The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. Leading the news this Thursday, fighting resumed between Iraqi forces and Kurdish rebels, wholesale prices dropped for the fourth straight month, and the space shuttle Atlantis returned safely from its six day mission. We'll have the details in our News Summary in a moment. Judy Woodruffs is in New York tonight. Judy.

MS. WOODRUFF: On the NewsHour tonight, America's banks, how much trouble are they in? We get a report from Paul Solman, then talk with the nation's leading bank regulator, FDIC Chairman William Seidman, and the man who runs Congress's watchdog agency, the U.S. Comptroller General, Charles Bowsher, then a look at one of the pivotal players in any Mideast settlement, Syria, and how it's been affected by the Gulf War. Next, Part 4 of Charlayne Hunter-Gault's series on murder in America, and finally Roger Rosenblatt on some trend setters, past and present.NEWS SUMMARY

MR. LEHRER: Kurdish resistance leaders claimed today Iraqi troops were again attacking the Kurds. In a statement issued in London, a Kurdistan Democratic Party spokesman said artillery, tanks, and helicopter gunships were being used. It said was occurring where U.S. officials yesterday designated a protection zone for Kurdish refugees. Other reports said Kurdish rebels had ambushed a group of Iraqi soldiers in the protective zone. At least 12 soldiers were reported killed. State Department Spokesman Richard Boucher confirmed heavy fighting today between dissidents and Iraqi government forces near the Northern City of Curcka. He said there were also scattered clashes in Southern Iraq. Conditions for the Kurdish refugees continued to worsen today. A Turkish news agency said 37 people died overnight in a camp on its border. Many more have reportedly died trying to get to Iran's border. We have a report from there by Peter Sharpe of Independent Television News.

MR. SHARPE: They had chosen a bleak and unforgiving place to make their escape, a bottleneck pass high in the Zagrof Mountains where at 7 this morning the Kurds, whipped by snow and freezing rain, resumed their long march to safety in Iran, the border now an hour away. For the children it could not have come too soon. Many staggering barefoot through a slurry of mud and ice were very near collapse, all still expected to help carry their share. But for the very young, weakened by hunger and more than seven days on the road, there was more than they could stand. Stalled in the jam of vehicles, this family from Avril mourned the loss of their six month old baby. She'd died at the height of the storm five hours earlier, her body cradled by her grandmother. The mother said she'd wait until she reached Iran before she buried her child. Most of the children were suffering from diarrhea and acute gastroenteritis. There was no longer milk to fill their bottles, just cold water.

MR. LEHRER: Iran today called on the United Nations to act urgently on its Iraqi refugee crisis. It said in a letter to the Secretary General, the crisis was jeopardizing the lives of tens of thousands of people and threatening the security of the region. Air drops of international aid for the refugees continued over Northern Iraq and Turkey today, but Turkish officials said much more is needed. They also said the refugees are so desperate they trample much of the food when they fight to retrieve it. Pres. Bush met with the acting president of the European Community at the White House today. Afterwards, he talked to reporters about U.S. policy toward the Kurdish problem.

PRES. BUSH: The United States is taking the leadership role on bringing refugee support, and we're going to continue to do it, and we're doing a magnificent job in conjunction with these allies. And P.S., I am not going to involve any American troops in a civil war in Iraq. They are not going to be going in there to do what some of my severest critics early on now seem to want me to do. I want these kids to come home and that's what's going to happen. And we are going to do what is right by these refugees and I think the American people expect that and they want that. But I don't think they want to see us bogged down in a civil war by sending in the 82nd Airborne and the 101st or the 7th Calvary.

MR. LEHRER: A United Nations-sponsored Gulf War cease-fire takes effect this evening. It replaces the informal one negotiated in February between allied commander Gen. Norman Schwarzkopf and Iraqi military officials. U.S. forces plan to turn over occupied Iraqi land to a UN observer team tomorrow morning. Judy.

MS. WOODRUFF: Sec. of State James Baker took his Mideast peace mission to Syria today. Baker met with Pres. Assad to get his reaction to Israel's proposal for a regional Mideast peace conference. Before the meeting, Baker said he had made some progress on the trip, but there was still a long way to go to achieve peace in the region. A statement read on Syria's official radio said there could be no peace unless Israel withdraws from the lands that it captured in the 1967 war, including the Golan Heights. Saudi Arabia's foreign minister reportedly told Mr. Baker in a meeting that his government was cutting off financial support to the PLO. According to a senior U.S. official traveling with Baker, the Saudi minister also responded positively to Israel's peace proposal.

MR. LEHRER: Wholesale prices were down .3 percent in March, the Labor Department reported today. Lower gasoline and other energy prices were responsible. It was the fourth straight monthly drop.In another report, the Commerce Department said retail sales fell .8 percent in March. It was the third decline in four months. The head of the Federal Deposit Insurance Corporation said today there may be a shortage of funds to back bank deposits next year. William Seidman told the House Banking Committee the insurance fund could become insolvent in the most dire economic circumstances. We will have Mr. Seidman and more on this story after the News Summary.

