiction. To me there is none. John.

REPORTER: It's not a question of a contradiction. It seems that if you can pay it yourself its okay under those circumstances. But the message it seems is that if you can't afford it yourself tough luck. Isn't that a moral conflict in your position?

PRES. BUSH: No, I don't think its a moral conflict in my own position.

JOHN MASHEK, Boston Globe: Mr. President can I return to Panama for an instant. What message are you sending. You say you want Noriega out. What message are you sending the PDF. Would you like them to attempt another coup or is that out of the question?

PRES. BUSH: I don't think anything is out of the question. I think that I have seen and the reports that I have heard out of Panama things are more unsettle than before about the fate of Noriega. I would simply reiterate that we have no problem with the PDF itself. I think this rather sophisticated argument that you would like to see Noriega out that implies a blanket open carte blanch on the use of American force. I don't want to mislead somebody and to me that's a stupid argument that some very erudite people make.

FRANK SESNO, CNN: Would you be inclined to use U.S. force more rapidly in the opportunity presents itself again.

PRES. BUSH: I wouldn't mind using force and if can done in a prudent matter. So in other words, I'm not ruling out the use of force for all time. I'm reiterating the fact that it was not proper to use force under the existing circumstances and I feel more confident in that then I even have. More confident not less confident from anything I have seen.

REPORTER: I want to go back to what you called your critics stupid argument about Panama

PRES. BUSH: That one argument . Not all the other critics.

REPORTER: Since the beginning of the year you said that you thought Noriega should go and you said it loudly and publicly but when push came to shove a few weeks ago the U.S, didn't lend much of a hand. The question is, is it responsible or consistent to on the one had to call publicly for Noriega's ouster and then to do nothing?

PRES. BUSH: Yes, absolutely totally consistent. I want to see him out of there and I want to see him brought to justice and that should not imply that automatically means no matter what the plan is or no matter what the coup attempt or what the effort is diplomatically or anything else that we give carte blanche support to that. Follow on.

REPORTER: People say that you don't have to give carte blanc support to all situations like that but you have to lend a hand?

PRES. BUSH: To the support that we didn't get. In other words what they are trying to argue. Let's be fair with each other. What they're saying is and its only a handful of critics. You said you wanted Noriega out. You say you have no argument PDF. An element tries to get him out and you didn't support him. And I'm saying yes, I want him out and yes, we have no argument with the PDF, but I am not going to give carte blanche support to an operation particularly when they don't ask for the support. And I have to reserve that right. I have at stake the lives of American kids. And I am not going to easily thrust them in to a battle unless I feel comfortable with it and unless those General Officers in who I have total confidence feel comfortable. So my argument is with the argument. My argument is with the argument that when I say I would like to see Noriega out that mean carte blanche commitment on my part of American force. I am not going to do that.

MICHAEL GELB: Mr. President, your explanation of why you did not back the coup seem to imply that it would almost have to be an American operation, an American planned operation before you would use American troops. Is that misleading of what you said.

PRES. BUSH: A little bit yes, a little bit.

MR. GELB: Could you explain. I am a little bit off?

PRES. BUSH: Just a hair. Because if circumstances under this coup plan would have been different, their quests had been different and the facts on the ground had been different in terms of what we knew we might well have done something different.

TOM DE FRANK, Newsweek: Mr. President, you mentioned remarks of the Prime Minister of Spain earlier. One of the things he said was to propose a deal. I guess its a new proposal of an old deal where General Noriega would step down in exchange for the U.S. dropping criminal charges against him. Is that a deal you can live with?

PRES. BUSH: Tom I don't recall that part of his statement but Tom I can not do that. It would send an impossible signal to in this fight against drugs. I can't drop a good indictment and I'm told by the attorney general the indictments are sound that it isn't some grand standing appeal. I can't drop those indictments or encourage that they be dropped. I'm not sure a President can drop an indictment anyway but I would not encourage that. It is too much. FOCUS - GERGEN & SHIELDS

MS. WOODRUFF: Joining us now to sort through the week's political news is our regular analysis team of Gergen & Shields. That's David Gergen, Editor at Large of U.S. News & World Report, and Mark Shields, Syndicated Columnist with the Washington Post. Gentlemen, we hear Pres. Bush still defending eleven, twelve days, what is it, after the attempted coup in Panama the actions of his administration. Is it any persuasive now hearing it from the President than it was from people who worked for the President? Mark.

