The NewsHour with Jim Lehrer

JIM LEHRER: Good evening, I'm Jim Lehrer. On the "NewsHour" tonight, Gwen Ifill sorts through the damages on Wall Street, Kwame Holman and Margaret Warner look at the World Bank IMF Elizabeth Farnsworth talks with the winner of the Pulitzer Prize for History, and Pov Chin of Stockton, California reads her favorite poem. It all follows our summary of the news this Monday.

NEWS SUMMARY

JIM LEHRER: Protesters clashed with police for a second day in Washington; they failed to disrupt the last session of talks between the World Bank and the International Monetary Fund. Officers scattered demonstrators with pepper spray, tear gas and batons. An estimated 600 people were arrested. World Bank President James Wolfenson commented on the protests at a news conference...

JAMES WOLFENSOHN: What we were listening to or trying to listen to was what is it they're saying. Well one thing is very clear, is that to some segments of the public, we're not getting through. We thought they were preaching to the choir on some of the complaints they were making. We know that with other sectors of the public, we're having a very constructive dialogue. So we were affected, and I personally was affected by the fact that there were these demonstrations.

JIM LEHRER: We'll have more on this story later in the program tonight. On Wall Street today, stocks rallied following Friday's record losses. The NASDAQ Index closed up 217 points at 3539-- its biggest one-day point gain. The Dow Jones Industrial Average took back about half of what it lost on Friday; it closed up 276.74 at 10582.52. We'll have more on the markets right after this News Summary.

President Clinton announced new grants today to improve telecommunications for the poor. He did so in East Palo Alto, California, a stop on his latest "new markets" tour aimed at encouraging investment in low- income areas. He said high-tech companies will donate computer training and services worth $100 million.

PRESIDENT CLINTON: The choice is in our hands; we can use new technology to extend opportunity to more Americans than ever before. We can truly move more people out of poverty more rapidly than ever before. Or we can allow access to new technology to heighten economic inequality and sharpen social division. The truth is that doing the right thing will accelerate the strength of this powerful economic engine.

JIM LEHRER: The U.S. Supreme Court ruled today police may not squeeze luggage to check for drugs. The 7-2 decision came in a Texas case. The Justices said a border patrol agent violated constitutional protections against unreasonable searches. They said the agent acted intrusively when he felt a bus passenger's bag. Overseas today, Russian President-elect Putin met with British Prime Minister Blair in London. He was greeted by crowds protesting Russia's war in Chechnya. We have a report from Robert Moore of Independent Television News.

ROBERT MOORE: These are Vladimir Putin's opening steps on the international stage, his first trip to the west since assuming the huge powers and challenges that come with the Russian presidency. The prime minister says engaging Russia is clearly in Britain's national interest. (Protesting) That view is being hotly disputed by a small crowd of protesters outside, who accuse Britain of putting economic interests above concern for human rights. One activist was quickly arrested after hurling a stone at the presidential motorcade. But in a robust performance with no reference to notes, Mr. Putin hit back at those who harbor fears about his long KGB past, and especially about his conduct in the Chechen war. How are you going to show that those fears are misplaced and assure people that the hard-won freedoms in Russia are now secure?

VLADIMIR PUTIN, President-Elect, Russia (Translated): And I want to underline, yet again, that the actions of Russia are not against... Against Muslims, against Chechens. They are directed entirely against international extremism and terrorism, and which have a global character.

ROBERT MOORE: To those concerned about Chechnya, Mr. Blair had a simple message:

TONY BLAIR: I have to say to the... while I share those concerns, I believe that the best way to register those concerns and to get results is by engaging with Russia, not isolating Russia.

JIM LEHRER: The White House announced today President Clinton will meet with Putin in Moscow on June 4 and 5. That's it for the news summary tonight, now it's on to a markets update, the World Bank- IMF Story, the Pulitzer winner for history, and a favorite poem.

UPDATE - DAMAGE ASSESSMENT

JIM LEHRER: Gwen Ifill has the markets update.

GWEN IFILL: Friday the sky seemed to be falling. Today, a dramatic rebound. To help sort this out, we're joined by Henry Hu, a professor of banking and finance law at the University of Texas. Bob Walberg, chief equity analyst at Briefing.Com, an online research and analysis firm, and John Steele Gordon, a business columnist at "American Heritage" magazine, and author of the book "The Great Game: The Emergence of Wall Street as a World Power."

Mr. Walberg, three nights ago we were talking black Friday. Today we are talking big rebound, biggest one-day point gang in NASDAQ history. What's going on? What happened?

BOB WALBERG, Briefing.com: Well, I think today for the first time in a while, we saw institutional money come back to the technology sector, in that you saw the large-cap names such as Oracle, IBM, and Sun Microsystems, Microsoft, Intel, those were the companies leading the recovery this afternoon. That's an encouraging sign that possibly we're coming close to a bottom in technology. We're going to have to see a few more days of follow-through buying from those institutional buyers, but if they do in fact return to the technology sector, we could be in for a nice, sustainable recovery from here.

GWEN IFILL: So you're saying we haven't quite hit bottom yet, that we should prepare for another dip?

BOB WALBERG: You know, I really don't know whether we've hit bottom yet. I think it's too early to tell. I do think there is a possibility you'll see the NASDAQ pull back to as low as the 28, 29 hundred area. But even if we're to go down there, I think it's a situation now where value has been created again in a lot of the technology name, particularly the large-cap leaders that have suffered over the last several days to the downside. So I think there is some good justification to come back into technology now if your a long-term investor.

GWEN IFILL: Mr. Hu, on this roller coaster, do you have any sense on what we should be reading into it, or if we should be reading anything into it at all?

