The MacNeil/Lehrer NewsHour

Intro

JIM LEHRER: Good evening. Leading the news this Friday, there were signs of a breakthrough in the Lebanon hostage situation. The Treasury Department reduced the interest paid on U.S. Savings Bonds. And oil prices and the government's leading economic indicators went up. We will the details in our news summary in a moment. Robin?

ROBERT MacNEIL: After the news summary, U.S. Treasurer Katherine Ortega and financial writer Marshall Loeb discuss lower interest rates for savings bonds. We have reports on two close Senate battles: California and Washington State. Noted South African apartheid opponent Helen Suzman debates sanctions with Congressional delegate Walter Fauntroy. And Roger Rosenblatt has an essay on Halloween.News Summary

LEHRER: The U.S. hostages in Lebanon may be released soon. That stunning word came late today from Terry Waite, the Anglican Church envoy who has been working to obtain the freedom for six Americans and other Westerners held by Islamic terrorists. Waite told the Reuters News Agency in Beurit, "It is just possible something might happen in the next day or so." He then flew off to Cyprus in a U.S. military helicopter, where he was met by a U.S. embassy car, but declined to talk to reporters. There was also an unconfirmed Christian Radio report in Beirut which said two French hostages had already been released, with the six Americans to follow shortly. The release possibility coincided with confirmation with United States has been gradually reducing the size of the U.S. embassy staff in Beirut. A State Department spokesman in Washington said the reduction was for security reasons. The Associated Press said it was linked to Britain's decision a week ago to sever diplomatic relations with Syria. The evacuated American diplomats were flown to Cyprus, according to the AP.

Syria's ambassador to Britain and his counterpart in Damascus both left for home also today. Neil Bennett of the BBC has this report.

NEIL BENNETT [voice-over]: The ambassador, Dr. Haydar, left with his three year old daughter Dahlia in his arms. He repeated denials that he'd even done anything illegal here, and left with this parting shot.

LOUTFALLAH HAYDAR, Syrian ambassador: I can assure you that the times have gone when any government in the world, any power on earth, could intimidate Syria or impose any conditions on its behavior or deviate the Syrian people and their leaders from the course they have chosen.

BENNETT [voice-over]: Then the family were on their way to Heathrow Airport, where there was a discreet police presence as the 17 expelled diplomats said their goodbyes. The flight to Damascus via Frankfurt was on time, and the Syrians had met the seven day deadline to get out of Britain. In Damascus, there was an early start too for the British ambassador, Roger Tomkys and his wife. The Syrians have given assurances about the safety of the 250 Britons still in their country. Their interests will be looked after by three of our diplomats working at the Australian embassy.

LEHRER: When he landed at Heathrow Airport, Britain's ambassador told waiting reporters Britain had no choice but to sever relations with Syria.

BENNETT [voice-over]: Arriving back in Britain, Mr. Tomkys was asked about Syrian links with terrorism.

ROGER TOMKYS, British ambassador: There is no doubt at all that many terrorist organizations have had facilities in Damascusin the past, that there was a lot of connections between many terrorist organizations and the authorities in Damascus.

LEHRER: The Syrians have called for a concerted Arab action against Britain, but so far have received only lukewarm support. Robin?

MacNEIL: The government lowered the minimum guaranteed interest rates on new savings bonds sold after today from 7.5 to 6%. The bonds, which earn interest free of federal and state tax until they're redeemed, and come in denominations as low as $25, are a popular investment with millions of Americans. The Treasury Department said it was cutting the rate to reflect the decline in market interest rates and to make federal government borrowing more economical.

[voice-over]: With bonds selling at 7.5% for one last day, the Treasury announcement caused a late minute buying spree across the country. On Wall Street, New Yorkers formed long lines outside the Federal Reserve Office, after banks and savings and loans sold out of the bonds.

BOND BUYER: I can't get over this line. You'd think they were giving the money away, instead of us putting it in there.

BOND BUYER: As far as my particular expenses go, it's a good investment for me and for my portfolio.

BOND BUYER: I've been here before. So I figured I'd come down and get a few more bonds.

MacNEIL [voice-over]: This is the first time the guaranteed interest rate on the savings bond has fallen since 1982. Anticipating today's announcement, Americans have bought more bonds in the last few months than any time since World War II.

[on camera] Japan today lowered its basic interest rate -- the discount rate -- from 3.5 to 3% to stimulate its economy. It was a move urged on Japan by the United States in its effort to sell more U.S. goods in Japan and reduce the trade imbalance between the two countries. Earlier today, U.S. Treasury Secretary James Baker and Japanese Finance Minister Kiichi Miyazawa announced an agreement to cooperate on economic problems, including stabilization of exchange rates. The dollar has declined by 58% against the yen in just over a year.

LEHRER: And everything was up today on the U.S. economic front. The government's index of leading economic indicators rose .4% in September, factory orders 3.4%. Both figures came from the Commerce Department, and both were seen by White House spokesman Larry Speaks as signs of a new boom for American business. The price of oil also increased on U.S. and international commodity markets. The price of U.S. crude was up to more than $15.50 a barrel, a $1.50 jump since the firing Wednesday of Saudi Arabia's oil minister Sheik Yamani.

MacNEIL: Captured American airman Eugene Hasenfus took the witness stand for the first time today in this trial in Nicaragua, but refused to answer questions. Hasenfus has told American newsmen in interviews that he considered himself guilty of the charges of flying arms to the contra rebels. Today he said he would not answer questions until he'd had another chance to talk to his lawyer.

Cuba allowed a U.S. Coast Guard helicopter to land and refuel yesterday, when it ran short of fuel during a rescue mission off the Cuban coast. The H-3 helicopter was looking for a missing seaman from a coastal freighter which sank Wednesday night. It was the first time a U.S. military aircraft has landed in Cuba since the early days of the Castro government.

