The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. Leading the news this Tuesday, Soviet Pres. Gorbachev endorsed a second Communist party for the Russian republic, a House committee voted out the anti-flag burning amendment without a recommendation and eight companies were sued for polluting the California coast. We'll have the details in our News Summary in a moment. Robin.

MR. MacNeil: After the News Summary, Donald Trump's financial woes [FOCUS - TRUMPTY-DUMPTY?]. We have a backgrounder from Business Correspondent Paul Solman, then we hear the views of experts on two major parts of the Trump empire, Lee Isgur on gambling and Abraham Wallach on real estate. Next, with a Soviet prison riot in the news, we have a documentary [FOCUS - CRIME AND PUNISHMENT] look at the Soviet prison system. Finally [ESSAY - MAKING MUSIC] essayist Jim Fisher on one Minnesota town's musical gift. NEWS SUMMARY

MR. MacNeil: Soviet Pres. Gorbachev today offered a concession and issued a warning to his political rivals. The Soviet leader agreed to a proposal that would allow the Russian Federation headed by Boris Yeltsin to form its own Communist Party. He endorsed the proposal at a founding conference of the republic's delegates. The Russian Federation is the largest of the Soviet Union's 15 republics. We have a report from Moscow by Tim Uert of Independent Television News.

MR. UERT: The atmosphere seemed friendly enough as Mikhail Gorbachev chatted to his arch rival Boris Yeltsin, but the risks between conservatives and radicals may soon tear the Communist Party apart. Mr. Gorbachev did his best to head that off today. He told the radicals that the changes they want could cause the destruction of the party and the hardliners that they had lost contact with reality. He also defended his own reforms, declaring that perestroika had caused a huge turnaround in this giant country. But Mr. Gorbachev knows he's heading an increasingly weak and dispirited party. The session which began today is a dress rehearsal for the Soviet Party Congress which begins in two weeks. The Russian delegates here will make up the majority of the delegates then. If Mr. Gorbachev can't reconcile the warring factions, if frustrated radicals form their own breakaway opposition group, he knows he'll be left heading a smaller, hard line party which will enjoy little public support.

MR. MacNeil: A Soviet plane on a domestic flight was hijacked today, the second Soviet hijacking in 24 hours. A 22 year old man threatened to blow the plane up, forcing it to land in Helsinki, Finland. He released all 60 people aboard and surrendered to the police about an hour later. No explosives were discovered. The hijacker was seeking political asylum in the United States. Jim.

MR. LEHRER: A gunman who killed eight people and himself yesterday may have killed two other people over the weekend. Jacksonville, Florida, officials said James Edward Pough used the same semiautomatic rifle in all the killings. They said the rifle may have been legally registered despite Pough's conviction for manslaughter in the 1970s. Florida law prohibits the sale of firearms to convicted felons, but Pough had completed his probation and no longer had a record.

MR. MacNeil: The House Judiciary Committee today voted to send the proposed constitutional amendment against flag desecration to the House floor without a recommendation for or against passage. The vote was 19 to 17, with 5 Democrats joining 14 Republicans to create the majority. Here's a sample of the debate that preceded the vote.

REP. MIKE SYNAR, [D] Oklahoma: This debate is over the strength and courage of elected officials to withstand the efforts to change the fabric of our nation simply to punish a few individuals who offend us all by burning the U.S. flag. I'm confident that the American people can understand the principles at stake and see beyond the passion of the moment and to realize the true value of freedom of speech.

REP. JAMES SENSENBRENNER, [R] Wisconsin: The first amendment has never been absolute. And it seems to me that the line ought to be drawn to protect the flag from burning to allow United States attorneys and district attorneys around the country to prosecute people who cast contempt upon our country by burning the American flag for a criminal violation.

MR. MacNeil: The full House could vote on the amendment as early as this Thursday. It must pass by a 2/3 majority in both the House and Senate.

MR. LEHRER: A large anti-pollution suit was filed today in California. The federal and state governments charged eight companies with polluting the water and marine life around Los Angeles and Long Beach. The contamination with DDT and PCBs is alleged to have taken place since the 1940s. Under the federal super fund law, the companies may be forced to pay millions of dollars to repair the damage.

MR. MacNeil: The drug and perjury trial of Washington, D.C. Mayor Marion Barry began today with opening arguments. Prosecutor Richard Roberts charged that the mayor used drugs while preaching against their use to his constituents. Barry's attorney, Kenneth Mundy, said the government had determined to get Marion Barry and went to any lengths to entrap him. Barry has pleaded innocent to all 14 counts against him.

MR. LEHRER: The Commerce Department reported today that housing starts fell in May to the lowest level since the 1982 recession. High mortgage rates and a sluggish economy were blamed. And that's it for the News Summary tonight. Now it's on to the financial problems of Donald Trump, a report on prison riots in the Soviet Union, and a Jim Fisher essay. FOCUS - TRUMPTY-DUMPTY?