HENRY HU, University of Texas; I think it's fascinating what's happening today. And what happened on Friday. If you believe the official market hypothesis, the market is supposed to process all publicly available information efficiently, that is to look at it rationally and make a judgment in terms of future earnings, future dividends, and come up with a valuation. Well, what has happened between now and between today and Friday? Basically nothing. There is no new information, yet the market is today many percentage points higher than it was at the close of the trading on Friday. It illustrates basically how the market is very driven by emotions, by human emotions, and that... it just illustrates this fundamental point and in terms of enduring theme, as well as perhaps illustrates the theme as it plays out in terms of today's markets. Today's markets seem increasingly distant from fundamental valuations, seem increasingly driven by momentum trading and other kinds of behavior, which are not totally consistent with trading on the basis of intrinsic value.

GWEN IFILL: But emotions that have a real effect, wouldn't you say?

HENRY HU: Absolutely. Absolutely. You can't make a living on Wall Street without taking into account both intrinsic value and emotions, and right now, I think the... Being able to guess how human emotions are going to move is just as, if not more important, than figuring out intrinsic value.

GWEN IFILL: Mr. Gordon, has this always been so? How does this volatility compare to what happened in 1987 and even 1929?

JOHN STEEL GORDON, American Heritage Magazine: Oh, it's very similar. I mean, the volatility was very large in 1929. And it played out over a course of several weeks, actually. We think of the crash as one day, but actually it started in September and ended November 13 of 1929. Some were very up day, more bad days than good one, of course.

GWEN IFILL: Was that human emotion driving those ups and downs?

JOHN STEELE GORDON: Oh, sure. You know, there's an old saying, there's only two emotions on Wall Street, fear and greed. And on Friday we saw an instance of what happens when fear is in the saddle. Today it seems that greed reemerged.

GWEN IFILL: Mr. Hu, do you agree with that? Is this greed driving this market?

HENRY HU: Absolutely. There's constant tension between fear and greed. What concerns me is, in fact, I am actually more scared about the market today than I am at the end of the day on Friday. And just... This seems somewhat strange, somewhat counterintuitive. Perhaps I can explain. Today you see the investors piling in, especially toward the end of the day, driving the market up hundreds of points. It seems that people will use this action today as evidence, in effect, that one can always buy on the dips, that somehow the prospect of real risk has been banished from the market. It worries me terribly, because it sends a message that one can be as greedy as one wants and not really worry about a truly significant fall in the markets. I think very few people are aware how bad markets can fall between the 29 high and the 32 low, on the New York Stock Exchange, that is. We're talking about Blue Chips. The average stock fell something like 86%. I think that people these things, and movements like today, in fact, may lull people into a sense of complacency.

GWEN IFILL: How about that, Mr. Walberg, is there a sense of complacency? Are people now thinking to themselves, well, as long as I... I can put all of my retirement income in the market and I'll never really lose as long as I hold on to them forever? Is Mr. Hu right?

BOB WALBERG: No. I really don't think I would agree with what he said earlier. I think a lot of people know now there is risk to the market. During the speculative bubble which really took the NASDAQ from 2,600 in October of '99 to basically doubling by the end of February, early March, certainly there was there was a speculative excess built in the marketplace. A lot of people had disconnected with the risk element on investing in a lot of emerging growth companies. However, I think those people have certainly learned over the last six weeks that there is definitely risk involved in buying companies that are trading at 300, 400 times 12-month sales. However, if we look at today's environment, we are still looking at a economy which is very strong. Even if Greenspan effectively reigns in economic growth and brings it back to 4%, that's very strong. Inflation remains very low, despite the blip up that we saw last week on Friday the overall trend in, in inflation is under 2.5%. And interest rates remain relatively low. Those are all very strong building blocks and reasons why investors want to get back in and stay in the stock market right now. Earnings growth again, we're also seeing this quarter, very strong earnings growth.

GWEN IFILL: But the biggest leaps and biggest plunges have been with tech stocks in the NASDAQ Exchange. Is that something people should start to be cautious about?

BOB WALBERG: Well, certainly those investors buying in biotechnology stocks and a lot of the business-to-business and the business-to-consumer Internet companies, looking and buying and paying 2, 300 times seas, buying companies that don't have an existing earnings base right now, those investors have learned a valuable lesson about valuations and about buying companies with - you know -- basically the connecting the current fundamentals with the company's business prospects. That doesn't mean, however, that you can't be buying in the technology sector. If you're looking at where this economy... you know, the current U.S. economy is going, technology remains at the forefront. I think you want to be an investor in the wireless industry. I think you want to be an investor in the Internet backbone group. But you want to be buying those leadership quality names, names like Qualcom and Cisco and Oracle and as far as the second and third-tier names go -- a lot of those probably don't bounce back.

GWEN IFILL: What about that, Mr. Gordon, have we got too dot-com crazy? Is it a real issue here, that we need to back up and only certain big dot-com companies will survive and all the others are going to go by the wayside?

JOHN STEELE GORDON: I think that's very likely. In early days of technology, nobody knows how to run a company exploiting that technology. In the 1830's, nobody knew how to run a company running a railroad. In 1903 alone, about 40 automobile companies came into existence and about 28 went out of existence. You always see this in a brand-new technology. There's going to be an awful lot of bodies by wayside before people figure out how to make money on line.

GWEN IFILL: Mr. Hu, I hate to bash ours, but how much of this is media hype? People are excessively looking at that ticker, poised on their windows, teetering on window ledges, investing for themselves in a way that they used to let their companies invest for them. This is a very different kind of environment now, isn't it?