LEHRER: There is talk of war again over the Falkland Islands. Argentina's foreign minister said today his country is prepared to use force if Britain tries to expand fishing rights around the disputed islands. Wednesday, Britain announced such an extension from 3 to 200 nautical miles. The two countries fought a ten week war over the Falklands in 1982, in which nearly 1,000 servicemen, mostly Argentine, died.

MacNEIL: South Korean police today staged their biggest student roundup ever. But the action triggered new demonstrations on at least eight college campuses in Seoul and Pusan. Seven thousand heavily armed officers stormed into Seoul's Konkuk University early today, and arrested 1,200 students who had occupied the school since Tuesday. Students were demanding the resignation of South Korea's President Chun Doo Hwan, and had used rocks and gasoline bombs to keep police at bay. But this time, the officers were backed by helicopters, tear gas and a water cannon. And before it ended, 82 persons, including 42 students, 38 officers and 2 firemen, were injured. A spokesman for the U.S. State Department declined comment on today's actions, but did say, "we are told the issue has been resolved, and we regret the injuries that occurred on both sides."

In the Philippines, Defense Minister Juan Ponce Enrile invited President Reagan to stay out of his feud with President Corazon Aquino. Said Enrile, "I don'tthink the President of the United States, no matter how powerful he is, would want to involve himself in a purely internal affair of the Philippinos." Enrile was responding to a published report that the Reagan administration had privately urged him to stop criticizing Aquino and her handling of the communist insurgents. Earlier today, Enrile had agreed to tone down his attacks on the Philippine president.

LEHRER: President Reagan and House Speaker O'Neill played politics today. In Tacoma, Washington, Mr. Reagan campaigned for the reselection of Republican Senator Slade Gorton, who is in a close race with former Carter cabinet officer Brock Adams. Mr. Reagan disputed an Adams charge the administration would not follow the law in selecting nuclear waste sites. The President went to Idaho for a campaign stop this evening. His intense campaigning for Republican candidates drew a response from Democrat O'Neill, who held a Washington news conference today.

Rep. THOMAS O'NEILL, Speaker of the House: I don't see the coattail effects of the President making any real great changes out there. As a matter of fact, from what I can see and what I hear, the one thing that bothers me the most is there is an apathy among the voters out there.

MacNEIL: That's our news summary. Coming up, savings bond interest cut, tight Senate races in the West, two views of South African sanctions, and an essay on Halloween. Losing Interest

MacNEIL: First tonight, the decision that sent thousands of Americans scurrying to the bank today to buy U.S. Savings Bonds. From tomorrow, the guaranteed minimum interest they carry drops from 7.5 to 6%. We look at why the Treasury did this and what it means to the millions of consumers who consider the bonds a good investment. First, a little history.

[voice-over] The U.S. Savings Bond is as old as modern war. Initially known as Liberty Loans, the first was authorized in 1917, during World War I, and was intended to do what it did later during both World War II and the Korean conflict -- raise money for the federal's government to wage war. War bonds sold best during World War II, when entertainment stars of the 1940s plugged them.

BOND SELLER: And so come on down the aisles, ladies and gentlemen, and pledge yourselves to answer firm and Lady Liberty.

NEWSREEL ANNOUNCER: Four sons and a famous dad show the way to a bond buying New Year.

MacNEIL [voice-over]: A famous actress, Lana Turner, auctioned off kisses at $50,000 a piece and raised five and a quarter million dollars at one bond rally alone. Today, with sales of a billion dollars a month, small investors see savings bonds as a good bargain. The interest rate, which had lingered around 5% in the 1950s, climbed as high as 9% in 1981. And more recently, even at 7.5%, the savings bond was attractive in a market in which other interest rates were declining.

LEHRER: We get the official explanation for the interest rate cut from Katherine Ortega, the Treasurer of the United States. Her office administers the savings bond program, and she announced today's decision. If her name sounds very familiar, it should -- her signature appears on U.S. currency.

Ms. Ortega, first, why was this interest rate reduction made?

KATHERINE ORTEGA, U.S. Treasurer: Well, it was made in order to preserve the cost effectiveness of the savings bond program.

LEHRER: Meaning?

Ms. ORTEGA: Well, meaning that the 7.5% minimum rate was out of line with other interest rates at this time. The interest rate on savings bonds is paid on the average yield of five year Treasury securities, and that range changes every six months. And so we will be announcing a new rate on Monday. The announcement that was made today take effect tomorrow, and that is the minimum guaranteed rate on savings bonds. And it had been at 7.5% since November of 1982.

LEHRER: And the fact -- in simple terms then, the United States was -- the government was losing money by paying 7.5%? It was a cheaper way for the U.S. to get money, rather than through that device?

Ms. ORTEGA: Yes. That's correct. That the alternative for the department to raise monies by other methods would have been less. It had the potential. The 7.5, this minimum rate, does not come into effect until you have held the bond five years. You receive the semiannual rate, and there are ten semiannual periods that you have to hold the bonds. And if that rate at the end of the five years is higher, you would earn the higher rate. If it's lower, you're guaranteed this minimum rate.

LEHRER: How was -- what was the calculation that led to the decision to reduce it to 6%? What not 5? Why not 6.5? Why not whatever?

Ms. ORTEGA: Well, again, this was done by another department within the office of the secretary, and it was determined that that was the rate that should be offered at this time, taking into consideration other alternatives that were available for financing the debt.

LEHRER: There had been reports all week that this was going to be done. In fact, we did -- we had a report on this program a couple nights ago. What was the problem? Why -- how did the thing leak out ahead of time, and why? And why the decision today?

Ms. ORTEGA: Well, we had been considering it. One factor was that we were in the midst of our campaigns. Most of our bonds have been sold through some 40,000 company units across the country that offer the payroll savings plan to their employees. And we were in the midst of those campaigns, for one thing. And so we wanted to maintain the faith with those purchasers -- the small savers.