MR. SHIELDS: I didn't find it so, Judy. There are just too many disjointed stories and there's been too much of what we described last week as cover your own area. The state appears to be shifting the defense and the CIA is taking a little poke for what went wrong. And the President's attempt to say today the responsibility comes to the Oval Office was laudable, a little late I thought but laudable. But it still doesn't quite cling together. This is the most experienced team that any President has ever had. I mean, this is Brent Scowcroft who was there for Pres. Gerry Ford. They all worked together with David, I mean, he knows them well. Jim Baker ran Gerry Ford's campaign. Dick Cheney was his chief of staff. I mean, these are people who know each other and know each other well. And it remains a mystery.

MS. WOODRUFF: Any more persuasive, David?

MR. GERGEN: I think the President helped himself with the public today. I think it's important to remember that he hasn't been hurt all that badly with the public. The polls that have come out late this week show that he's still well over 70 percent in his approval rating, including foreign policy. He's been hurt inside the beltway. He's been hurt with the Congress, he's been hurt with the press, he's been hurt with the pundits. There's been a fall from grace for George Bush over these last 10 days. And, unfortunately, I think it's reached the point now where no matter what the administration says opinion has begun to crystalize that it was not as well prepared as it should have been beforehand and it was too weak when the occasion came. It caved in. Its words did not far outstretch its deeds. Its deeds did not match up to its words.

MS. WOODRUFF: So no matter what the President says at this point you're saying that damage has been done. Mark, how much damage?

MR. SHIELDS: I think David's right that right now it's one of perception is the principal damage. George Bush has had several stumbles of late, not the least of which of course was the market today, which was totally beyond his control, but that things had been going so swimmingly. He seemed to be defying the laws of political gravity. I mean, this was a man who really had let the first nine months of his Presidency go without a single major initiative where say this is the defining mission or vision of the Bush administration. And he seemed to be just kind of floating, as I think David said, riding the wave. And that's all of a sudden, he's hit a reef. He's hit some flotsam and jetsam out there.

MR. GERGEN: I think it's important though, Mark. It seems to me that this could well blow over. It's very temporary in nature, if he seizes the initiative, if he moves on on another subject and strong and competent again. One of the reasons this has hurt, there are actually two reasons it's hurt inside the beltway. One is that he very much based his Presidency, the central pillar of the Presidency, was competence, particularly in foreign policy. And here seemed to be an example where there was not -- as one would have hoped under the circumstances, and even people within his own administration were saying that after the fact. That's been one of his problems all along, the shots have been coming from within the administration, and secondly, there were some in this town that had some nagging doubts about the administration. They admired the way he was deft but they wondered where it was going and what it was going to follow through on its actions and --

MS. WOODRUFF: The follow through was --

MR. GERGEN: Exactly.

MR. SHIELDS: David is right but the big political beneficiary of this whole thing, Sen. Jesse Helms. Sen. Jesse Helms --

MS. WOODRUFF: Really?

MR. SHIELDS: Sure he is. He represents a majority point of view, anti-Noriega, anti-drugs, that we should be strong. He's got better sources in Latin America than most of the executive department, and plus his argument that we shouldn't turn over the canal has been strengthened. You aren't going to get a majority of Americans in favor of turning over the canal to Noriega.

MS. WOODRUFF: So what are you suggesting, Mark?

MR. SHIELDS: That wasn't George Bush's intention when it began two weeks ago. The other beneficiary in a strange way Michael Dukakis. Michael Dukakis did say it was competence versus ideology last year. And it does come back to haunt George Bush right now. But ironically, Judy, George Bush today, David says he has to be strong, announced that he was going to let the flag burning bill become law without his signature. Why did he do that? Because he could not veto a flag burning bill having made the Pledge of Allegiance and Michael Dukakis's veto of that bill in the Massachusetts legislature --

MS. WOODRUFF: Even though he'd rather have a constitutional amendment.