MS. WOODRUFF: The space shuttle Atlantis is back on earth. It landed this morning at Edwards Air Force Base in California. The shuttle was to have returned yesterday, but strong winds postponed the homecoming. During the six day mission, the four man, one woman crew released a gamma ray observatory which will circle the earth and search for the most intense radiation in the universe. It also tested equipment needed to build a space station. NASA's next mission is scheduled later this month using the shuttle Discovery. The Senate Judiciary Committee today rejected for the first time one of Pres. Bush's judicial nominees. The panel voted 8 to 6 along strict party lines not to confirm Miami Federal District Judge Kenneth Ryskamp for a seat on the 11th Circuit Court of Appeals. Ryskamp has been criticized as being insensitive to civil rights. Committee Chairman Joseph Biden questioned the judge's longtime membership in a country club that excluded blacks and Jews. This was only the fourth rejection of a presidential nominee to a federal judgeship in the past decade.

MR. LEHRER: One hundred and forty people are feared dead in an Italian ferry accident. The ferry collided with a tanker and burst into flames off Livorno, Italy, late last night. There was only one survivor on the ferry. All 28 crewmen on the tanker escaped. The tanker captain said the ferry ripped a gash in the tanker, spreading burning oil everywhere. Rescuers said they had given up hope of finding any more survivors. Five crew members of a Cypriot oil tanker are missing in another tragedy at Genoa, 85 miles Northeast of the ferry accident. An explosion split the super tanker in two as it was unloading an estimated 1 million barrels of crude oil. It's not known how much may have spilled or what caused the explosion.

MS. WOODRUFF: That's it for our summary of the news. Just ahead, trouble in the banking system, what the Gulf War did for Syria, another in our series of conversations on murder in America, and a Roger Rosenblatt essay. FOCUS - BANK ON THIS?

MR. LEHRER: Our lead story tonight is the American banking system and the fear that it could be headed down the same disaster road as the savings and loans. The Systems major regulator William Seidman has predicted 200 banks could fail this year causing 5 billion dollars in loses and a serious strain on the Federal Insurance Fund. He supports Bush Administration reform proposals to help come to the rescue. But Charles Bowsher Head of the Congress's General Accounting Office does not. They will exchange those differing views right after this backgrounder on the troubles of those banks by Business Correspondent Paul Solman.

SEC. BRADY: Today our banking system is under stress. There could be no doubt that fundamental reform is needed. The banking system is safe but it is not as efficient and competitive as it ought to be.

MR. SOLMAN: At this recent press conference Treasury Secretary Nicholas Brady unveiled the set of new bank reforms. Ending restrictions on interstate banking. on banks entering new businesses. preserving Federal Insurance. These reforms were in a sense an effort to turn back the clock. To undo regulations that have frozen America's commercial banking system in time. Ever since the last banking crisis during the great depression the Government has supposedly protected its thousands of local banks by guaranteeing deposits, prohibiting interstate banking and forbidding the lucrative but risky business of selling stocks and bonds. Jim Grant Editor of Grant's Interest Rate Observer is a bank history buff.

JIM GRANT, Grant's Interest Rate Observer: Congress has to blame some one in the depression and among the people that Congress blamed were bankers. Legislation was enacted to forcibly separate the business of selling stocks and bonds from the business of taking the publics deposits. Now for instance for that reason we have a Morgan Guarantee Bank and Trust Company whichtakes deposits and We have a Morgan Stanley which sells stocks. It was thought that by separating these functions the banking system would be made safer and indeed what Congress wanted in the mid 30s nothing else was safety.

MR. SOLMAN: For decades the U.S. protected commercial banks. It kept them out of trouble but it also kept them from changing with the times. And in these years the times were changing rapidly. Industry and technology were being transformed but the commercial banks stood pat. For them it was business as usual. Take in deposits. loan out the money, maintain the downtown office building, the high over head of large salaries and expense accounts. In short it was an industry ripe for challenge from more efficient competitors. And in the 70s and 80s those competitors sprouted up everywhere. Greenwich, Connecticut's Griffin Ford.

SPOKESMAN: Ford Motor Company has right now a very competitive finance rate in order for you to put some money down and finance the car.

MR. SOLMAN: Increasingly companies like Ford displaced the local bank as the place to go for car financing. Okay I come in to you and say I want to buy the THunderbird and in want to finance it. What do you do?

SPOKESMAN: I get out a form. I get out the Ford Motor Company form.

MR. SOLMAN: You are filling out the form even though you didn't ask me?

SPOKESMAN: Even though you didn't ask me. I am going to assume it.

MR. SOLMAN: Now I say wait a second I already have my own bank. What do I need to finance with you for?

SPOKESMAN: Number one normally a created rate from Ford Motor Company.

MR. SOLMAN: Lower rate.

SPOKESMAN: Much lower. If I can show you a way you can save as much as $1800 to $2500 on the finance changes alone wouldn't you be more interested in doing with Ford than you would with your local bank.

MR. SOLMAN: Well who wouldn't. By selling cars and loans from the same office Ford is able to keep its costs low. This enables the company to offer lower interest rates than banks which is why Ford has become the second largest financial company in the country. It is not just the auto makers who are out competing banks for their customers.

SPOKESMAN: Or you could go to the other extreme and get a one year adjustable in the low 8s.

MR. SOLMAN: When Bart and Karen Snow were looking for a home mortgage they went to a bank first then found about Sound Beach Financial. A company whose only business is offering a large selection of low cost home mortgages. This new competition effected mostly smaller banks but the larger ones are under siege as well. Their main source of revenue wasn't consumer loans but jumbo loans to large corporations. Increasing, however, over the years large corporations have come to borrow their money here on Wall Street using investment banks like Morgan Stanley or Solomon Brothers. Who borrows here.

SPOKESMAN: Very highest quality companies borrow here. The household name companies, the IBMs, the Fords, the McDonalds.