MR. MacNeil: First tonight can real estate magnate Donald Trump keep his financial empire afloat? On Friday the Developer missed a 73 million dollar debt payment that has a grace period lasting until next Tuesday before he is technically in default. There are reports today that Trump and his bankers may be near agreement to restructure his 2 billion dollar debt load. The agreement would include an additional 60 million dollar loan to help the Trump Organization meet payments on bonds issued by Trump Castle one of the casinos he owns in Atlantic City. We start our look at Trump's unusual problems with an unusual report by Business Correspondent Paul Solman.

MR. SOLMAN: Trump the Cash Crunch. Could that really be happening to the symbol of business success in the 80s. For years it seems that you could not open up a newspaper or turn on the TV without seeing the face or the name, Trump the Tower, Trump the Casino, Trump the Airline, Trump the Author. Suddenly a few ago the man whose life was a moveable press conference was ducking the cameras. Donald Trump was facing a debt crisis. One that threatened his empire or at least his life style. What happened to the artist of the deal. We called on the Trump Shuttle to New York and began to look for some answers. Right away one thing became clear. Some of Trump's business systems work better on paper than the real world. For example on page 176 it says "Good publicity is preferable to bad but bad publicity is sometimes better than no publicity at all". Controversy in short sells. What better moment than now to ask if Trump has any second thoughts on the subject. But before we can ask him we had to find him. Is Mr. Trump here?

AIRLINE CLERK: No he is not here today but he does show up on occasion.

MR. SOLMAN: Once again PR and reality part company. In truth we had already been turned down for an interview but we pressed on. next stop the legendary Plaza Hotel. Trump bought it in 1988 and spent millions to spruce it up. The door man would not let us in but he absolutely assured us Trump wasn't inside anyway. One person who was outside was James Grant, Editor of Grant's Interest Rate Observer and a long time Trump watcher.

MR. GRANT: It's a lovely hotel as he says. Maybe none finer but it doesn't pay the bills.

MR. SOLMAN: What do you mean?

MR. GRANT: Well the hotel has to do the very mundane thing of throwing off enough cash with which to pay interest on the loan that he got to buy it and the arithmetic is not working here. It is not about style, it is not about imagination and it is not about Mrs. Trump's taste. It is about interest, compound interest. If this were the only place not doing it it wouldn't be so bad but it is happening all at once to him. I mean he is the Job od debtors.

MR. SOLMAN: Trump the debtor. As he says on page one of his book "I like making deals, preferably big deals." The trouble with big deals is they usually mean big debts. While many of the older Trump properties, the Grand Hyatt Hotel for example or the Trump Tower his Headquarters are generating enough income to cover their debt loads it is a different story on some of the newer properties. The Plaza Hotel for example. Trump spent lavishly to fix up the old landmark. Total investment over 400 million dollars. Grant says Trump was betting he could eventually sell it at an even higher price.

MR. GRANT: The Plaza is all about going up like some common stock.

MR. SOLMAN: So you buy this and you hope that the market goes up and then you sell it at a profit?

MR. GRANT: You find a greater optimist which Mr. Trump is now in the process of doing.

MR. SOLMAN: Greater optimist or looking it at it negatively greater fool?

MR. GRANT: One and the same depending on the market cycle.

MR. SOLMAN: What do you mean?

MR. GRANT: Well at the height of shank of an upturn or expansion it is quite human to expect this is going to go on forever because it feels so good. I mean the papers read well and even the city air smells sweeter. Than suddenly without anyone issuing a press release it all changes and the game is to be somehow in on that change before it happens and apparently no one called Mr. Trump.

MR. SOLMAN: Trump is filling more room than the old management did and at a higher rate about $250 a night. The interest payments, however, are 48 million a year and even the higher revenues can't cover them. The problem is the same with the Trump Shuttle business is reasonably good inspite of fierce competition from Pan Am but here the interest bill is 42 million and for all the cash the Shuttle brings in it hasn't shown a net profit because like the Plaza its revenues are being swallowed up by debt service. Then there is this prime 70 acre lot on manhattan's West Side. Donald Trump doesn't usually let the grass grow under his feet but here at the West side railroad yard he has no choice. he bought this land for a huge development including the World's tallest building. He hasn't been able to get it off the ground. Meanwhile since he bought the land with borrowed money some 200 million dollars he has had whooping interest payments, 20 million a year, 2 million a month, 60 thousand a day just to hold on to the land. Someday this land may be teaming with tenants happy to pay top dollar and Trump could use the cash flow to pay interest on the debt but now there is no interest coming in while millions are going out. This heavy reliance in borrowed money, what business people call leverage seems to contradict what Trump said in his book. " I try not to have myself too exposed." Did Trump have an explanation? We continued our pursuit of him at the West side yards.

SPOKESMAN: He hasn't been here for quite some time.

MR. SOLMAN: Trump hasn't been around for a while?

SPOKESMAN: Some executives come by to look at the place.

MR. SOLMAN: So where was he? It finally dawned on us. Trump had to be at the bank. If banker agreed to reduce or defer his interest payments at least he would have little room to breath. So we went to the Headquarters of Citicorp. We didn't find Trump but we did find Jim Grant.

