The NewsHour with Jim Lehrer

JIM LEHRER: Good evening, I'm Jim Lehrer. On the NewsHour tonight, the news of this Monday, then: The latest on Hurricane Wilma; a look at the man President Bush wants to run the Federal Reserve; a conversation with Bill Richardson about the nuclear positions of North Korea; a return to Silicon Valley, part one of five return- to-the-scene stories to mark our 30th anniversary; and an update of the Judy Miller uproar at the New York Times.

NEWS SUMMARY

JIM LEHRER: Hurricane Wilma swept across south Florida today. It came ashore south of Naples on the Gulf Coast, with winds of 125 miles per hour. As it raced east, it left widespread power outages, damage and flooding. Over the weekend, the storm battered Cancun, Mexico. Thousands of people looted stores in the resort city before troops and police moved in. The hurricane was blamed for four deaths in Florida, six in Mexico, plus more than a dozen in the Caribbean. We'll have more on the hurricane right after this News Summary.

The remains of Tropical Storm Alpha drifted into the open Atlantic today. It's the 22nd named storm of the hurricane season, a record. On Sunday, Alpha triggered flooding in Haiti and the Dominican Republic. But it was downgraded to a tropical depression, and was not a threat to the U.S. Mainland.

Powerful suicide bombs ripped through central Baghdad today, killing at least 15 people. At least 40 more were wounded. All three bombs went off near the Palestine hotel where many foreign journalists stay. Iraqi officials said insurgents had wanted to seize the hotel. We have a report narrated by Katie Razzall of Independent Television News.

KATIE RAZZALL: The camera was already filming -- (explosion) -- a huge explosion at the edge of the hotel complex, the second of three. Then, close to the mosque across the square another

KATIE RAZZALL: -- inside the Palestine hotel chaos.

SPOKESMAN: (chaotic sounds and overlapping) -- are going everywhere.

KATIE RAZZALL: Even though the bombs were a hundred meters from the hotel buildings, their impact -- though perhaps not structural -- was very visible. The area around the hotels is cordoned off. Three meter concrete walls block off the road running by the side of the Tigris River. Barriers also run along the left hand side of Sadoun Street and protect the Sheraton Hotel. No cars are allowed into the zone. Behind the barrier are U.S. troops and tanks, which protect the compound. It seems that insurgents used a car bomb to blast a hole in the barrier and then a cement truck filled with explosives moved into the compound. These pictures appear to show the truck just moments before it exploded, apparently beside an American Bradley armored vehicle on guard duty.

Most media organizations had already moved their staff out of the Palestine hotel, fearful for their safety, though on this occasion the security provisions appear to have offered protection. None of the dead are reported to have been inside the hotels.

JIM LEHRER: There were no American casualties in the bombings, but a U.S. Marine was killed in western Iraq on Sunday. At least 11 Iraqis died in other attacks today, mostly in Baghdad, and police found eight more bodies. Nearly 70 Iraqis have been killed in the last two days.

President Bush nominated Ben Burnanke today, to be chairman of the Federal Reserve. He now heads the Council of Economic Advisers. With Senate confirmation, he'll succeed Alan Greenspan, who's held the post more than 18 years. Burnanke said today he'd "maintain continuity" with Greenspan's policies. We'll have more on this story later in the program.

On Wall Street today, stocks rallied on the president's announcement of his Fed nominee. The Dow Jones Industrial Average gained more than 169 points to close at 10,385. The NASDAQ rose more than 33 points to close above 2,115.

The president refused today to hand over documents on his conversations with Harriet Miers. The Supreme Court nominee has been White House counsel since February. Republicans and Democrats are asking for her paperwork to shed more light on her views. At a cabinet meeting today, Mr. Bush said that would breach a vital confidence between a president and his attorney.

PRESIDENT GEORGE W. BUSH: It's a red line I'm not willing to cross. People can learn about Harriet Miers through hearings but we are not going to destroy this business about people being able to walk into an Oval Office and say, Mr. President, here is my advice to you. Here is what I think is important and that is not only important for this president; it's important for future presidents.

JIM LEHRER: The president did not directly answer a question about possible plans to withdraw the Miers nomination. In Syria today, thousands of government supporters took to the streets in Damascus and Aleppo. They protested a U.N. report on the murder of Lebanon's former prime minister, Rafik Hariri. That report, issued Friday, implicated Syrian leaders. The Syrian government denied it. The U.N. Security Council begins talks on the findings tomorrow.

North Korea agreed today to attend a new round of nuclear talks in Beijing, China. Last month, North Korea agreed to dismantle its nuclear weapons program in talks with South Korea, the U.S., Japan, Russia and China. New Mexico Gov. Bill Richardson is just back from North Korea. We'll talk to him about today's developments later in the program.

Also ahead: The hurricane; the Greenspan replacement; a Silicon Valley return story; and rough times at the Times.

UPDATE HURRICANE WILMA

JIM LEHRER: Hurricane Wilma. NewsHour correspondent Kwame Holman narrates our report.

KWAME HOLMAN: The twenty-first hurricane of the season and the eighth to hit hurricane weary Florida in 15 months roared ashore early this morning. Strong winds and rain lashed the West Coast of the state beginning with the Florida Keys where Wilma hit as a Category 3 storm.