MR. SOLMAN: Quite simply big business switched to investment banks for the same reason people switched to the local Ford dealer. The rates were lower. That is because investment banks can help companies borrow large amounts cheaply by issuing IOUs and selling them to rich individuals and institutions like pension funds through the bond market. Investment banks using modern technology, fewer employees and can place a big loan more efficiently than a traditional bank. As investment banks and mortgage brokers and car companies undersold them commercial banks became increasingly obsolete on the lending side of their business and they have been losing business on the depositor side as well. Solomon Brothers can help lend out the money of rich depositors like pension funds more efficiently and other financial firms can do the same thing for small depositors like you and me. Fidelity of Boston is a Mutual Fund Company that began by putting customers money in to different funds to buy groups of stocks. More recently it created mutual funds to invest in groups or mortgages, groups of almost any investment. Using modern telephone technology to lure away the traditional bank customer offering traditional banks services like checking.

SPOKESMAN: The customer is allowed to buy or sell the fund over the telephone from any where in the World really with a 800 number at will.

MR. SOLMAN: So I could take my money out at any time?

SPOKESMAN: Yes all of our money market funds or bond funds offering the privilege of writing a check. So you can simply write a check and use it any way that you want just as you would a checking account check.

MR. SOLMAN: In other words Fidelity is another kind of bank with lower overhead, fewer buildings, fewer employees. And so it can invest a depositors money more cheaply and charge the depositor less for the service. Okay so commercial banks have competitors eating away at both sides of their business. Taking way depositors on the one hand borrowers on the other. Surely the commercial banks noticed this. So how did they try to compete. Well they did by looking for loans with higher profit margins to cover their higher expense. Loans to Third World countries for example, to oil wild catters. to leveraged buyouts, to Donald Trump. Unfortunately these loans not only brought higher profit margins they also brought higher risks. These risks have now come home to roost and commercial banks from Chevy Chase, Maryland to the Chase Manhattan are battling for their lives and blaming their present troubles on the regulations of the past. Chase's Bob Douglas says he would love to offer customer financial products like mutual funds.

MR. CHASE: The problem today is not that we do not know how to offer these products. The problem today is that we are restricted in some of the products that we can offer and because mutual funds can involve securities and the underwriting of securities we can not offer mutual funds. Here we have a distribution system, we have the investment management capability. We do it doe trust customers but because of this archaic law we can not compete with fidelity and some of their products.

MR. SOLMAN: Sympathetic to such complaints the Administration is proposing to let banks expand in to financial services like Mutual funds and even in to insurance. Businesses they were in in the past. There are other features of the new plan as well. The most important of which may be a go ahead for interstate banking.

SEC. BRADY: The Administrations plan will make banks more competitive by modernizing out dated laws like the one that restricts interstate banking and branching. A California Bank can open a branch in Birmingham, England but not in Birmingham, Alabama.

MR. SOLMAN: The lack of interstate banking has resulted in regionalism. The U.S. has more than 12,000 banks a huge and arguably inefficient number when compared to many countries with which we compete. But for all these changes the commercial banking system will remain protected by the Federal Government through the Brady plan and a somewhat revised FDIC.

SEC. BRADY: What this legislation will do is to make a stronger industry both small and big banks.

MR. SOLMAN: Over the next several months Congress will consider the Administrations proposed banks reforms. Today the issue of mounting bank loses was addressed at a hearing of the House Banking Committee. Regulator William Seidman said that the fund that insures most people's bank deposits could run out of money next year.

MR. LEHRER: Now we go now to William Seidman the Chairman of the Federal Deposit Insurance Corporation and Charles Bowsher the Comptroller General of the United States and the Head of Congress's watch dong agency the General Accounting Office. Gentlemen first let's go back to what the problem is. Mr. Bowsher when you look at the banks do you see the savings and loan problem all over again?

MR. BOWSHER: Well I think that what see are some similar trends here. In other words we had a large insurance fund and we've gone through that fund or close to it as Bill has testified today and we also see some very weak control situations when go in and look at the failed banks and ask. So what we really think is that you have to build in some reforms here if we are going to recapitalize the fund.

MR. LEHRER: Build in what kind of reforms?

MR. BOWSHER: We think the accounting, the auditing, the early warnings of the regulators all of that we think that has to be strengthened.

MR. LEHRER: Not the kind of reforms that the Administration is talking about?

MR. BOWSHER: Well then I think that you have to modernize the system. So I do believe that you have to come with some new powers but I don't think that you should be granting powers to institutions that are on the problem bank list and don't have some of these reforms achieved.

MR. LEHRER: In other words you have to solve the internal problems that exist now before you go beyond that.

MR. BOWSHER: That would be our position.

MR. LEHRER: That is not your position is it Mr. Seidman?

MR. SEIDMAN: No it is my view that we need to do both. We need to give the banks a chance to compete. Your film made it very clear why they are having troubles and they are perfectly competent to compete. But at the same time we have to have the safety measures in place that Mr. Bowsher is talking about.

MR. LEHRER: You have said that there are 200 banks you think are going to fail this year. Is that right? Do you stick by that figure?

MR. SEIDMAN: Yes a few less than that but in that range.

MR. LEHRER: Is that inevitable? Are you and other regulators moving to try and prevent that or is that just a given?

MR. SEIDMAN: Well we try to prevent it but if the banks have gotten themselves in to such trouble and the economy and the recession causes them to lose money then it is our estimate that is how many will fail. We have a 1000 problem banks on the list of which we think 200 or slightly less will fail.