HENRY HU: I suppose that's right. But when you think about it, on the other hand, as a form of entertainment, it's perhaps more interesting than game shows. The disadvantage, of course, is that unlike the game show, there sometimes is no lifeline that one can rely on. If you lose your retirement savings, you know, you're talking about surviving on bugs and leaves and perhaps Social Security. So the concern I have is that people are not really focusing on the downside. Don't get me wrong. I'm not saying at all that there will be a crash. It's impossible to tell when one is in a bubble. It's extremely difficult. But in terms of some of the kinds of arguments that whether Walberg was sending out, I guess I have two immediate responses. One is the kinds of arguments in terms of the power, the gross, the real economy, absolutely. It's incredible economy. But there... you can't pay an infinite price in terms of the shares in that kind of economy. The same kinds of arguments were used in terms of Japan back in the late 1980's, and between the 1989 high and the low in the NIKKEI several years later the NIKKEI basically collapsed something like 60, 70%. The NIKKEI OTC Average fell substantially more than that, fell close to 85, 90%. And secondly, in terms of the notion that somehow simply because you have a dynamic large cap stock that you're insulated, although that I realize is an exaggeration of what Mr. Walberg said, is... one must be careful in terms of that kind of thinking. I like to point out, for instance, yesterday I happened to notice in terms of the trading on the Tokyo Stock Exchange, Monday Tokyo time, that soft bank did not trade. Soft bank is one of the major high-tech companies in the world.

GWEN IFILL: What does that mean?

HENRY HU: The order and balance was such they did not trade. So it suggests that, you know, the possibility of risk, even in terms of real companies, good companies with real earnings, not only real revenues, but real earnings.

GWEN IFILL: Mr. Gordon, the historian, I'll give do you last word. Was Friday's dip taken into... Put in perspective? Was it in the end a pretty good thing, a splash of cold water? And if that's true, what does that tell us about today's rebound?

JOHN STEELE GORDON: Well, I think it wasn't a crash in the classic sense. For one thing, the volume was not nearly high enough. In a real crash you have record volume. The crash of '29, the volume record was not exceeded for 39 years. Whereas on Friday it went even a record volume. But, yes, I think... You know, today the market was in some ways heartening, but we're still in a very volatile situation right now, and it could go any way. Again, every human emotion is in the saddle. You can't predict with any certainty.

GWEN IFILL: And a final thought Mr. Walberg?

BOB WALBERG: Again, I think this is a market... Especially now that we've rung out some of the excess, you're looking at a NASDAQ that remains 32% of be above where it was in the past. Despite all the volatility, the overall trend remains on the upside. Earnings and revenue growth are very strong. I still think you want to be a player in technology.

GWEN IFILL: We'll end on a positive note. Thank you all very much.

JIM LEHRER: Still to come on the NewsHour tonight, the big finance meetings and protests, the Pulitzer Winner for History, and a favorite poem.

UPDATE - GLOBAL VIEWS

JEFFREY KAYE: Kwame Holman begins our report on the IMF-World Bank meetings.

KWAME HOLMAN: The protests over the practices and policies of the World Bank and international monetary fund succeeded in disrupting the routine in the nation's capital today. Local and federal officials made the decision last night to close off downtown Washington to Monday morning work traffic. A seventy-five block area around World Bank and IMF Headquarters was cordoned off to vehicles, and for a time this morning, even pedestrians were prohibited from certain streets. Two underground metro stations were shut down and most non- emergency government employees who work in the affected areas were told to stay home. But the spring meetings of the World Bank and the IMF, which many protesters had hoped to disrupt and possibly shut down, went on for a second day, again without interruption for a second day, police, reinforced by National Guard troops, maintained their barricaded perimeter around the headquarters. Most officials attending the meetings already were in the building, having arrived earlier than scheduled-- shortly after the daybreak-- and avoided the protesters. This morning's most heated confrontations erupted away from the World Bank/IMF Headquarters, along the edges of the restricted zone. Police rushed in toclear the crowds from several intersections, using clubs and bursts of pepper spray in the process. There was one instance of police use of teargas this morning. Police officials called that accidental. Washington, D.C., Police Chief Charles Ramsey was in the midst of the chaos this morning.

PROTESTERS: Let them go! Let them go!

KWAME HOLMAN: Ramsey had characterized the response of his officers during the protests as measured and balanced.

CHIEF CHARLES RAMSEY, D.C. Police Department: We just try to deal with each situation as it comes up. Our message to our officers is don't overreact. We've said from the beginning we will be as gentle or as forceful as we need to be.

KWAME HOLMAN: When the intense demonstrations began yesterday morning, they were well organized. And the protesters were enthused. Despite several violent clashes with police, only a few dozen protesters were arrested, compared to 600 arrests on Saturday, before the World Bank and IMF meetings began. As the day wore on and the sun emerged, protests turned to more peaceful demonstrations. The scene was much different today as heavy rains pelted the area. Police said it appeared the number of protesters had dwindled from their weekend estimate of 10,000. A scheduled noon rally on the ellipse, an open field just a few hundred yards from the White House was canceled largely because of the relentless downpour and threat of lightning.

SPOKESPERSON: How do we form a powerful procession and support rally? We're going to need to look at a possible route, where we'll end up.

KWAME HOLMAN: By early afternoon, about a thousand protesters had returned to the barricades across Pennsylvania Avenue, near the World Bank/IMF Headquarters.

PROTESTERS: The world is not for sale! The world is not for sale!

KWAME HOLMAN: Police reinforcements converged on the area from all directions. Demonstrators and police met face to face along the barriers for several tense minutes.

PROTESTERS: Put your badges on! Put your badges on!