As daylight broke, the winds intensified along the Southwest Coast sending debris flying through the air and flooding streets in the city of Naples. Naples is just 22 miles north of Cape Romano where Wilma made landfall at 6:30 this morning with sustained winds of 125 miles per hour.

In the Keys the storm surge reached 10 feet. Early reports said Key West was 35 percent flooded, including the only highway connecting the islands to the mainland.

By the time the eye crossed the peninsula and reached the Miami area, Wilma had been downgraded to a Category 2 hurricane but still packed a powerful 105-mile-per-hour punch ripping tree limbs and downing power lines.

Areas around Miami stretching north to Fort Lauderdale and Boca Raton were hit harder than expected, the ubiquitous palm trees that lined the street taking a windy beating. Debris blew around Miami, water mains burst and trees blocked roadways. Florida Gov. Jeb Bush cautioned people to stay inside.

GOV. JEB BUSH: Please stay off the roads. There are a couple of reasons for that: it's dangerous number one; and number two, individuals on the roads impede the ability of law enforcement officials to quickly respond to emergencies.

KWAME HOLMAN: Transformers blew across southern Florida causing mass power outages; 3.2 million homes and businesses were without power affecting 6 million people. The acting director of FEMA said the agency is ready to go with relief supplies.

DAVID PAULISON: The response side of FEMA has gotten a couple of weeks of rest. And they're moving rapidly, the urban search-and-rescue teams, the medical teams, our teams on the ground, in the field are moving very quickly and are rested and ready to go.

So yeah, we are tired of hurricanes and yeah, we are all stressed out a little bit but we're prepared to handle this one also.

KWAME HOLMAN: Meanwhile relief was hard to come by in Mexico's Yucatan Peninsula devastated earlier by the storm. The region was pounded relentlessly by a then slow-moving Wilma for three days before it dashed across warm belt waters to strike Florida.

Today Mexican President Vincente Fox toured the resort city of Cancun.

PRESIDENT VICENTE FOX, Mexico (Translated): Cancun is devastated, destroyed completely. We toured around yesterday and the situation is difficult. But fortunately this town and its people have a lot of spirit, strength and courage.

KWAME HOLMAN: President Fox also announced plans to begin evacuating some 30,000 tourists stuck in the region. Wilma's reach extended to the south of Florida as well.

Large portions of Havana, Cuba, were underwater today as storm surges inundated the city with water in some places three feet deep. Late this afternoon, Wilma re-intensified to a Category 3 hurricane over the open waters of the Atlantic.

FOCUS FED CHOICE

JIM LEHRER: A new nominee to head the Federal Reserve, and to Gwen Ifill.

GWEN IFILL: Economists, businesses, Wall Street brokers and lawmakers have all been eagerly awaiting President Bush's choice to succeed Federal Reserve Chairman Alan Greenspan. If confirmed, the president's nominee, Ben S. Bernanke, would become the first new Fed chairman in nearly two decades.

Bernanke, now chairman of the president's Council of Economic Advisers, received his bachelor's degree in economics from Harvard, his Ph.D. from MIT. He was a professor at Princeton University and chaired its Economics Department. He's published numerous articles and several books. And he served on the Federal Reserve's board of governors for nearly three years. President Bush introduced him in the Oval Office earlier today.

PRESIDENT GEORGE W. BUSH: One of a president's most important appointments is chairman of the Federal Reserve. In our economy the fed is the independent body responsible for setting monetary policy, for overseeing the integrity of our banking system, for containing the rising that can arise in financial markets, and for insuring a functioning payment system.

Across the world the Fed is the symbol of the integrity and the reliability of our financial system. And the decisions of the Fed affect the lives and livelihoods of all Americans. To leave this institution a chairman must be of impeccable credentials, sound policy judgment and character. Today I'm honored to announce that I'm nominating Ben Bernanke to be the next chairman of the Federal Reserve.

Over the course of a career marked by great accomplishment, Ben has done path-breaking work in the field of monetary policy, taught advanced economics at some of our top universities, and served with distinction on the Fed's Board of Governors.

He's earned a reputation for intellectual rigor and integrity. He commands deep respect in the global financial community. And he will be an outstanding chairman of the Federal Reserve.

BEN BERNANKE: I would like to express my deep appreciation to President Bush for the trust he has shown in me in asking me to lead the Federal Reserve System.

If I am confirmed by the Senate, I will do everything in my power no collaboration with my colleagues to help to ensure the continued prosperity and stability of the American economy.

In light of the announcement the president has just made, it is especially gratifying to have Chairman Greenspan here. In more than 18 years at the helm of the Federal Reserve, Alan Greenspan has set the standard for excellence in economic policymaking.

I am personally grateful to Chairman Greenspan for his collegiality and support during my time as a member of the Fed's Board of Governors.

Our understanding of the best practice in monetary policy evolved during Alan Greenspan's tenure at the Fed and it will continue to evolve in the future; however, if I am confirmed to this position, my first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years.

GWEN IFILL: So, who is Ben Bernanke? For that we talk to two economists who are familiar with his work: James Galbraith is the chair in government and business relations at the LBJ School of Public Affairs at the University of Texas; and Adam Posen is a senior fellow at the Institute for International Economics. In 1999, he co-authored a book with Bernanke on monetary policy.