MR. SHIELDS: That's right. So he doesn't look strong or forceful or very independent.

MR. GERGEN: Before we go off on that diversion, can I just add this point? It seems to me that Bush is in unusually strong position, though he does have an opportunity he didn't have before. And that is now that the left has become so militant we have all these chicken hawks out there saying he should have struck.

MS. WOODRUFF: We had a wonderful phrase, we have instant hawks.

MR. GERGEN: That's right. And it does seem to me he is in a position to move. And someone compared -- recently compared to me -- he said we went for months in the campaign against Dukakis being called a wimp, didn't act and so forth and so on and finally Bush got tired of all that and he came out slugging and he decked Dukakis. And he erased that image during the campaign. And it seems to me, and this person in the White House said the same thing could now happen in foreign policy. He is in a position where he's almost exhausted all of his options, he's certainly exhausted his patience. And I think the chances are growing we're going to see this administration lash out. The chief of staff, John Sununu, said this past weekend the odds are now 8 to 5 Noriega will be gone in six months. Those words --

MS. WOODRUFF: Lash out to prove that they're not wimps or lash out why?

MR. GERGEN: I think he is in a position where if he could sponsor a coup that involved the American military, there will be a lot of people in this town who would have to support him in that and he has not been in that position before and I think the chances --

MS. WOODRUFF: But it sounds like the reasons for doing it are - -

MR. GERGEN: I think he's wanted all along to get Noriega out, and if he got him out, and he got him out, as he said today, with a prudent amount of force, I think he'd be the winner.

MR. SHIELDS: Would we then say it was tension city after he did that?

MR. GERGEN: Well, Mark, he might have been in tension city, but he did win the election by a massive amount against Mr. Dukakis.

MR. SHIELDS: That's right. Did I disagree with that?

MS. WOODRUFF: Let's go on to the other big issue of the week obviously, it was abortion, there was a vote in the House of Representatives. There was also a vote in the Florida legislature. Let's talk about the Florida legislature first. What does this say about what any other state legislature may do? Of course, the Florida legislature voted not to impose additional restrictions on a woman's right to an abortion. Mark.

MR. SHIELDS: I think, Judy, we have an issue where 100 percent of the politicians would like to see some resolution of it where they're not immediately involved in and Florida offers a pretense certainly to agree that perceptions are reality in politics, and I think they are, especially on an issue like this where we're in uncharted waters. It certainly is, the early returns are most helpful to the pro choice side, just as they are I think in the Virginia and New Jersey Gubernatorial races. But as far as a cosmic single solution that everybody wants, a one-time fix, I think what we're seeing, it's not present, I think what we're seeing is a desire for the status quo right now, and we still come back to these numbers that by 2 to 1, American voters think that they don't want a constitutional amendment prohibiting abortion and yet by 2 to 1 they think abortion is wrong.

MS. WOODRUFF: But the next legislature that's supposed to take this up, Pennsylvania, is expected to impose some restrictions, is that right?

MR. GERGEN: That's right. But I think there's no doubt that two things are now happening, one we talked to several times before that since the Webster decision came down the forces in favor of abortion rights have been energized, and they moved into Florida and they were very effective at blocking Gov. Martinez on what he wanted to do. That's one thing that has happened. But the second thing that has happened now is I think Mark is right, that there is a desire for the status quo not to change things too much and each side is now getting a veto power on the other. In Florida, Martinez wanted to go for restrictions and the legislature blocked him. In Washington, the Congress wants to liberalize it, and I think Bush now has a basic veto power over a lot of that.