MR. GRANT: Citicorp is one of Trump's biggest bankers and without Citicorp he couldn't done what he did. What ever that was. In a very real sense trump owes his great empire to his bankers who were so willing to listen to him and so willing to do sort of unbankerly things. You might remember the way you imagined a banker before you had your first 20 credit cards. He was a guy very well practiced in the art of saying no. Well the story of banking in the 80s and of Trump's bankers in particular was the refinement in the art of saying yes. They couldn't help themselves. So the bankers are trying to pay bills by making risky and therefore high yielding loans and Trump is trying to pay the bills so he can pay his bankers. Everyone is crawling out on the limb of risk in some ways with the bankers doing it their way and Trump doing it his.

MR. SOLMAN: His way, of course, is to leverage up and speculate widely. check the book again, page 5. " Sometimes it pays to be wild but when does it pay in a rising market. When this book was written being wild with debt made a speculator like Trump look like a genius. You put in say 10 million dollars of your own and the bank lends you another 90 million to buy a 100 million dollar property. If the value of the project goes up the excess value is your. All you owe the bank is 90 million. With leverage you do even better than the market as a whole. A related strategy was Trump's PR strategy. Again in an up market the more visible you are the more positive attention you attract. Journalist Ned Shnurman studied Trump's style during the months he spent producing a documentary on Trump's career.

MR. SHNURMAN: Trump's style was to demistify business to people, to make business seem like some wonderful every day adventure. he talks to the common man in the common man's language and he talks in public that way. He never tries to make it complicated. At the same time his real style is he could have invented the word leverage. Take a little pile of money here and take a little from there and then you get credit to pile a little more on and he was a magnificent exponent of that. But more than that exploiting openings and taking to the public the image of a common man who just knows how to do it.

MR. SOLMAN: In general Shnurman and others agree that the Trump strategy works as long as the market keeps rising the gambles keep paying off. When the market turns down as New York real estate has recently being wild suddenly does not look smart. Your 100 million dollar property for example may now be worth only 40 million. You still owe the bank 90 million so your stake is essentially worthless and the lenders put on more and more pressure to be paid. Okay if it is costing so much in interest to carry the lot on the West side and the Shuttle and the Plaza and who knows what else. Where is the money supposed to come from? Here sits the key to theTrump Empire. His three Atlantic City casinos were supposed to be the cash cows. The can't loose money makers that would cover the massive debt of his new acquisitions appreciated in value. But even the casinos were built on borrowed money. Trump financed them through junk bonds sold to private investors. The Trump Castle for example owes about 43 million dollars in junk bond interest payments this year. Trump Plaza owes about 35 million and neither is generating enough cash to cover its own debt much less support the rest of the empire. Finally there is the brand new Taj Mahal which is opulent even by Trump standards. The Taj has an annual junk bond bill of 85 million and already only two months in operation it is falling short. All this from the man who wrote on page 48, " I have never gambled in my life. I prefer to own slot machines. It is a very good business being the house." Unless, of course the House is built on debt. It seems to have been these casino loses that unnerved the bankers, forced them in to new talks with Trump this month and forced him to miss his junk bond payments last Friday. In fact given the fact that both the real estate market and the junk bond market have turned against him Donald Trump according some observers is lucky to still be in business at all. Gamblers know the importance of luck. Businessmen sometimes forget. Donald trump by playing the game with debt, others people money, increased his risks and therefore his vulnerability to a run of bad luck. Now you can't blame Trump for his current run of bad luck any more than you could credit him for his good luck in the past but you could remind him of an economic truth he himself put in the Art of a Deal page 328." You are always at the mercy of the market."

MR. MacNeil: Joining us now are Abraham Wallach, Senior Vice President of First Capital Management a real estate firm that owns and develops properties in New York, Washington and Houston and Lee Isgur A Vice President at Paine Webber. he joins us from Public Station WGBH in Boston. Mr. Wallach at the mercy of the market. Speaking as a real estate man how much can Donald Trump blame his current troubles on the state of the real estate market?

MR. WALLACH: I think he can clearly blame part of his troubles on the state of the market. The fact of the matter is that we have great deal of over development especially in New York City. In fact New York City encouraged a great deal of development on the West side of office buildings, gave special incentives. During the 80s the City promoted residential development. In fact I was thinking today Donald Trump was the last one to receive tax abatement on his Trump Tower and after that the City passed a law that precluded anyone from getting an abatement. So that encouraged a lot of residential development prior to deadlines. So yes he can blame market conditions to some extent but I think the reality is if you pay too much for properties and if your ego is as large as his is and you just buy everything in sight part of the blame has to squarely rest in your own lap. We had an opportunity for example to purchase the Plaza Hotel and in fact made a bid on it. We were not successful and when we were told what Donald Trump was prepared to pay and we were asked would we meet that price we said it made absolutely no sense at a time when the market was moving up. You always have to recognize that markets turn and clearly market conditions are partially to blame but the other half of the blame rests clearly in his lap.

MR. MacNeil: Mr. Isgur as an expert in the gaming industry how much can Mr. Trump blame his troubles today on the state of that industry in Atlantic City?