Adam Posen, I should mention that you also co-authored an article in the Wall Street Journal in 2000, the title of which was What Happens When Greenspan is Gone?

So perhaps you can give us a little guide to the meaning of what we just heard Ben Bernanke say about what he expects to happen; he used two key words: "continuity" and "stability." Translate.

ADAM POSEN: Ben actually usually can translate for himself. And that is one of the nice changes; this is going to be a much more clear speaking Fed chairman.

In terms of continuity he means two things: first that the Fed's basic role is to see price stability achieved over time but to intervene, to offset financial instability and periods of low growth when possible. And this is what exactly the Fed under Bernanke and Greenspan's leadership did in 2001 after the bubble burst after 9/11.

And then when you talk about stability and moving forward what he wants to communicate is he is going to take this sort of risk management approach as Greenspan put it.

Ben, along with our other co-author on the book, Rich Mishkin, who's a professor at Columbia, long ago argued that central banks should be looking at whatever is the fire they have to fight at that moment.

In other words, you sort of set your long-term goal which in this case would be inflation, and then you say okay, now there is a risk of a housing price bubble, or now there is a risk of falling currency. And now we're going to deal with that, but then get back to the long-term business. And it is that kind of balancing that Ben Bernanke is going to pursue.

GWEN IFILL: James Galbraith, do you agree with that?

JAMES GALBRAITH: Well, he is unquestionably a very capable mainstream professional academic economist. I think he may be, perhaps, discounting Arthur Byrnes, the first academic economist to be appointed to lead the Federal Reserve. So it is an interesting development from that point of view.

GWEN IFILL: Why is that? What is significant about his academic background?

JAMES GALBRAITH: Well, academic economists tend to come into these positions with their own ideas. And I think the risk to the institution is that Ben Bernanke may be the prisoner of some of his ideas.

I'm a little bit concerned about the emphasis that Adam Posen already mentioned on inflation targeting as the sole or major objective of monetary policy because, of course, the Federal Reserve is bound by statute to a broader set of objectives which include primarily full employment, balanced growth and reasonable price stability.

So it will be a very interesting question as to whether Chairman Bernanke follows that mandate or whether he effectively legislates from the bench a new departure in Federal Reserve policy targets.

GWEN IFILL: Now when we talk about inflation targeting for those of us who did not get farther than Economics 101, we are talking about setting a benchmark and publicizing that, letting the world know this is where we should be aiming to end up, is that right, Adam Posen?

ADAM POSEN: Exactly right, Gwen. Inflation targeting is a bad term. We inherited it from other countries when we wrote the book. It's really about setting a long-term benchmark by which the Fed can be judged. This is one of the two ways in which I think Professor Galbraith is being a bit unfair to Ben Bernanke.

It is all about accountability; it is all about so you cannot be, as Chairman Greenspan has been, someone who says trust me. You know, I'm doing the best I can. Here, I will chatter at you but there is no real standard by which to judge me.

I agree totally with Professor Galbraith and Ben Bernanke is on the record both in testimony and in his writings in agreeing that part of the Fed's mission is to stabilize the real growth rate in the economy and to counter unemployment when possible. Nobody is talking about a narrow target; unfortunately, the term gives that impression.

What we are really talking about and this is the other way in which Professor Galbraith was a bit unfair to Ben Bernanke, is that he is talking about practical moves in terms of what sorts of information is given to the public and given to markets, being more transparent, being more accountable.

Ben is somebody who has a real strong ethic of accountability from his days serving on the school board in New Jersey. He has been an elected official at the local level. He's talked openly and pushed within the Fed about releasing more data.

This is someone who wants the congressional mandate to match what the Fed does and he is not going to be legislating from the bench.

GWEN IFILL: Professor Galbraith, I want you to have a chance to respond to whether you think your characterizations were fair or unfair but I also wanted you to get to the point that most people pay attention to when they pay attention at all to what the Fed does, which is interest rates, which have been steadily going up over time.

Is this something that you think would be a good idea that if a Chairman Bernanke would be confirmed that should be continued?

JAMES GALBRAITH: I don't mean to predict what Chairman Bernanke may or may not do. And I don't want to be unfair in that respect. I would simply point to the implications of setting a more rigid target than the law provides for or that the practical conditions faced by the Federal Reserve will permit the chairman actually to pursue.

And what you say about interest rates raises that, I think directly because the Federal Reserve has been raising interest rates. It's raised them ten times over the last year or so. It's running into a situation now where since long-term interest rates have not gone up at all t will either if it continues to raise interest rates, generate a condition called an inverted yield curve, which historically has been very damaging to the economy, tending to produce a recession, or if it stops, it may face the problem that the world's holders of dollar assets may resume selling them off so that you end up losing value in the dollar and generating a renewed inflation threat that way.

That is a dilemma that the Federal Reserve will have to resolve on practical grounds. I think that articulating a specific target different from the broad and general one that they've got would be a mistake. It would complicate that decision-making process.

That said, I'm all in favor what Adam Posen just talked about in terms of a clearer and more above-board discussion of policy between the Federal Reserve and the Congress in its regular reports. I'm sure that can only help. And I'm sure that Professor Bernanke will be a very talented expositor of Federal Reserve policy in the months ahead.