MS. WOODRUFF: That was my next question. What are the President's options? He can veto this bill that expands Medicaid coverage for rape and incest, but if he does --

MR. SHIELDS: I think in the Congress, and the vote in the House this past week, what you're really seeing is the political instinct for moderation. I mean, if I'm a pro-choice advocate, I want the vote taken on rape and incest. I mean, because most people just recoil when they hear someone who's pregnant by rape or incest. If I am by contrast, a pro-life advocate what I want and if I go into Pennsylvania legislature is to say parental consent. I think that parental consent -- if we're going to require parental consent for removal of a wisdom tooth, then my goodness shouldn't we require it for an abortion, which is major surgery? So it comes down to how it's framed. I think the move, there's much made of the flip flops in the House. I think those were really members of Congress looking for some sort of middle ground on this issue.

MR. GERGEN: And moved by the fact that sentiment was shifting in their states towards abortion rights, and a lot of those Congressmen who did change their votes --

MS. WOODRUFF: Because they've seen polls.

MR. GERGEN: Because they've seen polls and they've heard from their constituents and people are now energized. But I would say this, I think that this is one issue where the Democrats actually have politics running on their side in the House of Representatives. They do have the President in a box on this. If he vetoes -- you know, he's got to make a choice between being seen as a bully and being seen as a wimp. If he vetoes the bill, he's going to come out against providing help to mothers who were the worst victims, the rape and incest victims, and if he upholds it, he's going to flip his position, change his position, and he'll be attacked by the right.

MS. WOODRUFF: Exactly. Mark.

MR. SHIELDS: I think the Republicans have had a free ride on the issue for a long time, because as their platform has said we're for a constitutional amendment, and don't forget, three Presidents, David's right, have won in landslides with a platform endorsing a constitutional amendment to prohibit abortion.

MR. GERGEN: It didn't seem to help very much. It wasn't taken seriously at the time.

MR. SHIELDS: My point is it was taken seriously by those who cared about it in the political process. I'm not sure there's a tide running in either direction. Black voters outside of the East, Judy, are pro-life. They're not pro-choice. Black voters in the East are different. What you really have now in my judgment is this 100 percent conflict, and we're going to see it in Pennsylvania again, in an entirely new fight with a popular governor as opposed to an unpopular governor in Florida. Martinez had political problems.

MS. WOODRUFF: So it's a state by state thing.

MR. GERGEN: It will be state by state, but I think when it's all said and done, the laws will not change very much. Let me go back to this one thing on the Congress. When Bush vetoes, if he does, I think they'll then go back and look for a compromise. I don't think the Democrats are going to be prepared to give Bush the kind of compromise he's now talking about. They want to force the veto.

MS. WOODRUFF: Gentlemen, excellent. Thank you, Mark Shields, David Gergen, once again thank you. NEWS MAKER

MS. WOODRUFF: Next tonight Yugoslavia, the country that used to be considered the most open and progressive in Eastern Europe, but since the recent upheavals in Poland and Hungary is looking out of step. As we reported earlier, the prime minister of Yugoslavia went to the White House today and came away with U.S. encouragement for the loans he's attempting to get for his country from the International Monetary Fund and from private banks. Those loans are necessary to pull Yugoslavia out of an economic tailspin. We will hear from the prime minister in a moment, but first some background on his country. A Serbian nationalist triggered World War I with the assassination of an Austrian arch duke and ever since Europeans have worried that instability in the Balkan Peninsula, where Yugoslavia sits, could spread elsewhere on the continent. Yugoslavia, created after World War I, is a collection of six republics and two autonomous provinces, each with its own fiercely nationalist ethnic group. For nearly 40 years after World War II, the country was held together and achieved some prosperity under the Communist leader Marshall Josef Tito. Tito, a World War II guerrilla leader, turned the country Communist after the war, but broke with Moscow soon after and practiced neutrality. Through his personality and his country's geographic position, Tito made Yugoslavia an important player in world affairs. But since Tito's death, the old nationalistic rivalries have flared anew. And the economy has taken several turns for the worse. No single strong national leader has emerged to replace Tito in Yugoslavia's loosely tied federal government. But at least as troubling for the average Yugoslav is the threatened collapse of the country's economy. Long before the rest of Eastern Europe, Marshall Tito experimented with economic reforms in some free market economies. Factories, for instance, are not owned by the state, but wy worker councils. But more than half are now going broke, threatening to add to the country's 17 percent unemployment rate. The question now is how fast the country can or will go to an entirely free market economy, as Prime Markovic has promised. So far the Markovic government has not promised any political reform or loosening of Communist control to accompany his supposed economic reforms. In his meetings in Washington and New York, the prime minister is asking for $1 billion in international loans to support his economic reform program. We talked with him earlier today. Thank you for being with us, Mr. Prime Minister. How critical is it that you get some assistance from the United States, from American business, and other international lending agencies at this point, how important?