MR. LEHRER: How do assess the way that Mr. Seidman and his people go about this process of moving in or helping out or doing anything to problem banks, Mr. Bowsher. Your agency has looked that very carefully.

MR. BOWSHER: Yes we testified recently before the Banking Committee and issued a report where we thought that the problems had often been identified but the resolution with the management, and the board of directors and audit committees had not been properly carried out in a timely fashion. So that is one of the reasons we are advocating a trip wire approach where the people would actually if we don't have good control in that there would be some limitations put on what that bank could do by the regulators.

MR. LEHRER: In other words stiffer regulations?

MR. BOWSHER: Stiffer regulations is what we believe we have to have and more decisive regulation. Because I think that a lot of times that problem has been identified by the examiners out there in the field.

MR. LEHRER: And then what happened the FDIC didn't do any thing about it?

MR. BOWSHER: Well I think it is more that the board of directors and the audit committees and that. They make promises and they don't so anything about it and unfortunately I think the regulators haven't moved as strong and they could and should in the future.

MR. LEHRER: Do you plead guilty to that?

MR. SEIDMAN: Well like most of these things it is true in some case and not in others. In general we have to deal with banks that require action while they are making profits, while they are doing pretty well but they are getting in to trouble because they are concentrating in certain areas making too many real estate loans and it takes time to get them straightened out. Could we have been tougher? Yes. And that is why I support the kind of thing that will put some guide lines in the law so the regulator won't have to argue his case he will just have to look at the law.

MR. LEHRER: What is it that you look for at a bank. I mean is it obvious to an experienced examiner to go in to a bank, let's say today, and say look if you continue doing what you are doing you are going to have a problem in two years or a year from now so stop it now. Is that kind of thing even possible?

MR. SEIDMAN: It is possible but it is not obvious. It is a question of judgement but we can see when they change the law to allow banks to lend money on raw land. They began to lend money on raw land and concentrate in that area and as soon as they changed the law they began to get in trouble by lending money on raw land. So yes you can go in and see these things. It take time and an experienced examiner and it is not a red flag but you can make a judgement on it.

MR. LEHRER: Do you have the power now to tell a bank to stop doing that whatever it is?

MR. SEIDMAN: Well we have the power with the banks that we are the primary federal regulator of it which is the smaller banks the state small banks. And we can tell them if we think the practice that they are doing jeopardizes their safety and soundness. The larger banks are handled by the Comptroller and the Federal Reserve.

MR. LEHRER: Mr. Bowsher what did your investigation show to be the primary cause of these problems these banks are having, bad management, a combination of a lot of things?

MR. BOWSHER: It is a combination but bad management in the failed banks is a fairly common denominator. Also you have these bad loans. If you go out and make to many commercial loans as Bill just pointed out here as the law change here in the early 80s why then you are stuck with those bad loans and that. So I think that it was loan policy, bad management, lack of controls. You know you had a situation like at the Continental Illinois Bank where they had a pretty well run bank but then they got involved in all those oil leases out in Oklahoma they didn't have controls over that so they go themselves in to trouble. So this is a situation where you have to be reviewing it and you have to be reporting it and I am glad to hear Bill say tonight that he believes that we have to get a little tougher enforcement going because that is the only thing I think is going to prevent it in the future. And there is no sense in recapitalizing the fund and having these problems repeat.

MR. LEHRER: And that was what you were talking about today to the House Banking Committee. You need more money, you are going to run out of money. The FDIC Fund correct?

MR. SEIDMAN: It is likely that we will next year yes.

MR. LEHRER: And you want the power to borrow money from the U.S. Treasury?

MR. SEIDMAN: Well we want the power to borrow money partly from the Federal Reserve and partly from the Treasury but we want the power to borrow money for two things. To carry the assets that we get out of failed banks until we can sell those assets and pay the money back and two to cover the loses in those banks and we'll pay that back by increasing the premiums that banks pay to cover what ever we borrow.

MR. LEHRER: You don't think that is a good idea do you Mr. Bowsher?

MR. SEIDMAN: Well I think some features of that make sense. But I think that I would do all the borrowing from Treasury. In other words I am not sure that it makes sense to bring the central bank in here and shift assets for other assets like this plan would do. I think that you would be much better off to do straight Treasury borrowing and I believe that one thing that we want to avoid is what I think we did in the S&L crisis and that is going for an off balance sheet or an off budget solution. Trying to kid people that this wasn't going to cost the tax payer anything.

MR. LEHRER: But you are saying it is going to cost the tax payer?

MR. BOWSHER: Well the tax payers money is going to be at risk here when you do this borrowing. In other words hopefully the banks could pay it back but the large sums of money here. In other words hopeful the banks could pay it back but the large sums of money here. In other words we took 50 years to build up a 18 million dollar fund. We've gone through that in three or four years. We have large loses possibly facing us here and so whether the banks can pay this all back or not we don't know. And I don't think that we should kid ourselves. Once we see that we have real losses then I think the federal government ought to recognize that.

MR. LEHRER: In other words, if it's in the public interest to keep the banks safe, then it's call it out right at the front, do it now?

MR. BOWSHER: Yes. And I have no problem with the barring idea, but I'd do it all from the Treasury.

MR. LEHRER: What's wrong with that?