GWEN IFILL: Adam Posen, do you see the risks, at least the challenges that await any Fed chairman who wants to continue on the interest rate direction that Alan Greenspan has set?

ADAM POSEN: Well, I agree totally with Professor Galbraith that there are these two challenges you've got. When inflation is rising but the economy is slowing, you have a dilemma of how much you want to raise rates. If you don't raise rates at all, people in the markets think oh, the Fed doesn't care any more about inflation. And then they just start passing on price increases and you end up with a real mess.

If you raise rates too much as Professor Galbraith correctly raises you end up putting people out of work perhaps unnecessarily and you end up stomping on the economy. So it is a real balance.

The advantage I think Ben Bernanke and the team at the Fed -- and it is important to emphasize that Ben Bernanke said this in his nomination talk -- that this is a team. This is probably the strongest Fed team we've had in decades. And he is going to be more collaborative, I think, than Chairman Greenspan was but, anyway, that the team has to make a judgment call; the team has to say we are to the going to stop short of raising rates just because we are worried about being unpopular or just because we don't want to make the president unhappy. But, on the other hand, we're not going to raise interest rates just because we don't like the numbers.

Two quick points, one is in the book we did with Bernanke, all of us together wrote a chapter about the German experience. And we praised the fact that the Bundesbank facing an oil shock much like the one we face today in 1980 raised their inflation target over time, the Bundesbank was hyper conscious about inflation but the Bundesbank said we are not going to kill the economy to keep inflation down. We are going to realistic and communicate with the public; and that was a model we in that book praised and so I think that will be instructive for Ben Bernanke.

The second point is again in the spirit, if you look at what happened in 2001 and 2002, Ben Bernanke was one of the people on the Federal Reserve Board, not alone by any means, but advocating strong cuts in interest rates and saying let's not worry too much about inflation. We have got a deflationary threat; we have a risk of financial problems, let's act aggressively. And so I think there is a good record here to go on.

GWEN IFILL: What are the biggest -- Professor Galbraith -- given all of what we talked about so far and what we know the interests are of the nominee, Mr. Bernanke, and what the direction has been of the Fed in the past several years under Mr. Greenspan, what are the biggest challenges facing any new Fed chairman right now?

JAMES GALBRAITH: Well, the short-term challenge I have already mentioned. The long-term challenge it seems to me is the future of the world system based on the dollar reserve asset. And Chairman Bernanke has spoken to that in some recent speeches in a very interesting way. He has made very clear that he understands that stabilizing the threat that is implicit in the system we now have will require doing something about the financial position not only of the United States but of many other countries including especially developing countries, getting them out of the position where they are basically forced lenders, the poor are lending to the rich in a way which they, does them basically no good from the standpoint of their development prospects but also, puts the world on a rather unstable basis.

It will be very interesting to see whether this team at the Fed begins to address that question, not in terms of immediate policy but in terms of looking forward and designing a successor system that we might have to have recourse to should we really get to a crisis down the road.

GWEN IFILL: James Galbraith, Adam Posen, thank you both very much.

JIM LEHRER: Still to come on the NewsHour tonight: Richardson on North Korea; our opening 30th anniversary return story; and a New York Times update.

CONVERSATION

JIM LEHRER: Margaret Warner has our North Korea story.

MARGARET WARNER: New Mexico Gov. Bill Richardson is no stranger to North Korea. The former U.N. ambassador visited the isolated country several times as a congressman during the 1990's to negotiate the release of missing the release of missing Americans or their remains. Last week he was there again in an unofficial capacity. And, as he left last Friday, he predicted Pyongyang would return to the six-nation talks with the U.S. and others over its nuclear program. Today, the North Koreans announced they would. Gov. Richardson joins us now.

MARGARET WARNER: And, welcome Governor.

Let's start first of all with your view of how significant this announcement is today, the North Koreans saying they will return to the talks early next month?

GOV. BILL RICHARDSON: Well, it is significant because it means that they are returning to the talks unconditionally.

Frequently the North Koreans play around with the dates. This time they committed to me that they would come and fully participate, that they would abide by the statement of principles which basically calls for the denuclearization of the Korean peninsula; that they would rejoin the nonproliferation treaty, have a safeguards again, but at the same time, indicating that there had to be in the communiqu(c) of the statement of the principles words for words, actions for actions.

It shows that they want to go into the talks, I believe in a constructive way. Admittedly the rhetoric is going to be very bombastic, very strong, but they are returning to the talks. And that's a very good sign.

MARGARET WARNER: So based on your conversations, do you believe that they have truly made the decision to dismantle the program versus the opposite view which some hardliners here hold, which is they are really just stalling for time; there are no inspectors there in North Korea and they are continuing to work on their weapons program?

GOV. BILL RICHARDSON: Well, with the North Koreans you can't predict anything certain. But I was encouraged, for instance, they did allow me to see their nuclear reactor in Yongbyon where I saw a five megawatt reactor. I saw the reprocessing be shifted from that reactor to another place. That was a show, I believe, of transparency.

Now again, I do believe they've made that commitment to dismantle their nuclear weapons in exchange for basically wanting the six-party nations to guarantee their security, no attacks, substantial amounts of fuel and energy and other economic assistance.