KWAME HOLMAN: Police and protesters eventually backed off from a confrontation, and the standoff reed peaceful for the next hour. Hollywood couple Tim Robbins and Susan Sarandon, who had been scheduled to speak at the ellipse rally were part of the milling crowd.

TIM ROBBINS, Actor/Director: I'm here to lend support to these people out here that I find very courageous and very well-informed, contrary to what some media outlets have been saying, condescending lines like these people are just looking for anything to protest. In fact, that's not true, these people are well informed. They're well committed, and they're not going away.

KWAME HOLMAN: Police may have realized that and ultimately negotiated a deal with the protesters.

ASSISTANT CHIEF TERRANCE GAINER, D.C. Police Department: We offer to open three gates and let a few people come in at a time. That's something we can do.

KWAME HOLMAN: Assistant Police Chief Terry Gainer, who handled the negotiations with the protesters, later described them at a news conference.

ASSISTANT CHIEF TERRANCE GAINER: The major thing we wanted for them was not to charge the line, but we did say that we would accommodate arrests. We could do that peacefully. But I really needed them to step back nearly ten feet from the lines so we could calm things. The negotiations went on for some while. They wanted all the fencing taken down. I had indicated based on obvious parameters that we could never do that. But in consultation with the chief, we thought we could open up at least two of those gates and line enough officers up so that if they stepped through ten at a time, we could still maintain control in case anybody charged and be able to effect the arrest. Then we agreed they could walk in ten to fifteen at a time, their arms linked. They said they were not surrendering to police arrest. But they said they understood when they crossed the line they would be under arrest. They simply wanted our personal guarantee that they would not be harmed when making the arrest. And ultimately that's what we came to.

KWAME HOLMAN: D.C. Police Chief Ramsey, who also frequently engaged the demonstrators, said most of them had good intentions.

CHIEF CHARLES RAMSEY: After having spent almost a week now with this and certainly the last two or three days, and just from being out there and talking to protesters, I've... Some of these were just kids. Some of them were scared to death - you know -- when they came across. They were just youngsters. I think that's morn to remember. They're just kids with a cause. God bless 'em. That's what America's all about.

KWAME HOLMAN: More than 600 demonstrators were arrested today alone, most of them peacefully, and by late afternoon, the streets around the World Bank and IMF largely were deserted. The international meetings had concluded as well. However, police said they planned to patrol the area for what they called the foreseeable future.

JIM LEHRER: Margaret Warner takes it from there.

MARGARET WARNER: In addition to the protests in the streets, the debate over the IMF And World Bank is also taking place in international economic and financial circles. For a sample of that debate, we turn to Joseph Stiglitz, former chief economist at the World Bank, and now a special advisor to the bank's president. He's the author of the current "New Republic" magazine cover story, "The Insider: What I Learned at the World Economic Crisis." Allan Meltzer, a professor of political economy at Carnegie Mellon University. He chaired a special congressional advisory commission that just issued a report urging reform of both the World Bank and IMF. Fred Bergsten, director of the Institute for International Economics, and a member of the Meltzer advisory commission who dissented from its recommendations. And Robert Hormats, vice chairman of Goldman Sachs International, and former assistant secretary of state for economic affairs in both the Carter and Reagan administrations. Welcome, gentlemen.

Joseph Stiglitz, the protesters in the street are saying... I mean, their big points are two: One, in many ways the policies of the institutions are unjust. And perhaps as a result, they really haven't done as much to alleviate world poverty as they could have or should have. Do they have a point? Do they have valid points?

JOSEPH STIGLITZ, Former Chief Economist, World Bank: I think they do. I think in fact in some cases, and they're more about the IMF than the World Bank, the IMF, I think, in the recent East Asia crisis actually its policies caused a deeper downturn than needed to have been the case, and that led to more poverty than otherwise would have been the case. I think we also have to recognize that the transition economies, the economies of Russia and the other economies moving from social economist-- socialists and communism to America. I think everybody thought it was going to be difficult; I don't think anybody thought or realized how difficult it would be. Poverty has gone from 2% to close to 50% in eight years in Russia. And I think part of that has to do with the policies that the IMF promoted.

MARGARET WARNER: Do you agree, Mr. Meltzer, that sometimes the policies are counterproductive?

ALLAN MELTZER, Carnegie Mellon University: Some of the policies are counterproductive. But I think Joe who worked at the World Bank lets the World Bank off much too easily. By their own calculations, about 70% of their programs in Africa failed. On average, about 50% of their programs in the world fail. And those are their own calculations, and they're not very good calculations. If we did them right, they would probably be worse. The other fact is that they're lending most of their money to the countries that could ea borrow the money in the capital markets. They have plenty of insurers to finance their own programs. They don't do it in the countries that need the help the most. So the demonstrators are wrong to say the World Bank should get out of there. They should be carrying sign that say Jim Wolfensohn, get with it.

MARGARET WARNER: Fred Bergsten, how do you assess their performance? Are these demonstrators right?

FRED BERGSTEN, Institute for International Economics: I don't think they're right at all. There are some reforms needed, in both the Fund and the Bank, but I think my colleagues on the panel miss the bottom line. 18 months ago the world faced a severe economic and financial crisis. The Fed had to reduce interest rates sharply. They there were justified fears of a global financial crush. Here we are 18 months later. The world economy is booming; the economic outlook looks very good. The bottom line of the IMF reform programs in the Asian countries, as in Mexico before, is very successful. Almost every one of those countries has experienced a sharp recovery. It might have been a little less bad if the IMF had been... done some different things right at the outset, but it recovered quickly. And the bottom line is very good. If you take the long look, the last 50 years when these institution have been critical, it's been a period of unparalleled prosperity in the world economy, a period unparalleled in the alleviation of poverty and the removal of hundreds of millions of people out of poverty status. Take the big picture look, and the institutions have done a pretty good job.