MR. SEIDMAN: Well, I don't think where we borrow from is a key issue. I think there are good reasons to borrow from the Fed. They are, after all, an agency put in place to stabilize the banking system, and I think it makes sense to borrow from them. But whether we borrow from them or the Treasury is not the key issue. The key issue is that we have the banking system pay what they can on this problem. And there's only two sources of funds. It's either the banks or the taxpayer. It's my view that to the extent possible the banks ought to pay for this and under current conditions I think they can. And the taxpayers will pay nothing.

MR. LEHRER: You question that.

MR. BOWSHER: Well, I question whether eventually the taxpayer won't have to pay something because of the huge sums that we're looking at here. Now I hope the bill is right. In other words, I would hope and the bankers that they can repay it all, and that would be like the bailouts with Chrysler and Lockheed and that, where they were able to repay the loan. But when you're looking at billions of dollars here of potential losses -- and I think we ought to be realistic -- it might cost the taxpayers some money.

MR. LEHRER: $70 billion, is that the figure?

MR. SEIDMAN: That's not the figure that it's going to cost in the end because most of that will be paid back -- 45 billion of the 70 will be paid back from liquidating the banks. So what we're really talking about is 25 billion as a potential cost. Now our numbers today show that the loss is not going to be that high. That 25 is going to be available so if we get the worst scenario that anybody has put forward over the next three years, there will be funds to take care of it through the banking system.

MR. LEHRER: That doesn't include interest on the loans though, does it, on borrowing that money?

MR. SEIDMAN: The premiums will include interest on the loans so that every time we borrow 10 billion, we raise the premium enough to handle paying back that 10 billion with interest.

MR. LEHRER: Yeah. That doesn't -- Mr. Bowsher.

MR. BOWSHER: Well, the one thing there too is that the banks have requested and I think the administration has gone along with a cap on the raise in the premium. If you go above that, why of course the taxpayer would have to come into it.

MR. LEHRER: Mr. Bowsher, finally, is -- am I reading you right that your real message is that you don't believe Mr. Seidman and the others in charge of all of this are sending the right signals of alarm, that this system could be in much bigger trouble than it appears to be?

MR. BOWSHER: No, I'm not in disagreement here with Bill and his figures. I think he presented today to the Congress a pretty realistic view on what the situation is. All I'm saying is I don't think we should kid ourselves. When you go to borrowing this size of money and to say that it's not a taxpayer bailout, as the administration is trying to say, I think you'd better not kid yourself, because at some point in time the taxpayers might be a partner in this whole thing.

MR. LEHRER: And they should be told that now?

MR. BOWSHER: And they should be told that up front, and I think we should have done it on the S&L bailout, and that's one of the reasons that Congress has trouble with the additional sums that are being requested.

MR. SEIDMAN: I hate to make this a love fest, but we agree. Of course, the taxpayer may pay. The question is: Are we going to try to make sure we get everything we can from the banking system and protect the taxpayer to every extent we can? Once we start talking about the taxpayer paying, it's easy for the banks to slip aside and say, okay, let's let 'em pay. So we're trying to avoid that.

MR. LEHRER: Do you smell the savings & loan thing all over again?

MR. SEIDMAN: Well, I think there are substantial differences between the two, but they have some similarities. But there's nowhere near the losses in the banking system that there was in the S&L system. The system isn't out of control in the way it was in the S&L system. The S&Ls had no capital. The banks have a little over 200 billion. So there are some similarities, but we're not going to have a disaster like we had in the S&L industry.

MR. LEHRER: Yeah. Do you agree?

MR. BOWSHER: I think that's right, but I think we also see these trends where we've lost the fund now or come very close to losing the fund, and a lot depends on the economy. If we have a weak economy and a recession, I think again Bill said that today, you're going to have more losses in that. When we look at the failed banks, the banks that the FDIC has had to bail out, we see a lot of similar problems, and so now it's a question of how many are there going to be.

MR. LEHRER: All right, gentlemen, thank you very much.

MS. WOODRUFF: Still ahead on the NewsHour, Syria looks to the West, a Charlayne Hunter-Gault conversation on murder in America, and a Roger Rosenblatt essay. FOCUS - SHIFTING SANDS

MS. WOODRUFF: Next tonight we focus on Syria and its growing influence in the Middle East peace process. As we reported earlier, Sec. of State Baker met this afternoon with Pres. Hafas Al Assad in Damascus. Although no details of the meeting were announced, Syria's official radio today repeated the country's longstanding demand that Israel relinquish all lands it captured in the 1967 war, including the Golan Heights. The report said unless that is achieved, any effort to find peace in the region is stillborn. For more than 20 years, Syria has been the rock on which many Mideast plans have been crushed, but as Ian Williams of Independent Television News reports, the Gulf War has brought the government in Damascus closer to the center of Mideast diplomacy.

MR. WILLIAMS: You don't have to look far in the Syrian capital to see where absolute power lies. For 21 years, Hafas Al Assad and his Baath Party have ruled the civilian people with an iron grip, never hesitating to crush opposition at home. And before Syria joined the alliance against Saddam Hussein, it was labeled as a country that sponsored terrorism abroad. Now Damascus is relishing its newly acquired attention. The government, while now publicly endorsing direct dialogue with Israel, has toned down its rhetoric.

NASSER KADOUR, Foreign Affairs Minister: [Speaking through Interpreter] Our position in the Arab-Israeli dispute cannot be described as being either too lenient or as too uncompromising. Our principles are genuine and unshakable and are based on the United Nations resolutions and on international law.

MR. WILLIAMS: Though from the party faithful, here the editor of the Baath newspaper an uncompromising line.