MR. ISGUR: Well he was the one who, of course, decided to go into Atlantic City. It is interesting to note that the two biggest operators in the industry Golden Nugget and Circus Circus are both not in Atlantic City. Golden Nugget was and they got out and Circus Circus elected never to come there.

MR. MacNeil: Where are they?

MR. ISGUR: They are both in Nevada.

MR. MacNeil: So the significance of that is what?

MR. ISGUR: Well the significance of that is that Atlantic City is not the most attractive gaming market. It hasn't been for quite a while. The overall profitability has been deteriorating and he continued to go in and make more and more investments in there. You have to ask how come he didn't see this or how come he didn't decide to pull back earlier.

MR. MacNeil: Okay Mr. Wallach he is now negotiating we read in the papers with the banks who funded him so far for another 60 million dollar loan. According to a lot of the interpretations put forward for example the Wall Street Journal that isn't a loan to keep him in business as much as it is to give banks time for an orderly sale or disposal of his properties. So instead of a bankruptcy that would be a disorderly process. Do you see that now?

MR. WALLACH: I would have to agree. Initially when we began to read about his problems I thought his efforts were merely an attempt to renegotiate a better deal, spread out the interest payments, get a few more dollars out of the bank and that they would work with him. But now that we see the larger picture, 3 and 1/2 billion dollars of debt. Properties that in the near term have no chance of achieving the kinds of revenue necessary to cover debt it becomes clearer and clearer that the banks are posturing themselves to give them time to sell off the properties in an orderly fashion.

MR. MacNeil: Do you have anything to add to that Mr, Isgur. So you see alternative that way bankruptcy or buying time for an orderly disposal of property?

MR. ISGUR: The thing is it is still not perfectly clear how much personal assets Mr. Trump has and it could very well be that there are enough assets there if you buy a little time he can wait something out. Not being a public company I don't think that you can see the whole picture. That is the problem no one really knows.

MR. MacNeil: I should interject here that neither Trump's Associates or he himself or his banker are talking at the moment so that is why we are having to look at it from the outside. Mr. Isgur if he had to sell the casinos could he sell them now for more than he owes on them?

MR. ISGUR: I think that it may be quite doubtful. One of the problems about selling a casino it is not something that is readily saleable particularly in Atlantic City. You have to go through a procedure that a lot of people although they may qualify probably would elect not to do it. For example if you remember Baron Hilton from Hilton Hotels at one point was going into Atlantic City and then he wasn't licensed. That came as a bitter surprise to many people and it has made them shy away from Atlantic City. So there isn't a ready group of buyers out there that are willing to pay top dollar and at the present time if mr. Trump had to sell it would be a distress sale. I don't think that he would get a good price and probably not sufficient to take care of the debt.

MR. MacNeil: Mr. Wallach can he sell his real estate for more than he owes on it?

MR. WALLACH: Real estate is not a very liquid asset and our feeling about liquidation flows from the fact that in this kind of a market a down market with the kind of reputation his properties are now getting that it would be very difficult for him to get his money out let alone make any profit and therefore our thinking the dissolution potential becomes greater and greater. It is very difficult today to sell properties in a distress situation quickly at a price that makes any sense.

MR. MacNeil: Because some one like you would wait for the price to come down?

MR. WALLACH: Exactly. There is a term in real estate, bottom fishers, and I think all the bottom fishers are waiting to grab the properties when they come on the market in distress prices.

MR. MacNeil: What would you say to Mr. Isgur's point that nobody knows what Mr. Trump's personal assets are they might be considerable and enable him to stay afloat despite appearances that we've been talking about?

ABRAHAM WALLACH, Real Estate Developer: We know that he has personally guaranteed $500 million of the loans that he has outstanding.

MR. MacNeil: That's not a usual business practice, is it?

MR. WALLACH: In real estate, when a lender can get you to personally guarantee, he will try and get it. If the developer can get out of doing that, he will clearly try to do so. We try and avoid it like the plague. Sometimes you have no choice. I think in the case of Mr. Trump with the kind of ego he had and the desire to buy properties and the fact that no one knew he was personally guaranteeing and his belief that values would only escalate, it was sort of a natural thing for him to do. Getting back to the main question though, when the market is going down and you have to sell properties at distressed prices and you may not get the full value out, let alone what the lenders have it, and as what pointed out in your earlier segment, the interest clock is ticking daily, $60,000 per day just on the railroad yards. As that interest clock continues to tick, as the bankers do not come to a resolution of the matter, the costs go up. When they finally do get around to selling those properties, and I would suggest it's going to take a rather lengthy period of time to do so, they may have to eat into those personal guarantees and ask him to personally come up with the difference between what the properties are sold for and what he owes. And that may ultimately wipe out that $1/2 billion of personal commitment to those properties, and we don't know, frankly, how much more wealth he may have beyond that.

MR. MacNeil: Mr. Isgur, we've talked about how much the market's responsible and how much Mr. Trump might be responsible for a fate that wouldn't have befallen somebody, a businessman who might have been astute or luckier, whatever it is. What about the banks which that analyst, Mr. Grant, the editor, Mr. Grant, mentioned, how much is this situation he's in because banks permitted him, encouraged him to become overextended this way?