MARGARET WARNER: Go ahead.

JOSEPH STIGLITZ: The most... Largest removal from poverty, the most successful country has been China. They never had an IMF Program.

FRED BERGSTEN: They were big World Bank leadership.

JOSEPH STIGLITZ: World Bank, but not IMF They deliberately avoided it. Botswana, the country in Africa that has been the most successful African country...

ALLAN MELTZER: Has diamonds.

JOSEPH STIGLITZ: Has diamonds, but elsewhere, in Nigeria, you have people fighting over natural resources. In general, natural resources do not necessarily...

FRED BERGSTEN: The thing with the IMF...

ALLAN MELTZER: The thing Fred leaves out is they're they've supported the Marcos, the Suhartos, the Mobutus of the world. They've supported a lot of dictators. It's true there's been a lot of progress in the world. What isn't true is the inference that the World Bank and the IMF Are responsible for most of that.

MARGARET WARNER: We have to let Robert Hormats in here. How do you assess the performance of these two institutions?

ROBERT HORMATS, Goldman, Sachs International: By in large I think they have made a number of mistakes, but if you look at the totality of their programs, I think they've done reasonably well. They didn't create these crises. These were very serious crises when the IMF went in to deal with them and help to alleviate, to stem the hemorrhaging of funds that many of these countries were experiencing. The Bank itself, I think, has done quite well in addressing many of the issues that are causes of poverty throughout the world. I think these protesters have it wrong. I think the people inside the building at these meetings were doing more to deal with the problem of poverty than the people on the streets. Does it mean they've been successful on all counts, obviously not. But as Fred said, if you rook at the sweep of developments since the Breton Woods institutions were created, poverty has been reduced in many parts of the world. We have had a series of financial crises. But they were much more a function of the problems in these countries and a very volatile capital market in the world. And I think the IMF has done reasonably well. Can it do better? It certainly can do better in terms of explaining itself, greater transparency. It does try to mettle too much and ask for too much conditionality in many of these countries too soon, unrealistically. But by in large I think it's been a positive record far more than a negative one.

MARGARET WARNER: Okay. Let's separate the two institutions because they do different things. Mr. Meltzer, what would be your fix for the problem that your commission and Mr. Stiglitz has also identified, which is that sometimes you believe the IMF's policies, we'll look at the IMF first, tends to almost exacerbate some of the problems it was meant to alleviate.

ALLAN MELTZER: Right. There are several problems. They come in with long negotiations the terms that they're going to lend on and the reform, sometimes 40 or 50 different programs. Some effective, some ineffective. Many times not observed. But it takes a long time to get those negotiations through.

MARGARET WARNER: You mean, even if a country is in a emergency situation.

ALLAN MELTZER: Right. Mexico, for example, it took from January to March to get the reforms in, and Korea took a while. There was a big crisis in December. Things got worse. What my commission said, let's set some rules. Let's get these countries to make the reforms first. Then the crises won't be as big. They may not occur, and there won't have to be these long negotiations. If they meet the standards, they get the money and they get it quickly. And that would be a great improvement over the present system with the long negotiation and the sometimes counterproductive conditions that they put on.

MARGARET WARNER: And you're saying just do short-term funding.

JOSEPH STIGLITZ: Short-term funding, that's right. I think everybody, in fact, the whole commission, even Fred who objects to everything, even Fred voted for those conditions.

MARGARET WARNER: Let Fred speak for himself.

FRED BERGSTEN: I did vote for that. But I think Alan overstates the timing problem. It does take some time to work out these programs, but bridge finance has always worked out through the U.S. Treasury, through the D.I.S., there are all sorts of ways to bridge until the IMF works out the program. I see no alternative to working out conditionalities of the type the IMF does. When a country gets into a crisis, it's because it's done something wrong -- the huge budget deficit, profligate monetary policy, an overvalued exchange rate, a financial system that's awry. The fund has to look at the situation at that time, get the country to accept changes in its policies or else the money's going to be wasted that's put in, the country is not going to put its house in order, and the international system and the country are going to still be in bad shape. What Professor Meltzer wants is a bunch of preconditions, which I happen too agree are important, reform of the financial system of the country. But that would leave out very important causes of crises. You have to go with the whole package. And to repeat, the timing is not a problem, because bridge finance is always available, and that has not been a difficulty.

MARGARET WARNER: Joe Stiglitz, in your article, you also took issue with some of the conditions the IMF lays down.

JOSEPH STIGLITZ: My view is very strongly that as often as not they put conditions that make things worse, that they go into areas that are political and not economic, have absolutely nothing to do with the crisis. For instance, the middle of the Korean crisis, they were talking about changing the charter of the Central Bank so it focused exclusively on inflation rather than employment and jobs. If we did that in the United States...

MARGARET WARNER: During a recession?

JOSEPH STIGLITZ: It's not the time to address those issues. Those should be political issues, not dictated in the midst of a crisis by an outside international agency.

MARGARET WARNER: So you're agreeing with the protesters that sometimes these policies are misplaced or this insistence on austerity in some of these countries...

JOSEPH STIGLITZ: Exactly. The other thing these protesters are saying is there is interference with democracy, and that when they go into these political issues that have nothing to do with the crisis, they're really undermining democratic process seize.

MARGARET WARNER: Bob Hormats.