LEHRER: How much money, by just reducing the interest rate from 7.5 to 6%, how much money is that going to save the federal government?

Ms. ORTEGA: Well, it's going to depend on the movement of interest rates in the future. Because again, this minimum does not take effect until the end of the five year period. So it depends what those semiannual interest rates are for the remainder of the five year period.

LEHRER: Well, let me take a step back then. Do you expect fewer bonds to be sold now, as a result of lowering the rate?

Ms. ORTEGA: I would expect sales to level off to what they were in the first part of the year. The program has been very successful since November of 1982, when we went to this market based interest rate where the rate changes every six months, and it is tied to five year Treasury securities. It's 85% of the average yield. And there are many other very attractive features to the savings bond program. The fact that they are backed by the full faith and credit of the United States government. There is no fee or commissio whatsoever, either when you purchase the bond or when you redeem the bond. And the interest that you earn is exempt from any state or local income tax. You have the option of deferring the payment of the federal income tax until you redeem the bond. You can elect that -- to either report it on an annual basis or to defer and pay it when you've redeemed the bond.

LEHRER: What would you say to those whowould suggest that savings bonds are primarily an option for the small investor, who have the fewest options of all when it comes to investing.Why was the decision made to affect or to change or to reduce this particular option vis-a-vis how much money they could make by investing in this particular investment?

Ms. ORTEGA: Again, they are for the small saver. And since November of '82, when we changed the savings bond program, it has been even more attractive for the small saver. Because again, you're earning a market based rate on very small denomination bonds. Prior to November of '82, in order to earn a market based rate on a government type security that was backed by the full faith and credit of the United States government, you had to have $1,000 or $5,000 or $10,000. Now you can do it with as little as $25. And in addition, you have all those other attractive features that I just mentioned.

LEHRER: But it was just too good a deal, right? In other words, the government couldn't afford to give the investor this good a deal anymore.

Ms. ORTEGA: Well, it's still a good deal.

LEHRER: Right. But not as good as it used to be at 7.5.

Ms. ORTEGA: Well, 6% rate is still an attractive rate.

LEHRER: All right, Ms. Ortega, we'll be back. Thank you. Robin?

MacNEIL: Now we look at how the lower rates will affect consumers. Our explainer is Marshall Loeb, managing editor of Fortune magazine and the author of several best selling books on personal investment.

Mr. Loeb, first of all, were all those people we showed rushing to buy the bonds as 7.5% today smart to do that?

MARSHALL LOEB, Fortune magazine: Yes. They got a good deal. And you still can get a good deal on savings bonds. But it will be slightly less a good deal. At 7.5%, your money doubles in ten years. At 6%, your money doubles in 12 years. When you consider the other buys around, particularly for small savers, savings bonds indeed were and remain a reasonable good proposition.

MacNEIL: Flesh that out for me a bit. What are the other buys around for people who typically buy the savings bonds?

Mr. LOEB: Well, you can go to a bank and get a certificate of deposit. And a certificate of deposit now, if you take a five year one, which would be comparable to a savings bond that you'd hold for five years, would pay you about 7.2%. But typically, you've got to put up about $1,000 in order to get one of those, and they are fully taxable. And as was pointed out, the savings bonds are exempt from state and local taxes, and you can defer payment or your taxes until you redeem the bond, so long as you hold it for at least five years.

MacNEIL: So the interest can build up and accrue without any --

Mr. LOEB: Under that nice shelter.

MacNEIL: Under that nice -- so it's a tax shelter, in a way.

Mr. LOEB: Sure.

MacNEIL: So --

Mr. LOEB: And you can go into a money market fund.

MacNEIL: Money market fund.

Mr. LOEB: For example, they're paying now, I think, about 5.5%. So they would not be as -- would not provide as high a yield as the savings bond would.

MacNEIL: Typically -- Mrs. Ortega also said the small investor -- typically, what is the average size of holding in savings bonds?

Mr. LOEB: I don't know.

MacNEIL: Do big investors get in there too?

Mr. LOEB: Very few, I think. Because big investors probably would be looking for situations in which they might be able to collect a higher yield. They would be willing to put up more money. They might go into a corporate bond that would pay more. They might go into a municipal bond that would pay less, but would be fully tax sheltered. You can get a municipal bond now that would pay about 5.4 or 5.5%. It would be riskier, but you don't have to pay any federal income taxes at all at any time on a municipal bond. And if you buy one from your home -- from an agency in your home state, then it probably would be free of state and local taxes too.

MacNEIL: But you have to have how much to buy one of those?

Mr. LOEB: You have to have, to buy a municipal bond, $5,000 per unit.

MacNEIL: If the small investor -- if the government was discriminating in the last couple of years a little bit in favor of the small investor with this 7.5% interest as -- when it began to be higher than some other competitive rates, is -- to follow up on Jim's question -- are they now disciminating a bit against the small investor by lowering it to 6%?

Mr. LOEB: No, I don't think so. Because consider the many advantages. First of all, they're not lowering it to 6%. The 6% is an absolute guarantee. It's the floor. And what they --

MacNEIL: You mean it could be higher than 6%.

Mr. LOEB: Sure. It's a variable rate that is pegged to the ups and downs of Treasury securities. And the rate that we expect to be announced tomorrow, effective November -- pardon me -- that we expect to be announced on Monday, the next business day, will be 6.5%. Thereabout. And that is --

MacNEIL: For the average of those five year Treasury --

Mr. LOEB: No, that's for what you would get now if you were to buy now. But don't forget, that's a variable rate up and down, so you takes your chances.But it will never go below 6%. And that's your ultimate guarantee. And it could go above that if interest rates shoot up.

MacNEIL: I see. So the government's saying to small investors, "Interest rates are going down. They could go down even further. But you can be guaranteed, even if they go down a lot, you're still going to get 6% minimum for the life of these bonds."