LEE ISGUR, Casino and Gaming Analyst: Well, it's the old saying, when you don't need money, they want to give it to you, when you need it, then they don't want to give it to you. In the case of Trump, he was doing very well, and so the banks were basically all out there wanting to lend him money. And of course he figured that that was a good thing to do and he took it. To a certain extent, it's a very heady situation that you get in and he got caught up in it. You know, I think to a certain extent he believed his own media hype that he could do no wrong, and now he's coming to cropper and we don't know yet how far he's going to fall.

MR. MacNeil: But do big banks with international reputations like Citicorp believe the media hype too, are they seduced by a consistent sort of PR, public relations presentation?

MR. WALLACH: No, I don't believe so. I think that bankers are sound businessmen, they make rational decisions. Remember, we're now looking back with some degree of hindsight to the situation. When Trump purchased the Plaza Hotel, he had a scenario that included potential conversion of the hotel to condominium space. There were a number of other people who were prepared to bid to his price. We take a very conservative approach at First Capitol. We also learned in the Texas market back in the early '80s what we should and should not do. I think that many bankers did their due diligence and felt that the combination of the value of the real estate and the personal guarantees which were an integral part of those loans were sufficient to protect them. What they couldn't determine at that time was that all the properties would have problems at the very same time. They also may not have been aware of the fact that he was so highly leveraged. Citicorp was aware of the loans they made to him. They weren't necessarily aware of the loans made by Manufacturers Hanover or some of the other institutions. So I think institutions do their due diligence on individual properties, but they too cannot see the future and are subject to market conditions.

MR. MacNeil: Mr. Isgur, whether Mr. Trump goes bankrupt or has to force the liquidation of his various properties, does this have any effect on ordinary people, ordinary Americans, or is it just kind of a sort of morality play from the high reaches of capitalism to entertain us?

MR. ISGUR: Well, it always can have an effect. I mean, when you have a ghost town, there are people that are unemployed. If, in fact, it will be business as usual if the Trump shuttle continues to fly, if the Plaza stays open, if the casinos in Atlantic City continue to be operated, and there is full employment, then it doesn't really have an effect on people. On the other hand, I was just seeing in the paper today, in Boston, I had to take a shuttle today, I took Pan Am, but the thing that I noticed is they're not saying anything, but Trump is actually cutting back several of the shuttle flights on the weekends, and that's already something that means he is cutting back, some people are being affected, because there's a pilot that's not flying, or there's a ticket agent that doesn't have to be around as many hours to collect tickets.

MR. MacNeil: I see. Well, Mr. Isgur, and Mr. Wallach, thank you both for joining us. Jim.

MR. LEHRER: Still to come on the Newshour tonight, a look inside the Soviet prison system, and our Tuesday night essay. FOCUS - CRIME AND PUNISHMENT

MR. LEHRER: Next tonight crime and punishment in the Soviet Union. A five day prison riot ended today in the Ukraine when commandos ousted the convicts who had barricaded themselves inside. At least five people were killed since that uprising. A second prison riot on Sunday was put down the next day. In both cases, the prisoners were protesting their living conditions and an official investigating the Ukrainian riot complained that people who had not been convicted of crimes were being held along with convicted criminals. This is not an unusual occurrence in the Soviet Union. Allen Abel of the Canadian Broadcasting Corporation's Journal Program was given a rare inside look at the Soviet justice system. Here is his report.

ALLEN ABEL, CBC, The Journal: In the center of Leningrad in a red brick dungeon nearly a century old is the labyrinthy maze of cells and towers known as "The Crosses", a famous and infamous landmark never before open to foreign television cameras. Czar Nicholas II had The Crosses built as a prison in 1892, but the Soviet Union believes in reform through useful labor, not years of wasting away in a penitentiary cell. So The Crosses is now a detention center where suspects sit and wait while the evidence against them is collected. The waiting can take weeks or months or years. Each day a new harvest of inmates arrives in The Crosses. They are not convicted criminals, merely suspects sent from precinct police stations. About 60 percent of those charged with more than a trifling offense serve pretrial detention. With shaven heads, in thick denim suits, they're held here usually for six to nine months without access to legal counsel. They're interrogated and examined, and when the state is ready, they will be brought to trial. For prisoners who misbehave, the cellar of The Crosses holds these stark, punishment cells, part of a system of confinement that for more than 70 years has been the first leg on the Communist road to justice. Professor Lev Klein, a prominent archaeologist, spent nine months in The Crosses during the Brezhnev era on a false political charge.

PROFESSOR LEV KLEIN, Archaeologist: [Speaking through Interpreter] There were 10 people crammed in my cell, a space of two and a half by three and a half meters. I did a survey, asking how many had been beaten. Eight out of ten said they had been beaten either by the militia or during their interrogation.

MR. ABEL: Was there homosexuality practiced among the prisoners?

PROF. KLEIN: Of course.

MR. ABEL: In a brutal way?