ROBERT HORMATS: I agree with Joe to a certain extent. I think the IMF did ask for an excessively tight fiscal policy when the Koreans could have used some stimulus to help restructure the banks. I think the IMF does tend to do things that are very hard for the body politic in these countries to swallow, without sufficiently explaining it to them. In Korea's case, President Kim Dae-Jung wanted major reforms and basically supported the IMF, but in many parts of the world, people in the countries who are getting IMF money don't really understand why certain demands are being made on them for reforms, and many of the kinds of reforms the IMF wants require a political consensus to be sustainable. If there's not a political consensus, very hard to sustain them. I think a lot of what the fund does is right, but much more sensitive to the political situation of these countries and making a greater effort to rally support behind some reforms and not asking for too much. Trade reforms, for instance, many my judgment are inappropriate the shutting down of the large number of banks in Indonesia actually worsened the crisis. They've done a lot of very good things, but they have to learn from their mistakes, and I believe over a pared of time they will.

MARGARET WARNER: Let's switch to the World Bank. Mr. Meltzer, one... Your most controversial recommendation that Jim Wolfensohn, head of the bank did not like, get out of these countries entirely that have any capital reserves at all. Why would that help the bank be more effective?

ALLAN MELTZER: Because let's take the case of China. China has $150 billion worth of foreign exchange reserves. It borrows about $60 billion every year. The amount of money that it gets from the World Bank and all the other international lenders, about $1 billion. That has nothing to do with China. China can run any poverty program, any social welfare program it chooses to run, but that billion dollars, if it were applied to the poorest countries of the world would make an enormous difference. So what we said, Jim Wolfensohn is wrong when he says, "we want to lend where most of the poor people live. " We say, we want to lend or give where most of the poor people live who don't have access to resources other than those coming from the government." That reallocation would do a lot.

ROBERT HORMATS: I'd like to intervene. I go to China every three months. I flatly disagree with that. First of all, a large portion of the world's poor still live in China. There's a lot of poverty there. Second, what the World Bank does is help countries to build institutions.

ALLAN MELTZER: But we're not against using technical assistance. We're just saying that that money could be used much more effectively elsewhere.

ROBERT HORMATZ: It's hard to provide technical assistance without a certain amount of money that goes with it. The bank has done an excellent job in china. The Chinese understand that.

MARGARET WARNER: But what about his point that in fact these countries could afford to build these hospitals or bridges or whatever they are themselves?

ROBERT HORMATS: Well, that's true, some of them could, but I think the World Bank technical assistance remains extremely important, and it's very hard to put technical assistance, separating it from financial assistance. A certain amount of financial assistance helps.

JOSEPH STIGLITZ: Can I put it differently? The point is China isn't coming to the World Bank because it needs the money. It could go into the national capital markets. It's coming to the World Bank...

ALLAN MELTZER: It does.

JOSEPH STIGLITZ: It comes to the World Bank because the World Bank in putting through the project provides a variety of services in terms of technical assistance that is neatly linked with the project itself. I think Allan is a little bit wrong in thinking that this is taking money away from, say, Africa. The money from Africa comes out of IDA funds that are appropriated by the congress. Ida is the special...

MARGARET WARNER: Different.

JOSEPH STIGLITZ: Different money...

FRED BERGSTEN: Grant money.

JOSEPH STIGLITZ: Effectively grant money that goes to the poorest countries. The World Bank can really be thought of as two separate banks sitting together in one place. One for the poorest, one for the middle income. The middle income one is a cooperative that pays basically is not really subsidized.

MARGARET WARNER: Let me get back to one big-picture question, Fred Bergsten. These two institutions for decades have operated essentially without public scrutiny. We have now protesters in the street and insiders like yourself questioning why this works. What has changed?

FRED BERGSTEN: Part of it is a lack of transparency and a failure of the institutions to effectively convey their message. The institutions should become more open, should become more transparent, should let outside groups have a direct input. A lot of this is processed. A lot of it, however, is a lack of understanding of what they do. If you go out and ask those protesters in the streets today what the IMF does, I doubt 1% of them, 1% of them would have been able to tell you. Could I make one point on the private lending, because the private markets are hugely volatile. To put full reliance on these markets, which brought the crisis two and three years ago is like putting the fox in charge of the chicken house. That is a big mistake, and I wouldn't want to see it happen.

JOSEPH STIGLITZ: That is just wrong. But I'll let you go -

MARGARET WARNER: Briefly, why do you think we're seeing more scrutiny of these two institutions now?

ALLAN MELTZER: I think it's because the Cold War is over.

MARGARET WARNER: Sorry. Quickly, Mr. Meltzer.

ALLAN MELTZER: The Cold War is over. So we've had Mobutu, Suharto, all these crooks. They were our crooks. Now they're on their own. That's reason number one. Second, there's been a lot reported about corruption and stealing. American people put up with some of that when it was the Cold War because they were on our side. Now there's no more side. That's a big, big part.

MARGARET WARNER: Bob Hormats.

ROBERT HORMATS: I don't think it's only that. These are very important institutions in the global economy. There are clearly people concerned about them. But I think Fred's right. Many of these people don't really understand what they do. And part of the problems of the IMF and the World Bank as they become more powerful have not become more transparent. They have to explain themselves a lot better to the people in the industrialized countries, what they do, how valuable its been and do likewise for the emerging economies to help them better understand why they, the bank, and the fund make the recommendations they do. There is a big democratic deficit here. These NGO's should not have a vote in these institutions, but there should be a better dialogue with the NGO's and with public opinion throughout the world. Otherwise, public opinion is going to fall back, and it's going to be very hard to get funding and very hard to get support for the kind of programs they advocate.

MARGARET WARNER: All right, gentlemen. Sorry. We have to leave it there. But thank you all four very much. We'll return to this.

CONVERSATION - WINNER

JIM LEHRER: Now we continue our conversations with this year's winners of the Pulitzer Prizes in the arts, and to Elizabeth Farnsworth.