ANTE MARKOVIC, Prime Minister, Yugoslavia: [Speaking through Interpreter] What we primarily need is support in terms of what we should do and what is a key element in the transformation of our system. And that is that all new institutions of the system, all mechanisms of the system that we are setting up, we want to finance this from real sources, from real revenue, rather than from inflationary sources. That is to say that we have to cover our deficits before that and solving the deficit problem should be supported by international financial institutions and individual countries.

MS. WOODRUFF: Some Americans would look at your system and say how can make the economic reforms move into a free market, completely free market economy, and still operate under a one party Communist rule. How is that possible?

MR. MARKOVIC: We do not have one party Communist rule. We have separated the party from the state and we did so many years ago. As prime minister, I am only responsible, accountable to my assembly, the federal assembly and no one else.

MS. WOODRUFF: I see. But you still have enormous influence in your country by the Communist Party. There are those who ask will you move to have independent political parties.

MR. MARKOVIC: That is a process which will lead to political pluralism. By its very logic, the pluralism of ownership which is being expressed in an integrated market is bound to lead to political pluralism. And the first major step in this direction has already been made. We separated the party from the state.

MS. WOODRUFF: So you're saying that when we look at what's happening in Poland, that what has happened in Yugoslavia is already far ahead of what's taking place in Poland, is that what you're saying?

MR. MARKOVIC: We are very glad to see these processes developing in Poland, in Hungary, and the Soviet Union. We certainly support these processes. As a matter of fact, if I may say so, we have also paved the way for such processes with our emancipation which started some 40 years ago. But one should harbor no illusions that this path of reform is a short one. That was my point. And there are many difficulties yet ahead of them and there are many risks along this road.

MS. WOODRUFF: I ask you this because some in this country see great irony in Yugoslavia, which has long been considered the most open of the Communist societies in Europe, now standing back and observing Poland and Hungary moving more quickly.

MR. MARKOVIC: That is your assessment. I don't think they are moving faster. They haven't achieved nearly as much as we have.

MS. WOODRUFF: So our perception in this country is off base?

MR. MARKOVIC: I can't prevent you from thinking in your own way. That is a subjective thing and we're all entitled to that. In response to your question, I simply wanted to say that things must not be oversimplified. You cannot judge things only by the surface and especially things that are so complex and such in-depth changes. And they cannot be carried out overnight.

MS. WOODRUFF: It sounds as if you're suggesting things have not moved as quickly as it appears they have in Poland, in Hungary.

MR. MARKOVIC: No, I wouldn't say that. It's really up to the people of that country and up to their interests. No one is entitled to pass judgment. I wouldn't want others to pass judgment on us either.

MS. WOODRUFF: How much longer do you see a division between a Western Europe, with its political orientation, and an Eastern Europe? Do you see reason, a continued reason indefinitely for a separation of the two Europes?

MR. MARKOVIC: We are all witnessing major changes in Europe today. On the one side there are integrations. On the other side there are disintegrations, but I think that both are the result of needs of contemporary development and changes and processes taking place in the world today, Europe included. I think it would be a dangerous thing for all of us if we were to doubt the future in any way. It's not that I am an optimist, and I am one by professional deformation as well, but I truly think Europe is moving in a positive direction, and that Europe will contribute to the further stabilization of relations in the world and that the world will develop peacefully hence.