PROF. KLEIN: Yes. [Speaking through Interpreter] Each cell has a radio speaker in it and from time to time they announced that in such and such a cell the inmates gang raped so and so prisoner. The administration always asked for witnesses, but nobody ever came forward. [SOVIET TRIAL]

MR. ABEL: It's a routine criminal case, assault with a weapon. One man with a history of alcoholism and heavy crime stabbed a drinking buddy with a kitchen knife.

JUDGE LUDMILLA IVANOVA, Leningrad Criminal Court: [Speaking through Interpreter During Trial] Will the accused, Sergei Nicolai Petrov please rise.

MR. ABEL: The defendant, Sergei Petrov, waited five months in The Crosses while the state assembled its case. [SOVIET TRIAL]

MR. ABEL: The victim, Alexi Garasimov has recovered enough to testify. Prosecutor Viktor Mikhailov is seeking six years in a labor camp for Petrov and Lawyer Yuri Lavedenov has been appointed to the curious and controversial role of counsel for the defense. This is the prosecutorial system of justice similar to the process used in many European countries, but here, one central commandment, the state is never wrong.

JUDGE LUDMILLA IVANOVA, Leningrad Criminal Court: [Speaking through Interpreter] Now I'll explain your rights according to Article 46 of the criminal code. You have the right to participate in the proceedings. You have the right to ask questions of members of the court. You can petition. You have the right to make correcting statements. You have the right to appeal a verdict and to retain a lawyer. Do you trust your defense to the Lawyer Lavedenov?

MR. PETROV: [Speaking through Interpreter] I would like to petition the court.

JUDGE IVANOVA: [Speaking through Interpreter] Proceed.

MR. PETROV: I am not happy with my lawyer; I want another one.

JUDGE IVANOVA: [Speaking through Interpreter] What is your reason for not wanting to have Lavedenov as your lawyer?

MR. PETROV: [Speaking through Interpreter] I haven't had a chance to discuss the case with him.

JUDGE IVANOVA: [Speaking through Interpreter] So you want another lawyer, right?

MR. PETROV: [Speaking through Interpreter] Yes.

JUDGE IVANOVA: [Speaking through Interpreter] All right.

MR. ABEL: It's the first time in five months Petrov has had a chance to speak up and he's done it. He's decided that he doesn't like his lawyer. And during this hasty recess, it's clear that his lawyer doesn't like him either.

YURI LAVEDENOV, Sergei Petrov's Lawyer: [Speaking through Interpreter] Unfortunately, I cannot say anything flattering about my client. He has a record of violating the law and in the past, he has been found guilty on three different occasions. My deeply held personal opinion is that it would be immoral to defend this man. Fighting for his innocence would not reflect the morality of our society.

MR. ABEL: In a few minutes, they're back in court and the defendant has been convinced to let Lavedenov plead his case. So on with the trial, a process that begins with the recitation of Petrov's previous crimes.

JUDGE IVANOVA: [Speaking through Interpreter] Petrov has three previous convictions. He was released from the labor camp where he served his last sentence on April 3, 1988. For a long time, he has not been engaged in any socially useful activities. He's abused alcohol and while drunk committed another crime.

MR. ABEL: It seems less a trial in the Western sense than a public condemnation of the defendant and an affirmation of the infallibility of the state. Virtually no one in the Soviet Union is acquitted in court, only about six in a thousand. Some cases are referred back for more investigation and quietly dropped. Others are sentenced to time already served in pretrial detention. The two civilian assessors flanking the judge can outvote her in theory but almost never do. The next step is a reenactment of the crime with a wooden blade.

JUDGE IVANOVA: [Speaking through Interpreter] How were you holding the knife?

MR. PETROV: [Speaking through Interpreter] Just like this, in my hand.

JUDGE IVANOVA: [Speaking through Interpreter] Like that?

MR. PETROV: [Speaking through Interpreter] Yes.

JUDGE IVANOVA: [Speaking through Interpreter] And what happened next?

MR. PETROV: [Speaking through Interpreter] What happened next? I stabbed him like this.

JUDGE IVANOVA: [Speaking through Interpreter] So you stabbed him.

MR. ABEL: And the judge asks the victim to describe the incident.

MR. GARASIMOV: [Speaking through Interpreter] I called him outside and insulted him. I called him a goat. I don't remember why I insulted him. He came outside and we had a drink together. Then we had an argument and I punched him. After that, we had a smoke together. I was drunk. I only remember being stabbed in the stomach and the blood coming out.

MR. ABEL: In a Western courtroom, Garasimov's admission that he slugged the drunken Petrov first might mitigate the offense, but not here. The judge has heard enough. Tomorrow she'll pronounce sentence. The case of USSR vs. Petrov has adjourned for the night. Down in Moscow, politicians and intellectuals are talking about "humanism", making the criminal laws more humane. They're discussing subjects like trial by jury, presumption of innocence, allowing the suspect the right to a defense lawyer from the moment of arrest, but many Soviet citizens who now have the right to elect their representatives want harsher sentences, stiffer punishment, and a poor mug like Petrov is caught in the middle. This lopsided justice is under attack. Criminologist Alexander Yakovlev says the right to real defense counsel must be the first reform.