But again, the light water reactor issue, they maintain that they need a light water reactor as part of their dismantling, and that, I believe, is going to be what settles this issue. I don't believe that the settlement will come at the next round of six-party talks. But I do believe they're sincere.

They were trying to send a message that they are ready to negotiate. Are they going to be caving in immediately to the other five countries demands? I'm not sure. But at least I believe that the Bush administration has made a strategic decision to negotiate, to engage the North Koreans, to do it through diplomacy, through this statement of principles, which I believe is in everybody's interest.

MARGARET WARNER: You have been talking to the North Koreans for more than ten years off and on. What is it like to talk with them? How do you know if they are leveling with you? And was it any different this time?

GOV. BILL RICHARDSON: Well, I noted on this trip a lot less hostility. I noticed around Pyongyang and the rural areas that we visited the vitriolic anti-American signs weren't there. They seemed to be for the first time respecting the American negotiators had that they have to deal with. Sure, there is a lot of mutual distrust, suspicion. But I found that being a marked change from the past.

Secondly, I do believe they've made a fundamental decision that it is in their interest to rejoin the international community or to join it for the first time, to not be so isolated. They know they have to rebuild their economy. They know they've got to find a way to feed their people, many that are starving. But at the same time, they realize that the nuclear weapons card is their only card. And so they use it strategically to advance their interests.

MARGARET WARNER: But I mean --

GOV. BILL RICHARDSON: I do believe --.

MARGARET WARNER: I'm sorry. But what happened or what did they say, was there anything you can point to on this trip that persuaded you of that? I mean why is it any different than eight years ago when their people were also starving?

GOV. BILL RICHARDSON: Because I believe number one that they've made a fundamental decision that they've got to coexist with the five countries surrounding them. When China, when Japan, when South Korea, the main countries that basically feed them, give them international assistance, and the fact that they want a strategic relationship with the United States has convinced them that this is the best path for them.

Now that doesn't mean they're not going to be difficult. That doesn't mean that there is going to be a substantial disagreement on the sequencing of when you dismantle and when you rejoin the nonproliferation talks.

I do believe another positive sign; they reversed themselves on economic and U.N. assistance to a lot of nongovernmental groups, to the World Food Program. They had basically said we're throwing these people out. And I came in and pushed them hard and said this is ludicrous. You are hurting yourselves. And they reversed themselves and it now looks like the humanitarian groups that were about to be expelled can now stay perhaps in a reduced number.

MARGARET WARNER: You've mentioned two issues that have been the old stumbling blocks: One is their insistence in having a light water reactor, civilian reactor with international help, and the other is what you called sequencing which is sort of who goes first.

Did you hear anything new on that, anything that you could convey to the -- U.S. negotiators going into the next round of talks?

GOV. BILL RICHARDSON: Well, first on the light water reactor, I did notice some flexibility and secondly that this I don't think is a deal breaker issue for them. Specifically, the North Koreans said that they would be prepared to allow the United States to either co-manage the reactor or to participate in the fuel cycle on the front end and back end, basically controlling the reactor, or having the five-party or six-party countries participate in the management. They seem quite flexible.

Now on the sequencing, this is the big issue and I believe that it may take more than the next session to get this achieved. I do believe you have to be very strong in laying out benchmarks on how quickly and when the North Koreans dismantle or -- the Yongbyon reactor, when they rejoin the nonproliferation treaty and invite inspectors back, like Mohammed ElBaradei, for high level inspections. And then we have to figure out a verification effort that is new, that is very strong, that is very foolproof because in the past, they have cheated. And it's important that they recognize that this agreement has to be totally foolproof if it's going to work.

MARGARET WARNER: But do you think that the Bush administration on the U.S. part has to be willing to give more or give more sooner than they have indicated at this point that they are?

Well, I have been encouraged by Secretary Rice and her new team. They have been, I believe, realistic at pursuing negotiations like Colin Powell did based on diplomacy, based on the statement of principles, which I believe the fact that the North Koreans agreed to it, which denuclearizes the peninsula which dismantles their weapons is an excellent place to start. This last session they had made more progress than many other times before.

You now have to be flexible. I believe we now have to show to the North Koreans that the sequencing is something that we can work with, that the light water reactor, which I don't think is a deal breaker for them, something that can be managed in a way that there are guarantees that the North Koreans under no circumstances can use that facility for other than civilian totally peaceful purposes.

MARGARET WARNER: Finally very, very briefly, why do you think they invited you?

GOV. BILL RICHARDSON: They know me, in the past in the last two years I passed on messages back and forth to Secretary Powell. They trust me. I don't know if that is something I want to advertise or brag about. But I think with the North Koreans, they're different. They negotiate differently. You have to show a degree of understanding and respect for their position while totally disagreeing with them on the way they behave internationally, the way they treat their citizens. And I believe it's a matter of trusting each other. And that is what we did.

MARGARET WARNER: Gov. Richardson, thanks so much for being with us.

GOV. BILL RICHARDSON: Thank you

FOCUS 30TH ANNIVERSARY

JIM LEHRER: Now, we have the first of five reports marking our 30th anniversary. We've covered hundreds of stories across America that reflected the major issues of the day, this week we're revisiting some of them, to see what's changed.