ELIZABETH FARNSWORTH: The winner in history this year is David Kennedy for his book "Freedom From Fear, the American People in Depression and War, 1929-1945." In telling his story, Kennedy combines grand narrative sweep with revealing details that remain in the mind long after book has been read. It is volume nine of the Oxford History of the United States, of which Kennedy is general editor. He is a professor of history at Stanford university and has also written books about World War I and the history of the birth control movement in the United States. Thanks for being with us and congratulations.

DAVID KENNEDY, Pulitzer Prize, History: Thank you, Elizabeth. It's a pleasure to be here.

ELIZABETH FARNSWORTH: I can't get some of the details, the stories out of my mind: The poverty of rural America before and during the Depression, for example.

DAVID KENNEDY: Well, that's right. Even before what we know as the Great Depression happened, people lived in the American countryside, lived in what we would regard in wretched and primitive, preindustrial, pre-modern conditions. That's about 50 million people in 1930, it's a big fraction of the American public. Most of the homes in the countryside had no indoor plumbing, no electricity. In fact, about nine out of ten had no electricity, eight out of ten no plumbing. So that eventually when Franklin Roosevelt, as he famously did in 1937, talked about seeing one-third of the nation ill housed, ill clad, ill nourished and so on, he wasn't just talking about the victims of the Depression. He was talking about a big fraction of the American public who had been chronically deprived of all the benefits of modern life.

ELIZABETH FARNSWORTH: And you give us such specific stories about them and the other story I can't get out of my mind is the radar operator in North Oahu who actually reported that the Japanese planes were... he didn't know what they were, but a huge number of planes were on their way in 19 41. Tell us what happened then.

DAVID KENNEDY: Yes. On December 7, 1941, the pearl harbor attackers were incoming to Pearl Harbor and they were spotted on a radar screen, but the operator and his supervisor concluded this was a flight of American bombers that were being ferried in from the California mainland to Hawaii for transshipment to the Philippines -- very easily made a mistake, but it was one of the several warnings that the attack was on s way that were ignored until it was too late.

ELIZABETH FARNSWORTH: And you take the specifics, but then you have this overall theme, which is the title, "Freedom From Fear," and that drives the whole book, so that it's always there. Tell us about that. Why freedom from fear?

DAVID KENNEDY: The phrase "freedom from fear" comes from a famous speech Franklin Roosevelt gave in January of 1941 in which... it was a speech that was part of a campaign by that time was years old in which he was trying to educate the American public about what was at stake out there in the world which was at war. And he said there are at least four things worth fighting for, freedom of religion, freedom of speech, freedom from want, and freedom from fear. And I take freedom from fear to be the most inclusive of those freedoms. And the phrase trade catches an echo in my mind, at least, and I think with readers, too, I hope. Another famous Roosevelt's speech, his first inaugural, all we have to fear is fear itself. And I do think in the last analysis, as I tell the story, the great accomplishment of this generation is that they did free themselves from fear and freed rater generations from a lot of the fear and uncertainty of life at home and life in the broader international environment.

ELIZABETH FARNSWORTH: You're talking about - I mean, it's security really that you in the story you tell that the New Deal helped provide. And your own family... I wonder how much your own family's experience influenced your interest in this.

DAVID KENNEDY: Well, in a peculiar way of speaking, I'm a Depression baby, even though I was born in 1914; after the Depression was thought to have concluded. But my parents were married in 1930, and my father almost immediately went unemployed. He had no reliable income for the next eight years -- until 1938. He finally got a job on a PWA, Public Works Administration project on Grand Coulee Dam in Washington State, and then eventually became a contract monitor for defense contracts in the Puget Sound Naval shipyard as World War II cranked up. The Depression made a deep impact on him, and through him on me. I grew up on a lot of the stories of the kind of depravation and hopelessness and despair that that decade inflicted on all kinds of people, my mother and father not least of all.

ELIZABETH FARNSWORTH: One of your goals, as I understand it, in this Oxford series, is to write history which is easily read by people that are not specialists. I wonder if you'd read something that gives us an idea of the style of this book, please.

DAVID KENNEDY: Well, there's a passage that describes the moment when Franklin Roosevelt heard the news that the Germans had invaded Poland, commencing thereby World War II or what we know as World War II in Europe. So it says, "at 3:00 AM, on September 1, 1939, the telephone rang at Franklin Roosevelt's bedside in the White House. It was Ambassador William Bullet calling from Paris. "Mr. President, bullet said, several German divisions are deep in Polish territory. There are reports of bombers over the city of Warsaw. Well, Bill, Roosevelt replied, it has come at least. God help us all."

ELIZABETH FARNSWORTH: And in your depiction of the war, I was very interested in the way you wrote about the war, and this is not the good war that has been treated with so much nostalgia recently in this country.

DAVID KENNEDY: Well, in some ways it was a good war. We won, after all.

ELIZABETH FARNSWORTH: We were fighting... It was a good cause.

DAVID KENNEDY: And it was a good cause.

ELIZABETH FARNSWORTH: But there's nothing nostalgic about this book.

DAVID KENNEDY: Well, I hope not. I intended to write an objective analysis of the whole period, including the war, not simply to send a valentine to that era. So it does... It was part of my intention was to tell the story in an objective way, and in a way that would sound to scholarship but would also be accessible to a general reader. I did in the write the book primarily for my academic colleagues or certainly not for captive student audiences. It's not a textbook. In fact, the whole series, the Oxford History of the United States, which this but one volume, was conceived originally by its original general editors, two wonderful historians, C. Van Woodward and Richard Hoffstader. They conceived of this idea many years ago as a series that would carry knowledge to a general reading public. I tried to be faithful to that brief.