ALEXANDER YAKOVLEV, Criminologist: Before that, the lawyer was able to help his client only after the preliminary investigation ended. And of course in this situation, where the all powerful state on one side and only me, poor me, without any lawyer near me, again, a lot of possibility for abuse of power exists.

MR. ABEL: But with the Soviet government admitting an 84 percent rise in violent crime this year alone, Yakovlev's reforms are facing opposition from a frightened public and from conservative politicians.

MR. YAKOVLEV: It is just garbage to blame some legislators or lawyers or scientists, workers on the rise of crime. Some of the officials who are opposed to democratization of the society may use it as a pretext for stopping the democratization of society. Against it we will fight, of course.

MR. ABEL: Yet Prosecutor Mikhailov sees humanization as a threat to law and order.

VIKTOR MIKHAILOV, Prosecutor: [Speaking through Interpreter] I believe that a jury system, for example, is worth implementing for the purpose of determining guilt, but we feel that humanization, that is, humanization towards criminals who commit heinous crimes, is simply wrong. During the early stages of perestroika, there was a retreat from discipline, that is, towards humanization, however, developments in the state of crime in our country have shown that this was in some ways erroneous.

JUDGE IVANOVA: [Speaking through Interpreter] According to Article 108, Part 1 of the Criminal Code of the Russian Republic, this court finds the accused guilty of intentionally causing serious, life threatening bodily harm, and this court believes that his re-education requires isolation from society. According to the facts of this case and following the directions of Article 301 and 303 of the criminal code of the Russian Republic, the court sentences Sergei Nikolai Petrov to be admitted guilty of committing the crime which corresponds to Article 108.1 and is hereby sentenced to six years of labor to be served in a strict regime colony.

MR. ABEL: Soviet law permits Petrov to appeal the conviction but not the severity of the sentence. This is Leningrad Labor Colony Five, a vast complex of barracks and factories home to 2,000 men, the largest labor camp in the European part of the Soviet Union. For the newcomers being processed at the Colony gates, men who already have been through months or years of pre-trial detention and a brief courtroom appearance, these are the first few moments of a totally new life. In Soviet terminology, this is called "general regime". But to outsiders, it evokes images of dark places, images of the gulag. Yet, as the new men move toward their dormitories, Gorbachev's reforms have penetrated even here. In 1987, he declared an amnesty that sent 40 percent of prisoners home and still left nearly a million men, women, and children in the colonies. This is one of the more comfortable islands in the vast archipelago of the Soviet gulag. Leningrad Labor Colony No. 5 is a medium security institution for first offenders, murderers, rapists, hooligans, and thieves. These men spend as little as one year here or as many as fifteen. And when they leave this place, their workbook carries forever the word "ferstuknik", criminal. Thecornerstone of the Soviet theory of rehabilitation is mandatory labor. Some critics have called it slave labor. This man, a Boryat from Siberia, is serving six years for assault.

PRISONER: [Speaking through Interpreter] What am I doing? Polishing these cubes. We do it like this.

MR. ABEL: How's the work, is it boring?

PRISONER: [Speaking through Interpreter] Well, I don't know. I don't think I have much choice.

MR. ABEL: Sergei Mathyuken, the camp commandant is a Gorbachev appointee, a reformer who's planted flowers around his labor colony, but he believes in correction through work.

SERGEI MATHYUKEN, Labor Camp Commandant: [Speaking through Interpreter] I do not disbelieve in reform through labor, I cannot, because the task before the administrator of such a colony as this is to force the condemned to work. I agree that the most effective method of rehabilitation is through forced labor.

MR. ABEL: The furniture factory at Colony 5 is comparable to most other Soviet industrial plants. The men receive a small salary, but half of this goes back to the state to pay for their room and board. Extra work hours may be subtracted from a man's sentence. The factory is mandated to turn a profit. Even in the gulag, there's no such thing as a free lunch. [Men Eating in Gulag] In a country where most citizens must line up for even the most basic food stuffs, inmates in this colony receive ample servings of soup, porridge and bread, three meals a day, every day. We asked some of them why they were here.

INMATE: [While Eating] [Speaking through Interpreter] Murder, murder.

INMATE: [While Eating] [Speaking through Interpreter] I worked as an expert at a meat processing plant. There were thefts there, but I did not have anything to do with that.

YOUNG INMATE: [While Eating] [Speaking through Interpreter] Me? Well, I've been in for around two years now. I stole someone's wallet and got seven years.

MR. ABEL: Is the food any good here?

YOUNG INMATE: [Speaking through Interpreter] Terrible. It's water with a bit of potatoes. But this labor camp is probably a lot better than the others, or so I hear. The daily routine around here is not too bad; I can bear it. But in some of the other colonies, we hear conditions are still quite horrible. Here at least you can live, or rather survive.

MR. ABEL: The camp's store; it's available to each man once or twice a month. When we visited, the shelves seemed abundantly well stocked. While the rest of the USSR moves away from the old Marxist fiction, the men of Colony Five still are surrounded by proclamations of the glory of labor, the correctness of the Communist Party line. The economic and ethnic turmoil tearing the Soviet Union apart seems distant here.