Mr. LOEB: Correct. "And we'll protect you." And therefore, it is a good deal for people, particularly small savers, who want the convenience of just going down to their neighborhood bank and buying one, who want to buy them expensively. You can put up as little as $25.Who want to get a reasonable, guaranteed interest rate, who want to be able to defer payment of federal taxes, and therefore, build up more interest, and want to be exempt from state and local taxes.

MacNEIL: What does this move today say about the general trend in interest rates up 'til now and, as far as you see, in the future?

Mr. LOEB: It says that up 'til now, interest rates have been coming down. What they will do in the future, of course, we are not at all certain of. The Japanese have brought down their discount rate. That's a favorable development and may contribute to our bringing down our interest rates somewhat more. We have been --

MacNEIL: You mean you might be looking to the Federal Reserve Board to bring down the discount rate here further?

Mr. LOEB: There has been speculation -- denied -- that the Federal Reserve Board might cut the discount rate still further. But the general trend in interest rates has been downward. We anticipate that for the next year or so, the interest rate will hover about where it is, which is to say, go up and down by maybe one point. Not much more than that.

MacNEIL: Do you see the tax bill -- new tax bill which is now law -- making any difference in this kind of market?

Mr. LOEB: Oh, it will make a tremendous difference. For one thing, bonds become more attractive. Most people buy bonds in order to collect that interest. Unless it is a tax free bond, they have to pay taxes on the bond at their ordinary rate of tax. Now, most people will find their tax rates going down, which means, in real terms, that they'll be able to pocket more -- take home more -- of that interest rate, and pay less out to the federal government. Take people, for example, who were in the top tax bracket -- now 50%. That meant that for every $1 of interest, they had to pay 50 cents to the government and could take home only 50 cents. Henceforth, their top rate will be 28%, so they'll be able to pay the government only 28 cents and take home 72 cents of the dollar. On the other hand, stocks will become somewhat less attractive, because most people go into stocks for so-called capital gains -- the rise in the price of the stock. Up until now, people in the top brackets have had to pay only 20% of their profits from capital gains to the government and could pocket the other 80%. Now their capital gainst taxes will go up to the regular income tax rate of 28%. And the same will be true of people -- those, the majority of the nation, who are in lower tax brackets. Their taxes will go down too, but their capital gains will go up. The short form is that bonds and interests will become more attractive, and stocks and capital gains will become somewhat less attractive.

MacNEIL: Marshall Loeb, thank you. Jim?

LEHRER: Yes. Mrs. Ortega, I guess you're delighted to hear that Marshall Loeb agrees with you that your bonds are still a good investment.

Ms. ORTEGA: Yes. Very much so. Jim, I might mention, as he indicated, you may earn more than that minimum rate. If someone purchased a bond when we first went to this market based interest rate back in November of 1982, they have averaged a return of 9.36 up through the present time. So now, of course, it's much higher than the 7.5%.

LEHRER: Sure. Is there any possibility that if Marshall Loeb is right, that interest rates generally are going to continue to come down, that you really might be facing another reduction in this 6% floor anytime soon?

Ms. ORTEGA: Well, I don't know whether anytime soon, but we would certainly have to look at it again and would change it to reflect the changes in the market.

LEHRER: Is it unlikely that we will ever see a rate holding firm -- a minimum rate -- holding firm for four years, like we have the 7.5%? Is that gone?

Ms. ORTEGA: Well, it's happened before, so it's possible that it could happen again.

LEHRER: In other words, there's not a new decision having been made that you all are going to look at that a little more carefully and not let this thing stay so high for so long again?

Ms. ORTEGA: We will continue to look at it in the future and make any adjustments that are necessary. Whether it's a year or five years, that I couldn't say.

LEHRER: And there are how many people now who -- what is the -- when you discount those who have bought these last few months, anticipating this drop, how many people buy savings bonds in an average year?

Mr. ORTEGA: Well, we know that over 23 million families in America own bonds. And as I indicated, many of the sales are through these company payroll savings plans that are offered by some 40,000 company units across the country. We did see the sale of large denomination bonds increase over the past two or three months, because they were such an attractive instrument.

LEHRER: I see. And you expect it still to go on at a pretty good rate.

Ms. ORTEGA: Yes, we do.

LEHRER: Well, Mrs. Ortega, thank you very much for being with us. Marshall Loeb, thank to you in New York as well.

MacNEIL: Still ahead on the News Hour, reports from California and Washington State on two hard fought Senate races, a debate about South African sanctions, and a Halloween essay by Roger Rosenblatt. Senate Sweepstakes

MacNEIL: There are only three days of campaigning left before election day next Tuesday, and some of the races that will decide which party controls the U.S. Senate look very close indeed. President Reagan, who's been campaigning hard to tip the scales for Republicans, will be in his home state, California, tomorrow. Today, the independent field poll there showed the Democratic incumbent Alan Cranston leading his Republican challenger Ed Zschau by only one point, 46 to 45%. We have a report on the California race by Doug Foster of public station KQED, San Francisco.

DOUG FOSTER [voice-over]: A year ago, the liberals' long distance runner, Alan Cranston, seemed on his last legs politically, his quest for a fourth term in the U.S. Senate all but written off. But Cranston rebounded by hitting hard at his Republican opponent, Ed Zschau, the Silicon Valley businessman and two term congressman. Zschau is the hero of high tech entrepreneurs, an economic conservative and social moderate. Both men claim they'd like to discuss the issues.

Sen. ALAN CRANSTON (D) California: I don't expect this campaign to get out of hand. We're doing our very, very best to deal not with personalities, but to deal with facts, with votes, with flip-flops, with wishy-washiness on the issues, as far as my opponent is concerned.

FOSTER [voice-over]: But as the campaign closes, issues were replaced by a bare knuckles fight.