Spencer Michels starts us off, in California's Silicon Valley.

SPENCER MICHELS: On a recent summer afternoon tourists snapped photos of workman restoring a small garage on a residential street in Palo Alto, California.

SPOKESMAN: We put all the boards back in so it looks like it did in 1939.

SPENCER MICHELS: This is the garage where Stanford graduates David Packard and William Hewlett started building electronic devices 66 years ago. Hewlett-Packard considers this the birthplace of Silicon Valley.

ANNA MANCINI, Hewlett-Packard: It's just kind of amazing to look at this and see this is where it all started.

SPENCER MICHELS: These days HP has its own archivist Anna Mancini.

ANNA MANCINI: Two guys in a garage started our company with a few simple tools, and from that grew, you know this huge company that is so influential in Silicon Valley.

SPENCER MICHELS: Reporter: In the decades that followed, Silicon Valley, a 50 mile long stretch of real estate south of San Francisco that used to grow prunes and apricots became a vibrant, innovative, industrial center with a way of doing business much less hierarchal than traditional East Coast industries.

SPENCER MICHELS (1992): The chip industry constitutes what could be called a U.S. industrial policy.

SPENCER MICHELS: And the NewsHour began its coverage of the valley the industry and the culture. One of our first stories on the valley looked at how both the stock market and private funds, so-called venture capital were fueling the high-tech revolution. By the 1990s, Silicon Valley led the nation in industrial growth and exports; it future seemed limitless.

In this 1997 report we found a worker whose optimism reflected the valley's mood.

BARRY PARR (1997) Companies are expanding; 3Com has a huge campus; Sun just opened built an enormous campus.

SPENCER MICHELS: But we also talked with Intel CEO Andy Grove here on the left, who despite his company's overall health, had seen storm clouds. Intel made and still makes chips or semiconductors, the brains in computers and other devices.

Grove told us in 1992 that the successful American industry had been under fierce attack from foreign competition.

ANY GROVE (1992): Success always attracts competition. Practically all American producers for losing money in the mid '80s, certainly Intel was losing a lot of money. We shut down eight factories and we laid off about a third of our total staff in the mid '80s. So it was very, very painful.

SPENCER MICHELS: Today Grove is retired but still consulting at Intel. He says the future of American leadership in high-tech is again in jeopardy.

ANDY GROVE: It is not that we are getting worse; the world is getting better faster than we are. The product here is knowledge; the competition is gaining on us. We have to work harder. And we have to sell our product at a lower cost to remain competitive.

SPENCER MICHELS: Take Hewlett-Packard, for example. It once manufactured all its computers in the valley. But today most manufacturing and most profits originate offshore. Last February its board fired CEO Carly Fiorina hinting that dissatisfaction with high costs, a bloated workforce and not enough profits.

SPOKESMAN: It is privileged to be name HP's new CEO --

SPENCER MICHELS: Her replacement Mark Hurd decided to cut 10 percent of all employees in order to save $1.9 billion.

Chief Marketing Officer Cathy Lyons acknowledges that times have changed for HP and efficiency is vital today.

CATHY L YONS: When industries go through periods of extremely high growth, everybody is pretty giddy about that. But it also covers up a lot of sins. And I think that there is still plenty of room, actually, in the valley and elsewhere for companies to take a look at how well they spend their dollars.

SPENCER MICHELS: The job cuts are part of a valley-wide trend. Despite the fact that profits for some big companies are up several-fold recently, total high-tech employment in Silicon Valley, today about 850,000, has declined almost a quarter in the last five years.

Manufacturing jobs went overseas years ago, and many software designers are having their work transferred overseas or elsewhere in the U.S.

ANNALEE SAXENIAN: People in Silicon Valley are worried. I think people who have lost their jobs are very anxious.

SPENCER MICHELS: At the University of California at Berkeley, Information Systems Professor Annalee Saxenian wrote a book on Silicon Valley more than a decade ago; she still follows the valley.

ANNALEE SAXENIAN: It is an anxious time for people who see the world changing very, very rapidly. The U.S. hasn't really had to face this kind of competition ever in its history.

SPENCER MICHELS: But increased competition is just one problem the valley has faced.

Five years ago the NewsHour reported on investors losing confidence in the overheated and over funded world of high-tech. In 2000, the boom that some people thought would never end and that had venture capitalists and entrepreneurs partying and enjoying their success, that boom hit a major road bump.

People were throne out of work, thousands of small start-ups, so-called dotcoms' financed by billions of dollars in venture capital, collapsed, depressing the whole industry and changing it.

GGRAF was one of those software start-ups, conceived in a modest Redwood City garage like HP. It was founded by Virginie Glaenzer who came to the valley from France to make her fortune. We talked with her in 1999.

SPENCER MICHELS: What is your ultimate goal, essentially is to get rich?

VIRGINIE GLAENZER (1999): Of course, get rich in less than five years, maybe something in three years, get IPO, and create great software.

SPENCER MICHELS: The next year when the bubble burst and financing dried up, GGRAF essentially disappeared.

VIRGINIE GLAENZER: Well, that's basically the headquarters of Inventop

SPENCER MICHELS: Today in a new house with a new baby, Glaenzer has started a new company which produces proximity mail, software which allows people with similar interests to connect to each other.