TURKI SAKER, Chief Editor, "Al-Baath": [Speaking through Interpreter] Flexibility should be within the framework of the UN resolutions. We believe that pressure should be put on Israel; it is Israel which is the aggressor and which ignores the United Nations resolutions. Therefore, international pressure should be exerted on Israel to force it to comply with the United Nations resolutions.

MR. WILLIAMS: Yet when we filmed in the streets here, we were prevented from interviewing passers-by, the ministry of information saying we might encounter strong anti-Israeli views and that was not the impression they wanted to give to the world right now. Confusing signals then -- clearly, visiting Western politicians they have heard enough in private to justify some hope, but Pres. Assad is a survivor and that's taken pragmatism and coming, no more so than with the aspirations of the Palestinians. This camp lies on the outskirts of Damascus and is home to some of the 1/2 million Palestinian refugees living in Syria. Pres. Assad has always said that solving the Palestinian question must be part of any comprehensive peace plan for the region. Now Damascus appears to be trying to ensure itself a pivotal role here by resting control of the movement away from Yasser Arafat who's been discredited in the West for his support for Saddam Hussein.

KHALED FAHUM, Palestinian National Salvation Front: And I think you must have a new leadership, yes, a new leadership, but it's up to the council.

MR. WILLIAMS: Khaled Fahum, a founder member of the PLO and chairman of the radical Palestinian National Salvation Front, is being promoted by Pres. Assad as an alternative to Mr. Arafat.

KHALED FAHUM: The Syrians and the Palestinians are really one people. They have the same habits, the same history, the same, you know, outlook for the future. So see there's always concern with the Palestinian problem. Syria will be very angry if there is, you know, a liquidation of the Palestinian question. That's why the PLO needs to be in good terms with Syria, because Syria is the strongest defendant of the Palestinian question.

MR. WILLIAMS: And Mr. Arafat's failings are being drummed home by the official media.

MOHAMMED KATIB, Director, Syrian TV: It hasn't served the Palestinian cause. He hurt his cause. He doesn't represent the Palestinian people. The Palestinian people who are fighting the Israeli occupation, they are real and legitimate representatives of the Palestinian people, not Arafat.

MR. WILLIAMS: The streets of Damascus tell another story about Syria's priorities. This is a highly militaristic society and any bid for the role of broker in the region is not being done at the expense of its continuing military build-up. "Palestine is our home, Jerusalem is our capital," so run the words of this song, sung for our benefit by Syrian children on a day trip to the Golan Heights from their homes in Damascus. It's a popular and officially encouraged excursion. The wrecked buildings of the border town of Kanatra are used as an adventure playground and also serve as props for political lessons. Syria says the town was leveled by departing Israeli soldiers in 1973. Now it's preserved as a monument. We were shown the border by a ministry of information official who prevented us from filming Syria's substantial military presence. Across the barbed wire, Israel still occupies 2/3 of Golan captured from Syria in the 1967 war. A United Nations peacekeeping force drawn from Finland and Austria keeps an uneasy watch. They police the 200 meter wide cease-fire line separating the two sides who are technically still at war. High above, the eyes and ears of the Israelis, below day tripping Syrian families stroll amid the well preserved estates of rubble which carry their government's message. "Destroyed by Zionists," reads this placard on what's described as a hospital. From Damascus, the signs are mixed. The one common threat, to play a formative role in the area's future affairs.

NASSER KADOUR, Foreign Affairs Minister: [Speaking through Interpreter] Naturally Syria, a significant and leading country, would be involved in the Middle East peace process. I can't imagine the implementation of a peace process without Syria assuming a significant role.

MR. WILLIAMS: The future of the Golan Heights will be critical to how that process is played out. With the demise of Iraq, Syria has assumed the mantle of the most formidable fighting force in the Middle East after Israel. Reports of a conversion to peace, though welcome, may be premature. SERIES - MURDER IN AMERICA

MR. LEHRER: Now murder in America. We continue our series on why so many Americans kill each other. Tonight Charlayne Hunter-Gault gets the view from behind bars. She talks with the deputy commissioner for the New York City Department of Corrections.

MS. HUNTER-GAULT: Rikers Island is the heart of the New York City jail system. Some 130,000 prisoners, age 16 and over, are locked up here every year, most of them only for stays of a few weeks while awaiting trial. In that period of time, some attempt is made to offer legal services, counseling, job training, and education. It's a difficult job at best, but especially with an institution that often runs at 105 percent of capacity. The deputy commissioner in charge of those services is Janie Jeffers, a 19 year veteran of the system. Commissioner Jeffers, why do you think the murder rate is soaring?

JANIE JEFFERS, Corrections Official: It's a complex question, but the answers I think are fairly obvious. Drugs has been the scourge of the '80s into the '90s. It's a boom business and there's a lot of competition, and young people are willing to kill others for their territory. They see it as the cost of doing business. Black youth between the ages of 15 and 24 are seven times more likely to die from a homicide than a white person.

MS. HUNTER-GAULT: Who's your typical inmate? Can you give me a little bit of a profile?