Rep. ED ZSCHAU (R) California: I'd been told by people to expect the worst out of Alan Cranston. In his advertising in the campaign he's had a history of misrepresenting the records of his opponents, using guilt by association, personal attacks. And he hasn't disappointed me.

FOSTER [voice-over]: The Alan Cranston you might run into is less dashing than his political ads might suggest. He doesn't command stage presence. Even some supporters have complained about his gaunt appearance and a speaking voice that one said sounded like a dial tone. But Cranston is a comfortable fixture of California politics. Such a fixture that Zschau has begun likening Cranston's success to an addiction by California voters that should be kicked. Perhaps his modest, grandfatherly air is one of the secrets to his political longevity.

Rep. ZSCHAU [singing]: Hip hip hooray for our Ed. He's our hero, cutting deficits to zero.

FOSTER [voice-over]: Forty-six year old Ed Zschau is a newcomer to the campaign trail.

Rep. ZSCHAU [singing]: To say and spell Zschau. A profit businessman, a dad is he. Made his mark in high technology.

FOSTER [voice-over]: He calls the campaign a battle between the old politics and the new principle.

Rep. ZSCHAU: The key to not only the campaign, but to what makes America great is innovation and new ideas, enthusiasm, risk taking, entrepreneurship. My campaign is a reflection of that approach to politics.

FOSTER [voice-over]: The stakes are high: control of the Senate and the political agenda for the remaider of Ronald Reagan's term as President. Each side is raising more than $10 million, making this the most expensive political contest in California's history. Both campaigns are now money machines. Seven days a week, urgent appeals for cash are sent out by each campaign. What is all that money raised for? Not for bumper stickers, posters or buttons. Not for door to door canvassing. And not for speeches or rallies. This year in California, almost all the money is going into television ads. California is the nation's most populous state. With 26 million people in 14 major media markets, it costs millions of dollars to run ads in prime time.

[clip from TV ad]

Rep. ZSCHAU: Alan Cranston believes in more government.

FOSTER [voice-over]: Manipulation of the medium is even more overt than the battle of the 30 second spots. For Ed Zschau, a relative unknown, ads are critical for establishing a strong identity.

[clip from TV ad]

Rep. ZSCHAU: I put my faith in individual endeavor.

FOSTER [voice-over]: And for a veteran like Cranston, ads remind voters of past accomplishments.

[clips from TV ad]

ANNOUNCER: He's worked harder to stop war than any senator since Robert Kennedy.

FOSTER [voice-over]: But it's the negative sucker punch attacks which are drawing all the attention. One Zschau ad makes the viewer wonder if Cranston shouldn't be wearing cammies and carrying a machine gun.

[clip from TV ad]

ANNOUNCER: If someone commits murder, treason or kidnapping, if innocent victims die in a bombing, the killer should not get the death penalty. Alan Cranston consistently opposes the death penalty.

FOSTER [voice-over]: And this Cranston spot leaves the impression that Ed Zschau is an addlebrained opportunist.

[clip from TV ad]

ANNOUNCER: Asked why he flip-flopped and now supports the secret was in Central America, Zschau said he had to separate what's right from what's politically expedient.

FOSTER [voice-over]: This negative ad is the focus of bitter dispute between the two camps.

[clip from TV ad]

ANNOUNCER: Alan Cranston is America's leading opponent of apartheid in South Africa, and Congress has followed his lead. Republicans and Democrats alike voted for sanctions, but not Ed Zschau. The top Democratic and Republican leaders in California support sanctions, but not Ed Zschau. Zschau says we should encourage American business to invest in South Africa. Do you want a senator who stands with the extremists -- with Jesse Helms and Jerry Falwell -- on the wrong side in South Africa?

RON SMITH, Zschau campaign manager: What's wrong with Alan Cranston is the kind of ad there was -- that disgusting ad where he shows Ed Zschau with Jerry Falwell and Jesse Helms.

BOB SHRUM, Cranston media strategist: He doesn't call it untrue, though, does he?

Mr. SMITH: Disgusting and dishonest and untrue.

Mr. SHRUM: But there was a vote on apartheid in the House and on sanctions against apartheid. And Zschau voted against sanctions. Jesse Helms has led the fight against sanctions.

Mr. SMITH: He voted for sanctions twice. Both sanctions bills Ed Zschau voted for.

Mr. SHRUM: The facts of the ad are rather clear, and we're very careful about that. I've certainly never had a situation where I've had a factual error in an ad.

Mr. SMITH: Then he hasn't seen his own commercials or hasn't done very good research. Because his commercials are false and inaccurate.

FOSTER [voice-over]: The irony is that both men are technically correct. But each distorts the larger picture.

Mr. SHRUM: A great challenge of this is to manage to convey a message, information, a theme, in 30 seconds. It's not easy. But I don't think that it's wrong. It's just difficult.

FOSTER [voice-over]: It's also difficult and time consuming to raise the money to pay for all those spot ads. In the month of September, the Zschau campaign spent $2.5 million on TV, and the Cranston campaign spent $1 million. To raise those large amounts, each side trotted out star supporters for glitzy fund raisers. Zschau raised $1.5 million with Charlton Heston and Ronald Reagan at a $1,000 a plate dinner.

Pres. REAGAN: It all comes down to the Golden State. If we win this California Senate race, we will keep control of the United States Senate. Control of the Senate will mean two more years of moving forward or two years of stalemate and retrogression.

FOSTER [voice-over]: Alan Cranston turned to superstar supporters Barbara Streisand and Robin Williams for a $5,000 a couple evening at Streisand's Malibu ranch and raised $1.5 million.

ROBIN WILLIAMS: Paid $5,000 a seat. What is that? This must be the most expensive chicken in the world. This chicken's so young, it never knew love. It's veal.

Sen. CRANSTON: I thank you for what you've done. I thank you for what you will do. And I look forward to working with you again intimately next year, when I'm back there with your help. Thank you very, very much.