MS. WOODRUFF: And by that positive direction you mean Eastern Europe moving away from the Soviet Union?

MR. MARKOVIC: That would be a one-sided answer because major changes are taking place in the Soviet Union as well.

MS. WOODRUFF: Mr. Prime Minister, we thank you very much for joining us. ESSAY - GIFT HORSE

MR. MacNeil: Finally tonight, essayist Roger Rosenblatt pays tribute to Secretariat, the great race horse whose life ended last night at the age of 19.

MR. ROSENBLATT: People speak of the death of Secretariat as the death of a great athlete. But the special sense of loss attends the death of a great horse. Not that it's hard to anthropomorphize a creature like Secretariat. In a way, he was the Sandy Colfax of race horses, playing an astoundingly short time, but remaking the sport. Secretariat ran but a few races in his career, winning most of them and finishing out of the money just once. On the day he won the Belmont stakes, June 10, 1973, a crowd of 69,138 unbelievers watched the triple crown winner put 31 lengths between himself and second place, the very same day Willie Mays, age 42, hit a homer to help the Mets beat the Dodgers. Winning the Belmont by 31 lengths would be the equivalent of hitting a grand slam every time at bat. So it is reasonable to call Secretariat an athlete but somehow it misses the point and the feeling. Horses hold a unique place in the hierarchy of animals. In our minds and language, we give them special honors. The only rational beings in Jonathan Swift's Guliver's Travels are the winoms, the horses. The designation the man on horseback is a name for hero and savior. We still ascribe horsepower to cars to express our love of speed. In ancient battles, horses were tanks. To the Greeks, they were the embodiment of energy and beauty. Richard III would have exchanged his kingdom for a horse as would every self-respecting American cowboy for whom the horse was the symbol of freedom and independence. Roy Rogers' Trigger, the Lone Ranger's Silver. The horse was a partner in justice. More than that, the animal has always been as a source of finer human instincts. In stories like the Black Stallion or National Velvet, the horse brings out the best in the people around it. A general is always more the general when he is planted atop a horse. The horse bears you back to back to basic virtues. In that wonderful movie, Lonely are the Brave, Kirk Douglas, the last of the cowboys, Kirk Douglas, the last of the cowboys, keeps trying to ride away from all the evils of modern life, only at the end to have his horse hit on a highway by a truckdelivering toilet seats. Still the steed was noble, even in death noble, head, mane, chest, hooves, power, flare, pride. Compared to raccoons and cats, for example, horses really aren't very smart, not smart in our terms at least. I did a lot of riding as a kid and was deeply disappointed to find out that. Not smart, but something better, something mysterious and remote. Artists never quite get them right in paintings. Stubbs's horses are too static, De La Croix's too turbulent. The thing one learns about a horse is that no matter how you train it, you never master it. Look at a horse's eyes as the animal swerves in the direction you give it. The horse always seems superior. Even in a horse show taking the jumps, the horse condescends in a polite, elegant way, killing time, taking a wall merely because that is the path of least resistance. Even the ballet stars -- going through their elaborate paces seem to be harboring a secret, private dance. When Secretariat died, what died was simply something better, not merely a better racing horse, a better breed, able to outperform other horses in the game we invented for them, but not built for performances, not built for our benefit. The horse, one always feels, was built for something else, something one can mount, but never touch. We like to think that a horse runs because we urge it to run. But in fact, we know that it runs because it runs, impelled by a hidden engine which for lack of the adequate divine word, we call a heart. Hearts die when horses die, with the greatest horses, the greatest hearts. RECAP

MR. MacNeil: Again today's top stories, the Dow Jones Average plunged 190 points, the biggest drop since the crash in October '87. Senate leaders worked out a compromise on a budget bill that would put off a final decision on some controversial issues like the capital gains tax. And Pres. Bush said he wouldn't mind using force to overthrow Noriega if it could be done prudently. Good night, Judy.

MS. WOODRUFF: Good night, Robin. That's our Newshour for tonight. We'll be back Monday night. I'm Judy Woodruff. Thank you and have a good weekend.