MS. JEFFERS: The public has a misconception about people who commit homicides. Homicides are generally episodic. They are not the hit man that you read about. You kill because of proximity. You're the nearest thing to me and if there's a frustration and rage, you are the most likely to be the brunt of it. And when people who commit homicides come to jail, they're generally not problematic. They really are not. They generally are on their best behavior, because the episode has abated and the cues that caused that kind of outrage or rage, rather, is not present. Part of it is that they're not connected. You talk to them and they're the most alienated, disconnected group of people you'd want to talk to. But the thing that I find most despairing is that there is no hope. They absolutely see no reason to believe, as you and I may have believed, that there was an opportunity in the system, that the system would work for us, that if we went to school and worked hard and all the things that one hears growing up, they don't believe that. I remember talking to one young man who was in on a double homicide and I asked him, why, because I'm really trying to understand what kind of anger do you have to have to take someone else's life, and he said, he owed me money, and I said, well, what else? He said, that was it, he owed me money, I had to save face, I have to live in that community. And he killed that person with very little thought of punishment. And if you look at the statistics in terms of the rate or the punishment for black on black crime, it is not a deterrent. There is less likelihood that a person -- a black person killing another black person will not get the same punishment, if you will, as if they killed a white person. That's not my opinion. That's just fact that you can look at and come to that conclusion on your own.

MS. HUNTER-GAULT: And so that -- what does that do? What kind of -- what impact does that have?

MS. JEFFERS: You almost said the word. What kind of signal does that send? Indeed, what kind of signal does it send? If I can strike out and injure you and hurt you with very little fear of retribution or any kind of punishment, then does that not send a message that it encourages it, tacitly perhaps, but it does it not send that message and do they not pick them up? They're very bright people. They're entrepreneurs. It takes a lot of moxie to run a drug operation. If you would stand on the corner literally and watch this, the organization, the skills, the development that has -- they put into that, and why do they put so much energy into that effort and not to others, because they believe that that immediate gratification is all that is ever going to be given to them. And do they believe they'll last to old age? No, they don't necessarily plan to marry and to buy a home and to settle down and to do all those things, so within their statements about those kinds of, their thinking on those kinds of issues comes out the fact they just don't care. There's not that caring or commitment or that kind of forming relationships that tell you that you're going to be here for a while. They don't have it. They don't think about having children and taking care of them. Yes, they may have children because of the result of having a sexual relation, but not in terms of putting a family together and seeing that family grow and prosper.

MS. HUNTER-GAULT: And they tell you, I don't have a family because --

MS. JEFFERS: They'll tell you that they don't think they'll live to be 25 because most of their friends don't live to be 25.

MS. HUNTER-GAULT: Do you see a difference in the kinds of murders being committed these days?

MS. JEFFERS: Much more violent, much more violent, with very little provocation. In the old days, if you will, they'd rob you and take your goods and let you go on about your way. Now they will hurt you for fun, just for entertainment value, because, as I said before, if they don't care about themselves, what do you think they care about you? And also, there is the pre-sureness on their part that they won't be apprehended, so it's sport. It's sport. And many of them will tell in laughing tones in terms what they did to someone who was really a victim, and do you feel any remorse over that, no, none.

MS. HUNTER-GAULT: In whom do you think the solution lies?

MS. JEFFERS: I'm not contending to have all the answers, but I think the most obvious one is that were the drugs not there, that would forestall many of the problems. Are the drugs likely to be there for many years? Yes. What I see beginning to start now with the younger kids, below the 15 to 24 age, is that they're not as enticed or as interested in using drugs as their predecessors may be, and why is that? It's the reason that I don't smoke and it's probably the reason you don't smoke. We were taught through constant bombardment, through educational programs, through all the things that cause me not to want to smoke that these things were injurious. So it starts with education. And there are things that we can do for those people who are in that 15 to 24 age rage, but there are many more things we can do for those people, those younger kids who have not been seduced by the drug trade. And that's where we can make an effort. Will it stop many of them from going into drugs with $5,000 an hour kind of pay off versus working at McDonald's for minimum wage? No. But if they have the expectations that the things they do by going to school and working hard will make a difference, they will not necessarily go to the drug trade because they know that's a dead end street, even the people who are in it know it's a dead end street.

MS. HUNTER-GAULT: Do you think more prisons may be part of the answer?

MS. JEFFERS: If that were the answer, then we'd have a lower crime rate, because there was a study that was done by a consulting firm that said -- and has proved true -- if you build a bed, you'll fill a bed. And that does not -- you can't build your way out of the problem. There's something called alternative to incarceration. Not everyone belongs in jail. Many violent criminals who show no interest in changing their behavior probably do need that as an option. But there are other people who could do their time and serve their time in places other than in very expensive jail cells.

MS. HUNTER-GAULT: Including murderers, some of these young murderers we're talking about?

MS. JEFFERS: If you look at the circumstances of the homicide - - and again I say if you group everyone and paint them all with that same brush, you would put them all on an island somewhere and leave them there, but if you look at the circumstances and judge between those groups of people, who is likely to benefit from the service, yes, then I think, yes, you can differentiate. And people who have committed homicides have gone up to work release programs; they're just not publicized. They sit on the trains next to you. They go to work with you every day. They're not a risk to you, because you don't represent a threat to them.

MS. HUNTER-GAULT: Is a murderer once a murderer always a murderer, or --

MS. JEFFERS: Of course not, of course not. And there are a number of -- a number, a significant number of people who for whatever reason decided that course is not for them. Many of them just grow tired of it. They just get tired of going to jail, simply and purely. Others find other options. They come to jail. They learn how to read, for the first time ever. They're not the frustration and the embarrassment of having to ask someone to read something, so they get that self confidence.

MS. HUNTER-GAULT: But I've also learned that in prisons they learn to be, they may learn to read better, but many of them learn to be better criminals. What do they learn the most, how to read, or how to be better murderers?