FOSTER [voice-over]: Cranston is the second most powerful Democrat in the Senate. But he needs to much money for this campaign that he personally makes the rounds of private lunches and dinners and spends several hours each day on the telephone plugging for money. The bulk of Cranston's contributions come from political action committees representing unions, investment bankers and real estate interests. Cranston says he wishes he could spend more time making speeches and meeting voters, but can't because of money pressure.

Sen. CRANSTON: The Senate Democratic Campaign Committee recommends that Democratic Senate canidates spend at least half their time raising money in their campaigns, and I suspect the Republicans tell their candidates the same thing. And I'm dong that.

ZSCHAU CAMPAIGN WORKERS: There are roughly 1,500 people right now who contributed between $100 and $250 in the primary, but haven't contributed any money to the general.

FOSTER [voice-over]: Zschau's campaign is staffed by a crew of young, ambitious volunteers known as ruppies -- Republican yuppies. They helped raise $4.5 million for the campaign during the summer.But it's not just the campaign workers who labor hard to raise money. Zschau successfully raised money from among fellow businessmen in elecronics firms, agribusiness companies, and defense contractors like Lockheed and Rockwell International. The National Republican Party is putting $1.7 million, the legal limit, behind Ed Zschau.

TOM GRISCOM, Republican Campaign Committee: In the case of California, we will max out to Ed Zschau, because it's a race that we feel like we can win, and we're going to make sure that our resources go to that purpose.

FOSTER [voice-over]: Since Cranston is second in command along Senate Democrats, the race is also key on the Democratic side of the aisle.

Sen. GEORGE MITCHELL, Democratic Campaign Committee: It will be a blow to us if he's defeated. To have any Democratic senator lose would, of couse, be a loss in numbers. But to have the deputy leader of Democrats in the Senate, I think, would be a real loss to our party and, I think, to the country.

FOSTER [voice-over]: Cranston held a wide lead during the summer, but Zschau spent more than $2 million in TV ads in September, and polls now show Zschau closing in. The candidates are headed for a tight finish on November 4, both ready for a last minute blitz on the television battleground.

MacNEIL: Another West Coast incumbent is also facing a tough reelection battle. President Reagan was in Spokane, Washington this morning to campaign for Republican Senator Slade Gorton. He was first elected in the Reagan landslide in 1980, but is now in a tight race with Democrat Brock Adams, former congressman and President Carter's Secretary of Transportation. Like most of the campaigns this year, their race had its share of negative TV ads. But also something less common this year: three face to face debates. Victoria Fung of public station KCTS, Seattle, has more.

VICTORIA FUNG [voice-over]: The two candidates share a number of similarities. They both hold Ivy League law degrees and are widely regarded as intelligent, politically seasoned and hard working. One is seen as a moderate Republican, the other a centrist Democrat. When if comes to campaign financing, Gorton clearly has the edge. With a war chest of about $3.1 million, he's outspending Adams two to one. Even so, that may not be enough to overcome the controversies that plagued his campaign. One deals with the selection of Hanford Nuclear Reservation in Southeastern Washington as one of three finalists for the nation's first high level nuclear waste repository. Adams blames Gorton for failing to keep Hanford out of the top three.

BROCK ADAMS, Democratic Senate candidate: I'm terribly concerned about it, and I don't trust the Department of Energy in this administration. I don't think they've done a proper job. I think they dumped on the state. And I think that we should have had more effective fighting for our state by our people who are in the Senate.

Sen. SLADE GORTON (R) Wshington: I've already gotten several more million dollars in this year's appropriations bill for cleaning up the mess which previous administrations have left at Hanford -- Carter administration and administrations long before that. But the most important single thing is to see to it that we do not have a politcal decision with respect to more nuclear waste foisted on us.

FUNG [voice-over]: Ever since Adam's strong showing in the primary, Gorton has come out swinging hard. He's hammered away at Adams' record as Transportation Secretary.

Sen. GORTON: When people who work in Congress and outsiders to government were polled by U.S. News & World Report, a very respected national magazine, just a few months before Mr. Adams left the cabinet, they voted him the least effective member of a 12 member cabinet. And the Jimmy Carter cabinet was not a world leader by any stretch of the imagination. His grade on a ten point scale was 3.5. This is the guy who is complaining about effectiveness.

Mr. ADAMS: Transportation policy under the Carter administration ran very well. We got mass transit going. We did manage to make cars more fuel efficient. We saw that the department ran very, very well. Those articles were the White House staff and myself fighting back and forth. And we did.

FUNG [voice-over]: Gorton paints a picture of Adams as a big spending liberal and holds him responsible in part for the financial woes of the Carter era.

Sen. GORTON: Brock, when I took office we inherited from your administration of your service in Congress a whole pandora's box of disasters. And you had run away. You left us with 14% inflation. We've beaten it. You left us with 21% interest rates. We've beaten that too. You left us with unemployment going up. We now have 19 million more people at work in the United States.

Mr. ADAMS: In five years, we've created a trillion dollars worth of debt, which was more than was run up over 200 years with 39 presidents, six wars and the Great Depression. And we've got a budget process in shambles. And I'll tell you this: when I left as budget chairman, it wasn't in shambles. The whole process was working well.

FUNG [voice-over]: The latest polls show that Slade Gorton and Brock Adams are running neck and neck. In what was once seen as a long shot attmept to unseat a Republican incumbent, this has turned into a pivotal race in the battle for control of the Senate. Sanctions Fallout

LEHRER: An unusual debate on South Africa sanctions is next. It's between Helen Suzman, an opposition member of the South African parliament who believes U.S. economic sanctions are not the way to end apartheid, and delegate Walter Fauntroy, a Democrat who represents the District of Columbia in the U.S. Congress and who supports sanctions. President Reagan quietly signed a new sanctions bill into law earlier this week. General Motors, IBM and other U.S. companies also not so quietly decided to quit doing business in South Africa. It was that development Judy Woodruff asked first about.