MR. LEHRER: That report was by Allen Abel of the Canadian Broadcasting Corporation. ESSAY - MAKING MUSIC

MR. MacNeil: We close tonight with an essay. Jim Fisher of the Kansas City Star takes a look at a music festival inspired by a landmark.

MR. FISHER: Why did chamber music fill this Southern Minnesota town earlier this month? To understand that, come to North Cedar Street and East Broadway here where the old National Farmers Bank sits. Now called the Norwest Bank, the building was completed in 1908. It was commissioned by a frustrated musician, Carl Bennett, and designed and built by a Chicago architect, Louis Sullivan, the man who coined the phrase "Forms follows function." The bank is a classic, called the most famous small town bank in the United States, a high water mark of the prairie school of architecture, a 68 foot square riot of brick and red sandstone, polychrome terra cotta and glass mosaic. Just an old building, you say, unique, but probably of interest only to architectural historians? Guess again. This solid, overt structure inspired this. [PIECE BEING PLAYED]

MR. FISHER: A two week long music festival in Owatonna, Minnesota. The festival was the brain child of a 37 year old high school dropout and failed hockey player named J.B. Vandemark, who also happens to be a world renowned classical base player. Growing up here he fell in love with the bank.

J.B. VANDEMARK: The Louis Sullivan Bank here in Owatonna has represented a number of things for me very personally for a long time. I think one of the most important things that it represents for me is the aspect of risk taking in life. Bennett wanted something that was going to be not only a really significant statement about art and architecture, but would also serve some very pragmatic purposes for a bank in a very small farming community. To me, that's always been something that's been very, very symbolic of, I don't know, for me as a musician, about not just how you make a career but how you enrich your art; you take chances.

MR. FISHER: Vandemark didn't play it safe either when he became artistic director of the festival. He wanted to break the barriers that many have listening to serious music by bringing it into the community and giving the musicians an experience that they wouldn't normally get at a music festival, a chance to bring their art outside the concert hall to all sorts of people. He featured three world class artists in residence, and five top flight college chamber ensembles. Four quick phone calls brought in four local corporations who sponsored the students, who in turn performed in all corners of the community, in factories with workers just off the day shift, in an insurance company parking lot, where people replaced the Chevys and Hondas, in a migrant farm worker's camp where people had the audience had just finished a back breaking day of picking asparagus.

MR. VANDEMARK: A lot of music festivals cater basically to a certain sort of upscale audience, which admittedly we do also, but I think that simply to ensure first of all that there is an audience for music in the future and also to ensure that performers are aware of the necessity of bringing their art to all sorts of people. There are events in this festival that will go out into different parts of the community that other major music festivals, Tanglewood, Aspen, probably wouldn't do. I don't think that someone who plays the violin remarkably well is a decidedly richer person than someone who can assemble an engine block. Both of those people will have their lives enriched by being more aware of the other.

MR. FISHER: In spite of the rain, the whole town turned out to hear J.B. perform with the Colorado Quartet and Pianist Anton Nel. [COLORADO QUARTET PERFORMING]

MR. FISHER: A town with a tradition of fine music in the schools that has been nurtured and jealously guarded since the 1890s, a town that supported J.B.'s career by commissioning works for his repertoire. In a sense what happened here was all very practical, part without administrators, government funds, or some senator railing on the floor of Congress. Four corporations got publicity and tax breaks; the college musicians got something no conservatory teaches, schmoozing with the deep pockets guys, a skill that will be vital to their later careers; and J.B. got to give something back to his home town. And for what Owatonna got, listen to J.B.

MR. VANDEMARK: We've opened up everything here at the music festival to make certain that it's open to the light of the world, rather than just closed off to a very narrow audience, and I think so much in that sense it enriches all of us.

MR. FISHER: And wonderful as the festival was, something even more wonderful happened late one afternoon when Vandemark took his base to the bank and played. [VANDEMARK PLAYING]

MR. FISHER: Were the ghosts of Bennett and Sullivan still in those arched windows and murals? However faint could you still hear these words of Sullivan: "When you accumulate, accumulate abundantly, absorb the totalities, grasp the largeness of things, not the petty, isolated aspects. Lay hold of the warm significance of realities, the teeming life around you and give of your abundance. If you receive not, you cannot give, and to receive of life, you must be awake to it. Shut the heart and you exclude the light of the world." [VANDEMARK PLAYING]

MR. FISHER: I'm Jim Fisher. RECAP

MR. LEHRER: Again, the major stories of this Tuesday, Soviet Pres. Gorbachev said he could live with a separate Communist Party for the Russian Republic, and a House Committee voted out and sent to the floor an anti-flag burning constitutional amendment, but without a recommendation that it be passed. Good night, Robin.

MR. MacNeil: Good night, Jim. That's the Newshour for tonight. We'll back tomorrow night with full coverage of Nelson Mandela's arrival in the United States, and we'll also mark the start of the International Conference on AIDS, with an update on the battle against the disease. I'm Robert MacNeil. Good night.