VIRGINIE GLAENZER: We learned that building a business takes time. And in '99 we thought that it was quick and easy.

SPENCER MICHELS: When I asked you did you do this because you want to get rich and you said well yeah, we do want to get rich.

VIRGINIE GLAENZER: I will be happy if I can get money out of it. But that's not my primary goal. I think I have learned that if you enjoy doing what you do every single day, you will become successful one way or another.

SPENCER MICHELS: Although her start-up hasn't gotten any investment money yet, high-tech investment has come back strong. But investors have become more selective. One new company that has been well-funded is ProTrade, a fantasy athletic stock market whose culture looks much like the dotcoms of old. Martin Cagan, marketing vice president, who worked in a number of well-known high-tech firms says the crash had some benefit.

MARTIN CAGAN: I think the monies actually continue to be available. The difference is they are spending it better on start-ups that are better suited for success. You have to have a great idea. You have to be committed to it. You also have to have the right people. And you have to be willing to work like crazy. And you have to be willing to take those risks.

SPENCER MICHELS: ProTrade will provide entertainment to a niche market drawn from 80 million American sports fans. And many other firms are also concentrating on specific products like cell phones with cameras and apple's iPod, a sleek music player, wildly popular items that have changed American and worldwide culture. Those applications may not be as fundamental as the past development of the microchip, the computer, the Internet and search engines which were the bread and butter of Silicon Valley for years. But the new products impact millions of people and promise a rich future for the industry according to Cagan.

MARTIN CAGAN: Today's sort of niche applications become tomorrow's foundation. As long as products continue to drive people nuts, there will be opportunities for better versions. I mean, I would love a cell phone that didn't drop calls. I would love a home computer that didn't cause heartburn. There is always going to be demand, I think, for better versions of products.

SPENCER MICHELS: Intel's Andy Grove whose company pioneered the microchip says today's products are just as important.

ANDY GROVE: Any given one of them could be viewed as insignificant or trivial. But if you look at them as the bricks of the digital castle, the castle itself is going to redefine your world.

SPENCER MICHELS: Whether that world remains centered in Silicon Valley or even the U.S. or whether high-tech moves offshore is the big question on everyone's mind.

ANNALEE SAXENIAN: The thing that the valley does best is come up with new applications, new designs, new architectures that then can be implemented and produced elsewhere in the world, and will be.

Firms in Silicon Valley have access to marketing talent, technical talent, managerial know-how that really is very rare elsewhere in the world.

SPENCER MICHELS: But Andy Grove says it's not that simple. Respect for science, math and engineering is dwindling in America. And he says the government is not encouraging research, especially in the emerging high-tech field of genetic biology.

ANDY GROVE: We created a computer industry in the United States that for a long time we are the leaders in it.

I'm very pessimistic that that situation is going to happen one more time. Our standard of living is not going to be leading the world either. So if I see the footprints in the snow leading in that direction, how the hell could I not be pessimistic?

SPENCER MICHELS: Nevertheless, Silicon Valley is still home today to stories of success and profits. Big companies are getting bigger and some start-ups are showing promise.

But in this valley with its astronomically priced homes, employment is down and expectations are more measured as foreign competition threatens to spoil the party or at least move it somewhere else

JIM LEHRER: And speaking of foreign competition, tomorrow in our 30th series, Paul Solman revisits an Alabama town that feared a new trade agreement would doom its broom factory.

FOCUS TROUBLED TIMES

JIM LEHRER: Finally tonight, that CIA leaks case. Special Counsel Patrick Fitzgerald is expected to announce this week whether he'll seek indictments of White House officials.

Meanwhile, fallout concerning the New York Times took some new turns this weekend. Jeffrey Brown has our media unit update.

JEFFREY BROWN: As the New York Times printing presses were churning out the news of the world over the weekend, they were also publishing the increasingly bitter feud about the story inside the Times.

The continuing controversy over the actions of reporter Judith Miller gained steam Friday when Times editor Bill Keller sent out an internal message to his staff.

In the note, which was leaked to various Internet sites, Keller accused Miller of misleading the paper about her role in the Valerie Plame Wilson leak case and took himself to task for not keeping a closer eye on the situation writing: "I missed what should have been significant alarm bells."

On Saturday the Times published Keller's concerns in the paper under the headline "Times Editor Expresses Regrets Over Handling of Leak Case."

Miller responded to Keller in an e-mail. Among other things she addressed the issue of Valerie Plame Wilson and her husband, former Ambassador Joseph Wilson, who had cast serious doubts about the administration's weapons of mass destruction claims in the run-up to the war.

Miller said she was unaware there was a deliberate concerted disinformation campaign to discredit Wilson, when she discussed him and his wife with governmental officials in the fall of 2003.

Also, on Saturday under the headline "Woman of Mass Destruction" Times columnist Maureen Dowd publicly and sharply criticized her colleague saying Miller had engaged in deception and that some of her story doesn't seem credible.

Yesterday the times public editor Byron Calam who addresses ethic issues at the paper wrote that Times editors had moved too cautiously to correct problems about prewar coverage and were too deferential in their treatment of Miller as she took shortcuts. As for Miller, Calam wrote that her problems will make it difficult for her to return to the paper as a reporter.