HELEN SUZMAN, South African opposition: The main concern will be whether the new owners will continue with the same affirmative action programs that GM and IBM and other firms were implementing.

JUDY WOODRUFF: So you're not that bothered by what you see.

Ms. SUZMAN: Well, except that, once gone, the influence of those firms has gone. And there's no doubt they did a very good job in raising the level of social responsibility among businessmen generall in South Africa. And I just wonder it that's going to continue with new owners.

WOODRUFF: Congressman Fauntroy, do you see it the same way -- that the influence may or will depend on whether these companies are taken over by -- who takes them over and how they're run?

Del. WALTER FAUNTROY (D) District of Columbia: Well, in the first instance, I must say that we have long called for the withdrawal of U.S. corporations from South Africa. Not because we felt it would cause apartheid to be dismantled, but because we felt out involvement lent undeserved credibility to a government that would not change. Now that it's beginning to happen, our concern is how it will happen. Will it mean that these assets will be transferred to those in white South Africa who will become even more brutal in their administration of the effects of apartheid, or will it be turned over to a new business type interest that includes the people -- the blacks and whites of goodwill who want to see change. And we have some concerns about that and are looking to talk with our corporations here about such transfers and our basis for selling leveraged buyouts as over, again, simply transferring it to nebulous groups of local owners.

WOODRUFF: The sanctions law passed by the Congress, Mrs. Suzman, just recently, over the objections of the President -- over the veto of the President --

Ms. SUZMAN: Yes.

WOODRUFF: What effect will that have on your country?

Ms. SUZMAN: Well again, I think one's going to have to wait and see. I think there's no doubt that the sanctions act of 1986 will have a very adverse effect on export industries if the South African markets -- producers, rather -- find they have lost their markets in agricultural products, arms, steel, coal, and so on. And obviously, that will mean a shrinking of the demand for labor. It will mean unemployment not only for South African blacks, but also for the workers who come in from all the neighboring black countries to work on the South African mines and in agriculture.

WOODRUFF: And ultimately, what is the effect on the apartheid system?

Ms. SUZMAN: Well, you know, I do think people have to realize that the South African government is much more inclined to go into a siege economy -- batten down the hatches and carry on -- than it is likely to speed up its refor process. I only hope they carry on at least with the reform program which they have already announced, which obviously doesn't go far enough to satisfy us in the official opposition and certainly doesn't go far enough to satisfy the black population of South Africa or the international community.

WOODRUFF: So Congressman, she's saying she sees the government going into a siege situation as a result of these sanctions.

Del. FAUNTROY: I think that's very clear. One of the reasons that it became apparent to the members of the Congress that sanctions were the only nonviolent tool remaining was that the government had, in fact, gone into a siege mentality. And thus, we are looking forward to shaping legislation that will deal with Southern Africa generally -- not simply the 23 million blacks in South Africa, but the 150 million in that region who are victims of the apartheid system by which they destabilize the country surrounding, so that the West does not have access to many of the same natural resources that exist in those countries, but which are denied them, one, because of undeclared warfare by which roads and means of transportation are not there to move those materials out of those regions; and secondly, because they really threaten Western investors that "if you go into those regions, we'll blow it up. You better bring it to us in South Africa." So we've got to sort of help the front line nations now, in response to the siege mentality.

Ms. SUZMAN: Well, Congressman, you'll have to lay down railway lines, you'll have to provide locomotives, you'll have to clear the ports. It's going to be an awfully big job. Is Congress prepared to do all that?

Del. FAUNTROY: Congress, I think, is prepared --

Ms. SUZMAN: And provide jobs.

Del. FAUNTROY: Congress is prepared to join with the West in assisting the static nations in providing that infrastructure, recognizing --

WOODRUFF: Which nations?

Del. FAUNTROY: Oh, we're talking about Mozambique --

WOODRUFF: The front line.

Del. FAUNTROY: The front line nations.

Ms. SUZMAN: Zambia, Zimbabwe, all of them.

Del. FAUNTROY: Yes. They will all need that. And they have all been the victims of the South African government's war on these front line nations to prevent them from becoming a source of competition in providing the West with the resources that they require from that region of the world.

Ms. SUZMAN: But do you realize they depend on South Africa for power, for jobs? I mean, how is the Western world going to provide all that? Are they really prepared to do that?

Del. FAUNTROY: That is what we are working on now. We think that the front line nations have a very firm and clear plan for providing alternative transportation, as well as alternative communications systems. And the time has come to recognize that you have a seige mentality in South Africa, that there's not going to be cooperations in this effort to make available to the world these very important resources, and that, therefore, we're going to have to assist those who are prepared to do it.

WOODRUFF: But didn't Congress enact these sanctions believing that they would bring about an end to apartheid sooner than otherwise?

Del. FAUNTROY: I think it's going to bring about an end to apartheid sooner. And what will assist that is the fact that those who have been the victims of apartheid outside of South Africa are going to get more assistance now.

WOODRUFF: Mrs. Suzman?

Ms. SUZMAN: Well, I hope the congressman is right. I mean, this is one of my major objections to sanctions is that the whole of Southern Africa is one economic unit. And if you destroy the economy of South Africa, you are going to adversely affect the economics of those other countries, which really do depend on South Africa to a greater or lesser degree for practically everything: transport, locomotives, electric power, jobs, ports, and trade, I might add. They all trade very briskly with South Africa, and they'd have ot get their goods from other sources at a much higher cost. All these things are going to cost a great deal of money. And I am dubious that the Western countries or the United States are going to be forthcoming with sufficient aid to rescue them. If it happens, I'll be delighted. I assure you. I'll be the first to say I'm glad I was wrong.

Del. FAUNTROY: Roger Smith of GM, the chairman of the board there, I think put it best when he said, "We had stayed there for 30 more years, hoping that our influence would move the country. But it is clear to us now," they said, "they have not moved." And I think that is becoming clear to a great many people.