ELIZABETH FARNSWORTH: Let's talk about some of the conclusions. Are there conclusions in your mind for us now, the current gilded age we're in, from the stock market crash and the Depression, which were two very different things in the way that you write about them in this book?

DAVID KENNEDY: Well, I'd say two things. Number one, one of the lessons of this book and indeed all historical study, is that history is full of surprises. When we least expect it, it can deliver a sucker punch. The Great Depression was that kind of thing. No one saw it coming. It was a crisis on a scale, a magnitude that was overwhelming in the 19 30's. So that's one thing to keep in mind. We should inner get to smug and cocky that we've got the key to the future. The other, as you just mentioned, the other point that may be worth remembering in these tumultuous times is this great stock market crash of 1929 was no kind of direct cause of the Great Depression that followed. And, indeed, there was considerable recovery on the stock market in the months after October of 1929. The Depression is a much more complicated affair. It's roots lay deeply in the legacy of World War I and the disruption that worked in international commerce and international financial flows and so on. So we should take some comfort in the fact that the stock market's volatility is not necessarily a harbinger of a complete, calamitous Depression of the sort that we saw in the 1930's.

ELIZABETH FARNSWORTH: Briefly, how about conclusions about the New Deal?

DAVID KENNEDY: Well, again, I think the title...

ELIZABETH FARNSWORTH: The role of government, for instance.

DAVID KENNEDY: Well, yes, the New Deal is a great turning point in American history, because it's the moment in which we create the modern American state and in which people's attitudes about government change quite dramatically. It became legitimate for the government to play a role in in overseeing the economy and intervening in society in certain ways. That role remains controversial even down to our ownday. But there are a few people today, I think, certainly not a majority, who would advocate repealing some of the great new deal reforms such as Social Security, the existence of the Securities and Exchange Commission, for example, an array of reforms that in the end freed big sectors of this so it from elements of fear, or to put it more clinically, that freed this society from certain elements of risk. The American economy became a less risky plates after the New Deal had instituted these reforms.

ELIZABETH FARNSWORTH: Well, David Kennedy, congratulations again, and thanks for being with us.

DAVID KENNEDY: Thank you very much.

SERIES - FAVORITE POEM PROJECT

JIM LEHRER: Finally tonight, another poem from poet laureate Robert Pinsky's project of asking Americans to read their favorite poem. Tonight's reader is Pov Chin, a Stockton, California, student whose family immigrated to the United States from Cambodia. It was on this day 25 years ago that Cambodia was taken over by communist guerrillas. It led to the killing fields-- the murder of at least one million Cambodians by their own government.

POV CHIN, Student: My name is Pov Chin. I'm a student, and I want to become a teacher. I was reading a bunch of poetry. Like over the summer, I just got bored, and so I went and I saw Langston Hughes' poem. And it was really weird because I've never heard of Langston Hughes. And it was really weird, because I wanted originally to put in "The Loan" by Edgar Allen Poe, and I couldn't find it. And I flipped a page, and I saw this poem, "minstrel man," and I read it and I was like, "wow, this fits perfectly." "Minstrel Man," by Langston Hughes. "Because my mouth is wide with laughter and my throat is deep with song, you do not think I suffer after I've held m so long. Because my mouth is wide with laughter, you do not hear my inner cry. Because my feet are gay with dancing, you do not know I die." I like it because it describes me. Like, I walk around with a smile on my face all the time at school and with friends and stuff, but I still have different thoughts running through my head. It's never stable. It's always going. (Speaking foreign language in background) My parents are originally from Cambodia, but I wasn't born in Cambodia. I was born in Thailand because they were having this genocide. Pol Pot was killing all the Cambodian people. And my parents thought they can't... They're not going to let their kids die. They're not going to give up. That's where I learned not to give up. And so they're going to get out. They're going to escape for their... I think what they thought of most of was us. They wanted us to see the world first. They didn't want us to end like that. So they escaped with my grandma, too. It's not just them. And they killed my grandma on the way, because they spread us up -- and then my two brothers in front of their faces. And they just kept going. They kept running away at night. They gathered their kids from the camp, and they kept running and running. My mom was pregnant with me, and so my dad had a couple of the kids on his shoulders because they were really small. They were really young. We're three years apart, each one of us, except for now. Between my brother... me and my brother now, it's six because the one in the middle passed away, and then all this. And so they ran with the kids. They slept on grounds at night, hiding places, ditches, everywhere, anywhere they could. And then they got to a refugee camp on the border of Thailand. And while she escaping, she gave birth, and so I was born on the border of Thailand and Cambodia. And we're... luckily we had family here in America already, so they helped us get to America. I feel guilty about a lot of situations, that, hey, I'm here free. Or, I'm more better off than a lot of people in Cambodia, so it gives me a lot of guilt feeling that I'm not free to let it out. It's like, it's still there. And that's what links me is just saying... I mean, people there walk around. They put on a fake face, they smile, they laugh, they sell stuff at the market, but they know inside that it's, like, it's not there. It's not free. "Because my mouth is wide with laughter and my throat is deep with song, you do not think I suffer after I've held my pain so long. Because my mouth is wide with laughter, you do not hear my inner cry. Because my feet are gay with dancing, you do not know I die."

RECAP

JIM LEHRER: Again, the major stories of this Monday: Protesters clashed with police for a second day in Washington. Stocks rallied following Friday's record losses, and the U.S. Supreme court ruled police may not squeeze luggage to check for drugs. We'll see you on-line and again here tomorrow evening. I'm Jim Lehrer. Thank you and good night.