And more now from Geneva Overholser, professor of journalism for the University of Missouri; she's a former editor of the Des Moines Register, ombudsman at the Washington Post, and once certificate served as a member of the editorial board at the New York Times.

Welcome to you.

GENEVA OVERHOLSER: Thank you. It's good to be here.

JEFFREY BROWN: How unusual is this public airing of what usually is kept behind the scenes in the newsroom?

GENEVA OVERHOLSER: I have never seen anything quite like it. Honestly, Jeff, I think it is unprecedented, although more and more we are seeing newsrooms in ways we have not in past years, partly because of bloggers and the transparency, that means that if an editor puts a memo out.

JEFFREY BROWN: As in this case?

GENEVA OVERHOLSER: As in this case -- which at one point would have remained within the newsroom -- it now reverberates all over the entire Internet world.

JEFFREY BROWN: And I suppose it is also now after the scandals that we have seen over the past few years where there is more internal dialogue looking at what happened.

GENEVA OVERHOLSER: Absolutely. One of the things that the media have decided is that if they hold themselves accountable, if they assure the public that they are attempting to be responsive to concerns, if they try to be transparent in the way they work, that that may help address some of the concerns the public have about them.

JEFFREY BROWN: Part of this story is about one particular reporter, Judith Miller. What makes her such a lightning rod? Is it the star system of the New York Times? Is it the kind of stories that she was working on, notably about weapons of mass destruction?

GENEVA OVERHOLSER: I think both are key. She is definitely a star reporter, and has long been. She has been famed for being somewhat difficult in her own phrase, she sort of jokingly said They call me Ms. Run Amok.'

She has been working on weapons of mass destruction for a long time, and did stories in 2002 and 2003 that were important in the run-up to the war and were very controversial. She herself has said that she got it wrong. She says my sources got it wrong and so I did.

But those stories caused Bill Keller, the executive editor of the Times, to write what he now calls a rather belated note to readers saying we apologize, essentially, for having gotten the weapons of mass destruction so wrong. And she was the primary author of most of those stories.

JEFFREY BROWN: Now the other important aspect of this is precisely Bill Keller and the editorial oversight of what was going on at the Times. What -- help people outside of our business understand-- what are the important editorial issues at stake here that have been raised, for example, by Bill Keller in his memo?

GENEVA OVERHOLSER: You know, I think that's the most surprising angle for me, Jeff.

It appears that she, for example in Bill Keller's words, Judith Miller drifted back toward reporting on national security issues even after he said that he had told her she must do that no more.

She was I think kind of working between the Washington Bureau and the New York Times so I the normal what I really do believe is fair to call the normal amount of editorial guidance and constraint that almost any newspaper would have seems largely to have been missing in her case.

I think she had gotten to a place on staff where she was given a wide amount of leeway but frankly the concerns that had been raised about her reporting make one question why that leeway would have been continuing.

JEFFREY BROWN: Now why does it matter what happens at the New York Times? Who is watching, what sort of ripple effects does a story like this have?

GENEVA OVERHOLSER: Great ripple effects. This is the most closely observed newspaper in America by other media and surely a very important influence on decisions that other media make, including television, I think you would agree, and certainly newspapers across the country which look at the budget that is the expectations of the New York Times for what its next front page is going to look like, papers everywhere make those choices. And I think that for that paper to go through such visibly difficult and unsettling times is unsettling for an industry which already is going through a great deal of change.

JEFFREY BROWN: Issues such as anonymous sources were very much on the table before this happened.

GENEVA OVERHOLSER: Exactly and are very much a part of this immediate store he because as you know, Judith Miller was protecting an anonymous source who turn out to be Lewis Libby. And the idea that she was giving him as much power over her report and protecting him even at one point seems to have guaranteed him she would be willing to call him a former Hill staffer so as not to ensnare the White House in what looked like a smear campaign, but it appears that it was a smear campaign. And she would have been willing to mislead readers, I think.

JEFFREY BROWN: We said that the indictments could come this week, that could involve high officials in the Bush administration, but on the media front briefly what's next, what are you looking for next?

GENEVA OVERHOLSER: Well, I think once the indictments come it will be hard to keep focus on the media. But I believe that we will continue to struggle to look for ethics that serve the public's need at a very different time. And that can mean we have to figure out whether we need a federal shield law, and I think we do. We have to figure out how to use anonymous sources, which are key but which we have clearly been abusing.

JEFFREY BROWN: Okay, Geneva Overholser, thank you very much.

GENEVA OVERHOLSER: Thanks so much for having me, Jeff.

RECAP

JIM LEHRER: Again, the major developments of the day: Hurricane Wilma swept across south Florida. It left widespread power outages, damage and flooding, then, headed north toward Canada. Three suicide bombs went off near the Palestine Hotel in Baghdad, killing at least 15 people, wounding 40. And President Bush nominated his top economic adviser, Ben Burnanke, to be chairman of the Federal Reserve.

A correction before we go: Comedian Shelley Berman is, in fact, alive and well and starring in the HBO series, "Curb Your Enthusiasm." We apologize on behalf of Tom Oliphant, who referred to him here Friday night as, "the late Shelley Berman."

We'll see him and you online and again here tomorrow evening. I'm Jim Lehrer. Thank you and good night.