MS. JEFFERS: Good question. It depends on the individual. Some come out more slick than they ever would have been had they not come in, but if you go into the libraries and look at the numbers of people who are there, who come there every day, and if you go into the schools and look at the number of kids who didn't go to school in the street, if you will, but do go when they're in jail, those are the ones who've decided they want to make a difference.

MS. HUNTER-GAULT: Do you think that we as a society have become just numb to murder?

MS. JEFFERS: I actually gave some thought to that too the other day. I'm reading the headline and it said, "Two Thousand Murder Victims." And I skimmed it. And as I skimmed it, I said, you're skimming something that says there were 2,000 persons murdered in this city. You have to enure yourself to the bombardment of that kind of information. Otherwise you just wouldn't be able to function. But in enuring yourself and buttressing yourself, then you don't get committed. I didn't get outraged and say, this is it, I've got to get more personally involved. And of course, if you don't take that pro-active stance and wait for the next guy to do it, it never gets done. So you're quite right. People are waiting for the clarion call, if you will, to say here's what we need to do. And they may be out there, I just don't know of anyone right now that is putting a program in place that lots of people are lining behind to say I want to invest in that. I want to invest my time, I want to volunteer, I want to be a part of whatever that resource is.

MS. HUNTER-GAULT: In the first week of 1991 in this city alone, there were eight murders. If that rate continues, you can see what the numbers will be by the end of the year. If you could wave a magic wand for where you work, what would you want to see done?

MS. JEFFERS: My wish list would be for the community to recognize that Rikers is also a part of their community and to offer those resources and to volunteer to do those things that we do know make a difference.

MS. HUNTER-GAULT: How do you know they made a difference?

MS. JEFFERS: Because you could see their behavior, you could see that blank look in their face, that glazed over look that they all assume to do theirtime out there, to make it as painless as possible. You could see that spark coming back in their eyes. You could see them getting more interested. They came out of their cells. They participated in more programs. They started opening up, wanting help. So it may seem like a naive approach, but the difference is one human being caring for another human being has always made the difference and will continue to always make the difference.

MS. HUNTER-GAULT: Well, Janie Jeffers, thank you.

MS. JEFFERS: Thank you.

MR. LEHRER: Tomorrow night a conversation with a New York State Supreme Court Justice. ESSAY - PAST PERFECT

MS. WOODRUFF: Finally tonight we have an essay. Our regular essayist, Roger Rosenblatt, editor at large of Life Magazine, looks at some things from the past that are still setting trends.

MR. ROSENBLATT: The idea of what is modern is growing old. One sees this at every meeting with modern art or the modern novel, or modern architecture. The thing is instantly recognizable for its modernity, identifiable by its angularity or its naturalism or its clean, hard lines. When Martha Graham died at the age of 96, the name of modern dance was invoked to memorialize her. [Dance Segment] Yet, today one looks at the modern dance of Martha Graham and sees everything that has long been connected with modern life. The new is tried and true. Where once we had never been feels like home. [Dance Segment] Is the world then to be modern forever? That seems an odd thing to contemplate, since we associate modernity with revolution, and revolution now seems a thing of the past. Einstein made mathematics modern and Marx made the idea of the state modern, even though the modern state he made is rapidly coming apart. Freud made the human heart modern, opening the private passions to public inspection and, in general, if nervous, acceptance. Picasso made art modern. Stravinsky modernized music. T.S. Elliot did the same with poetry. All looked back on a past they decided needed correction. Modern was the name of the correction. [Dance Segment] So Martha Graham too looked back on classical ballet and found it wanting. She saw the movement of the body as the expression of the soul and she made dances for the soul. The dance, the modern dance, was not merely to express emotion. It was to be emotion and to elicit that emotion in the audience. The body's motions, her famous contraction and release, simulated a world of inner feeling, in its way an homage to Freud. Everything that was new or stark about one's times could be laid bare. Whatever was true about the self was modern. What has happened to modernity since then? Has it all been said by the modernists? Is the world now mired in the old modernity, in a sort of classical modernity in which it awaits habitually, jadedly, the newest new? Hard to imagine what could shock us now. The new is what's expected, the new computers, the new CDs, the faxes, the smart bombs. A brand new theory of anything appears old hat in a few days. It's as if people have grown so accustomed to novelty that true revolution of thought is automatically precluded -- the modern mind itself being the revolutionized receptacle. [Dance Segment] But to be new is not necessary to be modern. To be modern is to be one's times, to understand something at the center of one's times and to give it shape and a voice. Einstein understood his times, as Marx and Freud understood theirs. Picasso saw into his times and gave them color, as Stravinski gave them tone, as T.S. Elliot gave them words. Who understands our times well enough to make them modern? No one is as yet in sight, but perhaps someone out of sight is working now to bring us to the light again, as Martha Graham brought us to hers these many years. She saw the world moving differently from the inside out. She put it on stage and made it dance. I'm Roger Rosenblatt. RECAP

MR. LEHRER: Again, the major stories of this Thursday, Kurdish leaders said there was new fighting between Iraqi forces and Kurds. A rebel spokesman said it was taking place in the region designated by the United States as a Kurdish protection zone. A U.N. sponsored Gulf War cease-fire went into effect tonight. U.S. forces will turn over occupied Iraqi land to a U.N. team tomorrow. And in this country wholesale prices fell for the fourth straight month. Good night, Judy.

MS. WOODRUFF: Good night, Jim. That's our NewsHour for tonight. We'll be back tomorrow night with a look at how the press handled the new Nancy Reagan biography. I'm Judy Woodruff. Thank you and good night.