Ms. SUZMAN: Well, I don't think it's absolutely true to say there has been no movement. There have been changes. And some of them have been very much more than cosmetic. And I take the one that stands out above all. And that is the abolition of the pass laws and influx control, which were among the cruelest of the apartheid laws. Those have gone, and I think that is an important move. There are others as well. And of course, as black trade unions gain economic muscle, which they will only do in an expanding economy and not in a stagnating economy, they will be able, I think, to make demands that go well beyond the workplace.

Del. FAUNTROY: Well, Mr. Smith put it best when he said, simply, that these things were too little far too late.

Ms. SUZMAN: Well, I think they are too little. I hope they're not all too late.

WOODRUFF: Just quickly, I want to ask both of you, how much leverage does the U.S. still have at this point, having enacted these sanctions by the Congress? Congressman?

Del. FAUNTROY: I think we have considerable leverage. We're South Africa's number one trading partner, to begin with. And secondly, I think we can influence our allies in the West by our actions to follow suit. And I think that's what we're going to attempt to do now.

WOODRUFF: Mrs. Suzman, how much leverage does this country have?

Ms. SUZMAN: I think the country has a lot of leverage. It is a big trading partner. So is Britain, of course, and so are the European countries. And all that will have to be seen for the future. But I can say that if you destroy the economy, it's going to be very difficult indeed to rehabilitate it.

Del. FAUNTROY: Let me say that it is not our purpose to destroy it; it is to redeem it. If we were going to destroy it, we would have provided military aid to the contras. I mean -- excue me -- to the ANC, if you know what I mean.

Ms. SUZMAN: Yes. Well, you're busy providing military aid all over the place, it seems. No, as far as I'm concerned, removing markets and not allowing South Africa to market her products is not exactly redeeming the economy. That must surely, I think, affect adversely South Africa's job sustaining, as well as job creating, ability.

WOODRUFF: We'll have to leave it there. Mrs. Helen Suzman, we thank you for joining us. Congressman Walter Fauntroy, thank you.

Del. FAUNTROY: Thank you. Personal Demons

MacNEIL: It is Halloween tonight. But as he told us last year, every night is Halloween for our essayist, Roger Rosenblatt.

[clip from TV show]

ELVIRA: Who's there? Is that you, my little Goblin?

ROGER ROSENBLATT: So it comes 'round again, the night of terrors. Or should it be called the night without terrors, since the original purpose of Halloween was to keep off the scary spirits by lighting bonfires, stockpiling nuts and apples, and barring the doors. Not these days. Bonfires are prohibited by law, and monsters are not as easy as they used to be. They have press agents, hair-doers. They know where to stand to catch the most flattering light. And they do not show up just one night, but lots of night, filling the dark with their noises, rattling the bric-a-brac. They trick or treat. Knock knock. Who's there?

What if they all appeared tonight? What if they all showed up wearing their darling little costumes and hungering for handouts? Knock knock. Don't look now, but isn't that Steven Spielberg with another one of those adorable little creatures under his arm? Have a Twinkie, Mr. Spielberg? What if we opened the door this evening, and there on the threshold stood Ed McMahon, Willie Nelson, Willard the weatherman, Ed McMahon, Kenny Rogers, Ed McMahon, Sammy Davis, Jr. hugging Don Rickles hugging Willie Nelson hugging Ed McMahon. What if you saw the guy who emceesLifestypes of the Rich and Famous? Could you take it? Would you go to pieces if on the doorstep in a bunch stood Mr. T looking cute, Phile Donahue looking pained, Alan Alda looking concerned, Jane Fonda looking good?

[clip from TV show]

ELVIRA: Oh, sounds like the forks are starting to arrive.Hello, come on in. Hello. Oh, you look fabulous.

ROSENBLATT: And what if you opened the door to anyone at all? A whole array of public personalities appears with palms unturned. Look dear, it's Brooke Shields' mother and John McEnroe's father and John McEnroe himself, the imp, with all the other delightful professional tennis grownups wailing and howling and gnashing their teeth. Good evening. Mr. Von Bulow. What a lovely pair of leather pants. Hello, Mrs. Helmsley. Are you sure this is your hotel room? Is that you, Mr. Koppel, talking with Mr. Kissinger talking with Mr. Donaldson talking with Mr. Kissinger talking with Mr. Koppel? Mr. Schwarzenegger, is it not? Yes, of course you can have the whole refrigerator, but please share the treats with the others lined up behind you: Howard Cosell, George Steinbrenner, the Lite Beer players.

[clip from TV ad]

ATHLETE: I also love the easy opening can.

ROSENBLATT: The casts of Dallas and Dynasty, the U.S. Knock knock. It's the waiter describing the pasta of the day. Knock knock.It's Donald Trump. Knock knock. It's Family Feud and Madonna and Sean and Steve and Eydie an another novel about a Vietman vet gone crazy and another movie about a heroic woman fighing the odds and another TV series about the decline of the British Empire. Knock knock knock knock knock.

Had enough? You can never get enough. Every night is Halloween. Still, it would be wonderful to shut the door at last, pretending that all of life's eternal trick or treaters had finally gone away, and we were free for a moment, the house quiet and un-threatening. But wait. There's one more knock. There's always one more knock. The chairs bump. Your soul trembles. Who's there? The Fugitive, you say? A terror from stars as yet undiscovered? Come in, Mr. Sagan. Would you like a Milky Way?

LEHRER: Again, the major stories of this Friday. Anglican Church envoy Terry Waite said in Beirut it was possible the six U.S. hostages in Lebanon could be released soon. And the Treasury Department reduced the maximum interest paid on U.S. Savings Bonds from 7.5 to 6%. Good night, Robin.

MacNEIL: Good night, Jim. We'll see you Monday night. I'm Robert MacNeil. Good night.